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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and a Marie Hordernt. Join us each

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Speaker 2: day for insight from the best in markets, economics, and

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Speaker 2: geopolitics from our global headquarters in New York City. We

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Speaker 2: are live on Bloomberg Television weekday mornings from six to

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Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify

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Speaker 2: or anywhere else you listen, and as always on the

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Speaker 2: Bloomberg Terminal and the Bloomberg Business App. Gagie chatter if

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Speaker 2: Blankcrog joins us around the table. Gargie, good Mornic, good morning.

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Speaker 2: I know we want to address single names, but I

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Speaker 2: do want to understand the concentration risk around some of

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Speaker 2: these stories. How much of the fate of this market

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Speaker 2: is in the hands of just one name, one CEO,

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Speaker 2: one story.

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Speaker 3: Sure, good morning, Good to be here. So this is

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Speaker 3: exactly the theme that we write about in our Fall

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Speaker 3: Investment Directions that we wrote in early September, still very

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Speaker 3: relevant now, and the theme that we highlight there is,

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Speaker 3: you know, we all grew up in the markets hearing

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Speaker 3: the old fable of don't fight the FED, Now it's

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Speaker 3: don't fight the FED and don't fight the AI trade,

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Speaker 3: because that is what is going to drive drive sectors

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Speaker 3: and it's what's going to drive the overall performance of

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Speaker 3: the index. Yes, due to some of the names very

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Speaker 3: much being a part of the broader index, but those

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Speaker 3: few names, the top ten names, are also where the

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Speaker 3: majority of the earnings growth is coming from. And while

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Speaker 3: we read these headlines, I think we shouldn't lose sight

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Speaker 3: of that fact that if you look at Yurtle dat

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Speaker 3: returns seventy five percent or so have come from of

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Speaker 3: the total returns have come from earnings. And when we

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Speaker 3: see these headlines and we recognize what the future of

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Speaker 3: an Intel Nvidia is going to do, I think what

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Speaker 3: it points to is further earnings growth.

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Speaker 1: Just driving the S and P higher.

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Speaker 3: So keep AI as a core theme in your equity portfolio.

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Speaker 3: But I think more and more we're recognizing that you're

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Speaker 3: going to have to do it active manner because there's

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Speaker 3: certainly going to be names that are going to be

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Speaker 3: losers within this AI race and winners as well.

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Speaker 4: How are you active in management given the potential for

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Speaker 4: political overlays to the tech story as we've seen from

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Speaker 4: the US and from China.

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Speaker 3: What I mean by how one can be active is

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Speaker 3: obviously thinking about certain sectors or certain stocks themselves that

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Speaker 3: can not be as much of a beneficiary. And we

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Speaker 3: actually saw that around this earning season, right We saw

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Speaker 3: some software names that are not able to use AI

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Speaker 3: as much as one would have thought, as much as

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Speaker 3: expectations were, and are absolutely losing. And then obviously you

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Speaker 3: have more of the hyperscalers as well as the chip

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Speaker 3: manufacturers that are very much able to participate. So that

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Speaker 3: is the active management obviously. You know, in our fall

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Speaker 3: investment directions we talk about doing that through and I

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Speaker 3: SHARE's active ticker BAI. But investors can also do it

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Speaker 3: with you know, broad large gap ETFs. They can do

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Speaker 3: it through broad large growth ETFs versus moving away from

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Speaker 3: small caps, which has been our theme for the year.

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Speaker 4: Okay, that is exactly where I wanted to go, This

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Speaker 4: idea of don't fight the FED and don't fight the

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Speaker 4: AI same are they in conflict and this is the

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Speaker 4: way that they were yesterday.

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Speaker 1: The idea that people saw this is.

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Speaker 4: An opportunity to go out of some of the high

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Speaker 4: flyers and the expensive stocks and into small caps that

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Speaker 4: were less highly valued. And you saw that rotation yesterday.

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Speaker 4: You think that's a headfach based on what you just said, Well,

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Speaker 4: I think so.

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Speaker 5: So.

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Speaker 3: I think that we obviously saw August as a great

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Speaker 3: month for small caps, and then as September came around,

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Speaker 3: we've seen that fading just a little bit. Historically, we've

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Speaker 3: looked at periods where small gaps have outperformed the large

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Speaker 3: gaps in more than three to five hundred basis points.

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Speaker 3: It hasn't really been able to be very sustainable, and

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Speaker 3: partly it's a growth story. In small gaps you just

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Speaker 3: don't have that earnings growth. But broadly we all know

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Speaker 3: what's happening. I think Francis was talking about it earlier

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Speaker 3: in terms of the economy is changing and the rules

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Speaker 3: that led to our investment thesis last decade will not work.

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Speaker 3: Now many companies are staying private for so much longer

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Speaker 3: that companies when they finally go public.

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Speaker 1: As we can see.

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Speaker 3: The size of IPOs going from about three to five

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Speaker 3: hundred million to over a billion, they are now no

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Speaker 3: longer small cap companies. So the market is shifting. You

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Speaker 3: have also from a macro perspective, rates are still higher

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Speaker 3: than the sort of zero regime that we were in

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Speaker 3: for a very long time, and you don't have the

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Speaker 3: earnings growth. So I think we can see certain short

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Speaker 3: term movements, and I think we've seen investors play that

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Speaker 3: via options on things like ISWM. Absolutely do that, but

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Speaker 3: this is not a sustainable theme. Come back to large gap,

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Speaker 3: come back to growth, come back to AI.

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Speaker 2: Stay with US. Multilemberg surveillance coming up after this, joining

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Speaker 2: us now to discuss the former Kansas City Fed president

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Speaker 2: as the George Es the Welcome back to the program.

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Speaker 2: I love talking to you about this because you've experienced it.

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Speaker 2: You've been that, you've dissented on the committee yourself personally,

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Speaker 2: and you've seen dot plots with huge dispersion and a

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Speaker 2: wide range of outcomes for the years ahead. Is this

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Speaker 2: different somehow from what you've seen and lived? Is this

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Speaker 2: somehow different what we saw yesterday?

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Speaker 6: Well, it's different in this sense, Jonathan. You have a

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Speaker 6: lot swirling around today's economic decisions that have to be

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Speaker 6: made about monetary policy. They come from challenges to the

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Speaker 6: institution itself. They're coming from an economy that is far

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Speaker 6: from clear in terms of what the ultimate impact is

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Speaker 6: and again, this is a committee that has to think

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Speaker 6: about the long run even as they make today's decisions.

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Speaker 6: And so you have dramatic changes in trade policy and

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Speaker 6: immigration policy, all that are hitting directly on both uncertainty

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Speaker 6: about where that long run is as well as where

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Speaker 6: are things landing today. So not surprising I think that

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Speaker 6: you see this kind of dispersion giving the changes going

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Speaker 6: on in the economy, given.

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Speaker 4: That kind of type of a backdrop, do you think

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Speaker 4: Esther that we're looking at a scenario where forward guidance

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Speaker 4: has no value anymore?

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Speaker 6: Well, I don't think this is a time you can

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Speaker 6: make forward guidance, and really forward guidance can be fraught anytime.

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Speaker 6: Because we live in a dynamic economy, things can change

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Speaker 6: that make it hard for the Central Bank to fulfill

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Speaker 6: commitments like that. And so again this is a time

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Speaker 6: where you hear from businesses. They are still sorting out

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Speaker 6: what the in game looks like here. They are still

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Speaker 6: sorting out what increased costs are going to mean to

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Speaker 6: both their bottom line to their employment status. And so

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Speaker 6: it's hard to put a pin that you can see

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Speaker 6: a clear direction for the economy. I think you heard

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Speaker 6: that coming out of the meeting yesterday. The committee had

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Speaker 6: to make a decision. They made a decision. But the

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Speaker 6: dispersion I think belies some of the consensus you saw esther.

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Speaker 4: Can you talk a little bit about how hard it

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Speaker 4: is to persuade fellow governors to get on your side

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Speaker 4: when you do when you do disagree with them, how

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Speaker 4: difficult it is to make that case.

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Speaker 6: Yes, so it's a requirement of the job. I always

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Speaker 6: thought in that and certainly you are trying to articulate

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Speaker 6: in a very thoughtful way the factors that weigh on

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Speaker 6: your judgment, how you put the weight on different variables,

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Speaker 6: which everyone around that table is doing. At the end

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Speaker 6: of the day, though that you are the loan dissenter,

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Speaker 6: that the majority makes a decision in a different place

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Speaker 6: doesn't necessarily undermine the argument that's being made. It simply

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Speaker 6: says that the weight was in another direction and there

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Speaker 6: was consensus built around a different view. I think what's

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Speaker 6: important is that you don't dismiss entirely when you hear

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Speaker 6: dissenting voices about what it means.

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Speaker 2: As so, if you look through the forecast, a lot

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Speaker 2: of people have called them highly contradictory through some odd

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Speaker 2: things going on just in terms of upgrading the outlook

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Speaker 2: for growth and then cutting interest rates. Some things don't

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Speaker 2: make sense to some people. You know, when these things

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Speaker 2: were introduced, the dot plot and forecast, it was to

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Speaker 2: enhance communication. Do you think we've got to the point

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Speaker 2: where it started to compromise it.

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Speaker 6: Well, that's been the case at many times since the

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Speaker 6: introduction of that dot plot, and again I think it

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Speaker 6: always bears reminding people this is not a committee forecast. Yes,

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Speaker 6: you can draw some conclusions about tendencies and the medians

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Speaker 6: where they come out for this committee, but when you

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Speaker 6: see dispersion like this, it tells you that we're looking

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Speaker 6: pretty short term. This idea of meeting to meeting sounds

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Speaker 6: right to me. You don't have a committee that agrees

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Speaker 6: on what the long run is, and that's true either

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Speaker 6: of their long run FED Funds forecast those are ranging

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Speaker 6: from below two and a half percent to closer to four.

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Speaker 6: That tells you that this idea about how restrictive they

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Speaker 6: are has a lot of different views coming to bear

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Speaker 6: at the table Astro.

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Speaker 2: I think a lot of people would agree with you

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Speaker 2: most in fact, that you shouldn't draw too many conclusions

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Speaker 2: from those forecasts. But there is one uncomfortable conclusion that

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Speaker 2: many people have drawn, and this institution is no longer

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Speaker 2: credibly pursuing the two percent inflation target. Is that an

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Speaker 2: unfair criticism?

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Speaker 6: Well, the committee certainly has not said that. We have

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Speaker 6: not heard the chairman say that. But I think the

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Speaker 6: actions here put them at risk over the next few months, frankly,

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Speaker 6: because they continue to push away from thinking that in inflation,

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Speaker 6: although characterized as an upside risk, is one that they

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Speaker 6: are not going to be able to deal with. And

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Speaker 6: I think the challenge there is this is a committee

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Speaker 6: that has relied heavily on anchored inflation expectations, and as

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Speaker 6: those move, and as the public which has experienced high inflation,

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Speaker 6: I think this will become a real challenge for the

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Speaker 6: committee under the forecast that they've laid out.

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Speaker 2: Stay with us. Mulblinberg, Savannah's coming up after this. Dannats

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Speaker 2: of wet Bush is standing by once to jump on it.

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Speaker 2: Calls the deal a huge game changer for Intel. Dan,

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Speaker 2: good morning and welcome to the program. Why do you

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Speaker 2: believe this is such a huge game changer?

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Speaker 7: Pop the champagne, I mean for Intel.

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Speaker 5: Now you have Nvidia, godfather of AI doubling down, and

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Speaker 5: this files obviously US government investment.

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Speaker 7: I mean, what this essentially does, It brings Intel into

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Speaker 7: the AI game. I think from a stock perspective, that

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Speaker 7: changes the multiple.

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Speaker 5: And clearly this is also going to be viewed very

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Speaker 5: positively in DC. I think that's something that could definitely

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Speaker 5: help Gens and others when it comes to China.

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Speaker 7: Dan.

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Speaker 4: I do wander though about man Deep's point, this idea

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Speaker 4: that this isn't Invidia going all in and developing their

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Speaker 4: chips for the big semiconductors so that the big hyperscalers

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Speaker 4: at the at the Intel foundry. This is simply a

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Speaker 4: five billion dollar side project about PCs. How much is

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Speaker 4: this essentially just an olive branch to the president and

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Speaker 4: not an actual move of Nvidia to try to fortify

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Speaker 4: Intel's plans to become the foundry.

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Speaker 5: You know if mandeep brings up Greade points as always,

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Speaker 5: But look, this is also it's a double one down

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Speaker 5: on investment in the US.

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Speaker 7: I mean, that's.

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Speaker 5: Also what it is now clearly that obviously I'll bring

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Speaker 5: to Trump administration and others. But what they're also doing

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Speaker 5: is when it comes to PC upgrade cycle X eighty

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Speaker 5: six I mean, this does give them another potential growth

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Speaker 5: lever and look in video right now, it's in Vidia's world,

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Speaker 5: everyone else's pain Rint and they know that they're in

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Speaker 5: a massive position of strength. But for Intel, I mean

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Speaker 5: about you went, you know, you went from Qullite a

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Speaker 5: month ago. You know, some worries about you know, in

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Speaker 5: terms of the CEO potentially out.

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Speaker 7: Now you get the investment from government and you have Intel.

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Speaker 5: You know, now again in Vidia, I mean, that is

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Speaker 5: a Goldilock scenario for Intel.

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Speaker 4: This is coming at a time when China is trying

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Speaker 4: to emphasize domestic production of their own technology and really

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Speaker 4: trying to create national champions there that can rival in

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Speaker 4: Vidia and other US tech giants. I just wonder whether

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Speaker 4: it is possible to continue, for the likes of Nvidia

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Speaker 4: trying to push into China, trying to sell more advanced

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Speaker 4: tips into that country, while at the same time, you know,

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Speaker 4: playing with this idea of US independence from China.

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Speaker 7: Look, it's a tight wire act.

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Speaker 5: But the reality is that there's one ship in the

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Speaker 5: world viewing the Ai revolution and that's that's what by

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Speaker 5: godfather of aigens in a video, and that's why in China,

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Speaker 5: look they could tell Chinese big tech Embijing, don't buy

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Speaker 5: in video chip that that's like telling a kid, okay,

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Speaker 5: don't eat the candy that's on the table. So that's

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Speaker 5: the reality because they're years ahead of when you look

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Speaker 5: at Huawei and others.

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Speaker 7: But at the same time, I mean, tru administration recognizes.

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Speaker 5: They have to strengthen AI infrastructure, AI ship making. And

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Speaker 5: you look at Intel, I mean they've gone obviously from

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Speaker 5: a huge laggard.

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Speaker 7: I mean Intel, you.

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Speaker 5: Know all the red tape, all the sort of black

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Speaker 5: eye moments, you finally have some positives at Intel.

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Speaker 2: Stay with us, multile Impex Savannas coming up off to this.

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Speaker 2: Native Richardson of IDP joined us in the studio Nada.

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Speaker 7: Good morning.

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Speaker 2: It's good to say running this is a tough one

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Speaker 2: to read. You help us out. Where is this lang

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Speaker 2: of market right now? What's happening?

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Speaker 8: Labor market is strong, Actually it's solid, and I think

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Speaker 8: there is a comment that has to be made it

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Speaker 8: is weakening. But the labor market is not weak. And

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Speaker 8: if you look at the stock, and that's what a

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Speaker 8: lot of your audience is used to doing, looking at

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Speaker 8: the stock and the flows.

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Speaker 1: If you look at the stock.

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Speaker 8: What you'll see is that the consumer is really smoothing

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Speaker 8: out all the rough edges.

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Speaker 1: In the economy.

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Speaker 8: And it's true for the labor market as well. There's

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Speaker 8: very little turnover in this labor market. I was really

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Speaker 8: shocked by that upward surprise and Jabos claims last week,

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Speaker 8: and now I know that that was just a mirage

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Speaker 8: and we're back to historical lows. There's very little flow

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Speaker 8: out and there's very little flow in.

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Speaker 1: But what that.

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Speaker 8: Means for the consumer is that they're not defying gravity

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Speaker 8: when you see that pop in retail sales. They are

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Speaker 8: well anchored by a functioning labor market where they are

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Speaker 8: employed and working, and those incomes are fueling spending. And

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Speaker 8: as long as that continues to happen, we can live

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Speaker 8: with the uncertainty of fewer flows and hirings in and

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Speaker 8: out of the labor market if the stock is healthy well.

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Speaker 4: And this raises the point that maybe this is a

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Speaker 4: new normal, the sort of low higher, low fire type

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Speaker 4: of churn, And I just wonder if that's true, if

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Speaker 4: that's the case, or if you do see some sort

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Speaker 4: of reacceleration hiring, especially if there is some sort of

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Speaker 4: commensurate reacceleration in the economy heading into the end of

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Speaker 4: the year.

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Speaker 8: Yeah, so that goes back to the weakening, and I

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Speaker 8: do think the labor market is weakening, but not for

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Speaker 8: the reasons that were explained yesterday. Not simply because of

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Speaker 8: the hiring rate, but really the concentration of hiring and Lisa, you.

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Speaker 1: And I have talked about this a lot.

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Speaker 8: If you look at the BLS data, if you look

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Speaker 8: at the ADP data, what you'll see is a heavily

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Speaker 8: concentrated hiring market and key consumer sectors, whether it's healthcare

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Speaker 8: for the BLS or leisure in hospitality and ADP, it's

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Speaker 8: the consumer who's driving hiring, and the consumer's wins are

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Speaker 8: really forming and shaping today's labor market.

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Speaker 1: I think that's a concern.

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Speaker 8: You want broad based hiring, you don't want it concentrated.

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Speaker 1: That's not good for the future.

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Speaker 8: So there are reasons to be concerned about this labor market,

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Speaker 8: but the ones in terms of just the number of

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Speaker 8: jobs that are added every single month. I think that's

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Speaker 8: not the biggest problem with the labor market right now.

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Speaker 4: Going forward, we've been talking about the conflict between the

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Speaker 4: real economy and this idea that there is something kind

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Speaker 4: of quirky or not totally healthy about the labor market

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Speaker 4: and the idea that you're seeing this boom in a

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Speaker 4: select number of stocks, but it does seem to be broadening.

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Speaker 4: Do you think that that also is a new normal

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Speaker 4: that companies can keep doing really well but not increase

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Speaker 4: their headcount considerably or invest in talent, or do you

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Speaker 4: think that this is something that has to reconcile.

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Speaker 1: Markets and companies.

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Speaker 8: The truth is, if you're not growing, you're not going

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Speaker 8: to be around for long. And I think that when

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Speaker 8: when we look at the labor market, what I see

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Speaker 8: is a tipping point. I see a labor market that

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Speaker 8: is very dependent on the consumer and a consumer that

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Speaker 8: is very dependent on the labor market. And I think

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Speaker 8: this is an uneasy truth. It's a delicate relationship because

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Speaker 8: anything could upend it. And that is the issue for

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Speaker 8: companies as well. If their demand is coming from a

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Speaker 8: resilient consumer only, and that consumer is dependent and most

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Speaker 8: of us are on the labor market, then you can

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Speaker 8: see how these fractures could lead to something bigger for

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Speaker 8: consumer companies right now, so they're very dependent on that

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Speaker 8: demand outlook, and it's uncertain and there's a lot of

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Speaker 8: risk around it.

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Speaker 2: So yesterday I found really messy listening to what you've

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Speaker 2: got to say about things. Could these decisions get messy up?

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Speaker 2: Given how difficult is to read things at the moment?

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Speaker 7: You know?

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Speaker 8: A Vice Church Jeffries gave us speech about two years

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Speaker 8: ago on the difference between uncertainty and risk, and that

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Speaker 8: term risk management really stood out to me because risk

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Speaker 8: is something where you don't know the outcome, but you

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Speaker 8: know the distribution, and therefore you can act to in

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Speaker 8: a way if you're the fed to, you know, try

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Speaker 8: to tilt towards an outcome that is preferred. Uncertainty, you

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Speaker 8: don't know the outcome and you don't know the distribution,

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Speaker 8: And I think we're there more now than we were

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Speaker 8: even two years ago. We have an uncertain distribution. So

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Speaker 8: it calls into question whether a short term rate move

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Speaker 8: is really going to affect these long term structural issues

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Speaker 8: tied to demographics, immigration, and higher inflation than we're used to.

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Speaker 2: With that in mind, is they get closer and closer

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Speaker 2: to neutral? How do they confront the situation you've just described.

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Speaker 8: Historically they've done so with data and really having a

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Speaker 8: strong read of not only where the economy is now,

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Speaker 8: but where it's going, and that is going to be

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Speaker 8: critical because they have to work into time dimensions right

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Speaker 8: now in the future. And right now, things look pretty good.

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Speaker 8: The stock like I said, for the labor market is

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Speaker 8: pretty good, the unemployment rate is below what we've seen historically.

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Speaker 8: But in the future, if these structural changes become live,

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Speaker 8: real time constraints to the economy, then the FED has

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Speaker 8: to act and act quickly. And that is the uncertainty

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Speaker 8: that we're all going to be grappling with.

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Speaker 4: Just a random question for me, how long before college

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Speaker 4: graduates actually get jobs?

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Speaker 8: Well, my son graduates in two years, so I'm hoping

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Speaker 8: for that, so I'm not going to come back. I

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Speaker 8: think for early career we're also seeing a complex relationship

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Speaker 8: right because we're seeing they're entering a jobs market where

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Speaker 8: AI is becoming more and more present in their skill set.

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Speaker 8: And when you think about where AI shows up for

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Speaker 8: these early careers, for careers in general, it's showing up,

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Speaker 8: according to research done by Stanford and using ADP data,

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Speaker 8: in early career in AI exposed fields. And that's not

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Speaker 8: just software developers, that's marketing, that's finance, it's anything that

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Speaker 8: you use a spreadsheet or some kind of document to

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Speaker 8: do so. I do think that there is a transition point.

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Speaker 8: The good news is, in this very stable labor market,

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Speaker 8: companies are leaning into employee engagement, employee training, employee upskilling

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Speaker 8: in a way that they weren't doing before the pandemic.

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Speaker 1: So there's hope that if.

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Speaker 8: The economy stays strong, that this early career population, which

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Speaker 8: is our future, will be trained into those durable jobs.

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Speaker 2: This is the Bloomberg Survendics podcast, bringing you the best

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Speaker 2: in markets, economics, an gio politics. You can watch the

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