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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg Surveillance Podcast. Catch us live weekdays at seven am Eastern on Apple car Play or Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.

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Speaker 2: Stephen off with this Feder intermiss He soons, like justin Verlander, he's like doing with a major league tours. I'm tiring. He's going to interview to interview. You know, he's going to retire. Are you returning? Is it twenty twenty eight or twenties? Is is that young whipper snapper chiver On pushing you out?

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Speaker 3: He is, and he's going to do a heck of a job too. He's a very bright guy. Yeah, he's really really, really loved by the team, so he's going to do fun.

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Speaker 2: So what they say about you, I gotta ask you is because long ago in Swede and I were younger, and Gerard Cassidy, Tucker, Anthony RL Day and young Stephen out. If you'd said JP Morgan would make twenty point nine to eight percent per year for the last ten years, you would have flunked the exam. And yet there it is how shocked at you are you by the excellence of fortres Steinman.

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Speaker 3: I hate to say, Tom, I'm not that shocked. I mean we we It was one of our favorite stocks six or seven years ago. At the time it was trading at ten times market multiple.

00:01:36
Speaker 2: It looked to us like.

00:01:37
Speaker 3: Earnings we're heading quite a bit higher. And here we are now it's trading at fifteen times. You guys have been making the case for last twenty minutes on JP Morgan why can't it trade at a market multiple? Why shouldn't it? This is one of the biggest banks in the world. It's got a very diversified business background. It participates in the US economy, the US stock market. Earnings are going higher, and you know, one of the great rules I've learned over time is eat stocks, eat nominal earnings, and nominal learnings are going higher. For JP Morgan, stocks just broken out to a new high. But why can't it go higher?

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Speaker 2: But Paul wants to jump into really questions, folks, what you just heard there is religion. The economist people are all in the real space inflation adjusted. Steve af knows that the real world out there. I think reminiscence of a stock operator.

00:02:32
Speaker 4: Paul is in the nominal world yep, absolutely broadly defined. Here, Steve, what are you guys in your team looking for from corporate America? This earning cycle is Boy, the first quarter was just outstanding, high bar to clear.

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Speaker 3: I would think, well, it's it is a high bar to clear. We've run into them. So I think the spot market for stocks could be a little bit ragged maybe the next few weeks, but we're going to be beating. I mean, you know, the company stock companies have been raising numbers into this season. We're up like four percent versus where we were just three months ago. Normally you're cutting into the season, so the analysts have a lot of confidence in these numbers, and usually that momentum continues into the earning season. The banks are going to lead us off. They just declared a whole bunch of them another set of dividend increases. You don't do that if your earnings are falling apart. So, you know, I think people expect a good earning season. I think it's going to be solid. I don't know there'll be a catalyst to make a major move higher as a result, but I don't see it as a catalyst for a correction.

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Speaker 4: Really, how do you guys have federated kind of think about the AI theme in the marketplace. It's been one of the bigger themes that we've all experienced in our investing lives, this evolution into artificial intelligence. It seems to be permeating throughout the economy. How do you guys try to play it the stage.

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Speaker 3: You just said, Paul, So the first stage was the spenders, the second stage was the beneficiaries with the chip companies, and now we're moving in or not this the benefit of the spending, but now it's the guys who are actually benefiting from AI, which is the broader economy. So we've been thinking we're moving into that third stage. Margins across the board are going higher. AI is part of that, and you know that could drive the broadening out trades so to speak. That has actually been working beneath the sheets here. I mean, you know, small caps are widely outperforming everything else, so we're overweight there.

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Speaker 2: We're over We.

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Speaker 3: Think the large cap growth stocks have become value stocks now, so we actually like those stocks here. The only thing we don't really like are bonds and European equities.

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Speaker 4: It's exactly where I was going to go, US versus the rest of the world, because we did have a rotation out of the US when those terrors started rolling in, and you're certainly benefited there some of those equities.

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Speaker 2: Where are we today.

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Speaker 3: We liked the US versus the rest of the world. The only thing that we're overweight internationally is emerging markets, which would become a kind of basically an alternative tech investment at a cheaper price than you're getting in the US because the emerging markets indices now are largely tech driven, Asia tech driven. So we like those world right there. But Europe is kind of ossified right now. This oil price increase has hurt them. They don't have the alternatives we have. They've been slow to pick up on the tech side. So there's some stocks out there we like, you know, kind of stock picking realm, you might say, But broadly we're underweight there.

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Speaker 2: You have a new book coming out, the movie Rights. It was a huge deal in Hollywood, Humilitate the highest forty five years of writing The Bull, Fighting the Bear and Chasing Heaving Stephen auth and in it you go to the heart of the matter for a generation, which is by it, and the hardest thing to do is to do nothing. We live in ephrenic financial media. I'm as to blame for this. That's all the lexis christopherus is. It's all hurtful, the whole modern media, frenzy trading, go to cash du and you say, the hardest thing to do is to do nothing.

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Speaker 3: Yeah, sometimes doing nothing is the best thing. And you know the other one is confidence of the humility at the highest, confidence at the lows, big, big lesson I've learned over the years. When things are going really well, we tend to think it's all because of us, and we overstep. This is part of the job of the CIO at Federate is to keep everyone humble when things are going great. But I'll tell you whether real money is made is when things are falling apart and the bears are coming out of the woodwork and they live you know, I like to say the bulls live on the mountaintops. The bears live in the valleys. And you know, just look at this move we've had, right the bears keep thinking we have to retest. That's why they keep calling about the percentage move off the lows. It's been spectacular since March. I think it's almost twenty percent now, but on the year, you know, full year base is really not that terrific, eight ten percent a little bit more than on average. So you know, we look to the mountaintops. I'm looking out three years. We've got the S and P at nine thousand. That's probably you know, against an earnings number of four point fifty is not an unreasonable way to think about stocks here, So uh yeah, we kind of look at it that way, Tom, Steve, and I.

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Speaker 2: Thank you so much, greatly, greatly appreciated. Too short a visit this morning with Federal vi herem is stay with us. More from Bloomberg Surveillance coming up after this.

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Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live weekday afternoons from seven to ten am Eastern Listen on Apple Karplay and Android Otto with the Bloomberg Business app, or watch us live on YouTube and tokatree.

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Speaker 2: In with us all right now, Global had a private banking. I g thrilled that she could be with us here here this morning. The view from europe Anika. We're just talking to Stephen Auf about this is well is the only place to go the United States.

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Speaker 5: It's that old a dage that comes over and over again. And I think the issue is which is the old issue which continues again earnings growth Europe continues to like the US and earnings growth again this year and listen talking about approximately twenty percent plus learnings growth in the US and only around ten to fifteen percent in Europe.

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Speaker 6: And that's what makes it tricky. And I think next to that, it's.

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Speaker 5: This vulnerability of the continent, especially when it comes to energy, and given again the recent escalation of Iran, that that brings complexity to the European narrative.

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Speaker 4: What do you make of software? We think about the tech is one monolithic kind of trade here, but software, which has been such a good group for such a long time decades because of their recurring business mind, all the free cash flows, all the wonderful aspects of that, there's facing some pressure here.

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Speaker 5: Yeah, it's been it's been brutal for software, and it's actually been brutal for the Magnificent Seven. And I think you imagine you'd closed your eyes and you'd worken up one year later. You just wouldn't believe what you've seen. Because we're used to years off the MAG seven just driving the whole s and P five hundred and look this year, but also the last months of last year, it's been pretty brutal. The way we look at software is this casual concept of MAG seven or software as a whole. I just don't think it works anymore. I think it really starts to become much more stock specific, much more company specific. Who are actually beneficiaries of AI versus being threatened by AI? And interestingly, we've been complaining a lot about narrow markets and lack of market breadth. That's changing actually underneath our eyes. That's really starting to change, which I think is.

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Speaker 6: A good thing.

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Speaker 4: So Anika for your clients, you know, even for your European based clients, do they still feel the need to be overweight the US markets relative to European markets. We just had Stephen offin Federated and they're back to being seriously overweight the US.

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Speaker 2: Well.

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Speaker 5: What's interesting because I guess market drift has made most investors very much overweight the US and I think two things that we are seeing.

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Speaker 6: Number One, we see that just for the basic need.

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Speaker 5: Of diversification, diversification from the dollar, diversification geographically, people are much more deliberately looking at European exposure for that reason.

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Speaker 6: And two, we do tend to see a.

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Speaker 5: European bias from European investors, and interestingly that's actually grown.

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Speaker 6: In the last six months.

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Speaker 5: Maybe it's nationalism, maybe it's fear off as I said, and need for diversification, but we do see conviction of Europeans towards Europe.

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Speaker 4: The AI trade. It just is every conversation here from an investment perspective seemingly involves AI and the impact on a particular industry, a particular company. Is it as pervasive in your discussions with European clients.

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Speaker 5: I mean, it's the topic, and I think the reason it comes up so much is I think people are just confused because, on one hand, you know, we're at the cusps or I don't know, at the earlier innings of the.

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Speaker 6: Next big technological revolution.

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Speaker 5: On the other hand, people are quite confused as to what does that mean for companies tomorrow? What does that mean for earnings tomorrow? And when you see headlines of these huge companies that are laying off hundreds thousands of staff due to AI, and you sometimes get this kind of reverse narrative whips.

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Speaker 6: Maybe we went too far, maybe we're not quite there yet.

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Speaker 5: I think it's just confusion and people are very keen to seek advice, seek guidance, or how should we position this?

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Speaker 6: That's what we pick up.

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Speaker 2: And again one of my biggest supporters was a guy named Ken Rogoffa at Harvard. He's a chess player who you know, happens to do economics. You were the United Kingdom chess champion, I believe at one point. What was it like when you watch the Queen's Gambit, when you watched Anya Taylor Joy and the whole chessing. What was it like being an actual adult in chess when you saw Netflix Chess?

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Speaker 5: Well, I can tell you it was a delight to see that chess has become cooler.

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Speaker 6: It's quite cool. You know Netflix is on it. Everybody was talking about it.

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Speaker 5: Loads of my friends wanted to start learning how to play, and it wasn't the case let's say twenty years ago, that's for sure. So that's really fun and it brought back some great memories.

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Speaker 6: Indeed, do you.

00:12:46
Speaker 2: Think now when the kids are learning all the digital chess stuff is efficacious or do they need to be traditional in sitting you know, the park in New York City with six old guys how to do it well?

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Speaker 5: Look, I think I think the park in New York City is beautiful.

00:13:05
Speaker 6: It's romantic.

00:13:05
Speaker 5: But it's also very important because the online chest is fast. You know a lot of young people are going straight to blitz and if you play on computers, it's a fast undo. So it's it's the slow thinking fast thinking. I think we're not practicing the slow thinking enough. And if you've got a physical board pieces it forces a bit more slow thinking.

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Speaker 2: That's brilliant. I've got a coffee table book, folks, so I'll put out on Twitter and LinkedIn. It talks about all that authentic heritage here in New York. Was captured by the Queen's Gamut Annika Trian. Thank you so much from the worst chess player in the world. She holds court at I n G. Stay with us. More from Bloomberg Surveillance coming up after this.

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Speaker 1: You're listening to the Bloomberg Surveillance podcast just Live weekday afternoons from seven to ten am Eastern Listen on Apple, Karplay and Android Otto with the Bloomberg Business app, or watch us live on YouTube.

00:14:09
Speaker 2: We are going to digress here. Paul's got a zillion questions for Edward Morris definitive on hydrocarbons and the geopolitics of this strange energy that we use. But we are very fortunate. For most Americans, Qatar is either we don't know how to pronounce it, it's he the Qatar or cutter. But the answer is all of these tribes of the Persian Gulf started out in sand with dreams. Daniel Jurgen beautifully captured in the prize years ago, but you lived it. We have just lost the emirror of Qatar. Shi Khamad bin Khalifa Altani, at age seventy four, describe how you build out something like Qatar. How what was it like when you first visited Katar ages ago.

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Speaker 7: I first visited them when they were just beginning to become an LNG exporting country, some four decades ago, maybe a little bit longer than that.

00:15:10
Speaker 2: No skyscrapers, nothing, a Mercedes dealership, and that was it.

00:15:14
Speaker 7: A little bit more than that. So the minister at least had alcohol in his home and there we go.

00:15:21
Speaker 2: That's when you work for John Reed, That's exactly. But but I mean now with this war, with all your encyclopedic knowledge of the Persian Gulf from the Strait all the way up to Cargo Island in Iraq, to lose someone like that, what does it mean for these states, these trucial states, is they face Persia.

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Speaker 7: Well, it's an interesting issue, and you have to look at where they were and where they are now in terms of their income generation. So we have a very large energy facility now opening up in the US, and the Qataris are a major owner of that. If you look at their investment flow, it's ex not internal. So they are in a position where they can weathered this much better than you would have thought with the closure of the Strait of Hormuz twenty years ago or forty years ago. And that's true as well of the UAE. By intention, both countries have relatively low populations and they found a way to sustain themselves, and of course they need as their major source of strategic alliance. The United States hasn't been fully reliable lately, but there's nowhere else to go. The Saudis are in a very different position. They have invested at home much more than they've invested abroad, particularly in terms of revenue generation, although they've managed to do very well during this crisis. A couple of months ago they had their highest monthly revenue that they've had in well over a year, so a combination of factors there. They didn't invest in production abroad, but they certainly have invested in inventory abroad, and they have had a lot of inventory, maybe not enough depending on when where the war goes to from now, but they've been depleting inventory in the other side of the sum d pipeline on the Mediterranean, in Japan, in China, in Korea, and that has served them extremely well. So they're not as badly off as they might have been several decades ago.

00:17:23
Speaker 4: How do we think about the oil the energy in that part of the world, in the Middle East? If I'm Asia, if I'm China, broadly, can I depend upon that part of the world like I have in the past, or something fundamentally change. That's straight will never really really be open.

00:17:38
Speaker 7: Again, That straight will never again be totally free in all likelihood, there's some chance that there's an Iranian domestic upheaval, and you know, given the economic situation in the country, they are hurting significantly. Their unemployment was already at fifty percent before the war began, is up by two million more people at least their inflation rate is unthinkable. People are not extremely happy, So it could there could be a revolution, and it could make the straight more secure again, more likely to be secure again. But no, you're right. We also are in a situation where if you look broadly at the last entry, the last entry was one from the beginning before World War two to sometime in the nineteen seventies, the oil intensity of GDP around the world was growing, and it reached a peak at around nineteen seventy three seventy four, where for every one percent increase in GDP in the world, there was a one point three percent or so increase in oil demand. We've been in a declining oil intensity of GDP nowadays, and this is reliable data. You don't have to worry about year to year things. For every one percent increase in GDP, there's about one point three percent increase in oil demand. And I think that what's happened with this crisis since February is that a lot of countries have found ways to accelerate getting off of that oil dependence. But we're in a new environment, a very new environment, and the UAE Saudi Arabia in particular are taking advantage of it, and that is we're seeing the electricity intensity of GDP going up. You've had a lot of people on talking about AI and cloud computing. This is extremely electricity intensity and the Saudis have been extremely lucky. They've got wind, they've got solar, they have battery power, and they have been weaning themselves off. And you can see it in the oil numbers. They use a lot of oil burning for power generation and by twenty thirty they'll be using none.

00:19:40
Speaker 8: Now.

00:19:40
Speaker 7: The peak of it was like two years ago where they were on average using more than a million barrels a day of oil for power gen and now they're going to have that oil what happens with Hormuz, but they have alternative roots to put it in the international market.

00:19:52
Speaker 2: When you're sitting at home, you're not doing your usual sixty hour edworre's work week, when you're sitting at home watching what we're all watching, except you have this prodigious knowledge of the Persian Gulf and of the oil structure of Iran. In all, what's the number one thing the Trump Administration's getting wrong about the resistance and the diligence and the persistence of the Iranian leadership.

00:20:21
Speaker 7: Well, I think the one number one thing that went wrong, and it's related to that, is relying on their own instincts rather than on the advice of professionals in places like the State Department and the Pentagon. The Pentagon has thought about the strait of horror moves for a very long time that we've had since nineteen eighty since the Iranian revolution, a concern about disruption of supply, and they have thought about it in a way that a wish well thinking Trump administration thought that this would be over in a week, didn't think about what would happen if it was more than a week, and didn't think about what the security of the strait were all about. So I'd say it was a little bit based more not on the thing ebat Iran, but on the hutzba of where they were.

00:21:07
Speaker 2: I got ask is Paul the angry refractament, asked this, You absolutely nailed lower oil prices versus a large body of Wall Street looking for above one hundred dollars a barrel. Even this cacophony, can you continue on a trend of lower oil prices.

00:21:24
Speaker 7: Well, yes and no. There definitely is an oil glut that is there and emerging, and you can see it in terms of what countries are doing. And we have to remember that the UAE left Opec and Opek plus in the month of May, and they were producing before this war began and exporting, but producing around three point two million barrels a day. They're now producing, or were before this event happened. They were producing over four million barrels a day, they claim, and I believe it's true. They have a capacity of close to five million barrels a day and they've announced they're going to six million a day. And they're not alone. We have today the Iraq Prime Minister arriving in Washington. He announced last week before coming here. In a country that has rich in oil, has multiple ways geographically to export that they're not going to be necessarily dependent on this strait. They already have a pipeline to Turkey, they're looking at reding reinstituting pipelines through Syria into Jordan, into Israel even and their goal from a production of three and a half baby now to seven million a day by twenty thirty. So we've got a lot of oil in the world, and I didn't talk about Argentina, the US, Guyana and the like.

00:22:47
Speaker 2: Okay, I'm featuring the Rolling Stones new album all this week on Bloomberg Surveillance. Can I feature you all this week? Can you come back Tuesday, Wednesday, Thursday, Friday.

00:22:57
Speaker 7: I can't manage Tuesday, but I might another day.

00:23:00
Speaker 2: Okay, Edward Morris, thank you so much. Can't say enough of as we'd just just absolutely definitive of course, with accounts on foreign relations and with heart treat the partners stay with us. More from Bloomberg Surveillance coming up after this.

00:23:23
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us Live weekday afternoons from seven to ten am Eastern Listen on Applecarplay and Android Otto with the Bloomberg Business app, or watch us live on YouTube.

00:23:35
Speaker 2: Tending to trace her Veda partners with an update here on where we stand in the middle of July. Henriette, let me just look to the midterms right now. What is the shift If you're gazing cook political report or anything else out there and you're Washington, what is the shift in the House, in the Senate?

00:23:55
Speaker 8: Well, I would say that the main shift is that the economy that Republicans and Democrats and this White House are going into the November election with is the one that they're going to have on election day.

00:24:06
Speaker 6: So effectively, what I.

00:24:07
Speaker 8: Mean by that is the probability of getting a new reconciliation bill through more money for the Pentagon, a gas tax holiday, any of those fiscal spend ideas that still percolate out in the market, The odds are effectively zero now that we move any of that kind of legislation. So for House members, they're going to have to run on gasoline at roughly these prices. On housing, you know, we're not going to get another major bill. This is the affordability landscape that members are going to be going into, and that's largely because there's just a complete stall of activity in both the House and the Senate, in part because of Lindsay Graham's passing, but there are many reasons besides that.

00:24:46
Speaker 4: So does anybody have any momentum going into these mid terms here? It seems like if you just look at the polling boy, the Democrats should be just looking their chops here. But I don't really sense that.

00:24:58
Speaker 8: Yeah, you definitely want to look at genera polling data, that is what suggests who's going to win, and the Democrats have been in the lead on that for more than a year if I'm not mistaken, and they're up by outside of the margin of air five, six, seven, eight, nine points, depending on which polls you're looking at. So the momentum is definitely squarely behind Democrats. I understand your sentiment, Paul, around not feeling the vibes right now.

00:25:22
Speaker 6: I think that's definitely true.

00:25:23
Speaker 8: There's a lot else going on between the interest rates and the FED and the war with Iran that's on again, off again. But I encourage you to sort of look backwards, look to last November where Democrats started to see their outsize gains twelve to twenty one point wins in various cities and states around the country, from Tennessee to New York. That's been perpetuated in every single special election since. So it would take a lot to get that to change or die down. Just because we're not feeling the vibes doesn't mean that it's not persistently there for the Democratic Conference going into an election cycle.

00:25:58
Speaker 4: On the other side, what can the Republicans do? If I'm sitting in a local race here for Congress. What's my play man?

00:26:07
Speaker 8: You know, they had done the kind of unthinkable. They had really pulled it out of a hat to get that housing built through. That you know, certainly sells as bipartisan, certainly sells as trying to do something about affordability. It's about construction of those homes in the future. And then President Trump board cold Water all over that they're going to be meeting in Camp David on the House Budget Committee side and with House leadership throughout this week, I think tomorrow, and they'll try to get a third reconciliation bill through. But I truthly have five percent odds because you're down two men in the United States Senate, you have another and Susan Collins, who is going to have a real tough time taking any reconciliation vote giving the election in Maine. I don't see a path to the fifty one votes that you need. So I don't I'd like I started off. I don't see any bill that's going to pass, aside from a government funding bill that'll basically do the minimum of just not shut it down.

00:27:01
Speaker 2: Henriett A Megan McCain with a beautiful treatment on the Senator from South Carolina this morning in the Washington Post. She reminds us when she was eleven years old and there were these three so oddly different Senators McCain, Lieberman, and Graham. They were the three amigos holding court at Morton's steakhouse. Morton's a steakhouse. I mean, I mean, Henriette is there twice.

00:27:26
Speaker 4: A week at least.

00:27:27
Speaker 2: Players And she says in a terre sentence, it just seems nearly extinct. Can we, at some point post Trump, get back to where we can have a McCain, Lieberman and Graham.

00:27:43
Speaker 8: You know, I served in the Senate when all three of those legends were there, and it was absolutely a different time. The reverence that we walked through the halls with when we saw any of those members. Mitt Ronney is another good example of how we would sort of all operate and look not across party lines, but just incredible respect for these men. I know I certainly had it.

00:28:05
Speaker 6: I think a lot of that.

00:28:06
Speaker 8: Is lost when you sort of degrade members, whether they're Democrats or Republicans in tweets. It just brings down the entire institution. And that's what's really made me sad over the last decade is the downfall of these institutions that so many of us hold in very high regard, in particular the US Senate.

00:28:24
Speaker 2: Henrietta, thank you so much for that remember and Senritta Trace of Aja Partners. I don't think she was at Morton Steakhouse.

00:28:31
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