Wells Fargo Asset Cap Lifted by Fed, Paving Way for Growth
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Shares of Wells Fargo moving higher in the after hours, up right now by about 2.6%. They did spike up as much as 7% earlier. This after investors learned that the bank finally escaped a Federal Reserve asset cap that has restricted its size for more than seven years. It unleashes the firm from the unprecedented punishment and a major win for CEO Charlie Scharf. We've got U.S. finance team leader Sally Bakewell here in our Bloomberg Interactive Brokers studio.

Obviously a little bit of a surprise to investors. A surprise to you though and to the team that's been covering this bank for years? I think we were starting to pick up that it was going to come quite soon. For one thing, the bank kept announcing that a lot of its consent orders were being lifted.

In fact, it managed to announce just last week that its 13th consent order was lifted, with about half of those since 2019 actually lifted this year. So it did feel a lot like momentum was gathering toward

this final hurdle, which really is the last major hurdle. And really now, I think you can say that it puts the scandal pretty firmly behind Wells Fargo. Have they fixed all that ails them? I mean, it was what, a decade of scandals and then dealing with it and kind of finding its way back.

Yes, I think, I mean, there is still one formal agreement left, which it entered into in 2024 with the OCC regarding deficiencies in complying with anti-money laundering rules. But in terms of all of those scandals that emerged in 2016 and pertain to mis-selling of products and opening of fake accounts, it's shed most of the... I mean, it's so egregious. At the time, the list just...

It's like you'd pick up one rock and you'd see something else under the next rock. And I remember Warren Buffett actually said something along the lines of there's never just one cockroach when he was talking about this. This was like years ago. He said this. The question I have for you, Sally, is have customers forgotten about all these scandals? I mean, that's a great question. Memories are short on Wall Street. Are they short with consumers? I mean, it's...

almost a bit difficult to say because the bank hasn't really been able to grow beyond its 2017 assets, which were 1.95 trillion. So it's been harder for the bank anyway to really put itself out there as a big sort of expander on Wall Street for consumers. So I think now will be the moment where we see if consumers do sort of have sort of forgotten or forgiven Wells Fargo for those past egregious losses.

$1.9 trillion in assets sounds like a lot, but give us some perspective against some of the other big players that are out there. Well, in terms of, yeah, I mean, J.P. Morgan has effectively added one Wells Fargo in the time that Wells Fargo has been under the cap. So it really hasn't been able to compete with a lot of its Wall Street rivals, which I

I think now under Charlie Scharf, who can very much be on its CEO, can very much be on the offensive now. That is one of the big focuses for the CEO who really came in to try to rectify all of these misdeeds from the scandals. So now what is the bank going to be able to do that it wasn't able to do over the last few years?

More trading, more investment banking. I think it can do more lending. It can probably acquire more deposits. A lot of these things had been restrained to that 2017 level. And Charlie Schaaf, he also said about when he came on board, he also said about selling some non-core businesses and reducing headcount.

And so the bank now is sort of a more simplified bank. Just last week, they announced the sale of their rail car financing and leasing business. So it's a sort of simpler, more streamlined bank. And they're still very eager to be a consumer facing bank and have significant sort of retail presence. But they're also very keen to bolster their Wall Street presence as well. I mean, I always think about them in terms of mortgages, right?

Yes. Yes. I mean, that's really, has that been really the core of their and kind of retail or consumer accounts or? So interestingly, the mortgage issue wasn't due to the mortgage pullback because Wells Fargo has been pulling back in mortgages like a number of banks since the financial crisis because after the financial crisis, regulation required that they allocate more capital against risk weighted assets like mortgages. So that

that resulted in wholesale pullback by banks from the sector. So Wells Fargo was one of them. And that isn't actually really related to the asset cap as it happens. But it was separate. That was separate. But it was a huge and significant presence on in the mortgage world. But like all banks, it's sort of withdrawn from that a little bit. And it's now the non-banks that occupy that. Right. Like during the 08, it was, was it Wells Fargo and Wachovia, right? Like the two just kind of interesting. Yeah.

So bottom line, net-net. I mean, the stock isn't up as much as it was initially, but this is a huge deal for Wells Fargo. It's a huge deal for Wells Fargo. It ends an era of scandals. It's a huge deal for Charlie Scharf. Yeah, it can't be understated or underestimated, I think. And I think perhaps the share's not being up so much is because it was expected. We've seen a number of consent orders come off this year. And the bank has, the CEO in particular, has telegraphed that things were going well and that they did expect to have some sort of resolution soon.

Sally Bakewell, thanks for joining us on this breaking news. Sally Bakewell is a U.S. finance team leader. She joins us here in the Bloomberg Interactive Brokers Studio. You're listening to the Bloomberg Businessweek Daily Podcast. Catch us live weekday afternoons from 2 to 5 p.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.

A story we've been talking about all day. Constellation Energy agreeing to sell power from an Illinois nuclear plant to Meta Platforms as AI sends power demand soaring.

We saw a story about energy. We knew we had to bring her back. She joined us yesterday, and by popular demand, Alex Steele is back. Also, Carol missed her. I did. A little jealous. I was. Alex is the Bloomberg Radio and Television anchor. She co-hosts Bloomberg Intelligence and The Close. She joins us from our Washington, D.C. bureau. Alex, we had a really interesting chat with Will Wade, who covers nuclear energy, at the top of our 2 p.m. hour. And I asked him, hey, why does it matter where these...

where this energy comes from. I mean, energy is energy. If you're getting power for a server from fossil fuels or from a nuclear plant, it still does the same thing. And Will said,

These companies want to buy clean energy. And I was said, clean energy? We're now calling nuclear energy clean energy? That's such a far cry from what it was in the 1980s and 1990s when everybody was so concerned about, well, even 15 years ago in the wake of Fukushima, the concerns there. Things have changed a lot when companies are looking at their energy sources, no?

Yeah. And, you know, the fine line, like technically nuclear is clean, like it has no emissions in terms of the risks, like you're talking about the Fukushima plant. That's a little bit different. But in terms of actually releasing emissions, nuclear doesn't really have that. But it has changed a lot. And, you know, I was on a panel. I was leading a panel in Oklahoma City at the Harold Hamm Institute with the head of sustainability and energy for Meta Open AI Association.

or anthropic, I should say, as well as NVIDIA. And I kind of asked what they were most jazzed about in terms of energy. Would they put anything on or off the table? No one seemed to want to touch coal with a 10-foot pole. But aside from that, it was like everything's on the table. They were super pumped about geothermal and nuclear as well. But the issue is you can't just build a nuclear plant tomorrow. It's really, really expensive. Now, the Trump administration is trying to make that part easier.

But what makes this so interesting is that it's just keeping the existing plant going and not turning it off. And that's what's so interesting about this particular deal. You know, Alex, you know, you, yes, you are so incredible in terms of the, you know, energy markets and just thinking about power overall. And I guess I keep thinking about how are you thinking about kind of the way forward, especially we have a different administration, different priorities, you know,

He's certainly into, you know, drilling more and kind of embracing the fossil fuel economy. But I mean, when you think about power generation and where it all comes from going forward, alternatives and I guess wherever nuclear fits into all of this, is there a lot more enthusiasm? Is that enthusiasm still there or is it waning? Like, I'm just trying to get the big picture here.

I don't think you're alone. First of all, you guys are really good for my ego, so I'm going to come on like every day. You're welcome to. But you're not alone in being confused. So what everyone can kind of seem to agree on in the industry is that hydrogen is in a really bad spot because it doesn't have the support anymore from tax credits. It's way too expensive and it hasn't been proven yet to deliver the results. So let's put hydrogen aside for a second.

Solar and wind are economically very competitive. Without the tax credits, it gets a lot harder. The problem is, of course, it's intermittent, right? Sun and wind don't shine and blow every day, so you need to offset it with something else, like nuclear or gas or...

or coal. Now, the administration's talked a lot about coal. I was talking to Secretary Wright, though, the Energy Secretary, and he made it clear to me, at least, that it's not about new coal plants. It's about the current ones just not going away, which is where we kind of are with nuclear also. Administration is super into geothermal. So that's like a heat pump, like you might have with a mini-split, say, in your house. So really into geothermal. Again, there are issues that need to be scalable that go with it.

Yeah.

Yeah, well, that's what I'm wondering about because, you know, here we are in an environment where we're using more and more electricity than we even thought we would. Demand is going up because of what we're doing as consumers and what companies are doing to deliver the AI solutions that they think customers and businesses want.

So where does that leave the traditional oil and gas players that you have covered for years, Alex, in an environment where oil prices are down roughly 10 percent so far this year? Where do they lay right now?

Yeah, this is the really funny part because they're not power producers. So they're not anywhere in this game. Being a power producer is really different than being an oil company. So they're not ever... And forgive my ignorance here, but they're not even ever selling product to power producers, whether we're producing with fossil fuels. They're never in that pipeline. So like...

An AI company is never going to call up Exxon and be like, hey, I need power for my plant. There's a lot of intermediaries. And I mean, Exxon might actually think about getting into power. But putting that aside, like power is a whole different business than producing oil and gas. Now, the gas part and using gas to help emanate power is something where the oil companies can play because they do make gas and they do produce gas. So that is a spot for them. But just because power...

power demand is going to grow and AI hyperscalers are going to invest a lot of money doesn't necessarily mean that all of a sudden there's a huge demand pull for what the fossil fuel players are pulling out of the ground. There's not a direct line from that.

It's all energy, sure, and maybe more of a direct line when it comes to a gas player, but it's not a straight line for them. They're still going to be at the mercy of the strip price for crude and what the underlying demand is for crude, like what we put in our car and that kind of stuff.

All right. So you're, I love, yeah, we love that you went there. So when you think about kind of moving forward and you're right, like power generation versus, um, what we're getting from all the big energy giants, like two different things. Um, I just wonder, I don't know, for the investment class that's out there, like what,

How do you take, though, a story like, once again, meta, constellation? We've seen Microsoft. We keep seeing these hyperscalers tap into how do we power all this stuff going forward? How do we make sure that we are reaching out to the right power producers? What is the right investment story to be thinking about? Because the build-out, whether it's nuclear, nuclear takes time. So I'm just curious how we think about this. Yeah.

And nuclear is still quite expensive. The Bloomberg Intelligence did a great rundown on this and said that, you know, consuming assuming a construction cost of like ten thousand dollars per kilowatt, a one gigawatt unit would be still ten billion dollars. Right. And that's a lot of money to sink in. And that's like there for the long time. This is not a short term kind of thing. OK, so what do investors do?

I don't know if I knew I'd probably go do that, but I think it's the power players. I like that you thought about it for a second, Alex. You really thought about it. I was like, what should we do? I also like when you have a conversation with yourself. It's really kind of fun. Oh, great. On radio with two other people. Super. Cool, cool. Okay. But the investment thesis becomes more of...

who is talking and what's the price at. So the AI players can say a lot that they want this kind of power, and the energy guys can say, look, we're talking to all these people, isn't that super awesome? But who's actually signing the contracts, and at what price are they doing that? We don't know the financials when it comes to what Meta and Constellation Energy got together. I'm sure we will. At some point, the rumor is that it's less than what Microsoft paid to Constellation because you had to restart a plant versus just keep it going.

But how hard is it to sign those deals? Because if it's hard to sign those deals, that means that a lot of the talk is just talk. It's not actually being signed into action. Also, sometimes we're double counting or triple counting certain power demand needs. So it's not like a one for one basis. I've heard a lot of stories that the tech guys are kind of out there by casting super wide nets. But that's not necessarily an actual deliverable that's going to be signed on the fine print kind of thing.

Power companies have also told me, like, look, we have the stuff, but no one's going to sign it with me. So I can't get them to the table. So it's not as dry cut, I think, as we want it to be. I love that you went there. Similar reaction doing a panel on the nuclear energy. And the same thing they said, these hyperscalers are signing up with everyone because they just want to make sure that they have kind of redundancy and making sure that they have what they need. It doesn't mean that they're going to fulfill all of those commitments or contracts.

like going forward, right? So the dust needs to settle a little bit here. Yeah. Also what's an MOU, a memoir of understanding versus a dotted line and a check. Those are different, very different things. All right. So come back tomorrow.

Come back Thursday. Yeah, the train's at 2. Train's at 2, you guys. You can call me anytime. I'm hanging out with you guys all the time. Well, it is a special... Usually, we can only talk to Alex Steele from 2 o'clock to 3 o'clock. It's hard. Wall Street time. And that's because from 3 o'clock to 5 o'clock, she does the clothes.

She's on assignment down in the Washington, D.C. area. So she was gracious enough to go into the Washington, D.C. Bureau and hang out with us. We so appreciate it. Yeah, always, always. Alex Steele, Bloomberg Radio and TV anchor. Check out all of her reporting on both sides across our platforms. Really good stuff. Hey, listen, folks. We did have the market wrap up on this Tuesday. We do have some stocks moving.

In the after hours, some because of earnings, some because of, like with Wells Fargo, it's a bank that's basically having caps lifted. So let's get on over to Charlie Pellett with an update on the trade.

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Big meeting coming up later this week, a gathering of NATO defense ministers in Brussels. That's happening in just a couple of days. And President Trump, just a couple hours ago, saying he will be there. Just before we heard from White House Press Secretary Caroline Leavitt that the president was not aware of the Ukraine drone strike on Russia before it happened. With more on all this and more...

We head to Washington, D.C. and Bloomberg News National Security Team Leader Nick Wadhams, who joins us from our Bloomberg News Washington, D.C. bureau. Nick, I want to start with just the news that the president is set to go to the NATO defense ministers meeting in Brussels. What's the signal that that's sending? Why was this such a big deal? This was a red sticky to cross the Bloomberg terminal this afternoon.

Well, he's going to the NATO Leaders Summit later in June. There's a NATO Defense Minister Summit later this week. Thank you. He won't be going to, but regardless, the point stands. It's a very big deal because the tension between the Trump administration and NATO. Trump has put so much pressure on the alliance in his first term. There was a lot of talk about would he or won't he leave the alliance, pull the United States out. But they've patched things up since then. The new NATO Secretary General

is on pretty good terms with Trump. And so it's a signal here that Trump is not going to turn away from the alliance. He's not going to turn away from these international gatherings where he's sort of been at odds with some other leaders. And in some ways may see this in two ways. One is a way to push the alliance's members to spend more on defense, but also to work with them. There's a lot of concern about European security and the relationship with the United States. So

a positive sign that the president is willing to play ball with an alliance he's been skeptical of in the past. Wait, so is this...

President Trump talking tough, pushing back, and then all of a sudden kind of backtracking. Did I say taco? Should I say it? Should I say it? Should I not? I was trying not to say it. Taco trade for NATO? Can I just say, I'm going to be serious for a second. I know. I dropped my son off at school, walking to the subway, guy crossing the street, wearing a shirt, already says, taco, Trump always chickens out. All right. They already have shirts for this in Brooklyn. You know how that works. I mean, but is that what's going on, Nick? Yes.

Let's say it does fit with a broader pattern we've seen from the administration. I mean, listen, the officials in the administration have said that a lot of the hullabaloo, a lot of the speculation that Trump would leave NATO was always overblown, that he never intended to leave it, and that he used that as essentially a forcing mechanism. And you can make the argument, you know, they have steadily increased defense spending. The administration is now saying they want NATO countries to spend 5% of GDP on defense spending.

which is a target that many are not going to reach or have not committed to reach for a very long time. But, you know, it wasn't that long ago that we were talking about 2%. And, you know, there has been a real steady growth in the number of countries doing that. You can ascribe that to various different reasons, including the Ukraine war. But certainly Trump is going to take credit for that. And the trend lines are pointing us in his direction.

So why has it that Europe has struggled with sufficient or insufficient air defense cover? Is it just because they haven't spent or like, help me understand kind of where they've been in terms of protecting the continent?

Well, I mean, in a lot of ways for major defense, they've relied on the United States. It's a relatively new technology. It's expensive. You have to deploy a lot of launchers and systems, far more than you might anticipate you would need. And also the threat is relatively recent or has only gotten urgent relatively recently with Russia's attack on

on Ukraine. You know, there is fear if you play out the doomsday scenario, unlikely as it may seem right now, that Russia takes over Ukraine, pushes to the border with Poland, and then potentially has aspirations, as some people fear, beyond that into Poland or back into the Baltic states, that that's a situation where you would need very, very robust air defenses and

The problem there, of course, is production. It's very difficult to produce these systems fast enough. And they're also extremely expensive. You know, many, many hundreds of millions of dollars to produce. And European countries, you know, the real...

A-plus air defense systems are made in the United States. And again, the production lag there is years at best. Does it also, is it safe to say, Nick, it kind of goes back to post-World War II and kind of the, you know, agreement of the U.S. kind of helping Europe rebuild and being there and supportive. It also gave the U.S. incredible access to those markets. I think we've talked about this with you before, but I keep thinking about historically kind of this relationship and what it's meant.

Yes. I mean, you know, historically, the tradeoff has always been, listen, the United States will be sort of your protector. That has applied much more for places like Japan than it has for Europe. But there has been this implicit agreement, you know, the United States will be your security backstop.

in exchange for this very, very robust alliance for the United States having great influence and sway and also cementing those partnerships. With great access and control over the security system, you get a lot of benefits to the United States from that. Now European leaders are saying, with

tensions getting higher with the strain with the Trump administration. It's time for Europe to really double down on its own defense and maybe separate itself from the United States. So you're sort of seeing a little bit of that happening as well. This is really a thing where they're saying, OK, listen, we have to be responsible for our own defense and not rely so much on the United States. Hey, Nick, speaking of tensions, we did hear from after we got the headline that we crossed on the Bloomberg about President Trump going to the leaders, the NATO leaders summit.

Then we heard from White House Press Secretary Caroline Leavitt, who said the president was not aware of the Ukraine drone attack on Russia before it happened. Is all of this too apart for the president to go across and say, hey, guys, I need to know. I'm trying to put the pictures together for him to say, why didn't we know? And are NATO leaders going to be like, well, you've been kind of backing off. I just wonder how this kind of plays out.

Right. I mean, there is an uncomfortable dynamic there for the president. I mean, listen, I think, you know, when Ukraine has launched drone strikes on Russian soil in the past, I don't think they would have necessarily tipped off the United States. You know, it's the whole sort of ask...

forgiveness rather than permission, and that applied certainly under the Biden administration as well. But, you know, there is that concern. I mean, President Trump's strategy has been, listen, we want to get to talks. And rather than using leverage, the leverage of force, of sanctions, of punishing Russia, of stepping up the fight, we want to avoid an escalatory spiral and say, hey, we're going to create space for talks

and sort of use carrots rather than sticks. So I think, you know, though the president has not really commented in any fulsome way on these drone strikes, it's something he might oppose because he believes it's unhelpful at a time when he's trying to get these two sides in a room with each other. But in terms of some expectation that the U.S. would get a detailed readout from Ukraine, I mean, especially with the U.S., the president not being willing to re-up that supplemental to Ukraine,

infuse more and more weapons to Ukraine, they feel they strategically don't necessarily need permission from the U.S. to do a strike. What about European allies getting a readout ahead of that or having a tip that that is going to happen? Is that something that would likely happen?

Not necessarily either. I mean, I think for one thing, they're really worried about leaks and the possibility that it would get out. But again, I think it's that sort of situation where you say you'd rather get forgiveness than permission. They basically don't want anyone to tell them no. And obviously the concern for NATO countries is, listen, if

Ukraine escalates this well beyond its eastern front and into Russian territory. Russia may see that as an escalatory action that then would require retaliatory action that might push the conflict into Europe proper outside of Ukraine. And that's what they're really worried about.

Hey, Nick, just before we let you go, Carol and I were talking about this. She was out yesterday, but she was still paying a lot of attention to what was happening. Well, I was kind of upset. On Sunday, too, I had a lot of friends sending me the videos from the drone strikes that were released by the government of Ukraine.

Yeah. Yeah. You're pretty obsessed with it. I'm wondering what it tells us, Nick, about the technology that's being used right now. A lot has been written about. Warfare, right? Yeah. A lot has been written about what Ukraine has been able to do with sort of rudimentary drones. But I don't know if those were used in the case such as this. We don't have all the details, but what is starting to emerge? Yeah.

Well, I mean, one of the most fascinating things about this is some of these drone strikes were deep, you know, thousands of kilometers inside Russian territory. And it would not have been a case where the drones would have been able to fly from Ukraine. And in many cases, the indications we have so far are that the report that the drones were launched from within Russia. So you had a network.

potentially of covert operatives, of agents essentially setting up and then launching these drones from within Russia, so infiltrating Russian territory to be able to launch these drones. So I think what you're seeing is a willingness to raise the threshold and...

launch even bolder strikes. But in terms of the technological advances, it's not necessarily that the technology is so great, but that it's so cheap and plentiful and has been able to have such a devastating effect with the limited resources that Ukraine has. And that's really what's so fascinating about this. You're not seeing some multimillion dollar advanced stealth fighter jet launching around the world strike from

a base in Kansas or something like that, you're seeing the infiltration into Russian territory of very rudimentary drones that are being used to devastating effect. Yeah, it kind of reminded me, I know it's not apples to apples, but I think about when Deep Sea came out earlier this year, we were like, okay, maybe we can do this AI thing less expensively and very differently. And this just to me, Nick, it seemed like warfare that, like you said, it doesn't have to be super expensive for it to be impactful.

Right, and that's a big tension point, frankly, in the United States because there are a lot of defense companies that have made a lot of money developing and producing the most advanced fighter systems. I mean, the F-35 all in all is going to, in the end, cost about $2 trillion for that program from development through production to sustainment. Huge cost overruns. I mean, a software update for the F-35 costs many, many hundreds of millions of dollars.

And the defense primes in a lot of ways really feast on these big contracts. So then if you're a little country like Ukraine producing these drones for hundreds of dollars a pop, I mean, that sends an earthquake through a lot of the big defense primes. Yeah. Talk about disruption, perhaps, right, in the defense industry. Nick Wadhams, the best. Thank you. Always, always. National Security Team Leader at Bloomberg News joining us from the Bloomberg News Bureau in Washington, D.C. You're listening to the Bloomberg Businessweek Daily Podcast.

Catch us live weekday afternoons from 2 to 5 p.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube.

Well, now to trade and what we've seen on stocks versus bonds and to bring in Katie Kaminsky, Chief Research Strategist and Portfolio Manager at Alpha Simplex Group. She joins us from Boston. Katie, a big theme that we had on yesterday's program, it was about a story that ended up being pretty much the most read story on the Bloomberg Terminal, was this buyer strike that was happening at the long end of the curve. Big investment firms staying away from those 30 years over concerns about the U.S. economy. I

I'm wondering if you're starting to actually see that happening as we get closer and closer to 5% on the 30-year. We're definitely seeing that already in the data. You've seen momentum in signals on fixed income where short signals are actually sort of building and have been building for some time. So I think that steepener view, that sort of negative view on long-term bonds is something that's catching a lot of people's attention.

Hey, you know, I think I finally was brave enough to look at my 401k. Why would you do such a thing? Well, it's been over a month, six weeks, eight weeks in the making. And it's like April and President Trump's so-called Liberation Day, Katie, never even happened, at least on the equity side of things. It did. But the U.S. bond market, I feel like, is still kind of wary.

Yes, that's a really good point. And I think what's been really hard for us on the systematic side is that, you know, you have this massive move and it's as if, you know, that didn't happen and the market is starting to turn a little bit more positive. But the one area that is seeing a little bit of concern is definitely bonds. So I think

There is some truth to that, that despite the fact that equities may be back where they are, bonds aren't really quite where we'd like them to be for some investors. So does that then... And look, I know you're focused on the fixed income side, but there is a relationship between the bond market and the equity market. Does that mean the bond market gets it and the equity market doesn't? Well, I think the question... I mean, a lot of times people...

tend to look at the bond market during these environments to try and understand a longer term view. And that's because, you know, in general, the equity markets always like to be bullish. And so I think looking at the bond markets could give us an indication of potential interesting trends for the rest of the year and places where things may be a little different than they expect. I've even heard people talking about even higher rates on the long end, which would be

a problem for many investors who were thinking about financing and et cetera later this year. Well, it raises the question about the so-called bond vigilantes. You knew we were going to go there. Do they have the power that they've had in the past to essentially tell the U.S. government that, hey, this is not what we want to see right now?

I mean, I think it's really been a long time since we've really seen that force. But I think what we did see even when April came about, and I think I keep going back to this example, is that when we actually had the equity markets falling, bonds weren't there for us in that environment. And I think that's

That's an indication that either issues like inflation or other sort of, you know, the potential for fixed income to be more challenging is something that is really an issue for many investors, particularly in this environment, whether it's inflation that does this or whether it's, you know, bonds needing to be higher because real rates are higher. It's not clear yet, but it's definitely not the same bond market we're used to pre a few years ago. I don't know, Katie, like I...

You know, how are you thinking about this world? Like I keep thinking about it and I think about the U.S. being uninvestable. I think about the weaker dollar, like is the Mar-a-Lago Accord like happening before us? I just wonder, right? That's the administration's move to kind of correct some of the trade deficit by weakening the dollar. So is it kind of is this kind of happening? I don't know. How do you guys talk about it with your team?

Well, this is a really good question because the biggest theme we've seen this year is a weaker dollar. I'm a little concerned about that trade for several reasons. If the market gets a little bit more positive, if growth becomes positive, that tends to be pro-dollar. But I think the thing that is the most interesting from a quants perspective is we've actually really seen a deterioration between the correlation between bonds and

And the dollar. So higher yields usually means stronger dollar. And so you've actually seen the opposite of that. So that does indicate that something else is driving the dollar weakness. Perhaps that U.S. vulnerability trade, this idea that people are repatriating capital and the U.S. assets are less desirable. The question is, how long does that go and is that going to keep going?

How credible is that, Katie? Like, you know, Tim's heard me say this a million times, so feel free to roll your eyes. Go on. At Milken, it was just like, well, wait a minute. A lot of folks said it's all about rebalancing our portfolios. We all became too exposed to the United States. And that makes sense after...

you know, a long time when there was nothing else, but really the United States, it felt like, certainly from an investment perspective. Is that true? Or I don't know, through your channels that you look, is it a case that folks are saying, I don't really want as much exposure to the U.S. It's not as attractive. I don't want to be there.

Well, I think there's some indications in the data. I mean, if you look at where markets have moved this year and the way that they behaved in the wake of the recent events and just this decoupling between the dollar and yields, it suggests that other forces are affecting the dollar. So repatriation of capital and, you know, kind of rebalancing does have an impact on those valuations. So I think there is some

to that theme. Just how strong is that theme? Is it as strong as some people would be concerned? We don't know yet, but it's definitely there. TBD, like so much in our world. Hey, listen, this is a big week. We get the monthly jobs report and we're cruising towards a Fed meeting shortly, soonish.

But the labor market, we got, I feel like a sigh of relief a little bit today based on the JOLTS data. But how are you thinking about, because I know, was it Torsten Slak that had out some research about 64,000? Yeah, I got that note this morning and I was like, wait, what a second. We're talking double digits here? Help me, help me. You know, Microsoft cutting more jobs, Disney talking about jobs. At some point, we're going to, stuff has got to show up in the data. Factor that in for us.

Yeah, I think for us, it's been really tricky because you've seen current data not really showing the expectations of concern that most investors have expressed in terms of their sentiment. So I think

really it's too early. And for me, I feel like most investors are out scouring for sort of any now casting or any sort of data that can give us a little bit of a sense of the longer term picture. But for now, actually, I've been very surprised. We haven't seen a lot of evidence of things deterring it as much as we would have thought. So I think that's why the market is kind of

down a little bit and has been very positive moving towards more positive sentiment because it just doesn't seem that the data has shown right yet. Our concerns real quick. Fifteen seconds fed no moves this year. What are you thinking real quick.

We originally were thinking some, but I mean, for now, it's still looking very unclear. And especially if we could see some growth and maybe even some inflation, that's going to make things tricky. And employment data today didn't help with that narrative either. Katie Kaminsky of Alpha Simplex. Lover, lover. Switch to Verizon Business and get more from your internet without paying more for your internet. Get LTE Business Internet starting at $39 a month when paired with select business mobile plans.

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All right, TikTok, everybody. We've got about 18 minutes to go until we wrap up the trade on this Tuesday. Carol Master, Tim Stenevik, live in our Bloomberg Interactive Brokers studio here. Charlie and Bill just breaking down the numbers, and we're holding on to most of the day's gains here. Do you know where we're going to be in a week? Cisco. Do you know where it is?

San Diego. Do you know where Clark is? San Diego. Okay. There was a method to my madness, Carol. I'm so glad I like. Yeah. We got there together. We got there. We got there together. Is this a test? It's not a test.

We're going to test Eric Clark, though. He's chief investment officer at the RAA AccuVest Global Advisors. They've got approximately a billion dollars in assets under management. We love checking in with Eric because he covers all the companies that we love to talk about here on Bloomberg Business Week in the Rational Dynamic Brands Fund. Yep.

That fund, by the way, is up more than 15% on average annually over the past three years, putting it in the 91st percentile, according to Bloomberg data, against its peers. Year-to-date, the fund is down slightly, and it's lagging its peers. Good to have you back with us, Eric. So talk to us about this environment and your fund. Like we say, it's a bunch of household names. Are you disappointed by the performance, or how do you explain it, or is it just kind of par for the course considering the year?

Yeah, nice to talk to you guys again. You know, listen, we had a really strong January, up, I don't know, 7% or so. And then we had all of the tariff stuff and the markets took the elevator down. And so, you know, there's, you know, being back to flat when you have a big drawdown because of the tariff situation feels pretty good. And now we can maybe reset things. Hopefully we can get through the summer without too much chop towards we get the end of these tariffs.

But, you know, consumers are trying to figure it out, just like businesses are trying to figure out the rules of the road. But there's clearly a value seekers mentality out there in consumer land. And with inflation staying high for longer, I don't buy any of the media tweet, you know, the White House tweets about.

inflation not being present. It's everywhere. Go out to eat, go on vacation. It's pretty much everywhere at the grocery store. So value seekers are going to be everywhere. And some companies deliver on that. And some brands struggle with that. And so, you know, we feel pretty good about the portfolio that we have now. It has a lot of

you know, kind of predictable growers like, like Netflix and Spotify and, and Amazon. But we have some good defense too, for some of the potential Rocky stuff that might happen here in the, you know, the next couple of months with tariffs. You know, the, the, um,

Stock market, if you look at the indexes, you said they took the elevator down, which they certainly did, but they seem to have taken the escalator up. I mean, we're up 20% since those lows on April 8th. Yes, we're still down close to 3% from those all-time highs back in February, but we've pretty much recovered everything before April 2nd.

Yeah, I mean, so much money left the U.S. I mean, international is still, you know, kicking the U.S.'s butt pretty handily. But when so much money moves out of the U.S. and out of tech,

and growth all at once. And then you get this tariff reprisal from what was it, April 9th or something when the NASDAQ was up 12%. And then you get a lot of money moving back. So technology obviously has been the place, higher beta names have been the place to be on this rally. But I suspect

People are going to look for some exit doors as we near these, you know, the decision on tariffs. And who knows if we get a decision and we or we kick the can down the road again and those tariff things happen, the tariffs get canceled.

get cut for the next couple of months, then maybe the markets rally again. But the July earnings is where we're going to really start to see the effects of some of that uncertainty and some of the tariffs. And let's see how inventory levels are for different brands.

It was never this particular quarter that I was worried about. It was all the July quarter. And that's really going to be the test on who's able to navigate this better than others. And candidly, the bigger brands with...

with bigger cash flows and, and, and more levers to pull and talking, going back to their suppliers and net and negotiating better rates. Those are the people that those are the companies that can navigate tariffs much better than maybe smaller companies. So that's, that's the real test of July earnings in my opinion. Okay. So, uh,

Well, we'll hopefully speak to you before then, Eric. We've spoken to you for years. And when we've spoken to you, we've referenced, as we did today, that you are a manager of the Rational Dynamic Brands Fund. And it still shows you as the portfolio manager today.

of that mutual fund behind you. I see you have the alpha brands logo ETF. It's the alpha brands consumption leaders ETF. It's an ETF here in the U S uh, that includes, uh, companies such as visa booking, Costco, Netflix, Eli Lilly, KKR, Walmart, Spotify, meta platforms, and more in it. What just give us your current focus right now. And are you managing this fund as well as the dynamic brands fund?

We are the team. Thanks for mentioning that. I mean, we just launched the ETF three or four days ago. So it's pretty new. We obviously have a track record of managing global brands portfolios going back to 2016. And the ETF is a little bit different than the fund in that it's a much more broad fund.

in the consumption categories that we want to have exposures to. And so, you know, we have exposure to travel through booking and Marriott, and we have exposure through streaming through Spotify and Netflix and even some international exposure like through media with Sony and Tencent on the China technology. So this is more about broad spending categories, which brands are the dominant leaders internationally,

in those categories. And we're still managing it through a business cycle. Obviously, the business cycle is still important. So take more risk when it's prudent and the economy is expanding and get more defensive when you have a little more yellow signs, cautionary tales, and data points that are starting. And we still see some of those cautionary data points which keep us

with about 25% on the defense, Coke, AutoZone, O'Reilly Automotive, those kinds of things. Eric, is the idea that new money comes in and you want it to go into the ETF rather than into the mutual fund? It's sort of the pattern that we're seeing with portfolio managers who are moving away from mutual funds and more into ETFs.

Yeah, you know, there's still a lot of advisors and people who like mutual funds and the familiarity there. The goal for us was have a consumption leaders global brand strategy in both of the popular packages, the mutual fund and the ETF. And then we can let advisors and individuals choose which, you know, I can deliver it in a cone or a cup, so to speak, you know.

Obviously, the flows are going to ETFs. And so having an ETF offering for people to get access to the brands that they admire and the brands that they spend their time and their money on, that's just a wise decision. But there's still money coming into the mutual fund as well. All right. We're going to leave it on that. We're going to leave it on that note. Thank you so much, Eric. Good to check in with you. Eric Clark, Chief Investment Officer at the Registered Investment Advisor, AccuVest Global Advisors, roughly a billion assets under management.

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