WEBVTT - SpaceX Debuts on then NASDAQ and Oil Moves 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 --> 0:00:27.000 us live on YouTube. 0:00:27.040 --> 0:00:30.680 Pawn and I've been looking this morning for moments to 0:00:30.840 --> 0:00:36.280 stop and do more traditional prosaic discussions of economics, finance, investment, 0:00:36.360 --> 0:00:40.120 of international invation relations. We can do that with Sarah 0:00:40.200 --> 0:00:45.360 Wolf at Morgan Stanley Thematic macro investing as well. Sarah, 0:00:45.440 --> 0:00:48.960 what's your theme into the rest of twenty twenty six. 0:00:50.400 --> 0:00:53.800 The biggest thing that we're looking at is around multipolar world, 0:00:53.840 --> 0:00:57.000 and I actually think that the SPACEXIPO fits right into this, 0:00:57.120 --> 0:01:00.960 where we really are entering a new frontier of this 0:01:01.080 --> 0:01:08.640 globally fragmented economy where we're seeing intense reshoring, diversification of 0:01:08.680 --> 0:01:12.080 supply chains, and now we're entering new frontiers such as 0:01:12.120 --> 0:01:14.160 space where we're competing with the rest of the world 0:01:14.200 --> 0:01:18.680 on technological innovation and dominating the space atmosphere with satellites. 0:01:19.440 --> 0:01:22.560 So, Sarah, in the context of a broader discussion of 0:01:22.680 --> 0:01:25.960 a of inflation, how does AI fit into that is 0:01:26.040 --> 0:01:28.959 AI inflationary at this point? 0:01:30.480 --> 0:01:33.080 Well, what we're seeing is that amid all this AI 0:01:33.200 --> 0:01:36.240 driven demand, we're seeing increasing supply shocks at the same time, 0:01:36.360 --> 0:01:39.600 and so there's these very fragile choke points that are 0:01:39.640 --> 0:01:43.760 causing prices to rise for things like GPUs, semiconductors, write, 0:01:43.800 --> 0:01:48.480 everything that's going into building out empowering AI. The reality is, though, 0:01:48.560 --> 0:01:52.680 all these things that go into these into these AI 0:01:52.840 --> 0:01:55.040 models are also a lot of the same things that 0:01:55.120 --> 0:01:57.680 go into consumer products. So over the last four or 0:01:57.760 --> 0:02:00.960 five months, we've been seeing this AI story push up 0:02:01.000 --> 0:02:04.680 producer prices and start to bleed into consumer prices as well. 0:02:05.160 --> 0:02:07.280 So at a time when the FED is looking at 0:02:07.440 --> 0:02:10.000 the tariff effects hoping that they're going to be abating 0:02:10.120 --> 0:02:12.400 soon that oil prices are not going to bleed into 0:02:12.400 --> 0:02:17.000 core inflation, we also need to be watching the AI effects. 0:02:16.560 --> 0:02:17.880 On consumer prices. 0:02:17.960 --> 0:02:20.840 And you know, this AI build out story, eight hundred 0:02:20.919 --> 0:02:24.320 billion dollars of capex this year over trillion next year, 0:02:24.639 --> 0:02:26.360 that's likely to be inflation area. 0:02:26.400 --> 0:02:28.880 Okay, So when you and Ellen Zanner sit down over 0:02:28.960 --> 0:02:31.800 tea on this and I'm looking, I'm featuring at twelve 0:02:31.840 --> 0:02:35.200 dollion today the Citadel essay fos Frank Flight that I 0:02:35.200 --> 0:02:39.120 thought was really a nice sum of this the price 0:02:39.280 --> 0:02:45.000 theory Sarah wolf of this is basically falling apart. How 0:02:45.040 --> 0:02:51.040 do you envision the microeconomics, the price discovery, the scarcity dynamic. 0:02:51.440 --> 0:02:54.240 How will that work out over the next eighteen months. 0:02:56.240 --> 0:02:59.279 Over the long run, AI is likely to be deflationary, 0:02:59.360 --> 0:03:00.000 differ inflation. 0:03:00.360 --> 0:03:01.680 We can all agree on that. 0:03:01.760 --> 0:03:01.959 Right. 0:03:02.080 --> 0:03:05.080 Once we get these productivity benefits, it's going to lower 0:03:05.120 --> 0:03:08.239 the cost of goods and services, increase welfare for people. 0:03:08.639 --> 0:03:12.239 But our thesis is that AI adoption and real productivity 0:03:12.240 --> 0:03:15.160 gains are really hard, especially when you look at the 0:03:15.160 --> 0:03:18.600 micro level and a company by company basis. There's a 0:03:18.639 --> 0:03:22.320 lot of work and what we call intangible capex that 0:03:22.440 --> 0:03:24.920 needs to be done at the enterprise level to actually 0:03:24.960 --> 0:03:28.880 see meaningful adoption and see that disinflation area effect. And 0:03:28.919 --> 0:03:31.280 I still think we're quite a bit away from that, 0:03:31.440 --> 0:03:34.160 and over the next eighteen month it's really going to 0:03:34.200 --> 0:03:38.440 be inflation driven by the AI infrastructure capex story before 0:03:38.520 --> 0:03:41.680 we get those productivity gains at the company level. 0:03:42.760 --> 0:03:43.040 Sarah. 0:03:43.120 --> 0:03:45.960 We're going to get a Federal Reserve meeting next week 0:03:46.000 --> 0:03:48.680 and we have a new FED reserve share. I know 0:03:49.160 --> 0:03:51.680 it just popped up on my screen. So what are 0:03:51.720 --> 0:03:54.920 you going to be looking for from the new fedchair. 0:03:54.800 --> 0:03:59.120 Wash, Well, we know from the new fedchair that he 0:03:59.240 --> 0:04:02.000 favors a little bit less communication and there's a lot 0:04:02.000 --> 0:04:04.320 of concern for markets that it's going to cause more 0:04:04.360 --> 0:04:08.480 uncertainty and volatility. My view is that it's not necessarily 0:04:08.560 --> 0:04:11.920 the communication from Kevin Walsh that's going to cause more 0:04:12.000 --> 0:04:14.560 uncertainty of volatility, but it's really what's happening on the 0:04:14.600 --> 0:04:18.679 broader FMC. We're seeing a lack of consensus, more dissents 0:04:18.760 --> 0:04:21.720 on what the future policy paths should be, and that 0:04:21.880 --> 0:04:25.039 is going to cause more uncertainty. For the Fed meeting itself. 0:04:25.040 --> 0:04:27.200 We're going to get a summary of economic projections. The 0:04:27.279 --> 0:04:30.000 last one we got was in March. A lot has 0:04:30.160 --> 0:04:33.680 changed in the last few months. Growth is coming and stronger, 0:04:33.720 --> 0:04:36.280 but at the same time, inslation is higher, and what 0:04:36.320 --> 0:04:40.720 we're seeing among economists and the FMCA is more of 0:04:40.760 --> 0:04:44.880 a consensus that neutral is higher and so that cut 0:04:44.920 --> 0:04:46.359 for this year is going to be taken out of 0:04:46.360 --> 0:04:49.320 the projections, likely a cut or two for next year 0:04:49.440 --> 0:04:51.719 as well, and we're going to be entering this world 0:04:51.720 --> 0:04:54.560 of higher for longer. The last thing I'll say is 0:04:54.600 --> 0:04:58.120 that we do think that that Chair Warsh is going 0:04:58.160 --> 0:05:03.000 to be focused more on these trimmed inflation mean measure Interesting, 0:05:03.080 --> 0:05:06.200 so we know core core PCE is above three percent, 0:05:06.279 --> 0:05:08.800 but if you look at the Dallas trim mean, it's 0:05:08.800 --> 0:05:11.560 closer to two percent. So that's that's a little bit 0:05:11.600 --> 0:05:14.000 more favorable for it your easier policy. 0:05:14.120 --> 0:05:15.120 Okay, I want to get. 0:05:14.960 --> 0:05:16.640 You in trouble. There's a huge you know, how many 0:05:16.640 --> 0:05:20.800 people they have working under Ellen Zenner is Sarah's Wolf, 0:05:20.960 --> 0:05:24.160 It's like forty two people or whatever. In your meeting 0:05:24.360 --> 0:05:29.320 Sarah Wolf. How disparate is trim mean Cleveland and all 0:05:29.360 --> 0:05:34.400 the rest from pc E. What's that research paper look 0:05:34.520 --> 0:05:37.000 like for Monday? 0:05:37.600 --> 0:05:39.320 Well, when if you look at the trim mean, they're 0:05:39.360 --> 0:05:42.360 basically trying to pull out outliers that are causing one 0:05:42.400 --> 0:05:43.680 off pushes in inflation. 0:05:43.839 --> 0:05:46.800 Right, so you have the oil shock, tear shock rate. 0:05:46.920 --> 0:05:51.200 These are not seen as inflationary pressures but price shocks, 0:05:51.279 --> 0:05:53.400 and so these trim means are trying to are trying 0:05:53.400 --> 0:05:58.120 to push out and clean the data for this more 0:05:58.240 --> 0:06:06.960 these more volatile categories of inflation Sarah, okay, well. 0:06:05.480 --> 0:06:09.080 Last please, all right, no please, I'll. 0:06:09.000 --> 0:06:11.040 Add that for the for the for the f OMC, 0:06:11.200 --> 0:06:12.920 and for the FED. Here we saw this over the 0:06:13.000 --> 0:06:16.120 last six years where they like to look at measures 0:06:16.120 --> 0:06:19.080 of inflation that help reinforce their views. So this could 0:06:19.080 --> 0:06:21.479 go out of fashion in the next six month if 0:06:21.520 --> 0:06:24.760 we see the trim mean rise above regular core brilliant. 0:06:24.800 --> 0:06:27.159 Sarah, Well, thank you, thank you so much for the brief, Paul, 0:06:27.200 --> 0:06:29.400 thanks for bringing up to FED how quaint on a 0:06:29.440 --> 0:06:33.200 Friday before the FED meeting. Ms Wolf is with Morgan Stanley. 0:06:33.360 --> 0:06:37.560 Stay with us. More from Bloomberg Surveillance coming up after this. 0:06:44.800 --> 0:06:48.400 You're listening to the Bloomberg Surveillance podcast. Catch us Live 0:06:48.440 --> 0:06:51.480 weekday afternoons from seven to ten am, eas Durn, Listen 0:06:51.520 --> 0:06:55.080 on Applecarplay and Android Otto with the Bloomberg Business app, 0:06:55.279 --> 0:06:56.919 or watch us live on YouTube. 0:06:56.920 --> 0:07:01.080 We are advantaged here. There's a side story going on today, 0:07:01.720 --> 0:07:04.240 which is the gamble over what a barrel of oil 0:07:04.279 --> 0:07:08.640 can do. Ed Hers, Senior, Fellow, University of Houston. Here 0:07:08.680 --> 0:07:12.560 in our studios in New York, I see the sharts 0:07:13.640 --> 0:07:17.120 and the graphs that say we're really, really low in 0:07:17.160 --> 0:07:20.760 our storage of oil to find. What that means is 0:07:20.760 --> 0:07:24.480 that like Cushing, Oklahoma, the barrels are almost empty. What 0:07:24.480 --> 0:07:25.480 does it actually mean? 0:07:26.000 --> 0:07:29.280 They're getting really worried and Cushing, we're down to about 0:07:29.320 --> 0:07:34.680 twenty five million barrels in storage. For contrast, when it 0:07:34.760 --> 0:07:38.640 was seventy million barrels in storage and over the price 0:07:38.680 --> 0:07:41.720 went to zero. So twenty twenty five is kind of 0:07:41.760 --> 0:07:44.160 at the bottom of the operating range. We're well past 0:07:44.280 --> 0:07:47.840 the five year averages on the downside and or outside 0:07:47.880 --> 0:07:52.680 that band, if you will, and the twenty million. We're 0:07:53.600 --> 0:07:56.520 moving barrels here there, and we're about to get to 0:07:56.560 --> 0:08:00.160 a point where it's difficult to mix or match the 0:08:00.280 --> 0:08:02.280 supplies to the refineries we need. 0:08:02.320 --> 0:08:06.400 Do you agree with many quotes mid July, first week 0:08:06.440 --> 0:08:09.360 of July, lest week of July. At some point out there, 0:08:09.520 --> 0:08:11.600 boom we get higher oil prices. 0:08:11.600 --> 0:08:16.480 Absolutely. I can't argue with the CEOs of Exon and Chevron. 0:08:16.520 --> 0:08:20.640 That's a losing game. They don't ever come out and 0:08:20.760 --> 0:08:24.480 make public announcements like this. You know, it's the physical market. 0:08:24.520 --> 0:08:27.240 And we've already seen jet fuel at two hundred dollars 0:08:27.280 --> 0:08:30.120 a barrel in northern Europe. We've seen diesel at one 0:08:30.200 --> 0:08:32.680 hundred and fifty dollars a barrel. Here in the US, 0:08:32.720 --> 0:08:37.880 we're really fortunate. We've we've got plenty. We produce about 0:08:37.920 --> 0:08:40.480 fourteen million barrels a day. We export about four and 0:08:40.520 --> 0:08:45.040 a half on average. We imported six point two last 0:08:45.080 --> 0:08:49.840 year at four plus from Canada and that's not going anywhere. 0:08:50.160 --> 0:08:51.960 You know, from the Straight and Foremos we were only 0:08:52.000 --> 0:08:54.400 getting about four hundred and ninety thousand barrels a day. 0:08:55.640 --> 0:08:57.600 You know, we can buy it, but what we're doing 0:08:57.679 --> 0:08:59.800 is we're selling it. I mean, anyone with a commercial 0:08:59.840 --> 0:09:04.760 inventory sold it. In the second week, Exxon chartered tankers 0:09:04.760 --> 0:09:06.480 and started sending gasoline to Asia. 0:09:06.720 --> 0:09:10.480 Magic day for US in Hydrocarbon's Anne Marie Horden, Paul, 0:09:10.840 --> 0:09:16.400 It's the Bloomberg Energy Security Executive briefing in Houston in Edharst, Houston. 0:09:16.720 --> 0:09:21.439 Michael Wurst, Mike Worth, engineer from Colorado, Chevron's CEO, will 0:09:21.480 --> 0:09:22.520 be with Annry Horden. 0:09:22.760 --> 0:09:24.760 Look for that eleven o'clock. 0:09:24.960 --> 0:09:27.480 It peace breaks up today, How long will it take 0:09:27.520 --> 0:09:30.760 to really get oil flowing? It seems like there's ships 0:09:30.800 --> 0:09:33.400 on both sides of this straight here. How does that 0:09:33.440 --> 0:09:34.679 play out logistically? 0:09:35.360 --> 0:09:39.760 It's not just the ships, but it does take time. 0:09:40.400 --> 0:09:42.480 The US Navy has said it'll take three months to 0:09:42.480 --> 0:09:45.679 make sure the Strait is clear of minds, and probably 0:09:45.760 --> 0:09:48.560 with the way the US has attacked the Iranian mind layers, 0:09:48.920 --> 0:09:52.800 Iran doesn't know where the mines are. And you know, 0:09:52.840 --> 0:09:56.800 the intel sources in Washington are saying that Iran has 0:09:56.840 --> 0:09:59.040 now let the genie out of the bottle, or the 0:09:59.160 --> 0:10:01.120 US has left the gen out of the bottle and 0:10:01.559 --> 0:10:04.480 shown that Iran has controlled the straight, the one hundreds 0:10:04.520 --> 0:10:07.800 of miles along the strait, and they've got drones that 0:10:08.000 --> 0:10:09.920 you know, we could buy a target at Walmart that 0:10:09.960 --> 0:10:12.840 they put some explosives on, can fly into the bridge 0:10:12.840 --> 0:10:15.280 of a ship. There's no way to defend against that. 0:10:16.120 --> 0:10:20.400 And it's Iran has been stating that they're going to 0:10:20.440 --> 0:10:23.480 maintain the straight, put a toll on it. That's that's 0:10:23.559 --> 0:10:26.800 going to be a cost going forward. So at least 0:10:26.840 --> 0:10:28.800 three months to clear the strait to get back to 0:10:28.880 --> 0:10:32.679 what may be normal throughput. But Kuwait's got to put 0:10:32.679 --> 0:10:35.080 its wells back online. Saudi Arabia has had a bunch 0:10:35.080 --> 0:10:40.000 of well shut in. Remember Cutter has lost its LNG 0:10:40.240 --> 0:10:42.839 market for now, part of it won't be back for 0:10:42.880 --> 0:10:45.160 at least three to five years as they rebuild, and 0:10:45.200 --> 0:10:48.360 that's a big hit on the diesel market because a 0:10:48.400 --> 0:10:51.040 lot of nations are using diesel in place of the LNG. 0:10:52.120 --> 0:10:56.679 So the market to get back to pre war types 0:10:56.720 --> 0:11:02.000 of levels maybe eight months at best. Don't think it's 0:11:02.040 --> 0:11:03.800 going to get below seventy dollars a barrow. 0:11:04.120 --> 0:11:06.000 What are the US producers doing? I mean, I feel 0:11:06.040 --> 0:11:08.120 like I want to run down the Houston and put 0:11:08.120 --> 0:11:10.240 a hole in the ground and start filling oil. I 0:11:10.240 --> 0:11:12.920 can make money at ninety dollars a barrel. I watched Landman. 0:11:13.000 --> 0:11:14.240 I don't know how to do this stuff. 0:11:14.520 --> 0:11:15.200 How's this going? 0:11:15.960 --> 0:11:16.360 Landman? 0:11:17.200 --> 0:11:17.320 Is? 0:11:17.679 --> 0:11:19.680 The real world is just so much worse than Landman? 0:11:19.800 --> 0:11:24.080 Okay, really absolutely? Now I'm sitting up interesting discuss. Let's 0:11:24.120 --> 0:11:25.560 stop the show right here. 0:11:26.320 --> 0:11:31.679 What does Landman's greed and voracious drama get wrong? 0:11:32.960 --> 0:11:35.320 You know, go back to the television show Dallas. I 0:11:35.320 --> 0:11:37.920 mean that was much more like it. The Shenanigans, the 0:11:37.960 --> 0:11:42.480 double dealing, the things behind the curtain that no one 0:11:42.520 --> 0:11:45.200 in the real world ever sees. Right now, we're seeing 0:11:45.240 --> 0:11:49.720 a lot of the smaller independence and especially the royalty 0:11:49.800 --> 0:11:52.600 funds running for the exits as fast as they can 0:11:52.880 --> 0:11:57.200 because they played Lucy Goosey with all of their back 0:11:57.280 --> 0:12:01.200 room data stuff. You know, don't trust a the AI 0:12:01.360 --> 0:12:06.280 overlays that people are putting on royalty payments, payments to owners. 0:12:06.880 --> 0:12:12.480 Those aren't lining up, and the accounting companies, the auditors 0:12:12.520 --> 0:12:15.720 can't catch it. They aren't going back to the paper trails. 0:12:15.920 --> 0:12:18.160 Is this like lunches at the grove? Like are you 0:12:18.240 --> 0:12:20.480 at the grove three times a week in Houston? 0:12:20.640 --> 0:12:20.800 Oh? 0:12:20.840 --> 0:12:26.000 Gosh no, no, guess I was thinking of the Avalon Diner. 0:12:27.360 --> 0:12:32.520 That's that's where people go. And you know, so so 0:12:33.240 --> 0:12:35.680 a lot of the companies, and we saw this with Exon. 0:12:35.760 --> 0:12:40.839 Exon just dismissed its trader, you know, did what can 0:12:40.880 --> 0:12:44.199 only be called a bonehead swap at say, seventy dollars 0:12:44.280 --> 0:12:47.000 a barrel, and so missed out on all the upside. 0:12:47.080 --> 0:12:51.760 You know, everybody who teaches options trading says, never give 0:12:51.800 --> 0:12:54.560 away the volatility, and for some reason Exon did that. 0:12:54.600 --> 0:12:57.480 And the irony is, you know, Lee Raymond just passed away. 0:12:57.520 --> 0:13:02.280 In a forest cover story, his last cover story before 0:13:02.320 --> 0:13:04.400 he stepped down, he said, I don't do trading. We 0:13:04.559 --> 0:13:07.400 don't trade, and hedge at Exon. Why would I need 0:13:07.440 --> 0:13:09.640 to be an oil company? Would I would just have 0:13:09.720 --> 0:13:14.880 a couple of traders for the volume, the financial I 0:13:14.880 --> 0:13:17.600 wouldn't need geologist, I wouldn't need engineers. I wouldn't need 0:13:17.600 --> 0:13:21.560 finance guys. And so it's really astonishing to see Exon 0:13:21.600 --> 0:13:24.480 take this huge hit crazy because it's the price has 0:13:24.480 --> 0:13:26.679 gone up to ninety and one hundred dollars a barrel. 0:13:26.720 --> 0:13:29.600 Exon hasn't been able to participate in that. Oh, they're 0:13:29.679 --> 0:13:31.600 still collecting seventy dollars a barrel. 0:13:31.720 --> 0:13:34.200 You know, Paul, you can go Nuaves's Ranchero's at the 0:13:34.200 --> 0:13:36.359 Avalon Diner, or you can get the chicken. 0:13:36.120 --> 0:13:38.960 Fried steak, which I mean, a guy, I love that. 0:13:39.040 --> 0:13:41.559 This is good, Ess, this is editors recommended. 0:13:41.720 --> 0:13:44.400 Yeah, it's quite good. It's quite good. 0:13:44.640 --> 0:13:46.800 We're gonna do a remote forget about Anne Marie Horden 0:13:46.880 --> 0:13:50.600 in Houston. We're doing surveillance at the Avalon Diner. Professor Hurst, 0:13:50.600 --> 0:13:53.760 thank you so much for joining us with serious wisdom 0:13:53.800 --> 0:13:59.160 here on a gallon of gasoline aparrell of oil. 0:13:59.520 --> 0:14:00.480 Stay with the US. 0:14:00.480 --> 0:14:03.760 More from Bloomberg Surveillance coming up after this. 0:14:10.960 --> 0:14:14.559 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:14:14.600 --> 0:14:17.800 weekday afternoons from seven to ten am Eastern. Listen on 0:14:17.840 --> 0:14:21.520 Applecarplay and Android Auto with the Bloomberg Business app, or 0:14:21.680 --> 0:14:23.160 watch us live on YouTube. 0:14:23.320 --> 0:14:27.400 Chimpbell Harvey joins us from Duke University. Right now, Cam, 0:14:27.520 --> 0:14:31.240 congratulations on this work with Rob. Are not you shake 0:14:31.280 --> 0:14:36.400 to your foundations the core value growth paradigm. 0:14:36.880 --> 0:14:41.360 If that doesn't work anymore, what does work well? 0:14:41.360 --> 0:14:45.360 I think we need to look at it differently. And traditionally, 0:14:46.320 --> 0:14:51.440 what's not a value stock is a growth stock. And indeed, 0:14:51.560 --> 0:14:54.800 if you look at, for example, the Russell one thousand 0:14:54.960 --> 0:14:59.080 value and the Russell one thousand growth, and you put 0:14:59.080 --> 0:15:03.280 a portfolio of those two together, then you get the 0:15:03.400 --> 0:15:08.200 Russell one thousand, And that means that if the stock 0:15:08.520 --> 0:15:11.800 is not in the value portfolio, it's in the growth portfolio, 0:15:12.120 --> 0:15:16.200 which means and this is kind of in a way shocking, 0:15:16.960 --> 0:15:24.080 that people will be holding expensive and expensive I mean 0:15:24.200 --> 0:15:29.880 like highpe ratio low growth stocks, and that doesn't make 0:15:29.960 --> 0:15:34.880 any sense whatsoever. So there's a good reason potentially to 0:15:35.080 --> 0:15:39.960 hold in like an expensive high growth stock. It's expensive 0:15:40.000 --> 0:15:44.280 because growth is by but to hold an expensive low 0:15:44.280 --> 0:15:50.000 growth stock that's baffling. So our paper kind of sketches 0:15:50.080 --> 0:15:55.240 a new approach where expensive low growth is excluded from 0:15:55.280 --> 0:15:56.160 any portfolio. 0:15:56.960 --> 0:15:59.160 What's in storting on one more question than this, because 0:15:59.200 --> 0:16:00.840 Paul's looking at me, going we got to talk to 0:16:00.880 --> 0:16:04.320 Kim about SpaceX. But you know, I look Professor Hervey 0:16:04.360 --> 0:16:06.640 at this and it seems to be a complete shift 0:16:07.120 --> 0:16:08.960 towards the joke of Stephen Colbert. 0:16:09.080 --> 0:16:15.480 Growthiness is value dead, No, not at all. So what's 0:16:15.640 --> 0:16:21.840 dead is investing in expensive low growth stocks in my opinion. 0:16:22.400 --> 0:16:26.440 But those stocks are losers historically and they should not 0:16:26.560 --> 0:16:31.640 be in your portfolio. So growth should be measured by 0:16:31.760 --> 0:16:35.560 growth metrics, sales growth, profitability, growth, R and D growth. 0:16:35.760 --> 0:16:39.800 Not the stock is expensive, that's not good enough. We 0:16:39.840 --> 0:16:42.400 need to look at fundamental and that's why our paper 0:16:42.440 --> 0:16:43.480 is called Fundamental Growth. 0:16:43.520 --> 0:16:47.800 This is great pity. Just subscribe SpaceX exactly. 0:16:48.160 --> 0:16:51.440 So Kim, we do have a pretty notable IPO that's 0:16:51.440 --> 0:16:56.160 going to begin trading today. SpaceX ipo valuation, I think 0:16:56.160 --> 0:16:59.520 the also tell me is ninety five times revenue. Talk 0:16:59.560 --> 0:17:02.160 to us about what this kind of deal means to you, 0:17:02.280 --> 0:17:05.240 and at one of the key issues is what is 0:17:05.400 --> 0:17:08.320 go to need in the various stock indices out there. 0:17:09.920 --> 0:17:13.480 Yeah, so this is a stock that is high growth 0:17:14.080 --> 0:17:18.040 and it will be expensive, and you mentioned one metric. 0:17:19.600 --> 0:17:25.280 It's expensive, and that often means that the expected return 0:17:25.359 --> 0:17:29.040 going forward is going to be modest. And indeed, if 0:17:29.080 --> 0:17:34.080 you look historically at IPOs of large firms and you 0:17:34.119 --> 0:17:38.159 look at the performance over the next three years, it 0:17:38.240 --> 0:17:44.000 is essentially flat compared to the market. So the IPO, 0:17:44.320 --> 0:17:48.480 by the time it gets to IPO, these stocks are 0:17:48.680 --> 0:17:53.800 often fully priced and all of the action, the explosive 0:17:53.880 --> 0:17:59.000 growth happened before the IPO when those are so called 0:17:59.080 --> 0:18:05.560 accredited investors and insiders were transacting in the stock. So 0:18:05.600 --> 0:18:08.720 what I'm saying is the big upside has already happened. 0:18:09.320 --> 0:18:11.680 So those that bought the stock for ten dollars or 0:18:11.680 --> 0:18:17.200 one hundred dollars, they got the explosive growth, and the 0:18:17.240 --> 0:18:22.040 retail or the average investor is left with the residual, 0:18:22.359 --> 0:18:26.960 the dregs. They could not buy the stock earlier on 0:18:27.080 --> 0:18:30.720 because they are not accredited or qualified. 0:18:30.800 --> 0:18:31.000 Yep. 0:18:31.520 --> 0:18:35.280 Bloomberg had some reporting yesterday at CAM that the demand 0:18:35.560 --> 0:18:39.320 from retail investors in the pre market trading exceeded one 0:18:39.400 --> 0:18:44.040 hundred billion dollars for seventy five billion dollar offering. Here, 0:18:44.200 --> 0:18:47.320 it sounds like retail nonetheless is going to participate in 0:18:47.359 --> 0:18:47.800 a big way. 0:18:48.920 --> 0:18:52.920 So again there's a good reason for that demand. This 0:18:52.960 --> 0:18:58.119 will be likely the number seven largest stock in the 0:18:58.240 --> 0:19:03.560 US by total market capitalization. It is reasonable for retail 0:19:03.600 --> 0:19:08.040 investors to diversify their portfolio, so they want some of 0:19:08.080 --> 0:19:12.840 the stock. I understand that. So the problem is that 0:19:12.880 --> 0:19:17.240 they're getting in at a very high price. So SpaceX 0:19:17.560 --> 0:19:23.080 I'm looking at the drivatives market is one seventy seven already, 0:19:23.160 --> 0:19:27.280 so and you're not getting in necessarily at the allocation 0:19:27.400 --> 0:19:30.240 price of one thirty five. You're getting in at the close. 0:19:30.760 --> 0:19:32.919 I just want to point this out. He has a 0:19:32.960 --> 0:19:37.480 derivative pricing at Duke. They don't have that at Chapel Hill. 0:19:37.960 --> 0:19:39.800 They don't have the pricing right now. 0:19:40.080 --> 0:19:41.840 Event hey, Cam. 0:19:41.920 --> 0:19:44.520 Another part of this deal, which is really interesting, I think, 0:19:44.640 --> 0:19:48.000 is just if you're buying stock today in this company, 0:19:48.760 --> 0:19:52.320 you've bought off on a vision of Elon Musk, of 0:19:52.400 --> 0:19:55.760 maybe even the cult of Elon Musk, how does that 0:19:55.840 --> 0:19:57.240 typically play out over time? 0:19:59.600 --> 0:20:06.919 So it's difficult to draw historical comparisons because this is 0:20:06.960 --> 0:20:12.640 such a big IPO. Many don't realize that this company 0:20:13.040 --> 0:20:18.000 is not a new company. It's been around for twenty 0:20:18.040 --> 0:20:21.399 four years, so it's got of a long track record. 0:20:21.840 --> 0:20:26.960 People know the company, it's in the news, and it 0:20:27.080 --> 0:20:31.480 is large. So this IPO is larger than the sum 0:20:31.800 --> 0:20:36.120 of all the IPOs in twenty twenty five. So it's 0:20:36.160 --> 0:20:39.919 really hard, given that it's so extraordinary in terms of 0:20:39.960 --> 0:20:45.600 the size to draw historical comparisons. Many IPOs are small. 0:20:45.760 --> 0:20:50.320 This is giant. And also there is the possibility that 0:20:50.400 --> 0:20:55.800 SpaceX will be merged by Tesla to become like a 0:20:55.880 --> 0:21:02.800 colossal company. So again to draw historical comparisons is difficult. 0:21:03.680 --> 0:21:06.960 Vision is important, and you are correct that a lot 0:21:06.960 --> 0:21:11.439 of people are buying the vision. They're buying this vision 0:21:11.680 --> 0:21:14.600 of extreme growth potential. 0:21:15.880 --> 0:21:16.080 Yep. 0:21:16.160 --> 0:21:19.239 And that's ninety five times revenue. Hum, I'm sure you're 0:21:19.240 --> 0:21:20.440 getting your application this morning. 0:21:20.680 --> 0:21:23.120 I'm looking for my Okay, it's just not there. Pharaoh 0:21:23.160 --> 0:21:27.000 God is eight thousand shares as always, Professor Harvey, just 0:21:27.240 --> 0:21:30.439 for all of us of the Safe Institute, Congratulations to 0:21:30.480 --> 0:21:33.400 you and your team on this research report. 0:21:33.560 --> 0:21:34.240 Stay with us. 0:21:34.480 --> 0:21:37.760 More from Bloomberg Surveillance coming up after this. 0:21:44.960 --> 0:21:48.560 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:21:48.600 --> 0:21:51.760 weekday afternoons from seven to ten am Eastern Listen on 0:21:51.880 --> 0:21:55.280 Apple Karplay and Android Otto with the Bloomberg Business app, 0:21:55.440 --> 0:21:57.680 or watch us live on YouTube here. 0:21:57.720 --> 0:22:01.359 The privileges that you to work for Alan Span and 0:22:01.480 --> 0:22:04.600 far more than that with wonderful academics. Jake Schneider with 0:22:04.680 --> 0:22:10.720 Atlas Analytics carried on with Chairman green Span the Earth 0:22:11.080 --> 0:22:14.840 Resource satellite, which was an act of God coming out 0:22:14.880 --> 0:22:18.679 of Apollo, mostly coming out of the Dakotas. It was 0:22:18.720 --> 0:22:21.600 a part of my family heritage and we're thrilled to 0:22:21.640 --> 0:22:24.879 have Jake in here today. We're still using satellites to 0:22:24.920 --> 0:22:26.160 look at stuff, right. 0:22:26.200 --> 0:22:28.120 We absolutely are. Well. 0:22:28.280 --> 0:22:29.960 First, let me say I'm delighted to be here, thank 0:22:29.960 --> 0:22:32.679 you for having me. My name is Jake Schneider. I 0:22:32.720 --> 0:22:36.240 am the founder of Atlas Analytics, where we use satellite 0:22:36.280 --> 0:22:40.639 imagery to predict GDP in real time. So, as you know, 0:22:40.760 --> 0:22:45.160 and as probably our viewers know, satellite imagery can be 0:22:46.320 --> 0:22:50.440 the I'm sorry, macroeconomic data comes out with a lag. 0:22:50.880 --> 0:22:52.760 It was medieval where it's Renaissance. 0:22:52.840 --> 0:22:55.640 What's to say about our farm farmers flat on their 0:22:55.680 --> 0:22:56.560 back this summer. 0:22:56.760 --> 0:23:00.040 Well, let me look into that for you, Tom, I 0:23:00.080 --> 0:23:02.240 want to come back next time. For now and I'd 0:23:02.280 --> 0:23:05.600 like to say is that we are forecasting GDP for 0:23:05.720 --> 0:23:08.040 Q two. That number won't be out for first release 0:23:08.080 --> 0:23:10.560 until the end of July and final number until the 0:23:10.640 --> 0:23:13.400 end of September. At about two point five percent. It's 0:23:13.480 --> 0:23:17.320 doing quite strong. We have our own taxonomy where we 0:23:17.480 --> 0:23:20.080 use the expenditure approach to GDP to break it into 0:23:20.080 --> 0:23:23.560 three components, private inventories and net exports and core GDP. 0:23:23.840 --> 0:23:27.000 Core GDP is looking strong the Federal Reserve. 0:23:27.880 --> 0:23:30.520 A lot of folks are critical of the Fed, including 0:23:30.560 --> 0:23:32.560 Cam Harvey from Duke University who we just spoke to 0:23:32.600 --> 0:23:37.119 this morning. That defend uses I guess real backward looking 0:23:37.200 --> 0:23:39.640 data as opposed to real time data, which is something 0:23:39.680 --> 0:23:43.360 that you guys play in. Talk to us about how 0:23:43.400 --> 0:23:45.639 you think about that real time data versus some of 0:23:45.640 --> 0:23:46.920 the stuff the government relies on. 0:23:47.119 --> 0:23:52.040 Yeah, So this is the core crux of the issue 0:23:52.040 --> 0:23:56.080