Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amerie Hordernt. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
Speaker 2: from our global headquarters in New York City. We are
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Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or
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Speaker 2: Terminal and the Bloomberg Business app. What a run we've
Speaker 2: had for the equity market twenty eight, all time highs
Speaker 2: on the S and P five hundred and the rally
Speaker 2: just keep on climbing. Rick Worster, the president and CEO
Speaker 2: of Charles Swap, joins us now to discuss Welcome to
Speaker 2: the program sir, it's going to see you most of you.
Speaker 2: Welcome back. Rick, It's always good to see you. What
Speaker 2: a year has been already for twenty five, still got
Speaker 2: three or four months left. Can you frame for us
Speaker 2: how engage your clients have been over the last year.
Speaker 3: Our clients are very much gage so our trading activity
Speaker 3: this year has generally been about thirty percent higher than
Speaker 3: last year. So clients are in the market, they're invested.
Speaker 3: I've been in about fifteen of our retail branches in
Speaker 3: the last couple of weeks, and I was in Princeton,
Speaker 3: New Jersey yesterday and I asked the client how they
Speaker 3: were feeling, and I think they synthesize what our investors
Speaker 3: are feeling really well. They said, I'm happy, but I'm nervous,
Speaker 3: and they're happy because markets are at all time high.
Speaker 3: Their balances have never been higher, but they're looking at
Speaker 3: valuations and wondering, you know, am I.
Speaker 2: Going to be okay?
Speaker 3: So it's a great time because they're looking to us
Speaker 3: for advice and they're coming in and they're talking to
Speaker 3: us and they're hearing from our experts. But it's you know, overall,
Speaker 3: are happy because markets are up.
Speaker 2: What do you think the dominant anxiety is at the moment.
Speaker 2: We've been trying to ask this question. Is it the
Speaker 2: anxiety to get out? Do you have to do some
Speaker 2: hand holding or is it the fear of missing out?
Speaker 2: Are they looking to lean in a little bit more aggressively.
Speaker 3: I think our clients are generally engaged and invested so
Speaker 3: I think it's more I have more wealth now than
Speaker 3: I anticipated. Markets have done better than I thought. Do
Speaker 3: I need to be worried about valuations and should I
Speaker 3: be getting out? I think interestingly, as it relates to
Speaker 3: the bond market, we're seeing a lot more interest in
Speaker 3: bonds now because with rates coming down, investors are wondering,
Speaker 3: do I need to go out the curve. I've been
Speaker 3: living off my purchase money fund, but the yields on
Speaker 3: that are coming down. Do I need to go out
Speaker 3: the curve and lock in higher yields? So that's been
Speaker 3: a topic of hot debate among our clients as well.
Speaker 4: The sort of elusive money on the sidelines that we
Speaker 4: talk about that's supposed to rush back into everything else,
Speaker 4: particularly the long end of the yield curve.
Speaker 1: Is that actually happening well?
Speaker 3: I think if you look at our clients, the percentage
Speaker 3: that they keep in either cash or purchase money funds
Speaker 3: has stayed relatively stable. Now the dollar amount has grown
Speaker 3: because their wealth has grown so significantly with the market
Speaker 3: increase in the last couple of years. So from a
Speaker 3: dollar standpoint, there is a lot of cast sitting on
Speaker 3: the sideline. But at the same time, it's roughly the
Speaker 3: same percentage that they've always kept because they want it
Speaker 3: for safety needs, or they wanted to they're purchasing a house,
Speaker 3: whatever it may be. I want's see a big story
Speaker 3: around cast sitting on the sidelines at the moment.
Speaker 4: Do you notice a really big difference in how your
Speaker 4: clients trade depending on their age, depending on their generation.
Speaker 4: For example, older individuals tend to go to megacaps, younger
Speaker 4: individuals just straight bitcoin.
Speaker 3: Well, we spend a lot of time talking with our
Speaker 3: younger investors, and we have thirty five hours a week
Speaker 3: of live education and training to try to get investors
Speaker 3: to think about the difference between an equity and a
Speaker 3: coin and to make sure they're making the right investment
Speaker 3: decision for them. You know, I do worry about younger investors,
Speaker 3: and crypto has been something that's done exceptionally well, but
Speaker 3: I want to make sure we want to make sure
Speaker 3: that young investors also know about the power of equities
Speaker 3: over the long term. And then investing generally is something
Speaker 3: that you want to do for the long term. Certainly
Speaker 3: you want to you can trade and take on positions,
Speaker 3: but you shouldn't expect quick hits all the time. And
Speaker 3: I think we want to make sure that young investors
Speaker 3: are aware of that.
Speaker 2: But I've read you appreciate in this country the buys
Speaker 2: to invest, the bus to act, the bus to take
Speaker 2: a bet. In the UK has so some numbers recently
Speaker 2: about how much consumers were investing, but how much of
Speaker 2: it was just going to really really low yield stuff
Speaker 2: like cash funds, stuff like that. There isn't the same
Speaker 2: bias to invest in equities and risk that I've seen
Speaker 2: growing up in the UK that exists here. What do
Speaker 2: you think that comes from in America? And how do
Speaker 2: we continue to nurture it?
Speaker 5: Well?
Speaker 3: I think it's great, and not only has it been great,
Speaker 3: it's getting even better. If you look at millennials, they're
Speaker 3: forty percent more likely to be invested by the age
Speaker 3: of twenty one than gen zers. So it's happening with
Speaker 3: younger investors as well, and we're trying to engage them
Speaker 3: where they are. We go to the YouTube TikTok Instagram
Speaker 3: and we put out videos about the power of compounding
Speaker 3: and we try to get them interested in investing because
Speaker 3: if you start young and become an investor, hopefully you'll
Speaker 3: stick with it and you'll build wealth. It's the single
Speaker 3: best way to build wealth in our country is to
Speaker 3: be an investor, and young people are embracing it far
Speaker 3: more than prior generations, which is outstanding to see.
Speaker 2: It used to be that all those opportunities were in
Speaker 2: public markets, that you'd get that blockbuster IPO that you'd
Speaker 2: want to get exposed to. Now a lot of is
Speaker 2: staying private. How are you thinking about offering opportunities in
Speaker 2: private markets for customers coming forward from here?
Speaker 3: What kind of things are they looking to do. Yeah,
Speaker 3: it's an interesting question. There's a lot more private companies
Speaker 3: than there used to be and fewer public companies, and
Speaker 3: so I do think it makes sense to think about
Speaker 3: providing direct access to retail investors to private companies, and
Speaker 3: that's something that we're looking at and thinking about how
Speaker 3: we participate in. But some of these companies are huge.
Speaker 3: You look at the stripes, open Ai, find a Bidio. Yeah,
Speaker 3: they're billion dollar companies, and so I do think retail
Speaker 3: investors ought to be able to are to be able
Speaker 3: to invest in them. And at the same time, there's
Speaker 3: probably people sitting at that company that would love liquidity
Speaker 3: for their stock positions. So I think there's a market
Speaker 3: to be made there.
Speaker 4: How much do you think that it's isolated in companies
Speaker 4: versus real assets?
Speaker 1: And I say that at.
Speaker 4: A time when we're talking about the reindustrialization of the
Speaker 4: United States and the idea that there could be actually
Speaker 4: some move behind it for the.
Speaker 1: First time in a long time.
Speaker 4: I mean, how much is that part of what you're
Speaker 4: looking to give access to.
Speaker 2: Clients real assets?
Speaker 1: Yes, well, I think.
Speaker 3: Real assets have been a great way to invest in
Speaker 3: our country. And the main thing we focus on is
Speaker 3: differentiating between productive assets and speculative assets, and I think
Speaker 3: real assets are productive assets, and so it's a great
Speaker 3: way for a client to get invested.
Speaker 4: Are you concerned about You keep talking about the coin
Speaker 4: and you're concerned about it and actually the productive versus unproductive.
Speaker 1: Do you think that that's actually.
Speaker 4: A point of concern right now in markets? The amount
Speaker 4: of involvement in the crypto space.
Speaker 3: Well, I think I think crypto could end up being very,
Speaker 3: very valuable, and there's a role for it to play,
Speaker 3: and there's a role for tokenization and the blockchain. What's
Speaker 3: important to us is that investors, particularly young investors, know
Speaker 3: what they're investing in and know why it makes sense
Speaker 3: for them to be invested in it and understand the
Speaker 3: difference between say an equity in a bond, which have
Speaker 3: some positive expected return and they're a productive asset, and
Speaker 3: just understanding the difference between that and a more speculative
Speaker 3: asset like art or baseball cards or crypto, where you
Speaker 3: don't know what the future return is going to be.
Speaker 3: It's not that we don't judge people's investments, and we
Speaker 3: can see a world where crypto is very, very valuable,
Speaker 3: but we want clients to understand the difference between those investments.
Speaker 6: Do you think next year's you're going to have more
Speaker 6: opportunities for either hiring or strategic opportunities because you think
Speaker 6: policy is clearer now out of Washington.
Speaker 3: You know what's driving our hiring is the growth of
Speaker 3: our business. We're growing at a really strong rate. We're
Speaker 3: seeing a lot of engagement from clients. Increasingly they want
Speaker 3: advice from us, they want our help in their financial life,
Speaker 3: and because of that, that's what's driving our growth. It's
Speaker 3: not about what's happening with policy.
Speaker 2: Can I just finish on the potential for partnership on
Speaker 2: private markets? I wanted to watch you that is that
Speaker 2: something you consider a partnership with another firm to offer
Speaker 2: that kind of access.
Speaker 3: I think we would love to see retail investors be
Speaker 3: able to participate in the growth of private companies in
Speaker 3: our country.
Speaker 2: So I would apollo. I've had the same thing from them.
Speaker 2: I'm trying to make a market.
Speaker 3: And and we we and we have KKR, you know,
Speaker 3: fir UH firms like KKR on our platform and that
Speaker 3: our retail investors can invest in. And that's a great
Speaker 3: way to get access to private markets. They're experts state,
Speaker 3: they started the market, they've been in forever. That's a
Speaker 3: very thoughtful way for investors to go be a part
Speaker 3: of private markets.
Speaker 2: Stay with us mulblindex. Savanna's coming up after this as
Speaker 2: the record stock hits some skepticism following some big AI
Speaker 2: investment plans. Barbara rehinhat Our Voya Investment Management remains optimistic, writing,
Speaker 2: we remain overweight equities have been all year. We remain
Speaker 2: overweight the US. Barbara john is now for more. Barbara
Speaker 2: gam moniic, good morning. Let's start with that overweight. Let's
Speaker 2: start with why. What underpins that view?
Speaker 5: Well, I think it's all been about earnings, right, So
Speaker 5: everything that you think about In terms of the equity market, yes,
Speaker 5: has had a massive bounce off of the bottom, but
Speaker 5: more than fifty five percent a bit has been driven
Speaker 5: by earnings, only forty five percent has been driven by multiples.
Speaker 5: As long as companies are delivering on their earnings, the
Speaker 5: equity market seems to be poised to continue to go higher.
Speaker 2: The early story for a handful of tech names has
Speaker 2: been absolutely phenomenal. The capex intentions spending plans have been
Speaker 2: phenomenal as well, and at least was talking about just
Speaker 2: moments ago. This market keeps rewarding those spending plans. Are
Speaker 2: we anywhere near the limit of investor tolerance?
Speaker 1: Well, I think you have to put it in context.
Speaker 5: A lot of people are starting to think about, is
Speaker 5: this like the late nineteen nineties bubble where we'd spent
Speaker 5: a lot of money on over investment in fiber, and
Speaker 5: fiber was being light and there was dark fiber still
Speaker 5: to go. But you have to remember many of the
Speaker 5: tech companies that were just propelling the market forward on
Speaker 5: the Nasdaq in the late nineteen nineties didn't have the
Speaker 5: earnings power, didn't have the free cash flow power that
Speaker 5: the companies today have. The AI investment I think is
Speaker 5: just starting to scratch the surface. We see it on
Speaker 5: our teams that we are using AI to help us
Speaker 5: with repetitive tasks, to help us with quarterly commentaries, to
Speaker 5: help us with earnings calls. So we're seeing it lift
Speaker 5: our business in terms of efficiency and in terms of
Speaker 5: productivities per workers. It may take a while for that
Speaker 5: to flow through the economic data. We may see the
Speaker 5: productivity boom five years from now on AI, but we
Speaker 5: do believe it is indeed coming.
Speaker 4: Do you believe it enough to sort of wager on
Speaker 4: the broadening out trend? The idea that the tech advancements
Speaker 4: are not going to be isolated to a handful of
Speaker 4: large companies, but that there is going to be this
Speaker 4: ground sweit of support for the equal weight.
Speaker 5: Lisa, that's a great point, and I think you have
Speaker 5: to look outside of the US to talk about that.
Speaker 5: So this entire year, the emerging markets had been lagging
Speaker 5: behind the US, and even coming off of the April bottom,
Speaker 5: a lot of global markets had come off the bottom,
Speaker 5: but the US was leading the way. Just in the
Speaker 5: past five to six weeks, you've seen this big trend
Speaker 5: that the emerging markets are starting to outperform the US,
Speaker 5: but if you look under the hood, it's really emerging
Speaker 5: market technology stocks are outpacing US technology stocks. It doesn't
Speaker 5: mean that they're not all going up together, but emerging
Speaker 5: markets seem to be taking the lead. I think in
Speaker 5: order to believe in a broadening out of the market,
Speaker 5: you need to see the FED continuing to ease. You
Speaker 5: need to get past this inflation spurt, but you also
Speaker 5: need to get past this low firing, low hiring phase
Speaker 5: that the US is in. There is a little bit
Speaker 5: of nervousness underneath the surface in terms of how long.
Speaker 1: This can continue to go.
Speaker 5: We think that once you get to the beginning of
Speaker 5: next year, got the fiscal stimulus boost from the big
Speaker 5: beautiful bill, you'll have the depreciation right down for companies,
Speaker 5: So you're going to have a much bigger fiscal stimulus
Speaker 5: push once you start to get to the first quarter
Speaker 5: of twenty twenty six.
Speaker 4: This might be a difficult question to answer, And this
Speaker 4: was something I was thinking about yesterday. Is it feasible
Speaker 4: to see a broadening out in terms of which stocks
Speaker 4: are doing better and inflation coming down? And I asked
Speaker 4: this because yesterday and the PMI data showed that actually
Speaker 4: companies were having a harder time passing along the cost
Speaker 4: to their consumers. That means shrinking margins, That means less profitability,
Speaker 4: That means something for investors that's not very positive.
Speaker 1: So are these stories kind of in conflict, Lisa.
Speaker 5: It's a great question, But I think you have to
Speaker 5: take a look not only at.
Speaker 1: Margins, but the level of margins. Margins are extremely.
Speaker 5: High in the US, and yes, companies have not been
Speaker 5: passing on all the price increases from tariffs, but.
Speaker 1: I would say there's always room.
Speaker 5: For negotiation for those to continue to go lower, and
Speaker 5: that would be very well received by the markets. So
Speaker 5: I think I have to take these things in terms
Speaker 5: of context. In terms of it's margins come down from
Speaker 5: twenty seven percent down to twenty five percent.
Speaker 1: Is it really that big of a deal. But it's
Speaker 1: a great question. Barber.
Speaker 6: You said you see productivity with AI actually being an enhancement.
Speaker 6: At the same time you say we're in this low hiring,
Speaker 6: low firing regime when it comes to labor market. Do
Speaker 6: you see companies not hiring because specifically AI.
Speaker 5: No, I think it's more companies are not hiring because
Speaker 5: of a lot of uncertainty, right You've had a lot
Speaker 5: of potential shocks to the economy over the course of
Speaker 5: this year. You had the tariff induced downturn in April,
Speaker 5: which was really significant and very severe. I mean, you
Speaker 5: had very deeply over sold conditions within financial markets. There
Speaker 5: were a lot of crawls that the world was coming
Speaker 5: to an end, you know, big rally off of the bottom.
Speaker 5: But I think that this low hiring, low firing is
Speaker 5: just a matter of companies saying we need to get
Speaker 5: through to the end of the year to get some
Speaker 5: more visibility on earnings. But companies are holding onto workers.
Speaker 5: If they're holding onto work workers, you know it's because
Speaker 5: their sales are in good shape, their earnings in good shape,
Speaker 5: their profit margins are in good shape. So, as far
Speaker 5: as we see it, the low hiring is a lot
Speaker 5: of uncertainty regarding the TIFF's, uncertainty regarding where the FED
Speaker 5: finally settles. But in the end of it, we don't
Speaker 5: see that this is necessarily the beginning of a labor
Speaker 5: market unwind.
Speaker 6: But don't we already have certainty for the most part,
Speaker 6: the tariff levels are set. We know the direction of travel,
Speaker 6: We know the direction of travel of FED.
Speaker 1: What is so uncertain about this environment right now.
Speaker 5: I think that when you're thinking about the tariff levels,
Speaker 5: there's been a lot of negotiating on them. They were
Speaker 5: set at very high levels, then they got negotiated down.
Speaker 5: There's always room when there's negotiations. You've got to think
Speaker 5: that is their potential that they're going to go lower.
Speaker 5: If the US hits much of a soft patch. Let's
Speaker 5: just say this low hiring, low firing, starts to go
Speaker 5: into either an inflationary surge or if you get into
Speaker 5: this environment where you have maybe the low hiring and
Speaker 5: the firing starts.
Speaker 1: To go up.
Speaker 5: I think that the FED and I think the administration
Speaker 5: would likely respond to that. They have a midterm election
Speaker 5: coming up in twenty twenty six. The clock starts actually
Speaker 5: this November, and they want an economy that is briskly
Speaker 5: growing for the midterm elections.
Speaker 2: I think it's already started to be fair. I was
Speaker 2: looking at the PMIS yesterday. Imagery level is not great,
Speaker 2: new orders not great. I was hoping things would pick up.
Speaker 2: Don't see many signs of it. The ability to pass
Speaker 2: through high prices to consumers, but to push back there too.
Speaker 1: But consumer spending has been relatively strong speed.
Speaker 2: I'm just looking at the PMS yesterday. I think it
Speaker 2: was a hope that in September things would pick up
Speaker 2: and reaccelerate. I just haven't seen that yet. I hope
Speaker 2: that it's backed up by other data points, just don't
Speaker 2: see it yet.
Speaker 5: Well, I think the consumer has been acting like this.
Speaker 5: They kind of go through these spurts. They spend for
Speaker 5: back to school, then they kind of go into hibernation,
Speaker 5: then they spend for the holidays. Right, so the consumer
Speaker 5: has been looking for a lot of deals for a
Speaker 5: long time. This has to of course, you know, think
Speaker 5: through this. You know, this period of where you've got
Speaker 5: some uncertainty around inflation and higher prices do scare consumers, right,
Speaker 5: they start to look for better bargains. They go for
Speaker 5: you know, off label brands. But I would say once
Speaker 5: you start to go go through for the holiday shopping,
Speaker 5: you may have a lull for October and November, but
Speaker 5: let's start looking at those kind of after Thanksgiving sales.
Speaker 2: Stay with us. More Bloomberg surveillance coming up after this
Speaker 2: stops wrising as Ali Baba becomes the latest tech firm
Speaker 2: to ramp up AI spending. Peter Chief Academy Writing AI
Speaker 2: is only the second or third inc maybe even the
Speaker 2: top of the first. The issue is whether valuations are
Speaker 2: in the eighth inech pechoin just now for more peak
Speaker 2: of morning, good morning, good to see it. Let's just
Speaker 2: talk about the spending plants. What's your reaction been to
Speaker 2: the news that's come from Oracle in the last week,
Speaker 2: from Nvidia in the past few days, from Ali Baba
Speaker 2: from this morning.
Speaker 7: You know, it's all queer. That spending is still going away,
Speaker 7: you know it's coming in. Reminds me a little bit
Speaker 7: though too. At some point, remember when you had to
Speaker 7: have a Chinese plan, and if you had a China plan,
Speaker 7: you announced your China plan, your stock's fight ten percent.
Speaker 7: So we're in that sort of moment where everyone who
Speaker 7: announces plans to spend is rewarded. And if you announce
Speaker 7: that you're going to spend ten billion, your stock goes
Speaker 7: up twenty billion. Why wouldn't it you? So I haven't
Speaker 7: yet seen that change. I think at some point we're
Speaker 7: getting closer. People are starting to poke more holes in this.
Speaker 7: And separately from that, though, I am watching what Bob
Speaker 7: is doing separately, because when I look at everything that's
Speaker 7: going on in the world trade tariffs, etc. China has
Speaker 7: control over the rarest critical minerals. We have control over
Speaker 7: the AI chips and data. China is trying to work
Speaker 7: their way, and it's encouraging that they're using in video chips.
Speaker 8: But I think that's going to be a real battle
Speaker 8: line to be drawn.
Speaker 2: What I s builed on that. Do you think the
Speaker 2: US is at a disadvantage.
Speaker 7: I think the US has a huge advantage right now
Speaker 7: in terms of chips. I think China has this big
Speaker 7: advantage in terms of the processing and refining of rare
Speaker 7: erst and critical minerals. We're taking some steps, whether it's
Speaker 7: investments in ticker symbol MP, there's noise about more investments
Speaker 7: of those sorts, whether it's antimomy lithium. I'm sure there's
Speaker 7: going to be ensure, you know, enrich new clear, enriched
Speaker 7: uranium investments. Those are things that we're doing to try
Speaker 7: and defeat that. But that's a multi year product. And
Speaker 7: then at the same time, it felt like China was
Speaker 7: going to be very easy to work with in terms
Speaker 7: of dealing with Nvidia. They seem to be setting a
Speaker 7: line in the sand where they're going to be we
Speaker 7: want to use Huawei more and more.
Speaker 8: So that's what I'm watching most carefully.
Speaker 4: There's a lot to impact there. You mentioned that, yes,
Speaker 4: the Chinese government has been pushing their tech giants to
Speaker 4: invest in domestic companies and domestic chips, and yet well
Speaker 4: you just mentioned was Ali Baba. They're using Nvidia supplies
Speaker 4: and they actually have a new project with robotics that
Speaker 4: they're also really relying on in Vidia for their supplies.
Speaker 4: So how feasible is what the Chinese government asking.
Speaker 7: For that I don't know, And I think maybe part
Speaker 7: of it's just a negotiating ploy because again everyone's not
Speaker 7: figured out maximum levery. So you say these things and
Speaker 7: then you walk into a room with President Trump and
Speaker 7: try and get what you can. Having said that, you know,
Speaker 7: China plays a long game, right, and they were nowhere
Speaker 7: in AI a few years ago. They are working their
Speaker 7: way towards that, whether it's a deep seek hype technology,
Speaker 7: whether it's what the luaweight chips that are going on.
Speaker 7: So I would not completely dismiss them, right. They are
Speaker 7: starting this kind of steamroller effect. They're currently losing, but
Speaker 7: I think they plan to catch up, and we've got
Speaker 7: to be very cautious of that. I do think this
Speaker 7: is a big win for video. I think it's awesome
Speaker 7: for us, But you know, this is not given. I
Speaker 7: think if we take it for granted that it's going
Speaker 7: to keep occurring, that's the risk.
Speaker 4: Going back to your initial point, the idea that we're
Speaker 4: in the eighth inning, even though we're just in the
Speaker 4: first or second inning. When it comes to the actual
Speaker 4: production eighth inning of valuation, at what point does it
Speaker 4: get too far ahead of its skis?
Speaker 8: You know?
Speaker 7: I think it's when you start seeing these announcements and
Speaker 7: the stocks don't pop right, when someone announced a twenty
Speaker 7: billion spend and their stock goes down by thirty forty billion,
Speaker 7: Then you're like, okay, people are now tired of this.
Speaker 7: People have kind of sense the valuation. You know, I
Speaker 7: think one nothing.
Speaker 4: Because we had that for a hot second and then
Speaker 4: that reversed again.
Speaker 2: But carry on.
Speaker 7: And you know the other strategy that has worked so
Speaker 7: well is momentum. Right, Momentum tends to work. These have
Speaker 7: been big drivers of momentum. If momentum starts turning around
Speaker 7: and you see the CTAs and people get forced out
Speaker 7: of trades.
Speaker 8: But we're nowhere close to that.
Speaker 7: Right, every dip gets bought right now, I'm not seeing
Speaker 7: what's changed that. The one thing that I found both
Speaker 7: encouraging and may be worrisome for big tech is the
Speaker 7: Russell two thousands finally up performing. I think, you know,
Speaker 7: not by much. I think it's up three percent of
Speaker 7: the past five days. Nasdaq one hundreds up one percent.
Speaker 7: But that's where I'd like to see the shift is
Speaker 7: to a broader expansion to more stocks performing well.
Speaker 6: Peter, I'm glad you brought the rare earth's issue because
Speaker 6: Representative Adam Smith was in Beijing yesterday saying I don't
Speaker 6: think we resolve that is the US potentially willing in
Speaker 6: these trade negotiations to give up other issues they care
Speaker 6: about because they are so desperate for these rare earths.
Speaker 7: I think we might have to at this point. And again,
Speaker 7: I think we've got to be really careful. It's not
Speaker 7: the rarest and critical minerals themselves, it's the process and
Speaker 7: refined versions. Right, we could go and buy rarest critical
Speaker 7: minerals on the open market, where are we going to
Speaker 7: get the process and refined versions. China controls about ninety
Speaker 7: percent of that, and so I think that is very true.
Speaker 7: And I always go back now to COVID and I
Speaker 7: think it was the Whirlpool CEO said, a washing machine
Speaker 7: that's ninety nine percent done is not done. And I
Speaker 7: think that's the problem with these rarest and critical minerals.
Speaker 7: They may only be a small component of each product,
Speaker 7: but they are literally critical the pun intended, and that's
Speaker 7: the issue. So we are going to have to give
Speaker 7: in until we build out our own industry.
Speaker 6: What do you think it is that the Chinese desperately
Speaker 6: want that we're going to have to be willing to
Speaker 6: give in.
Speaker 8: You know, I think it's probably going to be chips
Speaker 8: for now.
Speaker 7: I think they as much as they say they want
Speaker 7: their own business, they are going to try and get
Speaker 7: as many chips in the door they can while they
Speaker 7: want it.
Speaker 8: And I think they're also just buying time.
Speaker 7: They're playing this while they try and solidify their trading
Speaker 7: relationships with other countries. Right while we're trying to sell
Speaker 7: chips into the Middle East. I'm sure Huawei right now
Speaker 7: is trying to sell chips in the Middle East. So
Speaker 7: some of this may be just a delay game by
Speaker 7: China until they get I think time is on China side.
Speaker 7: If you're China, because they watched the US, We're very distracted.
Speaker 7: We have so many things going on internally that they
Speaker 7: can just keep the machine moving, and if they can
Speaker 7: distract us, that's fine by them.
Speaker 2: The White House is making a move and pay Materials
Speaker 2: being the blockbuster one of the last year or so,
Speaker 2: and then you've got the potential for an equery stank
Speaker 2: in lithium Americas that cross in the Bloomberg this morning,
Speaker 2: the team has been reporting on there. How are you
Speaker 2: thinking about the prospect of increased intervention, an increase between
Speaker 2: public private partnership going forward from here?
Speaker 7: Well, my starting point would be, I think I mentioned
Speaker 7: in this weekend, it's you may or may not like
Speaker 7: what's going on, but you certainly have to trade it.
Speaker 7: So if you're investing in this market, whether we like
Speaker 7: this intervention, whether we like this ability to play king maker,
Speaker 7: I'm not sure that that's the right direction. Having said that,
Speaker 7: you know, in the old days, right, the CHIP sacked, right,
Speaker 7: it just gave grants, but the grants were tied with
Speaker 7: policy strings. So I don't know, Maybe we're better off investing.
Speaker 7: It's tricky, but I do think right now you're supposed
Speaker 7: to be scouring the universe for five to ten billion
Speaker 7: dollar companies are smaller that do things. So I've been
Speaker 7: involved myself directly enriched uranium.
Speaker 8: I think there are other products like that.
Speaker 7: They're going to take off because this government needs to
Speaker 7: jumpstart it. And again, if you go back to what
Speaker 7: they did with MP it was a relatively small pet investment.
Speaker 7: I think it's kind of the tip of the iceberg
Speaker 7: what we might be able to do out of a
Speaker 7: sovereign wealth fund. But they also help provide one point
Speaker 7: one billion of loan guarantees, right, and that to me,
Speaker 7: that's how we spur this growth. So if we go
Speaker 7: down that path, that's how we have a chance. But
Speaker 7: it's still a three to eight year process.
Speaker 2: This is the challenge pay if you are out of
Speaker 2: regul know THATCHET you've got a pocketr failings about this
Speaker 2: and let it go. This administration wants to pick winners.
Speaker 2: Are you saying that when they pick winners, you want
Speaker 2: to get along for the rint?
Speaker 8: I think so. I think you know. To me, in hindsight,
Speaker 8: it wasn't surprising at all. And I owned Intel.
Speaker 7: I think I talked about owning Intel and not a
Speaker 7: shock that Trump would maybe ask in Nvidia to get
Speaker 7: involved because Trump wants Intel to do well. Like Trump
Speaker 7: likes winners, right, that's all he's ever done. He's going
Speaker 7: to back winners. He's in a strong position to push
Speaker 7: these things. So whether you like it or not, I
Speaker 7: think you have to accept that this is the current
Speaker 7: administration's view. These things are going to get support, so
Speaker 7: you want to look for those. And you've seen so
Speaker 7: many stocks take off, but I think we're still early stages.
Speaker 7: And this is all without an official sovereign wealth fund,
Speaker 7: which I think something that is coming down the pipe
Speaker 7: for that before the year end.
Speaker 4: This is something that David Rubinstein yesterday of Carlisle was
Speaker 4: talking about that essentially that is the model that we
Speaker 4: seem to be following with the stakes that we're taking
Speaker 4: in a number of companies. And it seems like the
Speaker 4: United States is moving from fiscal dominance sort of the
Speaker 4: backbone of the US economy, to something that looks more
Speaker 4: like a sovereign wealth fund, and exactly what that looks
Speaker 4: like still remains to be seen. I just wonder how
Speaker 4: that change is investing, whether that shifts some of the
Speaker 4: macro investing landscape. And shifts it over into deep value,
Speaker 4: looking for these specific sectors, looking for exactly strategically what
Speaker 4: makes sense. It's a very different framework of investing.
Speaker 7: Yeah, and you know, one of the things we're trying
Speaker 7: to do is look at AI and look for companies
Speaker 7: that have been most impacted by regulation and say, okay,
Speaker 7: if you've been heavily impacted by regulation, is that an
Speaker 7: area we can get deregulation. I think finance companies are
Speaker 7: doing very well right. I think people are looking forward
Speaker 7: to what can be done on this. And then I
Speaker 7: would say this is global too. I know, you know,
Speaker 7: the UK Prime Minister didn't completely agree with Trump, but
Speaker 7: I think this whole concept of production for security is
Speaker 7: global and every country has to be thinking what can
Speaker 7: you produce at a minimum level. It doesn't have to
Speaker 7: be fully You need to make sure that you have energy,
Speaker 7: You need make sure you have a chip industry. Right,
Speaker 7: England wants to be a data center capital of the world,
Speaker 7: but they don't produce any energy and electricity.
Speaker 8: How are you going to do that?
Speaker 2: Not exactly the traditional way of building a suffer and
Speaker 2: well fund, is it? No, It's justn't typically how you
Speaker 2: go about doing things well.
Speaker 4: Not especially if through a backdoor where people don't understand
Speaker 4: what the parameters are, exactly what's going to go in,
Speaker 4: or exactly how big it's going to be, or exactly
Speaker 4: how the revenues are going to get distributed afterwards. Look,
Speaker 4: there's a lot of question marks around this, but fundamentally,
Speaker 4: from a philosophical perspective, it seems like maybe the limits
Speaker 4: of fiscal dominance have been reached and people are asking
Speaker 4: for something else as a tool of national security, and
Speaker 4: the idea of taking stakes seems to be it, whether
Speaker 4: you agree with it or not. And I think that
Speaker 4: that's a really interesting change in the investing landscape.
Speaker 6: They haven't outwardly stated they want to do this sovereign
Speaker 6: wealth fund, but it's obvious everything is about national security
Speaker 6: MP materials when it comes to Lithium America's when it
Speaker 6: comes to INTEL. This administration doesn't like grants, they don't
Speaker 6: like loans. They want outright equity and a company.
Speaker 2: Big fund of what.
Speaker 7: Yeah, And I would just add that, you know, we're
Speaker 7: looking at these companies that we need to jumpstart, and
Speaker 7: people are worried about if everything's just done via executive order,
Speaker 7: does it get overturned with some new administration. I think
Speaker 7: these stakes change that it makes it harder to over
Speaker 7: turns some of the progress that gets made. So I
Speaker 7: think that might be kind of the secret Saucier is
Speaker 7: by investing, owning, giving the American people, this lets people
Speaker 7: push forward on deregulation and assume it's going to stay
Speaker 7: further longer than might otherwise.
Speaker 2: Stay with us mul Bloomberg surveillance coming up. After this,
Speaker 2: I turned to Ninth and Sheets Chief Global Economists the
Speaker 2: City Rights in the following, US firms appear to be
Speaker 2: absorbing sixty to seventy percent of tariff cost today. However,
Speaker 2: we doubt that this will prove sustainable as a longer
Speaker 2: term strategy, and Nathan joined us now for more. And
Speaker 2: I think, good morning, good morning, good to see you, sir.
Speaker 2: Which way do you think it breaks if it's not
Speaker 2: a long term strategy.
Speaker 9: Well, I think that the firms have been able to
Speaker 9: absorb as large a share of the tariffs as they have,
Speaker 9: largely because they've fullloaded inventories and they're drawing down those inventories.
Speaker 9: But I think over time they're going to have to
Speaker 9: pass it to pass it through to consumers and I
Speaker 9: think we're going to see it in the CPI. To
Speaker 9: the extent that that doesn't happen, then firms margins are
Speaker 9: going to be compressed and they're going to be thinking
Speaker 9: about how do I cut costs? And then that's bad
Speaker 9: news for the labor market.
Speaker 2: So the question again, wish White, is it breaking which
Speaker 2: story in or a labor story? Well, a kind of cust.
Speaker 9: The FED is casting vote on that one. This is
Speaker 9: a tough period. The economy is absorbing as stagflationary shock.
Speaker 9: The Fed's got to choose between its mandates and Jay
Speaker 9: Pal's telling us, well, it's painful, it's complex, it's difficult,
Speaker 9: but on balance, they're signaling greater concern about the labor market.
Speaker 1: The market agrees with them.
Speaker 4: The market agrees is the prudent route to take because
Speaker 4: essentially people are not pricing in a real reacceleration of inflation.
Speaker 1: Do you think that's correct.
Speaker 9: I was very concerned about how the long end of
Speaker 9: the curve was going to respond to signals of FED cuts,
Speaker 9: and as you say, the long end of the curve
Speaker 9: has responded very well. As the FED is shifted more
Speaker 9: in the direction of any easier monetary policy, and of
Speaker 9: course the equity market is thrilled about an easier FED.
Speaker 9: So at least so far and very much seems that
Speaker 9: the markets are with the FED. And they also, at
Speaker 9: least the preponderance of investors are more worried about the
Speaker 9: labor market. One other angle on this that's helpful is
Speaker 9: in the Fed's view, and I'm persuaded their right. They
Speaker 9: see at the stamps of policy as still being restrictive,
Speaker 9: and so what they're doing is not providing outright stimulus,
Speaker 9: but they're just reducing the constraints on the economy as
Speaker 9: associated with monetary policy.
Speaker 4: As an economist who's task was trying to put together
Speaker 4: all of these disparate trends and themes, how do you
Speaker 4: understand the moment we're in.
Speaker 1: Is it disinflationary? Is it reinflationary?
Speaker 4: I mean, I've heard an argument on all sides, and
Speaker 4: every time anyone makes an argument, I'm like, yes, you're right,
Speaker 4: and they're always the opposite sides.
Speaker 9: Well, for the United States, I think it's stagflationary, and
Speaker 9: that's the reality of these tariffs. They're putting upward pressure
Speaker 9: on prices, they're putting downward pressure on real incomes. And
Speaker 9: spending in the economy and the FEDS trying to react
Speaker 9: to that. Now, for the rest of the world, the
Speaker 9: tariffs have a different implication. For the rest of the world,
Speaker 9: they are an adverse demand shock, reducing demand for exports,
Speaker 9: putting downward pressure on wages and prices. So I would
Speaker 9: say disinflationary for the rest of the world, stagflationary for
Speaker 9: the United States.
Speaker 6: But in your global Economic outlook you talk about how
Speaker 6: consumers and companies are actually able to absorb it pretty well.
Speaker 1: Do you think that's to is going to change So far?
Speaker 9: Absolutely, particularly here in the United States, we've seen we've
Speaker 9: seen resilience. Now part of that, I do think is
Speaker 9: a transitionary phase. And specifically what's happened is the tariffs
Speaker 9: have come on gradually. And as we've seen the tariffs
Speaker 9: coming on, we say, well, prices are going to be
Speaker 9: higher tomorrow. What do you do if you think prices
Speaker 9: are going to be hired tomorrow, you buy more today.
Speaker 9: And so the economy has been supported through the first
Speaker 9: six eight months of the year through a front loading
Speaker 9: cycle that's now gradually abating. And when you get to
Speaker 9: the other side, all that stuff that we bought during
Speaker 9: the first half to get ahead of the tariffs. We
Speaker 9: won't be buying during the second half of the year,
Speaker 9: and that's where the payback comes in. We'll see the
Speaker 9: higher prices and I think at that point we are
Speaker 9: likely to say I don't think we're going to see recession.
Speaker 9: I don't think we're going to see a collapse in
Speaker 9: the economic activity, but a further slowing in the pace
Speaker 9: of growth is our ex.
Speaker 6: Big take inflation, though, is a concern pushed down the road.
Speaker 6: Then in twenty twenty six, what does that mean when
Speaker 6: we have a new FED chair. That is going to
Speaker 6: be very different than how Jpal views the world.
Speaker 9: This is we are learning about how tariffs affect economies
Speaker 9: in real time, and for me, one of the big
Speaker 9: surprises has been that the pass through of the tariffs
Speaker 9: into inflation has just been a lot slower than what
Speaker 9: I'd expected. The corollary to that is, yeah, we'll probably
Speaker 9: still be talking about tariff paths through into inflation during
Speaker 9: the first part of next year, and it may be
Speaker 9: an issue even in the spring when we get a
Speaker 9: new FED chair. Now, there's a lot of issues surrounding
Speaker 9: where a FED chair appointed by President Trump may ultimately go,
Speaker 9: but managing the fallout of the tariffs is likely to
Speaker 9: be one important issue that they're struggling with.
Speaker 2: And once you begin to ignore Shaman Pale.
Speaker 9: Think he's got is you know, he's got his hands
Speaker 9: on the steering wheel for how much longer you know,
Speaker 9: I'm going to argue until he leaves the DEFINI. I
Speaker 9: think he's still going to be the one who is
Speaker 9: largely going to be dictating the direction of policy as
Speaker 9: long as he's a chairman of the FAD And I
Speaker 9: think part of that is he's got credibility with the
Speaker 9: other members of the committee, and I think that gives
Speaker 9: him influence in the capacity to shape policy.
Speaker 2: Can he shape markets to the kind at the moment,
Speaker 2: of course, yes, But once we gets closer to me
Speaker 2: the reason this, as you know, the policy is not
Speaker 2: the interest rate. It's what happens in the market. That
Speaker 2: we all understand that. And at some point later this year,
Speaker 2: there's going to be someone else who gets to say,
Speaker 2: you know what I'm next and his views or hers,
Speaker 2: who knows might carry more way than shaman Pass.
Speaker 9: To the extent that policy is influencing the economy today
Speaker 9: and over the near term, and as you say, the
Speaker 9: horizon where his policy will be relevant is shortening and
Speaker 9: will continue to shorten as we approach May. There were
Speaker 9: left to speculate on what a next FED chair may do,
Speaker 9: but I think in terms of setting the table and
Speaker 9: determining where rates are, I think the palsing control until May.
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