WEBVTT - Bloomberg Surveillance TV: May 19th, 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 Amrie Hordern. 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 --> 0:00:24.880 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 --> 0:00:37.000 Terminal and the Bloomberg Business app. We begin this hour 0:00:37.000 --> 0:00:39.479 with stock struggling to rally following bank to bank losses. 0:00:39.520 --> 0:00:42.599 Cameron Dawson of New Edge Wealth writing equities became overbought 0:00:42.680 --> 0:00:45.320 and narrow with an upside driven by a small cohort 0:00:45.360 --> 0:00:47.680 of names. This was a recipe for a pause in 0:00:47.680 --> 0:00:50.080 the recent powerful moves. Cameron joins us now from more Cam, 0:00:50.120 --> 0:00:51.920 good morning, Good morning. Is that what this is just 0:00:51.960 --> 0:00:53.280 a pause or something more than that? 0:00:53.640 --> 0:00:57.640 Well, it's perfectly normal and perfectly prudent to see markets 0:00:57.720 --> 0:01:01.240 pause after having what was a very parabolic advance and 0:01:01.320 --> 0:01:04.360 as narrow cohort of names that were driving the vast 0:01:04.400 --> 0:01:07.800 majority of the upside in the overall market because they 0:01:07.840 --> 0:01:10.600 became such a huge weight in the index, and we 0:01:10.640 --> 0:01:13.520 were seeing certain extremes in some of this trading. 0:01:13.560 --> 0:01:15.000 You saw flows into. 0:01:14.760 --> 0:01:18.679 Leverage ETFs, option flows being very extreme, and you also 0:01:18.840 --> 0:01:21.959 saw this this narrowness really not be consistent with an 0:01:22.040 --> 0:01:24.960 overall new high end market, so it made this fragile. 0:01:25.280 --> 0:01:26.959 We think it is a pause, but at the end 0:01:27.040 --> 0:01:29.640 of the day, when you had an over eighteen percent 0:01:29.720 --> 0:01:32.600 weight in a cohort of names that went vertically up, 0:01:32.959 --> 0:01:35.840 a simple correction in those names back to trend could 0:01:35.920 --> 0:01:37.120 be damaging. 0:01:36.760 --> 0:01:38.840 For the overall market cap weighted index. 0:01:38.880 --> 0:01:40.520 What do you think the bond market fits into this 0:01:40.760 --> 0:01:41.279 new numbers? 0:01:41.280 --> 0:01:41.480 Again? 0:01:41.520 --> 0:01:45.000 This morning, we're back to four sixty thirties, pushing five 0:01:45.160 --> 0:01:47.319 twenty now getting closer at five p fifty eight and 0:01:47.360 --> 0:01:49.320 up two basis points today. Why does that fit into 0:01:49.360 --> 0:01:49.920 your outlook? 0:01:50.080 --> 0:01:53.680 I think that equity markets were able to ignore the 0:01:53.720 --> 0:01:57.120 bond market and ignore oil as well for a period 0:01:57.160 --> 0:02:00.800 of time when it was effectively re rating semis after 0:02:00.880 --> 0:02:03.960 a huge upside move in those earnings, meaning that the 0:02:04.000 --> 0:02:06.920 earnings were moving up so much that you had the 0:02:06.960 --> 0:02:10.600 ability to look through everything else now you've effectively reset 0:02:10.639 --> 0:02:14.560 the earnings, You've reset the valuations on those semiconductor names, 0:02:14.680 --> 0:02:17.160 and so now the overall equity market has to look 0:02:17.200 --> 0:02:20.840 around and say, is this valuation consistent with a tenure 0:02:20.880 --> 0:02:23.760 at four point six percent? And what does that tenure 0:02:23.800 --> 0:02:27.000 tell us? Because it's not necessarily just because growth is 0:02:27.000 --> 0:02:29.560 coming in a little bit better than expected. It's also 0:02:29.600 --> 0:02:31.880 because inflation is coming and hotter. What does that mean 0:02:31.919 --> 0:02:33.959 for policy? What does that mean for financial condition? 0:02:34.080 --> 0:02:36.080 Let's get to the policy call. So I mentioned the 0:02:36.160 --> 0:02:38.760 name over at City Jim McCormick. Of course, Andrew Honenhols 0:02:38.800 --> 0:02:40.400 will have its ow view on things. I think they're 0:02:40.400 --> 0:02:42.800 still looking for three rate cuts. But from the market's perspective, 0:02:42.919 --> 0:02:45.800 do you think but underpricing a rate hike and a 0:02:45.840 --> 0:02:47.200 right hike that might come this year? 0:02:47.560 --> 0:02:50.960 Yeah, the warp screen shows a sixty two percent chance 0:02:51.080 --> 0:02:53.040 of a rate hike by the end of the year. 0:02:53.160 --> 0:02:55.720 You have a two year yield that's now about thirty 0:02:55.760 --> 0:02:58.639 basis above the basis points above the Fed Funds rate. 0:02:58.960 --> 0:03:01.160 So we've been saying is it's not a very warm 0:03:01.200 --> 0:03:04.480 worsh welcome because that's a really tough position to be in. 0:03:04.600 --> 0:03:07.320 When you are expected to cut rates. So there has 0:03:07.520 --> 0:03:09.600 been a little bit of an easing in some of 0:03:09.639 --> 0:03:11.960 the commentary we think coming out of Trump about the 0:03:12.120 --> 0:03:14.880 urgency to cut rates, which just means that we had 0:03:14.880 --> 0:03:17.639 been talking about the potential that worsh could be pushed 0:03:17.639 --> 0:03:20.919 to dissent at his first meeting, which would be absolutely wild, 0:03:20.919 --> 0:03:23.520 a bit unprecedented. It seems like he now has a 0:03:23.560 --> 0:03:26.080 bit more wiggle room to say, given the movement higher 0:03:26.080 --> 0:03:30.760 in inflation, given the ability for unemployment to remain stable 0:03:30.800 --> 0:03:33.200 around four point three percent, that we don't have that 0:03:33.240 --> 0:03:36.440 same urgency. It really depends on whether or not you 0:03:36.520 --> 0:03:40.320 see inflation metastasized throughout the overall economy, meaning that core 0:03:40.440 --> 0:03:43.040 measures start to pull up in a more meaningful way 0:03:43.240 --> 0:03:45.200 that could get them to hike rates. We think for 0:03:45.280 --> 0:03:46.480 now it's a hold. 0:03:46.320 --> 0:03:48.480 And he's getting sworn in on Friday, So potentially maybe 0:03:48.480 --> 0:03:51.440 that's why the President is lowering the temperature in terms 0:03:51.440 --> 0:03:53.360 of the rhetoric. But at the same time, he's going 0:03:53.400 --> 0:03:56.040 to be there without a Steve Myron who would line 0:03:56.120 --> 0:03:57.560 up with him in terms of the descent. 0:03:57.720 --> 0:04:00.320 Yeah, it's a really good question because he's takening my 0:04:00.440 --> 0:04:04.640 ren seats so we effectively remove a dubvish dot from 0:04:04.680 --> 0:04:07.640 the dot plot, assuming that the dot plot does stay around, 0:04:07.960 --> 0:04:10.600 but it does move the center a gravity of the 0:04:10.640 --> 0:04:14.000 FED over into a more hawkish stance, which just puts 0:04:14.040 --> 0:04:15.920 them in a tougher position to be able to get 0:04:16.000 --> 0:04:19.839 everybody to coalesce around his views. The question we have 0:04:20.080 --> 0:04:23.680 is whether the bond market believes in their willingness to 0:04:23.720 --> 0:04:26.920 defend the two percent inflation target. The thing that continues 0:04:26.960 --> 0:04:29.480 to catch her eye. Look at ten your break events. 0:04:29.640 --> 0:04:32.400 They're at the highest level they've been since twenty twenty two. 0:04:32.839 --> 0:04:35.120 They've moved up by about thirty basis points. That doesn't 0:04:35.160 --> 0:04:36.839 sound like a lot, but that is a lot for 0:04:36.920 --> 0:04:39.440 break even since the start of the war. So the 0:04:39.480 --> 0:04:42.200 bond market seems to have a lot more consternation that 0:04:42.320 --> 0:04:45.839 maybe this new FED isn't as serious as getting inflation 0:04:45.920 --> 0:04:47.279 back to that two percent target. 0:04:47.480 --> 0:04:49.760 If the war persists, are they going to be forced 0:04:49.880 --> 0:04:51.880 to hike and not just look through this? 0:04:52.440 --> 0:04:56.640 It depends again on the metastasizing of this inflation. If 0:04:56.680 --> 0:04:59.400 we continue to see inflation really just be in that 0:04:59.520 --> 0:05:03.560 headline number where it's remains contained in energy prices, we 0:05:03.600 --> 0:05:06.240 do expect it to move into food prices but not 0:05:06.400 --> 0:05:10.039 show up in other portions of inflation measures, then they 0:05:10.080 --> 0:05:13.000 can have this potential to look through it. It really depends, 0:05:13.040 --> 0:05:15.960 i think, also on wage growth as well. That's really 0:05:16.040 --> 0:05:19.159 the ability for higher inflation to be passed on and 0:05:19.279 --> 0:05:21.919 into other areas. And what we're seeing now is that 0:05:21.960 --> 0:05:25.719 wage growth remains anemic because the job market isn't necessarily 0:05:25.760 --> 0:05:28.600 as robust for new jobs. But the problem you have 0:05:28.720 --> 0:05:31.800 for consumers in that environment is that real wage growth 0:05:31.880 --> 0:05:34.240 is now negative, and so as you think about the 0:05:34.279 --> 0:05:36.560 consumption outlook through the end of the year, you have 0:05:36.680 --> 0:05:40.920 effectively little upside for consumers simply because real wage growth 0:05:41.360 --> 0:05:43.719 is negative. You're seeing that in the way that markets 0:05:43.760 --> 0:05:47.320 are training as well. Equal Weight discretionary versus staples is 0:05:47.440 --> 0:05:50.880 rolling over and you're seeing a concomittant cut and consumer 0:05:51.200 --> 0:05:54.800 household consumption forecasts within GDP they've gone from two point 0:05:54.880 --> 0:05:57.360 one percent to one point eight percent, So the market 0:05:57.400 --> 0:06:00.359 is pricing in some of this consumer worry. 0:06:00.560 --> 0:06:02.359 Do you think a lack of clarity around the incoming 0:06:02.360 --> 0:06:05.960 FED chair and his personal view on his reaction functions, 0:06:06.000 --> 0:06:08.360 so to speak, do you think that's complicating things as well? 0:06:09.640 --> 0:06:10.880 I think it is to an extent. 0:06:10.920 --> 0:06:13.120 I mean, the old phrase is that the bond market 0:06:13.160 --> 0:06:16.520 always tests a new FED chair, and potentially he was 0:06:16.560 --> 0:06:19.120 more dubvish in the interviews and will be more hawkish 0:06:19.160 --> 0:06:21.920 going into it. But at once he's in the seat. 0:06:21.960 --> 0:06:24.719 But this is a global phenomenon. Look at what you see, 0:06:24.720 --> 0:06:27.680 of course, with UK yields, Japanese yields. I thought that 0:06:27.760 --> 0:06:31.200 the Japanese GDP data was really interesting. It came in 0:06:31.279 --> 0:06:34.560 hot on real GDP, the GDP deflator came in hot, 0:06:34.680 --> 0:06:37.640 so effectively have nominal GDP in Japan at five and 0:06:37.680 --> 0:06:40.480 a half percent with a two point eight percent tenure 0:06:40.600 --> 0:06:44.000 Japanese yield. So as much as we're talking about what's 0:06:44.040 --> 0:06:46.599 going on with the FED, the reality is this is 0:06:46.600 --> 0:06:49.440 a global bond market that has a lower and lower 0:06:49.480 --> 0:06:50.600 appetite for duration. 0:06:51.040 --> 0:06:51.680 Stay with us. 0:06:52.000 --> 0:06:54.560 More Bloomberg surveillance coming up after this. 0:07:03.800 --> 0:07:04.560 So here's the laces. 0:07:04.600 --> 0:07:07.760 This morning, the Cgate CEO Dave Mosley issuing a warning 0:07:07.839 --> 0:07:10.800 for the AI buildout, mostly telling a JP Morgan conference 0:07:10.840 --> 0:07:14.040 that building new factories would take too long. The comments 0:07:14.080 --> 0:07:16.679 wank on memory and hardware makers after plunging in Monday 0:07:16.800 --> 0:07:20.920 session Jeff Curry of Abak's Markets, writing capital has chased 0:07:20.960 --> 0:07:24.040 the AI trade while ignoring the physical assets it requires 0:07:24.040 --> 0:07:27.080 to run assets that have quietly become the best performing 0:07:27.120 --> 0:07:30.440 asset class of the decade. Jeff joined us now for more. Jeff, 0:07:30.480 --> 0:07:32.560 welcome to the program. Been excited to catch up with you. 0:07:32.600 --> 0:07:34.280 Seth think we need to take a giant step back 0:07:34.560 --> 0:07:37.800 and think about the mining bust post China boom. We 0:07:37.840 --> 0:07:40.360 need to think about the shale bust of a decade 0:07:40.400 --> 0:07:42.840 ago and why that's set the stage for this period 0:07:42.840 --> 0:07:46.320 of what you call capex starvation. Just where are we 0:07:46.400 --> 0:07:46.760 and why? 0:07:48.560 --> 0:07:51.080 Well, when you look at history, going back to the 0:07:51.240 --> 0:07:55.440 entire post war area, there's two sectors that lead the 0:07:55.480 --> 0:07:58.440 equity market. One is energy, the others tech. If you 0:07:58.480 --> 0:08:01.800 can't turn on the lights happens. If you can't innovate, 0:08:01.880 --> 0:08:03.680 you never progress, and that's what you see. 0:08:03.720 --> 0:08:04.559 So we go back. 0:08:04.880 --> 0:08:07.120 Tech was a leadership in the nineties all the way 0:08:07.200 --> 0:08:10.800 up to two thousand and two, then we transitioned into energy. 0:08:11.000 --> 0:08:14.600 Two thousand and two to twenty fourteen, fourteen to now 0:08:14.720 --> 0:08:17.280 has been technology. And the way you think about it 0:08:17.320 --> 0:08:20.320 is in those periods when energy lead and commodities lead 0:08:20.600 --> 0:08:24.760 you build over capacity that lowers the overall price. Inflation 0:08:24.880 --> 0:08:29.320 gets low and stable interest rates drop and investors chase duration, 0:08:29.440 --> 0:08:31.160 which is gross stories tech. 0:08:30.960 --> 0:08:31.680 And the rest of it. 0:08:31.840 --> 0:08:35.040 But eventually you run out of energy, run out of 0:08:35.040 --> 0:08:38.040 commodity capacity, and that's where we are today with this 0:08:38.120 --> 0:08:39.240 geopolitical event. 0:08:39.320 --> 0:08:40.319 It just pulled forward. 0:08:40.440 --> 0:08:42.520 Now, you know, Jonathan, we've been on here talking about 0:08:42.559 --> 0:08:43.760 the revenge of the old. 0:08:43.600 --> 0:08:45.360 Economy over and over and over. 0:08:45.960 --> 0:08:50.240 This rotation out of tech into hard assets that was 0:08:50.320 --> 0:08:54.520 already underway before this happened. What this did is just accelerated. 0:08:54.760 --> 0:08:58.160 Actually, now, Jeff, discipline is really hardened. Some of these say, Suites, 0:08:58.480 --> 0:09:00.880 what will it actually take to break out of this 0:09:01.000 --> 0:09:03.480 campex starvation phase that we're currently in, And do you 0:09:03.520 --> 0:09:05.400 see us breaking out of it anytime soon? 0:09:06.760 --> 0:09:11.680 Higher prices, higher returns. But the ultimately you ask what 0:09:11.840 --> 0:09:15.440 creates that huge upward trend in prices that you saw 0:09:15.480 --> 0:09:17.800 in the seventies and you saw on the two thousands. 0:09:17.960 --> 0:09:21.600 It's once investors take capital out of tech dump it 0:09:21.640 --> 0:09:24.839 into commodities, they begin to spend, and then you get 0:09:24.880 --> 0:09:28.120 cost inflation. The PPI that came out last week at 0:09:28.120 --> 0:09:30.880 five point one percent is telling you you're already seeing 0:09:30.920 --> 0:09:33.679 signs of it, combined with a huge supply shock that 0:09:33.720 --> 0:09:34.959 you're seeing in the Middle East. 0:09:35.240 --> 0:09:37.880 So in you know, in terms of thinking about. 0:09:37.679 --> 0:09:39.680 You know where we are on that we are just 0:09:39.800 --> 0:09:42.360 in the i'd say the bottom of the first inning 0:09:42.400 --> 0:09:45.080 of the super cycle, despite the fact commodities are the 0:09:45.080 --> 0:09:48.160 best before meing asset class this decade. So you're already 0:09:48.200 --> 0:09:50.959 six years into it in terms of pricing, and when 0:09:50.960 --> 0:09:53.600 we think about the forward, you've probably got another decade 0:09:53.640 --> 0:09:54.520 to twelve years left. 0:09:54.800 --> 0:09:56.839 Just looking at history, Jeff, it's simple and let's just 0:09:56.840 --> 0:09:59.040 compare what's happening with take then, So I imagine you 0:09:59.040 --> 0:10:02.120 think is capital intensity picks up, compacts intensity picks up 0:10:02.120 --> 0:10:04.040 of the tech clients, we get a rewriting, and then 0:10:04.040 --> 0:10:06.720 you get the rotation into the more energy sensitive parts 0:10:06.760 --> 0:10:10.000 of the market, the mining sector, the energy sector. We're 0:10:10.040 --> 0:10:12.560 not seeing that equal and opposite moved on fact, Jeff, 0:10:12.679 --> 0:10:15.319 those particular parts of the market have lengthd so far. 0:10:15.760 --> 0:10:17.960 That's interesting to me that the energy names haven't done 0:10:18.000 --> 0:10:19.000 much at the moment. 0:10:19.040 --> 0:10:19.880 What gives. 0:10:21.400 --> 0:10:24.840 I think there right now there is no concern about 0:10:24.880 --> 0:10:30.080 the supply of energy and commodities even with the largest 0:10:30.400 --> 0:10:33.440 supply shock the world has ever seen, two acts what 0:10:33.480 --> 0:10:36.000 we saw in the nineteen seventies, and I think there's 0:10:36.000 --> 0:10:37.880 three reasons why they're not concerned. 0:10:38.360 --> 0:10:40.720 One, we're in the middle of the shoulder months. 0:10:40.880 --> 0:10:43.400 This is the weakest demand that goes down and then 0:10:43.520 --> 0:10:46.840 back up. We're in that weakest demand part of the 0:10:47.000 --> 0:10:49.920 entire year right now, so there's no stress on the system. 0:10:50.320 --> 0:10:53.520 The second reason is right now we're in a deficit, 0:10:53.920 --> 0:10:57.040 meaning that demands up here supplies down here. 0:10:57.240 --> 0:10:58.439 We're drawing inventories. 0:10:58.480 --> 0:11:01.520 Once you exhaust inventories, boom, you have to push demand 0:11:01.559 --> 0:11:02.920 down in line with supply. 0:11:03.400 --> 0:11:04.600 That's when the shortage hits. 0:11:04.679 --> 0:11:07.559 That's when the pain hits, and that's when prices go nonlinear. 0:11:07.800 --> 0:11:10.960 The third point I want to talk about is that 0:11:11.160 --> 0:11:17.320 every policy maker you know, macro forecaster, central banker, you know, 0:11:17.920 --> 0:11:21.920 tech promoter is telling you right now there is no problem. 0:11:22.400 --> 0:11:26.920 Every commodity ceo, commodity trader, anybody who gets their hands 0:11:26.960 --> 0:11:29.640 dirty is telling you you have a problem. You have 0:11:29.760 --> 0:11:32.920 seen this movie before, back in twenty twenty, twenty twenty one, 0:11:33.120 --> 0:11:36.760 when remember infleetion is transitory, and then you know a 0:11:36.760 --> 0:11:39.160 few months later, boom, you hit the wall, and you know, 0:11:39.200 --> 0:11:40.760 we went to double digit inflation. 0:11:41.640 --> 0:11:42.719 And I think you're seeing the. 0:11:42.679 --> 0:11:45.679 Same dynamic here, you know, I you know, one last 0:11:45.679 --> 0:11:49.880 point though, Carter in nineteen seventy seven made a fatal mistake. 0:11:50.000 --> 0:11:52.520 It was the sweater speech. It was you know, February 0:11:52.559 --> 0:11:54.920 nineteen seventy seventy is a sweater kind of like this 0:11:55.320 --> 0:11:59.800 went out was Burgher and told everybody turn your thermosts down, 0:11:59.880 --> 0:12:02.720 and then prices of commodities explode. And I think every 0:12:02.760 --> 0:12:04.520 policy maker has learned from that. 0:12:04.760 --> 0:12:06.679 You know, you don't want to create fear. 0:12:06.960 --> 0:12:08.840 My job is you know, if I was advising the 0:12:08.840 --> 0:12:11.440 president telling him to do the exact same thing, keep 0:12:11.480 --> 0:12:13.720 everybody calm. But my job is telling you how to 0:12:13.760 --> 0:12:16.319 make money. And you know, at this point, right now, 0:12:16.440 --> 0:12:17.480 this is really serious. 0:12:17.559 --> 0:12:17.719 Yeah. 0:12:17.760 --> 0:12:19.719 Trump definitely doesn't want to come out, especially with the 0:12:19.800 --> 0:12:23.000 ninety five degree weather saying don't put your air conditioners on. 0:12:23.320 --> 0:12:26.160 But Jeff, you say that at this moment, supply has 0:12:26.160 --> 0:12:28.520 that would be more constrained. Yet Brent can barely hold 0:12:28.520 --> 0:12:29.280 on to one ten. 0:12:32.240 --> 0:12:34.840 You have that seasonal weakness right now. You're not in 0:12:34.920 --> 0:12:38.280 a shortage, but another really important point here is because 0:12:38.400 --> 0:12:43.600 nobody is buying the energy companies in the back end 0:12:43.640 --> 0:12:46.400 of that forward curve is anchored to the cost of 0:12:46.480 --> 0:12:47.720 capital of those companies. 0:12:48.040 --> 0:12:48.880 It is too low. 0:12:49.280 --> 0:12:53.720 And you know, I call this the biggest asymmetric trade 0:12:53.960 --> 0:12:56.600 in modern finance and historical terms. 0:12:56.800 --> 0:12:58.440 Why when you look. 0:12:58.320 --> 0:13:01.359 At the free cash flow yield of the oil companies, 0:13:01.640 --> 0:13:03.679 they're fifteen point five percent. 0:13:03.840 --> 0:13:05.400 The hyperscalers are zero. 0:13:05.480 --> 0:13:09.560 Let me say that again, fifteen point five percent you know, 0:13:09.640 --> 0:13:13.200 free cash filll yield for the oil companies, zero percent 0:13:13.360 --> 0:13:18.040 for the hyperscalers. We call those oil companies the Munificent seven. 0:13:18.080 --> 0:13:22.480 What does munificent mean? Giving you lavish gifts? And at 0:13:22.520 --> 0:13:25.480 fifteen point five percent free cash flow yield, I'd call that. 0:13:25.480 --> 0:13:26.280 A lavish gift. 0:13:26.440 --> 0:13:28.320 And just when it comes to supply and demand, you 0:13:28.360 --> 0:13:31.440 mentioned this, it's going to get rough when inventories are 0:13:31.520 --> 0:13:34.040 drawn down. When will we hit tank bottoms? 0:13:34.160 --> 0:13:38.400 In your analysis, and it depends on where you are 0:13:38.440 --> 0:13:41.760 in the world and what products. Some products you're you're 0:13:41.800 --> 0:13:44.080 already there, like motor oil in the US. And by 0:13:44.120 --> 0:13:46.560 the way, motor oil in the US is critical because 0:13:46.559 --> 0:13:48.960 you couldn't even turn on your car without motor oil. 0:13:49.520 --> 0:13:53.640 Even if you had gasoline items like sulfuric acid, you're out. 0:13:53.720 --> 0:13:54.680 What does that cause. 0:13:54.720 --> 0:13:58.240 That's why copper hit an all time high last week, because. 0:13:58.080 --> 0:13:59.839 You need the sulfuric acid to produce. 0:14:00.480 --> 0:14:04.439 But when we think about diesel, jet fuel, gasoline, those 0:14:04.800 --> 0:14:06.840 you know parts of the world jet fuel, you're there. 0:14:06.960 --> 0:14:09.520 We would expect to see here in Europe diesel and 0:14:09.600 --> 0:14:12.360 jet fuel run into very serious problems by the end 0:14:12.440 --> 0:14:16.360 of this month, the United States gasoline by July. And 0:14:16.400 --> 0:14:18.000 at that point is when you start to get to 0:14:18.040 --> 0:14:21.040 that nonlinear part and see prices go higher. But I 0:14:21.080 --> 0:14:23.680 want to emphasize when we look at the spread between 0:14:23.720 --> 0:14:27.120 spot prices in the back end, this spread has never 0:14:27.160 --> 0:14:30.120 been higher. And everybody goes, oh, we had you know, 0:14:30.240 --> 0:14:33.840 prices were at one twenty two in the Russian invasion, 0:14:34.120 --> 0:14:35.680 by the way, the back end of the curve was 0:14:35.680 --> 0:14:38.600 ten dollars lower. And then everybody goes, you know, we 0:14:38.640 --> 0:14:41.080 saw one forty seven in two thousand and eight, by 0:14:41.080 --> 0:14:43.280 the way, the back end was like one forty one 0:14:43.360 --> 0:14:47.000 forty seven. What is miss priced here right now is 0:14:47.040 --> 0:14:49.720 the back end of the oil sitting somewhere around seventy 0:14:49.800 --> 0:14:54.000 seventy five. This is a long term problem. The cost 0:14:54.000 --> 0:14:56.320 structure is going to go up. There is no spare 0:14:56.360 --> 0:14:58.440 capacity left. It's going to take a long time to 0:14:58.440 --> 0:15:01.400 re establish it. We need to reprice that market. That's 0:15:01.400 --> 0:15:04.600 going to reprice the new Munificent seven. That's why I'd 0:15:04.600 --> 0:15:06.960 tend to think the trade here. You know, just looking 0:15:07.000 --> 0:15:09.920 at pure economics has the most upside to actually own 0:15:09.960 --> 0:15:10.800 these oil companies. 0:15:11.240 --> 0:15:14.760 Stay with us. More Bloomberg surveillance coming up after this. 0:15:24.240 --> 0:15:26.240 My bullish port for a long long time has been 0:15:26.240 --> 0:15:29.400 Steve Uthur federated, and Steve has this to say, stocks 0:15:29.400 --> 0:15:32.840 can pass through and or manage inflation, especially when productivity 0:15:33.240 --> 0:15:36.320 is booming due to AI. We're raising our forward earnings 0:15:36.320 --> 0:15:40.840 and market targets display persistent inflation worries, and please to 0:15:40.920 --> 0:15:43.000 say that. Steve joints to surround the table, Steve demonic 0:15:43.200 --> 0:15:45.400 more engineer the guy turned to and have done for 0:15:45.440 --> 0:15:47.400 the last decade or so to kind of get me 0:15:47.440 --> 0:15:49.360 out of this bearish mess or this hole I've dug 0:15:49.440 --> 0:15:52.400 myself into. Why can you still be optimistic in a 0:15:52.440 --> 0:15:53.400 moment like this one? 0:15:54.160 --> 0:15:55.960 Well, you know, I was thinking of this as Anne 0:15:55.960 --> 0:15:59.600 Marie was talking about hitting bottoms on tankers and things. 0:16:00.280 --> 0:16:02.520 You know, we have an expression of federated hermes. If 0:16:02.520 --> 0:16:06.160 it can't happen, it won't happen. And sometimes you can 0:16:06.200 --> 0:16:09.040 outsmart yourself. You know, you're looking at everything and saying, 0:16:09.240 --> 0:16:10.440 you know, this looks really bad. 0:16:10.520 --> 0:16:12.640 But we're not the only ones who see that. 0:16:13.000 --> 0:16:17.520 And so I have to assume that some combination of 0:16:17.720 --> 0:16:21.680 Donald Trump presidency the whole crowd, this is not good 0:16:21.680 --> 0:16:24.040 for anybody. And so I don't think we are going 0:16:24.120 --> 0:16:25.840 to run out a while. I think they'll figure out 0:16:25.840 --> 0:16:27.800 a way to solve this one way or the other. 0:16:28.080 --> 0:16:30.120 As you say that, I'm reminded of what happened yesterday 0:16:30.160 --> 0:16:33.320 this Iranian report that part of the negotiation, this is 0:16:33.360 --> 0:16:35.280 what the Iranians were saying, the United States was willing 0:16:35.320 --> 0:16:38.400 to give waivers to Iranian crude. The switch situation gets 0:16:38.440 --> 0:16:40.720 so bad, they're just going to let crude go freely 0:16:40.800 --> 0:16:43.240 from their enemy that they're in a conflict with. 0:16:43.360 --> 0:16:45.440 Well, I think that they do whatever they have to 0:16:45.480 --> 0:16:48.080 do to have this not be an issue. And in 0:16:48.120 --> 0:16:51.080 the meantime, the other thing that I think people are 0:16:51.120 --> 0:16:55.280 sort of missing here is bon yals are up because 0:16:55.280 --> 0:16:57.280 inflation's up, but. 0:16:57.400 --> 0:17:00.720 Bonds are the acid clasts with a problem. Stocks. 0:17:01.640 --> 0:17:05.680 Stocks have always been an inflation hedge. It really doesn't 0:17:05.720 --> 0:17:07.639 matter what inflation is doing. If you look at the 0:17:07.760 --> 0:17:11.240 data and sort it. As long as growth in earnings 0:17:11.359 --> 0:17:15.440 is strong, stocks go up. Whether it's driven by inflation 0:17:15.720 --> 0:17:18.639 or driven by real growth, it doesn't really matter because 0:17:18.640 --> 0:17:20.520 stocks eat nominal earnings. 0:17:21.359 --> 0:17:23.120 And look what just happened. 0:17:23.440 --> 0:17:25.720 You know, in the last earning season, eight of ten 0:17:25.840 --> 0:17:29.159 sectors had double digit earnings growth. People talk about a 0:17:29.280 --> 0:17:32.879 narrow recovery, and it's one of these fallacies where people 0:17:32.960 --> 0:17:37.919 look at percentage moves off of lows. Absolutely off the lows. 0:17:37.920 --> 0:17:42.000 The AI stocks have driven the rally. However, year to date, 0:17:42.119 --> 0:17:45.440 I was kind of laughing during your last telecaster. You're 0:17:45.480 --> 0:17:48.359 talking about how is AI led, and in the background 0:17:48.359 --> 0:17:51.000 they're showing the returns on exon up. 0:17:50.960 --> 0:17:52.680 Thirty three percent year to date. 0:17:52.840 --> 0:17:57.399 Year to date, value stocks, small cap stocks, emerging market 0:17:57.400 --> 0:18:01.960 stocks have all performed double digit ahead of the MAC seven, 0:18:02.000 --> 0:18:06.360 which is up eight percent. So this is not simply 0:18:06.400 --> 0:18:10.000 an AI driven rally. It's a broad rally. AI itself 0:18:10.119 --> 0:18:13.520 is spreading out. The AI theme keeps spreading from one 0:18:13.520 --> 0:18:14.520 thing to the next. 0:18:14.880 --> 0:18:16.080 It's all over the economy. 0:18:16.119 --> 0:18:19.040 This is one of the biggest technological changes in the 0:18:19.080 --> 0:18:23.760 history of man and the trajectory of earnings right now 0:18:23.840 --> 0:18:26.680 based on what we're seeing and what has been coming 0:18:26.680 --> 0:18:30.160 out of the street. As street estimates keep rising every 0:18:30.240 --> 0:18:34.000 day we go through earning season, we found that our number, 0:18:34.040 --> 0:18:36.600 we had a number we used use a three year 0:18:36.640 --> 0:18:40.640 out earnings number to project a two year forward market return, 0:18:40.720 --> 0:18:45.639 which at the time we were at eight eighty two hundred. 0:18:45.119 --> 0:18:48.639 The number keeps going up. We had a four hundred 0:18:48.680 --> 0:18:51.960 dollars earnings estimate for twenty twenty eight. We were way 0:18:51.960 --> 0:18:55.040 ahead of the street six months ago. You know, I 0:18:55.080 --> 0:18:56.840 woke up Monday morning and we're. 0:18:56.840 --> 0:18:57.800 Behind the street. 0:18:57.920 --> 0:19:01.680 How could that be? There is at four twenty five, 0:19:01.760 --> 0:19:04.120 so we're at four fifty. If you look at the numbers, 0:19:04.160 --> 0:19:09.720 that's what's happening. Stocks are passing through and productivity gains 0:19:09.760 --> 0:19:13.320 are helping them, you know, pass through, and their margins 0:19:13.320 --> 0:19:14.840 are going up, not going down. 0:19:14.880 --> 0:19:16.560 Steve, this is the struggle people have. And I had 0:19:16.600 --> 0:19:19.199 this conversation with Alex Sulman over at Barclays that we 0:19:19.240 --> 0:19:22.320 seem to be putting more emphasis on how we've got here, 0:19:22.720 --> 0:19:25.320 and not enough on where we are. And a good 0:19:25.320 --> 0:19:27.560 example of that is, say, look at the charts versus 0:19:27.560 --> 0:19:29.000 look at the numbers. If you look at the charts 0:19:29.040 --> 0:19:31.560