00:00:02 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg Surveillance Podcast. Catch us live weekdays at seven am Eastern on Apple CarPlay or Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube. 00:00:27 Speaker 2: And right now we're gonna slide in quick, quick, quick to Sarah Hunt, chief market strategist Alpine Sex and Woods is as well. I guess we're distant from June thirty nine or two. Do you rewrite your midyear review? 00:00:43 Speaker 3: Well, you refinalize or you can add a codicil to your twenty to your midiar review. I think that there was obviously a feeling and you can see where oil how fast it moved this morning versus yesterday, because even yesterday it was up a little bit, but not it wasn't it wasn't. 00:00:57 Speaker 4: Moving as much. I think that this does. 00:01:00 Speaker 3: You add this to the AI story and all of a sudden, I think you have a more stormy summer than we were looking at even a week and a half ago. 00:01:06 Speaker 4: So I think it does. 00:01:07 Speaker 3: It makes a difference because all of these things play into how portfolios are going to roll out and the expectation was the FEDNAW had some cover to say we can wait and see, and. 00:01:16 Speaker 4: Now with this moving around, that might change that math as well. 00:01:19 Speaker 5: So how do we thinking about I guess the AI trade in general here. I mean, you own the chips, okay, I get that. 00:01:26 Speaker 6: What else are you doing here with this with your AI trade these days? 00:01:29 Speaker 4: Well, it's going to be interesting to see how this plays out. 00:01:31 Speaker 3: And this is part of a discussion the other day as well, which is now that you have some of these chip stocks and some of the questions about what's going on, is there a rotation back to some of the LAG seven this year because you've seen some potential movement there, But you look at the bond sale yesterday and you think maybe not. I mean, it's going to be a question about what happens with capex. 00:01:52 Speaker 4: Meta maybe one off, it may not be. I don't know. We're going to have to see how that plays too. 00:01:55 Speaker 7: That's software. 00:01:56 Speaker 5: I mean, you know we saw that sell off in a lot of software names, including such Bellweather's this Microsoft down twenty five percent year to date. 00:02:04 Speaker 6: I mean, how are you. 00:02:06 Speaker 5: Guys thinking about some of those big Bellweather software names that have been so good and so beloved by the marketplace because of the recurring revenue, the high free cash flow and great margins. 00:02:16 Speaker 6: Anything about some of those names, you say. 00:02:17 Speaker 3: Well, you guys had an excellent guest on earlier this morning who was talking about that specifically and about how some of the larger software names are going to end up getting more there's more work to. 00:02:26 Speaker 5: Be done, So that was a you kind of think that's the way you kind of kind of pick some winners and losers. 00:02:30 Speaker 3: Well, you know, it depends a lot on the model, because I think part of the biggest issue with software that started was if you're growing your headcount and everyone and you're growing your user base and that starts to shrink, that's a problem for the cash flow for the other things. Do we really think that you're going to disintermediate Microsoft? And I don't think that we do. I think the question is going to be how does it all work together? And you're going to still be using it, So it's really it's on the margins. Is the growth going to slow down in some places? 00:02:56 Speaker 4: Probably? 00:02:56 Speaker 3: In some places maybe not. But now it's a wait and see, and people were willing to first asked. 00:03:00 Speaker 2: Questions, wait outside your remit, but I'm going to go here. We saw the Xbox rationalization. The woman running Xbox I thought was a breath of fresh air, just saying like, this is where we are. I would assume, given you know, there's there's new words, organizational words for all this AI ballet, We're going to see a lot of right sizing. We're going to see a lot of do we need this division or not? Or spinning it off. I just think we're going to see a lot of restructuring, aren't we. 00:03:30 Speaker 3: I think we're going to see a lot of changes. I think we're going to see a lot of restructuring. You've already seen some companies go back on. We got rid of a bunch of people, and now actually we're gonna have to bring some people back because what we realized when they were gone was that we weren't in the space that we thought we were with the ability for AI to solve all these problems. There's a lot of questions about how when AI writes its own stuff, who's checking to see what the redundancies are and how that works. 00:03:52 Speaker 4: So I think it's going to be a lot of change. 00:03:54 Speaker 2: This is I love having you in Microsoft two hundred and twenty eight thousand employees. Then I typed up Oracle, you can do this folks on the Bloomberg Professional Services Paul taught me thedes screen Oracle down thirty nine percent twelve months trailing. They have one hundred and forty one thousand employees. I never would have guessed that. 00:04:12 Speaker 6: Yeah, yeah, these monster companies. 00:04:14 Speaker 2: You know, you pop off fourteen thousand people, you're ten percent down. 00:04:17 Speaker 5: Yeah, exactly right, Sarah, How are we thinking about just earnings? We're coming into next week, we'll start another earning cycle, and the boy, the first quarter was so so strong in terms. 00:04:27 Speaker 6: Of earnings growth. How do you think about this second quarter coming up here? 00:04:30 Speaker 4: I think you're going to see continued strength. 00:04:32 Speaker 3: I mean, I think that the issues we were all hoping that the oil situation would start to back down, and it looked like it did for a while and only went right back down to seventy. The problem for that is going to be for some people, it's going to be an issue higher energy prices. But I think you're going to see already in the second quarter as people report, everyone's going to be looking forward to the second half of the year because it we say, oh great, we already knew the second quarter was good because everything was looking pretty good except for energy prices. 00:04:57 Speaker 5: So what are we thinking here. We've got I'm going to switch over to the FED here because we've got a new chairman. We've heard from them a couple of times. Now, what's your view of the FED and kind of interest rates? 00:05:10 Speaker 6: And is that going to be a friend or a foe for this market? 00:05:12 Speaker 4: Well, in the last two weeks it's been both, right. 00:05:14 Speaker 3: So you saw the original coming that the original speeches on the two percent target, and the market started to think that that was very hawkish, oil prices back down. Came out and said that oil prices are down. That's somewhat helpful. I think the question is going to be the cadence of communication and how much time or how much information we're going to get and what information they're going to be using. And I think that there's some room in there to see what happens over the summer, even with the elevated oil prices. But I think that the market isnee jerked back into putting rate heights on the table, rate hikes on the table towards the end of the year, whereas even yesterday that wasn't necessarily looking to be such a strong percentage. I think that's going to continue to move around. 00:05:50 Speaker 5: Well in a bond market, I can sit there in a two year piece of US government paper, which I think is pretty safe. I think they're going to pay me back in two years and clip a four point two percent coupon. Is that my fixed income strategy? 00:06:02 Speaker 3: Well, I think that people have been looking at and we have continued to look at the short end of the curve for that reason. 00:06:07 Speaker 4: Because you've got reasonable You've had some very. 00:06:09 Speaker 3: Good opportunities to get in at good short term rates, and you think that those are in pretty good shape, you start talking about raising rates again, that gets a little dice yer, but not on the very short end. So I think that there is a cluster towards that because it makes sense and it's also easy to have some visibility. 00:06:23 Speaker 2: Are we away from where the top ten holdings of funds are thirty or forty or dare I say fifty five percent of their portfolio? Are we diversifying away from that twenty twenty three twenty four reality. 00:06:37 Speaker 3: Well, it's it's it's been tough, right because the smp is market cap weighted and most people are benching against the SMP, and even if they're using a different benchmark, people look at the SMP and think of that as the market, so it becomes something where it's hard to see how you get around that. On the other hand, you've had some big laggards in the SMP this year too, so I think that people had branched out. I think that people continue to branch out, and it's really a question of talking to people about what a good portfolio really looks like and saying, this is what the index looks like. Would you really want your portfolio to look at and people need to People are getting better educated about that, but that is definitely a change. 00:07:11 Speaker 2: This is again I don't want to catch you unawares, but this was in a zeitgeist. Just today, Bank of America, I believe, hit a record high, probably because they're sponsoring a World Cup. 00:07:20 Speaker 7: You know whatever. 00:07:21 Speaker 2: You should see where Savita sits. It's just unbanking area and killing it. I look at Bank of America, which means I look at Warren Buffet and the following on from Berkshire Hathaway as well. Berkshire Hathaway. Is that an opportunity as a diversified like old school conglomerate. 00:07:41 Speaker 3: I think that there's also there's a transition there, right, So people are looking to see how that is going to go because that's a lot of history and a lot of shoes to fill, and so I think that there is it's certainly possibly, and the holdings that they have are starting to look in those areas where people are looking at what's going on here, the insurance areas, the financial areas. In some of those places, I think that there is a desire for investors to have a broader portfolio than just technology because you can see when there is wobbles and technology, you need them both. 00:08:09 Speaker 5: What's screen's well for you guys these days, whether it's a sector or a factor, what's screen. 00:08:15 Speaker 4: So there are several things that screen well. 00:08:16 Speaker 3: I mean healthcare is one of those areas where people have talked a long time like it should be healthcare's time, because we think that there is a lot of room there. Looking at some of the areas where you have excuse me, instruments something like a danaher, some of the companies that have been sort of left behind as money has moved into other sectors we think that to your point on Bank of America financials also look interesting. You start to see the IPO market open up. Now we'll see whether or not that continues because these are massive IPOs, but you've had that window close. That's a leg of earnings for that group that they haven't seen in quite some time. So there are places that we like, their places in industrials that we like too. It's just a question of trying to find things at the right valuation because this market is moving around, and it's moving pretty. 00:08:55 Speaker 2: Quickname of Her was a beauty stock X number of quarters ago. 00:09:00 Speaker 3: God's name happened well, there was a lot of moving around to parts because they spun off some pieces too. There was a lot of things that happened to Danaher that was that historically they'd been more of a conglomerator and not an exclomerator as it were. But if you look at what's left in Danaher now, there's some really interesting growth stories there on the instrument side. So I think that there's places again where you had these glamorous stocks previously and they sort of fell off the radar screen, and I think that there's opportunity. 00:09:25 Speaker 2: Simple dhr in your vailue line. 00:09:27 Speaker 7: Sure yeah. 00:09:28 Speaker 2: Series two Land to Remember Sarah, Thank you so much, Alpine Sex and Woods. 00:09:34 Speaker 7: Stay with us. 00:09:35 Speaker 2: More from Bloomberg Surveillance coming up after this. 00:09:46 Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live weekday afternoons from seven to ten am Eastern Listen on Apple Karplay and Android Otto with the Bloomberg Business app, or watch us live on YouTube. 00:09:58 Speaker 2: This is our tech Congress of the day, and you just really can't convey the eclectic nature of our research. It's on software and I really don't even know what it's on, but it's sort of on software, but away from all the hyper scale. And we're going to do twenty five kajillion and bonds with City Group. Fatima Boulani darkens the Door today. What was it like your first day at the iconic time Thomas was sell in San Francisco. You walk in the door, You're seventeen years old. What was it like to be in that tech. 00:10:33 Speaker 8: Juggernaut, bright eye, bushy tailed. 00:10:36 Speaker 2: I mean, I just can't imagine what describe the fervor that was going on then. 00:10:42 Speaker 4: It was a different era. 00:10:43 Speaker 8: I mean, software was simple, We didn't have the juggernaut that is, a generational computing shift called AI taking over our organizations. It was a simpler time and really a formative experience for me. But yeah, in the halls of sort of gallowed halls of a very remarkable deal maker as it was an interesting time and my claim to fame as we were the I was the last incoming analyst class at Thomas Wise. 00:11:12 Speaker 2: Okay before it all blew up. But the basic idea is, Paul, help me here. Then less profit or no profit, and now everybody's making a ton of money. 00:11:21 Speaker 5: The software comes and making a ton of money. 00:11:22 Speaker 2: What's the call here? 00:11:23 Speaker 5: Just on your coverage of the software space that you guys cover as it relates to AI, because we have gone through a period where it seems like the market was just kind of selling software in general here and asking questions later, where are we now? 00:11:38 Speaker 8: We're continuing to see the bifurcation in software. So you have the two neighborhoods the application software names, so the Bellweather's there would be the Salesforce dot COM's and the Adobe's, and then you've got the infrastructure neighborhood, which by and large would include the hyperscalers, but I'll keep those separate because they're kind of a beast of their own in terms of how we think about them in the AI life cycle and value chain. But the infrastructure names continue to get bid up, and that's functionally because it's the most immediate and we think the most correct way to express the you know, veritable AI winners and the software stock. I think you sort of were dancing around this, but software has sort of been uh dained as this red headed step child of tech, if you will, as the frontier labs you know absolutely, you know, you know, express their might in terms of the type of innovation that they're you know, putting putting out there and you know, disrupting existing business models, you know, software companies. You know, arguably, in retrospect, we're looking fat and happy and now you know, those those builds are coming due and where we're excuse me, seeing a sort of different cadence of both UH innovation operational improvement. And so infrastructure is the place to be because uh infrastructure software generally example, it would be a company like a data Dog or a cli outflare, right, So it's not terribly household names in the sense that we're used to like we are in the application realm. So it's essentially companies that are enabling or providing scaffolding or visibility around the types of AI systems that you're an average organization's irect. 00:13:21 Speaker 2: The New York Yankees blue Light for n rehording, the Data Dog, which I know nothing about. Do they provide services to say Microsoft. 00:13:31 Speaker 8: No, What they provide is effectively the equivalent of an MRI scan for your entire it architectural topology, right, And that's important Wild Cornell. 00:13:41 Speaker 7: Right, it's just it. 00:13:43 Speaker 8: Hurts doctor, just a renaissance woman with all my analogies. And so what the value they provide in the context they provide for AI, is AI systems, in the way they're constructed, in the novel capabilities that they're providing, you know, brick to break. 00:14:01 Speaker 4: These are just. 00:14:03 Speaker 8: Very sophisticated systems and pieces of technology, right, and they're ever changing. And we were offline talking about how the frontier is changing so dramatically that six months from now we could be in yet another brave new world as it relates to you know, technological proficiency with respective models and what the labs are doing. And so what Data Dog provides is, Hey, you're going to build out these systems of agents that are going to run workflows for you. Well, guess what, There's a million things that could go wrong. The agents could hallucinate, the agents could spin up a wrong answer, they could outright fail. 00:14:38 Speaker 4: And so data Dog is that. 00:14:39 Speaker 8: MRI scan where your in nerds are effectively becoming so complex that your points of failure are just becoming infinitely more or diffuse. And that sort of value they provide ultimately. 00:14:50 Speaker 5: So data Dog Infrastructure Software, I get that. And the stocks up eighty eight percent year to date. Wow, what else is a data dog comp? 00:15:04 Speaker 6: Would you say? 00:15:06 Speaker 8: You know, we're very positively aligned on cloud flair right, cloud Flair that's also in similar echelon of our performance call here is cloud flair is basically the backbone of the internet. Right, It's the easy pass equivalent for organizations to run their business on the Internet. Right, Okay, And the way they play in the AI theme is you've got these agents, they've got to run somewhere. 00:15:36 Speaker 2: I've got a non an acquaintance with Matthew Prince going way back to some fun days in Davas. What is Matthew Prince doing differently at cloud fair flair versus everyone else. 00:15:45 Speaker 8: Oh, he's tinkering with a lot of interesting ideas as it relates to what the agentic Internet is going to look like. You know, one of the founding sort of principles around his view, and we tend to agree because a lot of the data points are supportive of this is. You know, there's human generated internet traffic, but hold the phone. There's going to be an absolute parabolic explosion in agenic internet traffic. So you know, six months from now, twelve months from now, if I'm booking a family vacation agentic commerce, I want. 00:16:15 Speaker 7: You to answer. 00:16:15 Speaker 2: I do not want you to answer this question. But in your head, I don't want to get you in compliance issues. Are you sorting out winners and losers of the big people, the hyperscalers, Like in your head, don't Heathterial put me in the time out here? But in the Fatima mind space do you sort out winners and losers of the big people? 00:16:38 Speaker 8: Absolutely, there is a gradient. But in the infrastructure realm, I directionally say there are when we kind of cross over the rubicon, the infrastructure software names are generally going to be beneficiaries of the computing shift right, So that's why I bring up data doc. That's why I bring it clad flair. We didn't really touch on the beast of a complex that is a cybersecurity universe. But as sure as death and taxes are, cybersecurity investments and budgets are going to follow. What is going to end up being a much more nefarious cyber attack environment as it relates to AI technology, So we tend to also be bullish there. 00:17:17 Speaker 7: I love AI. I go. 00:17:19 Speaker 2: Can you swim the rubicon out to out at Lake Tahoe? 00:17:24 Speaker 7: You can, there's a rubicure. 00:17:27 Speaker 2: This has been great. Thank you so much, Fatima, and thank you to everybody sitting just publishing like crazy. We didn't ask about Microsoft. That's mister Radkes. He's got like a huge target in Microsoft. 00:17:37 Speaker 6: Feel like I won't be careful. 00:17:40 Speaker 2: Now, stay with us. More from Bloomberg Surveillance coming up after this. 00:17:52 Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live weekday afternoons from seven to ten am. E's durn listen on Applecar playing Android Otto with the Bloomberg Business up, or watch us live on YouTube. 00:18:05 Speaker 2: This is a joy because it's not happening in three zip codes in Manhattan, it's happening across Ohio. You go out I ninety Okay, and you turn left, like in case Western Reserve. In Cleveland, there's this wicked turn on the pike and you turn left there and all of a sudden, it's the Midwest. Afron Kaplan knows. It's cold, absolutely cold, with brown gibbons laying. Is the Midwest build out for real? Yeah, all the infrastructure manufacturing, the Eastern crew doesn't know this. I mean they just don't know it. 00:18:38 Speaker 7: They totally don't know it. 00:18:39 Speaker 9: It's funny you say this because I have this theory the Midwest starts in downtown Cleveland, So you have the you have sort of like the foothills of the Appalachians. You're going into Cleveland, and the right at dead Man's Curve, as you mentioned, that's where Cleveland starts going west. But yes, there's tons of data centers being built at Ohio. You're driving on and you're like, should we stop at the Rock and Roll Hall of Fame and the road turns left. 00:19:07 Speaker 7: It's very true, very true. 00:19:08 Speaker 5: Talk to us about just how you guys are viewing this infrastructure build how you when. 00:19:14 Speaker 6: You talk to your clients, how are they trying to play it here? 00:19:18 Speaker 7: It's fascinating. 00:19:19 Speaker 9: So you know, after a morning of drama or an evening of drama into today with volatility in the markets, infrastructure is a little bit more less volatile. And you've seen this massive amount of capital primarily from nations and sovereign wealth nations that understand how to invest in infrastructure, whether it be Australia or frankly Europe, okay, throwing a lot of capital. 00:19:45 Speaker 7: Into the US over the past five years. 00:19:47 Speaker 9: I think two hundred million dollars was raised in twenty twenty five. And so why is that, Well, infrastructure is a is a much more steady downside protected limit upside type growth investment opportunity. And in a market of volatility where frankly a lot of capital has gone into tech and you've seen this volatility, capital is getting a little bit more conservative and looking for consistency. And so when we think about power, and we think about waste, and we think about water all these natural resources, capital is going that way and it's much more consistent than it's got a much in my view, a. 00:20:26 Speaker 7: Better risk reward. 00:20:29 Speaker 9: Calculus than some of these AI trades that we're talking. 00:20:31 Speaker 5: About, what is the environment for environmental services these days? 00:20:35 Speaker 6: I'm thinking waste recycling, remediation. 00:20:38 Speaker 5: We have an administration on is this administration supportive of that? Are your clients feeling like this is a place they want to allocate capital? 00:20:46 Speaker 9: You know, it's interesting if you think from a regulatory perspective the waste and environmental services businesses, there's been some restrictions in the ability to extend permits for landfill to put up more facilities to process waste. So frankly, it's been a little bit challenging for the waste businesses. On the contrary, the infrastructure money which again looks for really nice risk reward mathematics, very calculus. These are incredible business models that it's an essential service. 00:21:20 Speaker 7: And so as you've seen whether. 00:21:21 Speaker 9: Again the AI trade environmental services can benefit from the AI trade. 00:21:25 Speaker 2: I'm a little biased on this, folks, because the fam goes back to McDonald and company and Key Bank of a million years ago. The stereotype of Ohio and britically Northern Ohio is just comical how people miss the durability of it. They have no idea of John Hay and the standard oil of eighteen ninety and nineteen hundred. Arguably the richest land on the planet, the richest society on the planet. What is the state of Cleveland right now? 00:21:57 Speaker 9: You know you're talking to a loyalist. Tom said, you know, I'm an I don't know how objective or how I probably will be subjective, but I'm a big fan. We talk we talk about blue collar labor. We talk about people that grind, we talk about people that work really hard. Uh, that is Cleveland, that is Ohio. 00:22:16 Speaker 7: We we are driven people. 00:22:18 Speaker 2: We have huge fans in Cleveland and they're driven. I mean down to Youngstown and all that, and you know it researches abstinent flows. But the problem is right now, I mean, you know, I mean the Indians are the Indians. But the only question that matters is Lebron coming back? 00:22:32 Speaker 9: Well? 00:22:32 Speaker 7: Are they the Indians or are I'll go with the Indians. 00:22:38 Speaker 2: What are you thinking on Lebron here? I mean, does Lebron come back? 00:22:43 Speaker 9: You know, frankly, that's a tough question because you know, does Donovan really want to win this on his own or does he want Lebron to help him win it? So if you're if you're a team player and you want to win the championship. Lebron can help. 00:22:57 Speaker 2: I mean, Mitchell, you know it works, I mean. 00:23:00 Speaker 9: Ron, And I know I'm bringing up a sour subject with Donovan here in New York and you're where we did. 00:23:04 Speaker 7: Okay, yeah, No, I. 00:23:06 Speaker 9: Put my foot in my mouth right there, Yes, and all that, But I mean, look, Ohio is the center of AI right now. 00:23:15 Speaker 7: With data center build out, there's a lot. 00:23:17 Speaker 2: Can you people look west and invest in the rebuild of O'Hare? 00:23:22 Speaker 7: Can we look west and invest in. 00:23:24 Speaker 2: The rebuild of O'Hare. 00:23:27 Speaker 9: We are rebuilding Cleveland Hopkins right now, so I guess we can take somewhere. 00:23:31 Speaker 2: How do you use the LaGuardia template to do that? 00:23:34 Speaker 7: Oh? 00:23:34 Speaker 9: Well, if you ever walked inside Cleveland Hopkins Airport, you just have to look inside LaGuardia and realize that the only way to go is up when you walk inside Hopkins. Because it is back in the sixties and so you you don't really have much more, it's hard not to improve. 00:23:53 Speaker 5: So what's the next part of growth for you? 00:23:56 Speaker 6: Guys? 00:23:56 Speaker 5: In your practice you focus on infrastructure and environment. I mean, utility business has become sexy now because of all the AI, where do you guys see the opportunity. 00:24:07 Speaker 9: Well, frankly, so we're a Cleveland based firm. Yes we've got offices here. Yes we've got offices at Chicago. But just because we're Cleveland based, we're industrials. 00:24:19 Speaker 7: Are you hear a. 00:24:20 Speaker 9: Lot about picks and shovels and investments going into those types of businesses. That's a lot of where we see opportunity. And so when we talk about infrastructure, yes, listen this. I know we talk about a lot this AI trade, but that's the sexy stuff. The boring stuff is the infrastructure world. The boring stuff is essential services. We have not reinvested into our wastewater treatment facilities or our sewer systems for fifty or sixty years. We have this incessant need for data and communication in the not only here in the US, but the globe and an increasing population to use that. And so we're really excited about not only a core infrastructure, and all this capital is going with the essential services which provide more alpha in these integrated business models. So, if you look at deal counts, the services deal count has I think it's tenfold since ten years ago in terms of how many deals are happening in the services world, and that's really one of our strongest practices at the firm. So when we think about services, essential services, utility power, there is a very long runway for that. 00:25:27 Speaker 2: Mark, this has been wonderful. 00:25:28 Speaker 7: Thank you. 00:25:28 Speaker 2: Don't be a stranger. This has been great effran Capital. We love doing this folks Co Chief executive officer ahead of all Infrastructure at Brown Gibbons and Laying. We love, love love hearing from informed individuals outside the three zip codes. We're addicted to stay with us. More from Bloomberg Surveillance coming up after this. 00:25:56 Speaker 1: You're listening to the Bloomberg Surveillance Podcast live weekday afternoons from seven to ten am Eastern Listen on Applecarplay and Android Otto with the Bloomberg Business app, or watch us live on YouTube. 00:26:09 Speaker 2: Mark McCormick is a wonderful student of the markets. The synthesis is Chief FX strategy for Bemont Capital Marcuts, but he does so much more as well. When you come in the morning, Mark McCormick, on your four Bloombergs, what's the first thing you look at. 00:26:27 Speaker 10: I'm still a WCRS guy, so that's still my top go to I like the bond curve function as well, But say it's been fifteen years of wcrs and look at what's kind of driving FX, because I think it tells us a story about what's going on in the whole world. 00:26:42 Speaker 2: Is it dollar strength or everybody else weakness? 00:26:46 Speaker 10: I think this is dollar strength. I think there was a there's a piece of this story that it was partly a multiphase dollar where it's week Asia, it's week G ten and it's strong Lattam. I think now that the Fedish turn hawkish and we're really focused on a rates factor other than some of these other drivers, Latam's starting to crack as well, So it's becoming a strong dollar move mark. 00:27:06 Speaker 7: Here. 00:27:06 Speaker 5: We kind of came into the year, I think the consensus was for a weaker US dollar, and then of course the war in Iran started and that changed the dynamic quite a bit. And now we've got the DX why you know, well over one hundred once again and one on one spot one. How do you think this plays out over the next six months here in the currency world? 00:27:26 Speaker 6: Where where is their value? 00:27:27 Speaker 7: Perhaps? 00:27:29 Speaker 9: Yeah? 00:27:29 Speaker 10: I think I think what's interesting is right is we're finally kind of catching up to I think a storyline that reinforces the things that we've been pushing for months, which is the FED didn't need to cut. Now it's very arguable that the FED does need to hike at least once, or at least pull some of the cuts out from last year and move towards tighter financial conditions. The second thing is US economy has been quite strong coming into twenty twenty six, and it's picking up further strength into twenty twenty into the second quarter of twenty twenty six. So our growth signals we track, which are very high frequency leading indicators, tell us the US economy is doing better than every other major economy which we attract. We tracked the other thing, US equities out performing most major markets maybe besides a n K and a couple of emerging markets. So you add all these things together. The dollar wins on Carrie, it wins on economic performance, it wins on mostly on equities, and it's on the right side of the terms of trade shock. So you pull all these together and I feel like the market's finally catching up to this story. And the thing that I think actually moves the needle a little bit further because we've been looking for d x Y at one o three for this quarter for a while. Is the trend following models the CTAs, they're the ones that are flipping a long the dollar. Now, they're the ones that take us there. 00:28:46 Speaker 2: Okay, So if we get a Mark McCormick one oh one or one hundred to one oh three, that's a booth. Paul and I said at the same time, Wow, that means the other currencies go down on a domestic basis. McCormick, what does it mean to businesses in Japan, businesses in the Philippines, businesses in Malaysia, businesses in Egypt. If we see this one oh three d x Y. 00:29:15 Speaker 10: I don't know if it's going to have a massive impact on, you know, the local businesses. I think, you know, part of what's so complicated about FX and what's so interesting about how the way world works is it's it's an integrated global supply chain. So there's no longer like my currency goes up and I don't export as much. But I think what's very clear is that when the dollar goes up, it's basically assigned the global economy's week rates are higher, liquidity is tighter. So I think, what these other countries are going to be dealing with our higher interest rates, even though they wouldn't want to deal with higher interest rates. So that's what the you know, the FED curve is basically to impose this onto the rest of the world. So US yields going up, I just think is kind of a very tightening shock for global growth, which in an environment where global growth is already kind of turned negative, which reflects the stronger dollar. Are some of the things they're going to hurt Japan, It's gonna hurt Korea, It's going to hurt these countries around the world. It's just going to tighten their financial conditions and make the economy a little bit weaker. 00:30:13 Speaker 5: Mark, you mentioned Japan, Tom, and I keep a keen eye on the end here one sixty two spot five to three. 00:30:20 Speaker 6: What's going on there? 00:30:23 Speaker 10: I think it's the last time we spoke, we were talking about the red lines in the sand at one sixty Again we kind of like came to the point that we one sixty three is not aligne in the sand. Again, I would highlight some of the things that are driving dollar yen here is even before we have that conversation. The FED is now turning hawkish. The rates factor is the most dominant factor in currencies, and you could argue in Marcus, this isn't just goldilocks, This isn't risk on, risk off. It's something that's new. This is a new policy driven environment where we're going to have more macro volatility. The boj is absolutely behind the curve and they're not going to get ahead of the curve. So now you have rate different along with you know, this is also for Japan, not crude oil story. It's natural gas. So if you look at the contract that's traded in Asia on liquefied natural gas, it hasn't come down. So you're still dealing with a terms of trade shock, You're dealing with higher rates, and you're dealing with an environment where dollar yen should would be between one sixty and one sixty five. I think the new redline in the sand for intervention maybe is one sixty five, because I think they'd like to keep it from going to one seventy. But again my view here is Asian currencies remain weak. 00:31:33 Speaker 2: Mark, thank you so much. Just a terrific brief with the Bank of Montreal, Vemo Capital Markets Mark McCormick, the chief FX strategist. 00:31:41 Speaker 1: This is the Bloomberg Surveillance Podcast, available on apples, Spotify, and anywhere else you get your podcasts. 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