WSJ What’s News - What Might the RNC Mean for Business and Politics in Wisconsin?

Episode Date: July 16, 2024

P.M. Edition for July 16. What this year’s Republican National Convention in Milwaukee means for locals—and for the swing state of Wisconsin. Our Luke Vargas reports from the RNC. And why are big banks paying more to keep brokerage customers’ cash? Heard on the Street writer Telis Demos explains. Plus, Sen. Bob Menendez is found guilty of bribery. Francesca Fontana hosts. Sign up for the WSJ's free What's News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

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That's BetterHelp.com. What could the Republican National Convention mean for business and politics in Wisconsin? And why investor demand for U.S. government bonds is staying strong, despite a growing national deficit. Treasuries are unique, and sort of what's supporting the market is that treasuries are this tremendously loved asset across the world. Plus, Senator Bob Menendez is found guilty of corruption charges.

It's Tuesday, July 16th. I'm Francesca Fontana for The Wall Street Journal. This is the PM edition of What's News, the top headlines and business stories that move the world today. As earnings season gets into full swing, some of America's biggest banks say their Wall Street businesses boosted their second quarter results. Here are three main takeaways from the latest quarterly reports. First up, investment banking is on the rebound. Goldman Sachs, JPMorgan Chase, Bank of America, Morgan Stanley, Citigroup, and Wells Fargo all posted double-digit increases in investment banking revenue. Second, lower-income consumers are under pressure. JPMorgan, Wells Fargo, Bank of

America, and Citi all say there were signs that more borrowers carried over credit card balances from month to month in the second quarter, and more fell behind on payments. J.P. Morgan and Bank of America also stashed away funds for potential consumer loan losses. And third, many banks got a lift from their asset and wealth management businesses, thanks in large part to the stock market rally we've seen this year. While we're on the subject of asset and wealth management, brokerage customers are looking for the most bang for their buck, causing a headache for some of those banking giants. The recent earnings reports from Bank of America, Morgan Stanley, and others with large wealth and asset management arms have shown increases in the interest rates they pay on certain deposits to keep customers from taking their cash and putting it elsewhere for a better return, like into high-yield savings accounts or certificates of deposit.

Here to explain is Heard on the Street writer, Talis Demos. Talis, how are banks seeing higher interest rates putting pressure on some of their offerings? So banks obviously earn more when interest rates are higher, right? The credit card loans you pay, things like that, they get more. But they also typically have to pay people more

for their deposits. You deposit your money in the bank, and when interest rates were zero, you didn't expect to earn much on that, right? But now that interest rates are a lot higher after all those Fed interest rate hikes, people are like, wait, I can get 5% on my cash. I want that. It's safe. I'm not going to lose it as if I'd invested it. And so what banks have had to do is really adjust to the fact that people want to earn more on these deposits. And so what that means is that the bank kind of gets squeezed.

They might be earning more on their assets, but they're also paying more for these deposits. And so what that means is that the bank kind of gets squeezed. They might be earning more on their assets, but they're also paying more for those deposits. And so what we've seen here in the second quarter is that that squeeze is just really kind of getting even stronger for banks in that wealth management business. They have to keep paying more interest on a lot of those kind of investment brokerage account cash, while again, they're struggling to earn significantly more yield at a time when the Fed isn't raising interest rates any further. And how do the banks anticipate this affecting the rest of their year? Banks are not giving especially rosy outlooks for their interest earnings over the next few quarters. This quarter

really has been kind of like an interesting inflection point. You've seen some bank stocks up, some bank stocks down. We're just kind of at a turning point here until really the Fed kind of figures out the direction. And of course, we get through all the other crazy stuff happening in our world, you know, elections, etc. So this quarter has been an interesting one. That was Heard on the Street writer, Telus Demos. this quarter's been an interesting one. That was Heard on the Street writer, Telus Demos. Major U.S. stock indexes notched new highs today. The S&P 500 rose 0.6 percent,

clinching its 38th record close of the year. The Dow Jones Industrial Average advanced more than 700 points, or 1.8 percent, also securing an all-time high. And the Nasdaq Composite edged 0.2 percent higher. America's debt is growing, leading to a huge increase in Treasury supply, but Wall Street is taking it all in stride. The U.S. expects the fiscal 2024 budget deficit to reach $1.9 trillion, up from $1.7 trillion last year and its previous estimate of $1.5 trillion. To some analysts' surprise, though, there's still enough investor demand for government bonds. Here to break down the challenges facing the Treasury market and how it's managing to meet them is Markets reporter Sam Goldfarb. Sam, why is Wall Street so unbothered by the rising deficit? The deficit is extremely large by historical standards.

Debt as a share of GDP is right about all-time highs. So that just means that there's all these treasuries to fund that deficit. And a lot of supply should theoretically push down bond prices and therefore push up their yields. theoretically push down bond prices and therefore push up their yields. But treasuries are unique. And sort of what's supporting the market is that treasuries are this tremendously loved asset across the world because they are seen as extremely safe. And they offer right now a pretty good return of four to five percent if you hold the bond to maturity. And the treasuries also have some other attributes that investors like as well. They're very easy to trade. They're the most liquid bond market in the world. And they also offer higher yields than their closest

competitors. They offer higher yields than the German government bonds and the Japanese government bonds. So for now, Wall Street seems to be taking all of this in stride. But are there any lingering concerns for investors and analysts looking ahead? You can never say what the future will bring. As I said, these are really large deficits. This is a lot of treasuries out there. And so there's reason to think that maybe all that's priced in, that investors, they see what we're seeing. They see the outlook for deficits, not just this year, but 10 years into the future, and that that might already be priced into bonds and bond yields, in which case, maybe there's not too much to worry about. But there are

people who say markets aren't necessarily that efficient. They sort of might not be pricing in all the information. There could be something that changes about the fiscal outlook that sort of might not be pricing in all the information. There could be something that changes about the fiscal outlook that sort of freaks people out and leads to higher yields, higher interest rates. That was markets reporter Sam Goldfarb. And speaking of deficits, what questions do you have about the national debt and what it means for the U.S. and its citizens? Send us your questions. Send a voice memo to WNPOD at WSJ.com or leave a voicemail with your name and location at 212-416-4328.

We might use it on the show. Coming up, what this year's Republican National Convention in Milwaukee means for the swing state of Wisconsin. That's after the break. So what's it like to buy your first cryptocurrency on Kraken? Well, let's say I'm at a food truck I've never tried before. Am I going to go all in on the loaded taco? No, sir. I'm keeping it simple.

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Senator Bob Menendez was found guilty of corruption charges today, a likely death blow to his longtime political career. A federal jury convicted the New Jersey Democrat of taking bribes in exchange for official acts that benefited three businessmen as well as the governments of Egypt and Qatar. After the verdict, Senate Majority Leader Chuck Schumer called on Menendez to step down. If Menendez doesn't resign voluntarily, the Senate could choose to expel him. And let's go now to the Republican National Convention in Milwaukee. After some big moments yesterday, former President Donald Trump making his first major public appearance since the assassination attempt, J.D. Vance being named as his running mate, today we wanted to take a step

back. What does the RNC being in town mean for locals? And what could it mean for the state of Wisconsin, one of the biggest swing states this year? Our Luke Vargas is part of the team of WSJ reporters and editors on the ground in Milwaukee, and he filed this report. When Republicans picked Milwaukee for their presidential nominating convention, they had big hopes for what it would mean for the general election. And I will get to that. But first, I wanted to find out how folks living and working here feel about it. So we asked around at some restaurants a bit outside the convention perimeter. Since the convention is in town, it's kind of hard to even maneuver over here, especially coming from downtown. Everything is pretty much blocked off.

This week we're down 20 percent so far. I think it's not fair that they closed so many restaurants to our city for us, but our scene here, because with our scene gone, we still here. Maybe I'll be pleasantly surprised, but I come here almost every day, and I've yet to meet anyone other than the normal, the regulars. That's a sentiment that we heard a lot around Milwaukee at street level, but for a view from City Hall, we spoke to Milwaukee Alderman Robert Baumann, whose District 4 covers the areas where the convention is being held. And while he was quick to call Milwaukee a sleeping giant of a city with a bright economic future, he also acknowledged that some of its post-pandemic struggles, like an uptick in crime and office vacancies that have

sapped its daytime economy economy won't be easily turned around by a single convention, even one of this size. I think this event is going to clearly help the hotel industry based on some of the hotel rates that I've heard being charged. I'm sure the downtown restaurant and bars will do well for a week. The rest of the city, I'm not so sure there's going to be a dramatic economic impact. And in fact, up to last week, a lot of event venues, a lot of theater venues were complaining about a lack of business, that they had seen very few bookings. And in fact, we're basically forced to shut down their normal activity, and now many of them are largely dark. So it's a mixed picture. And there's another reason that some Milwaukeeans have their doubts about an event that's brought tens of thousands of people here.

Milwaukee, like almost every big city, is very Democratic. That is Charles Franklin, who directs the Marquette Law School poll. They've conducted 80 surveys of Wisconsin voters since 2012. But at least this week, Republican visitors are making Milwaukee feel a bit more purple. As our team was leaving the Rise and Grind Cafe on the city's north side, three Republican state lawmakers from Texas were making their way in. They'd rented an Airbnb nearby. So we were searching for breakfast spots, and this looked like a good place. We're very hungry.

And it was convenient and had a good rating on Google. And it looked like a good local business, and we like supporting local businesses. And that was exactly the kind of interaction that Milwaukee's Democratic Mayor Cavalier Johnson has in mind as he uses the convention to drum up business for the city despite his personal feelings. These are two things, right? One is political and one is business.

This was not a political decision because my values do not align with Republican Party values, right? I disagree with their platform, certainly disagree with Mr. Trump as well. However, on the business end, this is good for Milwaukee. This helps to elevate our city, and I think the Republican National Convention is not the end, it's the beginning. Beneath his pro-business message, though, Johnson is a politician, and he was happy to highlight the sharp divisions that divide Wisconsin. Part of it has to do with the way that Republicans have run traditionally in the state, using Milwaukee as a punching bag, which I've worked to counteract some of that since I've been in this position saying, hey, you're not going to treat Milwaukee that way.

I'm going to stand up to you if you come out of line. I mean, that's what my trading barbs were with Mr. Trump and with other Republicans running for statewide office here. I asked Journal political reporter John McCormick about what comments from Trump Mayor Johnson felt the need to push back on. Before he came to Milwaukee, Donald Trump had some disparaging remarks about the city in a closed-door session in Washington with some Republicans. He called it a horrible city. His spokesman later said he was referring to crime rates here. But Democrats are going to really go out of their way to remind Wisconsin voters of what Trump said about Milwaukee. When you add up Wisconsin's dark

blue cities and what have become increasingly dark red rural areas, pollster Charles Franklin told me that the result is a deeply competitive state that any party that hopes to win the White House will need in its column to win. It's an incredible battleground most of the time. Four of the last six presidential races decided by less than one percentage point and decided by less than 25,000 votes. So who's got the upper hand here in 2024? In political science, the mantra is parties, issues, and candidates decide elections. In terms of the parties, Franklin and McCormick said Democrats and Republicans both have strong operations here, so call that a wash. On issues, Marquette Law School found Wisconsin voters see the economy and immigration as the top issues deciding their vote, giving a slight edge to Trump.

And on personality traits, these are both flawed candidates. And in the end, we see 17 percent saying they don't like either candidate. The only thing missing then from the equation were back to Republicans choosing Milwaukee, a decision that, like the financial effect to businesses of hosting a major event, may take time to become clear, but which could prove decisive. A big event, for instance, might drum up enough interest among Wisconsin voters to give Republicans an edge. Call it simple curiosity. But Franklin thinks there's more to it. side of the convention is the ability of Republicans in this case to recruit volunteers to do things at the convention and then transfer them over into working for the party in the

campaign in the fall. It's not going to show up in the polling, but it may show up in the organization of the parties and how many people they can draw on. The RNC's lineup of speakers tonight will feature House Republican leadership, including Elise Stefanik, Steve Scalise, and Mike Johnson, as well as three of Trump's former primary rivals, Vivek Ramaswamy, Nikki Haley, and Ron DeSantis. We'll have highlights on tomorrow morning's show. Until then, you can see The Wall Street Journal's full coverage on WSJ.com. And that's What's News for this Tuesday afternoon.

Today's show was produced by Pierre Bien-Aimé and Anthony Banzi, with supervising producer Michael Kosmides. Additional support by Felana Patterson and Luke Vargas. I'm Francesca Fontana for The Wall Street Journal. We'll be back with a new show tomorrow morning. Thanks for listening.