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 Amerie 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.
Speaker 3: The economy very.
Speaker 2: Much in focus investors awaiting the delayed September jobs report
Speaker 2: due out on Thursday. Towson's slock of Apollo making the
Speaker 2: case for a rebound in the economy, writing Liberation Day
Speaker 2: was almost eight months ago. Fiscal and monetary policy are easy,
Speaker 2: and easy financial conditions point to a re acceleration. Tawson
Speaker 2: joins us now for more toast and welcome back, sir.
Speaker 2: Are you expecting to see some of that in the
Speaker 2: September job data or is that too early?
Speaker 4: That is too early, because the risk, of course is
Speaker 4: that in October we had to go home and shut
Speaker 4: down and of course, the chances that that werefore might
Speaker 4: be some weaker data for the month of potentially in
Speaker 4: November also once we do get that. But I do
Speaker 4: expect that once we look into next year, we have
Speaker 4: still relatively easy financial conditions, with of course the stock
Speaker 4: markets some wabbles more recently, but still very supportive. ITG spreads,
Speaker 4: higher spreads, loan spreads very supportive. You also, at the
Speaker 4: same time have that you have tailwinds because deperation days
Speaker 4: now eight months ago. And finally we also have general
Speaker 4: tail wins because we are going into an election gem
Speaker 4: and therefore if we do get the two thousand dollars
Speaker 4: stimulus checks that you just talked about, that will certainly
Speaker 4: also be helpful. So in total, I do think that
Speaker 4: the market is too negative on the economic outlook and
Speaker 4: the risks actually rising that we may have some reacceleration.
Speaker 5: Once we get into twenty twenty six.
Speaker 3: Toston. Is that reacceleration that comes with jobs growth or not.
Speaker 4: I do think that it will come to job growth.
Speaker 4: It is actually very impressive when we think about it
Speaker 4: that over the last eight months, think about what we've
Speaker 4: been through, the shocks that the US economy has been facing,
Speaker 4: not only when it comes to of course trademark, also
Speaker 4: the shocks coming from immigration. And as you just mentioned, Jonathan,
Speaker 4: the non fund payroll equilibrium is now down at fifty thousand,
Speaker 4: accing to the Dallas fit is as low as thirty thousand.
Speaker 4: So therefore the bar has been lowered, and therefore I
Speaker 4: do think that if we get numbers that are in
Speaker 4: that range, then we should look at that and say
Speaker 4: this is exactly where we should be. So in that sense,
Speaker 4: I do think that the economy has been remarkably resilient
Speaker 4: for the last eight months, and I do think that
Speaker 4: as the trademark gets more and more behind us, I do.
Speaker 5: Think that a lot of the fog will be lifting.
Speaker 6: Towardst And to Emory's point earlier, how important are the
Speaker 6: retail earnings this week, the walmarts, the targets, the lows.
Speaker 4: They are very important and they do fit into the
Speaker 4: broader conversation about the k shape recovery. So it is
Speaker 4: still the case that high income households continue to benefit
Speaker 4: from ASER prices having been higher, and of course alsore
Speaker 4: very importantly because the level of yeals is higher. That
Speaker 4: means that not only are high income households benefiting from
Speaker 4: as is going up, but they also benefiting from the
Speaker 4: cash flow they get in fixed income is at the
Speaker 4: highest level in decades, both when it comes to public
Speaker 4: credit but also private credit. So therefore the tailwind through
Speaker 4: high income household continues to be strong. Low income households
Speaker 4: have been suffering from interest rates going up. They've also
Speaker 4: been suffering from weight growth being weaker than what you
Speaker 4: see for high income households. But probably speaking again, with
Speaker 4: job growth still steady and stable, and again the trade
Speaker 4: one certainty more and more behind us, and especially now
Speaker 4: think about the one big bult of a bill. The
Speaker 4: CBO is estimating that that will lift GDP growth next
Speaker 4: year by zero point nine percent. That's a very significant
Speaker 4: tale in for fiscal policy. So all those things combined
Speaker 4: argue for the economy beginning to look better as we
Speaker 4: get into twenty twenty six.
Speaker 1: Interesting.
Speaker 6: Conceivably, this could argue for the Fed not to cut
Speaker 6: race and explains why there has been a more hawkish
Speaker 6: tilt to some of the communication that we've gotten from
Speaker 6: Fed officials recently. What do you think the consequences would
Speaker 6: be if the Fed cuts by another fifty to seventy
Speaker 6: five basis points by mid year next year.
Speaker 4: Oh, that would be very serious, because think about it,
Speaker 4: we already have an outlook. If I time ECFC, go
Speaker 4: on my Bloomberg screen and look at the quarterly profile,
Speaker 4: it is already the case that the consensus expects inflation
Speaker 4: to be three percent for the next eighteen months, while
Speaker 4: at the same time growth is slowing down. So to
Speaker 4: your point here, Lisa, if we now see that growth
Speaker 4: is actually not slowing down and we already have inflation
Speaker 4: at three in a slowdown scenario, the risk is of
Speaker 4: course that inflation could be even higher than three percent,
Speaker 4: So cutting into that would of course be a major mistake.
Speaker 4: So I do think that the risks are rising that
Speaker 4: we are again under estimating that inflation has a lot
Speaker 4: more tailwind over the next slevel quarters.
Speaker 7: With that as a potential backdrop, what would it mean
Speaker 7: that if the government gave everyone two thousand dollars?
Speaker 4: Oh, that of course would provide even more fuel here
Speaker 4: to the economy. So if we already have the one
Speaker 4: big bill for bill, lifting GDP by almost of four
Speaker 4: Percenter's point, we have trade more uncertainty beginning to be
Speaker 4: more behind us.
Speaker 5: If we still have stock prices.
Speaker 4: We are discussing the AI bubble all of us very
Speaker 4: intensely at the moment, but given that there's still tailwind
Speaker 4: in the stock mart that's supporting of course high in
Speaker 4: consumer households in particular, all those things combined, they definitely
Speaker 4: argue that if you send out two thousand dollars checks,
Speaker 4: then you just run the risk that you will overheat
Speaker 4: the economy even more.
Speaker 2: Austin Tilst And then we're introducing a new FED chair
Speaker 2: on top of all of this as well in May
Speaker 2: of next year, and I just want to toast on
Speaker 2: how difficult it is right now to offer any kind
Speaker 2: of outlook on FED policy for next year, including that
Speaker 2: second half of next year, which includes the new FED chair.
Speaker 4: That's right, Jonathan, and that's exactly why I think that
Speaker 4: the firm CEA members are really coming up with quite strong,
Speaker 4: strong voices at the moment. Laurie Logan and first of
Speaker 4: all saying that she did vote for the cut, and
Speaker 4: then subsequently saying well I didn't really want a cut,
Speaker 4: and now also on Friday, it really begins to emphasize
Speaker 4: more that will we still need to get inflation under control,
Speaker 4: and whereas you have of course, other inform C members
Speaker 4: deem be run in particular, of course, saying that we
Speaker 4: should be cutting shol around the later. The dots are
Speaker 4: really moving in very opposite directions here, and it's becoming
Speaker 4: much more outspoken from the firm SEA members what exactly
Speaker 4: that the abuse are because this debate, to your point, Jonathan,
Speaker 4: is really still very very early, in particular when you
Speaker 4: have these very strong opinions about what are the tailwinds
Speaker 4: and what are the headwinds at the.
Speaker 2: Moment, sosten g think this is a new era for
Speaker 2: the Federal Reserve where we're going to see greater dispersion
Speaker 2: at least publicly from policymaker to policy maker. And ultimately,
Speaker 2: what do you think the consequences are for financial markets.
Speaker 4: I think it is a new error because we do
Speaker 4: make it, by definition, of course, a new fetchure in
Speaker 4: May of next year, because that's when Japal has to
Speaker 4: step down, and then we will of course figure out
Speaker 4: if that Fitchuair of course, is going to take the
Speaker 4: same view as the Iran or if that pitcher is
Speaker 4: going to have the view of Laurie Logan, and if
Speaker 4: the risk is of course that that Fitchair comes in
Speaker 4: and then begins to say, well, interest rates could begin
Speaker 4: to go down because maybe the economy can handle lower rates. Then,
Speaker 4: of course the fear could be that inflation is going
Speaker 4: to be high. So they debate exactly to your point, Jonathan,
Speaker 4: year around what should we put weight on, especially in
Speaker 4: the dual mandate. Should we put weight on inflation still
Speaker 4: being a three percent? Should we put an eight on
Speaker 4: challenge a great Christmas showing that there are maybe a
Speaker 4: bit more announced job cuts. I mean, this is still
Speaker 4: a very very important debate and we will not know
Speaker 4: the answers to this before we get into January. Remember also,
Speaker 4: the non found payroll numbers for November are normally collected
Speaker 4: in the month I'm sorry, in the month the week
Speaker 4: of the twelfth, and in the month of November, the
Speaker 4: week of the twelfth was last week, so that means.
Speaker 5: The week closer to Thanksgiving.
Speaker 4: That means that even there may be some distortions on
Speaker 4: the data for November. So that means that we may
Speaker 4: get all the way into next year before we really
Speaker 4: have a better handle at how strong is the US
Speaker 4: labor market. So that's why we still have a fairly
Speaker 4: foggy situation for the next several months.
Speaker 2: Stay with us Mulblindberg surveillance coming up after this stock
Speaker 2: sent chin KaiA ahead of keley earnings from Nvidia. Sarah
Speaker 2: Hunt of vampind saxon Words, writing earnings estimates still seem
Speaker 2: to be faring well and absent any bad news from Nvidia,
Speaker 2: markets could stay on track for a positive end to
Speaker 2: the year. Sarah joined Just Now for more Sarah good Mornick.
Speaker 2: If morning, what are the lessons from the recent volatility,
Speaker 2: If there are any lessons at all.
Speaker 8: I think that there was a whole lot of things
Speaker 8: that were going on that created some of that downdraft.
Speaker 8: And I think I mean, there was an earlier question
Speaker 8: about what's the most important thing that's coming up this week.
Speaker 8: I think it's a question of timing. If the payrolls
Speaker 8: was coming before in video, i'd say payrolls. But because
Speaker 8: in video's coming first, that's going to set a tone
Speaker 8: and either payrolls are going to help that or hurt that.
Speaker 8: And I think that, you know, if you get any
Speaker 8: more downdraft in technology, it's going to be hard to
Speaker 8: rally through the end of the year because there is
Speaker 8: some concern there and there's some concerns about valuation.
Speaker 2: We've been speaking for years about the K shaped economy.
Speaker 2: This week's the K shape market. Consumer's been struggling. You've
Speaker 2: seen that in some of the restaurant earnings. We're going
Speaker 2: to see in the retailer's potentially later this week, and
Speaker 2: then it's in video. Can we close that K anytime soon?
Speaker 2: In the equity market, never mind the economy.
Speaker 8: It's a bit tough because people are if the technology
Speaker 8: story stays on track, people stay away from some of
Speaker 8: the retail areas where you've seen weakness. If there's a wobble,
Speaker 8: then people start looking at staples. Like you saw that
Speaker 8: downdraft day, there was some of the stocks that were
Speaker 8: doing okay, we're the more value oriented, more divinend oriented,
Speaker 8: more cat like those kind of stocks did better. I
Speaker 8: think there's an argument to be made that going into
Speaker 8: next year, with valuations where they are, there should definitely
Speaker 8: be a balance in the portfolio, and you should have
Speaker 8: some of that because if you get volatility, that's going
Speaker 8: to act better than some of the technology. And I
Speaker 8: think the volatility is just going to stay and get
Speaker 8: moved around from data point to data point.
Speaker 6: Is it Vidia the last tech company to actually feel
Speaker 6: the pain if AI isn't delivering on some of the
Speaker 6: promise that people expect.
Speaker 8: Well, it's interesting to see the number of people who
Speaker 8: are going publicly talking about getting out of their Nvidia stakes,
Speaker 8: and I'm not sure if that's one of those we
Speaker 8: want to move on to the next thing, or we
Speaker 8: think that's the top for Nvidia. I think in Nvidia
Speaker 8: is in a good spot in terms of being able
Speaker 8: to keep bringing money in.
Speaker 1: Because people still need these chips.
Speaker 8: There is, to your point earlier, also a big depreciation
Speaker 8: cycle on those chips, so there is a round robin.
Speaker 8: It's not like you buy it once and you don't
Speaker 8: have to buy them again. So I don't know that
Speaker 8: Nvidia is going to be the problem there. I think
Speaker 8: the issue is going to be who's making money with
Speaker 8: those chips and how is that return coming, because that
Speaker 8: is the big question into the next iteration of AI.
Speaker 6: This is the reason why Oracle has been so interesting,
Speaker 6: why OpenAI has been so interesting, why the CDs spreads
Speaker 6: and how much they've been blowing out has been so interesting,
Speaker 6: because there is a question about whether the rank and
Speaker 6: file company in the average economy is seeing the monetization
Speaker 6: from some of the new AI tools that they've been getting,
Speaker 6: and whether that's enough to justify the massive spending and investment.
Speaker 6: Is anything that you're seeing seeming to suggest that, yes,
Speaker 6: we are getting to a place where we will see
Speaker 6: massive c change kinds of earnings from the rank and
Speaker 6: file companies that could lead to that broadening out and
Speaker 6: a justification for AI valuations.
Speaker 8: I think the hard thing is that to believe that
Speaker 8: that is going to be the case in the near term,
Speaker 8: it has to be about to some degree productivity, which
Speaker 8: has to be about not having as many people on
Speaker 8: the payrolls. And that's not a great thing right now
Speaker 8: because we don't want to see that happen. I don't
Speaker 8: know that we are yet understanding exactly how those tools
Speaker 8: are going to play into a variety of things, including
Speaker 8: productivity and better earnings, except to get rid of people.
Speaker 8: And so I think that you need to see some
Speaker 8: work cases where it's very clear that this is less
Speaker 8: about getting rid of people and more about making them
Speaker 8: more productive.
Speaker 1: And I think that's still not quite clear.
Speaker 8: Enough from the investment side to say, oh, I can
Speaker 8: see this going into this industry in that industry and
Speaker 8: that industry.
Speaker 1: That's what people are hoping for. I don't know that
Speaker 1: we're there yet.
Speaker 7: At least I mentioned this earlier about how some FED
Speaker 7: members are talking about the structural changes in the economy,
Speaker 7: like immigration, like these technology changes, which is why potentially
Speaker 7: there are shifts in a labor market. How does the
Speaker 7: FED address that.
Speaker 8: That's another question that having a whole bunch of six
Speaker 8: weeks of not having data does not help you at all,
Speaker 8: because that is trying to figure out what the right
Speaker 8: number is to tourist and slacks point with given all
Speaker 8: the things that are going on, is very difficult. When
Speaker 8: you don't have enough data, you don't see weekly claims either,
Speaker 8: which also sort of informs you.
Speaker 1: Even if it's not.
Speaker 8: That week, that average of that starts to inform you.
Speaker 8: I think that's going to be one of the things
Speaker 8: that into twenty twenty six. You need to see some
Speaker 8: earnings growth because that's what's being built in, but you
Speaker 8: also need to see a data market that people I
Speaker 8: mean a labor market that people feel comfortable with. And
Speaker 8: I think that we just don't have enough information right now,
Speaker 8: and that's where the timing of that data coming in
Speaker 8: versus other things starts to be an issue, and the
Speaker 8: faster we get some of it, the better off we are.
Speaker 1: But it's going to be about what's happening now.
Speaker 8: I don't know that September is that informative because people
Speaker 8: were looking at the ADP numbers for October.
Speaker 7: Two pillars coming out this week in terms of Wall
Speaker 7: Street for Nvidia earnings and then Main Street for when
Speaker 7: it comes to Walmart. Could Wall Street continue to do
Speaker 7: well if the consumer's really struggling.
Speaker 8: It's managed to do it so far this year, and
Speaker 8: the consumer has been struggling for a while, especially in
Speaker 8: the lower end. I mean you've seen some of that
Speaker 8: delinquencies on the lower end in auto loans, delinquencies on
Speaker 8: the lower end in credit cards, but not on the
Speaker 8: upper end. That upper end spend has really been able
Speaker 8: to carry things. Not so much for the retail sector
Speaker 8: because as a whole, they need more more than just
Speaker 8: the upper end, except the very high luxury stuff.
Speaker 1: So it depends on where that goes.
Speaker 8: And that's also where the labor market comes into play,
Speaker 8: because if you feel comfortable that you're keeping your job,
Speaker 8: it's easier.
Speaker 1: To spend the money as it comes in. But if
Speaker 1: you don't. That's where people start to get a little
Speaker 1: bit more in the saving site stay with us.
Speaker 3: Multiple IMBERG surveillance coming up after this. We've heard this.
Speaker 2: It's been building for a while, the push against Russia,
Speaker 2: the push against countries economies doing business with them, notably
Speaker 2: China India who asked this to supply too well.
Speaker 7: I think really it's about China and India because this
Speaker 7: is going to really force China to either have to
Speaker 7: go around some of the sanctions or deal the blow
Speaker 7: from the United States. At the same time, at the
Speaker 7: Treasury Secretary over the weekend talked about the fact that
Speaker 7: they don't have the final agreement in ink fully in
Speaker 7: place and they expect that to happen by Thanksgiving. Is
Speaker 7: this now another point of leverage Washington is trying to
Speaker 7: use it.
Speaker 2: Joining us as Terry Hynes of Pangaea Policy Terry, welcome
Speaker 2: to the program. What is the president's big effort around
Speaker 2: Russia all about and will he actually follow through?
Speaker 9: Good morning all I'm on Team Ann Marie this morning.
Speaker 9: The pick up on that point about leverage. This is
Speaker 9: about a lot of things, but one thing it is
Speaker 9: is exactly about that. What you can read between the
Speaker 9: lines from Secretary Bessett yesterday in a long interview, is
Speaker 9: that the supposed current deal that's happening between the United
Speaker 9: States and China is now taking a lot longer to
Speaker 9: paper than was widely thought even the best had said.
Speaker 5: So it's about that.
Speaker 9: It's about pushing India, I think, on getting a trade
Speaker 9: deal done. Secondly, Thirdly, I think it's about pushing the
Speaker 9: Europeans on getting serious on Russia as well. The President
Speaker 9: has long said that the United States policy only works
Speaker 9: well if the Europeans are willing to to pull equal
Speaker 9: weight here, and Europeans have been tapped dancing on core
Speaker 9: questions around Russia and frozen Russian assets for years literally,
Speaker 9: and either they're going to get serious or the Ukraine
Speaker 9: thing is going to drag on for even longer.
Speaker 7: Terry, the administration is going to use this leverage as
Speaker 7: part of the destination. But when we get to the
Speaker 7: final destination, do you think Congress will end up passing
Speaker 7: this bill?
Speaker 9: I think the I think they can sure the willingness exists,
Speaker 9: the votes exist. This is a lot more up to
Speaker 9: what the President wants to do in terms of how
Speaker 9: he wants to use that particular pressure point one thing
Speaker 9: I saw in Trump's impromptu remarks there, frankly, was an
Speaker 9: ability to take the thing off and put it back,
Speaker 9: take the thing off the back burner and put it.
Speaker 5: On the front burner.
Speaker 9: Russia may may dismiss that, but I think they probably
Speaker 9: dismissed at their peril, considering that the president has the ability,
Speaker 9: thanks to Congress, to actually get this thing done if
Speaker 9: he chooses.
Speaker 7: The Treasure Secretary seems to be throwing cold water on
Speaker 7: a Wall Street General report that says China is trying
Speaker 7: to ratchet back rare earth minerals that go to companies
Speaker 7: that help the US military. Do you think China will
Speaker 7: amend that or is this something that they're going to
Speaker 7: stick with.
Speaker 9: I think the track record here is that China has
Speaker 9: been I think best referred to April sixth in that
Speaker 9: interview as being the date in which the high drinks
Speaker 9: started on rare earths. I think they've been doing this
Speaker 9: for six or seven months. I think the base case
Speaker 9: has to be that they'll continue to do it. So
Speaker 9: what you know from a markets perspective, you have to
Speaker 9: take that into account, and you also have to take
Speaker 9: into account that the United States is going to continue
Speaker 9: to redouble and redouble every effort it can to get
Speaker 9: rare earths and start rare earths that are not of
Speaker 9: Chinese origin.
Speaker 6: Darry, how much of a conflict is there between trying
Speaker 6: to get leverage some of these trade talks and trying
Speaker 6: to get cost of living gains for the United States
Speaker 6: and for average consumers, given the fact that that seems
Speaker 6: to be a renewed push by the president, is there
Speaker 6: a conflict here?
Speaker 9: I think there's an order of precedence here, and the
Speaker 9: order of precedence from the administration's point of view is
Speaker 9: that they need to get the trade deals done as
Speaker 9: many and as much as possible and move forward from there.
Speaker 9: And they will, you know, they tend to put their
Speaker 9: stake out kind of you know, far and in a
Speaker 9: in a pure sense, and when work back and cut
Speaker 9: back as they need to. And I think that's a
Speaker 9: lot of what you saw with the food stuff's tariffs
Speaker 9: last weekend or last week Besson talked about this as
Speaker 9: being mostly a matter of existing trade deals coming in
Speaker 9: or new trade deals coming into force.
Speaker 5: I don't think that's quite the case. It's part of
Speaker 5: the case. But what they'll.
Speaker 9: Continue to do is continue to work on the trade
Speaker 9: deals with the idea that they can calibrate them pretty
Speaker 9: much in real time as they need to.
Speaker 6: Terry, just to circle back full circle to the beginning
Speaker 6: of the conversation, how much can this administration go really
Speaker 6: hard on China with sanctions on oil if it raises
Speaker 6: gasoline prices in the United States at a time where
Speaker 6: there's a real cost of living focus.
Speaker 9: I think the priority for the administration. There's a balance here,
Speaker 9: but the priority for the administration is going to be
Speaker 9: making sure that China understands that it will use the
Speaker 9: leverage of it that the United States has, and that's
Speaker 9: certainly a big part of it. I think the President
Speaker 9: cares a lot about gasoline prices, but one reason why
Speaker 9: he talks up so much the price of gasoline coming down, frankly,
Speaker 9: I think is he wants to buy himself some wiggle
Speaker 9: room with the public to make sure that if he
Speaker 9: ends up having to drop a dime on China on oil,
Speaker 9: that people understand the Watson whis.
Speaker 3: Stay with us. More Bloomberg surveillance coming up after this.
Speaker 2: Profitability of the AI narrative whipsawing tech stocks as valuation
Speaker 2: concerns rise JP Morgan's twenty twenty six global Investments outlook
Speaker 2: remaining bullish, writing artificial intelligence remains the defining force in
Speaker 2: financial markets. Stephen Parker, the co head of Global Investment
Speaker 2: Strategy at JP Morgan Private Bank, joined us now for more.
Speaker 3: Stephen, good morning, Good to see you.
Speaker 5: Good to see you.
Speaker 3: Should we talk about a three pogey man?
Speaker 5: Want to do?
Speaker 2: Have a capacity, leverage, valuations? Your words? How concerned should
Speaker 2: we be into next year?
Speaker 10: Yeah, Look, we think that there's still a long way
Speaker 10: to run in this AI trade. If you look back
Speaker 10: since the launch of chat GPT, seventy five percent of
Speaker 10: the returns, eighty percent of the earnings and ninety percent
Speaker 10: of the capital spending growth of the S and P
Speaker 10: has been driven by AI related companies. And so the
Speaker 10: question now is are we facing a bubb one? As
Speaker 10: you said, it's really those three factors. It's over capacity city,
Speaker 10: its leverage in the system, and its valuations that we
Speaker 10: need to focus on. And we think that we're still
Speaker 10: in the early stages of this story.
Speaker 6: How much do you think that the extra editions of
Speaker 6: this story, the extra chapters, really will come from a
Speaker 6: FED rate policy or fiscal policy or some sort of
Speaker 6: more accommodative backdrop that can allow valuations to get even
Speaker 6: more heady.
Speaker 5: Yeah.
Speaker 10: Look, I think we're in a world where there is
Speaker 10: still a lot of capital that is looking for a home.
Speaker 10: Investors are willing to make investments. But importantly, what we're
Speaker 10: seeing now is that these investments in AI don't look
Speaker 10: speculative like bubbles of the past. If you go back
Speaker 10: to the dot com era in the late nineties, there
Speaker 10: was forty million miles of fiber that were laid to
Speaker 10: help support the Internet, and by mid two thousand and one,
Speaker 10: only about one percent of that was being used. It
Speaker 10: was supply in search of demand AI, the story is reversed.
Speaker 10: The vacancy rates and data centers today is at an
Speaker 10: all time low one and a half percent, and three
Speaker 10: quarters of the demand for the new construction and data
Speaker 10: center is already preleased. So we're not seeing those signs
Speaker 10: of speculation, particularly from a capacity perspective, that gets us nervous.
Speaker 6: So your base case for next year is seventy two
Speaker 6: hundred to seventy four hundred, and the S and P
Speaker 6: five hundred, Your bull case is eight thousand to eighty
Speaker 6: two hundred. What makes you either constructive or uber bullish.
Speaker 10: Yeah, I think it all comes down to earnings, and
Speaker 10: we've seen a tremendous run of successful earnings results.
Speaker 5: Five of the last six quarters.
Speaker 10: We've seen double digit SMP earnings growth, despite the fact
Speaker 10: that we've had policy uncertainty, economic uncertainty, trade uncertainty. There's
Speaker 10: perhaps never been a bigger disconnect between the stock market,
Speaker 10: particularly large cap stocks, and the broader economy. We think
Speaker 10: that continues and we see another year of double digit
Speaker 10: earnings growth, which is going to support that upside that
Speaker 10: you talked about.
Speaker 7: How do you think about all of this in an
Speaker 7: age when globalization is out of fashion?
Speaker 10: Yeah, I mean we're launching today our new twenty twenty
Speaker 10: six market outlook, Promise and Pressure, and one of the
Speaker 10: key themes this is idea of global fragmentation.
Speaker 5: Post the Cold War, we were in.
Speaker 10: A multi decade period where it was all about globalization,
Speaker 10: cost control, efficient supply chains that kept inflation down, it
Speaker 10: kept margins up increasingly over the last couple of years
Speaker 10: as a result of the pandemic, conflict in Europe trade policy.
Speaker 10: We're now in a world where countries are looking in
Speaker 10: they're more focused on security and reliability both in terms
Speaker 10: of defense but also of supply chains and infrastructure, and
Speaker 10: that has ramifications.
Speaker 2: US versus China. That's what this feels like. What does
Speaker 2: Europe fit in in the US versus China?
Speaker 10: So Europe is an interesting sort of pivot point in
Speaker 10: the global landscape. When we looked this year, the announcements
Speaker 10: that we saw out of Germany in terms of the
Speaker 10: shift in fiscal spend, the willingness to embrace positive fiscal
Speaker 10: impetus is a huge change.
Speaker 5: You know.
Speaker 10: One of the key themes when we talk about this
Speaker 10: idea of increasing fragmentation and a focus on security is
Speaker 10: what's going on in Europe as it relates to the
Speaker 10: spending on their infrastructure and their defense. We think that's
Speaker 10: both an important macro trend but also an investable opportunity.
Speaker 2: I think people have the sense they know how to
Speaker 2: play the US story if they want to play it.
Speaker 2: I think they feel comfortable playing the China story if
Speaker 2: they want to play it. After the first half of
Speaker 2: this year, I think they're sitting here looking at Europe
Speaker 2: into twenty six and thinking, well, maybe that was the
Speaker 2: trait that was just sort of like last year, and
Speaker 2: now we're done with it, and we should move on
Speaker 2: to other things.
Speaker 3: What is the trait twenty six?
Speaker 10: We still think there's opportunities in Europe. A lot of
Speaker 10: the fiscal policy that was announced this year isn't actually
Speaker 10: going to be put into place until next year, so
Speaker 10: there is a growth dynamic there, and in fact, we
Speaker 10: think from an economic perspective, we're probably going to see
Speaker 10: a convergence, meaning that a smaller discount of growth in
Speaker 10: places like Germany versus the US. But when you think
Speaker 10: about how you want to play the story, we continue
Speaker 10: to think that the European defense names are probably the
Speaker 10: most interesting opportunity that we're seeing.
Speaker 6: Based on the framework that you just laid out, how
Speaker 6: are you looking at diversification? Is it from a regional
Speaker 6: basis or is it from an asset class basis?
Speaker 10: Yeah, So we talked about the outlook, We talked about AI,
Speaker 10: we talked about increasing global fragmentation. The third theme that
Speaker 10: we think is really going to drive markets in the
Speaker 10: years to come is inflation. And these factors that we
Speaker 10: talked about increasing fragmentation, increasing fiscal policy means that inflation
Speaker 10: is likely to be more volatile and the floor is
Speaker 10: likely to be higher, and so when you think about
Speaker 10: building portfolios, the playbook of the past has to evolve.
Speaker 10: Stocks and bonds on their own are not going to
Speaker 10: be enough. Stocks can help you when you get recession
Speaker 10: fears and growth scares, but increasingly in a world where
Speaker 10: inflation is going to be part of the narrative, you
Speaker 10: need to look at things like infrastructure, real assets, and gold,
Speaker 10: not just on a tactical basis, but on a more
Speaker 10: strategic basis.
Speaker 2: So sticking with the gold trde even after a big
Speaker 2: boom over the last year, we are.
Speaker 5: We continue to see upside.
Speaker 10: We think we can get over five thousand dollars an
Speaker 10: ounce on gold, and that has to do a lot
Speaker 10: both with some of these concerns around geopolitical issues, the
Speaker 10: concerns around the dollar, but most iportantly and from a
Speaker 10: sticky perspective, central banks around the world are continuing to
Speaker 10: realize that they need to diversify, and a lot of
Speaker 10: these central banks are still under exposed to the long
Speaker 10: term targets that they're trying to achieve, which means more
Speaker 10: demand in a supply constrained world.
Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best
Speaker 2: in markets, economics, and geopolitics. You can watch the show
Speaker 2: live on Bloomberg TV weekday mornings from six am to
Speaker 2: 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.