WEBVTT - Daybreak Holiday: Trump versus Powell, ETF Inflows, Antitrust in Focus 0:00:02.680 --> 0:00:04.320 All right, thanks so much for joining us with a 0:00:04.400 --> 0:00:07.480 special edition of Bloomberg Daybreak, the US stock market close 0:00:07.600 --> 0:00:10.680 for the good Friday holiday. I'm John Tucker, and coming 0:00:10.760 --> 0:00:13.120 up this hour a look at where the anti trust 0:00:13.160 --> 0:00:17.040 investigations against big tech stand under the Trump administration. We're 0:00:17.040 --> 0:00:21.240 going to speak with Jenniferree, senior litigation analysts with Bloomberg Intelligence. 0:00:21.360 --> 0:00:24.360 Plus we have seen our share of market volatility so 0:00:24.440 --> 0:00:27.800 far this year. We'll go inside the markets with Eric Balchunis, 0:00:27.840 --> 0:00:31.800 the senior ETF strategist at Bloomberg Intelligence, and Jess Metton 0:00:31.880 --> 0:00:34.400 of the Bloomberg Stocks team. But first we're going to 0:00:34.440 --> 0:00:37.239 focus on the future of FED, Shair J. Powell and 0:00:37.280 --> 0:00:39.920 what's in store for the economy amid the trade wars. 0:00:40.280 --> 0:00:43.640 We're pleased to welcome Bloomberg International Economics and Policy course. 0:00:43.680 --> 0:00:48.560 But Michael McKee and Stuart Paul us economists with Bloomberg Economics. 0:00:49.000 --> 0:00:52.479 So the posting from President Trump said it all. Trump 0:00:52.520 --> 0:00:57.520 says Powell's termination can't happen fast enough. Well, it's so 0:00:57.600 --> 0:01:01.080 much for FED independence, is it really? If he's threatening 0:01:01.200 --> 0:01:04.160 it sounds like a thread against Powell. Is he threatening 0:01:04.240 --> 0:01:06.920 Powell or threatening FED independence? Or both. 0:01:07.240 --> 0:01:09.520 Nice, Fed, you got there too bad if something happened 0:01:09.520 --> 0:01:15.560 to it. Right, in theory, he's threatening Powell, but does 0:01:15.600 --> 0:01:18.039 he really mean termination in the sense of I'm going 0:01:18.040 --> 0:01:23.080 to fire him. That's an open question because there are 0:01:23.520 --> 0:01:28.240 court cases right now about what power the president has 0:01:28.720 --> 0:01:32.720 to fire the heads of independent agencies, And while they 0:01:32.760 --> 0:01:37.360 don't exactly correlate to the FED, there is a feeling 0:01:37.400 --> 0:01:40.240 that if the Supreme Court were to rule that the 0:01:40.280 --> 0:01:44.160 president has unfettered power to fire the heads of agencies, 0:01:44.520 --> 0:01:48.040 that he could try to fire Powell. It all may 0:01:48.080 --> 0:01:51.160 be moot because Powell's term as chair is up in 0:01:51.240 --> 0:01:54.760 May of next year, so Trump could be just talking 0:01:54.800 --> 0:01:58.480 about him leaving as the FED chairman. 0:01:59.080 --> 0:02:03.400 And it's still so the independence of the FED. We 0:02:03.440 --> 0:02:06.880 can go back to the Knicks administration when the President 0:02:06.960 --> 0:02:10.280 had one of his economic people become the Federal Reserve chair. 0:02:10.360 --> 0:02:13.320 That was Arthur Burns. We know what happened there. 0:02:13.720 --> 0:02:16.920 That's right. So there's no such thing famously as a 0:02:16.960 --> 0:02:19.200 free lunch in economics, But if there is one thing 0:02:19.240 --> 0:02:22.600 that comes close, it's central bank independence. Countries that have 0:02:22.720 --> 0:02:26.560 independent central banks have lower, more stable inflation. Countries that 0:02:26.560 --> 0:02:29.799 are more heavily influenced by the political process their central banks, 0:02:29.800 --> 0:02:34.680 when they're determined by by political actors, when there are 0:02:34.720 --> 0:02:38.079 political appointees, when they have less independence, you tend to 0:02:38.080 --> 0:02:42.880 get higher, less stable inflation. I think that Mike is right. 0:02:42.960 --> 0:02:45.040 This might end up just being a moot point, and 0:02:45.240 --> 0:02:49.200 folks in the administration could encourage Trump to just wait 0:02:49.320 --> 0:02:52.800 out Powell's term. And the real question is, then, who 0:02:52.960 --> 0:02:54.720 would we end up seeing filling the. 0:02:54.680 --> 0:02:55.640 FED chair role. 0:02:56.080 --> 0:02:59.200 Would it be someone like Trump had rolled out as 0:02:59.320 --> 0:03:01.640 potential appoint point ease in his first term, people like 0:03:01.720 --> 0:03:04.640 Judy Shelton, who would be a bit more hawkish, or 0:03:04.680 --> 0:03:07.600 would it be somebody a bit more dubbish than so 0:03:07.760 --> 0:03:11.560 much of his proposed policies would require someone quite a 0:03:11.560 --> 0:03:13.160 bit more dubbish. 0:03:12.960 --> 0:03:16.480 If you'd like a great conspiracy theory though John that way, 0:03:16.480 --> 0:03:21.560 Oh sure, that would really fascinate the markets. Suppose that 0:03:21.680 --> 0:03:26.600 Donald Trump does try to fire Powell, and to a 0:03:26.600 --> 0:03:29.320 certain extent is successful. Obviously, the FED would fight that 0:03:30.040 --> 0:03:34.160 there is no opening on the FED to fill a 0:03:34.200 --> 0:03:36.520 governor's job. Powell would still be a governor of the 0:03:36.520 --> 0:03:41.480 Federal Reserve and until January. In January, there's an opening, 0:03:41.560 --> 0:03:45.400 so he could appoint somebody who's the FED chair and waiting. 0:03:45.760 --> 0:03:48.640 It is also possible that if Powell were gone, he 0:03:48.720 --> 0:03:53.400 could as chairman, he could appoint that person. But the 0:03:53.440 --> 0:03:55.960 Open Market Committee that makes interest rate decisions is a 0:03:55.960 --> 0:03:59.760 separate body from the FED itself, So the Open Market 0:03:59.760 --> 0:04:03.560 com could just rename Powell as chair, and you could 0:04:03.600 --> 0:04:06.960 have a chair designate for the Fed who is not 0:04:07.160 --> 0:04:10.520 the chair making decisions on interest rate policy. 0:04:10.640 --> 0:04:13.840 That's a really important and interesting point. We've had a 0:04:13.880 --> 0:04:15.680 little bit of an experience, a little bit of an 0:04:15.720 --> 0:04:19.800 experiment with Michael Barr, the former Vice Chair for Supervision. 0:04:20.640 --> 0:04:23.760 Of course, the administration as it was coming into office 0:04:24.080 --> 0:04:27.440 was eyeing who could take the Vice Chair for Supervision role, 0:04:27.520 --> 0:04:30.280 someone perhaps a little bit more lenient on banks than 0:04:30.360 --> 0:04:34.960 Barr was. Barr preempted that by resigning his role as 0:04:35.080 --> 0:04:38.000 Vice Chair for Supervision but retain the title of governor. 0:04:38.240 --> 0:04:42.440 To your point, and what that sort of did was 0:04:42.440 --> 0:04:45.200 that it created an opening for the Trump administration to 0:04:45.400 --> 0:04:48.200 offer somebody up who's already a governor in this case 0:04:48.240 --> 0:04:52.080 Mickey Bowman, and in theory, the Trump administration if Powell 0:04:52.080 --> 0:04:55.560 were to take that route, lose his chairman's role, but 0:04:55.640 --> 0:04:58.359 stay on as a governor, totally departing from convention. 0:04:58.560 --> 0:04:59.839 But if that were to be. 0:04:59.839 --> 0:05:03.120 The case, it would be somebody like Chris Waller, currently 0:05:03.200 --> 0:05:06.520 a governor, who could step in and fill that share role. 0:05:06.680 --> 0:05:10.720 Well. On Wednesday, speaking in Chicago was the FED Shair 0:05:10.880 --> 0:05:13.760 Jerome Powell, and here's part of what he had to say. 0:05:14.400 --> 0:05:18.320 The level of tariff increases announced so far is significantly 0:05:18.400 --> 0:05:20.880 larger than anticipated, and the same is likely to be 0:05:20.960 --> 0:05:24.920 true of the economic effects, which will include higher inflation 0:05:25.200 --> 0:05:26.200 and slower growth. 0:05:26.560 --> 0:05:29.520 So it doesn't sound like there's going to be a 0:05:29.560 --> 0:05:30.240 FED put. 0:05:31.080 --> 0:05:34.920 No, And he addressed that specifically. He was asked would 0:05:34.960 --> 0:05:37.279 you step in? And he said no, because. 0:05:37.279 --> 0:05:40.600 I should explain to everybody listening what a FED put is. Basically, 0:05:40.800 --> 0:05:43.400 you get to backstop the market if things really could 0:05:43.400 --> 0:05:44.400 start to go haywire. 0:05:45.200 --> 0:05:47.719 The FED, and this has long been in their position 0:05:47.839 --> 0:05:52.239 that the FED doesn't interfere when there is money being 0:05:52.279 --> 0:05:54.680 lost in the markets because the markets are going down, 0:05:54.720 --> 0:05:58.760 that's not their job. But if trading is interrupted, if 0:05:58.800 --> 0:06:02.400 there is a systemic problem, if there are all sellers 0:06:02.440 --> 0:06:04.120 and no buyers as we saw. 0:06:04.279 --> 0:06:07.080 If there's problem with the plumbing right, he's going to 0:06:07.080 --> 0:06:10.679 whether FED would do something to open open the pipes, 0:06:11.080 --> 0:06:14.360 But no, they're not going to rescue the markets. 0:06:14.400 --> 0:06:18.360 And his suggestion that inflation is going to be worse 0:06:18.440 --> 0:06:21.599 because the tariffs are worse just tells the markets that 0:06:21.640 --> 0:06:24.119 the Fed's going to be very slow to think about 0:06:24.200 --> 0:06:26.400 cutting rates in the future, which is why we saw 0:06:26.520 --> 0:06:31.039 an additional reaction after the markets were already down on Wednesday. 0:06:31.600 --> 0:06:34.719 So still you want to weigh in on that, pal says, 0:06:35.000 --> 0:06:37.320 you know, maybe inflation, maybe employment, they're going to be 0:06:37.360 --> 0:06:39.640 impacted by the tariffs, And I got to wonder also 0:06:39.680 --> 0:06:41.880 if that's kind of what set President Trump off. 0:06:43.000 --> 0:06:47.919 It's it's interesting to see the market in the context 0:06:47.920 --> 0:06:49.839 of the FED put right now, markets are pricing at 0:06:49.839 --> 0:06:52.159 about ninety bases points of cuts this year. We think 0:06:52.200 --> 0:06:55.680 that's so that's so off from reality. As you heard, 0:06:56.520 --> 0:06:59.640 it's sounding which direction, that's way too many cuts that 0:06:59.680 --> 0:07:03.520 are pre thin in our view. It's as we heard 0:07:03.560 --> 0:07:06.400 from Chairman Pally, Yes, we're likely to see slower growth, 0:07:06.440 --> 0:07:08.279 We're likely to see some inflation pressures. 0:07:08.320 --> 0:07:10.000 The question would be which does the FED. 0:07:09.800 --> 0:07:13.200 Care more about. In the same breath, we're also hearing 0:07:13.240 --> 0:07:16.320 from the chairman that we're very close to the full 0:07:16.360 --> 0:07:18.880 employment that the FED is a maximum employment that the 0:07:18.880 --> 0:07:21.280 FED is charged with trying to achieve as part of 0:07:21.280 --> 0:07:25.160 its dual mandate. And if you have upward inflation pressures, 0:07:25.840 --> 0:07:27.720 then it's likely to be the case that the Fed's 0:07:27.720 --> 0:07:30.600 going to maintain it's higher for a longer position. So 0:07:30.880 --> 0:07:33.440 we don't see a FED pull looming. We see ninety 0:07:33.440 --> 0:07:35.960 basis points of rate cut price, then it looks a 0:07:36.000 --> 0:07:37.240 little bit crazy to buy eye. 0:07:37.640 --> 0:07:40.000 What's the data been telling us, the hard data and 0:07:40.240 --> 0:07:43.320 even the soft data which measures I guess sentiment. 0:07:43.800 --> 0:07:45.920 It's really hard for the FED right now because the 0:07:45.920 --> 0:07:48.880 soft data is awful and the hard data is so 0:07:48.960 --> 0:07:53.239 far so good. Pyle said Wednesday, labor market's in good shape. Thursday, 0:07:53.240 --> 0:07:56.640 we got a decline in initial jobless claims that sort 0:07:56.680 --> 0:07:59.960 of suggests that that is the case. But we also 0:08:00.120 --> 0:08:03.840 saw the Philadelphia FED report a collapse in business confidence 0:08:03.960 --> 0:08:08.320 in their district during the month of April that portends 0:08:08.400 --> 0:08:13.000 bad things for the economy. But also they reported that 0:08:13.400 --> 0:08:17.840 inflation expectations went up among manufacturers in the Philadelphia region, 0:08:17.960 --> 0:08:21.280 So they're kind of caught in between. The question is 0:08:22.240 --> 0:08:29.720 does all this negative sentiment actually change business and consumer decisions, 0:08:30.080 --> 0:08:32.040 and that'll take us a couple of months to see. 0:08:33.000 --> 0:08:36.800 So we've fed. Even if they were going to have 0:08:36.920 --> 0:08:39.240 to move one way or another, they're not going to 0:08:39.280 --> 0:08:45.240 have evidence until we get to maybe July that would 0:08:45.280 --> 0:08:47.880 tell them one way or another what's going on? 0:08:48.559 --> 0:08:53.080 Just tangentially, since you mentioned the Philly FED, who's Anna Paulson. 0:08:53.840 --> 0:08:57.240 Anna Paulson is the new incoming president of the Philadelphia FED. 0:08:57.320 --> 0:08:59.400 She's currently and this is somebody who's not picked by 0:08:59.400 --> 0:09:00.400 the president. 0:09:00.960 --> 0:09:04.079 Of the board of directors of each bank picked there on. 0:09:04.200 --> 0:09:07.880 The FED Board of Governors has veto power, but they 0:09:07.920 --> 0:09:12.360 can't other than that influence it. She's the research director 0:09:12.360 --> 0:09:15.559 at the Chicago Fed. Patrick Harker. The current president has 0:09:15.600 --> 0:09:20.320 to retire under FED rules in at the end of June, 0:09:20.400 --> 0:09:22.040 so she'll take over July first. 0:09:22.200 --> 0:09:24.400 All right, Stull, I'm going to ask you to sort 0:09:24.440 --> 0:09:28.600 of school us on tariffs. The President has said so 0:09:28.760 --> 0:09:33.520 far it's brought in billions the tariffs bill. Who pays tariffs? 0:09:33.520 --> 0:09:36.400 I mean, remind everybody when the stuff comes in from 0:09:36.480 --> 0:09:40.160 I don't know wherever China comes into Port Nork, Elizabeth 0:09:40.240 --> 0:09:42.800 not far from here. The guy who picks it up 0:09:42.880 --> 0:09:44.839 is the guy who pays the tariffs. 0:09:44.760 --> 0:09:48.800 Essentially, essentially yes, when the real question is. 0:09:49.000 --> 0:09:52.040 The tariffs aren't charged in China as they leave the 0:09:52.040 --> 0:09:55.280 port by some you know, anonymous US official. It's you 0:09:55.360 --> 0:09:55.880 pay it here. 0:09:56.160 --> 0:09:59.040 Sure, But just like all taxes, the real question is 0:09:59.120 --> 0:10:01.679 who bears the incidents of the tax or who bears 0:10:01.679 --> 0:10:05.120 the burden of the tax. Does the imposition of attacks 0:10:05.160 --> 0:10:08.160 take more out of margins or can companies then pass 0:10:08.200 --> 0:10:11.560 along higher prices to consumers. Separate from who has the 0:10:11.640 --> 0:10:15.160 legal obligation to cut the check for the tariff, what 0:10:15.280 --> 0:10:17.640 really matters is the incidence of the tariff and how 0:10:17.720 --> 0:10:21.640 much firms can pass along higher input costs to consumers. 0:10:22.040 --> 0:10:26.360 We see from surveys like the pmis that firms are 0:10:26.400 --> 0:10:29.640 facing higher input costs. They report that they are trying 0:10:29.679 --> 0:10:31.960 to pass along higher prices. We see that in the 0:10:32.000 --> 0:10:37.600 regional FED indices like we saw from Philly earlier last week. 0:10:38.080 --> 0:10:43.880 But the main question is just how demand destructive are tariffs? 0:10:43.920 --> 0:10:48.080 How demand destructive is uncertainty and how much can tariffs 0:10:48.120 --> 0:10:52.240 get passed through to consumers. Basic FED models would suggest 0:10:52.880 --> 0:10:55.880 that the level of the average effect of tariff rate 0:10:55.960 --> 0:11:01.679 would create an additional two percentage points of corelation. Personally, 0:11:01.720 --> 0:11:03.760 I think that that's probably a little bit high, because 0:11:03.800 --> 0:11:05.920 I do think that the degree of demand destruction that 0:11:06.000 --> 0:11:09.160 comes from effect that from the average effect of ta 0:11:09.360 --> 0:11:12.200 RAID being above twenty percent is going to limit the 0:11:12.240 --> 0:11:15.280 extent to how much firms can pass along those higher 0:11:15.280 --> 0:11:16.080 input costs. 0:11:16.320 --> 0:11:18.640 And Mike, one of the stated purposes is to re 0:11:18.880 --> 0:11:21.840 sure bring employment back to the US to make all 0:11:21.920 --> 0:11:25.360 this stuff that's being made over It seems to forget 0:11:25.400 --> 0:11:28.960 the idea that it's basically labor arbitrage. Why stuff moved 0:11:28.960 --> 0:11:31.960 overseas to be produced in the first place, because it's 0:11:32.040 --> 0:11:34.960 cheaper to do so overseas, not to mention the fact 0:11:34.960 --> 0:11:39.360 that with productivity gains, it takes fewer people here in 0:11:39.400 --> 0:11:42.320 the country to make the stuff that we used to make. 0:11:42.760 --> 0:11:46.200 Yeah, and there's also the cost of shipping you have 0:11:46.280 --> 0:11:52.360 to put into this as well. The cost advantage in 0:11:52.480 --> 0:11:56.520 terms of labor is starting to fade as other countries 0:11:57.360 --> 0:12:01.640 raise their living standards, but it's still an important input. 0:12:01.679 --> 0:12:05.960 But the problem that you have here is that nobody 0:12:06.040 --> 0:12:10.600 knows what Donald Trump is actually doing. We don't know 0:12:10.880 --> 0:12:13.640 what tariffs are going to be put on, and we 0:12:13.679 --> 0:12:15.600 don't know how long they'll last, and we don't know 0:12:15.640 --> 0:12:17.560 how he'll change his mind. So if you're a company 0:12:18.440 --> 0:12:23.439 planning a major expansion and investment in some sort of factory, 0:12:24.800 --> 0:12:27.120 you don't know whether it's going to be worthwhile or not. 0:12:27.320 --> 0:12:31.520 So it's going to really be hard to justify moving 0:12:31.559 --> 0:12:34.320 in and that is going to hold the president back. 0:12:34.440 --> 0:12:40.360 Now he's talking about making deals with trade deals with countries. 0:12:40.880 --> 0:12:43.240 That's not going to bring any factories back. 0:12:43.040 --> 0:12:43.320 All right. 0:12:43.320 --> 0:12:46.880 Thanks to Bloomberg International Economics and Policy correspondent Michael McKee 0:12:46.960 --> 0:12:51.120 and Stuart paul Us economists with Bloomberg Economics and just 0:12:51.160 --> 0:12:53.440 a hand to look at how the market politicity is 0:12:53.480 --> 0:12:57.560 impacting the retail investor in the world of exchange traded funds. 0:12:57.960 --> 0:13:05.960 It is twenty minutes past the hour is Bloomberg. Welcome 0:13:06.000 --> 0:13:08.559 back to the special edition of Bloomberg Day Greek. I'm 0:13:08.600 --> 0:13:11.400 John Tucker. The US stock market closed for the Good 0:13:11.480 --> 0:13:15.120 Friday holiday. The ongoing tariff saga has made for historic 0:13:15.200 --> 0:13:18.040 moves in the stock market, and for a look at 0:13:18.120 --> 0:13:22.400 how it's impacting the retail market the exchange traded fund industry, 0:13:22.760 --> 0:13:26.199 let's bring in Eric bellcunis, the senior ETF Strategies at 0:13:26.200 --> 0:13:29.760 Bloomberg Intelligence, and just met in Deputy team leader of 0:13:29.840 --> 0:13:34.040 Equities at Bloomberg News. Hi, guys, thanks for being here. Hey, 0:13:34.440 --> 0:13:36.320 where is money flowing these days? 0:13:36.600 --> 0:13:40.600 Believe it or not, it's in the US. A lot 0:13:40.640 --> 0:13:44.120 of investors who are using ets putting that money into 0:13:44.200 --> 0:13:46.840 US stocks, so risk assets. 0:13:46.880 --> 0:13:49.760 I would have guessed just the opposite. Everybody's hiding under 0:13:49.760 --> 0:13:50.200 a rock. 0:13:51.240 --> 0:13:54.880 Well cash like ets and gold have done better than normal, 0:13:55.920 --> 0:13:58.920 but they haven't interrupted to sort of flow us on 0:13:58.960 --> 0:14:01.959 as we call it, into US stock ets. So if 0:14:01.960 --> 0:14:04.080 you were to look at the stocks on I don't know, 0:14:04.280 --> 0:14:07.800 any period this year, you're going to see stock of 0:14:07.880 --> 0:14:11.000 ETFs like VU, which is the Vanguard, SMP five hundred, 0:14:11.640 --> 0:14:14.480 IVV which is the black Rock SMP five hundred, the 0:14:14.600 --> 0:14:17.520 QUES are in the top ten. It got some little 0:14:17.559 --> 0:14:18.960 bit of value and growth in there. 0:14:19.960 --> 0:14:22.800 Ces for everybody because you have to explain it to made. 0:14:22.800 --> 0:14:26.120 So yeah, So SMP five hundred is like the five 0:14:26.200 --> 0:14:29.080 hundred biggest stocks. The QUES is the NASTAC one hundred. 0:14:29.640 --> 0:14:32.560 The stocks that list on NAZAC and they tend to 0:14:32.560 --> 0:14:36.320 be like more tech and innovative, so it's a little 0:14:36.480 --> 0:14:41.680 more high volatile, and the Nastak one hundred over time 0:14:41.760 --> 0:14:44.680 has done way better than the SMP, but it can 0:14:44.720 --> 0:14:47.760 go down further in his selloff, and it has it's 0:14:47.840 --> 0:14:49.760 draught out and has been rougher than the SMP, but 0:14:49.960 --> 0:14:52.960 people still buying it. We got about ten billion into 0:14:53.000 --> 0:14:56.520 both the QUES ETF So I think what's going on 0:14:56.640 --> 0:15:00.480 is this, over the last fifteen years, the trail crowd 0:15:00.560 --> 0:15:04.040 has been rewarded for buying the dip, and so they 0:15:04.080 --> 0:15:06.520 are buying the dip still. And there's been a couple 0:15:06.560 --> 0:15:09.440 of days in this tariff tantrum where the dip has worked. 0:15:09.520 --> 0:15:12.400 You know, there's like a huge run up, and so 0:15:12.680 --> 0:15:17.440 those you know, quick boosts up inter of these down 0:15:17.560 --> 0:15:20.440 weeks or days are going to keep them coming back. 0:15:20.760 --> 0:15:23.000 And then the retail crowd, the sort of buying holders, 0:15:23.280 --> 0:15:25.680 I think a lot of them over the years have 0:15:25.800 --> 0:15:27.880 just thrown up their hands in terms of market timing. 0:15:27.960 --> 0:15:30.560 I think they're just like, I can't time this stuff. 0:15:30.600 --> 0:15:32.640 I mean, after COVID, like who could have timed the 0:15:32.720 --> 0:15:35.280 FED buying ets and the market rallied and had a 0:15:35.280 --> 0:15:37.040 good year. So I think a lot of them are like, 0:15:37.200 --> 0:15:39.480 I'm not even I'm tuning out. I got a good 0:15:39.600 --> 0:15:42.880 cheap ets. I'm just got a dollar cost average until 0:15:42.920 --> 0:15:45.600 the sun goes down and I retire, and that's that. 0:15:45.840 --> 0:15:48.200 And so we call that the vanguard put in that 0:15:48.520 --> 0:15:51.680 in a market that's going down, there's the FED put 0:15:51.720 --> 0:15:53.480 that they might step in. Now there's the Trump put 0:15:53.520 --> 0:15:56.000 that he might reverse, but we also the vanguard put. 0:15:56.040 --> 0:15:59.040 There's a just a bunch of retail investors who are 0:15:59.080 --> 0:16:00.960 just gonna buy them matter what, and it does help 0:16:01.000 --> 0:16:03.120 buffer these downturns a little bit. 0:16:03.720 --> 0:16:05.640 Jess. So you've seeing kind of the same thing. What's 0:16:05.640 --> 0:16:07.880 your perspective sitting at the equities desk? 0:16:08.000 --> 0:16:10.520 That's right. We like to look at the individual stocks 0:16:10.520 --> 0:16:13.280 as well. That I'm sure Eric looks at two and 0:16:13.640 --> 0:16:16.000 Emma Woo over at GP Morgan, she heads up their 0:16:16.040 --> 0:16:18.920 derivative strategy and she always collects a lot of great 0:16:19.000 --> 0:16:22.280 data for individuals shares, especially when it comes to retail 0:16:22.360 --> 0:16:24.800 specifically and what they're buying. And we've begun to see 0:16:24.800 --> 0:16:28.240 more of a divergence here in two particular popular names 0:16:28.280 --> 0:16:30.040 that we constantly talk about. So if you look at 0:16:30.080 --> 0:16:34.920 the inflows recently into Tesla, those are still going into records, 0:16:34.920 --> 0:16:38.600 whereas the outflows from Nvidia those are breaching record levels too, 0:16:38.640 --> 0:16:41.000 so you're seeing those going in opposite direction. What's the 0:16:41.040 --> 0:16:43.800 reason it's important is because typically when I'm talking to 0:16:43.840 --> 0:16:46.080 fund managers, they're keeping a close eye on their clients 0:16:46.080 --> 0:16:48.120 and what, especially on the retail side, what they're willing 0:16:48.280 --> 0:16:49.840 to let go of and what they're not willing to 0:16:49.920 --> 0:16:52.120 let go of, because you can use that as contrarian indicators. 0:16:52.120 --> 0:16:54.440 Because for a while, especially the last two years of 0:16:54.520 --> 0:16:56.640 the AI boom, of course, people were going to continue 0:16:56.640 --> 0:16:59.240 to pile into shares like in Vidia, and it's still, 0:16:59.280 --> 0:17:02.200 of course well off of its record reach just earlier 0:17:02.240 --> 0:17:04.080 this year, because it's been on up and up the 0:17:04.160 --> 0:17:06.000 last few years. But now you're starting to see that 0:17:06.119 --> 0:17:09.640 shift a bit with retail versus Tesla, though people are 0:17:09.640 --> 0:17:12.119 still piling in despite that stock being well off of 0:17:12.160 --> 0:17:14.560 its all time high back in December, So that's what 0:17:14.600 --> 0:17:16.240 you're seeing a divergence there. So it's going to be 0:17:16.280 --> 0:17:19.080 interesting to see how that impacts its stock price because 0:17:19.119 --> 0:17:21.760 typically people's and air can talk more about this. People 0:17:21.840 --> 0:17:23.720 like to talk about when retail sort of throws in 0:17:23.760 --> 0:17:25.840 the towel if that can be contraired, and that's kind 0:17:25.880 --> 0:17:28.000 of the bottom overall of the market. But of course 0:17:28.200 --> 0:17:30.600 I'm sure he remembers like in the depths of COVID 0:17:30.680 --> 0:17:34.199 in twenty twenty, everything happened so fast where retail investors 0:17:34.200 --> 0:17:36.040 didn't have time to make a lot of changes and 0:17:36.080 --> 0:17:38.520 then they ended up not necessarily throwing in the talent 0:17:38.560 --> 0:17:39.360 getting that call right. 0:17:39.920 --> 0:17:43.680 You also look at who's investing in their own company, 0:17:44.080 --> 0:17:47.920 corporate to inside, yes, what are they doing in these 0:17:48.080 --> 0:17:49.199 troubled times? 0:17:49.280 --> 0:17:51.560 And the reason we look at corporate insiders because there's 0:17:51.560 --> 0:17:53.399 a variety of reasons that they could still buy. But 0:17:53.480 --> 0:17:55.480 if you have a situation like this, especially with the 0:17:55.480 --> 0:17:58.040 broader market in a correction and even the NAZAC one 0:17:58.080 --> 0:18:00.119 hundred obviously in a bear market, you want to see 0:18:00.160 --> 0:18:02.639 what are corporate insiders doing. Are they still continuing to 0:18:02.760 --> 0:18:04.399 buy more of their stock, because that can give you 0:18:04.440 --> 0:18:06.840 confidence of what they see for their businesses as well 0:18:06.840 --> 0:18:10.000 as the economy, And you're actually seeing that happen right now. 0:18:10.040 --> 0:18:12.360 So corporate insiders still scooping up shares of their own 0:18:12.359 --> 0:18:14.719 companies at the fastest pace in about sixteen months, So 0:18:14.840 --> 0:18:16.119 that would have been when the S and P was 0:18:16.200 --> 0:18:18.440 last in a correction in the fall of twenty twenty three, 0:18:18.680 --> 0:18:20.600 so that is something in the nearer term that's giving 0:18:20.640 --> 0:18:24.239 investors and portfolio managers more confidence that corporate insiders are 0:18:24.280 --> 0:18:24.560 doing that. 0:18:24.760 --> 0:18:31.719 Hey, guys, active versus passive investment management, that's been a 0:18:31.720 --> 0:18:35.879 debate going back and forth for years and years In 0:18:35.960 --> 0:18:40.240 times like this, Eric, let me start with you, do 0:18:40.320 --> 0:18:44.040 the active managers perform better than you know if I 0:18:44.080 --> 0:18:47.240 stuck my money into it just an index fund. 0:18:47.640 --> 0:18:50.400 Yeah, So what's interesting is it depends on what fast 0:18:50.400 --> 0:18:52.520 the class you're talking about. David Cohen, who covers active 0:18:52.520 --> 0:18:54.879 and mutual funds for US, did a study. He just 0:18:54.960 --> 0:18:57.360 looked at the crazy week, you know, the week where 0:18:57.359 --> 0:19:00.760 everything just was wild and the market was down a lot, 0:19:00.920 --> 0:19:03.720 and he just wondered how actas did And what we 0:19:03.800 --> 0:19:07.440 found was interesting. On the stock side, that beat rates, 0:19:07.480 --> 0:19:10.639 the outperformance of the index rates doubled the average. So 0:19:11.240 --> 0:19:15.879 stock pickers over the last couple of years they've not 0:19:16.040 --> 0:19:18.480 been able to sort of buy the MAG seven at 0:19:18.480 --> 0:19:21.640 the same rate as the benchmarks, so they've been lagging 0:19:21.680 --> 0:19:24.439 because the MAG seven has done so well. But that 0:19:24.480 --> 0:19:27.040 actually pays off in the selloff when the MAG seven 0:19:27.080 --> 0:19:29.479 goes down worst to the benchmark. And I think it's 0:19:29.520 --> 0:19:33.320 because stock pickers tend to be looking at fundamentals and 0:19:33.359 --> 0:19:35.280 some of the evaluations of the MAG seven were getting 0:19:35.359 --> 0:19:37.359 high and they were like, I need to buy more value, 0:19:38.000 --> 0:19:40.960 and that allowed them to outperform during this rough patch. 0:19:41.400 --> 0:19:45.320 On the flip side, the bond investors, who normally outperform, 0:19:45.880 --> 0:19:48.879 they actually got their beat rates cut in half because 0:19:48.920 --> 0:19:53.480 bond investors they actually benchmarked against the indexes that are 0:19:53.560 --> 0:19:57.080 weighted by debt, you know, whereas the SMP is an 0:19:57.119 --> 0:19:59.320 index weighted by market caps, so it has momentum in it, 0:19:59.560 --> 0:20:02.760 but benchmarks are not that good. They're waited by debt 0:20:03.320 --> 0:20:05.600 equate it to playing the Washington Generals, which is the 0:20:05.640 --> 0:20:08.040 scene the Globe Shutters play. It's just a poor, easy 0:20:08.080 --> 0:20:09.760 to beat up team. All you do is aut a 0:20:09.760 --> 0:20:12.800 little high yield or international and you're good. And so 0:20:12.840 --> 0:20:16.159 what happens though, in a crazy sell off where you 0:20:16.320 --> 0:20:21.240 have treasuries doing good, the ag actually or their benchmark 0:20:21.240 --> 0:20:25.000 beats them, so they actually have more risk typically, and 0:20:25.040 --> 0:20:27.960 then you hit a sell off, they underperform more. So 0:20:28.480 --> 0:20:31.359 it is really an interesting dichotomy between the two, but 0:20:31.600 --> 0:20:34.080 for both of them. The problem without performing in a 0:20:34.160 --> 0:20:37.200 rough market is people don't care as much. We've found 0:20:37.240 --> 0:20:39.520 that if you beat the market like the markets in 0:20:39.560 --> 0:20:42.520 the market's down twenty percent and you're down fifteen, it 0:20:42.560 --> 0:20:45.120 doesn't do a lot like it's unfortunate, like you should 0:20:45.160 --> 0:20:47.679 get rewarded for that. That said, if you can go 0:20:47.800 --> 0:20:51.120 down fifteen when the market's down twenty, that could help 0:20:51.160 --> 0:20:53.120 you when the market goes back up over a year 0:20:53.200 --> 0:20:56.000 or two. Now you've got some credits from beating it 0:20:56.040 --> 0:20:58.960 when it was down, and maybe you outperform. You're up 0:20:59.000 --> 0:21:01.600 ten the market's up eight, that's when it can pay off. 0:21:01.600 --> 0:21:05.280 But right now all the active stuff bonds and stocks 0:21:05.359 --> 0:21:10.040 on the mutual financyeing outflows. So this outperformance doesn't matter 0:21:10.119 --> 0:21:11.800 in the short term. It could matter long term. But 0:21:11.880 --> 0:21:14.080 it's interesting the way it's different depending on which as 0:21:14.160 --> 0:21:14.880 class you look at. 0:21:15.200 --> 0:21:18.359 You're listening to Bloomberg Daybreak. I'm John Tucker, and we're 0:21:18.400 --> 0:21:22.960 talking with Eric Valchunis, Senior ETF Strategies as Bloomberg Intelligence, 0:21:23.000 --> 0:21:25.639 and Jess Meant and Deputy team leader of Equities at 0:21:25.640 --> 0:21:30.200