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Speaker 2: We start strong her with special coverage and a Sizerowski
Speaker 2: joins us with Morgan Stanley. I mean, you got a
Speaker 2: nominal GDP, Andrew, but you got a new mix of
Speaker 2: lower GDP and persistent inflation. How does that change the
Speaker 2: application of new money into the bond market.
Speaker 3: Look, I think that when you look at what the
Speaker 3: bond market's pricing in for Fed and Center bank policy,
Speaker 3: you see the bond market's actually doing some of the
Speaker 3: work for the Fed. They're tightening financial conditions a little bit.
Speaker 3: At the same time, obviously this stock markets rallying and
Speaker 3: spreads are tightening and credit but those two things are
Speaker 3: kind of offsetting each other. I think one of the
Speaker 3: reasons the Fed doesn't have to be too concerned with
Speaker 3: inflation is you talked about that personal income number, which
Speaker 3: was zero percent a month over month. If you look
Speaker 3: at something like Atlanta FED Wage tracker, it's wages are
Speaker 3: tracking three point six percent wage growth year over year.
Speaker 3: We have three point eight percent uh per PCE price inflation,
Speaker 3: so those are negative real wages. This is something that
Speaker 3: price increases aren't sustainable on a real basis if either
Speaker 3: the consumer is going to have to tap their savings
Speaker 3: or they're going to cut back on spending. And I
Speaker 3: think that's why the one thing the Fed has going
Speaker 3: for it right now.
Speaker 2: It beautifully frames it. Folks. I can't say enough about
Speaker 2: that analysis of the Atlanta wage tracker and Sizeronski, thank
Speaker 2: you for joining us here with this key economic data.
Speaker 2: With Mortgane standing like Paul on the data screen, what
Speaker 2: do you see, I'm just like Themar's looking for Knicks tickets.
Speaker 4: Yeah, exactly, You're right pricing those out to your treasury
Speaker 4: up a couple of basis points four point zero five
Speaker 4: percent and then tenure up only about one basis point
Speaker 4: four point four nine percent.
Speaker 2: This is a treat, folks. Ira Jersey definitive a dominant
Speaker 2: constumment credit Swee years ago trying to guess out the
Speaker 2: interest rate tendency he now holds court driving all of
Speaker 2: credit at Bloomberg Intelligence. Iral, if you were in the
Speaker 2: chair with Dominique like this morning, and you had to
Speaker 2: guess out those inflate those guestimates, those forecast tales of
Speaker 2: what yield would be. Is it a higher yield.
Speaker 5: Well, it's a higher yield because basically this is old
Speaker 5: data and old news. You know, the market this morning
Speaker 5: at least is really concentrating on where is oil today?
Speaker 5: Right and oil is up a couple of bucks at
Speaker 5: the moment because it the strikes overnight by the US.
Speaker 5: So people are looking through this data and obviously there's
Speaker 5: also so much data to digest here that you know,
Speaker 5: we're all like quite full right now, so we're trying
Speaker 5: to parse out what's the most important bits of this.
Speaker 5: And you noted, Tom that the spending being flat a
Speaker 5: month on month is actually, uh, excuse me. The income
Speaker 5: being flat month a month actually is not very good
Speaker 5: because when now we have negative income in large part,
Speaker 5: maybe it could drive the economy.
Speaker 2: A little bit weaker.
Speaker 5: And you know, along with the weaker than expected GDP
Speaker 5: number for the first quarter, you know that's not necessarily
Speaker 5: a particularly good sign, even though the inflation data was
Speaker 5: a little bit better than expected.
Speaker 2: So just the.
Speaker 4: Headline, I'm a headline kind of person. Ira, You're the
Speaker 4: one that digs twenty seven layers deep. But the headline
Speaker 4: annualized three point eight percent PCE Price Index. I mean,
Speaker 4: that's got to get the attention of folks, not just
Speaker 4: the FED, but I don't know around Washington and policymakers
Speaker 4: and things like that. How do you what's a three
Speaker 4: point eight percent number mean to you?
Speaker 5: Yeah, well, it means for one thing, that it's going
Speaker 5: to be really difficult for Kevin Worsh to increase to
Speaker 5: lower interest rates, right, Like, how can you lower interest
Speaker 5: rates when you know not only are you running above
Speaker 5: target in terms of your favored your favorite inflation measure.
Speaker 5: So even if you trim out some of the details
Speaker 5: of this, and we haven't been able to do that
Speaker 5: yet because it's obviously the number just came out, but
Speaker 5: even if you trim it out, you're still going to
Speaker 5: be above the two percent target that the FED set.
Speaker 5: So it's going to be hard for Kevin Worsh to
Speaker 5: convince other members of the FED to even think about
Speaker 5: cutting interest rates. So I think for now, when it
Speaker 5: comes to least interest rate policy, you're more likely to
Speaker 5: see the Fed on hold until and unless one the
Speaker 5: war ends. And then two if there's major changes to
Speaker 5: the employment situation, which you know obviously we'll get more
Speaker 5: of that next.
Speaker 2: Week this wall of data. And as I said before, folks,
Speaker 2: I mean there's a dynamic here to nominal GDP in
Speaker 2: its new territory. For Chairman worsh Ira Jersey, do you
Speaker 2: have an historic analog he can plug in or is
Speaker 2: he in new territory?
Speaker 5: I think in many respects he's a new territory because
Speaker 5: even though like you could argue, and some people have
Speaker 5: argued that we're we're moving toward a stagflationary type environment
Speaker 5: because real growth should slow given that you might have
Speaker 5: a lot more of people's spending having to go to
Speaker 5: fuels and gasoline. But then people then talk about electrification,
Speaker 5: and then you know, we're not talking about you know,
Speaker 5: ten percent inflation rates like we had back in the
Speaker 5: nineteen seventies and early eighties. We're talking more about you know,
Speaker 5: three or four percent inflation, right which historically speaking, when
Speaker 5: you go back even to you know, earlier in my career,
Speaker 5: you go back thirty years when I started this business,
Speaker 5: we were talking about you know, two point eight percent
Speaker 5: three percent in a PC deflator that was fine, and
Speaker 5: that was normal, right, So so that is more sustainable, right.
Speaker 5: Inflation like we have today is somewhat more sustainable than
Speaker 5: inflation at nine or ten percent like we had a
Speaker 5: few years ago, just because you know, at least over
Speaker 5: the last few years, you've seen wages growing at four percent,
Speaker 5: so that means you still had real wages going up,
Speaker 5: which is the reason why that personal income number I
Speaker 5: think is a little bit disturbing to me, and I
Speaker 5: want to dig into that a little bit more because
Speaker 5: if we do have negative real wages, that's when you
Speaker 5: wind up seeing pretty aggressive slowing in the economy on
Speaker 5: a forward basis. And so we want to see is
Speaker 5: this the start of a trend or is this just
Speaker 5: like a one off measure because you know, Social Security
Speaker 5: payments were delayed or something like that. So we have
Speaker 5: to dig into the details of some of this. So unfortunately, Paul,
Speaker 5: I do have to dig into those details to be
Speaker 5: able to get you more information.
Speaker 4: Again, I'm not a details guy. I'm right on the surface.
Speaker 4: But I see personal income flat, I see my GDP
Speaker 4: number come in below expectations.
Speaker 2: Okay, it feels like segflation. This is brilliant Paul Ira,
Speaker 2: all of us think, like Paul, it's ugly out there.
Speaker 2: Does the bond market signal that so?
Speaker 5: Well, the bond market's signaling that it's really worried about inflation. Right,
Speaker 5: So when you look at like that two year yield,
Speaker 5: which we you know, we talk about being very sensitive
Speaker 5: to policy rates, and of course it is. But when
Speaker 5: you look at what's sold off and why it's sold
Speaker 5: off so much, it's also because inflation expectations in the
Speaker 5: short term have really gone up pretty significantly. They've gone
Speaker 5: up forty ish basis points in terms of the two
Speaker 5: year tips break even. So if we wind up getting
Speaker 5: a situation where oil gets back down sustainably to eighty
Speaker 5: dollars a barrel, you can wind up seeing two year
Speaker 5: yields get back to kind of where the Fed funds
Speaker 5: rate is right now. While we get down below that,
Speaker 5: I doubt it, because the market's still going to price
Speaker 5: for the Fed to be on hold, probably for a
Speaker 5: pretty long period of time. But you can easily get
Speaker 5: a thirty basis point rally on just on inflation expectations
Speaker 5: going down. Now, the long end of the curve is
Speaker 5: not only worried about inflation and in fact, inflation expectations
Speaker 5: longer term have barely moved. It's that what's going on
Speaker 5: with the fiscal situation will budgets globally wind up getting
Speaker 5: even worse because of either defense spending or social spending
Speaker 5: to kind of combat people's people having to spend more
Speaker 5: on energy.
Speaker 2: And that's one of the reasons. While you've seen this global.
Speaker 5: Bond sell off. So you know, we talk about US
Speaker 5: thirty year being over five percent, Sure it is, but
Speaker 5: this really is a global phenomena. You look at Japan
Speaker 5: with you know, interest rates that haven't been this is
Speaker 5: in decades. The UK is still having some of its
Speaker 5: own fiscal problems, so you wind up seeing all government
Speaker 5: bond yields go up. And one of the triggers for that,
Speaker 5: obviously was the warrant I ran, but I don't see
Speaker 5: what makes what makes yields go down quickly over the
Speaker 5: next couple of a couple of months in the long
Speaker 5: end of the curve.
Speaker 2: In particular, Paul, was that too much detail?
Speaker 5: That was good?
Speaker 2: He's always just killing me. He's going to staff of
Speaker 2: twenty five people, Yeah, Ira Jersey with US folks, and
Speaker 2: of course all of his expertise and fixed income is
Speaker 2: noted particularly unreadable documents on the short space like the
Speaker 2: trust market, commercial paper and libor ois or so for SOFR.
Speaker 2: We are pleased to announce it after negotiation with mister
Speaker 2: Jersey's representatives that Ira will join us in a new capacity.
Speaker 2: He will be the surveillance World Cup reporter. Nice, this
Speaker 2: is good. We got to staggered tot June eleventh, Mexico City,
Speaker 2: South Africa as well. Ira first before we get to
Speaker 2: the World Cup. Psg Arsenal this weekend. Describe how big
Speaker 2: a game that is to the world except Americans who
Speaker 2: don't care. Well.
Speaker 5: In many ways, it is the pinnacle of global soccer football,
Speaker 5: if you want to call it that, which I do,
Speaker 5: because the club game is much better in terms of
Speaker 5: quality actually than the international game is. Even though you
Speaker 5: wind up having the biggest stars on these teams that
Speaker 5: go to the World Cup, they're only together for one month.
Speaker 5: You know. They literally everyone just reported the camp except
Speaker 5: for the guy who went PSC and Arsenal this week,
Speaker 5: so it's not like they have a lot of time together.
Speaker 5: Whereas you know PSG and Arsenal, they've been training since
Speaker 5: last August for this very so so it is going
Speaker 5: to be some of the best football.
Speaker 6: Now.
Speaker 5: It is a final, so that tends to be a
Speaker 5: little kg. But PSGA in particular, they just know how
Speaker 5: to attack. Arsenal can be a little bit more tactical,
Speaker 5: I think, and I do suspect that Arsenal probably has
Speaker 5: the edge in this game, but it's it is going
Speaker 5: to be one to watch for sure.
Speaker 2: Was that a good, good first bout with our World
Speaker 2: Cup correspondent, Irish Jersey, Thank you so much. Driving all
Speaker 2: a fixed income can't say enough about his commitment to
Speaker 2: New Jersey youth soccer. His team's rocking it this year
Speaker 2: Irish Jersey and again going to came out to June eleven,
Speaker 2: Mexico City Stadium, Mexico and South South Africa. I should
Speaker 2: say here Matt Winmer has been more than patient portfolio
Speaker 2: manager all spring and he joins us for too short
Speaker 2: a visit this morning. Matt, is the American economy sluggish
Speaker 2: at one point six percent GDP? Is that the new standard? Yeah,
Speaker 2: it's a it's a great question.
Speaker 6: I mean, as bottom up portfolio managers, I think we're
Speaker 6: really focused on what those fundamentals are doing right now,
Speaker 6: and I think that really helps kind of separate the
Speaker 6: noise from the signal. And if you if you look
Speaker 6: at what's happening within the earning cycle right now, we've
Speaker 6: seen some really strong growth projected even for you know,
Speaker 6: for this year and for next year, and so we
Speaker 6: really have a strong belief that that that true long
Speaker 6: term value of a company is their future stream of
Speaker 6: cash flows, and they still look really strong right now.
Speaker 4: So, Matt, we've seen, you know, the economic data today
Speaker 4: suggests maybe this economy is entering some form of stagflation here,
Speaker 4: but boy, we don't see that in the earnings, do we.
Speaker 4: What do you make of that?
Speaker 6: Yeah, look, I think that's I think that's important. There's
Speaker 6: we just came out of COVID with a strong monetary
Speaker 6: and fiscal response and now you're throwing on top of
Speaker 6: that this this AI kind of cap X boom, and
Speaker 6: I think that's really kind of elevating things right now.
Speaker 6: And I think that's why the fundamentals continue to be
Speaker 6: strong right now.
Speaker 2: Matt.
Speaker 4: I know you guys, and we talked to An Lettis, Well,
Speaker 4: you guys are bottoms up folks. You really roll up
Speaker 4: the sleeves and do the work.
Speaker 2: Here.
Speaker 4: What sectors or what factors are screening well for you
Speaker 4: guys these days.
Speaker 2: Yeah, good question.
Speaker 6: I think a big part of what we're doing right
Speaker 6: now is just focusing on diversification. I think that's going
Speaker 6: to be important going forward. I think concentration risk is
Speaker 6: real at this point. It's important to take a holistic approach,
Speaker 6: especially with the AI ecosystem. CAPEX dollars are going to
Speaker 6: start spreading across the value chain. Look, it's important to stay,
Speaker 6: you know, involved in those big cap tech names like
Speaker 6: the mag seven. They're going to continue to play an
Speaker 6: important part of the buildout of AI, but it's important
Speaker 6: to start allocating some of those investment dollars to other
Speaker 6: areas of the market. So we're kind of thinking about
Speaker 6: that AI ecosystem is how having five layers, you know,
Speaker 6: That's something that Jensen introduced back at Davos earlier this year.
Speaker 6: We're incorporating that into our investment kind of exposure across
Speaker 6: the AI chain, and it's important to have exposure to
Speaker 6: all five layers.
Speaker 2: Mat One final question is a tendency here. Are you
Speaker 2: owning fewer items in an equity portfolio? Are you concentrating
Speaker 2: or are you going out to a more traditional one hundred,
Speaker 2: two hundred and even three hundred holdings.
Speaker 6: Well, typically for our strategy, we tend to be a
Speaker 6: little bit more concentrated. It's usually in that forty five
Speaker 6: to fifty names.
Speaker 2: We think that's enough.
Speaker 6: Exposure and diversification to allegate across to make sure that.
Speaker 2: You don't get whips on.
Speaker 6: But it also gives you an opportunity to be intentful
Speaker 6: in your exposure and in your bets across the portfolio.
Speaker 2: Matt, thank you so much. Bett Whitmer with us with
Speaker 2: all Spring this morning on the Equity at Market. Stay
Speaker 2: 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 seven to ten am Eastern. Listen oncarplay
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Speaker 2: Well Nelson, you with us now head equities Alliance Bernstein.
Speaker 2: What are you publishing or what are you planning a
Speaker 2: tone into the weekend publishing? What are you thinking about?
Speaker 7: I'm thinking about actually some of the things that you
Speaker 7: just talked about. So you talk about these mixed prices,
Speaker 7: why are they so high? It's because of scarcity. But
Speaker 7: if you think about this economy, it really is a
Speaker 7: scarcity economy. And so not only oil and the drivers
Speaker 7: of inflation there, but AI and this Capex build out
Speaker 7: that we've seen could really be a driver for inflation
Speaker 7: going forward. And there's real scarcity there.
Speaker 2: And on long ago, I believe is with us in
Speaker 2: this hour would say the same thing. I mean, when
Speaker 2: you were at Pennsylvania and you take that e concourse,
Speaker 2: the first chapter is scarcity. So if prices up and
Speaker 2: there's scarcity, new product comes in, do you anticipate that.
Speaker 7: I think there's there is a very strong demand right now,
Speaker 7: and I do see that as we've seen over the
Speaker 7: last few years. What we've seen is layer upon layer
Speaker 7: of this AI supply chain getting bid up. As we
Speaker 7: need to do this build out. I think there are
Speaker 7: more layers to go. This supply chain is quite long.
Speaker 4: The supply that supply chain is that include international and
Speaker 4: emergent markets.
Speaker 7: It does, and obviously Korean tae want to participate in
Speaker 7: that by quite a bit, yep. But I think, look,
Speaker 7: you also have producers of like say print circuit boards,
Speaker 7: and those are places that just have been in the
Speaker 7: doldrooms for decades because there are such commoditized products, but
Speaker 7: now they're very specialized because there's only so few of
Speaker 7: them left.
Speaker 4: Can emerging in international markets, particularly emerging markets, work with
Speaker 4: this energy. I'm not sure if it's a crisis a
Speaker 4: challenge that we're seeing globally here with energy.
Speaker 7: It certainly is going to put challenges on emerging markets
Speaker 7: and definitely some of these economies that are dependent on energy.
Speaker 7: But I think there are also a lot of other
Speaker 7: catalysts across emerging markets that are beyond just the energy story.
Speaker 7: So if you think about emerging markets in Korea. In China,
Speaker 7: we've got a lot of governance reform and you've got
Speaker 7: regulatory reforms that are focused on improving corporate profitability. So
Speaker 7: it's not just the technology companies and the semiconductors and
Speaker 7: memory makers in Korea, but it's also the banks that
Speaker 7: are returning more capital to shareholders.
Speaker 2: You were at Penn and they're hugely important engineering sequence.
Speaker 2: I remember walking in the class from an aerospace going
Speaker 2: systems analysis What a joke, and you're like two weeks
Speaker 2: into it and you're going, oh, this is really hard
Speaker 2: logic theory in all take your engineering classic systems analysis
Speaker 2: and put it into the process that's coming down the pike.
Speaker 7: Yeah, you know, it's funny that you say, you know
Speaker 7: you thought about the gut course that was systems engineering.
Speaker 7: It actually has turned out to be some of the
Speaker 7: most important education.
Speaker 2: Exactly, there's the most important course I took, right, got
Speaker 2: a quality see trust me continue.
Speaker 7: I do think actually in today's and age, when information
Speaker 7: is so readily available, that information edge that portfolio managers
Speaker 7: used to have has just been compressed. I think the
Speaker 7: next edge that we have to have as active managers
Speaker 7: is the process edge, and I think of it as
Speaker 7: you have to have a very robust process for being
Speaker 7: able to create that durable and distinctive performance patterns that
Speaker 7: clients look for. That starts with a clear definition of
Speaker 7: research excellence. What is the differentiated research that we're doing. Tom,
Speaker 7: I'm gonna use one of your favorite words. We're going
Speaker 7: to use basing updating to.
Speaker 2: Do a podcast. Really, we're going to a basian theory.
Speaker 2: They this is such a nerd patrol. Five people just
Speaker 2: throw off the Garden State Parkway.
Speaker 7: But then we have to guardrail it with systematic processes
Speaker 7: make sure that we can repeat that process over and
Speaker 7: over again, and then we have to reinforce it with
Speaker 7: continuous learning, just tracking our data, keeping catalogs of what
Speaker 7: decisions that we've made and what can we learn from that.
Speaker 2: Paul, when you're the word guardrail, hold on to your
Speaker 2: wallet exactly. Setting. So how has the AI.
Speaker 4: Investment theme changed for you guys? It used to be
Speaker 4: we'll just throw money at Nvidia and the other chip companies.
Speaker 4: Now it seems like the market's trying to look at
Speaker 4: the different areas because it just feels like AI, if
Speaker 4: it hasn't already, it's going to touch every part.
Speaker 2: Of our lives. That's right.
Speaker 7: There's a real broadening going on. And I'd say the
Speaker 7: broadening happens in two ways. The first one is just
Speaker 7: the capex spend that's happening. So you think about the
Speaker 7: trillion dollars of capex that's coming on, that's going to
Speaker 7: affect so many different industries. So that's in industrials, that's
Speaker 7: in real estate, that's in utilities, that's in the energy grid.
Speaker 7: But then you also think about your beneficiaries, and that's
Speaker 7: in media, that's in healthcare. So we were looking at
Speaker 7: a broad set of impacts for AI.
Speaker 4: Have we had twenty six twenty seven percent earnings growth
Speaker 4: this past cycle?
Speaker 2: Was that ai?
Speaker 4: I mean, where did that come from? This is an
Speaker 4: economy that's it's good, but it's not that good?
Speaker 2: Is it.
Speaker 7: That the extra CAPEC spend has a multiplier effect and
Speaker 7: it is hitting many many parts of the economy. And
Speaker 7: there were there was a lot of good that was
Speaker 7: already going on in the economy. We had the tax reforms,
Speaker 7: so so I think we came in with a lot
Speaker 7: of strength this year.
Speaker 2: Do you saw handle earning season the same way you
Speaker 2: used to or with your Bayesian process? Is there a
Speaker 2: new is there a new way to say Nelson? You alliance,
Speaker 2: burstea great quarter.
Speaker 7: The what we're looking for is really what are the
Speaker 7: most important parts of our thesis and how are we
Speaker 7: affirming and reaffirming or updating our thesis based off what's
Speaker 7: being released, not just looking at the top line or
Speaker 7: bottom line numbers.
Speaker 2: Nelson, thank you so much. You got to come back,
Speaker 2: bring some basie and dip with you, and you can
Speaker 2: 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 seven to ten am Eastern Listen on
Speaker 1: Apple Karplay and Android Otto with the Bloomberg Business app,
Speaker 1: or watch us live on YouTube.
Speaker 2: There's all sorts of good conversations forward today, but this
Speaker 2: is the one if you want to listen to someone
Speaker 2: who had the courage to be in the market when
Speaker 2: it was difficult. Paul. Right now, it's so easy to
Speaker 2: be in the market. It's every day. It's like, you know,
Speaker 2: every mutual fund up ten cents fifteen. I know, it's crazy.
Speaker 2: Emily rolling with this co chief Investment Strategies. That's a
Speaker 2: man your life in Boston so all John Hancock nineteen
Speaker 2: forty six, New Johnny Hancock nineteen sixty nineteen seventy six.
Speaker 2: Which tower are you in in Boston? Well?
Speaker 8: Me, personally, neither one go there very often. I'm usually
Speaker 8: on the road, but we are in the New nat
Speaker 8: or the shorter one like Berkeley's two hundred Berkeley.
Speaker 2: Or John Hancock. Yeah, okay, very cool. You know it's
Speaker 2: like this huge institution. This just said be in the market.
Speaker 2: Back to World War Two? How do you stay in
Speaker 2: the market now? Like the stress is staying in the market.
Speaker 2: The nifty to fifty in the sixties.
Speaker 8: It's all about earnings, earnings, earnings. So the number one
Speaker 8: input to our work has always been about following the profit.
Speaker 8: Stop prices follow profits over time, and it's a key
Speaker 8: reason that we've been overweight US versus international equities for
Speaker 8: the last ten years because that's where the earnings engine
Speaker 8: has been on and it continues to be today.
Speaker 4: We did have a rotation, you know, when the tariffs
Speaker 4: began last year out of the US and has that
Speaker 4: reversed itself. It's money coming back into the US versus
Speaker 4: other markets.
Speaker 8: It has started to this year. And there was this
Speaker 8: idea that permeated the narrative last year, like the US
Speaker 8: is no longer exceptional, and we saw those capital flows leave,
Speaker 8: whether it was stocks, whether it was dollars. You saw
Speaker 8: that fall onto the shores over in Europe, and it
Speaker 8: was really a sentiment thing. Yes, there was a modest
Speaker 8: improvement in economic growth and an earnings growth, but Eurozone
Speaker 8: GDP guess what it is right now? It just came
Speaker 8: in atzero point one percent, and so clearly we're seeing
Speaker 8: the US in a better place from an economic perspective
Speaker 8: and from an earnings perspective, and you're starting to see
Speaker 8: that reflected in the relative performance here as well.
Speaker 2: How are you guys?
Speaker 4: I guess one of the things we've seen just extraordinary
Speaker 4: earnings growth, as you mentioned earlier here in the US.
Speaker 4: What's driving that? I mean, we don't see those kinds
Speaker 4: of twenty twenty five percent plus earnings growth numbers in
Speaker 4: the SMP of company.
Speaker 2: Is it AI?
Speaker 4: What's driving it?
Speaker 8: It's AIAI AI and some fiscal support as well. So
Speaker 8: one thing that's been talked about a lot is AI.
Speaker 8: And it's not just this idea that semiconductors are just
Speaker 8: seeing this massive explosion in demand. It's almost like they're
Speaker 8: acting sold out right now, and we're seeing that reflected.
Speaker 8: We're also seeing companies do more with less with AI,
Speaker 8: and that's actually helping margins expand it wasn't that long
Speaker 8: ago that we were talking about margin compression. That's going
Speaker 8: the other way as well. And then all the wealth impact.
Speaker 8: The wealth effect has helped the financial sector because companies
Speaker 8: are doing great with our wealth management businesses. So it's
Speaker 8: really expanding around all sectors on the road.
Speaker 2: How do you respond to someone who raises their hand
Speaker 2: and says that's great, except it's not like John Carey's
Speaker 2: Pioneer fund of a million years ago with three hundred holdings.
Speaker 2: My top ten stocks are forty five percent of my fund.
Speaker 8: Discuss concentration risk is a major issue, and it's not
Speaker 8: just in the United States. If you think about it
Speaker 8: or merging market equities, it's three stocks.
Speaker 2: So is it the norm that we don't understand? It's
Speaker 2: a normal and the three hundred stock diversification is an
Speaker 2: academic construct.
Speaker 8: It's wild. But I would say to your point earlier,
Speaker 8: the entire stock market's becoming an AI market. Like you
Speaker 8: look down in market cap, it's more AI coming into
Speaker 8: those indices. You look at tom value this year is
Speaker 8: handily outperforming growth. Guess what's in value semiconductor stocks because
Speaker 8: their earnings are so good. The global semiconductor indexes up
Speaker 8: over one hundred percent over the past year. Guess what
Speaker 8: their earnings are up over one hundred percent over the
Speaker 8: past year. So the valuations have actually cheapened up a
Speaker 8: little bit. So AI is really driving markets globally. We
Speaker 8: have to be careful about diversification, and we're looking for
Speaker 8: other areas to play the AI power demand story, whether
Speaker 8: it's around utilities, whether it's around industrial companies, the picks
Speaker 8: and shovels around AI. I think that trade has some legs.
Speaker 4: We're going to get some inflation data today. I know
Speaker 4: that Fed's going to be paying attention. I assume you
Speaker 4: will as well. Are you surprised how well the equity
Speaker 4: market's performing in the face of rising inflation.
Speaker 8: I mean nothing seems to be able to stop this
Speaker 8: equity market. That the dip buyings absolutely relentless. The things
Speaker 8: that the market cares about are currency, so the dollar
Speaker 8: higher and higher yields and higher oil prices. Those are
Speaker 8: your three things. So if that inflation number comes in hot,
Speaker 8: definitely the bond markets bracing for it this morning. If
Speaker 8: that does result in a backup in yields, we could
Speaker 8: have an issue.
Speaker 2: Well like your first lunch at John Hancock, did you
Speaker 2: go to Lockovers?
Speaker 8: Of course I remember that place.
Speaker 2: What's knowing?
Speaker 8: The lost was amazing, It was amazing, amazing.
Speaker 2: But like you know, I missed Lockovers. I mean, Evan's
Speaker 2: is wonderful, but it's not Lockovers. You know, it's like
Speaker 2: way too Mohito. They don't have mohidos at Lockovers. No, no, no, no,
Speaker 2: woke at school, Grandma used to take right there.
Speaker 8: Nice Martine, Major.
Speaker 2: Major John Hancock hang out in the day, nodding acquaintance.
Speaker 2: But this is wonderful, Emily, thank you for coming into
Speaker 2: your studios. Wonderful to have you. It's one of the
Speaker 2: great calls. It's like Ben Laydler when he was at
Speaker 2: HSBC now at Bradesco. It's easy to be in the
Speaker 2: market right now. Where were you in twenty eighteen, Emily
Speaker 2: Rowland said, please invest stay with us. More from Bloomberg
Speaker 2: Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us Live
Speaker 1: weekday afternoons from seven to ten am Eastern Listen on
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Speaker 2: It is the most talked about book right now across
Speaker 2: the Transitlantic. Sami Kaynes is wonderful at the Financial Times
Speaker 2: and she's teamed up with Adam Polson's crew at the
Speaker 2: Peterson incident. Chad bound joins us. Chad has thought harder
Speaker 2: about American trade over the last two to three decades,
Speaker 2: and anyone I know the book is how to Win
Speaker 2: a Trade War? And because you know Chad wanted to
Speaker 2: do eight hundred pages, and so Maya said, are you
Speaker 2: kidding me? It's readable, it's approachable, it's airplane ready. How
Speaker 2: to win a trade war? This isn't the trade economics
Speaker 2: chad of when you were a youngster at Bucknell, isn't it?
Speaker 2: What does the new trade war look like? Well?
Speaker 9: The new trade first. Thanks, it's great to see you, Tom.
Speaker 9: The new world is all about trade wars, and the
Speaker 9: world has fundamentally changed. Right We used to say, I,
Speaker 9: as an economist, used to say, nobody wins from a
Speaker 9: trade war, so you shouldn't even fight it. Well, unfortunately,
Speaker 9: that's not the world that we are living in right now.
Speaker 9: We have to fight the trade war. President Trump likes
Speaker 9: to use tariffs in the trade war, so that's one
Speaker 9: thing that you have to use. But I think what
Speaker 9: we try to do in this book, and you're right,
Speaker 9: it is an airplane read, but it's not even a
Speaker 9: transatlantic airplane read. Can you can get it, you know
Speaker 9: much a couple of hours. Figure out what's going on here.
Speaker 9: It's about much more than tariffs. It's about stockpiling, it's
Speaker 9: about using subsidies, it's about export restrictions, all these stuff.
Speaker 2: Now making the headlines, and William Klein and the team,
Speaker 2: the old stirs at Peterson Institute were thinking about this.
Speaker 2: We were giving textiles away from the Carolinas to China.
Speaker 2: The distrust in America about the labor component is tangible.
Speaker 2: How do we get the trust of American labor back
Speaker 2: to do trade well?
Speaker 9: I think the first thing that we have to do
Speaker 9: is you have to be honest with them about what
Speaker 9: the underlying problems are. Right, And yes, some of the
Speaker 9: problems was the speed of the shock that the United
Speaker 9: States faced with all these imports from China. But that's
Speaker 9: sort of the old trade war. That was the thing
Speaker 9: that we could have maybe should have dealt with twenty
Speaker 9: years ago. But that's not the trade war that we
Speaker 9: need to be fighting today. And so the first lesson
Speaker 9: of the book is fight the right trade war. The
Speaker 9: right trade war today is recognizing that China is playing
Speaker 9: a fundamentally different game than the United States and every
Speaker 9: other major Western economy out there. China wants a world
Speaker 9: where the world outside of China is dependent on China
Speaker 9: for its supply chains. But China doesn't want to be
Speaker 9: dependent on the rest of the world for its supply chains,
Speaker 9: so that lack of interdependence, right, China wanting the rest
Speaker 9: of the world to be dependent on it so that
Speaker 9: it can weaponize it sometimes as we saw last year
Speaker 9: with rare earths, permanent magnets, that Nexperia semiconductor story. I
Speaker 9: think we have to be honest with the American people
Speaker 9: that this is a trade war that actually we do
Speaker 9: have to fight. It may be different from what they thought,
Speaker 9: but it's the important sort of level set to getting
Speaker 9: mistakes right.
Speaker 2: Chad.
Speaker 4: I think I'm probably like most of our listeners and viewers.
Speaker 4: I didn't even think about logistics and trade and all
Speaker 4: that kind of stuff. Stuff just kind of showed up
Speaker 4: on the shelves, and then the pandemic happened. Then then we're like, oh, yeah,
Speaker 4: now I get it. We need to pay attention to
Speaker 4: this stuff. Did we need tariffs and that tariff policy
Speaker 4: to achieve maybe some of our strategic goals of onshoing
Speaker 4: or near shoring.
Speaker 9: So what we argue in the book is that tariffs
Speaker 9: aren't a part of a part of the story. But really,
Speaker 9: I think where the United States has not quite gotten
Speaker 9: it right so far is the breadth of the tariffs.
Speaker 9: You certainly don't need to have them on all products,
Speaker 9: so strategically use them and the countries with which you
Speaker 9: apply the tariffs. So if you're thinking about what's the
Speaker 9: problem right, well, we've got excessive concentration of production of
Speaker 9: certain goods, central products that American manufacturing needs, American consumers need,
Speaker 9: and it's all in China. Well, then it might make
Speaker 9: sense to use tariffs. It's part of some other policies
Speaker 9: against China. But you don't simultaneously need to impose those
Speaker 9: tariffs on Europe and Japan, especially if you want those
Speaker 9: other friends and partners to be working with you, because
Speaker 9: then you've got them fighting a trade war, a two
Speaker 9: front trade war, dealing with China, but then also having
Speaker 9: to deal with you, the United States, at the same time.
Speaker 2: Shed boring with This is the hottest book in economics
Speaker 2: right now. How do when a trade work? Can't say
Speaker 2: enough about it? We're going to continue here An optimistic
Speaker 2: Guide to an anxious global economy, Chad, I got two
Speaker 2: ways to go here on your back blurbs, you've got
Speaker 2: my book of the summer two three years ago, Chip
Speaker 2: Wars by Chris Miller of Tufts and the Basic Idea
Speaker 2: of Technology semiconductors and such. How do we prosecute a
Speaker 2: trade war wrapped around the technology of Taiwan in Korea?
Speaker 9: Yeah, well, that's that I think an important part of
Speaker 9: the trade war story here, and I think there's at
Speaker 9: least two different pieces of that that we have to confront.
Speaker 9: One is and you're right, Chris's book is amazing. The
Speaker 9: first is dealing with the challenge of Taiwan. Right, So
Speaker 9: it is a little bit worrying that ninety plus percent
Speaker 9: of global production of leading edge chips takes place in
Speaker 9: one location. Right, It's not China, China, so it's not
Speaker 9: the same sort of problem as you know, are they
Speaker 9: going to weaponize it against us? But having it all
Speaker 9: there in the world that suffers from floods, earthquakes not good.
Speaker 9: We've got to diversify. How do you do that? Industrial
Speaker 9: policy a little bit, but it's got to be smarter
Speaker 9: than the way we've done industrial policy in the past.
Speaker 9: You've got to think about demand, what the United States
Speaker 9: did with the Chips Act, but you also sorry supply,
Speaker 9: but you also have to worry about demand. What we
Speaker 9: didn't do necessarily with the Chips Act. All these fabs
Speaker 9: in the United States great, we've got the production capacity now,
Speaker 9: But why isn't it that in Nvidia and AMD and
Speaker 9: all the chip design companies want to use them yet? Right,
Speaker 9: We've got to create some other incentives there too. But
Speaker 9: then the second part is the AI challenge with China
Speaker 9: and this race, right, and the use of export restrictions
Speaker 9: and balancing those in the appropriate way to make sure
Speaker 9: that the American side of this story does end up.
Speaker 2: Okay, I gotta squeeze this in. This is important, folks.
Speaker 2: I mean he's doing this tour with Sami knes Paul.
Speaker 2: She shows up with a ukulele. I mean she's playing
Speaker 2: ukulele at their book shows. Nice, it's too much. Yeah,
Speaker 2: it's like, you know, a wallpaper. He's like hanging out chef.
Speaker 2: Nobody knows that you're the heritage of Fred Bergston, who
Speaker 2: is hugely supportive to my act, to Peter Peterson, who
Speaker 2: is hugely supportive of my act, and Adam Posen, who's
Speaker 2: a bigger Red Sox fan than I am. Does your
Speaker 2: shop the Peterson Institute after your book The Trade War?
Speaker 2: Think we nudge back to the Washington consensus.
Speaker 9: The beauty of the Peterson Institute where I work is
Speaker 9: there is no institutional line. Everybody has their own views,
Speaker 9: that does their own analysis, comes up with their own perspective.
Speaker 9: So I will leave it to my boss, Adam Posen
Speaker 9: to give his own views. But I agree. You know,
Speaker 9: we're going to have these debates about what's the right
Speaker 9: way to tackle these sorts of problems, and it's great
Speaker 9: that we're doing so. And I'm just super glad to
Speaker 9: be able to bring not a ukulele but a copy
Speaker 9: of the book and to show it here on your show.
Speaker 9: Thanks for having me, Tom.
Speaker 2: John Tuck, Who's going to have a ukulele next time.
Speaker 2: The book is How to Win a Trade War? Airplane
Speaker 2: reading even not trans Atlanta to Richmond, New York to Richmond,
Speaker 2: pretty good, to say the least. I can't say enough
Speaker 2: about this. A lot of other people are on board.
Speaker 2: What Canes and Bone have done to really bring us
Speaker 2: up to date. A lot going on in trade.
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