Bloomberg Markets (04/14/2022)

Bloomberg Markets (04/14/2022)

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From the financial centers of the world. This is Bloomberg Markets with Alix Steel and Guy Johnson. It's 30 mins into the US trading day. It's Thursday April 14th here. The top Marcus news we're following for you at this hour Musk's Twitter bid. Elon Musk offers to buy Twitter and take it private. In a deal that values a social media company at 43

billion dollars shares soaring as Twitter reviews the offer and the ECB sticking to its plan. The European Central Bank is sticking to the plan to end its bond buying program in the third quarter even as the war in Ukraine fans inflation. We're going to discuss the international implications with IMF managing director Kristalina Georgieva. Banks they beat big Wall Street's biggest banks posting first quarter results with trading revenue driving enormous earnings beats. We're going to break it all down for you from New York. I'm critic Gupta with Guy Johnson in London Alix Steel. Welcome

to Bloomberg Markets Guy. A fascinating morning which was obviously very quiet going into the long weekend in the United States and Europe really coming out with a lot of breaking news on the eco front on the ECB front and of course on the Twitter front. I can't quite work out if you if you took today off to try and get ahead of the traffic basically are you a genius or did you fail massively. Because as you say a lot of things have happened this morning and a lot of things have been turned on

their head. You got the euro crashing. This Twitter begged your Williams talking about 50 basis point hikes. You got the data hitting the Bloomberg terminal. Let's talk about that now. Figure out what is going on. I'm a little surprised by these numbers. So we get the University of Michigan sentiment index it 59 points for the last number. We go to sixty five point seven. I'm trying to work out why current conditions sixty eight point one up from sixty seven point two and the expectations index. This is where things have really changed. The expectations index

has gone to fifty four point three to sixty four point one. I saw this number hit the tape and I'm like is that a typo. Because the prior number was fifty three point six. The inflation numbers stay elevated but are below expectations. Expectations was that the one year inflation number in terms of the survey given where gas prices are though they are starting to track down a little bit. CAC would come through a five point six is go through a five point four which is basically static to where we were last time. I'm still trying to get my arms and my brain to be honest around that that expectations number sixty four point one is what we get there. We'll come back. We'll talk more about that in just a moment. The other story obviously

we've got to focus on is what is happening with Twitter. I'm not massively surprised by this. I think a number of people probably aren't. After he decided not to take the board seat he was obviously ruminating on other options though. Twitter says it will review. Elon Musk 43 billion dollar offered to take the company private. The world's richest company person says that

the company has extraordinary potential and he apparently is the person to unlock it. Joining us now is Bloomberg's Ed Ludlow. Ed first of all I want to deal with the mechanics of this right. How does an individual pay this much money for a company. Does he just write a check. How does it work. Yeah it's the question Ryan. As with all the stories in the last few weeks on Elon Musk and Twitter there are more questions than answers at this point. That 43 billion dollars. Fifty four dollars 20 cents per share

in cash. You know I've spoken to a few on the buy side this morning that point out that a lot of Twitter's holdings are held by passive funds that use index products. And when is the last time in history you can recall guy where an individual not an institution or an entity but an individual made an all cash offer for 43 billion dollars. You know he said Elon Musk said in

the letter to Twitter's chairman and board this was his final offer no back and forth. But I would say that a number on the sell side point out this morning that we could see him increase that offer because you know a year ago Twitter's shares were much higher than they are now. And what's interesting to me here is that the Yvonne Man vision essentially for Twitter a lot of it includes subscription based. It also includes perhaps targeting Twitter blew and some of the other kind of pieces of data that they have actually been trying to Montes and just haven't been able to do it as aggressively. My question to you though is what happens if this offer doesn't go through. Is the expectation on the street that Twitter is still able to recover. Or with the Elan Musk bid and interests gone do Twitter shares collapse.

Yes. The consistent line from a long mosque across all of the regulatory filings that we've had in the last 10 days two weeks is the potential to be a platform for free speech free speech. Guy and I were talking about this on radio the other day. Elon Musk is fixated on free speech. And the background to this story is that when Jack Dorsey stepped down as Twitter CEO in the last week of November last year and parodied Aggro Owl became CEO Elon Musk tweeted a mean and the meme depicted aggro hours Joseph Stalin pushing his then head of security into a river.

And the inference that was drawn at the time was a.. Elon Musk wasn't a big fan of the new Twitter CEO but B there was some ideological differences. And by extension what the street draw out from that it was that there was a concern about content moderation on the platform. So you'd expect that's a start. Ed why is the stock trading at 47 not 54. Sank the market being sanguine. The market not jumping the gun. I mean the other line and I'm sorry I'm referring to the text of the letter that IL almost sent to Twitter but he basically says that if the offer is not accepted this is his best and final offer if it is not accepted. I would need to reconsider my position as a shareholder. You know it seems like every possible outcome is still on the table. This is the problem with this situation that we're going on the wording of the regulatory

filing. He says this is his final offer. What if he makes another offer. What if the board rejects. What role is the S.E.C. going to play in this. I realize these are all questions guy and credit not answers. But but this is this is the problem with how he little mosque operates. And if you read across the sell side notes that have come out very quickly this morning

everyone's split. Dan ISE of Wedbush thinks this will go through. It's going to happen. Others think that he's lowballing the price that he will come back with a higher offer. And others think that it just won't happen at all because of the complication of making the deal go through or bloomers. And Ludlow. Thank you so much. Of course we know that he's going to be following story monitoring it throughout the rest of the day. Thank you for your time. Let's turn now to the other big story of the day. And that of course is the European Central Bank and its fight against inflation. President

Christine Lagarde spoke to reporters after the ECB renewed a pledge to end bond buying in the third quarter. Price rises have become more widespread. Energy costs are pushing up prices across many sectors. Supply bottlenecks and the normalization of demand as the economy reopens. Also continue to put upward pressures on prices. Joining us now is Yen's ISE Schmitt is his first TV interview since leaving the ECB for Morgan Stanley. He is now Morgan Stanley's chief European economist. We also appreciate you joining us today.

Give us your take away of simply what we've heard going into this meeting. We know the market was extremely hawkish. Now this kind of commentary from the ECB and from Christine Legarde perhaps interpreted as a little bit more dovish than expected. Is that your read of the situation. Yeah I mean first of all great to be here with you. And let me first stress that we were

actually not surprised. I mean essentially today's outcome was as also broadly as expected. The one small tweak to that. But I to come to that in second. So first of all they are sticking to their script that they have basically announced in March. And as Christine Lagarde is also saying in the press conference that actually dates back to December. So that December was really the start of the end of the super PAC coming to the front of the policy. So in December they announced the end to PAP plus some

AP envelope behind that until October and then maybe some rate hikes in 23. In February they were jumping a little bit ahead a speed this process up. And because we have seen inflation surprising to the upside. So let's speed that process up and have maybe an earlier end to this. AP And hesitating a little bit earlier so not no longer ruling out any rate increases in twenty two. And in March there was the war as a new development and at the same time they have said OK we have ever seen additional inflation surprises to the upside.

So what did. And essentially said OK we will have guidance for Q2. That's 40 30 20. Which they reiterated today. Florida we say we will end Yvonne Man in Q3 and then we wait to see what happens to rates. And they said exactly the same. There's one small difference. And let me let me underscore this which is very important because what the markets saw as establish actually from the ECB perspective is hawkish. Basically they said instead of keeping it open and say what asset purchase net asset purchases ending Q3 or you know it could could go with the afters. They basically said now I think we are more certain than

we were before that net asset purchases were and some went in Q3. The market has not taken it that way yet. The market has taken this is super dovish Euro's trading 1 0 8 sub one hour wait. You've seen a big bed coming into beekeepers today. Yields have come down really sharply. The market took today as dovish. Are

you saying that the guard is mis communicated that actually this is a more hawkish statement that the market is saying that it is. No I'm just saying that there are two sides to the coin right the market I think was getting a little bit ahead of itself. Pricing a July hike. I think that was not something that you could essentially deduct from any communication coming out of the ECB. And I think that being crystal clear on that if anything they have been recently highlighting the risks to growth and that could mean that also AP may run longer. And I

think it's in a unique situation. And again as president God was highlighting this in the press conference. There is an element here that separates the euro area from the US. It's a completely different economic setup. And they have this very huge risk which is to the east it's brewing. And you know they are more exposed than anybody else to that risk. And I think that essentially is growth. The big risk now for the east is growth. The biggest risk for the ECB or inflation.

So I guess there is that. That's that's what makes it so difficult. Right. I mean I think you're on a situation now faced with the shock the lowest growth and increases inflation. And I think it's just a question of magnitudes here in terms of what do you think you have to act on. No I think again the president made it clear the press conference they have to. A situation in which high inflation stays there for too long because at some point this starts getting greater wage setting. So far they haven't sounded the alarm bells there. But what they have been stressing clearly is that there have been first signs off. You know I would say uneasiness by some policymakers. That's the way I would translate that as to how long term inflation

expectations look like. So in some sense I think they are. The name of the game is normalization policy normalization. And what I read of today's it but I read in today's decision is policy normalization won't be derailed unless growth comes in very very negatively. Okay. Yes. We're gonna leave it that. Great stuff. Thanks for jumping in. Really appreciate your analysis. So recently obviously at the ECB may be better able to read between the lines as to what is happening here.

Please come back. We look forward to hosting you once again. Yes. ISE and Schmidt Morgan Stanley's chief European economist. Thank you very much indeed. The problem today is that they didn't talk about affects. You've got an effects story that is beginning to develop. We've got some 1 0 8. The problem is that there are a lot of what Europe's inflation problem is centered on. His energy. Energy is priced in dollars.

That energy just got more expensive as Christine Legarde was speaking today. And I think the interpretation turned a little dovish because look at the phrasing that they use confidence trade numbers. And of course to your point the energy crisis. These are not necessarily the focus if you're talking about inflation necessarily. So instead of time ISE supply start with the supply side which really was the conversation a few months ago. They are very clearly looking at the demand side. Now we'll

see if they stick to that narrative. The other issue that we've got to think about as well is on what happens with Labor. The labor story is much slower to develop in Europe but once we start to see second round effects in the labor market gets much stickier anyway. Coming up central bankers and finance ministers from around the world are gathering next week for the at the IMF annual spring meetings. We have an exclusive interview with the IMF managing director coming up next. Christina you ever next. This is it. Good morning everyone I'm Bloomberg Television and I'm Bloomberg Radio across America and indeed around the world not the usual interview at the International Monetary Fund in these unusual times with the spring meetings in one week. We are OUTFRONT with

a first interview with Kristalina Georgieva the International Monetary Fund managing director. An extensive interview and it may clear her if she wants to go longer. We'll let her go longer on morning. So much to talk about. Thank you so much for having us here. It's been a wonderful conversation through the morning. I want to talk and go to a quote which I just spoke to Angela

and about the great author of Putin. This is Vladimir Putin in Russia two days ago an Associated Press translation obviously for the Russian audience. The thing we do on one hand we help people saving them from Nazi ism. On the other hand we take measures to ensure Russia's own security. You are more qualified than anyone. Your heritage of Bulgaria. Your grandfather was a patriot of Bulgaria. You have lived under this Karl Marx University and such. You personally must be thunderstruck. And with members of the Greater Gore gave a clan in Ukraine just for a moment. What is the last 50 days

been like for you and your family. It has been horrific. A war is a terrible thing. For my family what it means is threat to their safety. More difficult to find food and more expensive to bite. No medicines. And above all that sense that the war would not soon and. Getting out they are in Kharkiv in the eastern part of Ukraine is close to impossible. Why. They are very close to the Russian border and very far from the Polish and other borders of Ukraine. But in this horror of war what impressed me the most is the strength that they demonstrate. For the future of Ukraine.

My sister in law's messages. We will win this war. They do it alone and the distinction of my interviews with the right and the left. The politically savvy and not is this timidity about starting a World War 3. No that's not your mandate IMF. But I would like you to comment on how you perceive the shock of the Western world in their tentativeness in assisting not only Ukraine but all of Eastern Europe up frankly to Finland. Well the reality of this war is it is about Ukraine and it is beyond Ukraine. It is about Ukraine because its existence is being threatened. But also the past worth order is being threatened. And in this

sense the war affects all of us. If we are to allow. A 21st century. Military takeover of a country in Europe. That is detrimental to Europe. It is detrimental to the world

and what we have to recognize that the war. Is having consequences reaching far and fast it affects. Hundreds of millions of people. Through three main channels one commodity prices especially food energy but also those and foot prices are up at the time they were pushed already up by bet. Oh Charlie I want to talk about the food in a minute. And that's going to be the main part of our conversation with what we see are the challenges of the IMF and helping Sri Lanka Peru and others. But I want you to comment on the scope and scale we see. This is something you're expert in academically. And another expert Janet Yellen who has a little bit of experience with the trillions word says we're getting the magnitude right. Yellen

says we need to think in trillions not billions as you go to your spring meetings and frankly to your October meetings. Do we have the magnitude wrong of what is needed. Well Janet Yellen is right. We need trillions. And we have been talking about this. It is for years. How can we transform billions into trillions. Well first by all

of us working together we cannot have fragmented deployment of scarce. Development international finance resources to by embracing a very simple principle. Public money should be used for only one of two things to finance what private money would never finance and to remove various for private finance in emerging markets in developing economies. And we are still short of embracing entirely this principle at the IMF. Our concentration is when we have a program in a country. Is this program going to open up space for private sector led growth for jobs that come because

vibrant investments are being made. And when we when we look at the countries that are now in difficulty we are determined to have helped them have fundamentals that would make them private sector led growth possible. I want to talk about the mechanisms here and then get to the food crisis. Erik Martin is front and center on this good looking nation to nation where the greatest challenges are the new ones. Here is the solution domestically for these troubled nations. And food is price control to keep the price of bread down and keep the price of wheat down the price of rice

down etc.. The IMF comes in and says Okay you're broke. Fine. Let us help you fix it. But there needs to be a new market mechanism. Given the magnitude and the shock of this inflation explain the new mechanism or process you will use to move from domestic controls over to something that's more modern western capitalist. How do you how do you get from A to B. We have been on this now for quite some time. And you're right. We have to get even faster on that path. And what we are working with countries to do is to have targeted assistance. So there is social protection that identifies who are the vulnerable that need to be helped. What is the problem with price controls. Everybody benefits from it. The rich benefit the

poor. But if the country doesn't have a social safety net if they don't know for their vulnerable families SA they are bound to go for price controls because that's the only thing they can do. And by the way at this moment of time. In some circumstances we would say this is not your first best. It's not the only second best. But given the speed with which prices are jumping right. There is some some logic in making sure people don't go hungry. How do we think about this in the future. We have to see two complementary strategies. One is what I just

described Target or your public spending. For God's sake don't troll good money in the direction of rich people. Second think about food in a more sustainable manner. Remember this is a food crisis has already been knocking on the door before the war because of climate change because of climate shocks because agriculture in Africa. Rain fed. You have no rain. You have no food. We have to think about sustainability and resilience in a more shock prone world differently. OK. Let's digress here. And I do want to come back to food. And folks if you're just joining us on Bloomberg Radio Bloomberg

Television Kristalina Gore gave the IMF managing director here in a conversation. I can say in all my years of doing this a critical point in the spring meetings of the IMF. Next week I want to digress here on climate change. I was at the Paris Accords and the advancements that have been made. Tell me of the derailment of the need to burn coal. How temporary is that or

has there been a seismic shift for climate change. It is temporary. I don't see called persisting for much longer. Why. Because one of the benefits the silver lining if you wish of high energy prices is they make renewables more viable and they inevitably use that. You will see substitution here. Yes. Well how long would it take. I'm not an expert I would guess. But the direction to travel is clean. Okay fine. Just because of time I really want to get all these issues in. We see Peru recede Sri Lanka we see Egypt which is a much larger bigger problem. That's the focus of our. Martin

if I see these different companies in maximum distress it alludes to the Arab Spring to Tunisia and almost a domino effect of an unraveling. Are we near not an Arab Spring but a war crisis where we get a domino effect of food crises. We have to get on top of the food crisis. We need to front it right now and we can. We have learned lessons about it. We know how to do it up. But even if we front it more countries would be in trouble. Why. Because in 2020 everybody had to borrow more to sustain an

economy instance. Still largest say that because of the pandemic in 21 servicing this debt was easy. It was actually cheaper in some places because interest rates were so low or negative 20 22 no more. With Titanic of financial conditions servicing that is getting more expensive now. Good news. Not so good news. Good news is that we see that we follow it and we are already zero and keen on on the countries that are in need of debt restructuring. We have to press for that. Well you can move it right there coming in the doors. So they're going to David Ingles. It was Sri Lanka. We

were sitting in Sri Lanka. We would sit with Egypt. We would sit with Tunisia and we would discuss with them realistically what needs to be done. One one thing that they saw Sri Lanka has appointed very prominent Sri Lankan economies to be advisors. That gives me hope that they will say OK we got them because of time. I've got to move on. Everybody in G-7 is focused on this except Mr. McCraw. He's got to get re-elected. So we'll give him a pass right now. What do you need from G7 to affect maximum IMF tactics and issues in this crisis. We need from G7 support for deploying the full set of instruments of the IMF first and we need space to build it for the future. Yesterday our board approved a new instrument first time in the history of the IMF.

We have a long term financing instrument specifically for pandemic preparedness and for climate action. What we want is to think of building that resilience. I talked about running a more comprehensive way. Don't before. When IMF says resilience we mean banking sector financial stability. Now it's broader. Now it is broad that we have to have people that are healthy and

educated. We have to have an economy more vibrant. We have to get digital money integrated today in the way we would function tomorrow. You are a tough. The way you came up with some real struggle in Bulgaria your academics and the work. And you've just got that certain manner or you do this thing and you're like let's go let's go let's go. What do you say to the IMF nations supporting Mr. Putin whether it's direct. Maybe it's somewhat indirect. Think India China etc.. How does the IMF. Those nations that aren't on board helping Ukraine.

Think of the interests of your people. Over the last decades of integrated global economy we have tripled the size of global GDP tripled. Who benefited the most. Emerging markets developing economies. Their size increased four and a half ISE their poop. Poor people are fewer than their middle class has expanded an integrated economy in which we can work together. Benefits you Stephen Engle in. Thank you so much for joining us. What a wonderful start to the spring meeting. She is the IMF managing director joining

Bloomberg on radio and television. Back to you. Tom thank you so much for bringing us that interview. Let's get a check on the markets here in New York. About an hour into the U.S. trading session we have a little bit of red on the screen. Extremely risk off day when you think about it. Remember this is coming ahead of a long weekend so

it's pretty natural to see some of that cash taken off of the table guy. But we also to keep in mind a lot of what's going on. S&P 500 right now has a lot to do with what's going on in the bond market. Stick with me here. You can see a lot of the pain concentrated in tech. The Nasdaq 100 really taking it on the chin here down 1 percent reversing the gains of yesterday. And once again a lot of that comes down to the bond market with skip to the bottom here the 10 year yield up a whopping eight basis points remember. Guy it's all about the margin of the move not just yield higher tech lower. It's about when you see these big spikes as much as eight basis points that we're seeing right now. That's really when you get the bigger moves in the downside and when it comes to the stock market. Speaking of the bond market we also have to address what's going

on here with the euro. And of course that was lower the two year yield higher. And this is really interesting because in Europe we talked about markets kind of interpreting Christine Legarde as a dovish tilt the two year yield here in the state. It's all about the Fed and actually talking about a more aggressive approach. John Williams in an exclusive interview

with Bloomberg's Mike McKee. Talk about 50 basis points 100 percent on the table. Remember he's also the second in command of the committee that helps make those decisions. You can see immediately the two year yield seeing a little bit of a spike. We should also talk simply about what is actually moving when it comes to a micro basis bank earnings Twitter.

These are all going to be big movers when you talk about the individual stories bank earnings rumor has everything to do with the consumer. And we've heard a mixed picture. Trading looks great but loan loss provisions a lot of preparation for what might be a recession in the coming years. And you can really see that commentary slowly trickle apple really set trading revenue. That's pushing these enormous beats. And we have to talk about Twitter here because that bid a 43 billion dollar deal when Elon Musk potentially taking over Twitter. Those that offer under review right now really fueling Twitter shares up two point two percent. The guy in free market this morning was up as much as 15 percent. Really. I think the story though when it comes to the U.S. corporate space is going to be those earnings. Why is Twitter trading below the offer

price is something I think we'll have spend more time discussing but as you say pretty it's macro versus micro today. The earning story as you say absolutely. Front and center as ever kicked off effectively by the banking sector yesterday JP Morgan. Today we get Citi we get Wells we get Goldman Sachs. What can we take away from the start of the earning season that's going to be useful. That tells us things about what comes next. Let's try and figure that question out. Lori Garver senior head of US equity strategy at RBC Capital Markets joins us now. Laurie great to see you. The earnings season kicks off. The banks are

starting to give us information about what is happening with the US economy the global economy and their businesses. What's the takeaway and what's the takeaway from what we've got thus far for the rest of the earnings season. Well thanks for having me as always and you know it's an interesting day as usual. Look I think that the banks always kick things off. We always spend a lot of time focusing on the banks. And so far you know I think what we're hearing from the

banks about the health of the U.S. consumer is something frankly that I'm also hearing from consumer companies so far which is that the sort of rumors of the death of the consumer seem to be greatly exaggerated at this point. And that's not to say that there aren't real risks out there that we need to take seriously. But guy I've been one client after another keeps asking me why the market is up versus the lows in March. And I keep telling people because I don't think the market is actually convinced yet that a recession is coming. The risks are real. The logic makes sense but we are simply not seeing evidence of a breakdown from corporate America yet. And I think the market is correct in sort of the levels that it's at right now.

Laurie I'm very curious about what a lot of these companies are going to be doing with the enormous amount of cash on their balance sheets not just the banks but you have tech for example and of course some of these other sectors that perhaps are stock has been under pressure in these last two years relative to some of these big tech fires. But they also have a lot of cash on their balance sheets. Talk to us a little bit about how they're going to deploy that cash in an inflationary environment. Well look I think that's a great question Christi and we actually have been using the Bloomberg transcript analyzer to I'm going to give you guys a little bit of a plug to see what companies have been talking about in regards to cash deployment in terms of things like buybacks dividends MBNA Cap ex et cetera. And what we've noticed is that coming into this reporting season discussion about buybacks is on the upswing. A discussion about dividends is on the upswing. We're also seeing that for cap ex. And I think that cap ex expanding capacity is one way that companies are trying to battle inflation near. Shoring is a theme we've been starting to read about a bit more. At the same time though we're seeing fewer mentions of MFA which

is something investors always ask me about. Now we're not seeing a big upswing in comments about debt pay down right now. But I wouldn't worry about that because we actually saw a lot of conversation about debt pay down in 2021 which is telling me that companies knew the Fed was starting to move and we're getting ready for it by cleaning up their balance sheets. What is what are companies trying to communicate by focusing on dividends and buybacks at this point. What are they trying to tell their investors about the types of companies they are. What do you think the message is. Well look I think that they are trying to emphasize that they are continuing to reward shareholders for investing in their companies and on the dividend side specifically. We know that that is something a lot of retail investors I'm thinking more

kind of the high net net worth crowd as opposed to right. Reddit crowd. But you know that is something that retail investors typically do look to U.S. equities for. So I think they're trying to send a reassuring. Sorry Laura. Is that an inflationary hedge or are they looking for. Are they are they basically trying to communicate to their investors that they are in an inflation hedge. I think so. And look we do see that borne out over time if you look at positioning in U.S. equities net relative to cash and bonds it does tend to track CPI over time. So we do know that that's borne out in terms of behavior. And I think companies are trying to say look we're able to manage through these inflation

pressures and still reward shareholders at the same time. So it's really at the end of the day trying to send a message of confidence. Well speaking of a message of confidence I'm curious about the recession risk because we talk a lot about this that perhaps the United States or Europe more so but the United States could see a recession down the road but it doesn't seem like a lot of companies are necessarily that concerned about it. From what I'm understanding they're talking about a slowdown in growth. I guess the bigger question is does that mean that they're going

to start trying to pass on more of those costs to consumers and foresee that those consumers can't die. Just to talk to us a little bit about the margins picture. So you know if we just start with margins we know that companies have been talking a lot about margin pressures in recent quarter really for the past year and a half or so. But the margins are

far outperforming the commentary that we've seen because we are again seeing companies really emphasizing hey we've got all these pressures out there but we're still able to manage through them. Pricing is one way they are managing through. And so we've actually seen a surge in commentary on pricing in recent call transcripts earnings and otherwise. And what we're noticing is that an analysts on the sell side are really pushing companies to say ah is the pricing strategy working. Are you getting pushback. And for the most part companies are saying that they're still able to pass those prices through. And look I think the demand discussion is one that's of utmost importance. And we are generally seeing characterizations of

demand as quite strong not quite as strong as they were a few quarters ago but still very very strong. And I think as long as companies are still saying hey look the demand is incredibly robust the underlying appetite to spend both corporates and consumers is still robust. It's very very hard for investors to say hey look there's evidence of recession out there. It's this this smells like something different if you really look at what the companies are talking about.

Given that. Given what you're saying about the recession given what you're saying about what companies are saying the Fed's going to be comfortable with that. There is this fear that the Fed is looking at all of this and saying we're not getting the reaction both from the corporate sector and also from the markets that we need to see in order to drag down inflation back to levels that we're comfortable with say sub 3 percent. Do you think the Fed is going to look at what is happening here with corporate America what it's doing in terms of wages what it's doing in terms of margins and say you know what we need to go harder here. Well look I'm going to leave that sort of fed calls to my esteemed economist Tom Paul Kelly but I was talking to him about this issue recently and one of the things he told me was he said look you know as we get later on in the year if some of the data starts to look a little bit squishy and squishy you know was his quote not mine but he said I do think the Fed is going to sort of acknowledge that you know and I will say we did an investor survey recently guy where we asked people about their faith in the Fed. And it's very very low among investors right now. A big

contingent of people who think they're going to tighten and go too far and impinge on growth. And then there's another decent contingent who think they're going to continue to let inflation go out of control. I would say might be I have a little bit more faith in the Fed than either of those camps. And like Tom said we'll continue to sort of look at the whole picture as the year

progresses. Lori CAC the head of U.S. equity strategy at RBC Capital Markets we thank you so much for your time your insight as always. Let's turn to one of the top movers of the day. Twitter shares higher as Elon Musk makes an unsolicited 43 billion dollar bid for the social media company. For more let's bring in Eagle Iranian Wedbush Securities managing director for equity research. Eagle has a neutral rating on Twitter with a 42 dollar price target. You go. Thank you so much for joining us. We'll get 20 Twitter shares right now about hovering about forty seven dollars. The bid I believe was for over fifty four dollars. As Guy and I are both puzzled about why is the stock so low.

Well stocks up materially from before you came into it. I think what what the stock is telling us right now is that there's uncertainty whether the board accepts this offer or not. It's not a given just as he offered no foreknowledge. Shared doesn't mean boards can accept that. And so there's some hedging around that price. That's why why we're at right now. Okay. Let's just talk about the kind of the the the question that underlies all of this. The offer is a take it or leave it. And maybe the stocks trading

lower because maybe ultimately the market believes that the board says we're going to leave it and then and then Musk walks away and and everything changes and the stock goes down. And I'm wondering whether that's the scenario that's ultimately being priced in here. Do you believe that this is a take it or leave it issue. So there's a couple of things in there. First of all I'm not take it or leave a point. Maybe maybe not. I could be a negotiating tactic. You know a mosque is it's known to change his mind. And just because he kind of put it out there that this is a take it or leave it offer doesn't necessarily mean that that's the case.

You know God is coming at this from point of view of you know Twitter needs to be better about free speech. And it plays a really important role in society. And you know his view that Twitter and its management and board hasn't hasn't done that justice over time. So if that's really what he's going after here and giving it a higher offer and thinking about valuation with the right prices I don't think that that shouldn't be what it's about. Right. It's about him taking control and doing whatever he believes the role it should play in society. So no I don't think just because he said that is final offer necessarily means that it is you know what happens to the stock if he does walk away and ends up sitting at stake. You know there's probably some volatility and some downside there. It puts more pressure on Twitter board

and CEO to you know to put up the kind of results that will make investors confident in the story that you know it's user growth and its revenue growth are on track to meet the targets that they've set. So definitely puts a higher hurdle especially where the stock is today versus where it was just a few weeks ago. You know one of the interesting narratives I think of the last couple of years when it comes to Twitter was what might happen to Twitter when President Trump left office. And we know of course President Trump is very active on the platform. I'm curious what happens to Twitter shares if for some reason Elon Musk as you pointed out could potentially leave this offer and this deal could not go through. But you wouldn't. Musk is perhaps equally or even more active than President Trump on Twitter. Does that eat into the brand value of Twitter.

If you're asking I feel I must leave. Leave the platform and stops using Twitter as a platform himself. Or if he simply doesn't choose to go through with the deal. Really any of those circumstances. The idea here that you alone must perhaps not as active on Twitter as a as a board member or even as an active participant. So look I think what you bring to the table for Twitter.

Which makes sense and the strategy here is more valuable in a private environment than it is in the public environment. What public market investors will value in Twitter are different than what Musk is valuable Twitter for. For investors it's about user growth. It's largely really about user growth but it's about monetization of those users where where Twitter fits in the digital advertising social media landscape. I mean it's about you know the numbers right. That's that's the graph has for for for for public market investors. So if he reads I'm not sure that if you would have joined I'm not sure what the value would have been that would have brought to the table there from a public market investor side in terms of whether he'd you know if he backs away and sells a stake and doesn't use Twitter platform anymore I think Twitter is bigger than any one individual user. Obviously you know it must be a big personality. I think there's

so much more to it than that. You wonder what the future of President Trump on Twitter would be. Post an must take over. That's an interesting question. Will pop baffle for a moment. Ego. Let's talk a bit about Twitter versus Tesla. This is a very big check potentially on Musk is about right. Is this a zero sum game. Is he ultimately if he wants Twitter. He has to sell some Tesla. I mean maybe if he if he puts up the whole thing himself he would likely partner with the consortium to bring in some private equity and other investors with them. I think that's the most likely scenario that he teams up with others. He will be

the largest shareholder I'm sure will put more than a 9 percent stake he has right now. My guess is there will be others that come along for the ride. Ego great catch up. Thanks for the analysis really appreciate it such a fascinating day we've been kind of building up to this over the last few weeks haven't we. Ego the Union of Wedbush Securities. Thank you very much indeed sir. What are we going to talk about next week to take you back to the earnings season. Wells Fargo's analyst call currently under way. We've just been hearing from CEO Charlie Scharf. He's talking about wage pressures. He's actually talking about them coming down a little bit talking about maybe being not as great as they were in the

fourth quarter. We're going to bring you the highlights from all the results we've seen today. And we've got what we're getting on these calls. That's coming up next. This is Bloomberg. This is Bloomberg Markets CAC Gupta. You're looking at a live shot of the principal room coming up Julian Emanuel of Evercore

ISI. He's joining Bloomberg Markets Close at 330 p.m. in New York. This is Glenn Beck. A huge day for Wall Street earnings. Goldman Sachs Morgan Stanley Citi and Wells Fargo all out with research results excuse me earlier today trading was better than expected in the quarter. Wells Fargo analyst call is underway and cities will start in about 10 minutes. Bloomberg Wall Street reporter Sonali Basak has been on the calls. She joins us now. I think one of

the key takeaways from these results is going to be these enormous feats on trading revenue essentially a winning streak that hasn't quite quit yet. I think it's fair to also assume a lot of this is coming off simply the elevated volatility that we've seen. But generally I'm looking at a VIX handle of twenty one which is pretty close to our post pandemic normal. What happens when the volatility goes away. And we've talked about this that volatility could have been very stifling. But there are certain businesses that really blew through the roof here. We have Goldman Sachs which posted not just a beat but a significant rise in fixed income trading currencies commodities helped by that volatile rates and commodities environment. We

also saw Morgan Stanley fall just in line about where they were last year. That's more than two point nine billion dollars for Morgan Stanley and fake trading revenues which is higher and higher than the historical that we've seen from Morgan Stanley before really inking more than two billion dollars there. Even Citigroup even with a slight decline in the fifth business you did have them beat expectations and equities. Also you had equities. Morgan Stanley taking the lead again here with more than three billion dollars more than the almost three point two billion dollars worth of equity trading revenue in a very tough environment. Pretty. These banks used to make a lot of money in Russia. They're not

going to make that money going forward. Charlie what have you learned about the exit from the Russian market. Yeah this is a great question because we're finally seeing how these losses are being contained. Citigroup we knew was the most exposed here. And we know now that their exposure has dropped by about two billion dollars to about seven point eight billion dollars guy. And they still have loans. They still have a counterparty exposure and derivatives. But with that said it is much more calm tamed. And we know that it's about a billion dollars with a Russia exposure alone when it comes to Citigroup's provisioning here. Another nine billion dollar. Nine hundred million dollars I'm sorry when it pertains to other risks surrounding the

uncertainties of the Ukrainian invasion here. Shelly there is a massive debate. Are we in it for a recession. Is that on the horizon or are we simply in a slowing growth demand destruction kind of environment. Where do the banks stand on that. We know Jamie Diamond has been extremely vocal say that consumers find the economy is fine for the rest of the banks. Not only do you have Jamie Diamond saying that the risk is still very low of the recession or rather the CFO saying that you also have David Solomon today really starting off his call here with a list of risks. One of them and he mentioned a couple times at the beginning of this call this risk of accelerating globalization here. And he said that plus the inflation impact the risk of

rising rates all of this could be meaningful as what he said for markets. With that said the backlogs. Goldman Morgan Stanley are still robust are still very stable. And it seems clear from the bankers that clients are simply prolonging activity here in equity debt and equity markets. And you saw that a little bit today guys from Elon Musk.

Yeah. Well yeah. So let's talk about the outlook for advisory. What is it. It's is Musk represented by Morgan Stanley Goldman's representing Twitter. What are they talking about. Aside from that in terms of the outlook for advisory it clearly is slowing down. We were talking to Laurie Calvert Senior a little bit earlier and she was saying that the one thing that they getting as they screen all the earnings calls is that the talk of MBNA has gone down and gone down dramatically. I think there's two

things to remember here guy. And it's that as equity value volatility as it stabilizes a little bit and if valuations are suppressed that gives some opportunity for private equity to start showing up in a bigger way in deploying capital after record fundraising. The other thing here is that you see billionaire land deals. You see it in the Benetton. You see it. And Elon Musk. Elon Musk by the way has counted Morgan Stanley as a banker before. They have hired them to do many a jumbo loan

for Elon Musk mortgages here. So you see here the bank says they're catering to their wealthy individuals as they're catering to their corporate clients. They are finding chances for big deals in between. Shelly very quickly you mentioned fundraising in particular. We talked about the advisory business. Talk to us about the ECM DCM businesses. Well the ECM that IPO activity was a record last year and it really started to fall off at the beginning of this year. Again it's one thing for the investors really to say that this is something where they're prolonging equity raising activity. But the Edmund A. Goldman still I have to say Goldman Sachs still bought in more than a billion dollars worth of advisory fees alone. And Morgan

Stanley saw their fees more than double on the advisory business. So underwriting is really what's going to have to come back in a bigger way here. Jihye Lee is going gonna keep track of these calls. She'll be back a little bit later to update us on what we're learning. Liv Sonali Basak thank you very much indeed. This is Bloomberg.

2022-04-20 14:52

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