WEBVTT - Markets Drive Higher Amid Record Close 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:21.240 on Apple car Play or Android Auto with the Bloomberg 0:00:21.320 --> 0:00:24.880 Business App. Listen on demand wherever you get your podcasts, 0:00:25.280 --> 0:00:27.040 or watch us live on YouTube. 0:00:27.320 --> 0:00:31.240 The Luckiest Guy on the Street, Georgetown, John Hopkins Academics 0:00:31.880 --> 0:00:33.320 is Axel pell or pale. 0:00:33.400 --> 0:00:34.400 I don't know how to pronounce this. 0:00:34.479 --> 0:00:36.640 Last time he gets to work with Stever Shudo over 0:00:36.640 --> 0:00:40.400 at Miszoo each and every day. Stever Shudo joins us 0:00:40.880 --> 0:00:44.800 right now as he provides wisdom to Alex and also 0:00:44.560 --> 0:00:49.680 to us on the American economy. Steve, just for inflation 0:00:50.240 --> 0:00:53.760 is all of our listeners and viewers have to Are 0:00:53.800 --> 0:00:56.080 we growing adjusted for inflation? 0:00:57.480 --> 0:00:59.560 I think we are growing adjusted for inflation. 0:00:59.600 --> 0:01:01.640 I think we've You've got a fairly healthy growth rate 0:01:01.760 --> 0:01:04.680 outside of the inflation environment. But I do think it's 0:01:04.680 --> 0:01:07.399 a little bit too hot for the inflation environment. Even 0:01:07.440 --> 0:01:11.880 the Chairman indicate that in his post meeting policy statement. 0:01:11.959 --> 0:01:15.200 He talks about the you know, the the FEDS mandate 0:01:15.319 --> 0:01:19.680 dual mandate being intentioned. Basically, the inflation numbers are running hotter, 0:01:20.280 --> 0:01:22.480 but they have the weaker labor market numbers, and I 0:01:22.480 --> 0:01:25.200 think you're getting a bit more productivity helping out the 0:01:25.240 --> 0:01:27.640 overall real side of the economy. 0:01:27.720 --> 0:01:30.880 So Steve going to the labor side of the economy here. 0:01:30.880 --> 0:01:33.039 I mean, if you just look at the headline, you know, 0:01:33.280 --> 0:01:36.480 on unemployment rate, it seems pretty darn solid, if not 0:01:36.520 --> 0:01:38.120 close to full employment. 0:01:38.160 --> 0:01:40.600 Here, how do you characterize this US labor market? 0:01:41.680 --> 0:01:44.160 Well, I mean, like everything else, everything is a bit 0:01:44.200 --> 0:01:48.880 of a tale of two stories. You know, you've got 0:01:48.880 --> 0:01:51.480 in the economy. You've got certain sectors of the economy 0:01:51.520 --> 0:01:53.840 that are doing extremely well, and you've got certain sectors 0:01:53.840 --> 0:01:56.000 of the economy that are not doing very well. I 0:01:56.040 --> 0:01:58.080 think when you look at the labor market as well, 0:01:58.160 --> 0:02:00.880 you're seeing certain components of the labor market, like the 0:02:00.960 --> 0:02:04.480 unemployment rate, because there's a scarcity of workers that's holding 0:02:04.480 --> 0:02:07.360 the unemployment rate down. But by the same token, there's 0:02:07.400 --> 0:02:11.280 a greater uncertainty out there in the business community about 0:02:11.360 --> 0:02:14.720 where we're going, how sustainable things are, and therefore there's 0:02:14.760 --> 0:02:17.320 a bit of a reluctance to hire workers. So you 0:02:17.360 --> 0:02:20.440 wind up with the employment numbers coming off a little bit, 0:02:20.440 --> 0:02:23.400 but you wind up with a tight unemployment rate remaining 0:02:24.040 --> 0:02:26.800 an important component of the overall market environment. 0:02:27.160 --> 0:02:29.359 So I guess with that background, Steve, the FED has 0:02:29.440 --> 0:02:32.239 begun cutting rates with that twenty five basis point cut. 0:02:32.240 --> 0:02:35.400 How do you think the cadence will kind of play 0:02:35.440 --> 0:02:36.800 out over the coming meetings? 0:02:37.880 --> 0:02:39.640 Well, I think you're probably going to definitely get an 0:02:39.639 --> 0:02:43.040 October meeting. We put in three after the last payroll 0:02:43.080 --> 0:02:47.000 employment number. I do think the December meeting will be 0:02:47.080 --> 0:02:51.639 more data dependent than the October meeting, and I think 0:02:51.960 --> 0:02:55.560 any meeting thereafter will also be more data dependent. You know, 0:02:55.600 --> 0:02:57.959 it's interesting the chairman is able to pull off an 0:02:57.960 --> 0:03:01.520 insurance rate cut against the dot plot telling you four 0:03:01.600 --> 0:03:05.160 rate cuts were coming in fairly rapid order by talking 0:03:05.240 --> 0:03:07.760 not just about the fact that the dual. 0:03:07.560 --> 0:03:10.840 Mandate is in opposite directions. 0:03:10.560 --> 0:03:13.440 But also getting into saying, what we're really looking at 0:03:13.560 --> 0:03:17.919 is the risks underlying those dual mandates and making determination 0:03:18.120 --> 0:03:21.160 based on those risks, and therefore it is an insurance 0:03:21.240 --> 0:03:23.120 rate cut, and they've given themselves that out. 0:03:23.320 --> 0:03:26.120 We welcome all of you across the nation this morning. 0:03:26.160 --> 0:03:28.160 The way you listen to us, Good Morning ninety nine 0:03:28.240 --> 0:03:31.840 one FM in Washington ninety two nine FM and Boston. 0:03:32.160 --> 0:03:34.240 Little bit of serious baseball. 0:03:33.840 --> 0:03:37.080 Starting today for the dreaded Toronto Blue Jays, we'll have 0:03:37.120 --> 0:03:39.680 to see the Good Morning, Bloomberg Eleven's three O and 0:03:39.720 --> 0:03:44.480 Miles Miller's New York. We continue with Steve Rshudo on YouTube. Steve, 0:03:44.600 --> 0:03:46.920 you've sement you three rate cuts, but in your research 0:03:47.000 --> 0:03:49.520 note you say the markets price are six rate cuts 0:03:50.560 --> 0:03:55.320 If we don't get market pricing on FED easing in 0:03:55.400 --> 0:03:58.000 all your experience with dominic constant, what does that do 0:03:58.080 --> 0:03:59.120 to the stock market? 0:04:00.320 --> 0:04:02.600 Well, I think the thing is the Fed's not going 0:04:02.640 --> 0:04:06.040 to change the long term target for the FED funds 0:04:06.120 --> 0:04:09.920 rate quickly. So therefore you know the concept of whether 0:04:10.000 --> 0:04:12.080 we get to six rate cuts or not is going 0:04:12.160 --> 0:04:15.000 to depend on the data, and the data will determine it. 0:04:15.000 --> 0:04:16.880 But I don't think they're going to change. 0:04:16.520 --> 0:04:19.479 The idea that their view on neutral is to get 0:04:19.560 --> 0:04:22.080 back down to three percent. So then in that environment, 0:04:22.400 --> 0:04:24.920 I think you avoid a lot of the worst case 0:04:25.000 --> 0:04:28.320 scenarios that you would get if there was a sudden reprisal. 0:04:28.400 --> 0:04:31.880 In terms of monetary policy, the dots are very very 0:04:31.920 --> 0:04:36.400 important in terms of grounding the market to certain levels. 0:04:36.480 --> 0:04:40.640 And unless those unless that grounding changes which we don't 0:04:40.640 --> 0:04:43.480 see happening quickly. We're not going to have the end 0:04:43.520 --> 0:04:46.480 result volatility that people would be concerned about normally. 0:04:46.600 --> 0:04:48.159 Paul's too early to go, Nerd. 0:04:48.839 --> 0:04:49.240 Can we go? 0:04:49.320 --> 0:04:52.520 Nerd? Okay, let's get permission from Pall you go, Nerd? Okay? 0:04:52.520 --> 0:04:56.080 Steve, what's roaring here after the Myron speech is a 0:04:56.120 --> 0:05:00.240 tailor rule. The Bloomberg has a beautiful function TYL, so 0:05:00.320 --> 0:05:02.640 you can do your own tailor role. I got so 0:05:02.839 --> 0:05:06.440 upset about it, the certitude, the lack of humility, and 0:05:06.480 --> 0:05:10.400 the speech Steve shutout that I looked up Robert Hetzel, 0:05:10.480 --> 0:05:13.720 a paper I remembered from the Richmond fed like twenty 0:05:13.720 --> 0:05:17.800 five years ago, maybe twenty eight years ago, and he 0:05:17.960 --> 0:05:22.480 quotes the giant Orphanedes as well, that a little humilities 0:05:22.520 --> 0:05:27.640 in order in guessing the output gap guessing nahru have 0:05:27.760 --> 0:05:31.360 we lost our academic humility when we try to gain 0:05:31.480 --> 0:05:32.520 this odd economy? 0:05:33.520 --> 0:05:33.680 Well? 0:05:33.720 --> 0:05:36.520 I think what happened is in that period post financial 0:05:36.600 --> 0:05:43.560 crisis and post immediately post COVID, all the normal algorithms 0:05:43.680 --> 0:05:47.960 got distorted, and therefore there is a data set that 0:05:48.120 --> 0:05:52.320 supports things like Stephen Meron was talking about yesterday, which 0:05:52.400 --> 0:05:57.120 is basically a zero R start environment. Again, I don't 0:05:57.160 --> 0:05:59.440 think we're in that environment any where. We don't have 0:05:59.520 --> 0:06:04.159 the balance sheet related issues that existed then, but that 0:06:04.279 --> 0:06:07.560 kind of distortion is still out there. But again, I 0:06:07.600 --> 0:06:10.120 think he's to a certain extent, he's pushed himself to 0:06:10.160 --> 0:06:13.240 an extreme, and I think that will minimize his vote 0:06:13.279 --> 0:06:14.040 to a certain extent. 0:06:14.160 --> 0:06:16.080 Thank you, That's just what I wanted to hear. 0:06:16.320 --> 0:06:21.599 With that said, do we have the institutional courage Stavershudo 0:06:21.800 --> 0:06:25.520 to push against a zero R start or the eight 0:06:25.600 --> 0:06:29.839 other flavors of that expansion, that lack of restrictiveness. 0:06:30.880 --> 0:06:31.040 Yeah. 0:06:31.120 --> 0:06:31.160 No. 0:06:31.279 --> 0:06:33.919 I think the committee in general tries to do a 0:06:33.960 --> 0:06:37.680 good job. I think the committee members are focused on 0:06:37.760 --> 0:06:40.359 doing good job. I think the research staff tries to 0:06:40.440 --> 0:06:42.480 do a very good job and a good thorough job, 0:06:42.720 --> 0:06:45.640 and I think they do a good job of informing 0:06:45.800 --> 0:06:49.120 the board and the members of the committee. And I 0:06:49.120 --> 0:06:52.840 think in that environment, it's the institutional portion of it 0:06:53.160 --> 0:06:56.440 that becomes more important than the one or two voices 0:06:56.800 --> 0:06:58.839 that are leaning to one aggressive side. 0:07:00.080 --> 0:07:02.200 Steve Hel's the US consumer doing well. 0:07:02.279 --> 0:07:05.160 It's a pretty solid retail sales a week or so ago, 0:07:05.279 --> 0:07:08.240 and boy, we hear about some of the challenges out there, 0:07:08.240 --> 0:07:09.920 but the consumer seems to be hanging in there. 0:07:09.960 --> 0:07:12.680 What do you think, Well, again, even though we're not 0:07:12.840 --> 0:07:16.280 hiring a lot of workers, we're working people longer, we're 0:07:16.320 --> 0:07:19.440 paying the more, and the net result is you have 0:07:19.560 --> 0:07:23.320 consumer spending building on top of that. And again that's 0:07:23.360 --> 0:07:26.240 a little bit of this tale of two different economies. 0:07:26.440 --> 0:07:29.040 There are aspects that are doing well in their aspects 0:07:29.040 --> 0:07:30.040 that are not doing well. 0:07:30.240 --> 0:07:30.880 You've got an. 0:07:30.800 --> 0:07:34.800 Economy that has very, very accommodated financial markets. It's an 0:07:34.800 --> 0:07:38.440 economy that's benefiting from excess liquidity. It's an economy that's 0:07:38.480 --> 0:07:41.800 benefiting from strong balance sheets. You put all that together, 0:07:41.840 --> 0:07:45.960 you've got a healthy economic environment. If you're not generating employment, 0:07:46.000 --> 0:07:49.920 you're generating hours. If you're generating hours, you're still generating income. 0:07:50.040 --> 0:07:52.400 If you're generating income, you're generating spending. 0:07:53.080 --> 0:07:55.520 Steve Shudel, thank you so much, greatly appreciate it. 0:07:55.520 --> 0:07:58.600 With from the Zoo, Stay with us. More from Bloomberg 0:07:58.720 --> 0:08:00.720 Surveillance coming up after this. 0:08:08.000 --> 0:08:11.560 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:08:11.640 --> 0:08:14.640 weekday afternoons from seven to ten am. E's durn Listen 0:08:14.720 --> 0:08:18.280 on Applecarplay and Android Otto with the Bloomberg Business app, 0:08:18.440 --> 0:08:19.680 or watch us live. 0:08:19.520 --> 0:08:21.880 On YouTube, joining us Liz Sanders. 0:08:22.040 --> 0:08:24.520 People don't I mean, Lizzy and you're so ubiquitous and 0:08:24.560 --> 0:08:27.680 you know, definitive since lewer Kaiser and people don't actually 0:08:27.720 --> 0:08:30.840 read your note and the end of the Lizanne Sanders 0:08:30.880 --> 0:08:34.800 note today is absolute gold. Let's start with this. Only 0:08:34.880 --> 0:08:38.439 seventy percent of S and P five hundred are outperforming 0:08:38.480 --> 0:08:41.000 the index of past three months and pasted one year. 0:08:41.280 --> 0:08:44.080 Does everybody own that? I mean, the xuberance out there 0:08:44.120 --> 0:08:44.920 is everybody owns a. 0:08:45.000 --> 0:08:48.679 Video, right, Yeah, even though within the mag seven you're 0:08:48.720 --> 0:08:51.920 seeing dispersion. So four out of the seven are underperforming 0:08:51.960 --> 0:08:54.600 the S and P five hundred. But you also have 0:08:54.679 --> 0:08:58.080 to think about the difference between the performance of some 0:08:58.120 --> 0:09:01.559 of those top names and the contribute. So Nvidia is 0:09:01.600 --> 0:09:04.520 the best performer year to date among the Magnificent seven, 0:09:04.920 --> 0:09:08.120 but it's the forty seventh best performing stock in. 0:09:08.080 --> 0:09:11.960 The eighteenth until the last couple of days are standing. 0:09:11.640 --> 0:09:13.920 We just had a little bit of a lift. Actually 0:09:13.960 --> 0:09:17.720 in terms of contribution rank, in Vidia is still number one, 0:09:17.800 --> 0:09:19.720 but as of a couple of days ago, Apple was 0:09:19.800 --> 0:09:22.960 number five. Hundred and three. Within the S and P 0:09:23.000 --> 0:09:23.800 five hundred. 0:09:24.320 --> 0:09:27.160 There's only five. It's the most because. 0:09:27.200 --> 0:09:30.800 To classes of service by alphabet and merge your pathway. 0:09:30.920 --> 0:09:33.520 Only Kevin Gordon owns that. Okay, I got to ask 0:09:33.559 --> 0:09:37.240 this right now. What are Schwab clients. 0:09:37.040 --> 0:09:40.280 Doing depends on the Schwab client, so we a lot 0:09:40.320 --> 0:09:42.400 of the inflow of new client assets for us are 0:09:42.480 --> 0:09:46.720 actually younger investors. I almost said that with air quotes, 0:09:46.760 --> 0:09:48.760 but of course we're on We're on radio, although on 0:09:48.800 --> 0:09:51.640 YouTube as well, So I think there's a big differentiation 0:09:51.760 --> 0:09:55.480 these days between what retail traders are doing and thinking 0:09:55.640 --> 0:09:59.400 and what individual investors are doing and thinking. I will 0:09:59.440 --> 0:10:02.959 say that I have a little bit of a sour 0:10:03.040 --> 0:10:05.640 feeling given some of the anecdotal conversations I've had with 0:10:05.720 --> 0:10:10.200 even some of our let's call it more seasoned, ostensibly 0:10:10.320 --> 0:10:14.920 disciplined investors. I had two investors at an event I 0:10:14.960 --> 0:10:17.000 did a couple of weeks ago, a great event at 0:10:17.080 --> 0:10:21.080 Churchill Downs I've never been before, super cool venue. One 0:10:21.200 --> 0:10:23.559 said that she her last two stocks that she had 0:10:23.559 --> 0:10:26.800 bought she got from a from a TikTok influencer, and 0:10:26.840 --> 0:10:28.800 she didn't even know the name of the person didn't 0:10:28.840 --> 0:10:31.360 quite know what she had bought, and another said that 0:10:31.440 --> 0:10:34.600 she had she had bought two stocks because the tickers 0:10:34.600 --> 0:10:37.840 were her initials and her husband's initials. Okay, so those 0:10:37.880 --> 0:10:41.200 anecdotes are a little bit unsettling, but I still believe 0:10:41.240 --> 0:10:43.240 that that's the exception, not the rule. 0:10:44.040 --> 0:10:44.719 How should we. 0:10:44.679 --> 0:10:47.480 Think about this concentration risk that we hear about so much? 0:10:47.960 --> 0:10:49.960 It's been expressed to mean so many different ways in 0:10:50.000 --> 0:10:52.920 terms of move in the market cap, But it's they're 0:10:52.920 --> 0:10:54.920 the biggest earnings contributors that don't worry about it. 0:10:54.920 --> 0:10:55.760 How do you guys think about it? 0:10:55.760 --> 0:10:59.600 Well, they are the biggest earnings contributors that said it's 0:10:59.600 --> 0:11:03.240 accelerating pace of earnings growth. It depends on what cohort 0:11:03.280 --> 0:11:05.040 you're talking about, if you're talking about the MAG seven 0:11:05.200 --> 0:11:09.319 or the ten largest names or AIAI adjacent. Yes, the 0:11:09.440 --> 0:11:13.400 earnings profile has been significantly higher than for the rest 0:11:13.520 --> 0:11:15.720 of the S and P five hundred, but at a 0:11:15.760 --> 0:11:18.679 decelerating pace. I think that was part and parcel to 0:11:19.480 --> 0:11:23.240 the pullback. We not only got in the major averages 0:11:23.280 --> 0:11:25.720 in that mid February to early April period of time, 0:11:25.760 --> 0:11:28.800 but the further drag on performance was many of those 0:11:29.040 --> 0:11:32.840 leadership names. Memories are short though, so a lot of 0:11:33.240 --> 0:11:35.920 the players in those names don't remember as early as 0:11:35.960 --> 0:11:37.680 recently as just earlier this year. 0:11:37.760 --> 0:11:40.360 Across America, Lizzie Saunders with us this morning and the 0:11:40.360 --> 0:11:43.720 way you listened to us Bloomberg Radio Good Morning, ninety 0:11:43.720 --> 0:11:46.679 to nine FM in Boston, ninety ninety one, Nathan Hager 0:11:46.800 --> 0:11:52.000 Radio in Washington as well on YouTube, subscribe to Bloomberg podcasts. 0:11:52.120 --> 0:11:55.160 That's what the hipsters do. Like Kevin Gordon as well. 0:11:55.160 --> 0:11:57.320 We're on YouTube and thank you for that, Paul. 0:11:57.800 --> 0:12:00.440 So Liziane talked to usbout earnings because it's some point, 0:12:00.640 --> 0:12:02.880 you know, earnings really have to come through, and arguably 0:12:02.840 --> 0:12:05.440 that they did here so far this year earning second 0:12:05.520 --> 0:12:07.360 quarter earnings very strong. 0:12:07.360 --> 0:12:08.440 How do you think about it in the back half 0:12:08.480 --> 0:12:10.640 of the year going into next year. Yeah, you're right. 0:12:10.760 --> 0:12:12.679 When all was said and done in the aftermath of 0:12:12.720 --> 0:12:16.160 first quarter and second quarter reporting season, actual earnings were 0:12:16.320 --> 0:12:18.760 about double what the estimate was heading in. And what 0:12:18.800 --> 0:12:21.680 was interesting about that first half is there was limited 0:12:21.720 --> 0:12:24.199 extrapolation on the part of analysts into the second half 0:12:24.240 --> 0:12:27.559 of this year and into twenty twenty six. Maybe justifiably 0:12:27.600 --> 0:12:32.000 because of uncertainty with regard to policy that you could 0:12:32.080 --> 0:12:36.040 argue sets the bar sufficiently low as we approach third 0:12:36.120 --> 0:12:38.320 quarter earning season. But I also think that there's a 0:12:38.400 --> 0:12:43.200 risk factor in if either you know, one or two 0:12:43.320 --> 0:12:47.280 high profile names misses on earnings or you just get 0:12:47.320 --> 0:12:50.880 an aggregate reporting season that is not quite as robust 0:12:50.920 --> 0:12:52.480 as it was in the first half of the year. 0:12:52.480 --> 0:12:54.240 So when I think about you know, I'm paid to 0:12:54.679 --> 0:12:59.000 assess risks, not just opportunities, and I think either some 0:12:59.240 --> 0:13:03.040 very specific Gurning's missus, I don't think that's a big case, 0:13:03.080 --> 0:13:04.160 but I think that's a risk fact. 0:13:04.400 --> 0:13:06.679 A wonderful tweet out today I highlighted in the last 0:13:06.720 --> 0:13:09.880 hour of Paul Tutor Jones talking about the challenge of 0:13:09.880 --> 0:13:12.160 investing in the back third of a bull market or 0:13:12.200 --> 0:13:15.199 the back third of a bear market. Let's first identify, 0:13:15.480 --> 0:13:17.960 does liz Ane Saunders think we're in the seventh, eighth, 0:13:18.440 --> 0:13:19.439 ninth inning. 0:13:19.360 --> 0:13:20.199 Of a bull market? 0:13:22.360 --> 0:13:25.520 Yes, I would say, what we don't as a character, well, 0:13:25.559 --> 0:13:28.280 what we don't know is whether it's an extra innings bullmarket, 0:13:28.400 --> 0:13:30.240 like in the late nineteen nineteen to. 0:13:30.559 --> 0:13:33.600 Put a video on second base, Okay, great, we're at 0:13:33.640 --> 0:13:35.640 the back end of a bull market. How do you 0:13:35.840 --> 0:13:37.840 behave what's the best practice. 0:13:38.120 --> 0:13:42.280 So, notwithstanding baskets like the meme stocks and heavily shorted 0:13:42.280 --> 0:13:45.960 stocks and nonprofitable tech which are dominating performance at the 0:13:46.040 --> 0:13:49.920 sub cap weighted index level since the April eighth closing low, 0:13:50.480 --> 0:13:52.880 I think you want to fade the low quality part 0:13:52.880 --> 0:13:55.320 of the rally and lean into higher quality. In fact, 0:13:55.559 --> 0:14:00.600 I'll use an acronym that was more popular twenty years ago, 0:14:00.640 --> 0:14:02.839 and I've been doing this almost forty years. I think 0:14:02.880 --> 0:14:05.600 the way to think about factor investing in this environment 0:14:05.720 --> 0:14:10.560 is less about traditional quality factors but almost garb. I 0:14:10.600 --> 0:14:14.120 think you don't want to sacrifice growth, but you want 0:14:14.160 --> 0:14:16.240 to have that value eye on valuation. 0:14:16.400 --> 0:14:18.320 I think it's the growth for those that have never 0:14:18.360 --> 0:14:18.680 heard the. 0:14:18.720 --> 0:14:23.240 Phrase growth at a reasonable price, okay, foreign con I. 0:14:23.160 --> 0:14:25.760 Mean, and you don't do individual names Walmart or the 0:14:25.760 --> 0:14:28.160 pe of forty. I don't think that's Garby, is it? 0:14:29.240 --> 0:14:31.720 Maybe not? And that's why I think you want that blend. 0:14:32.600 --> 0:14:34.920 You want reactor. It gives you the best blend. 0:14:35.760 --> 0:14:39.200 I think monolithic sector based investing doesn't make sense in 0:14:39.240 --> 0:14:42.080 this environment. So even the leadership sectors like tech and 0:14:42.120 --> 0:14:45.880 communication services have a lot of losers embedded within them. 0:14:45.920 --> 0:14:47.560 So I think factor based investing. 0:14:47.720 --> 0:14:51.160 What is say I know the answer to her questions, Brockton, 0:14:51.160 --> 0:14:54.840 it's not that hard with Lizan on a factor basis, 0:14:54.880 --> 0:14:59.600 what is the most attractive factor nature of the meg seven. 0:15:00.360 --> 0:15:04.120 Well, they have often been the momentum players. Now that said, 0:15:04.160 --> 0:15:06.560 when momentum is discussed as a factor, it's more of 0:15:06.600 --> 0:15:10.040 a concept. It's not a fundamental factor. So when momentum 0:15:10.160 --> 0:15:12.280 is a factor at work is working, it just means 0:15:12.280 --> 0:15:14.480 that the stocks that have been working continue to work. 0:15:14.600 --> 0:15:18.360 You can have momentum in utility stocks. I think people 0:15:18.360 --> 0:15:22.080 when they hear momentum, they automatically think high beta tech, 0:15:22.320 --> 0:15:26.560 tech adjacent kind of names. But I think outside of that, 0:15:26.760 --> 0:15:28.600 I think you still want to look for strength and 0:15:28.680 --> 0:15:32.240 balance sheet, strong free cash flow, high interest coverage, reasonable 0:15:32.320 --> 0:15:35.200 valuations on a pe, and a price to book. But 0:15:35.440 --> 0:15:37.480 you want to also keep an eye on the growth 0:15:37.520 --> 0:15:41.040 side of things, so positive forward earnings estimate trends and 0:15:41.160 --> 0:15:42.720 positive earnings announcements. 0:15:42.840 --> 0:15:44.800 Ll Zenne Saunders, thank you so much for being the 0:15:44.840 --> 0:15:47.040 most real commitment to surveillance over the years. 0:15:47.440 --> 0:15:51.000 Is with Charles Schwab Stay with us. 0:15:51.000 --> 0:16:01.320 More from Bloomberg Surveillance coming up after this. 0:16:01.320 --> 0:16:05.200 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:16:05.240 --> 0:16:08.560 starting at seven am Eastern on Applecarplay and Android Auto 0:16:08.680 --> 0:16:11.640 with the Bloomberg Business app. You can also listen live 0:16:11.720 --> 0:16:15.320 on Amazon Alexa from our flagship New York station, Just 0:16:15.360 --> 0:16:18.119 say Alexa play Bloomberg eleven thirty. 0:16:17.960 --> 0:16:20.480 And an equity bullmarket. One thing you do is you 0:16:20.520 --> 0:16:22.920 watch bonds. That's a cardinal world. Bonds are out front. 0:16:22.920 --> 0:16:26.720 Sinje Bowen with a snow hiield bonds, senior bank loan 0:16:26.800 --> 0:16:31.920 portfolio manager at Beach Point Capital Management. Love your note, 0:16:32.080 --> 0:16:35.520 and my basic idea is bond c the agony First? 0:16:35.920 --> 0:16:38.200 Is there any agony in bonds right now? Or is 0:16:38.240 --> 0:16:40.400 it the same madness as an equity bull market? 0:16:41.640 --> 0:16:43.360 Well, first of all, good morning, thanks for having me. 0:16:43.720 --> 0:16:44.600 I would say it's both. 0:16:45.400 --> 0:16:49.320 I mean, similar to other risk assets, leverage, credit shows 0:16:49.440 --> 0:16:53.040 fairly rich valuations at this point. In high yield, for example, 0:16:53.720 --> 0:16:55.720 there are a lot of double B rated bonds that 0:16:55.800 --> 0:16:59.560 trade inside of two hundred basis points over treasuries. In 0:16:59.640 --> 0:17:02.480 senior loans, over two thirds of the senior loan bank 0:17:02.480 --> 0:17:03.680 market trades above par. 0:17:03.720 --> 0:17:07.000 So you don't see stupidity yet inbounds, well, we do 0:17:07.080 --> 0:17:09.720 see discharge like an equity guy or I wouldn't know 0:17:09.800 --> 0:17:12.240 convexity if you hit me over the head. Is there 0:17:12.280 --> 0:17:14.280 stupidity in the bond world that I need to be 0:17:14.280 --> 0:17:14.919 worried about. 0:17:15.640 --> 0:17:18.080 Probably not to the same extent as in other risk 0:17:18.240 --> 0:17:21.720 asset classes. Credit fundamentals continue to hold in very well 0:17:22.200 --> 0:17:26.800 in this macroeconomic backdrop. You know, credit tends to perform well, 0:17:27.840 --> 0:17:30.840 and so there's not a lot of excess in terms 0:17:30.880 --> 0:17:36.000 of just you know, irresponsible credit creation that's taken place 0:17:36.040 --> 0:17:39.080 over the past few years. And so to the extent 0:17:39.119 --> 0:17:43.040 that we do get problems within credit, they're usually idiosyncratic, 0:17:43.200 --> 0:17:47.600 either related to the specific issuer or to the sector, 0:17:47.680 --> 0:17:51.080 and that's usually an impact from one of the surprise 0:17:51.160 --> 0:17:55.240 policies that we've had over the past year, you know, 0:17:55.240 --> 0:17:58.639 potential geopolitical risk or or something that crops up that 0:17:59.040 --> 0:18:03.240 poses surprise. And again, you know, similar to other asset classes, 0:18:03.320 --> 0:18:06.399 just given where things trade, you know, it is an 0:18:06.440 --> 0:18:07.560 asymmetric payoff. 0:18:07.640 --> 0:18:09.200 If you do get something wrong. 0:18:09.480 --> 0:18:13.040 The new issue market is just ripping. The desk can't 0:18:13.040 --> 0:18:16.199 get this stuff off their books and fast enough. Is 0:18:16.240 --> 0:18:18.000 it too much supply coming in the marketplace? 0:18:18.040 --> 0:18:18.879 Are you guys buying? 0:18:18.920 --> 0:18:21.520 What are you seeing when the desk call you up 0:18:21.560 --> 0:18:22.680 and say, hey, we've got another deal. 0:18:23.600 --> 0:18:26.000 Yeah, Well, there are two sides to the coin. 0:18:26.119 --> 0:18:28.359 On the one hand, the market's open, so a lot 0:18:28.440 --> 0:18:31.560 of companies across a lot of different sectors, and you know, 0:18:31.680 --> 0:18:34.520 up and down the credit quality spectrum are able to 0:18:34.600 --> 0:18:38.560 access the market refinance near term obligations, and so that 0:18:38.600 --> 0:18:40.800 maturity wall that was a problem during the right hiking 0:18:40.880 --> 0:18:45.080 cycle isn't really one anymore. And so you know, access 0:18:45.119 --> 0:18:47.600 to capital is an important component that staves off the 0:18:47.680 --> 0:18:50.920 faults and therefore credit losses. But at the same time, 0:18:51.640 --> 0:18:53.720 you know, there are periods of time when the market 0:18:53.760 --> 0:18:57.760 becomes technically imbalanced, where the amount of supply sort of 0:18:57.920 --> 0:19:01.760 you know, it's too much for the market to absorb. 0:19:02.840 --> 0:19:04.800 We are not really in that right now in. 0:19:04.760 --> 0:19:07.000 Both high yield n loans, you know, especially in loans 0:19:07.040 --> 0:19:09.679 given the amount of net new COLO creation, which is 0:19:09.680 --> 0:19:13.640 the major buyer for senior bank loans, that's that's very 0:19:13.680 --> 0:19:15.359 much in favor of issuers at this point. 0:19:15.920 --> 0:19:17.840 Back early in my career, cut my teeth at the 0:19:17.920 --> 0:19:20.800 chasement and bank making leverage loans to the TMT space. 0:19:21.040 --> 0:19:21.520 We made a. 0:19:21.480 --> 0:19:25.040 Small fortune doing that. How's that leverage loan business today? 0:19:25.160 --> 0:19:26.919 And how much is going to private credit? 0:19:28.200 --> 0:19:31.159 Well, the market share shift between private and public, and 0:19:31.160 --> 0:19:33.240 we at beach point we do both private and public, 0:19:33.280 --> 0:19:35.919 and so we sit back and we can see, you know, 0:19:35.960 --> 0:19:37.960 what are the trade offs between the markets and how 0:19:38.000 --> 0:19:41.560 these companies choose to finance themselves and what levers they 0:19:41.600 --> 0:19:43.960 want to pull on in order to you know, get 0:19:43.960 --> 0:19:47.240 the capital that they want or need. And so that 0:19:47.280 --> 0:19:52.200 share shift changes depending on the technical inflows and outflows 0:19:52.240 --> 0:19:55.359 between the two asset classes. And so for a while 0:19:55.680 --> 0:19:58.919 private credit was taking share from the broadly syndicated market. 0:19:59.160 --> 0:20:01.679 That's now, you know, turning around a little bit. 0:20:01.720 --> 0:20:03.320 And so it comes and goes. 0:20:03.440 --> 0:20:05.520 Yeah, but I mean there's a little private equity angst 0:20:05.520 --> 0:20:07.919 out there in the zeitgeist this morning. Do you sense 0:20:08.080 --> 0:20:11.600 angst within private credit? I mean, you know, we get 0:20:11.640 --> 0:20:14.320 all sorts of cross messaging here. I'm hearing things I 0:20:14.359 --> 0:20:17.359 heard thirty years ago, the same phrases in all that. 0:20:17.720 --> 0:20:19.880 I mean, you've got the radar up on this, particularly 0:20:19.880 --> 0:20:23.320 with loans. I mean what's your take on private credit? 0:20:23.359 --> 0:20:25.360 Are there shadows out there we need to study? 0:20:26.200 --> 0:20:30.160 Yeah, well, I mean commonly through market cycles. A rule 0:20:30.160 --> 0:20:32.359 of thumb is, if you want to know where problem 0:20:32.359 --> 0:20:34.440 areas are going to be, look at where the most 0:20:34.440 --> 0:20:38.040 credit has been created recently. And private credit does fit 0:20:38.119 --> 0:20:41.520 that profile. And so you do see right now, for example, 0:20:41.640 --> 0:20:44.719 a higher backward looking default rate within private credit than 0:20:44.760 --> 0:20:48.000