WEBVTT - Surveillance: Flying Blind with Bryson 0:00:05.160 --> 0:00:08.480 This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 0:00:08.520 --> 0:00:12.360 with Jonathan Farrow and Lisa Abramowitz. Join us each day 0:00:12.400 --> 0:00:16.840 for insight from the best and economics, geopolitics, finance and investment. 0:00:17.280 --> 0:00:22.119 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.320 --> 0:00:26.600 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.640 --> 0:00:30.520 the Bloomberg Terminal, and the Bloomberg Business App. Right now 0:00:30.960 --> 0:00:34.720 we get interesting GDP revision perspective from j Brice and 0:00:34.760 --> 0:00:38.319 the chief economist at Wills Fargo. Jay, do you get 0:00:38.320 --> 0:00:40.400 a lot of value out of a second look at GDP? 0:00:40.560 --> 0:00:41.920 And dare I say the third look? 0:00:43.760 --> 0:00:45.720 You know, there's a little bit of value in the 0:00:45.800 --> 0:00:49.120 sense of what you get in the second release is 0:00:49.159 --> 0:00:52.760 the first estimate of gross domestic income. It's the income 0:00:52.840 --> 0:00:55.800 side of the national accounts. It should, in theory be 0:00:55.880 --> 0:00:58.680 the same thing as GDP, So you know, I'm not 0:00:58.680 --> 0:01:00.680 sure what that came out. As you get some of that, 0:01:00.960 --> 0:01:04.000 you also get corporate profits, which are also important for 0:01:04.360 --> 0:01:07.120 the economy. So you know, I look at more of 0:01:07.160 --> 0:01:09.479 the income side of things that in the second look 0:01:09.640 --> 0:01:10.280 here than I do. 0:01:10.360 --> 0:01:12.440 And you know, in terms of the demand components. 0:01:12.600 --> 0:01:14.920 Jay, how to data dependent? Can you be if you 0:01:14.959 --> 0:01:16.320 can't rely on the data. 0:01:17.280 --> 0:01:21.720 Well, you know, it's you're always flying blind in this economy. 0:01:22.080 --> 0:01:24.440 And I guess what I would say, at least right now, 0:01:24.480 --> 0:01:26.959 is is you know, there's a lot of choppiness, there's 0:01:26.959 --> 0:01:28.720 a lot of noise out there. I mean, I kind 0:01:28.720 --> 0:01:31.080 of the big picture here, I think in terms of 0:01:31.120 --> 0:01:34.399 the economy, is it continues to expand. It seems a 0:01:34.520 --> 0:01:36.920 a I call it modest pace at this point. The 0:01:37.000 --> 0:01:40.000 labor market, I think, in general, is holding in there. 0:01:40.000 --> 0:01:42.559 And I think we know that inflation has come down, 0:01:42.600 --> 0:01:44.800 but it remains kind of elevated. And so I think 0:01:44.840 --> 0:01:47.200 that's the real narrative that we have to you know, 0:01:47.480 --> 0:01:49.920 we have to manage to at this point. 0:01:50.000 --> 0:01:51.880 Well, the narrative has been all over the place this year, 0:01:51.920 --> 0:01:53.720 as we all know, as we've all been trying to track. 0:01:53.760 --> 0:01:57.640 And I'm wondering whether this idea of immaculate disinflation moved 0:01:57.680 --> 0:02:01.760 to perhaps rapid inflation. Now it'll slowly go away and 0:02:01.800 --> 0:02:03.680 we don't have to worry about it anymore. Is the 0:02:03.720 --> 0:02:07.400 market underpricing the risk of having to worry about inflation 0:02:07.520 --> 0:02:10.280 for a longer period of time forcing the Fed's handle 0:02:10.280 --> 0:02:10.960 a little bit more. 0:02:12.280 --> 0:02:14.720 I think least that there's something to be said for that. 0:02:14.760 --> 0:02:16.240 I mean, if you look at market pricing, and you 0:02:16.280 --> 0:02:18.880 folks were talking about it earlier, you know, at the 0:02:18.960 --> 0:02:21.160 end of the year there's rate cuts priced in there. 0:02:21.320 --> 0:02:24.120 I think some way to make sense of that would 0:02:24.160 --> 0:02:28.079 be the market isn't really good at making precise estimates 0:02:28.080 --> 0:02:31.000 of probabilities. One way to look at that is a 0:02:31.040 --> 0:02:34.160 low probability of a really big move by the end 0:02:34.160 --> 0:02:36.560 of the year because something has blown up, whether it's 0:02:36.560 --> 0:02:39.880 the debt ceiling or something else along those lines. But 0:02:39.919 --> 0:02:42.720 if that doesn't happen, then I think that there's a 0:02:42.760 --> 0:02:47.080 really good possibility that or there's a possibility that you 0:02:47.240 --> 0:02:50.880 could get stuck at an inflation rate that's higher than 0:02:50.919 --> 0:02:54.200 three percent, And I don't think the market is priced 0:02:54.200 --> 0:02:56.359 for that, because I don't think the Fed would be 0:02:56.720 --> 0:02:59.800 cutting in that situation, nor would they actually probably. 0:02:59.520 --> 0:03:01.800 Be on hold, probably raising rates even higher. 0:03:02.280 --> 0:03:06.399 Jay the heritage of Wells Fargo economics, from John Silvia 0:03:06.480 --> 0:03:10.399 to J Brice and has just been brilliant on the demographics, 0:03:10.440 --> 0:03:14.960 the movement, the fabric of this nation. Do you believe 0:03:14.960 --> 0:03:18.720 in a rolling recession. I mean, we're aggregating in even 0:03:18.760 --> 0:03:22.640 to the silliness of an Nber estimate of this dreaded 0:03:22.760 --> 0:03:26.000 our word. But should we have a belief in a 0:03:26.160 --> 0:03:30.400 rolling recession given all of the fractured parts of the 0:03:30.440 --> 0:03:31.560 American experiment? 0:03:32.960 --> 0:03:35.640 Well, yeah, Tom, and I think there's you know, it 0:03:35.680 --> 0:03:38.000 depends on your definition. And rolling recession is I tend 0:03:38.080 --> 0:03:42.080 to think of one as hitting different sectors at different times. 0:03:42.320 --> 0:03:44.880 And so you know, if you look at housing, Housing 0:03:45.000 --> 0:03:48.160 clearly slumped last year, there's some evidence to suggest that's 0:03:48.160 --> 0:03:52.400 probably stabilizing. Manufacturing at best has kind of topped out. 0:03:52.440 --> 0:03:55.560 The thing that's holding in there right now is consumer spending. 0:03:55.960 --> 0:03:58.120 And you know, if you kind of go forward here, 0:03:58.200 --> 0:04:00.440 if you do have weakness in housing, if you do 0:04:00.480 --> 0:04:03.720 have weakness in manufacturing, you could see some job losses 0:04:03.720 --> 0:04:07.360 there and then that could then bleed over into consumer spending. 0:04:07.640 --> 0:04:10.440 And so you could have not all sectors. 0:04:10.000 --> 0:04:12.280 Going down at the same time, but you could have this, 0:04:12.600 --> 0:04:14.760 you know, as you talk about this kind of rolling, 0:04:14.920 --> 0:04:17.440 you know, sort of recession thing going. 0:04:17.240 --> 0:04:19.159 On, and you Madge, the smartest thing I've heard today 0:04:19.240 --> 0:04:23.200 was Lisa Bramowitz, our airline analyst on Delta Airlines. I mean, 0:04:23.240 --> 0:04:25.599 that's a single smartest thing I heard this week. Is 0:04:25.640 --> 0:04:28.920 completely ginormous sold out. And that's personal consumption, and in 0:04:28.960 --> 0:04:30.359 one way that's personal consumption. 0:04:30.520 --> 0:04:33.200 It's absolutely personal consumption, so your whole paycheck if you 0:04:33.200 --> 0:04:34.800 try to travel a lot. I do wonder Jay, though, 0:04:34.800 --> 0:04:36.880 just going forward, whether we do see some sort of 0:04:37.400 --> 0:04:40.640 seismic shift coming down the pike for the US, given 0:04:40.760 --> 0:04:43.600 in Nvidia, given AI, given the tech giants that were 0:04:43.640 --> 0:04:46.640 left for dead sort of and then suddenly reprise their 0:04:46.640 --> 0:04:48.520 greatness this year. Do you think that this is a 0:04:48.600 --> 0:04:52.520 lasting trend that has implications for jobs, that has implications 0:04:52.960 --> 0:04:54.560 for a gross domestic product. 0:04:55.320 --> 0:04:56.880 Oh yeah, absolutely. 0:04:56.920 --> 0:04:58.760 I Mean the way I think about it is AI 0:04:59.320 --> 0:05:03.479 is a potent a productivity game changer. You know, it's 0:05:03.560 --> 0:05:06.000 it's another you know, I don't want to get too 0:05:06.080 --> 0:05:09.840 dramatic here, but you know, industrial revolution. You know, maybe 0:05:09.839 --> 0:05:11.960 it's not an industrial revolution, but it's kind of like 0:05:12.440 --> 0:05:15.640 when we first went to the networking of computers and 0:05:15.680 --> 0:05:18.080 the internet back in the late nineteen nineties. 0:05:18.080 --> 0:05:21.400 I think it's even bigger than that as it comes along. 0:05:21.880 --> 0:05:22.039 You know. 0:05:22.120 --> 0:05:24.640 The issue though, obviously, is not only is that a 0:05:24.640 --> 0:05:28.760 productivity game changer. It has profound right, social and political 0:05:28.800 --> 0:05:31.520 implications and that's going to last for years and years 0:05:31.520 --> 0:05:32.200 and years. 0:05:31.920 --> 0:05:34.119 Doctor Bryson, thank you so much for joining us. Brilliant 0:05:34.200 --> 0:05:37.120 Jay briceon there, Wells Fargo, Parson, Yes, claim some news there. 0:05:37.520 --> 0:05:39.960 Thank you to our Washington team for that great reporting 0:05:39.960 --> 0:05:48.359 on Massachusetts claims fraud. This is a joy. Douglas Holtz, 0:05:48.400 --> 0:05:52.320 ecan out of the Princeton Shop, has done serious work 0:05:52.400 --> 0:05:54.359 on the debt and the deficit. I'm not going to 0:05:54.400 --> 0:05:57.760 demean him by asking him about Oval Office discussions of that, 0:05:58.400 --> 0:06:00.599 but I mean I canna ask him about where we are, 0:06:00.640 --> 0:06:02.840 of course, is work with the Congressional Budget Office and 0:06:02.920 --> 0:06:08.400 President of American American Action Form, Doctor Oltzik. And I'm 0:06:08.400 --> 0:06:10.480 going to cut to the chase you go where the 0:06:10.520 --> 0:06:14.520 CBO goes, which is to try to estimate our growth 0:06:14.600 --> 0:06:19.560 rates of revenues, which I think is called taxes and spending. 0:06:20.279 --> 0:06:24.360 Where are those glide pasts going to be after this 0:06:24.480 --> 0:06:25.720 debt crisis. 0:06:27.080 --> 0:06:29.599 I think it's important to recognize that regardless of what 0:06:29.760 --> 0:06:33.120 deal has ultimately struck, it will put the tiniest of 0:06:33.200 --> 0:06:37.920 dents in our fiscal challenge. The fundamental problem is in 0:06:37.960 --> 0:06:41.800 the large and titlement spending programs, they're off the table. 0:06:42.720 --> 0:06:45.200 There's a room to raise more revenue that's off the table. 0:06:45.320 --> 0:06:49.240 So we're not addressing the issues that face the federal government, 0:06:49.279 --> 0:06:53.960 the budget and awestly. Until we get serious about slowing 0:06:53.960 --> 0:06:56.440 the growth rate of the big and talent spending programs, 0:06:56.560 --> 0:06:59.440 the budget will never end up. They'd simply grow much 0:06:59.440 --> 0:07:03.040 faster than revenue. Ever plausibly will. 0:07:02.279 --> 0:07:04.000 I mean, I look where we are, and we need 0:07:04.000 --> 0:07:06.279 a commission. So we need a commission with people with 0:07:06.400 --> 0:07:09.600 z in their names, so I can really see orzeg, 0:07:09.680 --> 0:07:13.920 whole teaken or whole teacn orzeg is an intelligent commission 0:07:14.360 --> 0:07:17.200 that Americans would know as intelligent people coming to an 0:07:17.240 --> 0:07:21.160 intelligence solution. And yet we're not talking about that. Why not? 0:07:22.600 --> 0:07:26.520 This is politics, That's all there is to it. The 0:07:26.920 --> 0:07:30.200 issue is not the debt ceiling issue, not default. There's 0:07:30.320 --> 0:07:32.360 unionimity that we have to raise the debt ceiling. There's 0:07:32.400 --> 0:07:34.960 unionimity that we should not even come close to defaulting. 0:07:35.560 --> 0:07:38.600 There's a big disagreement about the future of fiscal policy. 0:07:39.080 --> 0:07:41.400 I think it's healthy that this has been highlighted to 0:07:41.440 --> 0:07:44.680 the American people. My concern has been that in the 0:07:44.720 --> 0:07:47.000 twenty first century, we've never seen the debt do anything, 0:07:47.040 --> 0:07:50.640 would go up, even relatives to the economy, and there's 0:07:50.680 --> 0:07:53.680 never been the political wherewithal to stabilize it, which is 0:07:53.680 --> 0:07:57.760 I think the necessary condition for the US, and we 0:07:57.840 --> 0:08:00.160 really haven't talked about it if you think fact to 0:08:00.440 --> 0:08:03.000 the presidents we've had. I worked for George day Bush 0:08:03.040 --> 0:08:05.440 I fron greatly, but his budget said let's win the 0:08:05.480 --> 0:08:08.240 war on global terror. Look at the eight years of 0:08:08.280 --> 0:08:10.640 the abodm administration. The only thing that they said about 0:08:10.640 --> 0:08:11.920 the federal budget that might be a problem is the 0:08:11.960 --> 0:08:14.880 rich didn't pay their fair share. The Trunk administration said 0:08:14.880 --> 0:08:17.160 nothing for four years on and deficits, and the Biden 0:08:17.160 --> 0:08:21.200 administration came in with really enormous plans to just expand spending. 0:08:21.240 --> 0:08:24.480 And so the American people can be excoose or not understanding. 0:08:24.520 --> 0:08:26.480 We have a big problem and we do well. But 0:08:26.480 --> 0:08:28.640 it's time they were told that and that, you know, 0:08:29.600 --> 0:08:31.920 addressing it is the thing that we have to do next. 0:08:31.960 --> 0:08:35.080 And Doug they've perhaps been told that, but as Leslievinjamory 0:08:35.120 --> 0:08:37.040 said of Chatham House earlier in the show, it doesn't 0:08:37.080 --> 0:08:38.760 mean that they're going to accept that they get less 0:08:39.080 --> 0:08:41.839 at any given day, that they're going to get fewer benefits, 0:08:41.880 --> 0:08:43.800 and there does seem to be a shift on both 0:08:43.840 --> 0:08:47.080 sides of the aisle to adding whether it's respect to 0:08:47.240 --> 0:08:50.800 investing in technology, whether it's respect with respect to investing 0:08:50.800 --> 0:08:53.920 in infrastructure, or whether it's just the spending that we 0:08:53.960 --> 0:08:56.920 already have in place. It doesn't seem likely that we're 0:08:56.960 --> 0:08:59.400 going to see restraint in the near future, regardless of 0:08:59.400 --> 0:09:02.480 what comes from this budget. What's your view in terms 0:09:02.559 --> 0:09:05.320 of what it would take to make people truly care 0:09:05.520 --> 0:09:08.280 about a debt limit that doesn't really seem to matter. 0:09:08.320 --> 0:09:09.679 If they could just kick it up and they can 0:09:09.760 --> 0:09:11.760 keep borrowing at relatively low rates. 0:09:12.120 --> 0:09:15.360 They shouldn't care about the delimit there's no real economic 0:09:15.360 --> 0:09:19.600 crash now for having a delement or the major economy 0:09:19.640 --> 0:09:21.200 and the globe that has one, and it doesn't make 0:09:21.200 --> 0:09:25.160 any economic sense. They should care about the fact that 0:09:25.800 --> 0:09:28.000 the spending exceeds the revenues as far as the eye 0:09:28.040 --> 0:09:31.720 can see, and that leads to real threats. They should 0:09:31.760 --> 0:09:35.040 care even more about the fact that because the entitlement 0:09:35.800 --> 0:09:38.760 spending is claiming all the revenue, there isn't money for 0:09:38.840 --> 0:09:42.480 real investments. We're squeezing out national security, basic research, infrastructure, 0:09:42.520 --> 0:09:45.080 or education, the things our founders saws the role of 0:09:45.080 --> 0:09:48.439 the government, and that's a serious problem for having more 0:09:48.440 --> 0:09:50.920 prosperous feisure. And they should care a lot about the 0:09:50.960 --> 0:09:53.439 fact that those big programs are taking all the money 0:09:53.480 --> 0:09:56.400 and they're not financially sustainable. So Street is going to 0:09:56.440 --> 0:09:59.520 go bankrupt in ten years. Someone who's fifty five literally 0:09:59.559 --> 0:10:02.880 can't play and their retirement because they haven't fixed social security. 0:10:03.240 --> 0:10:06.040 That's just unconstable. That should wagh people up. 0:10:06.520 --> 0:10:08.720 What's your sense of the tax revenues. We've been talking 0:10:08.760 --> 0:10:10.839 about how bumpy and lumpy it's been, and that it's 0:10:10.840 --> 0:10:13.560 been underwhelming. How much is this a lack of investment 0:10:13.640 --> 0:10:15.960 in the IRS and a lack of tax collection. 0:10:17.679 --> 0:10:20.800 We've had a long standing problem with the IRS. It's 0:10:20.840 --> 0:10:25.840 beyond merely the technology. It's an organization whose culture has 0:10:25.840 --> 0:10:29.400 been deeply broken, and so it is time to get 0:10:29.440 --> 0:10:32.600 the IRS back to its job, which is to collect 0:10:32.600 --> 0:10:36.360 the taxes and do it effectively. We somewhere along the 0:10:36.360 --> 0:10:38.679 line decided everything should be a refundable tax credit and 0:10:38.760 --> 0:10:41.720 turn them into a benefits paying organization. They weren't built 0:10:41.720 --> 0:10:43.800 to do that and they struggle with it and so 0:10:44.559 --> 0:10:47.520 identifying its mission, getting it staffed up, giving a modern 0:10:47.559 --> 0:10:48.920 technology are all essential. 0:10:49.720 --> 0:10:52.040 Great to catch up doc. As always on this Douglas 0:10:52.080 --> 0:11:04.080 Hall Teak in the American Action Forum. 0:11:04.160 --> 0:11:08.000 It is wonderful to have Diana a MOA with this, 0:11:08.120 --> 0:11:12.560 your chief investment Officer of Long based Strategies, Kirkanswall Capital Partners. 0:11:12.559 --> 0:11:14.880 This morning, I want to go right to the pro discussion, 0:11:15.360 --> 0:11:19.920 which is you people say be an EM participate in EM. 0:11:20.280 --> 0:11:24.000 Every textbook, every paper says you have to hedge, to 0:11:24.080 --> 0:11:27.880 hedge or not to hedge. Is the core issue with EM. 0:11:28.120 --> 0:11:30.080 How do you hedge EM right now? 0:11:30.800 --> 0:11:33.680 Well, if I'm assuming we're talking about hedging the currency risk. 0:11:33.640 --> 0:11:36.600 Here, I go either way you want. But the answer 0:11:36.720 --> 0:11:41.160 is in financial media nobody talks about this reality that 0:11:41.200 --> 0:11:43.080 you have to hedge EM. 0:11:43.800 --> 0:11:46.200 Well, the reality is when you look at performance in 0:11:46.240 --> 0:11:49.760 the marging market, it's actually been quite resilient. Two things 0:11:49.760 --> 0:11:52.720 that have been quite notable in the last few months. Realize, 0:11:52.800 --> 0:11:56.200 volatility in emerging market currencies and also in a marging 0:11:56.200 --> 0:11:59.240 market fixed income has been much lower than in developed markets. 0:12:00.160 --> 0:12:02.959 Argue part of that is one inflation outlook in development 0:12:02.920 --> 0:12:06.040 market is much stickier, whilst in the emerging market things 0:12:06.040 --> 0:12:08.800 appear to have picked but there was some support coming 0:12:08.840 --> 0:12:11.160 through from a week of dollar in the first half. 0:12:11.000 --> 0:12:11.480 Of the year. 0:12:12.080 --> 0:12:15.920 So that's the reality that emerging market right now this year, 0:12:15.960 --> 0:12:18.760 If you'd hedged out your currency exposure, you'd have actually 0:12:18.760 --> 0:12:21.520 been regretting it because most for the most part, EMFFS 0:12:21.559 --> 0:12:24.120 has done well. Where we are right now, I would 0:12:24.160 --> 0:12:26.840 say you still want to have em duration. It's a 0:12:26.880 --> 0:12:30.439 trait that works in multiple scenarios of the world. Irrespective 0:12:30.440 --> 0:12:32.400 of whether we have a recession in the US, whether 0:12:32.480 --> 0:12:35.480 the FED cut rates or not. The outlook for emerging 0:12:35.480 --> 0:12:37.960 currencies I think for the next few months might be 0:12:38.040 --> 0:12:40.720 less clear cut. But if you have a rangebound dollar, 0:12:40.800 --> 0:12:43.440 I would suggest actually maybe not hedging that urging. 0:12:43.679 --> 0:12:45.880 Let's annoys some people with Diana. It's about it a 0:12:45.880 --> 0:12:47.640 clot had the coffe They've woken up that we really 0:12:47.720 --> 0:12:50.640 engaged when we talk about em Are we talking about 0:12:50.640 --> 0:12:53.960 the US, the UK, Europe? Who are we talking about? 0:12:55.160 --> 0:12:55.480 Well? 0:12:55.720 --> 0:12:58.120 Typically people say it's the distress stories that you need 0:12:58.120 --> 0:12:59.840 to watch about. Where are we talking about default? 0:13:00.120 --> 0:13:00.240 Now? 0:13:00.320 --> 0:13:00.760 John? 0:13:00.920 --> 0:13:01.360 The US? 0:13:02.240 --> 0:13:02.719 There you go. 0:13:03.800 --> 0:13:07.840 But you know, classic definition would argue, you know, US 0:13:07.920 --> 0:13:10.559 doesn't qualify for an emerging market, but certainly what we're 0:13:10.600 --> 0:13:13.000 seeing right now with this default talk and the lack 0:13:13.040 --> 0:13:16.360 of consensus on how to manage the fiscal situation is 0:13:16.480 --> 0:13:19.800 raising some red flags and making emerging markets look relatively 0:13:19.920 --> 0:13:20.760 not too bad. 0:13:21.520 --> 0:13:23.520 I have a simple am test. I've had it for 0:13:23.559 --> 0:13:26.840 a long long time. Go something like this, if things 0:13:26.880 --> 0:13:29.800 get bad in that country, do you buy or sell 0:13:30.000 --> 0:13:32.880 the debt? It's as simple as that. Now, typically in 0:13:32.920 --> 0:13:34.960 development markets, what you do when things get bad in 0:13:34.960 --> 0:13:38.880 that country, you buy the debt. Typically an EM you 0:13:39.000 --> 0:13:41.840 sell it. What's happening with treasuries right now, because I'm 0:13:41.880 --> 0:13:44.520 struggling with it. I know it's all at the front end, 0:13:44.559 --> 0:13:47.360 the bulk of it, but treasuries is selling off and 0:13:47.480 --> 0:13:50.160 have been for like the last ten days. What's going 0:13:50.200 --> 0:13:50.600 on there? 0:13:51.040 --> 0:13:54.560 Well, the thing that's interesting with the US market, you're 0:13:54.559 --> 0:13:58.079 seeing these locations, particularly in front end paper, things that 0:13:58.120 --> 0:14:00.760 are going to be impacted by X date the June paper. 0:14:00.800 --> 0:14:03.440 We are definitely seeing this location in pricing, and that's 0:14:03.480 --> 0:14:05.440 just a fact of the fact that there's no cross 0:14:05.440 --> 0:14:09.240 default closes in treasuries, so they can't technically default on 0:14:09.280 --> 0:14:12.559 a paper without it affecting the rest of the curve, 0:14:12.760 --> 0:14:14.559 and so markets are treating it that way, and the 0:14:14.600 --> 0:14:17.160 assumption is if you do get a technical default, it's 0:14:17.160 --> 0:14:21.760 going to be a short, short lived story and actually 0:14:21.840 --> 0:14:24.400 might tip the economy into recession. So you're seeing this 0:14:24.480 --> 0:14:27.120 sort of inversion in the curve where people are buying 0:14:27.160 --> 0:14:31.120 some safe, safe haven duration just to hedge against this outcome. 0:14:31.400 --> 0:14:34.320 So for people who might consider some of the developing 0:14:34.320 --> 0:14:37.240 world's emerging markets, some people on the set who might 0:14:37.320 --> 0:14:40.280 make that suggestion about the US, Others would come out 0:14:40.320 --> 0:14:42.520 and say, what about Nvidio, what about the tech giants 0:14:42.560 --> 0:14:44.960 that have performed really well? And they relate this to 0:14:45.240 --> 0:14:48.040 the bid for US stocks, a bid for US assets 0:14:48.080 --> 0:14:50.800 over the past decade as being a huge driver. How 0:14:50.840 --> 0:14:53.120 do you sort of play that story at a time 0:14:53.400 --> 0:14:56.000 when emerging markets have gotten bid up so far this 0:14:56.120 --> 0:14:59.400 year and all of a sudden, people are realizing perhaps 0:14:59.360 --> 0:15:00.720 there's something like to the US. 0:15:01.600 --> 0:15:03.840 Well, if you look at the performance in US equities, 0:15:03.880 --> 0:15:06.320 I think there's a huge amount of dispersion within that. 0:15:06.720 --> 0:15:10.160 So it's not a one trade for the whole U 0:15:10.200 --> 0:15:12.960 S equity markets. I think it's specific themes that are 0:15:12.960 --> 0:15:16.480 more longer term and structural, things like the adaptation of AI. 0:15:16.920 --> 0:15:19.600 What's that doing to various companies and sectors. I think 0:15:19.680 --> 0:15:22.360 that's a theme that's here to stay. I wouldn't say 0:15:22.400 --> 0:15:24.960 that that means you buy the whole equity market, but 0:15:25.000 --> 0:15:27.640 you definitely look for some of these more resilient stories 0:15:27.760 --> 0:15:29.800 that are going to play out irrespective of whether we 0:15:29.880 --> 0:15:33.360 go into a recession Lisa, and then from an em perspective, 0:15:33.880 --> 0:15:37.120 most of these innovations are quite commodity intensive, so that's 0:15:37.160 --> 0:15:40.640 also another theme. Whether you're talking about things like AI, 0:15:40.840 --> 0:15:46.080 electronic vehicle adaptation, the drive towards more sustainable sorts of manufacturing, 0:15:46.480 --> 0:15:48.600 that's a commodity theme that's going to be also a 0:15:48.640 --> 0:15:49.560 longer term story. 0:15:49.840 --> 0:15:50.280 How do you. 0:15:50.280 --> 0:15:53.040 Understand the valuation at a time or when some of 0:15:53.040 --> 0:15:55.000 these starcks are trading like penny stacks, even though they 0:15:55.000 --> 0:15:56.920 have nearly a trillion dollar valuation. 0:15:57.560 --> 0:16:00.160 It's less about that than more about for more in 0:16:00.200 --> 0:16:03.480 my view, So markets don't know what to do with equities. 0:16:03.520 --> 0:16:06.880 We've been talking about recession, going from recessions to default. 0:16:07.800 --> 0:16:10.640 People are jumping on the stories that look sustainable. So 0:16:10.680 --> 0:16:13.600 the valuations right now are It's hard to say it's 0:16:13.640 --> 0:16:17.560 based purely on fundamentals and more about investors being underinvested 0:16:17.560 --> 0:16:19.920 in equity markets and not wanting to miss out on 0:16:19.960 --> 0:16:20.440 the winners. 0:16:21.280 --> 0:16:23.520 If you look at all the cash out there, and 0:16:23.560 --> 0:16:26.480 I don't mean just you know, typical investment cash, but 0:16:26.560 --> 0:16:30.200 private equity crash, just the genormous amount of cash has 0:16:30.200 --> 0:16:33.880 been raised, do you just assume it will float to 0:16:33.960 --> 0:16:38.280 equities or does it just stay like a brick in cash. 0:16:38.480 --> 0:16:41.080 No, I don't think we're in that world where equities 0:16:41.120 --> 0:16:43.280 is the no brainer play anymore, especially not when you 0:16:43.320 --> 0:16:46.320 have such interesting yields in fixed income. And I think 0:16:46.360 --> 0:16:49.680 for investors that's probably the consideration where whether you're looking 0:16:49.680 --> 0:16:53.920 at cash yielding close to five percent or even duration 0:16:54.160 --> 0:16:57.040 in certain parts of the market. So there is money 0:16:57.040 --> 0:16:59.640 definitely on the sidelines. But I think the days of 0:16:59.760 --> 0:17:03.280 just buying equities blindly because you had easy monetary conditions 0:17:03.320 --> 0:17:06.040 are behind us, and the investors will look at a 0:17:06.160 --> 0:17:07.639 much more balanced portfolio. 0:17:08.000 --> 0:17:10.240 Diana, awesome as always, I'm really good to see you 0:17:10.240 --> 0:17:13.320 in person, Diana Ramo. There of Kirkus World Capital Partners 0:17:17.560 --> 0:17:19.920 joining us now is Larry Adam, the chief investment officer 0:17:20.200 --> 0:17:22.920 at Raymond, James Larry. Let's break this interview up in two. 0:17:23.080 --> 0:17:24.720 We can talk about the debt scening. At the moment, 0:17:24.760 --> 0:17:26.919 I want to talk about this row and rally in 0:17:26.960 --> 0:17:29.400 tech so far this year. Is that something you want 0:17:29.400 --> 0:17:31.040 to fight or participate in? 0:17:32.040 --> 0:17:32.200 Now? 0:17:32.200 --> 0:17:33.439 We want to participate in it. 0:17:33.480 --> 0:17:35.480 I mean, if you'd look at tech, it continues to 0:17:35.520 --> 0:17:36.840 reinvent itself over and over. 0:17:37.160 --> 0:17:39.040 The latest generation is going to be AI. 0:17:39.160 --> 0:17:41.720 And I think as you look at the visibility of earnings, 0:17:41.880 --> 0:17:45.679 you continue to see a strong earning's coming. And I 0:17:45.680 --> 0:17:47.840 think that that's important because a lot of people continue 0:17:47.840 --> 0:17:50.119 to say that tech has gotten expensive. But when you 0:17:50.160 --> 0:17:52.520 start to factor in how much tech has been able 0:17:52.520 --> 0:17:54.920 to beat their earnings, I don't think it's as expensive 0:17:54.920 --> 0:17:55.600 as what people think. 0:17:55.600 --> 0:17:57.160 And I think that trend is going to continue. 0:17:57.640 --> 0:17:59.640 Is tech just big tech or is it all tech? 0:17:59.720 --> 0:18:01.639 Is basically time to go into some of the beaten 0:18:01.720 --> 0:18:04.720 up smaller tech stocks that aren't necessarily as profitable. 0:18:05.800 --> 0:18:07.200 I prefer bigger tech. 0:18:07.400 --> 0:18:09.600 I mean, first of all, they're much more diversified than 0:18:09.600 --> 0:18:10.679 the smaller tech companies. 0:18:10.680 --> 0:18:13.560 I think that's an important discriminating factor. 0:18:13.640 --> 0:18:17.440 Right back twenty years ago, tech was one trick ponies 0:18:17.680 --> 0:18:21.520 where they had one product, one piece of software hardware software, 0:18:21.680 --> 0:18:23.639 where they had to fight the upgrade cycle. 0:18:23.960 --> 0:18:25.480 Now they're much more diversified. 0:18:25.480 --> 0:18:27.800 They have plenty of seeds planet that can continue to 0:18:27.840 --> 0:18:29.680 generate their earnings going forward. 0:18:29.720 --> 0:18:31.440 So I continue like the big tech names. 0:18:31.480 --> 0:18:33.640 And by the way, from the index levels, you guys 0:18:33.680 --> 0:18:35.960 have just stated that's what drives the index. 0:18:36.000 --> 0:18:37.320 So I think you have to be there. 0:18:37.720 --> 0:18:40.359 Larry, just because you're down south, they want to go 0:18:40.400 --> 0:18:43.680 to DeSantis. And the conference call with mister Musk that 0:18:43.800 --> 0:18:46.760 ran like a Raymond James Swiss watch that we saw 0:18:46.920 --> 0:18:51.160 last night, you really emphasize second half of a third 0:18:51.240 --> 0:18:56.199 year of a presidential administration. Discuss the second half of 0:18:56.240 --> 0:18:57.720 a third presidential year. 0:18:58.720 --> 0:19:00.800 Well, I think it's important because what tends to happen 0:19:00.840 --> 0:19:03.680 in the markets is that momentum tends to beget momentum. 0:19:04.040 --> 0:19:05.800 And if you look at the strong start that we've 0:19:05.800 --> 0:19:08.040 had to this year, the first one hundred trading days, 0:19:08.040 --> 0:19:10.359 which by the way, today's the one hundred trading day 0:19:10.400 --> 0:19:12.600 of the year, when it's up more than eight percent, 0:19:13.240 --> 0:19:13.800 the rest of the. 0:19:13.760 --> 0:19:14.840 Year tends to be strong. 0:19:15.320 --> 0:19:17.800 If you look at this presidential election cycle that you're 0:19:17.840 --> 0:19:22.320 referring to from June to the end of this year. Historically, 0:19:22.400 --> 0:19:24.960 ninety two percent of the time the market continues to 0:19:24.960 --> 0:19:27.840 be positive, and that's been consistent through time. That this 0:19:27.960 --> 0:19:30.560 third year of a presidential term is fairly strong. 0:19:31.000 --> 0:19:34.399 Does cash of five percent, four point eight percent, whatever? 0:19:34.520 --> 0:19:36.960 Is that competition for your bullish view? 0:19:38.240 --> 0:19:40.840