WEBVTT - Ceasefire Claims Diverge as Hormuz Stays Blocked 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business App. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.040 us live on YouTube. 0:00:28.080 --> 0:00:30.240 Sebastian Page has been writing up a storm. 0:00:30.840 --> 0:00:35.280 He wrote a book about the Baltimore Orioles psychology of leadership. Oh, 0:00:35.360 --> 0:00:38.440 it's working out Oriols starting strong, five hundred ball. 0:00:38.479 --> 0:00:40.360 I believe there. He's a t rowe price. 0:00:40.360 --> 0:00:43.400 We're thrilled at Sebastian Page could get us started, and 0:00:43.680 --> 0:00:46.960 he's spent much on my mind the last two or 0:00:46.960 --> 0:00:51.239 three days because everyone's talking about diversification and what it 0:00:51.320 --> 0:00:55.400 means and rebalancing, and that his book is definitive. 0:00:55.440 --> 0:00:56.520 It is beyond. 0:00:56.160 --> 0:00:59.880 Diversification whatever investor needs to know when there's a war. 0:01:00.200 --> 0:01:03.040 And we're thrilled Sebastian Page could join us this morning. 0:01:03.280 --> 0:01:07.039 I got so many pundent Sebastian going back and forth 0:01:07.120 --> 0:01:11.240 on stocks, bond's correlation. Cliff Astness had a beautiful tweet 0:01:11.240 --> 0:01:14.520 out going what is this hot air? What should we 0:01:14.680 --> 0:01:18.520 do with diversification given this war? 0:01:21.080 --> 0:01:26.920 Tom the stockbond correlation is super hard to understand and predict, 0:01:27.560 --> 0:01:33.600 but financial advisors everywhere just use a negative return correlation assumption, 0:01:34.080 --> 0:01:37.839 and to me, that's wrong. The twelve month correlation historically 0:01:37.880 --> 0:01:42.399 between stocks and bonds has flipped time has flipped signs 0:01:42.480 --> 0:01:45.840 twenty nine times over the last eighty years from positive 0:01:45.880 --> 0:01:50.800 to negative. It has ranged from minus eighty to plus eighty. Now, 0:01:50.840 --> 0:01:54.680 the key to understanding the correlation is a simple question, 0:01:55.880 --> 0:01:59.880 are we facing a growth shock or an inflation shock? 0:02:00.680 --> 0:02:03.560 If you're flacing a little bit of both, it's complicated. 0:02:03.680 --> 0:02:09.440 But if inflation volatility dominates, both stocks and bonds can 0:02:09.520 --> 0:02:12.280 go down together. We learn this in twenty twenty two. 0:02:12.320 --> 0:02:13.959 And by the way, if you're a nerd like me 0:02:14.040 --> 0:02:17.240 and you studied correlations back to the seventies, same thing 0:02:17.280 --> 0:02:21.079 that happened in the seventies. I do think looking out 0:02:21.120 --> 0:02:24.560 six to twelve months, that inflation volatility is going to dominate. 0:02:25.080 --> 0:02:27.640 So I'm arguing you should diverse fire hedges, not just 0:02:27.720 --> 0:02:28.280 use treasure. 0:02:28.880 --> 0:02:33.280 Clifastes alludes to the idea that we have equity products 0:02:33.360 --> 0:02:36.960 and we have equity exposure, even though we're not calling 0:02:36.960 --> 0:02:41.080 it equity all the alternative and derivative products out there today. 0:02:41.280 --> 0:02:44.040 Paul's better at this, folks than I am. All those 0:02:44.120 --> 0:02:47.399 private this private that are those equity equivalents. 0:02:49.919 --> 0:02:53.840 Look, I think they are in a broad sense. We're 0:02:53.919 --> 0:02:58.000 talking about businesses. You value them by discounting cash flows. 0:02:58.000 --> 0:03:01.280 You use an interest rate to discount the cash flows. Tom, 0:03:01.280 --> 0:03:05.160 it's CFA stuff, right, and then their discout rate should 0:03:05.160 --> 0:03:08.960 be influenced by risk and liquidity and market conditions. But 0:03:09.360 --> 0:03:12.120 you know, Cliff Astness likes to be controversial, and he 0:03:12.200 --> 0:03:16.080 calls it volatility laundering, I think is the term he uses. 0:03:16.160 --> 0:03:19.200 But we don't mark to market the private assets. Look, 0:03:19.280 --> 0:03:23.360 private assets can be wonderful additions to investors' portfolios. In 0:03:23.440 --> 0:03:26.840 my own personal portfolio, I own private assets. 0:03:26.840 --> 0:03:32.239 But that's continue you know, that's his private ass. 0:03:32.040 --> 0:03:35.440 Yeah, but you know those are financial assets. And if 0:03:35.480 --> 0:03:37.560 you're kind of a mark to market person, I think 0:03:37.560 --> 0:03:41.800 it's better to build risk models around an assumption and 0:03:41.960 --> 0:03:46.040 adjustments where you can, you know, synthetically mark to market 0:03:46.080 --> 0:03:49.600 those investments and do it more thoughtful portfolio construction. Well, 0:03:50.280 --> 0:03:53.080 these are great assets generally, they're just not free lunches. 0:03:53.720 --> 0:03:56.400 So Sebastian, what do we doing in the bond market here, 0:03:56.880 --> 0:03:58.840 how much credit risks should you be taking in a 0:03:58.880 --> 0:04:01.840 world that has black Swan events, has a lot of 0:04:01.880 --> 0:04:05.240 cross currents, has a lot of geopolitical risk here, how 0:04:05.280 --> 0:04:05.920 about credit? 0:04:08.280 --> 0:04:13.680 We're slightly long credit. And yesterday was interesting because the 0:04:13.760 --> 0:04:17.360 relief rally was clearly risk on. You saw high yield 0:04:17.440 --> 0:04:22.520 spreads titan again to Tom's point, the Vicks went down, 0:04:22.880 --> 0:04:27.040 you had five percent pops and stock prices also, it 0:04:27.080 --> 0:04:31.200 was favorable to the broadening. You know, European stocks did well, 0:04:31.279 --> 0:04:35.640 Emerging market stocks, small caps, they all are performed. But 0:04:36.040 --> 0:04:40.160 I think we also need to accept that there's remaining 0:04:40.160 --> 0:04:45.080 inflation pressures. Damage has been done and all prices yesterday 0:04:45.120 --> 0:04:48.040 they went down twenty percent, but they stabilized fifty percent 0:04:48.080 --> 0:04:51.120 higher than they were twelve months ago. So we don't 0:04:51.120 --> 0:04:54.760 expect a recession. The underlying forces in the economy are 0:04:54.800 --> 0:04:59.479 actually pretty good, because you know, the Bloomberg's economic surprise 0:04:59.560 --> 0:05:02.320 and dext is at its highest in two and a 0:05:02.360 --> 0:05:05.960 half years. And someone just showed me data that the 0:05:06.000 --> 0:05:09.240 tax refunds are running fourteen percent higher than last year. 0:05:09.720 --> 0:05:13.760 So quietly, in the background of all these headlines, the 0:05:13.880 --> 0:05:18.600 economy's humming if not accelerating, so we don't expect a recession. 0:05:18.720 --> 0:05:21.560 We're short duration because we're worried about inflation risk, but 0:05:21.600 --> 0:05:22.720 we're slightly long credit. 0:05:23.640 --> 0:05:25.960 What do you expect, Sebastian, This fed a reserve to do. 0:05:26.000 --> 0:05:27.760 It looks if I'm just looking at the worp function 0:05:27.800 --> 0:05:30.400 on the Bloomberg terminal, I got nothing. I mean, the 0:05:30.440 --> 0:05:32.840 market's not looking for cuts, not looking for hikes. It 0:05:32.920 --> 0:05:34.520 looks like they're just going to sit on their hands here. 0:05:36.880 --> 0:05:39.159 I think nothing is the base case. But if you 0:05:39.240 --> 0:05:42.680 ask me, where's the skew to use a technical term, right, 0:05:42.880 --> 0:05:45.880 can you get is the probability of an upside surprise 0:05:45.960 --> 0:05:49.400 and inflation greater than the probability of a downside surprise? 0:05:49.920 --> 0:05:51.760 I'll give you a resounding yes. 0:05:52.440 --> 0:05:52.680 You know. 0:05:53.240 --> 0:05:56.040 Just look at where oil prices is stabilizing on a 0:05:56.160 --> 0:05:59.440 day like yesterday, when we think we think this trait 0:05:59.560 --> 0:06:02.320 is going to reopen, it's nowhere near where it was. 0:06:02.880 --> 0:06:05.359 And go ahead, Tom, well, I got it. 0:06:05.400 --> 0:06:05.960 We gotta go. 0:06:06.080 --> 0:06:08.760 Keith Lender is here going win a man? Sebastian, As 0:06:08.760 --> 0:06:11.000 simple as I can. If you attended the Oriols yet, 0:06:11.240 --> 0:06:13.760 if you sat in the Tiro price box. 0:06:13.839 --> 0:06:16.599 It's in the dugout. And have you seen Alonso play 0:06:16.640 --> 0:06:17.599 yet for the Orioles. 0:06:19.760 --> 0:06:22.279 I haven't. I can't wait to go. You know, players 0:06:22.360 --> 0:06:25.200 are wearing a Tiro Price patch. We have Tier Price 0:06:25.320 --> 0:06:29.120 signage at the stadium. It's a wonderful partnership between the 0:06:29.160 --> 0:06:32.760 Orioles and Tiro Price where we have our global headquarters. 0:06:32.800 --> 0:06:35.280 So and tom My dream is to watch a game 0:06:35.279 --> 0:06:36.039 with you one day. 0:06:36.440 --> 0:06:37.320 Well, we'd like to do that. 0:06:37.360 --> 0:06:39.400 I'd love to see the I saw the Canadians the 0:06:39.440 --> 0:06:42.719 other day in New Jersey, Sebastian. I would kill to 0:06:42.760 --> 0:06:46.560 see les Abiitan with Sebastian Page always of Quebec. 0:06:46.600 --> 0:06:47.840 Sebastian, thank you so much. 0:06:47.960 --> 0:06:51.400 His book, The Psychology Leadership is out now, folks getting 0:06:51.400 --> 0:06:54.000 a heavy read by corporate leaders. 0:06:55.760 --> 0:06:56.479 Stay with us. 0:06:56.720 --> 0:06:59.880 More from Bloomberg Surveillance coming up after this. 0:07:07.200 --> 0:07:10.800 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:07:10.840 --> 0:07:14.000 weekday afternoons from seven to ten am Eastern Listen on 0:07:14.120 --> 0:07:17.520 Apple Karplay and Android Otto with the Bloomberg Business app, 0:07:17.680 --> 0:07:19.520 or watch us live on YouTube. 0:07:20.040 --> 0:07:23.080 The incredible and recent work of Jennifer Welch, chief JE 0:07:23.240 --> 0:07:27.800 Economics Analysts for Bloomberg Economics. Jennifer, I'm honored to have 0:07:27.880 --> 0:07:31.440 you on one of the most painful books of my life. 0:07:31.440 --> 0:07:34.520 And this goes to your East Asian studies in Beijing 0:07:34.600 --> 0:07:38.720 with Bucknell, and it was Daniel kurtz Phalen's one volume 0:07:38.800 --> 0:07:43.720 on Marshall in nineteen forty six. There was a ceasefire 0:07:44.400 --> 0:07:48.200 and it didn't work out well in China in nineteen 0:07:48.320 --> 0:07:52.760 forty six. I know you studied that your thoughts on 0:07:52.840 --> 0:07:56.080 a ceasefire in twenty twenty six. 0:07:57.640 --> 0:08:00.280 Yeah, So the ceasar at the moment is looking rather 0:08:00.360 --> 0:08:04.360 fragile and rather ambiguous. It's unclear what terms it contains. 0:08:04.400 --> 0:08:07.040 It's unclear whether it is fully in place at the moment. 0:08:07.480 --> 0:08:10.680 The strait of her moves seems still be subject to 0:08:10.760 --> 0:08:15.080 Iranian control, and there's ongoing fighting in Lebanon, which Iron 0:08:15.120 --> 0:08:18.760 says is a violation of the ceasefire. Now that being said, 0:08:18.800 --> 0:08:21.840 it does seem negotiations are still moving forward this weekend, 0:08:21.920 --> 0:08:24.800 led by US Vice President Jad Vans and Iran Speaker 0:08:24.840 --> 0:08:28.280 of the Parliament, but there's very narrow space for a 0:08:28.320 --> 0:08:30.640 deal that lasts beyond the two week pause. 0:08:30.920 --> 0:08:34.640 Am I control, As I said to Paul earlier, where 0:08:34.679 --> 0:08:40.199 in Lord's name is the Secretary of State doing shuttle diplomacy. 0:08:41.000 --> 0:08:43.560 It is a excellent question, and I think it's not 0:08:44.000 --> 0:08:47.280 entirely coincidental that Secuary of State Mark or Rubio, who 0:08:47.360 --> 0:08:50.000 is also the National Security Advisor, hasn't seemed to be 0:08:50.160 --> 0:08:53.600 as directly involved in this conflict as he has, for example, 0:08:53.720 --> 0:08:58.000 in US operations in Venezuela and US policy on Cuba. 0:08:58.160 --> 0:09:00.280 It seems that he is focusing. 0:09:00.080 --> 0:09:04.160 Largely on Latin America, and President Trump has asked JD. 0:09:04.320 --> 0:09:06.840 Vans to take the helmet negotiations here. 0:09:07.120 --> 0:09:10.080 Now, that might be attempting to play to a domestic 0:09:10.120 --> 0:09:11.600 political audience, with JD. 0:09:11.720 --> 0:09:13.160 Vans being a known. 0:09:13.320 --> 0:09:17.000 Sort of skeptic of US foreign policy arrangements and sort 0:09:17.000 --> 0:09:20.400 of a way of signaling to Trump's base, don't worry, 0:09:20.520 --> 0:09:23.800 We're sending sort of our most skeptical person out there 0:09:23.840 --> 0:09:27.800 to make sure that we extract ourselves from this conflict 0:09:27.800 --> 0:09:28.520 that we launched. 0:09:29.000 --> 0:09:33.400 So what are the choices realistically for the US and 0:09:33.440 --> 0:09:35.920 for President Trump here as negotiations begin. 0:09:37.480 --> 0:09:40.920 So, frankly, President Trump doesn't have a huge number of 0:09:40.920 --> 0:09:44.400 options at his disposal right If Aron is seen as 0:09:44.480 --> 0:09:47.280 still not making good on its promise to reopen the 0:09:47.280 --> 0:09:49.560 straight of per Moves, which Trump said was critical to 0:09:49.600 --> 0:09:50.360 the ceasefire. 0:09:50.920 --> 0:09:52.440 He really has two choices. 0:09:52.480 --> 0:09:56.120 He can either threaten as he has to use military 0:09:56.160 --> 0:09:59.440 force against them, saying that the ceasefire is now Nolan void. 0:10:00.040 --> 0:10:02.120 I think the bar for that is rather high. This 0:10:02.200 --> 0:10:05.200 is an unpopular war in the United States. Gas prices 0:10:05.240 --> 0:10:09.120 are still rather high. He's clearly looking for an exit ramp. 0:10:09.200 --> 0:10:12.079 So that leads to the second option, which is diplomacy, 0:10:12.160 --> 0:10:15.000 and I think that's why we are seeing talks happening 0:10:15.040 --> 0:10:19.200 this weekend and there It's also difficult to say because 0:10:19.240 --> 0:10:21.520 the White House is saying that the ten terms around 0:10:21.559 --> 0:10:24.280 has put out publicly are not the terms are negotiating over. 0:10:24.640 --> 0:10:26.760 But even if we look at those ten terms, we 0:10:26.800 --> 0:10:29.439 think that there is the potential for a landing space 0:10:29.480 --> 0:10:32.360 for a deal. There are probably some areas Iran's willing 0:10:32.400 --> 0:10:34.880 to compromise on, areas the United States is willing to 0:10:34.920 --> 0:10:38.320 compromise on. I think the key sticking point is going 0:10:38.360 --> 0:10:41.720 to be how much Washington takes into account Israel's perspective, 0:10:42.320 --> 0:10:44.880 which is probably far less willing to accept some of 0:10:44.920 --> 0:10:46.559 the terms that Iran. 0:10:46.280 --> 0:10:48.280 Has put on the table, at least publicly. 0:10:49.040 --> 0:10:54.920 Jennifer Wells, chief geoeconomics analysts for Bloomberg and Economics. Jennifer 0:10:55.280 --> 0:10:58.040 on the economics of the moment, it is the cost 0:10:58.200 --> 0:11:02.079 of the war or do we just print bill notes 0:11:02.120 --> 0:11:04.720 and bonds and we don't care about the cost of 0:11:04.800 --> 0:11:05.160 the war? 0:11:06.520 --> 0:11:08.400 Well, I think there are two dimensions to the cost 0:11:08.400 --> 0:11:11.000 of the war for the United States. There's the military dimension, 0:11:11.160 --> 0:11:15.000 the cost of operations and in the Middle East, and 0:11:15.360 --> 0:11:19.040 clearly that's something that is high and probably rising further. 0:11:19.200 --> 0:11:22.400 The longer that these assets are deployed away from their 0:11:22.400 --> 0:11:25.000 home stations, the more maintenance they will need. 0:11:25.120 --> 0:11:25.880 After the fact. 0:11:25.920 --> 0:11:28.920 The more that we are deploying, in particular more personnel 0:11:29.160 --> 0:11:32.640 who the region, the higher those payroll costs are going 0:11:32.720 --> 0:11:35.200 to be. And then there's the second dimension, which is 0:11:35.240 --> 0:11:37.560 probably the one that President Trump is more sensitive to, 0:11:37.840 --> 0:11:41.600 and that's the oil price dimension and how that affects 0:11:41.600 --> 0:11:43.800 prices back at the pump here in the United States. 0:11:44.120 --> 0:11:48.120 That's obviously something that's incredibly domestically politically sensitive and salient, 0:11:48.600 --> 0:11:52.040 and that's probably the trigger that he is most closely 0:11:52.080 --> 0:11:55.600 paying attention to, along with the resulting impact on markets. 0:11:56.280 --> 0:11:59.160 Jennifer real quick here the Straight of HORNUS. I guess 0:11:59.200 --> 0:12:01.679 we're all getting small on this. How important it is. 0:12:01.800 --> 0:12:05.160 Before this war, it was effectively open to all international traffic. 0:12:05.520 --> 0:12:08.240 Now it's not. How was that an improvement for the US. 0:12:09.400 --> 0:12:12.040 That's a great question, and I think there's still many 0:12:12.160 --> 0:12:15.240 questions looming about what the ultimate path forward for her 0:12:15.280 --> 0:12:17.600 Moves is. Iran is saying that it wants to charge 0:12:17.600 --> 0:12:20.760 a toll, that it wants any vessels transitting through to 0:12:20.880 --> 0:12:25.360 do so in coordination with its military, and as several 0:12:25.440 --> 0:12:28.040 leaders in the region have pointed it out, that's not 0:12:28.240 --> 0:12:32.120 a free and open her Moves. That is still controlled passage, 0:12:32.280 --> 0:12:34.360 and so I think that is going to have a 0:12:34.400 --> 0:12:37.760 real constraining effect on how much traffic can go back 0:12:37.800 --> 0:12:41.199 to the Strait now. Obviously, I think negotiators this weekend 0:12:41.240 --> 0:12:42.720 are going to be trying to hammer this out. The 0:12:42.800 --> 0:12:45.240 US is going to be pushing for truly reopening it. 0:12:45.520 --> 0:12:47.480 But at the same time President Trump has turned out 0:12:47.480 --> 0:12:50.240 this idea of a joint toll, So a lot of 0:12:50.320 --> 0:12:51.520 questions still remaining. 0:12:51.840 --> 0:12:54.840 Jennifer, thank you so much. Jennifer Welch Bloomberg Economics today 0:12:54.960 --> 0:13:00.480 just brilliant. Stay with us more from Bloomberg Surveillance coming 0:13:00.559 --> 0:13:01.560 up after this. 0:13:08.800 --> 0:13:12.400 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:13:12.440 --> 0:13:15.640 weekday afternoons from seven to ten am Eastern Listen on 0:13:15.679 --> 0:13:19.079 Apple Karplay and Android Otto with the Bloomberg Business app, 0:13:19.280 --> 0:13:21.840 or watch us live on YouTube Android. 0:13:21.840 --> 0:13:26.640 Perrald joins us down at HI Vista Strategies with all 0:13:26.679 --> 0:13:29.960 of his work as well at HBS in Boston. And 0:13:30.000 --> 0:13:33.680 I mean the parchment, folks, is important, the George Gunn, 0:13:33.679 --> 0:13:38.800 Professor of Finance and Banking Emeritus at HBS. It carries 0:13:38.840 --> 0:13:42.480 a lot of way to it. Is the stereotype of 0:13:42.800 --> 0:13:45.320 HBS the same as it was thirty years ago? 0:13:45.440 --> 0:13:47.760 Is it still case study? Rigor? 0:13:49.559 --> 0:13:53.319 It's a good stereotype, Okase, study grounded in the real world, 0:13:53.440 --> 0:13:57.920 having serious conversations with very smart people did nothing. 0:13:58.120 --> 0:13:58.960 Nothing can beat that. 0:13:59.320 --> 0:14:01.280 I mean, I think of the number I thank you 0:14:01.360 --> 0:14:03.760 so much down the road at MIT, Simon Johnson and 0:14:03.760 --> 0:14:07.520 Gary Gensler mentioning me and Paul in their latest podcast 0:14:08.200 --> 0:14:11.400 Down the River. At MIT and at Harvard, we're all 0:14:11.440 --> 0:14:15.200 dealing with AI. I assume there isn't a case study 0:14:15.280 --> 0:14:16.440 yet at AI. 0:14:16.800 --> 0:14:17.840 What's it going to look like? 0:14:17.960 --> 0:14:20.720 In five years now they're no okay, studies on AID 0:14:20.760 --> 0:14:25.400 all now. It totally pervades the curriculum completely, and startups 0:14:25.400 --> 0:14:28.479 and students trying to startups in the summer. 0:14:28.200 --> 0:14:30.360 And in the second year. And AI is a very 0:14:30.360 --> 0:14:30.840 big part. 0:14:31.040 --> 0:14:33.200 So I got to get to it. Paul's got any questions. 0:14:33.400 --> 0:14:35.160 I got to get to it as simple as I can. 0:14:35.360 --> 0:14:40.240 Everybody listening, everybody watching across America, what is the parole 0:14:40.560 --> 0:14:45.120 formula to embrace AI and keep going? 0:14:46.520 --> 0:14:47.840 Start my being scared. 0:14:48.160 --> 0:14:51.280 If you don't understand AI and use it yourself, you 0:14:51.400 --> 0:14:52.080 will be out. 0:14:51.960 --> 0:14:56.280 Of a job. So get with it. Learn it. Learn 0:14:56.320 --> 0:15:00.800 to vibe code? What code? Vibe code? You you can. 0:15:01.000 --> 0:15:03.920 Program yourself by talking to a program and it writes 0:15:04.000 --> 0:15:06.160 code and any of us can do it. If you 0:15:06.160 --> 0:15:10.160 can do Excel, you can do vibe coding. It's extraordinary, 0:15:10.520 --> 0:15:10.840 all right. 0:15:10.920 --> 0:15:14.960 So let's well the AI story before the war, it 0:15:15.000 --> 0:15:16.800 was all AI for the last three four years in 0:15:16.840 --> 0:15:21.280 this marketplace. Now we've got geopolitical risk, at least temporarily 0:15:21.280 --> 0:15:22.040 on the front burner. 0:15:22.600 --> 0:15:23.640 What's an investor to do? 0:15:23.880 --> 0:15:27.120 How do you instruct perhaps some of your students, HBS, 0:15:27.600 --> 0:15:30.880 there's a lot, it's arguably a more complicated world today 0:15:30.880 --> 0:15:33.040 than it was ten twenty, thirty forty years. So you 0:15:33.080 --> 0:15:35.520 could probably always say that, but how do you set 0:15:35.560 --> 0:15:37.920 that up in terms of trying to build a portfolio here. 0:15:38.320 --> 0:15:43.720 So, firstly, it's the most amazing world. It's crazy dynamic. 0:15:43.880 --> 0:15:48.080 I call it a world of exponential change on many dimensions. 0:15:48.120 --> 0:15:52.120 Think what's happening with AI AI on jobs, it's eviscerating jobs, 0:15:52.160 --> 0:15:56.320 it's creating jobs. It's eviscerating firms. It's creating firms at 0:15:56.360 --> 0:16:02.240 a pace we've never seen. War offense, Look at fiscal 0:16:02.280 --> 0:16:08.480 deficits completely out of control, inflation. Look what's happening with energy, 0:16:10.280 --> 0:16:14.080 you know, immigration, Just look around the world. It's scary, 0:16:14.200 --> 0:16:16.560 but it's changing rapidly and it's very exciting. 0:16:16.600 --> 0:16:19.080 So in a world like that where. 0:16:18.880 --> 0:16:21.760 It's changing rapidly, the chances you can get an edge 0:16:21.800 --> 0:16:24.720 if you're careful go way up. So if you're an investor, 0:16:25.360 --> 0:16:27.560 if the world is static, it's very hard to get 0:16:27.560 --> 0:16:29.360 an edge because everyone just catches up. 0:16:29.840 --> 0:16:31.760 But in this world you can get an edge. 0:16:31.800 --> 0:16:35.760 It's a fantastic place to be an active investor and 0:16:35.840 --> 0:16:38.360 for a career. I say to young people you should 0:16:38.360 --> 0:16:40.200 go to places where you can get an edge. Go 0:16:40.280 --> 0:16:43.440 where there's exciting new things happening as opposed to a 0:16:43.480 --> 0:16:44.360 staid old place. 0:16:44.760 --> 0:16:45.760 So where is that today? 0:16:46.120 --> 0:16:49.120 My coming through business school myself, it was Wall Street 0:16:49.120 --> 0:16:53.840 and consulting. Now it seems so much broader technology as 0:16:53.920 --> 0:16:56.720 taking some of the best and brightest. Where do you 0:16:56.720 --> 0:16:59.600 see some opportunities? Is it all AI today? 0:17:00.080 --> 0:17:03.240 It's well, stuff is related. I'll give examples. So electricians 0:17:03.280 --> 0:17:06.360 are in crazy demand. Okay, I don't know how many 0:17:06.440 --> 0:17:11.240 Nbas want electrician jobs, but they it's a fantastic job today. 0:17:11.320 --> 0:17:14.560 Data centers are consuming them and there's a huge shortage. 0:17:14.880 --> 0:17:19.600 It's an example of a job category that is amazing for. 0:17:19.560 --> 0:17:21.800 Global Wall Street Mark Champion coming up in a bit, 0:17:21.840 --> 0:17:24.480 but we are honored to bring an under approval of 0:17:24.800 --> 0:17:31.159 HBS CIO partner at High Vista Strategies as well. In HBS, 0:17:31.400 --> 0:17:35.960 did they still teach modern capitalism the first year that 0:17:36.160 --> 0:17:38.320 macroc course from ages ago? 0:17:38.960 --> 0:17:40.840 They teach it in varying ways. 0:17:41.080 --> 0:17:45.119 I would teach finance, and I think teaching finance is 0:17:45.119 --> 0:17:49.520 the is the most fantastic way to teach capitalism. It's 0:17:49.560 --> 0:17:53.840 about markets, right and what it does for the economy. 0:17:54.000 --> 0:17:56.000 I mean you sound like v body over at the 0:17:56.000 --> 0:17:59.440 other school there and coming with the avenue as well. 0:17:59.520 --> 0:18:02.960 Then help me here with your thoughts on the ginormous 0:18:03.080 --> 0:18:06.679 bond issuance. Are Robert Shifman saying we could see a 0:18:06.760 --> 0:18:10.119 multi billion dollar tens of billion a dollar amount of 0:18:10.119 --> 0:18:13.199 Facebook deal coming out of the transactions just in the 0:18:13.240 --> 0:18:18.520 last six six hours. How do you perceive the megabond 0:18:18.520 --> 0:18:20.600 deals and the demand for them. 0:18:21.119 --> 0:18:24.359 So the bond issuance right now, they have great credit 0:18:24.440 --> 0:18:27.520 rating so they can fund these data centers. Data centers 0:18:27.520 --> 0:18:31.120 get funded by guarantees from these things, and that's related 0:18:31.119 --> 0:18:34.639 to their bond issuance. But bond issuance at large in 0:18:34.680 --> 0:18:35.919 the economy. 0:18:35.560 --> 0:18:36.520 That is huge. 0:18:36.680 --> 0:18:41.880 The federal deficit for one, so real rates are extraordinary. 0:18:42.000 --> 0:18:45.080 You can buy thirty inflation bonds yielding two point seven 0:18:45.400 --> 0:18:47.480 locked in for thirty years, so as long as the 0:18:47.520 --> 0:18:51.040 government doesn't default, I'm getting two point seven plus inflation. 0:18:52.200 --> 0:18:56.040 If we go to stagflation, those will rerate yields down, 0:18:56.600 --> 0:19:00.840 prices up plus inflation protection. Why would you buy gold 0:19:01.280 --> 0:19:04.960 if you worried about monetary debasement, buy inflation bonds. GDP 0:19:05.200 --> 0:19:08.200 growth is like two two in a bit and I'm 0:19:08.200 --> 0:19:10.240 getting two seven on inflation bonds. 0:19:10.480 --> 0:19:13.480 It sounds like one of those young selling me some song, 0:19:13.720 --> 0:19:18.960 you know, moving some bonds exactly. Professor inefficiencies in the market, 0:19:18.960 --> 0:19:22.720 They're hard to find. However, one area to me in 0:19:22.760 --> 0:19:25.639 the equity markets that seems incredibly inefficient. It's almost a 0:19:25.680 --> 0:19:31.960 binary response. Is biotech. Either the thing works and you 0:19:32.000 --> 0:19:34.520 double your money, or the test fails and it goes 0:19:34.560 --> 0:19:37.479 to zero. How do you approach something like that with 0:19:37.520 --> 0:19:38.320 that risk profile. 0:19:38.359 --> 0:19:41.320 So we love biotech. It's a hedge fund investor. 0:19:41.440 --> 0:19:45.760 That's a stockpicker's dream because the upside is huge, the 0:19:45.840 --> 0:19:48.080 downside is huge. If you know what you're doing, you 0:19:48.119 --> 0:19:52.720 can distinguish it's event rich. Every time there's a clinical 0:19:52.760 --> 0:19:55.840 trial readout, it's an event. Every time there's a financing, 0:19:56.000 --> 0:19:59.120 it's an event. So it's a hedge fundream. You've got events. 0:19:59.160 --> 0:20:03.280 They shortened the time horizon on what's otherwise a long 0:20:03.359 --> 0:20:04.240 dated investment. 0:20:04.560 --> 0:20:06.160 Did biotech save Boston? 0:20:06.640 --> 0:20:09.920 Basically it came along jen Zimon all that years ago, 0:20:09.960 --> 0:20:13.040 and then it worked out from there and did essentially 0:20:13.359 --> 0:20:16.120 the courage to do biotech and the ge thing in 0:20:16.119 --> 0:20:18.040 Fidel do you know that it's saved. 0:20:17.760 --> 0:20:20.919 Boston and now it's hurting Boston because biotech took a 0:20:20.920 --> 0:20:24.240 big whack the last few years. Why because rates went 0:20:24.320 --> 0:20:28.000 up the cost they consume capital. They never make money, 0:20:28.000 --> 0:20:30.080 they get sold to farmer when they do make money, 0:20:30.119 --> 0:20:32.160 so they always consuming capital. 0:20:32.280 --> 0:20:34.720 Okay, rates go up, It really. 0:20:34.560 --> 0:20:37.600 Hurt them and they shut down tons of labs who 0:20:37.600 --> 0:20:38.920 were built and those have been show. 0:20:38.840 --> 0:20:41.600 Is that the analog for AI where they're consuming tons 0:20:41.600 --> 0:20:42.920 of capital and it's going to be. 0:20:42.880 --> 0:20:48.320 Oops, it could absolutely be absolutely the capital consumption startups. 0:20:48.880 --> 0:20:52.680 A startup today is in the billions of of value 0:20:52.760 --> 0:20:54.840 consuming megacap. 0:20:54.400 --> 0:20:56.840 X is at high vista strategies. 0:20:57.000 --> 0:20:58.920 How do you guys play the AI story? 0:20:59.880 --> 0:21:05.240 So AI is it's hard. We think of it as 0:21:05.240 --> 0:21:06.560 shorten your time horizon. 0:21:07.400 --> 0:21:10.520 What AI has done and all these other dynamic changes 0:21:10.680 --> 0:21:13.520 is it means terminal values are very hard to figure out. 0:21:14.560 --> 0:21:18.440 So if you take software sasmageddon or sas apocalypse, it's 0:21:18.480 --> 0:21:21.359 shortened the time rise. You know, earnings are great, but 0:21:21.640 --> 0:21:24.200 you don't have terminal values. So think very hard about 0:21:24.240 --> 0:21:25.040 terminal values. 0:21:25.680 --> 0:21:27.320 Do you think some of the sell off and some 0:21:27.400 --> 0:21:30.720 of these software stories which were so well regarded for 0:21:30.760 --> 0:21:32.920 so many years. Is that overdone? 0:21:33.560 --> 0:21:37.360 Some of them might be, But look at Claude came 0:21:37.400 --> 0:21:41.200 out with Mythos yesterday. It's going to eviscerate a lot 0:21:41.240 --> 0:21:43.320 of cybersecurity stocks and. 0:21:43.320 --> 0:21:49.040 Firms so powerful. Yeah, so right, Andrew peroled with us 0:21:49.040 --> 0:21:53.280 and we continue partner cio. Hi Vista strategy is truly 0:21:53.320 --> 0:21:57.439 definitive at Harvard Business School. Mister Kaplan was in the 0:21:57.480 --> 0:22:01.280 other day of the Dallas Fed and Goldbin's an original 0:22:01.320 --> 0:22:04.000 interview I did years ago with Quinn Mills. It's just 0:22:04.119 --> 0:22:07.840 been very kind to Team Surveillance. I want you to 0:22:07.920 --> 0:22:12.760 speak now to the graduate students across this nation looking 0:22:12.840 --> 0:22:15.880 for a job. And it ain't happened in the first 0:22:15.960 --> 0:22:19.640 week at April. We've been here before. This too will 0:22:19.720 --> 0:22:22.879 pass or is there something different going on from newly 0:22:22.960 --> 0:22:25.040