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