1 00:00:02,529 --> 00:00:04,210 Speaker 1: Bloomberg Audio Studios. 2 00:00:04,690 --> 00:00:07,050 Speaker 2: Podcasts. Radio. News. 3 00:00:12,530 --> 00:00:16,680 Speaker 3: This is the Bloomberg Surveillance Podcast. Catch us live weekdays 4 00:00:16,739 --> 00:00:20,220 Speaker 3: at 7 a.m. Eastern on Apple CarPlay or Android Auto 5 00:00:20,300 --> 00:00:23,880 Speaker 3: with the Bloomberg Business App. Listen on demand wherever you 6 00:00:23,920 --> 00:00:26,980 Speaker 3: get your podcasts or watch us live on YouTube. 7 00:00:27,590 --> 00:00:30,389 Speaker 4: What a wonderful time to speak to Alicia Levine, CIO, BNY. 8 00:00:31,340 --> 00:00:34,650 Speaker 4: at Wealthier who has enjoyed this bull market. How has 9 00:00:34,670 --> 00:00:38,440 Speaker 4: this bull market changed over the last 12 months? 10 00:00:39,190 --> 00:00:41,910 Speaker 5: Well, it's been a jarring 12 months. I think in 11 00:00:41,930 --> 00:00:44,290 Speaker 5: the last two years, we came into the year expecting 12 00:00:44,409 --> 00:00:48,410 Speaker 5: one thing. We got disruption. It's sort of end of 13 00:00:48,470 --> 00:00:52,120 Speaker 5: first quarter, early second quarter, and the market stabilized. And 14 00:00:52,140 --> 00:00:54,980 Speaker 5: that sort of echoed the first two years of this administration. 15 00:00:55,120 --> 00:00:59,180 Speaker 5: And yet the market is fine. Look, the market today 16 00:00:59,200 --> 00:01:05,510 Speaker 5: is echoing the market. from 2023 and some of 24, 17 00:01:05,510 --> 00:01:09,310 Speaker 5: which was the top line index is being carried by 18 00:01:09,370 --> 00:01:12,690 Speaker 5: a handful of names and everybody's wringing their hands that 19 00:01:12,709 --> 00:01:17,020 Speaker 5: it cannot continue when in fact it can continue. And 20 00:01:17,140 --> 00:01:20,160 Speaker 5: if you simply own the S & P, you've been 21 00:01:20,260 --> 00:01:26,100 Speaker 5: fine throughout the All the policy discussions, the rate sell off, 22 00:01:26,720 --> 00:01:31,800 Speaker 5: the hawkishness of the Fed, chaos in the European bond markets. 23 00:01:32,660 --> 00:01:34,840 Speaker 6: And, you know, you've been just fine. 24 00:01:34,900 --> 00:01:36,860 Speaker 5: And there's a very simple reason for that, which is 25 00:01:36,920 --> 00:01:41,050 Speaker 5: that growth keeps on exceeding expectations as normal. 26 00:01:41,850 --> 00:01:42,610 Speaker 6: As do earnings. 27 00:01:43,110 --> 00:01:45,170 Speaker 5: And it seems very simple, but that has been a 28 00:01:45,230 --> 00:01:46,730 Speaker 5: very resilient place to be. 29 00:01:46,810 --> 00:01:49,050 Speaker 6: So the question for us now is, where do we 30 00:01:49,090 --> 00:01:49,770 Speaker 6: go with all this? 31 00:01:49,990 --> 00:01:56,860 Speaker 5: We're back to 15 stocks driving the market higher. Very interestingly, 32 00:01:57,780 --> 00:02:03,060 Speaker 5: the semis and software are rallying together. The Mag7 are rallying. 33 00:02:03,100 --> 00:02:05,860 Speaker 5: You've seen something of a seesaw. When semis have been 34 00:02:05,970 --> 00:02:08,470 Speaker 5: moving better, the software is down and vice versa. Right. 35 00:02:09,990 --> 00:02:12,590 Speaker 5: And so what you're seeing is growth is winning in 36 00:02:12,610 --> 00:02:16,250 Speaker 5: a market where rates are higher and it's very hard 37 00:02:16,389 --> 00:02:19,560 Speaker 5: for the market to price in the Fed reaction function. 38 00:02:19,960 --> 00:02:24,640 Speaker 5: But we assume higher for longer that essentially investors are 39 00:02:24,660 --> 00:02:25,280 Speaker 5: going back to growth. 40 00:02:25,320 --> 00:02:28,940 Speaker 7: Is growth winning because companies are spending ridiculous amounts of 41 00:02:29,000 --> 00:02:32,690 Speaker 7: money on A.I.? Because not even the growth story is diversified, 42 00:02:32,810 --> 00:02:34,610 Speaker 7: or there's no breadth in the growth story. 43 00:02:34,669 --> 00:02:37,490 Speaker 5: There's no breadth in the growth story. Look, there's competition 44 00:02:37,530 --> 00:02:41,769 Speaker 5: for capital. We had news this morning about raising new 45 00:02:41,790 --> 00:02:43,850 Speaker 5: capital for a company that just went public. 46 00:02:43,970 --> 00:02:44,230 Speaker 3: SpaceX. 47 00:02:44,250 --> 00:02:47,030 Speaker 5: What are you doing with all the cash that you raised? 48 00:02:47,490 --> 00:02:50,210 Speaker 5: But in the end, there's demand for it. And as 49 00:02:50,250 --> 00:02:52,460 Speaker 5: we know, and we've had this conversation about deficits, if 50 00:02:52,470 --> 00:02:56,080 Speaker 5: there's demand for the debt, it's fine. The dollar amount 51 00:02:56,139 --> 00:02:59,580 Speaker 5: is eye-popping, but if there's demand... Then you can place it. 52 00:03:00,060 --> 00:03:02,339 Speaker 5: And so move on next. And that's kind of where 53 00:03:02,360 --> 00:03:04,020 Speaker 5: the market is now. Is there a price at which 54 00:03:04,080 --> 00:03:06,950 Speaker 5: that doesn't happen? But we think we think the 10 55 00:03:06,950 --> 00:03:07,870 Speaker 5: year can easily get to. 56 00:03:07,830 --> 00:03:08,490 Speaker 6: Five and a half. 57 00:03:08,850 --> 00:03:11,889 Speaker 5: That works with nominal growth at six point two, six 58 00:03:11,910 --> 00:03:13,710 Speaker 5: point three percent. There's kind of a boom out there 59 00:03:13,750 --> 00:03:17,070 Speaker 5: in the industrial economy. You see it in wages. You 60 00:03:17,130 --> 00:03:19,460 Speaker 5: see it just on the manufacturing. The line straight up. 61 00:03:20,680 --> 00:03:24,660 Speaker 5: And that's what's causing the 10-year to move higher, really. 62 00:03:24,900 --> 00:03:28,110 Speaker 4: Alicia Levine with us, BNY at Wealth here on the 63 00:03:28,169 --> 00:03:30,810 Speaker 4: Equity Markets. A lot of discussion today across the show 64 00:03:30,850 --> 00:03:34,010 Speaker 4: on the Equity Markets as I celebrate my essay of 65 00:03:34,030 --> 00:03:36,290 Speaker 4: the year. I'm catching Alicia blind on this, which is 66 00:03:36,370 --> 00:03:40,510 Speaker 4: okay because she's so good at the game. Rob Arnott, 67 00:03:40,650 --> 00:03:43,750 Speaker 4: Cam Harvey and team out of Duke and out of 68 00:03:44,350 --> 00:03:45,360 Speaker 4: Research Affiliates. 69 00:03:45,820 --> 00:03:47,540 Speaker 8: This is for the CFA Institute. 70 00:03:48,160 --> 00:03:52,340 Speaker 4: And what they basically say, Alicia, which is Alicia Levine 101, 71 00:03:52,340 --> 00:03:56,700 Speaker 4: is stop looking at expensive price ratios, GARP and the rest, 72 00:03:57,180 --> 00:04:01,440 Speaker 4: and get back to fundamental analysis. And the distinction they 73 00:04:01,520 --> 00:04:05,260 Speaker 4: have is down the income statement, don't go too far down. 74 00:04:06,030 --> 00:04:09,450 Speaker 4: This is like 19th century. Look at gross profit here. 75 00:04:09,830 --> 00:04:11,690 Speaker 4: That's the heart of the AI matter. 76 00:04:11,810 --> 00:04:12,250 Speaker 6: Correct. 77 00:04:12,290 --> 00:04:12,890 Speaker 8: These people. 78 00:04:14,490 --> 00:04:18,390 Speaker 4: You know, the Dario on Saturday Night Live folks, they're 79 00:04:18,430 --> 00:04:23,060 Speaker 4: popping massive gross profit. We don't even understand the magnitude, 80 00:04:23,100 --> 00:04:26,600 Speaker 4: do we, Professor Levine, of the gross profit. 81 00:04:26,740 --> 00:04:28,350 Speaker 7: She's looking at us like, duh. 82 00:04:28,950 --> 00:04:29,310 Speaker 2: Yeah. 83 00:04:29,450 --> 00:04:30,810 Speaker 6: Yeah. So, I mean, look. 84 00:04:32,930 --> 00:04:35,190 Speaker 1: Oh, Paul, I miss you so much. 85 00:04:35,250 --> 00:04:38,100 Speaker 5: As they say at the University of Chicago, y'all. I mean, look, 86 00:04:38,500 --> 00:04:41,080 Speaker 5: you know, like, let's keep it simple. Like, what is 87 00:04:41,140 --> 00:04:41,979 Speaker 5: the engine here? 88 00:04:42,040 --> 00:04:42,840 Speaker 6: The engine is growth. 89 00:04:42,860 --> 00:04:43,560 Speaker 8: The engine is profit. 90 00:04:49,800 --> 00:04:53,030 Speaker 5: But massive profit generation because margins keep on moving higher. 91 00:04:53,350 --> 00:04:55,010 Speaker 5: Look at the margin of the S & P over 92 00:04:55,029 --> 00:04:57,929 Speaker 5: the last 20 years. We've been on a margin walk 93 00:04:58,370 --> 00:04:58,869 Speaker 5: much higher. 94 00:04:58,970 --> 00:05:01,920 Speaker 6: It's structural. It is not just what's happening this year. 95 00:05:01,960 --> 00:05:04,480 Speaker 8: Alexis wants to get into your relationship. One more quick 96 00:05:04,520 --> 00:05:05,100 Speaker 8: question then. 97 00:05:05,540 --> 00:05:09,930 Speaker 4: What's the efficacy of looking up the income statement away 98 00:05:10,010 --> 00:05:12,010 Speaker 4: from all the noise of taxes and interest? 99 00:05:12,850 --> 00:05:16,110 Speaker 6: So you spot the opportunities better, right? 100 00:05:16,130 --> 00:05:19,250 Speaker 5: Because what happens is if your revenue line is growing 101 00:05:19,770 --> 00:05:23,539 Speaker 5: very fast, it's just a matter of time for that 102 00:05:23,580 --> 00:05:26,979 Speaker 5: to be passed down to the bottom line and for 103 00:05:27,040 --> 00:05:29,100 Speaker 5: the company to become more efficient. And actually, if you 104 00:05:29,120 --> 00:05:31,940 Speaker 5: think about it, if you have a fixed cost... situation, 105 00:05:31,960 --> 00:05:35,420 Speaker 5: the higher your growth rate, you know, the exponential growth 106 00:05:35,480 --> 00:05:38,200 Speaker 5: on the bottom line. That's where you can grow at 12%. 107 00:05:38,200 --> 00:05:40,120 Speaker 8: It's sick. We could go for an hour with it. 108 00:05:40,320 --> 00:05:42,400 Speaker 7: I love our conversations with Alicia. 109 00:05:42,460 --> 00:05:44,880 Speaker 6: It's math. It's our math conversation. 110 00:05:45,000 --> 00:05:47,400 Speaker 8: Saving the interview, Alexis Christophers. 111 00:05:47,460 --> 00:05:50,460 Speaker 7: Math conversation, not my kind of conversation. I'm going to 112 00:05:50,480 --> 00:05:52,839 Speaker 7: go down the road less traveled and talk about deeply 113 00:05:52,920 --> 00:05:53,930 Speaker 7: distressed U.S. 114 00:05:53,990 --> 00:05:54,400 Speaker 4: Loans. 115 00:05:54,700 --> 00:05:56,750 Speaker 7: There's a great story on the Terminal about this today, 116 00:05:56,870 --> 00:06:00,030 Speaker 7: rising to the highest level since the pandemic. Value of 117 00:06:00,089 --> 00:06:02,870 Speaker 7: loans trading below 60 cents on the dollar. These are 118 00:06:02,930 --> 00:06:05,050 Speaker 7: a lot of loans that are held by software companies 119 00:06:05,089 --> 00:06:08,210 Speaker 7: in particular, some of the AI trade involved in this. 120 00:06:08,750 --> 00:06:12,250 Speaker 7: Are we turning a blind eye to things we shouldn't be? 121 00:06:12,330 --> 00:06:14,420 Speaker 7: Are things percolating in the background that are going to 122 00:06:14,460 --> 00:06:16,620 Speaker 7: be real challenges for this market that we're not paying 123 00:06:16,660 --> 00:06:17,140 Speaker 7: attention to? 124 00:06:17,300 --> 00:06:20,000 Speaker 5: It's a great question because in the end, markets always 125 00:06:20,040 --> 00:06:22,620 Speaker 5: trade on the margin, and that's what's happening on the margin, 126 00:06:22,660 --> 00:06:25,440 Speaker 5: that the weaker companies that borrowed at lower rates and 127 00:06:25,490 --> 00:06:28,150 Speaker 5: funded through maybe some of the private credit a few. 128 00:06:28,029 --> 00:06:28,790 Speaker 6: Years ago. 129 00:06:30,410 --> 00:06:34,190 Speaker 5: Outside of the traditional financing system, but in the alternative capital, 130 00:06:34,250 --> 00:06:36,500 Speaker 5: providers are showing some stress. 131 00:06:37,020 --> 00:06:39,039 Speaker 6: That is what you would expect, but it's also. 132 00:06:38,880 --> 00:06:41,460 Speaker 5: Like a normal part of the cycle that, you know, 133 00:06:41,480 --> 00:06:43,580 Speaker 5: the weaker are going to show the problem first when 134 00:06:43,600 --> 00:06:47,880 Speaker 5: you have 145 move, basis point move in the 10 135 00:06:47,880 --> 00:06:49,990 Speaker 5: year and a Fed that looks to be a lot 136 00:06:50,000 --> 00:06:52,830 Speaker 5: more hawkish than the market priced in six months ago. 137 00:06:53,330 --> 00:06:55,410 Speaker 7: So Darwinism is alive and well. 138 00:06:55,529 --> 00:07:01,510 Speaker 5: Darwinism is alive and well. Not all of those distressed 139 00:07:01,670 --> 00:07:05,130 Speaker 5: trades are priced at the right place. And there are 140 00:07:05,170 --> 00:07:08,000 Speaker 5: distressed marketplaces for this. And there are distressed players that 141 00:07:08,060 --> 00:07:11,260 Speaker 5: are coming with capital to take care of some of that. 142 00:07:11,320 --> 00:07:13,980 Speaker 5: I mean, that's what a market is. But it's no 143 00:07:14,060 --> 00:07:18,740 Speaker 5: surprise that we're here. The cutting cycle... we've had for 144 00:07:18,760 --> 00:07:22,870 Speaker 5: the last two years, again, we talk about go for 145 00:07:22,880 --> 00:07:23,410 Speaker 5: the goodness. 146 00:07:23,470 --> 00:07:24,490 Speaker 6: It hit a lot of badness. 147 00:07:25,430 --> 00:07:27,650 Speaker 5: And so now we're going to see who can get 148 00:07:27,690 --> 00:07:28,730 Speaker 5: refunded and who can. 149 00:07:29,290 --> 00:07:32,550 Speaker 6: Am I worried about it? I'm not worried. It's what 150 00:07:32,570 --> 00:07:33,370 Speaker 6: I would expect. 151 00:07:33,410 --> 00:07:36,370 Speaker 5: But I'd say the strength is really those who are 152 00:07:36,410 --> 00:07:39,520 Speaker 5: levered to using AI tools to expand their business and 153 00:07:39,560 --> 00:07:41,560 Speaker 5: expand their margins. And you're going to get a lot 154 00:07:41,580 --> 00:07:44,510 Speaker 5: of operating leverage from in many, many companies as a 155 00:07:44,530 --> 00:07:45,100 Speaker 5: result of it. 156 00:07:45,240 --> 00:07:48,720 Speaker 4: Alicia Levine, thank you so much. With BNY Wealth this morning, 157 00:07:48,740 --> 00:07:53,520 Speaker 4: there's CI. Oh, there's some really, really interesting dynamics there, folks, 158 00:07:53,600 --> 00:07:55,780 Speaker 4: as she and I were going back and forth on 159 00:07:55,820 --> 00:07:58,990 Speaker 4: the income statement, like where to look at revenues all 160 00:07:59,010 --> 00:08:02,710 Speaker 4: the way down to the traditional net income. Alicia Levine 161 00:08:03,350 --> 00:08:05,190 Speaker 4: reading 1934 Graham Dodd when she was 15 years old. 162 00:08:05,210 --> 00:08:05,890 Speaker 8: This is known. 163 00:08:11,930 --> 00:08:13,310 Speaker 7: Did you know this about yourself, Alicia? 164 00:08:14,410 --> 00:08:16,010 Speaker 6: I read it later. 165 00:08:16,040 --> 00:08:17,920 Speaker 9: Okay, okay, very good. 166 00:08:18,240 --> 00:08:20,240 Speaker 8: This is, this is, no, wait, that was me. 167 00:08:22,000 --> 00:08:26,150 Speaker 4: Stay with us. More from Bloomberg Surveillance coming up after this. 168 00:08:33,410 --> 00:08:37,020 Speaker 3: You're listening to the Bloomberg Surveillance Podcast. Catch us live 169 00:08:37,100 --> 00:08:39,180 Speaker 3: weekday afternoons from 7 to 10 a.m. 170 00:08:39,220 --> 00:08:39,640 Speaker 1: Eastern. 171 00:08:39,720 --> 00:08:43,020 Speaker 3: Listen on Apple CarPlay and Android Auto with the Bloomberg 172 00:08:43,040 --> 00:08:43,640 Speaker 3: Business app. 173 00:08:43,840 --> 00:08:45,540 Speaker 1: Or watch us live on YouTube. 174 00:08:45,940 --> 00:08:49,220 Speaker 4: Our interview of the day, without question, Chuck Clow is 175 00:08:49,280 --> 00:08:51,800 Speaker 4: a legend. If you look at his bio, his resume, 176 00:08:52,740 --> 00:08:59,140 Speaker 4: these are names from the past. Colonial of Boston. Donaldson, Lufkin, 177 00:08:59,200 --> 00:09:03,650 Speaker 4: Jen Redd. That young whippersnapper, Tom Gelvin, was there. at 178 00:09:03,690 --> 00:09:06,849 Speaker 4: the knee of Chuck Clow ages ago in studio with 179 00:09:06,910 --> 00:09:11,089 Speaker 4: us with a hugely optimistic note. I'm sorry, Chuck, this 180 00:09:11,150 --> 00:09:12,410 Speaker 4: is a glass half. 181 00:09:12,250 --> 00:09:14,569 Speaker 8: Full note that you're writing right now. 182 00:09:15,110 --> 00:09:20,319 Speaker 4: Why can we rely on productivity gains to drive equity 183 00:09:20,380 --> 00:09:21,280 Speaker 4: shares higher? 184 00:09:23,120 --> 00:09:28,800 Speaker 10: Well, productivity equals profits was probably the simplest answer of all. 185 00:09:30,290 --> 00:09:32,250 Speaker 10: I think there are reasons to be positive about the 186 00:09:32,290 --> 00:09:35,350 Speaker 10: financial markets, and the fact that financial markets themselves are 187 00:09:35,690 --> 00:09:38,860 Speaker 10: giving a lot of evidence of that. Stocks are strong 188 00:09:39,050 --> 00:09:42,559 Speaker 10: even in the face of a hawkish Fed. Quality spreads 189 00:09:42,600 --> 00:09:45,059 Speaker 10: still stay narrow. They widen a bit, but they're still 190 00:09:45,100 --> 00:09:49,500 Speaker 10: pretty narrow. And the dollar, a year or so ago, 191 00:09:49,600 --> 00:09:51,849 Speaker 10: the overriding consensus was the dollar was in a lot 192 00:09:51,870 --> 00:09:54,130 Speaker 10: of trouble because of heavy government borrowing. 193 00:09:54,150 --> 00:09:55,370 Speaker 9: The dollar's held up fairly well. 194 00:09:55,410 --> 00:09:57,650 Speaker 10: And of course it's strengthened with just really a modest 195 00:09:57,690 --> 00:10:00,240 Speaker 10: increase in interest rates. So I think the market are 196 00:10:00,260 --> 00:10:06,079 Speaker 10: telling you that they're okay, and inflation is there because 197 00:10:06,140 --> 00:10:10,300 Speaker 10: of a series of shortages, and everybody understands that. But 198 00:10:10,620 --> 00:10:12,890 Speaker 10: the one thing I want to bring to the discussion is, 199 00:10:13,250 --> 00:10:15,729 Speaker 10: why is the dollar so strong, and why was it 200 00:10:15,770 --> 00:10:17,990 Speaker 10: strong even before. 201 00:10:17,690 --> 00:10:19,189 Speaker 9: The recent interest rate rise? Please. 202 00:10:20,030 --> 00:10:24,350 Speaker 10: I would argue because everybody focuses on government funding and, 203 00:10:24,390 --> 00:10:29,040 Speaker 10: of course, government's in a deficit. But the private sector borrowing, 204 00:10:29,080 --> 00:10:32,500 Speaker 10: if you total it up, it's larger than total government borrowing. 205 00:10:33,040 --> 00:10:35,780 Speaker 10: And as a percentage of GDP, private borrowing has been declining. 206 00:10:35,900 --> 00:10:39,479 Speaker 10: Household borrowing has been declining since 2009. And corporate borrowing 207 00:10:39,520 --> 00:10:44,870 Speaker 10: now has been declining since 2022. We're a nation whose 208 00:10:44,910 --> 00:10:46,630 Speaker 10: population isn't growing very now. 209 00:10:46,690 --> 00:10:49,990 Speaker 9: The capital stock is pretty well built. I would argue 210 00:10:50,070 --> 00:10:51,150 Speaker 9: that if you look at. 211 00:10:51,600 --> 00:10:56,880 Speaker 10: Total debt outstanding, which is what creates dollars, as a 212 00:10:56,920 --> 00:10:59,699 Speaker 10: percentage of GDP, it's been declining now on the private 213 00:10:59,720 --> 00:11:04,560 Speaker 10: sector for years. And even relative to GDP, even government 214 00:11:04,580 --> 00:11:06,679 Speaker 10: debt growth is leveling off. 215 00:11:06,840 --> 00:11:10,140 Speaker 4: Across the arc of Chuck Clow from your evenings with 216 00:11:10,179 --> 00:11:13,179 Speaker 4: Lou Rukeyser years ago, I went back and did a 217 00:11:13,260 --> 00:11:18,130 Speaker 4: chart of nominal GDP. And this is highly unusual. this 218 00:11:18,230 --> 00:11:21,820 Speaker 4: buoyancy that we have in a boom economy. Ed Yardeni, 219 00:11:22,120 --> 00:11:25,490 Speaker 4: a close colleague of yours, talks about the roaring 20s. 220 00:11:26,380 --> 00:11:29,819 Speaker 4: How do you interpret, how do you analyze this boom 221 00:11:29,880 --> 00:11:31,280 Speaker 4: economy that we're in now? 222 00:11:32,300 --> 00:11:35,079 Speaker 10: Well, productivity has been rising for some time. A lot 223 00:11:35,100 --> 00:11:38,990 Speaker 10: of it is technology-based. But I think, like I say, 224 00:11:39,000 --> 00:11:43,730 Speaker 10: I think the disconnect is that directly translates into profits. 225 00:11:44,230 --> 00:11:48,150 Speaker 10: And The more productivity grows, the higher profits will grow. 226 00:11:48,630 --> 00:11:50,570 Speaker 10: In an important way, I think the market's telling you 227 00:11:50,630 --> 00:11:55,050 Speaker 10: that final demand will slow, and it's telling you that 228 00:11:55,100 --> 00:11:58,340 Speaker 10: by virtually every cyclical sector has been under pressure for 229 00:11:58,360 --> 00:12:01,140 Speaker 10: a long time, whether it's autos, even the big retailers, 230 00:12:01,240 --> 00:12:08,000 Speaker 10: even McDonald's is fighting tailwinds. People adjust to inflation very quickly, 231 00:12:08,200 --> 00:12:09,640 Speaker 10: even in the airline industry. 232 00:12:10,640 --> 00:12:11,400 Speaker 9: We all know there's a. 233 00:12:11,400 --> 00:12:15,970 Speaker 10: Shortage of narrow-bodied aircraft, But airlines are already beginning to 234 00:12:16,020 --> 00:12:17,490 Speaker 10: extend the time that. 235 00:12:17,370 --> 00:12:18,770 Speaker 9: They hold older aircraft. 236 00:12:18,809 --> 00:12:21,750 Speaker 10: So there's enough adjustments going on in the economy right 237 00:12:21,890 --> 00:12:26,189 Speaker 10: now that these are supply shocks. But there's plenty of 238 00:12:26,250 --> 00:12:29,319 Speaker 10: liquidity and plenty of investment capital in the economy to 239 00:12:29,940 --> 00:12:31,700 Speaker 10: solve it. The best example is insurance. 240 00:12:31,860 --> 00:12:35,940 Speaker 4: I would editorialize here, Alexis, that this is classic Chuck Clowell. 241 00:12:36,400 --> 00:12:40,530 Speaker 4: that the economy in its microcosm adjusts along the way 242 00:12:41,190 --> 00:12:44,189 Speaker 4: where all the media blather is a certitude about where 243 00:12:44,230 --> 00:12:47,370 Speaker 4: we are, static versus a dynamic analysis. 244 00:12:48,590 --> 00:12:50,730 Speaker 7: Chuck, do you think that the U.S. is still the 245 00:12:50,830 --> 00:12:53,260 Speaker 7: best place to be right now when you look at 246 00:12:53,880 --> 00:12:57,780 Speaker 7: the international markets and including the emerging markets like China, 247 00:12:57,820 --> 00:12:59,179 Speaker 7: if we want to call it an emerging market? 248 00:12:59,480 --> 00:13:01,760 Speaker 9: Well, for a while, it's been the only place to be. 249 00:13:03,950 --> 00:13:07,540 Speaker 10: Europe is regulating itself into a no-growth environment, certainly a 250 00:13:07,580 --> 00:13:10,580 Speaker 10: no-profit growth environment, and now you're beginning. 251 00:13:10,280 --> 00:13:12,570 Speaker 9: To see breaks in society there. 252 00:13:13,050 --> 00:13:15,690 Speaker 10: I'd say the only area in the world that I think. 253 00:13:15,570 --> 00:13:19,290 Speaker 9: Is becoming more interesting is Latin America. We've had a 254 00:13:19,820 --> 00:13:20,420 Speaker 9: number of. 255 00:13:21,620 --> 00:13:25,700 Speaker 10: of elections that have brought more conservative in Argentina. 256 00:13:25,220 --> 00:13:27,500 Speaker 9: A few years ago and, of course, Brazil lately. 257 00:13:29,100 --> 00:13:33,220 Speaker 10: It's resource rich. The rule of law is becoming more 258 00:13:35,100 --> 00:13:39,520 Speaker 10: intense across Latin America. I think China is uninvestable right now. 259 00:13:39,540 --> 00:13:43,360 Speaker 10: And the other markets are too small to even think about. 260 00:13:44,690 --> 00:13:47,650 Speaker 10: So I would say that the U.S. is the place 261 00:13:47,690 --> 00:13:50,110 Speaker 10: to be. And if you look at overall investment flows, 262 00:13:50,170 --> 00:13:53,890 Speaker 10: especially corporate investment flows, they're coming here. They're moving from 263 00:13:53,970 --> 00:13:57,050 Speaker 10: Europe to the United States. So that's one of the 264 00:13:57,090 --> 00:13:58,590 Speaker 10: reasons the dollar is so strong as well. 265 00:13:58,790 --> 00:14:01,030 Speaker 4: You and I go back far enough to remember when 266 00:14:01,050 --> 00:14:03,199 Speaker 4: the Boston Red Sox were actually. 267 00:14:02,820 --> 00:14:03,680 Speaker 8: A good team. 268 00:14:04,440 --> 00:14:08,699 Speaker 4: I mean, we go back that far. How do you 269 00:14:08,800 --> 00:14:13,270 Speaker 4: fold the politics into... and optimism to invest. When you 270 00:14:13,290 --> 00:14:16,370 Speaker 4: look at the midterms, or on the Wednesday in November, 271 00:14:16,410 --> 00:14:18,170 Speaker 4: we start a presidential campaign. 272 00:14:18,730 --> 00:14:20,050 Speaker 8: Is that just noise to you? 273 00:14:21,190 --> 00:14:22,490 Speaker 1: Most of the time, it is. 274 00:14:22,890 --> 00:14:26,680 Speaker 10: And in fact, if you look at fiscal policy, markets 275 00:14:26,900 --> 00:14:30,200 Speaker 10: don't usually respond to fiscal policy. They respond to monetary policy, 276 00:14:30,220 --> 00:14:34,479 Speaker 10: but not fiscal policy. So yeah, politics can be overemphasized. 277 00:14:35,460 --> 00:14:36,780 Speaker 9: I would say this. Markets love. 278 00:14:38,340 --> 00:14:42,090 Speaker 9: That's the word I'm trying to grasp for. Congress can't 279 00:14:42,110 --> 00:14:42,950 Speaker 9: get anything done. 280 00:14:43,040 --> 00:14:43,990 Speaker 8: Gridlock. 281 00:14:44,010 --> 00:14:46,850 Speaker 9: That's the word I'm grasping for. Markets love gridlock, and 282 00:14:46,910 --> 00:14:47,670 Speaker 9: it sure looks like. 283 00:14:47,570 --> 00:14:50,570 Speaker 10: We're heading for a gridlock-causing election here. 284 00:14:50,630 --> 00:14:53,050 Speaker 9: So I wouldn't worry about the political side. 285 00:14:53,430 --> 00:14:56,590 Speaker 10: And quite frankly, I think there's way too much emphasis 286 00:14:56,730 --> 00:15:00,210 Speaker 10: on translating what's going on in the war to a 287 00:15:00,510 --> 00:15:04,440 Speaker 10: permanent inflation. It is not a permanent inflation. It's inflation 288 00:15:04,720 --> 00:15:06,700 Speaker 10: raised on a supply shock, and there's plenty of investment 289 00:15:06,720 --> 00:15:08,830 Speaker 10: capital to fix it. I wanted to use the example 290 00:15:08,850 --> 00:15:11,410 Speaker 10: of the insurance industry. Um, if we were here 15 291 00:15:11,410 --> 00:15:14,130 Speaker 10: months ago, uh, property insurance rates. 292 00:15:14,010 --> 00:15:14,710 Speaker 9: Would be soaring. 293 00:15:14,750 --> 00:15:17,010 Speaker 10: And that would be the, if you Google it, you 294 00:15:17,030 --> 00:15:20,210 Speaker 10: find property insurance rates are now down between nine and 30% 295 00:15:20,210 --> 00:15:23,430 Speaker 10: year over year because a hold of capital ran into 296 00:15:23,450 --> 00:15:26,630 Speaker 10: the insurance industry and, and, and, and pricing is beginning 297 00:15:26,650 --> 00:15:30,210 Speaker 10: to be beginning to break there. Um, so I, I, 298 00:15:30,290 --> 00:15:32,010 Speaker 10: I think that's the way to look at it. These 299 00:15:32,080 --> 00:15:37,040 Speaker 10: are supply shocks. The underlying reality is demographically demographically based. 300 00:15:38,080 --> 00:15:40,739 Speaker 10: The private borrowing will continue to decline. Government borrowing has 301 00:15:40,780 --> 00:15:42,739 Speaker 10: plenty of room to do what it needs to do, 302 00:15:43,720 --> 00:15:46,090 Speaker 10: but it's not a long-term effect on the capital markets here. 303 00:15:46,350 --> 00:15:49,750 Speaker 7: So you think this disinflationary environment is going to continue 304 00:15:49,810 --> 00:15:52,270 Speaker 7: for some time? I was reading your note. You say 305 00:15:52,290 --> 00:15:54,690 Speaker 7: you wouldn't be surprised to see short-term interest rates go 306 00:15:54,710 --> 00:15:57,740 Speaker 7: to 1% to 2%. What's going to get us there? 307 00:15:58,240 --> 00:16:00,600 Speaker 10: Well, interest rates and inflation went down for 40 years, 308 00:16:01,140 --> 00:16:04,580 Speaker 10: from 1982 until the COVID hit. 309 00:16:05,140 --> 00:16:08,020 Speaker 9: And of course, the The government response was enormous. 310 00:16:08,670 --> 00:16:14,750 Speaker 10: Not only tremendous liquidity environment caused by the Fed, but 311 00:16:14,820 --> 00:16:17,180 Speaker 10: heavy fiscal stimulus as well. 312 00:16:17,420 --> 00:16:18,660 Speaker 9: It takes a while to work that off. 313 00:16:19,740 --> 00:16:22,140 Speaker 10: And then see we've had a series of shocks since 314 00:16:22,200 --> 00:16:27,390 Speaker 10: then and I suspect that if you look at what 315 00:16:27,410 --> 00:16:30,030 Speaker 10: were the reasons why interest rates and inflation came down 316 00:16:30,050 --> 00:16:32,610 Speaker 10: they really three of them one is demographics the baby 317 00:16:32,630 --> 00:16:36,670 Speaker 10: boomers are starting to retire biggest bending and sparring demographic 318 00:16:36,710 --> 00:16:42,060 Speaker 10: in history short rates are rates are Quality rates are 319 00:16:42,100 --> 00:16:45,160 Speaker 10: narrow which means the corporate sector is this basically structurally 320 00:16:45,220 --> 00:16:47,880 Speaker 10: very healthy and And three, the dollar is strong, which 321 00:16:47,920 --> 00:16:50,480 Speaker 10: means investment is coming here. So the real question is, 322 00:16:50,660 --> 00:16:54,160 Speaker 10: if private borrowing continues to decline, what happens to the 323 00:16:54,180 --> 00:16:54,940 Speaker 10: financial sector? 324 00:16:55,100 --> 00:16:57,610 Speaker 9: Now, I'll try to make my point this way. 325 00:16:58,430 --> 00:17:04,950 Speaker 10: The relative capitalization of industries can change dramatically. The energy 326 00:17:04,990 --> 00:17:06,899 Speaker 10: industry represented 33% of the S & P 500 in 1981. 327 00:17:06,880 --> 00:17:07,360 Speaker 9: It's three today. 328 00:17:10,390 --> 00:17:14,139 Speaker 10: So you can have massive changes in that. The financial sector, 329 00:17:14,220 --> 00:17:17,000 Speaker 10: I think, is too large. I think spreads may be 330 00:17:17,020 --> 00:17:20,080 Speaker 10: good for a while, but that's not really what's happening. 331 00:17:20,119 --> 00:17:23,679 Speaker 10: There's consolidation throughout the financial sector. The financial sector was 33% 332 00:17:23,680 --> 00:17:24,359 Speaker 10: of the S & P 500 in 2006. 333 00:17:24,340 --> 00:17:26,190 Speaker 9: If you include balance sheets of General Electric, Ford Motor, 334 00:17:26,210 --> 00:17:26,810 Speaker 9: it was 37%. 335 00:17:26,810 --> 00:17:27,950 Speaker 4: It's 13% today. 336 00:17:37,740 --> 00:17:41,449 Speaker 10: So the profitability of the financial sector is shrinking, and 337 00:17:41,490 --> 00:17:44,389 Speaker 10: as it does, the financial sector, we're already seeing it 338 00:17:44,410 --> 00:17:47,190 Speaker 10: in the banking industry. That means, think of what the 339 00:17:47,290 --> 00:17:50,770 Speaker 10: short rate is. Other than the Fed, the most important 340 00:17:51,369 --> 00:17:54,250 Speaker 10: determinant of what the short rate is, what is the 341 00:17:54,290 --> 00:17:56,409 Speaker 10: financial sector willing to bid for its own liabilities? 342 00:17:56,990 --> 00:17:59,750 Speaker 9: A deposit or commercial paper or asset-backed security. 343 00:18:00,109 --> 00:18:04,580 Speaker 10: And if it shrinks, the bid for that liability is 344 00:18:04,619 --> 00:18:05,260 Speaker 10: going to go down. 345 00:18:05,280 --> 00:18:05,939 Speaker 9: It's going to go down. 346 00:18:06,609 --> 00:18:08,630 Speaker 10: And it may take a while until some of these 347 00:18:08,670 --> 00:18:11,090 Speaker 10: supply shocks have worked their way out. But that short 348 00:18:11,150 --> 00:18:12,850 Speaker 10: rate is a very vulnerable number. 349 00:18:13,190 --> 00:18:15,380 Speaker 4: Chuck Clough, thank you so much for coming. We'd love 350 00:18:15,400 --> 00:18:16,520 Speaker 4: to do this. I'd love to do this on a 351 00:18:16,560 --> 00:18:19,479 Speaker 4: monthly basis. John, we've got to get Chuck Clough down 352 00:18:19,520 --> 00:18:20,560 Speaker 4: here on a monthly basis. 353 00:18:21,020 --> 00:18:22,450 Speaker 8: All right, Chuck. You into it? 354 00:18:22,540 --> 00:18:23,600 Speaker 9: Can I do that from my bedroom? 355 00:18:23,900 --> 00:18:25,400 Speaker 1: You can do it from anywhere you like. 356 00:18:25,590 --> 00:18:29,470 Speaker 8: Chuck Clough, thank you so much. Chairman Clough, Capital, Concord, Massachusetts. 357 00:18:31,170 --> 00:18:35,310 Speaker 4: Stay with us. More from Bloomberg Surveillance coming up after this. 358 00:18:42,570 --> 00:18:46,169 Speaker 3: You're listening to the Bloomberg Surveillance Podcast. Catch us live 359 00:18:46,250 --> 00:18:48,330 Speaker 3: weekday afternoons from 7 to 10 a.m. 360 00:18:48,369 --> 00:18:48,770 Speaker 9: Eastern. 361 00:18:48,869 --> 00:18:52,170 Speaker 3: Listen on Apple CarPlay and Android Auto with the Bloomberg 362 00:18:52,190 --> 00:18:52,800 Speaker 3: Business app. 363 00:18:52,990 --> 00:18:54,740 Speaker 1: Or watch us live on YouTube. 364 00:18:55,200 --> 00:18:55,639 Speaker 8: The way it. 365 00:18:55,619 --> 00:18:58,719 Speaker 4: Works in the street, you have an investor's day. And, 366 00:18:58,740 --> 00:19:00,480 Speaker 4: you know, people just think it's sort of cushy and 367 00:19:00,520 --> 00:19:03,420 Speaker 4: there's horse divorce and, you know, beverages of your choice 368 00:19:03,460 --> 00:19:05,869 Speaker 4: and all that. Fatima Bulani was up till 2 a.m. 369 00:19:06,830 --> 00:19:09,560 Speaker 4: You know, the last people here on Investor's Day. She 370 00:19:09,619 --> 00:19:13,740 Speaker 4: joins us, I hope, Cogent, from Citigroup today, because this 371 00:19:13,820 --> 00:19:15,100 Speaker 4: is like serious stuff. 372 00:19:15,160 --> 00:19:17,859 Speaker 8: People make jokes about it. How many people were your 373 00:19:17,880 --> 00:19:18,760 Speaker 8: investor day, Fatima? 374 00:19:22,280 --> 00:19:24,840 Speaker 2: The investor day was packed to the gills. So we 375 00:19:24,880 --> 00:19:30,179 Speaker 2: had Zscaler. It's one of the lesser known but leading 376 00:19:30,240 --> 00:19:34,080 Speaker 2: and more preeminent cybersecurity companies. They don't necessarily get talked 377 00:19:34,140 --> 00:19:38,900 Speaker 2: about in the same breath as the Goliaths, CrowdStrike and Apollo. 378 00:19:38,980 --> 00:19:40,250 Speaker 6: But yeah, it was packed. 379 00:19:40,030 --> 00:19:40,530 Speaker 1: To the gills. 380 00:19:40,550 --> 00:19:41,689 Speaker 2: There's a lot of interest. 381 00:19:41,690 --> 00:19:45,379 Speaker 4: What is the interest to get away from 12 stocks 382 00:19:45,380 --> 00:19:46,740 Speaker 4: everybody knows? 383 00:19:46,740 --> 00:19:47,530 Speaker 8: Do people are. 384 00:19:47,480 --> 00:19:51,990 Speaker 4: They really searching for a deeper breadth of this ai 385 00:19:52,050 --> 00:19:53,830 Speaker 4: revolution You. 386 00:19:53,780 --> 00:19:57,260 Speaker 2: Know, what we've broadly seen, and this kind of harkens 387 00:19:57,300 --> 00:19:59,780 Speaker 2: back to the last discussion you were having around this 388 00:19:59,840 --> 00:20:05,610 Speaker 2: chasing for growth, right? So there has been an absolute interest, focus, 389 00:20:05,670 --> 00:20:08,590 Speaker 2: and concentration on some of the largest assets in their 390 00:20:08,630 --> 00:20:12,640 Speaker 2: representative industries. So really the willingness to pay a pretty 391 00:20:12,680 --> 00:20:16,640 Speaker 2: hefty premiums for marquee assets in their space. So again, 392 00:20:16,740 --> 00:20:21,459 Speaker 2: CrowdStrike and Polo and cybersecurity, those are known entities. They've, uh, 393 00:20:21,640 --> 00:20:26,020 Speaker 2: you know, uh, produced an excellent track record of, of execution. 394 00:20:26,520 --> 00:20:30,460 Speaker 2: And so, you know, investor sentiment and mentality has generally been, Hey, 395 00:20:30,700 --> 00:20:31,859 Speaker 2: let the winners win more. 396 00:20:32,109 --> 00:20:33,400 Speaker 1: So, uh, there. 397 00:20:33,420 --> 00:20:38,090 Speaker 2: Absolutely has been this bifurcation of, of haves and have nots. And, uh, 398 00:20:38,660 --> 00:20:40,620 Speaker 2: that sort of compounded over the last year. 399 00:20:41,750 --> 00:20:44,090 Speaker 7: Zscaler, coming off the investor day, I'm just taking a 400 00:20:44,090 --> 00:20:48,020 Speaker 7: look at the stock market cap, $ 34. 5 billion. Not too shabby. Year-to-date, though, 401 00:20:48,040 --> 00:20:50,480 Speaker 7: the stock is down nearly 6%. What was your big 402 00:20:50,500 --> 00:20:52,020 Speaker 7: takeaway from investor day? 403 00:20:53,340 --> 00:20:56,159 Speaker 2: Look, there were two major areas that I think the 404 00:20:56,200 --> 00:20:59,310 Speaker 2: management team did a very solid job on, right? Number one, 405 00:20:59,940 --> 00:21:02,740 Speaker 2: providing us with a financial framework over the next several 406 00:21:02,830 --> 00:21:06,030 Speaker 2: years on what the growth trajectory of the business is going. 407 00:21:05,869 --> 00:21:06,370 Speaker 4: To look like. 408 00:21:07,130 --> 00:21:08,689 Speaker 2: You know, I don't have to tell you that we 409 00:21:08,810 --> 00:21:15,230 Speaker 2: are in an absolutely generational period for cybersecurity risks, cybersecurity investments, 410 00:21:15,590 --> 00:21:17,290 Speaker 2: but at the same time, you know, a lot of 411 00:21:17,350 --> 00:21:20,879 Speaker 2: dizzying amount of change that organizations have to you know, 412 00:21:20,900 --> 00:21:24,899 Speaker 2: batten down the hatches around, right? So, you know, articulating 413 00:21:24,940 --> 00:21:31,649 Speaker 2: a financial set of targets around that. And then secondarily, 414 00:21:31,690 --> 00:21:37,210 Speaker 2: this idea of leveraging what their core principles around effectively 415 00:21:37,260 --> 00:21:41,060 Speaker 2: being a communications switchboard and applying that to agents, right? 416 00:21:41,440 --> 00:21:41,700 Speaker 4: Right? 417 00:21:41,720 --> 00:21:43,800 Speaker 2: I think three to five years from now, no one 418 00:21:43,859 --> 00:21:46,240 Speaker 2: is going to bat an eyelash. If I say agents 419 00:21:46,290 --> 00:21:48,310 Speaker 2: are going to be my teammates, agents are going to 420 00:21:48,350 --> 00:21:56,010 Speaker 2: be undertaking important business processes, completely autonomously, completely unmediated by humans. 421 00:21:56,230 --> 00:22:00,320 Speaker 2: And so who's going to govern those exchanges and who's 422 00:22:00,340 --> 00:22:02,420 Speaker 2: going to govern those interactions. And, you know, I think 423 00:22:02,440 --> 00:22:07,990 Speaker 2: they mounted a pretty compelling vision and architectural strategy around that. And, 424 00:22:08,320 --> 00:22:10,180 Speaker 2: you know, at the end of the day, tying this 425 00:22:10,240 --> 00:22:14,340 Speaker 2: back to valuations feel stretched, the expensive names and the 426 00:22:14,380 --> 00:22:17,659 Speaker 2: high quality names continue to be bid up. This is 427 00:22:17,810 --> 00:22:19,940 Speaker 2: one that sort of is interesting, right? There's a little 428 00:22:19,960 --> 00:22:23,330 Speaker 2: bit of a valuation arbitrage, right? So a diamond in 429 00:22:23,350 --> 00:22:26,270 Speaker 2: the rough strategy in a market where, you know, things 430 00:22:26,330 --> 00:22:28,990 Speaker 2: feel sort of instantly and instantaneously priced in. 431 00:22:29,109 --> 00:22:33,510 Speaker 4: We continue with Fatima Bulani, co-head software equity Citigroup, having 432 00:22:33,530 --> 00:22:35,850 Speaker 4: the privilege of working with Heath Terry. I believe Heath's 433 00:22:35,869 --> 00:22:38,359 Speaker 4: on our schedule. at some point here in the coming 434 00:22:38,380 --> 00:22:41,220 Speaker 4: days as well. Fatima, I want to go off script here. 435 00:22:41,730 --> 00:22:44,390 Speaker 4: We just did a thing on MetaMoose. I know Ron 436 00:22:44,430 --> 00:22:47,190 Speaker 4: Josie follows Meta. I don't need a buy, hold, sell 437 00:22:47,690 --> 00:22:51,210 Speaker 4: on Meta. But Fatima, I mean, folks, you got to understand, 438 00:22:51,550 --> 00:22:55,760 Speaker 4: Fatima was 15 years old at Thomas Y. Sell like 439 00:22:55,800 --> 00:22:58,340 Speaker 4: a million years ago. I mean, she started out, she 440 00:22:58,359 --> 00:23:00,899 Speaker 4: was like a junior in high school, I think, when 441 00:23:00,960 --> 00:23:03,540 Speaker 4: she was getting her CFN. 442 00:23:03,859 --> 00:23:07,330 Speaker 2: They called me a child prodigy. 443 00:23:07,350 --> 00:23:08,830 Speaker 6: Those aren't my words. 444 00:23:08,990 --> 00:23:12,590 Speaker 4: But Fatima, I look at this and the heart of 445 00:23:12,630 --> 00:23:16,570 Speaker 4: the matter within a conversation we had earlier is they 446 00:23:16,609 --> 00:23:21,040 Speaker 4: want us to give them our financial data, our personal data. 447 00:23:21,440 --> 00:23:24,919 Speaker 4: Claude needs to look into my computer. Muse wants to 448 00:23:24,960 --> 00:23:29,020 Speaker 4: know this, this. Are you kidding me, Fatima? Nobody's going 449 00:23:29,040 --> 00:23:29,600 Speaker 4: to do that. 450 00:23:31,580 --> 00:23:34,460 Speaker 2: Well, you know, I think data privacy and consumer data 451 00:23:34,500 --> 00:23:39,310 Speaker 2: privacy is certainly going to be a very topical matter. 452 00:23:40,050 --> 00:23:42,790 Speaker 6: And, you know, this puts me out of my depth. 453 00:23:43,350 --> 00:23:46,050 Speaker 2: You know, there's likely going to be, you know, political 454 00:23:46,130 --> 00:23:50,230 Speaker 2: standoffs about this and around this. But, you know, I 455 00:23:50,280 --> 00:23:53,139 Speaker 2: love going off-roading with you on this, Tom. But Muse 456 00:23:53,160 --> 00:23:57,460 Speaker 2: has very interesting implications as it relates to commerce and 457 00:23:57,560 --> 00:24:01,240 Speaker 2: e-commerce at large. Right. And so, you know, to the 458 00:24:01,280 --> 00:24:04,570 Speaker 2: extent you and I were browsing and shopping, well, we're 459 00:24:04,609 --> 00:24:07,770 Speaker 2: going to, in an ideal world, have Muse or some 460 00:24:07,790 --> 00:24:10,710 Speaker 2: of its competitors who act as personal. 461 00:24:10,490 --> 00:24:11,290 Speaker 6: Agents do that. 462 00:24:11,750 --> 00:24:14,580 Speaker 2: And at the end of the day, organizations have to 463 00:24:14,670 --> 00:24:16,300 Speaker 2: prepare for that eventuality. 464 00:24:16,400 --> 00:24:16,680 Speaker 11: Right. 465 00:24:17,160 --> 00:24:19,419 Speaker 2: You know, I think there may be an impasse and 466 00:24:19,460 --> 00:24:23,649 Speaker 2: a scuttle there. around some companies just saying, no, bots 467 00:24:23,730 --> 00:24:25,530 Speaker 2: and agents can't transact on my website. 468 00:24:25,590 --> 00:24:27,590 Speaker 6: It has to be an authentic human. 469 00:24:28,320 --> 00:24:28,939 Speaker 1: But by and. 470 00:24:28,910 --> 00:24:32,540 Speaker 2: Large, there is going to be a movement around, hey, 471 00:24:32,660 --> 00:24:36,500 Speaker 2: I can dispatch Muse to pick up my morning smoothie for. 472 00:24:36,340 --> 00:24:38,250 Speaker 6: Me at Joe and the Juice, right? 473 00:24:39,250 --> 00:24:44,480 Speaker 2: And so agentic commerce becomes So much more of a 474 00:24:44,560 --> 00:24:49,710 Speaker 2: multifaceted and interesting topic to discover, right? And we've been 475 00:24:49,750 --> 00:24:53,070 Speaker 2: spending a lot of time thinking about, hey, now the 476 00:24:53,150 --> 00:24:57,630 Speaker 2: burden of managing that digital experience for the end customer 477 00:24:57,730 --> 00:24:59,530 Speaker 2: falls on the company, right? 478 00:24:59,550 --> 00:25:00,450 Speaker 8: Exactly. 479 00:25:00,710 --> 00:25:03,639 Speaker 2: And who wins there? So there's going to likely be 480 00:25:03,680 --> 00:25:04,619 Speaker 2: more investment there. 481 00:25:04,640 --> 00:25:04,740 Speaker 5: Right. 482 00:25:05,100 --> 00:25:07,380 Speaker 2: Oh, by the way, you're going to have agents trawling 483 00:25:07,420 --> 00:25:10,120 Speaker 2: your website. You ought to have the right, you know, 484 00:25:10,180 --> 00:25:13,500 Speaker 2: gates and firewalls put up. And, you know, there's investment 485 00:25:13,540 --> 00:25:16,730 Speaker 2: opportunities there. And, you know, Cloudflare and Datadog are the 486 00:25:16,810 --> 00:25:19,570 Speaker 2: ones that we've thought of very highly in this sort 487 00:25:19,630 --> 00:25:21,650 Speaker 2: of incremental opportunity. 488 00:25:22,250 --> 00:25:24,909 Speaker 4: Oh, by the way, Compliance at Citigroup just emailed me 489 00:25:24,950 --> 00:25:27,550 Speaker 4: and said you nailed that answer. You know, there's all 490 00:25:27,570 --> 00:25:29,870 Speaker 4: sorts of, you know, ranchos. 491 00:25:29,930 --> 00:25:31,650 Speaker 2: My handlers are proud. 492 00:25:31,670 --> 00:25:32,470 Speaker 6: So good. 493 00:25:32,490 --> 00:25:34,030 Speaker 8: Right. Fatima, thank you so much. 494 00:25:34,070 --> 00:25:39,760 Speaker 4: Fatima Boulani, co-head of software equity research at Citigroup. Stay 495 00:25:39,780 --> 00:25:43,660 Speaker 4: with us. More from Bloomberg Surveillance coming up after this. 496 00:25:50,920 --> 00:25:54,500 Speaker 3: You're listening to the Bloomberg Surveillance Podcast. Catch us live 497 00:25:54,590 --> 00:25:56,670 Speaker 3: weekday afternoons from 7 to 10 a.m. 498 00:25:56,730 --> 00:25:57,130 Speaker 1: Eastern. 499 00:25:57,210 --> 00:26:00,510 Speaker 3: Listen on Apple CarPlay and Android Auto with the Bloomberg 500 00:26:00,530 --> 00:26:03,050 Speaker 3: Business app. Or watch us live on YouTube. 501 00:26:03,410 --> 00:26:07,310 Speaker 4: This research note is extraordinary. And it is the work 502 00:26:07,350 --> 00:26:10,430 Speaker 4: that you have to do to glean BLS, Bureau of 503 00:26:10,470 --> 00:26:14,320 Speaker 4: Labor Statistics data, to come up with a state of America. 504 00:26:14,720 --> 00:26:19,420 Speaker 4: Kyra Ficteau is with Wellington Management Boston. are titled Fixed 505 00:26:19,480 --> 00:26:25,480 Speaker 4: Income Portfolio Manager, which barely describes the depth of this memo. 506 00:26:25,680 --> 00:26:30,690 Speaker 4: And I love what you say about experienced inflation. The 507 00:26:30,730 --> 00:26:36,580 Speaker 4: haves have inflation and they're like, and the rest of America, 508 00:26:36,890 --> 00:26:40,260 Speaker 4: I get more mail on this than anything else. How 509 00:26:40,340 --> 00:26:42,100 Speaker 4: bad is it for half of America? 510 00:26:42,560 --> 00:26:42,859 Speaker 6: Thanks. 511 00:26:42,880 --> 00:26:43,080 Speaker 10: Yeah. 512 00:26:43,119 --> 00:26:45,889 Speaker 11: Thanks for having me, Tom. I look, I think the 513 00:26:45,950 --> 00:26:51,230 Speaker 11: way inflation was supposed to crush the consumer by now, 514 00:26:51,730 --> 00:26:54,070 Speaker 11: and people are sick of talking about the K-shaped economy, 515 00:26:54,109 --> 00:26:57,230 Speaker 11: but the reality is that under the hood, dispersion continues 516 00:26:57,290 --> 00:27:00,010 Speaker 11: to grow. And because the inflation that we see in 517 00:27:00,109 --> 00:27:04,389 Speaker 11: headline numbers is not really the inflation that consumers are experiencing. 518 00:27:04,770 --> 00:27:08,430 Speaker 11: The BLS puts out a consumption basket for consumers that 519 00:27:09,800 --> 00:27:12,859 Speaker 11: assumes that we consume the same types of products as 520 00:27:13,080 --> 00:27:16,820 Speaker 11: everybody else. But the reality is that people on a 521 00:27:16,859 --> 00:27:21,320 Speaker 11: lower income spectrum are more exposed to food and energy 522 00:27:21,359 --> 00:27:25,580 Speaker 11: inflation than consumers on a higher income spectrum. sector. And 523 00:27:25,600 --> 00:27:28,600 Speaker 11: so when I dig into the data and really rip 524 00:27:28,640 --> 00:27:32,270 Speaker 11: it apart, what I observe is that cumulative inflation over 525 00:27:32,310 --> 00:27:34,710 Speaker 11: the last six and a half years in the post-pandemic 526 00:27:34,850 --> 00:27:39,409 Speaker 11: era was upwards of 30%. But that lower income people 527 00:27:39,550 --> 00:27:43,150 Speaker 11: experienced more inflation than higher income people. 528 00:27:43,170 --> 00:27:45,469 Speaker 8: Do you have a statistic on that? From 30, did 529 00:27:45,490 --> 00:27:46,990 Speaker 8: they do 40 or 50? 530 00:27:46,990 --> 00:27:51,320 Speaker 11: So we're talking about points and when you actually strip 531 00:27:51,340 --> 00:27:54,359 Speaker 11: out shelter inflation, which is the biggest issue, right? Like, 532 00:27:55,060 --> 00:27:59,290 Speaker 11: Two-thirds of this country are homeowners. Forty percent of people 533 00:27:59,310 --> 00:28:01,730 Speaker 11: in this country own their home outright. They were exposed 534 00:28:01,770 --> 00:28:05,030 Speaker 11: to zero, zero shelter inflation over the last six and 535 00:28:05,050 --> 00:28:07,449 Speaker 11: a half years. If you strip out shelter inflation and 536 00:28:07,490 --> 00:28:11,220 Speaker 11: adjust for the inflation consumers actually experience, I would suggest 537 00:28:11,260 --> 00:28:15,320 Speaker 11: that consumers experience six points less. less inflation than what 538 00:28:15,380 --> 00:28:17,740 Speaker 11: headlines suggest. And over the course of a couple of years, 539 00:28:17,960 --> 00:28:20,369 Speaker 11: you annualize that. The numbers are much smaller. 540 00:28:20,430 --> 00:28:23,449 Speaker 8: There's talk about we need a better new inflation. 541 00:28:23,470 --> 00:28:25,210 Speaker 4: I don't have the research in front of me, folks. 542 00:28:25,270 --> 00:28:28,750 Speaker 4: I'm sorry I can't cite it. But basically, PCE misses 543 00:28:28,790 --> 00:28:32,470 Speaker 4: the grocery store is a stereotype of what I'm talking about. 544 00:28:32,490 --> 00:28:36,449 Speaker 4: Does the Fed or does Wellington management need a better 545 00:28:36,619 --> 00:28:38,140 Speaker 4: analysis of inflation? 546 00:28:38,430 --> 00:28:42,340 Speaker 11: Well, that's what we're doing, right? For the last several years, 547 00:28:42,360 --> 00:28:44,820 Speaker 11: I've been pounding the table saying, look, the data that 548 00:28:44,860 --> 00:28:50,160 Speaker 11: we've all been trained to observe, the metrics that we're 549 00:28:50,220 --> 00:28:54,900 Speaker 11: taught to predict the economy are becoming less relevant. And 550 00:28:54,920 --> 00:28:57,610 Speaker 11: you see this in affordability, too. We talk a lot 551 00:28:57,630 --> 00:29:00,650 Speaker 11: about affordability. It was all over surveillance this morning. 552 00:29:01,210 --> 00:29:03,050 Speaker 6: Mortgages are up. The mortgage rates are up to 7.5%. 553 00:29:03,050 --> 00:29:05,970 Speaker 1: You listen to us? I have to prep. 554 00:29:06,130 --> 00:29:09,209 Speaker 8: Sorry, we're up to 42 listeners. Yes, continue. 555 00:29:09,630 --> 00:29:10,680 Speaker 1: Yeah. 556 00:29:10,740 --> 00:29:13,060 Speaker 11: You know, mortgage rates are high, of course, but we're 557 00:29:13,120 --> 00:29:18,940 Speaker 11: forgetting that so many people are locked into extraordinarily low rates. 558 00:29:19,220 --> 00:29:20,719 Speaker 8: Yes, we call that Paul Sweeney. 559 00:29:20,940 --> 00:29:21,220 Speaker 1: Yes. 560 00:29:22,330 --> 00:29:23,450 Speaker 7: And John Tucker, apparently. 561 00:29:23,470 --> 00:29:24,170 Speaker 8: Pick it up here, Alex. 562 00:29:24,190 --> 00:29:25,110 Speaker 9: Hello, three and a quarter. 563 00:29:25,130 --> 00:29:25,300 Speaker 6: But.... 564 00:29:27,750 --> 00:29:30,340 Speaker 7: In the same breath, you've got people using buy now, 565 00:29:30,380 --> 00:29:32,840 Speaker 7: pay later more. You've got, you know, so many people 566 00:29:33,160 --> 00:29:38,580 Speaker 7: squeezed borrowing against their credit cards. Is credit stress starting 567 00:29:38,600 --> 00:29:41,660 Speaker 7: to seep up that ladder to the consumer now and 568 00:29:42,100 --> 00:29:43,440 Speaker 7: in a worrying way? 569 00:29:44,400 --> 00:29:46,459 Speaker 11: So catch the chase, not in a worrying way, but 570 00:29:46,480 --> 00:29:50,720 Speaker 11: we are absolutely seeing credit stress migration up the quality spectrum. 571 00:29:50,740 --> 00:29:51,420 Speaker 6: So where it was. 572 00:29:51,460 --> 00:29:55,360 Speaker 11: Isolated more to your subprime and near prime borrowers, we 573 00:29:55,520 --> 00:29:58,530 Speaker 11: are seeing it migrate up into the prime spectrum. However, 574 00:29:58,980 --> 00:30:02,510 Speaker 11: Credit extension, so the amount of credit that consumers have 575 00:30:02,590 --> 00:30:06,030 Speaker 11: on balance sheet is at historic low levels. 576 00:30:06,050 --> 00:30:08,090 Speaker 8: Nobody believes what you just said. 577 00:30:08,210 --> 00:30:10,410 Speaker 11: I know, I know, but you've got to look at 578 00:30:10,450 --> 00:30:10,870 Speaker 11: the data. 579 00:30:10,910 --> 00:30:13,320 Speaker 8: The only one that believes that is Michelle Meyer over 580 00:30:13,340 --> 00:30:17,970 Speaker 8: at MasterCard. Really? Are credits at historic lows? 581 00:30:18,410 --> 00:30:21,990 Speaker 11: The amount of credit that consumers have on their balance 582 00:30:22,010 --> 00:30:25,900 Speaker 11: sheet is at historic low. The amount of dollars they 583 00:30:25,960 --> 00:30:29,320 Speaker 11: have in their money market accounts is at historic highs. 584 00:30:29,580 --> 00:30:31,959 Speaker 11: The amount of equity that they have in their home 585 00:30:32,020 --> 00:30:33,870 Speaker 11: values is at historic highs. 586 00:30:33,880 --> 00:30:35,570 Speaker 7: We're at delinquency rates, though, I wonder. 587 00:30:35,930 --> 00:30:40,690 Speaker 11: Delinquency rates are climbing, and we are seeing a swelling 588 00:30:40,850 --> 00:30:43,290 Speaker 11: in what we call roll rates, so the amount of 589 00:30:43,690 --> 00:30:48,350 Speaker 11: transition from 30- to 60-day delinquent to 60- to 90-day delinquent. 590 00:30:48,450 --> 00:30:50,930 Speaker 11: I like to call that the pressure cooker that is 591 00:30:50,990 --> 00:30:53,950 Speaker 11: going to stay contained as long as the labor market 592 00:30:53,990 --> 00:30:57,430 Speaker 11: continues to do what it's doing. If jobs go, all 593 00:30:57,470 --> 00:30:58,040 Speaker 11: bets are off. 594 00:30:58,490 --> 00:31:02,360 Speaker 4: Kyra Ficteau with us with Wellington. The only reason she's 595 00:31:02,400 --> 00:31:05,160 Speaker 4: here is you should see the Wellington box at TD 596 00:31:05,200 --> 00:31:07,130 Speaker 4: Gardens for the Bruins game. 597 00:31:07,730 --> 00:31:10,010 Speaker 8: Unbelievable, the angles. 598 00:31:11,000 --> 00:31:12,080 Speaker 7: I haven't gotten an invite. 599 00:31:12,120 --> 00:31:16,740 Speaker 11: It's even better when it's. 600 00:31:14,960 --> 00:31:17,570 Speaker 8: Canadians and Bruins. It's even better. 601 00:31:17,610 --> 00:31:21,410 Speaker 4: Kyra, you come down below your experienced inflation, and I 602 00:31:21,590 --> 00:31:24,950 Speaker 4: love what you're doing here on experienced wage growth. 603 00:31:25,510 --> 00:31:29,000 Speaker 8: It's at least two, if not three, Americas, isn't it? 604 00:31:29,340 --> 00:31:29,940 Speaker 7: It really is. 605 00:31:30,000 --> 00:31:33,380 Speaker 11: And so, again, when you pull apart the numbers and 606 00:31:33,420 --> 00:31:38,880 Speaker 11: adjust inflation for what consumers actually experience, how much energy 607 00:31:38,900 --> 00:31:41,180 Speaker 11: they experience, how much shelter they experience, and that varies 608 00:31:41,220 --> 00:31:44,800 Speaker 11: based on their income cohort and their consumption patterns, what 609 00:31:44,860 --> 00:31:48,960 Speaker 11: we observe is that when you apply that to wage growth, 610 00:31:48,980 --> 00:31:51,440 Speaker 11: what we observe is that real wage growth for the 611 00:31:51,480 --> 00:31:57,120 Speaker 11: top 60% of income earners is still positive and healthy 612 00:31:57,210 --> 00:32:02,340 Speaker 11: at 1%, where lower-income cohorts, your bottom 20% and even 613 00:32:02,480 --> 00:32:05,220 Speaker 11: now migrating up to the bottom 20% to 40% is 614 00:32:05,340 --> 00:32:09,820 Speaker 11: actually in negative or approaching negative territory. So those consumers 615 00:32:10,020 --> 00:32:12,930 Speaker 11: are in a bad way, and they need some help 616 00:32:13,010 --> 00:32:17,110 Speaker 11: in terms of higher wages and or slowing inflation from 617 00:32:17,130 --> 00:32:19,170 Speaker 11: the things that matter most to them, like energy. 618 00:32:19,930 --> 00:32:22,050 Speaker 7: We started our show today with David Rosenberg in the 619 00:32:22,090 --> 00:32:25,100 Speaker 7: seven o'clock hour, and he was talking about how inflation 620 00:32:25,580 --> 00:32:28,180 Speaker 7: is a little overblown. I don't know if you agree 621 00:32:28,220 --> 00:32:30,300 Speaker 7: with that, but are we, if that is the case, 622 00:32:30,400 --> 00:32:32,480 Speaker 7: are we, or maybe it's not the case, but are 623 00:32:32,520 --> 00:32:35,600 Speaker 7: we underestimating weakness in the job market? 624 00:32:35,980 --> 00:32:38,500 Speaker 11: So that's exactly what I'm saying here is that we, 625 00:32:38,640 --> 00:32:43,130 Speaker 11: I think we're, consumers have actually been less burdened by 626 00:32:43,250 --> 00:32:47,690 Speaker 11: inflation as headline numbers would suggest. However, they're, And there 627 00:32:47,730 --> 00:32:50,230 Speaker 11: are things that are coming up that would suggest that 628 00:32:50,250 --> 00:32:55,530 Speaker 11: this could be persistent and then continue to erode consumer health, particularly. 629 00:32:54,950 --> 00:32:55,750 Speaker 6: For the lower end. 630 00:32:56,150 --> 00:32:58,170 Speaker 11: You know, I don't I'm not a meteorologist, but you 631 00:32:58,210 --> 00:33:00,160 Speaker 11: did have one just on the show now. And I mean, 632 00:33:00,200 --> 00:33:02,719 Speaker 11: El Nino is a real thing and it's and it's 633 00:33:02,740 --> 00:33:06,460 Speaker 11: going to affect crops and food and food inflation is 634 00:33:06,480 --> 00:33:08,380 Speaker 11: going to go higher. And that's something that is also 635 00:33:08,420 --> 00:33:11,560 Speaker 11: going to hurt those income cohorts that that are already 636 00:33:11,600 --> 00:33:12,400 Speaker 11: that are already struggling. 637 00:33:12,720 --> 00:33:13,080 Speaker 8: Thank you. 638 00:33:13,120 --> 00:33:16,570 Speaker 4: Cara Factor with us, the Wellington management, Boston. fixed income 639 00:33:16,590 --> 00:33:20,190 Speaker 4: portfolio manager, but just a brilliant note. And the number 640 00:33:20,290 --> 00:33:22,540 Speaker 4: one thing I get in my mail is on the 641 00:33:22,660 --> 00:33:24,100 Speaker 4: two Americas out there. 642 00:33:24,500 --> 00:33:29,420 Speaker 3: This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, 643 00:33:29,550 --> 00:33:33,790 Speaker 3: and anywhere else you get your podcasts. Listen live each weekday, 644 00:33:33,790 --> 00:33:39,230 Speaker 3: 7 to 10 a.m. Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, 645 00:33:39,550 --> 00:33:42,620 Speaker 3: and the Bloomberg Business app. You can also watch us 646 00:33:42,720 --> 00:33:46,720 Speaker 3: live every weekday on YouTube and always on the Bloomberg Terminal.