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 a Marie Hordernt. Join us each
Speaker 2: day for insight from the best in markets, economics, and
Speaker 2: geopolitics from our global headquarters in New York City. We
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Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify
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Speaker 2: Bloomberg Terminal and the Bloomberg Business App. Gagie chatter if
Speaker 2: Blankcrog joins us around the table. Gargie, good Mornic, good morning.
Speaker 2: I know we want to address single names, but I
Speaker 2: do want to understand the concentration risk around some of
Speaker 2: these stories. How much of the fate of this market
Speaker 2: is in the hands of just one name, one CEO,
Speaker 2: one story.
Speaker 3: Sure, good morning, Good to be here. So this is
Speaker 3: exactly the theme that we write about in our Fall
Speaker 3: Investment Directions that we wrote in early September, still very
Speaker 3: relevant now, and the theme that we highlight there is,
Speaker 3: you know, we all grew up in the markets hearing
Speaker 3: the old fable of don't fight the FED, Now it's
Speaker 3: don't fight the FED and don't fight the AI trade,
Speaker 3: because that is what is going to drive drive sectors
Speaker 3: and it's what's going to drive the overall performance of
Speaker 3: the index. Yes, due to some of the names very
Speaker 3: much being a part of the broader index, but those
Speaker 3: few names, the top ten names, are also where the
Speaker 3: majority of the earnings growth is coming from. And while
Speaker 3: we read these headlines, I think we shouldn't lose sight
Speaker 3: of that fact that if you look at Yurtle dat
Speaker 3: returns seventy five percent or so have come from of
Speaker 3: the total returns have come from earnings. And when we
Speaker 3: see these headlines and we recognize what the future of
Speaker 3: an Intel Nvidia is going to do, I think what
Speaker 3: it points to is further earnings growth.
Speaker 1: Just driving the S and P higher.
Speaker 3: So keep AI as a core theme in your equity portfolio.
Speaker 3: But I think more and more we're recognizing that you're
Speaker 3: going to have to do it active manner because there's
Speaker 3: certainly going to be names that are going to be
Speaker 3: losers within this AI race and winners as well.
Speaker 4: How are you active in management given the potential for
Speaker 4: political overlays to the tech story as we've seen from
Speaker 4: the US and from China.
Speaker 3: What I mean by how one can be active is
Speaker 3: obviously thinking about certain sectors or certain stocks themselves that
Speaker 3: can not be as much of a beneficiary. And we
Speaker 3: actually saw that around this earning season, right We saw
Speaker 3: some software names that are not able to use AI
Speaker 3: as much as one would have thought, as much as
Speaker 3: expectations were, and are absolutely losing. And then obviously you
Speaker 3: have more of the hyperscalers as well as the chip
Speaker 3: manufacturers that are very much able to participate. So that
Speaker 3: is the active management obviously. You know, in our fall
Speaker 3: investment directions we talk about doing that through and I
Speaker 3: SHARE's active ticker BAI. But investors can also do it
Speaker 3: with you know, broad large gap ETFs. They can do
Speaker 3: it through broad large growth ETFs versus moving away from
Speaker 3: small caps, which has been our theme for the year.
Speaker 4: Okay, that is exactly where I wanted to go, This
Speaker 4: idea of don't fight the FED and don't fight the
Speaker 4: AI same are they in conflict and this is the
Speaker 4: way that they were yesterday.
Speaker 1: The idea that people saw this is.
Speaker 4: An opportunity to go out of some of the high
Speaker 4: flyers and the expensive stocks and into small caps that
Speaker 4: were less highly valued. And you saw that rotation yesterday.
Speaker 4: You think that's a headfach based on what you just said, Well,
Speaker 4: I think so.
Speaker 5: So.
Speaker 3: I think that we obviously saw August as a great
Speaker 3: month for small caps, and then as September came around,
Speaker 3: we've seen that fading just a little bit. Historically, we've
Speaker 3: looked at periods where small gaps have outperformed the large
Speaker 3: gaps in more than three to five hundred basis points.
Speaker 3: It hasn't really been able to be very sustainable, and
Speaker 3: partly it's a growth story. In small gaps you just
Speaker 3: don't have that earnings growth. But broadly we all know
Speaker 3: what's happening. I think Francis was talking about it earlier
Speaker 3: in terms of the economy is changing and the rules
Speaker 3: that led to our investment thesis last decade will not work.
Speaker 3: Now many companies are staying private for so much longer
Speaker 3: that companies when they finally go public.
Speaker 1: As we can see.
Speaker 3: The size of IPOs going from about three to five
Speaker 3: hundred million to over a billion, they are now no
Speaker 3: longer small cap companies. So the market is shifting. You
Speaker 3: have also from a macro perspective, rates are still higher
Speaker 3: than the sort of zero regime that we were in
Speaker 3: for a very long time, and you don't have the
Speaker 3: earnings growth. So I think we can see certain short
Speaker 3: term movements, and I think we've seen investors play that
Speaker 3: via options on things like ISWM. Absolutely do that, but
Speaker 3: this is not a sustainable theme. Come back to large gap,
Speaker 3: come back to growth, come back to AI.
Speaker 2: Stay with US. Multilemberg surveillance coming up after this, joining
Speaker 2: us now to discuss the former Kansas City Fed president
Speaker 2: as the George Es the Welcome back to the program.
Speaker 2: I love talking to you about this because you've experienced it.
Speaker 2: You've been that, you've dissented on the committee yourself personally,
Speaker 2: and you've seen dot plots with huge dispersion and a
Speaker 2: wide range of outcomes for the years ahead. Is this
Speaker 2: different somehow from what you've seen and lived? Is this
Speaker 2: somehow different what we saw yesterday?
Speaker 6: Well, it's different in this sense, Jonathan. You have a
Speaker 6: lot swirling around today's economic decisions that have to be
Speaker 6: made about monetary policy. They come from challenges to the
Speaker 6: institution itself. They're coming from an economy that is far
Speaker 6: from clear in terms of what the ultimate impact is
Speaker 6: and again, this is a committee that has to think
Speaker 6: about the long run even as they make today's decisions.
Speaker 6: And so you have dramatic changes in trade policy and
Speaker 6: immigration policy, all that are hitting directly on both uncertainty
Speaker 6: about where that long run is as well as where
Speaker 6: are things landing today. So not surprising I think that
Speaker 6: you see this kind of dispersion giving the changes going
Speaker 6: on in the economy, given.
Speaker 4: That kind of type of a backdrop, do you think
Speaker 4: Esther that we're looking at a scenario where forward guidance
Speaker 4: has no value anymore?
Speaker 6: Well, I don't think this is a time you can
Speaker 6: make forward guidance, and really forward guidance can be fraught anytime.
Speaker 6: Because we live in a dynamic economy, things can change
Speaker 6: that make it hard for the Central Bank to fulfill
Speaker 6: commitments like that. And so again this is a time
Speaker 6: where you hear from businesses. They are still sorting out
Speaker 6: what the in game looks like here. They are still
Speaker 6: sorting out what increased costs are going to mean to
Speaker 6: both their bottom line to their employment status. And so
Speaker 6: it's hard to put a pin that you can see
Speaker 6: a clear direction for the economy. I think you heard
Speaker 6: that coming out of the meeting yesterday. The committee had
Speaker 6: to make a decision. They made a decision. But the
Speaker 6: dispersion I think belies some of the consensus you saw esther.
Speaker 4: Can you talk a little bit about how hard it
Speaker 4: is to persuade fellow governors to get on your side
Speaker 4: when you do when you do disagree with them, how
Speaker 4: difficult it is to make that case.
Speaker 6: Yes, so it's a requirement of the job. I always
Speaker 6: thought in that and certainly you are trying to articulate
Speaker 6: in a very thoughtful way the factors that weigh on
Speaker 6: your judgment, how you put the weight on different variables,
Speaker 6: which everyone around that table is doing. At the end
Speaker 6: of the day, though that you are the loan dissenter,
Speaker 6: that the majority makes a decision in a different place
Speaker 6: doesn't necessarily undermine the argument that's being made. It simply
Speaker 6: says that the weight was in another direction and there
Speaker 6: was consensus built around a different view. I think what's
Speaker 6: important is that you don't dismiss entirely when you hear
Speaker 6: dissenting voices about what it means.
Speaker 2: As so, if you look through the forecast, a lot
Speaker 2: of people have called them highly contradictory through some odd
Speaker 2: things going on just in terms of upgrading the outlook
Speaker 2: for growth and then cutting interest rates. Some things don't
Speaker 2: make sense to some people. You know, when these things
Speaker 2: were introduced, the dot plot and forecast, it was to
Speaker 2: enhance communication. Do you think we've got to the point
Speaker 2: where it started to compromise it.
Speaker 6: Well, that's been the case at many times since the
Speaker 6: introduction of that dot plot, and again I think it
Speaker 6: always bears reminding people this is not a committee forecast. Yes,
Speaker 6: you can draw some conclusions about tendencies and the medians
Speaker 6: where they come out for this committee, but when you
Speaker 6: see dispersion like this, it tells you that we're looking
Speaker 6: pretty short term. This idea of meeting to meeting sounds
Speaker 6: right to me. You don't have a committee that agrees
Speaker 6: on what the long run is, and that's true either
Speaker 6: of their long run FED Funds forecast those are ranging
Speaker 6: from below two and a half percent to closer to four.
Speaker 6: That tells you that this idea about how restrictive they
Speaker 6: are has a lot of different views coming to bear
Speaker 6: at the table Astro.
Speaker 2: I think a lot of people would agree with you
Speaker 2: most in fact, that you shouldn't draw too many conclusions
Speaker 2: from those forecasts. But there is one uncomfortable conclusion that
Speaker 2: many people have drawn, and this institution is no longer
Speaker 2: credibly pursuing the two percent inflation target. Is that an
Speaker 2: unfair criticism?
Speaker 6: Well, the committee certainly has not said that. We have
Speaker 6: not heard the chairman say that. But I think the
Speaker 6: actions here put them at risk over the next few months, frankly,
Speaker 6: because they continue to push away from thinking that in inflation,
Speaker 6: although characterized as an upside risk, is one that they
Speaker 6: are not going to be able to deal with. And
Speaker 6: I think the challenge there is this is a committee
Speaker 6: that has relied heavily on anchored inflation expectations, and as
Speaker 6: those move, and as the public which has experienced high inflation,
Speaker 6: I think this will become a real challenge for the
Speaker 6: committee under the forecast that they've laid out.
Speaker 2: Stay with us. Mulblinberg, Savannah's coming up after this. Dannats
Speaker 2: of wet Bush is standing by once to jump on it.
Speaker 2: Calls the deal a huge game changer for Intel. Dan,
Speaker 2: good morning and welcome to the program. Why do you
Speaker 2: believe this is such a huge game changer?
Speaker 7: Pop the champagne, I mean for Intel.
Speaker 5: Now you have Nvidia, godfather of AI doubling down, and
Speaker 5: this files obviously US government investment.
Speaker 7: I mean, what this essentially does, It brings Intel into
Speaker 7: the AI game. I think from a stock perspective, that
Speaker 7: changes the multiple.
Speaker 5: And clearly this is also going to be viewed very
Speaker 5: positively in DC. I think that's something that could definitely
Speaker 5: help Gens and others when it comes to China.
Speaker 7: Dan.
Speaker 4: I do wander though about man Deep's point, this idea
Speaker 4: that this isn't Invidia going all in and developing their
Speaker 4: chips for the big semiconductors so that the big hyperscalers
Speaker 4: at the at the Intel foundry. This is simply a
Speaker 4: five billion dollar side project about PCs. How much is
Speaker 4: this essentially just an olive branch to the president and
Speaker 4: not an actual move of Nvidia to try to fortify
Speaker 4: Intel's plans to become the foundry.
Speaker 5: You know if mandeep brings up Greade points as always,
Speaker 5: But look, this is also it's a double one down
Speaker 5: on investment in the US.
Speaker 7: I mean, that's.
Speaker 5: Also what it is now clearly that obviously I'll bring
Speaker 5: to Trump administration and others. But what they're also doing
Speaker 5: is when it comes to PC upgrade cycle X eighty
Speaker 5: six I mean, this does give them another potential growth
Speaker 5: lever and look in video right now, it's in Vidia's world,
Speaker 5: everyone else's pain Rint and they know that they're in
Speaker 5: a massive position of strength. But for Intel, I mean
Speaker 5: about you went, you know, you went from Qullite a
Speaker 5: month ago. You know, some worries about you know, in
Speaker 5: terms of the CEO potentially out.
Speaker 7: Now you get the investment from government and you have Intel.
Speaker 5: You know, now again in Vidia, I mean, that is
Speaker 5: a Goldilock scenario for Intel.
Speaker 4: This is coming at a time when China is trying
Speaker 4: to emphasize domestic production of their own technology and really
Speaker 4: trying to create national champions there that can rival in
Speaker 4: Vidia and other US tech giants. I just wonder whether
Speaker 4: it is possible to continue, for the likes of Nvidia
Speaker 4: trying to push into China, trying to sell more advanced
Speaker 4: tips into that country, while at the same time, you know,
Speaker 4: playing with this idea of US independence from China.
Speaker 7: Look, it's a tight wire act.
Speaker 5: But the reality is that there's one ship in the
Speaker 5: world viewing the Ai revolution and that's that's what by
Speaker 5: godfather of aigens in a video, and that's why in China,
Speaker 5: look they could tell Chinese big tech Embijing, don't buy
Speaker 5: in video chip that that's like telling a kid, okay,
Speaker 5: don't eat the candy that's on the table. So that's
Speaker 5: the reality because they're years ahead of when you look
Speaker 5: at Huawei and others.
Speaker 7: But at the same time, I mean, tru administration recognizes.
Speaker 5: They have to strengthen AI infrastructure, AI ship making. And
Speaker 5: you look at Intel, I mean they've gone obviously from
Speaker 5: a huge laggard.
Speaker 7: I mean Intel, you.
Speaker 5: Know all the red tape, all the sort of black
Speaker 5: eye moments, you finally have some positives at Intel.
Speaker 2: Stay with us, multile Impex Savannas coming up off to this.
Speaker 2: Native Richardson of IDP joined us in the studio Nada.
Speaker 7: Good morning.
Speaker 2: It's good to say running this is a tough one
Speaker 2: to read. You help us out. Where is this lang
Speaker 2: of market right now? What's happening?
Speaker 8: Labor market is strong, Actually it's solid, and I think
Speaker 8: there is a comment that has to be made it
Speaker 8: is weakening. But the labor market is not weak. And
Speaker 8: if you look at the stock, and that's what a
Speaker 8: lot of your audience is used to doing, looking at
Speaker 8: the stock and the flows.
Speaker 1: If you look at the stock.
Speaker 8: What you'll see is that the consumer is really smoothing
Speaker 8: out all the rough edges.
Speaker 1: In the economy.
Speaker 8: And it's true for the labor market as well. There's
Speaker 8: very little turnover in this labor market. I was really
Speaker 8: shocked by that upward surprise and Jabos claims last week,
Speaker 8: and now I know that that was just a mirage
Speaker 8: and we're back to historical lows. There's very little flow
Speaker 8: out and there's very little flow in.
Speaker 1: But what that.
Speaker 8: Means for the consumer is that they're not defying gravity
Speaker 8: when you see that pop in retail sales. They are
Speaker 8: well anchored by a functioning labor market where they are
Speaker 8: employed and working, and those incomes are fueling spending. And
Speaker 8: as long as that continues to happen, we can live
Speaker 8: with the uncertainty of fewer flows and hirings in and
Speaker 8: out of the labor market if the stock is healthy well.
Speaker 4: And this raises the point that maybe this is a
Speaker 4: new normal, the sort of low higher, low fire type
Speaker 4: of churn, And I just wonder if that's true, if
Speaker 4: that's the case, or if you do see some sort
Speaker 4: of reacceleration hiring, especially if there is some sort of
Speaker 4: commensurate reacceleration in the economy heading into the end of
Speaker 4: the year.
Speaker 8: Yeah, so that goes back to the weakening, and I
Speaker 8: do think the labor market is weakening, but not for
Speaker 8: the reasons that were explained yesterday. Not simply because of
Speaker 8: the hiring rate, but really the concentration of hiring and Lisa, you.
Speaker 1: And I have talked about this a lot.
Speaker 8: If you look at the BLS data, if you look
Speaker 8: at the ADP data, what you'll see is a heavily
Speaker 8: concentrated hiring market and key consumer sectors, whether it's healthcare
Speaker 8: for the BLS or leisure in hospitality and ADP, it's
Speaker 8: the consumer who's driving hiring, and the consumer's wins are
Speaker 8: really forming and shaping today's labor market.
Speaker 1: I think that's a concern.
Speaker 8: You want broad based hiring, you don't want it concentrated.
Speaker 1: That's not good for the future.
Speaker 8: So there are reasons to be concerned about this labor market,
Speaker 8: but the ones in terms of just the number of
Speaker 8: jobs that are added every single month. I think that's
Speaker 8: not the biggest problem with the labor market right now.
Speaker 4: Going forward, we've been talking about the conflict between the
Speaker 4: real economy and this idea that there is something kind
Speaker 4: of quirky or not totally healthy about the labor market
Speaker 4: and the idea that you're seeing this boom in a
Speaker 4: select number of stocks, but it does seem to be broadening.
Speaker 4: Do you think that that also is a new normal
Speaker 4: that companies can keep doing really well but not increase
Speaker 4: their headcount considerably or invest in talent, or do you
Speaker 4: think that this is something that has to reconcile.
Speaker 1: Markets and companies.
Speaker 8: The truth is, if you're not growing, you're not going
Speaker 8: to be around for long. And I think that when
Speaker 8: when we look at the labor market, what I see
Speaker 8: is a tipping point. I see a labor market that
Speaker 8: is very dependent on the consumer and a consumer that
Speaker 8: is very dependent on the labor market. And I think
Speaker 8: this is an uneasy truth. It's a delicate relationship because
Speaker 8: anything could upend it. And that is the issue for
Speaker 8: companies as well. If their demand is coming from a
Speaker 8: resilient consumer only, and that consumer is dependent and most
Speaker 8: of us are on the labor market, then you can
Speaker 8: see how these fractures could lead to something bigger for
Speaker 8: consumer companies right now, so they're very dependent on that
Speaker 8: demand outlook, and it's uncertain and there's a lot of
Speaker 8: risk around it.
Speaker 2: So yesterday I found really messy listening to what you've
Speaker 2: got to say about things. Could these decisions get messy up?
Speaker 2: Given how difficult is to read things at the moment?
Speaker 7: You know?
Speaker 8: A Vice Church Jeffries gave us speech about two years
Speaker 8: ago on the difference between uncertainty and risk, and that
Speaker 8: term risk management really stood out to me because risk
Speaker 8: is something where you don't know the outcome, but you
Speaker 8: know the distribution, and therefore you can act to in
Speaker 8: a way if you're the fed to, you know, try
Speaker 8: to tilt towards an outcome that is preferred. Uncertainty, you
Speaker 8: don't know the outcome and you don't know the distribution,
Speaker 8: And I think we're there more now than we were
Speaker 8: even two years ago. We have an uncertain distribution. So
Speaker 8: it calls into question whether a short term rate move
Speaker 8: is really going to affect these long term structural issues
Speaker 8: tied to demographics, immigration, and higher inflation than we're used to.
Speaker 2: With that in mind, is they get closer and closer
Speaker 2: to neutral? How do they confront the situation you've just described.
Speaker 8: Historically they've done so with data and really having a
Speaker 8: strong read of not only where the economy is now,
Speaker 8: but where it's going, and that is going to be
Speaker 8: critical because they have to work into time dimensions right
Speaker 8: now in the future. And right now, things look pretty good.
Speaker 8: The stock like I said, for the labor market is
Speaker 8: pretty good, the unemployment rate is below what we've seen historically.
Speaker 8: But in the future, if these structural changes become live,
Speaker 8: real time constraints to the economy, then the FED has
Speaker 8: to act and act quickly. And that is the uncertainty
Speaker 8: that we're all going to be grappling with.
Speaker 4: Just a random question for me, how long before college
Speaker 4: graduates actually get jobs?
Speaker 8: Well, my son graduates in two years, so I'm hoping
Speaker 8: for that, so I'm not going to come back. I
Speaker 8: think for early career we're also seeing a complex relationship
Speaker 8: right because we're seeing they're entering a jobs market where
Speaker 8: AI is becoming more and more present in their skill set.
Speaker 8: And when you think about where AI shows up for
Speaker 8: these early careers, for careers in general, it's showing up,
Speaker 8: according to research done by Stanford and using ADP data,
Speaker 8: in early career in AI exposed fields. And that's not
Speaker 8: just software developers, that's marketing, that's finance, it's anything that
Speaker 8: you use a spreadsheet or some kind of document to
Speaker 8: do so. I do think that there is a transition point.
Speaker 8: The good news is, in this very stable labor market,
Speaker 8: companies are leaning into employee engagement, employee training, employee upskilling
Speaker 8: in a way that they weren't doing before the pandemic.
Speaker 1: So there's hope that if.
Speaker 8: The economy stays strong, that this early career population, which
Speaker 8: is our future, will be trained into those durable jobs.
Speaker 2: This is the Bloomberg Survendics podcast, bringing you the best
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