Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
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Speaker 2: Terminal and the Bloomberg Business app. As we stick with
Speaker 2: the markets, let's stay with the US. David Kelly of
Speaker 2: JP Morgan writing, many investors should likely consider diversifying their
Speaker 2: portfolios by adding alternative assets and international equacies. David joins
Speaker 2: us now for more. David, Welcome to the program, sir.
Speaker 2: Let's get to that statement. Give us the why why,
Speaker 2: because we've.
Speaker 3: Got a tortoise of an economy and the heir of
Speaker 3: a market. I mean, if if you look at the sentiment,
Speaker 3: is this practically you know, submarine sentiment. People feel absolutely
Speaker 3: miserable about this economy, and I think that's overstated. But
Speaker 3: if you look at the economy, itself. We're slowing down
Speaker 3: to a crawl in the fourth quarter. We're going to
Speaker 3: pick up a bit next year, but I think it's
Speaker 3: going to be less than two percent real GDP growth.
Speaker 3: But meanwhile, we've got this extraordinary stock market. We've got
Speaker 3: very high corporate margins, and on top of that, we've
Speaker 3: got price earnings ratios which are close to the dot
Speaker 3: com bubble peaks. And when I look at that, it
Speaker 3: is out of whack. And so people should do everything
Speaker 3: they can to diversify their portfolios. They've drifted into being
Speaker 3: very overweight large cap us equities, and so I think
Speaker 3: they need to row against the tide and add other
Speaker 3: assets which are.
Speaker 4: Just not that expensive.
Speaker 2: David, that's the struggle, because the nights we're talking about
Speaker 2: abandoning Nvidia, Microsoft, Amazon, Meta Alphabet, these have delivered fantastic
Speaker 2: gains AMD, Broadcom on any given day, up ten to
Speaker 2: fifteen percent. David, you really want to give that up?
Speaker 4: Well, there are two things.
Speaker 3: First of all, you got you've got to be taxed
Speaker 3: smart about this, so you should use new cash stuff
Speaker 3: that you don't have to pay capital gainst tax on
Speaker 3: to try and rebalance the portfolio. But second, if you
Speaker 3: go back to the dot com bubble and there are
Speaker 3: you know, growing echoes of that and what we're seeing here.
Speaker 3: You know, every company was not a winner. There were
Speaker 3: some great companies which exist today and which are leaders today,
Speaker 3: which were leaders back then, but there are other there
Speaker 3: are many other companies, more companies who disappeared then. So
Speaker 3: I think people just have to be very careful about
Speaker 3: valuations company by company here, and it's you know, I
Speaker 3: just think that we that everybody is essentially overweight the
Speaker 3: most expensive part of global capital markets right now.
Speaker 5: So where should where do you suggest they should be looking?
Speaker 3: Well, the first thing is that US investors are chronically
Speaker 3: underweight the rest of the world. And one of the
Speaker 3: things we've seen so far this year is that dollar
Speaker 3: has been coming down, and we know that the FED
Speaker 3: is very likely to cut the end of this month
Speaker 3: and probably cut again and just keep cutting even though
Speaker 3: the economy is moving forward now. The European Central Bank
Speaker 3: is not going to be that dubbish. I don't think
Speaker 3: the Bank of England's going to be that dubbish. The
Speaker 3: Bank of Japan's going to be raising rates, so all
Speaker 3: that tends to push the dollar down. So we think
Speaker 3: the dollar will fall, and what we've seen in the past,
Speaker 3: and we show this in our Guide to the Markets,
Speaker 3: if you have a long period of dollar weakness, you
Speaker 3: also get a long period of international equity.
Speaker 4: Out of performance.
Speaker 3: And so I think that's the first place I would go,
Speaker 3: is you know, why do I only have five percent
Speaker 3: or ten percent or zero percent of my equity money
Speaker 3: in international's That's the first place I go. And then
Speaker 3: the second thing is just alternatives. Alternatives in general have
Speaker 3: not runied as much as these sparkly, champagne filled public
Speaker 3: markets in the last three years, and that does leave
Speaker 3: some opportunities there.
Speaker 5: David, though, when you think about international, do you have
Speaker 5: any pause or concern in terms of what we're seeing
Speaker 5: in terms of the rhetoric out of Washington and potentially
Speaker 5: companies and countries that can get caught up in this
Speaker 5: trade war between China and the United States.
Speaker 3: Well, yeah, I think you've got a look company by
Speaker 3: a company, But ultimately the rest of the world collectively
Speaker 3: is economically stronger than the United States is. So if
Speaker 3: you pick a fight with every kid in the playground,
Speaker 3: you know you may have a problem here. I think
Speaker 3: what's happening is a lot of countries are trying to
Speaker 3: find ways of operating outside of the US sphere of influence.
Speaker 3: So I think what you will see is over time
Speaker 3: other countries. First of all, they're doing more physical spending
Speaker 3: and places like Europe.
Speaker 4: I think in China they.
Speaker 3: Are very aggressively building up their technology base so they
Speaker 3: don't have to rely as much in US technology.
Speaker 4: So I'd want to have a bed outside the US.
Speaker 3: I realize that what the US is doing is not
Speaker 3: helping them, but it's not helping us either.
Speaker 2: Well, David, let's talk about Europe. So European banks around
Speaker 2: by fifty eight percent, so father share, and the ACP
Speaker 2: is projecting growth for twenty twenty six of one percent. Now,
Speaker 2: if the US economy is a tour soyce and the
Speaker 2: market is the hair, what an earth kind of an
Speaker 2: animal is Europe right now? With the economy basically stagnant
Speaker 2: and the equity market rip in, Well.
Speaker 4: Europe is a bit of a tortis.
Speaker 3: But remember you don't you could first, you know, population
Speaker 3: growth in Europe, so on a per capita basis, it's
Speaker 3: not quite quite that bad. But these these these companies,
Speaker 3: you know, the banking industry in Europe has been very
Speaker 3: cheap for a long time, so I think that I
Speaker 3: think the the rally that we're seeing in European financials
Speaker 3: makes sense. But I think you also just go company
Speaker 3: by company and you know, also recognize that the Euro
Speaker 3: is I think, very undervalued and if the Euro goes
Speaker 3: up in value, and every time the Euro goes up
Speaker 3: five percent, your European stocks are going to go up
Speaker 3: five percent.
Speaker 4: So it's a lot of the games.
Speaker 3: We've seen in European equities so far this year have
Speaker 3: been because of a rising euro, and we think that
Speaker 3: that trend has gone a long way to play out.
Speaker 2: The pushback I think we're getting around Europe at the moment, David,
Speaker 2: and I'd love your input on this is when it
Speaker 2: comes to the major theme at the moment supporting both
Speaker 2: the economy and the market, which is ai the Europe's
Speaker 2: in no man's land that they barely have any competitors
Speaker 2: on the tech front, and when it comes to the
Speaker 2: energy needed to supply it, they're trapped by the left
Speaker 2: of the green lobby and can't do any to think
Speaker 2: in response, David, what can they do to break out
Speaker 2: of that?
Speaker 1: Do you see any sign.
Speaker 2: Of that happening.
Speaker 4: Well, yeah, they're not. They're not leading this charge right now.
Speaker 4: I think that. I think that's true.
Speaker 3: You know, it still doesn't doesn't mean you should avoid
Speaker 3: individual European companies. And remember this, you know, in the
Speaker 3: US there's a tremendous investment going on in AI.
Speaker 4: There's not quite as much.
Speaker 3: Cash flow coming in from genuine users at the at
Speaker 3: the at the end, and people are getting real value
Speaker 3: out of AI. So it's quite possible the capital spending
Speaker 3: cars will get ahead of the sort of income horse
Speaker 3: in AI in the US anyway. And also we have
Speaker 3: to sort of look at this over time, you know,
Speaker 3: is AI really going to be a technology that you
Speaker 3: can sort of fence in the way that for example,
Speaker 3: you know, Apple was able to fence in hardware and
Speaker 3: just you know and make money out of hardware for
Speaker 3: forever or Microsoft or Meta.
Speaker 4: So it's not it's not clear in AI space who.
Speaker 3: The ultimate winners are going to be this a Is
Speaker 3: this a technology that really there will be one winner today,
Speaker 3: it's going to be the same winter ten years out
Speaker 3: or will it mutate over time? And will that give
Speaker 3: an opportunity to to companies aren't necessarily needing the charge here,
Speaker 3: but are able to catch up.
Speaker 2: Stay with us. More Bloomberg surveillance coming up after this,
Speaker 2: Let's stick with the Federal Reserve. Tifnitey want to pimicat rights.
Speaker 2: In the following chem and Pal's comments were consistent with
Speaker 2: our expectations that they FED will cut rates again. And
Speaker 2: the October f WEBC meeting, tifnany joined us now for
Speaker 2: more TIFNIC Good morning. So that's October. How much visibility
Speaker 2: do you have beyond October?
Speaker 6: Yeah, well, I mean, I definitely think there's going to
Speaker 6: be more discussion around the December meeting, and it does
Speaker 6: seem like October at this point is is another cut,
Speaker 6: you know, and I think part of it will see
Speaker 6: will be looking at the data that the government has
Speaker 6: not been able to issue since the government closure. And
Speaker 6: I think the concern actually is that the longer the
Speaker 6: government stays shut within October, there's not an obvious catalyst
Speaker 6: for it to reopen like there has been in the past,
Speaker 6: a date that you could have major issues around collections
Speaker 6: and Octobers as the BLS field workers literally just can't
Speaker 6: collect the survey, so you could have an October where we,
Speaker 6: you know, we it's not about a delay in the data,
Speaker 6: but a skip and you know, and that's going to be,
Speaker 6: you know, a difficult situation for the FED come the
Speaker 6: December meeting. And I think it's going to make you know,
Speaker 6: their job even even harder, Tiffany.
Speaker 5: But how uncomfortable is it going to be for the
Speaker 5: FED to cut with potentially not having the latest labor
Speaker 5: market report but having a CPI report that estimates are
Speaker 5: showing a hot print.
Speaker 6: Yeah, I mean so I think that they'll, you know,
Speaker 6: they they'll look at, obviously, look at a wide range
Speaker 6: of data. We have gotten other private indicators of labor markets,
Speaker 6: the ADP data in particular, which has been you know,
Speaker 6: very consistent I think with the signals that we've gotten
Speaker 6: from the official the BLS data. The labor market activity
Speaker 6: has has slowed quite dramatically, you know, and as Mike
Speaker 6: Mhee discussed, there's definitely supply and demand factors that are
Speaker 6: slowing that We've seen immigration policies that have reduced labor
Speaker 6: force potentially even reduced labor force supply certainly slowed the
Speaker 6: growth of it. But on top of that, though, you know,
Speaker 6: you've also had these trade policies, tariff policies that are
Speaker 6: increasing costs across industries, making it a very challenging environment
Speaker 6: for some industries to work in, and that is resulting
Speaker 6: in a reduction in labor demand as well. So at
Speaker 6: the current point we've seen a reduction in both. Of course,
Speaker 6: the Federal Reserve is worried about the downside risk to
Speaker 6: you know, to employment, and so I think, you know,
Speaker 6: that's that's the consideration going into October. You know, certainly
Speaker 6: we will continue to see some inflation reports that are
Speaker 6: above above the Central Banks target as you get additional
Speaker 6: price adjustments, but you know, it does look like that
Speaker 6: that's relatively contained, that is, you know, and that will
Speaker 6: wear off eventually.
Speaker 5: The impact of terrorsts will that become a bigger story
Speaker 5: in December. Given a lot of companies even during this
Speaker 5: earning seasons, we're talking about the fact that they were
Speaker 5: able to bear the brunt of it, but at some
Speaker 5: point they're going to have to pass on the cost
Speaker 5: to consumers.
Speaker 6: Yeah, I mean, and I do think that as you know,
Speaker 6: the the thing about uncertainty is, and we've had elevated
Speaker 6: policy uncertainty is that you don't really want to make
Speaker 6: any adjustment to your business because you don't know, you know,
Speaker 6: you don't know the sort of rules of the game,
Speaker 6: if you will, you don't know what the policies will be.
Speaker 6: But as companies become more certain that the tear iff
Speaker 6: policies are here to stay, then that means they need
Speaker 6: to make the adjustments that that they maybe have been
Speaker 6: holding off on to kind of see how this shakes out,
Speaker 6: you know, And I think companies have you know, various
Speaker 6: ways that that they can react to this, and within industries,
Speaker 6: they'll be competitive forces that they'll have to deal with.
Speaker 6: And you know, that's been one reason that we think
Speaker 6: that you know, the price adjustment piece of this might
Speaker 6: might not be you know, where the full adjustment lies.
Speaker 6: And it does look like when we look like across
Speaker 6: a range of data that the labor markets and companies
Speaker 6: you know, trying to manage costs, and labor costs in
Speaker 6: particular is also being part of the adjustment here as well.
Speaker 6: So if you have larger companies that can hold down prices,
Speaker 6: they can afford to do so, you know, then that's
Speaker 6: a really tough operating environment for everyone else. They're going
Speaker 6: to have to cut costs, They're going to have to
Speaker 6: cut labor in order to you know, to continue to
Speaker 6: manage in that environment.
Speaker 2: Given the some of the forces you described, Tiffany to
Speaker 2: write cuts help.
Speaker 6: So, you know, the Federal Reserve would still characterize their
Speaker 6: policy as being restrictive in restrictive territory, you know. And
Speaker 6: I think when you look at investment trends excluding AI,
Speaker 6: they are quite you know, quite stagnant, maybe even contractionary.
Speaker 6: You know, that's both business investment XAI as well as
Speaker 6: residential investment. Just looking at that alone would suggest to
Speaker 6: you that that interest rates, you know, are in restrictive territory.
Speaker 6: So I think the Federal Reserve would say, just given
Speaker 6: the balance of risks, moving back to a more normal stance,
Speaker 6: more neutral stance at least is a very reasonable policy.
Speaker 6: And that's what we think they're doing.
Speaker 2: Of course, there's some debate about what neutral is definitely,
Speaker 2: and it's a wide range of estimates. Where are you
Speaker 2: and where do you think the Fed ultimately is?
Speaker 6: Yeah, I mean we think, you know, we we've sort
Speaker 6: of argued that on a real basis, you know, kind
Speaker 6: of a zero to one percent these things are very uncertain,
Speaker 6: as you suggest, is zero to one percent, So that
Speaker 6: kind of suggests you know, you know, you to three
Speaker 6: percent real neutral interest rate. We think that that could
Speaker 6: be higher within the band. There are various factors that
Speaker 6: have contributed to you know, a potentially higher a slightly
Speaker 6: higher neutral rate within that band over over the last
Speaker 6: you know, number of years, you know. But but ultimately
Speaker 6: that's going to be something that the Federal Reserve has
Speaker 6: to figure out. And you know, as they adjust policy slowly,
Speaker 6: they will get indications from the economy and as they're
Speaker 6: cutting interest rates. If they see the economies, you know,
Speaker 6: reaccelerating and inflation is stickier than they expected, you know,
Speaker 6: then you know, they can stop, they can continue, you know,
Speaker 6: they can pause, see what happens, and they'll kind of
Speaker 6: get more they'll they'll sort of feel their way to neutral,
Speaker 6: if you will, and get more information.
Speaker 3: You know.
Speaker 6: One one other thing just to note as well, is
Speaker 6: that fiscal policy in the US. We will get you know,
Speaker 6: more of the benefits from the offsetting tax cuts in
Speaker 6: the One Big Beautiful Bill Act in twenty twenty six.
Speaker 6: So that's something else that the Federal Reserve is going
Speaker 6: to have to navigate that could be that could be
Speaker 6: tree as well.
Speaker 2: Stay with us more Bloomberg surveillance coming up after this,
Speaker 2: Gloria at Day Davison joined us Now for more, GIL,
Speaker 2: Welcome to the program sir and Video center stage. In
Speaker 2: the last five minutes, big upgrade from HSBC Big Price
Speaker 2: Target to Street High three twenty GIL. When you think
Speaker 2: about things regarding in video, is it still the only game.
Speaker 4: In time town?
Speaker 2: Or does AMD provide a bit of an alternative?
Speaker 7: And Vidia is not the only game in town but
Speaker 7: will continue to be the main game in town. All
Speaker 7: of its customers are trying to diversify. They've been trying
Speaker 7: to diversify, but it's hard because in Vidia continues to
Speaker 7: introduce product at such a fast pace that it's very
Speaker 7: hard for other products to even be comparable. Which is
Speaker 7: to say, Google especially and some extent Amazon are going
Speaker 7: to increasingly use their chips more. That's Broadcom, and then
Speaker 7: all of these customers Microsoft, Amazon, Google, Meta Xai are
Speaker 7: going to have some AMD componentry just because they want
Speaker 7: to have diversification. But unless the AMD chips catch up
Speaker 7: in performance next year ten videos chips, that is going
Speaker 7: to be a small proportion one way or another. Even
Speaker 7: if AMDs chips are great and Broadcom continues to generate
Speaker 7: a lot of good ask chips, the custom chips for
Speaker 7: these customers, and Video will continue to have overwhelming share
Speaker 7: of this market for a while longer.
Speaker 5: These companies continue to chug along. Stock price is higher.
Speaker 5: We're seeing upgrades likes this morning of HSBC at the
Speaker 5: same time where their rhetoric between China and the United
Speaker 5: States is really heating up. How are they going to
Speaker 5: get potentially caught in the crosshairs between Washington and Beijing.
Speaker 7: They already have fact has missed its last two quarterly
Speaker 7: reports because of China. China is somewhat out of the numbers.
Speaker 7: It's not completely out of the numbers, but it's somewhat
Speaker 7: out of the numbers. And unless the US and China
Speaker 7: can arrive at some sort of broader framework for an agreement,
Speaker 7: and Vidia's sales into China are going to be very
Speaker 7: much impacted for a while longer. And as long as
Speaker 7: that's happening. They have been all year, and it's been
Speaker 7: on Dragon. Nvidia already having said that the market is
Speaker 7: growing so fast right now that Nvidia can probably live
Speaker 7: up to expectations without significant contribution from China. If China
Speaker 7: does come back, which it may not, Nvidia can do
Speaker 7: even better. But the demand right now is so big
Speaker 7: that in Nvidia can probably do okay, even if the
Speaker 7: demand from China is limited.
Speaker 5: Who can't do as well as in video? If the
Speaker 5: demand from China is limited.
Speaker 7: It would Video more than any other company, but also
Speaker 7: AMD and Broadcom and much of the rest of the
Speaker 7: ecosystem that sells into China will be impacted and long term,
Speaker 7: whether or not there's a full decoupling from China, we're
Speaker 7: already well on our way to having a much different
Speaker 7: supply chain than we had even a couple of years ago.
Speaker 7: You are just having a conversation about the fact that
Speaker 7: we're going to have to build a lot more of
Speaker 7: the supply chain in the United States. It's going to
Speaker 7: be a long process. It's very complicated. It goes well
Speaker 7: beyond Intel and TSMC. It goes through their whole supply
Speaker 7: chain that we will be gradually moving into the US
Speaker 7: and into other countries that are not China and not
Speaker 7: Taiwan in order to make the supply chain more of US.
Speaker 7: It's a matter of national security, and one way or another,
Speaker 7: we're having some level of decoupling from China. Whether both
Speaker 7: sides agree to that or not. Companies are all ready
Speaker 7: the understanding that there's never going to be stability in
Speaker 7: this relationship, so they need to diversify.
Speaker 2: Stay with us more Bloomberg surveillance coming up after this
Speaker 2: stops finding a firmer footing as big bank results to
Speaker 2: roll in Steve author federated right to the following. It
Speaker 2: is possible that many companies will fail to be whisper
Speaker 2: numbers of bigger than expected beats. This could cause some
Speaker 2: modest pullbacks for the stock market and for the market generally.
Speaker 2: Steven joins us now for more. Steve've got to see
Speaker 2: a second morning. Good morning, thanks for being here, you
Speaker 2: said earlier this year, tie us after the mouse, close
Speaker 2: your eyes, shut out the noise, and just keep moving
Speaker 2: forward with the ship because it's going to be okay.
Speaker 1: That's still the approach.
Speaker 8: Yeah, we actually just said, are at this time of
Speaker 8: the year where we said our two year target. We
Speaker 8: have a one year target also, but I like our
Speaker 8: clients to think forward a little bit for that's kind
Speaker 8: of our and we've got a two year target on
Speaker 8: the S and P of eighty six hundred, and we
Speaker 8: don't think it's unrealistic. You get there, you have a
Speaker 8: GDP that's reaccelerating next year. You've got multiple drivers of
Speaker 8: that that we've talked about extensively. You have an AI
Speaker 8: industrial revolution going on that we think is very very
Speaker 8: real and importantly, and this is a key element of
Speaker 8: our forecast, is we have margins expanding on the S
Speaker 8: and P. And you know, most people at this time
Speaker 8: of the year tell us that we're at peak margins.
Speaker 1: How many times have we heard that? So I had
Speaker 1: my guys go back and check this.
Speaker 8: We have relentlessly expanded margins on the S and P.
Speaker 8: Okay one or two years, you might dip a little bit,
Speaker 8: but the trend has been higher every year, and we
Speaker 8: think that's a combination of the mix of the S
Speaker 8: and P shifting towards higher margin, higher cash flow, lower
Speaker 8: asset businesses that just have higher margins and productivity enhancements
Speaker 8: which are increasing, partly due to policy and partly due
Speaker 8: to AI. So when you add that all together, it's
Speaker 8: pretty realistic, frankly, to see.
Speaker 1: Earnings on the S and P by twenty eight.
Speaker 8: Which is where we'll be looking at in twenty seven,
Speaker 8: getting close to four hundred dollars this year.
Speaker 2: So it's been about of the multiple when you describe
Speaker 2: the mixshift, what kind of multiple does that mixshift warrant.
Speaker 8: So this is another heuristic that we've been talking about
Speaker 8: on this show for a while now, but that really
Speaker 8: I think fails people.
Speaker 1: The heuristic is, oh, a fair multiple.
Speaker 8: For stocks is eighteen times and in a three percent
Speaker 8: inflation environment. That's roughly been the case over a long
Speaker 8: period of time, but that's when the S and P
Speaker 8: was largely an industrial and financial index.
Speaker 1: If you adjust for the mixshift of the.
Speaker 8: S and P over the last five years where it's
Speaker 8: now largely a tech indux, these are businesses with high
Speaker 8: cash flow, high return on investment. They're clearly mathematically worth
Speaker 8: a higher multiple of earnings, and when you adjust for
Speaker 8: that dynamic, we think the right multiple in the S
Speaker 8: and P is about twenty two times. So we would
Speaker 8: say it's fairly too cheaply valued right here. So we're
Speaker 8: using eighteen for the everything else, and we're using twenty
Speaker 8: five to twenty eight for the MAC seven if you will,
Speaker 8: and we get to a fear multiple of twenty two.
Speaker 8: So I think those two things are what make us
Speaker 8: more optimistic, and I think they're actually quite realistic.
Speaker 2: I just want to say this up front that they
Speaker 2: finally statement are not my words. It's John Stonefis of Oppenheimer.
Speaker 2: He said the boomer mentality was holding people back and
Speaker 2: keeping them out of the market because of what you
Speaker 2: just said. Is that what you're confronting on a daily
Speaker 2: basis with investors.
Speaker 1: Yeah, I mean so many investors.
Speaker 4: You know.
Speaker 8: This is there's one reason why we've been talking about
Speaker 8: a secular bull market. You buy a secular ball, I
Speaker 8: mean a market that does ten x over twenty to
Speaker 8: thirty years, you get only one a generation.
Speaker 1: I mean we've only had two up to now. We're
Speaker 1: in the third one.
Speaker 8: I'm counting the move from off the Great Depression lows
Speaker 8: we had a twenty year run, then the move off
Speaker 8: the seventy three seventy four crisis and which ended in
Speaker 8: ninety nine, and then in twenty thirteen, once we broke
Speaker 8: through the old highs, we've started this new secular bull.
Speaker 8: And one thing you always need to have is you
Speaker 8: need some sort of an industrial revolution happening.
Speaker 1: We've got that.
Speaker 8: And two you need to have people have nearly lost
Speaker 8: their shirt in a historic way as the base, because
Speaker 8: that creates the wall of worry.
Speaker 1: That's very hard. And you mentioned it the boomers.
Speaker 8: A lot of boomers got almost white doubt in seven
Speaker 8: o eight.
Speaker 1: It was scary that condition by that, Yeah.
Speaker 8: And then you have you know, that's why you have
Speaker 8: these corrections along the way that just reinforced that fear.
Speaker 8: I mean, look what happened in late March early April.
Speaker 8: Even Wall Street was running for the exits and a
Speaker 8: lot of people raised cash. And now we've got this
Speaker 8: wall of cash. Everyone is very anxious to get back in.
Speaker 8: They've realized they're wrong, but they don't really want to
Speaker 8: say it. And that's why the corrections I think. I mean,
Speaker 8: we've had a thirty percent move here without a five
Speaker 8: percent correction. That's like almost unprecedented over six months. So
Speaker 8: you know, we're feeling that there probably should be some
Speaker 8: kind of a pullback. My guess is it'll be lighter
Speaker 8: than you think, because you know, because so many people
Speaker 8: are anxious to get back in. And we put out
Speaker 8: a piece this week that listed six ways you could
Speaker 8: get a pullback, and you know, thinking through each of them,
Speaker 8: and you know, some are obvious, like you know, the
Speaker 8: FED shut down goes longer than thought, but a lot
Speaker 8: of them are self correcting. I mean, you know, if
Speaker 8: the government shut down goes much longer, the pain on
Speaker 8: either side is going to be so high that you
Speaker 8: know they're going to have to come back to the table.
Speaker 4: You know.
Speaker 8: The ones that I think could be more serious are China.
Speaker 8: I you know, I think frankly, the comeback this morning
Speaker 8: on cooking oil was actually an attempt to de escalate
Speaker 8: because cooking oil is not really important to China, so
Speaker 8: in a way, they kind of pulled it a thing
Speaker 8: there that's like saying, hey, by the way, we do
Speaker 8: have other things too, but let's try to de escalate
Speaker 8: this talk. But I think his she's use of his
Speaker 8: one real ace, which is rare earth, I think that
Speaker 8: was a mistake on his part. I think even the
Speaker 8: Europeans are thinking, well, we have to figure out another way.
Speaker 8: You know, we got to we got to detach ourselves
Speaker 8: from these guys, and you know it's going to take time,
Speaker 8: so we'll have some sort of interim deal at least,
Speaker 8: but we're probably on a program to get out of that.
Speaker 8: We can't have China controlling the rare earth production.
Speaker 5: So you know, if this is your case about the
Speaker 5: potential choke points to the one big beautiful world in
Speaker 5: your piece and trade you think potentially is going to
Speaker 5: offer the biggest headache from now on, Chill when these
Speaker 5: two individuals meet. Is that going to be an opportunity
Speaker 5: for a catalyst for these people that are sitting on
Speaker 5: cash to get back into the market.
Speaker 8: Well, I kind of we're seeing that, right am, Marie.
Speaker 8: I mean we had to pull back on Friday again
Speaker 8: on Tuesday, and money just keeps coming back in.
Speaker 1: So we'll see, you know. I think if they come away.
Speaker 8: At the end of this month with a kind of divorce,
Speaker 8: which I think is highly unlikely, but if they do,
Speaker 8: then then we.
Speaker 1: Could have a more serious correction.
Speaker 5: If you're so nervous about China's hold on rare earths
Speaker 5: and they're dictating what they're going to basically be able
Speaker 5: to export the rest of the world. Do you think
Speaker 5: the US is doing is having the right approach by
Speaker 5: buying getting it, having equity stakes in companies that are
Speaker 5: important for national security?
Speaker 1: Yeah, yeah, he is. It distorts capitalism.
Speaker 8: Well, I'll distort capitalism in this case because we need
Speaker 8: to have rare earths, right, And what happened, what Trump
Speaker 8: understands is the Chinese were subsidizing rare earth production and
Speaker 8: they drove the US and European rare earth producers out
Speaker 8: of the market. Basically, they underpriced the market and drove
Speaker 8: them out of business. So if it's such an important
Speaker 8: element of almost everything in the economy, including our military,
Speaker 8: I think it's the right call here to say, Look,
Speaker 8: whatever is the Chinese are going to do, We're going
Speaker 8: to support production of this key element of what it
Speaker 8: takes to because otherwise you're in a real vice gript.
Speaker 2: Free markets and open trade only works if everyone embraces
Speaker 2: free markets and open trade, and China over the last
Speaker 2: few decades did not do that, which is why you've
Speaker 2: seen the Republican shift in the last five ten years.
Speaker 2: They went into sacrifice elements of capitalism at the ultar
Speaker 2: of national security. I think President Trump has led the
Speaker 2: way on.
Speaker 5: There, and Steve is exactly right. The big issue, of course,
Speaker 5: is what it means for the supply chain to the
Speaker 5: US Defense Department. Almost every single weapon has these rare
Speaker 5: earths in them, and that is why it is a
Speaker 5: challenge when China has ninety percent of the market.
Speaker 2: There's a few contradictions that kind of make me laugh.
Speaker 2: But one of them is the auto market over in China.
Speaker 2: People would say that tariffs don't work, they'll be the
Speaker 2: same people that celebrate the auto market over in China.
Speaker 4: You know, just try and.
Speaker 2: BMW twenty years ago into China.
Speaker 4: Impossible.
Speaker 2: They were all pushed to go in there and produce there,
Speaker 2: and everyone's celebrating the auto market in China. That's quite
Speaker 2: a contradiction, isn't it.
Speaker 4: Yeah.
Speaker 8: And what we're thinking and looking at here, Jonathan, is
Speaker 8: we're thinking that post the settlement of this, let's call
Speaker 8: it the near term plan for these economies to detach,
Speaker 8: which will take three to five years, which companies have
Speaker 8: major exposures to China, and you know that how is
Speaker 8: that going to play out? And that I think it's
Speaker 8: not a surprise that you see Apple today making a
Speaker 8: big investment in China because they they're one of the
Speaker 8: companies in the S and P big ones that have
Speaker 8: major China exposure, Tesla being another one as an example.
Speaker 8: So they're going to have to play both worlds tackles
Speaker 8: China investments. I can sure you are not to export
Speaker 8: from China. They're to keep a Chinese market. They need
Speaker 8: it for their revenue base, so and you know that's
Speaker 8: possibly a viable option. But this is going to be
Speaker 8: one of the things they're going to have to sort
Speaker 8: out here is who really depends on China like, because
Speaker 8: that's going to be I think that market is going
Speaker 8: to be kind of increasingly separated from the rest of
Speaker 8: the world. I think it's partly I think even the
Speaker 8: Europeans kind of woke up over the weekend and.
Speaker 4: She pulled this.
Speaker 1: Yep, took long enough. This ace.
Speaker 8: You know that he thought, well, let me play this card.
Speaker 8: See and Trump's known he's had that card. That's why
Speaker 8: he's after Greenland, so you know, he didn't need to
Speaker 8: do that to make it.
Speaker 1: But I think I think it was a mistake.
Speaker 4: I don't know.
Speaker 1: I'm not you know, I'm not at the table.
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