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Speaker 2: Let's dive a little bit deeper into the Nvidia earnings.
Speaker 2: Who do you want to dive deeper in than d.
Speaker 3: No better person right now?
Speaker 2: That's our guy. I mean, he's getting geared up for
Speaker 2: Penn State, Nevada this weekend, but he's probably focusing a
Speaker 2: little bit here on Nvidia. Hey, Dan, I thought these
Speaker 2: numbers were darn good, but I know there's the law
Speaker 2: of large numbers. I know there's a whole thing about expectations.
Speaker 2: Give us your take on these Nvidia numbers, Dan, I.
Speaker 4: Thought they were robot and I think the some extent
Speaker 4: when you factored China and they actually beat expectations, especially
Speaker 4: when you look at the outlook. I think there's a
Speaker 4: stock that's up today and I think it further validates Well.
Speaker 4: We've obviously been talking a lot, you know, with you
Speaker 4: and the team about about the AI story now playing
Speaker 4: out into the next stiege of growth. This is bullish
Speaker 4: in my opinion.
Speaker 5: Dan, what was your takeaway here as it relates to
Speaker 5: a lot of the spending here Capax.
Speaker 4: I think it just sures there's one ship in the world,
Speaker 4: fewling the AI revolutions led by godfather of AI, Jensen,
Speaker 4: the Vidning and you what's happened on Capex. It's just
Speaker 4: continuing to accelerate, and then you factor in China that
Speaker 4: could be fifty billion. I mean in just talking about
Speaker 4: the fifty percent growth. I look, I think this is
Speaker 4: just now it's showing the next feeds of the AI
Speaker 4: revolutions now starting to play out, especially when you combine
Speaker 4: it with hyper scalers and everything we've seen from Pallenteer
Speaker 4: now Snowflake, Mango de Be, the use cases are expanded.
Speaker 2: Dan, flush out for us the whole China situation. Where
Speaker 2: is in Vidio today visa via China? And how do
Speaker 2: you think this is going to play out over the
Speaker 2: coming quarters with our age twenty.
Speaker 4: Chip Yeah, Paul, Look, they're they're cognmental between US and China.
Speaker 4: But the reality is Jensen's ten percent politician, ninety percent
Speaker 4: CEO and Trump administration to do is big as Chip
Speaker 4: on the broker table is in the video. So as
Speaker 4: this all plays out there, it's to pay for play model.
Speaker 4: They're going to have access to China, even if it's restricted,
Speaker 4: and that's going to add and incremental what two five
Speaker 4: six billion per quarter. And you know, even though Beijing's
Speaker 4: saying telling you know, maybe these companies you don't want
Speaker 4: to buy in video chips, that's like telling a kid
Speaker 4: not eat candied. Big tech in China wants in video chips.
Speaker 5: So, I mean, as we dig in here into the data,
Speaker 5: what we saw from the earnings report, what is takeaway
Speaker 5: in terms of what they were able to see specifically
Speaker 5: in terms of data center AI demand. That's definitely something
Speaker 5: that's been in focus here with this report.
Speaker 4: Yeah, look, I think it's noise in terms of any
Speaker 4: quote unquote like miss because when you factored China, it's
Speaker 4: basically over a billion and a half feet. They're seeing
Speaker 4: demand accelerate. I mean, no region is not showing acceleration.
Speaker 4: And now you're starting to factor what's going to happen
Speaker 4: in Middle East, what's going to happen in China. It's
Speaker 4: got to rest the world and you're really talking about
Speaker 4: one chip that's fueling it. So when I walk in
Speaker 4: a video, I think there's a five trillion dollars mark
Speaker 4: cap attention by a year under early twenty six, and
Speaker 4: it's just further validation for the AI revolution. Biasis.
Speaker 2: So talk to us DAN about their customer base and
Speaker 2: the concentration of the customers, and I know they want
Speaker 2: to broaden out their customer base maybe to sovereigns into
Speaker 2: other net buyers out there. How do you think that's
Speaker 2: going to evolve?
Speaker 4: Big tech is going to continue domino as a quote
Speaker 4: unquote customer base in terms of the concentration. But now
Speaker 4: as sovereigns play out, as enterprises play out, and you're
Speaker 4: going to see more and more people you know, obviously
Speaker 4: start to understand that this revolution is not just big Tech.
Speaker 4: It's about other sort of regions starting to play. And
Speaker 4: there's only one ship in the world fuel in it,
Speaker 4: and that's in video.
Speaker 5: So taking a step back here in video wrapped up
Speaker 5: all of the mag seven earnings here. What were your
Speaker 5: thoughts more broadly overall this earning season.
Speaker 4: I mean, I think this is the bullish Tech earning season.
Speaker 4: We talked about it, the validation of the AI revolution,
Speaker 4: his next stage of growth it's spreading, second, third, fourth derivatives.
Speaker 4: Now grant look in video is a Scottie chauffeur of
Speaker 4: tech okay, But what you're just starting to see now
Speaker 4: play out is those derivatives, the spending, the multiplier, it's
Speaker 4: all happening. And I think that's just bullish going into
Speaker 4: year end in terms of tax stocks, and I think
Speaker 4: this bull market has two to three year run still left. Dan.
Speaker 2: So as you talk to institutional investors, how are they
Speaker 2: viewing this fifteen percent? I don't know government fee that
Speaker 2: the US government may impose on some of these chip
Speaker 2: sales that China. How's that being viewed by investors?
Speaker 4: Look, it's obviously it's unusual. It's a pay for play model,
Speaker 4: but guess what, investors, it's new rules of the road, right,
Speaker 4: big text, start and understand how that works. But when
Speaker 4: it comes in video, okay, pay fifteen percent, that's breadcrumbs.
Speaker 4: You can raise prices fifteen percent. You need access to China.
Speaker 4: You can't give Huawei on a silver platter that market.
Speaker 4: So as it continues to play out, I think investors
Speaker 4: have accepted they want to video open access to China
Speaker 4: because that continues to be the golden goose that Jensen's
Speaker 4: going after.
Speaker 2: Dan.
Speaker 5: I want to quickly go right back to what we
Speaker 5: were talking about here when it relates to data centers.
Speaker 5: How concentrated is in Video's revenue right now or like
Speaker 5: you know, the top five hyper scalers still the overwhelming
Speaker 5: majority of data center sales.
Speaker 4: You know, it's concentrated. But that's just the nature right
Speaker 4: now big text three hundred, what fifty during sixty billion?
Speaker 4: But it's going to spread sovereigns enterprises the rest of
Speaker 4: the world, and Vidia is going to continue to own
Speaker 4: that so contrade today when you look out three four,
Speaker 4: five years ago, that concentration will continue, I think to
Speaker 4: diminish as more players get into AI. But there's one
Speaker 4: chip fuel in it. It's in video.
Speaker 2: Dam How do you think about the competitive environment for
Speaker 2: in Nvidia?
Speaker 4: Here?
Speaker 2: Is it AMD? Is it Huawei? Is it others? We
Speaker 2: don't know about at the moment.
Speaker 4: Here, well, glease issue in AMD clearly competition. I think
Speaker 4: that we continue to be bullsh in that in terms
Speaker 4: of getting more and more pieces of pie. Huawei is
Speaker 4: a competitor, but that's the whole reason that you don't
Speaker 4: want to just give them full access to China because
Speaker 4: that will help them narrow the gap for bulls obviously
Speaker 4: on Broad common others. And I think, look as this
Speaker 4: plays out, in Vidia is years ahead of any of
Speaker 4: their competition. And even when you hear talked about you know,
Speaker 4: US government and obviously you know SoftBank investing in Intel.
Speaker 4: I mean, Intel is you know, so many years behind.
Speaker 4: You know, they continue to really have just a massive
Speaker 4: uptil battle. And that's why video is top of the mountain.
Speaker 2: All right, Dan, your Penn State Nitley Ions open the
Speaker 2: season Saturday, three thirty pm on the CBS Television network,
Speaker 2: Compariment plus against Nevada forty three and a half point favorites.
Speaker 2: How do you feel about you Nitley Lions this year?
Speaker 4: I mean, look, I was at practice last week State College.
Speaker 4: I told you, I think this is the year. I
Speaker 4: think we win the nanty. We have some tough games
Speaker 4: of Oregon Ohio State, but I think Big ten continues
Speaker 4: to hold the mantle. I like al our Singleton and
Speaker 4: Penn State. I think I think we'll be holding the
Speaker 4: trophy in January.
Speaker 2: I like the call LEAs and clear and confident. Dan
Speaker 2: ives Global ahead of technology Webush Securities appreciate getting a
Speaker 2: few minutes of Dan's time here today on Nvidia and
Speaker 2: big tech. Stay with us. More from Bloomberg Surveillance coming
Speaker 2: up after this.
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Speaker 2: Anastasia Amoroso joints as chief investment strategist at Private Wealth
Speaker 2: at Firms Partners Group. Anastasia, the market's been so fixated
Speaker 2: on AI and then I guess Nvidia is probably the
Speaker 2: poster child for AI. How do you think about that
Speaker 2: as a theme for the market. How important is that
Speaker 2: to you? The NVIDIAs of the world in this AI?
Speaker 6: Sure well, obviously very important, and Paul, I'm with you.
Speaker 6: I thought the Nvidia numbers were just fine. It's really
Speaker 6: interesting that on the surface, investors were disappointed because in Vidia,
Speaker 6: despite the fact that they beat and raised, they didn't
Speaker 6: meet the loftiest of expectations. Of course, that probably makes
Speaker 6: sense because the stock has rallied as.
Speaker 3: Much as it has, I think over one hundred percent.
Speaker 6: Since since the bottom in April, so I thought the
Speaker 6: numbers were fine, and the AI theme is obviously hugely important,
Speaker 6: and I think in Vidia highlights that it's still top
Speaker 6: of mind in front and center for investors.
Speaker 3: And I say that because, you know.
Speaker 6: Analysts focus on the growth rates that are tapering off,
Speaker 6: but consider the base.
Speaker 3: You know, consider the.
Speaker 6: Fact that AI hyperscalers are going to spend four hundred
Speaker 6: billion dollars in AI cap x in twenty twenty six.
Speaker 6: This would be a number that was unthinkable about just
Speaker 6: a couple of years ago. So we're at a significantly
Speaker 6: higher scale. But what happens at that point? It's natural
Speaker 6: that some of those growth rates taper off, But for us, Paul,
Speaker 6: it's still AI is such an important theme, and I
Speaker 6: think in Vidia results also highlight that there's so many
Speaker 6: other ways to access that, including in private markets, including
Speaker 6: in infrastructure.
Speaker 3: So that's what we're really focused on.
Speaker 5: I mean, when we look at any sort of earnings
Speaker 5: report from Nvidia, there's a lot of anticipation heading up
Speaker 5: to it, and we do see a lot of these
Speaker 5: lofty expectations. As you noted, is there any concern that maybe,
Speaker 5: you know, expectations are too high for some of these companies.
Speaker 3: I mean, they've certainly been ratcheted up. But I will
Speaker 3: say that if.
Speaker 6: You look at the history of Nvidia, for example, it
Speaker 6: has a history of delivering on those expectations, and maybe
Speaker 6: on the exact earnings day, they don't always deliver on
Speaker 6: the loftiest of expectations. But what you see over time
Speaker 6: is the price continued to march higher because the expectations
Speaker 6: have continued to march higher. So I think that's something
Speaker 6: that supported the stock and probably will continue. And look,
Speaker 6: you know, broadly speaking, if I think about is AI
Speaker 6: meeting expectations, I think it is for what it is today.
Speaker 6: We are starting to see some early signs of monetization,
Speaker 6: and you can think about it in terms of a
Speaker 6: couple of pockets.
Speaker 3: You can think about it.
Speaker 6: In terms of cost reduction, in terms of productivity improvements,
Speaker 6: and also in terms of actual new revenue streams. And
Speaker 6: I think the actual new revenue streams maybe are a
Speaker 6: little bit further off for some companies. Although I think
Speaker 6: we are starting to see more cloud, we're starting to
Speaker 6: see utilization, We're starting to see more social media success, for.
Speaker 3: Example with our targeted ads.
Speaker 6: So I think you start to you do have some
Speaker 6: positives in that revenue generation pocket, but you have more
Speaker 6: and more positives that companies are citing in terms of
Speaker 6: efficiency gains and in terms of cost reductions.
Speaker 3: And so that's.
Speaker 6: Why the momentum for US for AI is likely to continue,
Speaker 6: because there are tangible benefits that more and more companies
Speaker 6: can point to.
Speaker 2: So what are the ways are you suggesting that investors
Speaker 2: get exposure to AI? A lot of folks saying maybe
Speaker 2: like power generation or something like that. How do you
Speaker 2: think about that? Because not everybody is comfortable paying some
Speaker 2: of these technology multiples, and maybe a lot of folks
Speaker 2: think that some of these tech names, like the software
Speaker 2: names or maybe the hyperscalars, have kind of outrun comfort level,
Speaker 2: so they're looking for other ways.
Speaker 6: Right, Well, I think the first thing investors have to
Speaker 6: do is take a giant step back and just size
Speaker 6: the opportunity set. Right, a couple of years ago, the
Speaker 6: GENAI total addressable market was somewhere around two hundred billion dollars.
Speaker 6: You fast forward to twenty twenty seven, twenty thirty, you're
Speaker 6: now looking close to a trillion dollar TAM for artificial intelligence.
Speaker 6: So that means that it's not just nvidiaan semiconductors. But
Speaker 6: it's a whole host of beneficiaries, and I would put
Speaker 6: them in two sorts of opportunities bucket. The first one,
Speaker 6: I would say, is an infrastructure. We have to build
Speaker 6: up the infrastructure to ensure that AI is possible.
Speaker 3: So what does that mean.
Speaker 6: That certainly means data centers, and not just any data center,
Speaker 6: but an AI specific data center, which.
Speaker 3: Requires more power density.
Speaker 6: Which requires greater connectivity, which requires more cooling.
Speaker 3: So that's a big topic for us.
Speaker 6: The second one, as you mentioned, it's actually power generation.
Speaker 6: You can't really run that data center without the power.
Speaker 3: And if you think about the power.
Speaker 6: Consumption, and it's for some of these things, it's approaching
Speaker 6: one gigawot, you know. That's what we're talking about here.
Speaker 6: The third component, which is not as well talked about,
Speaker 6: I would say, is actually fiber and all sorts of
Speaker 6: wireless connectivity. You know, it's one thing to train AI
Speaker 6: in a data center, let's say, in the middle of
Speaker 6: the country without a proximity to the end user. But
Speaker 6: it's a whole different thing if you start to do
Speaker 6: inference and you need that instant feedback loop and reaction,
Speaker 6: so you need fiber. You need you know, dense network,
Speaker 6: you need towers, you need small cells. So there's so
Speaker 6: many opportunities within infrastructure. And then Paul the other thing,
Speaker 6: I would say in software, there's going to be winners
Speaker 6: and losers in software. But companies that we're emphasizing are
Speaker 6: those that maybe have a proprietary data set.
Speaker 3: I think that's really important.
Speaker 6: They are developing AI tools, like large language models that
Speaker 6: are able to use some of that proprietary data. They
Speaker 6: automate certain workflows and in some cases completely sort of
Speaker 6: substitute what a human may do in that situation. So
Speaker 6: you know, it's definitely a careful selection approach. But I
Speaker 6: would say so many of those companies AI software companies
Speaker 6: are actually available in private markets, much more so than
Speaker 6: what's publicly traded today.
Speaker 5: So you know, we heard that Nvidia expects to spend
Speaker 5: three to four trillion dollars on AI infrastructure through between
Speaker 5: now and the end of the decade. Here, do you
Speaker 5: have any sort of thoughts about what CAPEX looks like
Speaker 5: right now, what is spending right now in the space
Speaker 5: technology more broadly when it pertains to AI spend.
Speaker 6: Yeah, well, let's look at the hyperscalers for example, you know,
Speaker 6: I mentioned that in twenty twenty six they're likely to
Speaker 6: spend four hundred billion dollars. That's up from three hundred
Speaker 6: and fifty billion that we're forecasting for twenty twenty five.
Speaker 3: And that's up a lot.
Speaker 6: From you know, one hundred billion dollars so run rate
Speaker 6: just a couple of years ago. Now, the interesting thing
Speaker 6: about that is those estimates have been consistently moved higher,
Speaker 6: and that I think goes back to the point is
Speaker 6: a demand for AI at this point is really insatiable,
Speaker 6: and it's because we're starting to see those early signs
Speaker 6: of payoff. And so you know, if the question is
Speaker 6: do we have a concern about the sort of massive
Speaker 6: spend on AI, I wouldn't say so because the demand
Speaker 6: is just so robust.
Speaker 2: All right, let's back away from the air. I talked
Speaker 2: a little bit last week to talk was about the
Speaker 2: Federal Reserve and what are they going to do with
Speaker 2: interest rates? What did you take away from Jackson Hole
Speaker 2: and moving forward here through major.
Speaker 6: Right, Well, it was probably a strong Evan nod to September,
Speaker 6: as we could have expected from Fetchair Powell. And you
Speaker 6: know what's interesting is he clearly pivoted to focus on
Speaker 6: the labor market weakness, and we saw that once again
Speaker 6: in the conference board. For example, we saw that the
Speaker 6: labor market differential meaning the jobs that are plentiful versus
Speaker 6: hard to get, that continues to narrow. So that suggests
Speaker 6: that labor market weakness. The other thought that I thought
Speaker 6: was interesting from Jackson Hole is that while inflation is
Speaker 6: surely likely to spike in the coming months, they're willing
Speaker 6: to look through that. And part of the reason for
Speaker 6: that is because they don't expect it to be sticky.
Speaker 6: They don't think this is going to be systemic, they
Speaker 6: don't think is going to be structural. The reason for
Speaker 6: that is actually that weakening labor market. And you know,
Speaker 6: if you're trying to raise prices into a weakening consumer
Speaker 6: or into a weaker jobs market, you're likely not going
Speaker 6: to be successful. And so that's becoming part of the
Speaker 6: FED narrative as well. So I think it is a
Speaker 6: layout for September. I mean, barring just a huge upside
Speaker 6: surprise on payrolls, which I don't expect, or you know,
Speaker 6: barring I would say not only a spike in inflation,
Speaker 6: but a spike in inflation.
Speaker 5: Expectations, and I don't think we're seeing that. Do you
Speaker 5: agree with that view from the Fed right now? I mean,
Speaker 5: of course we know about this dual mandate. It's about
Speaker 5: stabilizing prices, bringing down inflation, and of course maximum unemployment
Speaker 5: or maximum employment excuse.
Speaker 3: Me, Yeah, I do actually very much agree.
Speaker 6: You know, I do think the FLA story, the teriff
Speaker 6: for re lated induced inflation is a one time step
Speaker 6: up higher in the price levels, and I very much
Speaker 6: agree with the argument that you don't have the labor
Speaker 6: market strength in order to be able to fully pass
Speaker 6: through those increases.
Speaker 2: You know.
Speaker 6: The other thing I would say, if you look at companies,
Speaker 6: including our portfolio companies, they're using a mix of tactics
Speaker 6: in order to deal with tariffs. Some of them are
Speaker 6: passing through all of the cost increases, for example in
Speaker 6: the data center space, because they can. Some of them
Speaker 6: are passing through partial cost increases. They're working with suppliers
Speaker 6: to absorb some of those TERRAF related increases as well,
Speaker 6: and some of them are shifting supply chains.
Speaker 3: So for that reason, I.
Speaker 6: Don't think we're seeing a huge we're going to see
Speaker 6: a huge spike in inflation as it could have been
Speaker 6: in the coming months.
Speaker 3: So that's the first part that I agree with.
Speaker 6: The second part I agree with is the labor market
Speaker 6: is clearly.
Speaker 3: Weakening, and I would say it's sort of I don't
Speaker 3: want to say the precipice, but I'll call it. It's
Speaker 3: sort of on edge.
Speaker 6: It's sort of on this edge, and if you tip
Speaker 6: it over, you're going to tip it over into weakness.
Speaker 6: You know, if you look at the unemployment rate of
Speaker 6: four point two likely go into four point three percent.
Speaker 6: If you look at the layoffs, you know, we're just
Speaker 6: this close to actually slipping into outright potential negative job growth.
Speaker 6: And by the way, you know, I mentioned that if
Speaker 6: companies are not passing through the cost increases, what are
Speaker 6: they doing. They're absorbing that in their margins. So that's
Speaker 6: why the labor market in turn is again on this edge.
Speaker 6: So I do very much agree, and I hope we
Speaker 6: see a rate cut in September. I do associate scope
Speaker 6: for a couple more this year.
Speaker 2: Other than technology. What screens well for you guys these days?
Speaker 2: I don't know if you'd do it by industry, sector,
Speaker 2: by factor, how do you guys try to find some opportunities?
Speaker 6: We do it by theme and also of course by
Speaker 6: industry sector as well. But when I think about some
Speaker 6: of the themes that we're excited about, it's clearly the
Speaker 6: digital transformation and the many sectors that it touches. We're
Speaker 6: also investing along the sustained nobility theme as well. And finally,
Speaker 6: this notion of new living. The way we consume, the
Speaker 6: way we take care of ourselves, the way we exercise,
Speaker 6: the way we live is all very different today, and
Speaker 6: in many ways it's tech enabled.
Speaker 4: You know.
Speaker 6: Further, I would think of it in terms of different
Speaker 6: sectors within sort of the private market space, and it's
Speaker 6: it's goods and its services, it's goods and products, it's technology,
Speaker 6: and it's also healthcare, health and healthcare sciences. And so
Speaker 6: we're we're finding a multid of opportunities along all those,
Speaker 6: all four of.
Speaker 5: Those, digging into healthcare because I mean, it's the worst
Speaker 5: performing sector so far this year in the S and
Speaker 5: P five hundred. Where are you seeing opportunities there?
Speaker 7: Right?
Speaker 6: So clearly healthcare in the public markets has been the
Speaker 6: mercy of what's happening in Washington, d C. And the
Speaker 6: policy there. You know, one secular growth in healthcare, I
Speaker 6: would say, is within pharmaceuticals and the fact that so
Speaker 6: many R and D dollars have gone into new clinical
Speaker 6: trials and new discoveries and eventually for some companies those payoff.
Speaker 6: That's not actually where we're taking our risks, but rather
Speaker 6: we're looking at pharmaceutical services that cater to the large
Speaker 6: or small farmer companies in helping them develop some of
Speaker 6: those new biologics. So we think the services side of
Speaker 6: pharmaceuticals is a better risk adjusted return in order to
Speaker 6: capitalize for what is a trend in healthcare, which is
Speaker 6: the growth in the number of molecules that are being created.
Speaker 2: Where do you see the just private capital going. It
Speaker 2: seems like the deal market's kind of picking up, seeing
Speaker 2: some more from MNA IPOs becase it's some really successful
Speaker 2: tech enabled IPOs this year. Is that suggests to you
Speaker 2: that maybe the capital markets are picking up and that
Speaker 2: could be a.
Speaker 3: Driver they are actually picking up. And I feel like
Speaker 3: this maybe.
Speaker 6: Is catching people by surprise, because when you look at
Speaker 6: the numbers year today, the first half of the year,
Speaker 6: the M and A activity is up about thirty percent.
Speaker 6: If you look at the IPO market up about twenty
Speaker 6: one percent, and Paul, You're right that it's not just
Speaker 6: the volume and the number of companies that are, you know,
Speaker 6: seeking that public listing, but it's also the performance. If
Speaker 6: you look at the average IPO of a company year
Speaker 6: to date, it's it's up fifty or sixty percent, so
Speaker 6: it's been successful.
Speaker 7: Now.
Speaker 6: I don't think it's an accident that this level of
Speaker 6: activity is happening. I think public market valuations are interesting
Speaker 6: to some of those private market companies becoming listed. I
Speaker 6: think it's increasing consumer confidence and also business confidence, which
Speaker 6: we've seen quite a turnaround actually since April. And finally
Speaker 6: it's you know, the market is sniffing out a RAID
Speaker 6: cut and so all of those things are supportive for
Speaker 6: capital markets activity. So we've seen a very robust first
Speaker 6: half of the year already. We've actually seen an acceleration
Speaker 6: in the third quarter as well. So I suspect, especially
Speaker 6: with a RAID cut in September, this should continue.
Speaker 2: And have to labor to everybody else get back to work.
Speaker 2: Anastasia Almarroso, she's at work, chief investment strategist Private Wealth
Speaker 2: at Partners Group, joining us live here on our Bloomberg
Speaker 2: and Act report shooting. We appreciate that stay with us.
Speaker 2: More from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us Live
Speaker 1: weekday afternoons from seven to ten am Eastern. Listen on
Speaker 1: Applecarplay and Android Auto with the Bloomberg Business app, or
Speaker 1: watch US Live on YouTube.
Speaker 2: John Murray, he's the CIO of NFJ. They're based down
Speaker 2: in Dallas, Texas. John, how do you think about inflation,
Speaker 2: the labor market and maybe how the FED should be
Speaker 2: proceding here?
Speaker 8: So a couple of things I would say, Paul, the
Speaker 8: first on inflation, I think inflation is going to cool,
Speaker 8: and I'll say that for two reasons. The first is
Speaker 8: that housing, which is the biggest component R one third
Speaker 8: of CPI, that should continue too slow. And the reason
Speaker 8: for that is real time rents tracked by Zillo are
Speaker 8: flat to negative. On top of that, as a fundamental
Speaker 8: bottom up stock picker, I can see that in the
Speaker 8: FFO reports coming out of Mid America apartments funds flow
Speaker 8: from operation funds.
Speaker 5: Oh yeah, cover reads.
Speaker 7: So we always dook about.
Speaker 8: Okay, okay, I like that, so you can see it.
Speaker 8: You can see it in the numbers. So for those reasons.
Speaker 8: I think that people are underestimating and that's a twelve
Speaker 8: month lag, and so that data should be coming out
Speaker 8: and you have inventory building and vacancy rates rising. And
Speaker 8: that's because when rates were low, people built a lot
Speaker 8: that all came on the market, and now you have
Speaker 8: restricted that because rates are high. So there's an imbalanced brewing,
Speaker 8: I think. So I expect that to roll over. And
Speaker 8: then the second piece is around services, which is a
Speaker 8: quarter of the CPI. Healthcare is a big chunk of that.
Speaker 8: And again bottom up basis. So you guys have seen
Speaker 8: U and H, you've seen Humana. Well, a lot of
Speaker 8: folks don't realize that the insurer portion of that basket, okay,
Speaker 8: is calculated based on margins, not what you pay at
Speaker 8: the doctor. Everyone says, well, why healthcare inflation keeps going
Speaker 8: up up, up, up up, But it's not based on that.
Speaker 8: The insurers is based on the margins. Margins have been crushed.
Speaker 8: So I think that's going to come down and that's
Speaker 8: going to give the room a lot more ammo to cut.
Speaker 5: So speaking of cuts, I mean market is essentially pricing
Speaker 5: in a cut in the coming weeks here in September.
Speaker 5: Is that also in line with what your expectations are.
Speaker 5: And if so, what's the cadence afterward for cuts?
Speaker 8: Well, the two year bond yield has been screaming at
Speaker 8: the FETI cut for a long time now. So you've
Speaker 8: got that down there at three point six versus four
Speaker 8: and a half. You know, let's give a little bit
Speaker 8: of a sneak preed for what could happen when they
Speaker 8: start to move rates lower.
Speaker 7: The Russell two thousand.
Speaker 8: Value okay, on Friday was up just over four percent.
Speaker 8: You got one third of the entire the entire year's
Speaker 8: gain of the S and P five hundred a day.
Speaker 8: So like you, I think, think about that for a second.
Speaker 8: It's like all year the SMP, Grind, Grind Grind and
Speaker 8: vida Ai, all these amazing companies. You get one third
Speaker 8: of that return in a single day, just because Jpowell
Speaker 8: opens his mouth and says we may need to lower rates.
Speaker 7: So this is a coiled spring.
Speaker 8: And to get on another topic just briefly, with regard
Speaker 8: to unemployment, I actually think it's a moral issue that
Speaker 8: we're waiting to lower rates to see unemployment go up,
Speaker 8: because why are we doing this? We have a system
Speaker 8: that encourages debt. That is the incentive structure that is
Speaker 8: embedded with how interest is deducted.
Speaker 7: And yet we're waiting to see unemployment tick up.
Speaker 8: We're waiting to see people lose jobs before we make
Speaker 8: we make barring costs lower. And I know that the
Speaker 8: inflation goes of the seventies are haunting the FED. But
Speaker 8: I'll be honest, I think it's totally different with the
Speaker 8: economies more globalized, unionization's way down, It's a totally different landscape.
Speaker 8: So I think we should rethink this entire discussion around
Speaker 8: waiting for unemployment to go up before we cut.
Speaker 5: So what do you think the FED should be squarely
Speaker 5: focused on right now? Is the priority here stabilizing prices,
Speaker 5: bringing down inflation, or maximizing unemployment? Where do you think
Speaker 5: their eyes are fixed?
Speaker 8: I think well, I think they're pivoting to the unemployment picture,
Speaker 8: and they should be, and they should be and that
Speaker 8: should be the primary focus. To be honest, the inflation
Speaker 8: pictures already tackled. We're down at the long term range.
Speaker 8: The long term range for inflation is two and a
Speaker 8: half to three percent, going back all the way to
Speaker 8: the nineteen seventies.
Speaker 7: That's where it's been.
Speaker 8: The reality is I have a bit of an issue
Speaker 8: with this whole discussion because we're talking about the rate
Speaker 8: of change. Things aren't cheaper. Hamburgers are more expensive and
Speaker 8: they're going to stay more expensive.
Speaker 7: We all know this. Cars are more expensive, houses and
Speaker 7: more expensive.
Speaker 8: The rate of change calculation is what they target, and
Speaker 8: to be honest, the cumulative graph or inflation does this
Speaker 8: over time. So the idea that we've tamed inflation is
Speaker 8: a bit of a misnomer. It's just how the calculation's done.
Speaker 8: But unemployment is the real issue because if you have
Speaker 8: people that lose their jobs, that is a real toll
Speaker 8: in the psyche of Americans, and that's an acute problem
Speaker 8: that is harder to solve. So I think, based on
Speaker 8: where the two year bond yield sits, they should lower rates,
Speaker 8: and they should be quick about it, and they should
Speaker 8: be more dynamic about it. And I think waiting too
Speaker 8: long presents serious risks to the US economy.
Speaker 2: If the FED is going to be in a rate
Speaker 2: cutting mode for the next twelve eighteen months, what do
Speaker 2: you own? What do you want to own?
Speaker 7: So I mentioned small caps.
Speaker 8: I think an area that is just primed to outperform
Speaker 8: are the regional banks. Let me give a couple comments
Speaker 8: on this. The price to books for regional banks. Some
Speaker 8: of these are trading back to where they were in
Speaker 8: March of twenty three during the banking crisis. No one's
Speaker 8: looking at this. Price to books are very attractive. But
Speaker 8: on top of that, you've got earnings growth in the
Speaker 8: mid teens fifteen sixteen percent. Some of these are growing
Speaker 8: faster than growth stock. So I'm getting price to books
Speaker 8: at a discount earnings growth. And if that yield curve steepens,
Speaker 8: and it should and it should, they're going to print money.
Speaker 8: So those look very attractive. They're twenty percent of the
Speaker 8: Russell two thousand value. You can't get a small rally
Speaker 8: without the banks. You can't get a value rally without
Speaker 8: the banks. We've been in a decade growth market. I
Speaker 8: like regional banks here. I think they're prime. No one's looking.
Speaker 8: They're growing big dividends, and the regulation going on with
Speaker 8: the Basle three requirements for big banks is going to
Speaker 8: level the playing field more for the smaller and mid banks.
Speaker 5: Well, let's stick with another sector that is very rate
Speaker 5: sensitive as well, real estate.
Speaker 3: What are you seeing there?
Speaker 7: I like real estate, but not all of it.
Speaker 8: Industrial routs look really attractive names like Proligious, Rexford, First Industrial,
Speaker 8: a couple of things on these They have massive structural tailwinds.
Speaker 8: I don't know about you guys, but Amazon keeps coming
Speaker 8: to my house pretty regularly.
Speaker 7: So those boxes are around the clock.
Speaker 8: So those, uh, those need to go through those logistical
Speaker 8: warehouses and ports. Those are strategic assets. These are some
Speaker 8: of these are trading at the biggest valuation discounts in
Speaker 8: a decade, namely Proligious as kind of a Hallmark company.
Speaker 8: Very juicy diviting yields. They're not at risk of being caught.
Speaker 8: Evaluations are attractive. Again, no one wants to really own
Speaker 8: real estate. They're non existent in the growth indexes.
Speaker 7: So I like that space a lot. I think there's
Speaker 7: major upside of these names.
Speaker 8: And you saw them move big on Friday, and they
Speaker 8: are a coiled spring. So when do you want to
Speaker 8: own real state? Ironically when capital gets turned off? So
Speaker 8: where are you avoiding?
Speaker 5: I mean you mentioned that there are opportunities you're looking
Speaker 5: at industrial, What about what areas?
Speaker 2: Are you a little.
Speaker 8: Bit so there are I would say that you know,
Speaker 8: if you look up and down the cap scale, and
Speaker 8: you look to where the opportunities. I would say that
Speaker 8: some of the growth areas are priced to perfection. You've
Speaker 8: got really high multiples, particularly in some of the semi names.
Speaker 8: I know those names are firing and all cylinders, and
Speaker 8: they look great. Broadcom is an example of that. It's
Speaker 8: a great company, but you're paying a lot. And so
Speaker 8: I think that if you look at the market as
Speaker 8: a whole, some of the technology names are more expensive
Speaker 8: than I would argue people should pay for those multiples,
Speaker 8: and it makes sense the markets at all time high multiples.
Speaker 8: But that being said, there are plenty of technology names
Speaker 8: that still look good. Some of the software names look
Speaker 8: very interesting to us. Google is a name that we
Speaker 8: really like here. You know, that's now one of the
Speaker 8: largest weights in the Russell one thousand values, So that's
Speaker 8: a value stock. I love how Frank Russell gets to
Speaker 8: decide what's in and out. But that's fine. But I
Speaker 8: think there's a lot of opportunity in that name as well.
Speaker 8: And they've got one of the best teams around Quantum
Speaker 8: ai Talent, and they're trading one of the lower multiples.
Speaker 8: Tons of cash, buybacks, dividends.
Speaker 7: Et cetera.
Speaker 2: For being like, yo, what you call in the bond
Speaker 2: market here? Where do you see opportunities if at all
Speaker 2: in the bond market.
Speaker 8: Well, I'm an equity guy. Guy, I'm an equity guy,
Speaker 8: so I won't motificate there. But what I'll say is
Speaker 8: I think that the equity income area of the market,
Speaker 8: namely those reachs we talked about those banks.
Speaker 7: If you think that rates are going to.
Speaker 8: Come down and you like bonds, and you should really
Speaker 8: like some of the equity income areas of the market.
Speaker 2: Great stuff is always John, Thanks so much for joining us,
Speaker 2: John Murray, cio at n FJ, giving you some good
Speaker 2: names there, some good thoughts on some themes there in
Speaker 2: the marketplace for a feed a reserve that looks like
Speaker 2: it's getting ready to cut us with us. More from
Speaker 2: Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
Speaker 1: weekday afternoons from seven to ten am Eastern Listen on
Speaker 1: Applecarplay and Android Auto with the Bloomberg Business app, or
Speaker 1: watch us live on YouTube.
Speaker 2: It's time for the famous Lisa Matteo newspaper segment, Lisa, what.
Speaker 7: Do you got first?
Speaker 2: Today?
Speaker 7: Famous I'm excited.
Speaker 9: Okay, yes, Nora, welcome to newspapers. Okay, So the job market, right,
Speaker 9: we know for entry level workers, it's a little bit
Speaker 9: of a slump, right, But the Wall Street Journal actually
Speaker 9: has a story it says, not if you're in AI
Speaker 9: and you've experienced in machine learning. They're saying some of
Speaker 9: these kids in their twenty I call them kids, sorry,
Speaker 9: in their twenties, that many of them are making a
Speaker 9: million dollars a year. Okay, this is a new report.
Speaker 9: It says base salaries for even non managerial AI workers
Speaker 9: zero to three years experience increase by abound twelve percent
Speaker 9: from twenty twenty four to twenty twenty. And they're also
Speaker 9: moving to management roles twice as fast as some of
Speaker 9: the other folks who are just doing regular you know,
Speaker 9: software engineers. So there's a company called Data Bricks and
Speaker 9: they said, if you have a generative AI research scientists
Speaker 9: as little as two years experience, they can make a
Speaker 9: base salary between one hundred and ninety and two hundred
Speaker 9: and sixty thousand dollars there, and if you include the
Speaker 9: stock grants, it's even more.
Speaker 4: So.
Speaker 9: It just goes to show you, you know, exactly how
Speaker 9: much these students can make when they come out of
Speaker 9: college having these AI.
Speaker 3: Skills and what companies are looking for.
Speaker 2: It's crazy. So I mean, is there an AI degree
Speaker 2: or is it just I mean it's so new, I
Speaker 2: mean it's very nice. I guess it's machine learning versus
Speaker 2: software engineer. Correct? Correct, because a software engineer that's been this.
Speaker 5: It's like the next generation y software engineers and the
Speaker 5: next iteration here.
Speaker 9: Yeah, so that's the way to go, I know. Okay,
Speaker 9: So this one, I just want to say, I'm sorry
Speaker 9: kids before we get to the story. A school cafeteria staple.
Speaker 9: New York City public schools could be disappearing. We're talking
Speaker 9: about the chicken nugget.
Speaker 4: Guys.
Speaker 3: This is serious, Okay.
Speaker 9: No, but the reason why Okay, So there's these new
Speaker 9: food standards, right, they were announced this week. They go
Speaker 9: into effect July twenty twenty six. It's for like a
Speaker 9: dozen city agencies and that includes the Department of Education.
Speaker 9: So they want to do things like ban process meats
Speaker 9: like chicken nuggets, create new restrictions on artificial colors, preservatives,
Speaker 9: further limit those low calorie sweeteners, increase offerings of plant protein.
Speaker 2: So mayor Eric.
Speaker 9: Addams is saying, you know what, we're going to make
Speaker 9: New Yorkers healthier. You remember he tried that vegan Friday
Speaker 9: thing back in twenty twenty two.
Speaker 7: Didn't didn't kind of work out.
Speaker 3: He tried it.
Speaker 9: But a lot of educators are saying, you know what,
Speaker 9: the kids might not like this, and what if you
Speaker 9: have those picky.
Speaker 7: Eaters, what are they going to eat instead?
Speaker 9: Because now they're going to be hungry. So it's a
Speaker 9: it's a battle in the New York City public schools
Speaker 9: for the nugget.
Speaker 3: So they'll just you know, skip out on lunch. You're like,
Speaker 3: this is this is too healthy for me.
Speaker 5: I'm not gonna eat it, you.
Speaker 2: Know, because you do have the picky eaters. I know,
Speaker 2: I had one.
Speaker 9: I had one. He grew out of it, thank goodness. Okay,
Speaker 9: I gotta go to cracker Barrel Paul for you. Okay,
Speaker 9: all right, you know they went back to the original logo, right,
Speaker 9: but the New York Post is saying, now you have
Speaker 9: the workers. They're going on social media complaining about the company. Right,
Speaker 9: They're complaining about how much money they're making, their hours
Speaker 9: are cut back, and they're also complaining about fake homestyle cooking.
Speaker 2: So I'm not sure.
Speaker 9: Did you ever have the meat.
Speaker 3: Loaf when you were there? No, you never did the
Speaker 3: meat I did. I always get the pancakes.
Speaker 9: Well, you're traveling on the road, right, you're a crackerbll yay,
Speaker 9: let me try the meat loaf.
Speaker 7: Okay, So I did.
Speaker 3: It was okay.
Speaker 9: But what they're saying now is because they've been cutting
Speaker 9: back on kitchen staff. What the meat loaf actually is,
Speaker 9: it's off a truck, it's frozen, it's prepackaged and these
Speaker 9: sealed things. So all the basically workers do is they
Speaker 9: take it out of the steel package, pop it in
Speaker 9: the microwave, and there's your homestyle. So people are just
Speaker 9: like going off about it. They're saying they're cutting back
Speaker 9: on their hours because they don't have to give him
Speaker 9: the health insurance benefits if they cut back their hours.
Speaker 9: But it's this whole back and forth now on social media.
Speaker 9: The company hasn't said anything about it, but it's this
Speaker 9: like continuing thing with with the restaurant.
Speaker 2: It's been in the headline, Yeah, it's been in the headlines. Crazy.
Speaker 2: The stock is up eighteen percent year to date, a
Speaker 2: lot of molatility. It's up fifty percent. You spoke to
Speaker 2: Mike Mike Helen yesterday and BlueBag Intelligence. He covers the
Speaker 2: restaurants for BI. He says, this management team is doing
Speaker 2: a great job. Wall Street loves.
Speaker 7: Them, yes, and even this whole absolutely.
Speaker 2: You can see it in the stock prices. He said,
Speaker 2: they weren't getting younger people. The older people that were complaining,
Speaker 2: and maybe or the people that are complaining on social
Speaker 2: media weren't the ones coming into the store. Interesting, So anyway,
Speaker 2: it's just a different take on what's going on there.
Speaker 2: All right, LEAs man tell you with the newspapers. Thank
Speaker 2: you so much.
Speaker 1: This is the Bloomberg Surveillance podcast, available on Apple, Spotify,
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