Diane, h how much does this change the picture? Uh especially these revisions as Bostik was mentioning there. Um you think the Fed would have made a different decision if if these numbers had been out days ago. >> I'm not sure they would have made a different decision on the month of July, but I think this does nudge them obviously closer to September. It's still not a slam dunk. This is the hard part for the Fed. The important part for Bostic is he didn't say, "Hey, this is it. we're gonna cut now because ...

Economic Slowdown & Job Market - US economy's job growth has slowed, with an average of 85,000 jobs added per month this year, compared to 168,000 jobs per month last year [2] - The report indicates deepening cracks in the US economy, with businesses putting expansion plans on hold due to economic uncertainty [4] - Potential US economic growth has shifted down due to changes in the labor force [9] Impact of Tariffs & Trade Policies - Tariffs are slowing job growth and economic growth [3] - Tariffs are expected to increase prices over time, impacting consumers [22] - Deportation policies are having an effect on the labor markets [5] - Tariffs on products from countries like Canada (originally 25% to 35%) and Switzerland (39%) could impact various sectors, including lumber, cars, and medicines [18][19] - Tariffs on Brazilian products, such as beef (50%), could be felt by consumers [21] Inflation & Consumer Spending - There is a possibility of stagflation, where growth slows (currently at about 12% to 2% annual rate) and inflation picks up closer to 3% rather than 2% [6] - Consumer spending growth is half of what it was a year ago, indicating concern among American consumers [16] - Tariffs are raising costs on everyday products, impacting back-to-school, Thanksgiving, and Christmas shopping [12] White House Perspective - The White House is nervous about the economic situation and is preaching patience [17] - The current economy is producing half as many new jobs as the "Biden economy" did in 2024 [14]

Fed Independence and Political Pressure - Markets rely on the Fed's independence and commitment to price stability and maximum employment [3] - Historical examples show that presidential pressure on the Fed can lead to stagflation [6][7] - Concerns exist regarding potential Fed chair candidates expressing opinions on future monetary policy [17] - A "shadow Fed chair" is a dangerous idea that impairs the credibility of the actual Fed chair [23][24] Economic Outlook and Policy Concerns - The economy is resilient, but concerns exist about future tariff policies [25][26] - Tariffs could lead to increased inflation and decreased household incomes [27][29] - Softness is developing in the labor market, with average job creation around 150,000 jobs per month [28] - Concerns exist about weaknesses in the legislation regarding stable coins and their potential financial stability risks [34] Monetary Policy and Inflation - The Fed's goal is price stability, aiming for 2% inflation, and maximum employment [3][12][15] - Lowering interest rates to ease financing costs on federal debt is not a congressionally mandated goal and is dangerous [3][15] - High inflation is an inevitable consequence when pressure drives monetary policy [3] Fed Leadership and Transition - The President should choose a Fed chair who believes in and will defend the Fed's independence [14] - The next Fed chair should make fact-based judgments based on economic trends and the congressionally mandated goals [15] - The current Fed chair is committed to the Fed's independence and should fulfill his term [31][32]

Economic Outlook - The US is potentially undergoing a systemic shift, drawing comparisons to both the "Reagan moment" (positive change) and the "Jimmy Carter moment" (stagflation/recession) [1] - Market sentiment regarding the US economic trajectory has been volatile, fluctuating between an 80% probability of a "Reagan moment" at the beginning of the year, dropping below 50% by April, and currently residing around 70% [2] - There is an approximate 50/50 chance of either a positive transformation or stagflation/recession in the US [2] Market Dynamics - The US market's significant fluctuations are unusual given its mature institutions and diversified economy [2]

Economic Resilience and Uncertainty - The American economy demonstrates resilience despite uncertainty [3] - Uncertainty has settled, influencing market reactions, but the economy is still holding [3] - A Ben Franklin close (pros and cons analysis) is relevant for decision-making [3][4] Fiscal Policy and Business Impact - Companies have certainty regarding tax rates and 100% expensing of equipment [4] - Deregulation and AI are also factors influencing the economy [4] - The budget is settled, providing certainty, despite positives and negatives [6] Tariffs and Inflation - Tariff uncertainty is a key consideration [6] - There is more certainty on the tariff side compared to April [7] - Several months of tariff revenue have amounted to $25 billion to $30 billion [7] - The pricing effect of tariffs is working its way through, but the impact on consumer behavior is not yet significant [8] - Inflationary effects remain a concern [8] - Different entities along the value chain absorb different pieces of the tariff impact [9] - Lower gas prices (under $3) are a significant positive [9] Federal Reserve (The Fed) Policy - The Fed is expected to wait on interest rate adjustments due to inflation concerns [10] - The Fed aims to avoid stagflation [10] - The Fed needs to ensure that any rate adjustments do not lead to renewed inflation [10][11] - Current data does not indicate significant inflation [11]

Market Sentiment & Economic Outlook - The market is facing a battle between resilience and complacency as the second quarter ends [1] - Some believe the market is resilient and will continue to rise towards all-time highs [2] - Concerns exist about the removal of buybacks and the end of the 90-day tariff extension [3] - The market may react negatively if the dot plot indicates only one rate cut, while two cuts may already be priced in [12] - The market has pure momentum in basically every sector, with strong appetite for IPOs until the second quarter earnings reports [17][18] Monetary Policy & Federal Reserve - The FOMC meeting is anticipated with uncertainty, especially regarding Chairman Powell's stance [3][4] - Some argue that recent weak data points, such as the largest drop in retail sales since March 2023 and poor home builder sentiment, justify a dovish stance [5] - Michigan consumer one-year inflation expectations have decreased from 73% to 53%, which the Fed may consider significant [6][7] - Uncertainty regarding tariffs and the Middle East conflict may prevent the Fed from adopting a dovish position [8][9] - The Fed's own measure of uncertainty is near pandemic and financial crisis levels, suggesting caution [22][23] - The core PCE went up by 03%, Real GDP went down by 04%, and the funds rate kept unchanged at 39% [21][22] Inflation & Tariffs - Looming tariffs and the conflict in the Middle East create uncertainty regarding future oil prices [8] - Inflation readings have been relatively good recently [8] - Inventories not subject to tariffs are dwindling, potentially leading to higher prices [16] - One company's aluminum costs, previously sourced from China, increased by 50%, leading them to source from the US, but costs are still up 35% year-over-year [14]

Core Viewpoint - Bank of America is in a stronger position compared to the Great Recession, with improved safety and soundness metrics, despite emerging economic stress [2][11]. Group 1: Bank's Strategy and Performance - Bank of America has adopted a conservative growth strategy under CEO Brian Moynihan since 2010, focusing on risk management and stability [3][4]. - The bank's total loan balances have seen minimal growth since Q4 2009, reflecting a cautious approach amid stricter regulations [4]. - The composition of the loan portfolio has shifted significantly, with reduced exposure to consumer and home equity loans, which were problematic during the Great Recession [4][5]. Group 2: Loan Quality and Risk Management - The quality of loans has improved, with wealth management loans more than doubling, while commercial real estate construction loans now represent only 15% of total loans, down from 39% in 2009 [5]. - Nonperforming loans and net charge-offs are significantly lower than during the peak of the Great Recession, indicating better loan performance [6][7]. - Tangible common equity is nearly double what it was in 2009, and global liquidity sources have increased more than fourfold, enhancing the bank's financial resilience [7]. Group 3: Stress Testing and Preparedness - Bank of America participates in rigorous stress testing by the Federal Reserve, which simulates severe economic downturns, and is expected to face losses of 5.5% of total loans, compared to 10% in Q4 2009 [7][8]. - The bank conducts its own stress tests to assess its preparedness for potential recessions, emphasizing the importance of underwriting discipline developed over the last decade [10]. - Despite inherent risks in banking, the bank's reshaped loan portfolio and risk management practices suggest it is well-equipped to handle potential credit issues [9]. Group 4: Market Position and Valuation - Bank of America's stock is currently trading at 138% of its tangible book value, below its five-year average of 156%, presenting a favorable risk-reward proposition [11][12].