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Speaker 2: This is the Bloomberg Surveillance Podcast. Catch us live weekdays
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Speaker 2: your podcasts, or watch us live on YouTube. It has
Speaker 2: been far too long.
Speaker 3: Alicia Levine of B and Y brings an absolutely prodigious
Speaker 3: mathematical almost cross mathematical skill into investment analysis. We go
Speaker 3: Euclidean with it right now. Ben Ladler's talking about third year?
Speaker 3: Could we go up twenty percent again? Can you be
Speaker 3: that bullish about three years of big double digit growth?
Speaker 4: So in theory I could be. But in our twenty
Speaker 4: twenty five outlook, we're up about ten percent for next
Speaker 4: year simply because it is the third year after the
Speaker 4: bottoming of the bear market, and typically in that third
Speaker 4: year you just don't have those huge gains that you
Speaker 4: see in the first year out from is it.
Speaker 5: A multiple expansion and earning, So it's earning.
Speaker 4: So we're as you know, we're twenty two times forward earning,
Speaker 4: so we're looking for we're looking for earnings to really
Speaker 4: carry it because we the multiple was up about three
Speaker 4: times in the last year there was you know, okay,
Speaker 4: earnings growth about eight percent and the rest was the multiple.
Speaker 4: So you need earnings now to really kick it. And
Speaker 4: that's what we see. And you're not going to be
Speaker 4: up twenty percent in earning.
Speaker 5: I'm sorry, I'm coffin. I choked in my tang. Excuse exactly, Alicia.
Speaker 6: We haven't had a pullback and I can't remember how long.
Speaker 6: I mean, I guess you go back to July and
Speaker 6: it was eight or nine percent, but in two days, yes, exactly.
Speaker 6: That's not healthy for a longer term bull market, is it.
Speaker 4: So the average draw down, even in years where you're
Speaker 4: up twenty percent, is actually about twelve percent. Okay, So
Speaker 4: this year the most we got was about eight percent,
Speaker 4: So it's very easy, steady year of gains. I think
Speaker 4: next you're going to see more volatility. We do think
Speaker 4: the year ends higher, and we're at sixty six hundred
Speaker 4: for the end of the year. But I just want
Speaker 4: to take everybody to the wayback machine and think about
Speaker 4: the late nineties when the FED cut into a soft landing,
Speaker 4: when there was no recession. We had five years in
Speaker 4: a row of twenty percent plus growth. Okay, So if
Speaker 4: we're really thinking about it, you know, we're Our view
Speaker 4: is we're not heading towards the recession. The FED this
Speaker 4: year alone is cutting one hundred basis points. Even if
Speaker 4: they can't cut as much as they projected back in September,
Speaker 4: we think with the inflation picture they're not going to
Speaker 4: be able to The growth picture is better than expected.
Speaker 4: You could see another a third year of really nice
Speaker 4: returns in the SMP. There's historical precedent for it. We
Speaker 4: just think it's more volatile with different policies coming through
Speaker 4: with the new administration.
Speaker 6: Did you guys change your outlook for investing in twenty
Speaker 6: twenty five given what we saw in the elections just
Speaker 6: last month?
Speaker 4: So we we've been bullish for about almost twenty to
Speaker 4: twenty two months. Here we took back.
Speaker 5: I thought you're going to say five years but continue.
Speaker 4: Well, you know, we look we like everybody else, you know,
Speaker 4: given history, thought when the Fed's cutting this quickly, they're
Speaker 4: balance or break something. But really it was the Silicon Valley,
Speaker 4: the saving of the depositors from the Silicon Valley crisis
Speaker 4: and the standing up of all those lending facilities at
Speaker 4: the FED that sort of stopped the financial crisis that
Speaker 4: would lead to a recession. So after that we got bullish.
Speaker 4: We've been positioned overweight, you know, US large cap for
Speaker 4: a long time. You still are, We still are and
Speaker 4: we you know, two years ago we underweight by we
Speaker 4: went to a large underweight on international and emerging markets,
Speaker 4: and we've kept that because we think in a world
Speaker 4: where the FED can't cut as much.
Speaker 5: Stop it, you're not playing fair rules. You've got Jeff
Speaker 5: for you.
Speaker 4: I mean, I did well.
Speaker 3: It's all you know, just it's all you gotta know.
Speaker 3: You don't have to think about this, Jeff, what do
Speaker 3: we think? Thumb upper, thumb down. That's the real world.
Speaker 4: That's the Yeah, how about it here we speak all
Speaker 4: the time.
Speaker 5: You're too young to remember this.
Speaker 3: But the late nineties, folks, there was a modest technology overlay.
Speaker 5: Sweeney and I woke up in March.
Speaker 3: Of two thousand or two thousand and one and said, oh,
Speaker 3: there's no profit.
Speaker 5: What a shock.
Speaker 3: We have the same technology overlay right now, but we've
Speaker 3: got profit with it.
Speaker 5: Is that the theory.
Speaker 4: The theory is the profit is better. Let's go back
Speaker 4: to the late nineties. Starting in the late nineties, you
Speaker 4: saw a steady increase in the operating margins of the SMP,
Speaker 4: which created a higher multiple regime for the SMP. If
Speaker 4: you just go back in time and you get your
Speaker 4: average of sixteen times forward earnings, well, your margins were
Speaker 4: also nine to ten percent. Now we're looking at thirteen
Speaker 4: and a half percent for next year, and that's because
Speaker 4: it's being driven by the cash flow of tech, and
Speaker 4: so the companies are healthier. It's not just earnings, it's
Speaker 4: free cash flow. Margins are better, keeping the multiples higher.
Speaker 4: You've got a healthier market, and the pricing of tech
Speaker 4: compared to the rest of the market on a relative basis,
Speaker 4: is actually lower than it was in twenty twenty one,
Speaker 4: nineteen ninety nine and other periods where there was a
Speaker 4: tech boom or you know, a technology change where the
Speaker 4: market got excited about a technology change. So it's relatively
Speaker 4: less expensive given free cash flow margins and earnings.
Speaker 6: Alicia, you've concerned about the I think a lot of
Speaker 6: the lack of breath in the market. S and p
Speaker 6: SPX versus SPW, the equal weight a real divergence there,
Speaker 6: which is actually widened down a little bit here in
Speaker 6: the last few months. Someone with your experiences that concerned.
Speaker 4: You. Look, it's a risk. It's a risk because then
Speaker 4: you need those top ten companies to keep on performing.
Speaker 4: I also think, and we've talked about it in the
Speaker 4: context of well, you know, why do you still like
Speaker 4: us large cap? There's a lot of talk about, you know,
Speaker 4: overweighting small cap because of FED cutting and a boom
Speaker 4: and of cutting regulations. That's all true. There's sort of
Speaker 4: a safety trade. And we've really seen this in the
Speaker 4: performance of NASAC versus the Dow. You know, over the
Speaker 4: last let's call it ten days, the Dow's down three percent,
Speaker 4: Nazex up three percent. These stocks are safety stocks because
Speaker 4: there's turning.
Speaker 3: Okay, this is really this cream up with the dining
Speaker 3: room table over a beverage of my choice?
Speaker 5: Is Apple a utility?
Speaker 2: Now?
Speaker 3: It's not Dominion Electric from a few years ago or even.
Speaker 5: Con Ed, but is Apple?
Speaker 3: Does Apple have utility characteristics in terms of persistency of
Speaker 3: cash flow?
Speaker 4: Yes, and they pretty much like the tops of the
Speaker 4: magnal force, they have an inertial force. It's the safety play.
Speaker 4: When rates, when rates, when raids get to four and
Speaker 4: a half and five percent, what are you buying? You're
Speaker 4: buying large cap tech because it's relatively immune because they
Speaker 4: don't have to borrow to grow. And you see it.
Speaker 4: I mean, think of what happened yesterday. Small Cap was
Speaker 4: terrible and Nasik was down, but not that much. And
Speaker 4: that's what you're going to see in these rate fears
Speaker 4: that you're going to get because of rate volatility, the
Speaker 4: inflation reads and the FED statement today.
Speaker 3: For usyet ten seconds this B and way, let you
Speaker 3: put an SPX target out.
Speaker 4: Yees sixty six hundred end of twenty twenty five.
Speaker 3: But is that going to go up here in the
Speaker 3: next eight seconds so we can make some news.
Speaker 4: Yes, it's good. Yes, Look I think I think the
Speaker 4: first quarter actually could be very good. There'll be a
Speaker 4: lot of liquidity in the market.
Speaker 5: You're going to be in New York the first quarter.
Speaker 4: You to wonder by I'm going to be here all
Speaker 4: the time living on airplace.
Speaker 3: Alicia Levin, thank you so much with B and why
Speaker 3: just brilliant. Her mathematical construction, the geometry of her constructions
Speaker 3: on market is just well, yeah, she got eight degrees
Speaker 3: in math and there you know she took like differential equations.
Speaker 5: She's found them at the dining room table with her kids,
Speaker 5: her husband's looking at her, going would you shut up?
Speaker 5: I don't need diffy Q at the dining room table.
Speaker 2: You're listening to the Bloomberg Surveillance podcast. Catch us live
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Speaker 3: It is FED day, and we're not going to drown
Speaker 3: the moment in FED chat with Jason Furman, Professor of
Speaker 3: Practice of Economic Policy at Harvard Teaching C ten and
Speaker 3: great on policy making as well.
Speaker 5: I can't say enough about his.
Speaker 3: Contribution to the zeitgeist over the last year or two
Speaker 3: with his ecumenical study of our inflation rate. It's the
Speaker 3: number one value add out there. I retweeted out always
Speaker 3: and today we're going to do a conversation with the
Speaker 3: ecumenical Jason Furman. Jason, I was talking to Chairman Bernanki
Speaker 3: at one point and we talked about hockey stick charts
Speaker 3: or Olivier Blanchard Aea a number of years ago after
Speaker 3: Great Financial Crisis with a jump condition to lower growth
Speaker 3: and then the.
Speaker 5: Glyde bath back.
Speaker 3: Your language right now is that we're at a hinge
Speaker 3: moment in the American Economic experiment, discuss what that is,
Speaker 3: what's a hinge moment and why is it now?
Speaker 7: Yes, it's great to be with you, as always know.
Speaker 7: The plane was coming in, it looked like it was landing,
Speaker 7: and it is still just sort of hovering above the
Speaker 7: landing strip. It's not that far away, you know. All
Speaker 7: in I think I'd be quite happy about where we
Speaker 7: are in the economy, but we're not making progress anymore
Speaker 7: towards the Fed's two percent goal. And so the question is,
Speaker 7: are we gonna, you know, cut inflation by a couple tents,
Speaker 7: in which case everything is happy, soft landing, interest rate cuts,
Speaker 7: you know, champagne everything, or do we go up a
Speaker 7: few tents, in which case maybe the FED has rate
Speaker 7: increases back on the table and right now you know
Speaker 7: what happens. Sixteen hundred Pennsylvania Avenue will have some effect
Speaker 7: on this as well.
Speaker 6: That's kind of where I wanted to go, Jason. I
Speaker 6: wondered just kind of if your view of this US economy,
Speaker 6: maybe even the world economy, did it change at all
Speaker 6: after the US elections last month.
Speaker 7: Look like a lot of people and like the markets,
Speaker 7: I mostly was discounting President Trump on tariffs, thinking they
Speaker 7: were negotiating tactics that yes, we're going to get more
Speaker 7: tariffs on China, but we're not going to get something
Speaker 7: broad based on other countries. With each passing day, he's
Speaker 7: either a better and more credible negotiator than I realized,
Speaker 7: or actually believes what he's saying and is likely to
Speaker 7: follow through and do it. So I've gotten more nervous
Speaker 7: about the actual possibility of tariffs. I think some things
Speaker 7: like the FED, he's been better about Scott Descent and
Speaker 7: Kevin Hassett. We're very reassuring his picks. But I think
Speaker 7: the big one is the tariffs, which he has a
Speaker 7: lot of ability to do all on his own.
Speaker 6: Tariffs go into just I guess, a broader conversation of internationalism.
Speaker 6: I mean, I kind of came up in this business
Speaker 6: where it was increasing globalization across the board. The world
Speaker 6: got a lot smaller, in large part thanks to technology.
Speaker 6: But boy, the last you know, six seven, eight, nine years,
Speaker 6: not just in the US but around the world, it
Speaker 6: seems like nationalism is replacing internationalism. Is that something that
Speaker 6: is a plus or a minus or how do you
Speaker 6: think about that?
Speaker 7: Yeah, I mean one remarkable thing. I you're absolutely right
Speaker 7: in your diagnosis. But one interesting thing is for the
Speaker 7: last ten years, wages have been growing more at the
Speaker 7: bottom in the middle than they have at the top.
Speaker 7: We've actually had a compression of wage inequality. We've had,
Speaker 7: you know, pretty decent income growth over the last decade,
Speaker 7: with some serious ups and downs, especially in the inflationary period.
Speaker 7: Productivity growth in the United States at least has actually
Speaker 7: picked up. So in a lot of ways, things are working.
Speaker 7: They're working perfectly. They're never working perfectly, but they're working
Speaker 7: pretty well, which makes the turn away from globalization and
Speaker 7: the timing of it, at least in the United States
Speaker 7: somewhat surprising.
Speaker 3: Jason, let's clear the area here, and I think it's
Speaker 3: really really important.
Speaker 5: Paul's good question.
Speaker 3: And the future with the Trump administration, Kevin Hasset maybe
Speaker 3: is going to drive the economic boat for President Trump.
Speaker 5: Will see on that.
Speaker 3: He's out of pen with Alan Auerbach. You're at a
Speaker 3: Harvard with Greg Mankew as well on the then diagram
Speaker 3: of Hasset Firman Firman Hasset. How much do you and
Speaker 3: Kevin Hassett agree upon in economics and policy?
Speaker 7: We agree on an awful lot. I'd say the main
Speaker 7: place we disagree is taxes. He would like lower taxes,
Speaker 7: especially on corporations and capital, and I place more of
Speaker 7: an emphasis on productivity, and I'm more skeptical about some
Speaker 7: of the larger growth numbers. I can't he would believe it,
Speaker 7: although I think taxes do matter for I.
Speaker 3: Can't emphasize enough Paul, how this is misconstrued in the media.
Speaker 3: They want has to to be completely opposite or Furman.
Speaker 5: And it's just not the case.
Speaker 3: They got a substantial overlayer around the things we discuss
Speaker 3: each day.
Speaker 7: And Jason reasonly I did a thing with him where
Speaker 7: he was defending the fans fifty basis point cut and
Speaker 7: I was saying they should have done twenty five, you know,
Speaker 7: back in September. So you know, sometimes the positions are
Speaker 7: and even what you might predict.
Speaker 6: And Jason just you know, on the text front here,
Speaker 6: it seems like that likely is going to be something
Speaker 6: that this administration is going to want to extend the
Speaker 6: twenty seventeen tax cuts. How do you think that could
Speaker 6: play out, should play out, will play out?
Speaker 8: Oh?
Speaker 7: Look, I think they're going to extend them. The question
Speaker 7: is for how long I think that's a real shame.
Speaker 7: There's a number of people that think you should use
Speaker 7: what's called the current law baseline, that you shouldn't add
Speaker 7: to the deficit as measured by CBO. If you extend
Speaker 7: those tax cuts, you're basically locking in deficits of at
Speaker 7: least percent of GDP, probably eight nine or ten percent
Speaker 7: of GDP over the coming years. And that's just not
Speaker 7: a place we should be now. In twenty seventeen, I
Speaker 7: didn't think we could afford the cost of the tax cuts.
Speaker 7: In twenty twenty five, it will be even less affordable,
Speaker 7: given where the debt is, given where interest rates are.
Speaker 3: Matt Winkler, our Emeritis Center in chief, Jason Furman just
Speaker 3: did a summary of the facts of the Biden administration,
Speaker 3: and you know, it was very much pro Biden, and
Speaker 3: of course you've got a Democratic Party shingle out as well.
Speaker 3: Is President Biden's legacy completely overwhelmed by the growth of
Speaker 3: the debt and the deficit.
Speaker 7: And that's a part of the legacy, and that, by
Speaker 7: the way, played into things like the higher interest rates
Speaker 7: we have now in higher mortgage ratements. By the way,
Speaker 7: we're probably part of what was going on in the
Speaker 7: election in November. There was a very strong economic recovery.
Speaker 7: That's on the plus side. I think we overdid it
Speaker 7: and got too much inflation. That's on the minus side.
Speaker 7: And the inflation, I think it's underappreciated how it's eaten
Speaker 7: other parts of the legacy. For example, the cost of
Speaker 7: infrastructure has gone up more than spending on infrastructure, and
Speaker 7: so in real terms, it appears that we're investing less
Speaker 7: in many every infrastructure than we were before.
Speaker 3: One final question, are you the grinch? And you gave
Speaker 3: holiday reading? Forced hundreds of pages of reading to X
Speaker 3: ten in Harvard.
Speaker 7: I gave them their their final grades for the courts
Speaker 7: and sent them away. There was listed some optional reading,
Speaker 7: but no one's going to ever check on.
Speaker 5: Okay, great inflation.
Speaker 3: Guy Man Q was brutally dealt out seas like they
Speaker 3: were French mints. Did you give out any ce's, Professor Furman.
Speaker 7: There are We did give some c's. You can give
Speaker 7: some ds.
Speaker 5: Uh.
Speaker 7: I don't want to talk about anything below that, but
Speaker 7: we tried it. We tried to roughly match the average
Speaker 7: grade and comparable courses. I don't want to penalize people
Speaker 7: for taking economics compared to something else, because I think.
Speaker 5: Oh, that's the whole story itself.
Speaker 3: Was Jason Furman, of course, and I can't say enough
Speaker 3: again about his work in describing inflation away from the blatherer,
Speaker 3: with his ecumenical analysis of inflation, Professor Furman doles outseas
Speaker 3: at Harley.
Speaker 2: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 5: It has been way, way too long.
Speaker 3: In a different conversation, Jason Trenner, his chief investment strategist
Speaker 3: at Strtigous, He's just been wonderful over the years of
Speaker 3: a belief in America, a belief in capitalism, and you
Speaker 3: participate any equity markets, Jason, for a part of this discussion,
Speaker 3: this conversation, I have to change the dialogue, and I'm
Speaker 3: gonna blame it at one's see Gas Sparino over at
Speaker 3: the New York Post. Jason, are you under consideration or
Speaker 3: are you in discussions with the Trump administration with mister
Speaker 3: Lutnick about serving the future president of the United States.
Speaker 8: Well, I've been down to Pon Beach and I've been
Speaker 8: I've talked to the transition on a number of occasions,
Speaker 8: and to be honest with you, that's about all I know.
Speaker 8: But I'm very much willing to serve, you know, given
Speaker 8: the right opportunity, and certainly a very supportive of the
Speaker 8: new administration. And so it would be an honor, you know,
Speaker 8: if asked, but you know, nothing has been asked yet.
Speaker 8: So we'll see how We'll see how that goes. And
Speaker 8: for the record, by the way, you'll never see me
Speaker 8: wear birkenstocks.
Speaker 5: Yeah, we knew that.
Speaker 8: I'm more of a I'm more of a wingtipy, you know.
Speaker 8: But anyway, that.
Speaker 5: Was a safe ground there.
Speaker 3: Yesprino goes on to say, you would be quote a
Speaker 3: leveling force. What is the leveling force? Jason Trennard that
Speaker 3: President Trump needs to hear from the Treasury Secretary and
Speaker 3: from a potential trendet at sixteen hundred Pennsylvania.
Speaker 8: Yeah, I'm sure if I were offered something, I wouldn't
Speaker 8: exactly be a heartbeat away, by the way, and I'm
Speaker 8: not sure President Trump needs any leveling force because I'm
Speaker 8: very much in agreement with many, if not all, of
Speaker 8: his policies, particularly with regard to trade. And I also
Speaker 8: think certainly in terms of rationalizing the size of federal government.
Speaker 8: So in my opinion, you know, I don't think any
Speaker 8: leveling force is needed, but I would be a strong
Speaker 8: defender of the policy.
Speaker 3: Oh.
Speaker 8: I know that you've talked about.
Speaker 3: Oh, I know, Paul is if Jason dessendant Trentant joins
Speaker 3: the Trump administration, you're going to hear President Trump talking
Speaker 3: about Italy is the fifty second state.
Speaker 5: Continue.
Speaker 6: So, Jason, what do you what would you advise the
Speaker 6: president as to economic policies in terms of a kind
Speaker 6: of a to do list or maybe a uh, you know,
Speaker 6: step one, step two, step three type of recommendations.
Speaker 8: Well, listen, I think again, it's you know, it's and
Speaker 8: I don't want to be overly. Uh. I don't want
Speaker 8: to be presumptuous. Uh. President has a great economics team
Speaker 8: there right now. But in my opinion, I do think
Speaker 8: President Trump was elected for two reasons. Largely one is
Speaker 8: I think that there's a sense that the immigration policies
Speaker 8: of this country have gotten out of control. And have
Speaker 8: have hurt just average Americans. And I think he's right
Speaker 8: about that. And I also think that inflation was another
Speaker 8: big issue. And as you know, we've created something called
Speaker 8: the Common Man CPI, which looks at things. It's the
Speaker 8: opposite of supercore, which which excludes food, energy, and housing,
Speaker 8: which you know, in my opinion is all those things
Speaker 8: are pretty core. We go the other way and we
Speaker 8: just focus on things people have to buy. And I
Speaker 8: do think that certainly deficit production would be a good
Speaker 8: way to start to try to rationalize prices. It's hard
Speaker 8: to run deficits six to seven percent of GDP continually
Speaker 8: and then expect to make real progress on inflation, in
Speaker 8: my opinion, So I think he's got those things right
Speaker 8: where that's worth for him, and that's, in my opinion,
Speaker 8: that's very very likely to be where he starts, and
Speaker 8: that's why he was elected.
Speaker 5: Paul.
Speaker 3: This is important what mister Trentett's doing with inflation, like
Speaker 3: the real inflation. Hearkens to Lawrence Cudlow, And this is
Speaker 3: something Larry Cudlow's.
Speaker 5: Really really been right about. Is this insistence to core.
Speaker 5: It's not the real world after all.
Speaker 6: Yeah, So at Jason, Ted extent that this incoming administration
Speaker 6: would like to reduce deficits from six percent of GDP
Speaker 6: to three percent.
Speaker 5: How do you do that?
Speaker 6: What's the way forward?
Speaker 8: You think, well, listen, it's not and I don't think
Speaker 8: you know, to be very realistic about it, and would
Speaker 8: I would greatly suggest that we don't try to throw
Speaker 8: the thing in reverse. You know, you didn't prison Trump
Speaker 8: didn't create deficits of six to seven percent of GDP.
Speaker 8: I don't think he should be expected to reduce them
Speaker 8: to three percent in a year or two years, but
Speaker 8: he does have four years. And I do think DOJE
Speaker 8: is a very in my opinion, it's a very very
Speaker 8: powerful concept. And now you're dealing with twenty percent of
Speaker 8: the budget that isn't you know? That is discretionary. But
Speaker 8: I do think that sets a tone for everything else.
Speaker 8: And I do think there's a certain sense in which
Speaker 8: you worry about the pennies and the pounds take care
Speaker 8: of themselves. But the best way obviously, So not only
Speaker 8: is it is it reducing wasteful government spending, but it's
Speaker 8: also a big focus on growth, right. It is encouraging
Speaker 8: capital formation, encouraging capital vestments so that you can grow
Speaker 8: your way. You can grow the numerator so that the
Speaker 8: deficits are not not the nominator rather, so the deficits
Speaker 8: are not really as big a deal to me. That's
Speaker 8: that's where I would I would focus more than anything
Speaker 8: as economic growth. And then also, you know, just stop
Speaker 8: doing dumb things. You're not always easy.
Speaker 3: Jason Quickley, you're in the meg seven? Are you still
Speaker 3: long long long our tech vision?
Speaker 8: Listen. I think it's really difficult. It can work, it's
Speaker 8: not cheap, but it's really difficult to fade these companies
Speaker 8: because they have the cash flow with which to continue
Speaker 8: to invest in artificial intelligence. And I would say your average,
Speaker 8: your average CEO of a company in the United States
Speaker 8: is more at risk of being fired by not spending
Speaker 8: enough on these new technologies than spending too much at
Speaker 8: least now. And I think, you know, the most of
Speaker 8: the companies have this ability to they have the cashloads
Speaker 8: to do that, so there's not a big risk to it.
Speaker 8: At a certain point, there's going to have to be
Speaker 8: They're going to have to be some sort of proof
Speaker 8: concept that these investments are actually resulting in productivity. But
Speaker 8: I think you have some time before those expectations get
Speaker 8: too high.
Speaker 3: Jason Trent and one of my heroes, William Priest, was
Speaker 3: in the studio yesterday definitive book on free cash flow
Speaker 3: and shareholder yield. What is the quality of the MAG
Speaker 3: seven free cash flow?
Speaker 8: Well, it is quite good that. One of the things
Speaker 8: though that is changing that I think people have to
Speaker 8: kind of keep in mind, is that these are no
Speaker 8: longer really capital light industries because of their investments in AI. Right,
Speaker 8: so if you look at let's say capital expenditures as
Speaker 8: a percentage of sales, the MAG seven is actually more
Speaker 8: capital intensive than let's say the energy sector, right, that
Speaker 8: is a difference. And so I you know, the good
Speaker 8: news is these companies are throwing off tons of cash.
Speaker 8: That means that they can make their own luck as
Speaker 8: far as stock prices are concerned. Generally speaking, they could
Speaker 8: buy back stock or increased dividends or what have you.
Speaker 8: But a lot of the cash flow now is being
Speaker 8: is being directed towards towards capital investments, and so that
Speaker 8: means that sooner or later those capital investments are going
Speaker 8: to have to bear fruit or they're going to have
Speaker 8: to retrench, and they'll be a repricing of those of
Speaker 8: those stocks. So the good news they have the money,
Speaker 8: you know. The bad news is, you know, eventually the
Speaker 8: clock will be ticking to see whether those were good
Speaker 8: investments or bad investments.
Speaker 6: Jase, can you talk to us just broadly about these
Speaker 6: markets as we head into twenty twenty five. It feels
Speaker 6: like sentiment levels are really stretched here. I mean, valuations
Speaker 6: are one thing. Maybe you know, the market can earn
Speaker 6: its way into the evaluation, but boys, sentiment seems pretty stretched.
Speaker 6: He is that a concern for you?
Speaker 8: Hey, it's definitely a concern. I mean, and I think
Speaker 8: financial can conditions. In my opinion, it's ironic because financial
Speaker 8: conditions if you're rich are quite easy. Financial conditions if
Speaker 8: you're not rich, are quite tight. And this is one
Speaker 8: of the issues. Right, So you have some guy buying
Speaker 8: a banana tape to a wall for six and a
Speaker 8: half million bucks, and then there's you know, there's other
Speaker 8: folks that can't get a mortgage.
Speaker 2: Right.
Speaker 8: So, but I, in my opinion, sentiment is getting kind
Speaker 8: of frothy out there. There is a lot of excitement
Speaker 8: about things like DOGE, there's a lot of excitement about deregulation.
Speaker 8: All of those I think are worthwhile. The thing we're
Speaker 8: watching very closely to determine when to get more concerned
Speaker 8: about equities really is the tenure treasure yield we've seen
Speaker 8: since this bull market started in October of twenty twenty two,
Speaker 8: there have been three major corrections since then in the
Speaker 8: bull market. Two of them were associated with tenure treasure
Speaker 8: yields above four and a half. The third was associated
Speaker 8: with an end to the end carry trade in August. So,
Speaker 8: in our opinion, four and a half to five percent
Speaker 8: is a little bit of the red line for risk
Speaker 8: on and if yields rise to four and a half
Speaker 8: to five, we're going to start We're going to start
Speaker 8: to lighten up a little bit, not necessarily to get bearish,
Speaker 8: but maybe get a little bit more defensive and raise
Speaker 8: a little bit more cash.
Speaker 6: Jason, what do you need to hear from your Federal
Speaker 6: Reserve chairman this efnoon?
Speaker 8: Well, listen, I would like to hear that they are
Speaker 8: very aware that there is not an insignificant chance of
Speaker 8: another wave of inflation. I know that kind of ruins
Speaker 8: the party a bit, but I also believe that to
Speaker 8: be true. And tenure treasure yields are up seventy basis
Speaker 8: points since the FED first eased. Mortgage rates are up
Speaker 8: since the FED first east, and there is a fair
Speaker 8: amount of historical precedent. Don Rismoler, or chief Economist, did
Speaker 8: some great work on waves of inflation, and what he
Speaker 8: found was that once you had one wave of inflation
Speaker 8: over six percent, the chances of getting another wave are
Speaker 8: about nine to ten. And he looked at about two
Speaker 8: dozen countries over one hundred years. Part of that is
Speaker 8: because wages. There are pent up demand for wages, and
Speaker 8: you're seeing that with let's say Boeing machinists getting thirty
Speaker 8: eight percent over four years long short and getting sixty
Speaker 8: two percent over six years. Part of that is to
Speaker 8: make up for the fact that their standard of living
Speaker 8: declined when inflation rose the first time. So once the
Speaker 8: toothpaste is out of the tube, inflation is kind of hard.
Speaker 8: It's harder to get it back in than you think.
Speaker 3: If we have an inflation old Georgetown microeconomics, there's an
Speaker 3: ambiguity Jason Trennard, and that will sustain nominal GDP. So
Speaker 3: which way does it cut if we have sustained or
Speaker 3: even a bit higher inflation, does that help General Mills,
Speaker 3: Colgate palm Olive and Nvidia.
Speaker 8: Well, it helps profits, right, So because profits are profits
Speaker 8: are nominal, revenues are nominal, it tends to hurt multiples though, right,
Speaker 8: at least before q E, higher inflation would lead to
Speaker 8: higher long term interistrates, which would lead to lower multiples.
Speaker 8: That relationship has weakened meaningfully since we started using the
Speaker 8: using the balance sheet like you know, some sort of plaything,
Speaker 8: and with a seven trillion dollars balance sheet, that relationship
Speaker 8: is a little bit weaker. Having said that, higher long
Speaker 8: term interistrates tend to hurt the multiple, so Tim, you're right,
Speaker 8: it hurt, it helps, it helps profits. And equities are
Speaker 8: not a bad hedge against higher inflation. You know, they're
Speaker 8: a better edge than fixed income. But it's not like
Speaker 8: it's free, right. It comes with a cost, and that's
Speaker 8: the willingness of people to pay up for those earnings, Jason.
Speaker 6: Some folks are suggesting that, as we think about some
Speaker 6: of the potentially inflationary pressures from President like Donald Trump's
Speaker 6: economic policies that we know of to date, that deportations
Speaker 6: might be more inflationary than say, tariffs. A.
Speaker 5: Do you believe that?
Speaker 4: And B?
Speaker 6: How would you advise I guess the president on that.
Speaker 8: Yeah, no, I think and I actually think that's right.
Speaker 8: We've spent a lot of time on some of these issues.
Speaker 8: I say, you know, remember President Trump raised tariffs in
Speaker 8: his first term. When you look at the data carefully,
Speaker 8: what you find is really the tariffs went up meaningfully
Speaker 8: really only against one country, and that was China. There
Speaker 8: were certain there were other countries like South Korea and
Speaker 8: Taiwan where President Trump actually cut tariffs during his administration,
Speaker 8: and I would say this time around, China still is
Speaker 8: in the in the crosshairs. I agree with your assessment
Speaker 8: though about about let's say mass deportations. And Peterson Institute
Speaker 8: came out with a study. Doesn't mean it's correct, but
Speaker 8: they found that the relationship between inflation and mass deportations
Speaker 8: is higher than it would be for what's being forecasted
Speaker 8: for tariffs. And so, which is to say, let's say
Speaker 8: you let's just pick a number just at random, we
Speaker 8: deport a million people here that have had some run
Speaker 8: in with the law or here illegally. I don't think
Speaker 8: that would have a big impact on inflation. If you
Speaker 8: start deporting eight, nine, ten million people, that's going to
Speaker 8: have an impact on the labor markets, right, and then
Speaker 8: we have to make decision as a country whether that
Speaker 8: cost is worth it. But I am very sympathetic to
Speaker 8: this idea that that's maybe part of the economic plan.
Speaker 8: It's not part of the economic plan, but it's part
Speaker 8: of the policy mix that is for inflation at least
Speaker 8: is something we have to keep an eye on.
Speaker 3: Jason got to leave it there, Jason Trender, thank you
Speaker 3: so much. Mister TIGA's a lengthy conversation this morning on
Speaker 3: his American stock market and economic experiment.
Speaker 2: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 2: starting at seven am Eastern on Applecarplay and Android Auto
Speaker 2: with the Bloomberg Business app. You can also watch us
Speaker 2: live every weekday on YouTube and always on the Bloomberg terminal.
Speaker 3: The Daily Look at the front pages, the Lisa Matteo Show, Lisa,
Speaker 3: what do you got?
Speaker 4: Okay?
Speaker 1: More protests surrounding the Paramount and Skydance merger. Now you
Speaker 1: have the Center for American Rights. It's filed a petition
Speaker 1: with the FCC. They're citing potential foreign influence and bias.
Speaker 1: What am I talking about?
Speaker 7: Okay?
Speaker 1: So this said that an investment in Sky dance by
Speaker 1: the Chinese company Tencent. It raises questions about foreign influence
Speaker 1: over the US media, And then they're saying that Paramount
Speaker 1: CBS News division has a track record of ideological bias
Speaker 1: and also lacks diversity and its hiring practice. But I
Speaker 1: don't know is this merger going to be approved by
Speaker 1: the FCC. I mean, they're saying most of it likely.
Speaker 6: It is my personal opinion, having found the media industry
Speaker 6: for thirty five years, zero risk here of it not
Speaker 6: being I mean, sky Dance is just is.
Speaker 5: It a real estate play?
Speaker 3: Like you know, they show the Paramount studios, it is
Speaker 3: a great lot. That's like if they bulldoze it, it's
Speaker 3: worth it.
Speaker 5: It's worth a lot of money, it is. I mean
Speaker 5: there's that as well.
Speaker 6: We saw that with the Fox a lot when disneyball
Speaker 6: twenty first century Fox. A lot of value allocated to that.
Speaker 6: But it's just, you know, it's it's a sky Dance
Speaker 6: looking to get into the media business. It's the son
Speaker 6: of rich guys exactly exactly end. It's still that way
Speaker 6: and at Cherry retch done looking to get out as
Speaker 6: quickly as she possibly can to anybody that'll write a
Speaker 6: check and that's how the steal came about.
Speaker 3: Did it change the industry? Did it change streaming? Did
Speaker 3: it change Warner Brothers Discovery's discussions?
Speaker 6: Know that this new company, this new paramount owned by
Speaker 6: sky Dance, is now going to have to think of that. Okay,
Speaker 6: now what do I do? I probably can't stand alone.
Speaker 6: I probably need to talk to Warner Brothers Discovery. I
Speaker 6: probably need to talk to some media companies about getting bigger.
Speaker 3: Tim Cook out yesterday with the lead actress I think
Speaker 3: her name is Ferguson. Excuse me, I'm so sorry. I
Speaker 3: don't know it.
Speaker 5: The show Silo I watch on Apple.
Speaker 3: They extended it for season three, season four, and they
Speaker 3: have the lead actress and Tim Cook. I think they're
Speaker 3: sort of on this set of Silo and she's thanking
Speaker 3: him for the gazillions of dollars Apple spent on this show,
Speaker 3: and he said he's addicted to it.
Speaker 5: I mean, it really helps if the head is addicted
Speaker 5: to your product.
Speaker 6: Exactly exactly, Tim, I mean, Apple's got the money and.
Speaker 5: Who green lit the red one with the red Yeah,
Speaker 5: I don't know.
Speaker 2: I don't know.
Speaker 1: I'm still trying to get through that one. Okay, holiday
Speaker 1: party season.
Speaker 4: Right, So how do you behave Please tell them?
Speaker 1: The Wall Street Journal has a whole detailed a few
Speaker 1: examples of what you should and should not do. So
Speaker 1: they're saying, a work party is another day from work.
Speaker 1: You're not kind of off duty, so just be careful. Yes,
Speaker 1: the drinking, the dancing, the flirting, and you can get
Speaker 1: fired for some of that because it is a work function.
Speaker 1: What you where expect the usual office dress code, if
Speaker 1: slightly less formal, bow ties included. Okay, And it says
Speaker 1: he the hierarchy make a point to acknowledge, perhaps thank
Speaker 1: the boss. So if you're going around, say hey, thanks
Speaker 1: for you know, for the great year. Mingle. Here's the
Speaker 1: thing mingling, right, don't linger and don't like.
Speaker 6: Hover, can't start sending you the bar.
Speaker 4: No, and you can't be on your phone. That's the
Speaker 4: other thing.
Speaker 1: You can't isolate yourself. You have to mingle.
Speaker 6: Okay, you're good at that. You can dance, you can't.
Speaker 6: Don't get carried away, tom Okay, now can.
Speaker 5: I say something about this? The guy that wrote The
Speaker 5: guy that.
Speaker 3: Wrote the article at the Wall Street Journal of Party
Speaker 3: Times is one of the smartest guys ever met. Paul
Speaker 3: Podowski was I think it fleet my mind's you know,
Speaker 3: this is like back when they were throwing tea into
Speaker 3: the harbor. But Paul Podowski was there with two other guys,
Speaker 3: Greg Anderson at the bank and they wrote a morning
Speaker 3: memo that was so smart you stopped at seven oh
Speaker 3: two am when they released that memo. He was legendary
Speaker 3: for writing cross asset smart memos. Paul Poldowski at Cake Capitol,
Speaker 3: good morning, and he's the one.
Speaker 5: He's a party monster. Have you ever gone to parties
Speaker 5: in one evening? Noyes, that's like work.
Speaker 3: You take the you take the beverage. They all want
Speaker 3: to give me a martini and you touch it to
Speaker 3: your lips.
Speaker 5: Oh you pretend, you pretend.
Speaker 3: Yeah, you can't get through the evening If you don't,
Speaker 3: I wouldn't get out of the first party.
Speaker 5: But you know it's it's yeah, you know, it's very difficult.
Speaker 5: Next what do you go? Oh?
Speaker 1: God, okay, so we did that. So we were talking
Speaker 1: yesterday about the malls. You were asking me, you know,
Speaker 1: how are the malls?
Speaker 4: Are they crowded?
Speaker 1: Are they not crowded? So apparently this from Women's Wear Daily.
Speaker 1: They spoke with the head person over at Simon Property,
Speaker 1: they own a lot of the malls, and they said
Speaker 1: how their recent traffic figures shows that they're starting to
Speaker 1: see growth. How basically what they're doing is they're turning
Speaker 1: malls into more like a community. So they're adding luxury apartments, hotels,
Speaker 1: they're adding gyms like a Lifetime Fitness, They're adding grocery offerings,
Speaker 1: more food and beverage, more restaurants because they want more
Speaker 1: people to go. And also they said, you know, it's
Speaker 1: all about the quote experience, so family and kid play areas,
Speaker 1: Mommy and me, yoga.
Speaker 5: You're a seventeen year old play area.
Speaker 3: Remember your parents screaming you and you're not going to
Speaker 3: the mall.
Speaker 5: At Lisa, you were there? How many days a week
Speaker 5: were you hanging out at the mall? That is it
Speaker 5: still the place to be, But.
Speaker 1: It's a lot of the kids, like the teens, did
Speaker 1: parents just come drop them off and enjoy the day. Yes,
Speaker 1: enjoy the day, enjoy the apple pay and have fun
Speaker 1: at it. But it's about becoming a community and that's
Speaker 1: how they're keeping the malls alive.
Speaker 3: The interview we had yesterday, I'm going to make it up.
Speaker 3: Burt Crouch, was it Invesco was brilliant. Ye, he was brilliant.
Speaker 5: Yeah, he just said the gloom is not as bad
Speaker 5: as people think. Right, you got one more for us,
Speaker 5: last one.
Speaker 1: Oh, yesterday we told you about the Amazon return to
Speaker 1: work five days a week policy that starts next month.
Speaker 1: Now AT and T they're saying their policy kicks in
Speaker 1: in the new year five days a week.
Speaker 6: A comedy.
Speaker 1: They've been doing the hybrid schedule for about a year.
Speaker 1: So the thing is is that now there's talk. You
Speaker 1: have Reddit users on the AT and T subreddit they're
Speaker 1: saying that, well, you know what, there's not going to
Speaker 1: be enough room for all these workers to come back.
Speaker 1: The same issue that Amazon is having is that they're
Speaker 1: bringing all these people back and there might not be
Speaker 1: enough room. So that's one of the issues there for Amazon.
Speaker 1: But a lot of people saying it's even harder to find.
Speaker 5: A job that's a huge employer in the state of
Speaker 5: New Jersey.
Speaker 6: That means, you see how that plays out.
Speaker 5: Interesting.
Speaker 3: I have no idea how this plays out. It's one
Speaker 3: of the great mysteries. Yeah, Lisa Mateo, thank you so much.
Speaker 5: The newspapers.
Speaker 2: This is the Bloomberg Surveillance podcast available on Apple, Spotify,
Speaker 2: and anywhere else you get your podcasts. Listen live each weekday,
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