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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along

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Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day

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Speaker 2: for insight from the best in markets, economics, and geopolitics

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Speaker 2: from our global headquarters in New York City. We are

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Speaker 2: live on Bloomberg Television weekday mornings from six to nine

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Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or

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Speaker 2: anywhere else you listen, and as always on the Bloomberg

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Speaker 2: Terminal and the Bloomberg Business App. J Pilowski of TPW

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Speaker 2: Jay remember when summer was boor and wasn't that great?

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Speaker 2: There is nothing boring about this right now, is there?

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Speaker 3: No? Not at all? John.

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Speaker 4: It's been really a crazy market just in the last

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Speaker 4: couple of days, going back the last couple of months.

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Speaker 4: I mean, when you talk about just as the crescendo

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Speaker 4: about a narrow market in bad breath reaches its peak,

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Speaker 4: right boom, massive reversal.

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Speaker 2: Huge move in small caps that we can talk about

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Speaker 2: throughout this morning, needs to talk about the politics as well, Ja,

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Speaker 2: So let's get into it. The former president addressing the

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Speaker 2: Republican Convention a little bit later, we need to talk

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Speaker 2: about the pressure building on Joe Biden. The dam is

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Speaker 2: breaking big time, and I'll go through just some of

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Speaker 2: the reports we've had, not in the last twenty four hours,

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Speaker 2: in the last twelve hours. This from ABC News reporting

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Speaker 2: that both Senate Majority Leader Chuck Schumer and Minority Leader

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Speaker 2: of the House at King Jeffries have indicated to the

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Speaker 2: president it's time to step aside. CNN reporting the former

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Speaker 2: House Speaker Nancy Pelosi is basically told President Biden the

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Speaker 2: same thing in private conversation Semophore yesterday afternoon as well,

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Speaker 2: Jay reporting that the campaign funding is essentially drying up.

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Speaker 2: Has the pressure ever been greater on this president?

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Speaker 3: Yeah?

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Speaker 4: It's interesting, right, John, because I think Joe Biden is

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Speaker 4: a fighter, and this is all making him dig in.

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Speaker 4: Seems to be the case so far. And what's really

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Speaker 4: surprising to me is you have this massive push, but

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Speaker 4: on the other side of it, you have things like

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Speaker 4: five thirty eight and they're pulling on the electoral college,

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Speaker 4: which suggests Joe Biden today if the election was held today,

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Speaker 4: Joe Biden would win with two hundred and seventy seven

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Speaker 4: electoral votes versus two sixty three for former President Trump,

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Speaker 4: and yet that seems to get lost in the perspective.

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Speaker 4: The other thing that I think is really powerful, and

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Speaker 4: I know we're going to talk about it over the

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Speaker 4: course of the hour here, is that the economic policy

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Speaker 4: mix between the two candidates is night and day.

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Speaker 3: And one of.

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Speaker 4: Them is very constructive for the United States, is I believe,

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Speaker 4: and the other is very destructive from an economic point

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Speaker 4: of view.

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Speaker 2: Would you like to tell us which one's destructive and

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Speaker 2: which one's constructive.

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Speaker 4: Well, it's not just me, right, I mean, if you

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Speaker 4: look at Goldman Sachs, if you look at Moody's, if

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Speaker 4: you look at the Peterson Institute, if you look at

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Speaker 4: sixteen Nobel laureates all have come out and said that

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Speaker 4: Donald Trump's plan is bad for the United States. It

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Speaker 4: means lower growth, it means higher inflation.

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Speaker 3: Right.

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Speaker 4: You have mass deportations that throws a wrench into the

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Speaker 4: labor market.

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Speaker 3: You have tariff hikes, you have.

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Speaker 4: Extension of fiscal of tax cuts, you have essentially fiscal

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Speaker 4: and continents. And I think it's sets up the real

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Speaker 4: risk of a dollar crash, which sets the stage for

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Speaker 4: a reversal of what has been a fifteen year run

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Speaker 4: of massive US financial asset outperformed it.

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Speaker 2: Donnar weakness appears to be the objective of the incoming

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Speaker 2: administration if they win. Are you saying that US exceptionalism

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Speaker 2: dollar dominance is going to be questioned come November if

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Speaker 2: Donald Trump wins.

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Speaker 4: Absolutely, that's I think that's the case, And you're already

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Speaker 4: starting to see it a little bit right now. It

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Speaker 4: hasn't really manifested because I think, notwithstanding the kind of

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Speaker 4: the frenzy around Joe Biden, the polling.

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Speaker 3: Is not at all a suggestive of the same. Right.

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Speaker 4: Polling is extremely tight within the margin of error across

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Speaker 4: the swing states as well as nationally, and so that's

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Speaker 4: why I think the market hasn't quite moved in this.

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Speaker 4: But it really does set the stage for things like, Okay,

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Speaker 4: does this small cap rally have legs? Does this broadening

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Speaker 4: out of the equity market is it sustainable?

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Speaker 3: Or do we run kind of hard.

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Speaker 4: Into the fall and then get smacked in the face

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Speaker 4: with a from victory that leads people to question the

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Speaker 4: policy mix of the United States and the FED gets

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Speaker 4: put in a box, right, because the Fed is going

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Speaker 4: to be cutting I think that's pretty clear. But if

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Speaker 4: we get this situation, this worry, the dollar starts to fall,

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Speaker 4: the Fed has to raise rates, the dollar continues to fall,

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Speaker 4: rates have to go higher. And look, we're in a

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Speaker 4: bond market that has not broken out. Equities have clearly

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Speaker 4: broken out. And by the way, it's global, right, it's

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Speaker 4: not narrow. It's not the magnificent seven AQUI all country

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Speaker 4: world all time highs, IFA all time highs, aqui xus

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Speaker 4: two year highs, emerging market two year highs. Okay, So

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Speaker 4: we're in a situation where the other countries are starting

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Speaker 4: to do reasonably well, and here we call them to

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Speaker 4: question the policy mix of the United States and a

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Speaker 4: massively over owned asset. Right, everybody is overweight US equities,

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Speaker 4: everybody is overweight US treasuries. Okay, So you have things

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Speaker 4: like the yen fair value is considered to be one hundred,

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Speaker 4: it's now at.

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Speaker 3: One fifty six.

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Speaker 4: You look at the euro fair value is considered one twenty,

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Speaker 4: it's at one o nine. You work at emerging market

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Speaker 4: currency's absolutely bludgeoned. So I think there's it's not yet

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Speaker 4: percolated in the minds of folks, but we got to

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Speaker 4: be careful what we wish for if we wish for

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Speaker 4: a week or dollar and we get a weeker dollar,

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Speaker 4: then I think that suggests that the US is not

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Speaker 4: going to be the place to be for the next

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Speaker 4: several years.

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Speaker 2: We've got a stronger dollar on the screen this morning,

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Speaker 2: were Firmer by tent to one percent on the Dollar Index.

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Speaker 2: We've got a lot to talk about this morning too.

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Speaker 2: Through the hour with Ja Piloski, you recording market on

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Speaker 2: the s and P five hundred just to touch Firmer

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Speaker 2: trying to crawl back inchin Kai by just two points

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Speaker 2: on the SMP up my zero point zero five percent

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Speaker 2: in the bond market, yields creeping higher back towards four

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Speaker 2: twenty four, eighteen twenty seven. We can talk a lot

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Speaker 2: about foreign exchange. The Euro a little weaker going into

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Speaker 2: that ECB decision a little bit later, Euro dollar at

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Speaker 2: one on nine thirty, coming up this hour, and Marie

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Speaker 2: joining us as Democratic leadership pushes Biden to step aside.

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Speaker 2: Shila Coolu, Jeffries as deep discounting hits the airlines, and

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Speaker 2: Louke kickmore of Aberdeen looking for a super September for

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Speaker 2: global rate cuts. We begin with our top story, Biden

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Speaker 2: can't catch a break. Just as illness forces the President

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Speaker 2: to leave the campaign trail, the damn breaks. ABC News

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Speaker 2: reporting both Senate Majority Leader Chuck Schumer and House Minority

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Speaker 2: Leader Haqem Jeffries have indicated to President Biden it might

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Speaker 2: be best to step aside. Am re joined us now

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Speaker 2: from the R and C in Milwaukee, Wisconsin, and Marie,

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Speaker 2: before we get to the events of where you are,

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Speaker 2: we need to talk about what's happening elsewhere. How great

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Speaker 2: is the pressure on President Biden to make a move.

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Speaker 5: It's intensifying, that's for sure. Over the past twenty four hours.

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Speaker 5: He had a really rough twenty four hours. Not to

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Speaker 5: mention that the White House came out and said he

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Speaker 5: tested positive for COVID nineteen. It is not just Senate

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Speaker 5: Majority Leader Chuck Schumer going to Rehoba Beach over the

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Speaker 5: weekend telling him we think you need to step aside,

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Speaker 5: or the fact that Hakeem Jeffries as well, the House

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Speaker 5: Minority Leader, saying to the President, if you stay in

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Speaker 5: this race, this is going to hurt down ballot. This

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Speaker 5: might mean we can lose the House. But then you

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Speaker 5: have former Speaker of the House Nancy Pelosi. According to CNN,

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Speaker 5: according to Politico, also having a direct conversation with the

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Speaker 5: President saying, look, you're polling shows that this is going

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Speaker 5: to be a loss against former President Donald Trump, and

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Speaker 5: you are going to really ruin the ticket for House members.

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Speaker 5: So these are three top Democrats. Now they're not saying

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Speaker 5: this publicly, although if you read their statements of denials,

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Speaker 5: these are not exactly straightforward denials to the press that

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Speaker 5: these conversations took place. But what you are seeing is

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Speaker 5: top three Democrats, especially Speaker Pelosi, who's very close to

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Speaker 5: the President, telling him directly face to face that we

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Speaker 5: think you need.

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Speaker 6: To step aside.

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Speaker 7: Now.

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Speaker 5: The President is now isolating. He's back in Delaware, and

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Speaker 5: I think the next few days we should note who

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Speaker 5: he is meeting with. Is there going to be a

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Speaker 5: family powwow? And could this potentially can he heed these

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Speaker 5: calls and step aside at the moment, though it does

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Speaker 5: sound like he is defiant. When you ask the White

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Speaker 5: House what is going on, they say, this is his race.

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Speaker 5: He's sticking with it. He has the delegates, and he

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Speaker 5: will be on the ticket November fifth.

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Speaker 4: Je Marie, I think that's really interesting. Jay Puloski here,

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Speaker 4: I know, we like to talk to geopolitics.

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Speaker 3: You know, it's funny. I think that Joe Biden.

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Speaker 4: Is a fighter, right, and all this pressure is forcing

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Speaker 4: him to dig in deeper.

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Speaker 3: You talk about the down ballots.

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Speaker 4: It's interesting, right, because when you look at the Senate

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Speaker 4: races in the swing states, Democrats are pulling considerably above

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Speaker 4: the Republican candidates. So in the Senate, which is arguably

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Speaker 4: more important for the Democrats to hold than taking the House,

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Speaker 4: they actually seem to be doing well. Biden, truly, as

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Speaker 4: you note, is not pulling as well as those candidates.

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Speaker 4: So I wonder if we're not getting over our skis

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Speaker 4: a little bit and talking about Biden stepping away.

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Speaker 5: Well, you're one hundred percent right that Biden is a fighter,

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Speaker 5: and this is a man who's fueled really by the

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Speaker 5: complications in his life, and he talks about the trial

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Speaker 5: tribulations of his life and then he's always able to

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Speaker 5: overcome it. He thinks he's still in the best position

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Speaker 5: to beat Donald Trump when it comes to some of

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Speaker 5: these swing states. This is where he's really struggling. But

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Speaker 5: you're right, a lot of this is in the margin

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Speaker 5: of error when you look at some of the different polling.

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Speaker 5: But that is why you see the concern of individuals

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Speaker 5: on the ballot, whether they're running for Senate, whether they're

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Speaker 5: running for Congress, they think that Biden is actually potentially

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Speaker 5: going to hurt their chances. There's something else that I

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Speaker 5: think we should take it to consideration. Biden has changed

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Speaker 5: his message three different times. When asked what would it

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Speaker 5: take to drop out when he sat down with ABC.

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Speaker 5: In that interview, he said he could only be convinced

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Speaker 5: if the Lord Almighty came down and said, Joe get

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Speaker 5: out of the race. Then the NATO press conference about

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Speaker 5: a week later, he was pressed on this issue.

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Speaker 1: I was in the room, This was.

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Speaker 5: All anyone cared about, and he said, no, there's nothing

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Speaker 5: that can make me get out of the race, except

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Speaker 5: maybe they came back and they said there's no way

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Speaker 5: to win.

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Speaker 7: The polls.

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Speaker 5: He says, if his team came to me and said

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Speaker 5: the polls show there's no way to win, then In

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Speaker 5: an interview with Beet that was on display last night

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Speaker 5: was broadcasting is supposed to be this counter programming to

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Speaker 5: the RNC, He said, if he had some sort of

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Speaker 5: medical condition that emerged, if someone if doctors came to

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Speaker 5: me and said, you got this problem and that problem anyway,

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Speaker 5: he said that would potentially be a reason why drop out.

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Speaker 5: So I do think there is a little bit more

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Speaker 5: of wiggle room now because Joe Biden himself has changed

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Speaker 5: the reasoning why he would get out of this race.

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Speaker 2: And right after we saw those comments about the potential

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Speaker 2: of a medical problem taking him out of the race,

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Speaker 2: he gets a COVID diagnosis. Can we just look at

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Speaker 2: the compare and contrast. It could not be staker Saturday evening,

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Speaker 2: an attempt at assassination on the form of President of

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Speaker 2: the United States walks away from it with this fists raised,

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Speaker 2: American flag waving in the background, compared to say this

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Speaker 2: and re I understand this brutal, But look at the

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Speaker 2: pictures of yesterday evening, Yesterday afternoon, President Biden contracting COVID

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Speaker 2: no musk, struggling to walk up the steps of Air

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Speaker 2: Force one a little bit later on this evening, This

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Speaker 2: president won't be able to count a program the former

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Speaker 2: president of the United States when he addresses the RNC.

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Speaker 2: How stark is that contrast going to be?

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Speaker 5: It's incredibly stark because you also have a Republican party

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Speaker 5: that's trying to tone down the rhetoric at this RNC,

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Speaker 5: and they're trying to unify really the Maga wing of

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Speaker 5: the party, this trump Ism that many Hawks and many

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Speaker 5: fiscally conservative and more moderate Republicans were hoping potentially this

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Speaker 5: would basically no longer be the brand of the Republican

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Speaker 5: Party unless Trump was top of the ticket. But yesterday

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Speaker 5: and that speech from JD Vance that just showed that

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Speaker 5: Maga and trump Ism is.

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Speaker 6: Here to stay.

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Speaker 5: The populous wing of this Republican Party is now the

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Speaker 5: majority of the Republican Party with this ticket, and this evening,

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Speaker 5: we're just going to see that tonight with President Trump

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Speaker 5: coming to the stage and formally accepting his party's nominee

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Speaker 5: to face off against potentially what will be Joe Biden

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Speaker 5: November fifth, and he's probably going to put his fist

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Speaker 5: in the air and say fight, fight, fight, like he

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Speaker 5: did after that former that assassination attempt on Saturday. And

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Speaker 5: then in contrast to President Joe Biden, who cannot counter

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Speaker 5: programming because he's self isolating in Delaware. And then it's

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Speaker 5: just a drip treat of reports that members of his

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Speaker 5: own party, senior members of his own party, and some

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Speaker 5: of them who really love the president, like Nancy Pelosi,

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Speaker 5: are telling him, we think it's time you step aside.

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Speaker 2: Let's get into that address a little bit later. Let's

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Speaker 2: talk about that and finish there. I want to talk

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Speaker 2: about policy on Wall Street. For a long long time,

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Speaker 2: we've always thought of the Republican Party is pro business.

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Speaker 2: And you and I have been talking about this now

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Speaker 2: for a number of weeks, been talking about how pro

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Speaker 2: business this Republican administration may actually turn out to be.

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Speaker 2: What is going to be in the address a little

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Speaker 2: bit late to maybe settle that school on that front, Well,

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Speaker 2: it's very different.

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Speaker 5: I think if you hear what jd Vance has to

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Speaker 5: say his VP pick and what President Trump has to say.

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Speaker 5: So jd Vance last night said this is no longer

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Speaker 5: the party of Wall Street. This is the party of

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Speaker 5: the working class. He called out auto workers in Michigan,

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Speaker 5: factory workers in Wisconsin, and energy workers in Pennsylvania. Donald

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Speaker 5: Trump likely chose him to park him in these three

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Speaker 5: states to try to win the election, because if Joe

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Speaker 5: Biden cannot hold the Russ Belt, if he cannot hold

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Speaker 5: the Blue Wall, then he is not winning re election.

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Speaker 5: To see the White House again, but Donald Trump is

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Speaker 5: going to go to the stage today after an interview

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Speaker 5: with Bloomberg business Week, and he said he'd actually like

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Speaker 5: the corporate tax rate at fifteen percent. So I am

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Speaker 5: struggling in all of my conversations here. And I had

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Speaker 5: this conversation yesterday with Virginia Governor Glenn Younkin, who they

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Speaker 5: think Virginia is definitely in play when it comes to

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Speaker 5: Republican Party about which Republican Party is good for business?

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Speaker 5: And honestly, Jonathan, I still don't know the answer. It

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Speaker 5: really depends who you ask, because someone like JD. Van's

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Speaker 5: wants to see a higher corporate tax rate, while the

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Speaker 5: top of the ticket wants as low as fifteen percent.

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Speaker 5: So we're still struggling to.

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Speaker 6: Figure this out.

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Speaker 5: One thing that I'm continuously told when I ask about

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Speaker 5: some of the rhetoric from Jdvans about the business community,

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Speaker 5: everyone says the same thing. It's Trump's party. Jdvans is

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Speaker 5: going to.

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Speaker 3: Get in line.

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Speaker 2: I might on the lights said the Republican Convention. I'm Marie,

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Speaker 2: thank you.

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Speaker 3: Jay.

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Speaker 2: That's a question we keep asking just how business friendly

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Speaker 2: is is government going to be if they get back

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Speaker 2: into power.

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Speaker 4: I think that there's a queer distinction between the two

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Speaker 4: candidates and their economic policy.

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Speaker 3: Ms.

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Speaker 4: Biden has been probably the most successful president in terms

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Speaker 4: of economic policy and outcomes in.

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Speaker 3: Fifty years or more.

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Speaker 4: Right and President former President Trump, I think is his

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Speaker 4: policy mix is basically fiscal incontinence, where you're talking about

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Speaker 4: mass deportation that destroyed the labor market, You're talking about

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Speaker 4: raising tariff sixty percent, you're talking about extending tax cuts,

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Speaker 4: you're talking about cutting taxes even further. So I think

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Speaker 4: the situation is setting up for really it could be

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Speaker 4: a significant shift, in a significant surprise in terms of

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Speaker 4: the dollar, because if the dollar weekends, when we blow

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Speaker 4: out the physical deficit here, the bed is in a box.

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Speaker 4: I think people start to get worried about policy confusion

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Speaker 4: and chaos, which was kind of the motif of the

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Speaker 4: Trump first administration. Then I think you have a situation

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Speaker 4: where you have a massively over owned asset, which is

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Speaker 4: US financial assets represented.

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Speaker 3: By the dollar, that could roll over. It's at one

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Speaker 3: oh four to one oh three.

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Speaker 4: People target ninety as a reasonable place if it really

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Speaker 4: does start to sell off.

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Speaker 2: J Piloskiv TPW Advisory is still optimistic. Rights In this

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Speaker 2: they say rotation is the lifebud of Bullmark, and it

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Speaker 2: sure seems like a broadening gown in rotation to x

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Speaker 2: Tech would go a long way to sustaining the bull Jays.

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Speaker 2: With us around the table through the rest of this hour, Jay,

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Speaker 2: I want to talk about one name in particular, before

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Speaker 2: we've broaden out ourselves. I want to talk about Taiwan

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Speaker 2: Semi time on Semi gets Hamma yesterday. But this is

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Speaker 2: a company putting up real numbers just this morning. This

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Speaker 2: is what we learned. They now expect sales to grow

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Speaker 2: more than the maximum mid twenty percent it had guided

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Speaker 2: towards previously with things that buy yesterday for you, Yes.

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Speaker 4: They were, John, I think you know markets that really extended.

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Speaker 4: You live by the sword, you die by the sword. Right,

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Speaker 4: So when you're up twenty thirty percent in a matter

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Speaker 4: of a month or two, you come you pull back

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Speaker 4: eight percent a day.

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Speaker 3: That's just kind of normal.

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Speaker 4: But the point you're making is fundamentally, these are solid, fast,

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Speaker 4: rapidly growing stories.

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Speaker 3: Which are unique in the world.

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Speaker 4: Right, You're talking about forecasts that were made a couple

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Speaker 4: of months ago, and they're already beating them and raising them.

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Speaker 3: And this is a story we've seen with.

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Speaker 4: N Video and other chip makers that are involved in

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Speaker 4: AI for a year now, right, and so you've had

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Speaker 4: massive moves, but the stocks are actually cheaper now than

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Speaker 4: they were a year ago because earnings have outpaced the

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Speaker 4: stock price appreciation. And so we have been and continue

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Speaker 4: to be big believers in AI and big believers in

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Speaker 4: the idea of the pick and shovel.

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Speaker 3: Right.

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Speaker 4: The pick and shovel for AI is the semiconductor space,

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Speaker 4: and so when you have pullbacks, those are opportunities to.

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Speaker 3: Add in our views.

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Speaker 2: So this is what we've been rotating away from in

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Speaker 2: the last week. Let's talk about what we've been rotating

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Speaker 2: towards small caps. I've had questions around this table, conversations

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Speaker 2: about whether we're going into a small cap presidency with

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Speaker 2: Donald Trump the president in the White House, heading up

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Speaker 2: the United States and driving small business in America and

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Speaker 2: punishing big business big tech in particular. How do you

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Speaker 2: frame that one?

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Speaker 3: Yeah, I look at it differently.

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Speaker 4: I look at it that small caps are big beneficiaries

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Speaker 4: of lower interest rates. Right, fifty percent of small cap

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Speaker 4: debt is floating rate versus ten percent for large cap,

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Speaker 4: So they are big beneficiaries. And so we've seen this movie.

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Speaker 4: We saw it in the fall. Right, small caps at

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Speaker 4: are twenty seven percent move in three months October to December.

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Speaker 4: I think they're set up for something similar. Small caps

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Speaker 4: today trade at ten times twenty twenty five earnings on

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Speaker 4: a medium basis, That is extremely cheap. They're massively under owned. Right,

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Speaker 4: there's a massive short which is why this is moved

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Speaker 4: so fast. Right, This is always the case. Right, it's

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Speaker 4: a massive short covering, but you have fundamentals again like

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Speaker 4: DSMC to support it. The other thing that I think

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Speaker 4: is really really interesting, John, is that things are broadening

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Speaker 4: out right. We just updated our model portfolios at TPW Advisory,

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Speaker 4: and I go through all the positions, all the indices,

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Speaker 4: and all the things we're thinking about. And what's interesting

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Speaker 4: to me is that thematics are breaking out right. You

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Speaker 4: look at biotech, you look at things like robotics, you

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Speaker 4: look at things like security, cybersecurity, they're all breaking out

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Speaker 4: to new all time highs. You also look at things

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Speaker 4: like infrastructure and cap X. Right, we saw the industrial

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Speaker 4: production numbers yesterday. Infrastructure pave all time highs, XLI all

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Speaker 4: time highs, which is a smart energy for the grid system,

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Speaker 4: all time highs. And so to me, you're looking at

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Speaker 4: a situation where there's multiple parts of the market starting

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Speaker 4: to move in unison higher and it's not just the

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Speaker 4: Magnificent seven anymore. And to me, that's a much more robust,

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Speaker 4: much healthier market. Now, as we talked about it the

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Speaker 4: open whether with a Donald Trump, should he win, whether

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Speaker 4: that sustains, I think is a very real question.

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Speaker 2: That's a good thing, so long as we are going

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Speaker 2: into an economic answer, just cyclicals for an example, Let's

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Speaker 2: take the likes of Delta United in the last twenty

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Speaker 2: four hours. They're warning about discounting, they're wanting about driving

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Speaker 2: down prices going for the summer. That shouldn't be happening

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Speaker 2: if this economy is hold enough, should it.

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Speaker 3: Yeah?

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Speaker 4: It's so interesting, right because we ran airlines and jets

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Speaker 4: for quite some time as a reopening play coming out

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Speaker 4: of COVID.

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Speaker 3: And they really just didn't work.

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Speaker 4: And they still don't work, even though you read about

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Speaker 4: tourism US citizens going abroad in record numbers this year,

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Speaker 4: and yet it obviously doesn't seem be enough for the

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Speaker 4: airlines to make money. And so I think it's it's

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Speaker 4: it's interesting, but I think it's an anomaly. If you

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Speaker 4: work at broader issues like you look at retail sales

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Speaker 4: the other day. Consumer is still strong, right, you have

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Speaker 4: real wage growth, you have record loan unemployment or close

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Speaker 4: to it, you have disposable income rising, and so consumption

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Speaker 4: I think is fine. And what's interesting is are we

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Speaker 4: having the manufacturing sector starting to catch up and give

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Speaker 4: us another.

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Speaker 2: Leg to banter japerslk Gen writing this well, recent data

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Speaker 2: is supportive of rate cuts sooner than we anticipated. The

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Speaker 2: market might be getting ahead of itself, pricing more than

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Speaker 2: three cuts by January and nearly six cuts by the

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Speaker 2: middle of twenty twenty five. Stres with us for more

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Speaker 2: Sabatric and Morning Good Mine the official house called at

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Speaker 2: salt Gen was no cuts yep this year. It feels

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Speaker 2: like September might happen before we get there. I want

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Speaker 2: to talk about the biger you from you and the

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Speaker 2: tea challenging really this view that once you stop, they

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Speaker 2: keep going. What's the pushback to that?

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Speaker 7: The fact that the data has been relatively strong, right,

441
00:21:09,480 --> 00:21:13,359
Speaker 7: it's it's something that the FED has to kind of

442
00:21:13,400 --> 00:21:16,919
Speaker 7: recalibrate as we go along. If you listen to what

443
00:21:17,880 --> 00:21:22,360
Speaker 7: you know. Fed Chair Williams. I'm sorry, Williams, the FED

444
00:21:22,359 --> 00:21:26,639
Speaker 7: president said. He basically said that, you know that they're

445
00:21:26,680 --> 00:21:30,679
Speaker 7: trying to move into less restrictive policy, so they're not

446
00:21:30,760 --> 00:21:34,760
Speaker 7: really talking about embarking on a very aggressive path of

447
00:21:34,920 --> 00:21:38,040
Speaker 7: rate cuts or even any sort of a you know,

448
00:21:38,080 --> 00:21:41,159
Speaker 7: a cadence of once a meeting or once a quarter.

449
00:21:41,600 --> 00:21:43,480
Speaker 7: So they're going to be very very data dependent once

450
00:21:43,520 --> 00:21:46,320
Speaker 7: they start. So you know, kind of drawing the analogy

451
00:21:46,400 --> 00:21:49,879
Speaker 7: with the ECB. They cut rates in June, and some

452
00:21:49,880 --> 00:21:55,159
Speaker 7: often rightfully called it a data independent rate cut, so

453
00:21:55,800 --> 00:21:57,840
Speaker 7: you know, again coming into the end of the year,

454
00:21:57,920 --> 00:22:01,520
Speaker 7: they're going to be faced with questions about unit labor

455
00:22:01,560 --> 00:22:04,080
Speaker 7: costs and how the data is progressing. So it's not

456
00:22:04,320 --> 00:22:06,520
Speaker 7: certain to us that the ECB is going to be

457
00:22:06,520 --> 00:22:09,199
Speaker 7: cutting every meeting. So the FED might very well be

458
00:22:09,240 --> 00:22:11,639
Speaker 7: in the same situation where they're going to have to

459
00:22:11,680 --> 00:22:14,800
Speaker 7: recalibrate as we go along, as they move away from

460
00:22:15,320 --> 00:22:16,480
Speaker 7: from restrictive policy.

461
00:22:16,560 --> 00:22:18,920
Speaker 2: There might be something else they need to consider as well,

462
00:22:19,200 --> 00:22:21,280
Speaker 2: And Robert Kaplan talked about it. If you're a current

463
00:22:21,280 --> 00:22:23,720
Speaker 2: FED official you want to touch this subject. Former FED officials

464
00:22:23,720 --> 00:22:25,440
Speaker 2: can dance around it a little bit more. I guess

465
00:22:25,720 --> 00:22:28,159
Speaker 2: if new policies come out, it'll take some time for

466
00:22:28,200 --> 00:22:31,920
Speaker 2: them to digest those, and that may affect their next decisions.

467
00:22:32,040 --> 00:22:36,000
Speaker 2: How important is November as a date for how you

468
00:22:36,040 --> 00:22:37,359
Speaker 2: think about twenty twenty five?

469
00:22:38,640 --> 00:22:42,040
Speaker 7: So the November elections I think are very very meaningful.

470
00:22:42,880 --> 00:22:46,280
Speaker 7: I think that after they cut in September, it'll be

471
00:22:46,320 --> 00:22:51,320
Speaker 7: interesting to see how they message their policy path from

472
00:22:51,359 --> 00:22:55,640
Speaker 7: there on. You know, the market I think is aggressively

473
00:22:55,680 --> 00:23:01,200
Speaker 7: pricing in for several cuts between between now and January.

474
00:23:01,280 --> 00:23:04,000
Speaker 7: That feels like it's a little bit too much, But

475
00:23:04,080 --> 00:23:06,000
Speaker 7: really the outcome of the elections I think are going

476
00:23:06,040 --> 00:23:09,160
Speaker 7: to be very key on how they think about policy

477
00:23:10,080 --> 00:23:15,680
Speaker 7: after November. So the you know, the the Trump administration

478
00:23:15,800 --> 00:23:19,719
Speaker 7: is talking about, you know, higher tariffs, you know, the

479
00:23:19,800 --> 00:23:21,919
Speaker 7: debt and deficits picture is something that they're going to

480
00:23:21,960 --> 00:23:26,000
Speaker 7: be very focused on as well. So, you know, it's

481
00:23:26,040 --> 00:23:29,879
Speaker 7: something that the power, the the the FED is going

482
00:23:29,920 --> 00:23:32,280
Speaker 7: to have to be more attention to. Is not just

483
00:23:32,280 --> 00:23:34,920
Speaker 7: a monettery side, but also the general trajectory for the

484
00:23:35,000 --> 00:23:36,240
Speaker 7: for the fiscal side of things.

485
00:23:36,320 --> 00:23:38,199
Speaker 6: You know, it's interesting because both the ECB and the

486
00:23:38,200 --> 00:23:41,320
Speaker 6: FED have had calls of being political different flavors. For

487
00:23:41,359 --> 00:23:44,359
Speaker 6: the ECB, it's that by cutting, you're acting as a

488
00:23:44,400 --> 00:23:47,080
Speaker 6: king maker. You're letting these governments come in run really

489
00:23:47,119 --> 00:23:50,400
Speaker 6: high deficits and again you're saving them by cutting. If

490
00:23:50,400 --> 00:23:52,240
Speaker 6: we're in a position we're in November, we get a

491
00:23:52,240 --> 00:23:54,720
Speaker 6: Trump presidency and we know that's going to be the policy,

492
00:23:54,720 --> 00:23:56,639
Speaker 6: we know the deficit is going to be higher, and

493
00:23:56,680 --> 00:23:57,919
Speaker 6: the Fed is still cutting.

494
00:23:58,480 --> 00:23:59,240
Speaker 2: Is that a problem?

495
00:23:59,280 --> 00:24:01,639
Speaker 6: Are they doing the same thing that's accused of the

496
00:24:01,840 --> 00:24:03,680
Speaker 6: that the ECB is being accused of doing.

497
00:24:04,640 --> 00:24:09,440
Speaker 7: So, you know, the trajectory for debton deficits is quite

498
00:24:09,480 --> 00:24:13,320
Speaker 7: dire regardless of who gets elected, whether it's it's Trump

499
00:24:13,400 --> 00:24:15,440
Speaker 7: or Biden. I think that that's something that the next

500
00:24:15,440 --> 00:24:18,480
Speaker 7: administration is going to have to address. So it's not

501
00:24:18,720 --> 00:24:22,520
Speaker 7: really the purvey of one, you know, party or the other.

502
00:24:23,359 --> 00:24:25,840
Speaker 7: And I think that that's why I think it makes

503
00:24:25,880 --> 00:24:28,480
Speaker 7: it very tricky for the FED to be able to

504
00:24:28,520 --> 00:24:32,639
Speaker 7: cut rates. You know, in an environment where debton deficits

505
00:24:32,640 --> 00:24:35,240
Speaker 7: are and long end yields could potentially arise of the

506
00:24:35,280 --> 00:24:38,440
Speaker 7: market and the bond vigilanties start to kind of push

507
00:24:38,520 --> 00:24:42,040
Speaker 7: back on the narrative that's coming and coming put forth

508
00:24:42,080 --> 00:24:45,880
Speaker 7: by the administrations that come to power. So I think

509
00:24:45,880 --> 00:24:49,400
Speaker 7: that they're going to be very very careful about policy adjustments.

510
00:24:50,000 --> 00:24:52,760
Speaker 7: It's going to be more about moving away from restrictive

511
00:24:52,760 --> 00:24:56,960
Speaker 7: policy as opposed to embarking on several rate cuts. I mean,

512
00:24:57,280 --> 00:24:59,399
Speaker 7: the last leg of inflation is going to be kind

513
00:24:59,440 --> 00:25:03,000
Speaker 7: of tricky. Again. You're talking about, you know, infation getting

514
00:25:03,040 --> 00:25:06,160
Speaker 7: from three percent to two percent. That pathway is probably

515
00:25:06,160 --> 00:25:09,119
Speaker 7: going to be a lot slower than people anticipate. So

516
00:25:09,720 --> 00:25:13,400
Speaker 7: the first rate cuts, you know, will kind of signal

517
00:25:13,480 --> 00:25:16,280
Speaker 7: that they're willing to do more, but whether they deliver

518
00:25:16,359 --> 00:25:17,879
Speaker 7: on that really depends on the data.

519
00:25:17,960 --> 00:25:20,480
Speaker 6: That idea that you mentioned that the bond of vigilantes

520
00:25:20,520 --> 00:25:22,199
Speaker 6: are going to come in if there's government spending that

521
00:25:22,200 --> 00:25:25,920
Speaker 6: they don't like. To your point, we already know there's

522
00:25:25,960 --> 00:25:28,200
Speaker 6: going to be a lot of spending, and with that backdrop,

523
00:25:28,280 --> 00:25:31,080
Speaker 6: sure there's been some curve steepeners, but we still get

524
00:25:31,200 --> 00:25:34,040
Speaker 6: a twenty year auction yesterday that's absorbed really well. There's

525
00:25:34,040 --> 00:25:36,639
Speaker 6: clearly still demand for duration. So how big of a

526
00:25:36,720 --> 00:25:38,960
Speaker 6: risk you actually think that is that at some point

527
00:25:38,960 --> 00:25:41,399
Speaker 6: this bond market might try to punish too much spending

528
00:25:41,440 --> 00:25:42,080
Speaker 6: from the government.

529
00:25:43,480 --> 00:25:47,360
Speaker 7: So at an environment where the data is starting to weaken,

530
00:25:48,080 --> 00:25:53,360
Speaker 7: you are going to see the market rallying and bondiles

531
00:25:53,359 --> 00:25:56,280
Speaker 7: coming down. If anything, I'd say in the last you know,

532
00:25:56,359 --> 00:25:58,359
Speaker 7: three to four weeks, what we have seen is the

533
00:25:58,400 --> 00:26:01,000
Speaker 7: market kind of getting ahead of itself, pricing in the

534
00:26:01,040 --> 00:26:03,880
Speaker 7: Trump trade, the five series part of the curve steepening

535
00:26:03,880 --> 00:26:06,680
Speaker 7: out quite meaningfully, and in the last week I'd say

536
00:26:06,680 --> 00:26:09,800
Speaker 7: there's been a little bit of a rethink and profit

537
00:26:09,840 --> 00:26:13,920
Speaker 7: taking on those trades, and as the market positions for

538
00:26:14,200 --> 00:26:17,399
Speaker 7: Ray cuts, you're going to see that decline in yields

539
00:26:17,440 --> 00:26:19,920
Speaker 7: heading into the elections. This has been our call all

540
00:26:19,920 --> 00:26:22,200
Speaker 7: along is that TENNY yields will start to decline. We'll

541
00:26:22,240 --> 00:26:26,720
Speaker 7: get TENNY yels around four percent by the elections or

542
00:26:26,880 --> 00:26:28,520
Speaker 7: the end of the year, and then after that is

543
00:26:28,560 --> 00:26:31,720
Speaker 7: when you'll start seeing the selloff led by the back

544
00:26:31,800 --> 00:26:35,080
Speaker 7: end because of debt and deficits. There's really not any

545
00:26:35,400 --> 00:26:39,639
Speaker 7: willingness on either party to really address the debt and

546
00:26:39,720 --> 00:26:42,760
Speaker 7: deficit issues, and there's not really that much room, i

547
00:26:42,760 --> 00:26:48,320
Speaker 7: would argue, for cuts and spending. So it's going to

548
00:26:48,359 --> 00:26:52,000
Speaker 7: be very very interesting to see how the next administration

549
00:26:52,160 --> 00:26:55,760
Speaker 7: deals with the issues. On debton deficits and how much

550
00:26:55,800 --> 00:26:59,520
Speaker 7: the bond market is going to push back on that narrative.

551
00:26:59,680 --> 00:27:02,840
Speaker 2: That's an important phrase and deficits, So let me get

552
00:27:02,840 --> 00:27:05,840
Speaker 2: this right. Rallianto November, yourself coming down in November. We've

553
00:27:05,840 --> 00:27:07,480
Speaker 2: been trying to work out if we get higher yields,

554
00:27:07,560 --> 00:27:09,760
Speaker 2: is it because of a better growth profile, higher inflation,

555
00:27:09,920 --> 00:27:12,080
Speaker 2: or because of supply. Do you think it's just about

556
00:27:12,080 --> 00:27:14,400
Speaker 2: supply or do we get a higher bump of inflation

557
00:27:14,680 --> 00:27:16,320
Speaker 2: as well? Do we get higher interest rates from the

558
00:27:16,320 --> 00:27:18,120
Speaker 2: Federal Reserve too? How do you think about those other

559
00:27:18,160 --> 00:27:18,639
Speaker 2: parts of this?

560
00:27:19,160 --> 00:27:21,880
Speaker 7: So I think it's going to be a combination of factors, John,

561
00:27:21,920 --> 00:27:23,440
Speaker 7: and I think you're right to point out that part

562
00:27:23,480 --> 00:27:26,080
Speaker 7: of that could be because of the stimulative effects you're

563
00:27:26,080 --> 00:27:29,000
Speaker 7: getting from rate cuts. So if the market starts to

564
00:27:29,040 --> 00:27:31,159
Speaker 7: look towards you know, especially at a time when the

565
00:27:31,160 --> 00:27:34,159
Speaker 7: economy is relatively strong, this is a very unusual cycle,

566
00:27:34,200 --> 00:27:36,560
Speaker 7: at least in my career. I haven't seen one where

567
00:27:36,600 --> 00:27:39,479
Speaker 7: the Fed is cutting rates to get policy out of

568
00:27:39,840 --> 00:27:43,080
Speaker 7: restrictive territory and not cutting rates because we're heading into

569
00:27:43,440 --> 00:27:46,760
Speaker 7: some sort of a crisis or a meaningful recession. So

570
00:27:46,840 --> 00:27:48,719
Speaker 7: in that sort of context. They have to be very

571
00:27:48,800 --> 00:27:51,400
Speaker 7: very careful if they cut too aggressively, that could again

572
00:27:51,480 --> 00:27:53,399
Speaker 7: lead to frauth in the market. We've already seen an

573
00:27:53,400 --> 00:27:55,840
Speaker 7: easing of financial conditions. You know, if you look at

574
00:27:55,840 --> 00:27:59,359
Speaker 7: the equity markets, it's extraordinarily you know, it's performing really well.

575
00:27:59,560 --> 00:28:02,359
Speaker 7: Credits are very very tight, so you're looking and the

576
00:28:02,359 --> 00:28:04,960
Speaker 7: dollar is very strong. So all of these metrics lead

577
00:28:05,040 --> 00:28:07,480
Speaker 7: us to believe that financial conditions are easy. So they

578
00:28:07,480 --> 00:28:10,560
Speaker 7: have to be careful about cutting and not causing financial

579
00:28:10,600 --> 00:28:13,679
Speaker 7: conditions to ease further. And if that would happened, and

580
00:28:13,720 --> 00:28:16,280
Speaker 7: if growth actually starts to pick up, and we see

581
00:28:16,320 --> 00:28:18,800
Speaker 7: what we saw in the first month of the year,

582
00:28:18,960 --> 00:28:21,400
Speaker 7: the first few months of the year, you could actually

583
00:28:21,440 --> 00:28:23,280
Speaker 7: see you yields rise.

584
00:28:23,240 --> 00:28:25,080
Speaker 2: Super unfair to once for number. But I've got a

585
00:28:25,119 --> 00:28:27,320
Speaker 2: once for number. So we run it down to four

586
00:28:27,359 --> 00:28:29,960
Speaker 2: percent on tens, what do we sell off to. We're

587
00:28:29,960 --> 00:28:32,800
Speaker 2: threatening five again on a ten year in America.

588
00:28:33,320 --> 00:28:36,800
Speaker 7: Probably at least our forecasts are foretelling it's getting back

589
00:28:36,800 --> 00:28:38,520
Speaker 7: towards four and a half percent by the middle of

590
00:28:38,880 --> 00:28:43,800
Speaker 7: next year. Again, it's you know, the policies put forth

591
00:28:43,840 --> 00:28:46,880
Speaker 7: by the administration to come is going to dictate how

592
00:28:46,960 --> 00:28:50,280
Speaker 7: much of a selloff we see, and it also depends

593
00:28:50,320 --> 00:28:53,960
Speaker 7: on the trajectory for the economy. So a modest sell

594
00:28:54,000 --> 00:28:56,080
Speaker 7: off from here on makes sense for us to get

595
00:28:56,080 --> 00:28:58,120
Speaker 7: from four and a half to five percent. You're going

596
00:28:58,200 --> 00:29:01,360
Speaker 7: to really need to see a perhaps a further degeneration

597
00:29:01,960 --> 00:29:03,640
Speaker 7: in the outlook for a fiscal policy.

598
00:29:03,720 --> 00:29:06,200
Speaker 2: Sabanthra super thoughtful. It's going to say thank you, Sabata

599
00:29:06,280 --> 00:29:20,480
Speaker 2: Jampether of selk Gen. Chris Harvey off wels Fargo saying

600
00:29:20,520 --> 00:29:23,000
Speaker 2: this what looked like a popped last week has indeed

601
00:29:23,120 --> 00:29:26,960
Speaker 2: become a rotation driven by Trump's polling and policies. We

602
00:29:27,080 --> 00:29:31,120
Speaker 2: are confident regulatory pressure has crested, and we upgreat banks

603
00:29:31,360 --> 00:29:33,960
Speaker 2: to outperform. Chris joins us for more. Chris is good

604
00:29:33,960 --> 00:29:35,320
Speaker 2: to see you. It's good to see this is a

605
00:29:35,400 --> 00:29:37,040
Speaker 2: change for you and a short amount of time as well.

606
00:29:37,320 --> 00:29:38,280
Speaker 3: It is a change, right.

607
00:29:38,480 --> 00:29:40,920
Speaker 1: We didn't expect what happened this weekend to happen, and

608
00:29:41,000 --> 00:29:44,120
Speaker 1: what that did. It made the probability of Trump taking

609
00:29:44,160 --> 00:29:47,920
Speaker 1: the presidentship from likely to highly likely. And then suddenly

610
00:29:48,320 --> 00:29:51,160
Speaker 1: we weren't talking about the fundamentals anymore. We were talking

611
00:29:51,160 --> 00:29:53,880
Speaker 1: about policies. We were talking about tariffs, we were talking

612
00:29:53,880 --> 00:29:57,080
Speaker 1: about taxes, where we're talking about regulation. And when you

613
00:29:57,200 --> 00:29:59,960
Speaker 1: talk to people, and I'm sure you've had lots of conversations,

614
00:30:01,000 --> 00:30:04,080
Speaker 1: get you have ten different ten different conversations, you get

615
00:30:04,080 --> 00:30:06,320
Speaker 1: ten different answers. Rates are going higher, rates are going lower.

616
00:30:06,360 --> 00:30:07,560
Speaker 1: The curve's going to step, and the curve is going

617
00:30:07,600 --> 00:30:09,480
Speaker 1: to invert. We're going to have inflation. We're not going

618
00:30:09,520 --> 00:30:11,920
Speaker 1: to have inflation. The only thing that we're confident in

619
00:30:12,520 --> 00:30:14,680
Speaker 1: is that we've crested on the regulatory side.

620
00:30:15,000 --> 00:30:15,120
Speaker 3: Right.

621
00:30:15,440 --> 00:30:17,680
Speaker 1: It was already occurring with some of the things with

622
00:30:17,720 --> 00:30:20,680
Speaker 1: Basil III, it was occurring with Chevron, But now that

623
00:30:20,800 --> 00:30:23,760
Speaker 1: it looks like the Trump Trump administration is going back

624
00:30:23,800 --> 00:30:26,600
Speaker 1: in it is something that we think is long and exploitable,

625
00:30:26,800 --> 00:30:27,240
Speaker 1: which was a.

626
00:30:27,280 --> 00:30:28,840
Speaker 3: Catalyst we needed to upgrade banks.

627
00:30:28,920 --> 00:30:31,160
Speaker 2: How broad is this bank's co Is it launch caps

628
00:30:31,240 --> 00:30:32,600
Speaker 2: and regional is one or the other.

629
00:30:33,120 --> 00:30:36,280
Speaker 1: It's starting with large cap, But really we like the banks,

630
00:30:36,320 --> 00:30:39,680
Speaker 1: we like the financial space, and the regulation is going

631
00:30:39,720 --> 00:30:41,560
Speaker 1: to help the group across the board. It's going to

632
00:30:41,600 --> 00:30:44,600
Speaker 1: help multiples, right. Ultimately, I think it's going to help

633
00:30:44,680 --> 00:30:45,360
Speaker 1: earnings as well.

634
00:30:45,800 --> 00:30:46,920
Speaker 3: But the issue is that.

635
00:30:46,960 --> 00:30:48,760
Speaker 1: It's multiples and you can start to price that in

636
00:30:49,080 --> 00:30:50,200
Speaker 1: and it's already beginning.

637
00:30:50,280 --> 00:30:51,320
Speaker 3: We can talk as much as.

638
00:30:51,280 --> 00:30:54,360
Speaker 1: We want about trade and tariff, but the regulatory environment

639
00:30:54,480 --> 00:30:55,400
Speaker 1: is already changing.

640
00:30:55,760 --> 00:30:59,160
Speaker 6: So having a vice presidential candidate who talks about Wall

641
00:30:59,200 --> 00:31:02,000
Speaker 6: Street barons saying you won't cater to Wall Street? Do

642
00:31:02,000 --> 00:31:03,520
Speaker 6: you just write that office campaign rhetoric.

643
00:31:05,480 --> 00:31:05,960
Speaker 3: I wouldn't.

644
00:31:06,560 --> 00:31:09,720
Speaker 1: No, I wouldn't write that office campaign rhetoric. Right, there's

645
00:31:09,840 --> 00:31:11,280
Speaker 1: going to be a lot of push and there's going

646
00:31:11,320 --> 00:31:13,920
Speaker 1: to be a lot of pull. Jd Vance is new

647
00:31:14,000 --> 00:31:16,040
Speaker 1: to the platform, and so there's going to be some

648
00:31:16,160 --> 00:31:17,840
Speaker 1: I think there's also going to be some growing pains,

649
00:31:18,200 --> 00:31:24,800
Speaker 1: and he has some very strong opinions. I don't dismiss that, right.

650
00:31:25,000 --> 00:31:27,280
Speaker 1: But what they talk about and what I think is

651
00:31:27,400 --> 00:31:29,240
Speaker 1: going to come through and is coming through, is it's

652
00:31:29,280 --> 00:31:33,040
Speaker 1: America first, right, and so it's domestic companies over global companies.

653
00:31:33,360 --> 00:31:34,040
Speaker 3: There's a talk.

654
00:31:33,960 --> 00:31:37,360
Speaker 1: About being pro cyclical, and so it's more about economically

655
00:31:37,440 --> 00:31:40,000
Speaker 1: sensitive names, at least in the short term than your

656
00:31:40,080 --> 00:31:43,080
Speaker 1: growth names. And also with the regulation, it's more about

657
00:31:43,120 --> 00:31:45,960
Speaker 1: the capital markets, whether it's companies with M and A

658
00:31:46,120 --> 00:31:51,120
Speaker 1: or IPOs or just multiple revow valuation across the financial

659
00:31:51,160 --> 00:31:52,680
Speaker 1: and banking space in that.

660
00:31:52,800 --> 00:31:57,280
Speaker 6: Trade of American companies versus abroad. Full on display yesterday

661
00:31:57,320 --> 00:31:59,760
Speaker 6: where you get the TSMC's the world. Those chip makers

662
00:31:59,760 --> 00:32:02,520
Speaker 6: are falling, and Intel does find it kind of trades

663
00:32:02,600 --> 00:32:04,640
Speaker 6: Water does that kind of rally have legs.

664
00:32:06,640 --> 00:32:10,040
Speaker 1: So yesterday was a really interesting one because you're right,

665
00:32:10,320 --> 00:32:12,880
Speaker 1: everything went down and so there wasn't a whole lot

666
00:32:12,920 --> 00:32:15,960
Speaker 1: of discrimination. And if you look across tech, there's certain tech,

667
00:32:16,120 --> 00:32:19,040
Speaker 1: more so on the hardware semi side that you would

668
00:32:19,240 --> 00:32:21,440
Speaker 1: punish or weigh on a little bit more than you

669
00:32:21,480 --> 00:32:24,520
Speaker 1: would on the services and software side. But everything went down,

670
00:32:24,560 --> 00:32:25,840
Speaker 1: and I think it's just going to take a while

671
00:32:25,920 --> 00:32:28,239
Speaker 1: for the market to really discriminate. And the other thing

672
00:32:28,360 --> 00:32:30,920
Speaker 1: is we're going we saw this last time. We're going

673
00:32:31,000 --> 00:32:32,640
Speaker 1: to have a number of iterations. There's going to be

674
00:32:32,640 --> 00:32:34,280
Speaker 1: a number of things out in the public that we

675
00:32:34,360 --> 00:32:35,920
Speaker 1: talk about. It's going to be ten percent, it's going

676
00:32:35,960 --> 00:32:37,360
Speaker 1: to be these companies, it's going to be that come

677
00:32:38,040 --> 00:32:40,080
Speaker 1: this industry, and it's going to change over time and

678
00:32:40,120 --> 00:32:42,960
Speaker 1: the markets reacting. But what the market is saying is, hey,

679
00:32:43,360 --> 00:32:46,760
Speaker 1: we went from a likely change in administrations to a

680
00:32:46,880 --> 00:32:51,040
Speaker 1: highly likely change administration. And the views here are much different.

681
00:32:50,920 --> 00:32:52,360
Speaker 2: So we need to price those in just to get

682
00:32:52,360 --> 00:32:54,040
Speaker 2: a bit of nu ones fo you from you and

683
00:32:54,160 --> 00:32:55,960
Speaker 2: pin you down a little bit. What is the difference

684
00:32:56,000 --> 00:32:59,040
Speaker 2: between sort of this traditional rotation and a pure Trump trade.

685
00:32:59,160 --> 00:33:00,400
Speaker 2: What's the difference between it's.

686
00:33:00,560 --> 00:33:03,400
Speaker 1: So traditional rotation. So I think there are two things.

687
00:33:03,480 --> 00:33:05,480
Speaker 1: So last week what we were saying and we were

688
00:33:05,520 --> 00:33:07,600
Speaker 1: wrong about this. Hey, the rotation is not going to

689
00:33:07,640 --> 00:33:12,120
Speaker 1: happen because it's not fundamentally driven. The fundamentals just aren't there, right,

690
00:33:12,240 --> 00:33:15,760
Speaker 1: Because what we're seeing is if you look at surprise indicies,

691
00:33:15,760 --> 00:33:18,760
Speaker 1: they're rolling over right. If you look at the reaction

692
00:33:18,920 --> 00:33:22,120
Speaker 1: to bad news, companies are reacting poorly to bad news.

693
00:33:22,520 --> 00:33:25,160
Speaker 1: But then you had the weekend and all of a sudden,

694
00:33:25,800 --> 00:33:28,480
Speaker 1: the political environment just changed, right, And this week it

695
00:33:28,680 --> 00:33:33,040
Speaker 1: was all about almost all about the political So I

696
00:33:33,360 --> 00:33:36,280
Speaker 1: think the only thing that's really long tailed nature are

697
00:33:36,360 --> 00:33:40,640
Speaker 1: things that touch that regulatory environment. As far as the fundamentals,

698
00:33:40,840 --> 00:33:43,120
Speaker 1: we need to start digesting the fundamentals, and I still

699
00:33:43,160 --> 00:33:46,920
Speaker 1: think the fundamentals favor your larger cap and your growth.

700
00:33:46,960 --> 00:33:49,800
Speaker 1: Your names we'll see, right, But until we see the

701
00:33:49,840 --> 00:33:52,920
Speaker 1: fundamentals change, I'm still not entirely sure that you're going

702
00:33:52,960 --> 00:33:54,680
Speaker 1: to see the broadening out that a lot of people hope.

703
00:33:54,680 --> 00:33:56,719
Speaker 2: So let's park the banks right dory story that you've

704
00:33:56,760 --> 00:33:59,040
Speaker 2: got confidence on. I'm not just in your recession. I

705
00:33:59,040 --> 00:34:01,000
Speaker 2: think it's a fact character by some what you've just

706
00:34:01,040 --> 00:34:03,440
Speaker 2: said as well, a little bit nervous about incoming gaining

707
00:34:03,520 --> 00:34:05,400
Speaker 2: so far. It likes a doubt set what we had

708
00:34:05,440 --> 00:34:08,439
Speaker 2: from United yesterday pepsi as well. What do you say

709
00:34:08,480 --> 00:34:09,280
Speaker 2: in in those stories?

710
00:34:09,680 --> 00:34:10,319
Speaker 3: It's not great?

711
00:34:10,480 --> 00:34:12,279
Speaker 1: Right, So the economy is not as strong as I

712
00:34:12,320 --> 00:34:15,560
Speaker 1: think people expected. And what you're seeing is, you know,

713
00:34:15,600 --> 00:34:16,880
Speaker 1: if you look at the beginning of the year, a

714
00:34:16,960 --> 00:34:19,360
Speaker 1: lot of economists I think that the forecast was for

715
00:34:19,600 --> 00:34:22,520
Speaker 1: like one or one, one, two, and it doubled, but

716
00:34:22,719 --> 00:34:25,479
Speaker 1: economic strength did not double. And what happened was people

717
00:34:25,560 --> 00:34:26,840
Speaker 1: took out the recession.

718
00:34:26,480 --> 00:34:27,480
Speaker 3: Forecast, right.

719
00:34:27,600 --> 00:34:29,880
Speaker 1: It wasn't oh my god, the economy is so strong,

720
00:34:30,040 --> 00:34:31,480
Speaker 1: it said, and we're not going to have a recession.

721
00:34:31,840 --> 00:34:31,960
Speaker 3: Right.

722
00:34:32,280 --> 00:34:34,479
Speaker 1: And now what we're looking at is, hey, we didn't

723
00:34:34,520 --> 00:34:37,520
Speaker 1: expect the FED to be as strong or as tight

724
00:34:37,600 --> 00:34:40,120
Speaker 1: as they have been, and that that's starting to eat

725
00:34:40,160 --> 00:34:44,560
Speaker 1: into the psyche. What's also happening is you're having inflation fatigue,

726
00:34:45,120 --> 00:34:48,160
Speaker 1: and you're also saying that companies have been pushing price

727
00:34:49,320 --> 00:34:53,279
Speaker 1: and individuals are beginning to push back, right, and so

728
00:34:53,480 --> 00:34:56,400
Speaker 1: now you really can't have And what we say is

729
00:34:56,440 --> 00:34:58,319
Speaker 1: the economy is not going to value out. People think

730
00:34:58,360 --> 00:35:01,080
Speaker 1: the economy is accelerating, I just don't see it, and

731
00:35:01,239 --> 00:35:03,799
Speaker 1: so we need things to slow down. And what we've

732
00:35:03,800 --> 00:35:06,200
Speaker 1: had is we had a bump because of the Trump trade,

733
00:35:06,840 --> 00:35:08,640
Speaker 1: but it's really not supported by the fundamentals.

734
00:35:08,680 --> 00:35:10,600
Speaker 6: So there are people who say, it's not the economy

735
00:35:10,719 --> 00:35:12,799
Speaker 6: that's going to save us, it's the FED that's going

736
00:35:12,840 --> 00:35:14,160
Speaker 6: to save us. And we're going to get some Fed

737
00:35:14,520 --> 00:35:16,879
Speaker 6: FED cuts rather, and that means that for these small

738
00:35:16,920 --> 00:35:18,719
Speaker 6: caps that have floating rate debt, they're all going to

739
00:35:18,760 --> 00:35:19,120
Speaker 6: be saved.

740
00:35:19,360 --> 00:35:20,439
Speaker 3: Yeah, fair point.

741
00:35:20,640 --> 00:35:24,440
Speaker 1: Right, So we were oversold, we had an oversold bounce. Now,

742
00:35:24,719 --> 00:35:29,400
Speaker 1: this is probably the oddest easing cycle I've ever seen. Right,

743
00:35:29,440 --> 00:35:32,160
Speaker 1: Typically when you enter an easing cycle, things are really bad.

744
00:35:32,480 --> 00:35:35,320
Speaker 1: The Fed's cutting because either there's a liquidity issue or

745
00:35:35,320 --> 00:35:37,759
Speaker 1: the economy slowing down. Here, they're just saying, hey, we're

746
00:35:37,800 --> 00:35:40,120
Speaker 1: going to start cutting. So how are they going to

747
00:35:40,200 --> 00:35:43,279
Speaker 1: cut twenty five basis points here twenty five basis points there?

748
00:35:43,800 --> 00:35:46,200
Speaker 1: Is that really aggressive enough to change the economy?

749
00:35:46,560 --> 00:35:47,440
Speaker 3: I don't think so.

750
00:35:48,040 --> 00:35:51,359
Speaker 1: Is that enough to change an oversold condition to something

751
00:35:51,400 --> 00:35:52,000
Speaker 1: a little bit better?

752
00:35:52,520 --> 00:35:53,200
Speaker 3: Yeah? I think so.

753
00:35:53,680 --> 00:35:56,200
Speaker 1: But until you see the economy is starting to reaccelerate,

754
00:35:56,600 --> 00:35:59,040
Speaker 1: it's really hard for these smaller cap companies that have

755
00:35:59,080 --> 00:36:02,000
Speaker 1: a tremendous amount of balance sheet and operational leverage to

756
00:36:02,120 --> 00:36:04,719
Speaker 1: outperform for a sustained period of time recap growth.

757
00:36:04,800 --> 00:36:07,160
Speaker 2: You've heard some of these simplastic sort of commentary we've

758
00:36:07,200 --> 00:36:08,680
Speaker 2: heard over the last couple of weeks as well, which

759
00:36:08,719 --> 00:36:11,240
Speaker 2: is sort of buy everything else, leave big techet behind,

760
00:36:11,440 --> 00:36:13,800
Speaker 2: buy everything else? Can you tell us not just what

761
00:36:13,880 --> 00:36:16,239
Speaker 2: you want to buy banks? What wouldn't you touch? What

762
00:36:16,280 --> 00:36:18,799
Speaker 2: would you tell our audience this morning as everyone gets

763
00:36:18,800 --> 00:36:20,319
Speaker 2: wrapped up in the everything house rally?

764
00:36:20,600 --> 00:36:23,600
Speaker 1: What should they avoid? Yeah, so we're still not fans

765
00:36:23,640 --> 00:36:26,080
Speaker 1: of commoding commodity related stocks. If you're going to a

766
00:36:26,120 --> 00:36:28,600
Speaker 1: period where inflation is lower, I'm not really sure how

767
00:36:28,680 --> 00:36:31,759
Speaker 1: that works. Also, we don't think the economy is accelerating.

768
00:36:32,080 --> 00:36:34,000
Speaker 1: Those are places where where we don't want to be.

769
00:36:34,120 --> 00:36:37,880
Speaker 1: So we're still underweight energy and we think that's going

770
00:36:37,960 --> 00:36:40,800
Speaker 1: to be a difficult spot. So anything commodity commodity related,

771
00:36:41,200 --> 00:36:43,760
Speaker 1: you know, in an inflation or non inflation or environment,

772
00:36:44,360 --> 00:36:45,480
Speaker 1: I just don't see how it works.

773
00:36:45,560 --> 00:36:47,160
Speaker 2: Chris, it's going to see I've bred in the banks.

774
00:36:47,160 --> 00:36:48,560
Speaker 2: Thank you, sir, Thank you, Chris Harvey.

775
00:36:48,640 --> 00:36:48,759
Speaker 1: There.

776
00:36:49,600 --> 00:36:53,120
Speaker 2: This is the Bloomberg Sevenans podcast, bringing you the best

777
00:36:53,200 --> 00:36:56,480
Speaker 2: in markets, economics, angiot politics. You can watch the show

778
00:36:56,560 --> 00:36:59,480
Speaker 2: live on Bloomberg TV weekday mornings from six am to

779
00:36:59,600 --> 00:37:03,360
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780
00:37:03,520 --> 00:37:05,759
Speaker 2: or anywhere else you listen, and as always on the

781
00:37:05,760 --> 00:37:08,200
Speaker 2: bloom Blog terminal and the Bloomberg Business app.

782
00:37:12,120 --> 00:37:12,600
Speaker 7: Mm hmm