April 17, 2025 • 38 mins
On this special holiday edition of Bloomberg Daybreak US edition, host John Tucker discusses President Trump recent criticism of Fed Chair Powell with Michael McKee and Stuart Paul. He also talks about ETF inflows with Eric Balchunas and looks at the future of antitrust litigation with Jennifer Rie.
See omnystudio.com/listener for privacy information.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
All right, thanks so much for joining us with a
special edition of Bloomberg Daybreak, the US stock market close
for the good Friday holiday. I'm John Tucker, and coming
up this hour a look at where the anti trust
investigations against big tech stand under the Trump administration. We're
going to speak with Jenniferree, senior litigation analysts with Bloomberg Intelligence.
Plus we have seen our share of market volatility so
(00:24):
far this year. We'll go inside the markets with Eric Balchunis,
the senior ETF strategist at Bloomberg Intelligence, and Jess Metton
of the Bloomberg Stocks team. But first we're going to
focus on the future of FED, Shair J. Powell and
what's in store for the economy amid the trade wars.
We're pleased to welcome Bloomberg International Economics and Policy course.
But Michael McKee and Stuart Paul us economists with Bloomberg Economics.
(00:49):
So the posting from President Trump said it all. Trump
says Powell's termination can't happen fast enough. Well, it's so
much for FED independence, is it really? If he's threatening
it sounds like a thread against Powell. Is he threatening
Powell or threatening FED independence? Or both.
Speaker 2 (01:07):
Nice, Fed, you got there too bad if something happened
to it. Right, in theory, he's threatening Powell, but does
he really mean termination in the sense of I'm going
to fire him. That's an open question because there are
court cases right now about what power the president has
(01:28):
to fire the heads of independent agencies, And while they
don't exactly correlate to the FED, there is a feeling
that if the Supreme Court were to rule that the
president has unfettered power to fire the heads of agencies,
that he could try to fire Powell. It all may
be moot because Powell's term as chair is up in
(01:51):
May of next year, so Trump could be just talking
about him leaving as the FED chairman.
Speaker 1 (01:59):
And it's still so the independence of the FED. We
can go back to the Knicks administration when the President
had one of his economic people become the Federal Reserve chair.
That was Arthur Burns. We know what happened there.
Speaker 3 (02:13):
That's right. So there's no such thing famously as a
free lunch in economics, But if there is one thing
that comes close, it's central bank independence. Countries that have
independent central banks have lower, more stable inflation. Countries that
are more heavily influenced by the political process their central banks,
when they're determined by by political actors, when there are
(02:34):
political appointees, when they have less independence, you tend to
get higher, less stable inflation. I think that Mike is right.
This might end up just being a moot point, and
folks in the administration could encourage Trump to just wait
out Powell's term. And the real question is, then, who
would we end up seeing filling the.
Speaker 1 (02:54):
FED chair role.
Speaker 3 (02:56):
Would it be someone like Trump had rolled out as
potential appoint point ease in his first term, people like
Judy Shelton, who would be a bit more hawkish, or
would it be somebody a bit more dubbish than so
much of his proposed policies would require someone quite a
bit more dubbish.
Speaker 2 (03:12):
If you'd like a great conspiracy theory though John that way,
Oh sure, that would really fascinate the markets. Suppose that
Donald Trump does try to fire Powell, and to a
certain extent is successful. Obviously, the FED would fight that
there is no opening on the FED to fill a
(03:34):
governor's job. Powell would still be a governor of the
Federal Reserve and until January. In January, there's an opening,
so he could appoint somebody who's the FED chair and waiting.
It is also possible that if Powell were gone, he
could as chairman, he could appoint that person. But the
Open Market Committee that makes interest rate decisions is a
(03:55):
separate body from the FED itself, So the Open Market
com could just rename Powell as chair, and you could
have a chair designate for the Fed who is not
the chair making decisions on interest rate policy.
Speaker 3 (04:10):
That's a really important and interesting point. We've had a
little bit of an experience, a little bit of an
experiment with Michael Barr, the former Vice Chair for Supervision.
Of course, the administration as it was coming into office
was eyeing who could take the Vice Chair for Supervision role,
someone perhaps a little bit more lenient on banks than
Barr was. Barr preempted that by resigning his role as
(04:35):
Vice Chair for Supervision but retain the title of governor.
To your point, and what that sort of did was
that it created an opening for the Trump administration to
offer somebody up who's already a governor in this case
Mickey Bowman, and in theory, the Trump administration if Powell
were to take that route, lose his chairman's role, but
(04:55):
stay on as a governor, totally departing from convention.
Speaker 1 (04:58):
But if that were to be.
Speaker 3 (04:59):
The case, it would be somebody like Chris Waller, currently
a governor, who could step in and fill that share role.
Speaker 1 (05:06):
Well. On Wednesday, speaking in Chicago was the FED Shair
Jerome Powell, and here's part of what he had to say.
Speaker 4 (05:14):
The level of tariff increases announced so far is significantly
larger than anticipated, and the same is likely to be
true of the economic effects, which will include higher inflation
and slower growth.
Speaker 1 (05:26):
So it doesn't sound like there's going to be a
FED put.
Speaker 2 (05:31):
No, And he addressed that specifically. He was asked would
you step in? And he said no, because.
Speaker 1 (05:37):
I should explain to everybody listening what a FED put is. Basically,
you get to backstop the market if things really could
start to go haywire.
Speaker 2 (05:45):
The FED, and this has long been in their position
that the FED doesn't interfere when there is money being
lost in the markets because the markets are going down,
that's not their job. But if trading is interrupted, if
there is a systemic problem, if there are all sellers
and no buyers as we saw.
Speaker 5 (06:04):
If there's problem with the plumbing right, he's going to
whether FED would do something to open open the pipes,
But no, they're not going to rescue the markets.
Speaker 2 (06:14):
And his suggestion that inflation is going to be worse
because the tariffs are worse just tells the markets that
the Fed's going to be very slow to think about
cutting rates in the future, which is why we saw
an additional reaction after the markets were already down on Wednesday.
Speaker 1 (06:31):
So still you want to weigh in on that, pal says,
you know, maybe inflation, maybe employment, they're going to be
impacted by the tariffs, And I got to wonder also
if that's kind of what set President Trump off.
Speaker 3 (06:43):
It's it's interesting to see the market in the context
of the FED put right now, markets are pricing at
about ninety bases points of cuts this year. We think
that's so that's so off from reality. As you heard,
it's sounding which direction, that's way too many cuts that
are pre thin in our view. It's as we heard
(07:03):
from Chairman Pally, Yes, we're likely to see slower growth,
We're likely to see some inflation pressures.
Speaker 1 (07:08):
The question would be which does the FED.
Speaker 3 (07:09):
Care more about. In the same breath, we're also hearing
from the chairman that we're very close to the full
employment that the FED is a maximum employment that the
FED is charged with trying to achieve as part of
its dual mandate. And if you have upward inflation pressures,
then it's likely to be the case that the Fed's
going to maintain it's higher for a longer position. So
(07:30):
we don't see a FED pull looming. We see ninety
basis points of rate cut price, then it looks a
little bit crazy to buy eye.
Speaker 1 (07:37):
What's the data been telling us, the hard data and
even the soft data which measures I guess sentiment.
Speaker 2 (07:43):
It's really hard for the FED right now because the
soft data is awful and the hard data is so
far so good. Pyle said Wednesday, labor market's in good shape. Thursday,
we got a decline in initial jobless claims that sort
of suggests that that is the case. But we also
saw the Philadelphia FED report a collapse in business confidence
(08:03):
in their district during the month of April that portends
bad things for the economy. But also they reported that
inflation expectations went up among manufacturers in the Philadelphia region,
So they're kind of caught in between. The question is
does all this negative sentiment actually change business and consumer decisions,
(08:30):
and that'll take us a couple of months to see.
So we've fed. Even if they were going to have
to move one way or another, they're not going to
have evidence until we get to maybe July that would
tell them one way or another what's going on?
Speaker 1 (08:48):
Just tangentially, since you mentioned the Philly FED, who's Anna Paulson.
Speaker 2 (08:53):
Anna Paulson is the new incoming president of the Philadelphia FED.
Speaker 1 (08:57):
She's currently and this is somebody who's not picked by
the president.
Speaker 2 (09:00):
Of the board of directors of each bank picked there on.
The FED Board of Governors has veto power, but they
can't other than that influence it. She's the research director
at the Chicago Fed. Patrick Harker. The current president has
to retire under FED rules in at the end of June,
so she'll take over July first.
Speaker 1 (09:22):
All right, Stull, I'm going to ask you to sort
of school us on tariffs. The President has said so
far it's brought in billions the tariffs bill. Who pays tariffs?
I mean, remind everybody when the stuff comes in from
I don't know wherever China comes into Port Nork, Elizabeth
not far from here. The guy who picks it up
(09:42):
is the guy who pays the tariffs.
Speaker 3 (09:44):
Essentially, essentially yes, when the real question is.
Speaker 1 (09:49):
The tariffs aren't charged in China as they leave the
port by some you know, anonymous US official. It's you
pay it here.
Speaker 3 (09:56):
Sure, But just like all taxes, the real question is
who bears the incidents of the tax or who bears
the burden of the tax. Does the imposition of attacks
take more out of margins or can companies then pass
along higher prices to consumers. Separate from who has the
legal obligation to cut the check for the tariff, what
really matters is the incidence of the tariff and how
(10:17):
much firms can pass along higher input costs to consumers.
We see from surveys like the pmis that firms are
facing higher input costs. They report that they are trying
to pass along higher prices. We see that in the
regional FED indices like we saw from Philly earlier last week.
(10:38):
But the main question is just how demand destructive are tariffs?
How demand destructive is uncertainty and how much can tariffs
get passed through to consumers. Basic FED models would suggest
that the level of the average effect of tariff rate
would create an additional two percentage points of corelation. Personally,
(11:01):
I think that that's probably a little bit high, because
I do think that the degree of demand destruction that
comes from effect that from the average effect of ta
RAID being above twenty percent is going to limit the
extent to how much firms can pass along those higher
input costs.
Speaker 1 (11:16):
And Mike, one of the stated purposes is to re
sure bring employment back to the US to make all
this stuff that's being made over It seems to forget
the idea that it's basically labor arbitrage. Why stuff moved
overseas to be produced in the first place, because it's
cheaper to do so overseas, not to mention the fact
that with productivity gains, it takes fewer people here in
(11:39):
the country to make the stuff that we used to make.
Speaker 2 (11:42):
Yeah, and there's also the cost of shipping you have
to put into this as well. The cost advantage in
terms of labor is starting to fade as other countries
raise their living standards, but it's still an important input.
But the problem that you have here is that nobody
(12:06):
knows what Donald Trump is actually doing. We don't know
what tariffs are going to be put on, and we
don't know how long they'll last, and we don't know
how he'll change his mind. So if you're a company
planning a major expansion and investment in some sort of factory,
you don't know whether it's going to be worthwhile or not.
(12:27):
So it's going to really be hard to justify moving
in and that is going to hold the president back.
Now he's talking about making deals with trade deals with countries.
That's not going to bring any factories back.
Speaker 6 (12:43):
All right.
Speaker 1 (12:43):
Thanks to Bloomberg International Economics and Policy correspondent Michael McKee
and Stuart paul Us economists with Bloomberg Economics and just
a hand to look at how the market politicity is
impacting the retail investor in the world of exchange traded funds.
It is twenty minutes past the hour is Bloomberg. Welcome
(13:06):
back to the special edition of Bloomberg Day Greek. I'm
John Tucker. The US stock market closed for the Good
Friday holiday. The ongoing tariff saga has made for historic
moves in the stock market, and for a look at
how it's impacting the retail market the exchange traded fund industry,
let's bring in Eric bellcunis, the senior ETF Strategies at
(13:26):
Bloomberg Intelligence, and just met in Deputy team leader of
Equities at Bloomberg News. Hi, guys, thanks for being here. Hey,
where is money flowing these days?
Speaker 6 (13:36):
Believe it or not, it's in the US. A lot
of investors who are using ets putting that money into
US stocks, so risk assets.
Speaker 1 (13:46):
I would have guessed just the opposite. Everybody's hiding under
a rock.
Speaker 6 (13:51):
Well cash like ets and gold have done better than normal,
but they haven't interrupted to sort of flow us on
as we call it, into US stock ets. So if
you were to look at the stocks on I don't know,
any period this year, you're going to see stock of
ETFs like VU, which is the Vanguard, SMP five hundred,
(14:11):
IVV which is the black Rock SMP five hundred, the
QUES are in the top ten. It got some little
bit of value and growth in there.
Speaker 1 (14:19):
Ces for everybody because you have to explain it to made.
Speaker 6 (14:22):
So yeah, So SMP five hundred is like the five
hundred biggest stocks. The QUES is the NASTAC one hundred.
The stocks that list on NAZAC and they tend to
be like more tech and innovative, so it's a little
more high volatile, and the Nastak one hundred over time
has done way better than the SMP, but it can
(14:44):
go down further in his selloff, and it has it's
draught out and has been rougher than the SMP, but
people still buying it. We got about ten billion into
both the QUES ETF So I think what's going on
is this, over the last fifteen years, the trail crowd
has been rewarded for buying the dip, and so they
are buying the dip still. And there's been a couple
(15:06):
of days in this tariff tantrum where the dip has worked.
You know, there's like a huge run up, and so
those you know, quick boosts up inter of these down
weeks or days are going to keep them coming back.
And then the retail crowd, the sort of buying holders,
I think a lot of them over the years have
just thrown up their hands in terms of market timing.
(15:27):
I think they're just like, I can't time this stuff.
I mean, after COVID, like who could have timed the
FED buying ets and the market rallied and had a
good year. So I think a lot of them are like,
I'm not even I'm tuning out. I got a good
cheap ets. I'm just got a dollar cost average until
the sun goes down and I retire, and that's that.
And so we call that the vanguard put in that
(15:48):
in a market that's going down, there's the FED put
that they might step in. Now there's the Trump put
that he might reverse, but we also the vanguard put.
There's a just a bunch of retail investors who are
just gonna buy them matter what, and it does help
buffer these downturns a little bit.
Speaker 1 (16:03):
Jess. So you've seeing kind of the same thing. What's
your perspective sitting at the equities desk?
Speaker 7 (16:08):
That's right. We like to look at the individual stocks
as well. That I'm sure Eric looks at two and
Emma Woo over at GP Morgan, she heads up their
derivative strategy and she always collects a lot of great
data for individuals shares, especially when it comes to retail
specifically and what they're buying. And we've begun to see
more of a divergence here in two particular popular names
(16:28):
that we constantly talk about. So if you look at
the inflows recently into Tesla, those are still going into records,
whereas the outflows from Nvidia those are breaching record levels too,
so you're seeing those going in opposite direction. What's the
reason it's important is because typically when I'm talking to
fund managers, they're keeping a close eye on their clients
and what, especially on the retail side, what they're willing
to let go of and what they're not willing to
(16:49):
let go of, because you can use that as contrarian indicators.
Because for a while, especially the last two years of
the AI boom, of course, people were going to continue
to pile into shares like in Vidia, and it's still,
of course well off of its record reach just earlier
this year, because it's been on up and up the
last few years. But now you're starting to see that
shift a bit with retail versus Tesla, though people are
still piling in despite that stock being well off of
(17:12):
its all time high back in December, So that's what
you're seeing a divergence there. So it's going to be
interesting to see how that impacts its stock price because
typically people's and air can talk more about this. People
like to talk about when retail sort of throws in
the towel if that can be contraired, and that's kind
of the bottom overall of the market. But of course
I'm sure he remembers like in the depths of COVID
in twenty twenty, everything happened so fast where retail investors
(17:34):
didn't have time to make a lot of changes and
then they ended up not necessarily throwing in the talent
getting that call right.
Speaker 1 (17:39):
You also look at who's investing in their own company,
corporate to inside, yes, what are they doing in these
troubled times?
Speaker 7 (17:49):
And the reason we look at corporate insiders because there's
a variety of reasons that they could still buy. But
if you have a situation like this, especially with the
broader market in a correction and even the NAZAC one
hundred obviously in a bear market, you want to see
what are corporate insiders doing. Are they still continuing to
buy more of their stock, because that can give you
confidence of what they see for their businesses as well
as the economy, And you're actually seeing that happen right now.
(18:10):
So corporate insiders still scooping up shares of their own
companies at the fastest pace in about sixteen months, So
that would have been when the S and P was
last in a correction in the fall of twenty twenty three,
so that is something in the nearer term that's giving
investors and portfolio managers more confidence that corporate insiders are
doing that.
Speaker 1 (18:24):
Hey, guys, active versus passive investment management, that's been a
debate going back and forth for years and years In
times like this, Eric, let me start with you, do
the active managers perform better than you know if I
stuck my money into it just an index fund.
Speaker 6 (18:47):
Yeah, So what's interesting is it depends on what fast
the class you're talking about. David Cohen, who covers active
and mutual funds for US, did a study. He just
looked at the crazy week, you know, the week where
everything just was wild and the market was down a lot,
and he just wondered how actas did And what we
found was interesting. On the stock side, that beat rates,
the outperformance of the index rates doubled the average. So
(19:11):
stock pickers over the last couple of years they've not
been able to sort of buy the MAG seven at
the same rate as the benchmarks, so they've been lagging
because the MAG seven has done so well. But that
actually pays off in the selloff when the MAG seven
goes down worst to the benchmark. And I think it's
because stock pickers tend to be looking at fundamentals and
(19:33):
some of the evaluations of the MAG seven were getting
high and they were like, I need to buy more value,
and that allowed them to outperform during this rough patch.
On the flip side, the bond investors, who normally outperform,
they actually got their beat rates cut in half because
bond investors they actually benchmarked against the indexes that are
(19:53):
weighted by debt, you know, whereas the SMP is an
index weighted by market caps, so it has momentum in it,
but benchmarks are not that good. They're waited by debt
equate it to playing the Washington Generals, which is the
scene the Globe Shutters play. It's just a poor, easy
to beat up team. All you do is aut a
little high yield or international and you're good. And so
what happens though, in a crazy sell off where you
(20:16):
have treasuries doing good, the ag actually or their benchmark
beats them, so they actually have more risk typically, and
then you hit a sell off, they underperform more. So
it is really an interesting dichotomy between the two, but
for both of them. The problem without performing in a
rough market is people don't care as much. We've found
(20:37):
that if you beat the market like the markets in
the market's down twenty percent and you're down fifteen, it
doesn't do a lot like it's unfortunate, like you should
get rewarded for that. That said, if you can go
down fifteen when the market's down twenty, that could help
you when the market goes back up over a year
or two. Now you've got some credits from beating it
when it was down, and maybe you outperform. You're up
(20:59):
ten the market's up eight, that's when it can pay off.
But right now all the active stuff bonds and stocks
on the mutual financyeing outflows. So this outperformance doesn't matter
in the short term. It could matter long term. But
it's interesting the way it's different depending on which as
class you look at.
Speaker 1 (21:15):
You're listening to Bloomberg Daybreak. I'm John Tucker, and we're
talking with Eric Valchunis, Senior ETF Strategies as Bloomberg Intelligence,
and Jess Meant and Deputy team leader of Equities at
Bloomberg News. Jess, you've been writing about the death cross.
That's ominous. What is that?
Speaker 7 (21:32):
Okay, I know it sounds ominous, but I'll break down
why it not necessarily always is and typically what you
would happen in this and you can use this for
indexes as well as individual stocks, so this particular exactly,
so this is what happens when the S and P
five hundreds fifty day moving average, so it's shorter term
moving average, crosses below it's longer term two hundred day
(21:54):
moving average. So when stocks are in an up trend,
typically you wouldn't see that happen like the last two
years of the AI run. But when you begin to
see a correction like this happening, that's when you see
the shorter term moving averages move below it's longer term
moving averages. So typically people want to point that out
because it sounds like doom and gloom, because that happens,
say during the dot com era in nineteen ninety nine,
(22:15):
also in October two thousand, right after the stock bubble
burst earlier that year that march. You also saw it
happen in December two thousand and seven, right ahead of
the global financial crisis, and of course it happened in
March of twenty twenty. But again I want to point
out that that's.
Speaker 1 (22:30):
I mean, we're we're not calling it a good indicator.
We're not well.
Speaker 7 (22:34):
It depends on how severe an economic downturn is, because
if you go back since the fifties, this has happened
over forty times, So people want to point to kind
of the handful of times that it has happened. But
even in COVID when it happened in March of that year,
it happened on March thirtieth, whereas the stock market bottomed
on March twenty third. So it doesn't always work. I mean,
since nineteen fifty, the S and P five hundred had
(22:55):
posted a meetiing loss about seven tents of a percent
a month later, but if you look three months out,
it was about a two sent game for an index
in a year later ten percent on average. So really
what hinges it on is is there a more severe
economic downturn or not. We don't necessarily know that yet,
but that's why people watch it, because it depends on
how much further pain could be happening. So sometimes it's worked,
other times it hasn't.
Speaker 1 (23:15):
All right, so if you want to preserve your money. Eric,
it sounds like the death crosses here. Where in the
ETF world do you put money to preserve your cash?
Speaker 6 (23:29):
Yeah, some of the names for the technicals are pretty clever.
The golden cross, I think is what you want to see.
I think that happens. Hopefully down the road we'll get
a golden cross. But yeah, So what we found is
even though there's a lot of buying of US docks
like normal, what you do find is the cash like ets.
(23:49):
So Eskov and Bill these are the second and third
best selling ets this year after vu Escov and Bill
did the same thing, which is they're probably the two
most boring ets one to three or one to three
month treasuries. So it's literally like a money market fund.
So a lot of people are hiding out. That's probably
the safest, most organic way to sort of hide out
(24:12):
when things are rough. In my opinion, there's no catch there.
There's some other things people do to kind of hedge,
you know, one thing they do they might use a
one time inverse ETF like SAH that we have seen
people do. But there's a little bit of volatility drag
that can corrode your investment long term so you kind
of have to, like, you know, watch that thing. You know,
(24:33):
it's not totally natural. Some other people are looking at
treasuries long long data treasuries, but they kind of had
a couple bays and periods there where they went down
with stops. And this is something that's an interesting point
is that bonds, you know, especially as you go along
the curve to the mid and the long long data section.
(24:54):
You know, people buy those thinking that's the forty to
hedge their sixty, but it's become less reliable. Seen twenty
twenty two, bombs were down thirteen percent, stops are down
eighteen percent. And so what we found is a lot
of people use buffer ets now, which are ets and
like structure products, they use options basically to target an outcome.
So you buy one of these and it will tell
(25:16):
you you're only going to get a five percent no more,
or you take the first ten percent, or you know,
we'll cover the first ten percent. Anything beyond that is
on you or hey, no downside hedge, and every one
of the sort of situations you have to give up
some upside. So it's basically an option strategy package into
an ETF. But people like these because unlike bonds which
can be shaky, or these other hedging instruments for to
(25:39):
have like technical things that corrode your money.
Speaker 1 (25:42):
Eric, thanks very much, appreciate it. Eric Balcunas, the senior
ETF Strategies at Bloomberg Intelligence, and Jess Manton stopping by
the studio today at Bloomberg News. Up next, the latest
and the government's effort to break up Facebook owner meta platforms.
Thirty eight minutes past the hour. This is Bloomberg and
(26:04):
thanks for joining us for this special edition of Bloomberg Daybreak.
The stock market closed for good Friday holiday. Hi there,
I'm John Tucker. Well, big tech has been in the
crosshairs of US anti trust agencies and so far it's
continuing under the Trump administration. Let's get the update on
where all these cases stand, and we bring in Jennifer Ree,
senior litigation analyst with Bloomberg Intelligence, to go over it
(26:27):
with us. Well, let's start with the courtroom drama. It's
got it all. A billionaire witness on the stand, smoking
gun emails, paranoia and even cutthroat competition. We're talking Mark
Zuckerberg's Meta on trial. It's the Federal Trade Commission. Jen
trying to break up Meta and force it to sell
(26:48):
Instagram and WhatsApp. Why is the government going after Meta?
I mean I thought they were kind of hands off
in the Trump administration.
Speaker 8 (26:56):
Well, I think that's what people expected to happen, but
we're not really seeing very much evidence of hands off
approach when it comes to big tech yet. You know,
Meta was first sued during the first Trump administration. And
what the FTC is saying is that these acquisitions that
men have made now back in twenty twelve, in twenty fourteen,
have you of Instagram and WhatsApp, we're anti competitive. That
(27:17):
the only purpose for buying the companies by Meta at
that time, Facebook was to just take out a potential
competitor that they were very concerned about both of these apps,
that they would eventually grow to become something more like
Facebook and then prop you know, possibly supplant them in
the market, and that they had a strategy to either
bury a competitor or buy a competitor in order to
(27:39):
eliminate that rival. And that's what they did here.
Speaker 1 (27:41):
Well, I mean, there's no denying they bought up successful rifles.
Sounds to me on the surface case closed.
Speaker 8 (27:48):
Well, the interesting thing is That's what makes this case
so difficult because based on the documents you mentioned, these
hot documents, we've been hearing about Zuckerberg's emails.
Speaker 1 (27:59):
Yeah, quote unquote smoking good, right, he was what are
he's saying those?
Speaker 8 (28:03):
You know, he said it's better to buy than compete.
I mean, you don't really get more straightforward than that
in terms of supporting the FTC's case. But here's the thing.
Even if the intent was bad back then you have
to prove more elements than that to win a monopolization case.
It's more than just that intent. You have to properly
define the sphere of competition. You have to prove the
(28:24):
company as a monopoly, and you have to show how
consumers were harmed, and you have to show that that
harm was not outweighed by the pro competitive benefits. And
look at what Meta did after it acquired Instagram and WhatsApp.
It put in a lot of resources to what we're
really fledgling companies at the time that they were acquired.
And they have a good argument here that it was
(28:44):
pro competitive. We may have bought them, but we didn't
bury them. We grew them.
Speaker 1 (28:48):
And the judge in this case has to consider also
something called network effects. Basically, if you're on this platform
they did all this, it's really hard to go anywhere else.
I mean, what are you going to go to a
smaller platform that doesn't have as.
Speaker 8 (29:03):
Many users you need the users you need to be
on it. If you have a lot of your friends
are on it, there is a network effect. But the judge,
you know, some of the evidence that's come out is
that things have changed over time with TikTok and with
x and with YouTube, and that we're moving a little
bit away from that network effect need because people are
multi homing and moving around and sharing data and videos
(29:25):
and information in a different way. And the judge even
questioned whether network effects are as important today as they
were ten years ago.
Speaker 1 (29:32):
So but wait a second here, I just remember the
government approved these acquisitions in the first place.
Speaker 8 (29:38):
Very good point they did. So this would send a
difficult signal to businesses. Now, legally, they have the right
that the laws say, the Federal Trade Commission or Department
of Justice can go after any deal any time. They
can change their mind, and they've said, look, times have changed.
The industry was different back then when we first looked
at these deals, and they did it was about a
(29:59):
six month investigation I think into the Instagram deal before
they allowed it to close.
Speaker 1 (30:04):
There's no jury here, I mean, how does this work?
Speaker 8 (30:07):
Just a judge. It's called a bench trial. It is
Judge Boseberg who's.
Speaker 1 (30:12):
This judge doesn't have enough honest plate.
Speaker 8 (30:14):
He doesn't catch a break. So it'll be his decision,
and he'll first make a decision about liability, whether they're
actually guilty, whether the FTC proved its case. If that's
the case, he will move on to remedy and decide
what is the right remedy.
Speaker 1 (30:28):
And jen we also have two lawsuits against Google parent Alphabet.
On Monday, we're going to get a remedy on Search
because there's there's been a ruling that were found guilty,
so they're going to remedy that. Coming up Thursday, we
actually got a decision on a liability. This comes in
respect to the lawsuit that's focused on digital advertising at Google.
(30:54):
Tell us about that.
Speaker 8 (30:54):
What happened right, Well, you know that one was unexpected.
This decision on liability was expected to few months ago,
and when it didn't come out, everyone was wondering, well,
when will it came out? On Thursday? And it was
a partial victory for the Department of Justice. These products
that the Department of Justice head challenged are very complicated, right.
There are a series of products that Google has that
(31:15):
connect digital publishers and advertisers together, and so they're all
software essentially, and a couple of them are on the
publisher end and a couple of them are on the
advertiser end. And what Google was basically alleged to have
done is sort of manipulate the whole process because fees
are taken out for each of these products that are used,
so that it keeps publishers and advertisers within their whole
(31:36):
supply chain right to place an ad on a website.
Speaker 7 (31:40):
So what this.
Speaker 8 (31:40):
Judge decided was that Google was found liable for monopolization
of what's called the Publisher ad Server, So it's one
of the products on the publisher side. Google actually bought
this product. It was originally called double Click and Google.
When Google bought double Click, it obtained this product also
monopolization of the ad exchange market. That's one of the
advertiser sides. It's in exchange where they can actually come
(32:03):
together to buy and sell ads and for tying the
two of them together. What that means in antitrust is
conditioning access to one to conditioning the access of one
to get the other, and that is illegal under the
anti trust laws. So that came out on Thursday, and
what the judges said is, Okay, here's my decision. The
next step is to have a hearing to decide what
the proper reality is going to do.
Speaker 1 (32:24):
What are we going to do? What do you suppose
the proper remedy remedy with this?
Speaker 8 (32:29):
And of the lawsuit, well, you know, like several of
the government lawsuits against the big tech companies, they will
seek divestiture, forced asset sale, as they're doing FTC's doing
with Meta, as the Department of Justice is doing with
Google on the search case that you mentioned. They will
seek that. I don't think that they'll get that here.
And the reason I don't think so is because I
(32:50):
believe judges are really looking for the most straightforward and
kind of non intrusive way of remedying a problem. And
so if the problem is this unlawful hying, let's say
they're told you have to stop this, you have to
make access unconditional. You can't say you must use one
in order to get the other and again the decision
(33:10):
only recently came out, so I haven't had a chance
to digest it yet looking at hundreds of pages. But
whatever it is, the judge found that Google is doing
that monopolizes the publisher ad server. It's really she'll really
just say you have to stop doing that. That's more
likely than a divest chat.
Speaker 1 (33:27):
Okay, let's move to the other case in which they
were found guilty with respect to the search engine. Right,
are they going to have to get rid of search
Google Search?
Speaker 8 (33:37):
I don't think so. So what's starting on April twenty
first is a hearing also on what the proper remedy
should be since a liability decision was made, and this
was about Google paying other companies, say yeah, Chrome right.
Speaker 1 (33:52):
Just Google Search man.
Speaker 8 (33:53):
Google was paying other companies to install Google Search as
the default behind other search engines at other Internet app
access points in various devices, and basically it locked up
all the distribution points for the use of a search
and so rival search engines couldn't get in there. And
the judge that these default agreements are illegal. So, as
I said, if you're looking at judges that are going
to do the most straightforward thing In my view, what
(34:15):
the judge will say is you cannot force this exclusivity
anymore on all these third parties, on Apple, Samsung making
Android devices, and instead you have to you know, you
can't pay them anymore to put your search engine exclusively
in those positions.
Speaker 1 (34:28):
There are other cases too of what it's Apple, Apple, Amazon.
Speaker 8 (34:33):
Live Nation, Yes, and Visa.
Speaker 1 (34:35):
What are the O Visa? Okay?
Speaker 8 (34:36):
Yeah, Visa. You know, it's the most active that the
government's been in thirty years in terms of going after
big companies for monopolistic conducts. So it's really pretty remarkable.
You know. The last one was to make Microsoft back
in the late nineteen nineties, right, Yeah, and sort of
a smaller case against qualcomby the FTC in around twenty seventeen.
Speaker 1 (34:55):
Right Apple, Now, I get, I mean, I get with
the Trumpet administration, uh and social media, they say it's
bias against the conservative conservatives. I kind of get that.
I don't understand the whole climate though, why it hasn't
changed under what we thought was going to be more
of a laissez fair administration when it came to cases
(35:17):
like this.
Speaker 8 (35:18):
Well, I think that there's always been this anti big
tech sentiment amongst mostly the populist part of the Republican Party.
You know, you have jd Vance who has who praised
Biden's anti trust authorities saying he thought what they were,
that they were doing a good job. And it's for
a couple different reasons. I mean that the alleged censorship
(35:40):
of conservative content is one of them. But I think
in some respects Big Tech is also kind of considered
leftist organization that push liberal ideas that this administration doesn't
really agree with, and I think the intent is to
continue to be aggressive.
Speaker 1 (35:54):
Are these other cases strong in your view?
Speaker 8 (35:56):
No, I actually don't think the case against Apple or
Amazon that you mentioned, both very slow moving, are particularly
strong cases. And for those reasons, as those litigations develop
and move closer to trial, I do think there might
be some possibility of settlements there.
Speaker 1 (36:12):
Explain everybody. This give us a sort of a primer
when we're talking about anti trust cases anti monopolization cases.
It is both the Federal Trade Commission and the Justice
Departments that are in on this right. They bring separate cases,
they work together. How does that work?
Speaker 8 (36:31):
They do? They both have authority to enforce the anti
trust laws, and what happened we understand in this case
is that several years ago, I think this was during
Trump one point zero, the agencies did get together and
they kind of divided up the big tech companies and
FTC took Amazon and took Meta, and the Department of
Justice took Google and took Apple. They started investigations of
(36:52):
the companies which then culminated in these litigations. But that
is how they work. They tend to talk to each
other say who will take on responsibility. They do the
same in the merger space.
Speaker 1 (37:01):
And who are the personalities at the FTC and well
beyond the Justice Department, beyond Pambondi.
Speaker 8 (37:07):
Well, we have an interesting situation at the Federal Trade
Commission now because it is technically supposed to have five commissioners,
only three of which can be from one party. So normally,
with the Republican president, you'd have three Republicans and two Democrats.
But President Trump just fired the two Democrats. So at
this point we have only three Republicans that are running
the Commission, and it looks like it's going to be
(37:28):
that way for some time. The two Democrats have filed
a lawsuit saying that this firing was illegal but obviously
those things take time to work their way through court.
Speaker 1 (37:37):
We know about all these cases that you just went over.
What's next, Well, I think.
Speaker 8 (37:42):
At least in terms of new monopolization cases, I'm not
so sure anything's going to come along quickly, because, first
of all, you know, Trump's enforcers took over the FTC
and DOJ with a lot of workload. They inherited a
lot of cases. They are resources constrained. They've been resource
constrained for many years. Actually, they can only bring so
(38:02):
many cases. And if more mergers begin to be notified
and filed, they're also going to have those that they're
going to have to review, possibly negotiate settlements, possibly even
challenge deals they find to be anti competitive. So I think,
at least with respect to the monopolization space, these are
all going to play out. I don't think we're going
to see very many new cases, all right.
Speaker 1 (38:22):
Thanks to Jenniferree, senior Litigation analyst of Anti Trust with
Bloomberg Intelligence. We would also like to thank Eric Baltoon Is,
Senior ETF strategist at Bloomberg Intelligence and Just Meant and
Deputy Team Leader Equities at Bloomberg News as well as
Bloomberg International Economics and Policy Course meen with Michael McKee
and Stuart Paul Us economists with Bloomberg Economics would also
(38:45):
like to thank you for listening. I'm John Tucker. Stayed
with US top stories, global business headlines coming up right
now
All right, thanks so much for joining us with a
special edition of Bloomberg Daybreak, the US stock market close
for the good Friday holiday. I'm John Tucker, and coming
up this hour a look at where the anti trust
investigations against big tech stand under the Trump administration. We're
going to speak with Jenniferree, senior litigation analysts with Bloomberg Intelligence.
Plus we have seen our share of market volatility so
(00:24):
far this year. We'll go inside the markets with Eric Balchunis,
the senior ETF strategist at Bloomberg Intelligence, and Jess Metton
of the Bloomberg Stocks team. But first we're going to
focus on the future of FED, Shair J. Powell and
what's in store for the economy amid the trade wars.
We're pleased to welcome Bloomberg International Economics and Policy course.
But Michael McKee and Stuart Paul us economists with Bloomberg Economics.
(00:49):
So the posting from President Trump said it all. Trump
says Powell's termination can't happen fast enough. Well, it's so
much for FED independence, is it really? If he's threatening
it sounds like a thread against Powell. Is he threatening
Powell or threatening FED independence? Or both.
Speaker 2 (01:07):
Nice, Fed, you got there too bad if something happened
to it. Right, in theory, he's threatening Powell, but does
he really mean termination in the sense of I'm going
to fire him. That's an open question because there are
court cases right now about what power the president has
(01:28):
to fire the heads of independent agencies, And while they
don't exactly correlate to the FED, there is a feeling
that if the Supreme Court were to rule that the
president has unfettered power to fire the heads of agencies,
that he could try to fire Powell. It all may
be moot because Powell's term as chair is up in
(01:51):
May of next year, so Trump could be just talking
about him leaving as the FED chairman.
Speaker 1 (01:59):
And it's still so the independence of the FED. We
can go back to the Knicks administration when the President
had one of his economic people become the Federal Reserve chair.
That was Arthur Burns. We know what happened there.
Speaker 3 (02:13):
That's right. So there's no such thing famously as a
free lunch in economics, But if there is one thing
that comes close, it's central bank independence. Countries that have
independent central banks have lower, more stable inflation. Countries that
are more heavily influenced by the political process their central banks,
when they're determined by by political actors, when there are
(02:34):
political appointees, when they have less independence, you tend to
get higher, less stable inflation. I think that Mike is right.
This might end up just being a moot point, and
folks in the administration could encourage Trump to just wait
out Powell's term. And the real question is, then, who
would we end up seeing filling the.
Speaker 1 (02:54):
FED chair role.
Speaker 3 (02:56):
Would it be someone like Trump had rolled out as
potential appoint point ease in his first term, people like
Judy Shelton, who would be a bit more hawkish, or
would it be somebody a bit more dubbish than so
much of his proposed policies would require someone quite a
bit more dubbish.
Speaker 2 (03:12):
If you'd like a great conspiracy theory though John that way,
Oh sure, that would really fascinate the markets. Suppose that
Donald Trump does try to fire Powell, and to a
certain extent is successful. Obviously, the FED would fight that
there is no opening on the FED to fill a
(03:34):
governor's job. Powell would still be a governor of the
Federal Reserve and until January. In January, there's an opening,
so he could appoint somebody who's the FED chair and waiting.
It is also possible that if Powell were gone, he
could as chairman, he could appoint that person. But the
Open Market Committee that makes interest rate decisions is a
(03:55):
separate body from the FED itself, So the Open Market
com could just rename Powell as chair, and you could
have a chair designate for the Fed who is not
the chair making decisions on interest rate policy.
Speaker 3 (04:10):
That's a really important and interesting point. We've had a
little bit of an experience, a little bit of an
experiment with Michael Barr, the former Vice Chair for Supervision.
Of course, the administration as it was coming into office
was eyeing who could take the Vice Chair for Supervision role,
someone perhaps a little bit more lenient on banks than
Barr was. Barr preempted that by resigning his role as
(04:35):
Vice Chair for Supervision but retain the title of governor.
To your point, and what that sort of did was
that it created an opening for the Trump administration to
offer somebody up who's already a governor in this case
Mickey Bowman, and in theory, the Trump administration if Powell
were to take that route, lose his chairman's role, but
(04:55):
stay on as a governor, totally departing from convention.
Speaker 1 (04:58):
But if that were to be.
Speaker 3 (04:59):
The case, it would be somebody like Chris Waller, currently
a governor, who could step in and fill that share role.
Speaker 1 (05:06):
Well. On Wednesday, speaking in Chicago was the FED Shair
Jerome Powell, and here's part of what he had to say.
Speaker 4 (05:14):
The level of tariff increases announced so far is significantly
larger than anticipated, and the same is likely to be
true of the economic effects, which will include higher inflation
and slower growth.
Speaker 1 (05:26):
So it doesn't sound like there's going to be a
FED put.
Speaker 2 (05:31):
No, And he addressed that specifically. He was asked would
you step in? And he said no, because.
Speaker 1 (05:37):
I should explain to everybody listening what a FED put is. Basically,
you get to backstop the market if things really could
start to go haywire.
Speaker 2 (05:45):
The FED, and this has long been in their position
that the FED doesn't interfere when there is money being
lost in the markets because the markets are going down,
that's not their job. But if trading is interrupted, if
there is a systemic problem, if there are all sellers
and no buyers as we saw.
Speaker 5 (06:04):
If there's problem with the plumbing right, he's going to
whether FED would do something to open open the pipes,
But no, they're not going to rescue the markets.
Speaker 2 (06:14):
And his suggestion that inflation is going to be worse
because the tariffs are worse just tells the markets that
the Fed's going to be very slow to think about
cutting rates in the future, which is why we saw
an additional reaction after the markets were already down on Wednesday.
Speaker 1 (06:31):
So still you want to weigh in on that, pal says,
you know, maybe inflation, maybe employment, they're going to be
impacted by the tariffs, And I got to wonder also
if that's kind of what set President Trump off.
Speaker 3 (06:43):
It's it's interesting to see the market in the context
of the FED put right now, markets are pricing at
about ninety bases points of cuts this year. We think
that's so that's so off from reality. As you heard,
it's sounding which direction, that's way too many cuts that
are pre thin in our view. It's as we heard
(07:03):
from Chairman Pally, Yes, we're likely to see slower growth,
We're likely to see some inflation pressures.
Speaker 1 (07:08):
The question would be which does the FED.
Speaker 3 (07:09):
Care more about. In the same breath, we're also hearing
from the chairman that we're very close to the full
employment that the FED is a maximum employment that the
FED is charged with trying to achieve as part of
its dual mandate. And if you have upward inflation pressures,
then it's likely to be the case that the Fed's
going to maintain it's higher for a longer position. So
(07:30):
we don't see a FED pull looming. We see ninety
basis points of rate cut price, then it looks a
little bit crazy to buy eye.
Speaker 1 (07:37):
What's the data been telling us, the hard data and
even the soft data which measures I guess sentiment.
Speaker 2 (07:43):
It's really hard for the FED right now because the
soft data is awful and the hard data is so
far so good. Pyle said Wednesday, labor market's in good shape. Thursday,
we got a decline in initial jobless claims that sort
of suggests that that is the case. But we also
saw the Philadelphia FED report a collapse in business confidence
(08:03):
in their district during the month of April that portends
bad things for the economy. But also they reported that
inflation expectations went up among manufacturers in the Philadelphia region,
So they're kind of caught in between. The question is
does all this negative sentiment actually change business and consumer decisions,
(08:30):
and that'll take us a couple of months to see.
So we've fed. Even if they were going to have
to move one way or another, they're not going to
have evidence until we get to maybe July that would
tell them one way or another what's going on?
Speaker 1 (08:48):
Just tangentially, since you mentioned the Philly FED, who's Anna Paulson.
Speaker 2 (08:53):
Anna Paulson is the new incoming president of the Philadelphia FED.
Speaker 1 (08:57):
She's currently and this is somebody who's not picked by
the president.
Speaker 2 (09:00):
Of the board of directors of each bank picked there on.
The FED Board of Governors has veto power, but they
can't other than that influence it. She's the research director
at the Chicago Fed. Patrick Harker. The current president has
to retire under FED rules in at the end of June,
so she'll take over July first.
Speaker 1 (09:22):
All right, Stull, I'm going to ask you to sort
of school us on tariffs. The President has said so
far it's brought in billions the tariffs bill. Who pays tariffs?
I mean, remind everybody when the stuff comes in from
I don't know wherever China comes into Port Nork, Elizabeth
not far from here. The guy who picks it up
(09:42):
is the guy who pays the tariffs.
Speaker 3 (09:44):
Essentially, essentially yes, when the real question is.
Speaker 1 (09:49):
The tariffs aren't charged in China as they leave the
port by some you know, anonymous US official. It's you
pay it here.
Speaker 3 (09:56):
Sure, But just like all taxes, the real question is
who bears the incidents of the tax or who bears
the burden of the tax. Does the imposition of attacks
take more out of margins or can companies then pass
along higher prices to consumers. Separate from who has the
legal obligation to cut the check for the tariff, what
really matters is the incidence of the tariff and how
(10:17):
much firms can pass along higher input costs to consumers.
We see from surveys like the pmis that firms are
facing higher input costs. They report that they are trying
to pass along higher prices. We see that in the
regional FED indices like we saw from Philly earlier last week.
(10:38):
But the main question is just how demand destructive are tariffs?
How demand destructive is uncertainty and how much can tariffs
get passed through to consumers. Basic FED models would suggest
that the level of the average effect of tariff rate
would create an additional two percentage points of corelation. Personally,
(11:01):
I think that that's probably a little bit high, because
I do think that the degree of demand destruction that
comes from effect that from the average effect of ta
RAID being above twenty percent is going to limit the
extent to how much firms can pass along those higher
input costs.
Speaker 1 (11:16):
And Mike, one of the stated purposes is to re
sure bring employment back to the US to make all
this stuff that's being made over It seems to forget
the idea that it's basically labor arbitrage. Why stuff moved
overseas to be produced in the first place, because it's
cheaper to do so overseas, not to mention the fact
that with productivity gains, it takes fewer people here in
(11:39):
the country to make the stuff that we used to make.
Speaker 2 (11:42):
Yeah, and there's also the cost of shipping you have
to put into this as well. The cost advantage in
terms of labor is starting to fade as other countries
raise their living standards, but it's still an important input.
But the problem that you have here is that nobody
(12:06):
knows what Donald Trump is actually doing. We don't know
what tariffs are going to be put on, and we
don't know how long they'll last, and we don't know
how he'll change his mind. So if you're a company
planning a major expansion and investment in some sort of factory,
you don't know whether it's going to be worthwhile or not.
(12:27):
So it's going to really be hard to justify moving
in and that is going to hold the president back.
Now he's talking about making deals with trade deals with countries.
That's not going to bring any factories back.
Speaker 6 (12:43):
All right.
Speaker 1 (12:43):
Thanks to Bloomberg International Economics and Policy correspondent Michael McKee
and Stuart paul Us economists with Bloomberg Economics and just
a hand to look at how the market politicity is
impacting the retail investor in the world of exchange traded funds.
It is twenty minutes past the hour is Bloomberg. Welcome
(13:06):
back to the special edition of Bloomberg Day Greek. I'm
John Tucker. The US stock market closed for the Good
Friday holiday. The ongoing tariff saga has made for historic
moves in the stock market, and for a look at
how it's impacting the retail market the exchange traded fund industry,
let's bring in Eric bellcunis, the senior ETF Strategies at
(13:26):
Bloomberg Intelligence, and just met in Deputy team leader of
Equities at Bloomberg News. Hi, guys, thanks for being here. Hey,
where is money flowing these days?
Speaker 6 (13:36):
Believe it or not, it's in the US. A lot
of investors who are using ets putting that money into
US stocks, so risk assets.
Speaker 1 (13:46):
I would have guessed just the opposite. Everybody's hiding under
a rock.
Speaker 6 (13:51):
Well cash like ets and gold have done better than normal,
but they haven't interrupted to sort of flow us on
as we call it, into US stock ets. So if
you were to look at the stocks on I don't know,
any period this year, you're going to see stock of
ETFs like VU, which is the Vanguard, SMP five hundred,
(14:11):
IVV which is the black Rock SMP five hundred, the
QUES are in the top ten. It got some little
bit of value and growth in there.
Speaker 1 (14:19):
Ces for everybody because you have to explain it to made.
Speaker 6 (14:22):
So yeah, So SMP five hundred is like the five
hundred biggest stocks. The QUES is the NASTAC one hundred.
The stocks that list on NAZAC and they tend to
be like more tech and innovative, so it's a little
more high volatile, and the Nastak one hundred over time
has done way better than the SMP, but it can
(14:44):
go down further in his selloff, and it has it's
draught out and has been rougher than the SMP, but
people still buying it. We got about ten billion into
both the QUES ETF So I think what's going on
is this, over the last fifteen years, the trail crowd
has been rewarded for buying the dip, and so they
are buying the dip still. And there's been a couple
(15:06):
of days in this tariff tantrum where the dip has worked.
You know, there's like a huge run up, and so
those you know, quick boosts up inter of these down
weeks or days are going to keep them coming back.
And then the retail crowd, the sort of buying holders,
I think a lot of them over the years have
just thrown up their hands in terms of market timing.
(15:27):
I think they're just like, I can't time this stuff.
I mean, after COVID, like who could have timed the
FED buying ets and the market rallied and had a
good year. So I think a lot of them are like,
I'm not even I'm tuning out. I got a good
cheap ets. I'm just got a dollar cost average until
the sun goes down and I retire, and that's that.
And so we call that the vanguard put in that
(15:48):
in a market that's going down, there's the FED put
that they might step in. Now there's the Trump put
that he might reverse, but we also the vanguard put.
There's a just a bunch of retail investors who are
just gonna buy them matter what, and it does help
buffer these downturns a little bit.
Speaker 1 (16:03):
Jess. So you've seeing kind of the same thing. What's
your perspective sitting at the equities desk?
Speaker 7 (16:08):
That's right. We like to look at the individual stocks
as well. That I'm sure Eric looks at two and
Emma Woo over at GP Morgan, she heads up their
derivative strategy and she always collects a lot of great
data for individuals shares, especially when it comes to retail
specifically and what they're buying. And we've begun to see
more of a divergence here in two particular popular names
(16:28):
that we constantly talk about. So if you look at
the inflows recently into Tesla, those are still going into records,
whereas the outflows from Nvidia those are breaching record levels too,
so you're seeing those going in opposite direction. What's the
reason it's important is because typically when I'm talking to
fund managers, they're keeping a close eye on their clients
and what, especially on the retail side, what they're willing
to let go of and what they're not willing to
(16:49):
let go of, because you can use that as contrarian indicators.
Because for a while, especially the last two years of
the AI boom, of course, people were going to continue
to pile into shares like in Vidia, and it's still,
of course well off of its record reach just earlier
this year, because it's been on up and up the
last few years. But now you're starting to see that
shift a bit with retail versus Tesla, though people are
still piling in despite that stock being well off of
(17:12):
its all time high back in December, So that's what
you're seeing a divergence there. So it's going to be
interesting to see how that impacts its stock price because
typically people's and air can talk more about this. People
like to talk about when retail sort of throws in
the towel if that can be contraired, and that's kind
of the bottom overall of the market. But of course
I'm sure he remembers like in the depths of COVID
in twenty twenty, everything happened so fast where retail investors
(17:34):
didn't have time to make a lot of changes and
then they ended up not necessarily throwing in the talent
getting that call right.
Speaker 1 (17:39):
You also look at who's investing in their own company,
corporate to inside, yes, what are they doing in these
troubled times?
Speaker 7 (17:49):
And the reason we look at corporate insiders because there's
a variety of reasons that they could still buy. But
if you have a situation like this, especially with the
broader market in a correction and even the NAZAC one
hundred obviously in a bear market, you want to see
what are corporate insiders doing. Are they still continuing to
buy more of their stock, because that can give you
confidence of what they see for their businesses as well
as the economy, And you're actually seeing that happen right now.
(18:10):
So corporate insiders still scooping up shares of their own
companies at the fastest pace in about sixteen months, So
that would have been when the S and P was
last in a correction in the fall of twenty twenty three,
so that is something in the nearer term that's giving
investors and portfolio managers more confidence that corporate insiders are
doing that.
Speaker 1 (18:24):
Hey, guys, active versus passive investment management, that's been a
debate going back and forth for years and years In
times like this, Eric, let me start with you, do
the active managers perform better than you know if I
stuck my money into it just an index fund.
Speaker 6 (18:47):
Yeah, So what's interesting is it depends on what fast
the class you're talking about. David Cohen, who covers active
and mutual funds for US, did a study. He just
looked at the crazy week, you know, the week where
everything just was wild and the market was down a lot,
and he just wondered how actas did And what we
found was interesting. On the stock side, that beat rates,
the outperformance of the index rates doubled the average. So
(19:11):
stock pickers over the last couple of years they've not
been able to sort of buy the MAG seven at
the same rate as the benchmarks, so they've been lagging
because the MAG seven has done so well. But that
actually pays off in the selloff when the MAG seven
goes down worst to the benchmark. And I think it's
because stock pickers tend to be looking at fundamentals and
(19:33):
some of the evaluations of the MAG seven were getting
high and they were like, I need to buy more value,
and that allowed them to outperform during this rough patch.
On the flip side, the bond investors, who normally outperform,
they actually got their beat rates cut in half because
bond investors they actually benchmarked against the indexes that are
(19:53):
weighted by debt, you know, whereas the SMP is an
index weighted by market caps, so it has momentum in it,
but benchmarks are not that good. They're waited by debt
equate it to playing the Washington Generals, which is the
scene the Globe Shutters play. It's just a poor, easy
to beat up team. All you do is aut a
little high yield or international and you're good. And so
what happens though, in a crazy sell off where you
(20:16):
have treasuries doing good, the ag actually or their benchmark
beats them, so they actually have more risk typically, and
then you hit a sell off, they underperform more. So
it is really an interesting dichotomy between the two, but
for both of them. The problem without performing in a
rough market is people don't care as much. We've found
(20:37):
that if you beat the market like the markets in
the market's down twenty percent and you're down fifteen, it
doesn't do a lot like it's unfortunate, like you should
get rewarded for that. That said, if you can go
down fifteen when the market's down twenty, that could help
you when the market goes back up over a year
or two. Now you've got some credits from beating it
when it was down, and maybe you outperform. You're up
(20:59):
ten the market's up eight, that's when it can pay off.
But right now all the active stuff bonds and stocks
on the mutual financyeing outflows. So this outperformance doesn't matter
in the short term. It could matter long term. But
it's interesting the way it's different depending on which as
class you look at.
Speaker 1 (21:15):
You're listening to Bloomberg Daybreak. I'm John Tucker, and we're
talking with Eric Valchunis, Senior ETF Strategies as Bloomberg Intelligence,
and Jess Meant and Deputy team leader of Equities at
Bloomberg News. Jess, you've been writing about the death cross.
That's ominous. What is that?
Speaker 7 (21:32):
Okay, I know it sounds ominous, but I'll break down
why it not necessarily always is and typically what you
would happen in this and you can use this for
indexes as well as individual stocks, so this particular exactly,
so this is what happens when the S and P
five hundreds fifty day moving average, so it's shorter term
moving average, crosses below it's longer term two hundred day
(21:54):
moving average. So when stocks are in an up trend,
typically you wouldn't see that happen like the last two
years of the AI run. But when you begin to
see a correction like this happening, that's when you see
the shorter term moving averages move below it's longer term
moving averages. So typically people want to point that out
because it sounds like doom and gloom, because that happens,
say during the dot com era in nineteen ninety nine,
(22:15):
also in October two thousand, right after the stock bubble
burst earlier that year that march. You also saw it
happen in December two thousand and seven, right ahead of
the global financial crisis, and of course it happened in
March of twenty twenty. But again I want to point
out that that's.
Speaker 1 (22:30):
I mean, we're we're not calling it a good indicator.
We're not well.
Speaker 7 (22:34):
It depends on how severe an economic downturn is, because
if you go back since the fifties, this has happened
over forty times, So people want to point to kind
of the handful of times that it has happened. But
even in COVID when it happened in March of that year,
it happened on March thirtieth, whereas the stock market bottomed
on March twenty third. So it doesn't always work. I mean,
since nineteen fifty, the S and P five hundred had
(22:55):
posted a meetiing loss about seven tents of a percent
a month later, but if you look three months out,
it was about a two sent game for an index
in a year later ten percent on average. So really
what hinges it on is is there a more severe
economic downturn or not. We don't necessarily know that yet,
but that's why people watch it, because it depends on
how much further pain could be happening. So sometimes it's worked,
other times it hasn't.
Speaker 1 (23:15):
All right, so if you want to preserve your money. Eric,
it sounds like the death crosses here. Where in the
ETF world do you put money to preserve your cash?
Speaker 6 (23:29):
Yeah, some of the names for the technicals are pretty clever.
The golden cross, I think is what you want to see.
I think that happens. Hopefully down the road we'll get
a golden cross. But yeah, So what we found is
even though there's a lot of buying of US docks
like normal, what you do find is the cash like ets.
(23:49):
So Eskov and Bill these are the second and third
best selling ets this year after vu Escov and Bill
did the same thing, which is they're probably the two
most boring ets one to three or one to three
month treasuries. So it's literally like a money market fund.
So a lot of people are hiding out. That's probably
the safest, most organic way to sort of hide out
(24:12):
when things are rough. In my opinion, there's no catch there.
There's some other things people do to kind of hedge,
you know, one thing they do they might use a
one time inverse ETF like SAH that we have seen
people do. But there's a little bit of volatility drag
that can corrode your investment long term so you kind
of have to, like, you know, watch that thing. You know,
(24:33):
it's not totally natural. Some other people are looking at
treasuries long long data treasuries, but they kind of had
a couple bays and periods there where they went down
with stops. And this is something that's an interesting point
is that bonds, you know, especially as you go along
the curve to the mid and the long long data section.
(24:54):
You know, people buy those thinking that's the forty to
hedge their sixty, but it's become less reliable. Seen twenty
twenty two, bombs were down thirteen percent, stops are down
eighteen percent. And so what we found is a lot
of people use buffer ets now, which are ets and
like structure products, they use options basically to target an outcome.
So you buy one of these and it will tell
(25:16):
you you're only going to get a five percent no more,
or you take the first ten percent, or you know,
we'll cover the first ten percent. Anything beyond that is
on you or hey, no downside hedge, and every one
of the sort of situations you have to give up
some upside. So it's basically an option strategy package into
an ETF. But people like these because unlike bonds which
can be shaky, or these other hedging instruments for to
(25:39):
have like technical things that corrode your money.
Speaker 1 (25:42):
Eric, thanks very much, appreciate it. Eric Balcunas, the senior
ETF Strategies at Bloomberg Intelligence, and Jess Manton stopping by
the studio today at Bloomberg News. Up next, the latest
and the government's effort to break up Facebook owner meta platforms.
Thirty eight minutes past the hour. This is Bloomberg and
(26:04):
thanks for joining us for this special edition of Bloomberg Daybreak.
The stock market closed for good Friday holiday. Hi there,
I'm John Tucker. Well, big tech has been in the
crosshairs of US anti trust agencies and so far it's
continuing under the Trump administration. Let's get the update on
where all these cases stand, and we bring in Jennifer Ree,
senior litigation analyst with Bloomberg Intelligence, to go over it
(26:27):
with us. Well, let's start with the courtroom drama. It's
got it all. A billionaire witness on the stand, smoking
gun emails, paranoia and even cutthroat competition. We're talking Mark
Zuckerberg's Meta on trial. It's the Federal Trade Commission. Jen
trying to break up Meta and force it to sell
(26:48):
Instagram and WhatsApp. Why is the government going after Meta?
I mean I thought they were kind of hands off
in the Trump administration.
Speaker 8 (26:56):
Well, I think that's what people expected to happen, but
we're not really seeing very much evidence of hands off
approach when it comes to big tech yet. You know,
Meta was first sued during the first Trump administration. And
what the FTC is saying is that these acquisitions that
men have made now back in twenty twelve, in twenty fourteen,
have you of Instagram and WhatsApp, we're anti competitive. That
(27:17):
the only purpose for buying the companies by Meta at
that time, Facebook was to just take out a potential
competitor that they were very concerned about both of these apps,
that they would eventually grow to become something more like
Facebook and then prop you know, possibly supplant them in
the market, and that they had a strategy to either
bury a competitor or buy a competitor in order to
(27:39):
eliminate that rival. And that's what they did here.
Speaker 1 (27:41):
Well, I mean, there's no denying they bought up successful rifles.
Sounds to me on the surface case closed.
Speaker 8 (27:48):
Well, the interesting thing is That's what makes this case
so difficult because based on the documents you mentioned, these
hot documents, we've been hearing about Zuckerberg's emails.
Speaker 1 (27:59):
Yeah, quote unquote smoking good, right, he was what are
he's saying those?
Speaker 8 (28:03):
You know, he said it's better to buy than compete.
I mean, you don't really get more straightforward than that
in terms of supporting the FTC's case. But here's the thing.
Even if the intent was bad back then you have
to prove more elements than that to win a monopolization case.
It's more than just that intent. You have to properly
define the sphere of competition. You have to prove the
(28:24):
company as a monopoly, and you have to show how
consumers were harmed, and you have to show that that
harm was not outweighed by the pro competitive benefits. And
look at what Meta did after it acquired Instagram and WhatsApp.
It put in a lot of resources to what we're
really fledgling companies at the time that they were acquired.
And they have a good argument here that it was
(28:44):
pro competitive. We may have bought them, but we didn't
bury them. We grew them.
Speaker 1 (28:48):
And the judge in this case has to consider also
something called network effects. Basically, if you're on this platform
they did all this, it's really hard to go anywhere else.
I mean, what are you going to go to a
smaller platform that doesn't have as.
Speaker 8 (29:03):
Many users you need the users you need to be
on it. If you have a lot of your friends
are on it, there is a network effect. But the judge,
you know, some of the evidence that's come out is
that things have changed over time with TikTok and with
x and with YouTube, and that we're moving a little
bit away from that network effect need because people are
multi homing and moving around and sharing data and videos
(29:25):
and information in a different way. And the judge even
questioned whether network effects are as important today as they
were ten years ago.
Speaker 1 (29:32):
So but wait a second here, I just remember the
government approved these acquisitions in the first place.
Speaker 8 (29:38):
Very good point they did. So this would send a
difficult signal to businesses. Now, legally, they have the right
that the laws say, the Federal Trade Commission or Department
of Justice can go after any deal any time. They
can change their mind, and they've said, look, times have changed.
The industry was different back then when we first looked
at these deals, and they did it was about a
(29:59):
six month investigation I think into the Instagram deal before
they allowed it to close.
Speaker 1 (30:04):
There's no jury here, I mean, how does this work?
Speaker 8 (30:07):
Just a judge. It's called a bench trial. It is
Judge Boseberg who's.
Speaker 1 (30:12):
This judge doesn't have enough honest plate.
Speaker 8 (30:14):
He doesn't catch a break. So it'll be his decision,
and he'll first make a decision about liability, whether they're
actually guilty, whether the FTC proved its case. If that's
the case, he will move on to remedy and decide
what is the right remedy.
Speaker 1 (30:28):
And jen we also have two lawsuits against Google parent Alphabet.
On Monday, we're going to get a remedy on Search
because there's there's been a ruling that were found guilty,
so they're going to remedy that. Coming up Thursday, we
actually got a decision on a liability. This comes in
respect to the lawsuit that's focused on digital advertising at Google.
(30:54):
Tell us about that.
Speaker 8 (30:54):
What happened right, Well, you know that one was unexpected.
This decision on liability was expected to few months ago,
and when it didn't come out, everyone was wondering, well,
when will it came out? On Thursday? And it was
a partial victory for the Department of Justice. These products
that the Department of Justice head challenged are very complicated, right.
There are a series of products that Google has that
(31:15):
connect digital publishers and advertisers together, and so they're all
software essentially, and a couple of them are on the
publisher end and a couple of them are on the
advertiser end. And what Google was basically alleged to have
done is sort of manipulate the whole process because fees
are taken out for each of these products that are used,
so that it keeps publishers and advertisers within their whole
(31:36):
supply chain right to place an ad on a website.
Speaker 7 (31:40):
So what this.
Speaker 8 (31:40):
Judge decided was that Google was found liable for monopolization
of what's called the Publisher ad Server, So it's one
of the products on the publisher side. Google actually bought
this product. It was originally called double Click and Google.
When Google bought double Click, it obtained this product also
monopolization of the ad exchange market. That's one of the
advertiser sides. It's in exchange where they can actually come
(32:03):
together to buy and sell ads and for tying the
two of them together. What that means in antitrust is
conditioning access to one to conditioning the access of one
to get the other, and that is illegal under the
anti trust laws. So that came out on Thursday, and
what the judges said is, Okay, here's my decision. The
next step is to have a hearing to decide what
the proper reality is going to do.
Speaker 1 (32:24):
What are we going to do? What do you suppose
the proper remedy remedy with this?
Speaker 8 (32:29):
And of the lawsuit, well, you know, like several of
the government lawsuits against the big tech companies, they will
seek divestiture, forced asset sale, as they're doing FTC's doing
with Meta, as the Department of Justice is doing with
Google on the search case that you mentioned. They will
seek that. I don't think that they'll get that here.
And the reason I don't think so is because I
(32:50):
believe judges are really looking for the most straightforward and
kind of non intrusive way of remedying a problem. And
so if the problem is this unlawful hying, let's say
they're told you have to stop this, you have to
make access unconditional. You can't say you must use one
in order to get the other and again the decision
(33:10):
only recently came out, so I haven't had a chance
to digest it yet looking at hundreds of pages. But
whatever it is, the judge found that Google is doing
that monopolizes the publisher ad server. It's really she'll really
just say you have to stop doing that. That's more
likely than a divest chat.
Speaker 1 (33:27):
Okay, let's move to the other case in which they
were found guilty with respect to the search engine. Right,
are they going to have to get rid of search
Google Search?
Speaker 8 (33:37):
I don't think so. So what's starting on April twenty
first is a hearing also on what the proper remedy
should be since a liability decision was made, and this
was about Google paying other companies, say yeah, Chrome right.
Speaker 1 (33:52):
Just Google Search man.
Speaker 8 (33:53):
Google was paying other companies to install Google Search as
the default behind other search engines at other Internet app
access points in various devices, and basically it locked up
all the distribution points for the use of a search
and so rival search engines couldn't get in there. And
the judge that these default agreements are illegal. So, as
I said, if you're looking at judges that are going
to do the most straightforward thing In my view, what
(34:15):
the judge will say is you cannot force this exclusivity
anymore on all these third parties, on Apple, Samsung making
Android devices, and instead you have to you know, you
can't pay them anymore to put your search engine exclusively
in those positions.
Speaker 1 (34:28):
There are other cases too of what it's Apple, Apple, Amazon.
Speaker 8 (34:33):
Live Nation, Yes, and Visa.
Speaker 1 (34:35):
What are the O Visa? Okay?
Speaker 8 (34:36):
Yeah, Visa. You know, it's the most active that the
government's been in thirty years in terms of going after
big companies for monopolistic conducts. So it's really pretty remarkable.
You know. The last one was to make Microsoft back
in the late nineteen nineties, right, Yeah, and sort of
a smaller case against qualcomby the FTC in around twenty seventeen.
Speaker 1 (34:55):
Right Apple, Now, I get, I mean, I get with
the Trumpet administration, uh and social media, they say it's
bias against the conservative conservatives. I kind of get that.
I don't understand the whole climate though, why it hasn't
changed under what we thought was going to be more
of a laissez fair administration when it came to cases
(35:17):
like this.
Speaker 8 (35:18):
Well, I think that there's always been this anti big
tech sentiment amongst mostly the populist part of the Republican Party.
You know, you have jd Vance who has who praised
Biden's anti trust authorities saying he thought what they were,
that they were doing a good job. And it's for
a couple different reasons. I mean that the alleged censorship
(35:40):
of conservative content is one of them. But I think
in some respects Big Tech is also kind of considered
leftist organization that push liberal ideas that this administration doesn't
really agree with, and I think the intent is to
continue to be aggressive.
Speaker 1 (35:54):
Are these other cases strong in your view?
Speaker 8 (35:56):
No, I actually don't think the case against Apple or
Amazon that you mentioned, both very slow moving, are particularly
strong cases. And for those reasons, as those litigations develop
and move closer to trial, I do think there might
be some possibility of settlements there.
Speaker 1 (36:12):
Explain everybody. This give us a sort of a primer
when we're talking about anti trust cases anti monopolization cases.
It is both the Federal Trade Commission and the Justice
Departments that are in on this right. They bring separate cases,
they work together. How does that work?
Speaker 8 (36:31):
They do? They both have authority to enforce the anti
trust laws, and what happened we understand in this case
is that several years ago, I think this was during
Trump one point zero, the agencies did get together and
they kind of divided up the big tech companies and
FTC took Amazon and took Meta, and the Department of
Justice took Google and took Apple. They started investigations of
(36:52):
the companies which then culminated in these litigations. But that
is how they work. They tend to talk to each
other say who will take on responsibility. They do the
same in the merger space.
Speaker 1 (37:01):
And who are the personalities at the FTC and well
beyond the Justice Department, beyond Pambondi.
Speaker 8 (37:07):
Well, we have an interesting situation at the Federal Trade
Commission now because it is technically supposed to have five commissioners,
only three of which can be from one party. So normally,
with the Republican president, you'd have three Republicans and two Democrats.
But President Trump just fired the two Democrats. So at
this point we have only three Republicans that are running
the Commission, and it looks like it's going to be
(37:28):
that way for some time. The two Democrats have filed
a lawsuit saying that this firing was illegal but obviously
those things take time to work their way through court.
Speaker 1 (37:37):
We know about all these cases that you just went over.
What's next, Well, I think.
Speaker 8 (37:42):
At least in terms of new monopolization cases, I'm not
so sure anything's going to come along quickly, because, first
of all, you know, Trump's enforcers took over the FTC
and DOJ with a lot of workload. They inherited a
lot of cases. They are resources constrained. They've been resource
constrained for many years. Actually, they can only bring so
(38:02):
many cases. And if more mergers begin to be notified
and filed, they're also going to have those that they're
going to have to review, possibly negotiate settlements, possibly even
challenge deals they find to be anti competitive. So I think,
at least with respect to the monopolization space, these are
all going to play out. I don't think we're going
to see very many new cases, all right.
Speaker 1 (38:22):
Thanks to Jenniferree, senior Litigation analyst of Anti Trust with
Bloomberg Intelligence. We would also like to thank Eric Baltoon Is,
Senior ETF strategist at Bloomberg Intelligence and Just Meant and
Deputy Team Leader Equities at Bloomberg News as well as
Bloomberg International Economics and Policy Course meen with Michael McKee
and Stuart Paul Us economists with Bloomberg Economics would also
(38:45):
like to thank you for listening. I'm John Tucker. Stayed
with US top stories, global business headlines coming up right
now
Popular Podcasts
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
On Purpose with Jay Shetty
I’m Jay Shetty host of On Purpose the worlds #1 Mental Health podcast and I’m so grateful you found us. I started this podcast 5 years ago to invite you into conversations and workshops that are designed to help make you happier, healthier and more healed. I believe that when you (yes you) feel seen, heard and understood you’re able to deal with relationship struggles, work challenges and life’s ups and downs with more ease and grace. I interview experts, celebrities, thought leaders and athletes so that we can grow our mindset, build better habits and uncover a side of them we’ve never seen before. New episodes every Monday and Friday. Your support means the world to me and I don’t take it for granted — click the follow button and leave a review to help us spread the love with On Purpose. I can’t wait for you to listen to your first or 500th episode!