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Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and Ameri Hordert. Join us each day

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Speaker 2: for insight from the best in markets, economics, and geopolitics

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Speaker 2: from our global headquarters in New York City. We are

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Speaker 2: live on Bloomberg Television weekday mornings from six to nine

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Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or

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Speaker 2: anywhere else you listen, and as always on the Bloomberg

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Speaker 2: Terminal and the Bloomberg Business app. And Victoria Fernandez of

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Speaker 2: Crossmark warning against chasing this market. She writes, we have

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Speaker 2: seen this story before. Breath deterioration coupled with bullish sentiment

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Speaker 2: can lead to five to ten percent pullbacks, and we

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Speaker 2: wouldn't be surprised if the story repeated itself here. Victoria

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Speaker 2: joined us. Now for more, Victoria, welcome. I'm going to

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Speaker 2: kick things off with the same question that I asked

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Speaker 2: George can Carve us about an hour ago. Have you

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Speaker 2: ever seen a free cat like this one over to

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Speaker 2: two to three percent pullback on the S and P

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Speaker 2: five hundred.

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Speaker 3: Yeah, I mean yes, we have seen these pullbacks before,

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Speaker 3: and it was what you were just talking about. When

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Speaker 3: we have that breadth deterioration in this market, when you

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Speaker 3: have this internal weakness kind of bubbling under the surface,

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Speaker 3: but at the same time you have this, for lack

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Speaker 3: of a better word, you have this exuberance, you have

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Speaker 3: this sentiment that is extremely bullish. At some point those

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Speaker 3: two worlds start to collide and you see this pullback.

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Speaker 4: But look, Jonathan, we are still.

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Speaker 3: Not that far below all time highs really when we

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Speaker 3: look at the markets as a whole. So I still

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Speaker 3: think there's probably some room to see more pullback, especially

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Speaker 3: when you're seeing small caps down as much as they are.

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Speaker 3: We know the tech stocks kind of led this rally.

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Speaker 3: We see them leading the pullback we're having here, But

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Speaker 3: I do think some of the internal weakness is driving this,

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Speaker 3: and the fact that.

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Speaker 4: The government shut down is now over.

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Speaker 3: I think investors are starting to look and go, wait

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Speaker 3: a minute, we've been ignoring some of these facts that

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Speaker 3: have been out Here are some of these warning signs.

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Speaker 3: Now they're starting to pay attention to it, and we're

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Speaker 3: getting a little bit of a consolidation of a correction here.

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Speaker 2: This is going to sound slightly cliche, but I'm going

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Speaker 2: to run with it. Just how strong are the hands

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Speaker 2: in this market right now? Victoria I was listening to

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Speaker 2: Amy bu Silverman of RBC earlier on this morning. She

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Speaker 2: tuned into Bloomberg Radio and she phoned in and she

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Speaker 2: said something, Mike, I would describe people at the moment

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Speaker 2: as fully invested. Bess how fragile has the buying actually been.

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Speaker 4: I think that's a great description of where a lot

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Speaker 4: of investors are.

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Speaker 3: It's where a lot of our clients, I think, feel

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Speaker 3: like they are because we tell them you want to

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Speaker 3: be invested in this market. The pulldown that we've seen

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Speaker 3: so far has not changed the trends. The trends are

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Speaker 3: still higher. Until we see the trends change, we see

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Speaker 3: negative relative performance coming out of some of these leadership sectors,

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Speaker 3: and staples start to perform a lot better.

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Speaker 4: Than I think.

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Speaker 3: You continue to see the market, although it will churn,

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Speaker 3: you will continue to see it move higher. And that's

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Speaker 3: why you want to be invested in the market. But

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Speaker 3: there are these warning signals. We haven't been getting the

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Speaker 3: data we're about to get it. What is it going

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Speaker 3: to tell us? Is it going to say we're weaker

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Speaker 3: than what we thought some of the private data was

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Speaker 3: actually telling us.

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Speaker 4: If so, then yes, you will continue to have.

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Speaker 3: Some spaces where you want to put some defensive components

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Speaker 3: in your portfolio. So it does make sense it is

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Speaker 3: fully invested, but a little bit of a bearish outlook Victoria.

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Speaker 5: Just to build on what John was asking about, it

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Speaker 5: does seem like institutional investors are fully invested, especially if

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Speaker 5: they missed out in the rally or earlier this year.

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Speaker 5: It does seem low though, Like there is retail selling

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Speaker 5: and when you take a look at some of the

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Speaker 5: high momentum sides of the market, that's what's.

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Speaker 4: Led the draw down. It raises this question.

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Speaker 5: Earlier this year retail and buying actually led to the upside,

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Speaker 5: and investors chase that is this going to be the

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Speaker 5: reverse of that retail selling and then eventually institutions chasing

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Speaker 5: that as well, or are they stepping in to actually

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Speaker 5: pick this up.

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Speaker 3: Yeah, Unfortunately, I think you do see a lot of

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Speaker 3: the retails chasing that market, and like you said, the

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Speaker 3: reverse right now, institutional investors tend to take a little

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Speaker 3: bit of a longer term approach, and so they are

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Speaker 3: slower to move on some of these changes, they look

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Speaker 3: and say, what are we looking at three, six, nine,

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Speaker 3: twelve months out. Retail investors tend to be a little

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Speaker 3: bit more emotional investors, and so you see things change

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Speaker 3: more quickly and more turnover, and some of those portfolios.

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Speaker 3: We have said all along, don't chase this market. Let

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Speaker 3: it come to you. There's going to be an opportunity

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Speaker 3: here because of the weakness that we saw in Breadth

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Speaker 3: and internally that the market's going to come to you,

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Speaker 3: and that's what it's doing right now. So I would

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Speaker 3: actually take this as an opportunity to add to some

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Speaker 3: of the names that you've liked. Some of the sectors

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Speaker 3: that you're starting to see troughs and see up trends.

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Speaker 3: We've talked about them before. You look at healthcare, you

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Speaker 3: look at the big banks, you look at some of

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Speaker 3: the materials components and the metals that are.

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Speaker 4: There, and even energy.

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Speaker 3: We saw about forty percent of the S and P

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Speaker 3: energy sector actually make three month highs earlier this week.

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Speaker 3: I think there's some places you can play. Institutional investors

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Speaker 3: will start stepping into that, but retail investors tend to

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Speaker 3: be a little bit more emotional and move with what

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Speaker 3: they're seeing in the headlines.

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Speaker 5: You didn't mention tech Victoria, and I do think that

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Speaker 5: we have to focus on that, given the fact that

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Speaker 5: not only has the tone shifted, but there's been a

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Speaker 5: shift in the fundamentals of some of these companies. Not

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Speaker 5: that they're not earning tons of money, but it does

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Speaker 5: seem like the debt issue ins of the past few

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Speaker 5: months has really caused some concern. You are seeing bond

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Speaker 5: markets start to push back, You're seeing concessions in some

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Speaker 5: of the new issue market. You are seeing some bonds

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Speaker 5: lose a ton of value, particularly from Oracle. I'm just

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Speaker 5: wondering if this is a warning shot to you that

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Speaker 5: there has been a material shift in the tech sector

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Speaker 5: and greater risk going forward.

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Speaker 3: It's definitely a warning signal, Lisa. You know, we watch

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Speaker 3: spreads very closely in the bond market. They are a

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Speaker 3: warning signal, that canary and the coal mine to tell

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Speaker 3: you what's happening. And we've seen the widening over the

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Speaker 3: last month and even over the last quarter year to date,

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Speaker 3: we're about equal.

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Speaker 4: At this point in time. We been extremely tight.

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Speaker 3: We've seen spreads wide now and yes, when it comes

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Speaker 3: to tech, you're seeing large issuance come out, and it's

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Speaker 3: been a question for a while, how are a lot

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Speaker 3: of these companies going to pay for what they're saying

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Speaker 3: they're going to do, and how is that going to

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Speaker 3: aff affect free cash flow? How is that going to

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Speaker 3: affect their debt ratios? And we're seeing some of that

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Speaker 3: come to fruition. Now we're seeing some concerns about what

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Speaker 3: that means longer term, especially if we're not getting the

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Speaker 3: revenue generation that a lot of these companies say they're

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Speaker 3: going to. So definitely something to watch and to be

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Speaker 3: careful on when you're looking at the debt market.

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Speaker 2: These companies Victoria seem absolutely determined to spend They've said

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Speaker 2: that repeatedly. They are determined not to underinvest, and they

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Speaker 2: don't mind taking the risk of over investing. Do you

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Speaker 2: really see this market in a position at the moment

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Speaker 2: at least to inflict discipline on those hyperscalis who are

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Speaker 2: absolutely determined to spend hundreds of billions of dollars on

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Speaker 2: this effort.

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Speaker 4: Discipline is an interesting word, Donathan. I'm not sure that

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Speaker 4: they are.

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Speaker 3: These investors right now look at these companies and they

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Speaker 3: believe what they're telling them, they're saying Okay, even though

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Speaker 3: we saw free cash flow taking Vida out of the

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Speaker 3: equation down almost twenty percent year over year for a

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Speaker 3: lot of these companies, and now we're seeing debt issuants

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Speaker 3: move higher, investors still say they're going to be able

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Speaker 3: to do what they're doing. You heard Lisa Sue this

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Speaker 3: week talk about eighty percent revenues from data centers for

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Speaker 3: the next three to five years year over year. That's

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Speaker 3: a lot of positivity coming from these companies.

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Speaker 4: But yet at the same time, we're hearing.

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Speaker 3: Builders can't deliver on data centers where there's not enough

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Speaker 3: energy and power for some of these data centers. So

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Speaker 3: I would be a little more skeptical than maybe the

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Speaker 3: average investor is. But you know, I'm a bond girl

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Speaker 3: at heart, so that makes sense that I would be

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Speaker 3: a little more cautious. But I do think for now

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Speaker 3: they are taking these companies out their word because their

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Speaker 3: earnings are supporting it. The minute we don't see earning supportive,

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Speaker 3: that's when I think you'll see it all.

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Speaker 4: Flip Victoria, so how are you handling this?

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Speaker 5: Are you selling tech stocks and selling the bonds as well?

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Speaker 5: Are you buying this docs selling the credit? How are

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Speaker 5: you playing it.

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Speaker 3: Yeah, So we're trimming on some of our big tech names,

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Speaker 3: but also we want to stay within you know, we

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Speaker 3: parameters within the benchmark of where we need to be

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Speaker 3: on these and because there's such strong holdings in the benchmark,

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Speaker 3: we can't just eliminate these holdings completely.

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Speaker 4: You have to have exposure to them.

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Speaker 3: But we are taking the opportunity to put it to

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Speaker 3: work into other areas, both on the equity side and

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Speaker 3: on debt. And looking at that debt like seven to

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Speaker 3: ten years out, we're starting to see the yield curve

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Speaker 3: steep in. That two to thirty spread was a like

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Speaker 3: sub one hundred and an hour about one fifteen, so

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Speaker 3: we're starting to steep in a little bit.

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Speaker 4: It's good for financials.

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Speaker 3: That's our main area of where we're looking, but we're

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Speaker 3: also looking at healthcare, buying some bonds and some equity there,

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Speaker 3: and then like I said, looking at materials a little

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Speaker 3: bit as well. I think those areas on both sides

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Speaker 3: of the equation you can have in your portfolio.

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Speaker 2: Stay with us. Mulblomberg Savannah's coming up off to this

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Speaker 2: Official Economics data sets a return after they record long

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Speaker 2: government shutdown delayed releases for more than a month. Joining

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Speaker 2: us now the former BLS Commissioner, Bill Beach, But welcome

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Speaker 2: back to the program. Can you give us some insight

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Speaker 2: into how the BLS will be operating at the moment

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Speaker 2: after a month plus long government shutdown. What the first

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Speaker 2: order of business actually is.

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Speaker 6: Well, I think they turned the data systems on yesterday.

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Speaker 7: It's sort of in that data desert that you just

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Speaker 7: referred to, and so hopefully everything rebooted. Well, that's always

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Speaker 7: a question. And then they have to ask about the

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Speaker 7: field staff. How many people are coming back to work.

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Speaker 7: You know, some of those people probably took early retirement

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Speaker 7: or retirement. It's kind of an older staff. Anyway, we

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Speaker 7: might want to talk about the CPI. Back to the

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Speaker 7: jobs report that doctor has it mentioned, It is true

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Speaker 7: the jobs number which is acquired from firms through an

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Speaker 7: electronic survey. Now BLS will prompt those firms to send

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Speaker 7: their survey in electronically to Chicago or Fort Walton Beach

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Speaker 7: where those forms are collected, and we will probably have

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Speaker 7: a jobs number for October. But the household survey, which

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Speaker 7: is collected largely by calling people on the telephone and

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Speaker 7: asking them a series of questions, quite a lot, a

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Speaker 7: lot of questions. We may never have those data, and

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Speaker 7: that includes not only the unemployment rate, but all of

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Speaker 7: the breakout by race, by region, labor force participation, all

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Speaker 7: those things that are really important for policymakers to follow.

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Speaker 7: I'm also concerned about the CPI, but I think on

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Speaker 7: the labor side where that'll be the biggest hole. I

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Speaker 7: do expect the jobs report to come out for September,

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Speaker 7: which was fully collected but not.

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Speaker 6: Quite written up yet. I expect that next week. I

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Speaker 6: think they're right about that.

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Speaker 2: Oh you mentioned inflation a few times. Just describe the

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Speaker 2: CPI process, the data collection, how the survey's put together,

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Speaker 2: and why so difficult to produce that number.

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Speaker 6: So the CPI is collected from the first of the

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Speaker 6: month to the end of the month.

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Speaker 7: They put as many working days in there as possible,

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Speaker 7: and it's largely collected. I'd say about seventy percent of

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Speaker 7: all of the observations or goods services are collected by

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Speaker 7: people going into stores.

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Speaker 6: These are BLS employees.

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Speaker 7: And literally going down the aisles and marking down the

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Speaker 7: price and seeing how many potato chips are in the bag.

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Speaker 7: So it's a labor intensive thing. Now we're starting that

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Speaker 7: process probably next Monday. That only gives us two weeks

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Speaker 7: to collect four weeks of data. Now, it is true

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Speaker 7: that a lot of that data comes in electronically. The

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Speaker 7: housing stuff, the gasoline, automobile prices, those are electronically produced

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Speaker 7: data from private sources.

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Speaker 6: So thirty percent find no problem. But you can't.

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Speaker 7: You can't have a CPI with only thirty percent of

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Speaker 7: the data. So I'm worried about the CPI. I'm worried

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Speaker 7: about the quality of the October CPI, So that's an

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Speaker 7: issue and we'll see how that works. The November numbers

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Speaker 7: are also at risk because we're going to be collecting

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Speaker 7: those November numbers as well as collecting as many of

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Speaker 7: the data on the October side as we possibly can.

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Speaker 7: That's going to be really dicey, but I think the

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Speaker 7: staff is probably up to it. So let me just

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Speaker 7: say bottom line, no unemployment rate, no labor force data

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Speaker 7: that shows the demographics, and I think people should be

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Speaker 7: concerned about the CPI. The PPI is collected largely electronically,

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Speaker 7: and of course thet export indexes are entirely collected from

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Speaker 7: administrative data from the Commerce Department.

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Speaker 5: Bill just quickly here, how much are you seeing the

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Speaker 5: reduction in staff for the Bureau of Labor Statistics, just

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Speaker 5: generally presenting a problem in both ramping up but also

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Speaker 5: going forward presenting the same kind of accurate data.

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Speaker 7: Well, at the beginning of the shutdown, we had a

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Speaker 7: really firm number. It was about one out of every

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Speaker 7: five employees at BLS had quit. But there are two

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Speaker 7: areas of really great concern. First off, the field, and

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Speaker 7: I've mentioned that several times. You know, so many of

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Speaker 7: our data from the Employment Cost Index, which is field

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Speaker 7: collected to CPI, the household survey that does the unemployment rate.

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Speaker 7: These are labor intensive, so you have to be really

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Speaker 7: concerned for the thousand people, one thousand people basically who

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Speaker 7: work in the field. We don't know how many of

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Speaker 7: those people are coming back to work. Honestly, they're largely

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Speaker 7: an older staff, and that means they may have choices

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Speaker 7: in whether they work or not work. And then the

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Speaker 7: other area that I'm very concerned about is the senior

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Speaker 7: leadership of BLS. About thirty one positions that are absolutely crucial,

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Speaker 7: and about twelve thirteen of those we think are now vacant.

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Speaker 7: That's the largest vacancy rate, ever, and so this is

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Speaker 7: expert that just can't be replaced quickly by going out

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Speaker 7: to you know, indeed dot com and finding some good

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Speaker 7: resume you.

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Speaker 6: That's those two areas I'm very concerned about.

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Speaker 8: Stay with us.

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Speaker 2: More Bloomberg surveillance coming up after this. Wall Street watching

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Speaker 2: for fresh trade deals from the White House. The Trump

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Speaker 2: administration announcing new framework agreements with Latin American countries as

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Speaker 2: tours continue with China. The former White House Senior Trade

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Speaker 2: advisor Kellyan Shore, writing, one thing is clear, despite the shutdown,

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Speaker 2: USTR has been extremely busy negotiating.

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Speaker 8: Kelly Ann joined us now for more. Kelly, I'm welcome back.

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Speaker 2: We've been tracking this together since it started back in

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Speaker 2: early April, in fact, since the election took place more

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Speaker 2: than twelve months ago. Are you seeing this administration and

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Speaker 2: White House start to change course a little bit?

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Speaker 9: Yeah, good morning, Thanks ver much for having me back on.

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Speaker 9: I see directionally, the White House continuing strategy that it

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Speaker 9: started with, which is we are going to impose these

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Speaker 9: very high tariff rates and then negotiate with trading partners

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Speaker 9: to try to land them at a place that's a

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Speaker 9: bit more reasonable. And so they're continuing to do so,

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Speaker 9: notwithstanding the White House's concern, which is clearly focused on

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Speaker 9: the issue of affordability, consumer confidence, how much you're paying

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Speaker 9: at the grocery store. Now, on top of this, on

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Speaker 9: top of those four deals that were announced, plus we

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Speaker 9: had South Korea that framework which was released last night,

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Speaker 9: a potential upcoming deal with Switzerland, an interim deal potentially

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Speaker 9: with Brazil, you're seeing the White House tees a more

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Speaker 9: significant tariff relief package which would really hit Americans at

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Speaker 9: the grocery store. Now, this would be a departure from

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Speaker 9: where they've been going, but I do think directionally all

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Speaker 9: along they've anticipated that they would need to course correct,

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Speaker 9: that there would be recalibrations where there had been over corrections.

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Speaker 4: So I think we're starting to see the first part

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Speaker 4: of this.

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Speaker 2: There's some contradictory messaging kit You're well aware of that.

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Speaker 2: On the one hand, you're saying that tarifs don't lead

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Speaker 2: to higher prices, on the other hand, just saying we

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Speaker 2: need to do more on affordability, We're going to drop tariffs.

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Speaker 8: How do you massage the messaging?

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Speaker 9: Yeah, there was always a little bit of dissonance between

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Speaker 9: these two messages, and this was always the White House's

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Speaker 9: case to make to the American people that if we

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Speaker 9: impose an average fifteen to twenty percent tariff on all

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Speaker 9: goods coming from all countries, that's not going to lead

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Speaker 9: to higher prices at the grocery store. It's not going

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Speaker 9: to make your vacations more expensive. I think the American

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Speaker 9: people have always been a little bit skeptical of this argument,

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Speaker 9: and this is something the White House is going to

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Speaker 9: have to continue to message moving forward. Now that said,

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Speaker 9: what they'll point to is the fact that we impose

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Speaker 9: hundreds of billions of dollars of tariffs and Trump one

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Speaker 9: point zero, and that did not lead to inflation.

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Speaker 4: And if you look at countries like.

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Speaker 9: India or South Korea, which naturally have very high teriff rates,

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Speaker 9: they're not concerned about that leading to inflation on a

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Speaker 9: day to day basis. So why would that pattern hold

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Speaker 9: in the United States? But I do think voters are

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Speaker 9: not quite there yet, and this is something the White

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Speaker 9: House is going to have to navigate.

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Speaker 5: Kelly, how much is this argument a liability for the

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Speaker 5: White House when it comes to the Supreme Court case?

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Speaker 5: The idea that they're arguing that this is a national

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Speaker 5: security issue while also talking about reducing tariffs for cost

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Speaker 5: of living concerns.

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Speaker 9: Well, I think we've got a bunch of different types

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Speaker 9: of tariffs, some of which are being challenged right now

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Speaker 9: at the Supreme Court, others which aren't. And we've always

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Speaker 9: had carve out since the beginning of certain product categories

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Speaker 9: like your iPhone, your laptops, some of the pharmaceutical products,

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Speaker 9: and aircraft and airplane parts have always had different tariff treatment.

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Speaker 9: So shifting some of that around or targeting certain food

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Speaker 9: products I don't really think is going to make that

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Speaker 9: much of a difference in terms of how the Supreme

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Speaker 9: Court is looking at this.

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Speaker 5: Do you think though, that, Kelly, when you talk to

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Speaker 5: some of your clients, there is a feeling that maybe

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Speaker 5: we've seen the peak in terms of the tit for

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Speaker 5: trade war type of behavior, just simply because the cost

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Speaker 5: of living concerns are starting to trump the concern about

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Speaker 5: national security and the concern about getting leverage internationally.

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Speaker 9: Well, I think, regardless of how voters are viewing cost

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Speaker 9: of living, that we effectively had reached sort of the

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Speaker 9: peak of this trade war. To begin with, the President

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Speaker 9: was always going to come out swinging at the beginning

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Speaker 9: to make this huge move to try to negotiate with

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Speaker 9: every country on Earth and then land the plane at

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Speaker 9: a lower rate, and that's what we saw him do

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Speaker 9: in August. I think we're beginning to see more and

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Speaker 9: more tariff reductions as part of these deals being negotiated,

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Speaker 9: but I wasn't expecting these huge swings moving forward. I

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Speaker 9: think this is effectively where the President wants to land

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Speaker 9: things and have the teriff rate be on average at

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Speaker 9: the end of his four years now. I do think

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Speaker 9: that consumer confidence and affordability is a significant issue for

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Speaker 9: the White House, which is why you're seeing them take

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Speaker 9: this head on, as opposed to the prior messaging which

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Speaker 9: was more about don't worry, the economy's doing great, kind

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Speaker 9: of ignore how you feel. They're not there. Now they're

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Speaker 9: head on addressing this, and I think that these recalibrations

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Speaker 9: on our reflection.

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Speaker 7: Of that.

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Speaker 8: Stay with us.

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Speaker 2: Mul Bloomberg surveillance coming up after this equity's pulling back

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Speaker 2: is try to digest hawkish signals from the Federal Reserve.

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Speaker 2: Daryl Krunk of wilst FAGO highlighting the three eyes that

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Speaker 2: matter inflation, interest rates, and illiquidity rights in the recent

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Speaker 2: self is more about positioning. It's sentiment extremes and weak

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Speaker 2: hands that have changed to underlying fundamentals.

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Speaker 6: Darrow.

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Speaker 2: John is now for more. Darrek, good morning, Good morning, John.

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Speaker 2: Just build on that a little bit. Okay, the fundamentals

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Speaker 2: are strong, are they? The fundamentals are still strong. I

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Speaker 2: don't think that there's a lot of debate about that.

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Speaker 2: What I would say the two things maybe in yesterdays

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Speaker 2: sell off, the people missed right. Number one, you had

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Speaker 2: all the FED speakers out being hawkish.

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Speaker 8: Right.

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Speaker 1: So for a moment in time, FED funds futures for

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Speaker 1: a December cut dip below fifty percent right, the prior

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Speaker 1: day just within the reference they were at sixty nine percent.

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Speaker 1: Month part of that they were ninety five percent, right.

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Speaker 1: So that's a pretty big move. That's the spark that

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Speaker 1: lit this thing yesterday afternoon that we started the sell off.

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Speaker 6: Right.

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Speaker 1: What I found was interesting yesterday was you know, obviously

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Speaker 1: decent breadth on the equity sell off, But if you

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Speaker 1: looked at yesterday, treasuries were negative, Bitcoin was negative, gold

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Speaker 1: was negative, the dollar was negative, right, which is everything.

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Speaker 1: So going back to the point about weekends and stuff,

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Speaker 1: when when positioning and sent thement gets out over their

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Speaker 1: skis are off sides and people have to cover margin

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Speaker 1: calls and other things. You sell what you can now

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Speaker 1: what you want right, and so you're forced to sell

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Speaker 1: strong assets treasuries, right, gold, things that you would normally

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Speaker 1: hang on to to meet some of those extremes in markets.

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Speaker 6: So I think that's what you saw yesterday.

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Speaker 2: Everything that's done well in the last ye Ros said

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Speaker 2: yesterday did pully Yesterday got that the equity market. Is

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Speaker 2: that a strongest story to get hold of When you

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Speaker 2: look at the equity market right now and people are

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Speaker 2: talking about five to ten percent pullbacks, is that a

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Speaker 2: pullback people out somebody want to buy, or a pullback

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Speaker 2: people run away from.

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Speaker 6: We have a lot of conviction around this.

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Speaker 1: We've been like a lot of people waiting for that

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Speaker 1: kind of in trouble equity correction, five ten percent you

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Speaker 1: usually get two a year, ten percent, one a year

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Speaker 1: in account year. We think this is absolutely viable, right.

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Speaker 1: We like the fundamentals going out into twenty twenty six.

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Speaker 1: So if you get a five seven ten percent pullback,

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Speaker 1: I would be using it as an opportunistic way to

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Speaker 1: add capital in Now, what we did do is we

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Speaker 1: downgraded technology on October thirtieth from favorable back to neutral. Neutral,

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Speaker 1: still a sizable waiting obviously in a portfolio. Ironically, the

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Speaker 1: Nasdaq hit it's high on October twenty ninth, So sometimes

440
00:21:36,880 --> 00:21:38,920
Speaker 1: better to be lucky than good right on those type

441
00:21:38,920 --> 00:21:41,119
Speaker 1: of things. But where we would put capital is in

442
00:21:41,200 --> 00:21:46,080
Speaker 1: places like financials, industrials, utilities, places where you're getting some

443
00:21:46,200 --> 00:21:49,640
Speaker 1: of the benefit of the horizontal expansion of AI without

444
00:21:49,680 --> 00:21:51,960
Speaker 1: having to buy the valuations of the tech Okay, I.

445
00:21:52,040 --> 00:21:54,760
Speaker 5: Love this the second person this morning who said, yes,

446
00:21:54,880 --> 00:21:56,840
Speaker 5: by the dip not in tech but in everything else,

447
00:21:57,080 --> 00:22:00,240
Speaker 5: by the dip in financials, by the dip in healthcare. Point,

448
00:22:00,280 --> 00:22:02,520
Speaker 5: are we hearing an increasing aversion to buying tech at

449
00:22:02,560 --> 00:22:05,200
Speaker 5: these valuations, even in a five to ten percent draw down,

450
00:22:05,280 --> 00:22:07,360
Speaker 5: just simply because the structure of some of these companies

451
00:22:07,600 --> 00:22:08,199
Speaker 5: has changed.

452
00:22:08,800 --> 00:22:09,800
Speaker 6: Yeah, I think it's a good point.

453
00:22:10,080 --> 00:22:13,199
Speaker 1: I mean the point I made about being neutral right

454
00:22:13,359 --> 00:22:15,880
Speaker 1: with the market cap weightings of the index, you still

455
00:22:15,960 --> 00:22:19,080
Speaker 1: have to have a meaningful position obviously in technology. But

456
00:22:19,240 --> 00:22:21,679
Speaker 1: let's just admit like things got out a little bit

457
00:22:21,720 --> 00:22:23,720
Speaker 1: over their skis here, they got a little white hot.

458
00:22:24,119 --> 00:22:28,119
Speaker 1: We saw the same thing happen in mid October. Remember

459
00:22:28,200 --> 00:22:30,520
Speaker 1: the catalyst at that point was when President Trump came

460
00:22:30,520 --> 00:22:31,760
Speaker 1: out and said he was going to put one hundred

461
00:22:31,760 --> 00:22:34,880
Speaker 1: percent tariffs on China and that he and Jingji weren't

462
00:22:34,920 --> 00:22:36,600
Speaker 1: going to meet. And all of a sudden, the Vick

463
00:22:36,680 --> 00:22:39,280
Speaker 1: spikes to twenty eight right this morning, we're twenty two.

464
00:22:39,800 --> 00:22:39,919
Speaker 6: Right.

465
00:22:40,040 --> 00:22:43,880
Speaker 1: So that kind of what i'd call sticky volatility that's

466
00:22:43,920 --> 00:22:46,000
Speaker 1: been with us for the last thirty to forty five days,

467
00:22:46,240 --> 00:22:48,840
Speaker 1: I think is emblematic of what's happening as we transition

468
00:22:48,920 --> 00:22:51,560
Speaker 1: in this tech world. To us, just valuations just got

469
00:22:51,600 --> 00:22:53,680
Speaker 1: to extremes to the summer months in the early fall,

470
00:22:53,720 --> 00:22:54,480
Speaker 1: and we just said.

471
00:22:54,400 --> 00:22:57,000
Speaker 6: Time to take some profit, right, pull that back.

472
00:22:57,040 --> 00:22:59,359
Speaker 1: I don't think you abandoned tech by any means, but

473
00:22:59,480 --> 00:23:03,240
Speaker 1: we find better risk reward trade off in places like financials, industrials,

474
00:23:03,240 --> 00:23:03,880
Speaker 1: and utilities.

475
00:23:04,119 --> 00:23:05,920
Speaker 5: Does some move that we're seeing this morning in bonds

476
00:23:05,960 --> 00:23:10,440
Speaker 5: in particular make you like treasuries once again as a

477
00:23:10,560 --> 00:23:11,920
Speaker 5: hedge and I'm talking about long.

478
00:23:11,800 --> 00:23:15,359
Speaker 1: Term treasuries, Yes, I mean I think you can still

479
00:23:15,520 --> 00:23:18,879
Speaker 1: buy treasuries here. You know what people forget is if

480
00:23:18,920 --> 00:23:22,600
Speaker 1: you look at the Bloomberg, you know, US bond aggregate.

481
00:23:22,680 --> 00:23:24,600
Speaker 1: It's up seven and a half percent here today, right.

482
00:23:24,680 --> 00:23:29,080
Speaker 1: I mean we haven't had positive bond returns for probably

483
00:23:29,160 --> 00:23:30,800
Speaker 1: four years post pandemic.

484
00:23:31,080 --> 00:23:31,159
Speaker 5: Right.

485
00:23:31,240 --> 00:23:34,000
Speaker 1: It's finally a creative again to portfolios, right, and so

486
00:23:34,119 --> 00:23:36,320
Speaker 1: I think you can still use those bonds as a

487
00:23:36,520 --> 00:23:38,840
Speaker 1: traditional way to play that sector.

488
00:23:38,960 --> 00:23:39,080
Speaker 6: Right.

489
00:23:39,440 --> 00:23:42,800
Speaker 1: What people also forget is US households own sixty one

490
00:23:42,920 --> 00:23:45,639
Speaker 1: trillion dollars worth of US equities. Right, So if you

491
00:23:45,680 --> 00:23:48,840
Speaker 1: do get that ten percent correction, it's meaningful. In fact,

492
00:23:48,880 --> 00:23:51,400
Speaker 1: if you do the math, it means probably about three

493
00:23:51,480 --> 00:23:54,520
Speaker 1: quarters to one percent of GDP that it can shave

494
00:23:54,600 --> 00:23:56,640
Speaker 1: off if you get a ten percent correction, or vice

495
00:23:56,760 --> 00:23:59,560
Speaker 1: versa can be additive. So part of the economic growth

496
00:23:59,600 --> 00:24:02,040
Speaker 1: story has just been the wealth effect of what's happening.

497
00:24:02,359 --> 00:24:03,280
Speaker 6: If you just simply do the.

498
00:24:03,280 --> 00:24:07,000
Speaker 2: Math, how supportive is tariff revenue for this bumb market?

499
00:24:07,440 --> 00:24:09,920
Speaker 2: And if it started to go away or was spent,

500
00:24:10,080 --> 00:24:12,359
Speaker 2: how swear, what would it make for the treasury market?

501
00:24:13,320 --> 00:24:15,679
Speaker 1: It would put up with pressure, no doubt on treasure

502
00:24:15,720 --> 00:24:16,760
Speaker 1: yields particularly.

503
00:24:16,480 --> 00:24:18,840
Speaker 8: Long developed thing is that happening right now?

504
00:24:20,000 --> 00:24:21,000
Speaker 6: Maybe not quite yet.

505
00:24:21,160 --> 00:24:24,720
Speaker 1: I mean obviously concerns about IEPA, but you know. To me, John,

506
00:24:24,760 --> 00:24:27,640
Speaker 1: the tariff story is not about whether tariffs will be applied,

507
00:24:27,680 --> 00:24:30,240
Speaker 1: it's how they'll be applied, right, Because if they're not

508
00:24:30,320 --> 00:24:32,480
Speaker 1: done by IEPA, they'll be done by Section one twenty two,

509
00:24:32,640 --> 00:24:34,680
Speaker 1: Section three oh one, Section two thirty two.

510
00:24:34,760 --> 00:24:35,680
Speaker 6: It'll take longer to do.

511
00:24:35,800 --> 00:24:37,880
Speaker 8: That's keep raising the money, right, Keep raising the money,

512
00:24:37,960 --> 00:24:39,239
Speaker 8: and are they going to keep spending it too?

513
00:24:39,400 --> 00:24:41,520
Speaker 2: Because we've had about six thousand toil of repeat checks

514
00:24:41,560 --> 00:24:43,560
Speaker 2: this week, and it doesn't feel like that story is

515
00:24:43,640 --> 00:24:44,200
Speaker 2: losing stain.

516
00:24:44,440 --> 00:24:46,200
Speaker 1: Yeah, if you take if you take what they've raised

517
00:24:46,240 --> 00:24:48,520
Speaker 1: already and just projected tariffs and free them. At this moment,

518
00:24:48,560 --> 00:24:51,400
Speaker 1: it's about four hundred and ten billion dollars, right, that's

519
00:24:52,119 --> 00:24:54,520
Speaker 1: almost twenty to twenty five percent of the one point

520
00:24:54,600 --> 00:24:57,840
Speaker 1: eight trillion dollar budget deficit. Right, So it's meaningful to

521
00:24:57,920 --> 00:25:00,280
Speaker 1: apply back, you know, against that if you can do it.

522
00:25:00,600 --> 00:25:02,800
Speaker 1: If for some reason you're going to refund all that

523
00:25:02,920 --> 00:25:05,920
Speaker 1: money back to whence it came, guess what happens to

524
00:25:05,960 --> 00:25:09,440
Speaker 1: corporate margins and earnings? Right, because all that money was

525
00:25:09,520 --> 00:25:11,840
Speaker 1: pulled in. If it goes back to the companies where

526
00:25:11,880 --> 00:25:15,200
Speaker 1: it came from, all of a sudden, it's a monumental

527
00:25:15,600 --> 00:25:17,080
Speaker 1: lift in margins and earnings.

528
00:25:17,160 --> 00:25:20,359
Speaker 2: These are potential negatives for the bumb market essentially for

529
00:25:20,440 --> 00:25:23,920
Speaker 2: the treasury market, the credit market supporting massive AI spend

530
00:25:24,000 --> 00:25:24,560
Speaker 2: now as well.

531
00:25:24,880 --> 00:25:26,119
Speaker 8: So the biggest question I think.

532
00:25:26,000 --> 00:25:29,600
Speaker 2: Across treasuries and credit, well, treasuries and credit continue to

533
00:25:29,840 --> 00:25:33,639
Speaker 2: put the big dreams of the equity market, given how

534
00:25:33,720 --> 00:25:35,400
Speaker 2: its price the vinment going to get to a new year.

535
00:25:37,760 --> 00:25:40,160
Speaker 1: So let me put it this way. Our year end

536
00:25:40,400 --> 00:25:44,200
Speaker 1: twenty twenty six target for interest rates on the tenure

537
00:25:44,240 --> 00:25:46,159
Speaker 1: and the thirty year are in the four and a

538
00:25:46,320 --> 00:25:49,560
Speaker 1: quarter to four fifty kind of range, right, so higher

539
00:25:49,680 --> 00:25:50,600
Speaker 1: from today's levels.

540
00:25:50,680 --> 00:25:50,800
Speaker 6: Right.

541
00:25:51,520 --> 00:25:54,040
Speaker 1: Probably the highest conviction that we have in the treasury

542
00:25:54,080 --> 00:25:54,680
Speaker 1: markets right.

543
00:25:54,640 --> 00:25:57,640
Speaker 6: Now is the curve steepener.

544
00:25:57,960 --> 00:26:00,280
Speaker 1: We still think no matter how you play it, the

545
00:26:00,359 --> 00:26:02,840
Speaker 1: curve has to steepen, whether that's short term rates coming

546
00:26:02,920 --> 00:26:05,800
Speaker 1: down and long term rates staying somewhat stable, or long

547
00:26:05,920 --> 00:26:08,240
Speaker 1: term rates going up. Which is your story right about

548
00:26:08,560 --> 00:26:11,840
Speaker 1: concerns about fiscal concerns about tear off.

549
00:26:11,920 --> 00:26:13,480
Speaker 8: Someone as the story, I'm just artick. Can I end

550
00:26:13,480 --> 00:26:14,840
Speaker 8: it for Harriet?

551
00:26:14,960 --> 00:26:15,200
Speaker 6: Please?

552
00:26:15,960 --> 00:26:16,000
Speaker 7: No?

553
00:26:16,200 --> 00:26:16,560
Speaker 6: That's right?

554
00:26:16,640 --> 00:26:19,360
Speaker 1: I mean, but I think you, I think the right

555
00:26:20,359 --> 00:26:23,600
Speaker 1: normal level for long term treasure yields right or in

556
00:26:23,640 --> 00:26:25,639
Speaker 1: that four and a quarter to four fifty. Remember the

557
00:26:25,680 --> 00:26:27,720
Speaker 1: longside of the treasury curve is a term premium, a

558
00:26:27,760 --> 00:26:31,680
Speaker 1: growth premium, and an inflation premium. Right, And growth premiums

559
00:26:31,800 --> 00:26:34,399
Speaker 1: and inflation breemas have been coming down. Term premiums have

560
00:26:34,480 --> 00:26:36,880
Speaker 1: actually also been coming down lately, but we think we'll

561
00:26:36,880 --> 00:26:37,880
Speaker 1: expand it the next year.

562
00:26:39,240 --> 00:26:42,760
Speaker 2: This is the Bloomberg Seventans podcast, bringing you the best

563
00:26:42,800 --> 00:26:46,120
Speaker 2: in markets, economics, antient politics. You can watch the show

564
00:26:46,200 --> 00:26:49,080
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565
00:26:49,280 --> 00:26:53,000
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566
00:26:53,160 --> 00:26:55,399
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567
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