WEBVTT - Inflation Data amid Equity Push Higher 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business App. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.040 us live on YouTube. 0:00:27.200 --> 0:00:30.600 We start strong her with special coverage and a Sizerowski 0:00:30.720 --> 0:00:33.479 joins us with Morgan Stanley. I mean, you got a 0:00:33.520 --> 0:00:37.400 nominal GDP, Andrew, but you got a new mix of 0:00:37.560 --> 0:00:43.000 lower GDP and persistent inflation. How does that change the 0:00:43.080 --> 0:00:46.080 application of new money into the bond market. 0:00:47.240 --> 0:00:49.440 Look, I think that when you look at what the 0:00:49.479 --> 0:00:53.159 bond market's pricing in for Fed and Center bank policy, 0:00:53.200 --> 0:00:55.720 you see the bond market's actually doing some of the 0:00:55.720 --> 0:00:58.840 work for the Fed. They're tightening financial conditions a little bit. 0:00:58.880 --> 0:01:01.200 At the same time, obviously this stock markets rallying and 0:01:01.240 --> 0:01:04.040 spreads are tightening and credit but those two things are 0:01:04.120 --> 0:01:06.480 kind of offsetting each other. I think one of the 0:01:06.480 --> 0:01:08.600 reasons the Fed doesn't have to be too concerned with 0:01:08.680 --> 0:01:12.120 inflation is you talked about that personal income number, which 0:01:12.160 --> 0:01:14.399 was zero percent a month over month. If you look 0:01:14.400 --> 0:01:18.000 at something like Atlanta FED Wage tracker, it's wages are 0:01:18.040 --> 0:01:21.720 tracking three point six percent wage growth year over year. 0:01:22.040 --> 0:01:26.920 We have three point eight percent uh per PCE price inflation, 0:01:27.000 --> 0:01:29.360 so those are negative real wages. This is something that 0:01:29.440 --> 0:01:33.520 price increases aren't sustainable on a real basis if either 0:01:33.520 --> 0:01:35.920 the consumer is going to have to tap their savings 0:01:36.040 --> 0:01:37.480 or they're going to cut back on spending. And I 0:01:37.520 --> 0:01:39.760 think that's why the one thing the Fed has going 0:01:39.800 --> 0:01:40.600 for it right now. 0:01:40.520 --> 0:01:43.280 It beautifully frames it. Folks. I can't say enough about 0:01:43.319 --> 0:01:47.160 that analysis of the Atlanta wage tracker and Sizeronski, thank 0:01:47.200 --> 0:01:49.960 you for joining us here with this key economic data. 0:01:50.040 --> 0:01:52.880 With Mortgane standing like Paul on the data screen, what 0:01:52.880 --> 0:01:57.640 do you see, I'm just like Themar's looking for Knicks tickets. 0:01:57.720 --> 0:02:00.680 Yeah, exactly, You're right pricing those out to your treasury 0:02:00.760 --> 0:02:02.720 up a couple of basis points four point zero five 0:02:02.760 --> 0:02:05.480 percent and then tenure up only about one basis point 0:02:05.520 --> 0:02:06.560 four point four nine percent. 0:02:06.640 --> 0:02:09.680 This is a treat, folks. Ira Jersey definitive a dominant 0:02:09.720 --> 0:02:13.240 constumment credit Swee years ago trying to guess out the 0:02:13.440 --> 0:02:16.720 interest rate tendency he now holds court driving all of 0:02:16.840 --> 0:02:20.920 credit at Bloomberg Intelligence. Iral, if you were in the 0:02:21.040 --> 0:02:24.160 chair with Dominique like this morning, and you had to 0:02:24.200 --> 0:02:29.240 guess out those inflate those guestimates, those forecast tales of 0:02:29.280 --> 0:02:32.400 what yield would be. Is it a higher yield. 0:02:33.400 --> 0:02:36.000 Well, it's a higher yield because basically this is old 0:02:36.080 --> 0:02:39.120 data and old news. You know, the market this morning 0:02:39.160 --> 0:02:42.359 at least is really concentrating on where is oil today? 0:02:42.440 --> 0:02:44.480 Right and oil is up a couple of bucks at 0:02:44.480 --> 0:02:47.560 the moment because it the strikes overnight by the US. 0:02:47.639 --> 0:02:50.440 So people are looking through this data and obviously there's 0:02:50.440 --> 0:02:53.400 also so much data to digest here that you know, 0:02:53.600 --> 0:02:56.119 we're all like quite full right now, so we're trying 0:02:56.160 --> 0:02:58.440 to parse out what's the most important bits of this. 0:02:58.560 --> 0:03:02.520 And you noted, Tom that the spending being flat a 0:03:02.520 --> 0:03:06.120 month on month is actually, uh, excuse me. The income 0:03:06.200 --> 0:03:08.839 being flat month a month actually is not very good 0:03:08.880 --> 0:03:12.720 because when now we have negative income in large part, 0:03:12.800 --> 0:03:16.040 maybe it could drive the economy. 0:03:17.000 --> 0:03:17.920 A little bit weaker. 0:03:18.040 --> 0:03:21.600 And you know, along with the weaker than expected GDP 0:03:22.080 --> 0:03:25.440 number for the first quarter, you know that's not necessarily 0:03:25.440 --> 0:03:28.120 a particularly good sign, even though the inflation data was 0:03:28.160 --> 0:03:29.440 a little bit better than expected. 0:03:29.919 --> 0:03:30.440 So just the. 0:03:30.840 --> 0:03:33.040 Headline, I'm a headline kind of person. Ira, You're the 0:03:33.080 --> 0:03:36.080 one that digs twenty seven layers deep. But the headline 0:03:36.120 --> 0:03:39.920 annualized three point eight percent PCE Price Index. I mean, 0:03:39.920 --> 0:03:42.400 that's got to get the attention of folks, not just 0:03:42.560 --> 0:03:45.440 the FED, but I don't know around Washington and policymakers 0:03:45.440 --> 0:03:47.160 and things like that. How do you what's a three 0:03:47.160 --> 0:03:48.480 point eight percent number mean to you? 0:03:49.360 --> 0:03:51.360 Yeah, well, it means for one thing, that it's going 0:03:51.400 --> 0:03:55.080 to be really difficult for Kevin Worsh to increase to 0:03:55.200 --> 0:03:57.320 lower interest rates, right, Like, how can you lower interest 0:03:57.400 --> 0:03:59.840 rates when you know not only are you running above 0:03:59.840 --> 0:04:04.160 target in terms of your favored your favorite inflation measure. 0:04:04.520 --> 0:04:07.560 So even if you trim out some of the details 0:04:07.560 --> 0:04:08.760 of this, and we haven't been able to do that 0:04:08.840 --> 0:04:11.280 yet because it's obviously the number just came out, but 0:04:11.360 --> 0:04:12.880 even if you trim it out, you're still going to 0:04:12.880 --> 0:04:15.720 be above the two percent target that the FED set. 0:04:15.920 --> 0:04:18.039 So it's going to be hard for Kevin Worsh to 0:04:18.080 --> 0:04:20.599 convince other members of the FED to even think about 0:04:20.920 --> 0:04:24.120 cutting interest rates. So I think for now, when it 0:04:24.160 --> 0:04:26.960 comes to least interest rate policy, you're more likely to 0:04:26.960 --> 0:04:29.880 see the Fed on hold until and unless one the 0:04:29.920 --> 0:04:32.919 war ends. And then two if there's major changes to 0:04:33.160 --> 0:04:36.000 the employment situation, which you know obviously we'll get more 0:04:36.040 --> 0:04:36.880 of that next. 0:04:36.640 --> 0:04:40.599 Week this wall of data. And as I said before, folks, 0:04:40.680 --> 0:04:44.000 I mean there's a dynamic here to nominal GDP in 0:04:44.040 --> 0:04:47.960 its new territory. For Chairman worsh Ira Jersey, do you 0:04:48.160 --> 0:04:51.760 have an historic analog he can plug in or is 0:04:51.800 --> 0:04:53.039 he in new territory? 0:04:54.240 --> 0:04:56.360 I think in many respects he's a new territory because 0:04:56.400 --> 0:04:58.640 even though like you could argue, and some people have 0:04:58.800 --> 0:05:03.400 argued that we're we're moving toward a stagflationary type environment 0:05:03.440 --> 0:05:07.080 because real growth should slow given that you might have 0:05:07.200 --> 0:05:10.280 a lot more of people's spending having to go to 0:05:11.320 --> 0:05:14.640 fuels and gasoline. But then people then talk about electrification, 0:05:14.839 --> 0:05:17.120 and then you know, we're not talking about you know, 0:05:17.240 --> 0:05:19.440 ten percent inflation rates like we had back in the 0:05:19.520 --> 0:05:22.520 nineteen seventies and early eighties. We're talking more about you know, 0:05:22.560 --> 0:05:26.280 three or four percent inflation, right which historically speaking, when 0:05:26.279 --> 0:05:28.680 you go back even to you know, earlier in my career, 0:05:28.720 --> 0:05:30.799 you go back thirty years when I started this business, 0:05:31.120 --> 0:05:33.440 we were talking about you know, two point eight percent 0:05:33.520 --> 0:05:37.080 three percent in a PC deflator that was fine, and 0:05:37.120 --> 0:05:41.080 that was normal, right, So so that is more sustainable, right. 0:05:41.120 --> 0:05:44.480 Inflation like we have today is somewhat more sustainable than 0:05:44.640 --> 0:05:46.760 inflation at nine or ten percent like we had a 0:05:46.760 --> 0:05:50.400 few years ago, just because you know, at least over 0:05:50.400 --> 0:05:53.480 the last few years, you've seen wages growing at four percent, 0:05:53.560 --> 0:05:55.680 so that means you still had real wages going up, 0:05:55.920 --> 0:05:58.560 which is the reason why that personal income number I 0:05:58.560 --> 0:06:00.240 think is a little bit disturbing to me, and I 0:06:00.240 --> 0:06:02.760 want to dig into that a little bit more because 0:06:03.480 --> 0:06:06.320 if we do have negative real wages, that's when you 0:06:06.360 --> 0:06:09.400 wind up seeing pretty aggressive slowing in the economy on 0:06:09.440 --> 0:06:12.279 a forward basis. And so we want to see is 0:06:12.279 --> 0:06:13.800 this the start of a trend or is this just 0:06:13.839 --> 0:06:16.400 like a one off measure because you know, Social Security 0:06:16.400 --> 0:06:18.680 payments were delayed or something like that. So we have 0:06:18.720 --> 0:06:21.560 to dig into the details of some of this. So unfortunately, Paul, 0:06:21.640 --> 0:06:23.599 I do have to dig into those details to be 0:06:23.600 --> 0:06:24.920 able to get you more information. 0:06:25.080 --> 0:06:27.520 Again, I'm not a details guy. I'm right on the surface. 0:06:27.520 --> 0:06:30.560 But I see personal income flat, I see my GDP 0:06:30.720 --> 0:06:32.839 number come in below expectations. 0:06:33.720 --> 0:06:37.599 Okay, it feels like segflation. This is brilliant Paul Ira, 0:06:38.120 --> 0:06:41.800 all of us think, like Paul, it's ugly out there. 0:06:42.279 --> 0:06:45.840 Does the bond market signal that so? 0:06:46.200 --> 0:06:49.320 Well, the bond market's signaling that it's really worried about inflation. Right, 0:06:49.320 --> 0:06:51.160 So when you look at like that two year yield, 0:06:51.200 --> 0:06:53.080 which we you know, we talk about being very sensitive 0:06:53.080 --> 0:06:55.599 to policy rates, and of course it is. But when 0:06:55.600 --> 0:06:58.440 you look at what's sold off and why it's sold 0:06:58.440 --> 0:07:01.440 off so much, it's also because inflation expectations in the 0:07:01.480 --> 0:07:04.240 short term have really gone up pretty significantly. They've gone 0:07:04.320 --> 0:07:08.360 up forty ish basis points in terms of the two 0:07:08.440 --> 0:07:11.840 year tips break even. So if we wind up getting 0:07:11.840 --> 0:07:14.880 a situation where oil gets back down sustainably to eighty 0:07:14.920 --> 0:07:17.640 dollars a barrel, you can wind up seeing two year 0:07:17.720 --> 0:07:19.840 yields get back to kind of where the Fed funds 0:07:19.880 --> 0:07:22.760 rate is right now. While we get down below that, 0:07:22.960 --> 0:07:25.200 I doubt it, because the market's still going to price 0:07:25.240 --> 0:07:27.800 for the Fed to be on hold, probably for a 0:07:27.840 --> 0:07:32.200 pretty long period of time. But you can easily get 0:07:32.240 --> 0:07:35.840 a thirty basis point rally on just on inflation expectations 0:07:35.880 --> 0:07:37.840 going down. Now, the long end of the curve is 0:07:37.880 --> 0:07:41.560 not only worried about inflation and in fact, inflation expectations 0:07:41.560 --> 0:07:44.600 longer term have barely moved. It's that what's going on 0:07:44.640 --> 0:07:49.640 with the fiscal situation will budgets globally wind up getting 0:07:49.720 --> 0:07:53.120 even worse because of either defense spending or social spending 0:07:53.920 --> 0:07:58.040 to kind of combat people's people having to spend more 0:07:58.080 --> 0:07:58.720 on energy. 0:07:59.160 --> 0:08:01.720 And that's one of the reasons. While you've seen this global. 0:08:01.360 --> 0:08:03.400 Bond sell off. So you know, we talk about US 0:08:03.440 --> 0:08:06.040 thirty year being over five percent, Sure it is, but 0:08:06.160 --> 0:08:08.520 this really is a global phenomena. You look at Japan 0:08:08.680 --> 0:08:10.600 with you know, interest rates that haven't been this is 0:08:10.760 --> 0:08:13.520 in decades. The UK is still having some of its 0:08:13.520 --> 0:08:17.480 own fiscal problems, so you wind up seeing all government 0:08:17.520 --> 0:08:20.200 bond yields go up. And one of the triggers for that, 0:08:20.280 --> 0:08:23.360 obviously was the warrant I ran, but I don't see 0:08:23.400 --> 0:08:26.600 what makes what makes yields go down quickly over the 0:08:26.640 --> 0:08:29.760 next couple of a couple of months in the long 0:08:29.880 --> 0:08:30.360 end of the curve. 0:08:30.360 --> 0:08:32.240 In particular, Paul, was that too much detail? 0:08:32.480 --> 0:08:32.960 That was good? 0:08:32.960 --> 0:08:35.719 He's always just killing me. He's going to staff of 0:08:35.760 --> 0:08:38.640 twenty five people, Yeah, Ira Jersey with US folks, and 0:08:38.679 --> 0:08:42.200 of course all of his expertise and fixed income is 0:08:42.720 --> 0:08:47.000 noted particularly unreadable documents on the short space like the 0:08:47.040 --> 0:08:53.560 trust market, commercial paper and libor ois or so for SOFR. 0:08:54.080 --> 0:08:57.360 We are pleased to announce it after negotiation with mister 0:08:57.440 --> 0:09:02.400 Jersey's representatives that Ira will join us in a new capacity. 0:09:02.920 --> 0:09:08.160 He will be the surveillance World Cup reporter. Nice, this 0:09:08.200 --> 0:09:11.960 is good. We got to staggered tot June eleventh, Mexico City, 0:09:12.480 --> 0:09:15.280 South Africa as well. Ira first before we get to 0:09:15.320 --> 0:09:20.120 the World Cup. Psg Arsenal this weekend. Describe how big 0:09:20.160 --> 0:09:23.839 a game that is to the world except Americans who 0:09:23.880 --> 0:09:26.320 don't care. Well. 0:09:26.559 --> 0:09:30.679 In many ways, it is the pinnacle of global soccer football, 0:09:30.679 --> 0:09:32.560 if you want to call it that, which I do, 0:09:34.360 --> 0:09:37.880 because the club game is much better in terms of 0:09:37.960 --> 0:09:40.680 quality actually than the international game is. Even though you 0:09:40.720 --> 0:09:43.360 wind up having the biggest stars on these teams that 0:09:43.400 --> 0:09:46.360 go to the World Cup, they're only together for one month. 0:09:47.120 --> 0:09:49.760 You know. They literally everyone just reported the camp except 0:09:49.760 --> 0:09:52.200 for the guy who went PSC and Arsenal this week, 0:09:52.520 --> 0:09:54.760 so it's not like they have a lot of time together. 0:09:54.800 --> 0:09:57.520 Whereas you know PSG and Arsenal, they've been training since 0:09:57.600 --> 0:10:01.920 last August for this very so so it is going 0:10:01.960 --> 0:10:03.160 to be some of the best football. 0:10:03.160 --> 0:10:03.280 Now. 0:10:03.320 --> 0:10:05.000 It is a final, so that tends to be a 0:10:05.040 --> 0:10:07.680 little kg. But PSGA in particular, they just know how 0:10:07.720 --> 0:10:11.000 to attack. Arsenal can be a little bit more tactical, 0:10:11.080 --> 0:10:14.040 I think, and I do suspect that Arsenal probably has 0:10:14.080 --> 0:10:16.080 the edge in this game, but it's it is going 0:10:16.160 --> 0:10:17.320 to be one to watch for sure. 0:10:17.720 --> 0:10:20.160 Was that a good, good first bout with our World 0:10:20.200 --> 0:10:23.520 Cup correspondent, Irish Jersey, Thank you so much. Driving all 0:10:23.559 --> 0:10:27.000 a fixed income can't say enough about his commitment to 0:10:27.120 --> 0:10:31.160 New Jersey youth soccer. His team's rocking it this year 0:10:31.200 --> 0:10:33.920 Irish Jersey and again going to came out to June eleven, 0:10:34.440 --> 0:10:40.960 Mexico City Stadium, Mexico and South South Africa. I should 0:10:40.960 --> 0:10:44.040 say here Matt Winmer has been more than patient portfolio 0:10:44.080 --> 0:10:46.320 manager all spring and he joins us for too short 0:10:46.600 --> 0:10:50.240 a visit this morning. Matt, is the American economy sluggish 0:10:50.360 --> 0:10:55.800 at one point six percent GDP? Is that the new standard? Yeah, 0:10:56.000 --> 0:10:57.280 it's a it's a great question. 0:10:57.400 --> 0:11:00.160 I mean, as bottom up portfolio managers, I think we're 0:11:00.200 --> 0:11:02.520 really focused on what those fundamentals are doing right now, 0:11:02.559 --> 0:11:04.840 and I think that really helps kind of separate the 0:11:04.880 --> 0:11:07.600 noise from the signal. And if you if you look 0:11:07.600 --> 0:11:12.280 at what's happening within the earning cycle right now, we've 0:11:12.280 --> 0:11:15.520 seen some really strong growth projected even for you know, 0:11:15.559 --> 0:11:18.400 for this year and for next year, and so we 0:11:18.760 --> 0:11:21.040 really have a strong belief that that that true long 0:11:21.120 --> 0:11:23.640 term value of a company is their future stream of 0:11:23.679 --> 0:11:25.800 cash flows, and they still look really strong right now. 0:11:26.440 --> 0:11:29.280 So, Matt, we've seen, you know, the economic data today 0:11:29.360 --> 0:11:33.960 suggests maybe this economy is entering some form of stagflation here, 0:11:34.000 --> 0:11:36.600 but boy, we don't see that in the earnings, do we. 0:11:36.640 --> 0:11:37.520 What do you make of that? 0:11:38.559 --> 0:11:41.120 Yeah, look, I think that's I think that's important. There's 0:11:41.440 --> 0:11:44.920 we just came out of COVID with a strong monetary 0:11:45.000 --> 0:11:47.840 and fiscal response and now you're throwing on top of 0:11:47.880 --> 0:11:50.760 that this this AI kind of cap X boom, and 0:11:50.840 --> 0:11:53.040 I think that's really kind of elevating things right now. 0:11:53.040 --> 0:11:55.360 And I think that's why the fundamentals continue to be 0:11:55.400 --> 0:11:56.080 strong right now. 0:11:56.840 --> 0:11:57.040 Matt. 0:11:57.120 --> 0:12:00.160 I know you guys, and we talked to An Lettis, Well, 0:12:00.240 --> 0:12:02.440 you guys are bottoms up folks. You really roll up 0:12:02.440 --> 0:12:04.600 the sleeves and do the work. 0:12:04.640 --> 0:12:04.800 Here. 0:12:04.800 --> 0:12:08.000 What sectors or what factors are screening well for you 0:12:08.000 --> 0:12:08.760 guys these days. 0:12:09.240 --> 0:12:10.280 Yeah, good question. 0:12:10.400 --> 0:12:12.520 I think a big part of what we're doing right 0:12:12.559 --> 0:12:15.040 now is just focusing on diversification. I think that's going 0:12:15.120 --> 0:12:18.439 to be important going forward. I think concentration risk is 0:12:18.480 --> 0:12:22.320 real at this point. It's important to take a holistic approach, 0:12:22.679 --> 0:12:26.360 especially with the AI ecosystem. CAPEX dollars are going to 0:12:26.360 --> 0:12:30.440 start spreading across the value chain. Look, it's important to stay, 0:12:30.720 --> 0:12:33.080 you know, involved in those big cap tech names like 0:12:33.080 --> 0:12:35.200 the mag seven. They're going to continue to play an 0:12:35.240 --> 0:12:38.200 important part of the buildout of AI, but it's important 0:12:38.200 --> 0:12:40.920 to start allocating some of those investment dollars to other 0:12:41.000 --> 0:12:44.040 areas of the market. So we're kind of thinking about 0:12:44.040 --> 0:12:47.720 that AI ecosystem is how having five layers, you know, 0:12:47.760 --> 0:12:50.880 That's something that Jensen introduced back at Davos earlier this year. 0:12:51.080 --> 0:12:55.040 We're incorporating that into our investment kind of exposure across 0:12:55.080 --> 0:12:57.880 the AI chain, and it's important to have exposure to 0:12:57.920 --> 0:12:58.720 all five layers. 0:12:58.800 --> 0:13:02.560 Mat One final question is a tendency here. Are you 0:13:02.760 --> 0:13:07.920 owning fewer items in an equity portfolio? Are you concentrating 0:13:08.360 --> 0:13:11.320 or are you going out to a more traditional one hundred, 0:13:11.360 --> 0:13:13.880 two hundred and even three hundred holdings. 0:13:14.280 --> 0:13:17.560 Well, typically for our strategy, we tend to be a 0:13:17.600 --> 0:13:20.120 little bit more concentrated. It's usually in that forty five 0:13:20.160 --> 0:13:20.920 to fifty names. 0:13:20.960 --> 0:13:22.080 We think that's enough. 0:13:21.880 --> 0:13:26.559 Exposure and diversification to allegate across to make sure that. 0:13:26.559 --> 0:13:27.480 You don't get whips on. 0:13:27.720 --> 0:13:31.880 But it also gives you an opportunity to be intentful 0:13:32.120 --> 0:13:36.200 in your exposure and in your bets across the portfolio. 0:13:36.480 --> 0:13:38.480 Matt, thank you so much. Bett Whitmer with us with 0:13:38.559 --> 0:13:41.880 all Spring this morning on the Equity at Market. Stay 0:13:41.920 --> 0:13:45.800 with us. More from Bloomberg Surveillance coming up after this. 0:13:53.040 --> 0:13:56.600 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:13:56.679 --> 0:14:00.720 weekday afternoons from seven to ten am Eastern. Listen oncarplay 0:14:00.720 --> 0:14:04.000 and Android Otto with the Bloomberg Business app, or watch 0:14:04.040 --> 0:14:05.160 us live on YouTube. 0:14:05.240 --> 0:14:08.439 Well Nelson, you with us now head equities Alliance Bernstein. 0:14:08.520 --> 0:14:11.000 What are you publishing or what are you planning a 0:14:11.160 --> 0:14:14.600 tone into the weekend publishing? What are you thinking about? 0:14:15.360 --> 0:14:17.280 I'm thinking about actually some of the things that you 0:14:17.400 --> 0:14:20.520 just talked about. So you talk about these mixed prices, 0:14:21.120 --> 0:14:24.280 why are they so high? It's because of scarcity. But 0:14:24.360 --> 0:14:26.680 if you think about this economy, it really is a 0:14:26.760 --> 0:14:32.880 scarcity economy. And so not only oil and the drivers 0:14:32.880 --> 0:14:36.080 of inflation there, but AI and this Capex build out 0:14:36.080 --> 0:14:38.640 that we've seen could really be a driver for inflation 0:14:38.760 --> 0:14:41.720 going forward. And there's real scarcity there. 0:14:42.000 --> 0:14:43.720 And on long ago, I believe is with us in 0:14:43.760 --> 0:14:46.640 this hour would say the same thing. I mean, when 0:14:46.640 --> 0:14:49.280 you were at Pennsylvania and you take that e concourse, 0:14:49.400 --> 0:14:53.680 the first chapter is scarcity. So if prices up and 0:14:53.720 --> 0:14:57.800 there's scarcity, new product comes in, do you anticipate that. 0:14:58.960 --> 0:15:03.280 I think there's there is a very strong demand right now, 0:15:03.400 --> 0:15:07.120 and I do see that as we've seen over the 0:15:07.200 --> 0:15:10.600 last few years. What we've seen is layer upon layer 0:15:10.880 --> 0:15:15.120 of this AI supply chain getting bid up. As we 0:15:15.200 --> 0:15:17.920 need to do this build out. I think there are 0:15:17.920 --> 0:15:20.360 more layers to go. This supply chain is quite long. 0:15:20.960 --> 0:15:23.800 The supply that supply chain is that include international and 0:15:23.840 --> 0:15:24.680 emergent markets. 0:15:24.760 --> 0:15:27.880 It does, and obviously Korean tae want to participate in 0:15:27.920 --> 0:15:31.280 that by quite a bit, yep. But I think, look, 0:15:31.560 --> 0:15:37.240 you also have producers of like say print circuit boards, 0:15:37.840 --> 0:15:40.800 and those are places that just have been in the 0:15:40.840 --> 0:15:44.080 doldrooms for decades because there are such commoditized products, but 0:15:44.120 --> 0:15:46.640 now they're very specialized because there's only so few of 0:15:46.640 --> 0:15:47.080 them left. 0:15:47.640 --> 0:15:51.800 Can emerging in international markets, particularly emerging markets, work with 0:15:51.840 --> 0:15:54.520 this energy. I'm not sure if it's a crisis a 0:15:54.600 --> 0:15:57.920 challenge that we're seeing globally here with energy. 0:15:58.480 --> 0:16:01.640 It certainly is going to put challenges on emerging markets 0:16:01.680 --> 0:16:05.800 and definitely some of these economies that are dependent on energy. 0:16:05.920 --> 0:16:07.680 But I think there are also a lot of other 0:16:07.680 --> 0:16:12.040 catalysts across emerging markets that are beyond just the energy story. 0:16:12.520 --> 0:16:16.800 So if you think about emerging markets in Korea. In China, 0:16:17.480 --> 0:16:20.120 we've got a lot of governance reform and you've got 0:16:20.240 --> 0:16:23.720 regulatory reforms that are focused on improving corporate profitability. So 0:16:23.720 --> 0:16:26.800 it's not just the technology companies and the semiconductors and 0:16:26.840 --> 0:16:29.440 memory makers in Korea, but it's also the banks that 0:16:29.520 --> 0:16:31.520 are returning more capital to shareholders. 0:16:31.680 --> 0:16:36.000 You were at Penn and they're hugely important engineering sequence. 0:16:36.160 --> 0:16:40.000 I remember walking in the class from an aerospace going 0:16:40.040 --> 0:16:43.440 systems analysis What a joke, and you're like two weeks 0:16:43.480 --> 0:16:45.640 into it and you're going, oh, this is really hard 0:16:46.120 --> 0:16:51.760 logic theory in all take your engineering classic systems analysis 0:16:52.080 --> 0:16:55.440 and put it into the process that's coming down the pike. 0:16:56.000 --> 0:16:59.040 Yeah, you know, it's funny that you say, you know 0:16:59.320 --> 0:17:01.760 you thought about the gut course that was systems engineering. 0:17:01.760 --> 0:17:03.320 It actually has turned out to be some of the 0:17:03.320 --> 0:17:04.520 most important education. 0:17:04.680 --> 0:17:08.439 Exactly, there's the most important course I took, right, got 0:17:08.480 --> 0:17:10.800 a quality see trust me continue. 0:17:12.240 --> 0:17:15.600 I do think actually in today's and age, when information 0:17:15.800 --> 0:17:19.719 is so readily available, that information edge that portfolio managers 0:17:19.800 --> 0:17:22.280 used to have has just been compressed. I think the 0:17:22.320 --> 0:17:25.520 next edge that we have to have as active managers 0:17:25.840 --> 0:17:28.560 is the process edge, and I think of it as 0:17:28.640 --> 0:17:31.480 you have to have a very robust process for being 0:17:31.600 --> 0:17:34.760 able to create that durable and distinctive performance patterns that 0:17:34.920 --> 0:17:38.719 clients look for. That starts with a clear definition of 0:17:38.800 --> 0:17:42.879 research excellence. What is the differentiated research that we're doing. Tom, 0:17:42.920 --> 0:17:44.520 I'm gonna use one of your favorite words. We're going 0:17:44.600 --> 0:17:46.360 to use basing updating to. 0:17:46.359 --> 0:17:49.040 Do a podcast. Really, we're going to a basian theory. 0:17:49.760 --> 0:17:52.720 They this is such a nerd patrol. Five people just 0:17:52.760 --> 0:17:55.040 throw off the Garden State Parkway. 0:17:55.359 --> 0:17:57.840 But then we have to guardrail it with systematic processes 0:17:58.160 --> 0:18:00.520 make sure that we can repeat that process over and 0:18:00.560 --> 0:18:03.520 over again, and then we have to reinforce it with 0:18:03.560 --> 0:18:08.800 continuous learning, just tracking our data, keeping catalogs of what 0:18:08.960 --> 0:18:11.200 decisions that we've made and what can we learn from that. 0:18:11.480 --> 0:18:14.199 Paul, when you're the word guardrail, hold on to your 0:18:14.200 --> 0:18:18.160 wallet exactly. Setting. So how has the AI. 0:18:18.000 --> 0:18:21.040 Investment theme changed for you guys? It used to be 0:18:21.760 --> 0:18:24.000 we'll just throw money at Nvidia and the other chip companies. 0:18:24.000 --> 0:18:26.719 Now it seems like the market's trying to look at 0:18:26.720 --> 0:18:29.280 the different areas because it just feels like AI, if 0:18:29.280 --> 0:18:31.800 it hasn't already, it's going to touch every part. 0:18:31.640 --> 0:18:32.520 Of our lives. That's right. 0:18:32.600 --> 0:18:34.840 There's a real broadening going on. And I'd say the 0:18:34.880 --> 0:18:37.919 broadening happens in two ways. The first one is just 0:18:37.960 --> 0:18:40.399 the capex spend that's happening. So you think about the 0:18:40.440 --> 0:18:44.439 trillion dollars of capex that's coming on, that's going to 0:18:44.480 --> 0:18:49.280 affect so many different industries. So that's in industrials, that's 0:18:49.280 --> 0:18:52.560 in real estate, that's in utilities, that's in the energy grid. 0:18:52.960 --> 0:18:56.200 But then you also think about your beneficiaries, and that's 0:18:56.640 --> 0:19:01.040 in media, that's in healthcare. So we were looking at 0:19:01.520 --> 0:19:03.880 a broad set of impacts for AI. 0:19:04.480 --> 0:19:07.920 Have we had twenty six twenty seven percent earnings growth 0:19:07.960 --> 0:19:08.679 this past cycle? 0:19:09.760 --> 0:19:10.320 Was that ai? 0:19:10.560 --> 0:19:12.119 I mean, where did that come from? This is an 0:19:12.160 --> 0:19:15.280 economy that's it's good, but it's not that good? 0:19:15.359 --> 0:19:15.880 Is it. 0:19:17.359 --> 0:19:20.760 That the extra CAPEC spend has a multiplier effect and 0:19:20.840 --> 0:19:23.320 it is hitting many many parts of the economy. And 0:19:23.359 --> 0:19:24.800 there were there was a lot of good that was 0:19:24.840 --> 0:19:27.680 already going on in the economy. We had the tax reforms, 0:19:28.080 --> 0:19:29.880 so so I think we came in with a lot 0:19:29.920 --> 0:19:30.680 of strength this year. 0:19:31.000 --> 0:19:33.439 Do you saw handle earning season the same way you 0:19:33.600 --> 0:19:36.520 used to or with your Bayesian process? Is there a 0:19:36.560 --> 0:19:40.040 new is there a new way to say Nelson? You alliance, 0:19:40.119 --> 0:19:41.840 burstea great quarter. 0:19:44.480 --> 0:19:49.320 The what we're looking for is really what are the 0:19:49.359 --> 0:19:51.960 most important parts of our thesis and how are we 0:19:52.080 --> 0:19:55.480 affirming and reaffirming or updating our thesis based off what's 0:19:55.520 --> 0:19:58.280 being released, not just looking at the top line or 0:19:58.280 --> 0:19:59.159 bottom line numbers. 0:19:59.320 --> 0:20:01.560 Nelson, thank you so much. You got to come back, 0:20:01.800 --> 0:20:04.400 bring some basie and dip with you, and you can 0:20:04.640 --> 0:20:08.840 stay with us. More from Bloomberg Surveillance coming up after this. 0:20:16.080 --> 0:20:19.640 You're listening to the Bloomberg Surveillance podcast. Catch us Live 0:20:19.720 --> 0:20:22.879 weekday afternoons from seven to ten am Eastern Listen on 0:20:22.960 --> 0:20:26.359 Apple Karplay and Android Otto with the Bloomberg Business app, 0:20:26.520 --> 0:20:28.280 or watch us live on YouTube. 0:20:28.359 --> 0:20:31.720 There's all sorts of good conversations forward today, but this 0:20:31.960 --> 0:20:34.480 is the one if you want to listen to someone 0:20:34.520 --> 0:20:37.640