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Speaker 2: Okay, folks, what we're going to talk about you. We're
Speaker 2: not gonna talk dsge. We're not going to talk intercals
Speaker 2: within intericals or derivatives the mathiveness that Richard Clarett has
Speaker 2: acclaimed for the former vice chairman of the FED. I
Speaker 2: don't want to know when the Fed's going to cut
Speaker 2: rates or all that. We're going to talk about what
Speaker 2: you did at Columbia. Okay, Richard Claret of folks went
Speaker 2: into Columbia with some massive hires in retention of one
Speaker 2: of the best faculties in the planet. It goes back
Speaker 2: to Luvin in Belgium, it goes back to some of
Speaker 2: the way back work in Germany, and of course the
Speaker 2: combine out of England is well, you retained a laureate Stiglitz. Yeah,
Speaker 2: you dealt with Jeff Sachs with all of his ability.
Speaker 2: In that you have ned Phelps with this massive eclectic
Speaker 2: view over time. Colombia owns the social analysis. Good morning Chicago,
Speaker 2: and mister Becker, you own the social analysis of this
Speaker 2: K shaped economy. Jeff Sacks wrote a book twenty years ago.
Speaker 2: I'm going to say it was way out front on
Speaker 2: this how case shaped are we? When you talk to
Speaker 2: your friends and Romans and countrymen in Colombia, how K
Speaker 2: shaped are we now? Doctor Claardon.
Speaker 3: Well, and also you left out Bob Mandell, Chili a
Speaker 3: giant and international monetary economics. So it certainly been a
Speaker 3: treat to be at Columbia all these years. We're definitely
Speaker 3: in a K shape economy. I think we've been moving
Speaker 3: in that direction for thirty years. Not in a straight line,
Speaker 3: but the trend has definitely been in that direction. I
Speaker 3: think the events with the pandemic, the policy response, and
Speaker 3: the like amplified some of those trends. You know, in America,
Speaker 3: if you own your home, as sixty percent of people do,
Speaker 3: and if you own stock, you've had a very good run.
Speaker 4: But that means there's.
Speaker 3: A substantial fraction of the country that has not been participating.
Speaker 3: Maybe if I can just parachute a bit in on this.
Speaker 3: You know, at the FED. When the economy slows, you
Speaker 3: cut rates, and I certainly did that at my time
Speaker 3: at the FED.
Speaker 4: And the FED.
Speaker 3: Understands that when it lowers rates, it's going to support
Speaker 3: the labor market, which is good and for a lot
Speaker 3: of people that is their stake in the economy.
Speaker 5: Is their job.
Speaker 3: But low rates also lead to higher acid valuations and
Speaker 3: also leads to some of the trends that you've mentioned
Speaker 3: in the case shape economy. And so I think central
Speaker 3: bankers understand that, but their toolkit is really pretty limited.
Speaker 3: So I think that's how we end up with this dynamic.
Speaker 6: How does it fit a reserve? Any central bank deal
Speaker 6: with a black swan like, oh, I don't know, a
Speaker 6: war and rent that came out of nowhere. I mean,
Speaker 6: how does a FED typically look at those types of events.
Speaker 3: It's difficult to predict back swanp black swans almost by definition.
Speaker 3: So what you try to do is you try to
Speaker 3: do analysis. You try to look back at history. You know,
Speaker 3: history doesn't repeat, but it rhymes as the saying goes.
Speaker 3: And so I'm sure at the FED they're looking at
Speaker 3: past oil shocks, past Middle East conflicts, but they'll also
Speaker 3: have to fix factor in Paul that it's a different
Speaker 3: US economy than you know back in my college years
Speaker 3: in the nineteen seventies. In particular of the US is
Speaker 3: a net energy export. Important, however, is in the FEDS
Speaker 3: models it's still the case that when energy prices go up,
Speaker 3: the economy slows, and I think the main reason for
Speaker 3: that is that roads real incomes for a lot of workers.
Speaker 3: Also the fact that the US imports a lot of
Speaker 3: goods that have a high energy content, and so yes,
Speaker 3: you'd better be an exporter than an importer. But the
Speaker 3: US is not insulated from this shop.
Speaker 2: Karl Marx comes from the giant Thomas soul Out at Hoover. Yeah,
Speaker 2: and also from my great mentor in London, Megduan to Saia,
Speaker 2: who we lost last year, Carl Marx said in the
Speaker 2: British Museum reading room and wrote a treatise on the
Speaker 2: end of capitalism, and the bottom line is by definition
Speaker 2: we become ever more k shaped, evermore divided, and there's
Speaker 2: corrective solutions. Do you worry that within all of the
Speaker 2: institutions of you, as you've represented, that we're getting to
Speaker 2: stress points where it falls apart.
Speaker 4: Well, I'm not sure of that, but certainly.
Speaker 3: The trends, as I mentioned, since twenty twenty have definitely
Speaker 3: moved more in that direction. I would point out, though,
Speaker 3: that we have had periods not all that long ago,
Speaker 3: you know, certainly in the last part of Obama and
Speaker 3: during the first Trump term, before the before the pandemic,
Speaker 3: you actually had some of those K shaped trends reversing
Speaker 3: and lower desk. And I can certainly tell you that
Speaker 3: during my time at the FED, it was one of
Speaker 3: my focuses. That's one reason why the FED got a
Speaker 3: lot of criticism for cutting rates in twenty nineteen, because
Speaker 3: the unemployment rate was below four percent, and some models
Speaker 3: were saying, oh, you can't operate the economy below four
Speaker 3: percent unemployment. And our attitude, well, let's see how the
Speaker 3: economy operates. And I think that was a positive development.
Speaker 3: And so I think policymakers do need when they are
Speaker 3: in healthy economy to allow the economy to reach its potential.
Speaker 6: Well, one could argue, I mean the war. Notwithstanding the
Speaker 6: economy is generally performing well in terms of growth, the
Speaker 6: unemployment still looks like at our near full employment. Sure,
Speaker 6: I guess that's a recipe for the FED to say,
Speaker 6: all right, we're doing our job and maybe we can
Speaker 6: just sit down, stand down a little bit. Is that
Speaker 6: what you expect the FED to do over the next
Speaker 6: several meetings?
Speaker 5: I do.
Speaker 3: I think that they've pretty much signaled that the existing
Speaker 3: FED before Kevin Warsh arrives, it is happy right now
Speaker 3: to step back see how the economy evolves with its
Speaker 3: energy shock. It is interesting, though, that they did indicate
Speaker 3: that most of the members of the committee still see
Speaker 3: at least one cut this year and next year as appropriate,
Speaker 3: and so I would think that over time Kevin Warsh
Speaker 3: will be able to get the Committee to cut rates
Speaker 3: at least a couple more times, but it may not
Speaker 3: happen for for a while.
Speaker 2: Richard Clarina with this folks of Columbia, of course of
Speaker 2: PIMCO as well, global economic advisor in the former chair
Speaker 2: of the Federal former vice chair, It's going to give
Speaker 2: you a promotion Therey formervice chair the Federal system as well. Okay,
Speaker 2: I've got to get you in trouble. Myrone was and
Speaker 2: Governor Myron was in with John Farrell. John I thought
Speaker 2: was great. Good, there's a FED reacting after the fact, folks,
Speaker 2: John Tucker told me the Latin is ex post, and
Speaker 2: then there's this whole dream of getting out front and
Speaker 2: fixing it before it screws up, called ex ANTI. I
Speaker 2: would suggest Governor Myron is not nearly ex post. Is
Speaker 2: his brethren at the FED. He genuinely wants to get
Speaker 2: x anti. Is there any evidence of a successful central
Speaker 2: bank trying to get out front of the model?
Speaker 4: Well, you have to look pretty long and hard to
Speaker 4: find that.
Speaker 2: New testament.
Speaker 3: Yeah, you know, models are tools, but they're backward looking,
Speaker 3: and in particular, I think oftentimes the argument that Governor
Speaker 3: Myron has made is he.
Speaker 4: He has a personal individual belief that the.
Speaker 3: Neutral interest rate in the US is well below the
Speaker 3: current level and well below where the committee believes. You know,
Speaker 3: he could be right, but I don't think that is
Speaker 3: the view on the committee, So I think he'll continue
Speaker 3: to be a minority view on that.
Speaker 6: You mentioned mister Walsh taking the FED chair seat later
Speaker 6: this year.
Speaker 5: In several months time.
Speaker 6: I'm not sure we've got a path for that to happen.
Speaker 6: How concerned are you about some of the noise surrounding
Speaker 6: that whole.
Speaker 3: Well, I think it's pretty clear now that in order
Speaker 3: to become a FED chair you've got to be confirmed
Speaker 3: by the Senate, and to be confirmed by the Senate,
Speaker 3: you have to have an affirmative.
Speaker 4: Vote in the Banking Committee.
Speaker 3: And right now, Senator till Us has indicated he will
Speaker 3: not support any FED nominee, including Warsh, who he thinks
Speaker 3: would be a good choice, until the current situation with
Speaker 3: the Justice Department subpoenas and the FED is resolved. And
Speaker 3: Power more or less said that himself that he's not
Speaker 3: going anywhere until it's resolved. We do think it will
Speaker 3: be resolved. We do think eventually Warsh becomes chair. The
Speaker 3: timing of that is uncertain. Whether or not it happens
Speaker 3: in time for the June meeting is too soon to tell.
Speaker 3: But we do a thing eventually that it will get resolved.
Speaker 2: The first thing I did with AI, yeah, Tom Sekunda
Speaker 2: was our founders grabbed me by the cheese its rack
Speaker 2: in the food court, so that we need a briefing.
Speaker 2: And is mister Secunda's leadership. Folks on AI is noted
Speaker 2: across a ten state area. Richard Clarita, he said, here's AI.
Speaker 2: Get up to speed on it. Richard Clarita is up
Speaker 2: to speed on AI right now? Is it a job
Speaker 2: creator or is it a job loser?
Speaker 3: Well, right now doesn't appear to be either in the data.
Speaker 3: And I think there is as many opinions on this
Speaker 3: as there are people that you talk to. Myself, I am.
Speaker 3: I'm skeptical that in the next year or so we're
Speaker 3: going to see a dramatic change in the labor market
Speaker 3: because of AI. The models are impressive, but the analogy
Speaker 3: I like to use is even their developers admit right
Speaker 3: they hallucinate.
Speaker 4: Hallucination is a feature, not a bug.
Speaker 3: And I don't know about you, a Bloomber, but I
Speaker 3: can tell you at PIMCO, we don't hire a lot
Speaker 3: of employees who say part of my job description is
Speaker 3: I'm going to hallucinate, And so I think until they
Speaker 3: figure that out, it may not have as much an
Speaker 3: effect on the labor market as people think.
Speaker 2: You and I used a Kueful and Asker slide rule. Okay,
Speaker 2: the only way you can learn logs is a slide rule.
Speaker 2: Remember when the Hewlett Packard cat or the rich kids
Speaker 2: had the Helett Packard.
Speaker 4: What was it called reverse polish reverse polish notation.
Speaker 2: I got one on my phone here, But to me,
Speaker 2: it's the same shift where the professors are going mental
Speaker 2: and clash and use your calculator and all that, and
Speaker 2: we're just gonna get We're gonna deal with it.
Speaker 5: I think we're gonna deal.
Speaker 3: With it, and remember that near term, in order to
Speaker 3: get the nirvana of AI benefits, there has to be
Speaker 3: a lot of capital spending, data centers, power generation, and
Speaker 3: so that the interesting thing about AI right now is
Speaker 3: that it's really a driver of a lot of the
Speaker 3: old traditional bricks and mortar economy.
Speaker 2: One final question, Yes, sir own Powell. Yeah, you've been
Speaker 2: a staunch defender of him. He's had a pretty good
Speaker 2: ten days week here. Yeah. And so the governor as well,
Speaker 2: under duress, what's his value add to the American people
Speaker 2: to serve out all of his different tenures.
Speaker 4: Well, I think it's important.
Speaker 5: I think I think J.
Speaker 3: Powell recognizes that, you know, the first sentence and eventually,
Speaker 3: whenever his New York Times obituary is written, is he
Speaker 3: wants to make sure that it says something along the
Speaker 3: lines as chair Powell Report, restore price stability and maintained
Speaker 3: the Fed's independence.
Speaker 4: And I think that he is going to achieve that.
Speaker 2: Thank you so much, Richard Claire to coming. Was this
Speaker 2: okay that we didn't do monetary parlor game?
Speaker 3: Can I also say it must be opening day because
Speaker 3: mister Kean's wearing a tomorrow probably mister Sweeney, of course,
Speaker 3: My god, where's the duke?
Speaker 6: I know, are you going to the game? Not going
Speaker 6: to the game, But it'll be a great game.
Speaker 2: I'm afraid to ask. How's your bracket?
Speaker 3: Yes, well, I'm a loyal alam of the University of
Speaker 3: Illinois and I picked them.
Speaker 4: At least on that part of the bracket.
Speaker 3: I'm doing pretty well, although I got to tell you,
Speaker 3: what's this playing a tournament game on a home court
Speaker 3: for the number two?
Speaker 2: Do they have a bracket pool at the FED? Oh yeah,
Speaker 2: PhDs all the stuff? I think so ringer there, you know,
Speaker 2: like Vince Ryanair years ago was reading three years in
Speaker 2: a row.
Speaker 4: Anyway, go line on.
Speaker 2: Okay, Richard Claire, thank you so much, greatly, greatly appreciated.
Speaker 2: Stay with us. More from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
Speaker 1: weekday afternoons from seven to ten am Eastern Listen on
Speaker 1: Applecarplay and Android Otto with the Bloomberg business app or
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Speaker 2: Tina Fordham is a force on LinkedIn and research effort
Speaker 2: at Fordham Global Foresight is world class. Where thrilled we
Speaker 2: could get a briefing this morning, Tina. And all the
Speaker 2: years I've done this, I have never ever seen a
Speaker 2: morning like this, a cacophony of news sources, headlines, different
Speaker 2: cross currents this way that I'm completely relying on the
Speaker 2: acclaimed t live of Bloomberg with its translation abilities. Give
Speaker 2: us your update on the veracity of a fifteen point
Speaker 2: piece plan.
Speaker 7: No one knows Tom.
Speaker 8: The idea of coordinating with Pakistan on this is interesting.
Speaker 8: It is something that we heard through our sources over
Speaker 8: the last couple of days. What I think is really,
Speaker 8: you know, fascinating and so important for kind of gaming
Speaker 8: out the power balance here is that Iran, having been
Speaker 8: presumed to be a weak military force, actually finds itself
Speaker 8: with more leverage than anybody thought right now and is
Speaker 8: issuing some pretty robust statements about its commitment to defending
Speaker 8: its land even as the eighty second Airborne is on
Speaker 8: the way.
Speaker 2: Does President Trump and whomver of America have an identified
Speaker 2: Iranian leadership they can speak to.
Speaker 8: Well there's some suggestion about who they might be speaking to.
Speaker 8: But one of our problems, you know, and I put
Speaker 8: both of us in the same boat here is the
Speaker 8: presence of so many unreliable narrators, including the President of
Speaker 8: the United States. Now he is clearly looking for an interlocutor,
Speaker 8: as he said himself.
Speaker 7: So many of them have been killed.
Speaker 8: They've been assassinated by Israel, who have eliminated that whole
Speaker 8: kind of middle.
Speaker 7: Cadre of possible successors.
Speaker 8: I know that the Iranian succession is for leaders deep,
Speaker 8: but you've got to have somebody to talk to to
Speaker 8: make a deal, and you have to have a counterparty
Speaker 8: that wants to accept that.
Speaker 7: Right now, Iran is signaling strength.
Speaker 6: So Tina, I have to ask, where's the US State
Speaker 6: Department in all of this? Don't we have like a
Speaker 6: whole section of government that does this kind of stuff,
Speaker 6: negotiates with the countries, really thinks about how to craft
Speaker 6: these agreements. Is that is there any a sense that
Speaker 6: there's involvement here?
Speaker 8: Well, we haven't seen much from the Secretary of State.
Speaker 8: And not only that at the kind of you know,
Speaker 8: the line levels, so many of the embassy's US embassies
Speaker 8: in the Middle East are without a US ambassador, so
Speaker 8: everything's concentrated in the president who values surprise, it confuses
Speaker 8: that Jesus out of market participants among others. I've been
Speaker 8: talking to corporates, including in the Middle least, who are
Speaker 8: you know, bewildered about all of this. The geopolitical butterfly effect,
Speaker 8: as I call it, the kind of knock on effects
Speaker 8: are manifold, but one of the ones that's caught my
Speaker 8: attention is a reminder that after the nineteen seventy three
Speaker 8: oil price shock, no incumbents in major countries were re elected.
Speaker 7: So this is going to be sending a cool, you know,
Speaker 7: chill win.
Speaker 8: Not just the inflation shock, but the political outlook from
Speaker 8: all of this is not going to endear the United
Speaker 8: States to anybody.
Speaker 2: Across the United States around the world. This morning, Tina
Speaker 2: Fordham where it's a Ford and Global Foresight, Paul Sweeney
Speaker 2: and Tom Keene with a news flow this morning extraordinary,
Speaker 2: there's an upfield to it. With a fifteen point piece
Speaker 2: plan futures up sixty down, futures up four forty six,
Speaker 2: The vixen well over a stick, but oil now under
Speaker 2: ninety eight ninety seven point seventy one on Brent Crude.
Speaker 2: Your acclaim is a cultural synthesis of your study a
Speaker 2: foreign policy of international relations. Now we have a presence
Speaker 2: talking to Tim O'Brien of Bloomberg Opinion. Yesterday you go
Speaker 2: up to the food court. I'm having a bag of
Speaker 2: apricots and Tim O'Brien's having a full English. Sure up there,
Speaker 2: you know the whole thing, And Tina, I'm talking to
Speaker 2: Tim O'Brien, who owns the understanding of Trump. We've got
Speaker 2: a guy who's deal transaction based in that Culturally, how
Speaker 2: is that Trumpian deal transaction process greeted by the Arab
Speaker 2: and separately by the Persian world.
Speaker 7: How is it created by Well?
Speaker 8: I mean he is somebody who values making a deal
Speaker 8: above all, but also winning above all. And what I
Speaker 8: think is very concerning is that it's hard to imagine
Speaker 8: an easy win here. As we get further in, you
Speaker 8: start to you know, hear references to that Q word
Speaker 8: from the Vietnam era quagmire.
Speaker 7: Now, the President probably won't want to allow that to happen.
Speaker 8: But you know, thinking about your previous guest and what
Speaker 8: others like Mohammed a Larian are saying.
Speaker 7: The impact of this oil price shock.
Speaker 8: Even if it's stopped tomorrow, it will you know, continue
Speaker 8: for some months.
Speaker 7: We're already in this shock.
Speaker 8: So calling that a win, I mean most market participants
Speaker 8: I speak to say, well, the president can kind of.
Speaker 7: You know, he can quit any time. He can quit
Speaker 7: this war and call it a victory anytime.
Speaker 8: Maybe, But we still come back to first principles, which
Speaker 8: is who's going to lead the country. And this notion
Speaker 8: of the world's most unusual joint venture proposition with the Ayatola,
Speaker 8: as President Trump put it, and himself, you know, kind
Speaker 8: of co owning the Strait of Hormuz. It's hard to
Speaker 8: think about how you execute that kind of arrangement, isn't.
Speaker 4: It It is?
Speaker 6: It's odd, And I think what it comes down to
Speaker 6: for a lot of us that are just ramping up
Speaker 6: our knowledge of this part of the world once again,
Speaker 6: is it all comes down to the Strait of horror
Speaker 6: moves and I just declaring victory and walking away. That
Speaker 6: does nothing to really secure that part of the world.
Speaker 2: Is reasonable, take it.
Speaker 8: Away from Iran, It doesn't take Iran controls a major
Speaker 8: economic choke hold. If you know, among the many pretexts
Speaker 8: given for this war. One one that has appeared is
Speaker 8: kind of eliminating Iran's leverage there. You know, there's some
Speaker 8: reason to imagine that President Trump thinks about the Strait
Speaker 8: of Hormuz, which he's been talking about for forty years,
Speaker 8: by the way, and carg Island in the same way
Speaker 8: that he thinks about the Panama Canal something that it
Speaker 8: is like a toll road for global trade that it
Speaker 8: is unacceptable for anyone to have control of without United
Speaker 8: States as a as a kind of majority shareholder in
Speaker 8: that arrangement.
Speaker 2: Tina, thank you so much. I can't say enough, folks
Speaker 2: about the LinkedIn effort of Fordham Global Foresight. As we
Speaker 2: had way Lee of Blackrock on yesterday. It's just a
Speaker 2: font of brilliance from Tina Fordham and her team out
Speaker 2: at LinkedIn. Tina Fordham, thank you. Stay with us. More
Speaker 2: from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
Speaker 1: weekday afternoons from seven to ten am Eastern Listen on
Speaker 1: Applecarplay and Android Auto with the Bloomberg Business app, or
Speaker 1: watch us live on YouTube.
Speaker 2: Brian Belski with us with Humillus investment strategies, and the
Speaker 2: wonderment of his eight page note densely written, like damn,
Speaker 2: I've got to read every word. Is he this is
Speaker 2: the courage, this is the thinking to stay in the market.
Speaker 2: Is the mood out there? A panic our people quote
Speaker 2: unquote going to cash.
Speaker 9: I think a lot of institutional accounts are kind of
Speaker 9: waiting to see to happen. You know, the majority of
Speaker 9: who we've talked to recently, obviously are a great wealth
Speaker 9: management clients and they've been waiting for an opportunity. In Canada,
Speaker 9: they're still a little bit worried with respect to what's
Speaker 9: happening in the US, and they kind of see this.
Speaker 5: As a replay of last year, so they're.
Speaker 10: A little more emotional.
Speaker 5: But in the US, we're ready to put money to work.
Speaker 5: I think a lot of people.
Speaker 9: Kind of redid their portfolios and re kind of configured
Speaker 9: at the end of the year time, and there's been
Speaker 9: a lot of talk with respect to some tax gains
Speaker 9: taken at the end of the year, So I think
Speaker 9: there's some cash on the sidelines that are ready to go.
Speaker 2: Is Microsoft at a pea twenty two forward like a
Speaker 2: new Microsoft?
Speaker 9: You know what's interesting about Microsoft is that last year
Speaker 9: it was kind of the darling in terms of the
Speaker 9: war chest of cash and in terms of how we
Speaker 9: look at Microsoft and kind of core and large cap portfolios.
Speaker 9: It was tough to continue to be overweight that stock.
Speaker 9: So we're more neutral in that stock where I think
Speaker 9: that the Apples and the Amazons, which actually underperformed the
Speaker 9: Max seven last year, are better. But I think Microsoft
Speaker 9: Oracle Palenteer from a software perspective, We're gonna kind of
Speaker 9: get through this malaise. Let's say, the thing that you
Speaker 9: have to understand is you don't have to own everything, guys.
Speaker 9: You don't have to own everything. And I think sometimes
Speaker 9: the market has been trying to outsmart themselves by trying
Speaker 9: to pick the bottom in some of these SaaS names.
Speaker 2: It's a really important insight there. It goes back to
Speaker 2: Munger where you don't have to look at it. Can
Speaker 2: you hear me buttoning and unbuttoning my Red Sox jacket? Absolutely,
Speaker 2: this is Don's the only one that fit me was
Speaker 2: Don Zimmer's check exactly way back. I'm going to Scott
Speaker 2: for those of you on radio, I'm wisconstant Red Sox
Speaker 2: today and drawing it down for Giants Yankees Paul Sweeney
Speaker 2: in his Yankees jacket with Brian Belts.
Speaker 6: Absolutely, Hey, Brian, what we saw a little bit before
Speaker 6: Iran started was a little bit of rotation in this
Speaker 6: world out of some of the higher multiple tech names
Speaker 6: maybe into some more cyclical name to being small and
Speaker 6: mid cap. Is that a short term tray? Is that
Speaker 6: something that place out in twenty six as well?
Speaker 5: I think it's the real trade.
Speaker 9: When we wrote our year ahead piece in first week
Speaker 9: in January for both the United States and Canada, especially
Speaker 9: in the US, we talked about a broadening out of
Speaker 9: the market. Finally, we also talked about and defined what
Speaker 9: an earnings driven market looks like. Typically and historically the
Speaker 9: beginning stages of cyclical bulls which we saw in twenty three,
Speaker 9: twenty four to twenty five was this momentum multiple driven market.
Speaker 9: We've transitioned to more earnings driven market. Think about the
Speaker 9: earnings growth is really good. So when that happens is
Speaker 9: you see dispersion increasing, meaning stocks trade at different levels
Speaker 9: in different technical type performance. But more importantly, the earning
Speaker 9: side really tried to drive things. So I think investors
Speaker 9: have a hard time dealing with that. And traditionally that's
Speaker 9: the more volatile market. So if you look at an
Speaker 9: earnings driven market relative to a multiple driven market, the
Speaker 9: upside is roughly half. Let's just keep the math simple.
Speaker 9: But it benefits names that have been underperforming, like small cap,
Speaker 9: like financials, like some industrials, and I think that's where
Speaker 9: we want to be longer term. Again, I've said this
Speaker 9: for a while now, and we've been a little early,
Speaker 9: but I think we're right. Ten years from now, we're
Speaker 9: gonna be kicking ourselves if we don't own more small cap.
Speaker 6: Okay, how about the AI trade? And I'm trying to
Speaker 6: think about what's been going on in the market outside
Speaker 6: of Iran, and of course AI trade is evolved. It
Speaker 6: used to be just buy everything you know, and who's
Speaker 6: ever spending more money? That's where you want to be Now.
Speaker 6: The market's trying to be a little bit discerning winners
Speaker 6: and losers. And you mentioned the SaaS stocks took it
Speaker 6: on the chin earlier this year.
Speaker 5: I think about that.
Speaker 9: I think discerning is the great way to think about it.
Speaker 9: So let's use a couple of terms, demand, supply, expenses
Speaker 9: and revenue. I think what's happening is we're trying to
Speaker 9: match what's happened in expenses and revenues or spending spending,
Speaker 9: spending spending, So how much revenue can we derive from that?
Speaker 9: And then in terms of the supply demand, who are
Speaker 9: going to be the winner? So there's been so much
Speaker 9: rhetoric in terms of what platform is going to be
Speaker 9: the best. I still think that you just got to
Speaker 9: kind of keep it simple and think about think about
Speaker 9: here's an Apple, Here's the core of AI is an Apple,
Speaker 9: and the core is in Vidia, So then what else
Speaker 9: do you want to own and be around that? And
Speaker 9: tour three in terms of every kind of theme, whether
Speaker 9: or not software is cybersecurity, but especially with respect to
Speaker 9: how you're the electrification of that, which would be the
Speaker 9: sum how.
Speaker 2: Many you quickly hear how many stocks is a minimum
Speaker 2: portfolio for Brian Belski.
Speaker 9: For us to fill a minimum portfolio to be properly
Speaker 9: diversified in large scap money. We believe, and we've done
Speaker 9: a lot of back testing on this, fifty stocks five
Speaker 9: zero five zero because you can get a highway.
Speaker 2: Of fun fidelity fifty.
Speaker 9: Six five seven percent on the top end in terms
Speaker 9: of a position one percent on the lowan for our
Speaker 9: small MidCap money that we run a humorless it's anywhere
Speaker 9: between sixty and seventy five. And I think going into
Speaker 9: as we progress through this broadening out, you want to
Speaker 9: own more names.
Speaker 5: So you have the opportunity to make all your bets.
Speaker 2: Okay, Brian Belski is all over the country folks in
Speaker 2: this industry of investing away from what we do here.
Speaker 2: I'm not a fan of this, but we're going to
Speaker 2: get his knowledge base. James Diamond on the cover of
Speaker 2: Barons this week. Mary Erda's front and center for JP
Speaker 2: Morgan and they've had huge success with their hedgedat whatever
Speaker 2: it is JPMI, whatever the code is. Brian Belski on
Speaker 2: the modern rage of only SMP hedge it for a
Speaker 2: more stable income and give away the upside. Your thoughts
Speaker 2: on this what we see out there right now?
Speaker 9: Well, and Jamie, we trust one of my great friends
Speaker 9: in the business, Hamilton Render, does a lot of these
Speaker 9: things that worked. That was a great client of mine
Speaker 9: when I was on the institutional side. I think those
Speaker 9: products are important. What we like to think is that
Speaker 9: the passive market has peaked. Active investing own stocks, keep
Speaker 9: it simple, nineteen ninety added the ability to meet Charles Schwab,
Speaker 9: Peter Lynch, and Warren Buffett in the first six months
Speaker 9: of the business at will Ammonio okay, and Warren Buffett said,
Speaker 9: don't buy anyth unless you can reach out and touch it.
Speaker 9: Keep it simple. And I think sometimes we try to
Speaker 9: outsmart ourselves. That's why we got in trouble. I think
Speaker 9: at private equity, Tommy, this time around, we're how.
Speaker 2: Big is the upset in private credit? We run out
Speaker 2: of time?
Speaker 9: Think we see an unwinding there that was ultimately not
Speaker 9: gonna It's not systemic. We've already I think we've already
Speaker 9: established that. But ultimate, that ultimate unwinding is actually gonna
Speaker 9: be positive for publicly traded securities, especially small midcast.
Speaker 2: Is the Twins just a funding place for baseball teams
Speaker 2: before they go to the Dodgers, the Giants in the Yankees?
Speaker 9: The answer is yes, so your socks right, they've been
Speaker 9: after Joe Ryan. They should just take him out of
Speaker 9: his misery to I mean, the Twins are gonna win
Speaker 9: seventy games, they.
Speaker 5: Beat the Socks. The Twins beat the Socks. Yesterday's safeteen
Speaker 5: to six.
Speaker 2: Qui animies it's a beautiful ball part twenty six years, Tommy, twenty.
Speaker 5: Six straight years of season tickets. What did they get me?
Speaker 5: Here's your here's your code to blog into your tickets. Nothing.
Speaker 2: I mean, it's a great divide.
Speaker 5: It's a beautiful ballpark.
Speaker 9: But you know, even the you know the Yankees. You
Speaker 9: dont remember Don Zimmer ended his career with the Yankees.
Speaker 9: So the Jack, you know the Jack.
Speaker 2: It was a great trade. Like Babe, Ruth, you know, Okay,
Speaker 2: this is a problem. Sarah emails, and it is time.
Speaker 2: There's not enough Orioles talk. I was talking to Mindy
Speaker 2: Ripkin yesterday up in the flute for she can't even concentrate.
Speaker 5: She's so pumped. Tomorrow tomorrow, Oh.
Speaker 2: Really must watch. You know they're our favorite team.
Speaker 5: I know, I know they're going to get choice. Give
Speaker 5: me like a twelfth of two game.
Speaker 2: Mister Bloomberg's got a bag of Jesus is in an
Speaker 2: handgoing time. I don't hear enough Orioles talk.
Speaker 5: Yeah, exactly, Brian, thank you so much.
Speaker 2: This is milst thing going.
Speaker 5: Okay for it, it's going amazing. Thank you so much.
Speaker 2: Look and rested.
Speaker 5: Well it's it's Naples.
Speaker 9: This is my this is my lunchtime Walker Tine and
Speaker 9: I process and I listened.
Speaker 5: I listened to Bloomberg Radio on my wah.
Speaker 2: Are you doing? It was a very nice like that
Speaker 2: a lot, I mean, are you squeezing? Like a seventy
Speaker 2: hour work weekended eighty hour?
Speaker 9: You know when you're the chief bottle washer, the chief
Speaker 9: compliance officer, the chief of staff and picking stock kill
Speaker 9: a lot.
Speaker 2: Courage to stay in the market. He owns a high
Speaker 2: ground on that. Brian Belski Stay with us. More from
Speaker 2: Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
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Speaker 2: Celebrate Franzos to Han just wonderful with his work over
Speaker 2: the decades. Now Chief Investment Strategists Pimo at Capital Markets.
Speaker 2: Did you fly in from the Carolina game last night?
Speaker 2: Were you in the loge bmo.
Speaker 10: As they call it, No, but I did. I did
Speaker 10: watch it. I thank you for remembering.
Speaker 2: Can they can they keep going? I'm watching every game
Speaker 2: and show I'm.
Speaker 10: Love Yeah, this is this is their year. I mean,
Speaker 10: it's a talking because for the rest of the world
Speaker 10: got in Montreal, Canadians.
Speaker 2: The Rangers had nine shots last night. It's magical up
Speaker 2: in Montreal right now, isn't it. Yeah.
Speaker 10: I mean for a team that's been in rebuild mode
Speaker 10: for so long, Yeah, to finally feel like we're getting there.
Speaker 2: Are we rebuilding? With AI? You walked in the studio
Speaker 2: and you said, I want to talk about AI. Your
Speaker 2: synthesis is so odd and wonderful about the way you
Speaker 2: bring economics, finance, investment in synthesize AI out. When the
Speaker 2: Canadians win the Stanley Cup.
Speaker 10: Well, AI, you know, it's a big pushback on our thesis,
Speaker 10: and so you know what I've been was easier by
Speaker 10: the way to pitch this a month ago, to be
Speaker 10: perfectly honest. But you know, if you look at the
Speaker 10: overall thesis, there's a lot of stimulus in the pipeline,
Speaker 10: the type of stimulus that you see when you have
Speaker 10: a recession. The issues We never had a recession, and
Speaker 10: so we don't have a lot of excess capacity in
Speaker 10: the economy. To see this kind of stimulus with a
Speaker 10: fore handle on the unemployment rate, is a recipe for
Speaker 10: inflation that comes back more quickly than we've been accustomed to.
Speaker 10: So I don't think this time around we get goldilocks
Speaker 10: for very long. So the pushback Tom is people say,
Speaker 10: all right, we can't have non inflationary growth because we
Speaker 10: don't have access capacity. Why can't AI play that role
Speaker 10: with productivity? And that sounds logical when you think about it,
Speaker 10: when you dig into the data, you realize that it's
Speaker 10: not feasible in twenty twenty six and so, and the
Speaker 10: reason for this is that AI is really for now
Speaker 10: a phenomenon of the very large companies. Small business America
Speaker 10: has not really embraced it, and small business America creates
Speaker 10: three quarters of jobs in the US. And so until
Speaker 10: you know this is adopted broadly, I don't think we're
Speaker 10: going to see the employment phenomenon that a lot of
Speaker 10: people are looking for.
Speaker 6: So are you calling for higher inflation here and then
Speaker 6: your intiate term?
Speaker 4: Yeah?
Speaker 10: And this is before you know the events in the
Speaker 10: Middle East?
Speaker 6: So how does that impact kind of where you want
Speaker 6: to allocate capital here? What are the conversations you're having
Speaker 6: with your quinity?
Speaker 10: Yeah, So it's not easy because to me, it is
Speaker 10: a pretty constructive backdrop. But really for cyclical assets, the
Speaker 10: issue is that there's not a whole lot of that
Speaker 10: left in the S and P nowadays. You know, the
Speaker 10: S and P is now a growthier benchmark. You know,
Speaker 10: on growth stocks are kind of allergic to higher inflation,
Speaker 10: and so when you have this amount of stimulus, you know,
Speaker 10: it is the tie that lifts all boats for earnings.
Speaker 10: But I think when it comes to growth, their pees
Speaker 10: are going to be you know, they're going to see
Speaker 10: a bit of a headwind in the form of higher
Speaker 10: inflation later.
Speaker 2: In the year.
Speaker 6: It doesn't sound like you're very constructive on the equity.
Speaker 10: Markets I am. I mean, if you gave me the
Speaker 10: S and p's version of twenty years ago, would be
Speaker 10: jumping up and down right, you know, because that was
Speaker 10: seventy nine percent of your earnings came from cyclicals. When
Speaker 10: you're going into the GFC that was a very pro
Speaker 10: cyclical index. It's just a different story nowadays. And so
Speaker 10: I would say my comments, I have more enthusiasm for
Speaker 10: the Russell two thousand index or the S and P
Speaker 10: six hundred, you know, the smaller indices that just have
Speaker 10: more cyclicals in them.
Speaker 2: From late twenty twenty five may be Autumnal twenty twenty five.
Speaker 2: Microsoft's enjoying a draw down of thirty two percent Max
Speaker 2: seven in particularly these selected hyper scale it's whatever you
Speaker 2: want to call them. Is that enough of a pullback
Speaker 2: for transport? How to load the boat?
Speaker 6: Uh?
Speaker 10: Not yet? I think you know the issue is that
Speaker 10: And this is part of the problem in pitching this story,
Speaker 10: is that there's a real love affair with the MAC
Speaker 10: seven because it's been so profitable for so long, and
Speaker 10: so when you're telling people there's a lot of opportunities
Speaker 10: in the marketplace, it's just in an unusual spot that
Speaker 10: you haven't looked at in a while. And so to me, Tom,
Speaker 10: the ideal time to load up on big growth stocks
Speaker 10: like that is when we're going to be at the
Speaker 10: top of the cycle. And I don't think that's the
Speaker 10: story of twenty twenty six.
Speaker 6: We saw a rotation beginning, I guess late last year
Speaker 6: out of some of these tech names growth your names,
Speaker 6: hire multiple names into Maybe it's more cyclical.
Speaker 2: Correct.
Speaker 6: Is that a investible trend in the next twelve to
Speaker 6: eighteen months or is that a trade Because we saw
Speaker 6: a little bit of a pulling back on that as
Speaker 6: we kind of got.
Speaker 2: Yeah.
Speaker 10: No, I think it's the beginning. It's the early innings
Speaker 10: of a recovery. You know, if you didn't know about
Speaker 10: all the craziness going on in the world and you're
Speaker 10: only looking at the market's behavior, you know, you've seen
Speaker 10: the FED cut rates. Then we had fiscal stimulus and
Speaker 10: leading indicators started to pick up, and alongside that we
Speaker 10: saw change in leadership towards the more pro cyclical segments.
Speaker 10: I want to say that starts like late summer, early fall,
Speaker 10: pretty normal stuff, and so you know, you tell me
Speaker 10: when the cycle tops out, and then we can talk
Speaker 10: about when it will be time to revisit the growth
Speaker 10: stock story again.
Speaker 2: Franspha turn with us with the Bank of Montreal. I'm sorry,
Speaker 2: I'm old fashion. It will always be the bank. It's
Speaker 2: so spiritual where their offices are across from this most
Speaker 2: beautiful church in North America. Early in the Western atmosphere,
Speaker 2: just extraordinary female capital markets in you guys own with
Speaker 2: your acquisitions to Minneapolis, the study of the Great Lakes. Paul,
Speaker 2: when did we last mention tariffs? Yeah, exactly, I mean
Speaker 2: I think it was yes, expos were going down. Frank Trahan.
Speaker 2: Here a tariff update in the impact on the Canadian
Speaker 2: Great Lakes, the Gordon Lightfoot territory.
Speaker 10: You want to know what the impact is on the
Speaker 10: See impact.
Speaker 2: From the Bank of Montreal on tariffs. We haven't talked
Speaker 2: about it in three months.
Speaker 10: Of tariffs on inflation more broadly, and.
Speaker 2: Inflation more broadly, windsor ow you know, autos and you
Speaker 2: know the going over the two bridges which cars are
Speaker 2: doing with Trump about.
Speaker 10: And so it's uh, look, it's uh. I think uh
Speaker 10: prime mister Carney sees it as it's intended. This is
Speaker 10: a structural change in how we do business, and so
Speaker 10: you know, I don't think it's unusual to think that
Speaker 10: there's going to be a little friction in negotiations. To
Speaker 10: be honest. You know, economists of my generation aren't fans
Speaker 10: of tariffs because they're inflationary. And the reality is our
Speaker 10: economy is consumption based. Nowadays, sixty eight percent of our
Speaker 10: GDP comes from consumption, and inflation is like a variable
Speaker 10: tax rate, if you will, And so you know, but
Speaker 10: it is the policy we're dealing with.
Speaker 6: One of the themes in twenty twenty five that worked out
Speaker 6: very well is as well as a US equity markets
Speaker 6: did the rest of the world. A lot of parts
Speaker 6: of the resta world did really well, and part due
Speaker 6: to the falling dollar, but other drivers as well. How
Speaker 6: do you think about the US or North America vice
Speaker 6: to be the rest of the world here.
Speaker 5: Yeah, so.
Speaker 10: You know, we've had very US centric comments here. But
Speaker 10: the reality is the story I just told you is
Speaker 10: the story of the world. Eighty nine percent of the
Speaker 10: world's GDP is in countries that have monetary stimulus in
Speaker 10: the pipeline. There's only a few large economies that have
Speaker 10: raised rates, so it really is a global story. Up
Speaker 10: until the events in Iran, most equity markets are outpacing
Speaker 10: US equity, which is what you see in a global
Speaker 10: in a global recovery. US equities have been really resilient
Speaker 10: in the last month because we're a large oil producer
Speaker 10: that insulates us to a certain extent, unlike the countries
Speaker 10: that import, you know, much of their energy needs. We
Speaker 10: have a lot of stimulus in the pipeline right that
Speaker 10: also helps insulate us. Our earnings were growing before all
Speaker 10: of this, and our stock market, our main benchmark, the
Speaker 10: S and P five hundred, is very growthy and those
Speaker 10: are stocks that tend to do well when the economic
Speaker 10: outlook gets all murkier.
Speaker 2: If you will, what's the energy component of the standard
Speaker 2: and oh it's a single dish.
Speaker 10: Oh yeah, single digits at least like six percent?
Speaker 2: Should is an enormative basis. Does that expand over a decade?
Speaker 10: I think it will.
Speaker 5: Yes.
Speaker 10: You know, it's shrunk dramatically largely. You know, it's been
Speaker 10: squeezed out by what's taking place in technology.
Speaker 2: There's so and I've got a distraction here. We're gonna
Speaker 2: have to go to in a moment here off of
Speaker 2: Dubai's the Bloomberg desk in Dubai. But first of Johan,
Speaker 2: the earning season is upon us. Can you even model
Speaker 2: double digit earnings growth? I guess before the war that's
Speaker 2: what we're going to see.
Speaker 5: Before the war.
Speaker 10: Yeah, I think you can absolutely Again, when you have
Speaker 10: the amount of stimulus that you get typically when you
Speaker 10: have a recessionary backdrop, without one, our earnings were still growing.
Speaker 10: I think you can get the double digit earnings territory.
Speaker 6: How much credit risk are you taking in the fixing
Speaker 6: come market these days?
Speaker 10: I want to say that I'm a little bit less
Speaker 10: concerned than the headlines when it comes to that. You know,
Speaker 10: we're in this we're in this transition period right where
Speaker 10: we have stimulus. We're starting to see it in leading
Speaker 10: indicators of the economy. You know, all the pmis basically
Speaker 10: have these smile patterns that start late last year, as
Speaker 10: you pointed out a little earlier, but we haven't seen
Speaker 10: it in the economic data itself, in retail sales, industrial production,
Speaker 10: that sort of stuff, and that's usually when the earnings
Speaker 10: really kick in the gear. So it's really rare that
Speaker 10: something breaks when you're in recovery mode. You know, recovery
Speaker 10: tends to patch a lot of things, if you will.
Speaker 10: It's more on the other side of this that I
Speaker 10: think you'll want to be concerned, meaning once we have
Speaker 10: tightening and we have a slowdown in the pipeline, which
Speaker 10: is probably a couple of years away.
Speaker 2: TRANSPA, thank you so much. Congratulations on the new effort
Speaker 2: at Female Capital.
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