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Speaker 3: Stocks cutting into gains of more than seventeen percent for
Speaker 3: this year. Michael Purvis of Taubuck and Capital Advisors writing,
Speaker 3: the biggest threat to the S and P next year
Speaker 3: is the AI spend will be considered not to generate
Speaker 3: compelling returns. This means multiple contraction for a key part
Speaker 3: of the market.
Speaker 4: Michael joins us. Now, Michael, thank you so much for
Speaker 4: being with us. Happy New Year to you.
Speaker 3: Let's start with this idea of how much AI really
Speaker 3: upheld the rally so far this year.
Speaker 4: Can you take a look back and give us a.
Speaker 3: Sense of how dominant that theme was and how that
Speaker 3: might be poised to shift in twenty twenty six.
Speaker 5: Well, Lisa, you know, if you look at the large
Speaker 5: tech relative to cyclical value pair over the last not year,
Speaker 5: but the last six or seven years, that line goes
Speaker 5: up to the right, just like the overall market does.
Speaker 6: It's sort of one and the same.
Speaker 7: And what I've argued for years now is that.
Speaker 5: The big tech rally is kind of the broader SPX rally.
Speaker 7: There.
Speaker 5: There's just consistent of performance in almost every year, except
Speaker 5: when you have bear markets like twenty twenty two, and
Speaker 5: even that it wasn't really that ferociously sold off there.
Speaker 5: There's very good reasons for that, which is that they
Speaker 5: generate not only superior quantity of earnings, but the quality,
Speaker 5: meaning the volatility of those earnings is remarkably low, and
Speaker 5: so compared to cyclical value earning streams, they're just a
Speaker 5: lot more superior. What I'm really the question I think
Speaker 5: that I have as we look into twenty twenty six
Speaker 5: is that you have these giant companies you have you know, Microsoft, Meta, Amazon,
Speaker 5: and so forth. All of them are very distinct business models,
Speaker 5: and many of these companies are really now converging in
Speaker 5: a very massive way on this AI spend, which is
Speaker 5: that they're taking their business models from a very distinct place,
Speaker 5: almost too somewhat similar place in some respects, right you
Speaker 5: know that, you know, we're talking about a trillion dollars
Speaker 5: of cash out of four companies over the next twenty
Speaker 5: four months here there. So just to finish the thought,
Speaker 5: he said, I think the question that I'm really asking
Speaker 5: is that if the return on invested capital is not there,
Speaker 5: and if you look at the free cashlow yield on
Speaker 5: stocks like Microsoft, there are you know, record lows right now,
Speaker 5: so the price earnings and earnings growth ratios looking very compelling.
Speaker 5: The free cash flow is the problem. And so it
Speaker 5: all works if the returns are there, but if it's not,
Speaker 5: you're going to see a real rerate in the big
Speaker 5: tech pillar of the market.
Speaker 3: Is there a signal that you're getting, Michael, just to
Speaker 3: sort of build up this idea from the race of
Speaker 3: some of the acquisitions that we've seen to close out
Speaker 3: the year, whether it's in Vidia with Grock, whether it's
Speaker 3: what we saw with Meta and that Singapore based company
Speaker 3: having to do with AI, whether it's what we see
Speaker 3: right now with Nvidia potentially acquiring an Israeli based tech company.
Speaker 4: I mean, they're using their free cash flow to do something.
Speaker 3: What's the signal for how much this is a shift
Speaker 3: and narrative going into twenty twenty six.
Speaker 5: Well, yeah, I mean I think there it does remind
Speaker 5: me of a little bit of nineteen ninety eight, nineteen
Speaker 5: ninety nine, two thousand, when telecom and tech we're converging
Speaker 5: and frantically there was frantic deal activity and frantic cap
Speaker 5: x activity as well there and of course there were
Speaker 5: some ultimately great winners and there was a lot of
Speaker 5: ride hosts as well. I don't think, you know, like
Speaker 5: we talked about foam in the stock market, and I
Speaker 5: think there's fomo in the c suite here too, Which
Speaker 5: is that all these you know, all these giant companies
Speaker 5: are frantically trying to position themselves, uh, you know, for
Speaker 5: the long haul here, and in that process you're going
Speaker 5: to see a lot of narrative rewrites going on and
Speaker 5: a lot of people speculating as to who are the
Speaker 5: winners and losers ultimately are? You know, I go back to,
Speaker 5: you know, three years ago when Google had that all
Speaker 5: hands on deck meeting because they were frantically behind an
Speaker 5: AI and open Aye was going to clean the clock,
Speaker 5: and you know, here we are, and that narrative seems
Speaker 5: to have just twisted on its head here. I still
Speaker 5: think it's still so early in this game that it's
Speaker 5: very hard to declare, you know, where the ultimate.
Speaker 6: Winners are going to be.
Speaker 5: I mean I think that, you know, I talked to
Speaker 5: a lot of tech executives there that are on the
Speaker 5: fort on the front lines of AI, and they are
Speaker 5: just sort of bewildered. I have the stuff is going
Speaker 5: to shake out, uh themselves, and they're in this market
Speaker 5: every day.
Speaker 3: Well, to me, this really goes to the question of
Speaker 3: how do you broaden out what does it mean to diversify.
Speaker 3: Everyone who has come on this show to end the
Speaker 3: year has said that diversification is the key for next year.
Speaker 3: We've seen that in the precious metals trail, though it's
Speaker 3: arguable that that's not exactly diversification, particularly like when it
Speaker 3: comes to silver. How much do you see equal weight
Speaker 3: as being true diversification in this type of backdrop.
Speaker 5: Well over the really since last January, I started pushing
Speaker 5: this narrative that you know, as much as I love
Speaker 5: the big tech story as the core part of the portfolio,
Speaker 5: if you want to rotate and diversify, not to go
Speaker 5: into US cyclicals and values. So obviously there's a lot
Speaker 5: of specific sectors and specific stocks that have done incredibly
Speaker 5: well this year in the United States, but thematically at
Speaker 5: the index level, what I'd advocated for was a rotation
Speaker 5: into European equities, which were sort of the ugly ducklings.
Speaker 6: For so long, and some respects they still are.
Speaker 5: But I think where I am right now is that, Look,
Speaker 5: you know, we've got the SX five I call it
Speaker 5: the SPX for the European continent that has outperformed most
Speaker 5: every US index in local terms, almost caught up with
Speaker 5: the MAGS seven index, and on a currency j justment basis,
Speaker 5: it's blown away most of the US major equity index.
Speaker 5: So looking forward into twenty twenty six, where I'm at
Speaker 5: right now is I think that's going to happen. It's
Speaker 5: a very different set of dynamic. So I think, look,
Speaker 5: if the Germans really are going to start of committing
Speaker 5: to the stimulus, and I think that's happening, It's hard
Speaker 5: to tell, but that is sort of a massive and
Speaker 5: a very different type of force than say the AI force. Right,
Speaker 5: you know, when You're talking about this pretty significant economy
Speaker 5: really pushing stimulus to a place and it's never been
Speaker 5: They have the fiscal space to do it, unlike many
Speaker 5: other sovereign nations in the developed world, and that will
Speaker 5: be really resonate there.
Speaker 7: Meanwhile, I think.
Speaker 5: For the US colclal and value trade, well, there's still
Speaker 5: a lot of I think sentiment tied to that. So
Speaker 5: if you are concerned about the tech I don't want
Speaker 5: to use the word bubble, but you know, the tech theme,
Speaker 5: the dominance of tech them if you're sort of worried
Speaker 5: about that kind of not really working next year. To me,
Speaker 5: I think it's it's I sort of see Europe as
Speaker 5: as a pretty good place, with a caveat that. The
Speaker 5: rally this year has been driven largely by pe expansion
Speaker 5: and the relative tope from Europe to say their US
Speaker 5: counterparts are in a less compelling place than they were
Speaker 5: twelve months ago.
Speaker 2: Stay with US multplempeg's Survinmon's coming up off to this.
Speaker 3: Investors are waiting the last read unemployment in twenty twenty five.
Speaker 3: Java's claims do at eight thirty am Eastern for the
Speaker 3: holiday shortened week.
Speaker 4: Michael Reid of ARBC capital market.
Speaker 3: It's writing we maintain our view that tariffs will weigh
Speaker 3: on the labor market and put upward pressure on inflation,
Speaker 3: reinforcing that the US economy is experiencing stagflation light. Michael
Speaker 3: joins us now in the flesh in New York. Thank
Speaker 3: you so much for being here on this New Year's eve.
Speaker 3: I'm just wondering, from your perspective, stagflation light, what does
Speaker 3: that mean? And why do you see that taking hold
Speaker 3: in twenty twenty six?
Speaker 7: Sure, and thanks for having me.
Speaker 8: So what we are expecting is generally below trend growth
Speaker 8: that means below two percent, and inflation that remains uncomfortably high,
Speaker 8: really in that core space. So when you think about
Speaker 8: some of the dynamics, and it's not just tariffs, I
Speaker 8: should add, we just think it's going to be really
Speaker 8: hard to get back to two percent, even if you
Speaker 8: take tariffs off the table.
Speaker 3: Does it seem like FED officials really care? I mean,
Speaker 3: based on the meeting minutes, there was a priority on
Speaker 3: the labor market, not necessarily inflation.
Speaker 7: I think they do care.
Speaker 8: And what's really interesting is if you look at what
Speaker 8: they've said, especially in the last meeting, you know, you
Speaker 8: include the fact that they view tariffs as being traned.
Speaker 8: Yet they're starting to take that cautious approach. They think
Speaker 8: they've gotten to a place that is much more closer
Speaker 8: to neutral. So they're concerned about the inflationary pressure not
Speaker 8: just from terrafts but coming from other places. And we
Speaker 8: think that's showing up in the services space in particular
Speaker 8: as it relates to labor supply.
Speaker 3: So where exactly are you seeing this inflationary pressure. I
Speaker 3: can hear Neil Datta in my head saying, look at housing,
Speaker 3: you're not seeing any inflationary pressure there. In fact, the
Speaker 3: housing data yesterday we did get some signs that maybe
Speaker 3: is picking up, but otherwise you've seen pretty much flat
Speaker 3: home prices across the country. At what point do you
Speaker 3: see some sort of inflationary pressure that could be sticky.
Speaker 8: We see it in the wage space, and you know,
Speaker 8: when you think about some of the dynamics that we're
Speaker 8: seeing in terms of supply, we have immigration that's falling,
Speaker 8: we have retirements that we think continue to accelerate. At
Speaker 8: the same time, your demand for labor, while slowing, still
Speaker 8: hanging in there. So what that means is you're going
Speaker 8: to have a situation where the need for workers is
Speaker 8: still there, it's just showing up as replacement demands. So
Speaker 8: payrolls aren't going to look great by any means, But
Speaker 8: we are going to expect an environment where the unemployment
Speaker 8: rate remains low and we think at plateaus around four
Speaker 8: and a half percent for most of this year, and
Speaker 8: that just means you're going to have an environment where
Speaker 8: wage pressures, say, elevated.
Speaker 3: Yeah, so this is definitely the truth. When it comes
Speaker 3: to healthcare. We've seen the bulk of hiring so far
Speaker 3: this year in healthcare. We're getting older, are we still
Speaker 3: need to be taken care of? This is the raise
Speaker 3: of question about other sectors and what that means about
Speaker 3: the strength of the labor market. I mean, how durable
Speaker 3: is some of the strength that we've seen if it
Speaker 3: is concentrated in a completely recessioned proof area like healthcare.
Speaker 7: I mean, healthcare is a big one.
Speaker 8: So again going back to this demographic story, you think
Speaker 8: about the sheer size of the population that's now over
Speaker 8: sixty five. You have about just one undred and forty
Speaker 8: million people in the workforce right now who are fifty
Speaker 8: five plus, so they're approaching that retirement age. That's who
Speaker 8: we're really focused on. Those are theolks who are going
Speaker 8: to continue to use healthcare services across the board. So
Speaker 8: that's a sector that we expect both will continue to
Speaker 8: hire at a very healthy clip.
Speaker 7: Fifty to sixty.
Speaker 8: Thousand jobs per month over the next five years seems
Speaker 8: very reasonable to us. And in addition, you do have
Speaker 8: that price pressure, so when you think about some of
Speaker 8: the factors impacting prices in terms of tariffs, but as
Speaker 8: well as supply chains, that's going to continue to put
Speaker 8: upward pressure on services. So for healthcare, which is a
Speaker 8: very service intensive type of sector, there's very little relief
Speaker 8: that we expect to see there.
Speaker 3: There's a theory that the FED is trying to run
Speaker 3: the economy hot to keep people employed as we get
Speaker 3: this structural shift with artificial intelligence, that as people become
Speaker 3: less necessary, you want to keep as many people as
Speaker 3: possible employed before we get to whatever that next future is.
Speaker 4: How much credence do you see in that?
Speaker 3: Do you think that that is wise for them to
Speaker 3: take that approach given some of the cannibalization from human jobs.
Speaker 8: I mean, look, their dual mandate is low prices and
Speaker 8: stable employment, So I think that aligns to what they're
Speaker 8: trying to do in terms of the mandate.
Speaker 7: Now, the outcomes for AI are still very early.
Speaker 8: Could we see a productivity boost, Absolutely, we expect that.
Speaker 8: Do we expect to see in twenty twenty six, Not
Speaker 8: so much. But when you think about some of the
Speaker 8: dynamics that are going on right now over the next
Speaker 8: four to five years, when you account for that retirement
Speaker 8: boom that we continue to see and the slowdown in immigration,
Speaker 8: you're going to need more workers. And if you don't
Speaker 8: have it coming from the outside that immigration story, AI
Speaker 8: is going to have a very very important role to
Speaker 8: play there to help supplement the falling labor supply. So
Speaker 8: that could help offset some of those inflationary pressures coming
Speaker 8: in the wage space.
Speaker 4: Just in a shorter term TIMESPRAE.
Speaker 3: So we are going to get some real data in
Speaker 3: Manuary that people think will be some cleaner data points
Speaker 3: to look at when the Fed meets on January twenty eighth.
Speaker 3: What are you expecting when it comes to both CPI
Speaker 3: and of course the jobs report from the month of December.
Speaker 8: So we're going to get a lot of mixed signals here. Again,
Speaker 8: even in December Q one for the jobs report, you know,
Speaker 8: like the Fed, we expect that the number will be
Speaker 8: you know, look okay at face value, but you have
Speaker 8: to subtract out the benchmark revisions that are going to
Speaker 8: come from QCW. So already you have to take out
Speaker 8: fifty to seventy thousand jobs per month based on that revision.
Speaker 8: So that's a big part of I think how the
Speaker 8: Fed is thinking about this, especially as it relates to
Speaker 8: that break even pace of employment. That's why we've seen
Speaker 8: that unemployment rate rise despite rather healthy job job gains
Speaker 8: from the Paywell report in terms of CPI, you know,
Speaker 8: for December, we think we continue to see kind of
Speaker 8: a modest slow down in terms of the pace, but
Speaker 8: it's really t one that's our concern. We've seen these
Speaker 8: seasonal quirks, notably in January, and we think that could
Speaker 8: be more pronounced as tar pressure starts to add up.
Speaker 2: Stay with US multiple INPEX Savana's coming up off to this.
Speaker 3: Enhanced Affordable Care Act subsidies are so to expire tonight,
Speaker 3: sending premium skyrocketing and impacting coverage for millions of Americans.
Speaker 3: Congress failing to find a resolution before the deadline. Joining
Speaker 3: US now is George Pollock of Signal Global, Can you
Speaker 3: just give us a sense and great to see you,
Speaker 3: George stepping back, how much of a focus this is
Speaker 3: for Republicans to keep some sort of healthcare solution. How
Speaker 3: much it is a popular thing for them to do
Speaker 3: heading into the midterm elections.
Speaker 9: Well, the biggest issue for Republicans is healthcare. Is are
Speaker 9: the one issue where Democrats pull better than Republicans.
Speaker 2: This is the.
Speaker 6: Issue where Democrats can.
Speaker 9: Really go on offense and say we have the better ideas,
Speaker 9: or at least the more popular ideas. And going into
Speaker 9: a midterm election that's already going to be a challenge
Speaker 9: when they've.
Speaker 6: Had the trifecta in DC.
Speaker 9: Allowing these subsidies to expire and exposing people to doubling
Speaker 9: of healthcare premiums is just not sustainable, especially if they
Speaker 9: want to keep the House.
Speaker 3: We were talking at the end of last year or
Speaker 3: the beginning of a lot of this year, excuse me,
Speaker 3: about cutting the budget deficit and about cutting expenses. Dose
Speaker 3: was a big effort. Now there is a question of
Speaker 3: how much of those custom are going to basically come
Speaker 3: back onto the balance sheet, whether it's AEBA or whether
Speaker 3: it's some of these subsidies that get passed over. I'm
Speaker 3: just wondering, from your perspective, how much of a focus
Speaker 3: cutting the budget deficit still is in Washington, DC.
Speaker 6: Look, I think it's a great line.
Speaker 9: I think when you're the party out of power, it's
Speaker 9: something you discussed and you've seen moderate Democrats talk about it,
Speaker 9: and you've seen most Republicans talk about it. But the
Speaker 9: reality is when they pass to one big, beautiful bill, yes,
Speaker 9: that made tax cuts and a tax system permanent and
Speaker 9: may you know, gave businesses and Americans a dea of permanence,
Speaker 9: but it also cost billions, and it costs a significant
Speaker 9: amount of money and added to the deficit.
Speaker 6: It's a great.
Speaker 9: Campaign line, but unless there's no real appetite for embracing
Speaker 9: a talent and reform or anything like that, because it
Speaker 9: really is the third rail of US politics, how do.
Speaker 3: You see twenty twenty six being different politically than twenty
Speaker 3: twenty five. Given the fact that the midterm elections are
Speaker 3: coming up and what happened in the mid midterm elections
Speaker 3: that we just saw.
Speaker 9: I think what you're really going to see is these
Speaker 9: moderate Republicans who voted for things like the one big
Speaker 9: beautiful Bill, who have defended the president, who are facing
Speaker 9: a very tough reelect, and with Democrats getting some pretty
Speaker 9: strong recruits and moderate districts, they're going to really try
Speaker 9: to separate themselves from the administration, and they're going to
Speaker 9: really try to stake out themselves as independent, focus oriented
Speaker 9: members of Congress who just want to do what's best
Speaker 9: for American And I think we're Speaker Johnson having a
Speaker 9: very narrow majority, that's going to be something that he
Speaker 9: struggles to navigate, especially if he wants to do a
Speaker 9: second reconciliation Bill.
Speaker 3: George, There's something that not a lot of people are
Speaker 3: talking about is coming up increasingly on talk shows as
Speaker 3: well as just a not ed pages across the country,
Speaker 3: across the world. How much of a focus there's going
Speaker 3: to be an artificial intelligence and either regulating it or
Speaker 3: providing some sort of safety net should there be some
Speaker 3: sort of mass job loss in the wake of a
Speaker 3: real adoption that does mean that certain humans are not
Speaker 3: needed anymore. How much of a discussion is there in Washington,
Speaker 3: DC about this as we head into twenty twenty six.
Speaker 9: I think what you're going to see is the Republican
Speaker 9: the administration has fully embraced AI as the next great
Speaker 9: thing for the US economy. And what you're going to
Speaker 9: see is the likes of both Republicans, so like Governor
Speaker 9: Roland Descantis or Governor of Spencer Cox, and you're going
Speaker 9: to see Democrats as well campaign against the administration's whole
Speaker 9: hog embrace. You've already seen Senator Bernie Sanders talk about
Speaker 9: suspending data center construction.
Speaker 6: I think what I put in at parallel.
Speaker 9: To is when they were negotiating the original NAFTA and
Speaker 9: that trade disruption in the job disruption. I think Democrats
Speaker 9: are going to say, you're disrupting American jobs, you're threatening
Speaker 9: social stability, and you're increasing cost and things like energy,
Speaker 9: and they're going to use it as a huge attack
Speaker 9: line for the president, especially because Americans are pretty divided.
Speaker 9: I think there was a recent poll out that only
Speaker 9: by five percent are they really positive about AI. And
Speaker 9: that's really people who haven't yet learned all the details.
Speaker 9: And I think as Democrats hit the administration in the
Speaker 9: likes of David Sachs, I think that's going to be
Speaker 9: a very potent issue for Democrats in particular.
Speaker 6: In twent twenty six, you.
Speaker 3: Mentioned Senator Bernie Sanders of Vermont. He is going to
Speaker 3: be at the inauguration of Zoro and Mam Donnie, I believe, tonight,
Speaker 3: along with AOC, along with a host of other progressive Democrats.
Speaker 3: I just wonder what this really signifies for the Democratic
Speaker 3: Party in twenty twenty six, Not necessarily Zora Mam Donnie's inauguration,
Speaker 3: but just is this going to be the mainstream of
Speaker 3: the Democratic Party heading into the next presidential election season.
Speaker 6: Look, I think that's a fantastic question.
Speaker 9: If you were a tri state Democrat like Laura Gillen
Speaker 9: or Tom Swazi, you're not happy about this because you're
Speaker 9: going to have to run against Mom Donni and you're
Speaker 9: going to have to deal with the after effects of
Speaker 9: Mam Donnie's policies. But I think in reality, this midterm
Speaker 9: election is going to be a referendum on the president,
Speaker 9: a referendum on the Republicans, And when the Democratic Party
Speaker 9: has legs of Marie losing camp Paris in Washington, Jaca
Speaker 9: Anceloss in Massachusetts, and formably Jared Golden in Maine, it's
Speaker 9: really just going to be. Yeah, the Republicans will try
Speaker 9: to make it circa Nancy Pelosi two thousand and six,
Speaker 9: two thousand and eight. But it's really not going to
Speaker 9: fly when Americans are more concerned about increasing health premiums,
Speaker 9: increasing energy costs, and the potential threat of AI.
Speaker 7: Stay with us.
Speaker 2: Maulblindex Saveland's coming up after this, And.
Speaker 3: I just learned that Matt Miller is also wearing a
Speaker 3: kilt because he is celebrating Hogmanay, which is the Scottish
Speaker 3: New Year. That is what we learned from Lizzie Burton
Speaker 3: over in London.
Speaker 4: Thank you for that. I'm glad to see that it's
Speaker 4: not true true.
Speaker 6: I wish, I wish, well.
Speaker 4: You know, maybe next year, if they get.
Speaker 3: Another double as your return, Matthew Miller will show up
Speaker 3: in a cult. Barbara Durant, it's not wearing a kult
Speaker 3: of a BD eight capital.
Speaker 4: She wrote.
Speaker 3: The FED could be stingy on rate cuts unless labor
Speaker 3: takes a big dive. Barbara joins us now for more. Barbara,
Speaker 3: thank you so much for being here. Really appreciate it.
Speaker 3: On this New Year's Eve, A real question about the
Speaker 3: FED and how much they can cut given the dual
Speaker 3: manded they have of a labor market that they seem
Speaker 3: to be prioritizing right now.
Speaker 1: Yeah, they definitely are because the labor numbers have been soft.
Speaker 1: You saw that in the ADP number a few weeks ago,
Speaker 1: and of course jobs, but what we're not seeing is
Speaker 1: any really follow through in jobless claims. They are still
Speaker 1: not signaling, you know, any danger there, and that obviously
Speaker 1: is a leading indicator. But I think that's where the
Speaker 1: emphasis because inflation seems to have stabilized. I think somewhere
Speaker 1: around here two point nine, I think it could creep
Speaker 1: up a little bit higher because even though the tariff
Speaker 1: impact has not as been as severe as they already expected,
Speaker 1: including myself, you know, there's still it's still feeding through
Speaker 1: now that there seems to be some stability in the
Speaker 1: outlook for tariffs. So I think you could see it
Speaker 1: inch a little higher, but you're certainly not going to
Speaker 1: see it as it happened at post COVID for opening up.
Speaker 1: So I think they are right to focus on labor
Speaker 1: and what that means. And right now we know what's
Speaker 1: happening in terms of lower immigration, baby boomers retiring, and so,
Speaker 1: but it looks imbalance. So you could see lower job creation,
Speaker 1: but that's because the demand will be lower. So but
Speaker 1: that's the key thing, and the economic data has been
Speaker 1: a little bit behind, and we know there's problems with
Speaker 1: a recent CPI number, so I think it continues. The
Speaker 1: fit is still going to be data dependent, but I
Speaker 1: don't see them cutting in the next month or so,
Speaker 1: because they need to see really if the trend in
Speaker 1: labor is going to continue to gradually go down or
Speaker 1: it's going to be much stronger.
Speaker 4: What do you expect there?
Speaker 10: Because we've had incredible growth, right four percent essentially in
Speaker 10: Q three, We're expecting, you know, above trend growth in
Speaker 10: Q four as well, or at least at three percent.
Speaker 10: And it's not like the labor pool is getting any bigger.
Speaker 10: We don't have any immigration.
Speaker 1: To speak of.
Speaker 10: Demographics are going the wrong way. So do you expect
Speaker 10: unemployment to rise in twenty twenty six?
Speaker 1: I could go up a tad more, but no, I
Speaker 1: don't see why it would go up. You know, people
Speaker 1: are still spending, and obviously we know that's a major
Speaker 1: driver three quarters of the economy, and certainly some of
Speaker 1: the expectations for holiday spending is four to five percent,
Speaker 1: and some of the recent data consumers are spending, and
Speaker 1: I think big part of that is still there's forty
Speaker 1: to fifty trillion in wealth. At fifty trillion of wealth
Speaker 1: that's been created since twenty nineteen. That's out there, and
Speaker 1: people are still employed. Wages you know, are not going
Speaker 1: up as fast, but they're still there. And that four
Speaker 1: point three percent, which was we know was a percentage
Speaker 1: point higher for the third quarter GDP is really interesting
Speaker 1: because that means the one point nine percent that the
Speaker 1: FED is estimating for next year could be low, and
Speaker 1: that obviously is a question then where do you invest?
Speaker 1: And that could be more cyclical rotation, you know, in
Speaker 1: financial should continue to be strong. Industrial, certain industrials really
Speaker 1: tied to data center build out and on reshoring, all
Speaker 1: that sort of thing. So that GDP number is very
Speaker 1: interesting and I think that strength could continue well in
Speaker 1: early continue to look strong as well.
Speaker 10: I mean, forecasts are for double digit earnings gains again
Speaker 10: in twenty twenty six.
Speaker 4: Do we finally get the broadening out?
Speaker 10: Is it, you know, a substantial broadening out of the
Speaker 10: rest of the S and P rather than just these
Speaker 10: mega cap text docs.
Speaker 1: And I think that is that's the question at the moment.
Speaker 1: I think part of what we're seeing why it's been
Speaker 1: soft this last few days. I mean, we had the
Speaker 1: market making new high. So the classic Santa rally, which
Speaker 1: is the last five days, you know, is doesn't seem
Speaker 1: to be happy. But I think that's because you know,
Speaker 1: there's a lot of tax laws selling people trying to
Speaker 1: figure out where to rotate into. Because I think the
Speaker 1: strength will be higher, and the estimates for next year
Speaker 1: twelve to fifteen percent in earnings doing bottoms up, you know, measuring,
Speaker 1: and so that goes very well. We've been seeing this
Speaker 1: quarterly increase. So what I think it does mean is
Speaker 1: this broadening out. I think you continue to have the
Speaker 1: so called mag seven be strong, and you've seen only
Speaker 1: two have outperformed this year, but you'll continue to see
Speaker 1: profit taking and then moments where they continue and they
Speaker 1: will move higher. These are you know, compounders, you know,
Speaker 1: I mean, you look at Nvidia, for instance, twenty six
Speaker 1: times next year's earnings, and those earnings will continue to
Speaker 1: come up. So I think you stay in a MAG
Speaker 1: seven that's going to be coore and obviously given the
Speaker 1: percentage of there, you know it's thirty percent of the
Speaker 1: market cap of the SMP forty plus percent of profits,
Speaker 1: you stay there, but you should see financials industrials. I
Speaker 1: don't think small cap perform continues to perform, you know.
Speaker 1: I think that was a trade and part of that's
Speaker 1: because interest rates. You know, right now, I see maybe
Speaker 1: one were cut the Feds signaling too, but I don't
Speaker 1: see it. It's going to be very dependent.
Speaker 3: So we were speaking earlier with Michael Purvis about some
Speaker 3: of the transactions that we've seen to end the year,
Speaker 3: whether it's in video going after Grok, whether it's in
Speaker 3: video's transaction with an Israeli AI company this morning, whether
Speaker 3: it's something that we saw with Meta having to do
Speaker 3: with a Singapore based AI company. And he was saying,
Speaker 3: this kind of resembles nineteen ninety nine, two thousand, where
Speaker 3: they're just having this sort of fomo and the C
Speaker 3: suite try to get as much as they possibly can.
Speaker 4: Sounds like you see it a little differently.
Speaker 1: Right I do.
Speaker 5: I do.
Speaker 1: I mean, there's there is always the potential for overbuilding.
Speaker 1: Everybody sees the same opportunity. We know, this happens in
Speaker 1: a capitalist society. You know that always happens. But I
Speaker 1: think it's we're far away from the moment. Nineteen is not.
Speaker 1: I think a good analogy because so many of those
Speaker 1: companies did not have earnings. You know, it's just like
Speaker 1: you know, invest in it was wild, you know, it
Speaker 1: was a free for all, and so here it's very different.
Speaker 1: I mean, the companies, the Hyperscales, et cetera. They have
Speaker 1: huge cash flow, and it's Onny Oracle that is really
Speaker 1: dipping deep into the death side of things. The others
Speaker 1: are excuse me, are using their free cash flow. So
Speaker 1: I think it's very different. So at some point, yes,
Speaker 1: it will end, but I don't think we have to
Speaker 1: worry about that.
Speaker 3: This year you were talking about diversification and how it's
Speaker 3: not going to come from small caps, how it's probably
Speaker 3: not going to come from the other four hundred and
Speaker 3: ninety three necessarily. Is it going to come from Europe?
Speaker 3: Is it going to come from overseas? That's what we've
Speaker 3: seen this here.
Speaker 1: Right, I mean, you've seen outperformance in the emerging markets,
Speaker 1: certain emerging markets. Certainly things seem to be stabilizing with
Speaker 1: China in terms of the rhetoric between US and them,
Speaker 1: which is a good thing. You've also had with the
Speaker 1: dollar down ten percent, the question is does it continue
Speaker 1: to go down or is it stable? Here, and of
Speaker 1: course that is tied interest rates and how much the
Speaker 1: FED will cut or not cut. So I think you
Speaker 1: probably still have an EEM. You know, the emerging markets
Speaker 1: earnings are better, this more stable, so I think you've
Speaker 1: got opportunities there. And certainly we know the European defense
Speaker 1: filed out and fiscal spending is not over in six months,
Speaker 1: so you probably do have more upside. So diversification, yeah,
Speaker 1: you can look abroad.
Speaker 10: I have a sports question maybe Lisa can weigh into
Speaker 10: because she's got kids in this age range. I was
Speaker 10: having discussion with people last night who have teenagers that
Speaker 10: aren't playing football, and I'll get to why in a second.
Speaker 10: You know, and where I live in Edgemont and Scarsdale,
Speaker 10: there are years where we can't feeld a team anymore
Speaker 10: just because parents don't want to risk the brain injuries.
Speaker 10: And I noticed looking at your CV that you're on
Speaker 10: Lacrosse Association and the Field Hockey Association. I wonder if
Speaker 10: those sports are any safer? Are those sports? I mean,
Speaker 10: I know they're picking up massive amounts of popularity. Do
Speaker 10: you think we're going to see the same trend in
Speaker 10: football happen there or is it different?
Speaker 1: These these are always interesting questions. You know, lacrosse there's
Speaker 1: men's and women who are very different. Women aren't now
Speaker 1: but hit each other. Men can, but they've got a
Speaker 1: lot too.
Speaker 2: But I imagine they happy.
Speaker 1: I have a plate in this hand as a result
Speaker 1: of that, but you know it does. And also field
Speaker 1: hockey you've got mouthguards, you've got this and that, and
Speaker 1: there is real real awardeness and consciousness, certainly in high school,
Speaker 1: you know area. But so there's a weirdness. But I
Speaker 1: don't think it's rises to level football, which has such
Speaker 1: well documented serious injuries.
Speaker 10: So maybe lacrosse and field hockey take market share.
Speaker 1: I mean it would be nice. No, but I think
Speaker 1: it's two different things.
Speaker 3: Field hockeydia capital indeed, and I we'll just say thank
Speaker 3: you so much.
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