1 00:00:02,400 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,640 --> 00:00:15,480 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,520 --> 00:00:18,720 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,760 --> 00:00:22,320 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,440 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,960 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,319 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:37,159 Speaker 2: Terminal and the Bloomberg Business app. As we stick with 10 00:00:37,200 --> 00:00:39,440 Speaker 2: the markets, let's stay with the US. David Kelly of 11 00:00:39,520 --> 00:00:43,040 Speaker 2: JP Morgan writing, many investors should likely consider diversifying their 12 00:00:43,040 --> 00:00:48,320 Speaker 2: portfolios by adding alternative assets and international equacies. David joins 13 00:00:48,360 --> 00:00:50,320 Speaker 2: us now for more. David, Welcome to the program, sir. 14 00:00:50,520 --> 00:00:53,160 Speaker 2: Let's get to that statement. Give us the why why, 15 00:00:54,560 --> 00:00:55,200 Speaker 2: because we've. 16 00:00:55,000 --> 00:00:57,400 Speaker 3: Got a tortoise of an economy and the heir of 17 00:00:57,440 --> 00:00:59,920 Speaker 3: a market. I mean, if if you look at the sentiment, 18 00:01:00,200 --> 00:01:03,480 Speaker 3: is this practically you know, submarine sentiment. People feel absolutely 19 00:01:03,480 --> 00:01:06,320 Speaker 3: miserable about this economy, and I think that's overstated. But 20 00:01:06,360 --> 00:01:08,880 Speaker 3: if you look at the economy, itself. We're slowing down 21 00:01:08,880 --> 00:01:10,679 Speaker 3: to a crawl in the fourth quarter. We're going to 22 00:01:10,680 --> 00:01:12,200 Speaker 3: pick up a bit next year, but I think it's 23 00:01:12,200 --> 00:01:14,520 Speaker 3: going to be less than two percent real GDP growth. 24 00:01:15,080 --> 00:01:17,959 Speaker 3: But meanwhile, we've got this extraordinary stock market. We've got 25 00:01:18,040 --> 00:01:21,440 Speaker 3: very high corporate margins, and on top of that, we've 26 00:01:21,440 --> 00:01:24,720 Speaker 3: got price earnings ratios which are close to the dot 27 00:01:24,760 --> 00:01:27,480 Speaker 3: com bubble peaks. And when I look at that, it 28 00:01:27,920 --> 00:01:31,000 Speaker 3: is out of whack. And so people should do everything 29 00:01:31,040 --> 00:01:34,160 Speaker 3: they can to diversify their portfolios. They've drifted into being 30 00:01:34,319 --> 00:01:37,440 Speaker 3: very overweight large cap us equities, and so I think 31 00:01:37,440 --> 00:01:39,600 Speaker 3: they need to row against the tide and add other 32 00:01:39,640 --> 00:01:40,600 Speaker 3: assets which are. 33 00:01:40,440 --> 00:01:41,480 Speaker 4: Just not that expensive. 34 00:01:41,640 --> 00:01:44,080 Speaker 2: David, that's the struggle, because the nights we're talking about 35 00:01:44,120 --> 00:01:51,600 Speaker 2: abandoning Nvidia, Microsoft, Amazon, Meta Alphabet, these have delivered fantastic 36 00:01:51,720 --> 00:01:54,720 Speaker 2: gains AMD, Broadcom on any given day, up ten to 37 00:01:54,840 --> 00:01:57,560 Speaker 2: fifteen percent. David, you really want to give that up? 38 00:01:58,640 --> 00:01:59,560 Speaker 4: Well, there are two things. 39 00:01:59,600 --> 00:02:01,760 Speaker 3: First of all, you got you've got to be taxed 40 00:02:01,760 --> 00:02:04,880 Speaker 3: smart about this, so you should use new cash stuff 41 00:02:04,920 --> 00:02:06,560 Speaker 3: that you don't have to pay capital gainst tax on 42 00:02:07,160 --> 00:02:09,960 Speaker 3: to try and rebalance the portfolio. But second, if you 43 00:02:10,000 --> 00:02:11,799 Speaker 3: go back to the dot com bubble and there are 44 00:02:12,160 --> 00:02:14,760 Speaker 3: you know, growing echoes of that and what we're seeing here. 45 00:02:15,240 --> 00:02:17,119 Speaker 3: You know, every company was not a winner. There were 46 00:02:17,120 --> 00:02:20,320 Speaker 3: some great companies which exist today and which are leaders today, 47 00:02:20,720 --> 00:02:22,760 Speaker 3: which were leaders back then, but there are other there 48 00:02:22,760 --> 00:02:26,560 Speaker 3: are many other companies, more companies who disappeared then. So 49 00:02:26,600 --> 00:02:28,359 Speaker 3: I think people just have to be very careful about 50 00:02:28,400 --> 00:02:32,320 Speaker 3: valuations company by company here, and it's you know, I 51 00:02:32,400 --> 00:02:36,120 Speaker 3: just think that we that everybody is essentially overweight the 52 00:02:36,120 --> 00:02:39,119 Speaker 3: most expensive part of global capital markets right now. 53 00:02:39,360 --> 00:02:41,600 Speaker 5: So where should where do you suggest they should be looking? 54 00:02:42,240 --> 00:02:45,399 Speaker 3: Well, the first thing is that US investors are chronically 55 00:02:45,480 --> 00:02:47,239 Speaker 3: underweight the rest of the world. And one of the 56 00:02:47,280 --> 00:02:48,959 Speaker 3: things we've seen so far this year is that dollar 57 00:02:49,000 --> 00:02:52,080 Speaker 3: has been coming down, and we know that the FED 58 00:02:52,200 --> 00:02:54,000 Speaker 3: is very likely to cut the end of this month 59 00:02:54,040 --> 00:02:57,280 Speaker 3: and probably cut again and just keep cutting even though 60 00:02:57,320 --> 00:03:00,640 Speaker 3: the economy is moving forward now. The European Central Bank 61 00:03:00,720 --> 00:03:02,680 Speaker 3: is not going to be that dubbish. I don't think 62 00:03:02,680 --> 00:03:04,400 Speaker 3: the Bank of England's going to be that dubbish. The 63 00:03:04,400 --> 00:03:06,440 Speaker 3: Bank of Japan's going to be raising rates, so all 64 00:03:06,520 --> 00:03:08,680 Speaker 3: that tends to push the dollar down. So we think 65 00:03:08,720 --> 00:03:10,720 Speaker 3: the dollar will fall, and what we've seen in the past, 66 00:03:10,720 --> 00:03:12,399 Speaker 3: and we show this in our Guide to the Markets, 67 00:03:12,600 --> 00:03:15,440 Speaker 3: if you have a long period of dollar weakness, you 68 00:03:15,520 --> 00:03:18,320 Speaker 3: also get a long period of international equity. 69 00:03:17,960 --> 00:03:18,640 Speaker 4: Out of performance. 70 00:03:19,000 --> 00:03:20,920 Speaker 3: And so I think that's the first place I would go, 71 00:03:20,960 --> 00:03:23,040 Speaker 3: is you know, why do I only have five percent 72 00:03:23,360 --> 00:03:26,040 Speaker 3: or ten percent or zero percent of my equity money 73 00:03:26,080 --> 00:03:28,680 Speaker 3: in international's That's the first place I go. And then 74 00:03:28,680 --> 00:03:31,400 Speaker 3: the second thing is just alternatives. Alternatives in general have 75 00:03:31,520 --> 00:03:35,720 Speaker 3: not runied as much as these sparkly, champagne filled public 76 00:03:35,760 --> 00:03:38,040 Speaker 3: markets in the last three years, and that does leave 77 00:03:38,160 --> 00:03:39,400 Speaker 3: some opportunities there. 78 00:03:39,640 --> 00:03:42,400 Speaker 5: David, though, when you think about international, do you have 79 00:03:42,480 --> 00:03:44,640 Speaker 5: any pause or concern in terms of what we're seeing 80 00:03:44,680 --> 00:03:48,480 Speaker 5: in terms of the rhetoric out of Washington and potentially 81 00:03:48,640 --> 00:03:51,960 Speaker 5: companies and countries that can get caught up in this 82 00:03:52,120 --> 00:03:54,200 Speaker 5: trade war between China and the United States. 83 00:03:55,640 --> 00:03:57,600 Speaker 3: Well, yeah, I think you've got a look company by 84 00:03:57,640 --> 00:04:01,560 Speaker 3: a company, But ultimately the rest of the world collectively 85 00:04:01,640 --> 00:04:05,280 Speaker 3: is economically stronger than the United States is. So if 86 00:04:05,320 --> 00:04:07,400 Speaker 3: you pick a fight with every kid in the playground, 87 00:04:07,800 --> 00:04:10,200 Speaker 3: you know you may have a problem here. I think 88 00:04:10,200 --> 00:04:12,080 Speaker 3: what's happening is a lot of countries are trying to 89 00:04:12,080 --> 00:04:17,599 Speaker 3: find ways of operating outside of the US sphere of influence. 90 00:04:17,680 --> 00:04:19,719 Speaker 3: So I think what you will see is over time 91 00:04:20,160 --> 00:04:22,279 Speaker 3: other countries. First of all, they're doing more physical spending 92 00:04:22,279 --> 00:04:24,120 Speaker 3: and places like Europe. 93 00:04:24,160 --> 00:04:25,800 Speaker 4: I think in China they. 94 00:04:25,720 --> 00:04:29,279 Speaker 3: Are very aggressively building up their technology base so they 95 00:04:29,320 --> 00:04:31,279 Speaker 3: don't have to rely as much in US technology. 96 00:04:31,560 --> 00:04:34,640 Speaker 4: So I'd want to have a bed outside the US. 97 00:04:34,680 --> 00:04:36,279 Speaker 3: I realize that what the US is doing is not 98 00:04:36,320 --> 00:04:38,119 Speaker 3: helping them, but it's not helping us either. 99 00:04:38,279 --> 00:04:40,760 Speaker 2: Well, David, let's talk about Europe. So European banks around 100 00:04:40,760 --> 00:04:43,520 Speaker 2: by fifty eight percent, so father share, and the ACP 101 00:04:43,720 --> 00:04:47,679 Speaker 2: is projecting growth for twenty twenty six of one percent. Now, 102 00:04:47,800 --> 00:04:50,440 Speaker 2: if the US economy is a tour soyce and the 103 00:04:50,480 --> 00:04:52,839 Speaker 2: market is the hair, what an earth kind of an 104 00:04:52,839 --> 00:04:55,920 Speaker 2: animal is Europe right now? With the economy basically stagnant 105 00:04:55,960 --> 00:04:58,760 Speaker 2: and the equity market rip in, Well. 106 00:04:59,120 --> 00:05:00,360 Speaker 4: Europe is a bit of a tortis. 107 00:05:00,400 --> 00:05:02,280 Speaker 3: But remember you don't you could first, you know, population 108 00:05:02,360 --> 00:05:04,480 Speaker 3: growth in Europe, so on a per capita basis, it's 109 00:05:04,520 --> 00:05:08,120 Speaker 3: not quite quite that bad. But these these these companies, 110 00:05:08,400 --> 00:05:11,240 Speaker 3: you know, the banking industry in Europe has been very 111 00:05:11,320 --> 00:05:12,920 Speaker 3: cheap for a long time, so I think that I 112 00:05:12,920 --> 00:05:17,880 Speaker 3: think the the rally that we're seeing in European financials 113 00:05:17,920 --> 00:05:21,000 Speaker 3: makes sense. But I think you also just go company 114 00:05:21,080 --> 00:05:24,400 Speaker 3: by company and you know, also recognize that the Euro 115 00:05:25,200 --> 00:05:28,120 Speaker 3: is I think, very undervalued and if the Euro goes 116 00:05:28,160 --> 00:05:29,719 Speaker 3: up in value, and every time the Euro goes up 117 00:05:29,760 --> 00:05:32,080 Speaker 3: five percent, your European stocks are going to go up 118 00:05:32,120 --> 00:05:32,640 Speaker 3: five percent. 119 00:05:32,680 --> 00:05:34,440 Speaker 4: So it's a lot of the games. 120 00:05:34,360 --> 00:05:36,400 Speaker 3: We've seen in European equities so far this year have 121 00:05:36,480 --> 00:05:39,360 Speaker 3: been because of a rising euro, and we think that 122 00:05:39,360 --> 00:05:40,960 Speaker 3: that trend has gone a long way to play out. 123 00:05:41,320 --> 00:05:43,839 Speaker 2: The pushback I think we're getting around Europe at the moment, David, 124 00:05:43,880 --> 00:05:45,640 Speaker 2: and I'd love your input on this is when it 125 00:05:45,680 --> 00:05:47,719 Speaker 2: comes to the major theme at the moment supporting both 126 00:05:47,720 --> 00:05:50,799 Speaker 2: the economy and the market, which is ai the Europe's 127 00:05:50,839 --> 00:05:53,640 Speaker 2: in no man's land that they barely have any competitors 128 00:05:53,720 --> 00:05:55,400 Speaker 2: on the tech front, and when it comes to the 129 00:05:55,520 --> 00:05:58,359 Speaker 2: energy needed to supply it, they're trapped by the left 130 00:05:58,360 --> 00:06:00,320 Speaker 2: of the green lobby and can't do any to think 131 00:06:00,360 --> 00:06:02,640 Speaker 2: in response, David, what can they do to break out 132 00:06:02,640 --> 00:06:02,839 Speaker 2: of that? 133 00:06:02,920 --> 00:06:03,880 Speaker 1: Do you see any sign. 134 00:06:03,720 --> 00:06:04,359 Speaker 2: Of that happening. 135 00:06:05,800 --> 00:06:10,320 Speaker 4: Well, yeah, they're not. They're not leading this charge right now. 136 00:06:11,360 --> 00:06:13,040 Speaker 4: I think that. I think that's true. 137 00:06:14,440 --> 00:06:16,440 Speaker 3: You know, it still doesn't doesn't mean you should avoid 138 00:06:16,760 --> 00:06:20,120 Speaker 3: individual European companies. And remember this, you know, in the 139 00:06:20,200 --> 00:06:24,000 Speaker 3: US there's a tremendous investment going on in AI. 140 00:06:24,320 --> 00:06:25,440 Speaker 4: There's not quite as much. 141 00:06:25,320 --> 00:06:30,480 Speaker 3: Cash flow coming in from genuine users at the at 142 00:06:30,480 --> 00:06:32,760 Speaker 3: the at the end, and people are getting real value 143 00:06:32,760 --> 00:06:35,200 Speaker 3: out of AI. So it's quite possible the capital spending 144 00:06:35,480 --> 00:06:38,480 Speaker 3: cars will get ahead of the sort of income horse 145 00:06:39,120 --> 00:06:44,320 Speaker 3: in AI in the US anyway. And also we have 146 00:06:44,400 --> 00:06:46,000 Speaker 3: to sort of look at this over time, you know, 147 00:06:46,200 --> 00:06:48,800 Speaker 3: is AI really going to be a technology that you 148 00:06:48,839 --> 00:06:52,440 Speaker 3: can sort of fence in the way that for example, 149 00:06:52,800 --> 00:06:55,320 Speaker 3: you know, Apple was able to fence in hardware and 150 00:06:55,600 --> 00:06:58,240 Speaker 3: just you know and make money out of hardware for 151 00:06:58,240 --> 00:07:01,359 Speaker 3: forever or Microsoft or Meta. 152 00:07:01,600 --> 00:07:04,360 Speaker 4: So it's not it's not clear in AI space who. 153 00:07:04,240 --> 00:07:06,919 Speaker 3: The ultimate winners are going to be this a Is 154 00:07:06,920 --> 00:07:09,560 Speaker 3: this a technology that really there will be one winner today, 155 00:07:09,600 --> 00:07:11,160 Speaker 3: it's going to be the same winter ten years out 156 00:07:11,680 --> 00:07:13,920 Speaker 3: or will it mutate over time? And will that give 157 00:07:13,920 --> 00:07:17,760 Speaker 3: an opportunity to to companies aren't necessarily needing the charge here, 158 00:07:18,080 --> 00:07:20,080 Speaker 3: but are able to catch up. 159 00:07:21,960 --> 00:07:25,480 Speaker 2: Stay with us. More Bloomberg surveillance coming up after this, 160 00:07:34,760 --> 00:07:37,080 Speaker 2: Let's stick with the Federal Reserve. Tifnitey want to pimicat rights. 161 00:07:37,080 --> 00:07:40,120 Speaker 2: In the following chem and Pal's comments were consistent with 162 00:07:40,200 --> 00:07:43,000 Speaker 2: our expectations that they FED will cut rates again. And 163 00:07:43,120 --> 00:07:45,600 Speaker 2: the October f WEBC meeting, tifnany joined us now for 164 00:07:45,680 --> 00:07:48,560 Speaker 2: more TIFNIC Good morning. So that's October. How much visibility 165 00:07:48,560 --> 00:07:50,400 Speaker 2: do you have beyond October? 166 00:07:53,200 --> 00:07:54,840 Speaker 6: Yeah, well, I mean, I definitely think there's going to 167 00:07:54,880 --> 00:07:57,840 Speaker 6: be more discussion around the December meeting, and it does 168 00:07:57,840 --> 00:08:01,920 Speaker 6: seem like October at this point is is another cut, 169 00:08:02,200 --> 00:08:04,400 Speaker 6: you know, and I think part of it will see 170 00:08:04,560 --> 00:08:09,080 Speaker 6: will be looking at the data that the government has 171 00:08:09,120 --> 00:08:12,160 Speaker 6: not been able to issue since the government closure. And 172 00:08:12,200 --> 00:08:14,320 Speaker 6: I think the concern actually is that the longer the 173 00:08:14,320 --> 00:08:18,320 Speaker 6: government stays shut within October, there's not an obvious catalyst 174 00:08:18,360 --> 00:08:20,920 Speaker 6: for it to reopen like there has been in the past, 175 00:08:20,960 --> 00:08:25,360 Speaker 6: a date that you could have major issues around collections 176 00:08:25,400 --> 00:08:28,560 Speaker 6: and Octobers as the BLS field workers literally just can't 177 00:08:28,600 --> 00:08:32,000 Speaker 6: collect the survey, so you could have an October where we, 178 00:08:32,200 --> 00:08:34,120 Speaker 6: you know, we it's not about a delay in the data, 179 00:08:34,160 --> 00:08:36,680 Speaker 6: but a skip and you know, and that's going to be, 180 00:08:36,760 --> 00:08:39,880 Speaker 6: you know, a difficult situation for the FED come the 181 00:08:39,880 --> 00:08:42,280 Speaker 6: December meeting. And I think it's going to make you know, 182 00:08:42,320 --> 00:08:44,560 Speaker 6: their job even even harder, Tiffany. 183 00:08:44,600 --> 00:08:46,960 Speaker 5: But how uncomfortable is it going to be for the 184 00:08:46,960 --> 00:08:51,600 Speaker 5: FED to cut with potentially not having the latest labor 185 00:08:51,640 --> 00:08:55,160 Speaker 5: market report but having a CPI report that estimates are 186 00:08:55,160 --> 00:08:56,679 Speaker 5: showing a hot print. 187 00:08:58,800 --> 00:09:00,840 Speaker 6: Yeah, I mean so I think that they'll, you know, 188 00:09:00,880 --> 00:09:03,160 Speaker 6: they they'll look at, obviously, look at a wide range 189 00:09:03,200 --> 00:09:07,680 Speaker 6: of data. We have gotten other private indicators of labor markets, 190 00:09:07,920 --> 00:09:11,240 Speaker 6: the ADP data in particular, which has been you know, 191 00:09:11,360 --> 00:09:13,800 Speaker 6: very consistent I think with the signals that we've gotten 192 00:09:13,840 --> 00:09:17,679 Speaker 6: from the official the BLS data. The labor market activity 193 00:09:17,920 --> 00:09:21,199 Speaker 6: has has slowed quite dramatically, you know, and as Mike 194 00:09:21,280 --> 00:09:26,679 Speaker 6: Mhee discussed, there's definitely supply and demand factors that are 195 00:09:26,679 --> 00:09:31,600 Speaker 6: slowing that We've seen immigration policies that have reduced labor 196 00:09:31,640 --> 00:09:35,760 Speaker 6: force potentially even reduced labor force supply certainly slowed the 197 00:09:35,800 --> 00:09:39,160 Speaker 6: growth of it. But on top of that, though, you know, 198 00:09:39,240 --> 00:09:42,439 Speaker 6: you've also had these trade policies, tariff policies that are 199 00:09:42,440 --> 00:09:46,080 Speaker 6: increasing costs across industries, making it a very challenging environment 200 00:09:46,760 --> 00:09:50,440 Speaker 6: for some industries to work in, and that is resulting 201 00:09:50,440 --> 00:09:53,520 Speaker 6: in a reduction in labor demand as well. So at 202 00:09:53,600 --> 00:09:57,040 Speaker 6: the current point we've seen a reduction in both. Of course, 203 00:09:57,080 --> 00:10:00,080 Speaker 6: the Federal Reserve is worried about the downside risk to 204 00:10:00,600 --> 00:10:03,640 Speaker 6: you know, to employment, and so I think, you know, 205 00:10:03,679 --> 00:10:07,760 Speaker 6: that's that's the consideration going into October. You know, certainly 206 00:10:07,800 --> 00:10:11,840 Speaker 6: we will continue to see some inflation reports that are 207 00:10:11,880 --> 00:10:15,920 Speaker 6: above above the Central Banks target as you get additional 208 00:10:15,920 --> 00:10:18,600 Speaker 6: price adjustments, but you know, it does look like that 209 00:10:18,600 --> 00:10:21,440 Speaker 6: that's relatively contained, that is, you know, and that will 210 00:10:21,440 --> 00:10:22,840 Speaker 6: wear off eventually. 211 00:10:22,640 --> 00:10:24,880 Speaker 5: The impact of terrorsts will that become a bigger story 212 00:10:24,920 --> 00:10:27,000 Speaker 5: in December. Given a lot of companies even during this 213 00:10:27,080 --> 00:10:29,959 Speaker 5: earning seasons, we're talking about the fact that they were 214 00:10:30,000 --> 00:10:32,040 Speaker 5: able to bear the brunt of it, but at some 215 00:10:32,160 --> 00:10:34,559 Speaker 5: point they're going to have to pass on the cost 216 00:10:34,640 --> 00:10:35,439 Speaker 5: to consumers. 217 00:10:37,920 --> 00:10:40,880 Speaker 6: Yeah, I mean, and I do think that as you know, 218 00:10:41,080 --> 00:10:45,239 Speaker 6: the the thing about uncertainty is, and we've had elevated 219 00:10:45,240 --> 00:10:47,880 Speaker 6: policy uncertainty is that you don't really want to make 220 00:10:47,920 --> 00:10:51,600 Speaker 6: any adjustment to your business because you don't know, you know, 221 00:10:51,640 --> 00:10:53,560 Speaker 6: you don't know the sort of rules of the game, 222 00:10:53,600 --> 00:10:55,400 Speaker 6: if you will, you don't know what the policies will be. 223 00:10:55,600 --> 00:10:58,360 Speaker 6: But as companies become more certain that the tear iff 224 00:10:58,360 --> 00:11:02,520 Speaker 6: policies are here to stay, then that means they need 225 00:11:02,559 --> 00:11:05,839 Speaker 6: to make the adjustments that that they maybe have been 226 00:11:05,880 --> 00:11:08,520 Speaker 6: holding off on to kind of see how this shakes out, 227 00:11:09,040 --> 00:11:11,360 Speaker 6: you know, And I think companies have you know, various 228 00:11:11,400 --> 00:11:14,760 Speaker 6: ways that that they can react to this, and within industries, 229 00:11:14,840 --> 00:11:17,400 Speaker 6: they'll be competitive forces that they'll have to deal with. 230 00:11:17,480 --> 00:11:20,120 Speaker 6: And you know, that's been one reason that we think 231 00:11:20,200 --> 00:11:23,920 Speaker 6: that you know, the price adjustment piece of this might 232 00:11:24,120 --> 00:11:27,000 Speaker 6: might not be you know, where the full adjustment lies. 233 00:11:27,200 --> 00:11:29,280 Speaker 6: And it does look like when we look like across 234 00:11:29,280 --> 00:11:32,559 Speaker 6: a range of data that the labor markets and companies 235 00:11:32,880 --> 00:11:35,440 Speaker 6: you know, trying to manage costs, and labor costs in 236 00:11:35,480 --> 00:11:39,440 Speaker 6: particular is also being part of the adjustment here as well. 237 00:11:39,600 --> 00:11:43,360 Speaker 6: So if you have larger companies that can hold down prices, 238 00:11:43,640 --> 00:11:45,560 Speaker 6: they can afford to do so, you know, then that's 239 00:11:45,559 --> 00:11:48,520 Speaker 6: a really tough operating environment for everyone else. They're going 240 00:11:48,600 --> 00:11:50,040 Speaker 6: to have to cut costs, They're going to have to 241 00:11:50,080 --> 00:11:53,000 Speaker 6: cut labor in order to you know, to continue to 242 00:11:53,320 --> 00:11:54,679 Speaker 6: manage in that environment. 243 00:11:54,400 --> 00:11:56,800 Speaker 2: Given the some of the forces you described, Tiffany to 244 00:11:56,880 --> 00:11:57,760 Speaker 2: write cuts help. 245 00:12:01,120 --> 00:12:03,880 Speaker 6: So, you know, the Federal Reserve would still characterize their 246 00:12:03,920 --> 00:12:09,199 Speaker 6: policy as being restrictive in restrictive territory, you know. And 247 00:12:09,280 --> 00:12:13,280 Speaker 6: I think when you look at investment trends excluding AI, 248 00:12:14,040 --> 00:12:17,880 Speaker 6: they are quite you know, quite stagnant, maybe even contractionary. 249 00:12:18,240 --> 00:12:20,960 Speaker 6: You know, that's both business investment XAI as well as 250 00:12:21,160 --> 00:12:24,480 Speaker 6: residential investment. Just looking at that alone would suggest to 251 00:12:24,480 --> 00:12:27,280 Speaker 6: you that that interest rates, you know, are in restrictive territory. 252 00:12:27,320 --> 00:12:29,480 Speaker 6: So I think the Federal Reserve would say, just given 253 00:12:29,520 --> 00:12:32,800 Speaker 6: the balance of risks, moving back to a more normal stance, 254 00:12:33,240 --> 00:12:36,640 Speaker 6: more neutral stance at least is a very reasonable policy. 255 00:12:36,840 --> 00:12:37,960 Speaker 6: And that's what we think they're doing. 256 00:12:38,080 --> 00:12:40,560 Speaker 2: Of course, there's some debate about what neutral is definitely, 257 00:12:40,840 --> 00:12:42,880 Speaker 2: and it's a wide range of estimates. Where are you 258 00:12:43,080 --> 00:12:44,560 Speaker 2: and where do you think the Fed ultimately is? 259 00:12:46,640 --> 00:12:49,120 Speaker 6: Yeah, I mean we think, you know, we we've sort 260 00:12:49,160 --> 00:12:51,959 Speaker 6: of argued that on a real basis, you know, kind 261 00:12:51,960 --> 00:12:54,920 Speaker 6: of a zero to one percent these things are very uncertain, 262 00:12:55,080 --> 00:12:57,600 Speaker 6: as you suggest, is zero to one percent, So that 263 00:12:57,679 --> 00:13:00,520 Speaker 6: kind of suggests you know, you know, you to three 264 00:13:00,559 --> 00:13:03,760 Speaker 6: percent real neutral interest rate. We think that that could 265 00:13:03,800 --> 00:13:06,760 Speaker 6: be higher within the band. There are various factors that 266 00:13:06,800 --> 00:13:11,040 Speaker 6: have contributed to you know, a potentially higher a slightly 267 00:13:11,120 --> 00:13:14,000 Speaker 6: higher neutral rate within that band over over the last 268 00:13:14,280 --> 00:13:17,000 Speaker 6: you know, number of years, you know. But but ultimately 269 00:13:17,000 --> 00:13:18,679 Speaker 6: that's going to be something that the Federal Reserve has 270 00:13:18,679 --> 00:13:22,640 Speaker 6: to figure out. And you know, as they adjust policy slowly, 271 00:13:23,320 --> 00:13:26,400 Speaker 6: they will get indications from the economy and as they're 272 00:13:26,440 --> 00:13:28,920 Speaker 6: cutting interest rates. If they see the economies, you know, 273 00:13:29,000 --> 00:13:33,440 Speaker 6: reaccelerating and inflation is stickier than they expected, you know, 274 00:13:33,520 --> 00:13:35,880 Speaker 6: then you know, they can stop, they can continue, you know, 275 00:13:35,920 --> 00:13:38,840 Speaker 6: they can pause, see what happens, and they'll kind of 276 00:13:38,840 --> 00:13:41,679 Speaker 6: get more they'll they'll sort of feel their way to neutral, 277 00:13:41,720 --> 00:13:43,680 Speaker 6: if you will, and get more information. 278 00:13:43,840 --> 00:13:44,040 Speaker 3: You know. 279 00:13:44,080 --> 00:13:46,040 Speaker 6: One one other thing just to note as well, is 280 00:13:46,080 --> 00:13:49,600 Speaker 6: that fiscal policy in the US. We will get you know, 281 00:13:49,679 --> 00:13:52,680 Speaker 6: more of the benefits from the offsetting tax cuts in 282 00:13:52,720 --> 00:13:55,320 Speaker 6: the One Big Beautiful Bill Act in twenty twenty six. 283 00:13:55,400 --> 00:13:57,280 Speaker 6: So that's something else that the Federal Reserve is going 284 00:13:57,360 --> 00:13:59,760 Speaker 6: to have to navigate that could be that could be 285 00:13:59,760 --> 00:14:00,600 Speaker 6: tree as well. 286 00:14:02,280 --> 00:14:05,760 Speaker 2: Stay with us more Bloomberg surveillance coming up after this, 287 00:14:15,120 --> 00:14:17,719 Speaker 2: Gloria at Day Davison joined us Now for more, GIL, 288 00:14:17,760 --> 00:14:20,040 Speaker 2: Welcome to the program sir and Video center stage. In 289 00:14:20,040 --> 00:14:23,080 Speaker 2: the last five minutes, big upgrade from HSBC Big Price 290 00:14:23,120 --> 00:14:26,360 Speaker 2: Target to Street High three twenty GIL. When you think 291 00:14:26,400 --> 00:14:29,520 Speaker 2: about things regarding in video, is it still the only game. 292 00:14:29,360 --> 00:14:30,440 Speaker 4: In time town? 293 00:14:30,680 --> 00:14:33,200 Speaker 2: Or does AMD provide a bit of an alternative? 294 00:14:34,880 --> 00:14:37,000 Speaker 7: And Vidia is not the only game in town but 295 00:14:37,160 --> 00:14:40,920 Speaker 7: will continue to be the main game in town. All 296 00:14:40,960 --> 00:14:45,560 Speaker 7: of its customers are trying to diversify. They've been trying 297 00:14:45,560 --> 00:14:49,160 Speaker 7: to diversify, but it's hard because in Vidia continues to 298 00:14:49,200 --> 00:14:53,680 Speaker 7: introduce product at such a fast pace that it's very 299 00:14:53,680 --> 00:14:57,240 Speaker 7: hard for other products to even be comparable. Which is 300 00:14:57,280 --> 00:15:02,160 Speaker 7: to say, Google especially and some extent Amazon are going 301 00:15:02,200 --> 00:15:06,920 Speaker 7: to increasingly use their chips more. That's Broadcom, and then 302 00:15:07,120 --> 00:15:11,400 Speaker 7: all of these customers Microsoft, Amazon, Google, Meta Xai are 303 00:15:11,400 --> 00:15:15,680 Speaker 7: going to have some AMD componentry just because they want 304 00:15:15,720 --> 00:15:20,240 Speaker 7: to have diversification. But unless the AMD chips catch up 305 00:15:20,280 --> 00:15:24,240 Speaker 7: in performance next year ten videos chips, that is going 306 00:15:24,280 --> 00:15:27,480 Speaker 7: to be a small proportion one way or another. Even 307 00:15:27,520 --> 00:15:31,480 Speaker 7: if AMDs chips are great and Broadcom continues to generate 308 00:15:31,560 --> 00:15:34,840 Speaker 7: a lot of good ask chips, the custom chips for 309 00:15:34,880 --> 00:15:38,520 Speaker 7: these customers, and Video will continue to have overwhelming share 310 00:15:38,520 --> 00:15:40,600 Speaker 7: of this market for a while longer. 311 00:15:40,640 --> 00:15:43,520 Speaker 5: These companies continue to chug along. Stock price is higher. 312 00:15:43,520 --> 00:15:46,120 Speaker 5: We're seeing upgrades likes this morning of HSBC at the 313 00:15:46,160 --> 00:15:49,480 Speaker 5: same time where their rhetoric between China and the United 314 00:15:49,520 --> 00:15:52,480 Speaker 5: States is really heating up. How are they going to 315 00:15:52,520 --> 00:15:57,000 Speaker 5: get potentially caught in the crosshairs between Washington and Beijing. 316 00:15:58,280 --> 00:16:02,320 Speaker 7: They already have fact has missed its last two quarterly 317 00:16:02,400 --> 00:16:06,920 Speaker 7: reports because of China. China is somewhat out of the numbers. 318 00:16:06,960 --> 00:16:09,640 Speaker 7: It's not completely out of the numbers, but it's somewhat 319 00:16:09,680 --> 00:16:12,480 Speaker 7: out of the numbers. And unless the US and China 320 00:16:12,560 --> 00:16:16,880 Speaker 7: can arrive at some sort of broader framework for an agreement, 321 00:16:17,360 --> 00:16:19,920 Speaker 7: and Vidia's sales into China are going to be very 322 00:16:20,000 --> 00:16:22,880 Speaker 7: much impacted for a while longer. And as long as 323 00:16:22,880 --> 00:16:26,600 Speaker 7: that's happening. They have been all year, and it's been 324 00:16:26,640 --> 00:16:31,320 Speaker 7: on Dragon. Nvidia already having said that the market is 325 00:16:31,360 --> 00:16:35,240 Speaker 7: growing so fast right now that Nvidia can probably live 326 00:16:35,320 --> 00:16:40,760 Speaker 7: up to expectations without significant contribution from China. If China 327 00:16:40,840 --> 00:16:43,880 Speaker 7: does come back, which it may not, Nvidia can do 328 00:16:44,000 --> 00:16:47,080 Speaker 7: even better. But the demand right now is so big 329 00:16:47,480 --> 00:16:49,960 Speaker 7: that in Nvidia can probably do okay, even if the 330 00:16:50,680 --> 00:16:52,320 Speaker 7: demand from China is limited. 331 00:16:52,960 --> 00:16:55,320 Speaker 5: Who can't do as well as in video? If the 332 00:16:55,360 --> 00:16:57,280 Speaker 5: demand from China is limited. 333 00:16:59,320 --> 00:17:02,920 Speaker 7: It would Video more than any other company, but also 334 00:17:03,120 --> 00:17:06,280 Speaker 7: AMD and Broadcom and much of the rest of the 335 00:17:06,320 --> 00:17:11,640 Speaker 7: ecosystem that sells into China will be impacted and long term, 336 00:17:12,320 --> 00:17:15,920 Speaker 7: whether or not there's a full decoupling from China, we're 337 00:17:15,960 --> 00:17:20,200 Speaker 7: already well on our way to having a much different 338 00:17:20,280 --> 00:17:22,960 Speaker 7: supply chain than we had even a couple of years ago. 339 00:17:23,080 --> 00:17:25,639 Speaker 7: You are just having a conversation about the fact that 340 00:17:25,680 --> 00:17:28,080 Speaker 7: we're going to have to build a lot more of 341 00:17:28,119 --> 00:17:30,800 Speaker 7: the supply chain in the United States. It's going to 342 00:17:30,880 --> 00:17:33,879 Speaker 7: be a long process. It's very complicated. It goes well 343 00:17:33,920 --> 00:17:37,320 Speaker 7: beyond Intel and TSMC. It goes through their whole supply 344 00:17:37,480 --> 00:17:40,920 Speaker 7: chain that we will be gradually moving into the US 345 00:17:41,240 --> 00:17:44,520 Speaker 7: and into other countries that are not China and not 346 00:17:44,680 --> 00:17:49,080 Speaker 7: Taiwan in order to make the supply chain more of US. 347 00:17:49,200 --> 00:17:52,680 Speaker 7: It's a matter of national security, and one way or another, 348 00:17:52,720 --> 00:17:56,840 Speaker 7: we're having some level of decoupling from China. Whether both 349 00:17:56,880 --> 00:17:59,960 Speaker 7: sides agree to that or not. Companies are all ready 350 00:18:00,119 --> 00:18:03,720 Speaker 7: the understanding that there's never going to be stability in 351 00:18:03,760 --> 00:18:06,760 Speaker 7: this relationship, so they need to diversify. 352 00:18:07,280 --> 00:18:10,800 Speaker 2: Stay with us more Bloomberg surveillance coming up after this 353 00:18:20,000 --> 00:18:22,639 Speaker 2: stops finding a firmer footing as big bank results to 354 00:18:22,720 --> 00:18:25,760 Speaker 2: roll in Steve author federated right to the following. It 355 00:18:25,840 --> 00:18:28,800 Speaker 2: is possible that many companies will fail to be whisper 356 00:18:28,920 --> 00:18:31,359 Speaker 2: numbers of bigger than expected beats. This could cause some 357 00:18:31,400 --> 00:18:35,200 Speaker 2: modest pullbacks for the stock market and for the market generally. 358 00:18:35,440 --> 00:18:37,560 Speaker 2: Steven joins us now for more. Steve've got to see 359 00:18:37,560 --> 00:18:40,679 Speaker 2: a second morning. Good morning, thanks for being here, you 360 00:18:40,720 --> 00:18:43,520 Speaker 2: said earlier this year, tie us after the mouse, close 361 00:18:43,560 --> 00:18:46,160 Speaker 2: your eyes, shut out the noise, and just keep moving 362 00:18:46,200 --> 00:18:48,160 Speaker 2: forward with the ship because it's going to be okay. 363 00:18:48,359 --> 00:18:49,200 Speaker 1: That's still the approach. 364 00:18:49,960 --> 00:18:52,320 Speaker 8: Yeah, we actually just said, are at this time of 365 00:18:52,320 --> 00:18:54,240 Speaker 8: the year where we said our two year target. We 366 00:18:54,240 --> 00:18:56,560 Speaker 8: have a one year target also, but I like our 367 00:18:56,760 --> 00:18:59,440 Speaker 8: clients to think forward a little bit for that's kind 368 00:18:59,440 --> 00:19:02,119 Speaker 8: of our and we've got a two year target on 369 00:19:02,119 --> 00:19:05,679 Speaker 8: the S and P of eighty six hundred, and we 370 00:19:05,720 --> 00:19:08,040 Speaker 8: don't think it's unrealistic. You get there, you have a 371 00:19:08,200 --> 00:19:12,399 Speaker 8: GDP that's reaccelerating next year. You've got multiple drivers of 372 00:19:12,440 --> 00:19:17,439 Speaker 8: that that we've talked about extensively. You have an AI 373 00:19:17,720 --> 00:19:20,800 Speaker 8: industrial revolution going on that we think is very very 374 00:19:20,880 --> 00:19:24,479 Speaker 8: real and importantly, and this is a key element of 375 00:19:24,560 --> 00:19:30,000 Speaker 8: our forecast, is we have margins expanding on the S 376 00:19:30,080 --> 00:19:34,480 Speaker 8: and P. And you know, most people at this time 377 00:19:34,520 --> 00:19:36,879 Speaker 8: of the year tell us that we're at peak margins. 378 00:19:36,880 --> 00:19:39,160 Speaker 1: How many times have we heard that? So I had 379 00:19:39,160 --> 00:19:40,560 Speaker 1: my guys go back and check this. 380 00:19:41,640 --> 00:19:45,000 Speaker 8: We have relentlessly expanded margins on the S and P. 381 00:19:45,320 --> 00:19:47,440 Speaker 8: Okay one or two years, you might dip a little bit, 382 00:19:47,520 --> 00:19:50,399 Speaker 8: but the trend has been higher every year, and we 383 00:19:50,440 --> 00:19:53,040 Speaker 8: think that's a combination of the mix of the S 384 00:19:53,119 --> 00:19:58,600 Speaker 8: and P shifting towards higher margin, higher cash flow, lower 385 00:19:58,840 --> 00:20:04,560 Speaker 8: asset businesses that just have higher margins and productivity enhancements 386 00:20:04,600 --> 00:20:07,439 Speaker 8: which are increasing, partly due to policy and partly due 387 00:20:07,480 --> 00:20:10,840 Speaker 8: to AI. So when you add that all together, it's 388 00:20:10,920 --> 00:20:13,639 Speaker 8: pretty realistic, frankly, to see. 389 00:20:13,880 --> 00:20:16,840 Speaker 1: Earnings on the S and P by twenty eight. 390 00:20:16,640 --> 00:20:19,280 Speaker 8: Which is where we'll be looking at in twenty seven, 391 00:20:19,760 --> 00:20:21,640 Speaker 8: getting close to four hundred dollars this year. 392 00:20:21,800 --> 00:20:23,600 Speaker 2: So it's been about of the multiple when you describe 393 00:20:23,600 --> 00:20:26,560 Speaker 2: the mixshift, what kind of multiple does that mixshift warrant. 394 00:20:26,680 --> 00:20:30,280 Speaker 8: So this is another heuristic that we've been talking about 395 00:20:30,320 --> 00:20:33,399 Speaker 8: on this show for a while now, but that really 396 00:20:33,440 --> 00:20:34,639 Speaker 8: I think fails people. 397 00:20:35,240 --> 00:20:38,240 Speaker 1: The heuristic is, oh, a fair multiple. 398 00:20:37,800 --> 00:20:41,560 Speaker 8: For stocks is eighteen times and in a three percent 399 00:20:41,640 --> 00:20:45,000 Speaker 8: inflation environment. That's roughly been the case over a long 400 00:20:45,000 --> 00:20:47,840 Speaker 8: period of time, but that's when the S and P 401 00:20:48,240 --> 00:20:51,600 Speaker 8: was largely an industrial and financial index. 402 00:20:52,880 --> 00:20:55,640 Speaker 1: If you adjust for the mixshift of the. 403 00:20:55,600 --> 00:20:58,280 Speaker 8: S and P over the last five years where it's 404 00:20:58,320 --> 00:21:02,640 Speaker 8: now largely a tech indux, these are businesses with high 405 00:21:02,720 --> 00:21:08,840 Speaker 8: cash flow, high return on investment. They're clearly mathematically worth 406 00:21:08,920 --> 00:21:12,480 Speaker 8: a higher multiple of earnings, and when you adjust for 407 00:21:12,640 --> 00:21:17,040 Speaker 8: that dynamic, we think the right multiple in the S 408 00:21:17,080 --> 00:21:20,640 Speaker 8: and P is about twenty two times. So we would 409 00:21:20,680 --> 00:21:24,200 Speaker 8: say it's fairly too cheaply valued right here. So we're 410 00:21:24,280 --> 00:21:27,639 Speaker 8: using eighteen for the everything else, and we're using twenty 411 00:21:27,680 --> 00:21:31,040 Speaker 8: five to twenty eight for the MAC seven if you will, 412 00:21:31,760 --> 00:21:34,160 Speaker 8: and we get to a fear multiple of twenty two. 413 00:21:34,160 --> 00:21:36,679 Speaker 8: So I think those two things are what make us 414 00:21:36,760 --> 00:21:41,480 Speaker 8: more optimistic, and I think they're actually quite realistic. 415 00:21:41,560 --> 00:21:43,000 Speaker 2: I just want to say this up front that they 416 00:21:43,080 --> 00:21:46,000 Speaker 2: finally statement are not my words. It's John Stonefis of Oppenheimer. 417 00:21:46,240 --> 00:21:49,199 Speaker 2: He said the boomer mentality was holding people back and 418 00:21:49,320 --> 00:21:51,800 Speaker 2: keeping them out of the market because of what you 419 00:21:52,000 --> 00:21:54,480 Speaker 2: just said. Is that what you're confronting on a daily 420 00:21:54,520 --> 00:21:56,119 Speaker 2: basis with investors. 421 00:21:56,080 --> 00:21:58,320 Speaker 1: Yeah, I mean so many investors. 422 00:21:58,800 --> 00:21:59,120 Speaker 4: You know. 423 00:21:59,640 --> 00:22:01,880 Speaker 8: This is there's one reason why we've been talking about 424 00:22:01,880 --> 00:22:05,560 Speaker 8: a secular bull market. You buy a secular ball, I 425 00:22:05,680 --> 00:22:09,600 Speaker 8: mean a market that does ten x over twenty to 426 00:22:09,640 --> 00:22:13,240 Speaker 8: thirty years, you get only one a generation. 427 00:22:13,560 --> 00:22:15,800 Speaker 1: I mean we've only had two up to now. We're 428 00:22:15,800 --> 00:22:16,520 Speaker 1: in the third one. 429 00:22:16,600 --> 00:22:21,000 Speaker 8: I'm counting the move from off the Great Depression lows 430 00:22:22,000 --> 00:22:24,760 Speaker 8: we had a twenty year run, then the move off 431 00:22:24,880 --> 00:22:29,159 Speaker 8: the seventy three seventy four crisis and which ended in 432 00:22:29,240 --> 00:22:33,040 Speaker 8: ninety nine, and then in twenty thirteen, once we broke 433 00:22:33,080 --> 00:22:35,840 Speaker 8: through the old highs, we've started this new secular bull. 434 00:22:36,359 --> 00:22:39,320 Speaker 8: And one thing you always need to have is you 435 00:22:39,440 --> 00:22:41,880 Speaker 8: need some sort of an industrial revolution happening. 436 00:22:42,200 --> 00:22:42,960 Speaker 1: We've got that. 437 00:22:43,560 --> 00:22:48,040 Speaker 8: And two you need to have people have nearly lost 438 00:22:48,080 --> 00:22:52,600 Speaker 8: their shirt in a historic way as the base, because 439 00:22:52,640 --> 00:22:54,520 Speaker 8: that creates the wall of worry. 440 00:22:54,640 --> 00:22:57,440 Speaker 1: That's very hard. And you mentioned it the boomers. 441 00:22:58,080 --> 00:23:01,080 Speaker 8: A lot of boomers got almost white doubt in seven 442 00:23:01,119 --> 00:23:01,480 Speaker 8: o eight. 443 00:23:01,760 --> 00:23:05,920 Speaker 1: It was scary that condition by that, Yeah. 444 00:23:04,720 --> 00:23:06,639 Speaker 8: And then you have you know, that's why you have 445 00:23:06,800 --> 00:23:11,200 Speaker 8: these corrections along the way that just reinforced that fear. 446 00:23:11,240 --> 00:23:13,920 Speaker 8: I mean, look what happened in late March early April. 447 00:23:13,960 --> 00:23:17,800 Speaker 8: Even Wall Street was running for the exits and a 448 00:23:17,800 --> 00:23:20,320 Speaker 8: lot of people raised cash. And now we've got this 449 00:23:20,520 --> 00:23:24,320 Speaker 8: wall of cash. Everyone is very anxious to get back in. 450 00:23:24,400 --> 00:23:27,000 Speaker 8: They've realized they're wrong, but they don't really want to 451 00:23:27,040 --> 00:23:30,520 Speaker 8: say it. And that's why the corrections I think. I mean, 452 00:23:30,520 --> 00:23:34,240 Speaker 8: we've had a thirty percent move here without a five 453 00:23:34,280 --> 00:23:39,800 Speaker 8: percent correction. That's like almost unprecedented over six months. So 454 00:23:40,520 --> 00:23:43,439 Speaker 8: you know, we're feeling that there probably should be some 455 00:23:43,560 --> 00:23:46,359 Speaker 8: kind of a pullback. My guess is it'll be lighter 456 00:23:46,400 --> 00:23:50,280 Speaker 8: than you think, because you know, because so many people 457 00:23:50,320 --> 00:23:52,520 Speaker 8: are anxious to get back in. And we put out 458 00:23:52,560 --> 00:23:55,840 Speaker 8: a piece this week that listed six ways you could 459 00:23:55,840 --> 00:23:58,840 Speaker 8: get a pullback, and you know, thinking through each of them, 460 00:23:59,760 --> 00:24:02,600 Speaker 8: and you know, some are obvious, like you know, the 461 00:24:02,920 --> 00:24:06,040 Speaker 8: FED shut down goes longer than thought, but a lot 462 00:24:06,080 --> 00:24:09,160 Speaker 8: of them are self correcting. I mean, you know, if 463 00:24:09,200 --> 00:24:12,560 Speaker 8: the government shut down goes much longer, the pain on 464 00:24:12,680 --> 00:24:14,959 Speaker 8: either side is going to be so high that you 465 00:24:15,160 --> 00:24:17,159 Speaker 8: know they're going to have to come back to the table. 466 00:24:18,000 --> 00:24:18,199 Speaker 4: You know. 467 00:24:18,280 --> 00:24:21,040 Speaker 8: The ones that I think could be more serious are China. 468 00:24:22,280 --> 00:24:26,600 Speaker 8: I you know, I think frankly, the comeback this morning 469 00:24:26,800 --> 00:24:31,120 Speaker 8: on cooking oil was actually an attempt to de escalate 470 00:24:31,160 --> 00:24:33,879 Speaker 8: because cooking oil is not really important to China, so 471 00:24:35,040 --> 00:24:37,000 Speaker 8: in a way, they kind of pulled it a thing 472 00:24:37,040 --> 00:24:38,679 Speaker 8: there that's like saying, hey, by the way, we do 473 00:24:38,720 --> 00:24:40,720 Speaker 8: have other things too, but let's try to de escalate 474 00:24:40,760 --> 00:24:46,399 Speaker 8: this talk. But I think his she's use of his 475 00:24:46,640 --> 00:24:52,080 Speaker 8: one real ace, which is rare earth, I think that 476 00:24:52,200 --> 00:24:56,200 Speaker 8: was a mistake on his part. I think even the 477 00:24:56,240 --> 00:24:59,359 Speaker 8: Europeans are thinking, well, we have to figure out another way. 478 00:24:59,800 --> 00:25:02,680 Speaker 8: You know, we got to we got to detach ourselves 479 00:25:02,680 --> 00:25:06,840 Speaker 8: from these guys, and you know it's going to take time, 480 00:25:07,040 --> 00:25:09,440 Speaker 8: so we'll have some sort of interim deal at least, 481 00:25:09,560 --> 00:25:12,360 Speaker 8: but we're probably on a program to get out of that. 482 00:25:13,520 --> 00:25:17,120 Speaker 8: We can't have China controlling the rare earth production. 483 00:25:17,320 --> 00:25:19,960 Speaker 5: So you know, if this is your case about the 484 00:25:19,960 --> 00:25:23,960 Speaker 5: potential choke points to the one big beautiful world in 485 00:25:24,040 --> 00:25:26,960 Speaker 5: your piece and trade you think potentially is going to 486 00:25:27,000 --> 00:25:30,040 Speaker 5: offer the biggest headache from now on, Chill when these 487 00:25:30,080 --> 00:25:32,600 Speaker 5: two individuals meet. Is that going to be an opportunity 488 00:25:32,640 --> 00:25:35,040 Speaker 5: for a catalyst for these people that are sitting on 489 00:25:35,160 --> 00:25:36,720 Speaker 5: cash to get back into the market. 490 00:25:37,080 --> 00:25:39,400 Speaker 8: Well, I kind of we're seeing that, right am, Marie. 491 00:25:39,480 --> 00:25:42,160 Speaker 8: I mean we had to pull back on Friday again 492 00:25:42,200 --> 00:25:45,000 Speaker 8: on Tuesday, and money just keeps coming back in. 493 00:25:46,760 --> 00:25:50,240 Speaker 1: So we'll see, you know. I think if they come away. 494 00:25:50,000 --> 00:25:53,520 Speaker 8: At the end of this month with a kind of divorce, 495 00:25:53,680 --> 00:25:56,480 Speaker 8: which I think is highly unlikely, but if they do, 496 00:25:56,720 --> 00:25:57,320 Speaker 8: then then we. 497 00:25:57,320 --> 00:25:58,959 Speaker 1: Could have a more serious correction. 498 00:25:59,040 --> 00:26:01,879 Speaker 5: If you're so nervous about China's hold on rare earths 499 00:26:01,880 --> 00:26:04,560 Speaker 5: and they're dictating what they're going to basically be able 500 00:26:04,560 --> 00:26:06,360 Speaker 5: to export the rest of the world. Do you think 501 00:26:06,400 --> 00:26:08,520 Speaker 5: the US is doing is having the right approach by 502 00:26:08,560 --> 00:26:11,760 Speaker 5: buying getting it, having equity stakes in companies that are 503 00:26:11,800 --> 00:26:13,040 Speaker 5: important for national security? 504 00:26:13,119 --> 00:26:16,640 Speaker 1: Yeah, yeah, he is. It distorts capitalism. 505 00:26:16,920 --> 00:26:20,520 Speaker 8: Well, I'll distort capitalism in this case because we need 506 00:26:20,640 --> 00:26:23,600 Speaker 8: to have rare earths, right, And what happened, what Trump 507 00:26:23,680 --> 00:26:29,439 Speaker 8: understands is the Chinese were subsidizing rare earth production and 508 00:26:29,480 --> 00:26:34,200 Speaker 8: they drove the US and European rare earth producers out 509 00:26:34,280 --> 00:26:37,520 Speaker 8: of the market. Basically, they underpriced the market and drove 510 00:26:37,560 --> 00:26:41,840 Speaker 8: them out of business. So if it's such an important 511 00:26:41,840 --> 00:26:45,679 Speaker 8: element of almost everything in the economy, including our military, 512 00:26:46,359 --> 00:26:49,000 Speaker 8: I think it's the right call here to say, Look, 513 00:26:49,080 --> 00:26:52,359 Speaker 8: whatever is the Chinese are going to do, We're going 514 00:26:52,400 --> 00:26:56,119 Speaker 8: to support production of this key element of what it 515 00:26:56,200 --> 00:26:59,800 Speaker 8: takes to because otherwise you're in a real vice gript. 516 00:27:00,040 --> 00:27:02,760 Speaker 2: Free markets and open trade only works if everyone embraces 517 00:27:02,800 --> 00:27:05,560 Speaker 2: free markets and open trade, and China over the last 518 00:27:05,600 --> 00:27:07,320 Speaker 2: few decades did not do that, which is why you've 519 00:27:07,320 --> 00:27:10,240 Speaker 2: seen the Republican shift in the last five ten years. 520 00:27:10,520 --> 00:27:13,680 Speaker 2: They went into sacrifice elements of capitalism at the ultar 521 00:27:13,720 --> 00:27:16,240 Speaker 2: of national security. I think President Trump has led the 522 00:27:16,240 --> 00:27:16,520 Speaker 2: way on. 523 00:27:16,560 --> 00:27:19,280 Speaker 5: There, and Steve is exactly right. The big issue, of course, 524 00:27:19,359 --> 00:27:21,760 Speaker 5: is what it means for the supply chain to the 525 00:27:21,920 --> 00:27:26,040 Speaker 5: US Defense Department. Almost every single weapon has these rare 526 00:27:26,119 --> 00:27:28,320 Speaker 5: earths in them, and that is why it is a 527 00:27:28,520 --> 00:27:31,040 Speaker 5: challenge when China has ninety percent of the market. 528 00:27:31,160 --> 00:27:33,360 Speaker 2: There's a few contradictions that kind of make me laugh. 529 00:27:33,400 --> 00:27:35,440 Speaker 2: But one of them is the auto market over in China. 530 00:27:35,720 --> 00:27:38,159 Speaker 2: People would say that tariffs don't work, they'll be the 531 00:27:38,160 --> 00:27:41,080 Speaker 2: same people that celebrate the auto market over in China. 532 00:27:41,160 --> 00:27:42,080 Speaker 4: You know, just try and. 533 00:27:42,400 --> 00:27:44,280 Speaker 2: BMW twenty years ago into China. 534 00:27:44,480 --> 00:27:45,200 Speaker 4: Impossible. 535 00:27:45,240 --> 00:27:47,320 Speaker 2: They were all pushed to go in there and produce there, 536 00:27:47,359 --> 00:27:50,480 Speaker 2: and everyone's celebrating the auto market in China. That's quite 537 00:27:50,480 --> 00:27:51,480 Speaker 2: a contradiction, isn't it. 538 00:27:51,640 --> 00:27:51,960 Speaker 4: Yeah. 539 00:27:52,119 --> 00:27:55,480 Speaker 8: And what we're thinking and looking at here, Jonathan, is 540 00:27:56,119 --> 00:27:59,720 Speaker 8: we're thinking that post the settlement of this, let's call 541 00:27:59,720 --> 00:28:02,720 Speaker 8: it the near term plan for these economies to detach, 542 00:28:03,280 --> 00:28:06,800 Speaker 8: which will take three to five years, which companies have 543 00:28:06,960 --> 00:28:10,439 Speaker 8: major exposures to China, and you know that how is 544 00:28:10,440 --> 00:28:12,520 Speaker 8: that going to play out? And that I think it's 545 00:28:12,560 --> 00:28:16,600 Speaker 8: not a surprise that you see Apple today making a 546 00:28:16,600 --> 00:28:20,280 Speaker 8: big investment in China because they they're one of the 547 00:28:20,320 --> 00:28:23,280 Speaker 8: companies in the S and P big ones that have 548 00:28:23,560 --> 00:28:26,760 Speaker 8: major China exposure, Tesla being another one as an example. 549 00:28:27,520 --> 00:28:30,920 Speaker 8: So they're going to have to play both worlds tackles 550 00:28:31,119 --> 00:28:34,080 Speaker 8: China investments. I can sure you are not to export 551 00:28:34,160 --> 00:28:37,920 Speaker 8: from China. They're to keep a Chinese market. They need 552 00:28:37,920 --> 00:28:40,560 Speaker 8: it for their revenue base, so and you know that's 553 00:28:40,800 --> 00:28:43,280 Speaker 8: possibly a viable option. But this is going to be 554 00:28:43,320 --> 00:28:44,560 Speaker 8: one of the things they're going to have to sort 555 00:28:44,600 --> 00:28:49,280 Speaker 8: out here is who really depends on China like, because 556 00:28:49,520 --> 00:28:51,600 Speaker 8: that's going to be I think that market is going 557 00:28:51,680 --> 00:28:54,680 Speaker 8: to be kind of increasingly separated from the rest of 558 00:28:54,720 --> 00:28:57,640 Speaker 8: the world. I think it's partly I think even the 559 00:28:57,640 --> 00:29:00,400 Speaker 8: Europeans kind of woke up over the weekend and. 560 00:29:00,320 --> 00:29:01,120 Speaker 4: She pulled this. 561 00:29:01,320 --> 00:29:03,040 Speaker 1: Yep, took long enough. This ace. 562 00:29:03,480 --> 00:29:05,920 Speaker 8: You know that he thought, well, let me play this card. 563 00:29:06,000 --> 00:29:09,120 Speaker 8: See and Trump's known he's had that card. That's why 564 00:29:09,120 --> 00:29:13,400 Speaker 8: he's after Greenland, so you know, he didn't need to 565 00:29:13,440 --> 00:29:14,560 Speaker 8: do that to make it. 566 00:29:14,680 --> 00:29:16,200 Speaker 1: But I think I think it was a mistake. 567 00:29:16,240 --> 00:29:16,600 Speaker 4: I don't know. 568 00:29:16,640 --> 00:29:18,320 Speaker 1: I'm not you know, I'm not at the table. 569 00:29:19,440 --> 00:29:23,000 Speaker 2: This is the Bloomberg Survendans podcast, bringing you the best 570 00:29:23,040 --> 00:29:26,360 Speaker 2: in markets, economics, ancient politics. You can watch the show 571 00:29:26,400 --> 00:29:29,360 Speaker 2: live on bloombag TV weekday mornings from six am to 572 00:29:29,480 --> 00:29:33,240 Speaker 2: nine am Eastern. 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