00:00:02 Speaker 1: Bloomberg Audio Studios. 00:00:04 Speaker 2: Podcasts. 00:00:05 Speaker 3: Radio. News. 00:00:12 Speaker 1: This is the Bloomberg Surveillance Podcast. Catch us live weekdays at 7 a.m. 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 4: You know, last week we got the data point that kind of stuck out $ 40 trillion U.S. government debt. The debt to GDP is now 128% up from 40% maybe 40 years ago. There's a bond market care. It's been an issue ever since I've been on Wall Street since the mid-80s is the growing U.S. 00:00:50 Speaker 5: Debt. 00:00:50 Speaker 4: And of course, a great financial crisis kind of spiked that and then the pandemic even more so. Andrew Sheets, Global Head of Fixed Income Research at Morgan Stanley. Andrew, does your market, does your bond market care about a $ 40 trillion U.S. 00:01:04 Speaker 2: Debt? 00:01:06 Speaker 3: Hey, good morning. It's great to be here. And look, I mean, I think you actually frame that perfectly. This has been an issue that's been around for a while, but I think it's taken on new significance in just the last decade. You know, that $ 40 trillion U.S. debt number is Half of it came in the first 240 years of the United States, and the other half has come in the last 10. So the trend has been accelerating. Now, I think the good news is that objectively, the bond market is currently fine with that number. Rates of implied volatility in the bond market are pretty low. Levels of inflation expectations are still pretty modest. The yield curve is kind of at an average level of steepness. So it's very hard to look at the bond market and say that there's some big objection to the number. Auctions are still being taken down. But it's clearly a large number. And I think combined with record AI spending and a lot of the issuance that's come on the back of that, it's trends that are causing investors a lot of concern around the supply of duration of the market and probably steepening the curve. 00:02:14 Speaker 6: Andrew, we've got Treasury Secretary Besant intervening in the bond market. Seems like a lot of that euphoria has faded, but there is talk that he could tap a trillion dollar Treasury general account to fund that buyback. 00:02:29 Speaker 2: Does that matter? 00:02:30 Speaker 6: Put that in perspective for us. What does that mean and why should we care if at all? 00:02:35 Speaker 3: Yeah, so I think that is an important development in the story because the initial buybacks, we were talking about maybe $ 4 billion out of a total U.S. debt of $ 40, 000 billion. It's a pretty small relative number. But the Treasury general account, as you mentioned, is much larger. And our interest rate strategy team, they published a report recently on this. you know, they, they think maybe, you know, 80 to 200 billion is kind of a level of, of, of potential, uh, potential firepower that could be there. So, you know, those are large numbers, but, you know, there are, there are challenges, you know, to that, that treasury general account is the buffer that is utilized if there's a debt ceiling showdown and, you know, you're we're not that far away from the midterm elections. There's certainly a chance that the balance of power changes and, you know, the debt ceiling fights could be right back at the front of the agenda. And it also, you know, it doesn't really change some of the other drivers of rates. The fact that global rates are rising, you know, rates in Japan, Germany are up. The fact that, You have lots of AI-driven spending that's driving a lot of long-term corporate bond issuance. So there are a lot of things, and I think this is the challenge that the market's aware of, that are kind of out of the Treasury Secretary's hands. 00:03:56 Speaker 4: Andrew, in terms of credit risk here, the question is, do we even go out there and try to take some credit risk? Because I can go to a two-year Treasury, get 422. I can go 10 years and get 465, 470. Are you suggesting your clients take credit risk on top of that? 00:04:14 Speaker 3: So we're currently a bit cautious on the credit side, certainly the investment grade side. I do think that supply remains very heavy and will remain heavy this year. Credit spreads have been remarkably resilient. I mean, you have seen some widening in the AI-driven names, but the overall index is still pretty tight. So you're still looking at pretty rich valuations. And I do think a good thing about credit, you could say, is is you know what the risk premium is. The risk premium is not some secret number. It's the spread minus an expected loss. And that spread minus expected loss is pretty low. And I think we're also in a part of the economic cycle that is burning hotter and burning more aggressive. You have rising M & A volumes. You have rising levels of CapEx. You have a lot of excitement in markets. And that can be very supportive for equities. But it tends to be less supportive for credit when you get markets that are running hotter and seeing more aggressive activity. So even from kind of a cyclical perspective, I think that's also a headwind. So we have spreads widening modestly on the investment grade side. We think high yield could maybe outperform a little bit at the margin relative to investment grade. But we think that there's better risk-reward elsewhere, particularly in stocks at the moment. 00:05:36 Speaker 6: Let's talk about value and opportunity. Where do you see value right now in, let's say, securitized credit, Andrew? 00:05:43 Speaker 3: Well, so I think an interesting factor on the securitized side is there are parts of the securitized market that are seeing a lot less issuance. And again, I think kind of issuance is the name of the game this year. We're seeing it on the treasury side, but we're also seeing it on the corporate side. And I think investors are very interested in markets that are not seeing as much issuance. And so we've seen a lot less issuance in things like non-QM mortgages, so parts of the mortgage market that are a little bit. 00:06:12 Speaker 2: Off the run. 00:06:13 Speaker 3: You're seeing a lot less issuance in the commercial mortgage-backed security side just because there's been a lot less commercial mortgage activity given high interest rates and a slowdown in that sector. But you have a lot less issuance there, which is kind of a relatively positive technical. And then I think we're also seeing a lot more focus on kind of the relative value between with all of this build-out in AI CapEx, you actually have a lot more– opportunities for investors to compare a securitized asset, an asset-backed security that is linked to, say, a data center, and an unsecured corporate risk that might ultimately link back to that data center. And so in many cases, we're seeing the asset-backed security side of that equation trade at somewhat wider valuation levels. 00:07:01 Speaker 2: And that's interesting. 00:07:02 Speaker 3: That's certainly something we're doing a lot of work on at the moment. 00:07:05 Speaker 2: Andrew, thanks so much. 00:07:06 Speaker 4: Always appreciate getting a few minutes of your time. Andrew Sheets, he's a global head. fixed income research at that little shop in Midtown called Morgan Stanley. 00:07:17 Speaker 7: Stay with us. More from Bloomberg Surveillance coming up after this. 00:07:28 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube. 00:07:40 Speaker 4: The news of the day yesterday in terms of company earnings was NVIDIA. Some numbers after the close, the street likes it. The stock's up 70%. The number that jumped out at me was they projected revenue for the next fiscal year. Growth rate of 70%, 7-0. Now, put that into context. 00:07:56 Speaker 2: It is stunning. 00:07:57 Speaker 4: And this is on a run rate of $ 300 billion. So it's not like they got a couple million dollars. This is $ 300 billion of revenue growing at 70%. So it's just extraordinary. I think the tech space, tech investors breathe a sigh of relief that the AI– investment momentum continues. Angelo Zeno, he does this stuff for a living. He's the Senior Vice President and Tech Lead for CFRA Research. Angelo, what were some of your takeaways from NVIDIA's earnings and conference call last night? Yeah. 00:08:25 Speaker 8: So, you know, I'd say the biggest takeaway, obviously, is kind of the revenue numbers that you guys just alluded to in terms of expectations for 70 percent growth next year from mid 40s. And, you know, I think what's happening right now is a number of factors. One, hyperscalers are planning to spend much more than maybe we previously anticipated. You know, I think NVIDIA pointed to about $ 1. 3 trillion next year, and that was about $ 200 billion above our expectations or forecast for next year. So I think that's kind of a big driver. And also, you know, what you're actually seeing away from the hyperscalers, those NeoClouds plus Musk is kind of the bucket I would throw it in. And that's actually growing faster than the hyperscalers. And I think it's helping to really kind of diversify NVIDIA's broader business. And then What I would also say is the content growth story, and that's the biggest reason why we have been bullish here over the last couple of years, continues to exceed our expectations. So we see no signs of that letting up as we kind of look here over the next couple of iterations. And then, of course, I'd say the one blemish was the margin issue out there. But that being said, they are going to increase pricing as we go into calendar 2027. And that clearly is supporting that 70% growth trajectory and helping to kind of maybe ease some of those pressures and stabilize the margins going into next year. 00:09:50 Speaker 6: But Angela, let's talk about some of the possible hurdles for NVIDIA and for growth going forward. I as customers? Also, remember, some of these customers are increasingly developing in-house chips that could potentially take business away from NVIDIA. 00:10:09 Speaker 2: Yeah, no, absolutely. 00:10:11 Speaker 8: You're absolutely right. And I'd say the competitive pressures are out there. And, you know, we still look at NVIDIA even after the monster move today. You know, I would say that the multiple remains compressed based on some of those concerns, some of the competitive pressures out there, maybe some of the circular financing concerns that are out there. 00:10:28 Speaker 2: As well. 00:10:29 Speaker 8: But as far as the competitive dynamics and the customer base is concerned, the good thing is we are starting to see, and there are signs that that customer base will diversify going into next year, essentially NVIDIA pointing towards more of a 50-50 split as we go into next year. And that kind of helps alleviate maybe some of the concerns that from a customer concentration perspective, but that will remain for the foreseeable future. But in the same respect, listen, when you think about NVIDIA's ecosystem supporting about 6 million developers or so, those hyperscalers will need to continue to spend. I will just say this, Maybe the growth rate from the hyperscalers going into next year, let's call it closer to 50%, whereas maybe for some of the non-hyperscalers, those neoclouds, you'll see significantly higher growth. Let's call it closer to 90% to 100%. 00:11:24 Speaker 4: Angela, one of the concerns out there for NVIDIA specifically, but I think just for the AI space in general, is some of the circular funding structures that are being created out there where maybe NVIDIA is funding some of its customers in various formats. What does the company say about that? Did they address that last night? 00:11:46 Speaker 2: They did. 00:11:46 Speaker 8: You know, they actually I think for them, it's an area of strength and in many respects it is right. I mean, historically, when you kind of look at the competitive advantage that NVIDIA has had, it has been that CUDA software. 00:11:58 Speaker 2: Right. 00:11:59 Speaker 8: And now it's not just CUDA. It's also the fact that they've got some massive scale. They're generating massive free cash flow. You're looking now at a $ 200 billion run rate. This time next year, it'll probably be closer to a $ 300 billion free cash flow run rate. And they're pumping a lot of that right back into the ecosystem. Essentially, what they're trying to do is build out, be a supporter in growing out that AI ecosystem. infrastructure because without them it's going to be nearly impossible to do. For them to kind of go out there and support the ecosystem, they're helping to kind of lower the cost of capital and they're actually allowing these neoclouds to succeed. 00:12:36 Speaker 2: So in many respects they're going. 00:12:38 Speaker 8: To participate in terms, they're going to benefit in the sense that they're going to get that hardware revenue. They're also going to potentially get revenue in terms of and enjoy the upside of from the actual sales within those data centers. 00:12:52 Speaker 2: But it is a risk. 00:12:53 Speaker 8: It is absolutely a risk if we get to a point where we overbuild and NVIDIA is sitting there with having built too much capacity as well. So there are pluses and minuses to all this. 00:13:06 Speaker 6: Angelo, how much is NVIDIA doing all of this and just wowing us with their numbers without China? Because there still are restrictions on NVIDIA doing business there, right? How important is gaining more access to the Chinese market for NVIDIA's growth? 00:13:22 Speaker 8: Yeah, I mean, you would have thought it would have hurt them by now. I mean, to be honest with you, yeah, right. It was, I think, 1% of their revenue in terms on the data center side or less than 1%. So virtually no revenue coming from China at this point in time is all upside. But at some point in time, listen, it's going to be an issue for them as the growth rates here in the U.S. eventually have to slow down. And we'll see how successful, you know, we kind of get this open source versus closed, you know, model debate. But as you kind of see more and more token growth and success from the Chinese market, I think you're going to see greater, you know, maybe greater concern or motivation from Nvidia to try to get the U.S. government to get some of their, you know, more of their chips into China. But at this point in time, they're They're going to have to do it without China because there's no way we think the U.S. government is going to allow that to happen. 00:14:18 Speaker 4: Angelo, from a competitive perspective, what is the biggest threat or challenge to NVIDIA? Is it the other chip makers, the Broadcoms, the AMDs of the world, or is it some of their customers, as Alexis was suggesting earlier, that may be developing their own chips internally? 00:14:34 Speaker 8: I think it has to be some of their customers at this point in time in the sense that they're going to have to continue to purchase NVIDIA's servers. That's not going to stop. But what it can do in terms of some of these hyperscalers developing more of their own internal chips is it will slow eventually and get to the point where NVIDIA's growth rate will start to level off and really mature. 00:14:58 Speaker 1: Yep. 00:14:59 Speaker 8: I think that is the biggest risk at this point in time. But keep an eye out for AMD. You're going to see them really come on hard, I think, over the next couple of years. They're just now ramping up Helios. And we think there's some significant potential for that over the next couple of years. 00:15:13 Speaker 4: Angelo, great stuff. Thanks so much for joining us. Angelo Zeno, Senior Vice President, Tech Lead, CFRA Research. 00:15:20 Speaker 7: Stay with us. More from Bloomberg Surveillance coming up after this. 00:15:32 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube. 00:15:44 Speaker 4: Brent Ewing joins us here. Brent is a chief market strategist, First Franklin Financial Services, joining us live here in our Bloomberg Interactive Brokers studio. Brent, it seems like the AI trade coming from last night's NVIDIA print is kind of alive and well, I guess. 00:16:00 Speaker 2: Indeed it is. 00:16:00 Speaker 9: I tell you, the words out of Jensen last night were really powerful. I think it's just put a put on this market for quite a while. I love the conversation about the global demand that he mentioned and the expansion that he's seeing out there. I think the monetization story that we've all been waiting for is really coming true right here. 00:16:25 Speaker 6: I'm curious, though, if they're They're risking missing out on maybe billions of dollars in revenue because of the ship shortages. We've got the constraints there. We've also got competition from SK Hynix and Samsung. Is that maybe an opportunity for them to jump in and take something away from NVIDIA? 00:16:44 Speaker 2: I think it is. 00:16:45 Speaker 9: And he did comment on that, by the way. And he mentioned that the growth rate, though, out there with all the other community, the ecosystem out there. 00:16:55 Speaker 2: Is really accelerating much. 00:16:57 Speaker 9: Faster than the hyperscalers and the competition that is coming from them with their own chips. 00:17:03 Speaker 4: We just heard from Tom Keene out in Jackson Hole. What do you think the market would like to hear from our Fed chairman here when he speaks tomorrow out there in Jackson Hole? 00:17:11 Speaker 2: Wow. So many things. Are we going to get them, though? I don't think we're going to get them. Are we going to get comments about the task force? 00:17:23 Speaker 9: Maybe some guidance going into September would be useful for the market to maybe give us an idea of when we're going to get those real updates. And I think that his... Comment about Besset or what Treasury operations are doing. I don't know if that's I agree with Tom. I don't know if that's going to be on the table. He's going to he's probably going to allude into some of this. The theme maybe go into the AI and the longer term effects of that on the economy. That'd be nice if we got some comments out of that. 00:17:52 Speaker 2: So. 00:17:52 Speaker 6: And, you know, we don't know a lot. We're sort of operating in the dark here because Powell, former Fed Chair Powell, talked about how the PCE was an important measure for them of inflation. We don't really know what Warsh is looking at when he's looking at that 2% inflation target. What would you like to hear from him tomorrow that you think could be market moving? 00:18:16 Speaker 9: Well, I would love to hear a comment about Treasury operations that they announced. I think that would be about their coordination. I mean, Besset made a comment about how they would coordinate with the Fed regarding balance sheet. 00:18:28 Speaker 2: I think it would be somewhat appropriate. I mean, would you throw the ball back, right? 00:18:33 Speaker 3: Right. 00:18:33 Speaker 2: You know, we had. 00:18:34 Speaker 4: Some rotation in this marketplace this year. We got the Russell outperforming. I mean, the small and mid-caps outperformed. I mean, they always kind of get left on the sidelines, but they're actually performing here. How do you think about that? 00:18:47 Speaker 2: I think it's great. 00:18:47 Speaker 9: I think it's a testimony to the strength of the underlying economy is what I think. And not only is it up 21 percent year to date, outperforming all the other indices, but look where interest rates are right here. So that is a very interesting. rate-sensitive area of the market, and it's just outperforming. It's looking past that, and that's why I think interest rates are kind of at the top level right here. 00:19:10 Speaker 2: Our call is that. 00:19:11 Speaker 9: Interest rates kind of decline going into next year. We don't believe we're going to get a rate hike this year. We believe a rate cut is next in line, and we think that happens in the first half of 2017. 00:19:20 Speaker 2: Interesting. 00:19:21 Speaker 6: So then you believe inflation is going to be kept under wraps. 00:19:24 Speaker 2: I do. 00:19:24 Speaker 9: I think the recent prints is just a start of a trend. And I think it will continue throughout this fall. And the job market where it is right here, you know, it's anemic, but it's not really weak. 00:19:37 Speaker 2: It's just not really strong. 00:19:38 Speaker 9: But over the last 12 months, we're averaging 34,000 job per month growth. 00:19:42 Speaker 2: That's not like an inflationary issue. 00:19:44 Speaker 6: And those jobless claim numbers continue to be low. So you're saying as long as people are working to some extent, they're going to keep spending and- that'll pop up the economy. 00:19:51 Speaker 2: Yeah. 00:19:51 Speaker 9: And I think Warsh is looking way past. He's looking out, what is AI going to do to transform the world on labor? And he knows that deflationary force. He's talked about it through his testimonies. Over the last two years, he's been very outspoken about that. And I think he's bringing it to light. I would hope that his task force that's really focused on that will bring some of that forward for a conversation. 00:20:17 Speaker 2: With the FOMC. Put all that together. 00:20:20 Speaker 4: Earnings have been just fantastic. Where can earnings take this S & P 500, do you think? Do you have a target out there? 00:20:26 Speaker 9: You know, our beginning of the year, we had put 8,000 target on the S & P. We recently just raised it here in August to 8,200. And looking forward into next year, it's not surprising if we could see close to 10,000 by year end of 27. 00:20:43 Speaker 4: And that's just keeping kind of the multiple, kind of where it is here in growing earnings. 00:20:47 Speaker 2: Yep. 00:20:48 Speaker 6: Because we're at 76, 75 right now. 00:20:50 Speaker 2: Just about 4% from $ 8, 000. I think we could hit that. 00:20:53 Speaker 9: Our call is maybe a little volatility going into the midterms. 00:20:57 Speaker 2: 5% to 7% correction would not be. 00:21:03 Speaker 2: Abnormal by any means. 00:21:04 Speaker 4: All right, now we got to go here. You are a proud graduate of Florida State University. You're in Tallahassee. Give us the preview of FSU football this year. What are the expectations in Tallahassee? 00:21:15 Speaker 9: Well, Florida State's had a tough road here the last couple years, but I believe that Norvell has put together a really good team here this year. 00:21:23 Speaker 2: We start, we. 00:21:24 Speaker 9: Kick off this weekend with New Mexico State. I think what's going to set the tone is a Monday night game against SMU coming up on the 7th. That right there is going to determine our season. If we win that, we go 7th. we get seven wins for the season, and that will be a victory. Are you going to be there? 00:21:41 Speaker 8: I am going to be there. 00:21:42 Speaker 2: Nice. 00:21:42 Speaker 4: Oh, yeah. 00:21:43 Speaker 2: I would not miss that. 00:21:44 Speaker 4: I mean, the question is for a lot of these schools now is how do they play in the portal game? 00:21:48 Speaker 2: How do they play in. 00:21:49 Speaker 4: The NIL game? How's FSU set up for that? Because historically, you guys could compete with anybody for any recruit anywhere. 00:21:55 Speaker 2: No doubt. 00:21:57 Speaker 9: Look, Norvell was a leader through the portal when it first came out, and he really advanced FSU with that. But everyone's doing it now. So the competition is so fierce. He's kind of, you know, and we don't have the money that some of these other big schools have. But I hear that our fundraising is great and we expect it to continue. 00:22:18 Speaker 4: How's the economy down there in northern Florida? 00:22:20 Speaker 2: It's doing really well. 00:22:22 Speaker 9: Florida, the housing market's a little soft when you get to southern Florida. A lot of inventory building up at record levels right here, back to like 2009 levels. 00:22:34 Speaker 4: But northern Florida, where you are, I mean, that's like Tallahassee. That's not where the folks in New York are going. 00:22:39 Speaker 9: Exactly. 00:22:40 Speaker 4: They're going to southern Florida. So what drives your economy up there? And you get the state capital. 00:22:45 Speaker 9: I tell you, so I have a house over in Walton County as well. And Walton County is on the panhandle on the Gulf of Mexico. 00:22:52 Speaker 3: Nice. 00:22:52 Speaker 4: The best beaches anywhere. 00:22:54 Speaker 6: Is that by Destin? 00:22:55 Speaker 3: Anywhere. 00:22:55 Speaker 9: Between Destin and Panama City. That place is booming. That is the next frontier of Florida. It's all North Florida going towards I-10 from the Gulf. 00:23:06 Speaker 2: Okay. And it is on fire. 00:23:08 Speaker 4: I'm telling you. Again, I've been down there a few times. The beaches are unbelievable. 00:23:11 Speaker 6: So I have a friend down there, and she says it all the time. Come down and hang out with me in Destin. 00:23:15 Speaker 4: Florida, Alexis. It's beautiful down here. I'm not going to Miami. I'm not in Miami. You're not a Miami guy. 00:23:20 Speaker 2: It's a totally different vibe, but it's fun. You're a Jersey. 00:23:23 Speaker 6: Shore guy up here. 00:23:24 Speaker 4: I am a Jersey Shore guy. 00:23:24 Speaker 6: A Destin, Florida guy. 00:23:25 Speaker 4: Exactly. Brett, thanks so much for joining us. 00:23:27 Speaker 2: We appreciate it. 00:23:27 Speaker 4: Brett Ewing, Chief Market Strategist at First Franklin Financial Services. 00:23:34 Speaker 7: Stay with us. More from Bloomberg Surveillance coming up after this. 00:23:46 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube. 00:23:58 Speaker 4: Let's get back to these markets here. A lot going on, a lot of cross currents, a lot of people trying to figure out what the Fed's doing, what the Treasury Secretary is doing. Let's talk to somebody who does this for a living. Ethan Devitt, managing director, Global Wealth and Mineta Group. Ethan, we've got a Fed that we're going to hear from tomorrow. What do you expect to hear from Fed Chairman Warsh tomorrow? Could be an important day for him or it could be a nothing burger. How do you guys think it'll play out? 00:24:26 Speaker 5: It's a great question. We haven't heard much from him so far. That really is the issue. We have had mixed messaging. We've had a lot of airing of dissent, which is not exactly calm markets. We've also had Scott Besant really, I would suggest, even undermining some of what's been going on at the Fed with his intervention when the Fed has not done anything with. 00:24:46 Speaker 2: Respect to rates. 00:24:47 Speaker 5: So, investors are having a hard time reading it. We knew that they did doubt whether the Fed would be able to get inflation under control. That was possibly why the bond market sold off. Right now, there is a real adjustment phase going on. And I do think there will be parsing of every word. And that's perhaps not a situation he's particularly used to. 00:25:05 Speaker 6: You say that a big theme for you right now is the resilience of Europe, maybe getting lost in the sauce here. Where are you seeing opportunity in Europe? 00:25:16 Speaker 2: Well, let's actually look at the numbers. 00:25:17 Speaker 5: European growth has been positive, despite many of the headwinds coming its way and much of the negative momentum. So it has been marginally positive, not the same as the U.S. We're also seeing Germany having had strong growth, a bit of a surprise there. Strong startup activity in Germany. Yes, its industrial base is under threat. But there always are green shoots. We've seen this in the UK, too, some important initiatives around technology there. And equally, the focus on AI sovereignty, whereby European governments really want to know that they can source their AI locally, that will not be dependent on geopolitical frictions, are subject to a sudden change. So I'd say all of that is pointing to quite a positive second leg of this AI wave that will be focused on Europe. And when we look at this second leg, what does it look like? Perhaps that there will be more productivity gains, particularly in the small and mid cap arena of Europe. And so I'd say don't write Europe off yet. 00:26:08 Speaker 4: That's our message. So the weak dollar here brings into question this debasement trade where maybe people are selling the US dollar, maybe buying some hard assets like, I don't know, gold, maybe even Bitcoin. But I'm looking at Bitcoin up near 80,000. How do you guys think about that debasement trade? 00:26:28 Speaker 5: Well, the debasement trade kind of comes and goes at the forefront of the mind of investors. Clearly, the bond market has this on its mind. The fact that we're seeing gold level off around here and also Bitcoin surge, there is a concern that just there will be a trade-off between supporting the bond market and supporting the dollar. We saw that in Japan. They were not able to support the yen. They chose to support their bond market. And now when it looks like there is a support of the bond market clearly at the forefront of U.S. government policy, the dollar will be sacrificed. That doesn't affect the local investor too much, except when they're on that trip to Europe. But it definitely will have an important effect on international investors and how they invest in the U.S. and how those U.S. assets make sense to them. That's going to be a big factor, massive holding of U.S. assets by non-U.S. 00:27:14 Speaker 4: Investors. 00:27:15 Speaker 5: And overall, it is going to import inflation into the U.S. 00:27:18 Speaker 1: Too. 00:27:18 Speaker 5: So that's going to be that delicate balance between supporting the bond market and keeping inflation at bay. 00:27:25 Speaker 6: What about new companies coming to market? And we're going to be hit with a flood of really big IPOs this fall, Anthropic, possibly OpenAI. We just heard today from Shein going public with an IPO on the Hong Kong Stock Exchange, going to value the company. This is that fast fashion company, valuing them about $ 27 billion. What's your takeaway as we sort of gear up for what's really going to be a very busy IPO season? 00:27:53 Speaker 5: Well, it really illustrates how timing is everything when it comes to IPO. We're seeing massive changes in expectations around growth. And growth, we've seen this just in terms of the volume of venture capital activity and even the projections we're seeing coming out of something like an anthropic. We've heard astronomical revenue figures being touted there. So timing is everything. If they manage to get out anthropic while the momentum is strong and before some of the doubts creep in, that'll be great for them. When it comes to open AI, if their timing is wrong or it hits just at a moment when doubts have started to really circulate, then they will miss that window. Sheen is a great example of missing a window. They still need to go public, but the valuation is at a fraction of what it was before. And when we're looking at some of the IPO pipeline, it is really varied. We're seeing brands, Dunkin' Brands, The area is quite as diverse as that. So, definitely, that suggests a breadth in the market, a desire for some fresh activity, perhaps a jadedness with some of the concentration that we're seeing. Overall, very positive, but timing is everything, and the market may not stay this resilient for that long. 00:28:55 Speaker 2: Yeah. 00:28:55 Speaker 6: So, I think you bring up a really good point about timing. Is being first really important for Anthropic? Because it looks like they're going to beat OpenAI to the market. Is that going to really matter as much? 00:29:08 Speaker 5: I don't know that it matters in the long run. Certainly, if OpenAI successfully comes to market, there are certainly room for two frontier model companies and that they've got massive share. 00:29:18 Speaker 4: They're growing. 00:29:19 Speaker 5: Goss seems to be growing on the side of OpenAI a little bit faster than it is in Anthropic. So I don't know that it really matters in the scheme of things, but the actual timing of the actual IPO, the momentum around that, and we saw with SpaceX, things were priced to perfection. We had pretty much an open space in terms of that IPO market at the time. Things went well. There was oversubscription, a lot of hype. ultimately some settling of that. But timing will matter. But I don't think it'll matter in the long run. I do think there is enough demand to cope with this. We still have the threat of the open models that could also play some strain on the growth. But overall, growth is still positive at the top line. But they will need to manage their timing extremely well. 00:30:00 Speaker 4: Ethan, we've had just extraordinary earnings for the first half of your earnings in the second quarter like we've rarely, rarely ever see here. Setting up tough comps, if nothing else, for 2027. How does that factor into your outlook? 00:30:14 Speaker 5: It's great that the old adage of investing past performance is no guarantee of future returns. But yes, the anchor always stays in place in terms of what we've just seen. Certainly, earnings, we have to remember, are retrospective. They are reflecting a strong consumer that may have been on borrowed time. Certainly, they were perhaps pushing the limits of what was affordable. And companies that felt they could have the chance to, with their inventories, maybe push through tariff price increases, maybe absorb some of that pain. So, we've seen these strong earnings. I don't know that we will expect to see the same trajectory going forward. Much of the headlines have been lifted by just the massive growth at the hyperscalers and around AI demand, that CapEx has really been lifting that. And it will be ultimately strong for growth and strong for inflation, I would suggest. But as far as where the earnings go from here, a lot will depend on whether there is a pullback on some of that spending, whether we see also a consumer, that we see what's consumer sentiment is starting to fracture. So, I would suggest let's not extrapolate from the earnings we've just seen, but we do expect them to be positive. But let's also remember, companies are masters at communication today. They are telegraphing so well so that expectations are teed to perfection. And that is, again, something that we're going to see. It's an act. It's a dance with the investor expectations. 00:31:28 Speaker 4: Ethan, thanks so much for joining us. Always appreciate getting a few minutes of your time. Ethan Debit, she is a senior investment advisor at Moneta Group. 00:31:36 Speaker 1: This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 7 to 10 a.m. Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.