Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordernt. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
Speaker 2: from our global headquarters in New York City. We are
Speaker 2: live on Bloomberg Television weekday mornings from six to nine
Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or
Speaker 2: anywhere else you listen, and as always on the Bloomberg
Speaker 2: Terminal and the Bloomberg Business app. We'll begin this out
Speaker 2: with stocks adding to losses following the NASTAG one hundred's
Speaker 2: biggest two day job since October. Liz Ane Sander's a
Speaker 2: child swap, writing, corllage, and software stocks likely tied to
Speaker 2: the nature of speculation in the AI space headlines and
Speaker 2: even a slight change in the narrative can result in
Speaker 2: fierce moves. Lizan joins us now for more Lizen, we
Speaker 2: have seen some fierce moves, welcome to the program. We've
Speaker 2: seen them in precious metals mass de leveraging there. We
Speaker 2: looked at Bigcoin earlier on this morning. A break is
Speaker 2: seventy thousand software more recently hammered private market firms too.
Speaker 2: Is there a common thread to the deleveraging we've seen
Speaker 2: in each individual pocket of the market.
Speaker 3: Well, I think the deleveraging piece, John is an important
Speaker 3: part of it when you look at how much leverage
Speaker 3: it built into things like the gold trade and the
Speaker 3: silver trade, and then the fact that you had the
Speaker 3: CME raised margin requirements that pushed a lot of speculators
Speaker 3: out fairly quickly. There was deleveraging there. Anytime you have
Speaker 3: margin issues, raising of margin requires margin calls. That has
Speaker 3: feeders into other high momentum areas. I really think one
Speaker 3: of the threads too, is that rotation is the new
Speaker 3: momentum trade. So there's a lot of money positioned to
Speaker 3: find not just the shiny new object, but what's the
Speaker 3: dull new object and kind of chase that rotation. And
Speaker 3: I think we stay in that environment, probably at least
Speaker 3: in the near term.
Speaker 2: How much confidence can we take Lasan to your point
Speaker 2: from the moves we've seen an equal white record high
Speaker 2: regional bank stocks just short of all time highs. How
Speaker 2: much weight can we put on that.
Speaker 3: I think the broadening trade has legs because there's fundamental
Speaker 3: underpinnings to it. It's not just a rotation trade. But
Speaker 3: when you look at the direction of travel, you look
Speaker 3: at the earnings growth rates save for the cohort that
Speaker 3: is the Magnificent seven, and you compare it to the
Speaker 3: other four hundred and ninety three. The growth rate for
Speaker 3: the mag seven is still higher than the other four
Speaker 3: in ninety three, but the direction is what matters, and
Speaker 3: the direction is heading down a bit for the seven,
Speaker 3: up a bit for the four ninety three. You're seeing
Speaker 3: it down the cap space where you've actually got not
Speaker 3: just a positive trajectory in terms of earnings growth at
Speaker 3: higher levels for an index like the Rustle two thousand,
Speaker 3: but a little bit more stability in that outlook as
Speaker 3: opposed to high estimates and then they get pulled down
Speaker 3: when you're in earning season. So I think there are
Speaker 3: fundamental underpinnings the buildout of AI adding to the benefit
Speaker 3: of the more cyclical areas, be it energy or industrials
Speaker 3: and materials. That helps to explain the broadening out trade
Speaker 3: outside of the US, because many of those more cyclical
Speaker 3: areas is what dominate their economies as opposed to tech
Speaker 3: having been the dominant force in our economy. So I
Speaker 3: think it's a meaningful shift that probably will continue.
Speaker 4: Given this meaningful shift that a lot of people are
Speaker 4: pricing into a number of different assets, how do you
Speaker 4: take into consideration announcement like what we got today from Challenger,
Speaker 4: Gray and Christmas with the greatest number of job cut
Speaker 4: announcements in a January going back to two thousand and nine.
Speaker 3: Well, you know, at least you were right to point
Speaker 3: out a little bit earlier that there's a concentration there
Speaker 3: in terms of a small number of companies. But I
Speaker 3: think this is a really well, it's a potentially important
Speaker 3: data point here if it's not a one month blip
Speaker 3: because much has been discussed about the low hiring, low
Speaker 3: firing kind of backdrop. Obviously, ideally if that's going to break,
Speaker 3: it breaks by higher hiring. But if it starts to
Speaker 3: break in the other direction, I think that changes the
Speaker 3: narrative around the employment picture. It may also change the
Speaker 3: narrative as it relates to federal reserve policy. So if
Speaker 3: you wanted to put something on the maybe the bullish
Speaker 3: for the market side of the ledger, you could point
Speaker 3: to that. I think it's too soon to tell. But
Speaker 3: you guys also pointed out earlier that in the absence
Speaker 3: of the jobs report, which of course we'll only get
Speaker 3: we'll only get a few days delayed, we put more weight.
Speaker 3: And when you look at the ADP data too, there
Speaker 3: was meat in there. Smaller companies really under pressure. The
Speaker 3: only place where job growth is robust is in those
Speaker 3: more defensive areas like health services and education, with the
Speaker 3: biggest draw down coming in professional and businesses services. That
Speaker 3: ties into where you're seeing weakness and challenger.
Speaker 4: This seems like a really mundied moment, and I really
Speaker 4: just want to lean into impair this idea with the
Speaker 4: leverage trades that you see unwinding and this comment that
Speaker 4: you made that I think is fantastic, which is rotation
Speaker 4: is a new moment um trade. Do you see a
Speaker 4: potential at which you start to fade some of this
Speaker 4: is broadening out in the near term, not the long term,
Speaker 4: because the momentum gets ahead of itself.
Speaker 5: I mean, is that sort of the.
Speaker 4: Recipe for twenty twenty six is to sort of fade
Speaker 4: the extremes as this rolling ball of cash just keeps
Speaker 4: going to different sectors.
Speaker 3: And I think there's a healthy underpinning. When you have
Speaker 3: when you have sort of excess, get healed evaluation, excess,
Speaker 3: speculation access via a process of rotation. I think that's
Speaker 3: an easier to stomach kind of healing of those excesses
Speaker 3: than if the bottom fell all at once. For instance,
Speaker 3: the Nasdaq at the index level has only had a
Speaker 3: four percent drawdown maximum drawdown so far this year, but
Speaker 3: the average member within the Nasdaq is down just under
Speaker 3: twenty percent, So you've had sort of this internal bear market.
Speaker 3: It just happened and through a process of time. I
Speaker 3: think probably most investors would choose that kind of twenty
Speaker 3: percent draw down versus the index coming down twenty percent
Speaker 3: all at once. So it's painful if you're caught on
Speaker 3: the wrong side of the proverbial trade. But I think
Speaker 3: that's a healthy way to go through a process of
Speaker 3: healing some of this sexcess, particularly on the speculation side.
Speaker 2: Stay with us more Blomberg surveillance coming up after this.
Speaker 3: Plan.
Speaker 2: Campex at Alphabet as much as one hundred and eighty
Speaker 2: five billion dollars this year, so for twenty six that's
Speaker 2: more than the previous three years combined. Who's a help
Speaker 2: in this morning? Chip makers and video, AMD and Broadcom
Speaker 2: looking at cash in and VideA this morning got by
Speaker 2: more than one percent. Joining us now to discuss is
Speaker 2: Chris Casso. It covers semiconductors for Wolf Research. Chris, Welcome
Speaker 2: to the program. Let's talk about where we were yesterday
Speaker 2: before we get to we are this morning. Yesterday, I
Speaker 2: found like at one point that maybe the pain and
Speaker 2: software is beginning to bleed into hardware, into things like
Speaker 2: chips and semi's Chris, how insulted are they from developments elsewhere.
Speaker 1: Well, you know that the pain and software bleeding into
Speaker 1: ships doesn't make a ton of sense to us, because
Speaker 1: the stocks that we cover, the semiconductor stocks, are enabling
Speaker 1: the disruption that that's happening, or you know, as potentially happens. So,
Speaker 1: you know, we've been pretty positive on this, and particularly
Speaker 1: in the part of the space which is underperformed over
Speaker 1: the last six months, which is you know, the the
Speaker 1: chip makers themselves, the in Vidia, A m D, Broadcom.
Speaker 1: What we've seen is the suppliers to the chip makers,
Speaker 1: like memory and semiicap equipment has actually done very well,
Speaker 1: but you know, in Nvidia has underperformed, and that's kind
Speaker 1: of where we've pivoted a bit.
Speaker 2: Now, Chris, when Alphabet comes out and says we're going
Speaker 2: to spend as much as one hundred and eighty five
Speaker 2: billion this year, who gets that money?
Speaker 6: Who wins it?
Speaker 5: Well, broad would be the biggest supplier to Google.
Speaker 1: They do the chip that is Google's TPU chip, which
Speaker 1: is their custom chip for AI.
Speaker 5: So Broadcom is the biggest beneficiary of that.
Speaker 1: But you know, we've also saw a big spending for
Speaker 1: Meta as well last week. This is not just a
Speaker 1: Google trend, this is a this is an overall trend.
Speaker 5: How much does this.
Speaker 4: Really indicate that they're going to be willing I'm talking
Speaker 4: about Meta and Google and others who are the buyers
Speaker 4: of the Nvidia products, of the A M D products.
Speaker 4: How much are they willing to continue paying up? Is
Speaker 4: this a margin story that could potentially be crimping some
Speaker 4: of the dynamism in terms of the share performance?
Speaker 1: Well, you know, I mean, first with regard to the spending,
Speaker 1: there's been concern about can the spending continue, can it
Speaker 1: grow from these levels since you know, really you know,
Speaker 1: twenty twenty three when chet GBT came out and now
Speaker 1: Google is spending you know, more than the entire industry
Speaker 1: did back at that time. So you know, that's one
Speaker 1: part of it. The where I think investors have actually
Speaker 1: been a little more comfortable, and you know, Google's had
Speaker 1: a good run.
Speaker 5: Meta was up on that on that earnings.
Speaker 1: Report despite the big capex is that the customers of
Speaker 1: the companies I cover are actually starting to monetize this now.
Speaker 1: So you're getting some monetization in exchange for that this.
Speaker 5: Very high spending. Uh So, you know, I think the fact.
Speaker 1: That the customers of the companies I cover are actually
Speaker 1: making money on this gives us more confidence that the
Speaker 1: spending will in fact continue.
Speaker 5: How much is.
Speaker 4: Google stealing in video's lunch, especially given the fact that
Speaker 4: the TPU is considered a more efficient way to play
Speaker 4: the AI game for a lot of different customers.
Speaker 1: Well, TPU that that Google provides has been successful for
Speaker 1: some time, and they still buy a lot of Nvidia chips,
Speaker 1: and most of those chips go into their own cloud
Speaker 1: where enterprise customers will come to the Google Cloud and
Speaker 1: they want to use in video. And because in video
Speaker 1: as the industry stands there, Google has to do that.
Speaker 1: Where Google uses TPU more more significantly is in their
Speaker 1: own internal workloads and in that, you know, the way
Speaker 1: we look at the market is that market is considered
Speaker 1: kind of out out of in Vidia's available market. What's
Speaker 1: changed over the last couple of months is that Google
Speaker 1: has also started inviting some customers like Anthropic for example,
Speaker 1: to come onto their cloud and use TPU, which has
Speaker 1: expanded the market some. But in general, our view is
Speaker 1: that the vast majority of this market is still in
Speaker 1: Vidia's domain because it's the most flexible, they have the
Speaker 1: software support. It's very hard for other customers to kind
Speaker 1: of get off of in Vidia. Google is a bit
Speaker 1: of an exception, and it's a big exception, but for
Speaker 1: the most part that this is still going to be
Speaker 1: a majority market for Nvidia.
Speaker 7: Is that going to change though in the future at
Speaker 7: some point where in Vidia's biggest competition is actually going
Speaker 7: to be Google.
Speaker 1: Well, and the question is so who else is Google
Speaker 1: going to be able to sell TPU too? So, you know,
Speaker 1: Google is you know, significant part of the of the market,
Speaker 1: but they will they start selling it to others, and
Speaker 1: our view is that you know, preps some and Anthropic
Speaker 1: deal is one example of that, but Google is not
Speaker 1: likely to sell TPU to Amazon. They're not likely to
Speaker 1: sell it to Microsoft. If you're an enterprise customer doing
Speaker 1: work on even the Google Cloud, you still need in
Speaker 1: VideA because in Vidia has the software support. They support
Speaker 1: all the frameworks. So I think there is a competitive threat.
Speaker 1: I think it's it's baked into the cake right now,
Speaker 1: and I don't think that competitive threat gets much more
Speaker 1: significant now. One of the other factors is that everybody
Speaker 1: else is also trying to do.
Speaker 5: Their own ships.
Speaker 1: Meta has their own chip, Amazon has their own chip,
Speaker 1: and right now, the size of those chips is much.
Speaker 5: Smaller than we're in Vidia and Google is right now.
Speaker 1: If those chips kind of have their TPU moment and
Speaker 1: get larger, then that becomes a bigger threat, but so
Speaker 1: far we haven't seen that.
Speaker 3: Sorry about that.
Speaker 7: So basically, if Google is ahead of Meta and all
Speaker 7: these others that are making TPUs, who do you think
Speaker 7: is the most competition when it comes to Google's who's
Speaker 7: right behind them in the race.
Speaker 1: So you know, probably the other company that's doing their
Speaker 1: own that is probably closest would be Amazon and their
Speaker 1: trainingum ship. And so far it's been, you know, somewhat successful,
Speaker 1: but nowhere near as successful as Google. So I'd say
Speaker 1: that would probably be the next one that we'd be watching.
Speaker 2: Stay with US multilindex, Savanna's coming up off to this
Speaker 2: at Mosa, Ryman James writes in this US eron deal
Speaker 2: making a piss active and since there but the US's
Speaker 2: demands will be a high bar for Tehran, Saclair joins
Speaker 2: us now for more, ED, welcome to the program. Let's
Speaker 2: talk about as US demands, what are they?
Speaker 8: Well, they don't want any reactivation of the nuclear program,
Speaker 8: as Tyler highlighted, can any support for those proxy groups
Speaker 8: President Trump wants kind of essentially probably regime change, which
Speaker 8: is part of the high bar that we think that
Speaker 8: is unable to be cleared here at Raymond James, we consistently.
Speaker 6: Get questions about this.
Speaker 8: But one thing that we have highlighted consistently on a
Speaker 8: lot of these high geopolitical risks out there is that
Speaker 8: they have been coming fast and furious, oftentimes unprecedented, but
Speaker 8: often without a huge market impact. So from a market lens,
Speaker 8: this here kind of is important, but maybe not as
Speaker 8: important as other geopolitical events related to Iran have been
Speaker 8: over the last decade or two.
Speaker 7: ED, what do you think the tolerance the patient has
Speaker 7: the president has right now in terms of how long
Speaker 7: he's willing to let the talks go, because we have
Speaker 7: seen the Iranians change the tenor of the talks and
Speaker 7: also the location of the talks.
Speaker 8: It is I think he's open, but I don't think
Speaker 8: he has a huge tolerance here.
Speaker 6: I think there's two things.
Speaker 8: When we look back to kind of the kind of
Speaker 8: attack on Iran last summer, the President outlined kind of
Speaker 8: some clear issues. He gave a deadline, the deadline passed,
Speaker 8: and he gave the order to strike. I think we
Speaker 8: could see the same thing here, Emory. What I've seen
Speaker 8: consistently from this president though, is that he will only
Speaker 8: strike take a military action if he thinks that he
Speaker 8: can have a quick win as well as the response
Speaker 8: is not going to get him entangled into something deeper.
Speaker 8: And so to me, that's one of the big debates here.
Speaker 8: Is there something that he can do here that he
Speaker 8: views is that quick win that he can send that
Speaker 8: message to the regime, that he can get that activity
Speaker 8: or that response that does not involve the loss of
Speaker 8: US lives.
Speaker 6: If he has that on the table, he absolutely takes that.
Speaker 8: If he doesn't, that's where he might pause and give
Speaker 8: a little bit more way to these talks.
Speaker 7: Well, and what would you characterize as a quick win,
Speaker 7: because the Iranians say that if there is an attack,
Speaker 7: this could be a regional conflict, a bigger one.
Speaker 6: Yeah.
Speaker 8: So I think that the two examples that I would
Speaker 8: give is the kind of the assassination of Sulimany back
Speaker 8: in twenty twenty, where that was a clear, kind of
Speaker 8: concise military action. The attack on the military or on
Speaker 8: the nuclear basis last summer, You could probably kind of
Speaker 8: look to that in a pattern in terms of the
Speaker 8: way in which he was able to capture Maduro without
Speaker 8: the kind of loss of US lives. He looks at
Speaker 8: a lot of these military engagements. Is there something specific
Speaker 8: that is significant but quick that he can do? And
Speaker 8: then we look back to what happened after Sulamani. After
Speaker 8: those nuclear strikes. Aroan did respond, but they responded in
Speaker 8: a way that was not escalatory, in a way that
Speaker 8: was almost symbolic that allowed us to move on. And
Speaker 8: I think that's actually part of the reason why the
Speaker 8: markets have not responded, is they are used to accustom
Speaker 8: to this quick win attitude that Trump takes to some
Speaker 8: of these foreign policy engagements. As long as that stays
Speaker 8: in place, that's where the market does not necessarily react
Speaker 8: to these events just yet.
Speaker 4: We were talking to Terry Haynes yesterday about how this
Speaker 4: is a president who can to gum and walk at
Speaker 4: the same time and deal with international and domestic at
Speaker 4: the same time. The international is just getting more and
Speaker 4: more active even as we focus on some.
Speaker 6: Of these domestic issues.
Speaker 4: We also had that call between Jijinping yesterday and President Trump,
Speaker 4: a number of headlines coming out of it. What did
Speaker 4: you take away from that, This trip by President Trump
Speaker 4: to China and April, then the promise that by the
Speaker 4: end of the year, Xijenping would be coming to the
Speaker 4: White House.
Speaker 8: Yeah, so it's basically our base case. We had last
Speaker 8: year kind of the meeting between Trump and she in
Speaker 8: late October, which laid out kind of these two kind
Speaker 8: of home and away meetings. What we've heard from our
Speaker 8: contacts is that President Trump has sent a message to
Speaker 8: his administration, do not do anything that is seen by
Speaker 8: China as escalatory or punitive to them.
Speaker 6: We look at the tariffs.
Speaker 8: That came out on semiconductors, the tariffs that came out
Speaker 8: on critical and rare earth minerals. Those were essentially a
Speaker 8: punt in the semiconductor tarifs were a punt until April.
Speaker 8: What we expect as these two leaders get together is
Speaker 8: kind of some fan fear, some announcements that sound bigger
Speaker 8: than that they are. But there is generally a desire
Speaker 8: between both Trump and She to contain this relationship because
Speaker 8: they don't want the fight. Because if we look back
Speaker 8: to last year as we entered the year, there was
Speaker 8: a lot of escalation and some of this was mutually
Speaker 8: a short destruction. They don't want to go back to that.
Speaker 8: They don't want to go back to the restrictions on
Speaker 8: rare earth. China doesn't want to go back to some
Speaker 8: of the restrictions we're putting on airplane parts and chemicals
Speaker 8: because both economies cannot work unless the other economy provides
Speaker 8: them with some critical components to their supply chains.
Speaker 4: Does this mean that we can avoid new tariff headlines
Speaker 4: for at least the next four weeks.
Speaker 6: I will never say that.
Speaker 8: Kind of the reality is is that both Trump and
Speaker 8: She like to escalate to de escalate, and so my
Speaker 8: base case as we get closer to those April meetings
Speaker 8: over this next couple of weeks or months is we
Speaker 8: will always have a new tariff headline as a way
Speaker 8: of getting negotiating position. China's actually done this probably better
Speaker 8: than anyone else. As we go back to those October meetings,
Speaker 8: she kind of announced a whole series of new restrictions,
Speaker 8: only to take those off during meetings, and Trump was
Speaker 8: able to say, hey, I got you know, she to
Speaker 8: take all of these things off that he didn't actually
Speaker 8: want to do. He just wanted to have something that
Speaker 8: he could negotiate away. So I'm always telling clients at
Speaker 8: Raymond James watch for that escalation because they want the
Speaker 8: opportunity to de escalate during the meeting and not actually
Speaker 8: give up something, but sound as if they gave up something.
Speaker 2: This is the Bloomberg Survendics podcast, bringing you the best
Speaker 2: in markets, economics, an gio politics. You can watch the
Speaker 2: show live on Bloomberg TV weekday mornings from six am
Speaker 2: to nine am Eastern. Subscribe to the podcast on Apple, Spotify,
Speaker 2: or anywhere else you listen, and as always on the
Speaker 2: Bloomberg Terminal and the Bloomberg Business app.
Speaker 1: Mm hmm