WEBVTT - Big Tech Earnings, The Fed, Inflation Data 0:00:02.400 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.960 --> 0:00:15.560 This is the Bloomberg Surveillance Podcast. I'm Tom Keene along 0:00:15.600 --> 0:00:18.960 with Paul Sweeney. Join us each day for insight from 0:00:18.960 --> 0:00:23.160 the best in economics, finance, investment, and international relations. You 0:00:23.160 --> 0:00:26.520 can also watch the show live on YouTube. Visit the 0:00:26.520 --> 0:00:31.280 Bloomberg Podcast channel on YouTube to see the show weekday 0:00:31.280 --> 0:00:34.320 mornings from seven to ten am Eastern from our global 0:00:34.360 --> 0:00:39.000 headquarters in New York City. Subscribe to the podcast on Apple, Spotify, 0:00:39.360 --> 0:00:42.920 or anywhere else you listen, and always I'm Bloomberg Radio, 0:00:43.120 --> 0:00:47.159 the Bloomberg Terminal and the Bloomberg Business app joining us now, 0:00:47.240 --> 0:00:49.600 the one that puts Greek and Latin into our bond cover. 0:00:49.680 --> 0:00:53.560 And Robert Michael, Bob Michael of JP Morgan. How do 0:00:53.680 --> 0:00:58.080 the Greeks right now? The derivative Greeks play into what 0:00:58.440 --> 0:01:03.960 you do When you look at the quiet of holes 0:01:04.000 --> 0:01:07.520 in the market or a new volatility, maybe it's skew 0:01:07.600 --> 0:01:10.080 that you play. How does a derivative space fit in? 0:01:11.400 --> 0:01:14.120 They're critical to what we do in the markets. I 0:01:14.160 --> 0:01:16.920 think so much of what you try to do is 0:01:17.080 --> 0:01:21.880 in the cash market, but there's limited bandwidth. Broker dealer 0:01:22.000 --> 0:01:25.240 balance sheets, aren't what they used to be, And a 0:01:25.319 --> 0:01:28.480 lot of the balance sheet in the industry sits with 0:01:28.600 --> 0:01:34.520 investors like ourselves, and we tend to own securities until 0:01:34.560 --> 0:01:37.280 we change our mind. So we're not in the market 0:01:37.400 --> 0:01:41.280 actively trying to change positions. You go into the derivatives 0:01:41.360 --> 0:01:44.959 market to help you change the positioning of your portfolio 0:01:45.280 --> 0:01:46.959 or perhaps put a bit of a hedge on. 0:01:47.240 --> 0:01:49.880 Is there about Michael, and I think of Ian Lingoln 0:01:49.920 --> 0:01:52.520 at BMO Capital. You're saying we're going to see price up, 0:01:52.560 --> 0:01:56.040 yield down. Is there a bet in the space now 0:01:56.360 --> 0:01:59.320 like what you believe that we will see as a 0:01:59.360 --> 0:02:01.360 regime lower yields. 0:02:01.440 --> 0:02:05.520 Well, it's everywhere we liken the current environment. In nineteen 0:02:05.600 --> 0:02:10.160 ninety five, there's one critical difference. When the FED finished 0:02:10.240 --> 0:02:13.600 hiking rates from three percent to six percent in ninety five, 0:02:13.919 --> 0:02:17.919 the entire yeal curve was above the FED funds rate. Today, 0:02:18.280 --> 0:02:20.760 we think the Fed is done hiking rates, but the 0:02:20.919 --> 0:02:24.320 entire yeal curve is trading roughly one hundred basis points 0:02:24.440 --> 0:02:27.440 through the FED funds rate. So that's telling us that 0:02:27.480 --> 0:02:30.919 the market still believes that the Fed will come in 0:02:31.280 --> 0:02:34.799 take pressure off of businesses and households by doing at 0:02:34.880 --> 0:02:37.840 least a few rate cuts over the next twelve months. 0:02:38.200 --> 0:02:41.000 Bob, We're sitting here at two year treasury almost at 0:02:41.000 --> 0:02:44.040 five percent. Here, I don't know, I'm going to park 0:02:44.080 --> 0:02:45.640 my money right there, and I'm going to feel fine. 0:02:45.680 --> 0:02:46.640 Is that a bad trade? 0:02:47.400 --> 0:02:50.799 It's not a bad trade, but you may feel lonely 0:02:51.000 --> 0:02:53.920 compared to the money that's sitting in money market funds. 0:02:54.120 --> 0:02:57.360 You're willing to step out. But what we're looking at 0:02:57.520 --> 0:03:01.640 is over six trillion dollars of assets sitting in money 0:03:01.680 --> 0:03:06.360 market funds and they're feeling cozier at somewhere closer to 0:03:06.440 --> 0:03:09.280 a five and a half percent yield. For that money 0:03:09.320 --> 0:03:12.000 to come out and come into the bond market, we 0:03:12.080 --> 0:03:15.160 do need to see the Fed begin to cut rates, 0:03:15.360 --> 0:03:18.120 or at least telegraph that they're thinking about it again 0:03:18.440 --> 0:03:22.160 and not dropping these sins that maybe rates could go higher. 0:03:22.600 --> 0:03:25.720 So what do you think our Fed should do? I mean, 0:03:25.760 --> 0:03:29.079 the economic data suggests that maybe there's no reason to 0:03:29.240 --> 0:03:32.680 cut rates. We've got I don't know, inflation still out there. 0:03:33.800 --> 0:03:36.800 If I were at the Fed, everything looks so good, 0:03:37.240 --> 0:03:39.600 I would just sit in my hands for the next 0:03:39.640 --> 0:03:44.160 couple quarters see what happens into the election. And do nothing. 0:03:44.600 --> 0:03:48.760 You're looking at over two years of unemployment below four percent. 0:03:49.200 --> 0:03:52.760 I know we get PCE at the end of this week. 0:03:52.960 --> 0:03:54.920 There's a lot of debate. Is it going to be 0:03:55.440 --> 0:03:58.920 two seven or two point eight year every year? Is 0:03:58.960 --> 0:04:02.800 it a point two five for a point twenty seven increase? 0:04:03.200 --> 0:04:08.320 The reality is to something year every year is much 0:04:08.440 --> 0:04:11.119 lower than the six point six percent year every year 0:04:11.120 --> 0:04:12.200 it was a couple of years ago. 0:04:12.280 --> 0:04:15.840 So the stated system, is there leverage in the system? 0:04:15.960 --> 0:04:19.360 Is there that animal don't I don't want to say 0:04:19.360 --> 0:04:24.160 animal spirit, that that ancient animal instinct to leverage up 0:04:24.200 --> 0:04:26.599 when we're certain we know what we're doing. Is there 0:04:26.600 --> 0:04:27.640 that bet right now? 0:04:28.760 --> 0:04:32.120 You're not seeing it to the extent that we saw 0:04:32.120 --> 0:04:35.919 it previously, either headed into the dot com bubble in 0:04:35.960 --> 0:04:39.960 two thousand or certainly into the Great Financial Crisis in 0:04:40.000 --> 0:04:43.360 two thousand and seven two thousand and eight. But there 0:04:43.400 --> 0:04:46.440 is a lot of borrowing going on out there. The 0:04:46.480 --> 0:04:51.680 most levered balance sheet are not businesses in household they're 0:04:51.720 --> 0:04:56.400 actually federal governments. Globally, when you look about the extension 0:04:56.440 --> 0:04:59.839 of credit into the system, bank balance sheets may have shrunk. 0:05:00.200 --> 0:05:01.760 Private credit is out there, but. 0:05:01.760 --> 0:05:04.640 The heart of the matter. Going back to Rogueff and Reinhardt, 0:05:04.680 --> 0:05:08.640 this time is different. Is they took within their iconic 0:05:08.720 --> 0:05:14.000 study of debt that it's about public and private combination 0:05:14.160 --> 0:05:17.080 of debt. Would you suggest we're going to see a 0:05:17.200 --> 0:05:21.200 private debt issuance and build up and belief in debt, 0:05:21.400 --> 0:05:26.239 so we've got both public and private over indebtedness. 0:05:26.560 --> 0:05:29.560 It doesn't feel like we're heading there. I agree, right 0:05:29.720 --> 0:05:31.920 right now, it feels like and I know you did 0:05:31.920 --> 0:05:35.960 a story that consumers are looking to do a bit 0:05:36.000 --> 0:05:39.359 more vacationing and a third of them are willing to 0:05:39.400 --> 0:05:42.800 put that, willing to go into debt to do that. 0:05:43.720 --> 0:05:46.800 Going into the financial crisis, one hundred and twenty percent 0:05:46.880 --> 0:05:49.760 of them would have been willing to have gone into 0:05:49.839 --> 0:05:53.760 debt to go on vacation. So there is some moderation. 0:05:54.279 --> 0:05:59.960 You look at housing, consumers aren't changing, aren't chasing how 0:06:00.000 --> 0:06:01.640 housing prices higher. 0:06:01.839 --> 0:06:05.120 Let's listen to our Latin tour guide here as we. 0:06:05.040 --> 0:06:08.599 Go to Rome, Arma, we're room quay kind of troy 0:06:08.680 --> 0:06:10.240 I quy primus aboris. 0:06:10.240 --> 0:06:12.960 That's great, and that's like Lisa Mateo's schedule to go 0:06:12.960 --> 0:06:15.159 to Rome. Here she's going deep into debt. Okay, and 0:06:15.200 --> 0:06:16.800 to go to loan so she can catch up with 0:06:16.800 --> 0:06:19.320 Bob Michael and the Latin. That's perfect, it's out there 0:06:19.360 --> 0:06:20.560 as well. It's going to happen. 0:06:20.960 --> 0:06:21.920 Bob. What do I do here? 0:06:22.640 --> 0:06:24.400 And if I want to take some credit risk here? 0:06:24.440 --> 0:06:27.520 Do I stay with investment grade? Do I go to 0:06:27.640 --> 0:06:30.440 high yield? Because high yield was the performer last year 0:06:30.640 --> 0:06:33.000 in the fixed income space? Where do we go in 0:06:33.040 --> 0:06:33.719 a credit space? 0:06:34.800 --> 0:06:38.600 You hope that over the next week high yield pulls 0:06:38.680 --> 0:06:42.400 back a little bit further and then you go in 0:06:42.880 --> 0:06:46.679 without recession on the horizon. You have nothing to fear 0:06:46.760 --> 0:06:49.680 but yourself. If you stay out of the high yield market, 0:06:50.000 --> 0:06:54.080 you're you're picking up now yields of over eight percent. Wow, 0:06:54.600 --> 0:06:58.760 corporate profitability looks good. It's a much cleaner high yield 0:06:58.839 --> 0:07:01.919 market than anything I like time six percent of it 0:07:02.120 --> 0:07:04.839 washed away back in twenty twenty. 0:07:05.000 --> 0:07:06.599 I guess I got to go to the FED meeting 0:07:06.640 --> 0:07:09.800 as well. The basic ideas, it's a snoozefest to get 0:07:09.840 --> 0:07:12.640 to June when they redo the dots and as a 0:07:12.720 --> 0:07:16.320 raging debate now Craig Trus with great leadership on this 0:07:16.360 --> 0:07:21.160 over the weekend about the FED almost over communicating. Is 0:07:21.200 --> 0:07:25.600 your world made more complex because there's too much communication 0:07:25.840 --> 0:07:29.440 from FED presidents, governors and leaders. 0:07:30.080 --> 0:07:33.720 You know, Tom, the one dead language that I miss 0:07:34.080 --> 0:07:37.880 is FED speak. Remember in the days back in the eighties, 0:07:38.000 --> 0:07:41.520 when the FED wasn't always telling you every day what 0:07:41.880 --> 0:07:42.560 you were thinking. 0:07:42.800 --> 0:07:44.080 I yearned for it. 0:07:44.440 --> 0:07:47.440 You used to get the FED minutes, you used to 0:07:47.560 --> 0:07:51.840 get the listen to the Humphrey Hawkins testimony. You heard 0:07:51.840 --> 0:07:55.360 what Greenspan said, then you got out your secret FED 0:07:55.440 --> 0:08:01.520 decodering and interpretated what he meant was a value to that. 0:08:01.880 --> 0:08:04.800 And I think there is just way too much daily 0:08:04.880 --> 0:08:06.040 information coming, Paul. 0:08:06.040 --> 0:08:08.720 The most important conversation I've had on this is someone 0:08:08.760 --> 0:08:11.640 that Bob Michael knows, Richard Berner, who drove the ship 0:08:11.640 --> 0:08:13.720 at Morgan Stanley for Steve Roach for years in the 0:08:13.840 --> 0:08:18.680 US economy, public service to the nation at Treasury. And 0:08:18.720 --> 0:08:21.880 what was so important here is there was just what 0:08:21.920 --> 0:08:25.240 mister Michael says. And then you would go see a 0:08:25.360 --> 0:08:29.240 president at a rotary club or some other economic club 0:08:29.720 --> 0:08:33.360 and they'd say, just as little at the breakfast is 0:08:33.400 --> 0:08:35.680 they were saying to us on the street. 0:08:35.960 --> 0:08:39.359 Bob, you're head of the global fixed in home currency 0:08:39.440 --> 0:08:44.600 and Commodities group. Here, let's go currencies. What is there 0:08:44.640 --> 0:08:46.840 a bare case for the US dollar here? Or are 0:08:46.880 --> 0:08:49.120 we just all along the US dollar and letting everybody 0:08:49.120 --> 0:08:50.319 else deal with it. 0:08:50.679 --> 0:08:53.880 There's a bare case for the dollar when the FED 0:08:54.000 --> 0:08:58.080 starts cutting rates. Until they do that, there's no sense 0:08:58.360 --> 0:09:01.560 fighting the strength and the dollar. If you look at 0:09:01.640 --> 0:09:05.400 when the dollar really started to gain strength, it's when 0:09:05.440 --> 0:09:09.080 the FED started hiking the FED funds rate at the 0:09:09.120 --> 0:09:12.880 start of twenty twenty two. Back then, yen was about 0:09:13.000 --> 0:09:16.880 one ten, not one point fifty. The entire strength and 0:09:17.040 --> 0:09:20.160 dollar yen has come from the FED hiking rates, not 0:09:20.240 --> 0:09:22.600 anything that's happened on the Bank of Japan's part. 0:09:23.280 --> 0:09:27.160 So, and we see central banks around the world cutting rates, 0:09:27.160 --> 0:09:30.000 are or saying they will cut rates, signaling that they 0:09:30.040 --> 0:09:32.760 will cut rates. So I mean, does a FED, how 0:09:32.800 --> 0:09:34.640 does the FED think about the dollar when they think 0:09:34.640 --> 0:09:36.760 about their rate policy. 0:09:37.200 --> 0:09:41.520 You're right, there have been seven thousand basis points of 0:09:41.640 --> 0:09:46.120 rate cuts in the emerging market central banks. So those 0:09:46.160 --> 0:09:49.240 central banks have been cutting rates for over a year, 0:09:49.760 --> 0:09:53.360 and I have to imagine they're starting to second guests 0:09:53.760 --> 0:09:57.800 whether they need to keep cutting rates. Here, I don't 0:09:57.840 --> 0:10:01.640 know that the FED thinks about the dollar all that much. 0:10:01.960 --> 0:10:04.120 If we go back, we were just talking about the 0:10:04.160 --> 0:10:07.680 FED speak of the nineteen eighties. I remember we used 0:10:07.720 --> 0:10:09.760 to look at the ten book, We used to look 0:10:09.800 --> 0:10:14.120 at the minutes. We used to see how they prioritized inflation, 0:10:14.640 --> 0:10:18.280 growth and the dollar, and many times the dollar was 0:10:18.360 --> 0:10:21.880 their number one priority. I don't think it's their priority 0:10:22.000 --> 0:10:24.240 right now. I think it's a huge one for the 0:10:24.280 --> 0:10:26.120 ECB and the Bank of Japan A. 0:10:26.160 --> 0:10:28.360 Bob and the time we got left. I really want 0:10:28.400 --> 0:10:31.320 to focus here on end of the earning season in 0:10:31.440 --> 0:10:36.679 corporate issuance off of like ZV Body at Boston University, 0:10:36.920 --> 0:10:40.520 or there's a thing folks called eminem. It's not the candy, 0:10:40.559 --> 0:10:43.440 but it's a theory here and the allocation of your 0:10:43.480 --> 0:10:48.400 capital structure to debt. Are we underdebted right now in 0:10:48.480 --> 0:10:53.400 quality corporate America? Do they have not enough bills, notes 0:10:53.440 --> 0:10:54.000 and bonds? 0:10:54.920 --> 0:10:59.760 I think we are. We have spent the last quarter 0:10:59.800 --> 0:11:04.520 trying to poke holes in corporate profitability in the markets 0:11:04.720 --> 0:11:08.200 and at JP Morgan with our credit research team, and 0:11:08.240 --> 0:11:11.280 they can't do it. And instead what they're seeing is 0:11:11.320 --> 0:11:17.520 a reacceleration in corporate profitability and businesses thinking about investing 0:11:17.559 --> 0:11:21.200 in cap X. Again, it looks pretty bright out there 0:11:21.240 --> 0:11:24.320 for corporate America. It does remind me in nineteen ninety five. 0:11:24.440 --> 0:11:27.360 Do you suggest bond issuance will be the surprise of 0:11:27.400 --> 0:11:28.800 the next eighteen months. 0:11:30.600 --> 0:11:33.680 I don't know. I think there's a shortage of corporate 0:11:33.720 --> 0:11:36.360 debt right now. We were looking out over the next 0:11:36.440 --> 0:11:40.079 couple quarters and there's money, more money maturing than there 0:11:40.120 --> 0:11:40.720 are planned. 0:11:40.760 --> 0:11:43.680 At what you just heard there, folks, is classic John 0:11:43.720 --> 0:11:47.600 Templeton from Bob Michael. I'm sorry, Paul, I'm in this camp. 0:11:47.640 --> 0:11:50.880 There's a shortage of bonds. Nobody's looking at the Bob 0:11:50.920 --> 0:11:54.440 Michael world and it's a tangible part of how we 0:11:54.520 --> 0:11:57.080 do this, and it links into the equity market, and 0:11:57.080 --> 0:11:58.920 there's just a shortage of bonds. That's all there is. 0:11:59.080 --> 0:12:01.960 I mean, Bob, you read you're JP Morgan Asset Management. 0:12:02.240 --> 0:12:05.480 You guys are pretty big. If you wanted to get 0:12:05.520 --> 0:12:09.920 out of a position change a big allocation. Is there 0:12:10.080 --> 0:12:13.160 enough liquidity on the street to kind of get that 0:12:13.280 --> 0:12:16.560 trade done to your liking today versus ten or fifteen 0:12:16.640 --> 0:12:19.120 years ago. How much harder is it, if at all, 0:12:19.520 --> 0:12:22.200 to kind of make major trades for you guys. 0:12:23.720 --> 0:12:27.920 Right now. When things are relatively stable, you can do it. 0:12:27.920 --> 0:12:30.280 It will take a little bit of time, depending how 0:12:30.360 --> 0:12:33.320 large a position you're trying to move. There's a lot 0:12:33.400 --> 0:12:37.880 more in portfolio trading, so hundreds of line items all 0:12:37.920 --> 0:12:41.199 at once at a single price. That's a feature that 0:12:41.280 --> 0:12:46.600 didn't exist pre financial crisis. But when everyone is waried 0:12:46.960 --> 0:12:50.800 and everyone's pulling back liquidity and their balance sheet, then 0:12:50.840 --> 0:12:53.200 it is far more challenging than it was. 0:12:53.720 --> 0:12:57.200 JP Morgan, you say, get that trade done for me, right? 0:12:57.720 --> 0:12:58.960 I mean, you guys are players. 0:12:59.360 --> 0:13:02.480 You try not to do that because you are, You 0:13:02.559 --> 0:13:05.600 are reliant on a counterparty. I think that's a pre 0:13:05.800 --> 0:13:07.280 financial crisis. 0:13:08.400 --> 0:13:10.640 Let me pin down the ten year yeld twelve months 0:13:10.679 --> 0:13:14.600 from now, just a vanilla media call here for animals 0:13:14.640 --> 0:13:14.880 like me. 0:13:16.720 --> 0:13:19.800 I think we're going to be right around four percent. 0:13:20.400 --> 0:13:24.400 Down, but not down with the drama that financial media. 0:13:24.440 --> 0:13:26.680 Not a whole lot, Not a whole lot. I think 0:13:26.720 --> 0:13:29.920 the FED could probably get one hundred and one hundred 0:13:29.920 --> 0:13:31.640 and twenty five basis points of great cut. 0:13:31.800 --> 0:13:34.040 So are you doing cliff notes now in FED speak? 0:13:34.080 --> 0:13:36.760 If you got Greek and Latin down from your undergraduate days. 0:13:36.920 --> 0:13:38.440 I don't are you looking at fed speakers. 0:13:38.559 --> 0:13:40.839 I don't need to do. If they're telling us every 0:13:40.880 --> 0:13:43.720 ten minutes what they're thinking, you don't need cliff notes. 0:13:43.880 --> 0:13:46.280 About Michael, thank you so much, just generous with his 0:13:46.360 --> 0:13:48.960 time here on a Monday that morning, he of course 0:13:49.200 --> 0:14:02.360 is with JP Morgan. This is what we like to 0:14:02.360 --> 0:14:04.280 do best. There's no other way to put it. We 0:14:04.400 --> 0:14:07.840 like to look at equities, bonds, currencies, commodities and shift 0:14:07.840 --> 0:14:10.080 from world class to world class. We do this with 0:14:10.120 --> 0:14:13.120 Bob Michael, J. P. Morgan and bonds and now one 0:14:13.160 --> 0:14:16.360 of my favorite people looking at It's called investment strategy, 0:14:16.360 --> 0:14:21.120 but far more it's just equity strategy. Liz Young joins 0:14:21.160 --> 0:14:24.680 us with an always twisted view from so far thrilled 0:14:24.680 --> 0:14:27.280 she could be with us today, Liz into this earning 0:14:27.360 --> 0:14:30.120 season is a glass half full or less. 0:14:30.160 --> 0:14:33.640 So you know what, I think it's half full on expectations, 0:14:33.680 --> 0:14:35.760 but companies have to come through. And I have to 0:14:35.800 --> 0:14:37.320 tell you, Tom, I don't think I've ever been called 0:14:37.360 --> 0:14:40.280 twisted on a Monday morning, So I don't know if 0:14:40.280 --> 0:14:42.160 that's a good sign for the week, but I think 0:14:42.160 --> 0:14:44.400 what's going to happen this earning season. We've already seen 0:14:44.440 --> 0:14:47.840 it a little bit, especially with the financials, is that 0:14:47.880 --> 0:14:51.320 it's not just about the results. It's always about the guidance. 0:14:51.360 --> 0:14:54.120 But I think right now, even more so, especially with 0:14:54.600 --> 0:14:59.000 where equity valuations are, companies have to come in with guidance, 0:14:59.240 --> 0:15:02.640 and expectors are expecting the guidance to be stronger even 0:15:02.680 --> 0:15:04.920 than before. So companies have to come in with strong 0:15:04.960 --> 0:15:08.720 guidance and optimistic outlook in order to really be rewarded 0:15:09.240 --> 0:15:10.040 at these levels. 0:15:10.120 --> 0:15:12.520 Yeah. And then the reason I say twisted, folks, is 0:15:12.560 --> 0:15:15.560 I got so far working off of Anthony Nodo with 0:15:15.640 --> 0:15:18.800 a real digital heritage. It's almost like a West Coast 0:15:19.240 --> 0:15:23.080 ethos here on like three zip codes in midtown Manhattan 0:15:23.440 --> 0:15:26.600 and list with that, how does a technology group look? 0:15:26.640 --> 0:15:29.160 I mean, maybe not individual stock if you don't want 0:15:29.160 --> 0:15:30.880 to give me a buy Hoed, Sell and Apple, although 0:15:30.920 --> 0:15:34.760 we're listening, but the basic idea here does the tech 0:15:34.840 --> 0:15:37.080 boom continue? 0:15:37.880 --> 0:15:39.600 I think there's two things that we need to pay 0:15:39.640 --> 0:15:42.880 attention to in these results for tech companies. First and 0:15:42.920 --> 0:15:47.520 foremost investors should be aware that expectations for SMP earnings 0:15:47.560 --> 0:15:52.640 growth are positive marginally right low single digits, and all 0:15:52.680 --> 0:15:55.440 of that growth is coming from those tech companies or 0:15:55.440 --> 0:15:58.520 the expectations are coming from those tech companies, So we 0:15:58.640 --> 0:16:01.840 need tech to come through on these first quarter results 0:16:01.880 --> 0:16:04.360 in a positive way in order to carry the index. 0:16:04.560 --> 0:16:07.200 This is the other thing that I think is happening 0:16:07.280 --> 0:16:09.280 and that is really important to watch, not just this 0:16:09.360 --> 0:16:11.440 quarter but for the rest of the year, is that 0:16:11.480 --> 0:16:15.240 we obviously had all of this AI enthusiasm pull forward, 0:16:15.640 --> 0:16:18.280 and now we're looking at it through a company lens 0:16:18.320 --> 0:16:20.600 of when is it really going to come to fruition, 0:16:20.720 --> 0:16:23.120 when is it going to actually create profits? And I 0:16:23.160 --> 0:16:26.240 think some of the enthusiasm and excitement is coming out 0:16:26.240 --> 0:16:28.920 of that, just as everybody realizes that the profits aren't 0:16:28.960 --> 0:16:32.520 happening immediately and there's only really a couple companies that 0:16:32.600 --> 0:16:35.560 are doing a decent job of generating revenue off of 0:16:35.720 --> 0:16:38.280 AI right now, So it may just take longer. Doesn't 0:16:38.280 --> 0:16:40.320 mean the theme is dead, but it may just take 0:16:40.440 --> 0:16:43.440 longer in order to justify these levels of valuations. 0:16:43.600 --> 0:16:45.920 All right, let's talk about valuations, Liz, give us your 0:16:45.960 --> 0:16:48.840 thoughts about how this market is valued. Here do I 0:16:48.880 --> 0:16:50.960 pull out the Magnificent seven and try to look at 0:16:51.000 --> 0:16:52.280 the market on that basis? 0:16:53.160 --> 0:16:57.160 Where are we well given where yields have gone just 0:16:57.200 --> 0:16:59.800 over the past month. The market right now is valued 0:17:00.080 --> 0:17:03.200 for a pretty great environment. And when I say pretty great, 0:17:03.280 --> 0:17:06.639 I mean we've got fundamentals from an earning's perspective that 0:17:06.720 --> 0:17:09.840 need to deliver at least stay this strong or strengthen. 0:17:10.160 --> 0:17:13.480 And we would also need the economic fundamentals to stay 0:17:13.480 --> 0:17:17.840 this strong or strengthen, and we would need geopolitical risks 0:17:17.840 --> 0:17:19.879 to calm down or at least have the absence of 0:17:19.880 --> 0:17:23.080 any big shocks. In the last couple weeks, we obviously 0:17:23.119 --> 0:17:26.399 have had geopolitical tensions heating up and the likelihood of 0:17:26.440 --> 0:17:30.800 shocks feeling higher. So the valuations as we see it now, 0:17:31.040 --> 0:17:34.840 especially given where tenure yields are, do feel a bit high, 0:17:35.000 --> 0:17:37.919 even with this recent pullback. So I think we have 0:17:38.000 --> 0:17:41.920 to really watch how these numbers deliver, how the data delivers. 0:17:42.119 --> 0:17:44.440 And we've obviously got a big inflation read coming later 0:17:44.480 --> 0:17:44.880 this week. 0:17:45.000 --> 0:17:47.199 Yeah, we do absolutely on Friday, And Liz, that kind 0:17:47.240 --> 0:17:49.879 of goes to I guess the Fed. I mean, the 0:17:49.880 --> 0:17:55.520 market seems to be pricing out much fewer rate cuts 0:17:55.600 --> 0:17:59.640 this year. How much is the market being held hostage 0:17:59.640 --> 0:18:03.119 by rate cuts or the expectation of rate cuts at 0:18:03.160 --> 0:18:04.720 the moment, I. 0:18:04.760 --> 0:18:08.040 Think the momentum in the market is absolutely held hostage 0:18:08.040 --> 0:18:11.760 by what the expectations for rate cuts are. So far, 0:18:11.800 --> 0:18:14.359 we've digested it pretty well. I know that there's been 0:18:14.400 --> 0:18:16.840 a correction, it's only a little bit so far. It 0:18:16.920 --> 0:18:19.760 just feels bigger because our muscle memory is for the 0:18:19.800 --> 0:18:24.480 market to rise uninhibited. But I think the rate cut 0:18:24.560 --> 0:18:28.640 mentality is starting to actually affect where markets are trading. 0:18:28.880 --> 0:18:31.639 But that's more of a rational approach. Some of the 0:18:31.720 --> 0:18:35.840 relationships that we typically expect from markets, things like yields up, 0:18:35.880 --> 0:18:39.640 stocks down, That is actually happening again, which feels much 0:18:39.640 --> 0:18:41.840 more rational to me. And I think investors are taking 0:18:41.840 --> 0:18:44.840 a hard look at how much am I really willing 0:18:44.920 --> 0:18:48.280 to pay for forward earnings in an environment where yields 0:18:48.280 --> 0:18:51.239 may stay high, if not higher, for even longer than 0:18:51.240 --> 0:18:51.760 we expected. 0:18:51.880 --> 0:18:54.600 Bob Micah was there. He's looking for lower rates, but 0:18:54.760 --> 0:18:58.000 lis not much lower rates. There's not much drama from 0:18:58.080 --> 0:19:01.160 JP Morgan. Price up, yield down, Yeah, we get that 0:19:01.760 --> 0:19:05.440 if we yet, as you say, higher yields or renew regime, 0:19:06.119 --> 0:19:09.400 a higher yield reset or an our start to take 0:19:09.440 --> 0:19:12.160 it over to economics of two and a half two 0:19:12.160 --> 0:19:15.520 point six Dare I say three point one percent? How 0:19:15.520 --> 0:19:18.680 does that fold into the stock market three years out? 0:19:20.680 --> 0:19:22.520 Well, I think that's what we're going through right now, 0:19:22.560 --> 0:19:26.240 is this digestion process of Okay, if yields aren't going 0:19:26.320 --> 0:19:28.439 to come down as dramatically as we thought by the 0:19:28.560 --> 0:19:32.200 end of this year, when will they come down now? 0:19:32.359 --> 0:19:34.560 What we're looking at is the reason that they're staying 0:19:34.640 --> 0:19:37.960 higher right now is mostly predicated on the idea that 0:19:38.000 --> 0:19:41.199 the economy is still strong, which has caused inflation to 0:19:41.359 --> 0:19:44.440 be perhaps more of a problem for a longer period 0:19:44.440 --> 0:19:47.439 of time than we'd hoped. So what companies have to 0:19:47.440 --> 0:19:49.520 do and what stocks will have to react to, is 0:19:49.520 --> 0:19:53.320 that we probably can no longer pass through these inflationary 0:19:53.359 --> 0:19:56.280 pressures because we've done that already and there's not a 0:19:56.280 --> 0:19:58.439 lot of clearance to do much more of it. So 0:19:58.520 --> 0:20:01.080 companies are going to have to be careful about costs. 0:20:01.119 --> 0:20:03.320 They're probably going to engage in some cost cutting in 0:20:03.400 --> 0:20:07.199 order to maintain margins, and then get more creative and 0:20:07.240 --> 0:20:11.040 get more intentional about how they're going to expand their 0:20:11.080 --> 0:20:13.960 own pie. How are they going to grow revenue without 0:20:14.160 --> 0:20:16.639 having to pass through costs? And I think that's where 0:20:16.800 --> 0:20:18.880 we're going to start to see a lot of divergence 0:20:19.240 --> 0:20:22.320 in these groups that have just blindly benefited from some 0:20:22.400 --> 0:20:24.320 inflationary rises in revenue. 0:20:24.800 --> 0:20:27.359 All right, Liz, what are some sectors that you think 0:20:27.640 --> 0:20:29.639 or maybe that you guys are looking at right now 0:20:30.200 --> 0:20:31.640 going forward for the back half of the year. 0:20:33.240 --> 0:20:36.000 Well, there's obviously been a rotation that's been on and 0:20:36.000 --> 0:20:38.320 then the rotation has been off, and I think we're 0:20:38.320 --> 0:20:40.840 going to continue to see some of that volatility as 0:20:40.880 --> 0:20:43.680 the year progresses. Some sectors that I think will stay 0:20:43.760 --> 0:20:47.919 durable in those rotations, though, are energy. There has been 0:20:47.960 --> 0:20:50.920 a huge run in energy since the beginning of the year, 0:20:51.000 --> 0:20:53.359 so it could stall out a little bit as volatility 0:20:53.359 --> 0:20:56.679 picks up, and obviously geopolitical tensions will affect that. But 0:20:56.880 --> 0:21:00.840 energy stocks still seem to be quite attract two investors, 0:21:00.840 --> 0:21:03.280 and I think people are not quite positioned yet for 0:21:03.359 --> 0:21:06.040 those to look all that overbought. And then when you 0:21:06.080 --> 0:21:08.280 look at things like earlier in the year, I was 0:21:08.359 --> 0:21:11.400 constructive on healthcare. As we near an election, I would 0:21:11.400 --> 0:21:14.480 pair back on healthcare. I still do feel good about 0:21:14.520 --> 0:21:17.400 dividend paying stocks. Those can come from a number of sectors, 0:21:17.680 --> 0:21:20.879 but dividend payers in an environment where if yields do 0:21:20.960 --> 0:21:22.560 come down at some point, you want to have that 0:21:22.600 --> 0:21:23.080 in the porto. 0:21:23.119 --> 0:21:26.159 Well, you're talking to Anthony Nodo, it's so Fi with 0:21:26.240 --> 0:21:29.520 all of his great work on Wall Street. I'm fascinated. 0:21:29.760 --> 0:21:32.360 Do we need to see tech pay a dividend? Liz 0:21:32.440 --> 0:21:35.520 Young this whole idea. We're not going to do a dividend, 0:21:35.520 --> 0:21:38.320 it's a taxable event. We're only going to do share buybacks. 0:21:38.320 --> 0:21:41.520 Where are you on that, Well, dividends are an important 0:21:41.520 --> 0:21:44.160 piece as a shareholder. We need to talk about shareholder 0:21:44.200 --> 0:21:47.040 friendly companies. But if you're looking you have to break 0:21:47.080 --> 0:21:49.920 tech up into a number of different pieces. There are 0:21:49.920 --> 0:21:52.160 tech companies that have been around for a really long time, 0:21:52.280 --> 0:21:56.160