Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
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Speaker 3: The other main mover of this week is what's going
Speaker 3: to be happening with the Fed. We got Jackson Hall
Speaker 3: in a couple weeks, FED Susan Collins coming out today
Speaker 3: saying that rakecuts could be soon if inflation keeps falling.
Speaker 3: She says, my outlook for continued gradual reduction back to
Speaker 3: our two percent target amid a healthy labor market. That
Speaker 3: doesn't says to me. That does not say to me
Speaker 3: a fifty basis point cut in September or an emergency
Speaker 3: rate cut. So let's go to Steve Matthews Bloomberg, a
Speaker 3: Federal Preserve reporter. Steve, are we still thinking about a
Speaker 3: fifty basis point cut or an inter meeting cut because
Speaker 3: I have not seen the information from the FED to
Speaker 3: back that up.
Speaker 4: Yeah, you are exactly correct. I mean the markets are
Speaker 4: pricing in the likelihood of a fifty basis point cut
Speaker 4: in September. We have heard from you know, the Kansas
Speaker 4: City FED president last night, the Chicago FED president, Boston
Speaker 4: FED President Richmond. None of them are saying, you know,
Speaker 4: anything that would indicate that we're going to get fifty
Speaker 4: basis points.
Speaker 5: And of course there is a lot of data.
Speaker 4: We get CPI next week, we'll have another I mean,
Speaker 4: the meeting is not until mid September. We'll get another
Speaker 4: jobs report, We'll get another CPI report. I mean, we'll
Speaker 4: get two CPI reports. So there's a lot of data
Speaker 4: that could sway things. But from what we've been hearing
Speaker 4: so far, there's no indication that the Fed is interested.
Speaker 4: And in fact, what Powell said Chair Powell at the
Speaker 4: last press conference, which was just last week, was that
Speaker 4: they were not thinking about fifty basis points, and there's
Speaker 4: no reason to believe that that's changed.
Speaker 1: I found that fascinating the extent to which the calls
Speaker 1: for fifty basis points developed their own momentum. But it's
Speaker 1: interesting now to see this survey that really sort of
Speaker 1: puts that to rest in a certain sort of way.
Speaker 1: But I guess I wondered if you could talk a
Speaker 1: little bit about the remarks from the Fed recently that
Speaker 1: they're going to be putting increased weight on the full
Speaker 1: employment mandate. What does that mean as a practical matter,
Speaker 1: and what should investors be looking for between now and
Speaker 1: the meeting.
Speaker 4: Well, what that means is really for the last two years.
Speaker 4: I mean, inflation peaked two years ago at if you
Speaker 4: look at CPI, it was over nine percent. By the
Speaker 4: Fed's measure, it was over seven percent. And at that
Speaker 4: point they were focused strictly on what can they do
Speaker 4: to bring inflation down? And you also had the unemployment
Speaker 4: rate under four percent. Now you have the unemployment rate
Speaker 4: which has risen to four point three percent and has
Speaker 4: been rising, you know, somewhat unexpectedly more than the Fed
Speaker 4: expected anyway, And therefore they're saying, we're going to be
Speaker 4: paying attention to both sides or our mandate. We're not
Speaker 4: just focused on inflation, even though inflation hasn't quite come
Speaker 4: down to two percent. So it's not just the inflation
Speaker 4: figures it will matter. It will be the employment figures
Speaker 4: it will matter. And those that are predicting fifty basis points.
Speaker 4: And they change a couple of big firms, JP Morgan's
Speaker 4: City Corp City Group changed their calls to fifty basis
Speaker 4: points after the last jobs report, and that was because
Speaker 4: the job's report was very disappointing.
Speaker 5: But they're kind of making the.
Speaker 4: Assumption that that is not just an outlier, that that's
Speaker 4: going to continue.
Speaker 5: So we'll see if they're right.
Speaker 3: So to that point, we only have about a minute left.
Speaker 3: But if the Fed wants to walk back market expectations
Speaker 3: while also acknowledging they're going to have to cut in
Speaker 3: the econ of he's not as great, how do they
Speaker 3: do that.
Speaker 4: Well, you've seen pushback from a bunch of FED presidents.
Speaker 4: In two weeks we will get presumably it's not been
Speaker 4: formally announced, but every year Jerome Powell speaks at Jackson Hole,
Speaker 4: so presumably he will be speaking and in two weeks
Speaker 4: at the king City FED conference in Jackson Hole, and
Speaker 4: that will be a key event where he can push
Speaker 4: back against expectations if he chooses to, and if not,
Speaker 4: you know, you have Vice Jared Jefferson. It's like sometimes
Speaker 4: he will come out and give speeches or TV interviews,
Speaker 4: and you.
Speaker 5: Also have a Chris Waller, the governor is very.
Speaker 4: Influential and you could hear him be speaking between now
Speaker 4: and then as well.
Speaker 3: All right, we appreciate that, Thank you very much. Joining
Speaker 3: us with Steve Matthews, a Bloomberg a Federal Reserve reporter.
Speaker 3: So I have to wonder, Jen, is it just going
Speaker 3: to be like sit tight see you and Jack? Is
Speaker 3: that what we're dealing with here?
Speaker 1: You say sit tight, but I mean anyone who was
Speaker 1: on their quote unquote vacation this week will come back
Speaker 1: to find that there had been a nasty market surprise
Speaker 1: come back.
Speaker 3: They came back already and there were definitely us sitting
Speaker 3: in there desk training there at that point.
Speaker 6: It's true.
Speaker 3: We do get CPI next week, so let's not totally
Speaker 3: forget about that. Plus retail earnings, which should be quite fun.
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Speaker 3: All right, this was quite a week in the market.
Speaker 3: Here's some superlatives for you. The SMP has now fallen
Speaker 3: for four weeks in a row, the longest weeks since
Speaker 3: September of twenty twenty three, the Nasdaq one hundred is
Speaker 3: down five weeks, the work Streek since May of twenty
Speaker 3: twenty two. I could do this for a while, So
Speaker 3: let's just get to someone professional here, Adam Kuhne's chief
Speaker 3: portfolio manager. I went through a capital manager joins us. Now, hey, Adam,
Speaker 3: what has How do you categorize Maybe this is a
Speaker 3: better question, how do you categorize the last week in
Speaker 3: the market chaotic?
Speaker 7: I mean, you know, I think the market has spent
Speaker 7: the last year or so trying to look into a
Speaker 7: crystal ball and determine what the FED is going to do,
Speaker 7: and they keep getting it wrong. I think this is
Speaker 7: probably another case where a little bit of a knee
Speaker 7: jerk reaction to just a couple of data points, and
Speaker 7: I think we're going to need to see a lot
Speaker 7: more for the FED to really take any action to
Speaker 7: decrease interest rates at this point.
Speaker 1: So what's your call on how people should be thinking
Speaker 1: about this? Is it something where people should just sit tight,
Speaker 1: or is there some positioning recommendations you've got?
Speaker 7: Well, I mean, the data is still real least showing
Speaker 7: that things are slowing and things are deteriorating to a degree.
Speaker 7: I think just the you know, magnitude of it is
Speaker 7: still uncertain. And really it's the point about the determining
Speaker 7: what the FED is going to do with the data
Speaker 7: in the next couple of months. And so I think
Speaker 7: when you look at how to position a portfolio right now,
Speaker 7: it is still wise to start to.
Speaker 8: You know, position more defensively.
Speaker 7: You've got to look at maybe not necessarily decreasing your
Speaker 7: equity allocation, but maybe increasing to things like quality. You know,
Speaker 7: if you're looking at the factor exposures, you're increasing quality,
Speaker 7: You're decreasing some of your high beta growth, maybe looking
Speaker 7: at you know, more dividend paying type stocks, and maybe
Speaker 7: even looking at some value. So I think you want
Speaker 7: to start to just start to tilt towards what what
Speaker 7: most would kind of consider lower vall you know, somewhat
Speaker 7: defensive names within an equity strategy. But ultimately, I mean,
Speaker 7: I think the best trade right now still are long
Speaker 7: duration bonds. I mean, no matter what the FED does,
Speaker 7: I think when you look at, you know, what trade
Speaker 7: has an asymmetric restor reward profile, it's still that very
Speaker 7: seemingly boring trade. Because if the FED sits tight. Most
Speaker 7: likely they're going to really kind of push the economy
Speaker 7: to further downside because they've held off too long. But
Speaker 7: then if they do start to decrease rates, you'll start
Speaker 7: to see interest rates come down and you'll benefit from
Speaker 7: that too. So I think those are two different ways,
Speaker 7: whether you're in the fixed income space or whether you're
Speaker 7: in the equity space.
Speaker 8: How we're playing it right now, is.
Speaker 3: It also an opportunity to buy the dip? I mean,
Speaker 3: I mentioned that the Nastaq one hundred has its worst
Speaker 3: streak now since May of twenty twenty two, because it's
Speaker 3: down about five straight weeks. A truist said, look, you
Speaker 3: know there's a double dig percentage sell off. Let's go
Speaker 3: buy some technology sector. Let's move it to overweight. Is
Speaker 3: that all supposed to ategy here?
Speaker 8: I do, And it's kind of in that same category.
Speaker 7: Is I would buy the dip, especially in tech, but
Speaker 7: particularly in the higher quality tech. And once again it
Speaker 7: probably is more of a you know, somewhat of a
Speaker 7: boring trade. But looking at your names like Alphabet, Meta, Microsoft,
Speaker 7: that's where you.
Speaker 8: Want to buy the dip. Where I wouldn't buy the dip.
Speaker 7: Up our names like Tesla, I'd still be cautious on
Speaker 7: the video here, even though there is still momentum. I'd
Speaker 7: really look at the companies that have a strong business
Speaker 7: model that can sustain some level of growth, some level
Speaker 7: of free cash flow, even if we do see the
Speaker 7: economy rollover. So I think would be particular in where
Speaker 7: you're buying the dip and not just outright buying you know,
Speaker 7: the market or just buying the Nasdaq.
Speaker 8: You want to find, you know, pockets of value.
Speaker 7: Within the SMP or you know, where you're looking to
Speaker 7: buy stocks.
Speaker 1: Can you talk a little bit more, just to dig
Speaker 1: in a bit to your views on in Vidio, because
Speaker 1: I remember the last quarter when I was on this
Speaker 1: show and we spoke so much about Invidia and they
Speaker 1: were just such a bell weather for the AI mania,
Speaker 1: for the enthusiasm for tech. You know there's still to come.
Speaker 1: What is your read on what we're going to see
Speaker 1: from them?
Speaker 7: Yeah, I mean I think, look, big tech is starting
Speaker 7: to decelerate their spend on things like semiconductors and so
Speaker 7: that it will be somewhat of a weight headwind per
Speaker 7: se to the substantial growth at Navidia scene. So I
Speaker 7: think this earnings will be a little bit of a
Speaker 7: tell of what we're going to see in the next
Speaker 7: few quarters.
Speaker 8: This quarter will probably be just fined. I don't think
Speaker 8: you're going to see the results of that.
Speaker 7: It's really the go for the four guidance kind of
Speaker 7: how the conversation goes with management on what they're seeing
Speaker 7: coming up. And I think we're going to see some
Speaker 7: level of deceleration. And unfortunately, because of the way Navidia's
Speaker 7: price the high valuation, that sets it up for potentially
Speaker 7: a bigger downside. We obviously saw it with Intel, and
Speaker 7: I think that's a little bit of a different story.
Speaker 7: That's just a mess altogether. But the fact that you
Speaker 7: could see a name like Intel down twenty five percent
Speaker 7: in one day on earnings, I don't think Navidia is
Speaker 7: at least they're not immune from that. If the growth
Speaker 7: story shows some level of slowing, I think you can
Speaker 7: see investors move away from that type of name really quickly.
Speaker 3: Yeah, those ticks aren't supposed to move like that, and
Speaker 3: that was a really intense move. So we're definitely setting
Speaker 3: ourselves up for a very big last week of August,
Speaker 3: that's for sure. There's been some question over the last
Speaker 3: couple of days as to if the sell off we
Speaker 3: saw was technical in nature, spurred buy were overbought, the
Speaker 3: carrier trades unwinding a little bit, We triggered some technical
Speaker 3: levels versus an actual growth scare.
Speaker 6: Where do you come down on that?
Speaker 3: And I asked that because it also depends on how
Speaker 3: you look at things like bonds, how you look at
Speaker 3: things like corporate credit.
Speaker 7: Yeah, so I think you want to look a little
Speaker 7: bit deeper than just what the market did. And you
Speaker 7: got to look at what volatility did and the volatility
Speaker 7: of that volatility. So you know, when you look at
Speaker 7: the Vicks spiking the way it did, or if you
Speaker 7: look at you know, if you're a bond trader, if
Speaker 7: you're looking at the move indection, you look at interest
Speaker 7: rate volatility. Both had significant moves to the upside. And
Speaker 7: that tells me this was more than just a technical trade.
Speaker 7: This was this was really people starting to become fearful
Speaker 7: of because this market has had so much much, so
Speaker 7: much momentum to the upside, and because valuations are somewhat stretched,
Speaker 7: you know, it's hard to know where the bottom is,
Speaker 7: and so investors tend to during those periods of time,
Speaker 7: they tend to be more reactive, and I think that's
Speaker 7: what we saw last week, was it was more that
Speaker 7: kind of emotional reaction to Okay, is this, it is this?
Speaker 7: And I think everyone's still a little bit scarred from
Speaker 7: you know, seven o eight and how destructive that was.
Speaker 7: And by no means is this that type of scenario.
Speaker 7: But I think you see investors that are quick to
Speaker 7: want to get out of harm's way, you know, when
Speaker 7: they start to see the data or the markets somewhat deteriorate,
Speaker 7: they they're quicker to get out.
Speaker 8: I think that's what we saw.
Speaker 7: So there's probably a technical piece of it, but I
Speaker 7: do think it was emotional somewhat fundamental, because people are
Speaker 7: just scared of, you know, where it could go, and
Speaker 7: especially if the FED. You know, if the FED is
Speaker 7: going to be slow to react, I think that will
Speaker 7: increase the fears even more because we have seen a
Speaker 7: FED that's somewhat you know, they were slow to increase
Speaker 7: interest rates on the bat, you know, at the front
Speaker 7: end of the cycle, when we start it was queer
Speaker 7: that inflation was picking up, and they used the transitory narratives,
Speaker 7: they were slow to increase interest rates. There is a
Speaker 7: fear that they're going to be slow to decrease interest rates,
Speaker 7: and maybe they wait too long.
Speaker 8: And so that's what we're.
Speaker 7: Starting to see, that the market trying to just digest
Speaker 7: all of that information coming to them at once, and
Speaker 7: that's why you saw such a big reaction just on
Speaker 7: a couple of data voids.
Speaker 1: Can we shift the conversation a little bit over to
Speaker 1: corporate credit and other areas of the credit markets, because
Speaker 1: I've been looking at this over the whole year, and
Speaker 1: we've just seen corporate spreads grind tighter and tighter and tighter,
Speaker 1: but also at the same time, a lot of money
Speaker 1: go into other safety plays like mortgage backed securities. So
Speaker 1: can you talk a little bit about what the relative
Speaker 1: value is there though, because I was looking at a
Speaker 1: chart earlier this week and the returns for corporate credit
Speaker 1: have just absolutely fallen off a cliff, whereas more have
Speaker 1: really held up.
Speaker 7: Yeah, So I mean part of that is that's the
Speaker 7: risk portion of where you are in the kind of
Speaker 7: bond spectrum, whether you're in a treasury or mortgage or
Speaker 7: just flat out credit. And I think what we've seen
Speaker 7: what you're seeing with like you said, credit returns falling
Speaker 7: off a cliff really is that they're not immune to
Speaker 7: the reactions of the market like you saw in the
Speaker 7: equity markets, especially in high yield bonds. They become quite
Speaker 7: correlated when things are moving to the downside and volatility
Speaker 7: picks up. So it's no different here when you're looking
Speaker 7: at a mortgage backed security. These are still very high
Speaker 7: quality assets. They don't have the duration moves that like
Speaker 7: a treasury would, but they tend to be very stable
Speaker 7: during periods like this where there is heightened volatility. So
Speaker 7: that's why we like these in a portfolio because you
Speaker 7: pick up that additional yield coupon over a treasury, but
Speaker 7: you have more stability like you would see out of
Speaker 7: a treasury.
Speaker 6: All right, Adam, golly it there, thanks a lot. Appreciate it.
Speaker 3: Adam Kuhn's chief portfolio manager. When Thrope Capital Management.
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 3: Let's get to the tech news here. So Cisco potentially
Speaker 3: laying off thousands of workers. This is reporting from Reuters.
Speaker 3: It could look very similar to what we heard back
Speaker 3: earlier in this year when they laid off about five
Speaker 3: percent of its workforce. Dan, I've stand up leaf for
Speaker 3: us managing director and senior equity analyst at Wedbush Securities.
Speaker 3: He's in Tokyo. He's been a real trooper, staying up
Speaker 3: quite late. Hey Dan, what do you make of this
Speaker 3: headline from Reiters that Cisco could lay off thousands in
Speaker 3: their second job cut this year.
Speaker 9: Look, I mean they continue to have struggles Somewhere's what
Speaker 9: we see with Intel, and I think you're really seeing
Speaker 9: almost a have and a have nots in tech and
Speaker 9: I think Cisco is struggling and this just speaks to
Speaker 9: some of the I think issues they're gonna have a Look,
Speaker 9: you cannot cut your way to growth, and that's going
Speaker 9: to be the issue for Cisco going forward.
Speaker 1: Well, you know, just looking a little bit more at
Speaker 1: that point that you can't cut your way to growth.
Speaker 1: I mean, this is not obviously the only company that's
Speaker 1: doing job cuts. I mean, what's your Alex was just
Speaker 1: talking about this at the start of the hour. What's
Speaker 1: your take on how what the legs are, what the
Speaker 1: momentum is for job cuts in the industry. Are these
Speaker 1: all one offs? Or is this something that we're going
Speaker 1: to be seeing more of.
Speaker 9: Look, Cisco is in the right lane going to forty
Speaker 9: five miles an hour, and so many of the rest
Speaker 9: of tech and AI they're in Bugatti going one hundred
Speaker 9: miles an hour in the left lane. And I think
Speaker 9: what's going to happen here is you'll continue to see
Speaker 9: a layouts being Look, if you looked up disaster and
Speaker 9: the dictionary, see Intel, look at Cisco. It's having to
Speaker 9: have nots. There's actually a lot of growth that's happening
Speaker 9: in tech in terms of what we're seeing from hiring,
Speaker 9: but it's really the strong they're getting stronger. But look,
Speaker 9: that's why Cisco did Spunk acquisition. They're gonna have to
Speaker 9: really do that through M and A.
Speaker 3: Well to that point, then, is this just basically companies
Speaker 3: are diverting a lot of their spending to AI stuff,
Speaker 3: so their other stuff is not being spent on, which
Speaker 3: hurts guys like Cisco. You can also make an argument
Speaker 3: that it hurt five to nine, for example, the software company,
Speaker 3: Like is that what we're seeing?
Speaker 9: Look, I think to some extent, book. Cisco's had struggles
Speaker 9: for decades. I mean, it's really been on the wrong
Speaker 9: side of trends. They're trying to get into the right
Speaker 9: side of the trend. Book AI is disrupting sales, it's
Speaker 9: taking spending from other areas. And that's why the strength
Speaker 9: we see in Microsoft and now bat Amazon of course
Speaker 9: godfather of AI, Jensen Navinni and others, you also see
Speaker 9: weakness in others and that's why intact, it's really you're
Speaker 9: either on one side or the other, and right now,
Speaker 9: unfortunately Cisco's on the outside looking in.
Speaker 1: Can you talk a little bit about the equity sell off,
Speaker 1: and you know, I've seen some comments that this is
Speaker 1: remove some of the froth in big tech and maybe
Speaker 1: it's a time to get back in. What do you
Speaker 1: make that.
Speaker 9: I think this is a golden fine opportune. I mean
Speaker 9: that's always been our view in terms of these macro
Speaker 9: fear white knockle events. The AI party is still nine
Speaker 9: pm in a part that goes to four am, and
Speaker 9: we're gonna have scares. I'm not gonna say it's gonna
Speaker 9: be one hundred percent smooth, but everything we're seeing fundamentally
Speaker 9: and what we're seeing from our chests continue to show
Speaker 9: growth is gonna be there, and I think we're gonna
Speaker 9: see this technical market it has sea legs, but look
Speaker 9: the bears they've been rought. You know, bears have been
Speaker 9: and obviously has it on this and they'll continue to
Speaker 9: come out. In terms of fears like we saw this week.
Speaker 3: Do you think what kind of risk event do you
Speaker 3: think in video earnings at the end of the month
Speaker 3: is going to because I think we have Jackson Hole
Speaker 3: in the same week, so it's gonna be a lot.
Speaker 3: Plus it's the last week in August right into Labor
Speaker 3: Day weekend. What risk event are we set.
Speaker 5: Up for here?
Speaker 9: I think that's again at the popcorn moment in terms
Speaker 9: in video. I mean, even if you have a TSMC
Speaker 9: in some the breadcrumbs going on to this robust demand
Speaker 9: in terms of what we see and I think right
Speaker 9: now the street needs to see that to just give
Speaker 9: further creates what we saw in Microsoft Polunteer Alphabet Service
Speaker 9: now and others in terms of monization happen AI. But
Speaker 9: that's me one of the most anticipated earnings calls for
Speaker 9: hearing from Jensen and Nvidio probably in the last four
Speaker 9: or five years, So.
Speaker 1: Let's look past that earning call and we're looking at
Speaker 1: late September. We've had perhaps of twenty five basis point
Speaker 1: fed Reid cut, maybe even fifty. But what we're also
Speaker 1: going to be seeing is probably more evidence that the
Speaker 1: economy is slowing. So what does that do to the
Speaker 1: demand story for all of this AI?
Speaker 9: Look but right now, I mean balance treat is healthy
Speaker 9: is they probably have ever been. I mean if you
Speaker 9: go back to the last decade or more and you
Speaker 9: look at a once in a forty year cycle in
Speaker 9: terms of AI spend, and as this sort of colm
Speaker 9: as a Goldilock scenario plays out, we get through September,
Speaker 9: I think twenty twenty five numbers come up in terms
Speaker 9: of tech, and you're gonna have more and more investors
Speaker 9: needing to play these names going into the next year
Speaker 9: because of where the growth is. And I think that
Speaker 9: continues to be the issue. Growth is in tech and
Speaker 9: that's why I'd rather pay up to play these names
Speaker 9: that continue to outperform.
Speaker 6: Let's go to TSMC.
Speaker 3: You mentioned that so sales sord forty five percent in July,
Speaker 3: accelerating his pace of growth from that June quarter, and
Speaker 3: that's all about this on demands for AI. Just walk
Speaker 3: me through when you see these kind of numbers, like
Speaker 3: what goes through your head?
Speaker 9: Look, it goes back to any of the bears that
Speaker 9: have been sitting in those caves in hibernation mode the
Speaker 9: last eighteen months when they say AI is hype, Look
Speaker 9: at those numbers. It goes these sacktops and then I
Speaker 9: think we'll see the same with Nvidia. We saw Microsoft
Speaker 9: and others. That is eye popping growth. That speaks to
Speaker 9: the demand story that's happening. You contrast that with Cisco
Speaker 9: and others. That's where the growth is. That just gets
Speaker 9: further in further credence to the AI revolution playing out.
Speaker 1: So looking further ahead, Oh, she's like going like twenty
Speaker 1: twenty five.
Speaker 6: No, No, you went to the ray gut.
Speaker 1: I went to the cut. No, there's one more event
Speaker 1: into twenty four that I would like to discuss. Presidential election.
Speaker 1: Is this something that the AI play even cares about
Speaker 1: or is it just kind of let's just make sure
Speaker 1: everything goes smoothly and then we can continue with business
Speaker 1: as normal.
Speaker 9: Well, I think it does because ultimately if a Trump
Speaker 9: you know, presidency, if that ultimately happened, I mean that
Speaker 9: you could argue that would be maybe negative for the
Speaker 9: AI trade in terms the tariffs. What that could do
Speaker 9: China US China could tech war. A Harris ticket getting
Speaker 9: in would probably be more bullish for tech and especially
Speaker 9: even on tech M and A. I think it would
Speaker 9: be probably positive there. And depending what happens a FTC
Speaker 9: and CON So you could argue that that's something that
Speaker 9: the mark is trying to figure out in terms of
Speaker 9: there's Trump trade tension reversing and now what that means
Speaker 9: A Harris in terms of AI, the biggest issue comes
Speaker 9: down to China. Harris ultimately would probably be a little
Speaker 9: more bullish relative to that some of what we've seen
Speaker 9: Trump would be negative.
Speaker 3: Before I let you go down when you take a
Speaker 3: look at the winners, right just hit me up with
Speaker 3: some of the losers right now.
Speaker 9: I mean losers are Intel, m H, Cisco. I think
Speaker 9: a lot of the legacy tech You could argue, like
Speaker 9: even some of the IT services are probably net losers here.
Speaker 9: And in terms of the winners, I think that's clear.
Speaker 9: But that's why it's a having to have nots and
Speaker 9: I think it's becoming more and more evident. And also
Speaker 9: just could you say Ai forty times in our conference calls.
Speaker 9: I mean you're an AII.
Speaker 3: Player, right right, And I feel like we learned that soon.
Speaker 3: I feel like the first quarter when in video had
Speaker 3: that breakout. Okay, if you said the word Ai, that
Speaker 3: was cool, and after that we changed.
Speaker 6: Dan. Another question, do you sleep when you're there?
Speaker 3: Because I say that because I've seen you on TV
Speaker 3: at like six am and then I've seen you on
Speaker 3: the clothes with me at like four pm and you're
Speaker 3: in Tokyo and there's a time change, Like do you
Speaker 3: sleep when you're there or what happens?
Speaker 9: I do sleep. It's been an unusual week, given you
Speaker 9: know what's happened here in Tokyo and across the markets.
Speaker 9: But yeah, I do sleep, and I'll be sleeping a
Speaker 9: lot this week.
Speaker 6: Okay, that you will?
Speaker 5: All right?
Speaker 3: Damn we appreciate it. Dan, i'ves joining us from Tokyo,
Speaker 3: joined us from Webbush.
Speaker 2: There you're listening to the Bloomberg Intelligence Podcast. Catch us
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Speaker 3: I'm Alex Steele alongside Jen Ryan. Paul Sweeney is non
Speaker 3: sunning himself on the beach on this Friday. This is
Speaker 3: Bloomberg Intelligence Radio. We bring you all the news in business,
Speaker 3: economic and finance through our lens of our Bloomberg Intelligence folks.
Speaker 3: They cover two thousand companies and one hundred and thirty
Speaker 3: industries worldwide. We also love checking with Bloomberg News. They
Speaker 3: do amazing work, in particular the Big Take. They really
Speaker 3: go deep into stories that we need to know that
Speaker 3: are really important, whether you're in the markets or whether
Speaker 3: you just live in the world as a person. And
Speaker 3: one of them really deals with the election here in
Speaker 3: the United States, but from an economic point of view.
Speaker 3: Shaan don and Bloomberg News senior economics writer is joining
Speaker 3: us and this Big Take is the swing state economic
Speaker 3: realities shaping the US election. We can talk about the
Speaker 3: drama that's unfolded over the last month all we want,
Speaker 3: but the economics are going to win. Sean, what did
Speaker 3: you guys find in this exploration for the Big Take?
Speaker 10: Yeah, look, poll after poll shows the economy is the
Speaker 10: top issue on voters' minds, even as we're talking all
Speaker 10: the turmoil in the candidate ranks in recent weeks, So
Speaker 10: we took a deep dive into the seven swing states
Speaker 10: that are really going to decide a selection and look
Speaker 10: at the economy there, and what you find is that
Speaker 10: as a group, that battleground economy as we call it,
Speaker 10: has been growing more slowly than the rest of the
Speaker 10: United States since twenty nineteen. Effectively, in other words, as
Speaker 10: a group, it's had a slower recovery from the pandemic
Speaker 10: recession than the rest of the United States. Now there
Speaker 10: are outliers within that. Arizona is a much happier story
Speaker 10: on the economy than a place like Wisconsin. But really,
Speaker 10: when we think about what we get from voters is
Speaker 10: that they care about the economy. We look at the
Speaker 10: states that are going to matter most in the election,
Speaker 10: these swing states, and we look at what's happening in
Speaker 10: the economy there, and the reality is it's a different
Speaker 10: economic picture than what you've seen in the rest of
Speaker 10: the United States. And that could be an obstacle for
Speaker 10: Kamala Harris Vice President Harris as she kind of wears
Speaker 10: the legacy of the Biden administration in the last few
Speaker 10: years in the economy and takes that into November.
Speaker 1: Are there any common threads that tie these swing states
Speaker 1: together that would explain why it is that they're struggling
Speaker 1: so much with growth versus the rest of the nation.
Speaker 1: I mean, they'll all have their own unique stories, but
Speaker 1: is there anything that they've got in common.
Speaker 10: Look, I mean the thing that they have in common
Speaker 10: this year is simply politics, right. I mean, these are
Speaker 10: for different reasons. These are the seven swinging states that
Speaker 10: both sides see as the real battleground. But if you
Speaker 10: can split the states into the seven into two different groups,
Speaker 10: you have what are called the Blue All States, the
Speaker 10: old industrial states, and the common theme there is a
Speaker 10: higher dependency on manufacturing. They have not seen the big
Speaker 10: boost in manufacturing jobs that some other states have seen
Speaker 10: in recent years, and they've seen much lower growth as
Speaker 10: a group. In fact, that those Blue Wall states grew
Speaker 10: at just a third of the rate of the rest
Speaker 10: of the United States when you count for population changes
Speaker 10: and inflation changes and look at what we call real
Speaker 10: GDP per capita. On the other side, you have the
Speaker 10: Sun Belt states like Arizona and Nevada and places like
Speaker 10: North Carolina and Georgia, which have seen a much happier
Speaker 10: story in terms of manufacturing employment. We've seen semiconductor plants
Speaker 10: go into Arizona. We've seen new manufacturing jobs go into
Speaker 10: Nevada and North Carolina and Georgia, which is a big
Speaker 10: beneficiary of big electric vehicle investments. But you see another
Speaker 10: thing dragging on the economies. There are certainly on voters'
Speaker 10: mines there and that is housing prices in those places
Speaker 10: are really going for crazy. We went to Washoe County, Nevada,
Speaker 10: which is up where Reno is and Nevada is a
Speaker 10: state where you would spend a medium household in Nevada
Speaker 10: would spend nineteen percent of its inc come on a
Speaker 10: median house in twenty nineteen. That's now up close to
Speaker 10: thirty seven percent, wow of m And that's just a
Speaker 10: huge change in people's realities. Rents are higher, it's just
Speaker 10: a whole different level of problems. Those are very different
Speaker 10: from what you see in the Blue Wall states. But
Speaker 10: the you know, again, these are states that have been
Speaker 10: brought together and that really are a group only because
Speaker 10: they're the ones that matter in this election.
Speaker 6: So Georgia in particular, it's focused there. For a second.
Speaker 3: You write in the article that nominal GDP has grown
Speaker 3: almost twenty five percent since twenty nineteen, but in real
Speaker 3: per capita terms, the economy has grown by just two
Speaker 3: and a half percent in that time. Now, some of
Speaker 3: the things like the Chips Act, Infrastructure Act, even the
Speaker 3: IRA a lot of like Georgia, for example, is getting
Speaker 3: some of that money. Is that like a good thing
Speaker 3: or bad thing short term because it's going to bring
Speaker 3: more people to the state, But is that helpful for
Speaker 3: those that actually still live there now?
Speaker 10: Well, I think the way to think about what's happening
Speaker 10: in Georgia is there's a bigger pie in terms of
Speaker 10: the GDP in Georgia, but there's more people to share
Speaker 10: that pie, which means that the slice that everyone's getting
Speaker 10: is only a tiny bit bigger two and a half
Speaker 10: percent bigger than it was in twenty nineteen. And you
Speaker 10: see when you go to a place like Atlanta and
Speaker 10: drive through cyburbs, you see, you know, the housing price
Speaker 10: issues that I was talking about with Nevada, but you
Speaker 10: also see any traffic, you see other issues. And I
Speaker 10: went out to Jackson County, which is on the kind
Speaker 10: of eastern fringe of Metro Atlanta. It's one of the
Speaker 10: fastest growing counties, both in terms of population and in
Speaker 10: terms of economic growth.
Speaker 2: In the county.
Speaker 10: It used to be a largely rural place. It's gotten
Speaker 10: a big battery plant, Korean owned battery plant that's moved
Speaker 10: in that's making batteries for Ford and Volkswagen. You but
Speaker 10: you talk to you know, I sat down with a
Speaker 10: guy called Jim Shaw. He's a former banker who runs
Speaker 10: the local Chamber of Commerce and does economic development for
Speaker 10: the county, and he says, you know, we're kind of
Speaker 10: chasing our tails here because we're creating jobs in this county,
Speaker 10: not for people who are here, but for people who
Speaker 10: need to come here to fill those jobs. And there's
Speaker 10: a lot of resentment locally about that growth. What's happening
Speaker 10: with housing prices, what's happening with traffic. And you're starting
Speaker 10: to see local communities put the pap the brakes, and
Speaker 10: and and put new residential developments on hold, and and
Speaker 10: and and take a pause really to kind of think
Speaker 10: about the type of growth that they want. You know,
Speaker 10: that's a that's in some ways that's a great position
Speaker 10: to be in. You've got this incredible growth, but you're
Speaker 10: starting to see a real kind of you know, some
Speaker 10: real questions creep in about on the ground in these
Speaker 10: places about that growth.
Speaker 6: Hey, John, we really appreciate it. Thank you so much.
Speaker 3: Shawn Don and Bloomberg News senior economics writer joining us
Speaker 3: on The Big Take, and you can read more of
Speaker 3: this story on the Bloomberg and at Bloomberg dot com
Speaker 3: slash Big Take.
Speaker 2: You're listening to the Bloomberg Intelligence Podcast. Catch us live
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Speaker 2: Just Say Alexa Play Bloomberg eleven.
Speaker 3: Thirty from Alex Stee alongside Jen Ryan. This is Bloomberg
Speaker 3: Intelligence Radio. We bring you the top news and business,
Speaker 3: economics and finance through our lens of our Bloomberg Intelligence Team.
Speaker 3: They cover two thousand companies and one hundred and thirty
Speaker 3: industries worldwide. Paul Sweeny is off setting himself. It's actually
Speaker 3: a little lighter out. I don't think it's raining, and
Speaker 3: he is at the beach.
Speaker 1: I don't know, I can't really see some blue sky
Speaker 1: from here, but I don't think I could anyway, Yeah, fair.
Speaker 3: Enough, right, Well, Jen and I are here. We are
Speaker 3: holding down the Ford. It was a week, obviously, a
Speaker 3: week that was. Here's some stats for you. The S
Speaker 3: and p's falling now for four stree week's longest streaks
Speaker 3: and September twenty twenty three nas Tek one hundred down
Speaker 3: five weeks worth streak since May of twenty twenty two.
Speaker 3: A real divide happening within tech and the have and
Speaker 3: have nots Ack of my Technology the best performing stock
Speaker 3: on the S and P up by almost ten percent,
Speaker 3: and Intel one of the worst, down by about four percent.
Speaker 3: Obviously Cisco and the crosshairs there with those reports of
Speaker 3: layoffs of thousands in a second job round, What do
Speaker 3: you do?
Speaker 6: How much risk do you take on?
Speaker 3: Erica Mashmeyer is portfolio manager at Columbia thread Needle Investments.
Speaker 3: She joins US now from Chicago, Illinois. Erica, how much
Speaker 3: risk should one have on right now?
Speaker 11: I think we are still in a place where you
Speaker 11: benefit from having a relatively balanced portfolio, profitable companies with
Speaker 11: good competitive positions growing. That said, historically, when the VIX
Speaker 11: has been high, it has been a good time to
Speaker 11: start to layer on risk, and I think you can
Speaker 11: do that in a couple of different ways, right through
Speaker 11: your growth company's software company is that have been more
Speaker 11: ignored at the expense of AI hardware, and then also
Speaker 11: with more cyclical construction housing related names.
Speaker 1: But before this market craziness started this week, I mean,
Speaker 1: the market was already looking really quite frothy. So it's
Speaker 1: been a dip for sure, but it hasn't been enough
Speaker 1: of a dip that some of that froth has been
Speaker 1: removed and there's really some decent room for people to
Speaker 1: get in.
Speaker 5: Well. I think the.
Speaker 11: Froth was really more on the megacaps, right, the part
Speaker 11: of the market that admittedly is the biggest part of
Speaker 11: the market, and it was larger than many countries.
Speaker 12: But it was a pretty bifurcated market. There was an
Speaker 12: easy trade, right The easy trade was by US large
Speaker 12: cap tech and short everything else out there. We started
Speaker 12: to see that dispersion pick up last quarter, which I
Speaker 12: think is fair because we had earnings potentially decelerating for
Speaker 12: that group. I think a lot of the outperformance was
Speaker 12: fair because you know, the large cap stocks were growing faster.
Speaker 11: But there are more more cracks in that, and I
Speaker 11: think that there are plenty of areas that don't have
Speaker 11: froth at all.
Speaker 6: What do you buy then if there's the there's no froth.
Speaker 6: We kind of been through it.
Speaker 3: Maybe the rotation into say Smiths are still still up
Speaker 3: for grabs. I mean the Russell has underperformed and then
Speaker 3: Slash outperformed when we had to sell off over the
Speaker 3: last couple of days.
Speaker 11: But nonetheless, yeah, I mean I think, right, the valuation
Speaker 11: advantage for for small caps has you know, small mid
Speaker 11: has has been there for a while, right, the table's
Speaker 11: been set for a while, uh for for for there
Speaker 11: to be a rotation there.
Speaker 12: It hasn't happened for good reasons.
Speaker 5: Right.
Speaker 11: You need, I think a macro to be study, and
Speaker 11: you need the earnings growth. We have been living through
Speaker 11: this choppier macro. I you know, from our team has
Speaker 11: been paying attention to the economy from a rolling recession
Speaker 11: recession perspective ever since we had COVID which led to
Speaker 11: big booms and bus So you know, from here we
Speaker 11: think that in small mids software there are some interesting,
Speaker 11: interesting names. You know, that's a group that has been
Speaker 11: more ignored at the expense of AI hardware areas.
Speaker 12: They've you know, admittedly.
Speaker 11: Had some weaker some some weaker sales cycles because the
Speaker 11: CFOs of the world are looking to get rid of
Speaker 11: software at this point and not add more. But I
Speaker 11: think that we're going to hit the point where, you know,
Speaker 11: there are a lot of these companies that are adding
Speaker 11: real value and growing. You know, we own Zeta Global,
Speaker 11: which is a small cap stock that is actually up
Speaker 11: over one hundred and sixty percent year to date, but
Speaker 11: is still relatively cheap versus other software names. I think
Speaker 11: at the same time, you have pretty much anything short
Speaker 11: cycle manufacturing, industrial construction that has a lot of opportunity
Speaker 11: and potential for upside as we start to get rate cuts.
Speaker 11: We own top Build, which is a company that is
Speaker 11: an insulation insulation distributor and supplier, and they just reported
Speaker 11: this week and still a relatively inexpensive stock. They missed slightly,
Speaker 11: gave a slightly worse guidance range, but stock got hit.
Speaker 6: But this is one they'll.
Speaker 11: Continue to take share, executing very well, and as soon
Speaker 11: as we get rate cuts, some of these projects that
Speaker 11: have been delayed will will start to actually happen.
Speaker 1: You know, I did want to ask you about rate
Speaker 1: cuts because you're mentioning a number of sectors that have
Speaker 1: been overlooked and could benefit from rate cuts. But how
Speaker 1: big a rate cut do they need at this point?
Speaker 1: Is twenty five basis points going to be the start
Speaker 1: of a firing gun that gets things moving again? Or
Speaker 1: do they need the fifty basis points that some big
Speaker 1: players have been calling for.
Speaker 11: I don't think that we need a fifty basis point cut,
Speaker 11: and frankly, I think it's low probability, and I think
Speaker 11: if that happened, it would be more likely to spook.
Speaker 12: The market from a macro perspective.
Speaker 2: Right.
Speaker 11: The Fed only does that when you have something really
Speaker 11: really wrong, and so I think that would be a
Speaker 11: sign that the economy is broken, which I just don't
Speaker 11: think that it is. We haven't gotten that sign right
Speaker 11: where everything we see says that we are in a downturn,
Speaker 11: we're in a period of slow growth, we're reacting to
Speaker 11: rates that are higher. All very normal things and essentially
Speaker 11: what the Fed intended to do with higher rates. There's
Speaker 11: nothing that's saying that, Okay, this is a disaster, we
Speaker 11: need to cut fifty basis points to get things moving.
Speaker 11: I think if we get a twenty five basis point cut,
Speaker 11: and the path is clear. I think it's the path
Speaker 11: that matters more than the magnitude.
Speaker 6: To the inside. Erica, I know it's been a very
Speaker 6: long week.
Speaker 3: Eric Mshmeyer, portfolio manager at Columbia Threadneedle Investments, giving us
Speaker 3: her outlook on this very confusing market.
Speaker 2: This is the Bloomberg Intelligence Podcast, available on apples, Spotify,
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