1 00:00:00,040 --> 00:00:06,720 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,640 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordert. Join us each day 4 00:00:18,720 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,919 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,000 --> 00:00:37,080 Speaker 2: Terminal and the Bloomberg Business app. We begin this out 10 00:00:37,120 --> 00:00:40,320 Speaker 2: with stocks rising as investors shake off the AI anxiety. 11 00:00:40,600 --> 00:00:43,480 Speaker 2: Keith Leerner of Truest writing, there is a genuine fundamental 12 00:00:43,479 --> 00:00:47,640 Speaker 2: reassessment underway. Added uncertainty points to high volatility and a 13 00:00:47,680 --> 00:00:52,040 Speaker 2: more bifurcated market. We remain overweight technology. Keith joins us 14 00:00:52,080 --> 00:00:54,440 Speaker 2: now for more. Keith, Welcome to the program. How are 15 00:00:54,480 --> 00:00:56,280 Speaker 2: you viewing the moves we've seen in the last month 16 00:00:56,400 --> 00:00:58,760 Speaker 2: or so. Is this just a pure rotation, something you're 17 00:00:58,800 --> 00:01:01,720 Speaker 2: comfortable with the kind of de risking that makes you concerned? 18 00:01:02,840 --> 00:01:05,400 Speaker 3: Ye know, Well, good morning to you both. It's been 19 00:01:05,400 --> 00:01:07,080 Speaker 3: a really interesting market. The first thing I'll just point 20 00:01:07,080 --> 00:01:08,760 Speaker 3: out this morning, Jonathan, if you look at the S 21 00:01:08,840 --> 00:01:11,559 Speaker 3: and P. Five hundred, you're to date, we're up point 22 00:01:11,800 --> 00:01:15,440 Speaker 3: oh three percent, So we really have seen this rotation. 23 00:01:16,120 --> 00:01:19,200 Speaker 3: We have about four sectors that are up double digits 24 00:01:19,600 --> 00:01:21,720 Speaker 3: and then four sectors. 25 00:01:21,360 --> 00:01:22,160 Speaker 4: That are down. 26 00:01:22,840 --> 00:01:25,560 Speaker 3: The way I'm looking at this, Jonathan, is yes, this 27 00:01:25,640 --> 00:01:28,319 Speaker 3: is partly a rotation. Obviously, we all know that tech 28 00:01:28,360 --> 00:01:30,360 Speaker 3: had a big run last year, and now we're rotating 29 00:01:30,400 --> 00:01:33,520 Speaker 3: out to you know, partly cyclicals this and then we 30 00:01:33,560 --> 00:01:34,720 Speaker 3: have staples on top of that. 31 00:01:35,160 --> 00:01:36,319 Speaker 4: I also looked and you know. 32 00:01:36,280 --> 00:01:38,240 Speaker 3: What's interesting is some of these sectors that are really 33 00:01:38,319 --> 00:01:41,919 Speaker 3: up this year if you look at you know, materials 34 00:01:41,959 --> 00:01:45,600 Speaker 3: and energy and real estate, and you throw staples in 35 00:01:45,640 --> 00:01:48,360 Speaker 3: there as well, Like the average market weight of these 36 00:01:48,440 --> 00:01:51,800 Speaker 3: like five sectors is around three percent. So I think 37 00:01:51,840 --> 00:01:53,720 Speaker 3: it's a little bit of again rotation, a little bit 38 00:01:53,760 --> 00:01:55,920 Speaker 3: of the cyclical side, and really just finding something that 39 00:01:56,080 --> 00:01:58,880 Speaker 3: you know, that has been being up in some catchup. 40 00:01:59,080 --> 00:02:02,280 Speaker 3: And maybe lastly is you know, there's obviously the concerns 41 00:02:02,280 --> 00:02:05,000 Speaker 3: about the AI disruption as well, and people are seeking 42 00:02:05,000 --> 00:02:07,640 Speaker 3: areas that you know, are perceived to be less disrupted. 43 00:02:07,840 --> 00:02:09,520 Speaker 2: Well, Okay, if i's stand the cyclical piece of this, 44 00:02:09,600 --> 00:02:11,480 Speaker 2: because I think that's where it kind of gets confusing 45 00:02:11,480 --> 00:02:13,480 Speaker 2: for people. If you look at the sector performance of 46 00:02:13,560 --> 00:02:16,160 Speaker 2: the last week, the underperformance in financials and the banks 47 00:02:16,160 --> 00:02:18,040 Speaker 2: on the S and P five hundred, and the air 48 00:02:18,080 --> 00:02:21,400 Speaker 2: performance in the defensive say staples and utilities, just how 49 00:02:21,480 --> 00:02:24,600 Speaker 2: much of those moves reflect a so called cyclical rotation. 50 00:02:26,600 --> 00:02:28,560 Speaker 3: Yeah, no, it's that's why, you know, kind of go 51 00:02:28,639 --> 00:02:30,880 Speaker 3: this going to this bifurcated market in a lot of 52 00:02:30,880 --> 00:02:33,440 Speaker 3: different narratives. I think partly if I think about the 53 00:02:33,480 --> 00:02:36,400 Speaker 3: staples sector first of all, like what's driving that Partly 54 00:02:36,440 --> 00:02:39,680 Speaker 3: the biggest individual stock in that sector is Walmart, and 55 00:02:39,720 --> 00:02:42,760 Speaker 3: you can argue that's a quasi ai play that people 56 00:02:42,760 --> 00:02:45,080 Speaker 3: think may be benefit even though we know valuations are 57 00:02:45,520 --> 00:02:46,720 Speaker 3: have really moved. 58 00:02:46,520 --> 00:02:47,880 Speaker 4: Up, you know. 59 00:02:47,960 --> 00:02:50,320 Speaker 3: The financials I think is a little curious. I think, 60 00:02:50,360 --> 00:02:51,880 Speaker 3: you know, some of these banks had big moves towards 61 00:02:51,880 --> 00:02:54,000 Speaker 3: the end of last year, but it is somewhat curious. 62 00:02:54,000 --> 00:02:55,959 Speaker 3: I think part of the lagging there is we've seen 63 00:02:56,040 --> 00:02:58,720 Speaker 3: interest rates come down, and those interest rates coming down 64 00:02:58,840 --> 00:03:01,480 Speaker 3: have helped some of the defense of areas, you know, 65 00:03:01,639 --> 00:03:04,880 Speaker 3: like utilities, like real estate you know as well. You know, 66 00:03:04,919 --> 00:03:07,560 Speaker 3: I will say if I take a step back, though, 67 00:03:08,919 --> 00:03:13,080 Speaker 3: you know, the technology sector which has been hit this year. 68 00:03:13,480 --> 00:03:16,880 Speaker 3: I mean that sector in communication is about forty percent. 69 00:03:17,120 --> 00:03:20,720 Speaker 3: The earning trends in tech, you know, over the last 70 00:03:20,760 --> 00:03:24,239 Speaker 3: four months are by far the strongest of any sector. 71 00:03:24,240 --> 00:03:25,640 Speaker 4: It's about three. 72 00:03:25,480 --> 00:03:28,720 Speaker 3: Times the upward revision's relative to the S and P itself. 73 00:03:28,760 --> 00:03:31,320 Speaker 3: So right now we're having you know, on one here aside, 74 00:03:31,320 --> 00:03:34,240 Speaker 3: we're seeing hey, fear of disruption hurting tech, and then 75 00:03:34,280 --> 00:03:36,760 Speaker 3: there's a lot of optimism about the economic uptate hurting 76 00:03:36,800 --> 00:03:39,520 Speaker 3: some of these other areas as well. So it's kind of, 77 00:03:40,120 --> 00:03:42,240 Speaker 3: like I said earlier, kind of of a split market here. 78 00:03:42,400 --> 00:03:43,800 Speaker 1: So how much, Keith, are you taking a look at 79 00:03:43,840 --> 00:03:47,160 Speaker 1: some of the actual earnings performance of say certain software names, 80 00:03:47,160 --> 00:03:51,080 Speaker 1: certaine technology names and saying this looks like a good bargain. 81 00:03:51,200 --> 00:03:52,040 Speaker 5: We're going to load up. 82 00:03:53,520 --> 00:03:53,800 Speaker 4: Yeah. 83 00:03:53,840 --> 00:03:57,360 Speaker 3: So the way our strategy you know, has evolved. Last December, 84 00:03:57,400 --> 00:04:00,480 Speaker 3: we did upgrade the cicles, we went overwight industry. 85 00:04:00,080 --> 00:04:02,680 Speaker 4: Rules, and we did keep our legacy. 86 00:04:02,320 --> 00:04:06,160 Speaker 3: Overweight positions in tech and communication services, which obviously are 87 00:04:06,200 --> 00:04:06,880 Speaker 3: down this year. 88 00:04:06,920 --> 00:04:09,840 Speaker 4: So I mean, at this point, I do think. 89 00:04:09,640 --> 00:04:11,840 Speaker 3: That tech deserves the benefit of the doubt. We have 90 00:04:11,920 --> 00:04:15,200 Speaker 3: to remember that the sector had really outperformed off the lows. 91 00:04:15,720 --> 00:04:18,400 Speaker 3: Now this kind of rerating that we've seen has been 92 00:04:18,440 --> 00:04:22,000 Speaker 3: pretty drastic. You know, back in October at the Hives, 93 00:04:22,320 --> 00:04:24,760 Speaker 3: the tech sector was trading for a PE multiple of 94 00:04:24,800 --> 00:04:28,039 Speaker 3: about thirty two. That's now down to twenty four. And 95 00:04:28,080 --> 00:04:30,760 Speaker 3: on a relative basis, that premium for tech relatives of 96 00:04:30,800 --> 00:04:33,080 Speaker 3: the board market has moved down to about twelve percent, 97 00:04:33,600 --> 00:04:36,279 Speaker 3: and relative to history, that's the lowest. 98 00:04:35,960 --> 00:04:38,320 Speaker 4: Premium we've seen since twenty twenty. 99 00:04:38,680 --> 00:04:41,000 Speaker 3: So we still think at this point tech deserves the 100 00:04:41,000 --> 00:04:43,840 Speaker 3: benefit of the doubt. It is on an important technical level, 101 00:04:43,839 --> 00:04:46,080 Speaker 3: the TUNA day move and average, But all in all, 102 00:04:46,080 --> 00:04:47,600 Speaker 3: I would say we're still sticking with tech, and I 103 00:04:47,600 --> 00:04:49,120 Speaker 3: wouldn't be surprised if we start to see a little 104 00:04:49,120 --> 00:04:51,520 Speaker 3: bit of moved back into tech because it's already been 105 00:04:51,680 --> 00:04:53,520 Speaker 3: disrupted as far as the valuations. 106 00:04:53,960 --> 00:04:55,839 Speaker 1: Keith, I've noticed that you've sign a couple of times. 107 00:04:55,839 --> 00:04:56,320 Speaker 5: You're not alone. 108 00:04:56,320 --> 00:04:57,719 Speaker 1: There are number of guests you've come on and just 109 00:04:57,720 --> 00:05:00,640 Speaker 1: started signing because it feels like a pretty ex market 110 00:05:00,680 --> 00:05:03,120 Speaker 1: and it feels like one that's not being driven by 111 00:05:03,160 --> 00:05:05,560 Speaker 1: a cohesive narrative. Does this just feel like wlackable to 112 00:05:05,640 --> 00:05:07,400 Speaker 1: you in terms of momentum trade? 113 00:05:08,760 --> 00:05:09,160 Speaker 4: It does. 114 00:05:09,200 --> 00:05:11,640 Speaker 3: I mean money just moving from one in one area 115 00:05:11,720 --> 00:05:13,880 Speaker 3: to the next, and narratives keep shifting. And that's why, 116 00:05:14,000 --> 00:05:15,320 Speaker 3: you know, what I try to do in our work, 117 00:05:15,360 --> 00:05:17,520 Speaker 3: our team tries to do is just kind of zoom out, 118 00:05:17,800 --> 00:05:20,040 Speaker 3: you know, focus on you know, what are we actually 119 00:05:20,080 --> 00:05:23,640 Speaker 3: seeing in difference in you know, fundamental trends, earning trends. 120 00:05:23,640 --> 00:05:26,520 Speaker 3: We obviously also follow the technical trends is as well, 121 00:05:26,520 --> 00:05:29,200 Speaker 3: but I think in this backdrop too, where you know, 122 00:05:29,320 --> 00:05:31,400 Speaker 3: the market's going from one area to the next, you know, 123 00:05:31,440 --> 00:05:35,600 Speaker 3: going back to simplicity and global diversification, you know within 124 00:05:35,640 --> 00:05:39,480 Speaker 3: the US outside in different asset classes make a lot 125 00:05:39,480 --> 00:05:41,640 Speaker 3: of sense because I mean, look at the global markets. 126 00:05:41,680 --> 00:05:45,240 Speaker 3: We have over ninety percent of global indices and up trends. 127 00:05:45,720 --> 00:05:47,560 Speaker 3: Where we are seeing you know, even though the S 128 00:05:47,600 --> 00:05:49,360 Speaker 3: and P as I mentioned is flat, we're seeing small 129 00:05:49,400 --> 00:05:50,640 Speaker 3: caps up eight percent. 130 00:05:50,360 --> 00:05:52,160 Speaker 4: Mid caps up strong as well. 131 00:05:52,200 --> 00:05:54,839 Speaker 3: So there's actually it's been actually a pretty good investment 132 00:05:54,880 --> 00:05:57,440 Speaker 3: you underneath the hood. You just can't be overly concentrated 133 00:05:57,480 --> 00:05:59,839 Speaker 3: just in just the S and P five hundred by itself. 134 00:06:00,080 --> 00:06:01,400 Speaker 2: Comes to self ware. Do you think there's going to 135 00:06:01,400 --> 00:06:04,000 Speaker 2: be any scarring on the multiple on the valuation of 136 00:06:04,040 --> 00:06:06,839 Speaker 2: that cohort of stocks? The earnings right and remain robust 137 00:06:06,839 --> 00:06:08,840 Speaker 2: for the year ahead, maybe several years out, but how 138 00:06:08,880 --> 00:06:11,039 Speaker 2: scarred do you think the evaluation story is going to be? 139 00:06:12,040 --> 00:06:14,360 Speaker 3: Yeah, I think we've had a meaningful reset in valuations. 140 00:06:14,400 --> 00:06:15,880 Speaker 3: I think it's going to be very tough to get 141 00:06:15,880 --> 00:06:18,400 Speaker 3: back to any type of meaningful premium that we've been 142 00:06:18,480 --> 00:06:21,799 Speaker 3: used to anytime soon, because even though the earnings are strong, 143 00:06:21,839 --> 00:06:24,119 Speaker 3: even if CEOs come in and say, hey, our earnings 144 00:06:24,160 --> 00:06:27,160 Speaker 3: are really strong, it's hard to disprove about what will 145 00:06:27,200 --> 00:06:29,040 Speaker 3: happen in three or four or five years. 146 00:06:29,040 --> 00:06:30,800 Speaker 4: And now that's what the market is focused on. 147 00:06:31,360 --> 00:06:31,560 Speaker 5: You know. 148 00:06:31,600 --> 00:06:34,680 Speaker 3: That's said on a short term basis, the software sector 149 00:06:34,800 --> 00:06:40,320 Speaker 3: has underperformed the overall market by the most since two thousand, 150 00:06:40,440 --> 00:06:43,440 Speaker 3: So I do think this sector is deeply oversold right for. 151 00:06:43,520 --> 00:06:45,520 Speaker 4: A balance, but I don't expect it to. 152 00:06:45,480 --> 00:06:49,279 Speaker 3: Be new leadership because of that kind of inability to 153 00:06:49,320 --> 00:06:52,120 Speaker 3: disprove the narrative longer term. But again, I think it 154 00:06:52,160 --> 00:06:54,279 Speaker 3: is oversold here on a shorter term basis, as. 155 00:06:54,120 --> 00:06:55,800 Speaker 2: That group of names on the SMP down by more 156 00:06:55,839 --> 00:06:58,440 Speaker 2: than twenty percent so far. Here today, stay with us, 157 00:06:58,760 --> 00:07:11,040 Speaker 2: mult Bloomberg Surveillance coming up after this, and let's keep 158 00:07:11,080 --> 00:07:13,720 Speaker 2: it on technology and Thropic launching a second major AI 159 00:07:13,800 --> 00:07:17,080 Speaker 2: model in just under two weeks, further intensifying pressure on 160 00:07:17,120 --> 00:07:20,000 Speaker 2: the software industry. The team at lead Edge Capital, a 161 00:07:20,040 --> 00:07:24,160 Speaker 2: growth equity firm, writing, the complete obsolescence of enterprise software 162 00:07:24,280 --> 00:07:27,080 Speaker 2: is overblown. There will be winners and losers, but the 163 00:07:27,120 --> 00:07:29,600 Speaker 2: best companies have an ability to adapt and still have 164 00:07:29,680 --> 00:07:32,920 Speaker 2: strong terminal value. Mitchell Green, the founder of lead Edge Capital, 165 00:07:33,040 --> 00:07:34,680 Speaker 2: joined US now for more. Mitchell, good morning to say. 166 00:07:34,880 --> 00:07:37,160 Speaker 5: I just smile as you guys say these things. What 167 00:07:37,240 --> 00:07:38,080 Speaker 5: do you think I'm wrong? 168 00:07:38,600 --> 00:07:41,160 Speaker 6: I think if you are a company that has to 169 00:07:41,160 --> 00:07:44,000 Speaker 6: if you are these AI companies just to find hundreds 170 00:07:44,040 --> 00:07:46,640 Speaker 6: of billions of dollars of AI spend, you sure better 171 00:07:46,640 --> 00:07:48,640 Speaker 6: convince the world that every weight color job is going 172 00:07:48,640 --> 00:07:49,000 Speaker 6: to do so. 173 00:07:49,080 --> 00:07:51,360 Speaker 2: Is this the IPO road show that we've been talking about, 174 00:07:51,400 --> 00:07:53,520 Speaker 2: because that has something is something we've suggested. 175 00:07:53,560 --> 00:07:54,239 Speaker 5: I think you're seeing. 176 00:07:54,240 --> 00:07:56,680 Speaker 6: I think we're in a giant AI capucks bubble right now, 177 00:07:56,680 --> 00:07:58,120 Speaker 6: and I think it is going to end very bad. 178 00:07:58,480 --> 00:08:01,000 Speaker 5: I do think AI is going to revolutionized the world. 179 00:08:01,320 --> 00:08:03,559 Speaker 6: I don't think in the next two years that AI 180 00:08:03,640 --> 00:08:05,280 Speaker 6: is going to be doing, you know, the two of 181 00:08:05,280 --> 00:08:08,320 Speaker 6: our you know, taxes and our ear agents can be 182 00:08:08,320 --> 00:08:10,440 Speaker 6: talking to my agent and then they can negotiate our 183 00:08:10,480 --> 00:08:15,320 Speaker 6: salaries together. I do believe that it's people underestimate the 184 00:08:15,360 --> 00:08:18,160 Speaker 6: long term aspects of it, but they sure overestimate the 185 00:08:18,200 --> 00:08:20,600 Speaker 6: near term aspects. Remember in twenty fifteen and Weber were 186 00:08:20,600 --> 00:08:23,840 Speaker 6: talking about self driving cars. Two thousand, we could have 187 00:08:23,840 --> 00:08:26,960 Speaker 6: sat here in the show, talked about the internet. You 188 00:08:27,000 --> 00:08:30,800 Speaker 6: know who typically won the e commerce game, traditional retails. 189 00:08:30,440 --> 00:08:32,600 Speaker 5: Walmart, Macy's home depot. 190 00:08:33,960 --> 00:08:36,000 Speaker 6: By the way, in two thousand, we could have sat 191 00:08:36,000 --> 00:08:38,960 Speaker 6: here social media. You know, now a three trillion dollar 192 00:08:39,000 --> 00:08:41,920 Speaker 6: market didn't exist, and so I we're in the very 193 00:08:41,920 --> 00:08:43,600 Speaker 6: early inte of it. This was the whole idea that 194 00:08:43,640 --> 00:08:45,440 Speaker 6: software is overblown is totally insane. 195 00:08:45,640 --> 00:08:45,800 Speaker 5: You know. 196 00:08:45,840 --> 00:08:47,720 Speaker 6: I was with somebody that runs a big hospital system 197 00:08:47,800 --> 00:08:50,280 Speaker 6: yesterday and they were like, well, I sure hope my 198 00:08:50,320 --> 00:08:53,320 Speaker 6: IT department doesn't start building HR software and for my patients, 199 00:08:53,440 --> 00:08:56,280 Speaker 6: I really hope our IT department doesn't start, you know, 200 00:08:56,559 --> 00:08:59,079 Speaker 6: building all the like ripping out epics systems and doing 201 00:08:59,120 --> 00:09:01,040 Speaker 6: all this stuff not much nonsense. 202 00:09:01,120 --> 00:09:03,880 Speaker 2: So term long term, let's start with term code a 203 00:09:03,920 --> 00:09:06,520 Speaker 2: Campex spumble, what makes it a Cantpex spumble. Let's just 204 00:09:06,520 --> 00:09:08,000 Speaker 2: get into that first, and then we can talk about 205 00:09:08,000 --> 00:09:08,439 Speaker 2: the long term. 206 00:09:08,480 --> 00:09:14,640 Speaker 6: The polity of money being spent in terms of how 207 00:09:14,679 --> 00:09:16,200 Speaker 6: many dollars are going. 208 00:09:16,000 --> 00:09:16,600 Speaker 5: Into these things. 209 00:09:16,559 --> 00:09:18,800 Speaker 6: And I think they want to build something like three 210 00:09:18,880 --> 00:09:23,040 Speaker 6: hundred gigawatts you know whatever of like capacity. If you 211 00:09:23,040 --> 00:09:26,640 Speaker 6: start to that, actually analyze how much power you actually 212 00:09:26,679 --> 00:09:29,560 Speaker 6: need to do that, you need, how much the power 213 00:09:29,640 --> 00:09:31,320 Speaker 6: you need for necro power plants and all these things. 214 00:09:31,440 --> 00:09:32,679 Speaker 5: You just we just want the power in the United 215 00:09:32,720 --> 00:09:33,280 Speaker 5: States to do this. 216 00:09:33,320 --> 00:09:36,960 Speaker 6: Where I actually think a country like China could potentially 217 00:09:37,000 --> 00:09:38,880 Speaker 6: like leapfrog us in a lot of ways, is they 218 00:09:38,880 --> 00:09:41,439 Speaker 6: can get a lot more capacity, a lot of ears 219 00:09:41,559 --> 00:09:42,280 Speaker 6: easier than we do. 220 00:09:42,760 --> 00:09:45,000 Speaker 1: This is sort of a question around how much XUS 221 00:09:45,240 --> 00:09:48,160 Speaker 1: is really highlighting the AI CAPEX bubble in the United 222 00:09:48,200 --> 00:09:50,000 Speaker 1: States and saying, well, China is doing it better. Is 223 00:09:50,000 --> 00:09:51,120 Speaker 1: that kind of how you see it right now? I 224 00:09:51,120 --> 00:09:52,280 Speaker 1: think that's the wor way do we see it. I 225 00:09:52,280 --> 00:09:56,000 Speaker 1: also believe just look at the models coming out of China. 226 00:09:56,040 --> 00:09:57,440 Speaker 6: A lot of these open source models, which you can 227 00:09:57,520 --> 00:10:00,640 Speaker 6: run locally, by the way, are much more efficient. They 228 00:10:00,640 --> 00:10:04,000 Speaker 6: were developed at a fraction of the cost there and 229 00:10:04,040 --> 00:10:06,600 Speaker 6: they require end to customers to spend a fraction of 230 00:10:06,600 --> 00:10:09,840 Speaker 6: the money. You know, you're running a deep seek model 231 00:10:09,920 --> 00:10:12,280 Speaker 6: versus running an anthropic model. And again I'm not saying 232 00:10:12,280 --> 00:10:15,079 Speaker 6: that Golben Sachs or Morgan Stanley are. You know, United 233 00:10:15,080 --> 00:10:16,920 Speaker 6: Healthcare are going to go run a bunch of Chinese models, 234 00:10:16,920 --> 00:10:19,200 Speaker 6: but you can run them locally. I do think globally, 235 00:10:19,520 --> 00:10:21,200 Speaker 6: you know, you're going to have a lot of other 236 00:10:21,240 --> 00:10:23,600 Speaker 6: companies that can say, look, I can say get one 237 00:10:23,679 --> 00:10:27,200 Speaker 6: twenty at the cost and run a model at you know, 238 00:10:27,240 --> 00:10:28,840 Speaker 6: in terms of you know, I just all you run 239 00:10:28,880 --> 00:10:30,200 Speaker 6: a Chinese model, it'll be much cheaper. 240 00:10:30,240 --> 00:10:31,920 Speaker 5: But the idea that software is dead is absurd. 241 00:10:32,360 --> 00:10:35,720 Speaker 6: Toast grew twenty six percent last quarter over year, Data 242 00:10:35,760 --> 00:10:39,520 Speaker 6: Dog grew twenty nine percent, Service Now grew twenty percent, 243 00:10:39,800 --> 00:10:43,559 Speaker 6: Microsoft grew fifteen, HubSpot eighteen. These companies are not disappearing. 244 00:10:43,640 --> 00:10:45,440 Speaker 1: But the argument isn't that they're going to die or 245 00:10:45,440 --> 00:10:47,280 Speaker 1: that they disappear. It's just the margins are going to 246 00:10:47,320 --> 00:10:50,040 Speaker 1: compress draumatically that sort of the barriers to entry come 247 00:10:50,120 --> 00:10:53,480 Speaker 1: down significantly. Given the fact that Claude or chat GPT 248 00:10:53,600 --> 00:10:55,480 Speaker 1: can program a lot of this stuff and get in 249 00:10:55,559 --> 00:10:58,160 Speaker 1: and do a lot of what they do pretty quickly, 250 00:10:58,400 --> 00:11:00,240 Speaker 1: how would you push back against that When it's sort 251 00:11:00,280 --> 00:11:03,000 Speaker 1: of account of factual, you can't sort of disprove what 252 00:11:03,040 --> 00:11:05,319 Speaker 1: some of the technology could potentially evolve to. 253 00:11:07,160 --> 00:11:08,920 Speaker 5: Keep in mind that. 254 00:11:10,400 --> 00:11:14,440 Speaker 6: Software companies core competitive advantages have never been about like 255 00:11:14,679 --> 00:11:17,240 Speaker 6: R and D. We're not building semi conductor chips. These 256 00:11:17,240 --> 00:11:19,560 Speaker 6: companies are not building semi conductor chips like in Nvidia 257 00:11:20,000 --> 00:11:21,360 Speaker 6: or inteler or things like that. 258 00:11:21,640 --> 00:11:22,000 Speaker 5: And so. 259 00:11:23,800 --> 00:11:28,360 Speaker 6: Yes, three guys in a shed can use AI software 260 00:11:28,400 --> 00:11:30,320 Speaker 6: to build try to start building software. 261 00:11:30,400 --> 00:11:31,600 Speaker 5: But keep in mind. 262 00:11:31,640 --> 00:11:35,120 Speaker 6: Salesforce probably has like ten thousand software engineers. These people 263 00:11:35,160 --> 00:11:37,160 Speaker 6: aren't just like sitting around on their thumbs doing anything. 264 00:11:37,440 --> 00:11:39,840 Speaker 6: They're also going to use the software. So our belief 265 00:11:39,880 --> 00:11:42,719 Speaker 6: is if you're a software company and next year you 266 00:11:42,800 --> 00:11:44,920 Speaker 6: were going to have you thought you'd have two hundred 267 00:11:44,960 --> 00:11:47,320 Speaker 6: software engineers a couple of years ago, we think you 268 00:11:47,320 --> 00:11:49,480 Speaker 6: still should have two hundred software engineers. But guess what 269 00:11:49,640 --> 00:11:51,640 Speaker 6: you should be able to build? You should be able 270 00:11:51,640 --> 00:11:54,839 Speaker 6: to build, build more code and more products with the 271 00:11:54,840 --> 00:11:55,679 Speaker 6: same amount of people. 272 00:11:55,840 --> 00:11:57,719 Speaker 5: We do not think it is a good idea for. 273 00:11:57,720 --> 00:11:59,840 Speaker 6: Our company to cut their art, to cut their you know, 274 00:12:00,120 --> 00:12:01,599 Speaker 6: engineering count and half. 275 00:12:01,520 --> 00:12:02,160 Speaker 5: Just because you can. 276 00:12:02,280 --> 00:12:04,280 Speaker 6: You can use Claude, and you should be using Claude 277 00:12:04,280 --> 00:12:06,480 Speaker 6: as well to produce more products. And then you can 278 00:12:06,600 --> 00:12:08,520 Speaker 6: use you know, your sales and marketing team, which can 279 00:12:08,559 --> 00:12:10,400 Speaker 6: be even more efficient than it was before and be 280 00:12:10,480 --> 00:12:12,560 Speaker 6: more productive to even sell more. So we think you 281 00:12:12,679 --> 00:12:14,560 Speaker 6: very well could see a bunch of now again. You 282 00:12:14,600 --> 00:12:17,160 Speaker 6: will have companies that win and you have companies that lose. 283 00:12:17,520 --> 00:12:19,800 Speaker 6: In the Internet and the Internet e commerce. You know 284 00:12:19,840 --> 00:12:23,800 Speaker 6: of ninety ninety two thousand Target, Target one, Home Depot one, 285 00:12:24,160 --> 00:12:28,880 Speaker 6: Walmart one, Amazon's created new Guess what sears, bed Bath 286 00:12:28,920 --> 00:12:32,160 Speaker 6: and beyond, Kmart, and a bunch of letter retailers Montgomery, 287 00:12:32,240 --> 00:12:34,440 Speaker 6: Ward and long List went out of business. It's because 288 00:12:34,480 --> 00:12:36,839 Speaker 6: those companies either were levered with debt and didn't or 289 00:12:36,840 --> 00:12:37,400 Speaker 6: didn't innovate. 290 00:12:37,520 --> 00:12:38,600 Speaker 5: The same thing will happen. 291 00:12:38,400 --> 00:12:39,880 Speaker 2: Here, Mitchell, what do you think the bust is going 292 00:12:39,960 --> 00:12:41,960 Speaker 2: to look like? You've called this a campexpo or what 293 00:12:42,000 --> 00:12:43,480 Speaker 2: do you think the bust will look like? 294 00:12:43,720 --> 00:12:46,360 Speaker 6: If I could figure that out, I wouldn't be on 295 00:12:46,400 --> 00:12:47,160 Speaker 6: TV talking about it. 296 00:12:47,600 --> 00:12:49,080 Speaker 2: So a lot of people are asking watching as you 297 00:12:49,080 --> 00:12:50,040 Speaker 2: describe it, what do I. 298 00:12:50,040 --> 00:12:52,120 Speaker 6: Think is going to We worry about some of the 299 00:12:52,160 --> 00:12:55,679 Speaker 6: stuff and like the private credit markets, we just worry 300 00:12:55,720 --> 00:12:58,720 Speaker 6: about We worry about some of the circularity things. But 301 00:12:59,200 --> 00:13:02,920 Speaker 6: you know, Volunteer was upgraded today. It's an amazing company. 302 00:13:02,920 --> 00:13:04,840 Speaker 6: We could argue if like the right valuation or not 303 00:13:04,960 --> 00:13:06,920 Speaker 6: or any of these companies, but like Alex and the 304 00:13:06,920 --> 00:13:08,800 Speaker 6: team have built an we don't own the stock, have 305 00:13:08,840 --> 00:13:13,000 Speaker 6: built an incredible business. And you know you are going 306 00:13:13,080 --> 00:13:16,680 Speaker 6: to see a huge amount of companies. There will be 307 00:13:16,720 --> 00:13:18,960 Speaker 6: winners and losers like there are, but the whole idea 308 00:13:18,960 --> 00:13:20,640 Speaker 6: of a whole industry going away, it's crazy. 309 00:13:20,720 --> 00:13:22,360 Speaker 5: Like think about the number of people in Bloomberg. 310 00:13:22,400 --> 00:13:24,640 Speaker 6: You could people aren't you know this week, people aren't like, 311 00:13:24,679 --> 00:13:26,160 Speaker 6: you know, all the media companies are going to go 312 00:13:26,200 --> 00:13:26,559 Speaker 6: to business. 313 00:13:27,000 --> 00:13:28,800 Speaker 5: It's not going to happen like you're gonna be able 314 00:13:28,800 --> 00:13:29,079 Speaker 5: to do. 315 00:13:29,040 --> 00:13:30,719 Speaker 6: More, You're gonna be able to be more informed when 316 00:13:30,720 --> 00:13:31,360 Speaker 6: you're on the air. 317 00:13:31,920 --> 00:13:34,320 Speaker 2: Things like that you said something earlier that got my attention. 318 00:13:34,559 --> 00:13:36,880 Speaker 2: New business models and things we haven't even begun to 319 00:13:36,880 --> 00:13:39,959 Speaker 2: think about. Yes, can you describe the kind of opportunities 320 00:13:39,960 --> 00:13:42,280 Speaker 2: that are opening up already that you've been the team 321 00:13:42,280 --> 00:13:43,040 Speaker 2: off identified. 322 00:13:44,400 --> 00:13:46,360 Speaker 6: Well, we think you're going to see a lot of 323 00:13:46,400 --> 00:13:50,920 Speaker 6: things around like healthcare. Sword investor in a company called Pacemate. 324 00:13:51,240 --> 00:13:54,160 Speaker 6: It makes like cardiac monitoring software. If you put a 325 00:13:54,640 --> 00:13:57,600 Speaker 6: if you put a facemaker in your body, that device 326 00:13:57,679 --> 00:14:00,880 Speaker 6: has to send data to to the end to like 327 00:14:00,880 --> 00:14:04,080 Speaker 6: your doctor. Now what the company has right now with 328 00:14:04,080 --> 00:14:06,000 Speaker 6: a bunch of people in this in the service center 329 00:14:06,040 --> 00:14:08,559 Speaker 6: that you know they can only each person can monitor 330 00:14:08,640 --> 00:14:11,800 Speaker 6: so many devices, now can you use They're using AI 331 00:14:12,320 --> 00:14:14,439 Speaker 6: to be able to make it more efficient so they 332 00:14:14,440 --> 00:14:17,680 Speaker 6: can onboard more and more you know, you know, cardiac 333 00:14:17,679 --> 00:14:20,320 Speaker 6: clinics and not added as many people to do it. 334 00:14:20,760 --> 00:14:24,480 Speaker 1: Which companies are most susceptible to a AI capex cycle 335 00:14:24,760 --> 00:14:25,840 Speaker 1: bubble bursting? 336 00:14:27,640 --> 00:14:29,360 Speaker 5: The data center companies for sure. 337 00:14:29,480 --> 00:14:30,880 Speaker 6: I think where you're going to people are going to 338 00:14:30,960 --> 00:14:33,960 Speaker 6: overbuild data centers or not able to get powered data centers. 339 00:14:34,200 --> 00:14:36,360 Speaker 6: Just go look what happened in the telecom bubble when 340 00:14:36,360 --> 00:14:39,920 Speaker 6: they overbuild capacity. The issue here is it's a little 341 00:14:39,920 --> 00:14:44,920 Speaker 6: bit different about it is in the fiber bubble. The 342 00:14:44,400 --> 00:14:48,040 Speaker 6: overbuilding a fiber. They just capped the lines and came 343 00:14:48,080 --> 00:14:51,280 Speaker 6: back ten years later. The problem today is you put data, 344 00:14:51,400 --> 00:14:53,480 Speaker 6: you put chips in these data centers. But the question 345 00:14:53,600 --> 00:14:56,400 Speaker 6: is is how long is like the depreciation. 346 00:14:55,920 --> 00:14:59,280 Speaker 1: Curves, how big is the moat that insulates a lot 347 00:14:59,280 --> 00:15:03,240 Speaker 1: of us S sets from a CAPEX bubble deflating, given 348 00:15:03,280 --> 00:15:05,360 Speaker 1: that that has really led indexes higher. I mean, how 349 00:15:05,440 --> 00:15:07,840 Speaker 1: much is that part of what we're seeing with people 350 00:15:07,880 --> 00:15:09,720 Speaker 1: looking outside of the United States. 351 00:15:11,080 --> 00:15:14,560 Speaker 5: I think people are worried about it. But bubbles can 352 00:15:14,600 --> 00:15:14,920 Speaker 5: go on. 353 00:15:14,960 --> 00:15:17,320 Speaker 6: Like Howard Marx has written amazing things about you know, 354 00:15:17,360 --> 00:15:19,280 Speaker 6: when it looks like a bubble, smells like a bubble. 355 00:15:19,000 --> 00:15:19,920 Speaker 5: It probably is a bubble. 356 00:15:20,520 --> 00:15:22,400 Speaker 6: Trying to predict when these things are going to pop 357 00:15:22,520 --> 00:15:25,479 Speaker 6: is as a fool's game, and by the way, being 358 00:15:26,680 --> 00:15:27,600 Speaker 6: being early to. 359 00:15:27,560 --> 00:15:29,840 Speaker 5: Call the bubble and getting out is this equivalent of 360 00:15:29,880 --> 00:15:31,000 Speaker 5: being wrong as well. 361 00:15:32,480 --> 00:15:37,000 Speaker 6: We just we struggle a lot, which is the absolute 362 00:15:37,200 --> 00:15:38,280 Speaker 6: dollars that. 363 00:15:38,200 --> 00:15:39,000 Speaker 5: Are being thrown into this. 364 00:15:39,000 --> 00:15:40,440 Speaker 6: We think it's very real though, and there will be 365 00:15:40,560 --> 00:15:44,440 Speaker 6: giant businesses created, but the amount of capital being thrown 366 00:15:44,480 --> 00:15:46,960 Speaker 6: at it and the losses that some of these companies 367 00:15:46,960 --> 00:15:49,360 Speaker 6: are generating is absolutely like mind boggling. 368 00:15:49,440 --> 00:15:51,640 Speaker 2: Can we finish on the politics we've told in the 369 00:15:51,640 --> 00:15:54,840 Speaker 2: past about Mike dunts with which has been caught up 370 00:15:54,840 --> 00:15:57,600 Speaker 2: with national security concerns and I bomb are again more 371 00:15:57,680 --> 00:16:01,400 Speaker 2: recently tied up with AKISEI shouldn't sellegations coming from the 372 00:16:01,480 --> 00:16:06,000 Speaker 2: US government and it's ability to maybe operate independently away 373 00:16:06,040 --> 00:16:09,920 Speaker 2: from the military in China or lack thereof. I wonder 374 00:16:09,960 --> 00:16:11,560 Speaker 2: what that opportunity is going to look like in the 375 00:16:11,640 --> 00:16:13,840 Speaker 2: years to come for you and the kind of rich 376 00:16:13,880 --> 00:16:16,200 Speaker 2: ship you be willing to take in China, with the 377 00:16:16,240 --> 00:16:19,480 Speaker 2: opportunity around the AI story, if it is of the 378 00:16:19,560 --> 00:16:23,720 Speaker 2: utmost important so national security to beat China in the US. 379 00:16:23,440 --> 00:16:28,040 Speaker 6: I think it's going to continue to be an issue. 380 00:16:29,640 --> 00:16:32,680 Speaker 6: Both countries need to learn to work together. Though we're 381 00:16:32,680 --> 00:16:34,840 Speaker 6: both too, we're both too and I think you're starting 382 00:16:34,840 --> 00:16:37,360 Speaker 6: to see it. Like two years ago, eighteen months ago, 383 00:16:37,440 --> 00:16:38,920 Speaker 6: it was like you know, if you look at the 384 00:16:38,920 --> 00:16:41,480 Speaker 6: custocks like Ali Baba or ten Cent, they've they've doubled 385 00:16:41,480 --> 00:16:42,200 Speaker 6: off the lows. 386 00:16:42,720 --> 00:16:43,960 Speaker 5: I think it's the market. 387 00:16:44,000 --> 00:16:46,680 Speaker 6: It understands that both countries need to figure out how 388 00:16:46,680 --> 00:16:49,520 Speaker 6: to work together otherwise, like you know, one post one 389 00:16:49,520 --> 00:16:51,720 Speaker 6: equals four and not you know, it's not the reverse. 390 00:16:52,120 --> 00:16:55,040 Speaker 6: And so but I do believe that both countries are 391 00:16:55,040 --> 00:16:56,640 Speaker 6: going You're going to see tons of this stuff like, 392 00:16:56,680 --> 00:16:58,440 Speaker 6: oh you can use this in video chip, you can't 393 00:16:58,520 --> 00:16:59,120 Speaker 6: use this chip. 394 00:16:59,400 --> 00:17:00,720 Speaker 5: Restriction on these things. 395 00:17:00,760 --> 00:17:03,240 Speaker 2: It's not holding you back from investing in Chinese tech though. 396 00:17:03,760 --> 00:17:04,720 Speaker 5: We historically have. 397 00:17:04,840 --> 00:17:07,600 Speaker 6: The stuff we've done in China has historically been giant 398 00:17:07,720 --> 00:17:10,520 Speaker 6: businesses that generate giants amount of profit along the way, 399 00:17:10,560 --> 00:17:13,680 Speaker 6: we were investors in Ali Baba, but well, we invest 400 00:17:13,680 --> 00:17:16,760 Speaker 6: in Ali Baba had like billions of profits. Tense At 401 00:17:16,840 --> 00:17:19,320 Speaker 6: music was a huge business, and financial is a huge business. 402 00:17:19,440 --> 00:17:22,760 Speaker 6: Bits Bite dances a gigantic business, and so there is 403 00:17:23,359 --> 00:17:26,840 Speaker 6: We like to joke that if a Chinese company gets 404 00:17:26,840 --> 00:17:28,879 Speaker 6: to us in New York, they sure flew over a 405 00:17:28,920 --> 00:17:30,160 Speaker 6: lot of people to get to us. 406 00:17:30,480 --> 00:17:32,480 Speaker 5: And so we're not investing in like the early stage. 407 00:17:32,520 --> 00:17:34,159 Speaker 6: You can go talk to like Neil Shannon, guys like 408 00:17:34,240 --> 00:17:36,280 Speaker 6: that that are incredible or was the a investors. 409 00:17:36,560 --> 00:17:39,960 Speaker 2: Stay with us mult Bloomberg Savannan's coming up after this, 410 00:17:49,280 --> 00:17:52,000 Speaker 2: Lee Shavin of Bmy Wealth writes in the rotation is 411 00:17:52,080 --> 00:17:55,760 Speaker 2: painful in Ai disrupted sanctors and likely dudes revert later 412 00:17:55,880 --> 00:17:57,840 Speaker 2: in the year, we think there is room to run 413 00:17:58,160 --> 00:18:01,280 Speaker 2: for tech to regain leader ship. Alisa joins us. Now 414 00:18:01,280 --> 00:18:04,399 Speaker 2: for more, Alisha, good Mornick, good morning, Let's get into it. Then, Okay, 415 00:18:04,480 --> 00:18:06,800 Speaker 2: is this a rotation or should we be preparing for 416 00:18:06,920 --> 00:18:08,520 Speaker 2: a much bigger index level correction? 417 00:18:08,960 --> 00:18:12,399 Speaker 7: So there's there's a clear rotation. And the rotation started 418 00:18:12,480 --> 00:18:16,280 Speaker 7: November first of last year, very clear. And that is 419 00:18:16,320 --> 00:18:20,919 Speaker 7: because of two things. One, the spending in the AI 420 00:18:21,000 --> 00:18:23,399 Speaker 7: related names is now eating up a lot of the 421 00:18:23,400 --> 00:18:26,320 Speaker 7: free cash flow, which was the story of why you 422 00:18:26,440 --> 00:18:28,880 Speaker 7: wanted to own these names. They were seen as bonds 423 00:18:29,119 --> 00:18:32,360 Speaker 7: throwing off cash throwing, you know, and so you could 424 00:18:32,359 --> 00:18:35,240 Speaker 7: get the higher multiple, drive the margin of the entire 425 00:18:35,359 --> 00:18:38,720 Speaker 7: SMP through these names. When that story changes, if ninety 426 00:18:38,720 --> 00:18:41,359 Speaker 7: two percent of the free cash flow is going towards CAPEX, 427 00:18:41,560 --> 00:18:44,879 Speaker 7: that's a different story. So then you have questioning of 428 00:18:44,920 --> 00:18:49,400 Speaker 7: the narrative. And this started back in November of last year, because. 429 00:18:48,960 --> 00:18:50,399 Speaker 5: That's when we had earning season. 430 00:18:50,760 --> 00:18:53,000 Speaker 7: We saw the ratcheting up in some of these names 431 00:18:53,160 --> 00:18:55,359 Speaker 7: or all of a sudden, maybe it's not helping the 432 00:18:55,359 --> 00:18:58,000 Speaker 7: business model, maybe they're not driving revenue from it. 433 00:18:58,520 --> 00:19:00,840 Speaker 5: And so there's the question. That's what we're seeing. 434 00:19:01,400 --> 00:19:02,960 Speaker 7: And the other thing that's happening is we have a 435 00:19:03,000 --> 00:19:07,119 Speaker 7: great macro backdrop for globally US and globally and so 436 00:19:07,160 --> 00:19:09,480 Speaker 7: you have the cyclical rotation. Get out of the names 437 00:19:09,480 --> 00:19:11,199 Speaker 7: where you can not quite sure that the capex is 438 00:19:11,200 --> 00:19:13,359 Speaker 7: going to get you anywhere, and go to where you 439 00:19:13,359 --> 00:19:17,120 Speaker 7: have growth and lower valuations, and everybody's ignored. And that's 440 00:19:17,160 --> 00:19:17,639 Speaker 7: the story. 441 00:19:17,800 --> 00:19:18,920 Speaker 5: So I think there's. 442 00:19:18,760 --> 00:19:23,439 Speaker 7: Pain on the index to remain. But you know, seventy 443 00:19:23,480 --> 00:19:25,320 Speaker 7: percent of the S and P is above the two 444 00:19:25,440 --> 00:19:28,720 Speaker 7: hundred day moving average, you would not know that. Actually 445 00:19:28,720 --> 00:19:32,639 Speaker 7: it's quite a strong market underneath the index level. I 446 00:19:32,680 --> 00:19:34,520 Speaker 7: think this is going to remain for a while. Having 447 00:19:34,560 --> 00:19:37,199 Speaker 7: said that, there's clearer like you can get reversion to 448 00:19:37,240 --> 00:19:37,639 Speaker 7: the mean. 449 00:19:37,880 --> 00:19:38,720 Speaker 5: All drost year. 450 00:19:39,040 --> 00:19:41,679 Speaker 7: And I'd say the issue now, of course, is the 451 00:19:41,720 --> 00:19:44,520 Speaker 7: consensus trade is get out of tech and go into 452 00:19:44,560 --> 00:19:48,080 Speaker 7: cyclicals like that is the consensus trade, go rest of world, go, 453 00:19:48,119 --> 00:19:51,479 Speaker 7: emerging markets, go Europe. So now everybody's talking about that, 454 00:19:51,520 --> 00:19:53,560 Speaker 7: and in the meantime, the dollar has not weakened any 455 00:19:53,600 --> 00:19:55,720 Speaker 7: further since the Kevin Wars announced. 456 00:19:55,760 --> 00:19:57,720 Speaker 2: Well, let's get to the consensus trade. What is the 457 00:19:57,880 --> 00:20:00,760 Speaker 2: recent performance nice stress recent performance of banks and discretion 458 00:20:00,880 --> 00:20:02,520 Speaker 2: retell you about that trait. 459 00:20:03,280 --> 00:20:05,560 Speaker 7: It's telling you that maybe the cyclical recovery is not 460 00:20:05,640 --> 00:20:07,439 Speaker 7: quite there. I mean we saw that actually with the 461 00:20:07,440 --> 00:20:09,600 Speaker 7: housing data so weak last year. You saw all of 462 00:20:09,640 --> 00:20:11,560 Speaker 7: a sudden the yields drop and the bank starting to 463 00:20:11,600 --> 00:20:14,000 Speaker 7: sell off. The other consensus trade coming to the year. 464 00:20:14,000 --> 00:20:16,880 Speaker 7: We've been talking about this at B and Y, which is, 465 00:20:17,200 --> 00:20:19,320 Speaker 7: you know, the steepening of the yield curve is really 466 00:20:19,440 --> 00:20:23,520 Speaker 7: underpinning a lot of asset allocation and a lot of trades. 467 00:20:23,760 --> 00:20:25,720 Speaker 7: And what we've seen as yields have come down, you've 468 00:20:25,720 --> 00:20:29,920 Speaker 7: had a flattening and all those favorite trades have sold 469 00:20:29,960 --> 00:20:32,280 Speaker 7: off a little bit too. Like the real world, right, 470 00:20:32,359 --> 00:20:36,720 Speaker 7: So I call it the dirty businesses, the materials, the industrials, 471 00:20:37,320 --> 00:20:42,000 Speaker 7: you know, transports, all the stuff physical world, making things, 472 00:20:42,040 --> 00:20:44,640 Speaker 7: and that's where you're seeing the capital going. I think 473 00:20:44,720 --> 00:20:46,679 Speaker 7: ultimately though, you know, if you're not going to have 474 00:20:46,680 --> 00:20:48,280 Speaker 7: that kind of growth and you still have the best 475 00:20:48,320 --> 00:20:51,520 Speaker 7: growth in the market coming from tech, eventually investors will 476 00:20:51,520 --> 00:20:52,240 Speaker 7: go back to tech. 477 00:20:52,400 --> 00:20:53,960 Speaker 5: So is that what you're doing right now? Do you 478 00:20:54,040 --> 00:20:55,080 Speaker 5: see is an opportunity? 479 00:20:55,400 --> 00:20:58,120 Speaker 7: So we've already reallocated into the end of the year. 480 00:20:58,160 --> 00:21:00,359 Speaker 7: You know, we had that massive outperformance of rest of 481 00:21:00,440 --> 00:21:03,560 Speaker 7: world in the first quarter of last year, and we said, 482 00:21:03,640 --> 00:21:05,320 Speaker 7: for the rest of the year, you know, we just 483 00:21:05,400 --> 00:21:07,679 Speaker 7: think that the US is going to catch up on this. 484 00:21:07,760 --> 00:21:10,560 Speaker 5: So we sat still. We sat still because. 485 00:21:10,320 --> 00:21:12,240 Speaker 7: We were very convinced that the US was going to 486 00:21:12,240 --> 00:21:14,480 Speaker 7: outperform the rest of the year, and in fact that's 487 00:21:14,520 --> 00:21:17,520 Speaker 7: what happened. But in the last year we did move 488 00:21:17,520 --> 00:21:18,840 Speaker 7: allocation into the rest of the world. 489 00:21:18,840 --> 00:21:19,560 Speaker 5: Emerging markets. 490 00:21:19,560 --> 00:21:22,600 Speaker 7: We're very bullish on emerging markets because of the global growth. 491 00:21:22,760 --> 00:21:26,760 Speaker 7: Because there's been a global central bank cutting of rates. 492 00:21:26,840 --> 00:21:29,280 Speaker 7: You're getting the growth coming in now, and the dollar 493 00:21:29,440 --> 00:21:31,639 Speaker 7: is weaker. We don't think the dollar weakens much further, 494 00:21:31,680 --> 00:21:34,680 Speaker 7: but we don't see a massive reversion to dollar strength here. 495 00:21:34,800 --> 00:21:36,680 Speaker 7: That's good for emerging markets, so we like it. On 496 00:21:36,720 --> 00:21:38,560 Speaker 7: the debt side as well as the equity side. 497 00:21:38,720 --> 00:21:41,160 Speaker 1: Is the money coming out of the United States because 498 00:21:41,160 --> 00:21:44,280 Speaker 1: it's being pulled for the opportunities or pushed because people 499 00:21:44,320 --> 00:21:46,679 Speaker 1: are worried about what Mitchell Green was talking about with 500 00:21:46,760 --> 00:21:49,879 Speaker 1: some sort of capex bubble that seems like it's just 501 00:21:49,960 --> 00:21:52,040 Speaker 1: destined for losses and potential contagion. 502 00:21:52,200 --> 00:21:53,800 Speaker 7: Look, I think the market's done a good job in 503 00:21:53,840 --> 00:21:56,760 Speaker 7: rerating that risk, right, So if you think about what's 504 00:21:56,760 --> 00:21:59,920 Speaker 7: happened just on the mag seven, those names have been rerated, 505 00:22:00,400 --> 00:22:03,280 Speaker 7: and the disrupted sectors have been re rated as well. 506 00:22:03,480 --> 00:22:05,600 Speaker 7: But I just want to make one point about money 507 00:22:05,600 --> 00:22:08,720 Speaker 7: coming out of the US. Money's coming into the US. 508 00:22:08,760 --> 00:22:11,960 Speaker 7: For the US equity market, it is the allocations that 509 00:22:12,000 --> 00:22:14,760 Speaker 7: are also moving around a little bit. I think that 510 00:22:15,320 --> 00:22:18,359 Speaker 7: this not just the fear of AI, but the sense 511 00:22:18,359 --> 00:22:21,239 Speaker 7: that there's opportunity. So it's not a running away, it's 512 00:22:21,280 --> 00:22:24,240 Speaker 7: a running tours. If you think about the underperformance of 513 00:22:24,320 --> 00:22:26,960 Speaker 7: rest of world since twenty ten, there's a lot of 514 00:22:26,960 --> 00:22:29,960 Speaker 7: catch up to do, and so there's excitement about the opportunities. 515 00:22:30,240 --> 00:22:33,639 Speaker 7: Not necessarily the cafex is going to kill the US market, 516 00:22:33,680 --> 00:22:35,879 Speaker 7: We don't see that. We think that the rerating has 517 00:22:35,880 --> 00:22:38,640 Speaker 7: done a good job of preventing actually the bubble from happening. 518 00:22:38,760 --> 00:22:41,240 Speaker 2: You send the Eurozone bank run over the past three years. 519 00:22:41,280 --> 00:22:43,080 Speaker 2: I was going through the numbers, twenty twenty three up 520 00:22:43,160 --> 00:22:46,639 Speaker 2: twenty three percent, twenty four of twenty three percent, twenty 521 00:22:46,680 --> 00:22:50,320 Speaker 2: twenty five up eighty percent. If you're thinking about that 522 00:22:50,359 --> 00:22:52,879 Speaker 2: trade now, so much of that trade has already happened 523 00:22:53,080 --> 00:22:55,280 Speaker 2: in Europe and the financials they've had a massive run 524 00:22:55,480 --> 00:22:56,560 Speaker 2: over the previous three years. 525 00:22:56,600 --> 00:22:59,040 Speaker 1: Yeah, now they've got materials companies and certainly the ball 526 00:22:59,080 --> 00:23:01,399 Speaker 1: has shifted what the story is. And this is the 527 00:23:01,440 --> 00:23:03,480 Speaker 1: reason why it feels a little bit like whack a 528 00:23:03,520 --> 00:23:06,960 Speaker 1: mole and follow the crowd, because right now the tide 529 00:23:06,960 --> 00:23:07,640 Speaker 1: is shifting and it. 530 00:23:07,640 --> 00:23:10,280 Speaker 5: Really benefits the foot seat. You've pointed this out, the idea. 531 00:23:09,960 --> 00:23:12,560 Speaker 1: That that's really the mining and metals companies that are 532 00:23:12,600 --> 00:23:15,920 Speaker 1: based there, and how much does that catch up come 533 00:23:15,920 --> 00:23:16,560 Speaker 1: from other places? 534 00:23:16,520 --> 00:23:19,080 Speaker 2: And two names in South Korea. I mean talk about 535 00:23:19,080 --> 00:23:22,000 Speaker 2: concentrationy in the US. How much concentration risk am I 536 00:23:22,040 --> 00:23:22,960 Speaker 2: taking a broader the moment? 537 00:23:23,040 --> 00:23:24,720 Speaker 5: Well, we've talked about this all the time. 538 00:23:24,800 --> 00:23:27,320 Speaker 7: Last year when everybody was talking about concentration risk in 539 00:23:27,359 --> 00:23:31,640 Speaker 7: the US market, actually, compared to global markets, the US 540 00:23:31,800 --> 00:23:37,240 Speaker 7: market was not as concentrated as Japan, as Korea, as Germany, 541 00:23:37,600 --> 00:23:41,040 Speaker 7: as France, much less concentrated in the US and its 542 00:23:41,040 --> 00:23:43,879 Speaker 7: top ten being about thirty eight to forty percent Germany, 543 00:23:43,920 --> 00:23:46,720 Speaker 7: you've got fifty percent Korea. You've got something like fifty 544 00:23:46,760 --> 00:23:50,200 Speaker 7: to sixty percent Japan as well. So there's concentrated risk 545 00:23:50,480 --> 00:23:54,240 Speaker 7: in every global market. It's not that it's not a risk, 546 00:23:54,280 --> 00:23:57,440 Speaker 7: it's that it's not unique to here. And so what's 547 00:23:57,520 --> 00:24:01,920 Speaker 7: here is that you've got to keep corporate margins high. Now, 548 00:24:02,000 --> 00:24:05,560 Speaker 7: the most recent quarter that's reported the fourth quarter highest 549 00:24:06,160 --> 00:24:10,399 Speaker 7: operating margins ever. Okay, so we keep on ticking higher. 550 00:24:10,480 --> 00:24:13,000 Speaker 7: That keeps the multiple in that twenty to twenty one 551 00:24:13,080 --> 00:24:15,840 Speaker 7: times range. We don't think that's expensive. That we think 552 00:24:15,880 --> 00:24:18,680 Speaker 7: that's reasonable. And earnings for the fifth quarter in a 553 00:24:18,840 --> 00:24:22,160 Speaker 7: row are coming in at double digits, far up pacing estimates. 554 00:24:22,440 --> 00:24:24,639 Speaker 7: This is the fundamental for the market. We see the 555 00:24:24,720 --> 00:24:26,760 Speaker 7: s and p ending the year about seventy six hundred. 556 00:24:26,760 --> 00:24:28,159 Speaker 7: You know, you have to put a price target on it. 557 00:24:28,200 --> 00:24:30,119 Speaker 7: Sure we do, but that doesn't mean it's going to 558 00:24:30,200 --> 00:24:32,200 Speaker 7: be an easy walk. We always thought this year was 559 00:24:32,240 --> 00:24:34,040 Speaker 7: going to be a non linear year. And as I 560 00:24:34,160 --> 00:24:36,400 Speaker 7: like to say to my field line, non linear means 561 00:24:36,520 --> 00:24:39,159 Speaker 7: up and down, not a straight line. And we've had 562 00:24:39,200 --> 00:24:41,439 Speaker 7: three years of a straight line. Because of the AI trade. 563 00:24:42,000 --> 00:24:42,879 Speaker 7: We're moving around there. 564 00:24:42,880 --> 00:24:44,760 Speaker 2: Well, let's call it ten percent upside. It's basically what 565 00:24:44,800 --> 00:24:46,800 Speaker 2: you're looking for and I can't waited S and P 566 00:24:46,920 --> 00:24:50,000 Speaker 2: five hundred people have questions about that, and this will 567 00:24:50,040 --> 00:24:51,520 Speaker 2: be the number one I think is that can you 568 00:24:51,560 --> 00:24:55,440 Speaker 2: have a prolonged rotation without the index level being dragged down? 569 00:24:55,960 --> 00:24:58,280 Speaker 7: So right now we have a technical issue in the 570 00:24:58,320 --> 00:25:02,040 Speaker 7: market in the sense that the the technicals are starting 571 00:25:02,080 --> 00:25:02,800 Speaker 7: to deteriorate. 572 00:25:02,840 --> 00:25:04,000 Speaker 5: You look at EA chart of the S and P. 573 00:25:04,119 --> 00:25:07,359 Speaker 7: It's gone nowhere for three months, it's starting it's sitting 574 00:25:07,359 --> 00:25:10,000 Speaker 7: at the two hundred day moving average. So that's the issue, 575 00:25:10,080 --> 00:25:12,480 Speaker 7: right like you have technicals that can take over as well. 576 00:25:12,600 --> 00:25:14,920 Speaker 7: What I like to look at is okay, technicals or technicals. 577 00:25:14,960 --> 00:25:16,960 Speaker 7: The fundamentals tell me where I'm going for the next 578 00:25:16,960 --> 00:25:20,480 Speaker 7: twelve to eighteen months. The capital we allocate is twelve 579 00:25:20,520 --> 00:25:22,960 Speaker 7: to eighteen months, and we do long term portfolios over 580 00:25:23,000 --> 00:25:26,000 Speaker 7: a cycle, so I'm allocating around that twelve to eighteen 581 00:25:26,040 --> 00:25:29,679 Speaker 7: month horizon. But I care most about the fundamentals. The 582 00:25:29,720 --> 00:25:32,000 Speaker 7: technicals will take care of themselves. That can mean a 583 00:25:32,000 --> 00:25:35,040 Speaker 7: bad day, a bad month, bad quarter, but we sit 584 00:25:35,119 --> 00:25:37,240 Speaker 7: through it because of the conviction of where it's going. 585 00:25:37,280 --> 00:25:39,280 Speaker 2: We've had a few bad days over the last week. 586 00:25:39,400 --> 00:25:43,639 Speaker 2: Have this is the Bloomberg Survendments podcast, bringing you the 587 00:25:43,680 --> 00:25:47,040 Speaker 2: best in markets, economics, antient politics. You can watch the 588 00:25:47,040 --> 00:25:50,040 Speaker 2: show live on Bloomberg TV weekday mornings from six am 589 00:25:50,200 --> 00:25:54,160 Speaker 2: to nine am Eastern. Subscribe to the podcast on Apple, Spotify, 590 00:25:54,320 --> 00:25:56,520 Speaker 2: or anywhere else you listen, and as always, on the 591 00:25:56,560 --> 00:25:59,000 Speaker 2: bloomblog terminal and the Bloomberg Business app.