WEBVTT - Global Equities Rise on Trade Optimism 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business App. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.040 us live on YouTube. 0:00:27.320 --> 0:00:29.440 Right now, we're gonna look at like the pro view 0:00:29.800 --> 0:00:32.680 of this odd bullmarket. I love what Stuart Kaiser and 0:00:32.760 --> 0:00:35.520 City Group says here is this is very you know, folks, 0:00:35.560 --> 0:00:39.920 This is like you know, geek talk, remain long US 0:00:40.040 --> 0:00:47.360 equity beta with tactical IWM upside and consider Vic's roll 0:00:47.479 --> 0:00:48.400 down trades. 0:00:49.080 --> 0:00:52.840 I translate a wise one. 0:00:51.960 --> 0:00:54.040 Well as much as I like to referred to as 0:00:54.040 --> 0:00:56.520 a geek. Good morning everybody. Look, I think the. 0:00:56.480 --> 0:00:58.000 Story here, if I were to summarize that is, we 0:00:58.000 --> 0:00:59.560 still like being long US equities. 0:00:59.640 --> 0:01:01.639 There's a lot of risk premium still in the VIX 0:01:01.720 --> 0:01:02.319 curve right now. 0:01:02.400 --> 0:01:05.440 I implied volatility is probably too high relative to how well 0:01:05.440 --> 0:01:06.680 the equity markets are raviot. 0:01:06.680 --> 0:01:07.520 It's out there. 0:01:07.440 --> 0:01:10.800 Exactly, and as that sort of compresses, it just gives 0:01:10.800 --> 0:01:11.840 another boost. 0:01:11.560 --> 0:01:13.520 To the upside. So as much as people are. 0:01:13.440 --> 0:01:15.959 Worried about valuation and positioning, there's still actually a fair 0:01:16.000 --> 0:01:17.760 amount of fear price in your market that needs to 0:01:17.800 --> 0:01:18.160 come out. 0:01:18.200 --> 0:01:20.160 Shout out to zero head. You makes a big deedle 0:01:20.200 --> 0:01:20.640 about this. 0:01:20.680 --> 0:01:24.160 When you hear the phrase short covering, translate that on 0:01:24.240 --> 0:01:27.199 the City group desk, it looks like the TV show 0:01:27.240 --> 0:01:30.000 industry translate what short covering means? 0:01:30.319 --> 0:01:32.000 Well, I think right now you have to think of 0:01:32.040 --> 0:01:34.840 what is what stocks are short and those have typically 0:01:34.840 --> 0:01:37.119 been like the lower quality stocks that people didn't want 0:01:37.120 --> 0:01:39.160 to kind of touch. So when you get short covering, 0:01:39.200 --> 0:01:42.240 what that's doing is it's putting pressure on the stocks 0:01:42.240 --> 0:01:44.479 that hedge funds sort of don't like, and that can 0:01:44.520 --> 0:01:46.840 be you know, really really painful for them at least 0:01:46.840 --> 0:01:48.680 short term in terms of their P and L. So 0:01:48.840 --> 0:01:51.320 what you're kind of doing is seeing a rotation into 0:01:51.360 --> 0:01:54.200 the stocks that hedge funds don't own, and again that 0:01:54.240 --> 0:01:56.800 could be un fund for them at least over a 0:01:56.840 --> 0:01:57.639 short term period. 0:01:57.920 --> 0:02:02.200 Is the market still overly concentrated in some of the 0:02:02.360 --> 0:02:04.400 X number of big tech names. Is that still a 0:02:04.440 --> 0:02:05.279 thing for this market? 0:02:06.040 --> 0:02:08.160 I think it definitely is. You know, I was in 0:02:08.200 --> 0:02:10.240 Europe a few weeks back, and I was surprised at 0:02:10.280 --> 0:02:13.360 how underweight the AI trade and underweight US. 0:02:13.280 --> 0:02:14.200 Tech they felt. 0:02:14.400 --> 0:02:17.079 So I think the international investor, particularly early this year, 0:02:17.200 --> 0:02:20.040 was trying to do the US exceptionalism as dead trade yep. 0:02:20.200 --> 0:02:22.520 And then you got you know, better news on tariffs 0:02:22.560 --> 0:02:24.640 and good news out of one Q earnings, and it 0:02:24.760 --> 0:02:26.400 just kind of forced them back into the market. 0:02:26.600 --> 0:02:26.880 See. 0:02:27.000 --> 0:02:28.400 I mean, I think there is a fair amount of 0:02:28.800 --> 0:02:31.080 call it concentration risk top ten s and p stocks 0:02:31.160 --> 0:02:33.240 or more of a third of market cap that's not 0:02:33.360 --> 0:02:36.160 going away, So it is. It is a kind of 0:02:36.160 --> 0:02:37.800 a key aspect driving returns right. 0:02:37.720 --> 0:02:40.520 Now, Espaishly, I don't see anything that's going to change that. 0:02:40.560 --> 0:02:42.400 I don't see anybody going out there and saying I 0:02:42.400 --> 0:02:43.120 want to go out. 0:02:42.960 --> 0:02:43.800 And buy value. 0:02:46.040 --> 0:02:49.200 What has to happen for that to broaden out, if 0:02:49.240 --> 0:02:50.480 you will, Yeah, I think. 0:02:50.400 --> 0:02:52.440 The broadening at this point has to come from economic 0:02:52.440 --> 0:02:55.120 growth and earnings. So if during earning season you are 0:02:55.160 --> 0:02:58.320 seeing a broadening out of that Ernie's growth, that can 0:02:58.400 --> 0:03:00.840 get people maybe a little bit downcap structured into that 0:03:00.960 --> 0:03:03.720 value trade. But to your point, I mean, the AI 0:03:03.800 --> 0:03:06.680 trade is just so powerful, even Google overnight yep. A 0:03:06.680 --> 0:03:08.359 lot of moving parts there, but a key of it 0:03:08.520 --> 0:03:11.360 is they increase their cap X by another ten billion dollars, 0:03:11.720 --> 0:03:13.880 and to the extent that that is still happening, it 0:03:13.960 --> 0:03:16.280 makes it hard for people not to be in that space. 0:03:16.600 --> 0:03:18.320 So I think that's kind of like we mentioned, being 0:03:18.360 --> 0:03:21.360 long quality, like that mag seven trade is still the 0:03:21.440 --> 0:03:23.440 core position for the most portfolios. 0:03:23.639 --> 0:03:24.320 And then why we. 0:03:24.400 --> 0:03:26.240 Like small cap is just you know, making sure we're 0:03:26.240 --> 0:03:28.839 not ignoring, you know, the rest of the market during 0:03:28.880 --> 0:03:29.480 earning season. 0:03:29.520 --> 0:03:31.280 So the quick answer would be, we need to see 0:03:31.280 --> 0:03:32.239 broader earnings. 0:03:31.960 --> 0:03:35.040 Growth and recession risks continue to get squeezed out of 0:03:35.040 --> 0:03:37.920 the market for that smaller cap, lower quality stock to work. 0:03:38.000 --> 0:03:40.960 There's a headline out there is sort of in the 0:03:41.000 --> 0:03:43.920 zeitgeist that I don't have the authority or data that 0:03:44.000 --> 0:03:46.240 the quants are really having a. 0:03:46.240 --> 0:03:49.160 Tough goal of it. What is a quant and why 0:03:49.160 --> 0:03:50.680 are they having a tough goal of it? 0:03:50.920 --> 0:03:52.320 Well, I mean on the QUANDT side, you know, these 0:03:52.360 --> 0:03:55.320 are folks that you know are really investing very systematically 0:03:55.520 --> 0:03:58.040 in box. Some I mean they wouldn't tell you they 0:03:58.120 --> 0:04:01.000 understand the box, you know from a distance. Why are they, 0:04:01.160 --> 0:04:03.480 you know, having some trouble? I would say that the 0:04:03.560 --> 0:04:06.080 S and P five hundred realized volatility is below ten 0:04:06.120 --> 0:04:08.240 percent right now, So the S ANDP is not moving 0:04:08.360 --> 0:04:12.200 very much. The factors that a quant my trade style stocks, 0:04:12.680 --> 0:04:16.640 value stocks, growth stocks, those have been incredibly volatile, much 0:04:16.680 --> 0:04:19.080 more violatile than the S and P five hundred itself. 0:04:19.320 --> 0:04:21.840 So if quants are under pressure, it's because the market 0:04:21.880 --> 0:04:24.480 isn't moving very much, but the tools they use are 0:04:24.800 --> 0:04:27.720 and that sort of dislocation can be really tricky for them. 0:04:28.240 --> 0:04:30.920 I'll just speak for myself, I'm very surprised, given all 0:04:30.920 --> 0:04:32.800 that's going on out there in the world, that the 0:04:32.880 --> 0:04:35.599 VIX is a fifteen Is that? 0:04:35.640 --> 0:04:36.359 What does that tell you? 0:04:36.400 --> 0:04:38.560 That there's just people are just owning a certain number 0:04:38.560 --> 0:04:40.600 of stocks, And I mean, I'm'm mat sure what that's 0:04:40.600 --> 0:04:40.960 telling me. 0:04:41.040 --> 0:04:43.400 Well, what part of it is the VIX itself. 0:04:43.440 --> 0:04:46.200 The number one fundamental determinant of the level of the 0:04:46.320 --> 0:04:49.960 VIX is S and P realized volatility. Okay, so if 0:04:49.960 --> 0:04:51.880 you were to take let's say ten or twenty day 0:04:51.960 --> 0:04:54.400 realize volatility on the SMP, you'd add about four and 0:04:54.440 --> 0:04:56.200 a half points to that. That's going to give you 0:04:56.240 --> 0:04:58.800 a quick and dirty on the VIX. The notable issue 0:04:58.800 --> 0:05:01.440 with the VIX, now to your point, the spot VIX 0:05:01.560 --> 0:05:02.480 is very low. 0:05:02.520 --> 0:05:04.480 But the VIX has a term structure, so you can 0:05:04.520 --> 0:05:07.040 trade the outlook for volatility for the next six to. 0:05:07.040 --> 0:05:10.040 Nine months, betting that that outlook will come to a 0:05:10.200 --> 0:05:12.640 lower VIX a greater optimism. 0:05:12.920 --> 0:05:16.920 Yes, we do believe that that additional volatility priced into 0:05:17.000 --> 0:05:20.719 the three to six months ahead outlook needs to come 0:05:20.760 --> 0:05:23.839 in as tariff news improves and the economic data. 0:05:23.760 --> 0:05:25.240 You can find out question lovelods. 0:05:25.279 --> 0:05:28.880 People just email me and said, it's get impatient, Stuart Kaiser, 0:05:28.920 --> 0:05:31.719 as simple as I can, how do you measure the 0:05:31.800 --> 0:05:35.080 exuberance or effervescence in the market now? 0:05:35.240 --> 0:05:38.200 Is it leverage? I mean, what's the oomph right now? 0:05:38.800 --> 0:05:41.120 I think what people are focusing on is number one, valuation. 0:05:41.279 --> 0:05:43.800 We've seen significant pe expansion for the S and P. 0:05:44.279 --> 0:05:46.880 I think you all touched on it earlier. Retail participation. 0:05:47.320 --> 0:05:49.800 These retail meme stocks are really starting to move a 0:05:49.800 --> 0:05:52.520 lot again and that's like a bull market trade, so 0:05:52.560 --> 0:05:54.640 we'll pay attention to that as well. But I think 0:05:54.760 --> 0:05:56.560 number one thing is evaluation, B. 0:05:56.640 --> 0:05:58.800 Level of the VIX. Three retail participation. 0:05:59.000 --> 0:06:05.240 Stuart Kaiser thinking so much greatly appreciated. 0:06:06.760 --> 0:06:10.359 You're listening to the Bloomberg surveillance podcast. Catch us live 0:06:10.400 --> 0:06:13.600 weekday afternoons from seven to ten am Eastern Listen on 0:06:13.640 --> 0:06:17.320 Applecarplay and Android Otto with the Bloomberg Business app, or 0:06:17.480 --> 0:06:18.960 watch us live on YouTube. 0:06:19.120 --> 0:06:21.880 Joining us right now, Brian Belski. We're talking to people 0:06:22.480 --> 0:06:24.799 that you know got it wrong. I learned from people 0:06:24.839 --> 0:06:27.160 that got it wrong. And I also got to talk 0:06:27.160 --> 0:06:29.279 to a wise guy who is a research note. Same 0:06:29.320 --> 0:06:32.640 as it ever was. Belski from Bemo Capital Markets joins us. 0:06:32.640 --> 0:06:34.960 And you hate him, folks, because he's got a long 0:06:35.040 --> 0:06:36.280 paragraph that Rockenhove. 0:06:36.760 --> 0:06:39.360 Brian can't write that long. Roucan over writes it. 0:06:39.560 --> 0:06:42.520 Then he's got two smaller paragraphs, and then he's got 0:06:42.520 --> 0:06:44.760 like you know, bookcase, Bearcase, and it takes you. 0:06:44.760 --> 0:06:46.560 An hour and a half to read it. 0:06:46.560 --> 0:06:50.920 It's so rich with data, facts over feelings. 0:06:51.080 --> 0:06:56.040 Again discuss by the way, it was Burlington Northern as 0:06:56.680 --> 0:06:59.520 I was making it, as I grew up in Wilmer, Minnesota, 0:06:59.560 --> 0:07:00.520 which was a train. 0:07:00.720 --> 0:07:02.719 And believe that you always want the rear roads. 0:07:02.880 --> 0:07:05.440 Of course, why would short lined and ready to get 0:07:05.680 --> 0:07:06.680 exactly facts? 0:07:06.960 --> 0:07:07.760 Here's the facts. 0:07:08.200 --> 0:07:10.440 You know, Nick Rockanov and I have worked together now 0:07:10.440 --> 0:07:12.920 for eighteen years and given what was going on in 0:07:12.920 --> 0:07:15.360 the market. Tom He's like, we have this saying in 0:07:15.360 --> 0:07:17.480 our in our group, we need an Uncle Brian comment. 0:07:17.520 --> 0:07:20.040 And the Uncle Brian comment was Brian write a one pager. 0:07:20.080 --> 0:07:22.560 So I took out the took out the template, wrote 0:07:22.600 --> 0:07:25.520 that old pager. And the reason why I did that is, 0:07:26.200 --> 0:07:29.240 you know, we have a process and a discipline that 0:07:29.240 --> 0:07:31.440 we've had for managing money now for over twenty years 0:07:31.480 --> 0:07:33.960 and doing this strategy gig for now. It's my thirty 0:07:34.000 --> 0:07:36.520 sixth year and we've been blessed and fortunate to work 0:07:36.560 --> 0:07:38.440 at a bunch of amazing firms and we were really 0:07:38.520 --> 0:07:40.880 blessed to run eleven billion dollars at BEMO now for 0:07:40.920 --> 0:07:43.360 thirteen years. And what we said in April when we 0:07:43.520 --> 0:07:45.920 moved our target from sixty seven hundred and sixty one hundred, 0:07:45.960 --> 0:07:46.560 we said. 0:07:46.520 --> 0:07:48.080 Discretion is the better part of valor. 0:07:48.120 --> 0:07:50.120 We can't have a target that's out there thirty five 0:07:50.120 --> 0:07:54.200 percent willy nilly Pollyanna based on exogenous events that made 0:07:54.280 --> 0:07:56.680 us worried about at sixty one hundred. Now, those events 0:07:56.720 --> 0:07:58.640 we believe in terms of the signposts that we look 0:07:58.680 --> 0:08:02.440 for changed, so we went back to our original original 0:08:02.440 --> 0:08:03.800 target of sixty seven hundred. 0:08:03.800 --> 0:08:05.560 We think the bull market is very much alive. 0:08:05.960 --> 0:08:09.280 We also caution investors in the note in June saying 0:08:09.600 --> 0:08:13.560 market targets are an academic situation. It has nothing to 0:08:13.600 --> 0:08:17.480 do with running money. If you are basing your strategies 0:08:17.520 --> 0:08:20.840 on a strategist market target, get out of the business. 0:08:21.120 --> 0:08:23.000 You should be running money in terms of your process 0:08:23.040 --> 0:08:24.880 and discipline. And what we said in April is said 0:08:24.960 --> 0:08:28.120 we're not changing anything. We're not changing anything in terms 0:08:28.160 --> 0:08:31.160 of our sectors in the stocks we own. That resulted, 0:08:31.240 --> 0:08:34.560 and I'm very humble to say that that resultant in 0:08:34.600 --> 0:08:37.720 the best quarterly performance I've ever had running money. Now, 0:08:37.960 --> 0:08:40.200 you don't judge by just a quarter, you judge by 0:08:40.720 --> 0:08:42.880 longer term. So we look at the last twelve months 0:08:42.920 --> 0:08:45.080 of our the returns on our portfolios out ten of 0:08:45.080 --> 0:08:48.120 our benchmarks, we crushed them. And the reason is is 0:08:48.160 --> 0:08:50.680 that we stuck with these great stocks. If we like 0:08:50.720 --> 0:08:52.440 them at ten, we like them even more at eight 0:08:52.720 --> 0:08:54.839 and that actually paid off again. So we think the 0:08:54.840 --> 0:08:56.880 bull market is very much alive. Doesn't mean that we're 0:08:56.880 --> 0:08:58.839 not going to have days and weeks like looks like 0:08:58.880 --> 0:09:01.040 we're going to be little squad she here, let's call it, 0:09:01.480 --> 0:09:04.239 but that's all about investing financials. 0:09:04.520 --> 0:09:07.240 That's one of the groups that people have been talking 0:09:07.240 --> 0:09:08.440 about it for a while. How do you guys think 0:09:08.440 --> 0:09:10.680 about financials. We have some really good numbers out of 0:09:10.679 --> 0:09:11.559 the big banks. 0:09:11.360 --> 0:09:14.120 Really good numbers, and we've been very resolute in terms 0:09:14.160 --> 0:09:17.400 of our thinking and feeling on financials. We think it's 0:09:17.400 --> 0:09:19.600 the really big and they're really small. At the end 0:09:19.600 --> 0:09:21.760 of the day, no matter how much financial services tends 0:09:21.800 --> 0:09:24.199 to screw up this business as alation, it's a relationship 0:09:24.200 --> 0:09:26.439 business and that's where the small banks with beautiful balance 0:09:26.480 --> 0:09:28.839 sheets and great cash flow and great relationships with their 0:09:28.840 --> 0:09:31.800 customers are going to win. Paul, But I think where 0:09:32.080 --> 0:09:35.800 people missed it is that they were too to fixate 0:09:35.880 --> 0:09:38.000 on the negativity surrounding the big banks. I think the 0:09:38.040 --> 0:09:41.520 big banks can We'll continue to benefit from these multi 0:09:41.600 --> 0:09:44.160 lines of business. We've said this for three or four 0:09:44.240 --> 0:09:46.920 years now. So whether or not it's Morgan, Stanley, Goldman, Sachs, 0:09:47.040 --> 0:09:52.760 Bank of America, former Employer City Group, JP Morgan, you're 0:09:52.760 --> 0:09:54.599 gonna have quarters that training is gonna do well, and 0:09:54.640 --> 0:09:56.680 you have quarters that wealth management doing well. 0:09:56.720 --> 0:09:59.640 Riyan Milski with US I was thunderstruck Brian by Google's 0:09:59.720 --> 0:10:00.839 number just today. 0:10:00.559 --> 0:10:04.319 The double digit nature of it, the across the board confidence. 0:10:04.880 --> 0:10:08.040 Talk to people that just say, if it's too good 0:10:08.040 --> 0:10:10.880 to be true, it's going to end. The tech thing, 0:10:11.000 --> 0:10:15.320 the Mag ten, the Mag forty, the sixty stocks in 0:10:15.360 --> 0:10:18.760 the Belski universe, someday it's going to end. How do 0:10:18.840 --> 0:10:19.920 you handle that emotion? 0:10:20.679 --> 0:10:22.679 Well, because it is emotion. It's not based on the facts. 0:10:22.679 --> 0:10:24.760 You want to buy these companies that are masterful in 0:10:24.760 --> 0:10:27.559 their craft, that have amazing management teams, that have great 0:10:27.559 --> 0:10:31.720 cash flow, and have I would say binary decisions made 0:10:31.720 --> 0:10:34.959 about them that everybody agrees on, I e. We're never 0:10:34.960 --> 0:10:37.640 going to use search again, which is which is ridiculous. 0:10:38.200 --> 0:10:40.120 And oh, by the way, searches up in the quarter. 0:10:40.440 --> 0:10:41.400 We actually double. 0:10:41.240 --> 0:10:44.080 Down on Google and we added it to our value 0:10:44.080 --> 0:10:47.160 portfolio because we love to buy broken growth. Oh yeah, 0:10:47.200 --> 0:10:49.360 but when the stock was down in April, we put 0:10:49.360 --> 0:10:50.520 it in our value portfolio. 0:10:50.520 --> 0:10:51.880 Why because it's a broken growth? 0:10:52.160 --> 0:10:53.760 Is Apple a broken growth story? 0:10:53.880 --> 0:10:53.960 No? 0:10:54.120 --> 0:10:56.600 I think Apple is a cash machine. You never want 0:10:56.679 --> 0:11:00.000 to ever bet against the US consumer. And let's put 0:11:00.000 --> 0:11:02.439 a semi colon space and you never want that against Apple. 0:11:02.480 --> 0:11:04.160 Well, One of the best things to come to the 0:11:04.200 --> 0:11:08.080 crew David Tamborelli invented over at Bloomberg is a quick 0:11:08.440 --> 0:11:11.520 use of cash at a giving company. I reviewed the 0:11:11.600 --> 0:11:14.679 cash generation YEP of Apple yesterday. 0:11:14.920 --> 0:11:15.840 I've said this before. 0:11:15.880 --> 0:11:18.880 Folks, to me, it's like a nineteenth or even eighteenth 0:11:18.880 --> 0:11:21.120 century Hong Kong trading company. 0:11:21.200 --> 0:11:23.480 Yep. They just meant profit and they don't want to 0:11:23.520 --> 0:11:24.240 talk about it. 0:11:24.559 --> 0:11:27.920 So, Brian, how do we think about broad One of 0:11:27.960 --> 0:11:30.480 the themes today we discussed with several of our guests is 0:11:30.520 --> 0:11:34.360 just that concentration risk that's still in the broader market 0:11:34.480 --> 0:11:36.520 here and so just kind of coming to mind because 0:11:36.520 --> 0:11:38.400 we had such good numbers out of Google here. 0:11:38.640 --> 0:11:39.680 How do you guys think about that? 0:11:39.800 --> 0:11:40.600 Is it risk? 0:11:40.840 --> 0:11:42.160 Is it just the new. 0:11:42.000 --> 0:11:42.520 World we're in. 0:11:42.840 --> 0:11:45.439 It's partially in the new world in but it's it's 0:11:45.640 --> 0:11:49.720 going back to the talking head theme that we said, 0:11:49.760 --> 0:11:51.040 same as that ever was if you go back to 0:11:51.120 --> 0:11:53.760 nineteen ninety five ninety six, it was a concentrated market 0:11:53.760 --> 0:11:55.680 in terms of the nifty fifty, and those nifty fifty 0:11:55.720 --> 0:11:59.280 stocks where the big liquidity stocks like Procter and Gambill, Gillette, 0:11:59.280 --> 0:12:03.080 Coca Cola, Pepsi. People bought those stocks because of liquidity. 0:12:03.080 --> 0:12:05.160 They're worried about coming out of the commercial banking crisis 0:12:05.160 --> 0:12:06.679 that you were worried about at Rauscher, and I was 0:12:06.720 --> 0:12:09.600 worried about it, Dane back in ninety fourth. Anyway, I 0:12:09.640 --> 0:12:13.040 do believe that this notion of broadening out was proved 0:12:13.040 --> 0:12:16.560 by decent performance in Europe and emerging markets, and I 0:12:16.559 --> 0:12:19.120 think that's going to follow through with finally with value 0:12:19.120 --> 0:12:21.440 in small gap again. I think ten years from now 0:12:21.480 --> 0:12:23.000 we're going to be kicking ourselves if we didn't known 0:12:23.040 --> 0:12:23.680 more small cap. 0:12:24.080 --> 0:12:27.360 When will you know to go long healthcare? 0:12:27.679 --> 0:12:30.040 Oh, it's a great way, is a great question. 0:12:30.080 --> 0:12:36.120 That's the Belski Recanova mechanism to say, finally get on healthcare. 0:12:36.120 --> 0:12:36.800 We're underweight. 0:12:36.960 --> 0:12:39.000 We've been underweighted all year, and then when people started 0:12:39.040 --> 0:12:40.960 buying in being the year to be defensive. From a 0:12:41.000 --> 0:12:44.120 fundamental perspective, we saw problems with the pipelines, we saw 0:12:44.200 --> 0:12:47.040 problems with the cash flow, we saw problems with the 0:12:47.120 --> 0:12:49.560 rhetoric in terms of the vaccines, and so we've been 0:12:49.600 --> 0:12:53.440 focused more on Gilead, the biotechs, even Unite Healthcare. 0:12:53.440 --> 0:12:54.520 We bought more Unite. 0:12:54.240 --> 0:12:57.720 Healthcare because I think people made too much negative rhetoric 0:12:57.800 --> 0:13:01.160 on that as well. So Tom, I think once we 0:13:01.200 --> 0:13:03.800 see a broader direction and a more more signs of 0:13:03.800 --> 0:13:07.679 broadening out, healthcare and financials are the cheapest sector. Financials 0:13:07.679 --> 0:13:10.560 have the fundamentals. Healthcare right now could be a value trap. 0:13:10.640 --> 0:13:12.360 We need to see more earnings come in through and 0:13:12.400 --> 0:13:13.439 then we'll feel better about that. 0:13:13.640 --> 0:13:16.320 You need to see quarterly sequential earnings that you're looking 0:13:16.360 --> 0:13:17.280 at free cash flow. 0:13:17.559 --> 0:13:20.400 We're in the income statement. You're looking in healthcare to say. 0:13:20.320 --> 0:13:22.920 Let's go religan at earnings first, and then we're seeing 0:13:23.040 --> 0:13:25.199 on the earnings revision side. I want to see earnings 0:13:25.200 --> 0:13:28.800 revisions again being contrariant. I want to see earnings revisions 0:13:28.840 --> 0:13:31.160 completely blow out and be negative. Then I'll feel better 0:13:31.160 --> 0:13:31.800 about healthcare. 0:13:31.880 --> 0:13:34.080 Brian Goski, thank you so much for joining the BMO 0:13:34.200 --> 0:13:35.600 Capital Marcus too sure to visit. 0:13:35.800 --> 0:13:39.640 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:13:39.679 --> 0:13:42.720 starting at seven am Eastern on Apple Coarclay, and Android 0:13:42.720 --> 0:13:45.760 Auto with the Bloomberg Business App. You can also listen 0:13:45.840 --> 0:13:49.120 live on Amazon Alexa from our flagship New York station. 0:13:49.640 --> 0:13:52.640 Just say Alexa Play Bloomberg eleven thirty. 0:13:53.000 --> 0:13:56.559 Someone that does critical research at JP Morgan, working with 0:13:57.000 --> 0:14:00.760 Bruce Keas and Michael Feroli, is out of the Booth School, Chicago, 0:14:00.920 --> 0:14:03.760 driving all their academic work here in New York City. 0:14:03.800 --> 0:14:05.120 We're thrilled that he could join. 0:14:05.000 --> 0:14:05.760 Us this morning. 0:14:05.840 --> 0:14:08.000 Michael, I got to go back X number of years 0:14:08.400 --> 0:14:11.800 where you stopped American economics. 0:14:11.320 --> 0:14:17.360 With the potential GDP estimate of our economy. Given the turmoil, 0:14:17.559 --> 0:14:22.800 can JP Morgan calculate what our potential GDP is now 0:14:23.200 --> 0:14:25.880 or with all the trade upset? And that is it 0:14:25.920 --> 0:14:27.280 impossible to calculate? 0:14:28.920 --> 0:14:29.840 I would say impossible. 0:14:29.880 --> 0:14:31.920 I mean it's always going to be an estimate of 0:14:32.000 --> 0:14:35.200 a latent variable, so you're never going to know for sure. 0:14:35.240 --> 0:14:39.120 But right now, certainly it seems like you know, as 0:14:39.160 --> 0:14:42.360 you know, Tom, economists like to divide their estimate of 0:14:42.800 --> 0:14:45.080 separate theirs and to trend growth and the trend labor 0:14:45.120 --> 0:14:49.320 supply and trend labor productivity. Labor supply is certainly downshifting 0:14:49.800 --> 0:14:53.120 pretty notably here over the past year, just given trends 0:14:53.120 --> 0:14:56.720 in immigration policy in the foreign born labor force. 0:14:57.600 --> 0:14:59.520 Probably more in question is. 0:15:01.080 --> 0:15:04.280 Productivity growth, which has shown a little bit of life 0:15:04.360 --> 0:15:09.400 after being pretty moribun than the last expansion. You know, however, 0:15:09.880 --> 0:15:13.200 I think maybe the case for a productivity renaissance is 0:15:13.680 --> 0:15:16.280 perhaps a bit premature. We're seeing productivity growth since the 0:15:16.360 --> 0:15:19.280 end of the last expansion something like one point seven 0:15:21.080 --> 0:15:23.120 versus one point five or six prior to that. 0:15:24.000 --> 0:15:29.080 The productivity miracle that AI promises, do you sense that 0:15:29.160 --> 0:15:34.080 it's distributable across all of America or do the productivity 0:15:34.120 --> 0:15:37.000 gains of AI just go to the fancy people that 0:15:37.160 --> 0:15:40.680 has that have a fancy computer at home, like Lisa Mateo. 0:15:41.600 --> 0:15:41.840 Yeah. 0:15:41.880 --> 0:15:43.440 So, first of all, one thing I would say is, 0:15:43.560 --> 0:15:44.200 so far. 0:15:44.200 --> 0:15:47.840 We don't think we've really seen the productivity gains in 0:15:47.880 --> 0:15:51.960 the aggregate data right when we look across industries that 0:15:52.000 --> 0:15:54.240 you don't really see much of a correlation between industry 0:15:54.280 --> 0:15:58.360 productivity performance in this expansion so far and industry AI 0:15:58.640 --> 0:16:02.160 usage intensity. So I think we're really talking about something 0:16:02.160 --> 0:16:04.280 that's more speculative than what we see in the data. 0:16:04.680 --> 0:16:08.920 I think, certainly, when we think speculatively, almost all the 0:16:09.000 --> 0:16:12.840 models economic models of AI would suggest that it's going 0:16:12.880 --> 0:16:16.560 to lead to a lower labor share of income, more 0:16:16.760 --> 0:16:19.240 national income going to capital, and the people who own 0:16:20.200 --> 0:16:23.320 own basically own the data centers and owned the code. 0:16:24.000 --> 0:16:27.200 So, Michael, we had just earlier this morning time when 0:16:27.200 --> 0:16:29.880 I were speaking with someone from the Yale Budget Lab 0:16:30.000 --> 0:16:32.640 kind of highlighting maybe some of the economic impacts of 0:16:32.640 --> 0:16:34.840 a tariff regime, which is going to look a lot 0:16:34.840 --> 0:16:37.280 different than it did before President Trump took office. How 0:16:37.320 --> 0:16:40.480 do you guys factor that into your GDP forecast, your 0:16:40.520 --> 0:16:41.520 inflation forecasts. 0:16:42.680 --> 0:16:44.960 Yeah, so the you know, in the near term being 0:16:44.960 --> 0:16:47.600 the next like one to four quarters, we're really thinking 0:16:47.600 --> 0:16:50.000 about tariffs for what they are, which is a tax, 0:16:50.640 --> 0:16:53.560 you know, attacks of perhaps around four hundred billion dollars 0:16:53.600 --> 0:16:57.720 that it's going to be distributed somehow between businesses and households, 0:16:58.760 --> 0:17:00.960 and to the extent is to street more to households. 0:17:01.280 --> 0:17:03.360 That's going to show up in higher prices. The higher 0:17:03.480 --> 0:17:06.879 it's going to be an indirect tax via higher prices. 0:17:06.880 --> 0:17:08.680 So we're kind of thinking right now that that four 0:17:08.760 --> 0:17:12.000 hundred billion dollars, you know, most of it probably ends 0:17:12.080 --> 0:17:15.280 up in higher prices rather than the lower margins. I 0:17:15.280 --> 0:17:17.199 guess also for the near term, one thing we and 0:17:17.240 --> 0:17:20.359 others have been watching is whether, you know, uncertainty over 0:17:20.440 --> 0:17:23.760 trade policy is headwind to capital spending. 0:17:25.320 --> 0:17:26.960 And that's been more of a again. 0:17:26.840 --> 0:17:30.800 More of a forecast and anything we're seeing in the data. Perhaps, 0:17:30.840 --> 0:17:32.199 you know, if you want to be an optimist, you 0:17:32.200 --> 0:17:35.760 can make the case here that you know, if we 0:17:35.800 --> 0:17:38.800 get past August one, the uncertainty may head down, and 0:17:38.840 --> 0:17:43.119 that headwind to capex may may may turn lower as well, 0:17:43.840 --> 0:17:47.160 you know, in the in the I guess more medium term, we, 0:17:47.320 --> 0:17:50.639 like almost all neoclassically trained economists, tend to think that 0:17:50.720 --> 0:17:55.400 tariffs will reduce you know, aggurate welfare because you are 0:17:55.400 --> 0:17:58.440