Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amerie Hordernt. Join us each day
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Speaker 2: Terminal and the Bloomberg Business App. Stuart Kaiser City writing,
Speaker 2: there hasn't been much market breath lately on both sealovs
Speaker 2: and rallies. The market has been mixed as people rotate
Speaker 2: instead of broad changes in risk. Stuart joins us now
Speaker 2: for more Stupid Morning. I know you can't talk much
Speaker 2: about this IPO specifically, but the amount of IPOs that
Speaker 2: are coming to the market at the moment, do you
Speaker 2: see them as a red flag for the ball market
Speaker 2: or a green flag to deploy more capital.
Speaker 3: I mean, UTIM worth to see how they perform, and
Speaker 3: I think it's not just pos right. You have secondary
Speaker 3: offerings from Meta from Google, from Amazon, you have tremendous
Speaker 3: amount of convertible bond issue, its HIGHG bond issue, and
Speaker 3: so this is a sort of broad based demand for capital,
Speaker 3: and I think a lot of investors are looking at
Speaker 3: this is one of the largest construction and industrial production
Speaker 3: cycles the world has ever seen, right, and that needs
Speaker 3: to be financed. And what we're seeing I think the
Speaker 3: last couple of weeks is a little bit of a
Speaker 3: friction in the market as people digest just the enormous
Speaker 3: amount of capital that's going to need to.
Speaker 2: Be raised to get those push backs too that we've
Speaker 2: talked about Meta Auricle maybe spending too much thinking about
Speaker 2: raising more capital stock markets pushback. A ural company is
Speaker 2: going to be treated the same, maybe just isolating the
Speaker 2: weak points.
Speaker 3: I mean, I don't think all all companies will be
Speaker 3: treated the same. You know, the winners are going to
Speaker 3: the winners, and the big free cash flow companies like
Speaker 3: we see from the Max seven the last couple of years,
Speaker 3: are going to be able to raise that capital. And
Speaker 3: companies that are maybe the Tier two or the tier
Speaker 3: below that are going to see credit spreads rise and
Speaker 3: going to see some more pressure. I think what's gotten
Speaker 3: people's attention recently is last year was all about definancing, right,
Speaker 3: this year it's been about equity finance. So that's got
Speaker 3: in equity investors attention. I wait, this applies to us
Speaker 3: as well, Like this doesn't seem very fair, and much
Speaker 3: like Lisa, I was forced to watch Star Trek against
Speaker 3: my will, so you know, I have some scar tissue
Speaker 3: that I'm working through as well related to this. We
Speaker 3: talked about that later.
Speaker 4: You know, this is actually something I think a lot
Speaker 4: of people on Wall Street probably are working through this morning.
Speaker 4: There is a sense though, and you talked about this.
Speaker 4: John was talking about the rotating pool of capital and
Speaker 4: how it's going from different names and different pockets, and
Speaker 4: the breath has been really bad. How much of people
Speaker 4: selling some of the previous winners to get in on
Speaker 4: the new, hot and shiny thing.
Speaker 3: You know, it's a tough situation right now because the
Speaker 3: winners is still where people want to be. And this
Speaker 3: year has been really defined by estimate revisions. Earning's going
Speaker 3: higher and that's driving stock returns, and frankly, that's been
Speaker 3: in a relatively narrow part of the market. So as
Speaker 3: much as people might want to rotate, when you say okay,
Speaker 3: when you rotate, you have to sell this guy and
Speaker 3: buy that guy. The guy they have to buy is
Speaker 3: not something they want to own, right, So in some sense,
Speaker 3: it's like you're being forced to rotate against your will
Speaker 3: a little bit. And it's been a little bit tricky. Look,
Speaker 3: some of the stuff is up so much. If we
Speaker 3: look at NASDAK earnings are up ten percent since the
Speaker 3: end of March. Semiconductor's earnings have been revised up seventeen
Speaker 3: percent since the end of March, So you kind of
Speaker 3: fade that at your own risk. Is that done? And
Speaker 3: I think a lot of investors do not think those
Speaker 3: revisions are done. They still want access to those positive
Speaker 3: earnings revisions. So I think people are planning a little
Speaker 3: bit of hopscotch amongst the AI winners. Oh this looks
Speaker 3: a little overdone. Let me move here, but it's not,
Speaker 3: you know, I want to move down the quality spectrum
Speaker 3: would be really too far away from that AI trade.
Speaker 4: Something you mentioned that the dept marks have gotten used
Speaker 4: to being tapped again and again to build out the
Speaker 4: industrial Revolution, and they certainly have been over the past
Speaker 4: two years. Now it's equity markets turn at the same
Speaker 4: time as it's being driven by the fact that equities
Speaker 4: look like a better risk reward proposition at a time
Speaker 4: of earnings growth like the kind we've seen, given that
Speaker 4: inflation is going to be higher that yes, bond yields
Speaker 4: are higher than they have been historically, but in some
Speaker 4: ways aren't necessarily even going to keep pace with inflation
Speaker 4: over the.
Speaker 3: Next couple of years. And you also have this situation
Speaker 3: where the credit marks are going to start to look
Speaker 3: a lot more like the equity markets, right because large
Speaker 3: cap tech and the mag seven are issuing debt, all
Speaker 3: that desk going to go into the credit indsease. So
Speaker 3: this sort of sector concentration you have with in equity
Speaker 3: actually is going to exist within credit. So you're not
Speaker 3: you're sort of you're not getting all the upside reward,
Speaker 3: but you're actually getting a lot of the risk and
Speaker 3: the concentration. So you know what we'll see ultimately how
Speaker 3: that health that plays out. I mean, I'm an equity guy.
Speaker 3: I'm going to tell you what equities, not the.
Speaker 4: Bond usually bond allocated money going into the equity space
Speaker 4: because of exactly this dynamic.
Speaker 3: You know, I mean, money's been coming into the equity space,
Speaker 3: you know, kind of from all directions. The beauty of
Speaker 3: the bomb market though, is your you know, you're constantly
Speaker 3: recycling coupon payments and stuff like that. I mean, the
Speaker 3: bond market's healthy. Look where credit spreads are, you know,
Speaker 3: there's not like an issue on the credit side. But
Speaker 3: to your point, you're you're making a decision there of
Speaker 3: you know, do you want your fixed payout or do
Speaker 3: you want access to that sort of upside earnings revision
Speaker 3: and the revisions are just like goofy powerful this year,
Speaker 3: so it's kind of hard to step away from that,
Speaker 3: I think for most people.
Speaker 2: So you're described the changing characteristics of they US credit market.
Speaker 2: Can we talk about the changing characteristics of the index
Speaker 2: the Nasdaq? What that's going to look like is we
Speaker 2: introduce some loss making companies with massive market caps and
Speaker 2: we do so really quickly.
Speaker 3: How's the character of the NASTAK going to change? Well?
Speaker 3: I think what's interesting is the size of some of
Speaker 3: these i pos is just so big historically because they
Speaker 3: didn't they IPILD late. I guess would be a way
Speaker 3: to way to look at that. And the other interesting
Speaker 3: thing with the indices is a lot of these things
Speaker 3: are going to be a Nasdaq pretty quick and not
Speaker 3: in the S and P for a while, so you
Speaker 3: kind of get a little bit of a divergence, you know,
Speaker 3: between between how the two things look. You know, for
Speaker 3: Nastak specifically, we have to see how it all plays out,
Speaker 3: but it's not unusual to have sort of higher volatility,
Speaker 3: you know, stocks with a lot of argy.
Speaker 2: Question, does just that just amplify the existing difference that
Speaker 2: already exists between the two indexes?
Speaker 3: You know, look, the concentration in SMP has gotten pretty
Speaker 3: high as well. But yes, it will. I mean, you
Speaker 3: could be in a situation later this year where there
Speaker 3: are two or three you know, new IPOs that people
Speaker 3: will really want access to that are in one index
Speaker 3: or the not and not the other, and you will
Speaker 3: get a divergence there, And yeah, it will, I mean
Speaker 3: just by definition, and I think it'll kind of widen
Speaker 3: out the gap between the two.
Speaker 4: Do you buy the argument that with increased supply, the
Speaker 4: dynamics of the equity market are changing enough to dilute
Speaker 4: some of the demand that just the technical is alone
Speaker 4: should take away some of the heat that's been underpinning
Speaker 4: the equity markets.
Speaker 3: I mean, just like too much supply not enough demand.
Speaker 3: You know, that's what we've seen. I think the last
Speaker 3: couple of weeks, right is people are you know, looking
Speaker 3: at it a little more critically in terms of how
Speaker 3: much equity supply am I going to need to absorb
Speaker 3: over the next six to nine months? And what does
Speaker 3: that mean for performance? From my perspective is you know,
Speaker 3: I'm a good news is good news guy, and if
Speaker 3: those earnings numbers are getting revised up in the way
Speaker 3: they are, there's only so long you can keep yourself
Speaker 3: away from that, right. I mean, you revised up Nasdaq
Speaker 3: earnings one percent in the last week. I mean that's
Speaker 3: just like a stunning, you know, rate of change. So yeah,
Speaker 3: I guess perhaps you know where there's a little bit
Speaker 3: indigestion going on right now, and it's almost perspective indigestion
Speaker 3: because people are looking at the next six to nine
Speaker 3: months and what is the total amount that gets issued?
Speaker 3: If your jamming earnings that's high they are, there's always
Speaker 3: something you get ignored.
Speaker 2: Let's get another waes down. The technical is if i'd
Speaker 2: buy banks like up here sky high, really reducing the
Speaker 2: amount of flow, the amount of stock that's available for
Speaker 2: people to buy, the shrinkage that everybody's been talking about.
Speaker 2: As the spread starts to close, and I know it's
Speaker 2: still wide because it starts to close. Does that dynamic matter,
Speaker 2: That's really what Lisa's asking.
Speaker 3: Yeah, I mean it can matter. I mean, there was
Speaker 3: some discussion that some of this capex vending was going
Speaker 3: to eat into into buybacks and stuff like that, and
Speaker 3: now you're actually getting equity issuance. So to your point,
Speaker 3: you're kind of going the other way. What's interesting too,
Speaker 3: is a lot of these companies started issue with dividends
Speaker 3: less than eighteen months ago and are now kind of
Speaker 3: committed to that. So yeah, look, there is there is
Speaker 3: a little bit of a supplied demand dynamic, you know,
Speaker 3: going on. But to your point, this has been a
Speaker 3: multi decade issue of you know, shrinking number of publicly
Speaker 3: traded companies, et cetera. So it's not something you're going
Speaker 3: to fix or reverse in six months, right, it would
Speaker 3: take longer than that, I think.
Speaker 2: Stay with us. More Bloomberg surveillance coming up after this.
Speaker 2: The former deputy National Security Advisor Victoria Coats writes the
Speaker 2: following President Trump has demonstrated that he can bomb what
Speaker 2: he wants when he wants in Iran and there's little
Speaker 2: or nothing the regime can do about it.
Speaker 3: Victoria joins us.
Speaker 2: Now for more, Victoria, welcome back to the program. The
Speaker 2: US has demonstrated repeatedly that it has military superiority over Iran,
Speaker 2: both in the skies and intelligence and so on and
Speaker 2: so forth. How do they ensure the US that they
Speaker 2: translate that superiority into a superior deal that benefits the US.
Speaker 1: Well, good morning, John. Yeah, I think we've actually seen
Speaker 1: that play out in real time over the last couple
Speaker 1: of days. And I admit I am a little nervous
Speaker 1: that Tyler's going to pop back up with another changing headline.
Speaker 1: In this current news cycle, a lot of things are shifting.
Speaker 1: So take all this with a grain of salt, But
Speaker 1: it looks like what happened to my eye is that
Speaker 1: everybody thought the president was done with kinetic action. He
Speaker 1: wasn't going to go back in the Iranians, whereas he says,
Speaker 1: tap tap tapping the Americans along, and he decided, you
Speaker 1: know what, we can go back in. We can go
Speaker 1: and bomb a bunch of these sites. And I've heard
Speaker 1: them described as blinding targets. So you're getting rid of
Speaker 1: their radars, their ability to see things, their ability to
Speaker 1: launch missiles. Did it for two nights and then threatened
Speaker 1: carg Island, and I think the Iranians thought, wow, maybe
Speaker 1: this isn't what we've been dealing with for the last
Speaker 1: forty five years, and that we need to make a
Speaker 1: deal or else we're going to sustain damage that we
Speaker 1: can't recover from. So I do think that military superiority
Speaker 1: is a fact. We are the ones who are stopping
Speaker 1: ships in the street right now. They are threatening ships,
Speaker 1: but we're shooting down their drones. We're the ones who
Speaker 1: are actually disabling the tankers. So that's the reality the
Speaker 1: Iranians face. Hopefully it means they're going to start making
Speaker 1: some better decisions Victoria.
Speaker 4: With all due respect, I'm looking at what the market
Speaker 4: reaction was yesterday, and that was not the interpretation of
Speaker 4: the market. When the initial headlines came out and the
Speaker 4: t social posts from President Trump, the reaction of markets
Speaker 4: was don't believe you. You've talked about a potential escalation before,
Speaker 4: why should this be any different. And essentially, if you
Speaker 4: take a look at what Marius is reporting, the semi
Speaker 4: official news agency out of Iran, it's a sixteen point deal,
Speaker 4: a fourteen point deal that includes some that are still
Speaker 4: very controversial and similar to what they were a couple
Speaker 4: of months ago. What gives you confidence that anything was accomplished?
Speaker 1: Well, I mean, I don't actually get my news from
Speaker 1: They haven't proven terribly reliable in the past. What they
Speaker 1: tend to be is a messaging device actually to the
Speaker 1: Iranian people from the regime. They're trying to signal to
Speaker 1: the Iranians what they want to have in this deal.
Speaker 1: And so this is maya a lot of wishful thinking
Speaker 1: out of the Iranian regime. I'm going to wait and
Speaker 1: see what's actually in the deal before I just make
Speaker 1: up my mind about it. But obviously, Lisa, we're dealing
Speaker 1: with the Iranians. They have been obstreperous before. That is
Speaker 1: theirs that's their brand, if you will. They're going to
Speaker 1: try to continue the sort of stale we're in as
Speaker 1: long as we can. But I think the fact that
Speaker 1: the president has both been willing to do hugely more
Speaker 1: than any other American president to degrade that regime, to
Speaker 1: degrade their nuclear program, to demand his red lines, and
Speaker 1: then was willing this week, you know when in the
Speaker 1: situation where there is significant political pressure on him to
Speaker 1: you know, wrap this up, get to a deal, any deal,
Speaker 1: But he hasn't been doing that. He's been sticking to
Speaker 1: his red lines. So you know, as I said, I'm
Speaker 1: going to wait and see what's actually in the deal
Speaker 1: rather than believe Mahre. And you know, as for market reaction,
Speaker 1: I mean, the stock market went up a thousand points yesterday.
Speaker 3: That's that's not a bad thing. Well, Victoria, what.
Speaker 4: Gives you confidence at this time something has changed in
Speaker 4: the negotiating position from Ran.
Speaker 1: Well, it doesn't look. It looks to me like they
Speaker 1: are shifting. That they are realizing that the situation for
Speaker 1: them is one of diminishing returns, and so you know,
Speaker 1: they can demand to have control over the straight going forward.
Speaker 1: But the fact of the matter is that the rest
Speaker 1: of the re that they've so completely alienated is busily
Speaker 1: building infrastructure to make that completely irrelevant. So you have
Speaker 1: the Saudi petrolne pipeline that we've discussed, We've got UAE
Speaker 1: building the Fujira pipeline around the street, and talk of
Speaker 1: a natural gas pipeline that Katar would have access to
Speaker 1: across the Arabian Peninsula. So the Iranians are in a
Speaker 1: position where they have fewer and fewer cards even if
Speaker 1: they are if they are obstinate at the negotiating table,
Speaker 1: and eventually they're just not going to have that much
Speaker 1: regional leverage.
Speaker 2: Stay with us more Bloomberg surveillance coming up after this.
Speaker 2: Some on Wall Street expecting SpaceX that tap the debt
Speaker 2: market shortly after a record breaking IPO, sources telling us
Speaker 2: here at Bloomberg the company has lined up investment great
Speaker 2: ratings from three major bond graders. Zach Griff, it's a
Speaker 2: credit size, writing, I don't think there's any precedent to
Speaker 2: draw for a company like SpaceX to understand what they're
Speaker 2: rating should be. Zach joined just now for more, Zach, welcome.
Speaker 2: You heard the words of our previous guest. It's clearly
Speaker 2: an ig rated company. Do you see it differently?
Speaker 5: No, we don't. And in terms of what drives that
Speaker 5: ig rating, John, you have the new or relatively recent
Speaker 5: Google and anthropic deals, those aren't captured in the LTM metrics.
Speaker 5: And when you think about the loan to value consideration
Speaker 5: that I think you were just highlighting from Bruce Richards
Speaker 5: there it's one to two percent of the overall enterprise value,
Speaker 5: and so there's obviously a ton of equity valuation ahead
Speaker 5: of that credit. And so while that's not something that
Speaker 5: the ratings agencies tend to look at, we do think
Speaker 5: it plays a factor here, and so we are expecting
Speaker 5: an IG rating on SpaceX when they come to the market,
Speaker 5: and we think that'll be relatively quickly after the IPO.
Speaker 4: Today, it's incredibly difficult to value a company like this.
Speaker 4: We've heard a lot of different opinions so far this morning,
Speaker 4: and to evaluate whether it's investment rate or high yield.
Speaker 4: But does the bulk of equity being raised give you,
Speaker 4: as a bond analyst comfort that the equity markets are
Speaker 4: sharing in some of this and are actually sharing the
Speaker 4: first lost piece and give you confidence that they can
Speaker 4: raise more debt at a better value.
Speaker 5: Yeah, a lot of comfort, Lisa, when you think about
Speaker 5: what we were just going through, and if you think
Speaker 5: about the metrics from the last twelve months, ibadah perspective
Speaker 5: looking at around five times leverage and so that's more
Speaker 5: historically consistent with a high yield rating. Again, that doesn't
Speaker 5: capture some of the recent deals, and of course having
Speaker 5: all of that equity ahead of the credit makes us
Speaker 5: very comfortable with that IG rating, And when you think
Speaker 5: about how much debt they're likely to come to market
Speaker 5: with in the near term, call it around twenty billion,
Speaker 5: that kind of pales in comparison in terms of what
Speaker 5: the market has been digesting with ease so far this year,
Speaker 5: with the big five hyperscalers coming with almost one hundred
Speaker 5: and seventy five billion split across US dollar and various
Speaker 5: other currencies. So we do think there is going to
Speaker 5: be demand for that debt out there without much of
Speaker 5: an issue, even after this huge equity raise.
Speaker 3: That says Zech, how.
Speaker 4: Much is it concern you the just absolute consolidation of
Speaker 4: all risk in one bet right now, whether it's on
Speaker 4: the dead side or on the equity side.
Speaker 5: Yeah, I think concentration risk is a fair concern to have,
Speaker 5: and I think the circular financing consideration that you were
Speaker 5: just discussing with the prior guest is something we're concerned
Speaker 5: about when we think about where the rubber meets the
Speaker 5: road from that perspective and where there might really be risk.
Speaker 5: In terms of some of these big players coming to
Speaker 5: market with the IPOs open AI seems to be the
Speaker 5: one that really needs the funding. And so if for
Speaker 5: some reason markets become less risk taking over the next
Speaker 5: couple of months when Anthropic and open AI need to
Speaker 5: come to market, that's a timeframe that we think there
Speaker 5: could be a little bit more consternation. For now, we're
Speaker 5: certainly comfortable with the environment in and when we talk
Speaker 5: to our clients from a fixed income perspective, they're very
Speaker 5: happy with all in nield levels despite tight credit spreads
Speaker 5: really across the credit market.
Speaker 2: Just finish up on SpaceX. So I understand they've got
Speaker 2: this massive ability right now to tap into the equity
Speaker 2: market and raise equity capital quite easily, and we've seen that.
Speaker 2: But how much should that should be a factor in
Speaker 2: your credit rating when the company is losing money and
Speaker 2: they're going to spend that money really quickly too. You
Speaker 2: mentioned some of the hyperscalus and debt issue in sound Swell.
Speaker 2: Let's take Calphabet. Alphabet made profit more than one hundred
Speaker 2: billion dollars last year. Zach, this company loses money, why
Speaker 2: should that company have an IG rating?
Speaker 5: Well, again, it comes down to companies rating or the
Speaker 5: ratings companies raiding through the cycle. When you think about
Speaker 5: some of the deals recently inc That certainly improves the position,
Speaker 5: and the net cash position after the IPO certainly looks
Speaker 5: very attractive. Now we're expecting cash burn to be around
Speaker 5: twenty to thirty billion per year as they lean in
Speaker 5: to their AI infrastructure business. So there's a lot of
Speaker 5: metrics to consider, John, but we do think with the
Speaker 5: recent deals and projecting forward through the cycle and considering
Speaker 5: some of the upside scenario that an IG rating will
Speaker 5: be justified. And that's kind of what we're hearing out
Speaker 5: there as well.
Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best
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