WEBVTT - Bloomberg Surveillance TV: December 1st, 2025 0:00:02.400 --> 0:00:09.960 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.680 --> 0:00:15.480 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.520 --> 0:00:18.720 with Lisa Bromwitz and Amerie Hordern. Join us each day 0:00:18.760 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.440 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.960 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.319 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:35.880 Terminal and the Bloomberg Business app. 0:00:36.360 --> 0:00:39.000 Stoxslawer Is Investors wait a crucial week of data, Alistair 0:00:39.040 --> 0:00:41.720 Pinder and the team at HSBC setting their twenty twenty 0:00:41.760 --> 0:00:44.240 six S and P five hundred target at seventy five hundred. 0:00:44.320 --> 0:00:44.680 Writing. 0:00:44.920 --> 0:00:48.199 AI has carried equity markets throughout twenty twenty five. We 0:00:48.280 --> 0:00:51.120 believe it will drive both equities and credit in twenty 0:00:51.159 --> 0:00:54.360 twenty six, though in different ways. Alistair joins us now 0:00:54.400 --> 0:00:57.280 after a refreshing Thanksgiving brae that all of us cannot 0:00:57.280 --> 0:00:59.959 relate to. But I am curious from your perspective going forward, 0:01:00.080 --> 0:01:02.280 how come you think the AI is going to resurrect 0:01:02.400 --> 0:01:05.160 that kind of lead higher given some of the concerns 0:01:05.160 --> 0:01:05.959 that we've seen recently. 0:01:06.040 --> 0:01:07.640 Well, I think if you look at the performance of 0:01:07.640 --> 0:01:09.520 the market this year, it's been driven by the AI 0:01:09.600 --> 0:01:14.280 infrastructure and you know the AI enablers story, you know, 0:01:14.319 --> 0:01:16.400 going into next year, I think the big narrative for 0:01:16.520 --> 0:01:19.360 markets is how companies are going to adopt AI and 0:01:19.360 --> 0:01:21.680 that's going to drive earnings, and so there's loads of 0:01:21.720 --> 0:01:23.160 data showing this. You know. Some of the ones that 0:01:23.200 --> 0:01:25.440 we like to look is the ramp AI index shows 0:01:25.440 --> 0:01:28.360 forty five percent of companies are adopting AI. One of 0:01:28.400 --> 0:01:30.280 the things that we've been doing a lot on is well, 0:01:30.360 --> 0:01:32.720 what is the actual tangible cost savings from this, and 0:01:32.800 --> 0:01:35.160 so far we think that there can be basically one 0:01:35.200 --> 0:01:37.800 percent of cost cuts going into next year. 0:01:37.880 --> 0:01:39.399 That's one hundred and thirty million dollars. 0:01:39.560 --> 0:01:41.959 We think that can basically be saved going into twenty 0:01:42.000 --> 0:01:44.600 twenty six. And there's this amazing narrative going on right 0:01:44.600 --> 0:01:47.560 now in the market where revenue is increasing, you've got 0:01:47.640 --> 0:01:50.400 nine percent growth. Actually at the same time, companies are 0:01:50.440 --> 0:01:52.480 cutting back on labor and so if you look at 0:01:52.520 --> 0:01:54.480 the warm data from the S and P five hundred companies, 0:01:54.520 --> 0:01:57.400 it's been shooting higher. But this is nothing, absolutely nothing 0:01:57.400 --> 0:01:59.760 to do with them warning about the economy. Actually, their 0:02:00.240 --> 0:02:03.040 guidance earning divisions are you know, close to all time highs. 0:02:03.280 --> 0:02:05.680 So this almost for me feels like a Goldielock scenario 0:02:06.040 --> 0:02:08.480 going with the you know, the AI narrative going into 0:02:08.520 --> 0:02:10.400 next year. And my final thing, if you have a 0:02:10.400 --> 0:02:12.560 little bit of labor weakness as a result of AI, 0:02:12.800 --> 0:02:15.400 then going back to your conversation about the FED, might 0:02:15.440 --> 0:02:17.520 I not keep the FED a little bit more dubvish? 0:02:17.800 --> 0:02:20.160 And now I think again can help support the equity 0:02:20.200 --> 0:02:21.440 market value going into next year. 0:02:21.440 --> 0:02:24.480 Goldilocks for the equity market maybe changing economy. 0:02:24.120 --> 0:02:25.679 Which is a sort of key distinction here. 0:02:25.720 --> 0:02:27.680 I do wonder so this is an argument for AI 0:02:27.760 --> 0:02:29.720 being dominant, But that means the rest of the four 0:02:29.840 --> 0:02:33.240 hundred and ninety three outperforming playing catch up with the 0:02:33.280 --> 0:02:34.120 Magnificent seven. 0:02:34.200 --> 0:02:34.720 Is that correct? 0:02:34.760 --> 0:02:34.959 Right? 0:02:35.240 --> 0:02:37.640 And again, one of the biggest things that we've seen 0:02:38.200 --> 0:02:40.600 over the last couple of years is that actually the 0:02:40.600 --> 0:02:43.160 performance of the mag seven has not been driven by valuations. 0:02:43.240 --> 0:02:45.359 It's all been by earnings growth. And now what we're 0:02:45.360 --> 0:02:47.840 seeing is earnings growth going from roughly thirty to forty 0:02:47.840 --> 0:02:51.280 percent on year into next year probably being in high 0:02:51.360 --> 0:02:53.560 teens and the rest of the market actually catching up 0:02:53.600 --> 0:02:54.960 with that, and so this will be one of the 0:02:54.960 --> 0:02:57.840 first years really since twenty twenty one where earnings growth 0:02:57.840 --> 0:03:00.600 between the mag seven and the four nine three are 0:03:00.600 --> 0:03:02.560 going to be somewhat equal, and so I do see 0:03:02.639 --> 0:03:04.919 much more scope for you know, outperformance for the rest 0:03:04.960 --> 0:03:05.560 of the market. 0:03:05.600 --> 0:03:08.480 What for you will be the telltale sign that actually 0:03:08.520 --> 0:03:11.680 adoption is underway significantly in some of these industries. 0:03:11.960 --> 0:03:14.240 Well, I mean, to be honest, I already think that 0:03:14.280 --> 0:03:16.160 we see that. I mean, if you look at the 0:03:16.280 --> 0:03:18.920 data from some of the consumer stocks that are basically 0:03:18.960 --> 0:03:22.160 saying that we're using AI and becoming much more productive 0:03:22.200 --> 0:03:24.880 in terms of you know, targeted ad sales and whatever else. 0:03:25.040 --> 0:03:27.240 A huge number of companies on their earning schools are 0:03:27.240 --> 0:03:31.920 discussing about how they're adopting AI and actually again replacing 0:03:31.960 --> 0:03:35.080 that you know, labor or freezing labor as a result 0:03:35.120 --> 0:03:37.880 of the higher productivity. To me, you know, we're already 0:03:37.880 --> 0:03:39.960 seeing it from companies and the earning scores. Now us 0:03:40.000 --> 0:03:42.040 to talk about the exit market and the economy. What's 0:03:42.160 --> 0:03:44.520 very interesting is that for the broad economy, I don't 0:03:44.560 --> 0:03:46.600 think we are seeing much productive increase. 0:03:46.920 --> 0:03:48.480 It's really the large cap stocks. 0:03:48.640 --> 0:03:51.160 And so again like where does this AI productivity come from? 0:03:51.400 --> 0:03:54.080 It comes from companies with huge amount of employees that 0:03:54.200 --> 0:03:55.920 need to reduce it. If you're a small company and 0:03:55.960 --> 0:03:58.080 you have ten employees, you're not going to really replace 0:03:58.080 --> 0:04:00.560 that with AI. But if you've got hundreds of thousand employees, 0:04:00.560 --> 0:04:02.360 actually that's where the cost benefit comes from. 0:04:02.480 --> 0:04:04.800 You mentioned that this means maybe the FED then has 0:04:04.880 --> 0:04:07.400 to be dubvish. But how could a FED interest rate 0:04:07.520 --> 0:04:10.839 cut cycle solve the problem of AI. 0:04:11.280 --> 0:04:13.080 In terms of I mean, I mean, it doesn't really 0:04:13.080 --> 0:04:16.400 solve the problem of AI at allah labor layer, Yeah exactly, 0:04:16.440 --> 0:04:18.320 I mean, it doesn't solve this really, but it does 0:04:18.400 --> 0:04:21.360 reduce some of the pressure on the labor market in 0:04:21.400 --> 0:04:24.400 the near term, right in terms of reducing uh, you know, 0:04:24.520 --> 0:04:27.960 credit costs, reducing interest rates, reducing some of that burden 0:04:28.200 --> 0:04:30.520 on the low income consumer. And of course it is 0:04:30.560 --> 0:04:33.320 the low income consumer particular which has been hardest hit 0:04:33.360 --> 0:04:35.240 by higher interest rates, given that they have more of 0:04:35.279 --> 0:04:38.000 their debt in sort of floating rate debt products like 0:04:38.040 --> 0:04:40.880 you know, auto loans, credit card loans rather. 0:04:40.720 --> 0:04:43.400 Than mortgages at this point, it sounds like everyone's banking 0:04:43.400 --> 0:04:45.760 on stimulus coming from the fiscal side, with potentially two 0:04:45.800 --> 0:04:48.960 thousand dollars checks or whatever else comes from the tax 0:04:49.000 --> 0:04:52.320 refunds that we get in January. We're expecting monetary stimulus 0:04:52.320 --> 0:04:54.480 when it comes to FED rate cuts, possible use of. 0:04:54.400 --> 0:04:55.039 The balance sheet. 0:04:55.560 --> 0:04:57.479 I just wonder if this makes the US a less 0:04:57.480 --> 0:05:00.799 attractive place and a sort of currency adjust did basis 0:05:01.000 --> 0:05:03.679 for equities based on some of what we're expecting to see. 0:05:03.720 --> 0:05:06.440 Totally on the physical side, totally, I totally agree with that. 0:05:06.480 --> 0:05:08.400 And actually, you know one thing that I think the 0:05:08.440 --> 0:05:10.520 market is missing a little bit is it's not just 0:05:10.880 --> 0:05:13.039 stimulus that's coming out from the US. Actually, you know, 0:05:13.120 --> 0:05:15.080 China has just done a one point for trillion dollar 0:05:15.120 --> 0:05:17.640 debt swap. Germany is coming in with one hundred and 0:05:17.680 --> 0:05:20.760 fifty billion dollar stimulus next year. Japan is seeing up 0:05:20.800 --> 0:05:23.960 one hundred and ten billion dollar stimulus next year. So actually, 0:05:23.960 --> 0:05:26.440 what you could see is that you get a huge 0:05:26.480 --> 0:05:29.320 global wave of stimulus. As you mentioned, Actually the dollar 0:05:29.360 --> 0:05:31.360 starts to weaken and the rest of the world starts 0:05:31.360 --> 0:05:34.160 to looking very attractive, particularly because valuations are at a 0:05:34.200 --> 0:05:36.640 thirty forty percent discount even on the AI place you 0:05:36.680 --> 0:05:38.840 go to Asia, you get on an AI discount there 0:05:39.040 --> 0:05:41.400 in Europe less so, but you still got places like 0:05:41.480 --> 0:05:44.640 Germany which are seeing fourteen fifteen percent earnings growth and 0:05:44.839 --> 0:05:47.599 evaluation of fourteen to fifteen times earnings. To me, that 0:05:47.600 --> 0:05:49.200 seems quite attractive at this point. 0:05:49.320 --> 0:05:51.559 So what equity markets do you like? Germany and Asia 0:05:51.640 --> 0:05:52.560 plus the United States? 0:05:52.640 --> 0:05:56.200 So we are overweight emerging markets that includes Asia Latin. 0:05:56.720 --> 0:05:58.960 I mean, that's all due to you know, huge decreases 0:05:58.960 --> 0:06:03.640 in cost effect in interestraightcuts. But yeah, Europe Germany also 0:06:03.720 --> 0:06:06.200 stand out as our key overweights, and the US were 0:06:06.240 --> 0:06:08.480 neutral one. And a part of that really is because 0:06:08.480 --> 0:06:10.359 if I was going to get my AI kind of 0:06:10.400 --> 0:06:12.920 tech play, I'd actually rather do it with emerging markets 0:06:13.160 --> 0:06:15.160 rather than the US at this point, again, just from 0:06:15.160 --> 0:06:16.960 that valuation perspective. 0:06:16.560 --> 0:06:18.400 Lisa mentioned was coming out of Washing in terms of 0:06:18.400 --> 0:06:21.640 the fiscal stimulus, how are you thinking about the potential 0:06:21.839 --> 0:06:25.440 tariff impact, whether it's the United States or globally because 0:06:25.520 --> 0:06:28.200 we're still waiting on the Supreme Court decision on the 0:06:28.240 --> 0:06:29.520 President's signature tariff. 0:06:29.920 --> 0:06:32.039 Yeah, I mean, I think that is one of the 0:06:32.080 --> 0:06:34.560 aspects that worries me the most going into next year. 0:06:34.600 --> 0:06:36.800 So I mean, you know the three risks obviously AI bubble, 0:06:36.960 --> 0:06:39.080 and you know, the thaid being more hawkish, and we 0:06:39.160 --> 0:06:40.960 kind of discussed that the tariff on and I just 0:06:40.960 --> 0:06:43.080 don't think we've discussed it enough. I think everyone thinks 0:06:43.080 --> 0:06:45.800 that we've moved past tariffs and that's never going to 0:06:45.839 --> 0:06:47.800 come to buy. I do think there's been a lot 0:06:47.800 --> 0:06:50.320 of stocking up on inventory, and I do think we're 0:06:50.320 --> 0:06:53.160 starting to see incremental signs of inflation actually come through. 0:06:53.279 --> 0:06:54.920 We haven't had a lot of inflation data, and I 0:06:55.279 --> 0:06:56.760 suspect actually, when we get it, what we're going to 0:06:56.800 --> 0:06:59.360 find is that actually, particularly in the good side, there's 0:06:59.360 --> 0:07:01.560 been a lot ofishing up there, and so I do 0:07:01.640 --> 0:07:04.680 wonder whether that starts to eat a little bit into margins. 0:07:04.720 --> 0:07:06.520 But this is where I could say AI comes to 0:07:06.520 --> 0:07:08.400 save the day, because on the one hand, if you're 0:07:08.400 --> 0:07:11.000 a company and you're facing higher costs, actually, I think 0:07:11.040 --> 0:07:14.239 the big incentive as a company right now is Okay, 0:07:14.240 --> 0:07:16.520 why don't we adopt AI and try and reduce cost 0:07:16.520 --> 0:07:19.160 savings that way, And so much like COVID was right, 0:07:19.240 --> 0:07:22.080 one of the biggest forces of innovation adoption for companies. 0:07:22.200 --> 0:07:24.160 I actually wonder weather taris is one of the biggest 0:07:24.160 --> 0:07:27.280 forces of adoption of AI this year and next year 0:07:27.280 --> 0:07:29.560 because it forces people to become more productive. 0:07:29.680 --> 0:07:32.960 Does it make you nervous if nobody else is parish? 0:07:33.320 --> 0:07:35.400 I mean I talk to people that are bearsh I 0:07:35.400 --> 0:07:36.960 think you know, I think you know, I think you 0:07:37.000 --> 0:07:37.559 can speak. 0:07:37.640 --> 0:07:40.000 Are they enacting their bearish beliefs or they just sort 0:07:40.000 --> 0:07:40.840 of feel negative? 0:07:40.880 --> 0:07:42.520 I think theo's are two things. I think the cell side, 0:07:42.600 --> 0:07:44.880 you know, including myself, is quite bullish. I think when 0:07:44.880 --> 0:07:47.400 I speak to investors, they're clearly a little bit worried 0:07:47.440 --> 0:07:50.120 about this. I think there's there's definitely you know, every 0:07:50.560 --> 0:07:52.840 room that I walk into it is are in an 0:07:52.840 --> 0:07:55.320 AI bubble? You know, that is the number one concern. 0:07:55.680 --> 0:07:59.680 And then again, actually this conversation about the impact on 0:07:59.760 --> 0:08:02.960 lead the consumer role over more aggresively next year is 0:08:02.960 --> 0:08:07.120 probably the second biggest concern for people's investors at this point. So, 0:08:07.400 --> 0:08:09.720 you know, do I think everyone's bullish? No. I think 0:08:09.760 --> 0:08:11.720 there's actually a huge amount of money on the sidelines. 0:08:11.800 --> 0:08:13.320 And one of the things that I think is again 0:08:13.640 --> 0:08:15.200 really important here is that this three and a half 0:08:15.240 --> 0:08:18.880 trillion dollars of cash sitting in time deposits, just retail 0:08:18.920 --> 0:08:21.280 investors cash three and a half trillion dollars. And as 0:08:21.320 --> 0:08:23.360 the FED cuts interest rates, that's going to unlock a 0:08:23.400 --> 0:08:26.360 lot of that cash which can go into the equity market. Still, so, 0:08:26.640 --> 0:08:29.640 I still think there's a lot more buying opportunities and 0:08:29.720 --> 0:08:31.200 money to go into the equity markets here. 0:08:32.280 --> 0:08:34.920 Stay with US mult Blomberg Surveillance coming. 0:08:34.760 --> 0:08:47.199 Up after this, Ian hearted of Absolute Strategy Research, writing, 0:08:47.440 --> 0:08:50.520 America is in a race to dominate AI. We see 0:08:50.520 --> 0:08:53.640 this as part of a broader objective to bruce productivity keeping. 0:08:53.679 --> 0:08:54.559 The US is one of. 0:08:54.480 --> 0:08:55.839 The world's richest economies. 0:08:56.040 --> 0:08:57.840 Ian joins US now and I think that the most 0:08:57.840 --> 0:09:01.480 controversial question to you is will at work? Is the 0:09:01.559 --> 0:09:04.200 US stilobastion of returns and safety? 0:09:04.400 --> 0:09:06.160 Well, I think you know what we're looking at is 0:09:06.200 --> 0:09:09.439 an environment where President Trump is determined to win the midterms. 0:09:09.600 --> 0:09:11.680 You know they're going to work whatever they can do 0:09:11.880 --> 0:09:15.360 to avoid recession. I think you know, our chief rates 0:09:15.400 --> 0:09:19.480 economist Ebra Harby wrote a great piece about Kevin Hasset, 0:09:19.600 --> 0:09:22.560 you know, looking at his voting profile that potentially would 0:09:22.640 --> 0:09:25.480 lead to FED rates being seventy five basis points lower 0:09:25.480 --> 0:09:26.560 than they might have been otherwise. 0:09:26.760 --> 0:09:27.959 This is a really yeah, and so. 0:09:28.040 --> 0:09:30.320 You know that's one of the things that we're starting 0:09:30.360 --> 0:09:32.559 from definitely recovery rather than recession. 0:09:32.559 --> 0:09:33.480 I think, Lisa, this is. 0:09:33.440 --> 0:09:35.520 The reason why a lot of people are expecting an 0:09:35.520 --> 0:09:37.920 easier monetary policy, the reason why you're seeing that baked 0:09:37.920 --> 0:09:40.520 into FED fund's futures, as well as the sort of 0:09:40.559 --> 0:09:43.400 optimistic tone for the forgotten four hundred and ninety three. 0:09:43.920 --> 0:09:45.240 Do you think that that is the right way of 0:09:45.280 --> 0:09:47.679 looking at this, that either one way or another, the 0:09:47.720 --> 0:09:50.040 rest of the universe, the equal weighted universe, is going 0:09:50.040 --> 0:09:50.679 to outperform. 0:09:50.800 --> 0:09:53.959 Yeah, that we're certainly expecting that broadening out with seeing 0:09:54.000 --> 0:09:56.400 that in some of the data. But the real question 0:09:56.559 --> 0:09:59.679 that investors have to answer for twenty twenty six is 0:10:00.000 --> 0:10:03.800 this is a really unusual balance, really strong earnings growth 0:10:03.920 --> 0:10:07.000 and expectations of rate cuts that isn't going to survive 0:10:07.080 --> 0:10:09.360 probably the whole of the year. So is it going 0:10:09.400 --> 0:10:11.480 to be the growth in the earnings coming down or 0:10:11.559 --> 0:10:14.040 is it going to be those raid expectations starting to 0:10:14.040 --> 0:10:17.160 get raised Even with a more dubbish FED chair. 0:10:17.200 --> 0:10:19.880 Should we say, well, you think that Ai Capex and 0:10:20.080 --> 0:10:23.440 game is coming and you think there are signs of 0:10:24.040 --> 0:10:24.440 a bubble. 0:10:24.440 --> 0:10:27.040 B Absolutely, the AI is a bubble, you know, and 0:10:27.120 --> 0:10:30.400 so let's in terms of AI stocks and that is 0:10:30.440 --> 0:10:31.480 going to be the problem. 0:10:31.920 --> 0:10:34.040 You know that, But why does it stop? 0:10:34.280 --> 0:10:36.560 And I think the thing that we see is that 0:10:36.720 --> 0:10:39.839 the end of bubbles typically comes because cash flows start 0:10:39.880 --> 0:10:42.199 to get strained, and that can be the cash flows 0:10:42.240 --> 0:10:45.200 of the producers themselves. And we're starting to see that 0:10:45.200 --> 0:10:47.880 cash flow headroom coming down. Our Quarantinum have done some 0:10:47.920 --> 0:10:50.920 great work. But where we're going to see that is 0:10:50.920 --> 0:10:53.640 that it won't be capex that gets cut first. It'll 0:10:53.640 --> 0:10:56.760 actually be buybacks, so watch out for those. But historically 0:10:56.840 --> 0:10:59.400 when bubbles burst, it tends to be that the people 0:10:59.520 --> 0:11:02.959 buying goods the services they run out of cash, and 0:11:03.080 --> 0:11:05.199 that's going to be the thing. So, yeah, AI can 0:11:05.240 --> 0:11:08.440 be a structural story, but are those banks really sicklical 0:11:09.040 --> 0:11:09.880 rather than structural? 0:11:10.280 --> 0:11:12.280 Has it all been exacerbated by the fact that we 0:11:12.320 --> 0:11:14.400 see a lot of circular financing in this space. 0:11:14.520 --> 0:11:17.920 This is a very classic bubble experience. So we're seeing 0:11:17.920 --> 0:11:21.560 all the classic signs. We're getting exponential share prices, the 0:11:21.720 --> 0:11:24.160 companies are using those share prices to buy each other. 0:11:24.480 --> 0:11:26.800 They're buying each other's goods, they're doing it on vendor 0:11:26.840 --> 0:11:30.000 financing that circularity that you're talking about, and then this 0:11:30.400 --> 0:11:34.320 capex blowout as the cost of capital comes down for 0:11:34.400 --> 0:11:37.680 these AI companies, everybody tries to crowd into that space. 0:11:38.120 --> 0:11:40.719 That accelerates the build out. But the trouble is. 0:11:40.679 --> 0:11:43.120 The capex goes on like that and if your sales 0:11:43.280 --> 0:11:46.160 just start to tail off, then the margins get hit. 0:11:46.440 --> 0:11:48.760 That's when the challenge is going to come for this market, 0:11:48.840 --> 0:11:51.000 and that's when we get more of a shop. 0:11:51.480 --> 0:11:53.120 And this is coming up a moment where chat ChiPT 0:11:53.280 --> 0:11:55.120 is turning three. This is the reason why a lot 0:11:55.160 --> 0:11:57.920 of people are wondering is on its birthday, Happy birthday, 0:11:58.160 --> 0:12:00.000 good luck trying to survive for the right next time. 0:12:00.080 --> 0:12:02.199 Three years, there's this question of how much death's been 0:12:02.200 --> 0:12:05.160 built out with data centers tied to chat GPT to 0:12:05.240 --> 0:12:08.160 open AI incurring one hundred billion dollars of debt in 0:12:08.240 --> 0:12:11.080 that period. At what point can you see the overall 0:12:11.120 --> 0:12:13.960 market in US economy continue to grind higher If you 0:12:14.040 --> 0:12:17.560 do have a busting of the AI bubble in a significant. 0:12:17.000 --> 0:12:19.240 Way, I think at that point you'll be looking for 0:12:19.240 --> 0:12:22.480 those interest rates to coming down. But historically, when interest 0:12:22.559 --> 0:12:25.280 rates come down because things go wrong, that's bad news 0:12:25.280 --> 0:12:27.600 for equities. And that's the point where you could start 0:12:27.640 --> 0:12:29.400 to see the change, and that's probably going to be 0:12:29.480 --> 0:12:32.280 later in the year rather than earlier in the year. Actually, 0:12:32.280 --> 0:12:35.000 the biggest risk that we see for AI is that 0:12:35.160 --> 0:12:39.600 energy component that you know if you America has decided 0:12:39.679 --> 0:12:43.560 to use fossil fuel hydrocarbon energy, and that's going to 0:12:43.600 --> 0:12:47.400 be expensive, much more expensive than renewables that China is using. 0:12:47.640 --> 0:12:51.679 And it's also there's something called the food water energy nexus. 0:12:52.120 --> 0:12:54.360 If you want to have more energy for AI, that's 0:12:54.360 --> 0:12:56.160 going to cost you something in terms of water, which 0:12:56.200 --> 0:12:57.520 are going to cost you something in food. Do you 0:12:57.520 --> 0:12:59.520 want to faster search engine or do you want to 0:12:59.559 --> 0:13:02.040 still get you the food on you play? Those are 0:13:02.080 --> 0:13:04.520 the kind of decisions that we're going to see study 0:13:04.600 --> 0:13:06.120 to come to the fore as we see more of 0:13:06.160 --> 0:13:07.000 these issues raised. 0:13:07.000 --> 0:13:09.079 I think, Lisa think it's a great question at this point. 0:13:09.120 --> 0:13:10.719 I think some people, after spending all the time on 0:13:10.760 --> 0:13:13.040 the phone might choose their phones. I am curious from 0:13:13.040 --> 0:13:16.560 your perspective going forward, if this is the little landscape, 0:13:16.720 --> 0:13:19.320 do you think that the chance of a negative return 0:13:19.520 --> 0:13:21.520 on the S and P five hundred than Nasdaq next 0:13:21.559 --> 0:13:25.079 year and a more negative economic outlook in the United 0:13:25.120 --> 0:13:26.319 States looks. 0:13:26.040 --> 0:13:26.920 More likely because that. 0:13:26.920 --> 0:13:28.199 Seems to be what you're describing. 0:13:28.400 --> 0:13:30.880 I think when we go into twenty twenty seven, then 0:13:30.920 --> 0:13:33.040 it gets much more cloudy. You know, you have to 0:13:33.080 --> 0:13:36.200 take that decision about lower rates, a sorry, higher rates, 0:13:36.360 --> 0:13:40.600 or lower earnings. The big thing that we can see 0:13:40.920 --> 0:13:44.160 is that short term, these markets are being driven by momentum, 0:13:44.160 --> 0:13:47.320 they're being driven by liquidity, they're being driven by algorithmic trading. 0:13:48.080 --> 0:13:50.600 Longer term, what we know is that valuations matter, and 0:13:50.679 --> 0:13:53.960 so we just published report recently about the Lost decade 0:13:54.120 --> 0:13:57.559 for investors. If you are really investing for the long run, 0:13:57.800 --> 0:14:01.720 your long run earning equity returns probably about three percent 0:14:01.800 --> 0:14:03.679 over the next decade. That means you're going to get 0:14:03.720 --> 0:14:07.080 most of your returns from income, not from growth here 0:14:07.840 --> 0:14:10.680 and that is going to be the biggest challenge for investors. 0:14:10.840 --> 0:14:14.680 So recognize this as a trading market, a momentum market, 0:14:15.000 --> 0:14:18.360 and AI is a big part of that. Investing for 0:14:18.400 --> 0:14:21.400 the long run, that's a difficult game. Let's go back 0:14:21.440 --> 0:14:24.480 to two thousand. It was the digital age. We're living 0:14:24.520 --> 0:14:27.280 that digital age today. The big players today are the 0:14:27.280 --> 0:14:32.320 big players that they were there, Microsoft, Oracle, Apple, all 0:14:32.360 --> 0:14:35.720 of those companies lost between sixty five and ninety seven 0:14:35.800 --> 0:14:38.960 percent of their value their peak value and took between 0:14:39.000 --> 0:14:42.400 five and thirteen years to regain that value. 0:14:43.360 --> 0:14:47.920 Digital it was the structural story. AI is a structural story. 0:14:48.120 --> 0:14:50.440 But there's the right price to pay for everything in 0:14:50.440 --> 0:14:51.320 the equity market. 0:14:51.440 --> 0:14:53.440 Could put two of your thoughts together, that the Trump 0:14:53.440 --> 0:14:55.520 administration stock and want to see your recession before the 0:14:55.520 --> 0:14:58.480 midterm elections, and this idea that you think the AI 0:14:58.720 --> 0:15:02.320 story is start to fade. How does the Trump administration 0:15:02.440 --> 0:15:05.040 make sure that the AI story does not fade before 0:15:05.040 --> 0:15:07.680 the midterm elections given how much of the equity market 0:15:07.720 --> 0:15:08.480 is propped up by it. 0:15:08.560 --> 0:15:10.800 So I think you've got two leavers that you can 0:15:10.920 --> 0:15:13.800 or a couple of levers that they can operate through. 0:15:14.080 --> 0:15:17.160 First of all, Secretary vest And made it very clear 0:15:17.200 --> 0:15:19.760 that he's very, very keen to keep rates as well 0:15:19.800 --> 0:15:21.880 as they possibly can. You know, so, whether that's the 0:15:21.920 --> 0:15:24.440 new FED chair, whether it's using stable coin to try 0:15:24.480 --> 0:15:29.720 and inflate demand for bills or redistribute the demand for bills, 0:15:30.240 --> 0:15:32.600 then that will be one mechanism. What they have to 0:15:32.600 --> 0:15:37.320 do is to reinflate assets across the economy. The household 0:15:37.320 --> 0:15:39.840 sector needs to take on leverage, the corporate sector needs 0:15:39.840 --> 0:15:42.160 to be encouraged to take on leverage. That's the way 0:15:42.160 --> 0:15:44.600 you get the debt back under control. So what does 0:15:44.600 --> 0:15:47.160 that mean. They're going to be pumping the housing market. 0:15:47.360 --> 0:15:50.160 They're going to be trying to unlock There's thirty six 0:15:50.280 --> 0:15:55.240 trillion dollars of positive equity in houses that can't be 0:15:55.320 --> 0:15:58.560 accessed at the current time. Assumable mortgage is something like that. 0:15:58.720 --> 0:16:01.760 So some kind of innovation, privatization of Fanny and Freddie. 0:16:01.840 --> 0:16:03.480 Those are the kind of things I think we'll see 0:16:03.520 --> 0:16:05.760 up open up. The other thing is crypto. You know, 0:16:05.840 --> 0:16:09.880 they will continue this willingness to lend against crypto to 0:16:10.320 --> 0:16:16.400 keep the economy going. And you know, however they manage that, 0:16:17.840 --> 0:16:21.080 then we will see stay. 0:16:20.800 --> 0:16:24.040 With us mult Bloomberg surveillance coming up after this. 0:16:32.840 --> 0:16:35.760 Private credit concerns continuing to weigh on investors, even as 0:16:35.840 --> 0:16:39.040 losses from defaults are staying low. Amanda Linum of Blackrock 0:16:39.200 --> 0:16:41.600 writing this, we believe the peak and defaults in the 0:16:41.600 --> 0:16:45.240 public credit market is behind us. Amanda joins us. Now, Amanda, 0:16:45.240 --> 0:16:46.560 thank you so much for being with us. Thank you 0:16:46.560 --> 0:16:48.600 for having me. This is the big question, right, how 0:16:48.720 --> 0:16:51.600 much are people pricing to perfection credit at a time 0:16:51.680 --> 0:16:55.240 when potentially defaults are going to inflect upward. There's been 0:16:55.240 --> 0:16:57.160 a lot of issuance in the tech space, and there's 0:16:57.200 --> 0:17:00.640 a feeling that private credit has gotten a little bit heady. 0:17:00.960 --> 0:17:03.000 Okay, So I think there are a couple things to note. 0:17:03.040 --> 0:17:05.919 One is we often get asked in the corporate default 0:17:05.960 --> 0:17:09.000 market or corporate credit market when the peak in defaults 0:17:09.040 --> 0:17:11.480 is actually going to arrive. And what we point investors 0:17:11.480 --> 0:17:13.440 too is the data that actually shows. 0:17:13.280 --> 0:17:14.240 In the leverage loan market. 0:17:14.320 --> 0:17:17.680 For example, defaults peaked in November of twenty twenty four 0:17:17.760 --> 0:17:20.240 at seven point seven percent, which is actually a fairly 0:17:20.359 --> 0:17:24.080 high number. That's using Moody's data issuer weighted trailing twelve months. 0:17:24.359 --> 0:17:26.719 But the point is is that we think the peak 0:17:26.800 --> 0:17:29.120 in trade policy uncertainty is likely behind us. 0:17:29.359 --> 0:17:32.080 We think the peak in growth concerns. 0:17:31.680 --> 0:17:34.440 Is behind us, and we think the peak in debt 0:17:34.520 --> 0:17:37.280 service costs headwinds from higher interest rates is behind us. 0:17:37.359 --> 0:17:39.439 So when you put those three things together, coupled with 0:17:39.520 --> 0:17:42.240 a good enough growth BACKDRUP in twenty twenty six, it's 0:17:42.280 --> 0:17:45.560 hard for us to envision a new peak in corporate 0:17:45.600 --> 0:17:48.200 credit defaults, and again keeping in mind that we've already 0:17:48.200 --> 0:17:51.439 had kind of this flush in twenty twenty four because 0:17:51.480 --> 0:17:54.080 of the high borrowing cost. I think, coupled with that, 0:17:54.160 --> 0:17:56.760 our review for corporate credit, both liquid and private, is 0:17:56.760 --> 0:18:00.480 one of dispersion, but not widespread market disruption, and I 0:18:00.520 --> 0:18:02.240