WEBVTT - Bloomberg Surveillance TV: August 25th, 2026

0:00:02.430 --> 0:00:12.800
<v Speaker 1>Bloomberg Audio Studios. Podcasts Radio News. This is the Bloomberg

0:00:12.820 --> 0:00:16.560
<v Speaker 1>Surveillance Podcast. I'm Jonathan Farrow, along with Lisa Abramowitz and

0:00:16.660 --> 0:00:19.570
<v Speaker 1>Anne-Marie Hordern. Join us each day for insight from the

0:00:19.610 --> 0:00:23.530
<v Speaker 1>best in markets, economics and geopolitics. From our global headquarters

0:00:23.570 --> 0:00:26.130
<v Speaker 1>in New York City, we are live on Bloomberg Television

0:00:26.190 --> 0:00:29.270
<v Speaker 1>weekday mornings from 6 to 9 a.m. Eastern. Subscribe to

0:00:29.290 --> 0:00:32.440
<v Speaker 1>the podcast on Apple, Spotify or anywhere else you listen.

0:00:32.820 --> 0:00:35.180
<v Speaker 1>And as always, on the Bloomberg Terminal and the Bloomberg

0:00:35.220 --> 0:00:37.960
<v Speaker 1>Business App. We begin this hour with stocks higher and

0:00:38.020 --> 0:00:41.209
<v Speaker 1>bond yields lower as criticism builds against Treasury Secretary Scott

0:00:41.250 --> 0:00:44.870
<v Speaker 1>Besson's buyback plans. Billionaire investor Stanley Druckenmiller writing in the

0:00:44.909 --> 0:00:49.169
<v Speaker 1>journal this morning that governments defending prices against fundamentals always lose.

0:00:49.610 --> 0:00:52.660
<v Speaker 1>Let the bond market speak. George Concarvis of MBFG joins

0:00:52.700 --> 0:00:53.840
<v Speaker 1>us now for more. George, good morning.

0:00:54.120 --> 0:00:54.660
<v Speaker 2>Good to be on.

0:00:54.760 --> 0:00:56.920
<v Speaker 1>Do you agree with Stanley Druckenmiller this morning?

0:00:57.320 --> 0:00:59.060
<v Speaker 2>I look at the bond market and market forces should

0:00:59.100 --> 0:01:01.020
<v Speaker 2>always kind of dictate where things head. And I think

0:01:01.440 --> 0:01:03.340
<v Speaker 2>that is the right sort of course of action. But

0:01:03.360 --> 0:01:05.560
<v Speaker 2>this is complicated. This is going to be a story

0:01:05.580 --> 0:01:07.610
<v Speaker 2>that we're going to have. And we've had for years.

0:01:07.630 --> 0:01:10.070
<v Speaker 2>We're going to have this into this election, into the

0:01:10.069 --> 0:01:14.270
<v Speaker 2>2028 election, into 2030. Like our deficits are not getting

0:01:14.310 --> 0:01:16.110
<v Speaker 2>any better. And yeah, this is a time to kind

0:01:16.130 --> 0:01:18.410
<v Speaker 2>of reflect on it. It's not just the Treasury, right?

0:01:18.430 --> 0:01:20.880
<v Speaker 2>This is a This is a government-wide issue. We're spending

0:01:20.900 --> 0:01:21.220
<v Speaker 2>too much.

0:01:21.319 --> 0:01:23.660
<v Speaker 1>You can't find fundamentals, seems to be the takeaway. And

0:01:23.680 --> 0:01:26.479
<v Speaker 1>that's the argument so many people have made. 520 on 30s,

0:01:26.540 --> 0:01:28.179
<v Speaker 1>is that the right clearing price? Do you just need

0:01:28.200 --> 0:01:29.240
<v Speaker 1>to go higher than that?

0:01:29.760 --> 0:01:31.899
<v Speaker 2>Look, I mean, there's a lot of different arguments about

0:01:31.959 --> 0:01:35.530
<v Speaker 2>what do rates reflect ultimately. And you could say there's

0:01:35.569 --> 0:01:38.350
<v Speaker 2>a fiscal term premium. There's a lot going on within

0:01:38.490 --> 0:01:41.290
<v Speaker 2>the composition of real rates are very high. But if

0:01:41.330 --> 0:01:44.289
<v Speaker 2>you think about it, inflation expectations are actually relatively contained.

0:01:44.630 --> 0:01:47.030
<v Speaker 2>And that's the part that's really interesting to me. We're

0:01:47.069 --> 0:01:50.700
<v Speaker 2>commanding a higher real cost of capital, which is, you know,

0:01:50.740 --> 0:01:52.960
<v Speaker 2>that's the clearing price. It's the real rate that matters more.

0:01:53.360 --> 0:01:56.060
<v Speaker 2>It's a function of the AI spending. So that's almost

0:01:56.080 --> 0:02:00.400
<v Speaker 2>like quasi-government infrastructure spending that's competing now. We have competition

0:02:00.440 --> 0:02:02.520
<v Speaker 2>for capital, which we have not had for 20, 30 years.

0:02:02.860 --> 0:02:05.570
<v Speaker 2>Sovereigns have not had to deal with a private sector

0:02:05.870 --> 0:02:07.710
<v Speaker 2>that's competing for just as much capital as they are.

0:02:08.210 --> 0:02:10.630
<v Speaker 2>And you combine all the things, and you're like, what

0:02:10.930 --> 0:02:15.070
<v Speaker 2>do rates really reflect? And they reflect that we do

0:02:15.169 --> 0:02:18.770
<v Speaker 2>have a nominal issue. Our nominal growth is high because

0:02:18.790 --> 0:02:21.210
<v Speaker 2>of the fiscal connection. It's not about fiscal term premium.

0:02:22.450 --> 0:02:25.109
<v Speaker 2>What's going to be interesting is, will the Fed ever

0:02:25.150 --> 0:02:28.090
<v Speaker 2>come out and call that out? Will Kevin Warsh say

0:02:28.150 --> 0:02:32.240
<v Speaker 2>that we have a fiscal issue that's driving the inflation side?

0:02:32.300 --> 0:02:34.300
<v Speaker 2>It's not the private sector, really. A little bit from

0:02:34.320 --> 0:02:35.940
<v Speaker 2>the private sector, but this is largely government spending.

0:02:36.460 --> 0:02:38.700
<v Speaker 3>My guess is he won't say that, particularly on Friday.

0:02:38.720 --> 0:02:40.079
<v Speaker 3>I'm just going to throw out there and go out

0:02:40.100 --> 0:02:42.480
<v Speaker 3>on a limb. I do think it's notable, though, how

0:02:42.560 --> 0:02:45.380
<v Speaker 3>much Neil Kashkari and others have said the 30-year yield

0:02:45.419 --> 0:02:48.080
<v Speaker 3>is fine. Where it is right now is totally normal

0:02:48.120 --> 0:02:50.040
<v Speaker 3>with respect to where growth rates are and where other

0:02:50.080 --> 0:02:53.750
<v Speaker 3>benchmark yields are. And ultimately, it isn't constraining the economy

0:02:53.780 --> 0:02:54.730
<v Speaker 3>in an undue way.

0:02:54.750 --> 0:02:56.710
<v Speaker 1>So why should the Fed care at all? What do

0:02:56.730 --> 0:02:57.610
<v Speaker 1>you make of those arguments?

0:02:57.630 --> 0:02:59.870
<v Speaker 2>Yeah, so we're trying to think about what can happen

0:02:59.889 --> 0:03:03.810
<v Speaker 2>on Friday. And ultimately, you know, and like the Fed

0:03:03.870 --> 0:03:07.790
<v Speaker 2>in the 1978 sort of version of its mandate does

0:03:07.850 --> 0:03:11.929
<v Speaker 2>have this like third mandate, which is stable long-term rates, right?

0:03:11.990 --> 0:03:15.120
<v Speaker 2>If you really look at it closely, it's price stability,

0:03:15.180 --> 0:03:18.600
<v Speaker 2>full employment, and stable long-term rates. Do you argue these

0:03:18.639 --> 0:03:19.500
<v Speaker 2>are stable long-term rates?

0:03:19.540 --> 0:03:20.820
<v Speaker 4>Are they volatile? Are they too high?

0:03:21.200 --> 0:03:24.109
<v Speaker 2>Like, I think any conversation around that on Friday could

0:03:24.150 --> 0:03:26.730
<v Speaker 2>be market moving. So if Kevin Walsh comes out and says, like, look,

0:03:26.750 --> 0:03:28.769
<v Speaker 2>we're watching the back end of the curve, I think

0:03:28.790 --> 0:03:29.369
<v Speaker 2>that's interesting.

0:03:29.710 --> 0:03:31.630
<v Speaker 3>The fact that people are even speculating about this is

0:03:31.650 --> 0:03:33.290
<v Speaker 3>the reason why the dollar has fallen out of bed

0:03:33.350 --> 0:03:35.250
<v Speaker 3>in the past couple of weeks. The reason why Bitcoin

0:03:35.290 --> 0:03:36.920
<v Speaker 3>seems to be flying and the reason why people are

0:03:36.960 --> 0:03:37.980
<v Speaker 3>all buying gold once more.

0:03:38.000 --> 0:03:38.480
<v Speaker 1>I just wonder.

0:03:39.260 --> 0:03:41.140
<v Speaker 3>To what degree do you pile into that? And to

0:03:41.180 --> 0:03:44.200
<v Speaker 3>what degree do you think that the debasement fear is

0:03:44.260 --> 0:03:46.840
<v Speaker 3>overblown at this point? Because we haven't heard from Kevin Warsh.

0:03:46.900 --> 0:03:49.600
<v Speaker 3>And frankly, the Stan Druckenmillers are kind of his whisperers

0:03:49.680 --> 0:03:50.760
<v Speaker 3>out there saying, maybe.

0:03:50.560 --> 0:03:51.440
<v Speaker 1>Not so fast, guys.

0:03:52.220 --> 0:03:54.040
<v Speaker 4>In general, this is not QE, right?

0:03:54.060 --> 0:03:56.410
<v Speaker 2>We have to really draw the distinction of what is

0:03:56.470 --> 0:03:59.850
<v Speaker 2>happening from the Treasury perspective is not QE. And we

0:03:59.870 --> 0:04:02.800
<v Speaker 2>like to conflate that because we've had this narrative for 15,

0:04:02.800 --> 0:04:05.630
<v Speaker 2>20 years that whenever there's a government intervention, therefore it's

0:04:05.670 --> 0:04:07.510
<v Speaker 2>printing money. And that's wrong in our view.

0:04:07.990 --> 0:04:10.170
<v Speaker 1>This is the words of Drucker Miller that jump off

0:04:10.190 --> 0:04:12.540
<v Speaker 1>the page to me too, Brammo. The 10-year yield, even

0:04:12.600 --> 0:04:15.000
<v Speaker 1>after the summer sell-off, sits at or below the economy's

0:04:15.060 --> 0:04:18.420
<v Speaker 1>nominal growth rate. We're running 6% budget deficits right now

0:04:18.440 --> 0:04:21.400
<v Speaker 1>in this country. We're above target inflation and still funding

0:04:21.440 --> 0:04:24.520
<v Speaker 1>ourself at roughly the rate the economy grows. I'm paraphrasing

0:04:24.540 --> 0:04:27.440
<v Speaker 1>Drucker Miller again this morning. The bond market wasn't being

0:04:27.490 --> 0:04:29.469
<v Speaker 1>a vigilante. I think we can agree with that. This

0:04:29.490 --> 0:04:32.690
<v Speaker 1>was a major pushback in fixed income. Arguably, as he wrote,

0:04:33.170 --> 0:04:34.969
<v Speaker 1>the bond market finally started to clear its throat. And

0:04:35.010 --> 0:04:36.970
<v Speaker 1>even that was enough to get this Treasury to act.

0:04:37.010 --> 0:04:38.830
<v Speaker 1>That's slightly disconcerting, isn't it?

0:04:38.970 --> 0:04:39.110
<v Speaker 4>Right.

0:04:39.150 --> 0:04:41.479
<v Speaker 3>Because what happens when they actually get a cold? Right.

0:04:41.540 --> 0:04:43.859
<v Speaker 3>What happens when the bond market or bond vigilantes actually

0:04:43.940 --> 0:04:47.720
<v Speaker 3>do wake up? Frankly, what we have seen is almost accommodative,

0:04:47.920 --> 0:04:50.140
<v Speaker 3>not exactly restrictive. And that's the other point that he

0:04:50.180 --> 0:04:51.800
<v Speaker 3>was making if you take a look at the issuance.

0:04:51.839 --> 0:04:56.200
<v Speaker 3>So at what point can things get restrictive before you

0:04:56.240 --> 0:04:57.760
<v Speaker 3>have policymakers truly get nervous?

0:04:57.779 --> 0:04:59.820
<v Speaker 1>George, we'll have a list of things we'd like Kevin

0:04:59.839 --> 0:05:02.080
<v Speaker 1>Walsh to say on Friday. What do you expect him

0:05:02.120 --> 0:05:04.090
<v Speaker 1>to say on Friday into the weekend?

0:05:04.700 --> 0:05:07.120
<v Speaker 2>I do think this is an opportunity to, as I've

0:05:07.140 --> 0:05:10.470
<v Speaker 2>been saying, flipping the script. I mean, Kevin's overall sort

0:05:10.510 --> 0:05:12.770
<v Speaker 2>of approach has been keeping everything close to the vest

0:05:12.910 --> 0:05:15.870
<v Speaker 2>and not really disclosing as much, not wanting to offer

0:05:15.910 --> 0:05:18.470
<v Speaker 2>forward guidance. But there's task forces that are in place.

0:05:18.750 --> 0:05:21.950
<v Speaker 2>They're collecting information. There's metrics. What is the progress on that?

0:05:22.380 --> 0:05:24.060
<v Speaker 2>Give the market some meat, and I think you can

0:05:24.080 --> 0:05:27.100
<v Speaker 2>kind of stabilize things. If you just kind of hide behind,

0:05:27.120 --> 0:05:28.920
<v Speaker 2>you know, we have nothing to say here. We're not

0:05:28.960 --> 0:05:31.880
<v Speaker 2>really ready to have a view on things. That's not

0:05:31.900 --> 0:05:32.320
<v Speaker 2>going to cut it.

0:05:32.839 --> 0:05:36.330
<v Speaker 1>Stay with us. More Bloomberg surveillance coming up after this.

0:05:36.350 --> 0:05:47.800
<v Speaker 1>Let's talk about the president then vowing to double the

0:05:47.860 --> 0:05:51.219
<v Speaker 1>automobile tariff on Canadian vehicles and parts starting next year,

0:05:51.400 --> 0:05:54.820
<v Speaker 1>escalating the spiraling trade war between the two economies.

0:05:56.400 --> 0:06:00.710
<v Speaker 5>If President Trump escalates, Canada needs to be ready to

0:06:00.770 --> 0:06:04.320
<v Speaker 5>do the same. Everything needs to be on the table.

0:06:05.140 --> 0:06:08.590
<v Speaker 5>We need to use Canada's many points of leverage to

0:06:08.650 --> 0:06:14.070
<v Speaker 5>create maximum impact, targeting deep red states and making sure

0:06:14.150 --> 0:06:16.969
<v Speaker 5>that America's economy feels the pain.

0:06:17.610 --> 0:06:19.770
<v Speaker 1>To build on this, the former Trump White House trade official,

0:06:19.810 --> 0:06:23.270
<v Speaker 1>Kate Kaloukwitz, writes the following. This marks a considerable setback

0:06:23.510 --> 0:06:27.010
<v Speaker 1>for the U.S.-Canada relationship and creates further uncertainty for the

0:06:27.130 --> 0:06:30.100
<v Speaker 1>USMCA review. Katie joins us now for more. Katie, welcome

0:06:30.120 --> 0:06:31.860
<v Speaker 1>to the program. It's good to see you. Haven't seen

0:06:31.880 --> 0:06:33.840
<v Speaker 1>you in a while. Do you think this is noise

0:06:34.320 --> 0:06:35.500
<v Speaker 1>or do you think this is genuinely news?

0:06:37.190 --> 0:06:39.810
<v Speaker 6>Well, I do think it's news. I think, you know,

0:06:40.170 --> 0:06:42.830
<v Speaker 6>unlike other tariff actions, we have a president who calls

0:06:42.870 --> 0:06:45.900
<v Speaker 6>himself the tariff man. I think actually in this instance,

0:06:46.420 --> 0:06:49.099
<v Speaker 6>he didn't want more tariffs with Canada. We saw a

0:06:49.160 --> 0:06:51.720
<v Speaker 6>lot of developments last week that signaled that we could

0:06:52.250 --> 0:06:55.529
<v Speaker 6>perhaps have seen a real outcome in these negotiations.

0:06:55.670 --> 0:06:56.460
<v Speaker 1>And, you know..

0:06:57.910 --> 0:06:59.890
<v Speaker 6>This is a surprise, I think, to the U.S. side,

0:06:59.930 --> 0:07:05.170
<v Speaker 6>which was prepared to offer Canada real concessions. The Canadians,

0:07:05.250 --> 0:07:08.290
<v Speaker 6>I think, have decided from a domestic political stance that

0:07:08.330 --> 0:07:11.070
<v Speaker 6>it's more important to show some backbone to the United States.

0:07:11.150 --> 0:07:13.560
<v Speaker 6>But I think in reality, the White House was prepared

0:07:13.570 --> 0:07:16.540
<v Speaker 6>to make a deal with Canada. So now we really

0:07:16.620 --> 0:07:19.900
<v Speaker 6>do risk this spiral of which could be a very

0:07:19.960 --> 0:07:22.200
<v Speaker 6>big setback for the relationship, at least.

0:07:22.080 --> 0:07:22.740
<v Speaker 4>In the short term.

0:07:22.780 --> 0:07:25.200
<v Speaker 1>Well, let's deal with the starting point. So 50% sounds

0:07:25.220 --> 0:07:28.500
<v Speaker 1>like a really large number on some goods. How much

0:07:28.540 --> 0:07:31.130
<v Speaker 1>of the trade are we talking about that actually falls

0:07:31.210 --> 0:07:34.930
<v Speaker 1>outside of USMCA is going to see a 50% tariff?

0:07:35.750 --> 0:07:38.450
<v Speaker 6>Well, it's a really good question. And it is, I think,

0:07:38.530 --> 0:07:41.910
<v Speaker 6>the question about the impact of these tariffs. The tariffs

0:07:41.950 --> 0:07:45.530
<v Speaker 6>that the United States has imposed cover roughly 5% of

0:07:45.570 --> 0:07:49.170
<v Speaker 6>bilateral trade. So, we're talking about a relatively small amount

0:07:49.210 --> 0:07:52.910
<v Speaker 6>of trade. The Canadian Prime Minister, of course, has said

0:07:52.930 --> 0:07:55.110
<v Speaker 6>he will hit back dollar for dollar. So, we can

0:07:55.170 --> 0:07:58.410
<v Speaker 6>expect Canadian tariffs to hit $ 20 billion of U.S.

0:07:58.490 --> 0:07:58.810
<v Speaker 4>Trade.

0:07:58.890 --> 0:08:02.040
<v Speaker 6>So, you know, we are tiptoeing toward a trade war.

0:08:02.070 --> 0:08:04.330
<v Speaker 6>This is not a full-blown trade war. And I think

0:08:04.740 --> 0:08:06.780
<v Speaker 6>that's important to remember as we think.

0:08:06.680 --> 0:08:07.500
<v Speaker 1>About the impacts.

0:08:07.960 --> 0:08:08.200
<v Speaker 4>Okay.

0:08:08.380 --> 0:08:10.440
<v Speaker 1>The Treasury Secretary was asked about why it didn't go

0:08:10.480 --> 0:08:12.870
<v Speaker 1>as far as it could go. with sanctions on Iran.

0:08:13.060 --> 0:08:15.170
<v Speaker 1>And his response was, I don't want to blow up

0:08:15.190 --> 0:08:17.790
<v Speaker 1>the financial system. And I wonder if the same applies

0:08:17.830 --> 0:08:21.430
<v Speaker 1>to USMCA. Are they really willing to blow up USMCA

0:08:22.210 --> 0:08:24.350
<v Speaker 1>and blow up some of these industries at the same time?

0:08:25.180 --> 0:08:27.420
<v Speaker 6>I think the answer is no. And I think that

0:08:27.560 --> 0:08:31.840
<v Speaker 6>both sides recognize, despite these very, very strong political tensions,

0:08:32.280 --> 0:08:36.200
<v Speaker 6>how important and integral the US-Canadian economic relationship is to

0:08:36.260 --> 0:08:39.869
<v Speaker 6>both sides. So I think we will continue to tiptoe

0:08:39.950 --> 0:08:43.429
<v Speaker 6>toward a bit more tension between the two sides. But

0:08:43.480 --> 0:08:48.060
<v Speaker 6>I feel relatively strong that USMCA as an entity, as

0:08:48.100 --> 0:08:51.660
<v Speaker 6>a system of rules that really helps the bilateral and

0:08:51.920 --> 0:08:57.020
<v Speaker 6>trilateral relationship with Mexico continue, will remain relatively solid while

0:08:57.070 --> 0:08:59.450
<v Speaker 6>we try to work this out directly with Canada.

0:08:59.590 --> 0:09:00.949
<v Speaker 1>Kate, out of interest, what do you think it will

0:09:00.990 --> 0:09:03.770
<v Speaker 1>come down to? What is Trump Volume 2 unhappy with

0:09:03.809 --> 0:09:06.429
<v Speaker 1>what Trump Volume 1 originally negotiated?

0:09:07.650 --> 0:09:10.130
<v Speaker 6>Well, I think these sectors that you saw the president

0:09:10.190 --> 0:09:13.750
<v Speaker 6>identify in his Truth Social post yesterday are the sector

0:09:13.850 --> 0:09:17.890
<v Speaker 6>of interest, which namely is automobiles. but of course the

0:09:18.220 --> 0:09:21.340
<v Speaker 6>importance as well as some of the medals. The president

0:09:21.380 --> 0:09:24.920
<v Speaker 6>has been very concerned and has articulated a few over

0:09:24.980 --> 0:09:28.640
<v Speaker 6>time that USMCA is fine so long as we don't

0:09:28.720 --> 0:09:32.540
<v Speaker 6>see third parties accessing the United States. So he will

0:09:32.600 --> 0:09:36.179
<v Speaker 6>very much want to tighten what are called content requirements

0:09:36.200 --> 0:09:38.959
<v Speaker 6>so that if a car enters the United States without

0:09:39.000 --> 0:09:41.860
<v Speaker 6>a tariff, it really should be made from parts from

0:09:42.280 --> 0:09:46.140
<v Speaker 6>the North American trading partners, not China. So as we

0:09:46.179 --> 0:09:50.790
<v Speaker 6>move forward, a USMCA agreement really does need to include

0:09:50.830 --> 0:09:54.130
<v Speaker 6>these content requirements to ensure that Canada and Mexico are

0:09:54.150 --> 0:09:56.490
<v Speaker 6>the primary beneficiaries, not third parties.

0:09:57.230 --> 0:10:00.660
<v Speaker 1>Stay with us. More Bloomberg surveillance coming up. after this.

0:10:09.970 --> 0:10:12.280
<v Speaker 1>The next stop for this tech trade, Nvidia. They're looking

0:10:12.300 --> 0:10:14.990
<v Speaker 1>to snap the stock's longest losing streak since 22 before

0:10:15.020 --> 0:10:18.410
<v Speaker 1>reporting earnings tomorrow. Ted Morrison of Baird writing, component growth

0:10:18.450 --> 0:10:21.920
<v Speaker 1>and pricing for AI infrastructure. is inflecting with lead times.

0:10:22.240 --> 0:10:25.380
<v Speaker 1>The street is worried about shortages starting in the fourth

0:10:25.440 --> 0:10:28.110
<v Speaker 1>quarter of this year. Ted joins us now for more. Ted,

0:10:28.120 --> 0:10:28.540
<v Speaker 1>good morning.

0:10:28.590 --> 0:10:28.880
<v Speaker 4>Good morning.

0:10:28.900 --> 0:10:30.170
<v Speaker 1>It's good to see you. So much to talk about.

0:10:30.210 --> 0:10:31.250
<v Speaker 1>Is that a good problem to have?

0:10:31.710 --> 0:10:33.570
<v Speaker 7>It's a great problem to have. I mean, they've got

0:10:33.610 --> 0:10:36.350
<v Speaker 7>pricing leverage and they've got more demand than they can fulfill.

0:10:37.030 --> 0:10:38.330
<v Speaker 7>And I think you're going to see that in the

0:10:38.350 --> 0:10:41.530
<v Speaker 7>NVIDIA report. I mean, Most of the street is above

0:10:41.530 --> 0:10:45.510
<v Speaker 7>92 billion and 209 for EPS. And I think they're

0:10:45.530 --> 0:10:49.579
<v Speaker 7>going to surprise the street on some very robust earnings

0:10:49.640 --> 0:10:50.240
<v Speaker 7>and commentary.

0:10:50.420 --> 0:10:51.959
<v Speaker 1>So should we just reload and get a lot of

0:10:52.120 --> 0:10:52.760
<v Speaker 1>long hardware?

0:10:53.280 --> 0:10:54.400
<v Speaker 4>Well, I think so.

0:10:54.480 --> 0:10:57.120
<v Speaker 7>I mean, what I've seen, and I talk to PMs

0:10:57.200 --> 0:11:00.559
<v Speaker 7>all day, is you've seen sector rotation. If you look

0:11:00.640 --> 0:11:04.510
<v Speaker 7>at energy up 43 percent, health care up That's where

0:11:04.550 --> 0:11:09.449
<v Speaker 7>people are going. And the mutual funds have actually instituted

0:11:09.530 --> 0:11:12.270
<v Speaker 7>a play of sector rotation that's based on inflation. And

0:11:12.309 --> 0:11:17.590
<v Speaker 7>that comes at the expense, unfortunately, of semiconductors and in

0:11:17.929 --> 0:11:20.550
<v Speaker 7>the whole scheme of things with the SOX blowing through

0:11:20.590 --> 0:11:21.710
<v Speaker 7>the 100-day moving average.

0:11:21.910 --> 0:11:23.830
<v Speaker 8>Ted, just how out of the ordinary is that, to

0:11:23.890 --> 0:11:27.359
<v Speaker 8>have mutual funds perhaps this level of activity that you've

0:11:27.380 --> 0:11:29.480
<v Speaker 8>seen in that type of rotation that they've undergone?

0:11:29.500 --> 0:11:32.680
<v Speaker 7>I've been doing this for a couple decades. The turnover

0:11:32.920 --> 0:11:36.339
<v Speaker 7>on the mutual fund side on the trading aspect has

0:11:36.360 --> 0:11:42.929
<v Speaker 7>been very much elevated because they're chasing attribution. Whether, I

0:11:42.950 --> 0:11:45.690
<v Speaker 7>don't care if it's technology or healthcare or whatever, they've

0:11:45.730 --> 0:11:48.550
<v Speaker 7>got to be very aggressive in moving in and out

0:11:48.690 --> 0:11:49.550
<v Speaker 7>of certain sectors.

0:11:49.740 --> 0:11:52.220
<v Speaker 8>What does that mean in terms of what's mispriced in

0:11:52.260 --> 0:11:54.780
<v Speaker 8>this market? If some of it looks more structural, of

0:11:54.820 --> 0:11:57.800
<v Speaker 8>them trying to chase gains and fend off losses, are

0:11:57.820 --> 0:12:01.120
<v Speaker 8>there parts of this market then that look fundamentally mispriced

0:12:01.720 --> 0:12:04.120
<v Speaker 8>because of the behavior of the funds we've seen so

0:12:04.160 --> 0:12:05.120
<v Speaker 8>far in the past few months?

0:12:05.540 --> 0:12:08.320
<v Speaker 7>I think the macro that Navidia is going to talk about,

0:12:09.330 --> 0:12:13.910
<v Speaker 7>you're looking at $ 1. 1 trillion of spend next year.

0:12:14.110 --> 0:12:17.319
<v Speaker 4>That's up 40%. We haven't seen that. That's historic. Well,

0:12:17.340 --> 0:12:19.140
<v Speaker 4>look at this here. That's historic.

0:12:19.220 --> 0:12:22.199
<v Speaker 7>So I think if you look at the AI trade,

0:12:22.220 --> 0:12:24.470
<v Speaker 7>we're going to need a hell of a lot of components.

0:12:24.920 --> 0:12:26.870
<v Speaker 1>I asked you about tech, and quite often you quote

0:12:26.890 --> 0:12:29.309
<v Speaker 1>the bond yield back to me. And it's interesting to

0:12:29.350 --> 0:12:31.730
<v Speaker 1>hear that from a guy who covers tech, to be

0:12:31.770 --> 0:12:34.170
<v Speaker 1>looking at what's happening with fixed income. How important are

0:12:34.190 --> 0:12:36.020
<v Speaker 1>those developments in the Treasury market?

0:12:36.580 --> 0:12:39.480
<v Speaker 7>I think it's very important because when you have to fund,

0:12:39.500 --> 0:12:42.100
<v Speaker 7>look what Broadcom just did, $ 100 billion.

0:12:42.600 --> 0:12:44.459
<v Speaker 4>Look what Alibaba's doing.

0:12:44.780 --> 0:12:48.420
<v Speaker 7>Everybody in the food chain has got to raise hundreds

0:12:48.460 --> 0:12:53.140
<v Speaker 7>of billions of dollars to equate to a $ 1. 1 billion

0:12:53.179 --> 0:12:56.280
<v Speaker 7>spend next year. There's going to have to be funding.

0:12:56.640 --> 0:13:01.569
<v Speaker 7>So with that, I think the cost of capital from

0:13:01.610 --> 0:13:05.150
<v Speaker 7>a return on invested capital is an issue. That's why

0:13:05.190 --> 0:13:08.570
<v Speaker 7>I said I would not be surprised if the 10-year

0:13:08.610 --> 0:13:12.870
<v Speaker 7>goes through 5% because what I see is inflation on

0:13:13.090 --> 0:13:16.280
<v Speaker 7>every single call. Look what NVIDIA just raised prices on,

0:13:16.320 --> 0:13:19.800
<v Speaker 7>Vera Rubin, by 15% to 17%.

0:13:20.420 --> 0:13:21.000
<v Speaker 4>It's everywhere.

0:13:21.660 --> 0:13:25.040
<v Speaker 1>Treasuries have repriced. Spreads are still tight. On a single-name

0:13:25.080 --> 0:13:28.100
<v Speaker 1>basis within credit, you have started to see some pushback.

0:13:28.240 --> 0:13:30.410
<v Speaker 1>Let's call it that. Do you expect to see more pushback?

0:13:31.790 --> 0:13:36.410
<v Speaker 7>Listen, I'm a tech guy, so I'll watch the Treasury

0:13:36.470 --> 0:13:40.490
<v Speaker 7>moves and the 30 and 10-year. I try to just

0:13:40.830 --> 0:13:44.470
<v Speaker 7>focus on the fundamentals in tech, and they are robust.

0:13:44.790 --> 0:13:46.910
<v Speaker 7>And quite frankly, I would not be surprised if you

0:13:46.950 --> 0:13:48.370
<v Speaker 7>see a snapback in the stocks.

0:13:48.450 --> 0:13:50.960
<v Speaker 1>We're just trying to work out whether the CapEx cycle,

0:13:51.000 --> 0:13:54.460
<v Speaker 1>which is increasingly funded by the debt market, is going

0:13:54.480 --> 0:13:57.099
<v Speaker 1>to be compromised or undermined by what's happening in the

0:13:57.140 --> 0:13:59.620
<v Speaker 1>treasury market. And that has powered the profit cycle to

0:13:59.660 --> 0:14:00.949
<v Speaker 1>some extent through this year too.

0:14:01.330 --> 0:14:04.450
<v Speaker 7>There's a new dynamic. And the new dynamic is political.

0:14:05.050 --> 0:14:08.680
<v Speaker 7>And that's the midterms. And that's what people are really

0:14:08.720 --> 0:14:12.360
<v Speaker 7>worried about on data center, not in my backyard. So

0:14:12.660 --> 0:14:17.410
<v Speaker 7>if the Trump administration loses control of both Congress and

0:14:17.450 --> 0:14:17.929
<v Speaker 7>the Senate.

0:14:17.950 --> 0:14:19.590
<v Speaker 1>So just to jump in, the constraint won't be the

0:14:19.610 --> 0:14:21.570
<v Speaker 1>cost of capital. The constraint might be the politics.

0:14:21.810 --> 0:14:21.989
<v Speaker 8>Yeah.

0:14:22.770 --> 0:14:25.270
<v Speaker 7>And they, quite frankly, I think they're living on a

0:14:25.330 --> 0:14:26.740
<v Speaker 7>different planet on reality.

0:14:27.060 --> 0:14:29.840
<v Speaker 8>Well, I had a conversation, I remember, with Brookfield about

0:14:29.860 --> 0:14:32.500
<v Speaker 8>this big energy project they did. And they specifically did

0:14:32.520 --> 0:14:34.680
<v Speaker 8>it on federal land. And I asked them, is that

0:14:34.760 --> 0:14:38.229
<v Speaker 8>a coincidence? And basically the answer was no. Is there

0:14:38.310 --> 0:14:40.410
<v Speaker 8>enough support they can get from the federal government to

0:14:40.430 --> 0:14:43.350
<v Speaker 8>get around this? Or are localities pushing back enough to

0:14:43.390 --> 0:14:46.540
<v Speaker 8>derail this project of capital expenditures and data center construction

0:14:46.560 --> 0:14:47.300
<v Speaker 8>that they're undergoing?

0:14:47.320 --> 0:14:47.500
<v Speaker 2>Yeah.

0:14:47.860 --> 0:14:52.500
<v Speaker 7>I think the whole political stuff is pretty much noise.

0:14:52.920 --> 0:14:55.480
<v Speaker 7>I think we're very myopically focused on the U.S.

0:14:55.640 --> 0:14:55.920
<v Speaker 4>Only.

0:14:56.660 --> 0:14:59.760
<v Speaker 7>This is a global build. I mean, we haven't even

0:14:59.840 --> 0:15:02.630
<v Speaker 7>started with sovereign builds yet. Look what's happened in the

0:15:02.670 --> 0:15:07.090
<v Speaker 7>Middle East. I mean, they've got more free cash flow

0:15:07.130 --> 0:15:11.110
<v Speaker 7>from oil than if this conflict would ever be rectified.

0:15:11.530 --> 0:15:13.290
<v Speaker 7>They're going to build, and they're going to build hard

0:15:13.350 --> 0:15:13.710
<v Speaker 7>in AI.

0:15:13.970 --> 0:15:15.030
<v Speaker 1>Ted, I'm going to be honest when you say that.

0:15:15.050 --> 0:15:17.500
<v Speaker 8>What comes to mind is China, a government that can

0:15:17.520 --> 0:15:20.100
<v Speaker 8>have data centers built and not care about what the

0:15:20.140 --> 0:15:23.310
<v Speaker 8>local politics of it might be. Does that also exacerbate

0:15:23.390 --> 0:15:25.550
<v Speaker 8>the arms race going on right now between the U.S.

0:15:25.610 --> 0:15:27.990
<v Speaker 8>and China if China has the advantage of being able

0:15:28.010 --> 0:15:29.000
<v Speaker 8>to build these data centers?

0:15:29.860 --> 0:15:32.780
<v Speaker 7>The biggest thing is access to power, and China's way

0:15:32.840 --> 0:15:38.550
<v Speaker 7>ahead of the U.S., and that's our Achilles heel, is regulatory.

0:15:38.090 --> 0:15:40.230
<v Speaker 4>And political shenanigans.

0:15:40.650 --> 0:15:42.770
<v Speaker 1>Have your PMs had a summer? Are they rested?

0:15:43.290 --> 0:15:44.640
<v Speaker 4>No, I haven't taken any time off.

0:15:44.660 --> 0:15:45.560
<v Speaker 1>It's been brutal, hasn't it?

0:15:45.580 --> 0:15:47.120
<v Speaker 4>It has been absolutely brutal.

0:15:47.180 --> 0:15:49.420
<v Speaker 1>What's changed? What makes this so different?

0:15:50.600 --> 0:15:53.940
<v Speaker 7>I think that if you look at a portfolio manager,

0:15:54.180 --> 0:15:56.420
<v Speaker 7>both from the hedge fund and the mutual fund, they

0:15:56.460 --> 0:16:00.150
<v Speaker 7>have different models, right? And the mutual funds look over

0:16:00.210 --> 0:16:03.430
<v Speaker 7>the long term and the hedge funds are more near term.

0:16:03.970 --> 0:16:07.490
<v Speaker 7>And I think the volatility in certain segments in tech

0:16:07.510 --> 0:16:10.820
<v Speaker 7>has been so dramatic that they cannot take a time off.

0:16:11.600 --> 0:16:13.840
<v Speaker 7>They have to be at their desk and looking at

0:16:13.880 --> 0:16:16.760
<v Speaker 7>their core positions. I mean, look what happened to Optical yesterday.

0:16:17.360 --> 0:16:20.310
<v Speaker 7>I mean, we're going through one of the most defined

0:16:20.430 --> 0:16:24.890
<v Speaker 7>secular moves from copper to optical, and optical just got

0:16:25.030 --> 0:16:29.760
<v Speaker 7>absolutely obliterated yesterday. And nobody can figure it out. So

0:16:30.340 --> 0:16:33.340
<v Speaker 7>that's what they're up against. It's a bad Ouija board

0:16:33.360 --> 0:16:33.900
<v Speaker 7>at this point.

0:16:34.000 --> 0:16:37.380
<v Speaker 1>No rest. No rest at all. This is the Bloomberg

0:16:37.400 --> 0:16:42.030
<v Speaker 1>Surveillance Podcast, bringing you the best in markets, economics, and geopolitics.

0:16:42.390 --> 0:16:44.850
<v Speaker 1>You can watch the show live on Bloomberg TV weekday

0:16:44.870 --> 0:16:48.090
<v Speaker 1>mornings from 6 a.m. to 9 a.m. Eastern. Subscribe to

0:16:48.110 --> 0:16:51.350
<v Speaker 1>the podcast on Apple, Spotify, or anywhere else you listen.

0:16:51.710 --> 0:16:54.210
<v Speaker 1>And as always, on the Bloomberg Terminal and the Bloomberg

0:16:54.230 --> 0:16:54.730
<v Speaker 1>Business App.