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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and a Marie Hortenn. Join us each

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Speaker 2: day for insight from the best in markets, economics, and

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Speaker 2: geopolitics from our global headquarters in New York City. We

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Speaker 2: Bloomberg Terminal and the Bloomberg Business app.

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Speaker 3: Frend Judy of Northwestern Mutual Wealth Management joining us. Now, Brent,

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Speaker 3: what's your first reaction to the CPI print. How much

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Speaker 3: does it color how you see investing next year and

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Speaker 3: the backdrop for the FED.

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Speaker 4: I think it certainly helps the parts of the market

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Speaker 4: that you mentioned before, small caps that have been harmed

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Speaker 4: by higher rates, and so if you think about the

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Speaker 4: economy the past few years, it has certainly been bifurcated,

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Speaker 4: as has the market. It's been narrow both in the

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Speaker 4: economy and the markets where you've had heavy lifting done

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Speaker 4: by a few stocks tied to higher income consumers. And

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Speaker 4: the AI theme I think as you look at twenty

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Speaker 4: twenty six, we do see broadening where you see small

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Speaker 4: caps doing better, where you see the average SMP stock

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Speaker 4: doing better. I think it's a risk management tool, but

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Speaker 4: it's also in twenty twenty six a return enhancement tool,

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Speaker 4: and so that's my first thought. My second thought is

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Speaker 4: what's happening underneath in the economy when you see inflation

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Speaker 4: pull back this much, how the week is actually demand?

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Speaker 4: And you mentioned the labor market, which I think people

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Speaker 4: are giving coastal clear because of non farm payrolls being

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Speaker 4: around sixty thousand, which I remind you they were overstated

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Speaker 4: by seventy thousand in the data going through to March

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Speaker 4: of this year, and the thunder Reserve chair Palell mentioned

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Speaker 4: he still thinks they're being overstated by sixty k so

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Speaker 4: they are right around zero, and that's where I think

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Speaker 4: there's some risks still out that are out there.

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Speaker 3: Do you think that the market response that if this

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Speaker 3: gives the green light to cut rates, then that's positive

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Speaker 3: for equities is correct? Or do you think that it's

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Speaker 3: coming more from the labor market weakness that you were

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Speaker 3: just referencing.

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Speaker 4: I think it's positive for a broader set of equities.

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Speaker 4: That's where I think I come back to it. No

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Speaker 4: one knows exactly what's going to happen in the next

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Speaker 4: six months. I think forecasting is always difficult, but there

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Speaker 4: certainly is this odd kind of mix of policy that

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Speaker 4: is out there, and I think you can see that

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Speaker 4: through the Federal Reserve eyes, where if you had all

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Speaker 4: nineteen voters voting, it would have been twelve to seven,

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Speaker 4: and you see those descents, And that's where I just

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Speaker 4: think it's hard to figure out what's going on in

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Speaker 4: the near term. But if I think about the long term,

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Speaker 4: I do want to pay attention to valuation, and that's

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Speaker 4: where I go back to those areas of the market

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Speaker 4: that people have largely ignored. They haven't done as well

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Speaker 4: because of the impact of higher rates. I think, pushing

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Speaker 4: forward in twenty twenty six, you have valuation with you,

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Speaker 4: and you have potentially the impact of rising earnings in

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Speaker 4: those parts of the market for the first time in

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Speaker 4: a few years.

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Speaker 5: Right, let's have some fun here with counterfactuals. You've opened

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Speaker 5: the doors, so I'm going to drive my truck right

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Speaker 5: through it. You know, I'm very curious if we'd gotten

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Speaker 5: these data before the last FED meeting, how that conversation

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Speaker 5: in the Equos building would have been different, if at all.

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Speaker 5: I mean, we talked a lot about this being an

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Speaker 5: insurance cut. There was certainly a lot of questions about

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Speaker 5: whether the FED should move that or wait till January.

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Speaker 5: Do the data that we've got today give you any

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Speaker 5: sense that it would have come the outcome would have

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Speaker 5: been different last week had FED officials gotten them.

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Speaker 4: Potentially, But I don't think people's concerns about inflation longer

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Speaker 4: term are going away. This could be a certainly tied

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Speaker 4: to the government shut down with inflation coming down. It

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Speaker 4: could certainly be tied to labor market weakening. Look, I

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Speaker 4: think inflation is a longer term phenomenon. We have not

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Speaker 4: yet returned to two percent. The FEDS dot plot doesn't

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Speaker 4: show it returning till what twenty twenty eight, which is

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Speaker 4: seven years since. And this is where I think there's

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Speaker 4: concerns about what happens next year when stimulus gets layered, on,

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Speaker 4: what happens next year when we get a new Federal

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Speaker 4: Reserve chairman, and what happens longer term to help pay

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Speaker 4: back some of that debt. And that's just where I

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Speaker 4: think inflation probably still is the longer term outcome, and

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Speaker 4: that's where I think the concern of some of those

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Speaker 4: people on the Federal Reserve would not have gone away.

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Speaker 4: Perhaps you would have swayed one or two more people,

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Speaker 4: but I think there are still legitimate concerns and questions

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Speaker 4: about do we get back to two percent inflation absence

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Speaker 4: some sort of economic contraction in twenty twenty six, which

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Speaker 4: no one is pricing in right now.

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Speaker 6: Brent.

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Speaker 5: The overlay here, of course, is this AI story. We've

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Speaker 5: been tracking that day in and day out, all the

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Speaker 5: ups and downs. Certainly micro on the latest kind of

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Speaker 5: chapter in that narrative, we heard policymakers engaging more with

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Speaker 5: this issue of productivity. What this is going to mean

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Speaker 5: for the economy or could mean for the economy going forward.

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Speaker 5: How are you thinking about that in light of what

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Speaker 5: you're talking about here, the kind of the persistence of

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Speaker 5: inflation into twenty twenty six, the challenges facing this US

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Speaker 5: economy going forward.

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Speaker 4: I mean, we'll see. On the productivity aspect of it,

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Speaker 4: I think companies are still trying to figure out how

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Speaker 4: to use it to increase employees productivity, and I think

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Speaker 4: that's a prime question as you head into twenty twenty six,

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Speaker 4: I think the reality is you are starting to see

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Speaker 4: it move through different parts of the economy. So it

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Speaker 4: started out in the picks and shovels, I guess, and

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Speaker 4: now it's moving along to companies like Micron. I eventually

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Speaker 4: assume it will do much like the Internet did, which

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Speaker 4: has increased the productivity and efficiency of all companies who

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Speaker 4: actually use it. And so that's where I think you've

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Speaker 4: seen winners and losers change. I think you will continue

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Speaker 4: to see that in the future. And that's where I

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Speaker 4: think anyone investing solely in AI right now, we're concentrating

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Speaker 4: their portfolio, and it is taking risks they don't need

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Speaker 4: to be taking. I think there are opportunities as it

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Speaker 4: continues to shift, as it continues to spread through the economy,

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Speaker 4: for those companies and stocks that have previously been left

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Speaker 4: out to start benefiting from it. And that's where you

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Speaker 4: saw this broadening in two thousand through two thousand and seven.

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Speaker 4: That occurred post kind of the concentration in nineteen ninety

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Speaker 4: eight nineteen ninety nine, which is eerily similar to today,

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Speaker 4: where a few stocks did the heavy lifting for a

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Speaker 4: few years, people concentrated in those unfortunately, and then the

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Speaker 4: game change going forward, which I think is what's going

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Speaker 4: to happen as you push forward into twenty twenty six and.

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Speaker 2: Beyond, stay with us Mulblomberg surveillance coming up.

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Speaker 3: Off to this, Eric and a jeriot of Ubs writing

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Speaker 3: Biggs might be more motivated to close larger deals ahead

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Speaker 3: of any potential shift in.

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Speaker 6: Power in Congress.

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Speaker 3: The first half of twenty twenty six could be a

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Speaker 3: robust time for deal announcements. Erica, I'm so pleased to say,

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Speaker 3: joins us now, Erica, great to see you. I'm not

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Speaker 3: saying that open Ai and Vidio are going to merge,

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Speaker 3: but there is this feeling that there is an acceleration

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Speaker 3: in the deal space. Just how much pipeline is there

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Speaker 3: behind that.

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Speaker 6: I think bankers are not going to have a fun

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Speaker 6: Christmas season. I think they're going to be at their

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Speaker 6: desk working because I think twenty twenty six is going

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Speaker 6: to be the year of big you know, you know,

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Speaker 6: I cover banks, so whenever we talk about M and A,

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Speaker 6: we think about regional banks merging for synergies. But given

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Speaker 6: the deregulatory framework, and given that you do have the midterms,

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Speaker 6: a sort of an important waypoint in time. You know,

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Speaker 6: I think you could have banks and other companies across

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Speaker 6: the space really thinking about where their strategic holes are

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Speaker 6: and addressing it that way. So I think it's going

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Speaker 6: to be more than just Okay, we're going to do

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Speaker 6: deals to cut costs. I think they're going to use

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Speaker 6: this as sort of a you know, once in a

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Speaker 6: generation opportunity to redeploy capital in a very specific strategic way.

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Speaker 7: So because a lot of the deals we've seen have

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Speaker 7: been really big, I mean, whether it be an IPOs,

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Speaker 7: the medline IPO coming on the market earlier this year,

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Speaker 7: with EA, the huge amount of numbers that are being

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Speaker 7: put to that, whatever is going to happen with Warner

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Speaker 7: Brothers Discovery. Maybe we add that in that whole hot

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Speaker 7: mess of potato in with that too. How much of

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Speaker 7: this and the resurgence of deals are about big size

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Speaker 7: deals versus volume of deals.

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Speaker 6: I think you could get both right. So, first of all,

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Speaker 6: the sponsors haven't really you know, exited much, so we're

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Speaker 6: waiting for that. You know, the market is at all

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Speaker 6: time highs, breads are at all time tights, so it

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Speaker 6: feels like now is the time and I was here

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Speaker 6: last week when I had this analogy that this administration

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Speaker 6: was going to put lipstick and contour on this economy

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Speaker 6: to get it through the finish line for you know,

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Speaker 6: to you know, through the November, you know, midterms, right,

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Speaker 6: and so you could have sort of also a macro

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Speaker 6: backdrop and maybe we get one or two rate cuts.

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Speaker 6: That's quite favorable for this environment.

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Speaker 7: By the way, can I just say we should only

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Speaker 7: start using makeup metaphors and no more baseball metaphors, no

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Speaker 7: more innings, only lift sick in contour. I'm absolutely on

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Speaker 7: board with that. Erica. How much of this though when

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Speaker 7: it comes to strategics versus private capital, Because to your point,

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Speaker 7: they're still sitting on a lot that they need to exit.

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Speaker 7: Are they willing to take a discount or is the

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Speaker 7: environment gotten so good that things that they may be

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Speaker 7: overspent on twenty one in twenty twenty two they can

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Speaker 7: sell at a price that they agree to.

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Speaker 6: Well, I think you still have a pretty significant valuation disparity,

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Speaker 6: and I think you also have you know, your deployment

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Speaker 6: of capital is not going to be as you know,

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Speaker 6: those investments are not necessarily going to be as good

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Speaker 6: as those that you're trying to exit, right, So I

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Speaker 6: think it's going to be, you know, continuing to be

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Speaker 6: a challenge. But nevertheless, I think in particular, I think

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Speaker 6: the advisory pipeline is going to be is actually quite strong,

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Speaker 6: and you had the government shut down, so the fourth

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Speaker 6: quarter is going to look a little bit light. So

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Speaker 6: that's going to have the effect of pushing a lot

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Speaker 6: of these announcements into the first quarter. And so you're

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Speaker 6: you know, every sort of Sunday evening or Monday morning

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Speaker 6: is going to be boom boom boom in terms of announcement.

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Speaker 6: I think when we kickstart the year.

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Speaker 8: Talk to me a little bit more about the financial

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Speaker 8: m and A on the strategic side, what are the

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Speaker 8: strategic priorities of an M and A for for banks

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Speaker 8: at this point if it's going to happen in the

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Speaker 8: first half of next year.

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Speaker 6: So scale and completeness, okay in my opinion, and additionally

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Speaker 6: an edge in tech. So for example, you know, it's

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Speaker 6: pretty clear that scale is getting to be even more

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Speaker 6: important given the technological demands, the investments that are needed

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Speaker 6: in AI and the like. Right, So that's number one.

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Speaker 6: You know Number two, you know, you work at a

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Speaker 6: company that's very diverse for example, Right. And so the

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Speaker 6: whole idea of a booming money center, complete money center bank,

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Speaker 6: I think is you know, highly subscribed by the market.

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Speaker 6: So let's say you're or an investment bank, maybe you're

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Speaker 6: seeking more of a wealth aspect or you know, wells

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Speaker 6: Fargo you know has you know mentioned potentially expanding in

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Speaker 6: growth areas if it were appropriate. So these are sort

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Speaker 6: of the strategic you know, points that I think are

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Speaker 6: going to be addressed in the new year.

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Speaker 3: A lot of people are very excited about financials at

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Speaker 3: the same time that they're very concerned about some sort

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Speaker 3: of glut and private credit, some sort of excess that

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Speaker 3: could potentially come to roost in twenty twenty six.

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Speaker 6: Is there a dissonance in this the.

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Speaker 3: Idea that people think that there is no credit risk

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Speaker 3: in banks, but there is full credit risk in private credit.

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Speaker 6: You can't have an explosion without getting shrapnel, right, So

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Speaker 6: I would say a couple of things. Number One, everybody

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Speaker 6: is hyped about bank stocks, but bank stocks rarely outperformed

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Speaker 6: the S and P two years in a row. Right.

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Speaker 6: And when it's happened, it's happened on the back of

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Speaker 6: a recovery cycle, right, think GFC or post the dot

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Speaker 6: you know, the dot com bubble, right, So the bar

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Speaker 6: is high. Second, we have to watch this sector rather

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Speaker 6: than just say, okay, there's something you know out there

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Speaker 6: that we have to be nervous about. What do I mean?

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Speaker 6: Is there froth and data centers is their frauth and

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Speaker 6: you know other ads. So it's really a sector issue

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Speaker 6: rather than structure. So really it's going to be you know, right,

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Speaker 6: what the banks have done is they've indirectly lent to

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Speaker 6: financial institutions that then lent to the companies. Right. And

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Speaker 6: we saw in the matter of the you know, First

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Speaker 6: brands for example, that when you have you know, an explosion,

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Speaker 6: you know obviously there's fraud, the banks will catch some shrapnel.

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Speaker 6: So we'll see.

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Speaker 3: Well, Tom toierpoint from this point, I mean, how much

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Speaker 3: are people understating some of the credit risks here given

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Speaker 3: the concerns about the likes of Tricolor, our First Bryant brands.

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Speaker 8: I think what Eric is trying to drive out here

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Speaker 8: too is the important piece of this. It can't be

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Speaker 8: just private credits the issue and not the banks. I mean,

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Speaker 8: let's just acknowledge that up front but as you're moving

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Speaker 8: through this fraud, I think this the way you made

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Speaker 8: the comment about the fraud is when we look back

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Speaker 8: in history, guys, fraud is a bankruptcy. It's not a oh,

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Speaker 8: it's fraud that gets an asterix like we have. If

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Speaker 8: we have these types of problems that are going to surface,

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Speaker 8: I do think the banks will get tied down to that.

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Speaker 8: So maybe Erica last question, as you separate these, which

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Speaker 8: banks are best positioned into twenty twenty six if we

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Speaker 8: were to hit a default cycle, just the well diversified

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Speaker 8: banks or is there something to that were an angle

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Speaker 8: that you focus on.

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Speaker 6: And by the way, it's not a coincidence that Tricol

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Speaker 6: owned First Brands. We're in the same sector, right, So

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Speaker 6: this this goes back to what I was saying. It

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Speaker 6: has to be a sector. Look, I really like Bank

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Speaker 6: of America here, right, So all the things that you know,

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Speaker 6: perhaps was a negative or Bank of America to directly

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Speaker 6: answer your question, not growing as fast as others, you know,

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Speaker 6: being a little bit more conservative in an environment where

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Speaker 6: you know, there's a little bit more uncertainty, and maybe

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Speaker 6: we are just band aiding the ACCO, you know, I

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Speaker 6: think they could potentially perform well, and the valuation is

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Speaker 6: you know, not all that demanding. You know, a company

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Speaker 6: like you know, Capital One. You know that lower end

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Speaker 6: of the K has taken hits already, right. I Mean,

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Speaker 6: we've talked a lot about the K shape economy, but

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Speaker 6: who has been dealing with inflation since twenty twenty one.

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Speaker 6: It's been the lower end of the K. So I

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Speaker 6: think that you know, those two stocks that really well.

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Speaker 2: For twenty six stay with us multile IMPEG. Savannah's coming

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Speaker 2: up off to this.

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Speaker 6: Joining us now.

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Speaker 3: Henrietta Trace, director of Economic policy research at Beta Partners. Henrietta,

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Speaker 3: what was your take from the announcement at the speech

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Speaker 3: last night.

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Speaker 1: Well, it definitely wasn't about the Christmas decorations. Ninety percent

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Speaker 1: of Americans, according to the latest Tspool believe that inflation

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Speaker 1: is the biggest.

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Speaker 6: Problem facing them.

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Speaker 1: And what's a little bit off putting is that the

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Speaker 1: President tauday a lot of data sets that just are

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Speaker 1: not resonating with American voters are factually accurate.

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Speaker 6: So anybody who's.

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Speaker 1: Turned on the news this year has seen AI and

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Speaker 1: data centers driving electricity prices up thirteen percent for residential

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Speaker 1: electricity prices nationwide on average. You know, if you tell

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Speaker 1: me that the cost of drugs is dropping by four

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Speaker 1: or five six hundred percent, which is what the President

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Speaker 1: said last night, that means you're paying me to take drugs.

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Speaker 1: And you don't have to be like good at math

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Speaker 1: and know that.

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Speaker 6: That's not how drugs work.

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Speaker 1: And finally, I would say the eighteen trillion dollar investment

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Speaker 1: that he touted from the trade wars that he's launched

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Speaker 1: and the deals that he's reached is outrageous. I mean,

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Speaker 1: this is like China's entire GDP. So you need to

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Speaker 1: put some things in context that American voters can actually

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Speaker 1: take with them to the grocery store.

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Speaker 6: And that's not what we got last night, Henriette.

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Speaker 7: And just that point, I mentioned this before that Scotland's

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Speaker 7: a comb of Cato Institute was talking about the fact

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Speaker 7: that this is the tenth thing that Trump has promised

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Speaker 7: to fund with tariffs. I'm going to be honest, chat

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Speaker 7: GBT help me with this list, but I was just

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Speaker 7: looking at some of the things that were promised the

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Speaker 7: military checks, tariff dividend, farm aid and targeted bailouts, childcare,

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Speaker 7: social programs, tax cuts or elimination of income tax, foreign

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Speaker 7: or industrial subsidy funds, Henrieta. I know a lot of

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Speaker 7: those are a wishless to Lisa's point versus actual policy.

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Speaker 7: But what happens if he does try to fund some

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Speaker 7: of these with the tariff income? Is that even possible

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Speaker 7: with the amount of money coming in?

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Speaker 6: I mean, first off, find me the votes.

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Speaker 1: If you can find me fifty one votes in the

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Speaker 1: United States Senate for a four hundred and fifty billion dollars,

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Speaker 1: two thousand dollars check to the American public, I would

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Speaker 1: love to see it. I can't count you the votes.

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Speaker 1: I can't get you a reconciliation bill. I can't even

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Speaker 1: get you a budget for physically your twenty twenty six.

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Speaker 1: So the idea of even getting these things through is

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Speaker 1: not realistic. And then the bond market, of course, is

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Speaker 1: counting on this. What CBO estimates is three trillion dollars

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Speaker 1: revenue brought in by these tires over a decade, and

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Speaker 1: we've already spent it.

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Speaker 6: We've more than spent it.

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Speaker 1: It's only been eighty nine billion dollars brought in by

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Speaker 1: the AIPA tires going back to October. So I mean,

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Speaker 1: the money is just not there. And the boats aren't

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Speaker 1: there either.

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Speaker 7: Henrietta, It's a great point. I also want to get

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Speaker 7: back to one of the other things you just mentioned too,

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Speaker 7: this idea of the consumer feeling also the affordability pain

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Speaker 7: of what's happening with their electricity prices. We saw the

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Speaker 7: Blue Owl and Oracle deal. Part of the reason it

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Speaker 7: crumbled was because of the politics in Michigan of lawmakers

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Speaker 7: pushing back against tax subsidies. Earlier in the week, we

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Speaker 7: also heard from Bernie Sanders saying that there needs to

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Speaker 7: be a moratorium on building on data centers, partially because

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Speaker 7: of what you're describing with the prices. Is it likely

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Speaker 7: as affordability becomes a bigger issue that lawmakers will really

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Speaker 7: start to push back against some of the data center

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Speaker 7: construction and spending that is happening in America.

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Speaker 1: Yeah, you can see it all over the place in

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Speaker 1: terms of physical pushback. AOC had some tweets about it yesterday.

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Speaker 1: I saw It's definitely a popular talking point. There's not

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Speaker 1: going to be any legislation to prevent it, so this

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Speaker 1: would have to be active boots on the ground, district led,

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Speaker 1: you know, sort of protests against the construction of new

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Speaker 1: data centers, and they're gonna have to conflict that with

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Speaker 1: the job creation, which in many of these cases is

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Speaker 1: the only job creation that you're seeing in say the

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Speaker 1: manufacturing sector. So it's a it's a pretty heavy lift

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Speaker 1: to get something done legislatively and then certainly to have

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Speaker 1: the protests be maintained in order to actually effectuate those

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Speaker 1: pauses or stoppages.

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Speaker 2: Stay with US, multiple IMPERG surveillance coming up off.

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Speaker 7: To this.

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Speaker 3: Puja Kumra European and UK rate Senior strategy with with

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Speaker 3: CD Securities joining us now for more. Puja, what's your

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Speaker 3: take on this given the fact they did cut rates

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Speaker 3: as widely expected, but what you did see was that

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Speaker 3: fissure increasingly on the committee.

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Speaker 9: Yeah, no, exactly. It's surprising that the committee is still

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Speaker 9: very has seen from the vote as well as when

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Speaker 9: it comes to the guidance, they have not given a

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Speaker 9: clear path with respect to the face of cuts or

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Speaker 9: we know that boees in the upper end of the neutral,

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Speaker 9: which is basically two to three point seventy five, but

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Speaker 9: the guidance around how much below they want to go

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Speaker 9: towards the neutral is really lacking, and I think that

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Speaker 9: has come as a disappointment to markets after yesterday's week

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Speaker 9: CPI print, and that's why you are seeing gilts actually

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Speaker 9: selling off. Even on the budget side, they consider it

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Speaker 9: to add a point or two on growth. On inflation,

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Speaker 9: they are still seeing medium tommentation to increase by zero

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Speaker 9: point one to zero point two. So I think overall

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Speaker 9: the messaging is very mixed. Even if you look at

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Speaker 9: Andrew Bailey's comments here, they are looking at the downward

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Speaker 9: trend on labor market, but they still don't want to

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Speaker 9: overreat into it, and same with inflation, they don't want

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Speaker 9: to overreact into the numbers that we've seen last time.

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Speaker 9: So overall, I would just say that the mixed messaging

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Speaker 9: is something that's not changed. Markets were still worried about

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Speaker 9: the pace of easing by the BOE. You know, markets

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Speaker 9: were pricing around the next cut around April, and the

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Speaker 9: current messaging does not really change that situation.

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Speaker 6: There's just no pace.

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Speaker 9: Or what type of momentum in terms of cuts we'll

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Speaker 9: see from BOE. And it's not been consistent as in

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Speaker 9: the case of FED or in terms of ECB. But

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Speaker 9: I think it's the data that will be speaking and

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Speaker 9: if you do see that inflation and labor market easing.

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Speaker 9: The next cut should be by Q one in our.

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Speaker 7: View and just to the point of the division Pooja

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Speaker 7: in the not clear outlook. Part of the statement was

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Speaker 7: that judgments on fur their easing will become a closer call.

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Speaker 6: How much room is there to.

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Speaker 7: Cut at this moment if the data stays similar to

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Speaker 7: how it is now FOOTUA.

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Speaker 9: So Markets wie again there is not much room within.

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Speaker 9: They're just looking for another cut from the BOE and

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Speaker 9: the timing was around me and I don't think that

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Speaker 9: changes right now to us again, like we also think

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Speaker 9: that BUE definitely has room for one more cut. They

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Speaker 9: will be still in the restrictive stance. If you see,

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Speaker 9: the neutral range for them is as I said, is

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Speaker 9: around two to three point seventy five, so they actually

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Speaker 9: in the upper end of their neutral So there is

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Speaker 9: a lot of room to ease. But the evidence in

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Speaker 9: terms of labor market and inflation has been very slow

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Speaker 9: moving in ukn and that's why they want to keep

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Speaker 9: the pleasing path slower than what should be the case.

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Speaker 9: So we and markets are particularly looking for just one

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Speaker 9: more cut, but I think the risk are for more

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Speaker 9: cuts when it comes to UK.

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