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Speaker 3: Let's broaden out a little bit and let's get into
Speaker 3: maybe investors have they been reacting since we got that
Speaker 3: FED decision and what we are seeing with investment flows
Speaker 3: and what's going on in terms of activity.
Speaker 1: For that, we turned to Stephanie gild, chief investment officer
Speaker 1: over at Robinhood Markets. You joined us here in the
Speaker 1: Bloomberg Business Week Studio. Stephanie, I wanted to start with
Speaker 1: what's happening on the Robinhood platform because you certainly have
Speaker 1: a certain segment of the investing population.
Speaker 4: What are you seeing on Robinhood right now?
Speaker 5: We're seeing still not buying, but it's it's been more muted,
Speaker 5: i'd say, than it was before, and it's been in
Speaker 5: some of the things that have been going down or
Speaker 5: had like Netflix, for example, You've also seen where there's
Speaker 5: been sales, it's been more in the AI oriented names.
Speaker 5: So I've kind of shared this before, but our customers
Speaker 5: tend to hold corepositions and trade around them, meaning they
Speaker 5: buy when they go down and sell when they go up.
Speaker 5: But we're seeing a little bit differently where there seem
Speaker 5: to be like being more subjective about what they're investing in.
Speaker 5: And that's why I say, like it was kind of
Speaker 5: interesting to see in video being sold and you know,
Speaker 5: things that are kind of under.
Speaker 3: Pressure, so selling as rather than selling as they have
Speaker 3: gone up a lot and taking some profits, they're selling
Speaker 3: as they're going down.
Speaker 5: Yeah, but they probably have embedded profits because they will
Speaker 5: them all year. So I think that's like kind of
Speaker 5: giving up a little bit on the AI trade for now.
Speaker 6: Well, like I totally get it.
Speaker 3: Like you know, Tim and I were talking about Oracle,
Speaker 3: like it is still up almost fourteen percent year to date,
Speaker 3: but we've seen a more than forty percent decline from.
Speaker 6: Some of them when it hit a record back in
Speaker 6: in September.
Speaker 3: Excuse me, so, I mean, are there how much can
Speaker 3: you dig deeper into.
Speaker 6: The data in terms of what you're seeing?
Speaker 3: Is it mag seven names that people are getting out
Speaker 3: of Is it all tech?
Speaker 6: Is it just AI related? Like what are you just say?
Speaker 5: I related that I've seen, and then some of the
Speaker 5: like core we you know those kind of names are like.
Speaker 6: Cloud, Yeah, exactly.
Speaker 5: You've also seen some buying in just broad based ETFs
Speaker 5: and some t bill oriented ones that like kind of
Speaker 5: make me feel like diversification, you know, kind of parking
Speaker 5: things rather than trying to pick.
Speaker 1: So less playing the market and more like long term
Speaker 1: diversified index funds I think for.
Speaker 5: Now, Like for now, usually we see that activity when
Speaker 5: there's a big dip, like they go into ETFs first
Speaker 5: and then they play the differences and names.
Speaker 4: How are they playing this? Uh?
Speaker 1: I don't want to call it a crypto winter yet,
Speaker 1: but we're down another three percent on bitcoin, hovering around
Speaker 1: ninety thousand dollars per bitcoin right now.
Speaker 4: How's that played out?
Speaker 5: Of the last couple of weeks in the stocks, I've
Speaker 5: seen actually some buying and like the micro strategy names,
Speaker 5: but on the crypto side, have actually seen more selling
Speaker 5: than buying.
Speaker 4: Interesting.
Speaker 1: Yeah, So instead of actually holding the patterns that you're seeing,
Speaker 1: instead of actually holding the cryptocurrency, people are instead putting
Speaker 1: money into the proxies or the hoarders.
Speaker 5: Yeah there, I mean, if you can make that relationship.
Speaker 5: I kind of look at two different dashboards and crypto versus,
Speaker 5: but I did think it was interesting to see buying
Speaker 5: into the the equity related.
Speaker 1: Yeah, because certainly strategy has had its own set of
Speaker 1: of challenges. Okay, so let's bo back out a little
Speaker 1: bit big macro picture right now. We haven't had a
Speaker 1: chance to speak to you in a few weeks, and
Speaker 1: given what we heard from Jay Powell, we just heard
Speaker 1: from Mike McKee about different views of the economy coming
Speaker 1: from different people, where do you sit.
Speaker 5: I think the economy's okay, actually, like I think when
Speaker 5: you're this is totally anecdotal, but at my feeling is
Speaker 5: that like New York City is busy, travel is lot,
Speaker 5: like I actually think the consumers generally okay. That being said,
Speaker 5: the lower end consumer is still not doing well, and
Speaker 5: I don't think they've been doing well for a while.
Speaker 2: So I actually and I.
Speaker 5: Do think things got overvalued market wise, So I do,
Speaker 5: and I also think that the FED is caught between
Speaker 5: a rock and a hard place because you do have
Speaker 5: this explosive growth growth in the AI trade growth and
Speaker 5: credit markets, and so they have to kind of worry
Speaker 5: about that being overblown and that creating increased inflation. Obviously
Speaker 5: we don't know what's going to happen with terrorists, but
Speaker 5: that's creating an issue for them too. Then you do
Speaker 5: have the lower end consumer that is still struggling. So
Speaker 5: it makes me think of like Europe post two thousand
Speaker 5: and eight, when they had to worry about like Spain
Speaker 5: versus Germany. And so that's why I think there's so
Speaker 5: much of a debate within the FED. And you know,
Speaker 5: Powell did say, like, don't even look at the data
Speaker 5: that's going to come out next week.
Speaker 7: Do you agree with him?
Speaker 6: Who doesn't yet?
Speaker 5: I yes, I'm like, and I don't. I worry about
Speaker 5: the quality of it too. Like in general, I.
Speaker 3: Want to ask you about I'm looking you know, we're
Speaker 3: almost at the end of the year, so we can
Speaker 3: look at the S and P five hundred, the major
Speaker 3: industry groups and see what really did well or didn't do.
Speaker 3: I mean, communications services names thirty one percent, higher information
Speaker 3: tech twenty three percent. So even though I mean the
Speaker 3: mag seven, even if we start to see you know,
Speaker 3: pullbacks on some of these names or the AI trade
Speaker 3: still outperforming. Industrials up almost twenty percent, financials up thirteen percent.
Speaker 3: I'm looking at the S and P Composite Pharmaceuticals Index.
Speaker 3: It's up of almost twenty one percent. Now, yeah, yeah,
Speaker 3: finally exactly. So I'm just curious, what else can you
Speaker 3: you dig deeper in a year where we've talked so
Speaker 3: much about AI, We've talked about rare earths, we have
Speaker 3: seen some you know m and a activity going on.
Speaker 6: What is it that you have also.
Speaker 3: Seen that are interesting and you can get an idea
Speaker 3: of what investors are interested in what they are not interesting?
Speaker 5: Have been kind of starting I've been bottom fishing, like
Speaker 5: we've been, yeah, sort of store. I sorted like the
Speaker 5: Russell one thousand into you know, top and bottom players,
Speaker 5: and it just felt like there was a rotation that
Speaker 5: started on October twenty ninth, which was when we had
Speaker 5: that like six percent pullback, and a lot of those names,
Speaker 5: like of the top one hundred, the ones that are
Speaker 5: up the most one hundred most this year, forty one
Speaker 5: of them are in a negative return since October twenty ninth.
Speaker 5: So I've been We've been kind of looking around, being
Speaker 5: like where is there still growth? And I actually think
Speaker 5: like the other thing we've been doing this year is
Speaker 5: investing with in alignment to fiscal policy because we do
Speaker 5: think like what the Trump administration is doing is important
Speaker 5: to understand, and I think the consumer is going to
Speaker 5: be more important for them this year or coming into
Speaker 5: the next year, I should say. And so we've been
Speaker 5: looking more in like the retail space of players that
Speaker 5: are interesting and so.
Speaker 6: So retailers, tailor and brand names.
Speaker 5: In retail, like on holding Lululemon, like they're down, you know,
Speaker 5: they're down double digits this year or maybe not, maybe
Speaker 5: not on after the yes yearly so yes, there is
Speaker 5: down fifty percent, it's up ten percent or so today,
Speaker 5: And so we just think like there is value to
Speaker 5: be found there while we wait to see what happens
Speaker 5: in the tech world.
Speaker 1: But on a Lulu for example, there seems doesn't a
Speaker 1: lot of that depend on who the next CEO of
Speaker 1: the company is, and they don't even know who that's
Speaker 1: going to be.
Speaker 5: There is execution risks there now for thee with obviously
Speaker 5: the change in the CEO, but I think it also
Speaker 5: it lost some shine on its brand, and I think
Speaker 5: they have done a lot to try to turn that around,
Speaker 5: and you've seen that in gap this year, which is
Speaker 5: also like, I think they're further into that journey, but
Speaker 5: I think it actually creates an opportunity.
Speaker 4: Yeah, perhaps been doing really well of late.
Speaker 3: Yeah, it's now up about eleven percent year to date.
Speaker 3: But your point is right that if the consumer feels
Speaker 3: better and is out there spending, if we get more
Speaker 3: juice in terms of the way of stimulus, you know,
Speaker 3: whether you believe it's the right strategy or not, if
Speaker 3: there's more money in the pocket of consumers.
Speaker 8: Trying not to invest.
Speaker 3: In my heart, I know, I know, I know, I
Speaker 3: know it's going to go somewhere, and so there are
Speaker 3: names that will certainly benefit. Great staff love digging deep
Speaker 3: into your platform. Stephanie Gilch, chief investment office at robin
Speaker 3: Hood Markets, Joining us right here on Bloomberg Business Week Daily.
Speaker 4: Stay with us.
Speaker 1: More from Bloomberg Business Week Daily coming up after this.
Speaker 2: You're listening to the Bloomberg Business Weekdaily Podcast. Catch us
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Speaker 3: All right, let's get to a stock we've been talking about.
Speaker 3: We're talking about Lululemon. Stock is the number one gainer
Speaker 3: in both the S and P five hundred Nasdaq one hundred,
Speaker 3: up just shy of twelve percent. Even so, the stock
Speaker 3: is still down forty five percent year to date. We
Speaker 3: did see the stock rally after the company boosted its
Speaker 3: full year outlook and announced him that it's CEO would
Speaker 3: step down.
Speaker 1: The company searching for a replacement for Calvin McDonald. Do
Speaker 1: will depart the top post at the end of January.
Speaker 1: Putamgyle is Bloomberg Intelligence Senior analyst, free Commerce anath Leisure.
Speaker 1: She joins us from New Jersey. So, first of all,
Speaker 1: were you as surprised by the market as the market
Speaker 1: was by this move?
Speaker 9: You know, I kind of expected a move similar to
Speaker 9: this because Little Lemon has just not been performing well, right,
Speaker 9: So when you have instances in retail where there's just
Speaker 9: no point of understanding how they're going to turn this
Speaker 9: business around, when it takes a longer time, there is
Speaker 9: usually some sort of management change. So this was in
Speaker 9: my mind a little overdue. And it'll be interesting to
Speaker 9: see on who fills these shoes, because I think that's
Speaker 9: key to the turnaround in the vision that they put forward.
Speaker 1: So on that, who do you think, like, what are
Speaker 1: some names that are being banded about the analyst community
Speaker 1: right now?
Speaker 9: You know, names I don't know about, but we do
Speaker 9: know that we want to product lead. I would like
Speaker 9: to see a product led leader because at the end
Speaker 9: of the day, retail is about product and Lula Lemon
Speaker 9: needs to bring its product back in play ahead of
Speaker 9: competition and really where consumers feel like they're getting something
Speaker 9: that they can't get anywhere else.
Speaker 6: You know, it's interesting.
Speaker 3: First of all, you go to the dees page of
Speaker 3: Lululemon and under management.
Speaker 6: There's no no names there right now, which I don't know.
Speaker 6: Is there something wrong with my screen or I don't know?
Speaker 1: You think, point, how often is it that we see
Speaker 1: a CEO exited.
Speaker 4: Ye out a plan for a new one? Yeah, exactly,
Speaker 4: a big deal yesterday.
Speaker 6: So that's a good point put him.
Speaker 3: You say, it's long overdue, and so like, why isn't
Speaker 3: it that they internally or the board didn't say this
Speaker 3: ain't working because he's been there for a few years now,
Speaker 3: So why why did it take them so long? Or
Speaker 3: did they not give him enough time to figure it out.
Speaker 3: Calvin MacDonald we're talking about.
Speaker 9: Well, he's been with Little Lemon for seven years, I
Speaker 9: think since twenty eighteen, right, so he's had a bairent
Speaker 9: amount of time there when he came on board. The
Speaker 9: excitement once you know all about the personal care remember
Speaker 9: us talking about it. Where will they enter this business
Speaker 9: that has seventy eighty percent margins and it would be
Speaker 9: so great? And I'd say during the pandemic, things were
Speaker 9: working great, right for not just them, for anyone who
Speaker 9: had active war. That is how people dressed. That was
Speaker 9: the movement. It was to be healthy, it was to
Speaker 9: be out, It was to work out and really lounge
Speaker 9: at home while you're working. So what happened post pandemic?
Speaker 9: And that's really where we kind of think about what
Speaker 9: did the leadership do to stay ahead of trends? And
Speaker 9: I think as we exited the pandemic, we didn't see
Speaker 9: as much innovation as we would have liked, because you
Speaker 9: saw competitors like Alo, like Vori and others really come
Speaker 9: in with competitive product, sometimes at similar price points and
Speaker 9: took mind share and wallet share of the shopper. So
Speaker 9: that just brought us to question, do we need vision
Speaker 9: from a leader that has the product background to really
Speaker 9: drive a product ledterc And keep in mind, over the
Speaker 9: last few years, Lululeman has had several leaders leave the company,
Speaker 9: so there has been turnover.
Speaker 3: You know, it's interesting you go back to Yeah, I
Speaker 3: forgot about that when.
Speaker 6: He came in.
Speaker 3: His background, I mean, he had been president CEO of
Speaker 3: Sephora USA for five years, right, So the expectation.
Speaker 4: Was Sears I think before that run and.
Speaker 6: Sears before that.
Speaker 3: But the Sephora thing I find interesting because people kind
Speaker 3: of love that model. I mean, was the hope right
Speaker 3: that they was he was going to bring actual products right,
Speaker 3: like whether and which do have incredibly high margins, whether
Speaker 3: it's I don't know, is it skincare? Like what was
Speaker 3: it that he they thought he was going to bring in?
Speaker 9: So do you remember like the dry powder? You know,
Speaker 9: we all go work out and your hair is kind
Speaker 9: of sweaty, and you're like, I'd love to gift shape
Speaker 9: them powder and go with. So they added dry powder.
Speaker 9: They try to deoder. And the thing is with Sephora,
Speaker 9: you're not looking for performance in all your product. When
Speaker 9: you moved to an active airline, you need to solve
Speaker 9: for performance, and that's not easily done. In fact, I
Speaker 9: don't even know if there's a product today out there
Speaker 9: that actually works to solve real performance issues. I think
Speaker 9: it's still a hole in the market.
Speaker 3: It's called anyone take a shower? I mean to be honest, like, yeah,
Speaker 3: there's no I don't go work out and then like
Speaker 3: go out to dinner.
Speaker 4: Yeah, and like, you know something for shoes. I don't know.
Speaker 7: I don't know.
Speaker 6: Well, I don't know if you're doing yoga you're in
Speaker 6: bare feet.
Speaker 4: Yeah, that's a good point, you know.
Speaker 3: Can I just say, like I was thinking about the
Speaker 3: pair of yoga pants I wear all the time.
Speaker 6: It's Outdoor Voices.
Speaker 4: I bought them. Has that company has had its own
Speaker 4: share of iterations.
Speaker 3: Years ago though, And it was because my daughter wanted
Speaker 3: something and I'm like, these.
Speaker 6: Are really cool.
Speaker 3: But it was innovative because they had these side pockets
Speaker 3: and I use them for traveling. I can throw my
Speaker 3: cell phone in and so and so. So it's not
Speaker 3: been Lulu that I have picked up something.
Speaker 1: Well put them Come on in on the idea of
Speaker 1: brand value here, because Chip Wilson is a name we
Speaker 1: haven't mentioned in a few minutes he's the founder of Lululemon.
Speaker 1: He's outspoken. Everybody remembers what happened when he was CEO
Speaker 1: of the company. He's out with a state. He's got
Speaker 1: like a pr agency. He says, quote, the erosion of
Speaker 1: premium brand value in the company's core markets demonstrates that
Speaker 1: the board does not understand its target customers anymore or
Speaker 1: what will drive shareholder value at Lululemon over the long term.
Speaker 1: He blasted them in this statement earlier this morning. Is
Speaker 1: that view widely held by analysts.
Speaker 9: I think you can blame anyone right about now because
Speaker 9: lul Lemon hasn't been able to perform as it did historically.
Speaker 9: But that said, you have to remember that the landscape
Speaker 9: has very quickly changed because everyone has access to consumers,
Speaker 9: everyone has access to intelligence and data and technology, and
Speaker 9: you're leveling the playing field. Lulu Lemon's brand still has
Speaker 9: great brand equity. Don't get me wrong. It's still a
Speaker 9: very well known and preferred brand, and its sales are
Speaker 9: very strong internationally, especially China where many can't even get
Speaker 9: in and get it right. So I do give them
Speaker 9: credit for their international growth. I give them credit for men,
Speaker 9: I give them credit for digital. It's just when it
Speaker 9: comes to women, they just haven't had the innovation. I
Speaker 9: really think it's a product missed up. They need more innovation.
Speaker 9: They need a constant flow of new products that excite
Speaker 9: and delight the customer, and they haven't been able to
Speaker 9: do that. Well. I agree with you.
Speaker 3: I've walked it in out of there, and I really
Speaker 3: do like the quality of their their stuff. I think
Speaker 3: there is something to be said for that. But I
Speaker 3: agree with you, Punam. I walk in and I'm like,
Speaker 3: kind of seen it all before, or I've got it
Speaker 3: already at home, and so I need something else. Chip
Speaker 3: Wilson just real quickly thirty seconds. Does he have much sway?
Speaker 3: I was just looking at the HDS function on the Bloomberg.
Speaker 6: Does he still only.
Speaker 1: Calls himself the top independent active shareholder?
Speaker 4: He calls himself that today.
Speaker 9: I don't have the numbers in front of me, but
Speaker 9: he definitely is among the top, and I would say
Speaker 9: he does have, you know, some push, especially when a
Speaker 9: company isn't doing well right, so you have to think
Speaker 9: about the dynamics that play here. Little Lemon isn't performing
Speaker 9: while their results domestically are not anywhere where we would
Speaker 9: like to see them and they're not going to meet
Speaker 9: their twenty twenty six targets based on our analysis. So
Speaker 9: at this point, I think when you have a founder
Speaker 9: who really established this company, right, who really brought into
Speaker 9: it through, he does.
Speaker 3: Have a say all right, Punham, thank you, thank you,
Speaker 3: have a great weekend, Punam Goyle. She's Bloomberg Intelligence Senior
Speaker 3: analyst for e Commerce and eth Leisure. Been following this company,
Speaker 3: as you can tell, knows it inside and out for
Speaker 3: many years.
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Speaker 2: New York station, Just Say Alexa played Bloomberg eleven thirty.
Speaker 1: Well a defense system that could defend the US from
Speaker 1: the nuclear missile arsenals of Russia, China, and North Korea.
Speaker 1: It's the so called Golden Dome and iunce just days
Speaker 1: into President Trump's second administration. The president has said the
Speaker 1: project will cost about one hundred and seventy five billion
Speaker 1: dollars and it'll be completed by the end of his term.
Speaker 1: In twenty twenty nine, but defense experts say those targets
Speaker 1: are unrealistic. Bloomberg analysis on the final price tag could
Speaker 1: reach many multiples of that, And Carol, the tech not
Speaker 1: even confirmed that could actually work.
Speaker 3: You know, I think what I find fascinating reminds me
Speaker 3: of like President Reagan and is Star Wars.
Speaker 4: We talked about in like grade school as not working.
Speaker 3: Right exactly, although you kind of understood where he's going,
Speaker 3: but this certainly feels like and is more of a reality.
Speaker 1: Well, it's a Bloomberg big take and just a fantastic read.
Speaker 1: Joining us now is Santa Paschenker, Bloomberg News space reporter. Also,
Speaker 1: Wayne Sanders joins us. He's Bloomberg News Bloomberg Intelligence Senior
Speaker 1: Defense chanalyst. Santa joins us from Washington, DC. Wayne joins
Speaker 1: us from Maryland. First, Sana, I want to start with you,
Speaker 1: Carol said, the whole concept reminds her of Star Wars
Speaker 1: during the Reagan administration. But explain exactly how the Golden
Speaker 1: Dome would work, the satellites, the missiles, what would happen?
Speaker 8: Yeah, totally.
Speaker 10: So the Golden Dome is intended to be a multi
Speaker 10: layered defense missile defense shield. So the way it would
Speaker 10: work is like, in the case of an attack from
Speaker 10: an adversary like Russia, North Korea, or China, a nuclear
Speaker 10: missile would first encounter a space based layer of defense,
Speaker 10: which would include space space missile interceptors, and that technology
Speaker 10: doesn't yet exist, but those are intended, those which were
Speaker 10: outlined in President Trump's executive Order as a requirement of
Speaker 10: the Golden Dome would attempt to counter the missile at
Speaker 10: the very first stage, which is in space, and then
Speaker 10: if they make it past that space based layer of defense,
Speaker 10: there would be other layers of defense, including the high
Speaker 10: atmosphere and even on the ground like using Patriot and
Speaker 10: bad batteries to intercept different types of missiles that could
Speaker 10: be launched from adversaries.
Speaker 4: So it's really like, go ahead, Sorry I interrupted you.
Speaker 10: Oh, I was just gonna say. It's really like there's
Speaker 10: a net on every single level that is hoping to
Speaker 10: engage those missiles and destroy them.
Speaker 4: Okay, we're going to cool.
Speaker 1: We're gonna get to the astronomical price tag in just
Speaker 1: a minute with this, and also the how realistic a
Speaker 1: solution such as this is. But first I want to
Speaker 1: bring in Wayne Sanders. He's Bloomberg Intelligence senior defense analyst.
Speaker 1: He joins us from Maryland, Wayne as Santa and the
Speaker 1: team right in the piece. Up to now, the strategy
Speaker 1: to prevent annihilation of the United States has really depended
Speaker 1: on deterrence, this idea of mutually assured destruction and nuclear deterrence.
Speaker 1: Why why do we need to make a change there?
Speaker 11: Well, I think the first really important piece is there
Speaker 11: is a lot that actually goes on within within missile defense,
Speaker 11: ballistic missile defense within the United States that we already have.
Speaker 11: And one of the biggest you know, precursors to Gold
Speaker 11: and Dome was really looking out and saying we have
Speaker 11: a lot of capability that is not interoperable. We have
Speaker 11: capabilities like Lockheed's AG's defense for the Navy. We've got
Speaker 11: ballistic missile defense of Guam, and we have the FAD
Speaker 11: batteries that that Saana brings up as well as well
Speaker 11: as Patriot and Factory interceptors. We have a lot of capability,
Speaker 11: but what we don't have is the ability to see
Speaker 11: all of those, to include the sensor layer that she
Speaker 11: brings up as well. We have tracking layers from ground
Speaker 11: as well as in the air as well as in
Speaker 11: space and so long range determined discrimination radars, next generation
Speaker 11: overhead persistent you know.
Speaker 7: All these different things.
Speaker 11: But what they don't do is all talk to the
Speaker 11: senior military leaders at the same time and say, I
Speaker 11: can see a launch coming from country X, it's going
Speaker 11: to take x amount of time to get to get
Speaker 11: to the US or to one of our allies. You know,
Speaker 11: you can shoot a hypersonic missile from mainland China and
Speaker 11: reach South Korea and Japan in six to eleven minutes.
Speaker 11: You can reach Australia in fifteen minutes. That's that is
Speaker 11: a very very quick turnaround in terms of trying to
Speaker 11: make a decision. And if you're only picking it up
Speaker 11: based off of one commander who has happens to be
Speaker 11: in a submarine or a surface vessel that sees this,
Speaker 11: they've got to get that to the National Command, the
Speaker 11: National Military command authority to make those decisions a lot faster.
Speaker 3: Yeah, I think about, you know, weighing all of the
Speaker 3: layers of this, and yes, there's missiles, and you know,
Speaker 3: I go back to my college days and we were
Speaker 3: talking about ICBMs and you know, deterrence, and you know
Speaker 3: how that kind of changed warfare. But but what I
Speaker 3: guess what I'm curious about, you know, throwing drones into
Speaker 3: this and this is a whole other kind of lower
Speaker 3: level I just think about what's needed to protect ourselves
Speaker 3: against that, The cost, the implications, how does that even
Speaker 3: just kind of complicate or add to the cost of
Speaker 3: all of this.
Speaker 11: Well, absolutely, you know the layered defense that Sona brings
Speaker 11: up absolutely hundred percent. You have exo atmospheric you think
Speaker 11: about those ICBM threats, You think about things that are
Speaker 11: going to go into space and come back down.
Speaker 7: We have to be able to reach those.
Speaker 11: But you also then have the drone swarm fight that
Speaker 11: is also out there right So part of the Pentagons
Speaker 11: Replicator one point zero and Replicator two point zero initiative
Speaker 11: is being able to counter drones and then be able
Speaker 11: to add to our own arsenal. So when you look
Speaker 11: at a billion plus dollars for drone development and counter
Speaker 11: uas for the twenty twenty six NDAA, a lot of
Speaker 11: that in the Golden Dome piece is really looking at
Speaker 11: high powered microwaves. It's looking at high energy laser technologies
Speaker 11: and companies that are out there right now building these things.
Speaker 11: So they can counter that threat, so that the strategic
Speaker 11: level capabilities, the expensive pack freeze right, four to six
Speaker 11: million dollars to fire those patriot at the PAC three interceptors.
Speaker 11: You don't want to do that against the thirty thousand
Speaker 11: dollars drone. So being able to put all these pieces
Speaker 11: together and make sure that you can identify the capability
Speaker 11: and shoot it down with the right thing.
Speaker 6: So how to come back in on this? All I
Speaker 6: can think about is the price tag.
Speaker 3: You know, I've been I've been to countries like Costa
Speaker 3: Rica where I think they spend nothing on military and
Speaker 3: what they can do in terms of education and healthcare
Speaker 3: and just different things. Yeah, it's just so talk to
Speaker 3: us about the cost because I think what was it
Speaker 3: back in October.
Speaker 1: Seventy five billion? Is is what the President said the
Speaker 1: project would cost?
Speaker 3: Right, go ahead, No, But what I was going to
Speaker 3: say is that we already have a budget deficit that's
Speaker 3: topping and logging a one point eight trillion dollar mark.
Speaker 3: What would something like like Tim put out a number?
Speaker 3: What the president thinks? What did you guys find out?
Speaker 3: And can we afford to do this?
Speaker 6: Sound like my husband? Can we afford to do this?
Speaker 10: Yeah, totally. So when we kind of estimated how much
Speaker 10: it would cost to defend against an all out attack
Speaker 10: from the combined nuclear arsenals of Russia, China, and North Korea.
Speaker 10: So think worst case scenario, the defense systems that we
Speaker 10: would need to really successfully counter that would cost about
Speaker 10: one point one trillion dollars, so way more than what
Speaker 10: Trump is claiming as one hundred and seventy five billion,
Speaker 10: if you're adhering to the requirements that he's outlining in
Speaker 10: the Executive Order, which is that you know, this golden
Speaker 10: dome will protect against any foreign aerial attack. And then
Speaker 10: but you know, a golden dome that protects a little
Speaker 10: bit less could be built more cheaply, even though that's
Speaker 10: not maybe exactly what he said in the Executive Order.
Speaker 10: So we also calculated the cost of one that a
Speaker 10: golden dome that could protect against an all out attack
Speaker 10: from just one adversary like Russia, and we found that
Speaker 10: that even that was still eight hundred and forty four
Speaker 10: billion dollars.
Speaker 2: And you know a.
Speaker 10: Lot of these costs are just from procuring the systems,
Speaker 10: and a lot of them don't even exist yet. Like
Speaker 10: I mentioned, space based interceptors, is something that President Trump
Speaker 10: specifically states in the Executive Order needs to be part
Speaker 10: of this Golden Dome, and that technology doesn't even exist yet,
Speaker 10: so you would need a lot of you know, research
Speaker 10: and development money as well, and we didn't even include
Speaker 10: that in our analysis. So you know, it's I think
Speaker 10: it's pretty well known that that that's a potentially underestimate
Speaker 10: of what this would actually cost if it is built
Speaker 10: to what he's stating in the Executive Order.
Speaker 1: Then how do you get that number, SAWNA up to
Speaker 1: one point one trillion dollars this maximum risk scenario estimate?
Speaker 1: What does that calculate?
Speaker 10: Yeah, So what we did is we kind of so
Speaker 10: the nuclear arsenal of Russia, North Korean and China, those
Speaker 10: numbers of what missiles they have have been published by
Speaker 10: the Defense Intelligence Agency. So what we did was we
Speaker 10: did analysis to kind of find out how many defense
Speaker 10: systems we would need to really protect against all of
Speaker 10: these missiles coming at the United States at once. And
Speaker 10: you know, we did that using a combination of Pentagon documents,
Speaker 10: prototype contracts, think tank estimates, and so we kind of
Speaker 10: compiled all these costs of all the defense systems as
Speaker 10: well as the quantity of the defense systems needed to
Speaker 10: come up with this final number of one point one trillion.
Speaker 3: All right, So, Wayne, we live in a world where
Speaker 3: we talk a lot about AI and you know tech spend,
Speaker 3: and you know you've got to do upgrades on things
Speaker 3: like this. Isn't a case of we build this dome
Speaker 3: and set it and forget it right or help me
Speaker 3: out here.
Speaker 6: Are we going to.
Speaker 3: Constantly having to be doing kind of upgrades, improvements and
Speaker 3: so on.
Speaker 7: No, they're definitely going to require that.
Speaker 11: I think a lot of the AI integrators that you're
Speaker 11: already seeing right even with one of the Golden Dome
Speaker 11: pieces early on was Palentteer with SpaceX and saying, hey,
Speaker 11: we want to be able to play in this space
Speaker 11: as well. During the bidding portion for Golden Dome, you're
Speaker 11: going to end up having to do that. So a
Speaker 11: lot of this also includes, like cybersecurity, making sure that
Speaker 11: you have the open system architecture necessary to be able
Speaker 11: to provide the upgrades. But like Saana said too, is
Speaker 11: you also have to build the scalability. You're still going
Speaker 11: to come down to industrials. You have to build the
Speaker 11: satellites capable of doing this. You have to build the
Speaker 11: radars and the sensors to be able to meet that,
Speaker 11: and then you have to get to the interceptor's point
Speaker 11: to be able to do that. Right, you and I
Speaker 11: we've had this conversation before. If you even take just
Speaker 11: the pack three interceptors, right, they're using the Patriot system locked.
Speaker 11: You know, they were at five hundred and fifty per
Speaker 11: year that they build and then you're they're up to
Speaker 11: seven fifty that they're hoping for twenty twenty six, twenty seven.
Speaker 11: They're adding additional lines, so they're doing a great job
Speaker 11: of actually being able to reach some of the demand.
Speaker 7: But those are for ground based Patriot systems.
Speaker 11: If you're now all of a sudden trying to add in,
Speaker 11: I need to create an interceptor capability space based interceptor
Speaker 11: that's going to be in orbit, that's going to go
Speaker 11: on these satellites. You've got to build to that capacity
Speaker 11: as well, and then add on to all of that piece, Right,
Speaker 11: is that AI integration.
Speaker 7: Every time that there is something new that.
Speaker 11: China RuSHA does, we have to be able to make
Speaker 11: sure that we can defend that in the cybersecurity arena
Speaker 11: for the satellite platform.
Speaker 1: Themselves, Wayne, we got to run, but just yes or no?
Speaker 1: Does this happen by the end of President Trump's term?
Speaker 7: No?
Speaker 11: Phase one can happen where interoperability all their stuff can
Speaker 11: happen space based noe.
Speaker 1: All right, if the ballroom was going to get done, No,
Speaker 1: that's an easier it's not in space.
Speaker 3: Saana Pashankar and of course our Wayne Sanders, thank you
Speaker 3: so much.
Speaker 6: Incredible story.
Speaker 1: Stay with us more from Bloomberg Business Week Daily coming
Speaker 1: up after this.
Speaker 2: You're listening to the Bloomberg Business Weekdaily podcast. Catch us
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Speaker 4: You know today's an IPO day, is it? Yeah?
Speaker 1: Wealth Front started trading. That's the robo advisor fintech company.
Speaker 6: Yeah.
Speaker 1: I think UBS was supposed to buy it a few
Speaker 1: years ago. It's now trading just up about three point
Speaker 1: three percent value though, at a two point one billion dollars.
Speaker 4: Wow, how can its debut today?
Speaker 6: I didn't see that, did it.
Speaker 5: What's it doing?
Speaker 4: It's up three point two percent? Oh interesting, Yeah you could.
Speaker 1: It's not too late to add to one of your
Speaker 1: Gainers maybe do an honorable mention it.
Speaker 6: I am so overwhelmed with Gainers today.
Speaker 4: Christy.
Speaker 1: You well, he's not a robo advisor. He's a real
Speaker 1: person we're talking about. Andrew Cries, chief investment officer at
Speaker 1: Crescent Grove Advisors. The firm has about five billion dollars
Speaker 1: in assets under management. Andrew joins us from Milwaukee this afternoon. Andrew,
Speaker 1: good to have you on the program. Last time you
Speaker 1: were here with us in the studio. A lot has
Speaker 1: happened since then, and I'm you know, a lot of
Speaker 1: questions I think too, as we just heard from Jordan
Speaker 1: and from Charlie about where we are or are not
Speaker 1: when it comes to AI spend and an AI bubble.
Speaker 4: How are you looking at that in the context of
Speaker 4: the trade.
Speaker 12: Yeah, everybody wants to know where this AI theme is going.
Speaker 12: And also great to be with you. So I think
Speaker 12: from our perspective, the risk going forward is that the
Speaker 12: so much is in the price at this point, right,
Speaker 12: You've got such a sort of perfect outlook that's being
Speaker 12: priced into these companies at this point. In a particular,
Speaker 12: take a company like Oracle, where you're seeing more debt
Speaker 12: funding come into play as opposed to you know, some
Speaker 12: of the other MAG seven members that are largely funding,
Speaker 12: they're spending out of free cash flow. You know, you
Speaker 12: introduce sort of a unique element to that specific stock.
Speaker 12: But ultimately, you know, people are saying, can they deliver
Speaker 12: on the promise the productivity gains, the you know, the
Speaker 12: ultimately the earnings, the return on invested capital, all this
Speaker 12: money that's being sunk into this theme, can we see
Speaker 12: that produce something of value? And if not, then I
Speaker 12: think these valuations are probably a little bit hard to justify.
Speaker 12: So it's it's data point by data points, sort of
Speaker 12: case by case is you as you look at it.
Speaker 12: But that's certainly top of mind as you move into
Speaker 12: twenty twenty six.
Speaker 3: When clients come to you and I know it's long term,
Speaker 3: and they it's about you know.
Speaker 1: They say, I want to go back in time when
Speaker 1: I want you to put all my money in Vidia
Speaker 1: ten years ago?
Speaker 3: No no, no, no, no, no, yeah, yeah, exactly right,
Speaker 3: or by Bitcoin ten years ago?
Speaker 6: Where do they want to put money?
Speaker 3: And I understand everybody's got their own individual goals and
Speaker 3: a lot of it's about you.
Speaker 6: Know, maintaining wealth, not only growing it.
Speaker 3: But so I'm just curious, what is it that they
Speaker 3: ask you most about when it comes to different trends, narratives,
Speaker 3: investment plays.
Speaker 12: I think right now, what we've heard a lot from
Speaker 12: clients is just this uncomfortable sense about this rally. You know,
Speaker 12: since libration day kind of off the April lows that
Speaker 12: it just feels uncomfortable for some reason. You get a
Speaker 12: lot of talk about all time highs and do we
Speaker 12: pull back with our equity allocations, and certainly we're not
Speaker 12: opposed to taking some chips off the table and in
Speaker 12: particular thinking about where do we rotate to find relative
Speaker 12: value across markets? And you know, I think one of
Speaker 12: the big themes is we look out in the next
Speaker 12: year and talk about with inequities in particular that have
Speaker 12: done so well so the growthy side of equities, these
Speaker 12: megacap tech names, you know, taking chips off the table there,
Speaker 12: which would be the first order effects of AI and
Speaker 12: the theme that we're talking about here with you know,
Speaker 12: the this outsized performance that we've seen from the mag
Speaker 12: seven and related names. Think about what's the next play,
Speaker 12: what's the second order the third order effect here? Yeah,
Speaker 12: I was just gonna say from that perspective. We think
Speaker 12: it's the diffusion of AI through the economy into more
Speaker 12: of these legacy kind of old economy type names. So
Speaker 12: you know, that's something that we're positing to clients. Is okay,
Speaker 12: we appreciate the fact that there's this sort of momentum
Speaker 12: play in markets, and you're a little bit skittish about
Speaker 12: levels here in valuations. Let's think about, you know, areas
Speaker 12: where we can rotate into things that offer better value
Speaker 12: right now in markets while maintaining some of your exposure.
Speaker 6: In aggregate like healthcare or what yeah.
Speaker 12: I think healthcare industrials, you know, sort of these manufacturing
Speaker 12: segments of the economy. Again, just this these old line
Speaker 12: areas of the economy, even business services, more traditional businesses
Speaker 12: like that. And we look at it only from the
Speaker 12: public market side of things, but the private market side
Speaker 12: of things. So we spend a lot of time looking
Speaker 12: at you know, private equity or certainly venture capital growth equity.
Speaker 12: But if you think about private equity in the way
Speaker 12: that they can touch these traditional businesses, small medium sized
Speaker 12: businesses apply some AI in a thoughtful, novel way and
Speaker 12: drive real productivity gains. And if you can find a
Speaker 12: manager that can do that in a really systematic fashion
Speaker 12: and has some sort of edge in terms of the
Speaker 12: way that they're deploying that throughout their portfolio. We think
Speaker 12: that's a really interesting compliment to what you're seeing on
Speaker 12: the public market side as well.
Speaker 1: Well, let's go back to public markets and just think
Speaker 1: about geographies for a second. Where do you think this
Speaker 1: happens in terms of AI spilling out into the non
Speaker 1: AI companies over the next couple of years. Does it
Speaker 1: happen in the US or do investors would investors be
Speaker 1: good to look outside of the US?
Speaker 8: Yeah, I think it happens globally.
Speaker 12: And this weaves into another theme that we're seeing and
Speaker 12: expecting to continue to play out, which is really deglobalization,
Speaker 12: but reregionalization, I suppose, is the way we would frame
Speaker 12: that in the sense that Europe gets more europe centric
Speaker 12: in the way that it thinks about maybe even its
Speaker 12: own AI technology, you know, and sort of the sovereignty
Speaker 12: around its AI capabilities. But we think AI will be
Speaker 12: a universal technology that gets deployed across the world in
Speaker 12: different capacities, and then that really ties back into this
Speaker 12: relative value theme as well. Right where you're looking at
Speaker 12: markets xus that are trading at much more reasonable valuation
Speaker 12: starting points, but continue to have a pretty good catalyst
Speaker 12: in terms of you know, fiscal spending picking up defense spending,
Speaker 12: certainly within Europe as a sort of poster child there.
Speaker 8: You've got loose fiscal policy in Japan.
Speaker 12: You've got China which looks set to continue to be
Speaker 12: providing stimulus to its markets. So you've seen this positive
Speaker 12: revision in earnings expectations if you look at the EFA,
Speaker 12: if you look at emerging markets indices. We think that
Speaker 12: then is kind of the relative value rotation theme for
Speaker 12: us where you come out of you know, some of
Speaker 12: these megacap tech names that have done so well, look
Speaker 12: at other areas of the market that are poised to
Speaker 12: sort of accelerate their earnings growth into twenty twenty six.
Speaker 3: Biggest risk the new year just quickly just got about
Speaker 3: thirty seconds.
Speaker 8: Yeah, it's inflation to us.
Speaker 12: If inflation stays stubbornly high, and we're already seeing you know,
Speaker 12: the ten year today's taking back up towards four point
Speaker 12: two percent. But if you see inflation expectations really rerating
Speaker 12: to the upside, you see that ten year move back
Speaker 12: towards five percent. We think that's that's the big concern.
Speaker 12: Then all of the knock on effects that come alongside
Speaker 12: sort of longer duration securities repricing as a function of
Speaker 12: elevated inflation expectations. So that's what we're watching really really
Speaker 12: closely in the next year.
Speaker 1: Andrew cry thanks so much for joining us chief investment
Speaker 1: officer at Crescent Grove Advisors. Hopefully next time we see
Speaker 1: you back here in New York.
Speaker 2: This is the Bloomberg Business Week Daily podcast, available on Apple, Spotify,
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Speaker 9: M