Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
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Speaker 2: Terminal and the Bloomberg Business app. We begin this hour
Speaker 2: with stock struggling to rally following bank to bank losses.
Speaker 2: Cameron Dawson of New Edge Wealth writing equities became overbought
Speaker 2: and narrow with an upside driven by a small cohort
Speaker 2: of names. This was a recipe for a pause in
Speaker 2: the recent powerful moves. Cameron joins us now from more Cam,
Speaker 2: good morning, Good morning. Is that what this is just
Speaker 2: a pause or something more than that?
Speaker 3: Well, it's perfectly normal and perfectly prudent to see markets
Speaker 3: pause after having what was a very parabolic advance and
Speaker 3: as narrow cohort of names that were driving the vast
Speaker 3: majority of the upside in the overall market because they
Speaker 3: became such a huge weight in the index, and we
Speaker 3: were seeing certain extremes in some of this trading.
Speaker 1: You saw flows into.
Speaker 3: Leverage ETFs, option flows being very extreme, and you also
Speaker 3: saw this this narrowness really not be consistent with an
Speaker 3: overall new high end market, so it made this fragile.
Speaker 3: We think it is a pause, but at the end
Speaker 3: of the day, when you had an over eighteen percent
Speaker 3: weight in a cohort of names that went vertically up,
Speaker 3: a simple correction in those names back to trend could
Speaker 3: be damaging.
Speaker 1: For the overall market cap weighted index.
Speaker 2: What do you think the bond market fits into this
Speaker 2: new numbers?
Speaker 4: Again?
Speaker 2: This morning, we're back to four sixty thirties, pushing five
Speaker 2: twenty now getting closer at five p fifty eight and
Speaker 2: up two basis points today. Why does that fit into
Speaker 2: your outlook?
Speaker 3: I think that equity markets were able to ignore the
Speaker 3: bond market and ignore oil as well for a period
Speaker 3: of time when it was effectively re rating semis after
Speaker 3: a huge upside move in those earnings, meaning that the
Speaker 3: earnings were moving up so much that you had the
Speaker 3: ability to look through everything else now you've effectively reset
Speaker 3: the earnings, You've reset the valuations on those semiconductor names,
Speaker 3: and so now the overall equity market has to look
Speaker 3: around and say, is this valuation consistent with a tenure
Speaker 3: at four point six percent? And what does that tenure
Speaker 3: tell us? Because it's not necessarily just because growth is
Speaker 3: coming in a little bit better than expected. It's also
Speaker 3: because inflation is coming and hotter. What does that mean
Speaker 3: for policy? What does that mean for financial condition?
Speaker 2: Let's get to the policy call. So I mentioned the
Speaker 2: name over at City Jim McCormick. Of course, Andrew Honenhols
Speaker 2: will have its ow view on things. I think they're
Speaker 2: still looking for three rate cuts. But from the market's perspective,
Speaker 2: do you think but underpricing a rate hike and a
Speaker 2: right hike that might come this year?
Speaker 3: Yeah, the warp screen shows a sixty two percent chance
Speaker 3: of a rate hike by the end of the year.
Speaker 3: You have a two year yield that's now about thirty
Speaker 3: basis above the basis points above the Fed Funds rate.
Speaker 3: So we've been saying is it's not a very warm
Speaker 3: worsh welcome because that's a really tough position to be in.
Speaker 3: When you are expected to cut rates. So there has
Speaker 3: been a little bit of an easing in some of
Speaker 3: the commentary we think coming out of Trump about the
Speaker 3: urgency to cut rates, which just means that we had
Speaker 3: been talking about the potential that worsh could be pushed
Speaker 3: to dissent at his first meeting, which would be absolutely wild,
Speaker 3: a bit unprecedented. It seems like he now has a
Speaker 3: bit more wiggle room to say, given the movement higher
Speaker 3: in inflation, given the ability for unemployment to remain stable
Speaker 3: around four point three percent, that we don't have that
Speaker 3: same urgency. It really depends on whether or not you
Speaker 3: see inflation metastasized throughout the overall economy, meaning that core
Speaker 3: measures start to pull up in a more meaningful way
Speaker 3: that could get them to hike rates. We think for
Speaker 3: now it's a hold.
Speaker 5: And he's getting sworn in on Friday, So potentially maybe
Speaker 5: that's why the President is lowering the temperature in terms
Speaker 5: of the rhetoric. But at the same time, he's going
Speaker 5: to be there without a Steve Myron who would line
Speaker 5: up with him in terms of the descent.
Speaker 3: Yeah, it's a really good question because he's takening my
Speaker 3: ren seats so we effectively remove a dubvish dot from
Speaker 3: the dot plot, assuming that the dot plot does stay around,
Speaker 3: but it does move the center a gravity of the
Speaker 3: FED over into a more hawkish stance, which just puts
Speaker 3: them in a tougher position to be able to get
Speaker 3: everybody to coalesce around his views. The question we have
Speaker 3: is whether the bond market believes in their willingness to
Speaker 3: defend the two percent inflation target. The thing that continues
Speaker 3: to catch her eye. Look at ten your break events.
Speaker 3: They're at the highest level they've been since twenty twenty two.
Speaker 3: They've moved up by about thirty basis points. That doesn't
Speaker 3: sound like a lot, but that is a lot for
Speaker 3: break even since the start of the war. So the
Speaker 3: bond market seems to have a lot more consternation that
Speaker 3: maybe this new FED isn't as serious as getting inflation
Speaker 3: back to that two percent target.
Speaker 5: If the war persists, are they going to be forced
Speaker 5: to hike and not just look through this?
Speaker 3: It depends again on the metastasizing of this inflation. If
Speaker 3: we continue to see inflation really just be in that
Speaker 3: headline number where it's remains contained in energy prices, we
Speaker 3: do expect it to move into food prices but not
Speaker 3: show up in other portions of inflation measures, then they
Speaker 3: can have this potential to look through it. It really depends,
Speaker 3: i think, also on wage growth as well. That's really
Speaker 3: the ability for higher inflation to be passed on and
Speaker 3: into other areas. And what we're seeing now is that
Speaker 3: wage growth remains anemic because the job market isn't necessarily
Speaker 3: as robust for new jobs. But the problem you have
Speaker 3: for consumers in that environment is that real wage growth
Speaker 3: is now negative, and so as you think about the
Speaker 3: consumption outlook through the end of the year, you have
Speaker 3: effectively little upside for consumers simply because real wage growth
Speaker 3: is negative. You're seeing that in the way that markets
Speaker 3: are training as well. Equal Weight discretionary versus staples is
Speaker 3: rolling over and you're seeing a concomittant cut and consumer
Speaker 3: household consumption forecasts within GDP they've gone from two point
Speaker 3: one percent to one point eight percent, So the market
Speaker 3: is pricing in some of this consumer worry.
Speaker 2: Do you think a lack of clarity around the incoming
Speaker 2: FED chair and his personal view on his reaction functions,
Speaker 2: so to speak, do you think that's complicating things as well?
Speaker 1: I think it is to an extent.
Speaker 3: I mean, the old phrase is that the bond market
Speaker 3: always tests a new FED chair, and potentially he was
Speaker 3: more dubvish in the interviews and will be more hawkish
Speaker 3: going into it. But at once he's in the seat.
Speaker 3: But this is a global phenomenon. Look at what you see,
Speaker 3: of course, with UK yields, Japanese yields. I thought that
Speaker 3: the Japanese GDP data was really interesting. It came in
Speaker 3: hot on real GDP, the GDP deflator came in hot,
Speaker 3: so effectively have nominal GDP in Japan at five and
Speaker 3: a half percent with a two point eight percent tenure
Speaker 3: Japanese yield. So as much as we're talking about what's
Speaker 3: going on with the FED, the reality is this is
Speaker 3: a global bond market that has a lower and lower
Speaker 3: appetite for duration.
Speaker 4: Stay with us.
Speaker 2: More Bloomberg surveillance coming up after this.
Speaker 4: So here's the laces.
Speaker 2: This morning, the Cgate CEO Dave Mosley issuing a warning
Speaker 2: for the AI buildout, mostly telling a JP Morgan conference
Speaker 2: that building new factories would take too long. The comments
Speaker 2: wank on memory and hardware makers after plunging in Monday
Speaker 2: session Jeff Curry of Abak's Markets, writing capital has chased
Speaker 2: the AI trade while ignoring the physical assets it requires
Speaker 2: to run assets that have quietly become the best performing
Speaker 2: asset class of the decade. Jeff joined us now for more. Jeff,
Speaker 2: welcome to the program. Been excited to catch up with you.
Speaker 2: Seth think we need to take a giant step back
Speaker 2: and think about the mining bust post China boom. We
Speaker 2: need to think about the shale bust of a decade
Speaker 2: ago and why that's set the stage for this period
Speaker 2: of what you call capex starvation. Just where are we
Speaker 2: and why?
Speaker 6: Well, when you look at history, going back to the
Speaker 6: entire post war area, there's two sectors that lead the
Speaker 6: equity market. One is energy, the others tech. If you
Speaker 6: can't turn on the lights happens. If you can't innovate,
Speaker 6: you never progress, and that's what you see.
Speaker 7: So we go back.
Speaker 6: Tech was a leadership in the nineties all the way
Speaker 6: up to two thousand and two, then we transitioned into energy.
Speaker 6: Two thousand and two to twenty fourteen, fourteen to now
Speaker 6: has been technology. And the way you think about it
Speaker 6: is in those periods when energy lead and commodities lead
Speaker 6: you build over capacity that lowers the overall price. Inflation
Speaker 6: gets low and stable interest rates drop and investors chase duration,
Speaker 6: which is gross stories tech.
Speaker 7: And the rest of it.
Speaker 6: But eventually you run out of energy, run out of
Speaker 6: commodity capacity, and that's where we are today with this
Speaker 6: geopolitical event.
Speaker 7: It just pulled forward.
Speaker 6: Now, you know, Jonathan, we've been on here talking about
Speaker 6: the revenge of the old.
Speaker 7: Economy over and over and over.
Speaker 6: This rotation out of tech into hard assets that was
Speaker 6: already underway before this happened. What this did is just accelerated.
Speaker 2: Actually, now, Jeff, discipline is really hardened. Some of these say, Suites,
Speaker 2: what will it actually take to break out of this
Speaker 2: campex starvation phase that we're currently in, And do you
Speaker 2: see us breaking out of it anytime soon?
Speaker 6: Higher prices, higher returns. But the ultimately you ask what
Speaker 6: creates that huge upward trend in prices that you saw
Speaker 6: in the seventies and you saw on the two thousands.
Speaker 6: It's once investors take capital out of tech dump it
Speaker 6: into commodities, they begin to spend, and then you get
Speaker 6: cost inflation. The PPI that came out last week at
Speaker 6: five point one percent is telling you you're already seeing
Speaker 6: signs of it, combined with a huge supply shock that
Speaker 6: you're seeing in the Middle East.
Speaker 7: So in you know, in terms of thinking about.
Speaker 6: You know where we are on that we are just
Speaker 6: in the i'd say the bottom of the first inning
Speaker 6: of the super cycle, despite the fact commodities are the
Speaker 6: best before meing asset class this decade. So you're already
Speaker 6: six years into it in terms of pricing, and when
Speaker 6: we think about the forward, you've probably got another decade
Speaker 6: to twelve years left.
Speaker 2: Just looking at history, Jeff, it's simple and let's just
Speaker 2: compare what's happening with take then, So I imagine you
Speaker 2: think is capital intensity picks up, compacts intensity picks up
Speaker 2: of the tech clients, we get a rewriting, and then
Speaker 2: you get the rotation into the more energy sensitive parts
Speaker 2: of the market, the mining sector, the energy sector. We're
Speaker 2: not seeing that equal and opposite moved on fact, Jeff,
Speaker 2: those particular parts of the market have lengthd so far.
Speaker 2: That's interesting to me that the energy names haven't done
Speaker 2: much at the moment.
Speaker 4: What gives.
Speaker 6: I think there right now there is no concern about
Speaker 6: the supply of energy and commodities even with the largest
Speaker 6: supply shock the world has ever seen, two acts what
Speaker 6: we saw in the nineteen seventies, and I think there's
Speaker 6: three reasons why they're not concerned.
Speaker 7: One, we're in the middle of the shoulder months.
Speaker 6: This is the weakest demand that goes down and then
Speaker 6: back up. We're in that weakest demand part of the
Speaker 6: entire year right now, so there's no stress on the system.
Speaker 6: The second reason is right now we're in a deficit,
Speaker 6: meaning that demands up here supplies down here.
Speaker 7: We're drawing inventories.
Speaker 6: Once you exhaust inventories, boom, you have to push demand
Speaker 6: down in line with supply.
Speaker 7: That's when the shortage hits.
Speaker 6: That's when the pain hits, and that's when prices go nonlinear.
Speaker 6: The third point I want to talk about is that
Speaker 6: every policy maker you know, macro forecaster, central banker, you know,
Speaker 6: tech promoter is telling you right now there is no problem.
Speaker 6: Every commodity ceo, commodity trader, anybody who gets their hands
Speaker 6: dirty is telling you you have a problem. You have
Speaker 6: seen this movie before, back in twenty twenty, twenty twenty one,
Speaker 6: when remember infleetion is transitory, and then you know a
Speaker 6: few months later, boom, you hit the wall, and you know,
Speaker 6: we went to double digit inflation.
Speaker 7: And I think you're seeing the.
Speaker 6: Same dynamic here, you know, I you know, one last
Speaker 6: point though, Carter in nineteen seventy seven made a fatal mistake.
Speaker 6: It was the sweater speech. It was you know, February
Speaker 6: nineteen seventy seventy is a sweater kind of like this
Speaker 6: went out was Burgher and told everybody turn your thermosts down,
Speaker 6: and then prices of commodities explode. And I think every
Speaker 6: policy maker has learned from that.
Speaker 7: You know, you don't want to create fear.
Speaker 6: My job is you know, if I was advising the
Speaker 6: president telling him to do the exact same thing, keep
Speaker 6: everybody calm. But my job is telling you how to
Speaker 6: make money. And you know, at this point, right now,
Speaker 6: this is really serious.
Speaker 1: Yeah.
Speaker 5: Trump definitely doesn't want to come out, especially with the
Speaker 5: ninety five degree weather saying don't put your air conditioners on.
Speaker 5: But Jeff, you say that at this moment, supply has
Speaker 5: that would be more constrained. Yet Brent can barely hold
Speaker 5: on to one ten.
Speaker 6: You have that seasonal weakness right now. You're not in
Speaker 6: a shortage, but another really important point here is because
Speaker 6: nobody is buying the energy companies in the back end
Speaker 6: of that forward curve is anchored to the cost of
Speaker 6: capital of those companies.
Speaker 7: It is too low.
Speaker 6: And you know, I call this the biggest asymmetric trade
Speaker 6: in modern finance and historical terms.
Speaker 7: Why when you look.
Speaker 6: At the free cash flow yield of the oil companies,
Speaker 6: they're fifteen point five percent.
Speaker 7: The hyperscalers are zero.
Speaker 6: Let me say that again, fifteen point five percent you know,
Speaker 6: free cash filll yield for the oil companies, zero percent
Speaker 6: for the hyperscalers. We call those oil companies the Munificent seven.
Speaker 6: What does munificent mean? Giving you lavish gifts? And at
Speaker 6: fifteen point five percent free cash flow yield, I'd call that.
Speaker 7: A lavish gift.
Speaker 5: And just when it comes to supply and demand, you
Speaker 5: mentioned this, it's going to get rough when inventories are
Speaker 5: drawn down. When will we hit tank bottoms?
Speaker 6: In your analysis, and it depends on where you are
Speaker 6: in the world and what products. Some products you're you're
Speaker 6: already there, like motor oil in the US. And by
Speaker 6: the way, motor oil in the US is critical because
Speaker 6: you couldn't even turn on your car without motor oil.
Speaker 6: Even if you had gasoline items like sulfuric acid, you're out.
Speaker 7: What does that cause.
Speaker 6: That's why copper hit an all time high last week, because.
Speaker 7: You need the sulfuric acid to produce.
Speaker 6: But when we think about diesel, jet fuel, gasoline, those
Speaker 6: you know parts of the world jet fuel, you're there.
Speaker 6: We would expect to see here in Europe diesel and
Speaker 6: jet fuel run into very serious problems by the end
Speaker 6: of this month, the United States gasoline by July. And
Speaker 6: at that point is when you start to get to
Speaker 6: that nonlinear part and see prices go higher. But I
Speaker 6: want to emphasize when we look at the spread between
Speaker 6: spot prices in the back end, this spread has never
Speaker 6: been higher. And everybody goes, oh, we had you know,
Speaker 6: prices were at one twenty two in the Russian invasion,
Speaker 6: by the way, the back end of the curve was
Speaker 6: ten dollars lower. And then everybody goes, you know, we
Speaker 6: saw one forty seven in two thousand and eight, by
Speaker 6: the way, the back end was like one forty one
Speaker 6: forty seven. What is miss priced here right now is
Speaker 6: the back end of the oil sitting somewhere around seventy
Speaker 6: seventy five. This is a long term problem. The cost
Speaker 6: structure is going to go up. There is no spare
Speaker 6: capacity left. It's going to take a long time to
Speaker 6: re establish it. We need to reprice that market. That's
Speaker 6: going to reprice the new Munificent seven. That's why I'd
Speaker 6: tend to think the trade here. You know, just looking
Speaker 6: at pure economics has the most upside to actually own
Speaker 6: these oil companies.
Speaker 2: Stay with us. More Bloomberg surveillance coming up after this.
Speaker 2: My bullish port for a long long time has been
Speaker 2: Steve Uthur federated, and Steve has this to say, stocks
Speaker 2: can pass through and or manage inflation, especially when productivity
Speaker 2: is booming due to AI. We're raising our forward earnings
Speaker 2: and market targets display persistent inflation worries, and please to
Speaker 2: say that. Steve joints to surround the table, Steve demonic
Speaker 2: more engineer the guy turned to and have done for
Speaker 2: the last decade or so to kind of get me
Speaker 2: out of this bearish mess or this hole I've dug
Speaker 2: myself into. Why can you still be optimistic in a
Speaker 2: moment like this one?
Speaker 8: Well, you know, I was thinking of this as Anne
Speaker 8: Marie was talking about hitting bottoms on tankers and things.
Speaker 8: You know, we have an expression of federated hermes. If
Speaker 8: it can't happen, it won't happen. And sometimes you can
Speaker 8: outsmart yourself. You know, you're looking at everything and saying,
Speaker 8: you know, this looks really bad.
Speaker 4: But we're not the only ones who see that.
Speaker 8: And so I have to assume that some combination of
Speaker 8: Donald Trump presidency the whole crowd, this is not good
Speaker 8: for anybody. And so I don't think we are going
Speaker 8: to run out a while. I think they'll figure out
Speaker 8: a way to solve this one way or the other.
Speaker 5: As you say that, I'm reminded of what happened yesterday
Speaker 5: this Iranian report that part of the negotiation, this is
Speaker 5: what the Iranians were saying, the United States was willing
Speaker 5: to give waivers to Iranian crude. The switch situation gets
Speaker 5: so bad, they're just going to let crude go freely
Speaker 5: from their enemy that they're in a conflict with.
Speaker 8: Well, I think that they do whatever they have to
Speaker 8: do to have this not be an issue. And in
Speaker 8: the meantime, the other thing that I think people are
Speaker 8: sort of missing here is bon yals are up because
Speaker 8: inflation's up, but.
Speaker 4: Bonds are the acid clasts with a problem. Stocks.
Speaker 8: Stocks have always been an inflation hedge. It really doesn't
Speaker 8: matter what inflation is doing. If you look at the
Speaker 8: data and sort it. As long as growth in earnings
Speaker 8: is strong, stocks go up. Whether it's driven by inflation
Speaker 8: or driven by real growth, it doesn't really matter because
Speaker 8: stocks eat nominal earnings.
Speaker 4: And look what just happened.
Speaker 8: You know, in the last earning season, eight of ten
Speaker 8: sectors had double digit earnings growth. People talk about a
Speaker 8: narrow recovery, and it's one of these fallacies where people
Speaker 8: look at percentage moves off of lows. Absolutely off the lows.
Speaker 8: The AI stocks have driven the rally. However, year to date,
Speaker 8: I was kind of laughing during your last telecaster. You're
Speaker 8: talking about how is AI led, and in the background
Speaker 8: they're showing the returns on exon up.
Speaker 4: Thirty three percent year to date.
Speaker 8: Year to date, value stocks, small cap stocks, emerging market
Speaker 8: stocks have all performed double digit ahead of the MAC seven,
Speaker 8: which is up eight percent. So this is not simply
Speaker 8: an AI driven rally. It's a broad rally. AI itself
Speaker 8: is spreading out. The AI theme keeps spreading from one
Speaker 8: thing to the next.
Speaker 4: It's all over the economy.
Speaker 8: This is one of the biggest technological changes in the
Speaker 8: history of man and the trajectory of earnings right now
Speaker 8: based on what we're seeing and what has been coming
Speaker 8: out of the street. As street estimates keep rising every
Speaker 8: day we go through earning season, we found that our number,
Speaker 8: we had a number we used use a three year
Speaker 8: out earnings number to project a two year forward market return,
Speaker 8: which at the time we were at eight eighty two hundred.
Speaker 8: The number keeps going up. We had a four hundred
Speaker 8: dollars earnings estimate for twenty twenty eight. We were way
Speaker 8: ahead of the street six months ago. You know, I
Speaker 8: woke up Monday morning and we're.
Speaker 4: Behind the street.
Speaker 8: How could that be? There is at four twenty five,
Speaker 8: so we're at four fifty. If you look at the numbers,
Speaker 8: that's what's happening. Stocks are passing through and productivity gains
Speaker 8: are helping them, you know, pass through, and their margins
Speaker 8: are going up, not going down.
Speaker 2: Steve, this is the struggle people have. And I had
Speaker 2: this conversation with Alex Sulman over at Barclays that we
Speaker 2: seem to be putting more emphasis on how we've got here,
Speaker 2: and not enough on where we are. And a good
Speaker 2: example of that is, say, look at the charts versus
Speaker 2: look at the numbers. If you look at the charts
Speaker 2: and look at the parabolic move particularly in chips coming
Speaker 2: off the march low, you can see why technical strategist
Speaker 2: becomes a little bit unnerved about how detached we've come
Speaker 2: from the absolutely daily movie ganverridges. But if you look
Speaker 2: at the actual numbers, there's a source of comfort there.
Speaker 2: Do you have that struggle speaking to investors at the moment,
Speaker 2: they struggle to detach one from the other and just
Speaker 2: focus in isolation, look at where we are, and where
Speaker 2: we are is okay, right.
Speaker 4: I try to.
Speaker 8: Focus our clients on where we're going, and that I
Speaker 8: think helps calm everybody down for sure. As a turn,
Speaker 8: cical strategists and all the ones we work with are
Speaker 8: all telling us, you know, we're overdue for a pullback
Speaker 8: after a sharp runup. Absolutely absolutely, And one reason we'll
Speaker 8: put out a bullish note like we were about to
Speaker 8: do here you mentioned our new target on the SMP
Speaker 8: nine thousand, is we're almost anticipating a correction and we
Speaker 8: want to get ready, get a peel ready for that.
Speaker 8: And actually the situation in our mind, is actually getting
Speaker 8: better or not worse. Technically, we're certainly overextended. It could
Speaker 8: be a pullback, but it's never as deep as you'd
Speaker 8: think it's going to be.
Speaker 2: Eve alided to the challenge though, you need to think
Speaker 2: about pricing this market if the economy will have twelve
Speaker 2: months eighteen months out further down the line, not the
Speaker 2: one we've got. That's another struggle for a lot of investors.
Speaker 2: Like the economy we've got. They look at the energy
Speaker 2: price move, they hear a ound Maria and the prospect
Speaker 2: of things getting a little bit messy later this summer,
Speaker 2: and they struggle the less leasa is not here. There
Speaker 2: you go, it could have been even worse. They struggle
Speaker 2: to think about whether the economy will be twelve to
Speaker 2: eighteen months on a rolling basis. Just walk us through
Speaker 2: your discipline with regonds to that.
Speaker 8: Yeah, well, we just look at the underlying what's going
Speaker 8: on in the economy and in the companies. Because we're
Speaker 8: talking our analysts. We have one hundred and seventy pms
Speaker 8: and analysts in the Equity Group of Federated Armies, so
Speaker 8: we're talking to companies every day all over the world,
Speaker 8: and what they're telling us is that the situation looks
Speaker 8: pretty good. They're all seeing their sales are expanding, their earning,
Speaker 8: their margins are going up, and their earnings.
Speaker 4: Are going up.
Speaker 8: And it looks to us as AI gets more and
Speaker 8: more adopted into the economy that margin expansion trend is
Speaker 8: going to continue. This is one of the things that
Speaker 8: has made us more bullish than the average bear or
Speaker 8: the average market investor. Most people keep talking about peak margins.
Speaker 8: We've heard about peak margins for a decade, and yes,
Speaker 8: that has always been true every time someone has said
Speaker 8: that we are at peak margins. And guess what, The
Speaker 8: margins keep going higher because the mix of companies in
Speaker 8: the economy is in getting increasingly mixed towards higher margin businesses,
Speaker 8: and even the older companies are improving their margins partly
Speaker 8: because they're using AI.
Speaker 5: Do you think the story can continue in the way
Speaker 5: you're describing it if the Federal Reserve has to.
Speaker 4: Hike interest rates?
Speaker 8: Yeah, I think, Well, I don't think the fat is
Speaker 8: going to hike interest rates, so that's a loaded question.
Speaker 8: But even if they did, yeah, the market would probably
Speaker 8: have all do you think hold back? But I said earlier.
Speaker 8: I think bonds have a problem, not stocks. Stocks are
Speaker 8: growing their earnings at double digit rates. Bonds can't grow
Speaker 8: their revenue stream unless there's a rate I. In fact,
Speaker 8: they need to get bond eles hired to compete with stocks.
Speaker 2: That's been there talking about the e If we've got
Speaker 2: a problem with the bum market, where we have a
Speaker 2: problem with the pay in the equity market, the price
Speaker 2: that people are wanting to pay for those earnings. If
Speaker 2: you starts continue packing up life.
Speaker 8: Fair enough, if the discount rate could go up marginally,
Speaker 8: But look what's happened with the earnings growth rate over the.
Speaker 4: Last three years.
Speaker 8: It's way above the increase in the discount right, So
Speaker 8: I think you can get overly focused on that. It
Speaker 8: will certainly cause a nearcome correction if the Fed turns
Speaker 8: around and hikes, which I doubt that they would do.
Speaker 8: If you think about it, Emory, it's like a bifurcated
Speaker 8: economy here right. The low end right now is being
Speaker 8: protected by the one big beautiful bill that's offsetting the
Speaker 8: gasoline price hike by six to eight months. The high
Speaker 8: ends being protected by the wealth effects. So that's why
Speaker 8: the economy is going along the FED if it doesn't,
Speaker 8: if it raises rates, what that is going to hurt
Speaker 8: is the interest rates sensitive part of the economy, which
Speaker 8: is not as big a hunk of the economy as
Speaker 8: it used to be, and it's the part of the
Speaker 8: economy that currently right now is sort of in a recession.
Speaker 8: Look at home depots numbers this morning. So the housing
Speaker 8: market is the thing that's struggling, that employs a lot
Speaker 8: of people, that's the area that needs lower rates, and
Speaker 8: worsh understands that. So I think it's really unlikely that
Speaker 8: he's going to hike. All he's going to do is
Speaker 8: further hurt the part of the economy, the one part.
Speaker 4: That's not growing FED.
Speaker 8: And as I have anything to do with AI, the
Speaker 8: investment there is being driven largely by cash flow, not
Speaker 8: by borrowing.
Speaker 4: So because I'm gonna have any impact on the AI boom.
Speaker 2: Just to remind us, just to wrap it up, new
Speaker 2: price targets, what are they?
Speaker 8: We've gone to nine thousand for the end of twenty
Speaker 8: seven and we're at I want to say eight thousand
Speaker 8: for the end of twenty six.
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