The countdown is on. Everything you need
to get the edge at the end of the market
day. This is the close.
>> An extraordinary attack on Fed
independence and well, a rather mundane
response by financial markets. Live from
Studio 2 here at Bloomberg headquarters
in New York. I'm Roma Boston
>> and I'm Scarlett Fu. We're kicking off
to the closing bell here in the US. You
talk about a mundane response in
markets. Let's take a look at where the
S&P 500 stands. pretty much modestly
higher and this follows uh declines in
six of the last seven sessions. So
you're looking at a gain of two ten of
1%. Uh we are looking at a steeper yield
curve. You can see yields at the short
end falling reflecting expectation the
Fed will cut rates next month following
Pal's comments on Friday, but yields at
the long end rising reflecting that
selloff there. Uh now currently up one
basis point for the 30-year to 4.90%.
And the dollar is weaker. The dollar
falling against all the G10 currencies.
The market moves may not seem like much,
but it's going to be a big convers top
topic of conversation today. But let's
step back and talk about how we got
here. Going all the way back to August
15th. That was when President Trump's
housing finance agency director Bill Py
wrote to the US Attorney General
alleging that Fed Governor Lisa Cook
quote falsified bank documents and
property records to acquire more
favorable loan terms. That was prior to
her becoming Fed Governor in 2022. Less
than a week after that confidential
letter was reported on by Bloomberg, the
president called for Cook's resignation
and py on this very program on August
21st said Trump could go even further
and fire her. About 19 hours ago, Trump
said he had determined there was enough
cause to fire Cook immediately. That
part, cause is now in debate. And as of
today, Cook is still employed by the
Fed. Here is what we do know for sure
right now. The US Office of Government
Ethics shows a financial disclosure form
signed by Cook in 2024 that lists three
mortgages acquired in 2021.
One for an investment property and two
others for what she cited as quote
personal residences. IRS rules for tax
purposes prohibit people from claiming
to quote primary residences. Cook in at
least two separate statements has denied
any wrongdoing, though she didn't offer
an detailed explanation as to why her
form referenced to personal residences.
Elliot Stein worked for years as a white
collar criminal attorney and is now a
senior litigation analyst for Bloomberg
Intelligence. He says that the mere
allegations are likely insufficient to
meet the four cause standard for ousting
a fed governor. Though on their face,
the claims against Cook look more
damaging than the cost overrun ones made
against Fed chair J. Powell. Elliot sign
joins us right now to talk a little bit
more about that. And Elliot, I do want
to talk not so much about the veracity
of the claims against Lisa Cook, but
more about the veracity of whether there
is indeed cause for the president to
remove her.
>> Yeah. And and that's the main legal
issue here because the Federal Reserve
Act says that the president can remove a
Federal Reserve Board governor for
cause, but the statute doesn't define or
specify what cause means. So we have to
look to some other statutes for other
agencies that say cause generally means
some sort of inefficiency, neglect or
malfeasance. The question here is
whether the allegations against Fed
Governor Lisa Cook, you know, rise to
that level. And my feeling is that until
you have some sort of investigation by,
let's say, the Fed Inspector General or
some sort of investigation by the
Justice Department that results in
charges, it's probably a little
premature to say that the allegations
alone satisfy the four cause standard.
We should mention uh that the Federal
Reserve according to a statement issued
by the central bank said it will abide
by any court decision as this will
likely be resolved legally. And that's
kind of where I want to go to next,
Elliot, because Lisa Cook's lawyer has
made clear that they will file a lawsuit
challenging this firing. Tell us a
little bit about Abby Lowel because he's
a highprofile white collar defense and
trial lawyer known as a top scandal
specialist. And I bring this up because
he has a long history of working both
with Democrats and Republicans. He
represented uh both uh children of
Donald Trump and Joe Biden uh Ivanka and
Jared and defended Hunter uh in his gun
gun charges trial. So is that proximity
with all the principles Elliot going to
be a good thing or a bad thing? Will it
work for him or against him? And will it
work for Lisa Cook or against Lisa Cook?
>> Well, I I think courts will look at the
merits of the argument. they won't
necessarily look at Abby Lel's uh
bipartisan history of representation
although he is a highly respected lawyer
as you've pointed out with his
credentials. So courts will take his
arguments very seriously but at the end
of the day they'll look at you know the
actual arguments that he's making and
whether those pass muster. It's not a
surprise uh that Lisa Cook is expected
to file a lawsuit. That's what we've
been expecting since we saw the news
last night that she's being fired. And
like we said, the main arguments will be
whether uh the president has satisfied
the four cause standard. And then
another key issue that is probably going
to be the main battle early on is
whether she continues to serve on the
Federal Reserve board while the
litigation plays out
>> and that is a big uh question mark going
forward. Elliot, I do just want to
return to those headlines that Scarlet
was reading out. Some additional
headlines coming out of an official
statement from the Federal Reserve
saying that it reaffirms its commitment
to transparency and that the removal
protections serve in their words as a
safeguard saying that governors may only
be removed for cause and as this goes to
the courts assuming that is where we are
going next. Elliot, I am curious just
about the state of the board of
governors overall during this process,
whether Lisa Cook is there or still
there during this litigation. Do you
have any sort of confidence that they
will be able to function in a way that
is appropriate with their mandate?
>> Yeah, I think they'll be able to
continue to function. She she's only uh
one person on the board. The board is
comprised of uh seven governors,
although one one of the seats is in flux
because Advana Cooler uh resigned
earlier in August and the nominee to
fill her seat, Steven Moran, has not
been confirmed yet. But I think the
bigger picture here is um from President
Trump's perspective, this is likely a
play to control the Federal Open Markets
Committee, the FOMC, because that's
really the body that controls interest
rates, which President Trump wants
lowered. And what's interesting is this
coming February, the Federal Reserve
Board will have the opportunity to uh
confirm or to bar the reappoint of the
regional reserve bank presidents who
serve on the FOMC in addition to the
Federal Reserve Board governors. And I
think that's what President Trump is
trying to control because if he removes
Lisa Cook, you sort of have a three
deadlock balance on the Federal Reserve
Board and as a result, you may not see
some of these reserve bank presidents
reappointed.
>> Very good points, Elliot. Really
appreciate you're joining us. Elliot
Stein is senior litigation analyst at
Bloomberg Intelligence.
>> And we should just point out too, the
president of course was speaking at that
cabinet meeting just moments ago. He was
asked about this and said quote he is
prepared for a legal fight on this and
said quote Fed's cook seems to have had
an infraction.
>> Yeah. He also said that they'll have a
majority shortly on the Fed presumably
with reference to the Fed board. All
right. A number of Bloomberg guests have
of course weighed in on President
Trump's move to oust Lisa Cook. Let's
take a listen to what they had to say.
>> This is a real assault on the Federal
Reserve's independence. And as we know,
central bank's independence is really
important for good uh economic outcomes.
>> It's very very threatening to the very
independence uh of the Federal Reserve
and it should cause concerns I think
among investors and more broadly about
that fun fundamental underpinning of our
strong economy.
>> The markets are not as upset about it as
if some other president was were doing
it and I think the markets will absorb
it. Uh we don't know how this is going
to get resolved. This is nothing more
nor less than a banana republic style
power grab of the central bank trying to
diminish its independence.
>> What we are certain of is that we're
seeing a fairly unprecedented attempt to
influence the Fed and not just influence
the Fed, but really make members of the
board of governors afraid.
>> Joining us now to discuss all of this
further is Betsy Duke, former Fed
governor and former Wells Fargo chair.
Betsy, uh, thank you for speaking with
us. What is your take on what we're
seeing right now?
>> Well, I think as all the other speakers
that you just played have said, this is
a real assault on the independence of
the Federal Reserve system, and it's
particularly threatening to every member
of the FOMC right now. If the president
can remove a member of the board of
governors based on an allegation that's
not even been brought forth in the
courts, then that really um sets up risk
for any member of the board of
governors. And further with the the risk
to the board of governors, then there is
the potential for removal of the
presidents by the board of governors if
they're all um reappoint if they're all
filled with nominees who come from this
same approach.
>> Okay. So it sets a very dangerous
precedent certainly. I also wonder if
the president gets his way and does
remake the Fed to reflect his
priorities, then he gets his rate cut
cycle. We we we know that kind of like
the sequence of that, but what else
would he get control over? And I bring
this up because Joe Weisenth and Tracy
Aloway in their newsletter point out
that the Fed also has a massive balance
sheet at its disposal that might be
useful to a president who is intent on
remaking the entire economy on remaking
industry. How are you thinking about
that?
>> Well, so um so first of all, let me go
back to your premise. if he's successful
in removing her. I think the big
question for markets to consider is
whether or not he's going to be
successful in removing her in the short
term. So, I expect this will go to the
Supreme Court and you know the question
for them is going to be is there more
harm from um having her removed while
the facts are being are being argued or
more harm to let her stay there? And I I
think it's going to come down that she
can stay there until the legal processes
have played out. And if that's the case,
that sort of brings this to a standstill
for for a fairly long time until the
facts start coming out.
>> And they could.
>> Now, to to your question,
um
>> on balance sheet
>> on the balance sheet. Yeah. So, the Fed
has a huge balance. The Fed's balance
sheet can be as big as it wants it to
be. So it can buy as much government
debt as as it wants to and it does that
by borrowing from the the commercial
bank. So um you know that can can go as
large as they want. You the Fed can
lower short-term interest rates. And the
way it does it is simply through its
ability to buy as much um as much of the
the government paper as it needs to to
get rates where it wants them. But those
are short-term rates that the Fed can
control. the longer term rates are going
to be dependent on how markets perceive
the credibility of the Fed and
particularly the credibility in fighting
inflation. So there comes a point where
your success can actually lead to your
downfall there because the effects on
markets and the effects on the economy
and the effects on the dollar. I I am
curious though Betsy about just the kind
of the function of policym going forward
amidst all this particularly against the
backdrop not just with Lisa Cook but
obviously the inevitable replacement of
Jay Powell at some point uh either at
the end of his term or before. Is there
this possibility and Elliot raised this
idea that even getting an extra vacancy
at least amongst the governors basically
almost allows a certain block of the
rest of the members and I wasn't quite
clear how that worked and you've been
inside that room. Can you explain how I
guess what is it just three or is it
four members who presumably voted in
concert would be able to basically blunt
any objections from the other members.
>> So it's it's not so much that they can
blunt the objections. So um in any given
meeting there are designated voters and
if the specific voter say the the
president is not there they're they're
um number two can actually cast that
vote on behalf of that reserve bank. So
the the voting on rates is going to take
place.
What I would question is um so so Lisa
Cook has to defend this with her own
personal resources. This is going to be
a complicated legal battle and I don't
know what her resources are to wage that
battle. And so, you know, it's a
question of whether she she continues or
not.
Right now, the Fed is facing a close
call, I think, in September as to
whether or not to lower rates even a
quarter point. I I think it's a very
close call. And for each person weighing
that call, how are they weighing it in
light of their own personal risk of of
becoming a target for this the same sort
of process?
>> And some will will react by getting, you
know, just very um
I think we're having some issues uh with
uh Betsy Duke's uh connection there. Of
course, Betsy Duke is a former Fed
governor. she knows exactly uh how uh
that institution operates. She was also
uh a chair over at Wells Fargo. As we
continue our coverage here, counting you
down to the closing bells with, of
course, a special focus on the Federal
Reserve, its independence, and of
course, the threats to remove one of the
Fed governors, Lisa Cook. the market
reaction to the president's proclamation
late last night that he was firing Lisa
Cook and a lot of the confusion about
whether he even had the authority or
cause to actually do that you would
think would have caused a much more
severe market reaction. You're looking
at equities right now holding in the
green and modest moves right now in the
treasury space. Stephanie Lar Rosiier
joins us right now. She's head of North
American fixed income business strategy
over at Invesco. And Stephanie, I do
want to talk about the moves in the bond
market right now. Yes, we have a
steepening of the yield curve, but when
I talk about, I don't know, five basis
points lower on a 2-year and one or two
basis points higher on a 30-year, that
does not exactly seem like a massive
reaction to at least what initially
seemed like a massive decision by the
president.
>> Yeah, I think you're completely right
there. I think what we're seeing is
really the market understanding this
administration and how to deal with this
administration. And what the last seven
months have taught us is not to be too
early in reacting. Um, a lot of things
will be said. There will be a lot of uh,
you know, headlines in in the news, but
not everything is actually going to be
implemented as it's being communicated.
So, we are definitely in a wait and see
mode. when we talk about this wait and
see mode and how much of that is
tethered to uh political leanings and
how much of that is actually tethered to
the economic data and economic
conditions uh as an investor and as
someone who basically has to advise
people on what to do next. How much
faith do you put that we will stay
committed to reading the economic tea
leaves looking at the economic data and
that those decisions about where rates
go are based on that primarily?
Well, I think Jay Powell has made pretty
clear that, you know, even with the more
dovish comments that he's made recently
that he is still going to be data
dependent. I don't think that has
changed. Um, what is really clear is the
Fed has a tough job and they've had a
tough job from the very beginning, but
now with the labor labor uh softening
that we've seen, uh, it's become clear
that they have to pay closer attention
to that. So, I still think this is all
very data dependent. There's going to be
headlines, going to be volatility, but
as we talk about what I'm speaking to
clients about, we're talking about
diversifying, diversifying into non- US.
Uh the the fixed income market is 40% uh
US bonds. 60% of the outstanding market
has not been touched. We've been very
very uh um focused on US bonds for the
last decade because of the fact that
we've seen such strong performance from
uh US fixed income markets. But we still
believe that there's tremendous
opportunity outside of the US,
particularly now as we see a d a
divergence in terms of central banks and
and the different uh decisions that
they're making.
>> What if you're beholden to own US
treasuries to owning the US fixed income
market? How do you position for or hedge
against the idea of a politicized
Federal Reserve even if it's something
that will take a while to materialize?
As you point out, we're in wait and see
mode. That wait and see could last
months.
>> It could last months. And I I think
right now what you're seeing in the
market is is exactly what you would
expect, right? So the front end has been
rallying based on, you know, the fact
that we're likely to see some interest
rate cuts and the long end when we think
about 30 years and we think about the
long term of what the ramifications
could be here, those are much less
certain. And you know, one of the things
that we also have to pay attention to is
that we do set a precedent for other
other parts of the world in terms of our
decision-making. So, this does
definitely have some knock-on effects
that we'll be paying close attention to,
that our macro analysts will be paying
close attention to, but it's really too
early at this point, um, you know, to
start to make portfolio decisions based
on that.
>> Fair enough. Fair enough. A lot of
people I've talked to today keep saying,
watch the term premium. That's the extra
yield that investors demand to hold
longer term uh, US treasuries instead of
just rolling over short-term treasuries.
And I'm wondering how high could that
term premium go
>> at this point? I mean, 4.9% uh we could
see, you know, the 30-year go to about
5%. I still believe we're in a a um sort
of rangebound space at this point. Um
depending on what takes place, depending
on what the news cycle is for the next
couple of days, I do believe that the
market is definitely downplaying a lot
of these comments because again, we
don't know what this actually means. Are
these criminal charges? Are these
actually, you know, talking about for
cause for the Fed governor? Is that
actually something that the president
can do? All of that is still in wait and
see mode. So again, you know, it could
go to 5% but uh still unclear where
we'll go from here. I
>> I do want to ask you kind of independent
of what's going on uh specifically with
the politicking around the Fed. Uh the
idea of the steepening of the yield
curve, which of course predated some of
the drama that we're in now, and to a
certain extent if you look at the
charts, certainly on a 5-year, 30-year
basis, predated even the inauguration of
President Trump. And I am curious as to
what actually started to drive that
steepening and where you think that will
go uh taking some of the politics out of
the equation.
>> Well, I think uh a lot of the steepening
it was really, you know, the fact that
we started to see uncertainty in the
long term. Um when it came to uh the US
presidential election and and we predate
that going back into COVID, there was
just so much uncertainty in terms of
where policy would go, where the United
States would go in terms of new
administration. And I think that that
led to a lot of the steepening that
we've seen. Um we started to see the
front end come down a bit. There were
all sorts of uh you know additional
concerns regarding potential recessions.
That's now off the table. Um interest
rates have been extremely high and now
we're starting to see that come down and
we're continuing to see uh that that
steepening of the curve but with the
front end coming down as opposed to
seeing just continued up uh rising
interest rates on the long end.
>> Stephanie, thank you so much for joining
us. Stephanie Larose Celier is head of
North America fixed income business
strategy over at Invesco. And as we were
just talking about with Stephanie, we've
seen this uh curve steepening, the
two-year 30-year yield curve, for
instance, steepening the most since 2022
as the president of course amps up
pressure on Lisa Cook, the Federal
Reserve governor. So, could a
substantial shakeup of the Fed's board
and Fed independent's overall spiral US
debt out of control? Let's bring in one
of the leading voices on this. He is Ken
Rogoff, professor of economics over at
Harvard University. And Ken, if we just
take a step back, we've seen the bond
vigilantes come in and kind of exert
their will on the bond market and
deliver a message to the president, uh,
most notably with, uh, the tariff
announcements on Liberation Day. Is this
current broadside against the Federal
Reserve something that will trigger bond
vigilantes? It's not right now, but
perhaps down the road.
Yeah, I mean this is one battle in a
running war and I think as your previous
guest said uh markets have gotten used
to the noise. They don't really know
what's going to come next. I I think
it's worth bearing in mind with Trump
that although he talks like a wild man,
he often behaves like a pragmatist. And
so I think markets, you know, believe if
things did start seem to be going south,
he would cut back his rhetoric and such.
You know that said uh longer term
undermining the independence of all the
technocratic institutions whether we're
talking about the Bureau of Labor
Statistics, the Fed, that is not good
for long-term growth. It's not good for
stability. And as the Supreme Court
recognized, it's particularly bad in the
case of the Fed uh to have this, you
know, political attack. And I want to
say, I mean, we these are just
allegations. We don't know what goes on.
you know, Trump compared to what he had
with Powell, this has more teeth. Uh it
certainly, forget about what a judge
says, but you know, the optics of having
somebody who's on the Fed board uh
having said they had two primary
residences when they regulate the
mortgage market to some extent. And yes,
it happened before uh she became govern
appointed to being governor, but you
anyone who's gone through that process
knows you have to fill out all sorts of
papers, sign all sorts of testimony that
it never h nothing like that happened.
So it is very awkward for the Fed this
moment. Uh but what's really bad is the
look that it's selective prosecution.
And look, any of us, if the government
turns every single piece of the, you
know, their artillery against us is
going to find something, a parking
ticket, something. And so that's what's
really ugly about this.
>> You had mentioned the BLS, and I'm glad
you bring that up because economic data
has become politicized after the
president fired the head of economic
statistics at the BLS uh because of the
weak jobs report. How do you think about
the quality and quantity of economic
data that policy makers and investors
turn to for a clean read on the economy?
>> Well, I think the private sectors filled
in a lot, but that data is, you know,
selectively available. It's not as good
as being publicly available. And
economists have been complaining about
this for many years. People who do
empirical work about the uh quality of
data being worse. And as I'm sure you've
covered in many stories have, the uh BLS
like many other agencies has had budget
cuts, problems with COVID and the
pandemic. So it's it's certainly been
harder to know where we are. I don't
want to give that as the only excuse why
economists have been so wrong again and
again about the US economy. And I think
uh you know by and large people have
consistently underestimated the strength
but certainly the statistics have not
helped. And by the way you know we may
find out the strength wasn't as strong
as we thought it was. Uh for example
just uncovered in the last jobs report.
I
>> I am curious about just the interplay
between the various uh agencies. I mean,
we talk a lot about that independence,
but there has been an argument to be
made, at least certainly coming out of
the White House today, that maybe there
should be a little bit, if not
cooperation, a little bit more symbiosis
between some of the various agencies uh
in how they sort of shepherd the
economy. And I am curious if you see any
benefit to that or any real pitfalls.
was a general proposition. Cooperation
sounds nice, but I think what's worked
so well about Federal Reserve
independence is we manage to keep low
and stable inflation. And there have
just been so many benefits to that. And
it works. It's not just here. It worked
everywhere around the world, or at least
in most countries. And those countries
that have politicized the central bank,
that keep firing the central bank
governor, that uh put a lot of hacks and
cronies in to run the central bank, they
haven't done well. So it's it whatever
the theory is of it, and I think I wrote
the first paper about that uh 40 years
ago, uh it works. And so why would you
want to undermine it? Again, you know,
Trump appointed Powell. I think Powell
Trump one had it right that Powell's
done a good job. Maybe he just wants his
own people. Maybe they'll behave
curiously a lot like the people are
there now. Hard to know.
>> This gets to a question though also
about the types of people who will end
up on the Fed. And this isn't so much
just about qualifications, but about the
idea of their approach to monetary
policy overall. I guess the question is
sort of who would actually want that job
and do you think markets would actually
be respectful of that person knowing
maybe potentially that they only got
that job because they agreed to whatever
the president asked for.
>> Well, you're right. I mean it's very
awkward for whoever particularly becomes
Fed chair when you know that they've had
to give a litany of uh you know claims
to Trump that they'll do whatever he
wants whenever he wants that just
between them uh they'll probably have to
say things he wants he wants someone
more MAGA and yet maybe you know he'll
end up appointing someone who's a little
more independent I don't know which way
it's going to go uh but Yeah, it
certainly makes life more difficult for
the Fed, for whoever's the next chair.
>> All right, Ken, appreciate you jumping
on for us. Ken Rogoff there over at
Harvard University, of course, a former
Fed economist and former chief economist
over at the IMF as we continue to march
towards the close. Stocks in the green
across the board here on this day. A
mixed bag right now when it comes to the
fixed income market. We are going to get
back to that, but we're also going to
talk about some of the big corporate
stories out there here on the day,
including a conversation with the head
of the CME Group and a partnership with
FanDuel. That conversation coming up
after the break right here on the close
on Bloomberg.
[Music]
>> 3:30 p.m. here in New York. This is the
countdown to the close. I'm Roma Bostic.
>> And I'm Scarlett Fu. And of course,
we're keeping an eye on the markets
right now. It is the final week of
August, typically very quiet, but
there's so many headlines swirling
around right now that um normally would
move markets quite a bit, but because of
the muted participation is keeping
things elevated, at least in equities
for now,
>> and not only move markets, but we
thought move them in the other
direction. I mean, when we got saw those
headlines uh last night around uh 8:00
p.m. New York time, the president saying
he was going to fire one of the Fed
governors, uh the knee-jerk reaction you
saw on futures was to the downside, but
it was not a huge plunge. We're talking
about fractional losses. We came in
today and this was a market that just
decided at least for right now there's
nothing to worry about. And believe it
or not, Scarlet, we're at session highs
on the S&P.
>> Well, I mean, it's going to take a while
for anything to materialize when it
comes to the president's plans to fire
Lisa Cook. And of course, Lisa Cook's
response, which is they're going to file
a lawsuit against the action. So, of
course, um it's not going to be
immediate and we'll see how it all plays
out. But certainly, there's a lot of
positioning at least for some in the
fixed income market.
>> Yeah, absolutely. And of course, we are
also seeing positioning for uh Lisa
Cook's position, her fate on the Federal
Reserve Board in the prediction markets
as well.
>> What are they saying?
>> There are fluctuating odds right now.
Yeah, they're kind of all over the
place. I'm not sure volume on that is
extremely busy right now. Maybe it heats
up later on.
>> Yeah, but this has become really hot.
This idea that you can just now just
sort of place a bet on anything now. You
know, whether J remember people were
betting uh whether Jay Pal would
actually uh see the end of his term uh
or be booted out earlier. Now I guess
it's Lisa Cook's turn to go through that
process.
>> Make your voice heard, right? All right.
Well, we're seeing companies pave more
and more inroads into the stock market.
You have the CME Group now teaming up
with FanDuel to offer bets on stocks and
commodity markets as well as economic
indicators like GDP or CPI. The CEO of
CME, Terry Duffy, told Bloomberg that
the partnership could even extend to the
sports prediction market. So, we'll see
how that goes. Joining us now
exclusively to dig deeper into this deal
is the current president and CFO of CME
Group, Lynn Fitzpatrick. Lynn, thank you
so much for joining us today.
>> Thanks, Scarlett, for having me.
>> So, I want to start off with this idea
that there's a blurring of lines between
um sports betting and well, betting on
markets, financial markets. What kind of
demand do you see from FanDuel's
audience for financial market products?
So for us, this partnership is really
about distribution and distribution to
that retail customer base. So if you
look at FanDuel with their 12 million
active users, they're really looking for
additional access to financial market
products. So for us, this is really
about bringing our benchmark products,
whether that's in equities or crypto or
oil, and giving the retail customers
access to those products in a way that
meets them where they are. So these are
smaller size contracts, $1 notional,
they're simple. Yes, no contracts. So,
it's something that we think is going to
have a lot of retail demand.
>> You think it's something that will have
a lot of retail demand. And I guess the
question is because it's being offered
um in partnership with the CME, these
are financially regulated products as
well. Walk us through how you ensure
that's the case.
>> Yeah, that's correct. So, these will be
futures and swaps that will uh fall
under the CFTC regulation. You know, I
think what is different about these
contracts is you are trading with other
market participants. You are not trading
against uh CME. We are simply the market
venue just as we are in any other
contract that we offer to the market
today.
>> What's is this laying the foundation for
something more, Len?
I think for us, we'll continue to look
at the demand that comes from our retail
customer base and we'll work with our
partners to determine what sort of
contracts that community is interested
in. But really for the us this is about
distribution and growing our
participation in our markets and growing
that exposure and understanding of our
benchmark products with a broader retail
community. as you entered into this
partnership, I mean, and you and you
sort of took a survey, I I guess of uh
kind of what the market is, what the
demand would be, what gave you the
confidence that this would bring in a
meaningful amount of new business, of
new customers that would be additive to
the bottom line.
>> So, as we think about it, it's really
about looking for that trader of
tomorrow. So if you think about the
retail participants today and these
smaller size contracts, they may not be
particularly high in terms of volume out
of the gate, but what this is is really
getting
understanding and interest in those
benchmark products. So as these
potential retail customers may become
the institutional investors of tomorrow
and we want to make sure that they have
understanding of our products and are
really starting to trade those today.
>> Um I'm glad you bring up the trader of
tomorrow. How else do you plan to bring
that trader of tomorrow into the CME
fold? How else do you see um your
company monetizing that relationship?
So, this this retail opportunity has
been one that we've been focused on for
the last several years. It has been our
fastest growing customer segment this
year. And I think what we have been
doing is not only looking at products
that are sized for the retail community
but also um follow some of the
conventions that maybe retail is more
used to. So something like this
event-based contracts where they are
simple yes no uh contracts is something
that we think they will be comfortable
with and interested in trading. Um but
it's really something that's just an
extension of some of the work that we've
been doing with our retail partners over
the last several years.
>> All right, Len. Well, excited to see how
this turns out. Hope to have you back
soon to talk about that progress. Lynn
Fit Fitzpatrick is the president and CFO
of CME Group. The shares fractionally
higher on the day. Meanwhile, two stocks
taking a plunge here as we get closer to
the closing bells. Kohl's, ticker KSS,
down about 7%. This after the company
is said to be seeking more time to pay
its vendors amid a turnaround effort. Uh
we should point out uh that this is
based on Bloomberg reporting uh based on
people they have spoke to spoken to and
that a spokesperson for the company says
that Kohl's regularly reviews our work
to ensure we are operating as
effectively and efficiently as possible.
But the headline here is that they are
asking some vendors for more time to
settle invoices according to people with
knowledge of the situation that
Bloomberg reporters have spoken to.
Those shares now down 8%. Meanwhile,
Scarlet United Health shares also
plunging as well. Uh although pairing
some of their losses down about 2% right
now as that criminal probe into the
company's practices is now said to be
much broader than just Medicare.
>> Yeah, absolutely. And again, this is
according to Bloomberg reporting. So, we
are citing people familiar with the
matter. The ongoing criminal probe
really focused on the Medicare business,
but now it's gone beyond that. And we
should note that United Health says that
it is cooperating with the government
and that it has full confidence in its
practices. The stock right now down
about 1.8%. According to our reporting,
this DOJ probe is also scrutinizing OPT
Optimum RX as well as payments to
doctors. So, it is certainly broadened.
>> All right. Uh we are going to keep a
close eye on both of these stocks and
bring you any updates on both of those
developing stories. And we will continue
to follow, of course, the biggest story
of the day and that are a lot of
questions about Fed independence. Is it
a myth or is it a fact? That
conversation coming up just in a bit
right here on the close on Bloomberg.
Fed independence front and center today
as President Trump moves to potentially
fire Lisa Cook from the Federal Reserve
Board of Governors. Some economists
hearkening back to the 1970s when
presidential pressure resulted in a
sharp uptick in inflation. Our next
guest though has done extensive work on
the subject of central bank
independence. He is the author of
probably one of the most seinal books on
that topic, the power and independence
of the Federal Reserve. Peter Kiy Brown
joins us right now, associate professor
of legal studies and business ethics at
UP's Wharton School. All right, we talk
about a book that came out I don't know
what was it 9 10 years ago. And probably
one of the more illuminating things
about at least for a layman like me was
the idea that Fed independence at least
as I always thought of it was maybe not
necessarily as ironclad uh as it's been
characterized over the years. And I'm
wondering if you could kind of paint a
picture for us of what Fed independence
was intended to be and what it has ended
up being.
>> The intention is clear and obvious to
anyone who's watched market dynamics
play out in the United States and places
like Turkey, Zimbabwe, Lebanon,
elsewhere. The idea is that we want
monetary policy to have some sort of
space between the interests of the
incumbent president and the interests of
macroeconomic stability. And there's a
conflict of interest there. In the short
run, presidents want to be reelected.
They want to see the election of their
allies. And the best way to do that is
to goose the economy artificially. And
the Federal Reserve exists as a bull
work against that temptation to say, you
know, monetary policy setting of the
availability of credit and interest
rates should be with an eye toward
macroeconomic stability, both price
stability and the stability of
employment, not whatever might be best
in the short term uh for incumbent
politicians. Now, it's very important to
understand that that determination was
itself uh the consequence of a
democratic action. Congress created the
Federal Reserve with that insulation in
mind. That's the intent.
>> That is the intent. Where we are today
here in 2025 is not just a question of
the independence, but really the overall
structure of the Fed. And there's a
debate to be had that we're not going to
have time for today about how to sort of
maybe reshape the Fed in a better way.
But one of the, I guess, big grenades,
if you will, that was in that book was
the idea that maybe potentially the
whole structure of the Federal Reserve
in its present form is, in your words,
quote, unconstitutional. Why?
>> Right. Uh, the question that I had in
mind there was the fact that we had
reserve bank presidents who served on
the Federal Open Market Committee making
monetary policy without any kind of
mechanism of democratic accountability.
They aren't appointed by the president.
They aren't confirmed by the Senate. Uh,
and we don't know who they are. We don't
know who appoints them. We, meaning the
citizens of the United States. The
constitutional argument I was making in
2016 was about what the Supreme Court
regarded as appropriate for control over
the levers of federal policy. We'd put
them in the hands of private citizens,
these reserve bank presidents. And in
2016, I took the view that maybe we
shouldn't do that. Now, I want to be
clear that that debate, as interesting
as it is and remains for me, is separate
from what we're seeing right now. What
we're seeing right now is a fullfrontal
assault on the legitimacy of central
banks of our central bank, a an assault
on the independence of the Federal
Reserve at the place where it is already
politically accountable and that's at
the board of governors. uh the idea that
we should have that space that gap
between the Oval Office and monetary
policy I think is one of the great
innovations of democratic governance.
The question is if we go too far with
that and as you said that's a debate for
another time. Right now this is a five
alarm fire. Right now what we have is
President Trump and his advisers
declaring that there should be no
difference between what is right for
Donald Trump the man what monetary
policy comes out of the FOMC. And of
course we know uh professor that a large
number of legal disputes launched by the
white house have eventually ended up in
front of the Supreme Court. And if this
one does as well, what kind of precedent
has been set first with regard to
executive authority and second the
Federal Reserve as an institution on its
own?
Uh I wish I knew the Supreme Court
doesn't quite know its single opinion
which uh obliterated the protections for
the administrative state and gave
President Trump the cart blanch to fire
anyone in the federal government
included a couple of sentences that said
you can fire anyone you want but not at
the Federal Reserve. That Federal
Reserve exception wasn't explained. We
don't know its contours. Uh and so right
now we're faced with a situation where
the president has asserted the ability
to fire a central banker on the
flimsiest of uh pretenses and now the
question is going to ricochet back to
the courts to define the principles that
they did not define before and so it
will be a legal question that like these
uh many other legal questions will be
resolved in the courts.
>> What will you be watching for listening
for Peter as this plays out? I mean this
could be months before we get a
resolution.
The most important questions I'm going
to be watching are the way that first of
all markets and market participants
react. And I don't just mean in the bond
markets. I mean bank CEOs, many of whom
have uh have done the admiral admirable
thing of saying that Fed independence
has served the country well. I'm going
to be looking to see if they repeat
those uh those views. And then I'm going
to be watching for the very quick legal
proceedings which will be injunctions.
So, uh, Lisa Cook is very likely right
now preparing a preliminary injunction
to forbid her removal and district
courts and court of appeals and maybe
even the Supreme Court in rapid fashion
will evaluate the injunction. Now,
that's not the merits of this dispute.
It's the injunction and we're going to
watch to see whether uh the courts view
uh the likelihood of success on the
merits as landing with Lisa Cook or with
Donald Trump. Now, as a lawyer, I
strongly suspect Lisa Cook is going to
win this, but that's what I'm going to
be watching for.
>> All right, Wharton professor and Fed
historian Peter Kiy Brown. Thank you so
much for joining us, and of course, we
will be checking in with you uh as we
move forward with this developing story.
The president, of course, just
addressing his move to ou Fed Governor
Lisa Cook in a Q&A at the White House
during his cabinet meeting. Let's take a
listen to what he said.
seems to have had an infraction and she
can't have an infraction and especially
that infraction because she's in charge
of if you think about it mortgages and
we need people that are 100% above board
and it doesn't seem like she was.
>> And that was the president speaking at
the cabinet meeting. Let's get now to
our Anmarie Hoarder who asked the
president some of the questions about
Lisa Cook. She joins us now from the
White House. So Ann Marie, one of the
questions you posed to the president was
about the court because as we pretty
much expect this will be decided legally
by the court if not the Supreme Court uh
itself. How did you pose a question and
what surprised you about the president's
answer?
>> Yeah. So there was two key questions in
there when it comes to Governor Lisa
Cook. One was about the fact that her
lawyer had put out a statement saying
that they were going to challenge this
in court and the president seemed pretty
much prepared to fight that. said, "Of
course, court challenges happen all the
time, and you just heard him there
talking about what he thinks she did
with with this allegedly uh mortgage
fraud." He said, "This is a problem,
especially given the fact that she is a
governor at the Federal Reserve." Then,
while we were in there, because this was
an incredibly long cabinet meeting. I
believe it was the president's longest
time being televised with the press in
the entire administration, both his
first and second term. Um, but there's
actually a lot of uh everyone was, it
was very, very long meeting. Let's just
put it that way. So, we got to go
through a lot of questions and the Fed
actually came out with a statement while
we were all there saying that they are
going to abide by the court order. So, I
asked the president if he as well was
going to abide by the court order and he
said of course he will. He always abides
by the courts. So, obviously this is the
start of a very long legal process
between the president of the United
States and Governor Cook. And while the
president is talking about the Federal
Reserve, some other notable things he
talked about, he said that they have
Steve Meyer that's going to be in there
and he weighed whether or not he could
actually take on a longer term. Maybe if
there is an actual ouster of Governor
Cook, her term expires in 2038. And at
one point the president said, "Yeah, at
some point next year we're going to have
a majority." Meaning he would have
nominated a majority of people on the
board and can continuously talked about
something that he has been doing really
since day one. And that's the fact that
he wants to see interest rates lowered.
>> Yeah, we got that. But I am curious, did
he say anything, Amory, about the actual
investigation? Because there's been a
lot of talk about these court cases uh
basically challenging uh the for cause
or not for cause or whatever we're
referring to it as. But I I'm confused.
I missed the whole part where we had an
investigation and determined that Lisa
Cook somehow violated the law or the
rules in some shape or fashion. What did
he have to say about that?
>> Well, you didn't you didn't miss it. It
didn't happen. She has not been charged.
has not been convicted. What we did hear
from a DOJ official last week was a
signal that they planned on
investigating this. The president said
that these allegations were brought to
him. And in his letter, he talks about
the fact that that is why he thinks he
has for cause, which is why a lot of
people think Governor Cook is likely
going to win this legal argument. And I
think if it goes to the Supreme Court,
something we really need to remember,
back in May, the Supreme Court really
gave a shield to the Federal Reserve.
Talk about how the Federal Reserve is
basically inoculated from politics. It
said that this is a semiquas
private entity. Yeah. Basically that
this is an entity that should not have
any pressure from politics. So this is
going to be a process of a very long
legal proceeding. But a lot of scholars
will say at this moment they think
potentially this is going to be a win
for Governor Cook.
>> Emory Hoarder in there outside of the
White House as we continue to follow the
big story of the day and of course that
is the political pressure on the White
House now really focus on Fed Governor
Lisa Cook. The market though Scarlet
kind of taking it in stride a little
bit. I think we were expecting more of a
negative reaction but maybe kind of what
Amarie was just talking about how this
could be a long process maybe a process
that Cook might win. Maybe that's why
the market's saying, "Well, okay,
shoulder shrug, whatever."
>> Right. Well, the market has had a lot of
experience having to digest uh
announcements from President Trump and
then seeing them kind of play out weeks
or months down the road. So, right now,
you have the NASDAQ 100 up 4/10en of 1%.
And I point this out because we have
Nvidia reporting earnings tomorrow. So,
that's a catalyst that we're all going
to be watching for before people go away
for the long weekend. Short-term rates,
you can see there are falling due to
rate cut expectations. JPAL not so long
ago on Friday pretty much giving the
green light to rate cut in September.
Long-term yields, however, are inching
higher uh as investors price in a loss
of central bank independence. And I make
it sound really easy like you can price
that in. It's a lot more complicated
than that. But you're starting to see
worry or you have been seeing worry at
the long end of the yield curve.
>> And that is uh really I think the big
story of the day and we should point out
we were speaking about this a little bit
ear earlier with Stephanie Lar Roilier.
the idea that that curve has been
steepening long before the current drama
about the Fed and President Trump. In
fact, starting more towards the start of
December. Mike Canopoulos joins us right
now, deputy chief investment officer
over at Richard Bernstein Adviserss. And
I do want to start off, Mike, with that
steepening of the curve. Kind of what
sort of started that steepening and how
much uh I guess let's just say uh the
political issues of late have maybe
exacerbated that if at all. Uh, hey
Rain, I think it's a couple different
things here, right? Because you have
obviously two parts of the curve that
we're talking about, the front end and
the long end. I think what actually
started it was was nothing that has been
mentioned thus far, which is really the
deficit. Um, I think that's really what
started the steepening. I think that's
what will continue to, you know, put a
little bit of pressure on the long end
of the yield curve. Um, you factor in
sort of structural headwinds on
inflation plus a Federal Reserve that,
you know, many investors thinks think
we'll start a cutting cycle in
September. And I think that's what gets
you to where you are today. But I think
the deficit is really what kicked off
the uh the steepening earlier this year.
>> And it gets to the question though as to
what if at all the Fed could actually do
to sort of maybe write things and and
mean I'm assuming they would even want
to write things, but let's just assume
that for a second. uh what can they do
to maybe blunt the impact of some of the
fiscal decisions that have been made as
of late?
>> You know, I think the Fed is is a little
bit hamstrung from that, right? As we
all know from Chair Powell and and years
and years and years and decades of
watching the Fed, I mean, they don't
really have a hand in in fiscal policy
and nor do they react to it. Uh, I truly
do believe that the Fed as an
independent entity really is there for
their dual mandate of inflation and
employment and I think whatever the the
fiscal side of the ledger is doing, you
know, they're going to have to react to
in terms of how that manifests itself in
the data, but that's about it. So, I
don't think they're actually too
worried, per se, but I do think it makes
their job quite a bit harder. Um and uh
and you know they're caught a little bit
between a rock and a hard place because
of that. Um but I don't think you know I
don't think they plan for it. I think
they're quite reactionary whether you
know fortunately or unfortunately.
>> I was just looking at the chart of the
30-year yield. It's been in a range for
the past 3 months. Uh they're rising
today as we know but it has a ways to go
before it tops 5% which was the highest
since summer of 2007 and which it topped
in mid July. What breaks the 30-year
yield out of this range to go above 5%
again?
Yeah, I think it's uh you know there's a
couple of different things. I think most
first and foremost it's uh it's it's
stronger inflation which I think
everybody should be expecting at this
point. You know the markets want to have
their cake and eat it too. They they
think you're going to have somewhat
benign inflation or maybe even lower
inflation from here. They think, you
know, corporate margins are going to
stay healthy and earnings growth is
going to stay strong. And the fact of
the matter is tariffs are tax and
someone's got to eat that tax. And uh
right now I think it's going to be a
little bit uh on the corporate side and
also a little bit on the consumer side,
the sort of the end customer. And so I
think inflation is going to, you know,
be sticky around 3%, maybe even start to
trend higher. Uh we're talking about
core PCE here, which of course is the
Fed's, you know, the Fed's uh preferred
gauge. and and I think that could easily
take the long end of the yield curve up
towards five or even above five. Again,
um should growth surprise to the upside,
I mean that that'll that'll do it as
well. I think if the Fed cuts in
September and you get a strong inflation
print, uh you will see higher long-term
yields, very similar to last September
when the Fed cut 50 basis points and the
10-year went up 100 basis points
subsequently. So kind of uh a little bit
maybe counterintuitive for some of the
administration who wants to see lower
rates uh to help the mortgage market.
The Fed controls the front end, not the
back end. And it could be
counterproductive on the back end to cut
rates uh in September,
>> right? Be careful of what you wish for.
So at what point, Mike, do rising bond
yields, if let's just say the 30-year
gets above that 5% level, what when does
that put pressure on stocks? Because you
look at the equity market right now,
it's kind of shrugging things off.
Yeah, I I think um it doesn't take much
more than getting above 5%. I think
almost more importantly, and I and
Scarlet, you wouldn't hear me say this
in most circumstances because I think
the Fed is a little bit of a sideshow.
The market prices well before the Fed.
Um but this goound, I think actually the
Fed meeting does matter in September
because of the expectations built around
cuts. If the Fed doesn't cut in
September, uh I think you could see a
real pullback in markets. And if the Fed
just because of the the the surprise and
the shock that that will provide
particularly to momentum trades and if
they do cut in September and over the
next 1 to two months the the you know 30
year to 20 year I'll go north of 5% I
think it it it hurts markets as well. So
it's sort of like a damned if you do,
damned if you don't from a markets
perspective. But I think anything above
five and you start to you start to get
that momentum uh trade, you know, maybe
start to fade a bit.
>> All right, Mike, deputy chief investment
officer over at Richard Bernstein
Adviserss helping us count you down to
the closing bells. A 30-year yield camp
down around 4 and.9% in your 10-year
yield at 425. Your 2-year year yield at
3.7. And Scarlet, we talk about uh
equity market in the green once again.
And that's laid higher by of course uh
some of the tried and true names
including the Nvidas and Teslas.
>> And of course Nvidia will be reporting
results tomorrow as well. I wonder how
high the bar is right now given uh what
it's been doing and and the comments
that we've heard from the other big tech
companies during the earning season. It
feels like months ago now.
>> Yeah, the bar is high and I think we
came into this week expecting that to be
the big news event. It got a little
overtaken uh by some of the stuff today,
but of course uh starting tomorrow, all
eyes will be back on Nvidia. Right now,
all eyes on this financial market with a
full breakdown of all of today's market
action coming up in our global simcast
now.
>> The closing bell Bloomberg's
comprehensive crossplatform coverage of
the US market close starts right now.
>> And right now we are 2 minutes away from
the end of the trading day. Roma Bostic
here with Scarlett Vu taking you through
to that closing bell with the global
simalcast. It starts now. Tim Stenc in
the radio booth. Isabelle Lee by his
side. Carol Master has the day off.
Welcome to our audiences across all of
our Bloomberg platforms, including our
partnership here on YouTube as we focus
in on the biggest story of the day, Tim
Cinebec. And of course, that is the
nuptules between Travis Kelce and Taylor
Swift.
>> I knew you were going to say that. You
know, there's always a Bloomberg angle
to a story like that.
>> Oh, yeah. We will have it.
>> Yeah, we have it. Taylor Swift turns her
engagement into another media coup
written by none other than our media
reporter, one of our media reporters,
Hannah Miller. It's all about how they
did it on Instagram and that's where
they go.
>> That's my coverage. That's the extent of
my coverage, Isabelle. That's what
you've been focusing
>> of the story. I know. I know you're all
over it.
>> I think another business angle could be
the size of the ring and whether it's
lab grown or whether it's a natural
diamond. That definitely is of interest
to the viewers and to my friend group.
My group chats are all lighting up. I
feel like we're going to get an answer
to that sooner than an answer to what
happens at the Federal Reserve with Lisa
Cook, her fate, especially as her lawyer
plans to challenge the firing by
President Trump.
>> Yeah, and thanks for bringing this back,
Scarlet Fu, because we talk about a
market that, you know, I think we call
came in today expecting more of a
sell-off in equity markets and of course
a lot more eruptions in the bond market.
We did not quite get that. You did see a
steepening of the yield curve of course
with uh the yields on the shorter end of
the curve moving lower, longer than the
curve moving higher. And as far as
stocks go right now, guys, right around
session highs,
>> is the market essentially saying, "We're
not buying into this notion that the Fed
independence is threatened." Romain,
>> uh, I I would think that they're maybe
buying not so much into the idea of
independence, but they're buying into
the idea that one way or the other, not
a whole lot is going to change at the
Fed. The idea that they are expecting
rate cuts. They think they're going to
start in September. And at least based
on what we know now, Lisa Cook's not
going anywhere. So maybe it is just the
status quo. The S&P 500 moving higher by
about 27 points on the day, closing up
4/10en of a percent. The Dow Jones
Industrial Average up 3/10en of a
percent. The Nasdaq indices, both the
Composite and the 100 each up about
4/10en of 1%. And your outperformer on
the day, that will be the Russell 2000,
19 points higher or 8/10en of 1%.
>> In the S&P 500, pretty much an even
split of stocks that moved higher and
lower with a slight higher number going
to stocks that moved higher. 258 to the
upside today in the S&P 500. Scarlet 243
to the downside.
>> All right, let's take a look at the IMAP
as well. And you'll see a pretty big mix
of uh sector performances. What's
notable, of course, is that the bigger
sectors are in the green, led by
industrials, financials, and healthcare.
Industrials the only group gaining more
than 1%. On the downside, you do see
some red slices there. Consumer consumer
staples losing half of 1%. REITs losing
about a third of a percent and
communication services just marginally
lower right now. All right, I want to
talk about one of the most actively
traded stocks and it's going to have to
wait because we got some earnings coming
out. Roma.
>> Yeah, Octa, the software company
reporting earnings right now. The
knee-jerk reaction. The shares to the
upside by about 6%. A beat on the bottom
line. 2QEPS 91 cents a share. The street
was looking for 84 cents. Revenue in the
quarter coming in at $728 million. The
street was looking for roughly about
697. And here's your guidance for the
current quarter, the third quarter. The
company says it sees revenue in the
range of 728 to 730 million. The low end
of that range above the average of
analyst estimates. EPS a range of 74
to75. The street was looking for 75
cents on average. And for the full year,
the company guiding for EPS of $3.33 to
$3.38.
Uh and that does appear to be a bump
higher from its previous guidance. So
basically a beat and a raise here.
>> A beat and a raise. And then also
margins are also expanding at least
adjusted operating margin 28% versus 23%
a year ago. And within the businesses,
Tim, I'm looking at professional
services, uh, which is the smaller part
of its business, uh, up 21%
year-over-year, coming in at $17
million. The subscription revenue
business, which of course is more
consistent because it's recurring
revenue. Uh, $711 million. That is up
13% year-over-year. Also better than
anticipated. And we should point out, I
mean, while this is a relatively small
company, $16 billion market cap, there's
a lot of focus on it ahead of Nvidia,
which reports about 24 hours from now.
Of course, Octa with a big presence or
at least trying to have a big presence
in the AI space and a lot of concerns
and questions uh Isabelle and uh Tim uh
about exactly whether that spend is
going to continue at its current pace.
>> Octaare is moving between gains and
losses, up 1.1% in the after hours right
now. We will be glued to Nvidia tomorrow
in our special coverage too on Bloomberg
television and radio. Back to some of
the big movers in today's session. I
want to start with Echoar share surged
as to to a record most ever at one point
in the day. Ended up closing out the day
uh up 70% today. Uh this as the company
said it's agreed to sell Spectrum
licenses to AT&T for about $23 billion
in an allcash transaction. AT&T said the
acquisition of this spectrum will
strengthen the company's ability to
deliver 5G and fiber services across the
US. Echoar, for its part, will continue
to operate in the US market as a hybrid
mobile network operator under its Boost
brand. Also, keep an eye on what
happened with shares of Lily today to
the upside of 5.9%.
This after news that its experimental
obesity pill helped patients lose 9.6%
of body weight in a trial. So instead of
a shot, yes, it could be available in a
pill at some point in the future.
Patients who were given the highest dose
of the pill lost around 21 pounds and
saw significant improvements in blood
sugar levels according to the company.
Shares higher today by close to 6%. And
finally, keep an eye on stocks in the
defense sector today, particularly
Lockheed Martin, which moved to the
upside about 1.7%. This after commerce
secretary Howard Lutnik suggested
earlier on CNBC that the US government
is looking at the defense sector for
potential stakes in companies Allah
Intel. The secretary did signal out
Loheed Martin saying the company makes
much of its revenue because of the US
government and is quote basically an arm
of the US government.
>> Let's now look at decliners
constellation Brands. We have the shares
down by nearly 4%. That's after Bank of
America downgraded the company to
underperform on weaker beer trends. So
more noteworthy is the fact that the
bank holds the only sell equivalent
rating. So they cut their price target
to a street low of $150. That's from
$182. So the stock saw pressure and it's
down by three and a half%. Up next is
Kurig Dr. Pepper. Shares are also down
by 6.5%. That's after HSBC downgraded
the stock to a hold from buy. This comes
after the JDE Pete purchase announcement
on Monday. So the price target is cut to
$30 from $42. The analyst there said
that the unwind of the 2018 Kurig and
Dr. Pepper merger comes at a quote high
acquisition cost. And lastly, we're
looking at Salesforce. It's also down by
one and a half%. Oppenheimer cuts his
price target to $315.
All right, let's just jump here on
earnings. We have earnings from MongoDB
and I'm going to pull them up right now.
We do see uh for the second quarter,
this is the quarter that ended, the loss
per share was 58 cents uh which was
smaller, more narrow than what analysts
had in versus last year I should say,
which was 74 cents a share. Adjusted EPS
uh was a dollar versus the consensus
estimate of 65. In terms of the revenue,
it's uh 591.4 million. Analysts were
looking for 554. The outlook for the
full year, 2.34 billion to 2.36 billion.
That is an upgrade from the previous uh
forecast which was uh at least 2 and a.5
billion to 2.29 billion. Fullyear
adjusted EPS according to MongoDB also
goes to $364 from $3.73. That is a
notable upgrade from the previous
estimate of at most $312
and you can see the stock responding
here up 12.5% right now uh in after
hours trade.
>> Kind of interesting to see some of these
uh mid and smaller software companies
getting a bid here in the after hours
trade. A lot of concerns of course
heading into those earnings out of
Nvidia tomorrow. The idea that uh some
of the spending that had been flowing
into some of these identity uh uh
security companies, some of the cloud
providers like Box and of course MongoDB
that we would see some weakness there.
But the earnings coming in right now and
at least for the current quarter and the
guidance for the next quarter seems to
be holding up on MongoDB. Box also
reporting a beat and a raise there here
on a day where there is a big focus a
big focus right now on corporate
fundamentals with Nvidia up ahead in
about 24 hours. But of course, right
now, everybody obsessing uh over the Fed
and what may come next. We saw the
steepening of the curve today. A lot of
concerns here that yeah, we may end up
with a doubbish Fed no matter how much
this shakes out. But of course, this
also could be a Fed potentially that
could end up maybe not being as prepared
to fight inflation longer term. And
that's a big part of the reason why
you're looking at the long end of the
curve moving in the opposite direction.
You know, one thing that Tim pointed out
that I thought was really interesting
was uh Loheed Martin and the defense
companies rising after Howard Lutnik,
the US commerce secretary, uh suggested
that the government is looking at the
defense sector for potential stakes in
companies. What I'm not clear on is why
this is seen as a good thing for the
company. Why the defense shares would be
rallying because it's not just Loheed
Martin. We also saw uh RTX and General
Dynamics uh gain ground as well.
>> Well, there's there are a lot more
questions than there are answers at this
point. And I think maybe there's uh
expectations or at least in some cases
wagering that there could be some
support from the US government for some
of these companies. After all, in some
of these cases, the US government is the
biggest uh customer of these companies.
But I think it opens up a bigger
question about the role of of the United
States and the role of government in
private corporation. And I think that if
you were to look at a traditional
Republican view of free enterprise, it
would not include a 10% stake in Intel,
for example, or it would not include
funds going to a minor like MP
materials. But the president and his
cabinet have really made clear this is a
new era when it comes to uh the
corporate world.
>> Also, it raises the question, would
partial government ownership really
strengthen national security planning or
risk distorting market competition and
pricing in the sector? And we were
talking about this earlier, Tim. What
influence would the government gain on
company strategy and religious
management decision-making if they take
a significant stake in companies like
Loheed Martin or Intel?
>> All right. Well, as I mentioned, still
more questions than answered for than
answers for the latest. Always check out
the Bloomberg terminal, of course, and
Bloomberg.com as well. That is going to
do it for our crossplatform coverage of
the close this afternoon. Do not worry,
we will be back tomorrow, same time,
same place for those Nvidia earnings.
A lot more coming up here on Bloomberg
television. Stick with us. A jam-packed
hour as we continue to parse some of the
moves in the fixed income space. This is
the close on Bloomberg.
>> The countdown is on. Everything you need
Welcome back to the close. Markets
closing out the day just about 11
minutes ago higher. That might have been
a little bit of a surprise to some folks
given some of the political news across
the wire just uh yesterday evening, but
the S&P did manage to add about 4/10en
of 1%. And a big part of that is the
fact that corporate fundamentals are
still holding up. We are getting
earnings crossing the wire earlier today
out of names like Octa and MongoDP
beating uh beating estimates in the most
recent quarter and rating guidance going
forward. We are waiting to hear from
PBHC Corp. of course a big apparel maker
sometime this afternoon and of course
tomorrow afternoon the granddaddy of
them all the biggest waiting in the S&P
and the NASDAQ the largest company in
public markets Nvidia gaining about 1%
on the day. Meanwhile when it comes to
what some of those political issues you
did see a lot of movement in some of the
more rate sensitive areas of this
market. The KBW bank index rising about
1.3% on the day now back to a three-year
high. And of course, we're going to talk
a lot about the moves that we saw in
yields. Of course, opposite opposite
directions depending on what side of the
curve that you sit on. And that brings
us to our top story here, the remaking
of the Federal Reserve Board of
Governors into well, a monetary polic
policy institution that could
potentially be more accommodative to a
White House looking to goose economic
growth and blunt the impact of its own
fiscal policies. The mysterious
resignation of Fed Governor Adriana
Cougler just a couple of weeks ago. Then
you have the potential potential
departure of Governor Lisa Cook swirling
around today and Trump's investigation
over the past few weeks into renovations
at the Fed's headquarters. All of this
raising hackles about a coordinated
effort to create Fed vacancies to be
filled with people more loyal to the
president. Concerns about the integrity
of of the Fed independence abound. JP
Morgan's Mike Foli saying if the Fed if
the president, excuse me, were
successful in removing Cook, the outcome
would be momentous. If the two most
recent denters allied with whoever fills
the two new vacancies, they could remove
all 12 presidents, thereby dramatically
reshaping the FOMC. While equity
investors seem to be somewhat
comfortable with that scenario, the bond
market is a bit more divided. Short-term
rates sliding on the potential for a
more dovish Fed. Long-term rates rising
because of the idea of an ultravish Fed
and one that might be illw willing and
maybe even ill equipped to keep a lid on
inflation, which would of course make
bonds worth less over time. This
so-called steepening of the yield curve
when measured by the gap between the
five and 30-year US yields, that's now
the most slanted since September 2021.
Anish Shaw joins us right now, global
head of debt capital markets over at
Morgan Stanley. And Anish, I do want to
talk about this steepening of the yield
curve. This isn't something that began
today or even last month or the month
before. It's been going on now since at
least maybe November, December of last
year. And I am curious what you think
has been driving that steepening and
whether you think that steepening will
continue. Well, Roma, it's great to be
with you. Um, thanks for the
opportunity. You know, clearly no
shortage of activity in the capital
markets this summer. No summer slowdown.
We've been really busy with our clients
talking about the rate rate outlook and
the picture um going forward. And really
what it's done is our clients have been
focused on accelerating refinancing. If
you look at the volumes we've seen in
investment grade and leverage finance
markets, it's all been about getting
ahead of potential volatility down the
line. I'll give you an example. In the
summer, we had one of the most active
markets in the leverage finance markets
that we've seen. July was a record month
in terms of leverage loan issuments, but
it was all around repricing. So, it was
investor issuers going out, taking
existing loans and trying to cut the
spread on the loans. What we haven't
seen is actually a wave of new issuance,
new event driven issuance. That's really
what the markets have been looking for.
>> Well, on the refinancing side, what do
those durations look like? And do you
think that they would have been
different if sort of some things hadn't
happened over the last few months? Yeah,
it's a it's a great point because in the
investment grade market, there's been
very little in the way of 30-year
issuance. It speaks to the steepening of
the yield curve that you talked about.
Almost all the issuance we've seen this
year has been 10 years in in. But we
have seen issuers trying to get ahead of
maturities, 2026, 2027 maturities and
try to derisk as much as they can. We
are just starting to see though in terms
of deal flow and activity that that
pipeline shift from refinancing to more
event- driven activity.
>> What is holding back new issuance? It it
has been a lack of events frankly you
know investors yeah investors came into
the year really optimistic about what
they would see in terms of M&A deal flow
and buyout activity and as you know due
to the tariff uh announcements in April
we saw a real pause in that as a result
we were seeing investors really building
cash because they were looking for
opportunities to invest new capital and
we weren't seeing the level of buyout
activity that we would expect. Now we're
just starting to see this really turn in
terms of the dynamic around our
pipelines. Yesterday you saw a big
announcement in the corporate space. Cur
Dr. Pepper acry acquiring JD pets. This
is a large cash crossber acquisition.
That's the type of activity that credit
investors are looking for. It's going to
be financed with a $19 billion bridge
loan. The largest bridge that's been
underwritten in a year. And that's the
type of activity that I think we're
going to see a lot more of post Labor
Day.
>> So you think we'll see more of that? So
you think the appetite for that will be
there and more importantly the sort of
economic and political conditions will
be supportive of that?
>> Yeah, I think what we're hearing from
our clients is notwithstanding today's
news events is much more comfort with
the impact of tariffs, our clients are
able to now model the impact of tariffs
and think about different scenarios
whereas 6 months ago that just wasn't
even possible and and now we're starting
to see a meeting the minds between
buyers and sellers. We're seeing more
private equity activity. I'm optimistic
we're going to see a lot more M&A driven
deal flow post Labor Day.
>> I am curious when we talk about uh more
deal flow uh activity and you it's
curious you bring up the pets uh KDP
pets thing do you think will that will
be a lot of crossber activity because
there has been concern politically that
maybe crossber deals particularly
between the US and uh certain uh certain
countries would not be approved or do
you think we'll see more domestic on
domestic type of deals?
>> I think most of our activity actually
been more focused on domestic on
domestic. This is probably a rare
example where the industrial logic
really makes a lot of sense for these
companies uh to combine, but you're
seeing much larger transactions. You
know, we saw the Baker Hughes uh chart
industries deal and the oil services
sector. That's a domestic transaction.
Obviously, the big deal in the rail
space that we worked on. So, there's lot
a lot more of that activity. I actually
think the capital markets are a real
catalyst for this. Meaning the
availability of financing in size with
certainty is going to be uh helpful to
the dynamics of bringing the buyers and
sellers together. I am curious though
for the investors that would have to uh
take on uh or or I guess maybe take on
the risk with regards to some of these
uh debt issuance new debt issuances that
come out. Do you think they're actually
getting a proper risk premium into it?
There's been a lot of talk about how
tight credit spreads are. There a lot of
uh talk about the differential between
uh what we're seeing in uh in the
Treasury market versus in equity markets
and the idea that that gap is so narrow
right now that maybe there isn't as much
incentive uh to swallow uh any largecale
new issuance. Well, credit fundamentals
are sound. If you look at the way
corporate balance sheets have been
managed the last few years coming out of
COVID, they've really been built to
withstand the higher level of rates. You
haven't seen that aggressive action
maybe that would run counter to
creditors interest like levered
buybacks. So, for the most part, balance
sheets have been managed very very
prudently and leverage has been kept low
and that I think is also driving the the
spreads as tight as they are is that you
have this supply demand imbalance and
credit fundamentals very sound. Last
question. Do you think 2026 is going to
be a better year for this market than
what we've seen so far in 2025?
>> We're optimistic. Uh our our clients are
very optimistic about um the future here
and there's a lot more strategic
activity than we saw a year ago for
sure.
>> All right. Uh really smart. Great to
have you here in studio 2. Anish Shaw is
global head of debt capital markets at
Morgan Stanley. We're going to get back
to the conversation about what's going
on in the fixed income markets, but we
are getting earnings out of PVH Corp.
the owner of Tommy Hilfiger and Calvin
Klein uh reporting revenue in the most
recent quarter that came in relatively
in line with estimates 2.17 billion
adjusted EPS beating by a big margin
$252.
The street was looking for $2. And
here's your forecast going forward. The
company says that 3Q adjusted EPS will
come in below the average of estimates
235 to 250. The street was looking for
294. The company blames tariff impact.
We'll be back in a moment. This is
Bloomberg.
All right, let's get a read on seuite
sentiment because executives out there
do seem to be scaling the market's wall
of worry of the S&P 500 companies to
change their revenue outlooks this
earning season. 44%
raise the biggest chunk of the index
that has done so since 2021. Our next
guest points out that volatility isn't
always negative, at least when it comes
to corporate leadership. David Garfield
is the co-CEO over at Alex Partners and
he joins us right now. And David, uh,
you know, our previous guest was kind of
alluding, at least from a market
perspective, to this idea that why there
was so much pessimism earlier this year
was kind of because of the uncertainty,
the idea that nobody knew what the
tariffs would be. They didn't know where
we were going. And now that we have a
little bit more clarity, people are kind
of coming back out into the sun. That's
the market narrative. I am curious as to
what you're hearing from the corporate
side from the seauite as to whether now
there is a little bit more renewed
optimism since there is maybe a little
bit more clarity about what's coming.
>> I would say that there's a great deal of
pragmatism coming out of the seauite at
the moment. Um there's still a lot of
uncertainty. There's still evolution in
tariff and trade policy. There's still
girrations in market valuations. But
what CEOs have clearly determined is
that they still need to make decisions,
take actions, and place bets. And so
after some initial pauses in projects
and proposals, they're moving forward,
and they have more confidence as a
result.
One of the big concerns coming into this
year with a lot of these companies was
how quickly uh they would be able to
adapt not just the tariffs but you know
so many uh changes uh to our uh economy
uh based on policies coming out of
Washington. And I am curious as to how
you gauge the effectiveness of companies
of those CEOs being able to kind of uh
turn their ships if you will around
depending on what's coming out down the
pike.
A key thing is for CEOs to move forward
even in the face of uncertainty and
against some of the headwinds. And there
are some things that are no regret moves
even when there is questions about how
your market conditions are going to
evolve. Things like stress testing your
balance sheet and your cash flow so that
you have the flexibility and the
resiliency to deal with more volatility
if it comes your way. doubling down on
your customers because deepening
relationships with customers helps you
defend as well as capture market share.
And then just communicating internally,
making sure that your employees actually
understand why there's volatility in the
marketplace and what the new or renewed
priorities are for the enterprise.
>> I I am curious about and what's going on
on the companies that have more direct
exposure to tariffs. Uh today we were
talking about PBH who just reported
earnings. A big apparel maker. This
whole week we're getting a lot of
earnings out of the apparel makers. So
we're hearing a lot about tariffs. It's
not necessarily as dower as what we saw.
Yeah, there are increased costs. Uh some
companies eating those costs, some
finding a way to nudge some of those
costs onto the consumer. As we get
deeper into this year and next when the
tariff impact will be maybe a little bit
more preeminent, do you think companies
will be able to have that pricing power
to go to their customers and say we have
no choice to bump prices higher?
>> A couple of things uh are going on.
First of all, it it is the big dilemma
for tariff impacted businesses. Trying
to decide how much of that tariff impact
to absorb and how much to pass through
is a really critical decision. Which is
why we're spending a lot of time talking
to senior executives about their pricing
strategies, making sure that they have
the accuracy and the speed in their
pricing processes to execute the right
decisions. Um, but as time progresses
and the impact of tariffs mount, one of
the key things that executives have to
contend with is not just the short-term
objective of defending their margins,
but the long-term objective of
attracting and retaining customers. So,
what we're advising clients is balance
the short-term imperatives around margin
with the long-term customer strategies
and support your brand. I I am curious
with regards to raising prices what your
general advice would be on the
transparency in that. I mean some
companies have been pretty explicit.
We're doing this because of tariffs.
Others have just kind of maybe snuck the
price increases in there and didn't
really uh make much of a a to-do about
it if you will.
>> Right. Our advice is uh communicate with
clarity and context. What we mean by
that is we do advocate transparency but
make clear that to your customers and to
the end consumers that your pricing is
not just about your input costs. It's
about the value that your products and
services deliver and your brand
positioning. If customers and consumers
understand the full picture, they're
more likely to accept your pricing
decisions.
>> Yeah. All right, David, great stuff.
David Garfield there. He is the co-CEO
of Alex Partners. A closer look at some
of the advice being given to the
seauite. When we come back, we're going
to go back to the big story of the day.
The pressure, the political pressure on
Fed Governor Lisa Cook. A conversation
with House Financial Services Committee
Ranking Member Maxine Waters.
>> The Fed will abide by any court
decision. You abide by a court decision.
>> I abide by the court. Uh, I abide by
>> President Donald Trump there today in
the last hour responding to our very own
Amarie Hordern asking a question if he'd
abide by the court in deciding the
outcome of what's going on right now
with Fed Governor Lisa Cook.
Allegations, allegations we should say,
allegations that have yet to be
investigated or founded, but allegations
that the president and his allies have
made that she may be potentially
committed mortgage fraud. Joining us
right now is Maxine Waters, the Democrat
representing uh the great state of
California and the ranking member of the
House Financial Services Committee,
which has oversight of the Federal
Reserve. And Representative Waters, I do
want to get your thoughts here, not so
much on whether the allegations are true
or not, but whether you were informed at
all at any point in this process that
the White House was looking into uh what
what Lisa Cook put on our financial
disclosure forms. Well, first of all,
let me just say uh that the president is
out to exercise power. He wants to take
over the Fed. He's tried to intimidate
power. And so what he's doing is he's
eliminating one of the board of
governors, happened to be a black woman,
Lisa Cook, uh so that he can have
control of the Fed and the decisions
that they make. The Fed is
extraordinarily important how it is
instituted and arranged by the
Constitution of the United States of
America. We have tremendous analysis and
work and research that goes into the
decisions that are made. He hates power.
He wants to be in control. He wants to
determine whether or not we raise or
lower interest rate. He wants interest
rates lowered now. He doesn't know what
the hell that he's doing. He's talking
about paying down the debt with money uh
from the lowering the interest rate. All
he's going to do is increase inflation
and we have had enough of inflation.
Inflation that caused the groceries to
go up and our cost of living to be
extraordinary. He claimed when he ran
that he was going to bring down the co
cost of groceries. He's a liar. He does
not respect the constitution and he
wants to control the Fed. What a
terrible thing that would be. I I am
curious though with regards to the issue
of trying to control the Fed. There is a
process potentially that will play out
at least with regards to Lisa Cook, a
legal process. Right now, we've only
heard from her attorney. The Fed has
also issued a statement saying that it
will defend itself on the issue of Fed
independence, not necessarily Cook
herself. I am curious as to whether you
or any of the other Democrats in
Congress have talked about uh supporting
Lisa Cook's effort to defend herself in
court.
Well, I was one of the ones that
supported her when she was nominated. I
wrote a letter of support as others did.
I support her. Yes, Democrats are going
to support her. And we know that
basically the Constitution says for a
cause. I don't accept that this
investigation that he's doing of black
people, of black women, and all of that
uh is for a cause. And so, yes, I think
they should go right into the courts
with a lawsuit. I support that. I'm
going to try and get an amicus uh brief
filed in support of that because I think
the president is ruthless and he is
disrespectful of the Constitution and he
wants to run America like a dictator. We
cannot stand for that. I'm proud of her.
She said, "I'm not resigning. I'm not
going to step down." That's the kind of
fight that we need to have with him. I
am curious and I I asked you again
whether the White House has made any
effort to reach out to the committee
whether you or uh the or or the actual
Republican committee chair with regards
to what they're looking into with Lisa
Cook and really with the Fed large.
>> They have made no effort on the
Democratic side. I can't, you know,
answer for, you know, Congressman Hill
and others on the, you know, other side
of our committee, the financial services
committee, but no, he does not reach out
to us. There's no negotiation going on
and all of the changes that we see take
place. These are moved by the president
who have been well planned in advance
with the group that's working with him,
looking at all aspects of government in
order to take it over. Can you imagine
the pre the president of the United
States interfering with our educational
institutions, private law firms, uh
nonprofit corporations, on and on and on
is something that is absolutely
unbelievable.
>> Well, it it's believable because it's
happening, Maxine. And and I guess my
question is is there not so much is
there a justification for what he's
doing, but if the Republican the part
his party has decided that they are on
board with this and of course right now
they control both houses of Congress,
they control the courts, they control
the governorships and they control the
White House. What push back, if at all,
do you and your fellow Democrats have,
if any?
>> Well, let me just tell you this. As you
have watched the decisions that have
been made by the Republicans, they
follow whatever Trump wants them to do.
Whether or not they believe in it, are
they afraid of him? Yes, they are in
control. Our job is to take back the
government. Our job is to take back the
vote in the primary. And that's why
we're dealing with all of this
redistricting effort that we're involved
in. Our job is to get rid of the
president of the United States that
exists now uh and uh the next election
and try to elect people who really want
to represent all of the people and
respect the constitution and the
democracy.
>> How how are you doing that? I mean the
de I mean the Democratic committee is
starting their their retreat their their
annual retreat that they have to kind of
talk and strategize about what they're
going to do in the midterm elections.
everything you said you want to do, at
least legally, you have to do that
through an electoral process. Where
exactly do you guys stand when it comes
to some sort some sort of cohesive
argument against the policies, the
positions, and the practices of this
administration?
>> Well, let me just say this. I am
convinced and I believe that there are
many who voted for him who are having
buyers remorse. For example, in
Medicaid, uh there are a lot of people.
They're not just black. They're not just
urban. These are in poor areas where
hospitals are going to close down. They
didn't know that this was going to
happen to them. When he talked about
getting rid of or lowering uh the
ability for people to have access uh to
food stamps, uh a lot of people didn't
know that many of our students who
survive on food stamps and our elderly
are going to be cut off. A lot of this I
do believe that people are going to
reject in terms of whether or not the
president is respecting the democracy
and the work that has gone on for years
by so many in order to have a country
where we give people and assist people
in a decent quality of life. And it's
not just for one sector of our society.
This is for everybody. So, we believe
that he's making a lot of mistakes
that's going to hurt him. We're going to
register people to vote. Yeah. We're
going to raise a lot of money. We're
going to hit the streets. We're going to
be rallying and we're going to make sure
the people know that he is friends to
Epstein and that that was his best
friend. He knew that he was a pedophile
and messing around with young girls.
We're gonna put that argument out there
and join with some of the Republicans
who are already saying they want to know
who was involved. And this president is
doing everything that he can uh to hide
uh to avoid, you know, giving the
information about his friend, the
pedophile, who was his best friend.
We're going to put that on the agenda
also so that we keep it in front of the
American people and they will be
disgusted with him. We think we can win
on these issues. We think we can have
the money that is needed. We're gonna
run strong campaigns.
>> All right. Uh Representative Waters, we
have to leave it there. Maxine Waters
there. She is the ranking member of the
House Financial Services Committee, a
Democrat from California. Uh we will
continue to follow this story with
regards to uh what has been going on
with Lisa Cook, the political pressure
on the Fed and really uh a lot of
discord right now in Congress over the
direction that the president has been
taking it uh of course at the behest and
with the support of his party was
elected to office last November. We do
want to turn back to the markets. We had
a market today that did for just a very
brief moment seem a little bit rattled
by some of what was going on in
Washington, but at some point they did
find their footing and at least for
right now feeling that the status quo is
okay. An economy at least for right now
that does appear to still be running.
Corporate profitability that still
continues to seem to be growing. And all
of this ahead of course one of the
biggest earnings days that we've had in
quite some time with Nvidia. potential
makeorb breakak moment for public equity
markets. On the screen there, you're
looking at how we closed out the day.
Fractionally higher on the day, but that
could change in a big way as we get
Nvidia earnings tomorrow, a PCE report
on Friday, and then of course as we get
into September, a very consequential Fed
meeting and a lot of discussions here
about what comes next. Joining us right
now to talk about the market volatility
is Alex Fitch. He's a partner and
director of US research at Harris
Associates. Alex, great to have you here
on the program. Volatility might sort of
understate what has gone on over the
last few weeks and months. Some of it,
of course, driven by the political, but
there's also been a lot of uncertainty
about corporate fundamentals, about the
strength of the AI trade, how much
further that could continue going on.
And the idea that market valuations, at
least in public markets, by some
metrics, do seem stretched. I am curious
of your assessment right now of where we
stand and whether you think there is
maybe an argument to be made for further
gains.
>> Yeah, thanks for having me. Um, at
Harris Oakmark, first I just emphasize
we are long-term value investors. We are
buying businesses with the idea we're
going to be owning them five, seven, 10
years into the future. The really
interesting thing to us about the market
is just how bifurcated it's been. I
mean, you have had so much of the
market's return driven by this handful
of companies. And you look at the S&P
500, you're up 50% over four years.
You're trading at 25 times earnings. On
the surface, looks very expensive. We're
value investors. And the thing that's so
compelling to us is that one-third of
the companies in the S&P 500 today trade
at 14 times earnings or less. And
interestingly, that's actually exactly
the same number as traded at 14 times
earnings or lower back in August of
2017.
>> So, you've had this you've had this
eight-year period where you've had
incredible market returns. Uh you've had
a lot of growing concerns about the
valuation of the overall market. And
yet, for value investors like us, the
opportunity set is actually relatively
similar. We're still able to proh build
diverse portfolios of value stocks and
actually finding ideas in new sectors.
>> Where are those value stocks right now?
Because typically when we have these
conversations about value, we're always
kind of looking to small cap stocks and
some of the economically sensitive
sectors. And I've heard arguments
against for sort of avoiding some of
those areas. Where are you actually
finding the value right now, Alex?
>> I think I think from a size perspective,
the smaller the cap size, the more value
we're finding today. I would say broadly
speaking there seems to be such little
appetite from investors to have any
exposure to businesses that have the
slightest bit of headwind or or even
slowing growth. I think uh healthcare is
a very good example. Over the last
decade we we scarcely owned healthcare
stocks at Harris Oakmark. We thought
that they looked expensive. They were
priced for their safety. Uh 10 years
later though, healthc care's
underperformed the S&P by 160 percentage
points and all of a sudden you have some
headwinds to various parts of the system
and we're starting to find opportunities
there. I think the clinical research
companies are a good example. Ivia,
Icon, Charles River, uh we own all of
those names in the Oakmark Select Fund.
They are companies that provide
outsource services for clinical trials.
They are the critical cogs in the
American R&D uh system and drug
development. These were prized assets.
They traded at a premium to the market.
They have fast organic growth. They have
high returns. Yeah.
>> But as we've seen R&D slow postco and
their growth slow now we can buy them at
a 30 to 50% discount to the market.
Yeah. That is the type of opportunity
we're seeing today.
>> I am I want to get your thoughts on
financials. Uh this was actually kind of
a story that kind of got buried amidst
all the politics today. the KBW bank
index, larger banks if you will, uh
closing at its highest level since 1992,
basically since the inception of the
index. And of course, this is an index
that uh has lagged uh quite some time
coming out of the financial crisis and
really for the last couple of two or
three years where you had the big rally
in tech and everything else. What is
attractive in your view right now about
financial stocks if at all? Yeah, I
think the banking sector you went
through a 15 16-year period where
regulations were a consistent headwind
and you probably I don't think you've
been in the better regulatory backdrop
with tailwinds at your back for the bank
since before the great financial crisis.
And if you look back at that point in
time, that was a point in time where
bank stocks would trade at 80 90% of the
overall S&P 500 PE. Today, there are a
lot of banks trading at 40 50% of the
overall market PE. that that regulatory
headwind seems to be fading and the
market multiples uh might be high, the
bank multiples aren't demanding.
>> All right, Alex, great stuff. Alex Fitch
is a partner and director of US research
over at Harris Associates. And I do just
want to reiterate kind of the big moves
that we've seen really over the last few
weeks and months in financial stocks
with that KBW bank index closing at what
is effectively a record high basically
since 1992, the inception of that index.
Meanwhile, we turn back uh to uh the
postmarket trade here. We were keeping
an eye on some of the apparel makers.
Apparel makers with outsiz exposure to
tariffs. PVH Corp. the owner of Tommy
Hilfiger uh and the Calvin Klein brands
actually rallying here in the postmarket
trade. The company did beat on some
metrics, missed on a couple others, but
then gave fullear guidance. It did
appear to appease investors. While it is
taking some tariff costs, it says it can
manage the rest. Meanwhile, keep an eye
on the software space. Octa rallying
about 3% here in the after hours trade.
the identity security company reporting
a beat in a raise quarter and MongoDB
the enterprise cloud software company
also getting a nice bid up 23%. It was
one of the big lagards earlier this year
now finally starting to get its mojo
back a lot of optimism here about some
of the spending that we continue to see
in the tech space on hardware and of
course AI and of course that is the
backdrop to a big earnings report less
than 24 hours from now with Nvidia that
conversation coming up next here after
the break. This is Bloomberg.
All right, it's hard to understate
what's about to happen in about 24
hours. Nvidia, the world's largest
chipmaker, is expected to report
results. And of course, this has been
the center of not just the AI trade, but
really the entire trade in this market
for the last couple of years. You take a
look at the three-month chart there on
your screen, 34%, and that doesn't even
tell the story. You go back to 2022,
late 2022. And of course, the
introduction of Chat GPT to the public
and Nvidia has been on fire, if not the
best performing stock, depending on the
index, is certainly in the top five. But
a lot of questions about where that AI
spending is going and how much longer it
can continue. Ben Axel is the founder
and chief investment officer over at
Spruce Point Capital Management. He
joins us here in studio 2 to talk a
little bit more about where the AI
investment actually goes. Look, Nvidia
has attracted a lot of money, a lot of
cash from investors because they're
basically selling the one main thing
everyone needs. But there were all these
other companies that sort of just c came
up out of nowhere. Some changed their
company to addi to it. Uh others that
just basically said we are an AI company
and they started raking in a lot of
money too. Does that continue?
>> I think we're now at the phase where the
market's being a little bit more
discerning. Right. So early on, to your
point, if you attach yourself to the AI
trade, whether it's through having a
ticker named AI or appending A.A.I. to
your name, you got that valuation boost
and investors rallied.
>> Now we're we're a couple years into the
trade, right? And so the market's
starting to discriminate more between
those that are really getting the
leverage and the growth that one would
expect versus ones that are just not
there.
>> How do you determine that though?
Because I mean, you could look at
Nvidia, it's easy to see, right? you
know how much chips they sell, you see
the growth rate for those companies
where where it's a little more squishy.
How do you sort of separate the wheat
from the chaff?
>> Yeah, for us, I mean, it all starts with
the people, right? So, we focus very
much on management and we like to see
management has a history of executing
and not just promoting AI. So, you know,
for us, we've had some good successes
with a couple uh companies, C3 AAI being
one, Tempest AI another, where we have a
we find a history of those executives
pivoting to the latest technology,
promoting it, selling stock, and then
ultimately, you know, the the company's
not performing up to expectations. And
so, for us, it all starts with
management behind the AI trade. uh for
invest for investments that you make are
you looking for companies that are
making money by selling AI related
products or companies that are
benefiting internally from the use of
their own AI tools? So I think it's
both, you know, for for those that are
selling an AI solution, number one, we
want to see that that it delivers value,
right? So we talk to people in the
market, users, customers. We also
evaluate partnerships that these
companies promote that aren't always
necessarily that great. Uh, you know, if
you're a fledgling AI company and you
claim to have a big partnership with a
global company, you uh that might sound
nice, but may not necessarily deliver
results. Uh,
>> are there any parallels kind of what we
saw in the com boom? I I everyone keeps
bringing up this anecdote how when we
talk about the internet boom and all
that and all that happened that at the
time that that frenzy was going on.
>> Yeah.
>> Alphabet or Google as it was called then
didn't even exist as a public company.
And yet they are now of course at least
well up until a couple years ago
basically the 800 lb gorilla when it
comes to internet search.
>> Yeah. Yeah. I mean you know there are
some parallels between today and 20
years ago when when I was starting my
career. I think this time around,
certainly in the tech trade, there's
there's real earnings behind the
Googles, the Amazons, the the Facebooks.
Um, and we're seeing IPOs come public
that are attaching themselves to the AI
trade. Um, and they're going up quickly,
attracting a lot of retail, but then
some hot air is coming out, but you're
not seeing the overall market go down.
And I think this time around there's
stronger earnings. Valuations are still
high. Yeah.
>> But there's a broadening out of the the
shareholder base. We've seen much bigger
retail participation this time around.
But you are a believer in some of the uh
I guess the predictions about what AI
can mean for us all. The idea that it
would increase pro productivity or
reshape our economy. Is that real or is
that hype?
>> I think it's real. I I I just think it's
going to take a little bit longer to
play out. I mean there have been some
companies where companies have been
introducing new products with AI
features but you know when you talk to
some customers that use it they say yeah
it's incremental. It's not really a
gamecher, but it's now being sort of
expected that companies are going to
incorporate AI functions into into their
products. Um, so it's incremental um
over the longer term more revolutionary,
but I think you know expectations we
believe are a little high in the near
term.
>> All right. You going to have a watch
party tomorrow for Nvidia or is that
just kind of well well beneath you?
>> I think uh all eyes on that and I think
expectations are high. They'll probably
deliver.
>> All right. Uh great to have you here. Uh
Ben Ben Axler is the founder and chief
investment officer of Spruce Point
Capital Management. A lot of big things
happening tomorrow. We're going to set
you up for what to watch over the next
24. That's coming up after the break.
This is Bloomberg.
All right, here's what the markets are
going to have their eyes on over the
next 24 hours. A slew of earnings. And
we start in the pre-market with a closer
look at the state of the consumer.
Kohl's, William, Sonoma, Abberrombie,
and Fitch all set to report earnings
before the bell and after the bell. We
get more in that space from guests five
below. And then of course we move to the
tech space. Snowflake and crowd spike
crowd strike set to report. But Nvidia
of course is going to be the star of the
show. The $4 trillion company set to
tell investors whether that phenomenal
growth rate that they've gotten used to
can continue going forward, whether that
capex spend and the dependency on just a
handful of hyperscalers can continue to
support the trade. When it comes to the
macro and economic front, keep an eye on
mortgage applications. The weekly
numbers coming out at 7:00 a.m.
tomorrow. And don't forget tariffs set
to take effect on invid on India. And it
is big. 50% US tariffs on invid on India
set to go into effect. That does it for
us here on the close. Balance of powers
next.