1 00:00:02,520 --> 00:00:13,760 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 2 00:00:13,840 --> 00:00:17,880 Speaker 1: Surveillance Podcast. Catch us live weekdays at seven am Eastern 3 00:00:18,200 --> 00:00:22,000 Speaker 1: on Apple CarPlay or Android Auto with the Bloomberg Business App. 4 00:00:22,320 --> 00:00:25,680 Speaker 1: Listen on demand wherever you get your podcasts, or watch 5 00:00:25,760 --> 00:00:27,040 Speaker 1: us live on YouTube. 6 00:00:27,440 --> 00:00:28,440 Speaker 2: Lorid Cavalcina Drench. 7 00:00:28,600 --> 00:00:32,360 Speaker 3: She's said of US equity strategy for RBC Capital Markets, Larie, 8 00:00:32,400 --> 00:00:34,519 Speaker 3: what have you seen so far in earnings that you 9 00:00:34,920 --> 00:00:35,680 Speaker 3: like maybe. 10 00:00:35,479 --> 00:00:35,960 Speaker 4: Don't like it? 11 00:00:36,120 --> 00:00:37,559 Speaker 2: How's the guide in shaping up for you? 12 00:00:37,680 --> 00:00:39,159 Speaker 5: It's a great question. I'm going to get over the 13 00:00:39,159 --> 00:00:40,960 Speaker 5: fact that you said it's only been three hundred and 14 00:00:40,960 --> 00:00:43,599 Speaker 5: thirty five companies, which means we still have ways to go. 15 00:00:44,280 --> 00:00:46,880 Speaker 5: That's our depressing thought for the morning. But now look, 16 00:00:47,040 --> 00:00:49,080 Speaker 5: I think the tagline we've been using is fine but 17 00:00:49,159 --> 00:00:51,519 Speaker 5: not fabulous, and I might put a comma after that. 18 00:00:51,640 --> 00:00:53,640 Speaker 5: Now after having gone through last week where I think 19 00:00:53,680 --> 00:00:57,080 Speaker 5: we had one hundred and fifty five companies, and I 20 00:00:57,120 --> 00:01:00,960 Speaker 5: would say, comma starting to look messy? Okay, And you know, 21 00:01:00,960 --> 00:01:03,600 Speaker 5: I think the overall headline stats are fine. The rate 22 00:01:03,640 --> 00:01:06,080 Speaker 5: of upward revisions to F y one and f y 23 00:01:06,120 --> 00:01:08,600 Speaker 5: two is like sixty one sixty two percent. That's moved 24 00:01:08,680 --> 00:01:10,479 Speaker 5: up from the mid fifties. That's all well and good. 25 00:01:11,080 --> 00:01:14,080 Speaker 5: You know, we watch very closely the Bloomberg Intelligence data 26 00:01:14,120 --> 00:01:17,559 Speaker 5: where they track the bottom up consensus estimates, and those 27 00:01:17,560 --> 00:01:19,720 Speaker 5: have crept up for both twenty twenty five and twenty 28 00:01:19,760 --> 00:01:22,720 Speaker 5: twenty six. If you think about guidance, we've also been 29 00:01:22,720 --> 00:01:24,520 Speaker 5: looking at some Bloomberg data for this as well, and 30 00:01:24,560 --> 00:01:27,840 Speaker 5: so the guidance stats look pretty good. The problem is, 31 00:01:27,880 --> 00:01:30,479 Speaker 5: I think a lot of this was well anticipated, and 32 00:01:30,560 --> 00:01:33,560 Speaker 5: so you know, coming into reporting season, I heard clients 33 00:01:33,600 --> 00:01:37,319 Speaker 5: talking about FX tailwinds. Guess what stocks aren't reacting all 34 00:01:37,360 --> 00:01:39,560 Speaker 5: that well to beats on FX. I've been hearing that 35 00:01:39,600 --> 00:01:42,360 Speaker 5: from my analysts. And if you think about, you know, 36 00:01:42,400 --> 00:01:44,919 Speaker 5: some of these adjustments to guidance, because hey, the tariff 37 00:01:44,959 --> 00:01:47,400 Speaker 5: rate isn't as bad as we initially baked in. Clients 38 00:01:47,480 --> 00:01:49,920 Speaker 5: knew that was coming as well. So you know, I 39 00:01:49,920 --> 00:01:52,160 Speaker 5: think some of this is falling flat. And when we're 40 00:01:52,200 --> 00:01:56,600 Speaker 5: looking at you know, the demand discussion, frankly, was their 41 00:01:56,640 --> 00:01:59,880 Speaker 5: push in, was their you know pull forward? Were their delays? 42 00:02:00,000 --> 00:02:01,680 Speaker 5: I mean, it still sort of seems to be all 43 00:02:01,720 --> 00:02:04,360 Speaker 5: of the above. The tech companies sound pretty good. I 44 00:02:04,360 --> 00:02:06,880 Speaker 5: don't think there's been too much interruption on the AI story. 45 00:02:07,320 --> 00:02:09,200 Speaker 5: But outside of that, it seems like there's a lot 46 00:02:09,240 --> 00:02:10,919 Speaker 5: of confusion as to how much you know, kind of 47 00:02:10,919 --> 00:02:14,200 Speaker 5: pull in actually happened. You're seeing some companies say there's 48 00:02:14,240 --> 00:02:16,720 Speaker 5: a little bit, you know, of improvement. You know, some 49 00:02:16,760 --> 00:02:20,200 Speaker 5: of that paralysis is alleviating. But frankly, Paul, I mean, 50 00:02:20,400 --> 00:02:23,960 Speaker 5: the level of uncertainty still seems very, very high, and 51 00:02:24,000 --> 00:02:25,600 Speaker 5: that that is concerning me right now. 52 00:02:26,000 --> 00:02:28,200 Speaker 6: Well, even though we've had roughly forty percent of the 53 00:02:28,200 --> 00:02:30,239 Speaker 6: market cap by the S and P five hundred reporting, 54 00:02:30,280 --> 00:02:32,120 Speaker 6: now that we're past most of the tech earnings, we 55 00:02:32,200 --> 00:02:34,680 Speaker 6: still have Nvidia on August twenty seventh. But of course, 56 00:02:34,720 --> 00:02:36,760 Speaker 6: I mean you've noted in your notes declinents. We still 57 00:02:36,760 --> 00:02:39,239 Speaker 6: have a number of consumer names coming in the next 58 00:02:39,240 --> 00:02:41,040 Speaker 6: few weeks. So obviously Paul and I were talking about 59 00:02:41,040 --> 00:02:43,720 Speaker 6: earlier when it comes to McDonald's, Disney, but then you 60 00:02:43,840 --> 00:02:47,000 Speaker 6: still have in a few weeks Walmart and Targets. So 61 00:02:47,160 --> 00:02:49,399 Speaker 6: what are you expecting when it comes to the consumer front, 62 00:02:49,440 --> 00:02:51,959 Speaker 6: and specifically what you might hear about tariffs from them? 63 00:02:52,040 --> 00:02:54,520 Speaker 5: So look, I don't think it's going to be awful, 64 00:02:54,520 --> 00:02:56,160 Speaker 5: but it might be a little bit of cold water. 65 00:02:56,240 --> 00:02:58,079 Speaker 5: And the reason I say that is if you think 66 00:02:58,080 --> 00:03:00,880 Speaker 5: about sort of how reporting sea and unfold. We always 67 00:03:00,880 --> 00:03:02,760 Speaker 5: start out with the financials, and we even saw a 68 00:03:02,800 --> 00:03:04,799 Speaker 5: couple of the credit card companies, you know, I think 69 00:03:04,880 --> 00:03:07,280 Speaker 5: last week and the week before echoed this as well. 70 00:03:07,320 --> 00:03:10,360 Speaker 5: The financial like, hey, everything's fine. Spending is still good, 71 00:03:10,480 --> 00:03:13,239 Speaker 5: and you know, like the delinquencies are low, and people 72 00:03:13,280 --> 00:03:15,440 Speaker 5: are still paying their credit card bills, and you know, 73 00:03:15,480 --> 00:03:17,400 Speaker 5: we're just not seeing anything wrong. 74 00:03:17,960 --> 00:03:18,680 Speaker 7: And then you go and. 75 00:03:18,600 --> 00:03:21,640 Speaker 5: Actually listen to the consumer companies that watch what the 76 00:03:21,639 --> 00:03:24,680 Speaker 5: consumer is actually doing, and you know, maybe the word 77 00:03:24,760 --> 00:03:27,760 Speaker 5: cracks is too strong, but I would say the composition 78 00:03:27,919 --> 00:03:31,280 Speaker 5: of the spend is reflecting a concerned behavior. You know, 79 00:03:31,320 --> 00:03:33,720 Speaker 5: one of the food companies last week actually referred to 80 00:03:33,760 --> 00:03:37,600 Speaker 5: the idea of people stress eating chocolate, right that, which 81 00:03:37,680 --> 00:03:39,960 Speaker 5: was probably one of my favorite quotes from last week. 82 00:03:41,120 --> 00:03:44,160 Speaker 5: But you know, we saw other companies say the consumer 83 00:03:44,200 --> 00:03:47,520 Speaker 5: is under stress and that doesn't result in a collapse 84 00:03:47,560 --> 00:03:50,320 Speaker 5: in consumer spending, but there are some concerning things going on, 85 00:03:50,480 --> 00:03:52,160 Speaker 5: not just from the high end, but the low end 86 00:03:52,200 --> 00:03:55,240 Speaker 5: as well. And the Michigan survey on Friday actually showed 87 00:03:55,240 --> 00:03:58,360 Speaker 5: a downtick and consumer sentiment for low end and lowly 88 00:03:58,440 --> 00:04:02,240 Speaker 5: educated consumers. So there is something amiss We're going to 89 00:04:02,320 --> 00:04:03,560 Speaker 5: hear more about, that is my guess. 90 00:04:03,560 --> 00:04:06,960 Speaker 6: And also promotions, because consumer package good companies, especially coming 91 00:04:06,960 --> 00:04:09,120 Speaker 6: into this year, we're talking so much about those types 92 00:04:09,160 --> 00:04:11,320 Speaker 6: of at the grocery store, buy one, get one fifty 93 00:04:11,320 --> 00:04:13,600 Speaker 6: percent off. What are you hearing so far with any 94 00:04:13,600 --> 00:04:13,840 Speaker 6: of that? 95 00:04:14,160 --> 00:04:16,520 Speaker 5: So I haven't been paying quite as much attention to 96 00:04:16,560 --> 00:04:19,520 Speaker 5: the promotion conversation. But this whole idea of the value 97 00:04:19,560 --> 00:04:22,120 Speaker 5: seeking consumer ranging from like the high end to the 98 00:04:22,120 --> 00:04:25,440 Speaker 5: low end is still very much, you know, present, and 99 00:04:25,760 --> 00:04:27,279 Speaker 5: you know, I've noticed some of the food companies have 100 00:04:27,320 --> 00:04:30,000 Speaker 5: been talking about things like smaller pack sizes. I mean, 101 00:04:30,000 --> 00:04:32,240 Speaker 5: this is sort of going with my own lived experience 102 00:04:32,279 --> 00:04:34,880 Speaker 5: as the model like two little boys to just eat 103 00:04:34,960 --> 00:04:39,200 Speaker 5: and eat and eat. So I think that that value 104 00:04:39,240 --> 00:04:43,440 Speaker 5: consciousness is still translating into behavior and you're seeing it, 105 00:04:43,560 --> 00:04:46,440 Speaker 5: you know, especially for these food companies. There's another company 106 00:04:46,480 --> 00:04:48,360 Speaker 5: I forget who it was, but they were talking about 107 00:04:48,400 --> 00:04:52,000 Speaker 5: how food has just become so much more expensive that 108 00:04:52,200 --> 00:04:55,360 Speaker 5: it's radiating in terms of other purchase decisions, and so 109 00:04:55,400 --> 00:04:58,320 Speaker 5: they can really see where consumers are prioritizing their. 110 00:04:58,160 --> 00:05:01,880 Speaker 2: Spend small bit stocks, what's the call these days? 111 00:05:02,160 --> 00:05:04,400 Speaker 5: So, you know, it's interesting with all these developments in 112 00:05:04,440 --> 00:05:07,320 Speaker 5: the last like forty eight trading hours. You know, I 113 00:05:07,320 --> 00:05:10,120 Speaker 5: think the FED meeting last week through some cold water 114 00:05:10,600 --> 00:05:13,960 Speaker 5: on the small cap trade and Friday was a little 115 00:05:13,960 --> 00:05:16,040 Speaker 5: bit of a mix, right because on the one hand, 116 00:05:16,240 --> 00:05:18,719 Speaker 5: you know, we got this jobs report that said, Okay, 117 00:05:18,720 --> 00:05:21,240 Speaker 5: there may be some deterioration in the labor market that's 118 00:05:21,240 --> 00:05:24,359 Speaker 5: beyond what people had assumed. That is bad for small caps. 119 00:05:24,360 --> 00:05:26,800 Speaker 5: You needs, you need jobs growth to be ramping, to 120 00:05:26,839 --> 00:05:29,960 Speaker 5: be getting better for small caps to outperform. Typically flat 121 00:05:29,960 --> 00:05:33,159 Speaker 5: to decelerating jobs growth doesn't work for them. That being said, 122 00:05:33,480 --> 00:05:36,240 Speaker 5: small caps have become the hedge fund communities one of 123 00:05:36,279 --> 00:05:40,520 Speaker 5: their favorite ways to express FED bets. And so you know, 124 00:05:40,600 --> 00:05:43,400 Speaker 5: when people sort of settled down, you know, and started 125 00:05:43,400 --> 00:05:45,480 Speaker 5: to think about, you know, okay, maybe the cuts are 126 00:05:45,480 --> 00:05:48,640 Speaker 5: coming sooner. That feels we'll see how they trade today, 127 00:05:48,640 --> 00:05:50,279 Speaker 5: but that feels like it should breathe a little bit 128 00:05:50,320 --> 00:05:51,920 Speaker 5: of life into markets and a little bit of life 129 00:05:51,960 --> 00:05:54,279 Speaker 5: into small caps. So I would not be short small caps, 130 00:05:54,560 --> 00:05:56,400 Speaker 5: but I'm not I don't have enough conviction to go 131 00:05:56,440 --> 00:05:57,800 Speaker 5: a long yet either, I'd be neutral. 132 00:05:58,000 --> 00:05:59,520 Speaker 6: If you go to the S and P five hundred 133 00:05:59,560 --> 00:06:01,320 Speaker 6: and then the A our function in the terminal, you 134 00:06:01,360 --> 00:06:04,719 Speaker 6: can see where those consensus estimates are for cell site targets. 135 00:06:04,720 --> 00:06:06,719 Speaker 6: And I know, LORI yours is a sixty two to 136 00:06:06,720 --> 00:06:08,800 Speaker 6: fifty for year end right now. That actually just in 137 00:06:08,880 --> 00:06:11,320 Speaker 6: play about a two tenths of a percent increase from 138 00:06:11,320 --> 00:06:13,520 Speaker 6: where the S and P five hundred closed on Friday. 139 00:06:13,760 --> 00:06:15,680 Speaker 6: So what's your view for the second half of the 140 00:06:15,760 --> 00:06:18,760 Speaker 6: year when we're in what's historically the most seasonally weak 141 00:06:18,839 --> 00:06:20,960 Speaker 6: time period in August and September for equities. 142 00:06:21,040 --> 00:06:23,520 Speaker 5: Yeah, so look, we you know, targets have been tough 143 00:06:23,560 --> 00:06:26,000 Speaker 5: this year, right And I think for us it's designed 144 00:06:26,040 --> 00:06:28,600 Speaker 5: to articulate the path that we think the market is on, 145 00:06:28,760 --> 00:06:30,719 Speaker 5: and the path that we think the market is on. 146 00:06:30,760 --> 00:06:32,599 Speaker 5: We feel like it's a fairly neutral one. We see 147 00:06:32,680 --> 00:06:35,359 Speaker 5: risks on both sides. I do think the sentiment rally 148 00:06:35,360 --> 00:06:38,880 Speaker 5: we've seen since April eighth, that's been consistently our most 149 00:06:38,880 --> 00:06:42,039 Speaker 5: bullish modeling, and that feels like it's kind of done 150 00:06:42,120 --> 00:06:44,160 Speaker 5: at the recent highs about what it's supposed to do. 151 00:06:44,240 --> 00:06:47,440 Speaker 5: It feels like we're ahead of twenty twenty five fundamentals, 152 00:06:47,440 --> 00:06:49,160 Speaker 5: and it feels like we've already priced in a lot 153 00:06:49,160 --> 00:06:51,279 Speaker 5: of good news from twenty twenty six. And my concern 154 00:06:51,360 --> 00:06:54,080 Speaker 5: is that maybe twenty twenty six, while not terrible, ends 155 00:06:54,160 --> 00:06:56,440 Speaker 5: up not being crie as rosy as everybody thinks. So 156 00:06:56,440 --> 00:06:59,080 Speaker 5: that could create some volatility. And as you mentioned, Jess, 157 00:06:59,120 --> 00:07:00,960 Speaker 5: I mean, this is seasonal. If you even just look 158 00:07:01,000 --> 00:07:03,920 Speaker 5: the last five years, August is kind of mixed, September 159 00:07:03,920 --> 00:07:05,720 Speaker 5: and October tend to be bad. And if you went 160 00:07:05,760 --> 00:07:08,120 Speaker 5: back and looked at the twenty eighteen trade war, that 161 00:07:08,320 --> 00:07:11,880 Speaker 5: post Labor Day period was when investors really started to 162 00:07:11,880 --> 00:07:14,240 Speaker 5: get concerned based on what they were hearing from companies 163 00:07:14,280 --> 00:07:16,920 Speaker 5: about the ripple effects of that trade war. So I've 164 00:07:16,960 --> 00:07:18,480 Speaker 5: got all that in the back of my head. I 165 00:07:18,480 --> 00:07:20,800 Speaker 5: don't feel bearish. I know, when you're not as bullish 166 00:07:20,800 --> 00:07:23,120 Speaker 5: as everybody else, that's the box people want to put 167 00:07:23,120 --> 00:07:26,280 Speaker 5: you in. But I feel very neutral, and so that's 168 00:07:26,280 --> 00:07:27,840 Speaker 5: really what the target's trying to express. 169 00:07:28,120 --> 00:07:28,720 Speaker 2: Lloyd, thank you so. 170 00:07:28,760 --> 00:07:29,480 Speaker 3: Much for joining us. 171 00:07:29,520 --> 00:07:30,760 Speaker 2: Really appreciate you coming in to our studio. 172 00:07:30,800 --> 00:07:34,880 Speaker 3: Lori Cavacina, head of US equity strategy at RBC Capital Markets. 173 00:07:40,080 --> 00:07:43,679 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live 174 00:07:43,720 --> 00:07:46,880 Speaker 1: weekday afternoons from seven to ten am Eastern Listen on 175 00:07:47,000 --> 00:07:50,640 Speaker 1: Applecarplay and Android Otto with the Bloomberg Business app, or 176 00:07:50,800 --> 00:07:52,280 Speaker 1: watch us live on YouTube. 177 00:07:52,600 --> 00:07:54,440 Speaker 2: You know what he wanted to talk to, fixing come people, 178 00:07:54,480 --> 00:07:57,000 Speaker 2: cockpit parties. I mean the one in the corner. Nobody 179 00:07:57,040 --> 00:08:01,320 Speaker 2: would be talking to them, no yield, no return. Now 180 00:08:01,320 --> 00:08:02,240 Speaker 2: there's some of the cool kids. 181 00:08:02,320 --> 00:08:03,640 Speaker 6: Now everybody wants to talk to that. 182 00:08:03,760 --> 00:08:06,040 Speaker 3: One of the cool kids is Kathy Jones, chief fixed 183 00:08:06,040 --> 00:08:12,040 Speaker 3: income strategists at Charles Schwab. Kathy, what's the overall called 184 00:08:12,080 --> 00:08:15,360 Speaker 3: here in fixed again? What's Charles Schwab saying these days 185 00:08:15,360 --> 00:08:18,760 Speaker 3: about getting how we should have some exposure to fixed income? 186 00:08:20,960 --> 00:08:22,560 Speaker 4: Good morning, Paul, And no I'm not one of the 187 00:08:22,560 --> 00:08:26,560 Speaker 4: cool kids yet, but I'm trying. How's sad? You know? 188 00:08:26,600 --> 00:08:29,559 Speaker 4: I think that we have been in the camp since 189 00:08:29,640 --> 00:08:33,920 Speaker 4: late last year keeping an intermediate term duration on average, 190 00:08:33,920 --> 00:08:37,280 Speaker 4: meaning somewhere in that five to seven year area for 191 00:08:37,320 --> 00:08:41,560 Speaker 4: an average duration in higher credit quality bonds. We've now 192 00:08:41,600 --> 00:08:44,160 Speaker 4: considered going a little bit longer term. We think that 193 00:08:44,200 --> 00:08:47,000 Speaker 4: these jobs numbers, combined with some of the other numbers 194 00:08:47,000 --> 00:08:50,480 Speaker 4: we've seen lately, do suggest to slow down and activity 195 00:08:50,600 --> 00:08:55,520 Speaker 4: the greater likelihood of FED ray cuts coming, and that 196 00:08:55,679 --> 00:08:58,640 Speaker 4: suggests us that it's not too risky now to extend 197 00:08:58,720 --> 00:09:02,640 Speaker 4: duration a little bit. For I'm here a ten year yield, 198 00:09:02,840 --> 00:09:05,480 Speaker 4: probably not going back to four and a half five 199 00:09:05,559 --> 00:09:08,320 Speaker 4: percent area, probably staying under that four and a half 200 00:09:08,760 --> 00:09:11,240 Speaker 4: And if the FED does end up cutting rates, which 201 00:09:11,240 --> 00:09:14,719 Speaker 4: we think they will in September, then you'll see the 202 00:09:14,760 --> 00:09:17,040 Speaker 4: whole curve shift down, but you probably do a little 203 00:09:17,040 --> 00:09:21,400 Speaker 4: bit better in the intermediate to longer term duration because 204 00:09:21,679 --> 00:09:24,760 Speaker 4: it will be a cut as a result of slower 205 00:09:24,800 --> 00:09:25,760 Speaker 4: economic growth. 206 00:09:26,080 --> 00:09:28,720 Speaker 6: When you're looking at the ten year treasury yield, are 207 00:09:28,720 --> 00:09:31,040 Speaker 6: we in a world we're four and a half percent? 208 00:09:31,120 --> 00:09:32,920 Speaker 6: Maybe the new normal for that? 209 00:09:34,600 --> 00:09:37,480 Speaker 4: Well, I think it's probably at this moment in time, 210 00:09:37,559 --> 00:09:42,280 Speaker 4: the upper end of normal. But yeah, I think you know, 211 00:09:42,559 --> 00:09:45,400 Speaker 4: when we look at where rates were for that long 212 00:09:45,440 --> 00:09:48,040 Speaker 4: period of time, when you know, we couldn't get a 213 00:09:48,080 --> 00:09:50,800 Speaker 4: conversation at a cocktail party because there were so low. 214 00:09:51,760 --> 00:09:55,000 Speaker 4: Now we're going back to you know, what is considered 215 00:09:55,000 --> 00:09:57,760 Speaker 4: more normal. If our normal growth rate is between one 216 00:09:57,760 --> 00:10:00,199 Speaker 4: and a half and two percent. Then a more and 217 00:10:00,240 --> 00:10:04,280 Speaker 4: a half percent ten year yield given two percent inflation, say, 218 00:10:05,200 --> 00:10:09,280 Speaker 4: is probably a more normal kind of standard really yield 219 00:10:09,320 --> 00:10:13,560 Speaker 4: that you would get relative to history. So I think 220 00:10:13,559 --> 00:10:15,600 Speaker 4: that four and a half probably the upper bound for 221 00:10:15,640 --> 00:10:18,760 Speaker 4: the time being, but somewhere around four percent and a 222 00:10:18,840 --> 00:10:20,560 Speaker 4: ten year is probably the new normal. 223 00:10:21,520 --> 00:10:22,760 Speaker 2: Katy, I got credit risk here. 224 00:10:22,800 --> 00:10:26,080 Speaker 3: I'm looking at then GO function on the Bloomberg terminal, 225 00:10:26,080 --> 00:10:28,320 Speaker 3: and I see that the best performance in US fixed 226 00:10:28,320 --> 00:10:32,040 Speaker 3: income has been US corporate high yield. So it looks 227 00:10:32,080 --> 00:10:34,120 Speaker 3: like the market's okay taking some credit risk. 228 00:10:34,160 --> 00:10:34,959 Speaker 2: How do you think about that? 229 00:10:36,720 --> 00:10:39,520 Speaker 4: Yeah, you know, we're a little bit wary of going 230 00:10:39,600 --> 00:10:43,199 Speaker 4: too far down the risk spectrum, the credit spectrum and 231 00:10:43,320 --> 00:10:45,840 Speaker 4: fixing inkin just because you don't get paid for it. 232 00:10:45,840 --> 00:10:48,520 Speaker 4: It doesn't you know, it doesn't give you much spread. 233 00:10:48,880 --> 00:10:54,720 Speaker 4: And the economic fundamentals showing softness means that will probably 234 00:10:54,800 --> 00:10:57,560 Speaker 4: see those default rates go up on the lowest credit 235 00:10:57,640 --> 00:11:00,720 Speaker 4: quality bonds. They're a little bit careful of that. But 236 00:11:00,800 --> 00:11:05,240 Speaker 4: look high yield. As long as there's no recession, you 237 00:11:05,360 --> 00:11:07,320 Speaker 4: get a lot of yield in that yield is what 238 00:11:07,400 --> 00:11:12,280 Speaker 4: gives you the total return. It's been a very calm market, 239 00:11:12,840 --> 00:11:15,200 Speaker 4: and that's a lot of people to hang in there 240 00:11:15,360 --> 00:11:18,240 Speaker 4: in high yield. So our perspective is it's okay to 241 00:11:18,280 --> 00:11:21,480 Speaker 4: have some allocation to high yield. We wouldn't over allocate 242 00:11:21,559 --> 00:11:23,600 Speaker 4: to it, but you have to be ready to ride 243 00:11:23,640 --> 00:11:26,040 Speaker 4: the ups and downs in that. From a long term perspective, 244 00:11:26,080 --> 00:11:29,240 Speaker 4: those yields are pretty attractive and you compound them over 245 00:11:29,320 --> 00:11:31,920 Speaker 4: time and that that gives you a decent total return. 246 00:11:32,360 --> 00:11:34,600 Speaker 4: But you're going to have a lot more volatility there 247 00:11:34,600 --> 00:11:39,360 Speaker 4: and a lot more correlation with equities, So allocation matter, 248 00:11:39,520 --> 00:11:43,160 Speaker 4: Sizing the position in high yield is really important. 249 00:11:43,640 --> 00:11:46,200 Speaker 6: What's top of mind for you on the economic calendar 250 00:11:46,200 --> 00:11:48,160 Speaker 6: this week? I know we have durable goods orders coming 251 00:11:48,160 --> 00:11:50,520 Speaker 6: out at ten a m. New York time later this morning. 252 00:11:52,160 --> 00:11:55,880 Speaker 4: Oh, jobless claims, you know, anything to do with the 253 00:11:55,960 --> 00:11:59,160 Speaker 4: labor market right now is really top of mind for 254 00:11:59,280 --> 00:12:03,520 Speaker 4: us because we've seen such big revisions. We've seen so 255 00:12:03,600 --> 00:12:06,600 Speaker 4: much attention now to the job market. It is a 256 00:12:06,600 --> 00:12:09,000 Speaker 4: bell weather for the FAD obviously because it's part of 257 00:12:09,000 --> 00:12:12,360 Speaker 4: their mandate. So we'll really those weekly jobless claims take 258 00:12:12,400 --> 00:12:13,800 Speaker 4: on a lot more importance now. 259 00:12:14,200 --> 00:12:18,400 Speaker 3: Hey, Kathy, as a bond investor, what's this week dollar 260 00:12:18,480 --> 00:12:20,280 Speaker 3: mean for you guys. I mean, we've seen the stocks 261 00:12:20,320 --> 00:12:23,080 Speaker 3: bounce back, a lot of other risk assets that bounced 262 00:12:23,080 --> 00:12:27,280 Speaker 3: back after the sell off earlier in the year from Liberation. 263 00:12:26,920 --> 00:12:28,760 Speaker 2: Day, but the dollar really hasn't still down. 264 00:12:28,800 --> 00:12:30,600 Speaker 3: The Bloomberg dollar in next is still down about eight 265 00:12:30,600 --> 00:12:32,000 Speaker 3: and a half percent this year. 266 00:12:32,000 --> 00:12:34,080 Speaker 2: What does that mean for bond investors? 267 00:12:35,240 --> 00:12:36,880 Speaker 4: Well, I think it's a good I mean, it's a 268 00:12:36,880 --> 00:12:41,120 Speaker 4: good indication that the market expects those interest rate differentials 269 00:12:41,120 --> 00:12:44,240 Speaker 4: to narrow visa the say Europe and some of the 270 00:12:44,240 --> 00:12:49,000 Speaker 4: other major countries. It makes international investing in bonds a 271 00:12:49,040 --> 00:12:52,520 Speaker 4: bit more attractive. It's been a good ten fifteen years 272 00:12:52,559 --> 00:12:55,200 Speaker 4: since that's really been an attractive option for a lot 273 00:12:55,200 --> 00:12:58,880 Speaker 4: of investors, particularly in developed markets. But now if we're 274 00:12:58,920 --> 00:13:01,080 Speaker 4: going to see the dollar go down, it's a big 275 00:13:01,120 --> 00:13:06,040 Speaker 4: component of return when you invest in international developed market bonds, 276 00:13:06,080 --> 00:13:10,839 Speaker 4: So it means diversification actually is an opportunity. Now you 277 00:13:10,320 --> 00:13:13,800 Speaker 4: still still get somewhat lower yield, but the play on 278 00:13:13,840 --> 00:13:16,360 Speaker 4: the currency side, if we're right that it continues to 279 00:13:16,400 --> 00:13:19,640 Speaker 4: go down, can give you pretty good returns. And actually 280 00:13:19,800 --> 00:13:24,800 Speaker 4: year to date, the strongest performing sub asset class in 281 00:13:24,880 --> 00:13:28,240 Speaker 4: fixed income is international developed market bonds. Because of that 282 00:13:28,320 --> 00:13:28,800 Speaker 4: dropping the. 283 00:13:28,840 --> 00:13:30,960 Speaker 6: Dollar, where do you see the long end of the 284 00:13:30,960 --> 00:13:34,800 Speaker 6: treasury yield curve headed and do you think that will 285 00:13:34,840 --> 00:13:38,240 Speaker 6: remain more stable when you're thinking compared with the short 286 00:13:38,320 --> 00:13:40,439 Speaker 6: end that could potentially rally the Fed does begin to 287 00:13:40,520 --> 00:13:41,880 Speaker 6: lean more dubbish into year end. 288 00:13:43,440 --> 00:13:47,080 Speaker 4: Yeah, we're still looking for a steeper yield curve with 289 00:13:47,240 --> 00:13:51,360 Speaker 4: a short end kind of leaning leading rates down and 290 00:13:51,480 --> 00:13:54,200 Speaker 4: the long end kind of hanging in there coming down. 291 00:13:54,360 --> 00:13:57,160 Speaker 4: Seeing yields come down at the long end, But I 292 00:13:57,200 --> 00:14:01,240 Speaker 4: think given that inflation is still elevated, we have components 293 00:14:01,240 --> 00:14:05,599 Speaker 4: of policy that are bearish for long term bonds or 294 00:14:05,600 --> 00:14:09,520 Speaker 4: at least limit the decline and yields in long term bonds. 295 00:14:09,520 --> 00:14:15,680 Speaker 4: So between deficit financing that's coming up and the inflationary 296 00:14:16,640 --> 00:14:20,480 Speaker 4: impact of tariffs, most likely what we'll see is that 297 00:14:20,640 --> 00:14:23,280 Speaker 4: steeper yield curve, so the whole thing shifts down, but 298 00:14:23,400 --> 00:14:25,520 Speaker 4: much more at the short end that at the longer end. 299 00:14:26,000 --> 00:14:28,000 Speaker 2: Kathy, thank you so much for joining us. Appreciate it 300 00:14:28,040 --> 00:14:28,640 Speaker 2: as always. 301 00:14:28,720 --> 00:14:33,160 Speaker 3: Kathy Jones, chief fixed income strategist at Charles Schwab. 302 00:14:33,720 --> 00:14:37,640 Speaker 1: This is the Bloomberg Surveillance podcast. Listen live each weekday 303 00:14:37,680 --> 00:14:40,720 Speaker 1: starting at seven am Eastern on Apple Coarclay, and Android 304 00:14:40,720 --> 00:14:43,760 Speaker 1: Auto with the Bloomberg Business app. You can also listen 305 00:14:43,840 --> 00:14:47,080 Speaker 1: live on Amazon Alexa from our flagship New York station, 306 00:14:47,640 --> 00:14:50,320 Speaker 1: Just say Alexa play Bloomberg eleven thirty. 307 00:14:50,600 --> 00:14:55,160 Speaker 3: Kara Murphy joins is she's a CIO of Kestrip Investment Management. Caar, 308 00:14:55,320 --> 00:14:58,800 Speaker 3: what's the call to your clients these days? Here we've 309 00:14:58,840 --> 00:15:01,320 Speaker 3: got the earning coming in. We've got to fed that 310 00:15:01,400 --> 00:15:03,880 Speaker 3: I guess is going to cut once or twice this year. 311 00:15:04,320 --> 00:15:07,840 Speaker 3: Is that enough to be supportive of risk assets these days? 312 00:15:09,160 --> 00:15:11,520 Speaker 7: I think that's the That's the important question. And what 313 00:15:11,560 --> 00:15:16,520 Speaker 7: we've seen is this like battling narrative between policy uncertainty 314 00:15:16,560 --> 00:15:19,080 Speaker 7: and big changes when it comes to things like tariffs. 315 00:15:19,640 --> 00:15:22,360 Speaker 7: But then underlying, when you look at companies earning potential, 316 00:15:22,400 --> 00:15:25,680 Speaker 7: it continues to come in quite strong. So obviously we've 317 00:15:25,720 --> 00:15:28,840 Speaker 7: seen a lot of noise from tariffs coming into you know, 318 00:15:28,880 --> 00:15:31,320 Speaker 7: you saw GDP much weaker in the second quarter. You've 319 00:15:31,320 --> 00:15:34,000 Speaker 7: seen earnings take a slow down in the second quarter. 320 00:15:34,720 --> 00:15:37,520 Speaker 7: Late last week we had their revised jobs numbers coming down. 321 00:15:37,560 --> 00:15:40,680 Speaker 7: So it's definitely taking an impact. But then when you 322 00:15:40,760 --> 00:15:43,360 Speaker 7: hear companies talk about their outlooks for the second half, 323 00:15:43,480 --> 00:15:46,080 Speaker 7: those are still coming in pretty good, and so those 324 00:15:46,200 --> 00:15:48,120 Speaker 7: will continue to support stock prices. 325 00:15:48,640 --> 00:15:48,840 Speaker 4: Well. 326 00:15:48,920 --> 00:15:52,160 Speaker 6: City Group was pointing out Stukeiser how they're crunching some 327 00:15:52,200 --> 00:15:54,080 Speaker 6: of the numbers here. The S and P five hundred 328 00:15:54,480 --> 00:15:57,040 Speaker 6: average stock has moved about five point two percent in 329 00:15:57,080 --> 00:15:59,760 Speaker 6: either direction for the second quarter earning season, and that's 330 00:15:59,760 --> 00:16:02,640 Speaker 6: the and their data history going back to twenty twelve 331 00:16:02,720 --> 00:16:06,320 Speaker 6: at this point in the earning season cycle. So I'm 332 00:16:06,360 --> 00:16:09,400 Speaker 6: actually curious when you're looking at these kind of names, Kara, 333 00:16:09,520 --> 00:16:11,960 Speaker 6: as far as when you're having more volatility within some 334 00:16:12,000 --> 00:16:14,720 Speaker 6: of these single stocks, where are you seeing those types 335 00:16:14,720 --> 00:16:16,120 Speaker 6: of opportunities and what are you buying? 336 00:16:16,120 --> 00:16:16,760 Speaker 8: What are you selling? 337 00:16:17,760 --> 00:16:20,160 Speaker 7: Yeah, And I think it's very interesting to point to that, 338 00:16:20,280 --> 00:16:23,000 Speaker 7: because when you look at, say, like the percentage of 339 00:16:23,040 --> 00:16:26,680 Speaker 7: companies who are beating estimates relative to what you typically 340 00:16:26,720 --> 00:16:29,120 Speaker 7: see in history, we're pretty much on the nose with 341 00:16:29,320 --> 00:16:33,040 Speaker 7: long term averages. So in terms of like the overall 342 00:16:33,160 --> 00:16:36,760 Speaker 7: earnings power of the S and P five hundred companies, 343 00:16:37,480 --> 00:16:39,680 Speaker 7: they are about like where we had expected them to be. 344 00:16:39,840 --> 00:16:42,320 Speaker 7: But you're right, and that what we've seen that's different 345 00:16:42,400 --> 00:16:46,800 Speaker 7: this particular season is that investors are rewarding those who 346 00:16:46,880 --> 00:16:50,240 Speaker 7: beat and punishing more those who miss. So I think 347 00:16:50,280 --> 00:16:52,080 Speaker 7: part of this is that as you think about the 348 00:16:52,160 --> 00:16:54,000 Speaker 7: rebound that we had off of the low in the 349 00:16:54,000 --> 00:16:56,320 Speaker 7: market in late April, it was sort of a buy 350 00:16:56,520 --> 00:16:59,640 Speaker 7: everything type of rally. Now, as we're seeing numbers or 351 00:16:59,720 --> 00:17:02,920 Speaker 7: under standing a little bit more how individual companies are impacted, 352 00:17:03,200 --> 00:17:05,719 Speaker 7: you're seeing the market really differentiate between those who can 353 00:17:05,760 --> 00:17:07,000 Speaker 7: earn and those who are struggling. 354 00:17:07,400 --> 00:17:07,680 Speaker 5: Parah. 355 00:17:08,080 --> 00:17:12,359 Speaker 3: This is an equity market that increasingly is concentrated in 356 00:17:12,760 --> 00:17:16,159 Speaker 3: you know, a handful a dozen names, big tech names, 357 00:17:16,200 --> 00:17:18,480 Speaker 3: and I don't know, I learned in business school that's 358 00:17:18,480 --> 00:17:21,200 Speaker 3: not necessarily a good thing. How do you think about 359 00:17:21,240 --> 00:17:23,840 Speaker 3: that as a risk, maybe as an opportunity, I'm not sure. 360 00:17:25,080 --> 00:17:28,679 Speaker 7: I think this is definitely a risk for broad market investors. 361 00:17:28,720 --> 00:17:30,399 Speaker 7: And this is one of the main risks that we 362 00:17:30,480 --> 00:17:32,400 Speaker 7: had pointed to at the beginning of the year. So 363 00:17:32,480 --> 00:17:36,680 Speaker 7: this high valuations and policy uncertainty. So we saw policy 364 00:17:36,680 --> 00:17:39,320 Speaker 7: on uncertainty rear its ugly head in the second quarter. 365 00:17:40,119 --> 00:17:42,000 Speaker 7: But then with this rebound in the market, we are 366 00:17:42,119 --> 00:17:45,320 Speaker 7: back to like a super concentrated market, and as long 367 00:17:45,359 --> 00:17:48,879 Speaker 7: as those like Magnificent seven names or whatever's leading the market, 368 00:17:48,880 --> 00:17:50,960 Speaker 7: as long as those names continue to be able to 369 00:17:51,000 --> 00:17:54,879 Speaker 7: show earning's power, I think we're okay. That said, that 370 00:17:55,000 --> 00:17:59,359 Speaker 7: concentration combined with really high valuations make a market more vulnerable. 371 00:17:59,440 --> 00:18:02,160 Speaker 7: That doesn't mean it's going to turn down, but if 372 00:18:02,200 --> 00:18:05,040 Speaker 7: that earnings picture starts to change, then the whole index 373 00:18:05,160 --> 00:18:08,040 Speaker 7: is really at risk. So we've been, you know, big advocates. 374 00:18:08,119 --> 00:18:09,960 Speaker 7: We think twenty twenty five is the year of the 375 00:18:10,040 --> 00:18:13,800 Speaker 7: diversification trade, which hasn't been a very sort of sexy 376 00:18:13,840 --> 00:18:16,440 Speaker 7: thing to talk about, but we've seen it actually work. 377 00:18:16,520 --> 00:18:20,119 Speaker 7: So bonds suddenly matter, Owning things outside the US suddenly matters. 378 00:18:20,200 --> 00:18:22,560 Speaker 7: We think it's important to own things outside of those 379 00:18:22,640 --> 00:18:25,479 Speaker 7: big names, and that's going to provide you the cushion 380 00:18:25,480 --> 00:18:27,159 Speaker 7: that you need over the next couple of years. 381 00:18:27,359 --> 00:18:29,959 Speaker 6: Of course, we have Palenteer reporting after the Bell today, 382 00:18:30,000 --> 00:18:32,959 Speaker 6: another big name that has moved markets and especially had 383 00:18:32,960 --> 00:18:35,440 Speaker 6: been added to the S and P five hundred most 384 00:18:35,520 --> 00:18:38,160 Speaker 6: recently too. When you're thinking about some of these names 385 00:18:38,200 --> 00:18:40,200 Speaker 6: that are coming up, what's the most important company names 386 00:18:40,200 --> 00:18:41,600 Speaker 6: to you that you're going to be keeping a close 387 00:18:41,600 --> 00:18:43,360 Speaker 6: eye on as far as waitings and what could move 388 00:18:43,400 --> 00:18:45,480 Speaker 6: markets more so so. 389 00:18:45,560 --> 00:18:47,199 Speaker 7: I think, you know, we've talked a lot about the 390 00:18:47,240 --> 00:18:49,760 Speaker 7: AI trade, and obviously that's been a really important mover 391 00:18:49,800 --> 00:18:52,560 Speaker 7: of the markets over the last couple of years, and 392 00:18:52,600 --> 00:18:55,159 Speaker 7: it's important not just for those individual companies, but what 393 00:18:55,200 --> 00:18:58,040 Speaker 7: it means for things like productivity of the US economy, 394 00:18:58,240 --> 00:19:00,639 Speaker 7: you know, for the foreseeable future. Think that's going to 395 00:19:00,680 --> 00:19:03,160 Speaker 7: continue to be a trend. So being able to hear 396 00:19:03,280 --> 00:19:05,800 Speaker 7: not just about the capital investments being made there that's 397 00:19:05,840 --> 00:19:08,399 Speaker 7: almost easy to do, but what are the actual returns 398 00:19:08,400 --> 00:19:09,720 Speaker 7: on those capital investments? 399 00:19:10,880 --> 00:19:13,560 Speaker 3: Ker fixed income? What's the play here for you? Because 400 00:19:13,560 --> 00:19:15,760 Speaker 3: I look at the returns on the Bloomberg Total Return 401 00:19:15,800 --> 00:19:17,720 Speaker 3: in next I see corporate high yield has been the 402 00:19:17,760 --> 00:19:18,760 Speaker 3: best returner this year. 403 00:19:19,760 --> 00:19:23,600 Speaker 7: Yeah, and typically that's like the most correlated with equity returns. 404 00:19:23,600 --> 00:19:25,679 Speaker 7: So it kind of makes sense is you have a 405 00:19:25,680 --> 00:19:28,920 Speaker 7: big rallying market that that's going to perform well. That said, 406 00:19:28,960 --> 00:19:30,679 Speaker 7: we have some of the same issues in that asset 407 00:19:30,680 --> 00:19:32,800 Speaker 7: class that we do in some of the really large 408 00:19:32,800 --> 00:19:35,879 Speaker 7: equities in that there's not a lot of risk priced 409 00:19:35,880 --> 00:19:39,520 Speaker 7: into those markets. So you have extremely tight credit spreads. 410 00:19:40,240 --> 00:19:42,640 Speaker 7: That said, when we look at like corporate America overall, 411 00:19:42,680 --> 00:19:45,760 Speaker 7: we think it's fairly healthy, and so we be biased 412 00:19:45,800 --> 00:19:48,280 Speaker 7: towards more higher grade corporates where you can get a 413 00:19:48,280 --> 00:19:51,200 Speaker 7: little bit more absolute yield, but you're not as vulnerable 414 00:19:51,280 --> 00:19:52,840 Speaker 7: to say it turned down in credit. 415 00:19:54,280 --> 00:19:57,520 Speaker 6: So when you're speaking with clients, what are their top 416 00:19:57,760 --> 00:20:00,480 Speaker 6: concerns whenever they're speaking with you right now. 417 00:20:01,520 --> 00:20:04,000 Speaker 7: Well, it often depends what side of the aisle they're on. 418 00:20:04,680 --> 00:20:07,480 Speaker 7: So folks on the left of the aisle are very 419 00:20:07,480 --> 00:20:12,520 Speaker 7: concerned about policy risk, political encroachment of you know, sort 420 00:20:12,520 --> 00:20:15,080 Speaker 7: of economic institutions. If you're on the right side of 421 00:20:15,080 --> 00:20:17,400 Speaker 7: the market, I think you feel or sorry, right side 422 00:20:17,400 --> 00:20:18,960 Speaker 7: of the political isle, I think you feel a lot 423 00:20:19,000 --> 00:20:22,399 Speaker 7: better generally about the market. And they're focusing more on 424 00:20:22,440 --> 00:20:25,000 Speaker 7: some of the things like the policy changes that we 425 00:20:25,080 --> 00:20:28,440 Speaker 7: got with the one big beautiful bill, accelerating capital investments, 426 00:20:28,480 --> 00:20:29,080 Speaker 7: that sort of thing. 427 00:20:29,880 --> 00:20:31,040 Speaker 2: Karen, thanks so much for joining us. 428 00:20:31,040 --> 00:20:35,760 Speaker 3: Appreciate it as always, Kara Murphy, cio of Kestre Investment Management. 429 00:20:42,080 --> 00:20:46,000 Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday 430 00:20:46,040 --> 00:20:49,040 Speaker 1: starting at seven am Eastern on Apple cockplay and Android 431 00:20:49,080 --> 00:20:52,080 Speaker 1: auto with the Bloomberg Business app. You can also watch 432 00:20:52,119 --> 00:20:55,080 Speaker 1: us live every weekday on YouTube and always on the 433 00:20:55,119 --> 00:20:56,200 Speaker 1: Bloomberg terminal. 434 00:20:56,359 --> 00:21:00,520 Speaker 3: S a best day All office CEO O Wes Advisory. 435 00:21:00,520 --> 00:21:02,680 Speaker 3: She's in our studio here, which is a very good thing. 436 00:21:03,840 --> 00:21:06,280 Speaker 3: What are you doing with these markets here? I mean, boy, 437 00:21:06,320 --> 00:21:09,919 Speaker 3: we've had an unbelievable volatility to get to hear the 438 00:21:10,000 --> 00:21:12,840 Speaker 3: early parts of August. Now we're up eight nine percent. 439 00:21:12,840 --> 00:21:16,919 Speaker 3: It's like nothing happened. But it's obviously been a very challenging, 440 00:21:17,359 --> 00:21:18,760 Speaker 3: volatile year to date. 441 00:21:19,080 --> 00:21:21,440 Speaker 2: How do you reset for your clients here in August. 442 00:21:21,720 --> 00:21:25,680 Speaker 9: We're having lots of conversations, but to be honest, we're optimistic. 443 00:21:25,840 --> 00:21:30,680 Speaker 9: We're excited about the markets moving forward. They are vulnerable, right, 444 00:21:30,680 --> 00:21:32,560 Speaker 9: so we're paying attention to that. But we're having a 445 00:21:32,600 --> 00:21:36,639 Speaker 9: lot of conversations with clients. For clients that don't need 446 00:21:36,640 --> 00:21:40,760 Speaker 9: to have as much stock exposure, we're rebalancing, we're pulling back. 447 00:21:40,800 --> 00:21:43,680 Speaker 9: We have our cash set asides. First things first, what's 448 00:21:43,720 --> 00:21:46,640 Speaker 9: your cash flow need for the next twelve eighteen months, 449 00:21:46,760 --> 00:21:48,960 Speaker 9: So we have that cash aside, But for the rest 450 00:21:48,960 --> 00:21:52,000 Speaker 9: of it, we're excited on equities, not only public equities, 451 00:21:52,080 --> 00:21:53,440 Speaker 9: but private markets as well. 452 00:21:53,560 --> 00:21:57,120 Speaker 6: When we last spoke in June, you were neutral weight equities. 453 00:21:57,119 --> 00:21:58,200 Speaker 6: Are you still neutral? 454 00:21:58,560 --> 00:21:59,640 Speaker 8: Still neutral weight? 455 00:21:59,800 --> 00:22:03,639 Speaker 9: We still have the same mix of public equity exposure, 456 00:22:03,800 --> 00:22:07,280 Speaker 9: quality growth companies and some dividend stocks. That's the primary 457 00:22:07,280 --> 00:22:11,639 Speaker 9: focus of our portfolio. We did increase also our international 458 00:22:11,640 --> 00:22:15,720 Speaker 9: exposure slightly since then, but for the most part, our portfolio, 459 00:22:15,960 --> 00:22:18,760 Speaker 9: our public equity portfolios are intact. 460 00:22:18,800 --> 00:22:19,680 Speaker 8: Over the last few. 461 00:22:19,480 --> 00:22:23,000 Speaker 6: Months, we're internationally, do you see opportunities mainly Europe? 462 00:22:23,119 --> 00:22:26,240 Speaker 9: It's mostly Europe exposure. That we have a little bit 463 00:22:26,240 --> 00:22:28,919 Speaker 9: of emerging markets, but it's mainly Europe that we added 464 00:22:28,920 --> 00:22:29,760 Speaker 9: to that. 465 00:22:30,920 --> 00:22:35,159 Speaker 8: You know, the defense spending that the German Germans or 466 00:22:35,400 --> 00:22:36,159 Speaker 8: were committed to. 467 00:22:36,600 --> 00:22:39,359 Speaker 9: That takes some time to play in, but we expect 468 00:22:39,400 --> 00:22:43,240 Speaker 9: that going forward. So you're is the biggest international exposure. 469 00:22:43,880 --> 00:22:46,480 Speaker 3: How much cash are you holding now versus maybe, I 470 00:22:46,520 --> 00:22:48,000 Speaker 3: don't know, kind of an average for you. 471 00:22:47,880 --> 00:22:52,159 Speaker 9: Guys, we're pretty fully invested for the clients that don't 472 00:22:52,280 --> 00:22:55,920 Speaker 9: need cash, Okay, okay, So for anyone that doesn't need 473 00:22:56,040 --> 00:22:57,879 Speaker 9: cash or doesn't expect. 474 00:22:57,400 --> 00:22:59,720 Speaker 8: To need cash, we're pretty fully invested. 475 00:22:59,720 --> 00:23:03,720 Speaker 9: Having said that, we do have some fixed income set 476 00:23:03,760 --> 00:23:07,720 Speaker 9: asides because life happens, and of course unexpected cash needs 477 00:23:07,720 --> 00:23:08,120 Speaker 9: come up. 478 00:23:08,320 --> 00:23:09,480 Speaker 8: But for those that have. 479 00:23:09,400 --> 00:23:13,120 Speaker 9: A monthly or annual distribution, I have twelve to eighteen 480 00:23:13,160 --> 00:23:16,040 Speaker 9: months of cash aside. For everybody else, I want to 481 00:23:16,040 --> 00:23:19,600 Speaker 9: be fully invested. And you know that doesn't mean we 482 00:23:19,640 --> 00:23:23,040 Speaker 9: can't take advantage of the dips with our fixed income exposure, 483 00:23:23,240 --> 00:23:24,720 Speaker 9: but I want to be fully invested. 484 00:23:25,320 --> 00:23:27,480 Speaker 6: One of the defensive names that you had brought up 485 00:23:27,760 --> 00:23:30,200 Speaker 6: the last time we were speaking was Lockheed Martin. When 486 00:23:30,200 --> 00:23:32,439 Speaker 6: you're looking more specifically in the US, how are you 487 00:23:32,560 --> 00:23:33,600 Speaker 6: viewing that stock now? 488 00:23:34,080 --> 00:23:36,919 Speaker 9: So you know, going back to the European theme, the 489 00:23:36,960 --> 00:23:40,400 Speaker 9: European defense spending that I think will play out, Lockheed 490 00:23:40,400 --> 00:23:43,440 Speaker 9: Martin has a good percentage of their of their revenues 491 00:23:43,440 --> 00:23:47,480 Speaker 9: coming from overseas. So still positive on that name. Even 492 00:23:47,520 --> 00:23:49,680 Speaker 9: more so, I'll say, you know that's a defense company, 493 00:23:49,680 --> 00:23:51,400 Speaker 9: of course, Defense. 494 00:23:51,040 --> 00:23:53,679 Speaker 8: Tech shield AIE. So I'm looking more so in the 495 00:23:53,680 --> 00:23:54,280 Speaker 8: private market. 496 00:23:54,359 --> 00:23:57,200 Speaker 9: So we have our public exposure with Lockheed, but looking 497 00:23:57,240 --> 00:23:59,479 Speaker 9: at some private markets as well, So and or Ill 498 00:23:59,560 --> 00:24:02,600 Speaker 9: you may have heard of Defense Tex Shield AI. That's 499 00:24:02,640 --> 00:24:05,640 Speaker 9: another exciting one. So again looking at defense not only 500 00:24:05,680 --> 00:24:08,080 Speaker 9: in public but private market's more interesting. 501 00:24:08,160 --> 00:24:08,800 Speaker 7: It's kind of where I. 502 00:24:08,800 --> 00:24:10,199 Speaker 3: Want to go because in your notes you say you 503 00:24:10,320 --> 00:24:13,919 Speaker 3: like venture growth. What is venture growth and how do 504 00:24:14,000 --> 00:24:16,000 Speaker 3: you get your client's exposure to venture growth? 505 00:24:16,119 --> 00:24:20,159 Speaker 9: Yes, great question. So venture growth private companies. They're not 506 00:24:20,480 --> 00:24:24,520 Speaker 9: early stage venture. These are companies that are closed to 507 00:24:24,560 --> 00:24:28,480 Speaker 9: profitability or at profitability or in line of sight of 508 00:24:28,520 --> 00:24:32,080 Speaker 9: profitability two to three years out from an IPO or 509 00:24:32,119 --> 00:24:36,119 Speaker 9: an M and a liquidity event. But venture growth companies 510 00:24:36,240 --> 00:24:39,720 Speaker 9: have been you know, we saw the peak of venture 511 00:24:39,760 --> 00:24:43,320 Speaker 9: bubble in twenty twenty one. Since then, valuations have been 512 00:24:43,359 --> 00:24:47,800 Speaker 9: pretty muted, so posed to public markets where valuations are 513 00:24:47,800 --> 00:24:50,399 Speaker 9: on the higher end. And we have a concentration in 514 00:24:50,440 --> 00:24:53,399 Speaker 9: the SNP right, forty percent of the s and P 515 00:24:53,600 --> 00:24:56,359 Speaker 9: made up of ten names looking at private markets. So 516 00:24:56,400 --> 00:24:59,960 Speaker 9: how do we get access It's it's a lot of work. 517 00:25:00,119 --> 00:25:03,520 Speaker 9: We do have a fund set up. That first fund 518 00:25:03,600 --> 00:25:07,000 Speaker 9: is closed. I mentioned Andreil shield Ai that fund is closed, 519 00:25:07,160 --> 00:25:10,400 Speaker 9: but we have a fund. We bring investors together and 520 00:25:10,440 --> 00:25:13,439 Speaker 9: we do a lot of networking, deal making, talking to 521 00:25:13,480 --> 00:25:15,720 Speaker 9: a lot of different people to get access to some 522 00:25:15,760 --> 00:25:16,800 Speaker 9: of these private companies. 523 00:25:17,040 --> 00:25:19,959 Speaker 6: And speaking of those private companies, something you brought up 524 00:25:19,960 --> 00:25:22,080 Speaker 6: in recent months was Recess when it comes to those 525 00:25:22,160 --> 00:25:25,439 Speaker 6: alternative soft drink makers, talk to us more about that 526 00:25:25,480 --> 00:25:28,120 Speaker 6: for people who might not know enough about that and 527 00:25:28,160 --> 00:25:30,240 Speaker 6: why you see those types of opportunities there. 528 00:25:30,440 --> 00:25:33,400 Speaker 8: Sure, So Recess is a beverage company. 529 00:25:34,040 --> 00:25:37,040 Speaker 9: You may have heard magnesium helps us sleep that night, 530 00:25:37,280 --> 00:25:42,760 Speaker 9: makes us calm down, relax, So maybe you want to 531 00:25:42,840 --> 00:25:46,359 Speaker 9: try some Recess drinks. What's been interesting is the growth 532 00:25:46,520 --> 00:25:51,440 Speaker 9: rate of beverages Better for You beverages and all non 533 00:25:51,480 --> 00:25:55,720 Speaker 9: alcoholic beverages. That growth rate has been faster than alcoholic beverages. 534 00:25:55,800 --> 00:25:59,280 Speaker 9: So Recess is one of those companies that that has 535 00:25:59,320 --> 00:26:02,680 Speaker 9: that magnesem and more calming effects. So if you don't 536 00:26:02,680 --> 00:26:05,480 Speaker 9: want an alcoholic beverage because you don't want the effects 537 00:26:05,520 --> 00:26:08,320 Speaker 9: the next day, this is a healthier. 538 00:26:07,760 --> 00:26:10,679 Speaker 8: And you know a lot of the younger generation looking 539 00:26:10,720 --> 00:26:11,200 Speaker 8: at you. 540 00:26:11,119 --> 00:26:13,600 Speaker 9: Know, wellness and health care. How are we more healthy? 541 00:26:13,680 --> 00:26:15,280 Speaker 9: So this plays right into that space. 542 00:26:15,760 --> 00:26:18,520 Speaker 2: It's like when I'm thirsty, I get some water to drink. 543 00:26:18,760 --> 00:26:21,880 Speaker 2: The kids hydrate. That's the difference. 544 00:26:22,080 --> 00:26:24,359 Speaker 3: I'm like, why are you filling up a jug of 545 00:26:24,480 --> 00:26:26,320 Speaker 3: water when I need to get back to the studio 546 00:26:26,359 --> 00:26:28,800 Speaker 3: in thirty seconds to fill up my little cup of water. 547 00:26:29,119 --> 00:26:30,040 Speaker 5: You're never draating. 548 00:26:30,320 --> 00:26:34,440 Speaker 2: They are okay, all right, very good alternatives. So ASTI, 549 00:26:34,520 --> 00:26:35,840 Speaker 2: how do you guys think about alternatives? 550 00:26:35,960 --> 00:26:39,159 Speaker 3: Like as an allocation? Is it five percent, is it 551 00:26:39,280 --> 00:26:40,560 Speaker 3: zero or is it something more? 552 00:26:40,680 --> 00:26:45,840 Speaker 9: It's more so alternatives broad category. So there are different 553 00:26:45,920 --> 00:26:50,280 Speaker 9: kinds of alternatives. But let's say in our typical portfolio 554 00:26:50,280 --> 00:26:52,879 Speaker 9: of a seventy percent equity or what was thought of 555 00:26:52,920 --> 00:26:56,200 Speaker 9: as a typical seventy thirty portfolio, we have a good 556 00:26:56,359 --> 00:27:00,960 Speaker 9: ten to fifteen percent of alternative investments, not only private 557 00:27:00,960 --> 00:27:03,240 Speaker 9: equity and venture growth, but structures as well. 558 00:27:03,560 --> 00:27:04,040 Speaker 2: Interesting. 559 00:27:04,080 --> 00:27:06,439 Speaker 3: I mean, there's a lot of ways to go out there, folks, 560 00:27:07,240 --> 00:27:10,679 Speaker 3: and smart people like Sevesti Balafas they figure it out 561 00:27:10,720 --> 00:27:14,400 Speaker 3: for you. Sevesti Balafas, CEO of Goal West Advisory, joining 562 00:27:14,440 --> 00:27:16,600 Speaker 3: us here in our Bloomberg Arrecti Broker studio. We appreciate 563 00:27:16,640 --> 00:27:19,479 Speaker 3: getting a few minutes of time here. 564 00:27:19,600 --> 00:27:19,760 Speaker 2: Up. 565 00:27:20,400 --> 00:27:24,280 Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday 566 00:27:24,320 --> 00:27:27,320 Speaker 1: starting at seven am Eastern on Apple Corplay and Android 567 00:27:27,359 --> 00:27:30,399 Speaker 1: Auto with the Bloomberg Business app. You can also listen 568 00:27:30,480 --> 00:27:33,760 Speaker 1: live on Amazon Alexa from our flagship New York station. 569 00:27:34,280 --> 00:27:37,280 Speaker 1: Just say Alexa Play Bloomberg eleven thirty. 570 00:27:37,280 --> 00:27:39,240 Speaker 2: Newspapers, Lisa Miteo, what do you have for us today? 571 00:27:39,680 --> 00:27:40,040 Speaker 2: This one? 572 00:27:40,480 --> 00:27:42,199 Speaker 10: Actually I want to ask you a question before I 573 00:27:42,200 --> 00:27:43,560 Speaker 10: get this, because this one is have any of you 574 00:27:43,720 --> 00:27:45,960 Speaker 10: how many of your kids have gone to grad school? 575 00:27:46,080 --> 00:27:46,800 Speaker 10: Have they gone? 576 00:27:46,800 --> 00:27:47,200 Speaker 8: None? 577 00:27:48,000 --> 00:27:50,000 Speaker 2: They're all working? Okay, Okay, I have one more to go. 578 00:27:50,119 --> 00:27:50,480 Speaker 2: So that's it. 579 00:27:50,800 --> 00:27:53,200 Speaker 10: Yeah, so that ties into like this next story. That's 580 00:27:53,200 --> 00:27:54,320 Speaker 10: why I want to ask you about it. So this 581 00:27:54,359 --> 00:27:56,119 Speaker 10: is in the Wall Street Journal. It's talking about how 582 00:27:56,160 --> 00:27:59,040 Speaker 10: the tough job market, like a good case for college 583 00:27:59,040 --> 00:28:01,439 Speaker 10: grads is to do that so that it makes you 584 00:28:01,480 --> 00:28:04,040 Speaker 10: stand out. But now they're saying, is the extra debt 585 00:28:04,320 --> 00:28:07,080 Speaker 10: worth it? And that's what these kids are facing. So 586 00:28:07,240 --> 00:28:09,840 Speaker 10: you know, they had the unemployment rate for graduates fell 587 00:28:09,880 --> 00:28:14,120 Speaker 10: in May. AI is taking out some roles, uncertainty around 588 00:28:14,119 --> 00:28:16,600 Speaker 10: the impact of higher tariff so companies cutting back or 589 00:28:16,720 --> 00:28:19,159 Speaker 10: slowing hiring, those are the things that they're facing. So 590 00:28:19,280 --> 00:28:22,399 Speaker 10: now experts are telling the Wall Street Journal, here's what 591 00:28:22,440 --> 00:28:24,080 Speaker 10: you need to do. You have to look at how 592 00:28:24,200 --> 00:28:26,480 Speaker 10: much of a salary boost you can expect to get 593 00:28:26,560 --> 00:28:28,800 Speaker 10: from that advanced degree, and then how much of a 594 00:28:28,800 --> 00:28:30,720 Speaker 10: burden that total debt load is going to be, and 595 00:28:30,760 --> 00:28:32,560 Speaker 10: that's what they should be asking themselves. 596 00:28:32,800 --> 00:28:33,159 Speaker 2: I don't know. 597 00:28:33,400 --> 00:28:36,199 Speaker 3: My dad told me I'll pay through undergrad and then 598 00:28:36,200 --> 00:28:37,600 Speaker 3: anything after that, you guys pay. 599 00:28:37,640 --> 00:28:39,760 Speaker 2: So my sister went to law school, she paid. I 600 00:28:39,760 --> 00:28:41,800 Speaker 2: went to business school. I paid. I thought that was 601 00:28:41,840 --> 00:28:44,960 Speaker 2: a pretty good deal. That's to my kids, Okay. But 602 00:28:45,080 --> 00:28:46,800 Speaker 2: if number four comes up to me and says, hey, 603 00:28:46,840 --> 00:28:48,240 Speaker 2: I want to do something, I might, I might. 604 00:28:48,600 --> 00:28:53,320 Speaker 6: You might feeling this cost for a master's degree is skyrocketing. 605 00:28:53,720 --> 00:28:57,840 Speaker 10: Well, that's what changes in the in the spending and 606 00:28:57,880 --> 00:28:58,280 Speaker 10: the spending. 607 00:28:58,800 --> 00:29:01,080 Speaker 2: So for a lot of people like I get. I 608 00:29:01,120 --> 00:29:02,960 Speaker 2: was on the board of the Duke Business School for 609 00:29:03,000 --> 00:29:05,719 Speaker 2: twelve years. For still a lot of kids today, if 610 00:29:05,760 --> 00:29:07,360 Speaker 2: you want to make a career change, it's still a 611 00:29:07,400 --> 00:29:10,600 Speaker 2: good way to go. There you go. Okay. 612 00:29:10,680 --> 00:29:13,080 Speaker 10: This one was from the New York Times. So Curtis 613 00:29:13,200 --> 00:29:15,120 Speaker 10: leewall right, you know, the Republican nominee from mayor. 614 00:29:15,400 --> 00:29:16,880 Speaker 2: He's been sporting. 615 00:29:16,400 --> 00:29:19,880 Speaker 10: This new look lately. He's been ditching that Guardian Angels 616 00:29:19,920 --> 00:29:21,720 Speaker 10: red beret. You know, he's known for wearing it the 617 00:29:21,760 --> 00:29:24,600 Speaker 10: red jacket for a suit, especially when he meets with 618 00:29:24,640 --> 00:29:28,120 Speaker 10: like business leaders. Union officials things like that. He's also 619 00:29:28,160 --> 00:29:30,640 Speaker 10: said he will keep it off permanently if he is 620 00:29:30,720 --> 00:29:33,440 Speaker 10: elected in November. So he's telling The New York Times 621 00:29:33,440 --> 00:29:36,000 Speaker 10: that some people are turned off by it because they 622 00:29:36,000 --> 00:29:39,840 Speaker 10: say it has this revolutionary look to it. So if 623 00:29:39,960 --> 00:29:41,920 Speaker 10: it takes you know, him taking it off to have 624 00:29:41,960 --> 00:29:43,280 Speaker 10: people listen to him, he wants to do. 625 00:29:43,400 --> 00:29:47,560 Speaker 3: We interviewed him three weeks ago here at Bloomberg in 626 00:29:47,560 --> 00:29:48,120 Speaker 3: this studio. 627 00:29:48,440 --> 00:29:51,640 Speaker 2: I interviewed him. He had he had it on, Yeah, 628 00:29:51,680 --> 00:29:54,120 Speaker 2: but had the suit on. I don't know. It's just 629 00:29:54,120 --> 00:29:56,680 Speaker 2: to me, I've always known him with it. It's just 630 00:29:56,680 --> 00:29:59,200 Speaker 2: like his trademark shown him. 631 00:29:59,240 --> 00:30:00,960 Speaker 10: It's like up Tom he always has the bow type, 632 00:30:03,280 --> 00:30:05,640 Speaker 10: but sometimes he has And it's funny because people are saying, Oh, 633 00:30:05,760 --> 00:30:07,040 Speaker 10: didn't recognize. 634 00:30:06,600 --> 00:30:10,600 Speaker 4: Him right without the bridge wearing. So that's a different sector. 635 00:30:11,160 --> 00:30:14,360 Speaker 10: And so this one is up your alley Wall Street Journal. 636 00:30:14,400 --> 00:30:17,280 Speaker 10: This is the AI struggles for Hollywood studios. So what 637 00:30:17,320 --> 00:30:19,480 Speaker 10: they're doing, especially Disney as an example of they give 638 00:30:19,520 --> 00:30:21,760 Speaker 10: it says bounce over how to use AI in the 639 00:30:21,760 --> 00:30:24,959 Speaker 10: filmmaking process and then how to protect themselves. 640 00:30:24,480 --> 00:30:26,160 Speaker 4: Against it at the same time. 641 00:30:26,360 --> 00:30:28,720 Speaker 10: So Disney, I didn't even realize this when it began 642 00:30:28,800 --> 00:30:31,960 Speaker 10: working on that live action version of Mowana, they actually 643 00:30:32,000 --> 00:30:36,200 Speaker 10: considered whether to clone Dwayne Johnson for it. So apparently 644 00:30:36,280 --> 00:30:37,720 Speaker 10: Johnson has a cousin who. 645 00:30:37,520 --> 00:30:38,480 Speaker 8: Looks just like him. 646 00:30:38,520 --> 00:30:41,360 Speaker 10: He's six foot three, he's two hundred and fifty pounds, Okay, 647 00:30:42,800 --> 00:30:45,480 Speaker 10: so yeah, so he would fill in as this body 648 00:30:45,520 --> 00:30:47,880 Speaker 10: double for a few shots. Disney would work with like 649 00:30:47,920 --> 00:30:50,880 Speaker 10: this AI company to make these like deep fakes of 650 00:30:50,920 --> 00:30:53,200 Speaker 10: his face that would be layered on top of his 651 00:30:53,320 --> 00:30:54,360 Speaker 10: cousin's body. 652 00:30:54,600 --> 00:30:56,400 Speaker 4: So, but the problem that. 653 00:30:56,320 --> 00:30:59,600 Speaker 10: Disney attorneys were like, I don't know about this because 654 00:30:59,640 --> 00:31:03,080 Speaker 10: they can't claim ownership over every element of that that 655 00:31:03,200 --> 00:31:05,800 Speaker 10: the firm if it's AI generated in part. So this 656 00:31:05,880 --> 00:31:07,800 Speaker 10: is like that struggle they're dealing with. We want to 657 00:31:07,880 --> 00:31:11,080 Speaker 10: do this technology, but you know, do we still own 658 00:31:11,120 --> 00:31:13,280 Speaker 10: it or what are the repercussions from using it? And 659 00:31:13,480 --> 00:31:15,160 Speaker 10: what are the fans going to say? You know, like 660 00:31:15,320 --> 00:31:17,560 Speaker 10: that's not the real rock. I mean, come on, you 661 00:31:17,560 --> 00:31:17,920 Speaker 10: would know. 662 00:31:19,680 --> 00:31:21,000 Speaker 2: No, I don't know. 663 00:31:21,040 --> 00:31:23,680 Speaker 3: I mean this whole AI and the content creation thing, 664 00:31:23,760 --> 00:31:25,840 Speaker 3: I don't know how that's all gonna. 665 00:31:25,600 --> 00:31:26,480 Speaker 4: Work movie studios. 666 00:31:26,520 --> 00:31:27,600 Speaker 2: It's going to be a change. 667 00:31:27,720 --> 00:31:29,800 Speaker 10: But it's this back and forth struggle for that. 668 00:31:29,840 --> 00:31:32,480 Speaker 2: Very good lisha mateo with the newspapers. 669 00:31:32,680 --> 00:31:37,520 Speaker 1: This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, 670 00:31:37,640 --> 00:31:41,920 Speaker 1: and anywhere else you get your podcasts. Listen live each weekday, 671 00:31:42,040 --> 00:31:45,280 Speaker 1: seven to ten am Easter and on Bloomberg dot Com, 672 00:31:45,440 --> 00:31:49,240 Speaker 1: the iHeartRadio app, tune In, and the Bloomberg Business app. 673 00:31:49,520 --> 00:31:52,640 Speaker 1: You can also watch us live every weekday on YouTube 674 00:31:52,920 --> 00:31:54,960 Speaker 1: and always on the Bloomberg terminal