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Speaker 2: Okay, market's the equity market not doing much, but it's
Speaker 2: the long end of the bond market that's getting hit
Speaker 2: pretty hard with yields moving higher. Carol Pepper, founder and
Speaker 2: CEO at Pepper International, joins us.
Speaker 3: Now.
Speaker 2: Carol, if we take a look at what's happening in
Speaker 2: the long end of the bond market, what point do
Speaker 2: yield start to impact the equity market.
Speaker 4: Well, I think we're not too far from it. But
Speaker 4: I think again, people are sort of hoping that this
Speaker 4: will be a temporary.
Speaker 5: Spike everyone's talking about.
Speaker 4: In twenty eleven, the spike didn't last, so I think
Speaker 4: there's similarly people not wanting to be headfaked, not wanting
Speaker 4: to think that it's going to get a lot worse
Speaker 4: than it is. The news have been known for a
Speaker 4: long time. It's not a huge surprise. It's disappointing, of course,
Speaker 4: and signals that at some point the US has to
Speaker 4: get its deficit under control. But I think people are
Speaker 4: just kind of going to take it in stride. That's
Speaker 4: why you don't see the markets moving much today. There
Speaker 4: are other potential moves of foot. What's going to happen
Speaker 4: with the tariffs, what's going.
Speaker 5: To happen with the tax builders. Is it actually going
Speaker 5: to get passed? And in what form?
Speaker 4: There are other more driving factors I think for the
Speaker 4: markets right now. This is just sort of a disappointing
Speaker 4: acknowledgment of reality.
Speaker 6: Carol.
Speaker 3: I know that you and the family offices that you
Speaker 3: work with have for a long time been a tech bulls.
Speaker 3: Do you use trading down days as an opportunity to
Speaker 3: add to those positions here? Do you still think tech
Speaker 3: can leave this market?
Speaker 5: Absolutely? I don't know when, so it may not be
Speaker 5: this year.
Speaker 4: By the way, it may not be this year because
Speaker 4: there are other factors out of the hands of the
Speaker 4: market that are driving things, namely policies out of Washington.
Speaker 4: So as long as Washington's driving the bus right now,
Speaker 4: it's very hard for the markets to do anything other
Speaker 4: than react, as we you know of seeing the Fed
Speaker 4: can only react, everybody can only react at this point. However,
Speaker 4: that doesn't mean that Amazon isn't holding its value, that
Speaker 4: Nvidia isn't holding its value that Microsoft isn't holding its value.
Speaker 4: So if you're underweight in your tech positions because you
Speaker 4: felt it was too expensive before this period, might be
Speaker 4: a good time to get in on a fair day
Speaker 4: and up your positions of it, because those are leaders
Speaker 4: and they will continue to lead.
Speaker 2: We have a breaking headline here from Reuters saying that
Speaker 2: nip On Steel is going to invest fourteen billion dollars
Speaker 2: in US steel If Trump okays that takeover deal. According
Speaker 2: to reports, it will be about four billion dollars for
Speaker 2: a new mill, a new steel mill. Just take that
Speaker 2: in for a second. That'd be huge. Carol, you mentioned
Speaker 2: tech like buy on the dip, right, the valuations make sense.
Speaker 2: Do you feel like there is FOMO right now on tech?
Speaker 4: Not yet, but I do think that there are people
Speaker 4: that missed it completely before, people that were extremely skeptical
Speaker 4: and are very underweight.
Speaker 5: So I don't know if it's FOMA, but I.
Speaker 4: Do think it's not a bad time to get in
Speaker 4: and remember things like AI and the IoT technology that
Speaker 4: it's going to allow you to have data on every
Speaker 4: type of manufacturing that we do in the United States
Speaker 4: thanks to these new manufacturing policies, will need AI, will
Speaker 4: need IoT sensors will need all of the things that
Speaker 4: tech is building for us. And I can tell you
Speaker 4: that many family offices right now are actively investing in
Speaker 4: data centers.
Speaker 5: Data centers are being built all over the country.
Speaker 4: The municipal governments, for example, in the state of Oklahoma,
Speaker 4: the state governments are actively partnering with private sector to
Speaker 4: build more capacity for AI and technology in this country
Speaker 4: over the next ten twenty four months. So don't count
Speaker 4: tech out. It's not out at all. It's just a
Speaker 4: question of when the market starts driving, rather than the policy.
Speaker 3: Hey, Carol, there was a time earlier this year when
Speaker 3: the markets are really trying to digest all these new tariffs,
Speaker 3: people said, hey, how about the rest of the world.
Speaker 3: We saw a lot of capital flow from US equity markets,
Speaker 3: bond markets overseas, particularly to Europe. Is that something you
Speaker 3: think is still viable?
Speaker 5: Yes, I do think that finally we'll see some movement
Speaker 5: in Europe.
Speaker 4: We've had ten to fifteen twenty years of US exceptionalism
Speaker 4: when it really didn't make a lot of sense to
Speaker 4: diversify that much outside.
Speaker 5: Of the US. But now Europe is looking more interesting again.
Speaker 4: They're uniting, they're actively rebuilding defense stocks and they're trying
Speaker 4: to kind of take a bigger role in their own defense,
Speaker 4: and I think that's an area where we can really
Speaker 4: potentially make some money this year.
Speaker 5: I don't think it's a bad thing that Europe is
Speaker 5: going to step up to the plate.
Speaker 4: And there are some people rotating out of the United
Speaker 4: States for other reasons, and the first place they're going
Speaker 4: to go is Europe. It's perceived as less risky then
Speaker 4: let's say emerging markets or Asia.
Speaker 5: So yes, Europe.
Speaker 4: Is a good place if you're thinking of sticking your
Speaker 4: toe in the water and going outside the US right now.
Speaker 3: Very good, Carol, Thank you so much for We really
Speaker 3: appreciate it. Carol Pepper, founder and CEO of Pepper International.
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Speaker 3: The Alextel Paul Swooney live here in our Bloomberg Interactive
Speaker 3: Broker Studio streaming live on YouTube as well, and starting today,
Speaker 3: the video presentations of Bloomberg Intelligence and Balance of power.
Speaker 3: We'll be running live on Bloomberg Originals. That's on your
Speaker 3: smart TV, Roku TV, Samsung TV, all that kind of
Speaker 3: good smart TV stuff. So we're there as well. So
Speaker 3: we welcome that audience to Bloomberg Intelligence. Philolando Joins is here,
Speaker 3: chief equity market strategist and head of Client portfolio Management
Speaker 3: at Federated at Hermes. Phil, it seems like, you know,
Speaker 3: this market has retraced much of its peak to trough
Speaker 3: fall here just over the last several weeks as we
Speaker 3: get maybe a little bit more clarity on the tariffs,
Speaker 3: but a tremendous amount of volatility down then up. Where
Speaker 3: do we go from here?
Speaker 6: Good morning, Paul, Thank you very much for having me back.
Speaker 6: I think you've hit the nail on the head that
Speaker 6: the volatility over the last six weeks, looking at something
Speaker 6: like the vixendix as an example, you know, went from
Speaker 6: like fifteen to sixty and is now back in the
Speaker 6: mid teen so the volatility is completely round tripped. Same
Speaker 6: story with the equity market. You know, from the Liberation
Speaker 6: Day announcement on April second, market dropped like fifteen percent
Speaker 6: and then over the course of the last six weeks
Speaker 6: or so, we've rallied, like I don't know, twenty one
Speaker 6: to twenty two percent. We've gotten all the money back.
Speaker 6: So we're now, you know, back ahead of where we were.
Speaker 6: And so now, you know, I guess investors are asking
Speaker 6: the question, well, what's next. You know, we're heading into
Speaker 6: what typically is a seasonally sluggish time of the year,
Speaker 6: you know, the sell and may go away period, you know.
Speaker 6: But the underlying fundamentals of the market I think are
Speaker 6: going to be driving the bus here, and what has
Speaker 6: lately improved the prospects of the market are two things.
Speaker 6: Number One, we're making some positive progress with the tariff negotiations,
Speaker 6: you know, with the UK and China, and the hope
Speaker 6: is that there's another you know, a dozen or eighteen
Speaker 6: or so countries that are sort of in the mix
Speaker 6: now and we'll get some positive announcements in coming days
Speaker 6: or weeks. And then second is that when you actually
Speaker 6: look at the data that that you know drives the market,
Speaker 6: we've got this ongoing tug of war, you know, between
Speaker 6: the hard data which has been which has been fine,
Speaker 6: and the soft data, the sentiment data, which has been terrible.
Speaker 6: So what yeah, yeah, go ahead, Alex, I'm sorry well doesn't.
Speaker 2: Say something, Where does that? Where does that leave us?
Speaker 6: Well, we're we're we're we're looking for more, you know,
Speaker 6: Where's like again, the hard data that we saw last week,
Speaker 6: you know, CPI and PPI data was fine. The retail
Speaker 6: sales for the Marparol season up five point two percent
Speaker 6: year on year versus three percent a year ago. So
Speaker 6: the the consumer data is fine. But then additional sentiment data,
Speaker 6: the HMI, the housing data is terrible. The the Michigan
Speaker 6: data was terrible. And so now the next big data
Speaker 6: point we're going to get this week is you know,
Speaker 6: the claims data. Uh, this is the survey week for
Speaker 6: the main jobs report, so incrementally what investors are looking for.
Speaker 6: It's okay, well, what's the next data point? You know,
Speaker 6: how do we how do we sort of complete this
Speaker 6: giant jigsaw puzzle. There are some folks like us who
Speaker 6: think that this situation is going to continue to improve,
Speaker 6: that we'll get more countries that will sort of fall
Speaker 6: into place with the tariff negotiations, and the heart data
Speaker 6: is ultimately going to prevail. The soft data will sort
Speaker 6: of fade. But there are other folks that you know,
Speaker 6: are looking at the other side. Of the coin are
Speaker 6: saying that the good hard data is going to dissipate,
Speaker 6: and then it's the soft data that's pointing in the
Speaker 6: right direction. So the short answer is alex right now,
Speaker 6: no one knows and they're just waiting for more incremental
Speaker 6: information to sort of form that picture.
Speaker 3: Now nobody knows. That probably includes the Federal Reserve. Don't
Speaker 3: you think, Phil, how do you think they're preceding these days?
Speaker 6: Well, exactly right. I mean you look at the last
Speaker 6: FOMC meeting where Powell basically said we're going to take
Speaker 6: a wait and see approach like two dozen times because
Speaker 6: they're waiting for more data. They're waiting for clarity of
Speaker 6: the picture. And the bond market, which you know, a
Speaker 6: couple of weeks ago, was thinking that we're going to
Speaker 6: have three or four cuts in the back half of
Speaker 6: the year. They now think we're we're only going to
Speaker 6: have two, with the first cut maybe not coming until
Speaker 6: the September FOMC meeting. Because the thing thinking is that
Speaker 6: the FED needs more data to be able to figure
Speaker 6: out what their next policy move is. Our position here
Speaker 6: at Federated Hermes is that the FED will cut, give
Speaker 6: us two or three cuts in the back half of
Speaker 6: the year. Maybe that first cut comes to the July meeting,
Speaker 6: because the economy is slowing down, but the labor market's
Speaker 6: not collapsing. And as we saw with the CPI, the
Speaker 6: retail and the wholesale inflation data last week that the
Speaker 6: inflation data is pretty good. All of that suggests that
Speaker 6: the federal reserves should be reducing interest rates in the
Speaker 6: back half of the year, and we're pretty comfortable with
Speaker 6: that position.
Speaker 2: Before I let you go, are you surprised about the
Speaker 2: non market reaction to the Moody's downgrade.
Speaker 6: I'm sort of surprised that Moody's was as late to
Speaker 6: the party as they were in terms of when, you know,
Speaker 6: Fitch and s and P made their downgrades years ago,
Speaker 6: And in my mind, I'm asking the question, if Moody's
Speaker 6: is down grading now, where were they, you know, over
Speaker 6: the last three or four years when inflation spiked up
Speaker 6: to the highest levels in forty years. Why are they
Speaker 6: picking this moment as opposed to, you know, perhaps a
Speaker 6: more reasonable moment a couple of years ago. So I
Speaker 6: don't know what to read into that.
Speaker 3: All right, Phil, thanks so much for joining us. Always
Speaker 3: appreciate getting your thoughts. Fill Orlando, chief equity market strategist
Speaker 3: and head Client Portfolio Management, and Federated Hermes joining us there.
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Speaker 3: All right, Alex Steel, Paul Sweeney live here on Bloomberg
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Speaker 3: We're also on Bloomberg Originals. To check us out there
Speaker 3: on your smart TV. Let's talk Apple, Let's talk AI.
Speaker 3: I mean, we've all followed Apple for twenty thirty four years.
Speaker 3: They don't miss very often. They kind of get the PC,
Speaker 3: they get the phone, they get the gadgets. But boy,
Speaker 3: even to this person who doesn't really follow that closely,
Speaker 3: they're not getting AI. And I think I wonder if
Speaker 3: just what extent that's the problem. Our next guests will
Speaker 3: help us out there. Mark Herman, Managing editor for Global
Speaker 3: Consumer Tech for Bloomberg News. He's based in LA but
Speaker 3: he's here in New York's. We got him in studio.
Speaker 3: You've got a Bloomberg BusinessWeek big take story out today
Speaker 3: on Apple, and they're just kind of missing AI. What's
Speaker 3: going on in Coopertino as it relates to AI.
Speaker 7: Well, philosophical differences, mismanagement, and the biggest thing is they
Speaker 7: were blindsided when generative AI with chat, GPT and GitHub
Speaker 7: launched back in twenty twenty two. November twenty twenty two,
Speaker 7: I'm told Apple Intelligence wasn't even an idea back then. Why, well,
Speaker 7: they missed the boat.
Speaker 2: But how I mean, I mean, I don't understand.
Speaker 7: Yeah, well, clearly there was philosophical disagreement, in philosophical dis
Speaker 7: interest in the topic of artificial intelligence. I write about
Speaker 7: how Craig Federighi, Apple's senior VP of software engineering, doesn't
Speaker 7: really believe in these multi billion dollar projects. He tends
Speaker 7: to try to shut down or steer away from projects
Speaker 7: of that sort, and AI is something of that nature.
Speaker 7: AI is quite a bit messy. They're known for the
Speaker 7: very intricate and well designed user experiences. AI sometimes with hallucidations,
Speaker 7: can take away from that. But I think they didn't
Speaker 7: think it was going to be as big of a
Speaker 7: thing as it became today. A lot of it fell
Speaker 7: on deaf years years ago, I'm told. But really, this
Speaker 7: is a company that's known for updating their operating systems
Speaker 7: once a year. It's known as a company that focuses
Speaker 7: on the minutia, and they missed the big picture here
Speaker 7: with artificial intelligence, and it really is a shame. You know,
Speaker 7: the big picture here isn't the AI capabilities of its
Speaker 7: devices today. The big picture today is the AI capability
Speaker 7: of future hardware. If you don't have the core technology,
Speaker 7: the AI ready to go at a deep level, how
Speaker 7: are you going to develop products like humanoid robots, smart glasses,
Speaker 7: watches in AirPods with depth sens and cameras for AI purposes.
Speaker 7: Can't do any of that if you don't have that technology.
Speaker 7: So they need to seriously turn this thing around quickly
Speaker 7: or are they're going to be in big trouble. This
Speaker 7: is as core technology as the touchscreen.
Speaker 3: Wow. I mean, first of all, how many words is
Speaker 3: this story, dude?
Speaker 7: Six thousand?
Speaker 2: Yeah?
Speaker 3: This is a long, well story, folks. So if you
Speaker 3: wantn't get smart on AI and Apple, you got to
Speaker 3: read the story. It's in the Bloomberg Business Week, It's
Speaker 3: on the Terminal up shirts everywhere else as well.
Speaker 6: Mark.
Speaker 3: What can they do if I'm an investor, That's the
Speaker 3: only question I have for Tim Cook. Can you guys
Speaker 3: catch up and get some of that AI pixie dusk
Speaker 3: in your stock?
Speaker 7: Yes, they need to make acquisitions, and they need to
Speaker 7: up the percentage of that R and D budget tied
Speaker 7: to AI. They need to up that percentage. They need
Speaker 7: to allocate more of their hires to AI as well.
Speaker 7: So they need to go bigger, go home on this.
Speaker 6: And I think did they know that?
Speaker 5: Do you think?
Speaker 4: Yeah?
Speaker 7: Of course they know that.
Speaker 2: Okay, how do they go big?
Speaker 7: You got to spend more money. AI is really one
Speaker 7: of the only things that you can buy your way
Speaker 7: into when it comes to this technology, right, you can
Speaker 7: buy your way into it. You just need to throw
Speaker 7: billions and billions at AI training. They need to make
Speaker 7: probably some tweaks to their privacy policy. Right, they have
Speaker 7: so many devices, They have more devices than anyone else
Speaker 7: as a single brand of a hardware company, of any
Speaker 7: company in the entire world in the history of the world.
Speaker 7: But they don't leverage that because of their privacy stand
Speaker 7: So maybe make some tweaks there to be able to
Speaker 7: collect some more data. Maybe figure out a way to
Speaker 7: convince people to give up some of their data for
Speaker 7: this purpose, and I think that could go a long
Speaker 7: way for them. So spending money collecting more data.
Speaker 3: Is there somebody out there that they could buy, should buy,
Speaker 3: that would leapfrog them? Do you think I hate doing
Speaker 3: that though?
Speaker 4: Right?
Speaker 7: Well, the problem is this philosophical disgust. I would say
Speaker 7: to making these large acquisitions. If I told you, I mean,
Speaker 7: you know this is true, so maybe you're not good. Example,
Speaker 7: But if I said to someone who didn't know the
Speaker 7: company as well as you too, would you believe me
Speaker 7: if I told you that Apple's biggest acquisition in the
Speaker 7: history of the company was three billion dollars.
Speaker 2: I actually believe that much.
Speaker 7: Well, you believe that because you know that, But I
Speaker 7: think if you ask people who didn't know that, that
Speaker 7: would be completely unbelievable. Yeah, they make these small acquisitions,
Speaker 7: and in addition to not wanting to spend big bucks
Speaker 7: on a company, they're really poor at integrating companies. The
Speaker 7: Beats integration, integrating all those engineers into the company, Disaster Intel,
Speaker 7: they bought the motim unit for a billion dollars back
Speaker 7: in nineteen Disaster, what is it going to feel as
Speaker 7: an AI person at Apple today. If you're bringing if
Speaker 7: the company buys your replacement to bring them in, it's
Speaker 7: not going to be fun. There's enough turf wars as
Speaker 7: it is at Apple.
Speaker 2: So they do then have to do it internally. They've
Speaker 2: still not done well at that.
Speaker 7: They've got to do both. They got to make the acquisition.
Speaker 7: They got to just deal with that. They got to
Speaker 7: make their biggest acquisition ever, and it has to be
Speaker 7: for AI, maybe multiple acquisitions. They have to turn things
Speaker 7: up a notch internally as well. They're going to be
Speaker 7: making changes. I mean, there's so many philosophical disagreements. The
Speaker 7: biggest is about chatbots. When it comes to AI. They
Speaker 7: are allergic to AI chatbots. They don't like the technology.
Speaker 7: They don't think open AI has staying power. So you're yes,
Speaker 7: I know, I.
Speaker 2: Made a face when he said that.
Speaker 7: Okay, you're going to see deeper integrations with other companies.
Speaker 7: They're going to see Google Gemini integration. I think next
Speaker 7: year you'll see Perplexity integration, maybe some Anthropic integration, maybe
Speaker 7: some Microsoft integration. But they're going to keep pushing and
Speaker 7: this is going to be a multi year thing. The
Speaker 7: biggest problems they were caught off. Guvernment's happened, so they
Speaker 7: had no head start on this. They're coming way from behind.
Speaker 3: Oh yeah, it's amazing. It's amazing. Now some people would say, hey,
Speaker 3: they're rarely first phones. Oh boy, when they decide to
Speaker 3: get into phones, they do it.
Speaker 7: That's the big difference. They were not first, and they're
Speaker 7: the worst.
Speaker 3: Okay companies.
Speaker 2: Yeah, yea is the reason why I need to read
Speaker 2: the six thousand page word article.
Speaker 3: Thank you, Thank you so much.
Speaker 2: Mark, really a pleasure. Mark German, Bloomberg News Managing editor
Speaker 2: for Global Consumer Tech.
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