Speaker 1: Thank you so much for joining us on this special
Speaker 1: edition of Bloomberg Daybreak. US markets are closed for the
Speaker 1: Memorial Day holiday. I'm Nathan Hager, and coming up this hour,
Speaker 1: we'll look ahead to earnings from one of the so
Speaker 1: called Magnificent Seven in videos out with its quarterly report
Speaker 1: on Wednesday, we get a preview with Ban Deep Saying,
Speaker 1: Global head of Tech research at Bloomberg Intelligence. Plus bitcoins
Speaker 1: back at record levels. We'll ask Bloomberg Intelligence Senior commodity
Speaker 1: strategist Mike mcgloon where he thinks the crypto currency is headed,
Speaker 1: and p JIM Fixed Income Chief US economist Tom Porcelli
Speaker 1: will join us with his thoughts on how long the
Speaker 1: FED can stay on hold. But we want to begin
Speaker 1: with a look at the stock market. After a turbulent
Speaker 1: few months, stocks have basically recovered their losses since President
Speaker 1: Trump's Liberation Day tariff announcement in early April. So we
Speaker 1: thought now would be a good time to bring you
Speaker 1: a special roundtable on equities, and for that we're pleased
Speaker 1: to welcome Invesco Global Markets strat just Brian Levitt and
Speaker 1: Barry Ritholts, the founder of ritt Holt's Wealth management and
Speaker 1: host of Bloomberg's Masters in Business podcast. It is great
Speaker 1: to have the both of you with us. Barry, I'll
Speaker 1: start with you.
Speaker 2: Is this just.
Speaker 1: A Washington dependent equity market at this point?
Speaker 3: Well, no doubt, Washington policy decisions are having an big
Speaker 3: impact on the market's expectations for the economy and corporate
Speaker 3: revenue and profit. Look, the President calls himself tariff man,
Speaker 3: says tariff's are the most beautiful word in the dictionary.
Speaker 3: We know what he did in the first term, and
Speaker 3: so the consensus seem to have been pre April, Hey,
Speaker 3: we'll get some ten percent tariffs here and there, and
Speaker 3: that's already built into our models. But when you suddenly
Speaker 3: and unexpectedly drop one hundred percent tariffs on one hundred
Speaker 3: and eighty two countries plus penguins in the Antarctica, the
Speaker 3: market has to stop and say, oh, we failed. You know,
Speaker 3: this is a failure of our imagination. We did not
Speaker 3: anticipate tariffs this large. This is going to take ten
Speaker 3: twenty percent off of corporate revenues. And profits always fall
Speaker 3: faster than revues. Maybe this is twenty thirty percent off
Speaker 3: of corporate profits four quarters from now. We have to
Speaker 3: adjust our prices down and what will you off like
Speaker 3: fourteen percent twelve percent? When the ninety day pause came in,
Speaker 3: that was on the way to going much lower as
Speaker 3: a discounting mechanism. The pause gave everybody some help that
Speaker 3: all right, maybe our original assessment was correct, but it's
Speaker 3: still very much up in the air.
Speaker 1: Brian, I'll turn it over to you. Has the market
Speaker 1: sort of shaken out where the policy direction is going now?
Speaker 1: Have we adjusted to the second term of President Trump?
Speaker 4: Not entirely. Barry makes a great point about it.
Speaker 5: I mean, we remember we had a tarif rate that
Speaker 5: was quite low a year ago, and now we're talking
Speaker 5: about fifteen eighteen percent average effective rates. So, yes, we've
Speaker 5: had a pause. Yes we've seen tower freights come down
Speaker 5: on countries such as China, but it's still not entirely
Speaker 5: clear where this is ultimately heading. Now, what's good for
Speaker 5: the market, or what the market is at least expecting,
Speaker 5: is that things are going to get incrementally better from
Speaker 5: here on the policy front. There's no guarantee, but that
Speaker 5: seems to be the market's expectation and does seem to
Speaker 5: be the modus operandi of President Trump. I look back
Speaker 5: to the twenty eighteen environment. If you remember the fourth
Speaker 5: quarter of twenty eighteen, stocksfell twenty percent during the US
Speaker 5: China trade war, you got a ninety to eight pause.
Speaker 5: You did not get a Phase one China trade deal
Speaker 5: for really another year, but the markets continued to perform
Speaker 5: well amid expectations that policy was going to get better.
Speaker 1: We are under a ninety day pause, as you mentioned,
Speaker 1: we're heading toward what I think a lot of lawmakers
Speaker 1: in Washington are hoping to be a big tax and
Speaker 1: spending cut bill around ninety days or so from now.
Speaker 1: Is July turning into a pivot point for the equity market?
Speaker 4: Berry?
Speaker 3: Maybe you know I love to do the compare and
Speaker 3: contrast with how the FED communicates changes in policy with
Speaker 3: how this White House does. You know, before the Fed
Speaker 3: says we're going to shift our regime, and now we're
Speaker 3: either raising rates or cutting rates. You get to notice
Speaker 3: six meetings in advance, three meetings in advance. Hey, we're
Speaker 3: tracking PCE and CPI. The month before the meeting, all
Speaker 3: the FED governors and presidents fan out and they speak
Speaker 3: at the Petroleum Club of Houston and the Economic a
Speaker 3: Club of New York and everywhere else, and so when
Speaker 3: the change happens, it's not a shock. You don't surprise
Speaker 3: the markets. I think part of the problem here is
Speaker 3: not just the policy itself, but how completely shocking and
Speaker 3: surprising it was to markets. As it turns out, mister
Speaker 3: market doesn't care for surprises, and that's something that I
Speaker 3: wish the White House would take a page from the
Speaker 3: Federal Reserve's communication strategy.
Speaker 4: Yeah. Look, the S and P five hundred, as everyone knows,
Speaker 4: is overvalue compared to its long term average, driven primarily
Speaker 4: by a handful of names. Other markets are not as overvalued,
Speaker 4: particularly non US markets obviously value in disease MidCap stock.
Speaker 4: So it's one of these times where it may make sense.
Speaker 4: It probably does make sense to lower the valuation of
Speaker 4: the portfolio as we nab gate this period of policy
Speaker 4: uncertainty and as we grapple with higher interest rates.
Speaker 1: We're speaking with Brian Levitt. He is the global market
Speaker 1: strategist at Invesco, and Barry Ridtholtz is with us as well,
Speaker 1: founder of Ridolts Wealth Management, host of Bloomberg's Master's in
Speaker 1: Business podcast. Barry, we have had a lot of attention
Speaker 1: on the bond market particularly with the yields going up
Speaker 1: in response to what's happening out of Washington, d C.
Speaker 1: Where do you see the bond market going and could
Speaker 1: it potentially pose a headwind for equities going forward?
Speaker 3: Sure, always the bond markets are the adult in the room.
Speaker 3: But let me throw a little bit of a curve
Speaker 3: ball at you. I think Carvel was right in the
Speaker 3: nineteen eighties and the nineteen nineties. Once the new millennium started,
Speaker 3: it seemed like leadership in terms of influencing DC policy
Speaker 3: moved to the equity mark mart So let me give
Speaker 3: you just three quick examples. I have a vivid recollection
Speaker 3: of FED Chairman Ben Bernanke testifying in October eight to Congress,
Speaker 3: and after a few fiery speeches, they voted down money
Speaker 3: and authority to the FED. Market sold off really hard.
Speaker 3: By that Friday, everybody reconvened and they gave the Fed
Speaker 3: everything they wanted. So ten twelve thirteen percent gets DC's attention.
Speaker 3: I love what happened in March twenty twenty during the pandemic.
Speaker 3: Republicans and Democrats couldn't agree on renaming a library in Washington, DC.
Speaker 3: Talk about something with so minor Then the NBA canceled
Speaker 3: the schedule after a thunder Jazz game where the center
Speaker 3: tested positive for COVID. Once the NBA canceled their season,
Speaker 3: the dominos all began to fall. And it was a
Speaker 3: week or two later we passed the single biggest fiscal
Speaker 3: stimulus as a percentage of GDP since World War Two,
Speaker 3: the Cares Act. And now we see the same thing
Speaker 3: that took place in April twenty twenty. The bond market
Speaker 3: has certainly been driving the debate about the dollar and
Speaker 3: fiscal policy and deficits, But it was the stock market
Speaker 3: sell off hey down five percent, down five percent, down
Speaker 3: five percent, three days in a row that got the
Speaker 3: White House's attention. And that's when the President called uncle,
Speaker 3: not rising yields, but falling equity prices. I want to
Speaker 3: be reincarnated as the stock market, not the bond market.
Speaker 4: Yeah.
Speaker 1: I mean that raises the question the whole idea that
Speaker 1: the president uses the stock market as a scorecard for
Speaker 1: how his policies are going. So, Brian, as we head
Speaker 1: into the second half, where do you see things going
Speaker 1: for the stock market? Could it sway what happens in Washington, DC.
Speaker 6: Yeah. Our leading indicators of the economy are still pointing
Speaker 6: to below trend and lower growth, and the inflation momentum
Speaker 6: is picking up, So that's a little bit of a
Speaker 6: more challenged environment.
Speaker 4: You're not there that often. Most of the time. You're
Speaker 4: more in a recovery expansion or slow down field in
Speaker 4: which stocks can do quite well. So in an environment
Speaker 4: where leading indicators are pointing lower, you tend to want
Speaker 4: to be a little bit more defensive, expect more volatility
Speaker 4: in the markets. I think you're right, and I think
Speaker 4: Barries right that ultimately we will get a better policy response.
Speaker 4: Ultimately as the economy weakends, Federal Reserve will be able
Speaker 4: to lower interest rates. When that happens is probably not
Speaker 4: as soon as people think, and the administration will likely
Speaker 4: continue to move away from its worst impulses on trades.
Speaker 4: So you could be in a channel lenging short term
Speaker 4: period here, because typically when you're leading indicators are rolling over,
Speaker 4: you need a policy response, and for the first time
Speaker 4: in a very long time, it's going to be a
Speaker 4: challenge in the United States to get that policy response.
Speaker 4: On the other side, in Europe, China, the UK, you
Speaker 4: will be getting that policy response, which is why you're
Speaker 4: starting to see or you have been seeing momentum pick
Speaker 4: up in non US assets.
Speaker 1: And Barry, are you looking for a challenging environment as well.
Speaker 1: I mean, we've heard from the likes of Jamie Diamond
Speaker 1: and JP Morgan Chase saying he can't take stagflation off
Speaker 1: his table into the second half.
Speaker 3: Well, well, Jamie reversed his views. Not too long ago.
Speaker 3: He had said, Eh, you know, tas will be fine,
Speaker 3: We'll work a way through it, before we had that
Speaker 3: big surprise. My expectations really are dependent on who is
Speaker 3: the potus whisperer, Who is the last person that the
Speaker 3: president here before he goes into making a key decision.
Speaker 3: If it turns out that the majority of the times,
Speaker 3: the last person to influence President Trump is Treasury Secretary
Speaker 3: Scott Besson, well we'll be fine. He's a Wall Street guy.
Speaker 3: He understands how markets, dollars, bonds work. I'm comfortable with
Speaker 3: him as the potus whisperer. If, on the other hand,
Speaker 3: it's Peter Navarro, who is you know, one and only
Speaker 3: one economist who seems to think that tariffs are a
Speaker 3: fantastic idea. Hey, that little smooth holy thing, all right,
Speaker 3: that was a one off. That didn't work, but we
Speaker 3: should try it now. If he's the most influential advisor
Speaker 3: that the president listens to, well, then you know the
Speaker 3: worst case scenario is, yeah, we're gonna get rate cuts,
Speaker 3: but it's going to be in response to a stagflationary
Speaker 3: maybe even a recessionary environment.
Speaker 1: To be a fly on the wall in Washington, d C.
Speaker 1: Thank you for this to the both of you, Berry
Speaker 1: Ridtholtz of Ridtholtz Wealth Management in Bloomberg's Master's and Business podcast,
Speaker 1: and thanks as well to Investco Global market strategist Brian Levitt.
Speaker 1: Up next, we're going to preview earnings this week from Nvidia.
Speaker 1: Bloomberg Intelligence Global head of Tech Research Mandeep Sing will
Speaker 1: join us as the special Memorial Day edition of Bloomberg
Speaker 1: Daybreak continues. It's twenty minutes past the hour. I'm Nathan Hager.
Speaker 1: This is Bloomberg. Welcome back to this special edition of
Speaker 1: Bloomberg day Break. US markets are closed for the Memorial
Speaker 1: Day holiday. I'm Nathan Hager. Wall Street gets back to
Speaker 1: work this week with a key earnings report on the docket.
Speaker 1: On Wednesday, after the close of trading, we get the
Speaker 1: latest quarterly numbers from Nvidia, So what should we expect
Speaker 1: from the AI chip giant. Let's bring in man Deep
Speaker 1: Singh for se mencers in that regard. Mandeep of course,
Speaker 1: as the global head of Tech research at Bloomberg Intelligence.
Speaker 1: Man Deep, it's great to have you on with us.
Speaker 1: And you know, Nvidia investors have kind of gotten used
Speaker 1: to blowout results quarter after quarter, So is that the
Speaker 1: expectation this time around?
Speaker 2: I think there are a few variables to keep in mind.
Speaker 2: So the first one is on the demand side. Everything
Speaker 2: really looks strong when it comes to the commentary from
Speaker 2: hyperscalers that we've heard around CAPEX. I mean pretty much
Speaker 2: everyone raised their CAPEX slightly. They had positive outlook on
Speaker 2: even the early twenty twenty six view. So the US
Speaker 2: hyperscaler spin really strong. The one area that obviously will
Speaker 2: be a slight head wind is the China exposure. And
Speaker 2: we know in Nvidia wrote down about fifteen billion dollars
Speaker 2: of their inventory of H twenties because of the restrictions.
Speaker 2: So the most likely scenario right now is they may
Speaker 2: not be able to sell to China anytime soon, even
Speaker 2: if they come up with a different variant. I think
Speaker 2: chances are they'll find it hard to overcome the restrictions,
Speaker 2: so that's a negative. At the same time, they had
Speaker 2: new sovereign deals in the Middle East a couple of
Speaker 2: weeks back, UAE and I think Qatar, and just overall,
Speaker 2: the sentiments seems to be improving when it comes to
Speaker 2: sovereign demand outside of China. So there are different sort
Speaker 2: of variables driving the demand side, but overall, look, the
Speaker 2: market is still undersupplied and in video chips are still
Speaker 2: the most performant when it comes to accelerators that you
Speaker 2: need for AI. So from that perspective, I mean in
Speaker 2: Nvidia still has that mode when it comes to the
Speaker 2: AI accelerator market.
Speaker 1: Yeah, to your point, it really has been a busy
Speaker 1: quarter leading up to these results from Nvidia, a lot
Speaker 1: of headlines coming out for the AI chip company, and
Speaker 1: including some headlines from the CEO himself, Jensen Wong. He
Speaker 1: was at the computechs AI event in Taipei last week
Speaker 1: unveiling his latest raft of technologies aimed at keeping the
Speaker 1: AI demand boom going. Here he is talking about the
Speaker 1: latest in Vidia accelerator chips. Let's listen.
Speaker 7: In this year in Q three will upgrade to Grace
Speaker 7: Blackwell GB three hundred. The GB three hundred will increase.
Speaker 7: Is the same architecture, same physical footprint, same electrical mechanicals,
Speaker 7: but the chips inside have been upgraded.
Speaker 1: So what kind of further commentary could we get from
Speaker 1: from Jensen Wong on the GB three hundred when we
Speaker 1: get these earnings this week.
Speaker 2: Yeah, the big thing that the street is focused on
Speaker 2: is what does the GB three hundred do in terms
Speaker 2: of the gross margins, because remember in Vidia's gross margins
Speaker 2: have come down slightly with this Blackwell launch compared to
Speaker 2: the Hopper architecture, which was the prior architecture, and the
Speaker 2: expectation is that gross margins go back to mid seventy percent.
Speaker 2: This quarter there'll be more like seventy one seventy two percent,
Speaker 2: but in the second half everyone is expecting those gross
Speaker 2: margins to go up, primarily diriven in by GB three hundred.
Speaker 2: Ass your clip just noted so clearly. You know they
Speaker 2: are talking about bigger scale of these compute architectures that
Speaker 2: all the hyperscalers are looking to use, and the reasoning models,
Speaker 2: which really I think took off post Deep Seek earlier
Speaker 2: in the year, do require much more compute than the
Speaker 2: you know, the previous sort of way of using AI
Speaker 2: when it comes to just giving in your prompt in
Speaker 2: chatbot and getting a response. So the reasoning models have
Speaker 2: driven up the consumption of compute and that will be
Speaker 2: a key driver of the outlook that Nvidia is going
Speaker 2: to give in their earnings report.
Speaker 1: And we're speaking with man Deep Singhy's the global head
Speaker 1: of Tech research at Bloomberg Intelligence as we look ahead
Speaker 1: to in Vidia's latest earnings report coming up later this week.
Speaker 1: You mentioned the importance of Nvidia broadening its market beyond
Speaker 1: the hyperscalers, these deals that we saw in the Gulf
Speaker 1: in recent weeks in Saudi Arabia, the United Arab Emirates.
Speaker 1: How important is it for Nvidia to capture that market
Speaker 1: those sovereign investors into the A boom.
Speaker 2: Yeah, I mean, I look at it this way. When
Speaker 2: you look at the five hyperscalers here in the US,
Speaker 2: they are growing their capex by about forty to forty
Speaker 2: five percent this year, and Nvidia's data center revenue is
Speaker 2: expected to grow about fifty five percent this year. So
Speaker 2: you can see how Nvidia is still so much exposed
Speaker 2: to the hyperscale capex growth.
Speaker 1: Now.
Speaker 2: You know, there are obviously buyers of Nvidia chips outside
Speaker 2: of hyperscale, the US hyperscalers, but you know, you need
Speaker 2: bigger entities. We're talking about a company that is almost
Speaker 2: going to do two hundred billion dollars in revenue this year,
Speaker 2: and for that number to keep growing even at a
Speaker 2: twenty five to thirty percent clip, you need to find
Speaker 2: those large incremental buyers. You can't just have, you know,
Speaker 2: enterprises with five to ten million dollars of IT budgets
Speaker 2: spending on GPU compute. You need much bigger because we're
Speaker 2: talking much bigger numbers now, and so sovereigns do kind
Speaker 2: of come across as entities that can spend big on
Speaker 2: capex and they can spend for a few years. It
Speaker 2: won't be just a one and done sort of thing.
Speaker 2: And so from that perspective, it's huge that you know,
Speaker 2: Nvidia is exposed to these sovereign buyers. I'm more curious
Speaker 2: to see what sort of llms or products come out
Speaker 2: of the spend from the likes of Saudi Arabia or
Speaker 2: UAE who plan to spend big on Nvidia accelerators, because
Speaker 2: at the end of the day, you have to have
Speaker 2: something unique then what OpenAI or Gemini is offering in
Speaker 2: terms of chatblock functionality.
Speaker 1: Yeah, and I guess you have to wonder as well
Speaker 1: whether those sovereigns can come through on some of the
Speaker 1: pledges they've made around the deals that were announced in
Speaker 1: recent days. I mean, we've been talking about multi hundreds
Speaker 1: of billions, if not multiple trillions of dollars in announcements
Speaker 1: coming out of that event.
Speaker 2: Yeah. Absolutely, I mean the numbers are big, and these
Speaker 2: are multi year commitments, as has been the case even
Speaker 2: in the US. We know about the project's target. You know,
Speaker 2: even Apple has talked about investing up to five hundred
Speaker 2: billion dollars here in the US. I'll be curious to
Speaker 2: kind of learn more about what Apple plans to invest
Speaker 2: on because so far, Apple has been the one large
Speaker 2: tech company that has not invested big when it comes
Speaker 2: to the GPU and the accelerated compute infrastructure. So that
Speaker 2: could be a positive for Nvidia if Apple comes in
Speaker 2: as another hyperscaler who wants to stand you know, this
Speaker 2: big GPU infrastructure. But clearly that hasn't happened, and that's why,
Speaker 2: you know, you need the bigger entities like the four
Speaker 2: or five existing hyperscalers to come in to sustain this
Speaker 2: revenue growth that we've seen out of Nvidia.
Speaker 1: Do you see Nvidia sustaining the growth of its valuation
Speaker 1: given the news that's come out in recent months, We've
Speaker 1: been talking about the deep Seek breakthrough in China, so
Speaker 1: much competition in the space. Now, can investors continue to
Speaker 1: drive up the value of this company into the next
Speaker 1: few quarters.
Speaker 2: I Mean, the good thing for Innvidia is it's been
Speaker 2: growing nicely into its multiple, so it's never really traded
Speaker 2: at a crazy multiple. And that's still the case because
Speaker 2: you know when a company is growing over fifty percent,
Speaker 2: I mean you know, it's almost doubling its revenue in
Speaker 2: less than two years, So clearly you know it's growing
Speaker 2: nicely into the valuation. And look, when it comes to Nvidia,
Speaker 2: like they have a very successful mode in terms of
Speaker 2: having the most performant chip, they have the scale, they have,
Speaker 2: the high margins, I mean gross margins in excess of
Speaker 2: seventy percent is something desirable for any company, and they're
Speaker 2: doing it as a semiconductor company. So there are a
Speaker 2: lot of things that are working well for them. And
Speaker 2: if AI is this secular trend and I think everyone
Speaker 2: sort of agrees on that this is a you know,
Speaker 2: a fifteen to twenty year trend and videos is still
Speaker 2: most exposed to kind of growth in that AI infrastructure.
Speaker 2: Is just a question of can it happen in a sustainable,
Speaker 2: you know, twenty five to thirty percent every year growth
Speaker 2: type of scenario from here on or will there be
Speaker 2: you know, peaks and troughs in terms of a capeic
Speaker 2: digestion period and then you know, things picking back. So
Speaker 2: that's the sort of question that everyone is trying to
Speaker 2: grapple with. But there is no doubt that Nvidia has
Speaker 2: almost got a monopoly when it comes to training work cloths,
Speaker 2: and even on the inference side, they continue to have
Speaker 2: a dominant chare right now.
Speaker 1: Yeah, and I wanted to ask you if you think
Speaker 1: Nvidia maintains that monopolistic position that mote when you know
Speaker 1: it's facing competition from the likes of Advanced micro Devices
Speaker 1: and you know so many other competitors that want to
Speaker 1: chip away at this chip giant.
Speaker 2: Yeah, look, there is competition from AMD or Google's TPUs
Speaker 2: or even now we've started hearing Huawei being a potential competitor.
Speaker 2: But when it comes to price, you know, performance as
Speaker 2: well as you know the power aspect of their chips.
Speaker 2: They are still way above everyone else, and that's why
Speaker 2: you know, these AI workloads are pretty demanding when it
Speaker 2: comes to the floating point operations that are required and
Speaker 2: the power efficiency that's required. Nvidia has so far managed
Speaker 2: to say at least you know, a year or two
Speaker 2: ahead of everyone else in terms of what they are
Speaker 2: able to offer versus the competition. And then they also
Speaker 2: have this software mode that others are still developing when
Speaker 2: it comes to their chips. So I do think their mode,
Speaker 2: at least for now, seems sustainable. But you know, we're
Speaker 2: talking big numbers, and when everyone is fixated on this
Speaker 2: multi year opportunity, there will be workarounds. And their customers
Speaker 2: are also potential competitors. When you think about the likes
Speaker 2: of Google and Amazon. I mean, these are the biggest
Speaker 2: customers of Invidia chips, but they're also developing their own chips.
Speaker 2: So clearly there is that threat that over time they'll
Speaker 2: try to reduce their dependency on Nvidia, and I think
Speaker 2: it will happen. It's just a question of how long
Speaker 2: will it take them to develop their own chips so
Speaker 2: that you know they can completely move out of that
Speaker 2: Nvidia dependency.
Speaker 1: Well, we don't have too long to wait for those
Speaker 1: latest numbers on in Vidia's latest quarter. We get the
Speaker 1: results Wednesday after the close. Thanks for the preview ahead
Speaker 1: of it, Man Deep Saying, the global head of Tech
Speaker 1: research at Bloomberg Intelligence. Up next, the big move to
Speaker 1: the upside for bitcoin. We look ahead at what's a
Speaker 1: head for crypto with Bloomberg Intelligence Senior Commodity strategist Mike mcgloone.
Speaker 1: It's thirty seven minutes past the hour. I'm Nathan Hager,
Speaker 1: and this is Bloomberg. Welcome back to the special edition
Speaker 1: of Bloomberg Daybreak. I'm Nathan Hager. The US stock market
Speaker 1: course is closed for the Memorial Day holiday, and much
Speaker 1: like the stock market, the trajectory of bitcoin has reversed
Speaker 1: over the past couple months and taken off. It was
Speaker 1: just over a month ago the crypto currency was trading
Speaker 1: under seventy seven thousand. Last week it surged to a
Speaker 1: record well into six figures. For more on where the
Speaker 1: original digital token go from here, we are pleased to
Speaker 1: welcome Blueberg Intelligence Senior Commodity strategist Mike mcgloon Mike, it's
Speaker 1: good to have you with us. I mean, we've had
Speaker 1: some bullish crypto investors talking about lots more upside from here.
Speaker 1: Where do you see bitcoin going?
Speaker 8: I guess that's part of the problem, Nathan. It's had
Speaker 8: a very good run, but now it seems like the
Speaker 8: consensus for bullishness to be complete. Certainty is what really
Speaker 8: scares me. So that you know, so bitcoin's a new record,
Speaker 8: that's a wonderful thing. It's very impressive, but it has
Speaker 8: basically Pilon effect kicking in now, and I'm concerned that
Speaker 8: one thing it did prove in Q one certainly to
Speaker 8: that bottom in April when the stock market went down,
Speaker 8: it went down with it what it knows it neally does.
Speaker 8: It went down a lot harder. Now we're at the
Speaker 8: situation a lot of people says it's people say it's
Speaker 8: not as highly correlated to the stock market, it's an alternative,
Speaker 8: but it's proving it actually is more correlated to the
Speaker 8: stock market than things like gold. So for on the year,
Speaker 8: gold is still way up performing bitcoin. Questions can Bitcoin
Speaker 8: catch up? And I think a key pre vacuu is
Speaker 8: requisite for bitcoin to outperform gold this year. The old
Speaker 8: rock is US stock market properly probably has to go higher.
Speaker 8: So at this point, from the last sixteen quarters, the
Speaker 8: correlation with bitcoin the S and P five hundred I
Speaker 8: use sixteen quarters because bitcoin works in a four year cycle,
Speaker 8: is about point seven. That's almost the highest ever. Yet
Speaker 8: the correlation of bitcoin to gold is about zero. So
Speaker 8: I like to say some points bitcoin is digital gold
Speaker 8: and some kins it's leverage beta, And so far this
Speaker 8: year is proving its leverage beta. But the good news
Speaker 8: is so far it's way out perform a stock market
Speaker 8: in just sense. I have a sense that there's just
Speaker 8: so much just complete certainty it's going to go higher.
Speaker 8: This one I have to pull back into a bit
Speaker 8: of a contrarian.
Speaker 1: So are you thinking then that bitcoin isn't quite the
Speaker 1: mature asset that some might think it's at least trying
Speaker 1: to be now with so much more institutional interest in cryptocurrency.
Speaker 8: It's actually more the latter it's become. It's gained so
Speaker 8: much maturity. Last year was a benchmark year for bitcoin.
Speaker 8: The ETFs and those of us who were in the
Speaker 8: space were a long time waited for for ten years
Speaker 8: finally launch, so that brought in you know a lot
Speaker 8: of those type of investors we had the having and
Speaker 8: the major, most significant pivot was the Trump and mistation
Speaker 8: President candidate Trump at the time switching over his narrative
Speaker 8: to being favorable.
Speaker 1: I really liked.
Speaker 8: Writing bulls things about it when most of the masses
Speaker 8: hated it like a first Trump administration. They were not
Speaker 8: noticing what was happening in crypto dours and the base
Speaker 8: layer being the door and a lot of crypto stable
Speaker 8: coins investing in US trasure traasies. Now they do. And
Speaker 8: here's one big problem, Nathan, is the animal spirits are
Speaker 8: in the space. In the past, there was maybe a
Speaker 8: couple thousand, couple up to a million cryptocurrencies. Now on
Speaker 8: coin marketcap dot com there's sixteen million cryptocurrencies listed and
Speaker 8: that can be traded for me. It's the example of
Speaker 8: the broomsticks that Scott Present uses from the Fantasia where
Speaker 8: Mickey Mouse creates the spell and then you can't stop it,
Speaker 8: you know, the Sorcerer's Apprentice. This is the situation now.
Speaker 8: I see in cryptos we have an unlimited supply of
Speaker 8: dependence on bitcoin going higher. So bitcoin, yes, it has
Speaker 8: that limited supply factor, but now we have so much
Speaker 8: leverage in this space. There's a story on the Bloomberg
Speaker 8: terminal on this week that sat and pointed out that
Speaker 8: we have people leveraging forty to one to get long
Speaker 8: and they put in stops. And the unique thing about
Speaker 8: the space is those of us who've traded in the
Speaker 8: past is a lot of times you can run through
Speaker 8: stops on gaps, meaning when markets are closed when they're open,
Speaker 8: but bitcoin never closes. So I think what that does
Speaker 8: is incentive ives is as sentitizes many people to use
Speaker 8: a lot x of a lot more risk than they
Speaker 8: should be. So I'm very concerned at these levels. I'm
Speaker 8: concerned that the US stock markets are going to roll
Speaker 8: over for that recession we didn't have in two thousand
Speaker 8: and twenty three. And that's somewhat that can the views
Speaker 8: of Ona Wong or chief economists in Jena, Martin Adams,
Speaker 8: or senior equity strategist. And the key thing I'm pointed
Speaker 8: out for a while is that bitcoin to gold ratio,
Speaker 8: the amount of gold ounces equal to one bitcoin right
Speaker 8: now is about thirty three now that was first traded
Speaker 8: in twenty twenty one. So I'm really concerned that you
Speaker 8: know this, this space has got to become very mature.
Speaker 8: It's got the masses in it. And now we have
Speaker 8: a lot of lambs. Look at me. I can make
Speaker 8: money too. Who are doing things that I've heard about
Speaker 8: in nineteen twenty nine in the stock market, and I
Speaker 8: remember in nineteen eighty nine in Japan, in nineteen nine,
Speaker 8: in ninety nine US And I'll just mention that unlimited
Speaker 8: supply and then a lot of these things, like the
Speaker 8: eighth largest cryptocurrency is dogecoin. It's worth only thirty six
Speaker 8: billion dollars and it's basically a joke, attracts nothing. Some
Speaker 8: of that stuff I'm just waiting to get purged out
Speaker 8: and then I can get really bullish again.
Speaker 1: So are you concerned? Does your concern build when we're seeing,
Speaker 1: you know, some of these regulations looking like they're going
Speaker 1: to be loose, and particularly around the stable coin legislation
Speaker 1: that was just move forward in Washington, d C. You know,
Speaker 1: feeding into some of those animal spirits.
Speaker 8: Well, there you go, exactly. That's the key phrase. I
Speaker 8: think the key nomenclature animal spirits have been released. The
Speaker 8: key thing I find about stable coins is number one,
Speaker 8: the technology is awesome. The ability that's The most enduring
Speaker 8: bull market I like pointing out in twenty eighteen when
Speaker 8: it was quite the bare market, was the increasing market
Speaker 8: campalisation of stable coins. At that time, it was only tether,
Speaker 8: it's only about two billion. Now Tether is about one
Speaker 8: hundred and fifty billion, and there's about two hundred and
Speaker 8: fifty billion tracking stable coins and they're all invested in treasuries.
Speaker 8: This is good for the US. The thing about that
Speaker 8: I think that's disconcerning for me is it's that tokenization process.
Speaker 8: Once we begin to extract or expand this tokenization, we
Speaker 8: can tokenize and trade assets on chain like treasuries and stocks.
Speaker 8: I think that's going to put things like dosee coin
Speaker 8: that are just silly, expensive speculative excesses as shortbait. So
Speaker 8: right now, overall the government's going to finally figure this out.
Speaker 8: But just that we realize the technology that uses a
Speaker 8: US dollars a base layer and track things like stable
Speaker 8: claims is awesome.
Speaker 1: It's quite the market to watch and really good to
Speaker 1: get your insights on it. Mike, thank you for this.
Speaker 1: That's Mike mcglohon, senior commodity strategist at Bloomberg Intelligence. We
Speaker 1: now turn our attention to the economy. We're just over
Speaker 1: three weeks away from the next FED decision. What will
Speaker 1: j Powell and company do in June? In light of
Speaker 1: uncertainty over tariffs? Let's ask p Jim Fixed income chief
Speaker 1: US economist Tom Porcelli, Tom, what will the FED do?
Speaker 1: They haven't done much this year.
Speaker 9: I think they're going to do much of what they've done,
Speaker 9: but wish just to say not much. Yeah, I just
Speaker 9: you know, I see, I see very limited scope for
Speaker 9: the FED to really do much at this juncture. I mean,
Speaker 9: I think that there are a couple of challenges sort
Speaker 9: of lingering in the air for them. So one is
Speaker 9: that inflation is still above target. Two is that inflation
Speaker 9: expectations are starting the process of becoming unanchored. In three,
Speaker 9: we're waiting for the the you know, the the inflation
Speaker 9: related to tariffs to kick in. So so all of
Speaker 9: that means that the Feed is on the sidelines now.
Speaker 9: We don't think that they will be on the sidelines
Speaker 9: the entire year. We do think that they will cut rates,
Speaker 9: but I think for at least the next you know,
Speaker 9: call it two or three meetings, I think it's going
Speaker 9: to be incredibly challenging for them to do much.
Speaker 1: Where do you see inflation expectations going? As you mentioned,
Speaker 1: they do look like they're starting to become unanchored. Do
Speaker 1: they become fully unanchored?
Speaker 9: So here here's the Here's I guess the thing that
Speaker 9: we all need to keep in mind. It's it's not
Speaker 9: that what the consumer says is going to happen to
Speaker 9: inflation ever really materializes, right, I mean, I think that's
Speaker 9: an important idea. But but but I think you know,
Speaker 9: the sort of the rhythm of what's happening matters. You know,
Speaker 9: they're braced for higher prices, So I don't think that
Speaker 9: you know them looking for you know, four or five
Speaker 9: percent inflation, which you know, depending which measure of inflation
Speaker 9: expectations you're looking at. You know, that's what some consumers
Speaker 9: are thinking. We don't think it gets even remotely close
Speaker 9: to that high. I mean, we think you could drift,
Speaker 9: you know, sort of closer to three percent, which in
Speaker 9: fairness is not far from where we are now. But
Speaker 9: having said that, the reality for the consumer is if
Speaker 9: the consumer is already being pinched right by already higher prices,
Speaker 9: and you're going to layer on higher prices on top
Speaker 9: of these already higher prices, and you have real incomes
Speaker 9: that are starting the process of slowing down, especially relative
Speaker 9: to real consumption. You know, that for us really suggests that,
Speaker 9: you know, economic activity is going to continue the process
Speaker 9: of slowing as the year progresses. I mean, I think
Speaker 9: that to me is the right sort of channel through
Speaker 9: which you need to think about higher prices.
Speaker 1: We've heard the FED thinking about waiting for clarity around
Speaker 1: where trade policy is going to go before they act.
Speaker 1: But can we paid out a scenario where the Fed
Speaker 1: could at least game out something of an impact from
Speaker 1: tariffs based on the idea that they're not going to
Speaker 1: be at the same levels that they have been in
Speaker 1: the past.
Speaker 9: Yeah, Nathan, I think we have to consider that we
Speaker 9: may never have a period of total certainty as it
Speaker 9: relates to trade. I mean, we you know, we keep
Speaker 9: on moving the goalposts, we keep on kicking the can
Speaker 9: down the road, and I think even when we finally
Speaker 9: do get to the goalpost, I can see the threat
Speaker 9: of terraffs remaining in place. And if that is true,
Speaker 9: then the uncertainty, right, I mean, how many times it
Speaker 9: will we all use the word uncertainty. Then I think
Speaker 9: that then I think the uncertainty sort of dynamic will
Speaker 9: also remain in place, you know. So so let's just
Speaker 9: you know, let me paint a very quick scenario. Let's
Speaker 9: say that, you know, we settle on ten percent you know,
Speaker 9: across the board baseline tarrafs. Right, let's just say we
Speaker 9: settle on that. But if the threat of tariff remains
Speaker 9: over then, you know, called the next three and a
Speaker 9: half years, then I think what that does is it
Speaker 9: pushes corporations to the sidelines as it relates to capex,
Speaker 9: and it pushes the consumers to the sidelines as it
Speaker 9: relates to going out and spending. And I think that's
Speaker 9: the real risk. And I would I would add this
Speaker 9: very quick idea for anyone thinking, oh, well, you know
Speaker 9: that that's like a you know, that's a theoretical idea,
Speaker 9: it's actually not. It's entirely practical. Just look back at
Speaker 9: what happened during Trump one point zero, when we had
Speaker 9: tariffs put on, even in the face of corporate tax
Speaker 9: cuts that were also put on right around the same time,
Speaker 9: KAPEC slowed down. I mean, companies like certainty and uncertainty
Speaker 9: is sort of you know, gonna gonna thrust them to
Speaker 9: the sidelines.
Speaker 1: And as far as the t tariff impact, do you
Speaker 1: see tariffs as sort of a one off in terms
Speaker 1: of what they do for inflation or could they have
Speaker 1: more of a longer term inflationary impact.
Speaker 9: It does tend to represent a one time shift tire
Speaker 9: in the price level. That's a that's an important idea
Speaker 9: now again for you know, an economist lingo, you know
Speaker 9: that one time shift tire means that you'll get you know,
Speaker 9: the sort of the acceleration in the in the inflation
Speaker 9: rate will we'll linger for about a year. Once you
Speaker 9: get beyond that year point, then the inflation rate will
Speaker 9: fall back to where it was. But in main street parlance,
Speaker 9: it doesn't matter. Prices will be higher. You'll have that
Speaker 9: that that that permanent shift higher in the price level.
Speaker 9: And that's what matters to most most of main street,
Speaker 9: most of everyone.
Speaker 1: So as we get to this next FED meeting, what
Speaker 1: would you say, just to button this up, are your
Speaker 1: expectations for June?
Speaker 9: I think very similar to what you know you heard
Speaker 9: from him, what you heard from Powelling company at the
Speaker 9: main meeting. I think it's you know, they're in this
Speaker 9: wait and see mode. They want to see how things
Speaker 9: are going to unfold, and that you know they're not
Speaker 9: going to be you know, in a rush to engage
Speaker 9: in any policy action until it's necessary.
Speaker 1: Always good to get your thoughts Tom again, thanks for
Speaker 1: being with us on this holiday. That's Tom Porcelly, chief
Speaker 1: US economist at p JIM Fixed Income. Thanks as well,
Speaker 1: Mike mcglohon and the sing of Bloomberg Intelligence, Brian Levitt
Speaker 1: and Invesco Barry Ridtholtz of Ridtholts Wealth Management in Bloomberg's
Speaker 1: Masters in Business, And thanks to you as well for
Speaker 1: taking time out to join us on this Memorial Day.
Speaker 1: I'm Nathan Hager.
Speaker 6: Stay with us.
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