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Speaker 2: Christopher Verona is with us, working with Jason Trenet at strtigas.
Speaker 2: He is definitive on trend based technical analysis. As many
Speaker 2: of you know. I'm comfortable with that versus the catching
Speaker 2: a knife in the dark approach. Chris, I got eight
Speaker 2: ways to go here, but I got a first go
Speaker 2: to price up, yield down. Is it a critical pro
Speaker 2: level that the tenure yield is through four percent?
Speaker 3: I don't think it is.
Speaker 4: I mean, let's just look back at the last three years.
Speaker 4: We've effectively been between three seventy five and four fifty
Speaker 4: tenure yields for three years. We've had this very unsatisfying
Speaker 4: call on yields. At the only correct call it's no call.
Speaker 4: And I'm kind of still in that camp here. You know,
Speaker 4: under three seventy five my antenna would start to go
Speaker 4: up more than you know, maybe something's really starting to change.
Speaker 3: But you know, Frankly, Tom, it's more curve shape right
Speaker 3: now than it is anything. And you have this little
Speaker 3: subtle flattener.
Speaker 2: It's Friday.
Speaker 3: Yeah, okay, we're.
Speaker 2: Going into the weekend sweets finding California. You're supposed to say.
Speaker 3: OMG, it's like a huge deal.
Speaker 5: So we've seen Chris, you know, boy of rotation in
Speaker 5: the equity markets here. You know, the growth has definitely
Speaker 5: taken it on the chin a little bit here at
Speaker 5: some of the software socks and things like that. Some
Speaker 5: of the industrials and small midcaps have been working here.
Speaker 5: Is that a short term trade or is that something bigger?
Speaker 3: Do you think?
Speaker 4: I think this is a big right, of course, we
Speaker 4: know that we don't know right, but our hunch is
Speaker 4: that this is a big deal. And it didn't begin
Speaker 4: four weeks ago or eight weeks ago. I mean this
Speaker 4: began back in September October when you look at when
Speaker 4: like equal weights started to really outperform the cues. I
Speaker 4: think this is early early days in what is a
Speaker 4: trend that will define not just the remainder of the year,
Speaker 4: but kind of the years to come. Here, I think
Speaker 4: this is the transition in our call has been the
Speaker 4: transition from kind of the speculative corners of the market
Speaker 4: to the real economy or the old economy. I think
Speaker 4: that's well underway. It's ongoing, and I would expect it
Speaker 4: to continue moving forward.
Speaker 3: You were pretty much thlu to the earnings. Most of
Speaker 3: the SEPO five hundred companies have reported earning. Show what
Speaker 3: have you seen? Is it enough to support this market?
Speaker 2: Here? Do you think? Well?
Speaker 4: I think earnings are grown in something like twelve thirteen
Speaker 4: percent year over year. Here when you look at yesterday's
Speaker 4: response to Nvidia, I think even more evidence in this regard.
Speaker 4: I mean stock clothes on the lows right down five
Speaker 4: or six percent, advantures overwhelmed decliners. Yesterday, more stocks up
Speaker 4: than down despite NASDAK down nearly two percent. Fourth day
Speaker 4: this year, where you've had the nasdck down at least
Speaker 4: one percent, yet more stocks up than down. That only
Speaker 4: happened three times all of last year. So you kind
Speaker 4: of see this average stock over the index continuing to proliferate.
Speaker 2: Chris's people, folks sent me the strtiguous deck on all this,
Speaker 2: and like we could literally talk to him for three
Speaker 2: ending the jump movie see in Chinese. You want now,
Speaker 2: let's stay on software stacks, because that's what everybody's focused on.
Speaker 2: You talk about a high volume reversal, is it catharsis.
Speaker 3: Where you load the boat. I don't think you load
Speaker 3: the boat.
Speaker 4: I think you cover your shorts if you're on the
Speaker 4: short side of the story here. And you know when
Speaker 4: you look at what tends to show up in the
Speaker 4: ballpark of a bottom, one of the features is this
Speaker 4: indiscriminate selling and the acceptance of narrative.
Speaker 3: Right, So you have the indiscriminate selling.
Speaker 4: The last couple of weeks in software, I think eighty
Speaker 4: percent of them made a new low, only five percent
Speaker 4: above the two or day moving average. And then suddenly
Speaker 4: there's agreed upon narrative of why they're all down that
Speaker 4: generally is found.
Speaker 3: Late in the decline, not early in the decline.
Speaker 4: So I would be covering shorts if on the short
Speaker 4: side of the boat here, I might position tactically for
Speaker 4: some type of amounts.
Speaker 3: But has the trend changed?
Speaker 2: No, Good morning across the nation, Chris Verono. This we're
Speaker 2: going to continue with a good conversation. I got to
Speaker 2: drop in some of the data points. Paul Brench Crude
Speaker 2: seventy two, twenty five up Way over a stick seventy
Speaker 2: two point twenty five on global oil.
Speaker 3: Torchton SLocker a good friend over to pollow out with
Speaker 3: a note.
Speaker 5: This morning, the average daily US equity market turnover now
Speaker 5: exceeds one trillion dollars, driven by higher retail participation, more
Speaker 5: high frequency trading, and recent tech market volatility. What does
Speaker 5: that tell you when you're seeing, you know, just trading
Speaker 5: volumes pick up. I mean, people are in this market
Speaker 5: on both sides of the trade.
Speaker 3: Well Torson does great work, He's a close friend.
Speaker 4: I think the point is well took here that there
Speaker 4: is a lot going on under the surface for an
Speaker 4: index that really has gone nowhere for six months. I
Speaker 4: mean SMP is in one of the narrowest six months
Speaker 4: rains that we've seen in a long time, call up
Speaker 4: between sixty seven hundred and seven thousand. It doesn't tell
Speaker 4: half the story of what's played out under the surface here.
Speaker 4: I think the question here, as we move forward with
Speaker 4: ten yure yields back to the lower end of the range,
Speaker 4: can lower bond yields recatalyze the more cyclical corners of
Speaker 4: the market, and if they can't, and what is the
Speaker 4: message to the markets attempting to send us. Right, you
Speaker 4: started the year with all these anticipations and all this
Speaker 4: hope of some big cyclical recovery. If the cyclicals can't go,
Speaker 4: and when do we start to get more worried about that?
Speaker 2: What does Dan Clifton say about that? It's fatigus. You've
Speaker 2: got public policy down cold. Is this a nervous market
Speaker 2: looking forward to a nervous public policy?
Speaker 3: Yeah?
Speaker 4: I think if Dan was sitting here and we were
Speaker 4: with each other yesterday, we were talking about this idea
Speaker 4: we are every day hard to believe, you know, we
Speaker 4: were talking about this idea of that public policy. Fiscal
Speaker 4: policy is really in the gunnet mode here over the
Speaker 4: next number of months. So if the market's going to
Speaker 4: respect that, I think it's time we start seeing the
Speaker 4: discretionary names turn back up. I think it's time that
Speaker 4: we see, you know, a lot of those pro cyclical
Speaker 4: stocks really reclaim the baton of leadership.
Speaker 2: Moving forward, Right, We're going to go to London the
Speaker 2: end of this hour for Global Wall Street a brief
Speaker 2: on this MFS uproar London.
Speaker 3: Paul Us versus rest of the world.
Speaker 5: We saw in twenty twenty five while the US equity
Speaker 5: indises did very well. Many of the stock markets around
Speaker 5: the world did even better, and that's continuing in this year.
Speaker 3: How do you think about the US allocation versus rest
Speaker 3: of the world here?
Speaker 4: So I think that trend that began really in late
Speaker 4: twenty twenty four continues here and it continues.
Speaker 3: In a very big way.
Speaker 4: If you look at US market cap as a share
Speaker 4: of global market cap, that peaked in the fourth quarter
Speaker 4: of twenty four, So we're almost eighteen months into this,
Speaker 4: into this transition. Put aside the dollar considerations for a moment,
Speaker 4: and just look in the month of February. You have
Speaker 4: new highs in almost every global market. Where do you
Speaker 4: not have a new high? Triple QS, SMP Right, the
Speaker 4: price action is telling you the character of the global
Speaker 4: leadership has changed the character of.
Speaker 2: Your work is a logarithmic y axis, very careful moving averages.
Speaker 2: I use what are called climate exponential. Chris uses something different.
Speaker 2: We all got our own way. And what I see
Speaker 2: in your charts and you feature HSBC out of London. Yeah,
Speaker 2: on this it's remarkable, given the frantic nature, how things
Speaker 2: are still on trend. Yeah, if we've broken trend, if
Speaker 2: somebody listening with a four to oh one k they're
Speaker 2: going home this weekend. They're words that the Islanders beat
Speaker 2: the Montreal Canadians in the last minute. Should they be
Speaker 2: worried about trend in their retirement.
Speaker 4: No trends have been broken here, or no trends of
Speaker 4: any significance kind of at the index level have been broken,
Speaker 4: particularly globally.
Speaker 3: I mean, is that in the media.
Speaker 2: I think you're right, and the frenzy here is ridiculous,
Speaker 2: it's juvenile.
Speaker 3: I think it's remarkable.
Speaker 4: You know, when you look at all these things, there's
Speaker 4: almost this desire for some of these idiosyncratic episodes to
Speaker 4: become systemic.
Speaker 3: Like you can kind of sense it in the tone,
Speaker 3: particularly of the.
Speaker 4: Financial media here. Of course both of you are outstanding.
Speaker 4: It just gets the sense that there's this desire to
Speaker 4: almost repeat what we saw in seven o A big
Speaker 4: differences here. I think number one, the bank stocks globally
Speaker 4: in you know, really by six we're starting to send
Speaker 4: a very ominous message that's just not I mean, look
Speaker 4: at these European banks, look at the Japanese banks, they're
Speaker 4: still very much in trend, and I think public credit
Speaker 4: spreads are modestly wider here, but they're not exploding.
Speaker 3: I get the concern around private capital.
Speaker 4: I think there's more of that story than perhaps this
Speaker 4: kind of this kind of story that we're being told.
Speaker 4: I mean, think about the financial deregulation aspect of this.
Speaker 4: If we're going to deregulate money center banks, why would
Speaker 4: I want to own an Apollo or a KKR or
Speaker 4: an OWL when I can to own a Goldman or
Speaker 4: a Market Stanley or a Bank of America.
Speaker 3: I think that's part of the story here as well.
Speaker 5: So you mentioned the spreads. I mean, they're widening, but
Speaker 5: they're not blowing out. And that's what we've heard from
Speaker 5: bond folks that are saying, if the tech companies want
Speaker 5: to issue more paper, we'll take it. So is a
Speaker 5: bond market do they have a better handle on risk
Speaker 5: out there that maybe the equity markets do here?
Speaker 4: I think the demand, particularly in the high yield quarter
Speaker 4: of the debt market, remains pretty remarkable. This stuff gets
Speaker 4: just absorbed almost immediately as it comes to market. Widespreads again,
Speaker 4: while modestly wider, are not really blowing out here. I
Speaker 4: think the more difficult question is when you look at
Speaker 4: the kind of arc of the leadership over the last
Speaker 4: number of months with staples better with healthcare, with utilities?
Speaker 3: Is this the market messaging?
Speaker 4: Something more sinister from a defensive perspective is coming.
Speaker 3: I'm not quite there yet.
Speaker 4: I think healthcare the narrative will become, Hey, this is
Speaker 4: the beneficiary of AI. Look at all this drug discovery.
Speaker 4: That's where I think the puck is probably going on healthcare. Staples,
Speaker 4: for as good as they've been recently, actually have not
Speaker 4: turned in our work. They're still in a relative down trend.
Speaker 4: And in the spirit of trend following Tom, Staples are
Speaker 4: still a relative laggard over the longer term in this market.
Speaker 2: What's we're going to go here? But from the technical
Speaker 2: analysis that Chris and I do, Folks, is trend based
Speaker 2: versus catching the knife, and people love to try to
Speaker 2: catch the knife in the dark. How do you use
Speaker 2: moving averages? I see such a misuse nuts folks on
Speaker 2: the death Cross and the life Cross.
Speaker 3: If it were going up?
Speaker 2: Is it? What's it on? Don't know? Birth Cross? I
Speaker 2: don't know. How do you use moving averages?
Speaker 3: Tom?
Speaker 4: You remember how your mom probably said nothing good happens
Speaker 4: after midnight?
Speaker 3: Well, in our world, nothing good happens below downward sloping
Speaker 3: moving averages.
Speaker 4: Right, So if it's the two undre day moving average
Speaker 4: downward sloping, we just don't play. And it's tempting to
Speaker 4: want to catch niner, it's tempting to want to call loas.
Speaker 4: That's just not where the money's made in this business.
Speaker 4: The money is made in up trends. The money is
Speaker 4: made both from a volatility adjusting perspective. Okay, owning things
Speaker 4: with upward sloping movie brilliant.
Speaker 2: So let's get let's get the verone keen approach here,
Speaker 2: and have you talk about the software stocks. The only
Speaker 2: way you can really make money, folks, on a risk
Speaker 2: adjusted basis is an up market an up sector in
Speaker 2: an upstock. If the software stocks is Microsoft broken that maximum.
Speaker 4: So if you look at a very long term basis,
Speaker 4: Microsoft right now is hovering right near it's upward slope
Speaker 4: in two hundred week moving average. So this is kind
Speaker 4: of where the decline stopped both in twenty twenty two,
Speaker 4: which where it stopped in twenty eighteen. So you're in
Speaker 4: the zone where Microsoft is going to stabilize. It kind
Speaker 4: of has to happen here that is very different than
Speaker 4: many of its peers Workday Service now are in long
Speaker 4: term down trends, dose salesforce.
Speaker 2: To the cash of Microsoft.
Speaker 4: In the spirit of the same group, I would be
Speaker 4: very skeptical of bounces in that other quality of ste
Speaker 4: I'll get one more in there.
Speaker 2: But the key thing mister Varone said there, folks is
Speaker 2: is unit based weeks.
Speaker 3: Pros use weeks.
Speaker 2: Good morning, Louis Jamonta Las Sweety's one more with Christopher Varone.
Speaker 5: I'm going to just the Nasdaq with the tech heavy
Speaker 5: NASAC and I type in the RSI function in the
Speaker 5: Bloomberg terminal. You know it says, you know that that
Speaker 5: RSI function says we're over sold. If the indexes at thirty,
Speaker 5: we're overbought. If it's at seventy, we're at forty seven.
Speaker 5: Right smash in the middle of the NASDAK. I don't
Speaker 5: know what to do here.
Speaker 3: I don't I think tech traders don't know what to
Speaker 3: do here.
Speaker 4: You know, it's funny, We've joked about this four time.
Speaker 4: I think overbought, oversold are the most misused terms in
Speaker 4: this business. Oversold, parish, overbought, bullish, right, things that get
Speaker 4: overbought against they overbought are your best trends, things that
Speaker 4: get oversold, No thanks, Yeah, particularly when you're oversold in
Speaker 4: weak trends.
Speaker 3: And you look at the NASDAK right now, it's.
Speaker 4: Probably the weakest of the major trends, and it's in
Speaker 4: kind of no man's land from a momentum standpoint. I
Speaker 4: believe as of last night, only about forty percent of
Speaker 4: the tech sector was above the TUTOR day moving average.
Speaker 3: I mean, that's a very.
Speaker 4: Difficult place to expect that you're going to make consistent returns.
Speaker 4: I want to fish where the fish are most abundant.
Speaker 4: That's not with forty percent of issues above TUNA day.
Speaker 2: Don't be a stranger bringing Jason trendet is what Christopher
Speaker 2: Varone is with stratigis stay with us. More from Bloomberg
Speaker 2: 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
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Speaker 2: Speaking to her in the coming weeks here, particularly on IRAN.
Speaker 2: So this is the way it works, folks. We have teams.
Speaker 2: Paul and I don't really have a job. We sort
Speaker 2: of saunter in and you know, hang out, get a coffee,
Speaker 2: make jokes. We have people that work definitive on this
Speaker 2: crisis in London are Scott Carpenter, Donald Griffin and the
Speaker 2: leadership of Constantine Carculis. Constantine joins us off the desk
Speaker 2: at Queen Victoria Street this morning. He's in charge of
Speaker 2: Distressed Debt and cockroaches at Bloomberg Nation. I Constantine, first
Speaker 2: of all, congratulations on the impact of your reporting worldwide.
Speaker 2: If we look at Market Financial Solutions Limited, is there contagion?
Speaker 6: I mean, that's a big question. So far, we haven't
Speaker 6: seen any signs alow in the equity market. Some of
Speaker 6: these lenders definitely took a hit. I think Jeffreys was
Speaker 6: down as much as ten percent yesterday because they're exposed
Speaker 6: to a round one hundred million to this entity. Apollo
Speaker 6: also down five percent. It had lent around four hundred
Speaker 6: to this entity. Ya it secured credit vehicle Atlas. So yeah,
Speaker 6: there's already signs of Jeter's in the equity market, but
Speaker 6: not seeing this spreading to credit yet.
Speaker 2: I've done my amateur work on their chief executive officers
Speaker 2: sum reports. He slipped a dubai Paresh Raja. I hope
Speaker 2: I'm pronouncing that correctly. Who is Paresh Raja?
Speaker 7: Very good question. We don't know all that much about him.
Speaker 6: We have, I mean Bloomberg our colleagues, My colleagues have
Speaker 6: done an investigation on him back in two thousand and
Speaker 6: twenty four and showed that a group of firms that
Speaker 6: had tied tied to him, including MFS and another entity, Zirkon,
Speaker 6: lent money, lent money in relation to property deals to
Speaker 6: a former land minister in Bangladesh. So yeah, the story
Speaker 6: kind of starts back there. But yeah, we don't know
Speaker 6: other than the fact that he is the sole owner
Speaker 6: and officer in the sprawling empire of MFS and then
Speaker 6: this investigation back in twenty twenty four. Yeah, we don't
Speaker 6: know all that much about him, but that's something we're chasing.
Speaker 3: Talk to us about market financial solutions.
Speaker 5: So are these people and what part of the credit
Speaker 5: market do they play in?
Speaker 6: So they're a niche market mortgage lender, I suppose, So
Speaker 6: they kind of step in where traditional banks won't and
Speaker 6: they provide short term sort of bridging loans or other
Speaker 6: complex structures to help facilitate like maybe there's an entity
Speaker 6: that wants to sell a property and buy another, doesn't
Speaker 6: have the doesn't have the cash to do that immediately.
Speaker 6: That's what's called the bridging loan. So they to finance this,
Speaker 6: they borrowed vast amounts of money from traditional lenders on
Speaker 6: Wall Street, and then they're tasked with collecting, collecting payments, and.
Speaker 7: Servicing these these loans in a sense.
Speaker 6: So so that that's the business model. But what turns
Speaker 6: out the allegations are that a lot of this money
Speaker 6: that was supposed to be going back into the certain
Speaker 6: bank accounts went to other bank accounts. The court documents
Speaker 6: so far show that there's around two hundred million that
Speaker 6: kind of got channeled in the wrong place. And on
Speaker 6: top of that, and this is what makes it much
Speaker 6: more interesting is that it appears and the allegations are
Speaker 6: that there's been some double pledging of collateral.
Speaker 2: So, yeah, Constantika Koros so with us. We're going to
Speaker 2: continue with him with his public service, to his grease
Speaker 2: working with us at Bloomberg News. And I says earlier
Speaker 2: it was a joke, folks, He's not distressed debt and
Speaker 2: cockroach reporter. It was kidding, is well, consciously, how do
Speaker 2: you respond to James Diamond upset about the cockroaches mathematically
Speaker 2: or as a former Greek finance horse, how do you
Speaker 2: respond to that.
Speaker 6: I don't know if I'm in a position to respond
Speaker 6: to the Jamie Diamond, but you know, he does make
Speaker 6: a good point that look, I think, you know, the
Speaker 6: examples are adding up, right, First Brands, trickle Ore, now
Speaker 6: this right, So I feel that we're in the point
Speaker 6: in the cycle where, yeah, fraud is surfacing to the top,
Speaker 6: and people kind of push into corners of finance to
Speaker 6: get that extra return, and it's probably, in hindsight, looks
Speaker 6: like a bad idea for something.
Speaker 2: And Paul You turned to me and said, what about
Speaker 2: Jeffery's you know, first Brands, tricolor and now this next.
Speaker 3: Thing exactly constantine.
Speaker 5: I guess that kind of goes to the question of
Speaker 5: do we put this in this Oh it's just a
Speaker 5: one off, idiosyncratic thing, or is there something more broader
Speaker 5: here that people are concerned about?
Speaker 7: I think definitely.
Speaker 6: I think you know, it's only how many how many
Speaker 6: examples you need for it not to be considered a trend.
Speaker 6: That's my view, So of course they'll tell you that
Speaker 6: each instance is idiosyncratic and comes with its own yeah, yeah, parameters.
Speaker 6: But at the end of the day, these are yeah,
Speaker 6: the evidence is just there.
Speaker 2: That is the tilt here towards what I'm going to
Speaker 2: call executive fiction delusion, fraud, or is the tilt here
Speaker 2: to normative leverage market forces where oops, something goes wrong
Speaker 2: because of leverage.
Speaker 7: It's where those two things intersect.
Speaker 6: It's when leverages, when you use leverage and then you
Speaker 6: end up in in the situation and then and then
Speaker 6: it's just the losses are just compounding.
Speaker 2: We got to go, yeah, cause we got to go here,
Speaker 2: and you got to get back to work. I mean,
Speaker 2: you haven't done You've completely slacked off here this morning.
Speaker 2: What I want to know is, what's your biggest mystery?
Speaker 2: Is you published a Monday morning?
Speaker 7: Okay?
Speaker 6: So questions that I want to find out where is
Speaker 6: Rajah and more about who he is, because the allegations
Speaker 6: in court were that he's he's skipped down. The other
Speaker 6: one is kind of how exactly this went down, what
Speaker 6: precipitated the blow up exactly right? And then obviously who
Speaker 6: else is involved? Because I have a sense that there
Speaker 6: are some other names that we haven't unearthed yet.
Speaker 2: Constantine on behalf of all of Teams Surveillance. Thank you
Speaker 2: to your team for your reporting on this story. It's
Speaker 2: gone worldwide this morning. I really can't say enough about
Speaker 2: the work that we've seen off the Derivatives desk Bloomberg
Speaker 2: at Queen Victoria Street. Constantine kurkulis with his 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
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Speaker 2: This is incredibly well timed. KPMG UK has done a
Speaker 2: survey of Europe, and of course yell selfon joins us
Speaker 2: now Yale in America. All we're talking about is a
Speaker 2: lengthy Wall Street Journal article that says Paul Sweeney and
Speaker 2: Tom Keener moving to Europe. So I want to personalize
Speaker 2: the KPMG sixty thousand foot view Yale. What is the
Speaker 2: Europe we're moving to, whether we move to Portugal or Finland.
Speaker 2: We moved to Wales, we moved to Eastern Europe. Albania. Sure, Albania.
Speaker 2: What's the europe yell that we're moving to.
Speaker 8: Well, first of all, welcome, we'll be happy to have.
Speaker 3: You, Thank you.
Speaker 8: And I think Europe is very diverse.
Speaker 9: Yeah.
Speaker 8: I mean you could say the US is reverliatively diverse
Speaker 8: if you look at different states, But when it comes
Speaker 8: to Europe, as you say, there's a lot of different
Speaker 8: parts there, and I think generally there's quite a few opportunities.
Speaker 8: It really depends on what you're after.
Speaker 3: Yeah.
Speaker 5: We saw about this time last year when President Trump
Speaker 5: initiated some of his tariffs, that we saw Europe step
Speaker 5: up here and we saw a number of countries saying, okay,
Speaker 5: we get the message. We're going to start investing in
Speaker 5: our military, in our infrastructure, Germany in particular, making some
Speaker 5: big commitments. Is that something Europe can really do over
Speaker 5: the intermediate long term.
Speaker 8: Well, I mean, I think there's a few things here.
Speaker 8: One is, what would you really want Europe to invest in.
Speaker 8: I'd say defense is probably necessary, but if we can
Speaker 8: be as forward looking as possible and try and invest
Speaker 8: in the things that will actually help our defense as
Speaker 8: well as potentially more be of due usage and help
Speaker 8: us with our productivity another thing that's even better, So
Speaker 8: trying to figure that out is important. Also, Europe really
Speaker 8: want to try and produce as much as possible of
Speaker 8: it in Europe, and we probably as a whole don't
Speaker 8: have the capabilities at the moment. So there's a big
Speaker 8: theme of wreaking up mobilities. Well, I mean, but first
Speaker 8: of all, you need to understand what it is that
Speaker 8: you want to produce.
Speaker 2: In your KPMG study, you have nominal GDP just as
Speaker 2: a quick sum, it's maybe four percent four point two
Speaker 2: percent or maybe dare I say nominal GDP The animal
Speaker 2: spirit of the economy is sub three percent over here.
Speaker 2: That's a depression. Can Europe accept that tepid growth? Or
Speaker 2: is there finally a behavioral motivation to be more Anglo American?
Speaker 8: Very good question. So I think there's two things here.
Speaker 8: One is we've had much wiger productivity in Europe than
Speaker 8: in the US. Some of it, i'd say, you can
Speaker 8: potentially change. There's definitely things that Europe can do better
Speaker 8: and is striving to do a bit better. But europely slow.
Speaker 8: I mean, if you look at the European Union, we
Speaker 8: have twenty seven countries. It's not that easy to bring
Speaker 8: them all Yeah stuck.
Speaker 2: Yeah, Yeah, it's not slow. It's the land of the
Speaker 2: three hour lunch. I've lived it in Frankfurt. Yeah. Is
Speaker 2: AI going to speed things up for you? Is AI
Speaker 2: in Helsinki or AI in Paul Sweety's Albania? Is it
Speaker 2: going to get it done?
Speaker 3: Okay?
Speaker 8: This is a but also you need to think about
Speaker 8: what you're trying to achieve. There's also about things about
Speaker 8: quality of life equalities. There's other goals that Europeans have
Speaker 8: that the America doesn't necessarily put at the forefront. And
Speaker 8: I'm not sure that is going to change as much.
Speaker 8: I think different priorities in Europe and that's partially why
Speaker 8: they priority prioritize other things, and growth is not always
Speaker 8: the first priority. AI will help. I think AI will help,
Speaker 8: but also it's not going to work the same way
Speaker 8: as in the US because you don't have the initial technology.
Speaker 5: Yeah, what's the thinking now again, a year after President
Speaker 5: Trump again his tariff campaign, what's the thinking in Europe
Speaker 5: about the ability to partner with the US, to trade
Speaker 5: with the US?
Speaker 3: Where are we with that thinking?
Speaker 5: Well?
Speaker 8: US is still an incredibly important market for Europe and
Speaker 8: a partner across different you know, initiatives, but there's definitely
Speaker 8: a recognition that you can rely less on US to
Speaker 8: help in times of when you look at defense, for example,
Speaker 8: but also you can you can rely less on the
Speaker 8: US as a market, given that policies change all the time.
Speaker 2: Yil you're at UCL and LC, you get prodigious European chips.
Speaker 2: We've got to run to our next guest. I got
Speaker 2: six people telling me I got to get to them yourself.
Speaker 2: And as simply as I can, are Americans welcome in Europe?
Speaker 8: Yes?
Speaker 3: There, that's good enough. You're over there all the time.
Speaker 3: I'm loving, love you. But you know, I mean, just
Speaker 3: to finish this up.
Speaker 2: Yeah, I go to Paris and I'm in a Disneyland
Speaker 2: tourist center of three Arron d Small. There's a whole
Speaker 2: other Paris out there. I never see describe that tension
Speaker 2: between the real Paris and the tur Paris of tom Keene.
Speaker 8: Europe has many challenges and they need to try and
Speaker 8: overcome them. One way of trying to overcome them is
Speaker 8: by increasing growth and potentially but also giving more people
Speaker 8: the opportunity to benefit from thy growth. I think this
Speaker 8: is a similar issue to what we have in the US.
Speaker 8: It's not different at all. You have different worlds in
Speaker 8: the US as well.
Speaker 2: Don't be a stranger. This has been fabulous yourself, and
Speaker 2: thank you so much. With the European report out of
Speaker 2: KPMG in the United Kingdom, thank you so much. Stay
Speaker 2: with us. 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 Otto with the Bloomberg Business app, or
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Speaker 2: That's right. Schapper joins us from Lazard asset manager. Really
Speaker 2: to do a brief here on EM but I got
Speaker 2: to go. You know you're at NYU, you're an LC
Speaker 2: and in all of a study the history of the
Speaker 2: shadows that are out there. We agreeeded this morning and folks,
Speaker 2: our lead reporter on this will be on with in
Speaker 2: twenty minutes. MFS in London, mister Diamond would say, it's
Speaker 2: another cockroach. Are you in the broader team at Lazard?
Speaker 2: Are you worry about the shadows of manufactured leverage, manufactured
Speaker 2: private credit?
Speaker 9: So I think the most important thing and Peter at
Speaker 9: Lazard or our CEO, talks about the context of contextual
Speaker 9: alpha and understanding the impact of events like that are
Speaker 9: unfolding right now, and how does that pick the impact
Speaker 9: the broader context. As an emerging market investor, we understand
Speaker 9: the cost of capital is born here in the US
Speaker 9: and understanding that context around the geopolitics where inflation expectations are.
Speaker 9: When I see that kind of context playing out in
Speaker 9: emerging markets, we're really constructive the asset class. We see
Speaker 9: positive real rates, we see that liquidity measure better. Quite frankly,
Speaker 9: the banking systems across most of the emerging markets are
Speaker 9: very traditional in nature. We don't have a lot in
Speaker 9: terms of private credit and non banking financial companies that we've.
Speaker 5: Really seen emerging markets perform so well over the last
Speaker 5: year plus. How much of that has been the weakness
Speaker 5: of the US dollar versus maybe improving earnings, just better
Speaker 5: business prospects politics in general.
Speaker 9: So, Paul, I think what's really exciting is that emerging
Speaker 9: markets just finished ten years of famine and we're in
Speaker 9: an eighteen month period where em is kind of getting
Speaker 9: a little bit of it's mojo back. But what's really
Speaker 9: important is that this is not just purely on weaker dollar,
Speaker 9: which obviously plays an important role in terms of global
Speaker 9: stimulus because long term liabilities are denominant dollars. But importantly,
Speaker 9: there's foundational change. Emerging markets is no longer the monolithic
Speaker 9: story of the past. We have AI opportunities that are
Speaker 9: are taking place. I mean, as we know many leading
Speaker 9: semiconductor companies Korea for examples of fifty percent here today.
Speaker 3: They're a key.
Speaker 9: Component of that. And at the same time, the debate
Speaker 9: around AI and disruption is impacting some of the service areas.
Speaker 2: Should we do a victory laugh on this shore I
Speaker 2: wrote Heat was way out front on this. Yeah, I mean,
Speaker 2: you know you were in here months and months and
Speaker 2: quarters ago saying this is different. Why is Korea tripled?
Speaker 3: Yeah, good question. It's it's it's a couple of things.
Speaker 9: First of all, the local populace are equity owners of
Speaker 9: their companies, right, so they essentially are are our greater participation.
Speaker 9: We're seeing their their flowes picking up.
Speaker 3: We're seeing corporate governance reform.
Speaker 9: They just announced this week plans to improve treasury shares
Speaker 9: in terms of cancelations. And then the most important aspect
Speaker 9: is the focus on R.
Speaker 3: And D and investment.
Speaker 9: In Korea, we've seen this development particularly around memory, which
Speaker 9: has really helped the leading memory companies that are key
Speaker 9: components of high bandwidth memory that goes into our AI
Speaker 9: servers today. The other aspect which I think people are
Speaker 9: getting excited about is this aspect.
Speaker 3: Of of of uh.
Speaker 9: Robotics and humanoids. And you guys had an interesting piece
Speaker 9: yesterday looking at uh uh the Atlas uh robot by
Speaker 9: by the Hundai Group and how does that compare with
Speaker 9: what Tesla's doing. The context is that you had a
Speaker 9: very low valuation starting point and at the same time,
Speaker 9: foundationally there's there's there's there's uh uh investment happening.
Speaker 2: To see that row heat is pounding the table? Do
Speaker 2: you hear that?
Speaker 3: Now we's been saying the same thing.
Speaker 5: Got time to really pay attention to emerging markets here China.
Speaker 5: What is your world doing with China these days? For
Speaker 5: a while it was almost uninvestable. Now it seems to.
Speaker 3: Be back, coming back. How do you guys think about it?
Speaker 1: Yeah?
Speaker 9: So, I think that the exciting thing about China is
Speaker 9: that there's no one China. It's no longer just purely
Speaker 9: based upon fixed out that investment and property development that
Speaker 9: area is still quite challenged. But what's exciting is what
Speaker 9: China's doing in terms of energy security, what China has
Speaker 9: done in terms of uh AI renewables uh as we
Speaker 9: talked about, over fifty percent of vehicle sales in China
Speaker 9: today are ev They're also exporting, so that context in
Speaker 9: terms of them moving terms of working forth the dustrialization.
Speaker 9: And at the same time we've seen a lot of development,
Speaker 9: particularly around the AI, the natural language processing that's occurry
Speaker 9: that China is also playing.
Speaker 3: In that global race.
Speaker 2: Right He choper with us. He's EM equity portfolio manager
Speaker 2: at Lazard asset manager. Can we massively rip up the
Speaker 2: script and yelet of rip okay? I'm going to editorialize
Speaker 2: and say that under the leadership of Peter Orzag, who's
Speaker 2: been way kind to me over the years, mister Orzag
Speaker 2: has reinvigorated the academics of Lazard, the brain power coming
Speaker 2: out of your shop is just jaw dropping. Is AI
Speaker 2: transferable to the EM economies? I get it that that
Speaker 2: AI works in Silicon Valley, it works at Northwestern in Chicago,
Speaker 2: Does it work at Duke?
Speaker 3: I think it works at day time?
Speaker 2: It works at Duke, Does it work in.
Speaker 9: Malay It works because it is a tool right now.
Speaker 9: It's leading to productivity gains. It's about understanding the data.
Speaker 9: But what's also a fact is that AI will be
Speaker 9: highly disruptive as well. We're seeing some of those debate.
Speaker 9: For example, I just came back from India. There's a
Speaker 9: big debate, particularly in the IT services industry where a
Speaker 9: lot of these companies were benefiting from lower cost labor
Speaker 9: and IT expertise and now potentially that code is going
Speaker 9: to be written by AI and that can be disruptive.
Speaker 2: Okay, the heart of India issach an Adela, coming out
Speaker 2: of Bangalore and down south is a Tamil Nadu. Tamil Nadu.
Speaker 2: How are they adapting to AI in the heart of
Speaker 2: Indian technology?
Speaker 3: Yes, it's a wake up call.
Speaker 8: I think.
Speaker 9: The first thing I'd say here is that if you
Speaker 9: look at Indian corporates, historically they haven't invested as much
Speaker 9: in terms of R and D spen. So R and
Speaker 9: D spend in India has been relatively low. What you're
Speaker 9: finding with the tariff discussions that there's been a whole
Speaker 9: focus on how do we improve our R and d
Speaker 9: spen how do we improve our manufat action capability, So
Speaker 9: there is definitely a sense of urgency. I do think
Speaker 9: these models will business models will change. But at the
Speaker 9: same time as companies adopt AI, you need the Indian
Speaker 9: IT service companies to help push that through that integration.
Speaker 2: Get one more in.
Speaker 5: Num world of emerging markets equities, where do you guys
Speaker 5: see the maybe the best value give now you have
Speaker 5: had some movement here.
Speaker 9: I think the best value in emerging markets it is Brazil.
Speaker 3: Brazil. I think, yes, you have the.
Speaker 9: Benefit a weaker dollar, you have strong commodity complex, inflation
Speaker 9: under control, and most importantly, real rates are amongst the
Speaker 9: highest in the world based interest rates at fifteen percent.
Speaker 9: I think that starts to come down as inflation comes down,
Speaker 9: and that's going to start to drive a current cycle
Speaker 9: and that's going to be I think a big surprise
Speaker 9: to investors that they see growth improving there.
Speaker 2: I get to research. Note that just came out. Roycheschepper,
Speaker 2: thank you so much for coming in with 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 Otto with the Bloomberg Business app, or
Speaker 1: watch US live on YouTube.
Speaker 2: Jennifer Welch joins US now chief geo Economics analyst Bloomberg
Speaker 2: Economics on Iran and suddenly on Cuba. Jennifer Welch, thank
Speaker 2: you so much for joining us. It's ninety four miles
Speaker 2: from Key West to the shores of Cuba. How close
Speaker 2: are we to Cuba as we go into the weekend.
Speaker 10: I think at the moment the situation is somewhat uncertain,
Speaker 10: but somewhat stable too. When we look at the recent
Speaker 10: incident of a boarded tag speedboat approaching Cuban authorities having
Speaker 10: a crisis, a shooting incident, and the immediate response from
Speaker 10: Washington doesn't seem to indicate that the United States is
Speaker 10: looking to get directly involved at this moment. They're looking
Speaker 10: to gather more information, but it's somewhat of a d
Speaker 10: esclatory step.
Speaker 3: I think the broader.
Speaker 10: Trajectory, though, of the relationship, is increasingly negative for Cuba.
Speaker 10: The economic pressure campaign that the US is put in
Speaker 10: place doesn't look like it's going to let up anytime soon.
Speaker 10: Or has the U S shifted its position in what
Speaker 10: it ultimately wants to achieve.
Speaker 2: There, Ben Jennifer, I remember my parents hiding the newspapers
Speaker 2: of the Cuban missile crisis because they thought that the
Speaker 2: offspring would be afraid of it. Go to twenty twenty one,
Speaker 2: Miguel dis Canal takes over not a castro, who is
Speaker 2: the leadership of Cuba that Secretary Rubio must confront.
Speaker 10: It looks like Secretary Rubio and his team are engaging
Speaker 10: with a number of different elites, including the former leaders,
Speaker 10: personal bodyguards, and crew. I think though negotiations are still
Speaker 10: at a pretty decent stage at this point, and this
Speaker 10: is likely to be an extenduated situation. I mean, if
Speaker 10: we think back to even Venezuela, that was a month's
Speaker 10: long pressure campaign and at much higher level of intensity
Speaker 10: than what we're currently seeing right now. You mentioned earlier
Speaker 10: that there is also a situation in Iran in the
Speaker 10: Middle East. US attention at the moment is a little
Speaker 10: bit more divided and spread across the world, and I
Speaker 10: think that's part of the reason that we're not seeing
Speaker 10: a huge escalation on Cuba right now.
Speaker 5: You mentioned Iran, we're putting. The US is putting some
Speaker 5: serious military hardware in that part of the world. We
Speaker 5: typically don't do that unless we're going to use it.
Speaker 5: Historically speaking, what's the latest thinking coming out of Washington
Speaker 5: as it relates to Iran?
Speaker 10: The military build up, as you mentioned, it's one of
Speaker 10: the largest in decades since the Iraq War, really in
Speaker 10: many ways, and I think it serves two purposes. The
Speaker 10: first one is signaling power to Tehran that the United
Speaker 10: States is serious about wanting a deal and sort of
Speaker 10: applying this ongoing pressure. The second is to give the
Speaker 10: President options if he does decide to order strikes. Now,
Speaker 10: the risk that we face is the talks yesterday in
Speaker 10: Geneva didn't produce an immediate agreement. They are meant to
Speaker 10: continue next week, but US negotiators reportedly left that meeting
Speaker 10: quite disappointed. And we've seen in the past, including last year,
Speaker 10: that President Trump ordered strikes on Iran even when talks
Speaker 10: were meant to continue. So we're by no means out
Speaker 10: of the woods yet on this situation.
Speaker 5: What is really the strategy of the US right now
Speaker 5: through Has that been articulated well by this White House?
Speaker 2: Well?
Speaker 10: As we heard from the President earlier this week in
Speaker 10: the City of the Union, I think if you had
Speaker 10: to boil it down, his strategy is to try to
Speaker 10: get Iran to agree to a nuclear deal again. After
Speaker 10: pulling out of the nuclear deal that the Obama administration structured,
Speaker 10: the President is now aiming to negotiate a new deal
Speaker 10: with Iran. The challenge is that from Tehran's perspective, they
Speaker 10: already agreed to a deal and the US is the
Speaker 10: one that renegged on it, and now the US is
Speaker 10: asking for far more at a time in which Tehran
Speaker 10: feels it has far fewer options and its back is
Speaker 10: already up against the wall. So this is a really
Speaker 10: tense Situationifer, we got.
Speaker 2: To go to breaking news, but really appreciate the twenty
Speaker 2: four to seven you've been doing. She is chief ge
Speaker 2: Economics analyst for Bloomberg Economics, Jennifer Welch here, and I
Speaker 2: think we'll be more than speaking to her in the
Speaker 2: coming weeks here, particularly on Iran.
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