WEBVTT - Bloomberg Surveillance TV: October 15th, 2025 0:00:02.400 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.480 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.520 --> 0:00:18.720 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.760 --> 0:00:22.320 for insight from the best in markets, economics, and geopolitics 0:00:22.440 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.960 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.319 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:37.159 Terminal and the Bloomberg Business app. As we stick with 0:00:37.200 --> 0:00:39.440 the markets, let's stay with the US. David Kelly of 0:00:39.520 --> 0:00:43.040 JP Morgan writing, many investors should likely consider diversifying their 0:00:43.040 --> 0:00:48.320 portfolios by adding alternative assets and international equacies. David joins 0:00:48.360 --> 0:00:50.320 us now for more. David, Welcome to the program, sir. 0:00:50.520 --> 0:00:53.160 Let's get to that statement. Give us the why why, 0:00:54.560 --> 0:00:55.200 because we've. 0:00:55.000 --> 0:00:57.400 Got a tortoise of an economy and the heir of 0:00:57.440 --> 0:00:59.920 a market. I mean, if if you look at the sentiment, 0:01:00.200 --> 0:01:03.480 is this practically you know, submarine sentiment. People feel absolutely 0:01:03.480 --> 0:01:06.320 miserable about this economy, and I think that's overstated. But 0:01:06.360 --> 0:01:08.880 if you look at the economy, itself. We're slowing down 0:01:08.880 --> 0:01:10.679 to a crawl in the fourth quarter. We're going to 0:01:10.680 --> 0:01:12.200 pick up a bit next year, but I think it's 0:01:12.200 --> 0:01:14.520 going to be less than two percent real GDP growth. 0:01:15.080 --> 0:01:17.959 But meanwhile, we've got this extraordinary stock market. We've got 0:01:18.040 --> 0:01:21.440 very high corporate margins, and on top of that, we've 0:01:21.440 --> 0:01:24.720 got price earnings ratios which are close to the dot 0:01:24.760 --> 0:01:27.480 com bubble peaks. And when I look at that, it 0:01:27.920 --> 0:01:31.000 is out of whack. And so people should do everything 0:01:31.040 --> 0:01:34.160 they can to diversify their portfolios. They've drifted into being 0:01:34.319 --> 0:01:37.440 very overweight large cap us equities, and so I think 0:01:37.440 --> 0:01:39.600 they need to row against the tide and add other 0:01:39.640 --> 0:01:40.600 assets which are. 0:01:40.440 --> 0:01:41.480 Just not that expensive. 0:01:41.640 --> 0:01:44.080 David, that's the struggle, because the nights we're talking about 0:01:44.120 --> 0:01:51.600 abandoning Nvidia, Microsoft, Amazon, Meta Alphabet, these have delivered fantastic 0:01:51.720 --> 0:01:54.720 gains AMD, Broadcom on any given day, up ten to 0:01:54.840 --> 0:01:57.560 fifteen percent. David, you really want to give that up? 0:01:58.640 --> 0:01:59.560 Well, there are two things. 0:01:59.600 --> 0:02:01.760 First of all, you got you've got to be taxed 0:02:01.760 --> 0:02:04.880 smart about this, so you should use new cash stuff 0:02:04.920 --> 0:02:06.560 that you don't have to pay capital gainst tax on 0:02:07.160 --> 0:02:09.960 to try and rebalance the portfolio. But second, if you 0:02:10.000 --> 0:02:11.799 go back to the dot com bubble and there are 0:02:12.160 --> 0:02:14.760 you know, growing echoes of that and what we're seeing here. 0:02:15.240 --> 0:02:17.119 You know, every company was not a winner. There were 0:02:17.120 --> 0:02:20.320 some great companies which exist today and which are leaders today, 0:02:20.720 --> 0:02:22.760 which were leaders back then, but there are other there 0:02:22.760 --> 0:02:26.560 are many other companies, more companies who disappeared then. So 0:02:26.600 --> 0:02:28.359 I think people just have to be very careful about 0:02:28.400 --> 0:02:32.320 valuations company by company here, and it's you know, I 0:02:32.400 --> 0:02:36.120 just think that we that everybody is essentially overweight the 0:02:36.120 --> 0:02:39.119 most expensive part of global capital markets right now. 0:02:39.360 --> 0:02:41.600 So where should where do you suggest they should be looking? 0:02:42.240 --> 0:02:45.399 Well, the first thing is that US investors are chronically 0:02:45.480 --> 0:02:47.239 underweight the rest of the world. And one of the 0:02:47.280 --> 0:02:48.959 things we've seen so far this year is that dollar 0:02:49.000 --> 0:02:52.080 has been coming down, and we know that the FED 0:02:52.200 --> 0:02:54.000 is very likely to cut the end of this month 0:02:54.040 --> 0:02:57.280 and probably cut again and just keep cutting even though 0:02:57.320 --> 0:03:00.640 the economy is moving forward now. The European Central Bank 0:03:00.720 --> 0:03:02.680 is not going to be that dubbish. I don't think 0:03:02.680 --> 0:03:04.400 the Bank of England's going to be that dubbish. The 0:03:04.400 --> 0:03:06.440 Bank of Japan's going to be raising rates, so all 0:03:06.520 --> 0:03:08.680 that tends to push the dollar down. So we think 0:03:08.720 --> 0:03:10.720 the dollar will fall, and what we've seen in the past, 0:03:10.720 --> 0:03:12.399 and we show this in our Guide to the Markets, 0:03:12.600 --> 0:03:15.440 if you have a long period of dollar weakness, you 0:03:15.520 --> 0:03:18.320 also get a long period of international equity. 0:03:17.960 --> 0:03:18.640 Out of performance. 0:03:19.000 --> 0:03:20.920 And so I think that's the first place I would go, 0:03:20.960 --> 0:03:23.040 is you know, why do I only have five percent 0:03:23.360 --> 0:03:26.040 or ten percent or zero percent of my equity money 0:03:26.080 --> 0:03:28.680 in international's That's the first place I go. And then 0:03:28.680 --> 0:03:31.400 the second thing is just alternatives. Alternatives in general have 0:03:31.520 --> 0:03:35.720 not runied as much as these sparkly, champagne filled public 0:03:35.760 --> 0:03:38.040 markets in the last three years, and that does leave 0:03:38.160 --> 0:03:39.400 some opportunities there. 0:03:39.640 --> 0:03:42.400 David, though, when you think about international, do you have 0:03:42.480 --> 0:03:44.640 any pause or concern in terms of what we're seeing 0:03:44.680 --> 0:03:48.480 in terms of the rhetoric out of Washington and potentially 0:03:48.640 --> 0:03:51.960 companies and countries that can get caught up in this 0:03:52.120 --> 0:03:54.200 trade war between China and the United States. 0:03:55.640 --> 0:03:57.600 Well, yeah, I think you've got a look company by 0:03:57.640 --> 0:04:01.560 a company, But ultimately the rest of the world collectively 0:04:01.640 --> 0:04:05.280 is economically stronger than the United States is. So if 0:04:05.320 --> 0:04:07.400 you pick a fight with every kid in the playground, 0:04:07.800 --> 0:04:10.200 you know you may have a problem here. I think 0:04:10.200 --> 0:04:12.080 what's happening is a lot of countries are trying to 0:04:12.080 --> 0:04:17.599 find ways of operating outside of the US sphere of influence. 0:04:17.680 --> 0:04:19.719 So I think what you will see is over time 0:04:20.160 --> 0:04:22.279 other countries. First of all, they're doing more physical spending 0:04:22.279 --> 0:04:24.120 and places like Europe. 0:04:24.160 --> 0:04:25.800 I think in China they. 0:04:25.720 --> 0:04:29.279 Are very aggressively building up their technology base so they 0:04:29.320 --> 0:04:31.279 don't have to rely as much in US technology. 0:04:31.560 --> 0:04:34.640 So I'd want to have a bed outside the US. 0:04:34.680 --> 0:04:36.279 I realize that what the US is doing is not 0:04:36.320 --> 0:04:38.119 helping them, but it's not helping us either. 0:04:38.279 --> 0:04:40.760 Well, David, let's talk about Europe. So European banks around 0:04:40.760 --> 0:04:43.520 by fifty eight percent, so father share, and the ACP 0:04:43.720 --> 0:04:47.679 is projecting growth for twenty twenty six of one percent. Now, 0:04:47.800 --> 0:04:50.440 if the US economy is a tour soyce and the 0:04:50.480 --> 0:04:52.839 market is the hair, what an earth kind of an 0:04:52.839 --> 0:04:55.920 animal is Europe right now? With the economy basically stagnant 0:04:55.960 --> 0:04:58.760 and the equity market rip in, Well. 0:04:59.120 --> 0:05:00.360 Europe is a bit of a tortis. 0:05:00.400 --> 0:05:02.280 But remember you don't you could first, you know, population 0:05:02.360 --> 0:05:04.480 growth in Europe, so on a per capita basis, it's 0:05:04.520 --> 0:05:08.120 not quite quite that bad. But these these these companies, 0:05:08.400 --> 0:05:11.240 you know, the banking industry in Europe has been very 0:05:11.320 --> 0:05:12.920 cheap for a long time, so I think that I 0:05:12.920 --> 0:05:17.880 think the the rally that we're seeing in European financials 0:05:17.920 --> 0:05:21.000 makes sense. But I think you also just go company 0:05:21.080 --> 0:05:24.400 by company and you know, also recognize that the Euro 0:05:25.200 --> 0:05:28.120 is I think, very undervalued and if the Euro goes 0:05:28.160 --> 0:05:29.719 up in value, and every time the Euro goes up 0:05:29.760 --> 0:05:32.080 five percent, your European stocks are going to go up 0:05:32.120 --> 0:05:32.640 five percent. 0:05:32.680 --> 0:05:34.440 So it's a lot of the games. 0:05:34.360 --> 0:05:36.400 We've seen in European equities so far this year have 0:05:36.480 --> 0:05:39.360 been because of a rising euro, and we think that 0:05:39.360 --> 0:05:40.960 that trend has gone a long way to play out. 0:05:41.320 --> 0:05:43.839 The pushback I think we're getting around Europe at the moment, David, 0:05:43.880 --> 0:05:45.640 and I'd love your input on this is when it 0:05:45.680 --> 0:05:47.719 comes to the major theme at the moment supporting both 0:05:47.720 --> 0:05:50.799 the economy and the market, which is ai the Europe's 0:05:50.839 --> 0:05:53.640 in no man's land that they barely have any competitors 0:05:53.720 --> 0:05:55.400 on the tech front, and when it comes to the 0:05:55.520 --> 0:05:58.359 energy needed to supply it, they're trapped by the left 0:05:58.360 --> 0:06:00.320 of the green lobby and can't do any to think 0:06:00.360 --> 0:06:02.640 in response, David, what can they do to break out 0:06:02.640 --> 0:06:02.839 of that? 0:06:02.920 --> 0:06:03.880 Do you see any sign. 0:06:03.720 --> 0:06:04.359 Of that happening. 0:06:05.800 --> 0:06:10.320 Well, yeah, they're not. They're not leading this charge right now. 0:06:11.360 --> 0:06:13.040 I think that. I think that's true. 0:06:14.440 --> 0:06:16.440 You know, it still doesn't doesn't mean you should avoid 0:06:16.760 --> 0:06:20.120 individual European companies. And remember this, you know, in the 0:06:20.200 --> 0:06:24.000 US there's a tremendous investment going on in AI. 0:06:24.320 --> 0:06:25.440 There's not quite as much. 0:06:25.320 --> 0:06:30.480 Cash flow coming in from genuine users at the at 0:06:30.480 --> 0:06:32.760 the at the end, and people are getting real value 0:06:32.760 --> 0:06:35.200 out of AI. So it's quite possible the capital spending 0:06:35.480 --> 0:06:38.480 cars will get ahead of the sort of income horse 0:06:39.120 --> 0:06:44.320 in AI in the US anyway. And also we have 0:06:44.400 --> 0:06:46.000 to sort of look at this over time, you know, 0:06:46.200 --> 0:06:48.800 is AI really going to be a technology that you 0:06:48.839 --> 0:06:52.440 can sort of fence in the way that for example, 0:06:52.800 --> 0:06:55.320 you know, Apple was able to fence in hardware and 0:06:55.600 --> 0:06:58.240 just you know and make money out of hardware for 0:06:58.240 --> 0:07:01.359 forever or Microsoft or Meta. 0:07:01.600 --> 0:07:04.360 So it's not it's not clear in AI space who. 0:07:04.240 --> 0:07:06.919 The ultimate winners are going to be this a Is 0:07:06.920 --> 0:07:09.560 this a technology that really there will be one winner today, 0:07:09.600 --> 0:07:11.160 it's going to be the same winter ten years out 0:07:11.680 --> 0:07:13.920 or will it mutate over time? And will that give 0:07:13.920 --> 0:07:17.760 an opportunity to to companies aren't necessarily needing the charge here, 0:07:18.080 --> 0:07:20.080 but are able to catch up. 0:07:21.960 --> 0:07:25.480 Stay with us. More Bloomberg surveillance coming up after this, 0:07:34.760 --> 0:07:37.080 Let's stick with the Federal Reserve. Tifnitey want to pimicat rights. 0:07:37.080 --> 0:07:40.120 In the following chem and Pal's comments were consistent with 0:07:40.200 --> 0:07:43.000 our expectations that they FED will cut rates again. And 0:07:43.120 --> 0:07:45.600 the October f WEBC meeting, tifnany joined us now for 0:07:45.680 --> 0:07:48.560 more TIFNIC Good morning. So that's October. How much visibility 0:07:48.560 --> 0:07:50.400 do you have beyond October? 0:07:53.200 --> 0:07:54.840 Yeah, well, I mean, I definitely think there's going to 0:07:54.880 --> 0:07:57.840 be more discussion around the December meeting, and it does 0:07:57.840 --> 0:08:01.920 seem like October at this point is is another cut, 0:08:02.200 --> 0:08:04.400 you know, and I think part of it will see 0:08:04.560 --> 0:08:09.080 will be looking at the data that the government has 0:08:09.120 --> 0:08:12.160 not been able to issue since the government closure. And 0:08:12.200 --> 0:08:14.320 I think the concern actually is that the longer the 0:08:14.320 --> 0:08:18.320 government stays shut within October, there's not an obvious catalyst 0:08:18.360 --> 0:08:20.920 for it to reopen like there has been in the past, 0:08:20.960 --> 0:08:25.360 a date that you could have major issues around collections 0:08:25.400 --> 0:08:28.560 and Octobers as the BLS field workers literally just can't 0:08:28.600 --> 0:08:32.000 collect the survey, so you could have an October where we, 0:08:32.200 --> 0:08:34.120 you know, we it's not about a delay in the data, 0:08:34.160 --> 0:08:36.680 but a skip and you know, and that's going to be, 0:08:36.760 --> 0:08:39.880 you know, a difficult situation for the FED come the 0:08:39.880 --> 0:08:42.280 December meeting. And I think it's going to make you know, 0:08:42.320 --> 0:08:44.560 their job even even harder, Tiffany. 0:08:44.600 --> 0:08:46.960 But how uncomfortable is it going to be for the 0:08:46.960 --> 0:08:51.600 FED to cut with potentially not having the latest labor 0:08:51.640 --> 0:08:55.160 market report but having a CPI report that estimates are 0:08:55.160 --> 0:08:56.679 showing a hot print. 0:08:58.800 --> 0:09:00.840 Yeah, I mean so I think that they'll, you know, 0:09:00.880 --> 0:09:03.160 they they'll look at, obviously, look at a wide range 0:09:03.200 --> 0:09:07.680 of data. We have gotten other private indicators of labor markets, 0:09:07.920 --> 0:09:11.240 the ADP data in particular, which has been you know, 0:09:11.360 --> 0:09:13.800 very consistent I think with the signals that we've gotten 0:09:13.840 --> 0:09:17.679 from the official the BLS data. The labor market activity 0:09:17.920 --> 0:09:21.199 has has slowed quite dramatically, you know, and as Mike 0:09:21.280 --> 0:09:26.679 Mhee discussed, there's definitely supply and demand factors that are 0:09:26.679 --> 0:09:31.600 slowing that We've seen immigration policies that have reduced labor 0:09:31.640 --> 0:09:35.760 force potentially even reduced labor force supply certainly slowed the 0:09:35.800 --> 0:09:39.160 growth of it. But on top of that, though, you know, 0:09:39.240 --> 0:09:42.439 you've also had these trade policies, tariff policies that are 0:09:42.440 --> 0:09:46.080 increasing costs across industries, making it a very challenging environment 0:09:46.760 --> 0:09:50.440 for some industries to work in, and that is resulting 0:09:50.440 --> 0:09:53.520 in a reduction in labor demand as well. So at 0:09:53.600 --> 0:09:57.040 the current point we've seen a reduction in both. Of course, 0:09:57.080 --> 0:10:00.080 the Federal Reserve is worried about the downside risk to 0:10:00.600 --> 0:10:03.640 you know, to employment, and so I think, you know, 0:10:03.679 --> 0:10:07.760 that's that's the consideration going into October. You know, certainly 0:10:07.800 --> 0:10:11.840 we will continue to see some inflation reports that are 0:10:11.880 --> 0:10:15.920 above above the Central Banks target as you get additional 0:10:15.920 --> 0:10:18.600 price adjustments, but you know, it does look like that 0:10:18.600 --> 0:10:21.440 that's relatively contained, that is, you know, and that will 0:10:21.440 --> 0:10:22.840 wear off eventually. 0:10:22.640 --> 0:10:24.880 The impact of terrorsts will that become a bigger story 0:10:24.920 --> 0:10:27.000 in December. Given a lot of companies even during this 0:10:27.080 --> 0:10:29.959 earning seasons, we're talking about the fact that they were 0:10:30.000 --> 0:10:32.040 able to bear the brunt of it, but at some 0:10:32.160 --> 0:10:34.559 point they're going to have to pass on the cost 0:10:34.640 --> 0:10:35.439 to consumers. 0:10:37.920 --> 0:10:40.880 Yeah, I mean, and I do think that as you know, 0:10:41.080 --> 0:10:45.239 the the thing about uncertainty is, and we've had elevated 0:10:45.240 --> 0:10:47.880 policy uncertainty is that you don't really want to make 0:10:47.920 --> 0:10:51.600 any adjustment to your business because you don't know, you know, 0:10:51.640 --> 0:10:53.560 you don't know the sort of rules of the game, 0:10:53.600 --> 0:10:55.400 if you will, you don't know what the policies will be. 0:10:55.600 --> 0:10:58.360 But as companies become more certain that the tear iff 0:10:58.360 --> 0:11:02.520 policies are here to stay, then that means they need 0:11:02.559 --> 0:11:05.839 to make the adjustments that that they maybe have been 0:11:05.880 --> 0:11:08.520 holding off on to kind of see how this shakes out, 0:11:09.040 --> 0:11:11.360 you know, And I think companies have you know, various 0:11:11.400 --> 0:11:14.760 ways that that they can react to this, and within industries, 0:11:14.840 --> 0:11:17.400 they'll be competitive forces that they'll have to deal with. 0:11:17.480 --> 0:11:20.120 And you know, that's been one reason that we think 0:11:20.200 --> 0:11:23.920 that you know, the price adjustment piece of this might 0:11:24.120 --> 0:11:27.000 might not be you know, where the full adjustment lies. 0:11:27.200 --> 0:11:29.280 And it does look like when we look like across 0:11:29.280 --> 0:11:32.559 a range of data that the labor markets and companies 0:11:32.880 --> 0:11:35.440 you know, trying to manage costs, and labor costs in 0:11:35.480 --> 0:11:39.440 particular is also being part of the adjustment here as well. 0:11:39.600 --> 0:11:43.360 So if you have larger companies that can hold down prices, 0:11:43.640 --> 0:11:45.560 they can afford to do so, you know, then that's 0:11:45.559 --> 0:11:48.520 a really tough operating environment for everyone else. They're going 0:11:48.600 --> 0:11:50.040 to have to cut costs, They're going to have to 0:11:50.080 --> 0:11:53.000 cut labor in order to you know, to continue to 0:11:53.320 --> 0:11:54.679 manage in that environment. 0:11:54.400 --> 0:11:56.800 Given the some of the forces you described, Tiffany to 0:11:56.880 --> 0:11:57.760 write cuts help. 0:12:01.120 --> 0:12:03.880 So, you know, the Federal Reserve would still characterize their 0:12:03.920 --> 0:12:09.199 policy as being restrictive in restrictive territory, you know. And 0:12:09.280 --> 0:12:13.280 I think when you look at investment trends excluding AI, 0:12:14.040 --> 0:12:17.880 they are quite you know, quite stagnant, maybe even contractionary. 0:12:18.240 --> 0:12:20.960 You know, that's both business investment XAI as well as 0:12:21.160 --> 0:12:24.480 residential investment. Just looking at that alone would suggest to 0:12:24.480 --> 0:12:27.280 you that that interest rates, you know, are in restrictive territory. 0:12:27.320 --> 0:12:29.480 So I think the Federal Reserve would say, just given 0:12:29.520 --> 0:12:32.800 the balance of risks, moving back to a more normal stance, 0:12:33.240 --> 0:12:36.640 more neutral stance at least is a very reasonable policy. 0:12:36.840 --> 0:12:37.960 And that's what we think they're doing. 0:12:38.080 --> 0:12:40.560 Of course, there's some debate about what neutral is definitely, 0:12:40.840 --> 0:12:42.880 and it's a wide range of estimates. Where are you 0:12:43.080 --> 0:12:44.560 and where do you think the Fed ultimately is? 0:12:46.640 --> 0:12:49.120 Yeah, I mean we think, you know, we we've sort 0:12:49.160 --> 0:12:51.959 of argued that on a real basis, you know, kind 0:12:51.960 --> 0:12:54.920 of a zero to one percent these things are very uncertain, 0:12:55.080 --> 0:12:57.600 as you suggest, is zero to one percent, So that 0:12:57.679 --> 0:13:00.520 kind of suggests you know, you know, you to three 0:13:00.559 --> 0:13:03.760 percent real neutral interest rate. We think that that could 0:13:03.800 --> 0:13:06.760 be higher within the band. There are various factors that 0:13:06.800 --> 0:13:11.040 have contributed to you know, a potentially higher a slightly 0:13:11.120 --> 0:13:14.000 higher neutral rate within that band over over the last 0:13:14.280 --> 0:13:17.000 you know, number of years, you know. But but ultimately 0:13:17.000 --> 0:13:18.679 that's going to be something that the Federal Reserve has 0:13:18.679 --> 0:13:22.640 to figure out. And you know, as they adjust policy slowly, 0:13:23.320 --> 0:13:26.400 they will get indications from the economy and as they're 0:13:26.440 --> 0:13:28.920 cutting interest rates. If they see the economies, you know, 0:13:29.000 --> 0:13:33.440 reaccelerating and inflation is stickier than they expected, you know, 0:13:33.520 --> 0:13:35.880 then you know, they can stop, they can continue, you know, 0:13:35.920 --> 0:13:38.840 they can pause, see what happens, and they'll kind of 0:13:38.840 --> 0:13:41.679 get more they'll they'll sort of feel their way to neutral, 0:13:41.720 --> 0:13:43.680 if you will, and get more information. 0:13:43.840 --> 0:13:44.040 You know. 0:13:44.080 --> 0:13:46.040 One one other thing just to note as well, is 0:13:46.080 --> 0:13:49.600 that fiscal policy in the US. We will get you know, 0:13:49.679 --> 0:13:52.680 more of the benefits from the offsetting tax cuts in 0:13:52.720 --> 0:13:55.320 the One Big Beautiful Bill Act in twenty twenty six. 0:13:55.400 --> 0:13:57.280 So that's something else that the Federal Reserve is going 0:13:57.360 --> 0:13:59.760 to have to navigate that could be that could be 0:13:59.760 --> 0:14:00.600 tree as well. 0:14:02.280 --> 0:14:05.760 Stay with us more Bloomberg surveillance coming up after this, 0:14:15.120 --> 0:14:17.719 Gloria at Day Davison joined us Now for more, GIL, 0:14:17.760 --> 0:14:20.040 Welcome to the program sir and Video center stage. In 0:14:20.040 --> 0:14:23.080 the last five minutes, big upgrade from HSBC Big Price 0:14:23.120 --> 0:14:26.360 Target to Street High three twenty GIL. When you think 0:14:26.400 --> 0:14:29.520 about things regarding in video, is it still the only game. 0:14:29.360 --> 0:14:30.440 In time town? 0:14:30.680 --> 0:14:33.200 Or does AMD provide a bit of an alternative? 0:14:34.880 --> 0:14:37.000 And Vidia is not the only game in town but 0:14:37.160 --> 0:14:40.920 will continue to be the main game in town. All 0:14:40.960 --> 0:14:45.560 of its customers are trying to diversify. They've been trying 0:14:45.560 --> 0:14:49.160 to diversify, but it's hard because in Vidia continues to 0:14:49.200 --> 0:14:53.680 introduce product at such a fast pace that it's very 0:14:53.680 --> 0:14:57.240 hard for other products to even be comparable. Which is 0:14:57.280 --> 0:15:02.160 to say, Google especially and some extent Amazon are going 0:15:02.200 --> 0:15:06.920 to increasingly use their chips more. That's Broadcom, and then 0:15:07.120 --> 0:15:11.400 all of these customers Microsoft, Amazon, Google, Meta Xai are 0:15:11.400 --> 0:15:15.680 going to have some AMD componentry just because they want 0:15:15.720 --> 0:15:20.240 to have diversification. But unless the AMD chips catch up 0:15:20.280 --> 0:15:24.240 in performance next year ten videos chips, that is going 0:15:24.280 --> 0:15:27.480 to be a small proportion one way or another. Even 0:15:27.520 --> 0:15:31.480 if AMDs chips are great and Broadcom continues to generate 0:15:31.560 --> 0:15:34.840 a lot of good ask chips, the custom chips for 0:15:34.880 --> 0:15:38.520 these customers, and Video will continue to have overwhelming share 0:15:38.520 --> 0:15:40.600 of this market for a while longer. 0:15:40.640 --> 0:15:43.520 These companies continue to chug along. Stock price is higher. 0:15:43.520 --> 0:15:46.120 We're seeing upgrades likes this morning of HSBC at the 0:15:46.160 --> 0:15:49.480 same time where their rhetoric between China and the United 0:15:49.520 --> 0:15:52.480 States is really heating up. How are they going to 0:15:52.520 --> 0:15:57.000 get potentially caught in the crosshairs between Washington and Beijing. 0:15:58.280 --> 0:16:02.320 They already have fact has missed its last two quarterly 0:16:02.400 --> 0:16:06.920 reports because of China. China is somewhat out of the numbers. 0:16:06.960 --> 0:16:09.640 It's not completely out of the numbers, but it's somewhat 0:16:09.680 --> 0:16:12.480 out of the numbers. And unless the US and China 0:16:12.560 --> 0:16:16.880 can arrive at some sort of broader framework for an agreement, 0:16:17.360 --> 0:16:19.920 and Vidia's sales into China are going to be very 0:16:20.000 --> 0:16:22.880 much impacted for a while longer. And as long as 0:16:22.880 --> 0:16:26.600 that's happening. They have been all year, and it's been 0:16:26.640 --> 0:16:31.320 on Dragon. Nvidia already having said that the market is 0:16:31.360 --> 0:16:35.240 growing so fast right now that Nvidia can probably live 0:16:35.320 --> 0:16:40.760 up to expectations without significant contribution from China. If China 0:16:40.840 --> 0:16:43.880 does come back, which it may not, Nvidia can do 0:16:44.000 --> 0:16:47.080 even better. But the demand right now is so big 0:16:47.480 --> 0:16:49.960 that in Nvidia can probably do okay, even if the 0:16:50.680 --> 0:16:52.320 demand from China is limited. 0:16:52.960 --> 0:16:55.320 Who can't do as well as in video? If the 0:16:55.360 --> 0:16:57.280 demand from China is limited. 0:16:59.320 --> 0:17:02.920 It would Video more than any other company, but also 0:17:03.120 --> 0:17:06.280 AMD and Broadcom and much of the rest of the 0:17:06.320 --> 0:17:11.640 ecosystem that sells into China will be impacted and long term, 0:17:12.320 --> 0:17:15.920 whether or not there's a full decoupling from China, we're 0:17:15.960 --> 0:17:20.200 already well on our way to having a much different 0:17:20.280 --> 0:17:22.960 supply chain than we had even a couple of years ago. 0:17:23.080 --> 0:17:25.639 You are just having a conversation about the fact that 0:17:25.680 --> 0:17:28.080 we're going to have to build a lot more of 0:17:28.119 --> 0:17:30.800 the supply chain in the United States. It's going to 0:17:30.880 --> 0:17:33.879 be a long process. It's very complicated. It goes well 0:17:33.920 --> 0:17:37.320 beyond Intel and TSMC. It goes through their whole supply 0:17:37.480 --> 0:17:40.920 chain that we will be gradually moving into the US 0:17:41.240 --> 0:17:44.520 and into other countries that are not China and not 0:17:44.680 --> 0:17:49.080 Taiwan in order to make the supply chain more of US. 0:17:49.200 --> 0:17:52.680 It's a matter of national security, and one way or another, 0:17:52.720 --> 0:17:56.840 we're having some level of decoupling from China. Whether both 0:17:56.880 --> 0:17:59.960 sides agree to that or not. Companies are all ready 0:18:00.119 --> 0:18:03.720 the understanding that there's never going to be stability in 0:18:03.760 --> 0:18:06.760 this relationship, so they need to diversify. 0:18:07.280 --> 0:18:10.800 Stay with us more Bloomberg surveillance coming up after this 0:18:20.000 --> 0:18:22.639 stops finding a firmer footing as big bank results to 0:18:22.720 --> 0:18:25.760 roll in Steve author federated right to the following. It 0:18:25.840 --> 0:18:28.800 is possible that many companies will fail to be whisper 0:18:28.920 --> 0:18:31.359 numbers of bigger than expected beats. This could cause some 0:18:31.400 --> 0:18:35.200 modest pullbacks for the stock market and for the market generally. 0:18:35.440 --> 0:18:37.560 Steven joins us now for more. Steve've got to see 0:18:37.560 --> 0:18:40.679 a second morning. Good morning, thanks for being here, you 0:18:40.720 --> 0:18:43.520 said earlier this year, tie us after the mouse, close 0:18:43.560 --> 0:18:46.160 your eyes, shut out the noise, and just keep moving 0:18:46.200 --> 0:18:48.160 forward with the ship because it's going to be okay. 0:18:48.359 --> 0:18:49.200 That's still the approach. 0:18:49.960 --> 0:18:52.320 Yeah, we actually just said, are at this time of 0:18:52.320 --> 0:18:54.240 the year where we said our two year target. We 0:18:54.240 --> 0:18:56.560 have a one year target also, but I like our 0:18:56.760 --> 0:18:59.440 clients to think forward a little bit for that's kind 0:18:59.440 --> 0:19:02.119 of our and we've got a two year target on 0:19:02.119 --> 0:19:05.679 the S and P of eighty six hundred, and we 0:19:05.720 --> 0:19:08.040 don't think it's unrealistic. You get there, you have a 0:19:08.200 --> 0:19:12.399 GDP that's reaccelerating next year. You've got multiple drivers of 0:19:12.440 --> 0:19:17.439 that that we've talked about extensively. You have an AI 0:19:17.720 --> 0:19:20.800 industrial revolution going on that we think is very very 0:19:20.880 --> 0:19:24.479 real and importantly, and this is a key element of 0:19:24.560 --> 0:19:30.000 our forecast, is we have margins expanding on the S 0:19:30.080 --> 0:19:34.480 and P. And you know, most people at this time 0:19:34.520 --> 0:19:36.879 of the year tell us that we're at peak margins. 0:19:36.880 --> 0:19:39.160 How many times have we heard that? So I had 0:19:39.160 --> 0:19:40.560 my guys go back and check this. 0:19:41.640 --> 0:19:45.000 We have relentlessly expanded margins on the S and P. 0:19:45.320 --> 0:19:47.440 Okay one or two years, you might dip a little bit, 0:19:47.520 --> 0:19:50.399 but the trend has been higher every year, and we 0:19:50.440 --> 0:19:53.040 think that's a combination of the mix of the S 0:19:53.119 --> 0:19:58.600 and P shifting towards higher margin, higher cash flow, lower 0:19:58.840 --> 0:20:04.560 asset businesses that just have higher margins and productivity enhancements 0:20:04.600 --> 0:20:07.439 which are increasing, partly due to policy and partly due 0:20:07.480 --> 0:20:10.840 to AI. So when you add that all together, it's 0:20:10.920 --> 0:20:13.639 pretty realistic, frankly, to see. 0:20:13.880 --> 0:20:16.840 Earnings on the S and P by twenty eight. 0:20:16.640 --> 0:20:19.280 Which is where we'll be looking at in twenty seven, 0:20:19.760 --> 0:20:21.640 getting close to four hundred dollars this year. 0:20:21.800 --> 0:20:23.600 So it's been about of the multiple when you describe 0:20:23.600 --> 0:20:26.560 the mixshift, what kind of multiple does that mixshift warrant. 0:20:26.680 --> 0:20:30.280 So this is another heuristic that we've been talking about 0:20:30.320 --> 0:20:33.399 on this show for a while now, but that really 0:20:33.440 --> 0:20:34.639 I think fails people. 0:20:35.240 --> 0:20:38.240 The heuristic is, oh, a fair multiple. 0:20:37.800 --> 0:20:41.560 For stocks is eighteen times and in a three percent 0:20:41.640 --> 0:20:45.000 inflation environment. That's roughly been the case over a long 0:20:45.000 --> 0:20:47.840 period of time, but that's when the S and P 0:20:48.240 --> 0:20:51.600