WEBVTT - Bloomberg Surveillance TV: June 24th, 2026 0:00:02.360 --> 0:00:06.720 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amerie Hordernt. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.840 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.919 anywhere else you listen, and as always on the Bloomberg 0:00:34.000 --> 0:00:37.240 Terminal and the Bloomberg Business app. Let's talk about tech. 0:00:37.280 --> 0:00:39.479 The tech trade Steady and head of Micron earnings due 0:00:39.720 --> 0:00:42.280 after the close today, shares that more than two hundred 0:00:42.320 --> 0:00:45.000 and fifty percent so far this year. Danives of web 0:00:45.080 --> 0:00:47.920 Bush writing, there is some added nervousness on the important 0:00:47.920 --> 0:00:51.479 memoryship trade. We continue to believe that in this market 0:00:51.560 --> 0:00:53.760 we will continue to go through a number of gut 0:00:53.840 --> 0:00:56.360 check moments. Dan Ives of Webus joins us now from 0:00:56.360 --> 0:00:58.480 what Dank and morning, is this one of those gut 0:00:58.520 --> 0:00:59.120 check moments? 0:00:59.400 --> 0:01:01.560 Is thing you saw it with the cost be down 0:01:01.640 --> 0:01:06.119 ten percent? It look the golden childs of this tech 0:01:06.200 --> 0:01:09.000 boom a lot. It's in Korea in terms of memory chips. 0:01:09.160 --> 0:01:11.480 When you think about what's happening with SK and obviously 0:01:11.520 --> 0:01:16.360 Samsung a SK overtaking Samsung Micron such an important quarter 0:01:16.520 --> 0:01:19.560 relative to what we see in terms of demand ripple, 0:01:19.600 --> 0:01:22.920 What does that mean for Nvidia hyperscalurs? But I continue 0:01:22.920 --> 0:01:27.120 to look our checks in Taiwan, in Korea, no cracks 0:01:27.120 --> 0:01:29.200 in the armor. And that's why I just continue to 0:01:29.240 --> 0:01:32.800 believe third inning one out in terms of the AI game. 0:01:32.920 --> 0:01:35.880 Further downstream, though you're starting to say some pushback to 0:01:35.959 --> 0:01:40.319 price increasingly, does that uppend some of the story. 0:01:40.880 --> 0:01:43.600 Look, I think on the edges that could look right 0:01:43.640 --> 0:01:47.760 now demand the supply called twelve fifteen to one in 0:01:47.840 --> 0:01:50.840 terms of where we are relative to chips. So my 0:01:51.040 --> 0:01:55.120 view is like you still even if you had some 0:01:55.200 --> 0:01:57.880 events to even take some demand off, you don't have 0:01:57.960 --> 0:02:01.320 an equilibrium probably for another year and a half two years, 0:02:01.600 --> 0:02:03.800 which in my view just continues to weave like the 0:02:03.880 --> 0:02:06.919 chip trade is what you continue to own. Look hyper 0:02:06.960 --> 0:02:09.000 scours obviously, right, I know that those are kind of 0:02:09.040 --> 0:02:12.360 the penalty box to some extent, but you will see 0:02:12.400 --> 0:02:16.120 some push against price, but it's our view like over 0:02:16.240 --> 0:02:18.840 time price comes down it's all part what we're seeing 0:02:18.840 --> 0:02:19.519 with tokens. 0:02:19.680 --> 0:02:21.880 Profit margins self kind of a key point here because 0:02:21.919 --> 0:02:23.680 profit margins have been just going to the moon. They've 0:02:23.720 --> 0:02:28.040 been incredibly, incredibly robust at some of these semiconductors, in 0:02:28.040 --> 0:02:30.360 part because they can charge whatever they want, and that's changing. 0:02:30.360 --> 0:02:32.760 You are seeing some competition with Google and with Amazon 0:02:33.120 --> 0:02:35.320 coming into the four. At what point do you start 0:02:35.320 --> 0:02:37.320 to see those margins really compress. 0:02:37.680 --> 0:02:40.799 Look, I think right now, if there's a pressure point, 0:02:40.919 --> 0:02:43.760 you probably don't see that for another nine twelve months. 0:02:43.919 --> 0:02:46.560 But just like you said, like competitions coming across the sport, 0:02:46.520 --> 0:02:49.280 it's an arms race, you know really when you think 0:02:49.280 --> 0:02:52.800 from what Meta is doing, to Amazon, to Microsoft, you 0:02:52.880 --> 0:02:55.480 have software companies and now they'll start to produce chips. 0:02:55.480 --> 0:02:58.080 Look what's happening even on the Intel side with Apple. 0:02:58.639 --> 0:03:02.840 So that will definitely only start to pressurize the situation. 0:03:03.240 --> 0:03:05.400 But in my view, it just continues to be like 0:03:05.760 --> 0:03:09.040 we are still so early relative to the build out, 0:03:09.480 --> 0:03:12.480 and that's also you're going to have these gut check moments, 0:03:12.520 --> 0:03:15.400 you'll have these white knuckle periods, But we continue to 0:03:15.520 --> 0:03:19.160 view these as opportunities where you own the AI winners. 0:03:19.200 --> 0:03:21.320 Well the AI winners though, is the key point here? 0:03:21.360 --> 0:03:23.239 How do you know who they are when they're shifting 0:03:23.240 --> 0:03:25.240 around so quickly? And I say this, I thought one 0:03:25.240 --> 0:03:27.280 of the most interesting stories was when Microsoft came out 0:03:27.320 --> 0:03:28.519 and they said that they were going to be using 0:03:28.560 --> 0:03:32.800 deep seek to lower the cost of deploying some of 0:03:32.840 --> 0:03:35.360 their large language models. I mean, is this indicating that 0:03:35.480 --> 0:03:39.080 cost is now a much higher factor on the list 0:03:39.200 --> 0:03:41.720 for a lot of these big tech companies when it 0:03:41.720 --> 0:03:42.800 comes to who they're going to go with. 0:03:43.000 --> 0:03:48.000 Yeah, I think it's obviously technology scale, but cost clearly 0:03:48.000 --> 0:03:51.480 puys in. There's also the models. Over time, the model 0:03:51.560 --> 0:03:53.120 is going to be a cheaper and cheaper. I mean 0:03:53.160 --> 0:03:55.680 the value you actually start to thinking about it's in 0:03:55.760 --> 0:03:58.840 the data, it's in the chips, less about the models. 0:03:58.880 --> 0:04:02.680 Which is why ultimately anthropic open AI, they're so focused 0:04:02.720 --> 0:04:06.960 on enterprise compute, They're focused on all these partnerships because 0:04:07.040 --> 0:04:10.240 essential what's happening. Everyone's building out their own moot for 0:04:10.360 --> 0:04:12.880 their own forward And that's why it's a game of 0:04:12.960 --> 0:04:16.640 musical chairs because eventually someone's left without a chair. Now, 0:04:16.640 --> 0:04:19.720 who are those losers? Look, that's that's our job, that's 0:04:19.760 --> 0:04:21.919 other people's in terms of trying to understand who the 0:04:21.920 --> 0:04:24.599 winners are because you you are starting to see a 0:04:24.600 --> 0:04:27.679 separation in terms of you can't just own the space, 0:04:27.839 --> 0:04:30.000 you can't just own to it speaks to our view 0:04:30.040 --> 0:04:33.960 you have to be selective relative to own the winners, 0:04:34.080 --> 0:04:36.960 making sure that you're not sitting. 0:04:36.279 --> 0:04:39.000 When it comes to enterprise, though, is an anthropic way 0:04:39.000 --> 0:04:39.800 ahead of open AI. 0:04:40.560 --> 0:04:44.080 Look, I think anthropic clearly from a model perspective. I mean, 0:04:44.200 --> 0:04:47.719 it's their world. Everyone's paying rent relative to what they've done. 0:04:47.800 --> 0:04:51.120 But that gap could be narrow quickly. I mean open 0:04:51.160 --> 0:04:53.240 AI is just not going to sit there on a treadmill. 0:04:53.680 --> 0:04:57.640 So open AI they had their bulls eye on their back. Anthropic. 0:04:57.720 --> 0:05:01.080 But you see what's happening with anthropy, Like in terms 0:05:01.120 --> 0:05:04.800 of going after talent from you know, from Google, it's 0:05:04.880 --> 0:05:06.640 this arm because a lot of it is going to 0:05:06.680 --> 0:05:10.680 be it's about the engineers. It's about compute power, and 0:05:10.680 --> 0:05:13.960 that's going to drive more and more debt raises, equity raises, 0:05:14.080 --> 0:05:17.120 and that will be also tests for the market in 0:05:17.240 --> 0:05:18.400 terms of how it handles it. 0:05:18.560 --> 0:05:20.479 I haven't seen you since the President briefed me in 0:05:20.480 --> 0:05:23.320 a few reporters looking into you know, maybe doing something 0:05:23.360 --> 0:05:25.640 public private partnerships in these companies. What do you what 0:05:25.680 --> 0:05:27.560 do you make of that government taking a stake. 0:05:28.640 --> 0:05:33.480 I think it's selectively. It's important if it's done the 0:05:33.560 --> 0:05:36.080 right way, because you could argue if you think Intel 0:05:36.320 --> 0:05:39.440 Intel now I mean they're you know, they're obviously in 0:05:39.480 --> 0:05:41.920 a glorious situation. Look where they were a year and 0:05:41.960 --> 0:05:45.279 a half go. If government doesn't take a stake there, 0:05:45.600 --> 0:05:48.880 which ultimately led to Nvidia and more. Now you look 0:05:48.920 --> 0:05:51.359 at Lip and Intel their core in terms of the 0:05:51.440 --> 0:05:54.239 trade when it comes to quantum I think that's really 0:05:54.279 --> 0:05:56.840 important in terms of some of the government initiatives. And 0:05:56.880 --> 0:05:59.039 I think IBM and Arvin have been kind of front 0:05:59.040 --> 0:06:01.680 and center there because what's happened in China because of 0:06:01.680 --> 0:06:02.240 this arms or. 0:06:02.440 --> 0:06:05.400 Can we finish on two losers? Meta? Microsoft? What do 0:06:05.480 --> 0:06:07.320 I do with those names now? They're in bad markets. 0:06:07.560 --> 0:06:09.600 Everyone's getting all built up on the text story. Some 0:06:09.720 --> 0:06:12.000 of the biggest tech names on the planet. We're in 0:06:12.040 --> 0:06:13.760 a bad market. What you do with those names now? 0:06:13.800 --> 0:06:16.160 I think you have to separate amount of what Microsoft 0:06:16.279 --> 0:06:19.080 I think is the most oversold large cab name. Just 0:06:19.120 --> 0:06:22.520 to my view, have they made stumbles on Copile and 0:06:22.560 --> 0:06:25.440 some other aresa. But in terms of enterprise, their backyard 0:06:26.000 --> 0:06:30.200 as your growth, compute supply issues, I think that's ultimately 0:06:30.240 --> 0:06:32.279 a stock that you know, five five hundred and fifty 0:06:32.279 --> 0:06:34.560 hours stock. So I actually think that continues. Just like 0:06:34.600 --> 0:06:37.160 a year ago, the narrative on Google was so negative. 0:06:37.200 --> 0:06:40.560 Look where we are now from meta Look it's approved 0:06:40.560 --> 0:06:43.479 me like right now, like they're going up Mount ever 0:06:43.680 --> 0:06:46.640 Is without you know, oxygen or whatever. What they're trying 0:06:46.680 --> 0:06:49.640 to do. That will be the prove it moment for 0:06:50.080 --> 0:06:53.400 Zuck as he ultimately tries to go and change the model. 0:06:53.600 --> 0:06:55.880 I think they're going to be successful doing it, but 0:06:55.960 --> 0:06:58.760 they have You can't just spend on cappacks and not showing. 0:06:58.640 --> 0:07:00.279 Results by this. 0:07:00.640 --> 0:07:13.080 More Bloomberg surveillance coming up after this, let's talk about 0:07:13.080 --> 0:07:17.280 the debt dlage facing some PUSHBACKSPACEX selling twenty five billion 0:07:17.320 --> 0:07:19.680 dollars of investment grade bonds and paying Cup to get 0:07:19.720 --> 0:07:21.920 it done. The company's bond mere shuring a twenty thirty 0:07:21.920 --> 0:07:24.440 six pricing at a premium of one point four percentage 0:07:24.440 --> 0:07:27.920 points above treasuries, roughly half a percentage point wider than 0:07:27.920 --> 0:07:30.600 the average spread on other triple B rate of debt 0:07:30.800 --> 0:07:32.840 to discuss A man in the no joining US now 0:07:32.960 --> 0:07:36.480 is JP Morgan's global cohead of IG Financing, John Servedea. 0:07:36.840 --> 0:07:37.880 Good morning, sirs, good to see you. 0:07:37.960 --> 0:07:38.360 Good to see you. 0:07:38.480 --> 0:07:40.000 That's a bit of a gut check, I think for 0:07:40.040 --> 0:07:41.920 investment grade debt. How do you think things went in 0:07:41.920 --> 0:07:43.000 the last twenty four US. 0:07:43.320 --> 0:07:47.280 I think it was another positive signal of the availability 0:07:47.280 --> 0:07:49.520 of capital. If you just take a step back. So 0:07:49.600 --> 0:07:53.280 far this year we've seen six transactions of twenty five 0:07:53.280 --> 0:07:56.400 billion dollars or greater. In all of twenty twenty five 0:07:56.440 --> 0:07:59.440 there were two, So the scale of the capital needs 0:07:59.480 --> 0:08:02.960 continues to grow. Everybody knows that what we're really encouraged 0:08:02.960 --> 0:08:06.560 by is that the market is available and understands that 0:08:06.920 --> 0:08:09.520 and is positioning themselves on the investor side to make 0:08:09.680 --> 0:08:13.880 thoughtful investment decisions to help finance this secular trend that 0:08:14.240 --> 0:08:15.720 is not going anywhere. 0:08:15.800 --> 0:08:17.800 For obvious reasons, we won't spend too much time on 0:08:17.800 --> 0:08:19.520 this one single issue, don't want to get you in 0:08:19.560 --> 0:08:21.760 too much trouble. But further rount along the curve, the 0:08:21.840 --> 0:08:24.360 longer dated maturity, Just how much wider that was trading 0:08:24.440 --> 0:08:27.600 relative to other triple B rated debt, other triple B 0:08:27.720 --> 0:08:30.440 rated pairs. What's the takeaway from that, doubts about the 0:08:30.440 --> 0:08:33.800 credit ratesing agencies? How are you thinking about that the way. 0:08:33.640 --> 0:08:37.160 That we're thinking about the market generally and specifically to 0:08:37.200 --> 0:08:39.880 your question, if you take a big step back, and 0:08:39.920 --> 0:08:43.120 this is no surprise, but credit spreads are at historic tights, 0:08:43.720 --> 0:08:47.640 and so in our view, across the investment grade credit spectrum, 0:08:47.800 --> 0:08:51.800 there should be differentiation based on different ratings and credit profiles. 0:08:52.200 --> 0:08:54.280 So one of the things that I take great comfort 0:08:54.280 --> 0:08:57.600 in is the fact that investors are not blindly buying 0:08:57.640 --> 0:09:00.559 everything right yet. Yes, there's a tremendous amount of capital 0:09:00.880 --> 0:09:03.720 being deployed here, but investors are taking the time to 0:09:03.720 --> 0:09:06.520 do credit work, to understand the stories and to figure 0:09:06.559 --> 0:09:09.360 out relative value in pricing. So to me, a healthy 0:09:09.400 --> 0:09:10.240 sign for the market. 0:09:10.360 --> 0:09:13.640 How nervous are investors getting about the concentration risk that's 0:09:13.679 --> 0:09:16.440 developing given that so much of this debt is tied 0:09:16.480 --> 0:09:17.160 to the AI store. 0:09:17.240 --> 0:09:21.480 Yeah, it's something we're clearly watching very closely. We're still 0:09:21.520 --> 0:09:24.920 at a point where there's a lot of capital available 0:09:25.040 --> 0:09:28.360 and investors are figuring out how they want to play 0:09:28.400 --> 0:09:31.240 this theme. Again, as I just said, this is arguably 0:09:31.600 --> 0:09:35.319 the biggest secular theme in any of our professional lifetimes. 0:09:35.360 --> 0:09:37.360 So as an investor, you have to be part of it. 0:09:37.840 --> 0:09:41.680 The question is how, and so I don't think we're 0:09:41.720 --> 0:09:45.760 at a point yet where concentration limits are a huge concern, 0:09:46.200 --> 0:09:48.480 but it is part of the dialogue because you're absolutely right. 0:09:48.480 --> 0:09:50.840 As a proportion of the overall market, it is growing 0:09:51.320 --> 0:09:52.360 and growing very quickly. 0:09:52.679 --> 0:09:54.000 This is the reason why you're seeing a lot of 0:09:54.000 --> 0:09:57.840 companies look to tap every single corner, picking up quarters 0:09:57.840 --> 0:10:00.760 in the couch questions of Canada and the couch of Japan. 0:10:00.840 --> 0:10:03.560 And at what point is this capital coming from other 0:10:03.640 --> 0:10:07.000 bond portfolios versus new pools of capital, whether it be cash, 0:10:07.040 --> 0:10:09.480 whether it be equities, whether it be private equity. I mean, 0:10:09.520 --> 0:10:11.120 how much are you seeing that really unleashed? 0:10:11.559 --> 0:10:11.760 Well? 0:10:12.240 --> 0:10:14.960 As a debt person, the really exciting part of this 0:10:15.040 --> 0:10:16.680 for me has been there have been a lot more 0:10:16.880 --> 0:10:19.400 coins in the couch cushions, right, and so if you 0:10:19.440 --> 0:10:22.640 look across the global markets, we've led the biggest Canadian 0:10:22.679 --> 0:10:26.000 dollar deal ever done, the biggest Euro deal Stirling deal. 0:10:26.080 --> 0:10:28.680 So these other global markets which have always been there 0:10:29.440 --> 0:10:32.440 have grown in relevance in a very material way such 0:10:32.480 --> 0:10:36.200 that the available capital is much larger, which helps the 0:10:36.240 --> 0:10:39.840 overall ecosystem in terms of how we finance these massive 0:10:39.880 --> 0:10:40.680 CAPEX numbers. 0:10:40.760 --> 0:10:42.319 What's most attractive if you're going to do one of 0:10:42.360 --> 0:10:45.120 these offerings outside the United States, out of all of 0:10:45.120 --> 0:10:47.400 these countries you're talking about. 0:10:47.360 --> 0:10:51.720 It is a combination of diversifying funding sources and demonstrating 0:10:51.760 --> 0:10:55.160 that as an issuer you won't be solely reliant on 0:10:55.360 --> 0:10:58.520 the US corporate bond market, which remains the largest, deepest, 0:10:58.520 --> 0:11:02.240 most liquid buy a lot. In certain cases, there's a 0:11:02.240 --> 0:11:06.640 pricing benefit to it. In certain cases, it's just establishing 0:11:06.640 --> 0:11:08.679 a new investor base so that in the future, you 0:11:08.720 --> 0:11:10.840 know you can go back there. So it really is 0:11:10.920 --> 0:11:14.240 again helpful in the context of we're still in the 0:11:14.320 --> 0:11:15.640 earlier mid innings of this. 0:11:15.920 --> 0:11:17.800 Does it worry you when a company doesn't have cash 0:11:17.800 --> 0:11:21.480 flows that really compensate over the debt and over the 0:11:21.520 --> 0:11:23.920 expenses that they have, And yes, I'm talking about SpaceX, 0:11:23.920 --> 0:11:25.200 but there are a number of them that are probably 0:11:25.240 --> 0:11:27.360 going to be coming to market. I'm thinking if this 0:11:27.400 --> 0:11:29.400 is a model, we could see something similar from open 0:11:29.400 --> 0:11:31.719 AI and Anthropic. Once they IPO, then there's going to 0:11:31.720 --> 0:11:34.280 be a follow on debt offering. How important is it 0:11:34.320 --> 0:11:36.760 for people to see the show me the money, the 0:11:36.800 --> 0:11:39.440 sort of the cash flows that can continue in perpetuity 0:11:39.760 --> 0:11:42.800 to overcome some of these huge debt piles. 0:11:43.320 --> 0:11:46.080 Yeah, it's going to be interesting to see as the 0:11:46.120 --> 0:11:50.120 story plays out. And you're absolutely right that the cash 0:11:50.160 --> 0:11:53.440 flow profile of many of these companies is very different 0:11:53.440 --> 0:11:56.840 from what your average investment grade investor is used to seeing. 0:11:57.559 --> 0:12:00.880 The reality is there our investor bases getting so up 0:12:00.880 --> 0:12:03.600 to speed on all of these stories in and around 0:12:03.640 --> 0:12:07.800 the IPO that I think they're prepared to deploy capital 0:12:08.200 --> 0:12:11.800 as needed pretty quickly. Again, it will play out over 0:12:11.880 --> 0:12:14.760 time in terms of cash flow profile or what the 0:12:14.760 --> 0:12:18.080 capex curve looks like relative to servicing the debt. 0:12:18.400 --> 0:12:20.200 We're not there yet, John, You've been in the market 0:12:20.240 --> 0:12:22.959 a long time. How would you frame this moment historically 0:12:23.040 --> 0:12:24.240 if you ever seen anything like this? 0:12:24.400 --> 0:12:29.360 No, this is again to me, this is the biggest 0:12:29.400 --> 0:12:32.720 theme we've seen in a very long time. What's particularly 0:12:32.760 --> 0:12:38.200 exciting for me as well is the level of creativity 0:12:38.240 --> 0:12:40.679 that is required to finance all of this. Right, if 0:12:40.679 --> 0:12:45.040 you go back one year, there was a very predominant 0:12:45.080 --> 0:12:48.520 market narrative that the hyperscalers would finance a lot of 0:12:48.520 --> 0:12:51.920 this through free cash flow from there to several hundred 0:12:51.960 --> 0:12:55.480 billions of dollars of debt issuance around the world, a 0:12:55.520 --> 0:13:00.840 lot of asset level project financing equity issuance in twelve months. 0:13:01.320 --> 0:13:05.080 That's an incredible journey as a capital markets person, and 0:13:05.160 --> 0:13:09.319 so for us, thinking about how to raise this capital 0:13:09.360 --> 0:13:12.960 in the most efficient way requires a lot more creativity, 0:13:13.200 --> 0:13:16.360 a lot more product agnosticism. It's not just if your 0:13:16.440 --> 0:13:20.160 capital need looks like X, then go to this market. 0:13:21.000 --> 0:13:23.679 They're getting creative. And I wonder there's something on your 0:13:23.720 --> 0:13:26.280 dashboard that would trigger concern and I don't think with 0:13:26.360 --> 0:13:28.080 that again, listen to you right now, But what would 0:13:28.080 --> 0:13:30.160 come up on your dashboard that would say, I think 0:13:30.160 --> 0:13:32.959 things againstuphon? When would the red lights star flash. 0:13:32.720 --> 0:13:36.880 In the red lights would start flashing if it felt 0:13:36.880 --> 0:13:39.839 like there was blind euphoria, And again, it does not 0:13:40.040 --> 0:13:44.800 feel that way, whether it's underlying credit work or in 0:13:44.880 --> 0:13:49.000 project financing, where it's looking at the actual contract terms. 0:13:49.120 --> 0:13:52.559 Investors are doing the work and understanding what's actually happening here. 0:13:53.000 --> 0:13:55.920 If you move it away from the AI ecosystem theme, 0:13:56.440 --> 0:13:58.360 what we're all watching is and I said this at 0:13:58.400 --> 0:14:02.120 the outset is credit spreads are just historically tight. If 0:14:02.160 --> 0:14:06.080 you buy a generic investment grade bond today, eighty five 0:14:06.120 --> 0:14:10.320 percent of your coupon is a treasury yield, and so 0:14:10.440 --> 0:14:13.199 effectively it's an enhanced treasury, right, and so I think 0:14:13.240 --> 0:14:17.400 about you know what that means in a rockier economic environment. 0:14:17.480 --> 0:14:19.440 Well, the question we've been asking is why people so 0:14:19.520 --> 0:14:22.560 much more comfortable taking the credit risk when the additional 0:14:22.600 --> 0:14:24.440 yield is so small. And I seem to be more 0:14:24.440 --> 0:14:27.000 concerned about the trenchery than they on the corporate credit. Yeah, 0:14:27.280 --> 0:14:28.479 you hearing the same think. 0:14:28.760 --> 0:14:31.280 Yeah, And it's interesting. Part of it is corporate credit 0:14:31.320 --> 0:14:33.880 fundamentals in general remain very strong, and so there's a 0:14:33.920 --> 0:14:37.800 comfort level with that. But there is also just a 0:14:37.840 --> 0:14:41.160 tremendous amount of capital that has to be deployed. But 0:14:41.200 --> 0:14:44.280 I do think again with even within the investment grade universe, 0:14:44.320 --> 0:14:48.040 there is differentiation. But you're absolutely right it is to me, 0:14:48.160 --> 0:14:51.320 that's what we're watching is it's a historically tight spread. 0:14:52.000 --> 0:14:55.280 Stay with US multile imperg savans coming up off to 0:14:55.400 --> 0:15:07.240 this the next read on inflation twenty four hours away 0:15:07.240 --> 0:15:11.440 with PC data just around the corner, Francis Donald of RBC, writing, 0:15:11.520 --> 0:15:14.600 the new wrinkle in our outlook is Wash positioning the 0:15:14.640 --> 0:15:17.160 FED as keen to return inflation back to two percent. 0:15:17.400 --> 0:15:20.320 Should the Fed begin hiking, the heat under inflation may 0:15:20.320 --> 0:15:23.280 be more contained. Francis joins us now for more, Francis, 0:15:23.320 --> 0:15:25.360 good morning, good to see you. Debate we've had so 0:15:25.440 --> 0:15:27.920 far this morning and over the last week is whether 0:15:27.960 --> 0:15:30.880 this is a change in style or substance, a change 0:15:30.880 --> 0:15:33.560 in policy or how we communicate policy. How would you 0:15:33.600 --> 0:15:34.720 describe it? 0:15:34.800 --> 0:15:37.560 Certainly a change in style, and we'll wait to see 0:15:37.600 --> 0:15:40.640 whether it's a change in substance. But John Artik has 0:15:40.680 --> 0:15:43.840 always been follow the data. The data will tell us 0:15:43.840 --> 0:15:46.440 where central banks are going to go, give or take 0:15:46.440 --> 0:15:48.440 a little bias to one side or the other twenty 0:15:48.440 --> 0:15:51.080 five to fifty basis points. And right now the problem 0:15:51.200 --> 0:15:54.240 is inflation, which finally we have a share of the 0:15:54.280 --> 0:15:57.560 Federal Reserve which is calling it out. You know, thirty 0:15:57.560 --> 0:16:01.200 percent of the CPI basket is running above I'm sorry, 0:16:01.240 --> 0:16:04.000 forty percent of the CPI of basket is running above 0:16:04.360 --> 0:16:08.960 three percent right now, including food, daycare, healthcare, even pet 0:16:09.000 --> 0:16:12.320 services are running above three percent, way away from that 0:16:12.400 --> 0:16:15.240 FEDCE target. And there is more inflation in the system 0:16:15.320 --> 0:16:18.040 outside of energy. This is a central bank that is 0:16:18.080 --> 0:16:20.080 going to have to contend with that. But more importantly, 0:16:20.240 --> 0:16:22.680 this is an American per people that is going to 0:16:22.720 --> 0:16:25.960 have to contend with ongoing inflationary pressures in core services 0:16:26.200 --> 0:16:28.360 all the way to food. And this is a central 0:16:28.400 --> 0:16:30.680 bank that is finally acknowledging there is a problem here 0:16:30.680 --> 0:16:31.920 and something needs to be done about it. 0:16:31.960 --> 0:16:33.840 And can they address the problem of for inscis how 0:16:33.920 --> 0:16:36.960 right sensitive is that demand that's leading to this price pressure? 0:16:37.760 --> 0:16:39.960 Well, this is the challenge. There is a lot of 0:16:40.000 --> 0:16:43.600 breadth under inflation and who's bearing the challenges of that. 0:16:43.680 --> 0:16:47.200 While it's low and middle income Americans. And while our 0:16:47.240 --> 0:16:50.040 take has been that the inflation issue is not really 0:16:50.120 --> 0:16:53.880 an energy issue, that has been one compounding factor, what's 0:16:53.960 --> 0:16:56.400 happening under the surface is there are cracks starting to 0:16:56.480 --> 0:17:00.280 form amongst low and middle income Americans. That's saving rate 0:17:00.280 --> 0:17:03.680 has dropped pretty precipitously since the start of the energy crash. 0:17:03.880 --> 0:17:06.560 We've seen an uptick and credit usage, real wages have 0:17:06.600 --> 0:17:09.720 gone more negative, and so there are signs yellow flags, 0:17:09.760 --> 0:17:12.800 I would say, for low and middle income Americans that 0:17:12.840 --> 0:17:15.320 are struggling. Now if we raise interest rates, it's a 0:17:15.400 --> 0:17:17.800 catch twenty two. And this is a central bank that 0:17:17.880 --> 0:17:20.280 hasn't really had to deal with this challenge of the 0:17:20.359 --> 0:17:23.600 K shaped economy, which is being divided by demographics and 0:17:23.640 --> 0:17:26.240 also by income uses. So this I think will be 0:17:26.280 --> 0:17:29.679 Warsha's biggest challenge, not inflation. If it was straightforward inflation 0:17:30.040 --> 0:17:32.840 and the regular pre pandemic economy, you could hike interest 0:17:32.880 --> 0:17:36.159 rates bring down. But now with a very weak bottom 0:17:36.240 --> 0:17:39.639 ninety percent of American consumers, you hike interest rates just 0:17:39.680 --> 0:17:42.560 too far, you risk a much bigger slowdown in the consumer. 0:17:42.760 --> 0:17:45.159 What's a bigger hit on the income of lower income 0:17:45.200 --> 0:17:49.160 consumers for insis interest rates going higher or the way 0:17:49.200 --> 0:17:52.280 that inflation has ticked up at a number of different components. 0:17:53.880 --> 0:17:57.040 I'm continuously worried about food price inflation, and a lot 0:17:57.040 --> 0:17:59.560 of our leading indicators tell us there is still some 0:17:59.720 --> 0:18:02.600 impact coming from that from the conflict in the Middle 0:18:02.640 --> 0:18:05.520 East that will be more lagged. Food inflation is one 0:18:05.520 --> 0:18:08.320 of those pieces of inflation that Americans see every single 0:18:08.400 --> 0:18:11.879 day and they cannot substitute away from it. Sometimes we 0:18:11.920 --> 0:18:14.680 see some moves from beef to chicken to peanut butter. 0:18:14.800 --> 0:18:17.600 But everybody has to eat, so keeping your eye on 0:18:17.640 --> 0:18:20.040 food price inflation is going to be critical. And here's 0:18:20.080 --> 0:18:22.520 the big challenge is the part of my job is 0:18:22.600 --> 0:18:25.120 to talk to everyone from hedge funds who are looking 0:18:25.119 --> 0:18:27.480 at headline inflation and how rates are pricing that in 0:18:27.760 --> 0:18:30.439 but all the way over to CEOs. Now, markets are 0:18:30.480 --> 0:18:33.280 going to be very relieved because inflation has probably peaked 0:18:33.280 --> 0:18:36.240 in headline terms, and by Q two of twenty twenty seven. 0:18:36.280 --> 0:18:38.320 Once we get to the summer of twenty twenty seven, 0:18:38.680 --> 0:18:41.479 our call is at headline inflation will be sub two percent. 0:18:41.880 --> 0:18:44.240 But if you're CEO running a business, particularly one that's 0:18:44.280 --> 0:18:47.520 exposed to consumers, consumers are still going to be struggling 0:18:47.520 --> 0:18:50.199 with price pain that isn't going backwards. So you're going 0:18:50.240 --> 0:18:53.119 to get a dichotomy here between headline inflation that maybe 0:18:53.160 --> 0:18:57.359 soothes the FED, maybe soothes markets, but doesn't impact real America, 0:18:57.400 --> 0:19:00.280 and navigating that transition is going to be challenging through 0:19:00.280 --> 0:19:02.400 the rest of twenty twenty six and into twenty twenty seven. 0:19:02.480 --> 0:19:05.040 Are you seeing any, for lack of a better phrase, 0:19:05.080 --> 0:19:09.000 trickle down from the hyperscaler investment the capex et cetera, 0:19:09.400 --> 0:19:13.720 to middle and lower income just average consumers, given the 0:19:13.760 --> 0:19:16.800 fact that so much of the growth has really come 0:19:16.840 --> 0:19:18.960 from there, and if you strip that out, the US 0:19:19.160 --> 0:19:22.320 would probably be in a shrinking type of condition. 0:19:23.240 --> 0:19:25.520 Well we wouldn't be shrinking, but we certainly wouldn't be 0:19:25.520 --> 0:19:28.040 close to two percent, which is about where we see 0:19:28.040 --> 0:19:30.680 the trend economy going right now. That two percent is coming, 0:19:30.960 --> 0:19:34.680 of course from this massive infrastructure build out, it's also 0:19:34.720 --> 0:19:37.479 coming from big government and of course the savior of 0:19:37.520 --> 0:19:41.080 the headline consumer, which is that top ten percent. What's 0:19:41.119 --> 0:19:43.359 going to continue to matter for consumers and why we 0:19:43.600 --> 0:19:46.119 think that the US economy can persist a two percent 0:19:46.520 --> 0:19:49.520 is because the labor market is very, very tight. That 0:19:49.560 --> 0:19:52.159 will continue to be the most important thing. And the 0:19:52.240 --> 0:19:54.560 labor market is going to stay tight and has nothing 0:19:54.600 --> 0:19:56.480 to do or almost little to do with what's happening 0:19:56.520 --> 0:19:58.960 in AI. It has to do with mass retirements, a 0:19:59.000 --> 0:20:02.080 shrinking labor force, par anticipation rate, and a consumer that 0:20:02.200 --> 0:20:04.200 now is not going to be judged on whether they 0:20:04.240 --> 0:20:06.800 have a job or not, but are they making enough 0:20:06.840 --> 0:20:10.200 money and working enough hours in order to pay for life. 0:20:10.320 --> 0:20:12.840