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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. This is the Bloomberg

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Speaker 1: Surveillance Podcast. I'm Tom Keene along with Paul Sweeney. Join

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Speaker 1: see the show weekday mornings from seven to ten am

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Speaker 1: listen and always I'm Bloomberg Radio, the Bloomberg Terminal, and

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Speaker 1: the Bloomberg Business App. Joining us now for three hour conversation.

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Speaker 1: Tina Fordham with Fordham Global Insights. Last time she's on,

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Speaker 1: It's a blur, Folks. She was like, absolutely outstanding, Tana.

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Speaker 1: I don't even know where to begin this morning, but

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Speaker 1: let's begin. And I had the honor of talking to

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Speaker 1: Ethan Browner this morning, and I know David Gerro Folks

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Speaker 1: is working on a big take. Tina Fordham on the

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Speaker 1: state of Israel. I go back to the assassination of

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Speaker 1: Izak Rabin to look at a new more angry Israel.

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Speaker 1: How angry is Israel? This morning with these two assassination murders, deaths.

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Speaker 2: The assassinations of the Hamas official, the political leader of

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Speaker 2: Hamas in Tehran where he was attending the inauguration of

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Speaker 2: the new Iranian president, was a very bold step and

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Speaker 2: signal for Israel to take. And then was it yesterday

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Speaker 2: or it's just as you said, a blur another assassination

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Speaker 2: in Beirut. Does Israel want to expand the war or

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Speaker 2: as some have suggested, is Israel is Nata Naho taking

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Speaker 2: these bold steps so that he can claim victory and

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Speaker 2: end the war. I am not an optimist on this though,

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Speaker 2: Tom all.

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Speaker 3: Right, Tina, So that kind of brings you to I

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Speaker 3: think one of the questions today, certainly from a lot

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Speaker 3: of viewers, is I thought we were maybe on a

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Speaker 3: path to some type of peace negotiations and then out

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Speaker 3: of the blue, it seems these two high profile assassinations.

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Speaker 3: Where do you think the Israeli government is these really

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Speaker 3: people are? In terms of next steps.

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Speaker 2: I think we've got to look at this and the

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Speaker 2: Venezuela developments in Ukraine for that matter, in the context

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Speaker 2: of our elections coming up in November. Last week, Natagna,

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Speaker 2: who had what fore standing ovations. In his address to Congress,

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Speaker 2: he visited Trump and mar A Lago. The Harris juggernaut

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Speaker 2: is continuing. Could it be the Netza Yahu feels that

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Speaker 2: he's got a window, very narrow window to accomplish some

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Speaker 2: goals and take out more of the Hamas leadership, or

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Speaker 2: does he want to drag the United States into war.

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Speaker 2: I'm more inclined to the former that he the idea

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Speaker 2: of having a narrow window to accomplish some big strategic objectives.

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Speaker 3: All right, so Tina, let's go down to Venezuela here.

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Speaker 3: Can you put into context what's happening down there and

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Speaker 3: what do you think will eventually kind of fall out

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Speaker 3: from all of this.

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Speaker 2: So, after many many efforts in the past, it had

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Speaker 2: looked like the opposition in Venezuela was ready to, you know,

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Speaker 2: to take power in an election. They were pulling with

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Speaker 2: a huge lead, something like plus thirty points, you know,

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Speaker 2: such a margin that it would be difficult they thought

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Speaker 2: to have these election results falsified. What's happened Maduro, who's

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Speaker 2: been in power for thirteen years since the death of

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Speaker 2: Hugo Chavez, who was popularly elected for his part, has

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Speaker 2: falsified the results. Either that or he's just taking a

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Speaker 2: long time to count them. Because it's been three days.

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Speaker 2: About a dozen protesters have been killed, huge crowds in

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Speaker 2: the streets, and the Organization of American States has said

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Speaker 2: that Maduro's response bears all the hallmarks of a falsified election.

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Speaker 2: So it's not too you know, it's not too late

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Speaker 2: for a democratic transition, but it might get worse before

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Speaker 2: it gets better.

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Speaker 1: Let's stay on this. I just don't want to jump

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Speaker 1: there's so much news, Latina. I had a spin in

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Speaker 1: here on a you know, almost into August summer morning

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Speaker 1: on Venezuela Tina. Do you detect in the American Latin

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Speaker 1: American foreign policy? Does Washington have a Latin policy?

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Speaker 2: Well, we haven't heard from the Biden administration, and you know,

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Speaker 2: I return you to that idea of a of a

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Speaker 2: narrow window. And I think I said on the last program,

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Speaker 2: one of my you know, Fordham geopolitical raisers, that governments

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Speaker 2: can only concentrate on one thing at a time. I

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Speaker 2: think eventually we'll hear something from from the State Department

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Speaker 2: and the Biden administration, but so far we've heard from

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Speaker 2: you know, from from Lula in Brazil being cautious from

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Speaker 2: from Borwich in Chule, but Russia and Iran and the

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Speaker 2: United States are also linked on this one. The last

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Speaker 2: thing the Kremlin wants or Tehran wants to see is

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Speaker 2: a successful popular democratic transition.

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Speaker 3: So, Tina, as Tom's mentioned, there's a million ways to

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Speaker 3: go here, and I apologize for jumping all around. But

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Speaker 3: while we have you, what's the latest coming out of

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Speaker 3: Ukraine and it seems like a little bit momentum going

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Speaker 3: back to Russia.

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Speaker 4: Any updated thoughts to how this plays out?

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Speaker 2: Yeah, this is the danger zone summer. I think yesterday

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Speaker 2: Russia launched its sort of biggest drone attack on Ukraine

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Speaker 2: for some months. It's also the height of the summer

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Speaker 2: fighting season, and I'm arguing that the period between now

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Speaker 2: and November and maybe until Inauguration Day in January next

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Speaker 2: year is going to see an uptick in geopolitical risk.

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Speaker 2: And that matters for your listeners because they're all watching

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Speaker 2: the FED. Conflicts are inflationary and this is the time

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Speaker 2: you know to go for it.

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Speaker 1: Hugely valuable, Tina Fordham, thank you so much for Global advisors.

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Speaker 1: Really can't say forda global insight. Emily Rowland saying why

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Speaker 1: am I here? She's a Johnnie a Cock and a

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Speaker 1: major victory lab for Hancock, who have said quality big,

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Speaker 1: stay with it. So I see the hysteria over Microsoft yesterday.

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Speaker 1: I'm looking at the four accounting statements. I don't have

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Speaker 1: every answer, but Jesus looked at pretty goods up sixteen percent, right.

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Speaker 5: Absolutely, and the guidance was really strong too. Heading into

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Speaker 5: twenty twenty five. And you look at earnings for tech

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Speaker 5: companies this quarter, they're tracking to me up about eighteen percent.

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Speaker 6: You're o rear, I'll take it.

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Speaker 5: Meanwhile, you look at this massive rotation into small cap stocks, those.

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Speaker 6: Earnings are down eighteen percent. Well get it.

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Speaker 1: Paul's got any questions because he's got a triple as

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Speaker 1: in video holding. But let me get one more in here, Emily.

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Speaker 1: What I see is we're trying to figure out our

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Speaker 1: new discounted cash flow. And the answer is with Microsoft,

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Speaker 1: nobody's looking out seven years. What are they doing now?

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Speaker 1: And as Nodella nailed yesterday, what are we doing next year?

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Speaker 1: Maybe what we're doing twenty six is the perspective.

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Speaker 5: Yeah, that's right. I mean, it's show me the money

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Speaker 5: kind of period right now. For tech companies, and again

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Speaker 5: the earnings are there. Yes, it's a multi year process

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Speaker 5: to fully monetize the investment that many of these companies

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Speaker 5: are making an AI, but we're going to get there.

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Speaker 5: A lot was in the price, the valuations were extended.

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Speaker 5: It doesn't surprise me that there's a little bit of

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Speaker 5: profit taking in tech right now. But we remain overweight

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Speaker 5: and we think it's a healthy little mini correction here. Again,

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Speaker 5: as there was a lot in the price. It's an

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Speaker 5: overowned part of the market.

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Speaker 4: And we'll be Okay, what do you make of this?

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Speaker 3: I guess what is really a rotation into some of

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Speaker 3: these small cap sectors, just maybe some sectors that were

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Speaker 3: maybe underloved here, what do you make of this rotation.

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Speaker 6: Plut It's been really interesting.

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Speaker 5: Small caps, as measured by the S and P six

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Speaker 5: hundred are now up about ten percent on the month YEAP,

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Speaker 5: while the S and P five hundred is flat, and

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Speaker 5: if you look under the hood, it's all been driven

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Speaker 5: from multiple expansion. The entire ten percent is p E expansion.

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Speaker 5: And so I have like a little checklist for small

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Speaker 5: caps what are some of the things that could be

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Speaker 5: kind of supporting them?

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Speaker 6: And I think about inflation.

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Speaker 5: Well, we've seen two consecutive months of low inflation reading,

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Speaker 5: so that doesn't make sense.

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Speaker 6: Maybe some changes in earnings trends we just.

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Speaker 5: Talked about that that's not happening. Maybe a shift in

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Speaker 5: the macro backdrop. Nope, we're still in a late cycle environment.

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Speaker 5: Maybe the bond market still pricing in two cuts. So

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Speaker 5: nothing's really changed except maybe one thing, which is the

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Speaker 5: odds of a Trump presidency have increased over the course

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Speaker 5: of the month. So I think there's a sentiment driven

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Speaker 5: rally that's politically driven around potential outcomes regarding the election

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Speaker 5: that's causing sentiment to soar.

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Speaker 6: We would fade it.

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Speaker 3: Wells Thomas just mentioned the news flow is so heavy,

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Speaker 3: we're barely touched on the fact that we've got a

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Speaker 3: FED meeting today and we're going to hear from Chairman

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Speaker 3: j Pal.

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Speaker 4: Again.

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Speaker 3: You mentioned the market's pricing in a couple of cuts

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Speaker 3: this year. Is that enough for this market or how

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Speaker 3: do you view the FED and what do you want

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Speaker 3: to hear today?

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Speaker 5: Yeah, it's whether or not Power is going to commit

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Speaker 5: or whether he's going to keep playing the field if

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Speaker 5: you will, So, is he going to commit to the

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Speaker 5: September cut or is he going to wait until there's

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Speaker 5: even more evidence?

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Speaker 1: So, like the red Sox with the trading deadline.

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Speaker 6: You knew you were going to go to the red

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Speaker 6: sox at the Fed. Yeah, so it's real. That's what

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Speaker 6: it's about right now.

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Speaker 5: It's like, is Powell going to tell us with more

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Speaker 5: certainty that he's confident that inflation is decelerating, that are

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Speaker 5: more cracks in the labor mark market? September is a

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Speaker 5: done deal? We think it should be. You know, the

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Speaker 5: Fed funds rates at five and a half percent, core

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Speaker 5: pcees at two point six percent. You're seeing again more

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Speaker 5: and more evidence that deflation is presenting itself. But you

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Speaker 5: know how how hawkish or dubbish is that message going

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Speaker 5: to come across.

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Speaker 1: The backdrop of this? And Paul and I have been

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Speaker 1: waiting for the Sweeney's nailed. This is the two years

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Speaker 1: coming in to four decimal points, the nominal ten years

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Speaker 1: breaking down four point one two nine seven. I'm going

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Speaker 1: to sell that as a four to twelve handle and

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Speaker 1: the real yield elegantly comes in now a one eighty

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Speaker 1: seven handle. What does that yield breakdown and fixed in

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Speaker 1: come mean for the stock market.

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Speaker 6: Yeah, it's interesting.

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Speaker 5: You know, markets are still reacting and fairly positive way

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Speaker 5: to lower bondylds. So there's still a kind of bad

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Speaker 5: news for the economy is good news for market scenario,

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Speaker 5: and there markets are still kind of sunning themselves on

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Speaker 5: soft landing island right now. You know, you talk about

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Speaker 5: vacation time, that's what it feels like because we have

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Speaker 5: this kind of slow down in the economy that's not

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Speaker 5: super slow, and there's nothing sinister that looks like is

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Speaker 5: happening right now, So the Fed can do this kind

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Speaker 5: of like I kind of think of it as like

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Speaker 5: a nice guy cut starting in September, just because they can. Now,

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Speaker 5: if you think that the Fed we can have this

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Speaker 5: soft landing, that's fine, but you're kind of betting against

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Speaker 5: the odds in a way because there's really only ever

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Speaker 5: been one example of these kind of preemptive cuts, which

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Speaker 5: was in the mid nineteen nineties. So we want to

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Speaker 5: think about any backup in bond yield is an opportunity

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Speaker 5: to lean in and lock in this elevated yield because

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Speaker 5: we don't think bonds are priced for an economic contraction.

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Speaker 5: So there's a nice opportunity there to get paid income.

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Speaker 6: While you wait.

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Speaker 3: Yeah, absolutely, so how much I mean again, on the

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Speaker 3: two year treasury four point three five percent? Do I

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Speaker 3: sit there and be quite comfortable or do I take

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Speaker 3: some credit risk here?

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Speaker 5: Yeah, we're underweight credit within fixed income just because there's

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Speaker 5: really no risk being priced in. High yield bond spreads

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Speaker 5: are at three hundred and six basis.

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Speaker 6: Points this morning.

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Speaker 5: That is well below the twenty year average of five

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Speaker 5: hundred basis points, so there's not much being priced in.

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Speaker 5: We looked at some data when we've been at spreads

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Speaker 5: this tight. The forward looking returns are about flat on

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Speaker 5: a twelve month basis. There's just not a lot to

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Speaker 5: say about the return opportunity based on the fundamentals there.

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Speaker 1: Why did the red Sox not pick up ges Chisholm

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Speaker 1: and you're wired in it old and new, John Hancock.

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Speaker 5: So the biggest mistake I made coming in here today,

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Speaker 5: I studied everything from the Fed to the BOJ to

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Speaker 5: the earnings.

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Speaker 4: I have my number one.

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Speaker 5: I forgot to study baseball, and that was the biggest

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Speaker 5: mistake that I made.

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Speaker 1: This regard to this is the trade deadlines over its

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Speaker 1: exciting and the Yankees won four in a row. Against

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Speaker 1: Philadelphia our conversation of the day on this tech frenzy.

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Speaker 1: Aniragrana joins us from Chicago. Microsoft down seven percent now

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Speaker 1: down three point four at percent. I found anerog the

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Speaker 1: hysteria out on Twitter yesterday over a little bit of

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Speaker 1: a miss and Azure, and then I see I think

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Speaker 1: from amy hood that on Microsoft eight percent of capax

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Speaker 1: is AI type. Does the public understand all of their

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Speaker 1: capax is not going into artificial intelligence?

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Speaker 7: It may not be directly tied to it, but at

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Speaker 7: the end of the day, they have to increase cloud

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Speaker 7: capacity for those workloads, even if it's not directly tied.

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Speaker 7: Think about it this way. You have to digitize your processes.

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Speaker 7: You have to upgrade to the cloud because without that

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Speaker 7: you won't be able to run some of those workloads

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Speaker 7: or analytics on top of it.

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Speaker 4: So anurrag what's the street?

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Speaker 3: Give us a sense of what the street's really thinking

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Speaker 3: about Microsoft and the cloud and AI and Microsoft's position.

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Speaker 3: Is the street generally confident that Microsoft is in a

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Speaker 3: good position, maybe or maybe faces some risks.

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Speaker 7: Yeah, I think from an analyst community point of view,

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Speaker 7: we have a very good understanding of what's happening at Microsoft.

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Speaker 7: Sometimes what happens is you have momentum investors who get

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Speaker 7: in and they want an nvideo like wa are coming

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Speaker 7: out of Microsoft. Now, that's not going to happen because

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Speaker 7: for Microsoft it's a long journey. It's not going to

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Speaker 7: be certainly somebody is going to buy so many chips

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Speaker 7: and your revenue gets a boost. They have to build capacity.

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Speaker 7: Then people are going to build workloads on it. And

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Speaker 7: that's exactly what Microsoft explained yesterday that they will increase

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Speaker 7: their capax and the second half of their fiscal year

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Speaker 7: you will see an improvement in the cloud growth rate,

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Speaker 7: and I think that pacified a lot of investors. Stock

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Speaker 7: was down seven eight nine percent, but it's only down

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Speaker 7: two and a half three percent at this point.

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Speaker 3: What else are you looking for when when you see

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Speaker 3: a Microsoft number cross the tape Aside from kind of

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Speaker 3: this AI angle, I.

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Speaker 7: Think this so far the biggest contribution for AI has

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Speaker 7: been coming from open AI relationship and the workloads that

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Speaker 7: are going on it. We really want to see how

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Speaker 7: AI gets infused in other products across the Microsoft portfolio.

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Speaker 7: We already know, you know a product like gethub copilot

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Speaker 7: or office copilot, but we really need to see stronger

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Speaker 7: adoption numbers from there, because down the road that's going

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Speaker 7: to be the key bread and butter for Microsoft, and

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Speaker 7: perhaps not so much directly coming from Open AI.

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Speaker 1: Can we go to Meta? I mean, I guess metas

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Speaker 1: we're not really on your watch, Enterog, but lump it

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Speaker 1: any here with the knowledge you want to receive from

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Speaker 1: Meta this afternoon.

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Speaker 7: I think it's going to be a combination of capital

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Speaker 7: expenditures and what they are doing for their AI and

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Speaker 7: large language models as well as their ad revenue. I

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Speaker 7: think this you can extend this discussion to not just Meta,

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Speaker 7: but also on Amazon on Thursday, because even they will

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Speaker 7: come out and say they are increasing the capital expenditures.

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Speaker 7: But I think everybody really needs to recognize this thing.

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Speaker 7: The capex expansion is happening now and the revenue will follow,

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Speaker 7: and there is going to be a lag and mismatch

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Speaker 7: between the two. You know, you could say capital outlays.

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Speaker 4: So that kind of goes to the issue.

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Speaker 3: I mean, part of the weakness that we've seen in

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Speaker 3: Magnifson seven over the past month or so on AAQ

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Speaker 3: has been that question you just raised about Okay, we

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Speaker 3: get all the spending for AI but what's the ROI

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Speaker 3: on that. How do you answer that question from investors?

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Speaker 7: I think a lot of I said long term value

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Speaker 7: investors would understand that you have to build the capacity

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Speaker 7: to recognize that revenue growth. In addition to what you

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Speaker 7: said about CAPEX, I think there is another factor that

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Speaker 7: people are looking at a possible interest rate cut and

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Speaker 7: what the impact of that would have on the small

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Speaker 7: cap universe. We recently did a study where we saw

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Speaker 7: the gap between the large cap valuation of technology and

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Speaker 7: software companies is so much wider than the small caps.

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Speaker 7: And the problem with the small caps is because of

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Speaker 7: the economic slowdown, they have not seen that big AI

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Speaker 7: bump that the big guys have.

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Speaker 1: Rana, thank you so much for joining us. The news

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Speaker 1: flow today just incredible. Right now, we're gonna get a

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Speaker 1: brief from the best in Washington. Nancy Cook joins us

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Speaker 1: to say she's our District of Columbia reporter. Doesn't give

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Speaker 1: her due credit for following the election. Grand Nancy, when

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Speaker 1: you saw the Bloomberg Morning consult pole, you know there's

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Speaker 1: forty other polls coming out. What's different about this poll

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Speaker 1: than the others? Now and in the future.

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Speaker 8: Well, thank you so much for having me. I think

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Speaker 8: what is different and new is that this is one

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Speaker 8: of the first polls that we have seen from swing

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Speaker 8: states since Vice President Kamala Harris became the presumptive Democratic nominee.

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Speaker 8: And it's just really crucial because it shows that she

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Speaker 8: has really closed the gap with former President Donald Trump

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Speaker 8: in these swing states. It shows us that she is

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Speaker 8: getting a lot of enthusiasm from Sorburban, women, young people,

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Speaker 8: black people.

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Speaker 6: Go ahead.

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Speaker 1: Well, the criticism of the poll was it, when you

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Speaker 1: go out and you poll people, you know, you get

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Speaker 1: who you get. And typically polls I believe are more

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Speaker 1: Democrats than Republicans and then they adjust for that. Do

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Speaker 1: you have confidence in the polls, and I mean not

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Speaker 1: only the Bloomberg Morning Consult poll but the whole racket

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Speaker 1: of forty five sixty polls that we have in America.

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Speaker 8: Well, I think polls have been really tricky, and you know,

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Speaker 8: you raise a great point. I mean, they were certainly

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Speaker 8: you know, have been wrong in the past. I think

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Speaker 8: that what you can look at is that, you know,

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Speaker 8: the New York Times in Siana College also did a

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Speaker 8: poll last week showing, you know, Vice President Harris gaining

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Speaker 8: gownd on Trump. And so while I wouldn't put stock

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Speaker 8: in any individual poll, I think that you know that

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Speaker 8: you can draw some trend lines based on the totality

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Speaker 8: of what you were seeing. I think that we saw

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Speaker 8: former President Donald Trump be super dominant the first half

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Speaker 8: of this year, and I think that what we're seeing now,

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Speaker 8: based on our poll but also other polls that have

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Speaker 8: come out recently, is that Harris is going to give him,

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Speaker 8: I think, much more of a run for his money

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Speaker 8: than Biden did.

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Speaker 3: Is any sense to is there any ability to get

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Speaker 3: a sense of whether this is just kind of the

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Speaker 3: honeymoon peria euphoria driving these numbers, or whether there's something

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Speaker 3: deeper there.

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Speaker 8: Well, I think that we won't know that until after

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Speaker 8: the Democratic National Convention, which is in a few weeks.

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Speaker 8: You know, there's certainly a honeymoon period. I think Democrats

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Speaker 8: are wildly enthusiastic about her candidacy, but you know, she

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Speaker 8: hasn't been under a ton of scrutiny yet, she hasn't

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Speaker 8: picked a running mate. You know, she has started to

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Speaker 8: do some campaign events, but she's not on the campaign

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Speaker 8: trail day in and day out, or being asked questions.

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Speaker 8: So I feel like you know how that plays in

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Speaker 8: September is really an open question.

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Speaker 3: So what is I guess that who is really supporting

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Speaker 3: this strength in Harris? Do we have demographics that really

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Speaker 3: stand out to you?

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Speaker 6: Sure?

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Speaker 2: So.

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Speaker 8: A bunch of the demographics that have stood out to

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Speaker 8: me from our poll is that she is picking up

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Speaker 8: a lot of support with young voters who were very

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Speaker 8: turned off by you know, Biden's handling what was happening

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Speaker 8: in Israel and Gaza. She is turning out or a

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Speaker 8: lot of people who are suburban women are expressing enthusiasm

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Speaker 8: for her. The Trump people have had a very hard

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Speaker 8: time winning those folks over, and then the True team

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Speaker 8: was really hoping to make inroads with young black men

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Speaker 8: in particular, and what we're seeing as black voters are

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Speaker 8: very abused by her candidacy, and so those are all

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Speaker 8: ways in which she could sort of rebuild the Democratic coalition.

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Speaker 1: I saw Nancy that she amended something to do with

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Speaker 1: oil production. I can't remember in the last couple of

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Speaker 1: days because she's got to win Wisconsin or you know,

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Speaker 1: oil in Pennsylvania. The details don't matter. But what matters

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Speaker 1: here is does a pro like you suggest she will

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Speaker 1: be a venn diagram with Biden policy, not of one

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Speaker 1: hundred percent, but will she be like eighty percent Biden policy?

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Speaker 1: Can you quantify that?

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Speaker 8: So it's still that's a great question, Tom. I think

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Speaker 8: it's still really early to tell. What I have been

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Speaker 8: told from her advisors is that she's not, for instance,

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Speaker 8: going to come out with like a whole new economic

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Speaker 8: agenda or a whole new economic policy. So in that sense,

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Speaker 8: it's going to be like, you know, sort of keeping

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Speaker 8: and talking about a lot of the Biden policies. But

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Speaker 8: I think she is going to emphasize different things.

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Speaker 3: Hey, Nancy, is there a feeling in DC about what role,

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Speaker 3: if any President Biden will play in VP Harris's campaign.

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Speaker 8: I think he's playing very little role. I mean, he's

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Speaker 8: at the White House, you know, he's still president, obviously

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Speaker 8: serving out his time, and I think he and his

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Speaker 8: people are intensely focused on his legacy and getting through

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Speaker 8: the next six months. But I don't think he's going

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Speaker 8: to play a huge role.

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Speaker 4: Any early feel as too.

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Speaker 3: I guess the next big move for the Harris ticket

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Speaker 3: is the vice president role. Here is there any feeling

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Speaker 3: as to when and who it might be?

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Speaker 8: So we had a published his story on Saturday that

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Speaker 8: said that her short list had really been pared down

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Speaker 8: to you know, a few people, Senator Mark Kelly of Arizona,

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Speaker 8: Governor Tim Walls of Minnesota, and Governor Josh Shapiro Pennsylvania.

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Speaker 8: I think those are the people that her team is

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Speaker 8: most focused on, and I think that we'll have a

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Speaker 8: pick by Tuesday of next week. She's going to do

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Speaker 8: a big swing through a bunch of the battleground states

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Speaker 8: like Pennsylvania and Nevada, and she's going to have her

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Speaker 8: running mete with her. So it's going to come in

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Speaker 8: the next few days.

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Speaker 1: Nancy, we got to do some economic data. Thank you,

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Speaker 1: Thank you, Nancy Cook for leadership in our coverage of

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Speaker 1: this election. It gets more interesting by the day that

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Speaker 1: This is the Bloomberg Surveillance podcast, bringing you the best

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