WEBVTT - Investor Optimism Rises as Shutdown Deal Appears Close 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business App. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.000 us live on YouTube. 0:00:27.120 --> 0:00:29.360 This is the money Conversation of the day. Tell me 0:00:29.560 --> 0:00:33.520 your shows up with Wealth Consulting Group. But it's got 0:00:33.720 --> 0:00:37.519 a note, a research note with twelve items. Wow, it's 0:00:37.600 --> 0:00:40.839 Bloomberg Surveillance. Tell we don't have time for twelve items. 0:00:41.240 --> 0:00:45.839 Of the twelve items that you mentioned, sentiment, policy, fundamentals, 0:00:46.159 --> 0:00:48.840 which is the one that gloom crew most gets wrong. 0:00:50.000 --> 0:00:52.240 I think it's got to be earnings front and center, 0:00:52.280 --> 0:00:55.160 and I think they're probably more important here Tom than 0:00:55.160 --> 0:01:00.200 they have been given what was a public data out. 0:01:00.240 --> 0:01:03.560 And I have to say technology is leading the charge 0:01:03.600 --> 0:01:06.720 here with the best revenue growth, some of the best 0:01:06.720 --> 0:01:10.520 margins in the market, and the best earnings growth. And 0:01:10.560 --> 0:01:13.120 that's why we're willing to pay a higher multiple for 0:01:13.160 --> 0:01:13.800 these companies. 0:01:14.600 --> 0:01:16.640 Well, we were paying to hire multiple for these companies, 0:01:16.680 --> 0:01:19.200 and that's got a lot of people concerned. Do you 0:01:19.240 --> 0:01:22.480 believe the underlying cash flow and earnings are there to 0:01:22.480 --> 0:01:24.560 support these valuations. 0:01:24.160 --> 0:01:27.440 One hundred percent. And so I think investors, while this 0:01:27.600 --> 0:01:31.920 hopes and dreams are well placed for those very reasons. 0:01:31.959 --> 0:01:35.119 It's all about the quality. And we've talked about this before, Tom. 0:01:35.160 --> 0:01:37.839 I don't think this is an environment where the Bodie 0:01:37.880 --> 0:01:40.480 Marcus Kine text is really going to help you. This 0:01:40.520 --> 0:01:43.200 is the Charles Kindelberger text that you've got to. 0:01:43.240 --> 0:01:46.559 Do stuff to explain to Charles kindelbergers. 0:01:46.640 --> 0:01:53.000 So the late famous economists who penned the book Mania's 0:01:53.040 --> 0:01:56.240 Panics and Crashes. And I think that this, if we're right, 0:01:56.880 --> 0:02:01.600 is the Mania development stage. That's the part of the framework. 0:02:01.760 --> 0:02:05.480 But the fear crew Paul in the research notes structural fear, 0:02:06.360 --> 0:02:10.840 and that crew of legitimate people are worried about the 0:02:10.880 --> 0:02:14.320 back end of the Charles Kindelberger book, which I'm. 0:02:14.200 --> 0:02:17.160 Just googling right now, like the rest of the audience 0:02:17.160 --> 0:02:21.560 out there. Yeah, talk to us about those earnings again, 0:02:21.600 --> 0:02:23.679 and what was your takeaway from this earning sego. We're 0:02:23.720 --> 0:02:25.079 just kind of finishing up here. 0:02:25.200 --> 0:02:27.840 So I mean it depends on what provider you look at. 0:02:27.880 --> 0:02:30.240 We look at all them, fact said is probably top 0:02:30.360 --> 0:02:32.600 top of mind and not here. 0:02:32.520 --> 0:02:33.280 Not at Bloomberg. 0:02:33.320 --> 0:02:35.880 Of course I shouldn't say those things, but we also 0:02:35.919 --> 0:02:39.040 look at Bloomberg as well. We're loyal followers and they're 0:02:39.040 --> 0:02:42.200 coming in better than expected. And I think that speaks 0:02:42.240 --> 0:02:45.840 to the analyst bar which is still structurally too low. 0:02:45.960 --> 0:02:48.800 And so that's why I like to say it's really 0:02:48.840 --> 0:02:52.160 the fundamental tech dominance that is supporting this market here. 0:02:52.400 --> 0:02:54.320 How about this Federal Reserve here? 0:02:54.440 --> 0:02:57.200 We had a FED cutting interest rates in the September meeting, 0:02:57.400 --> 0:02:59.880 but then kind of interjected a little bit of uncertainty 0:03:00.400 --> 0:03:03.519 to December. Do you care about timing when these rates pets? 0:03:03.560 --> 0:03:05.679 Are you happy just to say I know my FED 0:03:05.760 --> 0:03:07.920 is cutting rates? Are that Timing's not as important to me. 0:03:08.160 --> 0:03:08.840 It's a good point. 0:03:08.880 --> 0:03:10.920 So I am more of a directional guy than a 0:03:10.960 --> 0:03:14.840 false precisionist, and so I think that's right to expect 0:03:15.400 --> 0:03:16.720 probably another cut this year. 0:03:17.520 --> 0:03:19.080 Of the sixty five. 0:03:18.960 --> 0:03:22.000 Percent that are in that camp, I would be among them. 0:03:22.040 --> 0:03:25.640 And I think what's supporting another cut before we close 0:03:26.160 --> 0:03:30.359 twenty five is the notion that the labor market is weakening. 0:03:30.360 --> 0:03:30.680 Here. 0:03:30.840 --> 0:03:35.760 That's part of the margin story guys powering earnings, but 0:03:35.880 --> 0:03:38.560 also the bond market is telling us the message here 0:03:38.600 --> 0:03:39.840 fed you got to cut. 0:03:40.640 --> 0:03:43.120 How about are there sectors here that screen well for 0:03:43.160 --> 0:03:45.440 you guys, because a lot of stuff's expensive, a lot 0:03:45.480 --> 0:03:46.360 of stuff is lagged. 0:03:46.400 --> 0:03:46.520 You know. 0:03:46.560 --> 0:03:48.400 You look at the four hundred and ninety three names 0:03:48.440 --> 0:03:49.480 the SMP happened. 0:03:49.280 --> 0:03:50.560 There's a lot of laggards there. 0:03:50.800 --> 0:03:51.120 Yeah. 0:03:51.240 --> 0:03:55.480 So generally we have strategically been of the mind that 0:03:55.800 --> 0:03:59.200 we'd be shopping the sales in the pro cyclical economy 0:03:59.640 --> 0:04:02.520 sense of areas of the market, and that's the game 0:04:02.560 --> 0:04:05.760 plan we're sticking to it. Tech is still at the 0:04:05.800 --> 0:04:09.000 top of our list, but we also like old economy industrials, 0:04:09.760 --> 0:04:13.440 materials I think are showing some promise, probably more A 0:04:13.520 --> 0:04:16.400 twenty twenty sixth story at the stage. 0:04:16.360 --> 0:04:20.880 Tell you as you're with us here with Wealth Consulting Group, 0:04:20.920 --> 0:04:25.400 with just a brilliant note pushing back against the gloom crew. 0:04:26.080 --> 0:04:28.680 There's beginning a partition. I felt it this weekend, and 0:04:28.760 --> 0:04:31.039 some of it is the politics of New York City 0:04:31.080 --> 0:04:32.200 and frankly the nation. 0:04:32.920 --> 0:04:39.039 There's people in stock market prospering and everyone else. Do 0:04:39.120 --> 0:04:44.440 you sense that dichotomy in your practice Wealth Consulting Group? 0:04:44.720 --> 0:04:45.599 Absolutely so. 0:04:45.720 --> 0:04:47.880 I think it's important Tom to your point to parse 0:04:47.960 --> 0:04:51.960 through the consumer sentiment data, and once you do that, 0:04:52.240 --> 0:04:55.719 trend reveals itself and it's really the asset owners, and 0:04:55.760 --> 0:04:59.440 those are the people we do business with, our clients 0:04:59.600 --> 0:05:04.120 that have actually been benefiting from this powerful wealth effect 0:05:04.160 --> 0:05:08.080 and the surge in the stock market. And so I 0:05:08.120 --> 0:05:12.560 think the best strategy here is to participate in these markets. 0:05:12.600 --> 0:05:15.680 Even at these levels. We're at the midpoint between our 0:05:15.720 --> 0:05:18.800 baseline and uber bolish case of seven thousand. I don't 0:05:18.800 --> 0:05:20.799 think we're going to stay down here for that much longer. 0:05:20.800 --> 0:05:21.880 We're probably going to in the year. 0:05:21.880 --> 0:05:25.480 In a high note, alternatives alts as the kids call them, 0:05:25.880 --> 0:05:28.159 hedge funds, private equity, private credit. 0:05:29.120 --> 0:05:31.400 How did they fit in with your discussions with your clients. 0:05:31.880 --> 0:05:37.960 So we do have liquid alternative strategy that serves as 0:05:38.920 --> 0:05:41.479 a kind of non correlated bucket to some of the 0:05:41.520 --> 0:05:44.559 traditional asset classes like stocks and bonds, and they've done 0:05:45.120 --> 0:05:47.960 their job very well this year, and they include things 0:05:48.080 --> 0:05:52.760 like bitcoin and gold and listed infrastructure. We've got an 0:05:52.760 --> 0:05:56.679 absolute return tracker in there as well, and really powered 0:05:56.680 --> 0:05:59.719 through the break in the market back in April and 0:05:59.760 --> 0:06:02.560 have been holding their own And I think it just 0:06:02.640 --> 0:06:06.760 generally tells the story that diversification is really the only relaunch. 0:06:06.839 --> 0:06:07.400 Guys. 0:06:08.160 --> 0:06:10.520 All right, Tally, So, I guess the real question here 0:06:10.560 --> 0:06:12.360 is anything keep you up at night? 0:06:12.640 --> 0:06:14.839 Or is this just cracking along here? 0:06:15.000 --> 0:06:17.520 Well, it was the government shutdown. But guys, I got 0:06:17.520 --> 0:06:19.960 to say, these Bloomberg appearances are the lucky charm for 0:06:20.040 --> 0:06:22.960 markets because here it looks like we're staring at a 0:06:23.040 --> 0:06:25.600 reopening of the government, and I think we rally into 0:06:25.640 --> 0:06:26.000 your end. 0:06:26.720 --> 0:06:28.640 They just told me I can't take off any more 0:06:28.720 --> 0:06:31.480 days to the end of the year. We just keep 0:06:31.520 --> 0:06:34.760 going up. Yep. We protect the copyright of all of 0:06:34.800 --> 0:06:37.880 our guests. Tally Legieri. I can't say enough about his 0:06:38.000 --> 0:06:41.600 research note. Look for that from Wealth Consulting Group or 0:06:41.680 --> 0:06:45.200 he has chief market strategist. Stay with us. More from 0:06:45.240 --> 0:06:47.920 Bloomberg Surveillance coming up after this. 0:06:55.160 --> 0:06:58.720 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:06:58.800 --> 0:07:01.960 weekday afternoons from seven to ten am Eastern Listen on 0:07:02.040 --> 0:07:05.719 Applecarplay and Android Otto with the Bloomberg Business app or 0:07:05.839 --> 0:07:09.240 watch us live on YouTube Blackrock Amanda Line and gets 0:07:09.240 --> 0:07:11.640 to start at on a Monday in a really. 0:07:11.320 --> 0:07:15.680 Important week as well. I don't read your note. I 0:07:15.680 --> 0:07:20.200 did a word search, okay, issuers, issuings and all that. 0:07:20.520 --> 0:07:23.520 I mean, you're so experienced in this before black Rock 0:07:23.560 --> 0:07:25.760 and at black Rock. Are we going to get a 0:07:25.840 --> 0:07:30.040 tsunami of billions of dollars of debt being issued? 0:07:30.200 --> 0:07:32.560 Good morning, Thank you for having me, I would say, Tom, 0:07:32.560 --> 0:07:33.240 it's a great question. 0:07:33.280 --> 0:07:34.840 It's kind of already in process. 0:07:35.280 --> 0:07:38.680 Twenty twenty five is on pace to set the most 0:07:38.720 --> 0:07:41.880 active year since the pandemic era boom of twenty twenty, 0:07:41.920 --> 0:07:44.800 which was just off the charts almost two trillion of 0:07:44.920 --> 0:07:48.280 USIG issuance. I think what's more notable to us outside 0:07:48.280 --> 0:07:51.040 of the robust headline figure has been the sector composition. 0:07:51.360 --> 0:07:54.200 We've seen sectors that historically have contributed a lot of 0:07:54.200 --> 0:07:56.880 issues like healthcare kind of pair back a bit, and 0:07:57.000 --> 0:08:00.280 tech has been off the charts in terms of jenating 0:08:00.280 --> 0:08:02.200 a new record, and that's something that's been notable. 0:08:02.480 --> 0:08:05.600 We don't talk about it, folks, but it's prodigious Villanova 0:08:05.640 --> 0:08:09.520 accounting abilities, price, Waterhouse whatever. I don't know what vintage 0:08:09.600 --> 0:08:12.200 they were. Then you know it's like Ernst and winning 0:08:12.320 --> 0:08:14.760 the old Nets I go, and then Golden Sex and 0:08:14.800 --> 0:08:17.680 now with Blackrock. I mean, you're incredibly steeped in this, 0:08:18.480 --> 0:08:24.040 can you, under Merton Mdigliani, can big tech substitute equity 0:08:24.040 --> 0:08:28.200 issue ins and equity excitement by putting out debt? How 0:08:28.240 --> 0:08:29.360 do you treat their debt? 0:08:29.520 --> 0:08:31.679 So I think there are two things to consider. 0:08:31.760 --> 0:08:34.520 One is a lot of these companies are still in 0:08:34.240 --> 0:08:37.480 a net cash position, which is important. So they're adding 0:08:37.520 --> 0:08:40.240 debt to their capital structure, but their leverage is still 0:08:40.280 --> 0:08:42.599 incredibly low because they have all of this cash on 0:08:42.640 --> 0:08:45.360 their baland yet the question is why that's left over 0:08:45.400 --> 0:08:48.840 from the pre twenty seventeen era when cash was generated 0:08:48.840 --> 0:08:51.080 overseas and then it needed to be taxed to be 0:08:51.200 --> 0:08:54.640 repatriated back to the US. So there's still some cash 0:08:54.679 --> 0:08:57.520 over there, is the point. The second point is that 0:08:57.960 --> 0:09:00.480 there's a bit of an upper bound to how big 0:09:00.520 --> 0:09:03.840 these capital structures can get. So in our note, which 0:09:04.400 --> 0:09:07.160 you know we outline, we estimate that if you look 0:09:07.160 --> 0:09:10.520 at just like the mag seven X Tesla, so removing autos, 0:09:10.800 --> 0:09:15.120 there's probably an incremental four hundred billion plus of incremental 0:09:15.160 --> 0:09:17.640 debt capacity if you just increase the gross leverage by 0:09:17.640 --> 0:09:20.840 half a turn, really modest, that's a really large number. 0:09:21.000 --> 0:09:23.120 But we don't expect that to be utilized because these 0:09:23.120 --> 0:09:26.440 capital structures we think cannot get that large, and also 0:09:26.520 --> 0:09:29.240 that deck capacity will just be used gradually over time 0:09:29.280 --> 0:09:30.600 for strategic opportunities. 0:09:30.720 --> 0:09:33.640 This is what surveillance is about, folks. What you just heard. 0:09:33.720 --> 0:09:37.640 There is a window and do a two pm meeting 0:09:38.280 --> 0:09:42.320 at Blackrock with fourteen animals in the room and Amanda 0:09:42.400 --> 0:09:46.120 begins to discuss and everybody takes notes. It's about their 0:09:46.160 --> 0:09:48.720 ability and this is a Richard Berning word from Morgan 0:09:48.800 --> 0:09:53.520 Stanley years ago. It's the fact that they can leverage 0:09:53.600 --> 0:09:57.880 that's on the income statement. They can leverage to greater profits. 0:09:57.880 --> 0:10:01.120 There's right plenty of balance sheet capacity, even in some 0:10:01.160 --> 0:10:03.560 cases within the construct of the current debt rating, which 0:10:03.600 --> 0:10:05.680 is at the very high end of investment grade, to 0:10:05.760 --> 0:10:08.800 add debt to the capital structure. Our view is that 0:10:09.200 --> 0:10:10.920 this reminds me actually a lot of when I covered 0:10:10.920 --> 0:10:13.720 pharma in two thousand and nine. There was a wave 0:10:13.760 --> 0:10:16.800 of m and A as pharma combined with biotech and 0:10:16.880 --> 0:10:19.440 CFOs and treasurers made the conscious decision to take a 0:10:19.440 --> 0:10:21.920 couple of notches of downgrade to their debt rating. They 0:10:21.920 --> 0:10:25.120 stayed comfortably within investment grade, but they added some debt 0:10:25.120 --> 0:10:26.000 to the capital structure. 0:10:26.040 --> 0:10:27.760 It reminds me very much of that. 0:10:27.880 --> 0:10:29.959 But what's happening in AI and tech is obviously on 0:10:30.000 --> 0:10:30.960 a much bigger scale. 0:10:31.160 --> 0:10:34.280 Is your market comfortable with the amount of or the 0:10:34.320 --> 0:10:36.200 use of proceeds here the fund AI? 0:10:36.320 --> 0:10:38.720 Because a lot of it's kind of we're not really 0:10:38.760 --> 0:10:39.959 sure what all this. 0:10:42.600 --> 0:10:43.400 Proceeds. 0:10:43.440 --> 0:10:45.960 I would say the short answer is yes. You can 0:10:46.000 --> 0:10:47.880 see that very much in the order books. They're well 0:10:47.880 --> 0:10:50.600 over subscribed relative to the debt deals. The second point 0:10:50.679 --> 0:10:53.280 kind of goes back to the pharma biotech experience I 0:10:53.360 --> 0:10:55.640 was sharing. In some cases, this is a bet on 0:10:55.679 --> 0:10:58.160 the management team and pharma. It's not unusual to have 0:10:58.200 --> 0:11:00.880 a thirty or forty year bond sures well after the 0:11:00.880 --> 0:11:03.920 patent expires. In some cases, companies are betting on drug 0:11:03.960 --> 0:11:06.959 discovery that hasn't materialized yet. So in many cases it's 0:11:06.960 --> 0:11:08.680 a bet on the management team in the industry to 0:11:08.720 --> 0:11:10.480 figure it out. I think there's still a lot of 0:11:10.480 --> 0:11:13.800 open questions about who will benefit most, what's the ultimate spending, 0:11:13.880 --> 0:11:16.440 what's the timeline. But it's very clear that there's a 0:11:16.480 --> 0:11:18.840 shortage of computing power and there's a lot. 0:11:18.679 --> 0:11:22.240 Of needs for this absent to tech names that tech 0:11:22.280 --> 0:11:25.240 sector how's a credit quality just in the investment grade 0:11:25.880 --> 0:11:26.640 area these days? 0:11:26.720 --> 0:11:30.120 Sure, so half of the IG market is triple B, right, 0:11:30.160 --> 0:11:33.640 so still really solid credit metrics. Actually, we were talking 0:11:33.640 --> 0:11:35.800 about kind of all all of the newsflow and what's 0:11:35.920 --> 0:11:36.679 changed over. 0:11:36.520 --> 0:11:37.520 The past few months. 0:11:37.600 --> 0:11:40.679 One thing that stayed the same is actually moving selectively 0:11:40.679 --> 0:11:43.079 down in credit quality has been the right outcome double 0:11:43.120 --> 0:11:45.480 b's So the high end of high yield have been 0:11:45.520 --> 0:11:47.760 outperforming the low end of investment grade. 0:11:47.840 --> 0:11:48.120 Okay. 0:11:48.400 --> 0:11:50.240 Part of that is driven by we think we're past 0:11:50.320 --> 0:11:54.120 peak tariff uncertainty, we see scope for growth to reaccelerate. 0:11:54.160 --> 0:11:55.199 At the end of the day, this is. 0:11:55.160 --> 0:11:57.320 Just a growth sensitive assea class, and we also are 0:11:57.400 --> 0:11:59.560 past the peak head wins on rates, and so we're 0:11:59.600 --> 0:12:01.080 still pret comfortable with that view. 0:12:01.360 --> 0:12:03.240 I want to go back to big tech. Okay, let's 0:12:03.240 --> 0:12:06.120 pick it. Let's pick a small company like Microsoft. They 0:12:06.120 --> 0:12:09.880 have tons of ability to issue debt. You see no 0:12:10.200 --> 0:12:14.800 threat to their build of cash or the fortress balance 0:12:14.840 --> 0:12:15.640 sheet that they have. 0:12:15.720 --> 0:12:18.840 So leaving single names aside, I think there are a 0:12:18.840 --> 0:12:21.440 couple There are a couple of There are a couple 0:12:21.520 --> 0:12:23.600 of tail ones at play. One is a bunch of 0:12:23.640 --> 0:12:26.040 these companies just want to get to a net cash 0:12:26.360 --> 0:12:28.160 neutral position versus their debt. 0:12:28.280 --> 0:12:29.280 Catch it up with Apple Lot. 0:12:29.440 --> 0:12:30.559 So that's been in. 0:12:30.480 --> 0:12:31.960 Place for a couple of years for some of these 0:12:32.000 --> 0:12:34.280 big names, and so I would say over time we 0:12:34.280 --> 0:12:37.120 should expect those cash balances to decline slightly, but they'll 0:12:37.120 --> 0:12:40.319 still hold larger cash balances I think relative to most sectors. 0:12:40.360 --> 0:12:41.960 Just the cash generation warrants it. 0:12:42.440 --> 0:12:44.960 The second is is that there is some scope probably 0:12:44.960 --> 0:12:47.319 for ratings to drift lower, but we're starting from an 0:12:47.320 --> 0:12:50.680 exceptionally high level double a territory for most of these companies, 0:12:51.200 --> 0:12:53.480 and so really their cost of capital is not that 0:12:53.600 --> 0:12:55.360 much more onerous if they took a couple of not 0:12:55.440 --> 0:12:55.960 just down grades. 0:12:56.000 --> 0:12:58.280 Again, I want to emphasize we don't expect that. 0:12:58.320 --> 0:13:00.880 Capacity to be used in the near term, selectively and 0:13:00.920 --> 0:13:03.760 gradually for strategic opportunities for premier mortals out. 0:13:03.600 --> 0:13:06.199 There who don't understand leverage and all the other fancy 0:13:06.280 --> 0:13:08.840 jargon you're giving us. Is next year a year to 0:13:08.880 --> 0:13:11.360 clip coupons or for total return. 0:13:11.600 --> 0:13:14.480 I think it's still to clip the coupons because tom 0:13:14.559 --> 0:13:17.200 spreads at high yield, for example, still really tight below 0:13:17.240 --> 0:13:20.120 three hundred basis points. So if we start twenty twenty six. 0:13:20.160 --> 0:13:22.280 Anywhere in the vicinity where we are now, there's just 0:13:22.320 --> 0:13:24.880 not a lot of room for spreads to move materially lower, 0:13:24.960 --> 0:13:26.520 and we don't expect rates to move. 0:13:26.360 --> 0:13:28.319 Materially lower either. So it will be about a yield 0:13:28.320 --> 0:13:29.359 and income story. 0:13:29.120 --> 0:13:31.400 From do the beasts like you at black Rock? Do 0:13:31.440 --> 0:13:33.760 you talk to the full faith and credit people or 0:13:33.800 --> 0:13:35.920 do you just hate each other across the right? 0:13:36.000 --> 0:13:38.439 No, of course, I think the information flow in an 0:13:38.480 --> 0:13:40.320 environment like this that's so dynamic. I would add our 0:13:40.320 --> 0:13:42.360 equity colleagues to that afore next day. 0:13:45.040 --> 0:13:46.880 I think we we. 0:13:47.280 --> 0:13:49.600 I think sharing information is the way to actually have 0:13:49.640 --> 0:13:50.400 a competitive ad mission. 0:13:50.440 --> 0:13:53.760 She nailed That means still it's great. I'm gone them. 0:13:54.200 --> 0:13:57.520 That was amazing brief, folks. Seriously, folks, an amazing brief 0:13:57.559 --> 0:14:01.480 there on the MAGS seven debt time build out. Stay 0:14:01.520 --> 0:14:12.480 with us. More from Bloomberg Surveillance coming up after this. 0:14:12.480 --> 0:14:16.360 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:14:16.400 --> 0:14:19.400 starting at seven am Eastern on Apple Coarplay and Android 0:14:19.440 --> 0:14:22.480 Auto with the Bloomberg Business app. You can also listen 0:14:22.560 --> 0:14:25.840 live on Amazon Alexa from our flagship New York station 0:14:26.360 --> 0:14:29.840 Just say, Alexa play Bloomberg eleven thirty joining us. 0:14:29.720 --> 0:14:33.080 Now Liverpool corresponding Greg battle with BMP Perry. But let's 0:14:33.080 --> 0:14:35.960 do this first. Are you kidding me? Man City has 0:14:36.000 --> 0:14:39.200 been flat out dead and they whooped him three nothing 0:14:39.280 --> 0:14:40.800 this weekend. What happened? 0:14:41.160 --> 0:14:44.040 It was turbulence. We've seen some turbulence in the market 0:14:44.040 --> 0:14:46.440 and I would consider this pocket of turbulence and not 0:14:46.480 --> 0:14:47.680 something to read too much into. 0:14:48.160 --> 0:14:50.880 What is it like being a Liverpool fan knowing that 0:14:50.960 --> 0:14:54.440 they like the Red Sox or the Pittsburgh Penguins more 0:14:54.480 --> 0:14:56.960 than they like Liverpool? Do you feel like this American 0:14:56.960 --> 0:14:59.160 ownership is like too far away? 0:15:00.000 --> 0:15:01.360 It is a little bit of an issue. It is 0:15:01.360 --> 0:15:03.120 a little bit of an issue. Obviously, we get the 0:15:03.120 --> 0:15:06.320 World Cup here in next summer, so maybe that will 0:15:06.360 --> 0:15:09.880 help the americanization of the game and increase the atally. 0:15:09.640 --> 0:15:11.560 Ask a question for nine to two nine FM up 0:15:11.560 --> 0:15:14.720 in Boston. Good morning to Fenway Sports Group. Let's get 0:15:14.720 --> 0:15:17.000 to a Greg Bottle where us the VMP parabout with 0:15:17.080 --> 0:15:21.640 an absolutely spectacular note and basically your notes through all 0:15:21.680 --> 0:15:24.600 your derivative expertise says go along. 0:15:25.080 --> 0:15:28.120 Why Well, essentially, what we've seen is this kind of 0:15:28.160 --> 0:15:30.720 pocket of turbulence the last couple of weeks. Government shut 0:15:30.720 --> 0:15:32.320 down has been a part of it. Part of it, 0:15:32.400 --> 0:15:34.680 we think is kind of positioning led that the market 0:15:34.680 --> 0:15:37.560 got a bit of ahead of itself in September with 0:15:37.640 --> 0:15:40.840 this kind of real reach for upside, this exuberant rally. 0:15:41.200 --> 0:15:43.200 But what we've seen over the last say three or 0:15:43.200 --> 0:15:46.280 four weeks is a pullback inequities, pick up in volatility 0:15:46.560 --> 0:15:48.680 at a time when the news flow that we have had, 0:15:48.720 --> 0:15:50.359 the bottom up news blow has actually. 0:15:50.120 --> 0:15:50.720 Been very strong. 0:15:51.800 --> 0:15:52.240 Earnings. 0:15:52.280 --> 0:15:54.520 We've just been through kind of the vast majority of earnings. 0:15:54.520 --> 0:15:56.520 Were they good enough for this market? With a good 0:15:56.560 --> 0:15:58.040 enough for you and your call on this market? 0:15:58.120 --> 0:15:59.840 Yeah, I think they were a really good earning season. 0:15:59.880 --> 0:16:02.200 And you can start with the large cap tech and 0:16:02.240 --> 0:16:03.800 I think one of the best ways to look at 0:16:03.920 --> 0:16:07.200 the lens of earnings and distill the information is what 0:16:07.880 --> 0:16:10.720 did all the analysts do that cover the stocks with 0:16:10.840 --> 0:16:13.400 next year's numbers? And they took all of those numbers higher. 0:16:14.040 --> 0:16:16.880 So they digested that news from the calls, from the releases, 0:16:16.960 --> 0:16:18.160 and they increased their forecast. 0:16:18.440 --> 0:16:20.800 Is it too early to do jargon alert? No jargon 0:16:20.840 --> 0:16:23.960 alert with Greg Bodle BMP Perry bout what in God's 0:16:24.080 --> 0:16:26.920 name is cleaner positioning? Cleaner positioning? 0:16:26.960 --> 0:16:30.440 So we track equity positioning the different various buyers and sellers, 0:16:30.440 --> 0:16:32.920 and some of those are pretty predictable, particularly some of 0:16:32.960 --> 0:16:35.440 the systematics strategies. So you have things like CTA is 0:16:35.600 --> 0:16:40.440 essentially trend following systematics. You have things like Volatility Target portfolios. 0:16:40.440 --> 0:16:43.320 They target the volatility of a portfolio, and these flows 0:16:43.320 --> 0:16:46.360 are quite predictable. And what we saw three weeks or 0:16:46.360 --> 0:16:48.560 so ago is that they were as extended as they 0:16:48.600 --> 0:16:50.960 have been as long US equities as they have been 0:16:51.000 --> 0:16:53.680 in the last five years. So it wasn't necessarily surprising 0:16:53.680 --> 0:16:56.200 that we saw some selling flows from that pocket get 0:16:56.320 --> 0:16:57.240 when the market corrected. 0:16:57.480 --> 0:16:59.040 Overall, we're in neutral territory. 0:16:59.080 --> 0:17:02.600 So our positioning indicator peaked at eighty three three weeks ago. 0:17:02.640 --> 0:17:04.800 That was a year to date high. It's come back 0:17:05.000 --> 0:17:07.200 just below fifty. That's neutral territory. 0:17:07.240 --> 0:17:09.600 How do you measure short squeeze when there's so much 0:17:09.640 --> 0:17:12.320 gloom out there? Oops are going the wrong way, they 0:17:12.359 --> 0:17:14.920 repair the trays and up, up we go with convexity. 0:17:15.400 --> 0:17:17.399 Can you measure a short squeeze at B and B 0:17:17.520 --> 0:17:18.320 pair about Yeah. 0:17:18.359 --> 0:17:21.679 So we have a particular strand of our indicator that 0:17:21.920 --> 0:17:25.080 is directed to do specifically that it looks at both 0:17:25.119 --> 0:17:27.840 the absolute level of short interest in stocks, but also 0:17:27.880 --> 0:17:30.840 looks at the relative performance the most shorted stocks. And 0:17:30.840 --> 0:17:33.399 what we saw was that those names massively performed in 0:17:33.400 --> 0:17:35.879 that squeeze in September. That's been a really what I 0:17:36.000 --> 0:17:38.720 consider again healthy correction in those names last couple weeks. 0:17:39.160 --> 0:17:43.560 Arguably a valuable concern about this market is the concentration risk. 0:17:43.600 --> 0:17:45.760 And we've been talking about it for two years I 0:17:45.760 --> 0:17:48.600 would say maybe even longer it does. It seem to 0:17:48.880 --> 0:17:52.280 necessarily be a problem for SAE at the index level. 0:17:52.320 --> 0:17:53.960 But how do you guys think about that? Do you 0:17:54.000 --> 0:17:55.320 try to hedge it a little bit? Do you just 0:17:55.400 --> 0:17:56.160 let it ride? 0:17:56.600 --> 0:17:59.480 I think fundamentally we could be in a cycle where 0:17:59.520 --> 0:18:02.760 with full to take concentration risk, if you have avoided 0:18:02.800 --> 0:18:05.159 those relative winners in the early parts of the cycle, 0:18:05.160 --> 0:18:07.880 it would have been obviously very problematic. So as this 0:18:08.000 --> 0:18:11.280 kind of structural bull story around AI continues, there is 0:18:11.359 --> 0:18:14.119 undoubted to be going to be concentration within that industry, 0:18:14.160 --> 0:18:16.800 and that's invariably going to translate into the market. So 0:18:16.800 --> 0:18:18.159 I think it's something that we have to learn to 0:18:18.200 --> 0:18:19.120 live with rather than avoid. 0:18:19.880 --> 0:18:23.119 Other than those big tech names that again have performed 0:18:23.160 --> 0:18:25.520 so well. Are there other sectors that you guys like 0:18:25.560 --> 0:18:27.959 at this time or is there a factor out there 0:18:28.040 --> 0:18:28.920 that screams wall. 0:18:29.000 --> 0:18:30.640 I guess there's two things that we would look at. 0:18:30.640 --> 0:18:32.720 One is probably a little bit more medium term. That's 0:18:32.720 --> 0:18:35.119 looking at the industrials. We think we saw some pretty 0:18:35.119 --> 0:18:39.000 good earnings from the cyclical sectors this past Q three. 0:18:39.080 --> 0:18:40.679 We think there is a CAPEC story as we go 0:18:40.720 --> 0:18:43.720 into next year. If you want something more tactical over 0:18:43.760 --> 0:18:46.240 the next six weeks, we think the retail sector is 0:18:46.240 --> 0:18:47.520 one that's interesting to look at. 0:18:47.640 --> 0:18:49.119 The lot of headwinds for retail. 0:18:49.359 --> 0:18:51.840 There's concerns over the CA shaped economy and what's going 0:18:51.880 --> 0:18:54.320 on with the consumer. But it's a sector that's underperformed 0:18:54.359 --> 0:18:56.240 a lot has been quite bombed out and has a 0:18:56.240 --> 0:18:58.280