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Speaker 4: Had a broad market fixed income. He's in charge of
Speaker 4: yield at Morgan Stanley Investment Management. Vishal Kanduja joins us.
Speaker 4: Do you and Jim Caron disagree? Like when you go
Speaker 4: to a meeting with Jim Caron, are you on the
Speaker 4: same page?
Speaker 5: A lot of times you're on the same page, but
Speaker 5: there is quite a bit of times healthy disagreement.
Speaker 3: Good.
Speaker 4: What's the point?
Speaker 6: Because of time.
Speaker 4: What's the key distinction now in that disagreement at Morgan Stanley?
Speaker 5: I think there are two key themes right now. I
Speaker 5: think Fed definitely was and remains to be the center stage.
Speaker 5: We'll find out more at 10 o'clock on Friday from
Speaker 5: Kevin Warsh, a reiteration of the 2% and maybe a
Speaker 5: little bit more hawkish reiteration of the same. I think
Speaker 5: the big thing now, Scott Besson, the Treasury Secretary, wants
Speaker 5: to take the center stage. So things that have not changed, fundamentally,
Speaker 5: we still don't have a very clear plan to for
Speaker 5: deficit reduction. But they say that they're going to have
Speaker 5: something for us in the next two weeks. Things that
Speaker 5: have changed is now you have clearly gone out of
Speaker 5: your way to come out, surprise the market, and then
Speaker 5: give us a little bit more information that this is
Speaker 5: some sort of a pain threshold has been reached. Either
Speaker 5: it is the curve shape, it is absolute level of yields,
Speaker 5: or it is a worry that these higher yields are
Speaker 5: going to add to deficits even more.
Speaker 2: So Vishal, one of the narratives for higher interest rates
Speaker 2: is this whole crowding out issue that all this investment
Speaker 2: grade AI debt is crowding out the treasury market.
Speaker 7: Is that really happening?
Speaker 8: It's definitely happening on the margin.
Speaker 5: The way we measure this is just the amount of
Speaker 5: duration that is coming out. High-quality balance sheets, which are AA, AAA,
Speaker 5: almost by quality, are now finally trying to use the
Speaker 5: strength of those balance sheets, the corporate ones that I'm
Speaker 5: talking about. And they're going to use quite a bit
Speaker 5: of that given the amount that they need for the CapEx. Now,
Speaker 5: the same high-quality buyer of long-end duration also buys a
Speaker 5: lot of treasuries in their balance. So definitely they're scouting out,
Speaker 5: but size is very different. You're talking about a $ 40
Speaker 5: trillion market versus a less than $ 2 trillion market on
Speaker 5: the other side.
Speaker 4: Do we need to get used to higher rates? We
Speaker 4: had a guest earlier, Rochelle, who suggested grinding yields, you know,
Speaker 4: just sort of a movement here, dare I say to 5%.
Speaker 4: Are you in that camp?
Speaker 5: So four and three quarters, I think we might spike
Speaker 5: to five on the 10-year.
Speaker 4: But four and three quarters.
Speaker 5: Is a pretty fantastic threshold here. And why we say
Speaker 5: that is because of the fundamental reasons. We do see
Speaker 5: very clear-cut, broad-based disinflationary pressures.
Speaker 4: In the economy.
Speaker 5: Got a little bit delayed because of the conflict, because
Speaker 5: of the nominal growth picking up, because of the capex
Speaker 5: spend that you're seeing from the corporates.
Speaker 4: But we do see quite a bit of.
Speaker 8: Disinflationary pressures, which then.
Speaker 5: brings down that yield or anchors that yield down over
Speaker 5: the long term.
Speaker 4: So, yes, quite a bit of value.
Speaker 5: And we do see that we are topping up in
Speaker 5: yields at these levels on the 10-year in the U.S.
Speaker 2: Vishal, I understand a lot of smart folks are heading
Speaker 2: out to Jackson Hole, Wyoming, which I presume is for
Speaker 2: the bison burger thing. But I guess we're going to
Speaker 2: hear from some economists. What do you expect to hear
Speaker 2: from Fed Chairman Warsh? What do you think the market
Speaker 2: would really like to hear?
Speaker 5: I think the market would love to hear some reiteration
Speaker 5: of the target and then a little bit more about
Speaker 5: those five working groups or forums that we've heard about.
Speaker 5: The leadership of those forums that has been set is
Speaker 5: pretty fantastic and terrific. We would love to see what
Speaker 5: the initial work from those forums.
Speaker 8: Tells us at the moment.
Speaker 5: So I think a little bit more on that one
Speaker 5: and a little bit more about What is your assessment
Speaker 5: about the economy? We don't need some forward guidance here,
Speaker 5: but that will tell us if there is some piece
Speaker 5: of information that is you looking at that we should
Speaker 5: be also focused on as a market participant.
Speaker 4: Thank you so much for the brief here into the
Speaker 4: PCE report. joins us, head of broad market fixed income
Speaker 4: at Morgan Stanley. And so I got red and green
Speaker 4: in the screen, the 10-year yield into the report, 4.6208%.
Speaker 4: Across America from New York, it's Bloomberg Surveillance.
Speaker 9: And the government's personal consumption expenditures price index, otherwise known
Speaker 9: as the Fed's favorite gauge of inflation, is out. And
Speaker 9: month over month, PCE increased by two-tenths of a percent,
Speaker 9: rebounding from a 0.1% decrease in the previous month, hotter
Speaker 9: than the estimate of a tenth of a percent. Year
Speaker 9: over year, the PCE price index rose by to 3.7%
Speaker 9: in July, matching what happened in June when we saw
Speaker 9: a rise of 3.7%, a bit hotter than the 3.6%
Speaker 9: we were expecting. Now, if you exclude volatile food and
Speaker 9: energy costs, core PCE month over month edging up 0.2%
Speaker 9: versus the 0.1% rise the prior month, and that's right
Speaker 9: in line with estimates, and the annual core rate holding
Speaker 9: steady at 3.3%, right in line with estimates, In terms
Speaker 9: of personal income and spending, it seems like we made
Speaker 9: more than we spent. Personal income up four-tenths of a percent,
Speaker 9: besting the estimate of two-tenths of a percent versus a
Speaker 9: rise of two-tenths of a percent the prior month, spending
Speaker 9: up two-tenths of a percent, down a bit from that
Speaker 9: three-tenths of a percent rise we saw the prior month,
Speaker 9: and that versus the one-tenth of a percent increase we
Speaker 9: were expecting. So once again here, the headline number, PCE
Speaker 9: price index year over year coming in at 3.7% right
Speaker 9: in line with estimates. Back over to Tom and Paul.
Speaker 4: Thanks so much, Alexis. Really, really appreciate that. It's a really...
Speaker 4: A churning, almost confusing report with important revisions as well.
Speaker 4: We'll get to that here in a moment. Bloomberg Surveillance
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Speaker 4: looking at the yield space. And I mean, it's directionally, Paul,
Speaker 4: it wants to give me higher yields, but I'm not
Speaker 4: getting the higher yields I thought I'd be getting here.
Speaker 3: Yeah.
Speaker 2: I mean, the two-year, Tom, is up about almost two
Speaker 2: basis points, 4.19%. But that's at the level we've been
Speaker 2: at for several weeks, if not months at this point.
Speaker 2: So I mean, and the stock market future is really
Speaker 2: showing No real move here. The S & P is
Speaker 2: down eight points. The Dow is up 30 and the
Speaker 2: Nasdaq is down 100 points.
Speaker 4: I'm looking at the second view of GDP. This is
Speaker 4: ancient data, folks, ending June 30. Look once, look twice,
Speaker 4: look three times, and Michael Ball revises it five years later.
Speaker 4: Joining us now from Bloomberg News and a macro strategist,
Speaker 4: Michael Ball. I'm looking at a screen, and I don't
Speaker 4: have the statistic in front of me, but it's still
Speaker 4: a boom economy, Michael Ball, on nominal GDP. You add
Speaker 4: real GDP, sort of, eh, big inflation ending June 30,
Speaker 4: and this Jackson Hole is a big nominal GDP Jackson Hole.
Speaker 10: Yeah, I mean, again, as you guys know, I love
Speaker 10: to look at real final domestic demand because it takes out.
Speaker 6: That sort of import noise.
Speaker 11: Really?
Speaker 10: Yeah, because it's just basically what people are spending domestically
Speaker 10: versus import noise from the CapEx boom. Remember, we had
Speaker 10: a low GDP print because we imported a lot. And
Speaker 10: also the inventory cycle was doing what it did, which
Speaker 10: was a boost.
Speaker 4: So what's domestic final sales?
Speaker 6: Strong. And this is what the upgrades are.
Speaker 10: And they're sticking apparently in Q2, which is good because
Speaker 10: now we're starting to see the finalization of that. So
Speaker 10: we had good momentum coming into the third quarter. The
Speaker 10: worry here, again, is that we're going to be losing
Speaker 10: some of this momentum. So this personal spending number is
Speaker 10: catching my eye a little. And we also recently had
Speaker 10: a big note out from Goldman basically saying that their
Speaker 10: July and August data is showing that there is a
Speaker 10: slowing in consumer activity. Despite all the boom we're seeing
Speaker 10: at the U.S. Open and the World Cup and all that.
Speaker 10: So there's a little bit of a divergence here with
Speaker 10: the momentum coming out of Q2 going into Q3 where
Speaker 10: we're going to still have this fixed investment boom from
Speaker 10: CapEx and from the reshoring and from the defense spending.
Speaker 6: But the consumer itself now is looking more wavery.
Speaker 4: Can I just say Michael Ball starts talking in the
Speaker 4: 10-year move to basis points?
Speaker 7: I know.
Speaker 4: Higher yields here right now.
Speaker 2: So you go out there, if you were at the
Speaker 2: Fed here, what would be your big concern? What would
Speaker 2: you want to get a little bit smarter at, maybe
Speaker 2: at Jackson Hole here?
Speaker 10: So, again, this probably isn't going to be a great
Speaker 10: platform for speaking about policy in its core function because, again,
Speaker 10: this is about future payment systems. And this might have
Speaker 10: to do with why crypto, again, is having a couple
Speaker 10: of good weeks here. It kind of falls into some
Speaker 10: of that. But to your point, guys, we need to
Speaker 10: talk about what the actual structural inflation story is versus
Speaker 10: what the cyclical story is and what the Fed can affect.
Speaker 4: So parse the distinction there.
Speaker 10: So that's a great question that I think they need
Speaker 10: to clarify. I myself am not clear on because what
Speaker 10: do we want to do? Do we want to step
Speaker 10: on AI capex inflation? No, probably not.
Speaker 12: Right.
Speaker 11: We do.
Speaker 10: We want to actually look at wage inflation. Well, that's
Speaker 10: not actually going to going anywhere. So then you have
Speaker 10: a case to hold. So there are plenty of things
Speaker 10: to cut and parse through as far as the inflation picture,
Speaker 10: which is exactly why we hear from Warsh that he
Speaker 10: wants to take a different look at it.
Speaker 4: Second quarter GDP price index. 6.2, which is ginormous, and
Speaker 4: it came in even bigger than that, 6.4%. That's not
Speaker 4: a normal.
Speaker 6: Economy, is it? No, again, it's a tale of two
Speaker 6: stories here.
Speaker 10: We have a real drive, not only from AI build out,
Speaker 10: but also from our own government to kind of reshore.
Speaker 10: And then obviously we have a lot of defense spending
Speaker 10: coming through now. So the fiscal pulse has been quite strong.
Speaker 10: That's expected to fade into year end, but that's clearly
Speaker 10: reflected in Q2 data. And again, the momentum right now
Speaker 10: is pretty strong. So we are looking at an economy
Speaker 10: that is above trend. And that is a problem for
Speaker 10: the Fed, given that inflation remains stickier in that kind
Speaker 10: of backdrop.
Speaker 2: W.I.R.P., the world interest rate fund probability, blah, blah, blah, blah.
Speaker 2: Markets pricing in one rate hike by.
Speaker 7: The end of the year.
Speaker 4: I don't know.
Speaker 7: How do you think that looks these days?
Speaker 10: Yeah, after July, when we had sort of the lack
Speaker 10: of communication from the press conference. That's exactly where it
Speaker 10: went to. And actually, we crept into January and out
Speaker 10: of December. Now the idea being, if they don't go
Speaker 10: in September, which again, it's not looking too good as
Speaker 10: far as what probability is.
Speaker 6: Now let's keep in mind, we went into July.
Speaker 10: I think we were somewhere around between 30% and 40%
Speaker 10: chance anyway. And that was one of the lowest probabilities
Speaker 10: going into a meeting, which goes to show this new
Speaker 10: error where the chairman doesn't want to guide markets into
Speaker 10: a meeting. So we need to get accustomed to this
Speaker 10: new reality.
Speaker 4: I just found this statistic I was looking for. Thank you,
Speaker 4: Google Gemini, for this. Nominal GDP ending second quarter, first look,
Speaker 4: an annualized rate of 7.9%. I have never perceived that
Speaker 4: in my academic life. I've never witnessed it. That's something
Speaker 4: I get out of Southeast Asia, you know, given a
Speaker 4: war going on.
Speaker 10: You know, I mean, me and you have talked about
Speaker 10: this for a couple months now, about this reacceleration sort of,
Speaker 10: and it's broadening as we get— the consumer was active in Q2—
Speaker 10: This is why the market is doing quite well, the
Speaker 10: stock market. I mean, this is why it's not about
Speaker 10: AI anymore and momentum and higher beta trading. It's about
Speaker 10: a broadening and a rotation and some more cyclical parts
Speaker 10: of it.
Speaker 4: And I don't understand Druckenmiller. I'm going to say, look,
Speaker 4: I took this off AI. Anna Wong's smarter than me.
Speaker 4: She's going to figure this statistic out. But Paul, 7.9%
Speaker 4: run rate, a nominal GDP, tells me in no way, shape,
Speaker 4: or form, is this a normal Jackson Hole?
Speaker 2: No. It'd be interesting to see kind of how people...
Speaker 2: factoring today's data into the discussion. AI, Michael, how much
Speaker 2: of economic growth, of that number Tom just quoted, how
Speaker 2: much of all this is AI spending?
Speaker 6: A good chunk of it.
Speaker 10: And again, that's sort of where we get this kind
Speaker 10: of tale of two cities. And I'm, again, going back
Speaker 10: to this real personal spending being zero. It's good that
Speaker 10: income was up. When we adjust that, though, for inflation,
Speaker 10: that's obviously going to be a little lower. But what
Speaker 10: we need to see is it's not just a fixed
Speaker 10: investment boom in a certain pocket that now has become
Speaker 10: highly political and very uncertain and also very expensive. Meaning
Speaker 10: that every kind of buck they're spending in CapEx now
Speaker 10: gets less marginal compute because everyone's kind of rushing into.
Speaker 6: One door at the same time.
Speaker 7: Didn't think about that.
Speaker 10: So we want to see the broadening out and we
Speaker 10: want to see the consumer play its role. And again,
Speaker 10: the worry is that we are going to become more
Speaker 10: tapped out as people are going into savings, going up
Speaker 10: in credit spending.
Speaker 6: But this has.
Speaker 10: Been a story I've been told for quarters now and
Speaker 10: that the resilience of the consumer has kind of baffled
Speaker 10: everyone and it continues.
Speaker 6: So I'm not calling for an immediate end. I'm just
Speaker 6: saying this is where all eyes are.
Speaker 4: How urgent is it to get the run rate of
Speaker 4: our economy down to begin to get inflation back to?
Speaker 4: Forget about mandates. Forget about Taylor and the rest of it.
Speaker 4: What's the urgency to get the vector on inflation.
Speaker 7: Lower?
Speaker 6: I mean, one would argue not urgent or they would
Speaker 6: have gone in July. There's been no material change since that.
Speaker 4: Why is it not urgent with a banana republic nominal GDP?
Speaker 6: I mean, a lot of theories on that.
Speaker 10: We don't want to step on sort of the overall
Speaker 10: consumer by raising rates and tightening Main Street while trying
Speaker 10: to pop maybe a financial bubble or some fraud scene.
Speaker 4: In real assets. So in Jackson Hole, it's a political Fed.
Speaker 6: Could be.
Speaker 4: They can't step on half of America flat on their back.
Speaker 5: Yeah.
Speaker 4: Because somebody's paying Paul Sweeney ticket prices at the U.S. Open.
Speaker 6: Yeah, but this is a divergence.
Speaker 10: Like when you heard from Hammock and Logan, they're talking
Speaker 10: about what their business, they're telling them the cost increases there,
Speaker 10: the problems they're having with managing that. And when you
Speaker 10: talk to some of the other guys, the more dovish guys,
Speaker 10: they're talking about Main Street and they're talking about the consumer.
Speaker 4: Paul wants to get one more in here quickly. Beth Hammock,
Speaker 4: I believe, leading our coverage on Friday.
Speaker 1: Very good.
Speaker 7: NVIDIA after the close tonight. What's a macro guy? take
Speaker 7: away from NVIDIA. What are you going to be looking for?
Speaker 10: Yeah, so I've been looking sort of for NVIDIA to
Speaker 10: reassert this kind of AI capex winter momentum, which is cool,
Speaker 10: then actually kind of split open, right? So there's certain
Speaker 10: parts of AI still doing well, like optics and memory,
Speaker 10: where you've seen some of the.
Speaker 6: Core chip guys and others lose momentum.
Speaker 10: And it's been more of a divergent trade versus this
Speaker 10: just higher beta, all ships rising, anything to do with AI.
Speaker 10: So what we need from NVIDIA is maybe to settle
Speaker 10: some of that. Just the passage of that event being
Speaker 10: in line would help cool that. And then you get,
Speaker 10: you know, the volatility picture sort of settles. And again,
Speaker 10: more participation. Because that really has been a lagger, sort of,
Speaker 10: you know, semis have been one of the bigger laggers
Speaker 10: and they're right on top of momentum. All that kind
Speaker 10: of needs to settle a little for the market's breadth
Speaker 10: and the broadening that we see to continue in a
Speaker 10: healthier way. Like, we don't want to see AI left behind.
Speaker 10: We want to see everyone to participate if you want
Speaker 10: to keep going to 8,000 XPX.
Speaker 4: It sounds like he's running for office.
Speaker 7: I'd vote for him.
Speaker 6: Stock market mayor. If I'm elected, I'm going to be
Speaker 6: your Michael Paul. Yes, exactly.
Speaker 11: We'll see how that goes.
Speaker 2: So, again, the next thing for this market here, what
Speaker 2: is it?
Speaker 8: What do we need to focus on?
Speaker 6: Yeah, it is NVIDIA, I think, to your point. We
Speaker 6: need the passage of this earnings season.
Speaker 10: I mean, someone was saying that we've got banks coming
Speaker 10: in a week or two, so we're right back in
Speaker 10: it now. But to your point, Jackson Hole is starting
Speaker 10: to smell like it may not be a risk event
Speaker 10: as much as we like to hype it up.
Speaker 4: I agree.
Speaker 6: Because I think he's got a.
Speaker 11: Kind of bulk.
Speaker 10: Which leaves us status quo, which means it's probably a
Speaker 10: more dovish tilt to the Fed. So we don't have
Speaker 10: to worry about tightening there, which is good for stocks.
Speaker 10: And back to Tom's point, like nominal GDP is so high,
Speaker 10: the earnings picture has broadened so well in Q2 that
Speaker 10: it's just like everything is kind of working, even though
Speaker 10: we all still have this mainstream kind of affordability crisis
Speaker 10: going on in the backdrop.
Speaker 6: And geopolitics, obviously, are still not settled.
Speaker 4: It's a $ 23 honey deuce cocktail at the US Open.
Speaker 6: That goes up every year.
Speaker 7: We have like a thousand cups at our house.
Speaker 4: But is it like 16 ounce?
Speaker 11: No.
Speaker 7: It's a 12 ounce. And it's like that much vodka.
Speaker 4: Yeah, exactly. They put like eight buckets of ice in it.
Speaker 11: Yes.
Speaker 7: And I buy it every year.
Speaker 4: You buy it for him. Don't get me wrong.
Speaker 6: You kind of have to. You're already all in at
Speaker 6: that point.
Speaker 11: Michael Ball, brilliant.
Speaker 4: Thank you so much. We've got to do better. Ball
Speaker 4: was okay, but Jess Benton will be better. Michael Ball,
Speaker 4: thank you so much. here this morning. Red and green
Speaker 4: on the screen right now. It's a really quiet screen.
Speaker 4: It's got that August feel after the PCE and the
Speaker 4: churn of it. The yields finally changed. Michael Ball was talking,
Speaker 4: and we finally got price down, yield up. 30-year bond
Speaker 4: up just a point. 10-year yield gives me more, up
Speaker 4: two basis points. In the Sweeney two year, the Fed
Speaker 4: sensitive yield up a big four basis points as well.
Speaker 4: Why don't you bring in our next guest?
Speaker 6: Absolutely.
Speaker 2: Jess Metten, she is deputy team lead for the equities
Speaker 2: group over there at Bloomberg News. Jess, I mean, inflation,
Speaker 2: it's there. It's kind of in line with what. I
Speaker 2: guess the market was kind of discounting here. Not much
Speaker 2: happening in the equity markets here. Or maybe the yields.
Speaker 6: Lift a little bit.
Speaker 7: But what are you looking at in the equities market
Speaker 7: this morning?
Speaker 13: Well, part of it and why it looks like there's
Speaker 13: not a lot happening is it's still been more of
Speaker 13: a micro story rather than a macro. Anytime like Mandy
Speaker 13: Zhu over at Subo's talked a lot about this if
Speaker 13: you're looking at the options side of things. And especially
Speaker 13: during earnings season, of course, we have NVIDIA. reporting after
Speaker 13: the bell today. So that's more when I'm talking to
Speaker 13: portfolio managers, what their focus is on today. Even though
Speaker 13: we have, of course, Jackson Hole, Kevin Moore speaking, his
Speaker 13: first speech at Jackson Hole. Typically, I've compiled some data.
Speaker 13: It's a little preview here for a story I'm going
Speaker 13: to have Friday morning looking for a taking stock column.
Speaker 13: But this is really about historically, there tends not to
Speaker 13: be a gigantic move a week post that presser because
Speaker 13: it's really more when you're at an inflection point with
Speaker 13: monetary policy, say like back in 2022 or when former
Speaker 13: Fed Chair Jerome Powell was speaking. That was when we
Speaker 13: were sort of in the middle of those 75 basis
Speaker 13: point hikes.
Speaker 7: It happened four times.
Speaker 13: That was when we had already had two of them.
Speaker 13: So it's a little bit different because also Kevin Warsh
Speaker 13: clearly has made it his focus of not putting out
Speaker 13: forward guidance. But it's been more of a micro story
Speaker 13: when you're seeing much more volatility underneath the hood of
Speaker 13: the major indexes. So it's most likely going to continue
Speaker 13: that today. And even if you look, it's interesting with
Speaker 13: NVIDIA because, of course, this has been one of the
Speaker 13: main stocks that has been driven the bull market rallies
Speaker 13: since October of 2022. And it first had that huge
Speaker 13: revenue forecast in May of 2023. So when you're looking
Speaker 13: at this, even if you look at SERP, what the
Speaker 13: one day implied move is, it's around 5% for Nvidia
Speaker 13: post those earnings. If you look at the S &
Speaker 13: P 500, the move for tomorrow, which is when Jackson
Speaker 13: Hole starts. It's actually 70 basis points swing. But of course,
Speaker 13: that matches in line when Fed Chair Kevin Warr speaks
Speaker 13: on Friday. So that would be the third highest mood
Speaker 13: we see over the next three weeks behind CPI. And then,
Speaker 13: of course, Fed Day on September 16th.
Speaker 4: So getting from NVIDIA this afternoon to the madness of
Speaker 4: headlines at 10 a.m. on Friday, is it 10 a.m.
Speaker 4: Mountain Time or Eastern Time? I think Eastern time.
Speaker 7: I think Eastern time. Yeah.
Speaker 4: Eastern time. It's two zip codes away.
Speaker 11: They are. They are.
Speaker 4: In the mountains.
Speaker 11: I could.
Speaker 4: Bruno's in charge of the clock. What can I say?
Speaker 4: To get from NVIDIA to Friday, is that like a
Speaker 4: big deal for equity animals trading every five minutes? Yes.
Speaker 13: Well, and also I want to point out because if
Speaker 13: you look at where NVIDIA stock is year to date,
Speaker 13: it's up 14%.
Speaker 6: If you compare that.
Speaker 13: To Micron technology, that stock's up over 200% and SanDisk
Speaker 13: over 500%. The reason I bring up SanDisk and Micron.
Speaker 13: Those were the two best performers in the S &
Speaker 13: P 500 in the first half of the year. Of course,
Speaker 13: I have to mention that the SOX, the Philadelphia Semiconductor Index,
Speaker 13: peaked on June 22nd. So since then, the SOX is
Speaker 13: down close to 20%. But if you look at NVIDIA
Speaker 13: in that time, it's up around 1%. But those other
Speaker 13: stocks are down double digits. So my point is, right now,
Speaker 13: when I'm speaking with portfolio managers, look at the PE
Speaker 13: on NVIDIA. I mean, it's around 18.
Speaker 6: That's less than the.
Speaker 4: S & P 500. Stop, stop. That's too important. Folks,
Speaker 4: what you just heard there from Ms. Benton is too important.
Speaker 6: Well, it's also cheaper than Hershey's.
Speaker 4: Hershey's is a staple.
Speaker 6: And NVIDIA is cheaper than Hershey's right now.
Speaker 13: So I feel like that's important just to point out
Speaker 13: that people are going to still jump in and buy
Speaker 13: that regardless.
Speaker 4: Of its earnings. NVIDIA's forward PE based on earnings growth
Speaker 4: is cheaper than Hershey's chocolate. Yes.
Speaker 5: Yes.
Speaker 4: I did not know that.
Speaker 12: Right.
Speaker 7: So look at it.
Speaker 13: It's around 18.8 for NVIDIA, and it's a little less
Speaker 13: than 20 for Hershey's and for the S.
Speaker 6: & P 500.
Speaker 13: So I think that's something that people should keep in
Speaker 13: context here.
Speaker 4: Jess, thank you so much for having equity coverage here,
Speaker 4: and particularly the volatility measurement of what we see in
Speaker 4: the indices versus the underlying day-to-day movement. Stay with us.
Speaker 4: More from Bloomberg Surveillance coming up after this.
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Speaker 4: In charge of that stuff at Wolf Research, head of U.S.
Speaker 4: public policy, Tobin Marcus joins us right now. Tobin, this
Speaker 4: uproar that we're in of the demarcation of Besson and Warsh,
Speaker 4: and all the rest of it, does it link back
Speaker 4: into the midterm elections, or is it discrete and separate?
Speaker 11: Good to be here, Tom.
Speaker 14: I don't read it as particularly closely driven by the midterms.
Speaker 14: In general, I don't think the Trump administration has been
Speaker 14: executing against the midterms as a goal very much recently.
Speaker 14: That's come up a lot in Iran, where there's been
Speaker 14: a theory of the case that the midterms would force
Speaker 14: them into some sort of capitulatory posture.
Speaker 8: We haven't seen that.
Speaker 14: And here, too, I think they'd prefer to lose a
Speaker 14: couple fewer seats at the margin in the House, but
Speaker 14: the House is basically a foregone conclusion. I think Besson's
Speaker 14: doing this because he doesn't like how the prices look.
Speaker 4: I mean, the bottom line is, as Paul just correctly stated—
Speaker 4: It's about the data. I got PCE at 3.6% survey.
Speaker 4: I got core PCE a little bit south, 3.3%. That's
Speaker 4: untenable for most of America, isn't it?
Speaker 6: Yeah, I completely agree.
Speaker 14: Ultimately, both voter economic sentiment and the movements in the
Speaker 14: long end of the curve are going to be driven
Speaker 14: by fundamentals, with inflation being a big part of that.
Speaker 14: I mean, you know, there was some debate yesterday as
Speaker 14: to whether the little leg down in yields at the
Speaker 14: long end of the curve was showing that the best
Speaker 14: intervention is in fact working. I think that's more a
Speaker 14: reflection of sort of improving sentiment on the Iran war. I'm, again,
Speaker 14: a little skeptical that we're going to actually get that de-escalation,
Speaker 14: but the oil price moves, I think, are what drove that.
Speaker 2: So Tobin, with several days now of some hindsight here,
Speaker 2: how do we think about Secretary Besson's bond buying announcement
Speaker 2: and policy?
Speaker 7: How do we should we think about that?
Speaker 14: To me, it looks kind of like an opportunistic attempt
Speaker 14: to come into the market.
Speaker 8: In a place where he thought liquidity was thin.
Speaker 14: Not that it was a real response to liquidity conditions,
Speaker 14: but he's like, ah, you know, I have a chance
Speaker 14: to take a shot here, maybe bring prices down a
Speaker 14: little bit at the margin. I'm not reading anything he's
Speaker 14: said or done as projecting the kind of whatever it
Speaker 14: takes resolve that you would really need if you're intending
Speaker 14: to draw a line in the sand and say, yields
Speaker 14: go no higher and we're going to force them down.
Speaker 2: Tobin, sticking with Secretary Besant, making news on another front.
Speaker 7: This is in Iran.
Speaker 2: D-Day, this economic D-Day, is there any reason to believe
Speaker 2: an incremental layer of sanctions on Iran will have any
Speaker 2: effect here? It seems like they've been the most sanctioned
Speaker 2: country out there for a long time.
Speaker 11: Yeah, I mean, the.
Speaker 14: Original maximum pressure sanctions campaign in Trump 1.0 began more
Speaker 14: than six years ago at this point.
Speaker 11: So certainly economic isolation is not new for them.
Speaker 14: You know, the pressure continues ratcheting tighter and their economy
Speaker 14: is under very severe strain. So it's inflicting pain, but
Speaker 14: I don't think that that pain is going to cause
Speaker 14: the regime to crumble or give up.
Speaker 4: To summarize this, I think it's really important. Dan Tannenbaum
Speaker 4: is going to be on the 9 o'clock hour. He's
Speaker 4: an expert on this. And it's all this sanction, sanction, this,
Speaker 4: and limit, limit, this. The bottom line is China gets
Speaker 4: its oil from Iran, right? And the answers are going
Speaker 4: to continue to, right?
Speaker 14: Yeah, I have no expectation that China is going to
Speaker 14: alter their behavior in any way based on this.
Speaker 4: OK, then I don't apply. I'm absolutely baffled.
Speaker 2: Well, I think, Tom, this brings up and Tobin, I'd
Speaker 2: love to get your thoughts here about President Xi still
Speaker 2: scheduled to come and meet with President Trump here, I guess,
Speaker 2: next month.
Speaker 7: Boy, how do we handicap that thing now?
Speaker 14: I mean, from the Chinese side, I think that the
Speaker 14: fact of that meeting happening is a win at some level.
Speaker 14: What they want is to reinforce this dynamic of constructive
Speaker 14: strategic stability, which to them means that the U.S.
Speaker 11: Needs to treat them as a peer.
Speaker 14: We can't just reach out and slap them around with
Speaker 14: long-arm sanctions and export controls. And so I think continuing
Speaker 14: the sort of parade of meetings where we're embracing each
Speaker 14: other as equals, that's a win from their perspective. So
Speaker 14: I suspect that that summit will go forward even with
Speaker 14: some recent ratcheting of export controls in terms of these
Speaker 14: FCC actions on optical transceivers or the polysilicon tariffs or
Speaker 14: those kinds of confrontational steps by the U.S.
Speaker 4: Look, can we switch geographies?
Speaker 11: Oh, yeah.
Speaker 4: Canada. What did you think of what Mr. Carney and
Speaker 4: all of Canada did yesterday in their, I guess, their
Speaker 4: tariff tit for tat? Does it really limit a lot
Speaker 4: of our industrial ability? Let's start with, are you ready? Three, two, one.
Speaker 11: Aluminium.
Speaker 5: Oh, yes.
Speaker 14: Yeah, I mean, look, the actual scale of the tariffs
Speaker 14: imposed in both directions is quite small. You know, the
Speaker 14: rate's high, but the base is very narrow. It's about 5%
Speaker 14: of the trade in each direction.
Speaker 7: So at some level, it's symbolic.
Speaker 14: I mean, they're a proud nation like we are. I
Speaker 14: do ultimately think that the relationship is going to get
Speaker 14: back on track. I think the USMCA will be extended
Speaker 14: with some revisions probably sometime next year. I don't think
Speaker 14: that the US administration is willing to blow it all up.
Speaker 4: But did you see anything that Canada was tariffing Is
Speaker 4: that a word? Tariffing that really struck you as being
Speaker 4: politically or from an industrial standpoint limiting.
Speaker 14: I don't see any concentrated industrial impacts.
Speaker 8: The sort of U.S.
Speaker 14: Metal sales to Canada, ultimately, again, it's just not that
Speaker 14: big of a market as a share of our sort.
Speaker 11: Of global sales.
Speaker 14: To me, what stands out in terms of the concentrated
Speaker 14: impact of the Canada tariffs is the political geography of it,
Speaker 14: where Michigan and Maine in particular are really high leverage
Speaker 14: states in the midterms in the Senate. And they're obviously
Speaker 14: border states and rely a lot on trade back and
Speaker 14: forth with Canada. So you have Maine lobstermen, for example,
Speaker 14: up in arms. So that to me, I think, is
Speaker 14: the sort of political shortcoming of this strategy. And you
Speaker 14: do have people in the Senate prevailing upon the president
Speaker 14: to try and cool it.
Speaker 2: So, I mean, that kind of goes to Tom's midterm
Speaker 2: question earlier. It feels like the president is not really
Speaker 2: attuned at all to the midterms in terms of trying
Speaker 2: to support Republican candidates, because a lot of his policies
Speaker 2: are whether it is tariffs, whether it is around, just
Speaker 2: simply don't poll well, yet he seems to be double
Speaker 2: down on these types of things right before the elections.
Speaker 11: Yeah, I think he's pursuing his agenda because he believes
Speaker 11: in it.
Speaker 14: And the chips will fall where they may from a
Speaker 14: Republican congressional prospect's perspective. I think he basically thinks that
Speaker 14: congressional Republicans are there to support his agenda. And so
Speaker 14: if the price of getting some elements of his agenda
Speaker 14: move forward, either in trade or in the U.S.-Iran conflict,
Speaker 14: is that some of them lose their seats, then that's
Speaker 14: a noble sacrifice by them in service of the cause.
Speaker 4: Tobin, thank you so much. Tobin Marcus, really appreciate it.
Speaker 8: U.S.
Speaker 4: Policy analyst, Wolf Research. Stay with us. More from Bloomberg
Speaker 4: Surveillance coming up after this.
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Speaker 4: This is like from my ute. It's from another life, folks.
Speaker 4: I'm so happy that Ben Cook's on, Portfolio Manager. Hennergy
Speaker 4: Energy Transition Fund, also known as the OMG Look at
Speaker 4: the Dividend Fund. Ben, this is way back. I'm thinking Finley, Ohio.
Speaker 4: MPLX with a 7% yield with an Apple-like return since
Speaker 4: the beginning of COVID, like think 25% per year. Are
Speaker 4: we still in love with midstream and pipelines that pay
Speaker 4: huge dividends?
Speaker 8: Yeah, good morning, Tom, and thanks for that introduction. You know,
Speaker 8: we are.
Speaker 12: We think that the investment case for midstream today is
Speaker 12: as strong as it's ever been, a combination of rising
Speaker 12: growth and production here in the United States, strong commodity
Speaker 12: price fundamentals, corporate governance that's vastly improved over the last
Speaker 12: five years, and as you mentioned, cash payouts to investors,
Speaker 12: which continue to rise on the back of those favorable
Speaker 12: drivers that I just mentioned.
Speaker 4: Paul, this was all the rage decades ago. You make 13%
Speaker 4: per year like on an MLP. You know, you get
Speaker 4: some growthiness, double digit. But then with the overlay of
Speaker 4: a 7% yield reinvested, you're popping 25% per year since
Speaker 4: the beginning of COVID.
Speaker 6: Exactly.
Speaker 2: Hey, Ben, you know, a lot of lay people like myself,
Speaker 2: I just look at the price of, you know, Brent
Speaker 2: crude or WTI crude. And I see some moderation today.
Speaker 2: But experts like you tell me we should be looking
Speaker 2: at refined products.
Speaker 6: I guess that's the.
Speaker 2: Distillates, the diesel, the jet fuel.
Speaker 7: What's what's going on there with the stuff people actually use?
Speaker 8: Yeah, that's exactly right, Paul.
Speaker 12: You know, if you look at the global price of,
Speaker 12: you know, whether it's diesel or gasoline, it's obviously elevated
Speaker 12: with the tightness we're seeing based on the conflict with
Speaker 12: Iran and with the Russia-Ukraine conflict. You know, just recently
Speaker 12: on the second quarter call by ExxonMobil, You know, we
Speaker 12: heard from CEO Darren Woods that global refining capacity is
Speaker 12: off by as much as five to six million barrels.
Speaker 12: So that's as tight as the market's ever been. And
Speaker 12: we continue to see drawdowns in inventories. And we think
Speaker 12: the strength in those refined product prices will continue.
Speaker 2: How does that get addressed by the industry? You just
Speaker 2: don't build a refinery on the Gulf of Mexico overnight.
Speaker 11: Do you?
Speaker 4: No, you don't.
Speaker 12: It takes a long time, a significant amount of capital,
Speaker 12: and obviously approvals that are required by a number of
Speaker 12: different bodies to get a refinery built in this country.
Speaker 12: We've seen capacity added in the industry on a global
Speaker 12: basis in places like Mexico and West Africa over the
Speaker 12: last several years.
Speaker 8: But here in the U.S., it's a difficult task.
Speaker 12: Short of killing demand, there's really not an easy way
Speaker 12: to add supply to the market. So over time, as
Speaker 12: prices remain elevated, we'll attract more volume here. But it
Speaker 12: really is a matter of deferring or destroying demand, which
Speaker 12: is going to create extra supply.
Speaker 4: Give me an update on not in my backyard. Like,
Speaker 4: you know, we're talking about a pipeline from the, you know,
Speaker 4: say from the northern Arabian Peninsula across to the eastern
Speaker 4: shore of the Red Sea. I'm making this up, folks.
Speaker 4: Stay with me. Ben Cook, if we want to build
Speaker 4: pipelines in America, can we? Yeah, we can.
Speaker 12: And the Trump administration has done a lot to remove
Speaker 12: the impediments that I think were in place during the
Speaker 12: Biden administration. Famously, in the early days of the Biden administration,
Speaker 12: we saw the removal of the permit for the Keystone
Speaker 12: XL pipeline and effectively killing that project. But you know,
Speaker 12: removing the impediments, the approval, streamlining the approval process through
Speaker 12: the various bodies that are responsible for the permitting of
Speaker 12: new pipeline construction and build out. That can allow for
Speaker 12: a fast track of project expansion.
Speaker 8: And we're seeing a number of big.
Speaker 12: Projects being developed in areas like Texas and Ultimately, we'll
Speaker 12: see some pipelines deliver refined products to the southwest and
Speaker 12: ultimately the west coast of California. But it is a
Speaker 12: process that's lengthy, and the Trump administration is doing a
Speaker 12: lot to expedite that process.
Speaker 2: So, Ben, if you talk to shippers and insurers of ships,
Speaker 2: is the Strait of Hormuz ever.
Speaker 7: Going to be open like it was before?
Speaker 2: Before this war, or is the world just simply changed
Speaker 2: in that part of the world?
Speaker 8: Yeah, that's a great question, Paul.
Speaker 12: You know, I think the reality of the situation is
Speaker 12: the Iranians now know that they have significant leverage over
Speaker 12: the Strait. And whatever, you know, a durable, peaceful resolution
Speaker 12: looks like, it's hard to imagine them ceding control of
Speaker 12: the Strait.
Speaker 8: So I think the world has changed.
Speaker 12: I do think the recent announcement or the headlines associated
Speaker 12: with the Omanis and the Iranians negotiating some sort of
Speaker 12: controls and non-starter for the U.S., It's going to be
Speaker 12: a long time before we sort that out.
Speaker 4: Ben, you're a legend at this. You've been doing it
Speaker 4: for ages with Hennessy Energy Transition Fund. Do you see
Speaker 4: a day where the energy portion of the Standard &
Speaker 4: Poor's 500 will get back to quote-unquote normal?
Speaker 12: The fundamentals in the industry would certainly justify today. Right now,
Speaker 12: the energy sector, in terms of its weighting in the
Speaker 12: S & P, is roughly 3.3%. That's amazing. For the generalist,
Speaker 12: it hasn't really been punitive to be underweight energy because
Speaker 12: it's not a large percentage of the index. We think
Speaker 12: historically that the guideline of its earnings contribution to the
Speaker 12: S & P is the right way to look at
Speaker 12: the weighting in the S & P 500. That would
Speaker 12: imply roughly 7% to 8%. Historically, it's been as high
Speaker 12: as 10%, 12%. So we could certainly move up from here. Fundamentals, again,
Speaker 12: would certainly justify it.
Speaker 4: That's what I thought. Like a double would be sort
Speaker 4: of what Ben Cook sees somewhere out there far in
Speaker 4: the distance. Ben Cook, thank you so much with Hennessy
Speaker 4: Energy Transition. Stay with us. More from Bloomberg Surveillance coming
Speaker 4: up after this.
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Speaker 4: This is our interview of the day. Plain and simple.
Speaker 4: on the unspoken in the news, which is the sanctions work.
Speaker 4: Dan Tannenbaum is truly expert at this. He's got a
Speaker 4: fancy title, Global Anti-Financial Crime Practice Leader at Oliver Wyman.
Speaker 4: He is surveillance sanctions expert. Dan, can we sanction China?
Speaker 11: We absolutely can. The question is, will we? And the U.S.
Speaker 3: Government has historically been very reluctant to sanction any sort
Speaker 3: of meaningful entity in China. We've sanctioned smaller businesses in
Speaker 3: Hong Kong and the mainland, a couple of small banks
Speaker 3: over the years, but really nothing that anyone's heard of.
Speaker 11: The question is, will the U.S. move forward?
Speaker 3: And go at, let's say, a Chinese financial institution, the
Speaker 3: conduit for China's purchase of Iranian oil, which they purchased
Speaker 3: roughly 80% of Iran's oil on the market.
Speaker 11: So that's the big question mark this week.
Speaker 2: So when we heard from Secretary Besant regarding Operation Economic Outcast,
Speaker 2: what did you make of that? I mean, does this
Speaker 2: have any teeth? It just seems like Iran has been
Speaker 2: sanctioned more than anybody else seemingly on the planet, yet
Speaker 2: they Keep on going.
Speaker 3: Look, it's a little like Ted Knight waiting at the
Speaker 3: tee box. We've been waiting for this for a while.
Speaker 3: I mean, the sanctions that the secretary spoke about earlier
Speaker 3: this week, the U.S.
Speaker 11: Could have done that since 2020.
Speaker 3: This is not new authority.
Speaker 11: It's not new EO. It's not new regulation. It's a
Speaker 11: new position. The question is, will the U.S. make good
Speaker 11: on the threats?
Speaker 3: We saw overnight The Treasury Department announced discussions between the U.S.
Speaker 11: And Bahrain on the issue.
Speaker 3: The Fifth Fleet is housed in Bahrain, so they were
Speaker 3: never really in Iran proxy or relation. Will they go
Speaker 3: to Oman after what was announced this morning on this
Speaker 3: revenue sharing agreement? That's almost a certainty. But China's the
Speaker 3: real linchpin here. China is their most important trading partner.
Speaker 3: I'm not sure they necessarily will, at least at any
Speaker 3: significant scale.
Speaker 4: I mean, get down to the nite grite, as only
Speaker 4: Dan Tannenbaum can do. So if somebody decides we want
Speaker 4: to go after China, what do we actually do, Dan?
Speaker 3: I mean, what you do is you sanction a Chinese
Speaker 3: financial institution, not one of the state-owned banks and not
Speaker 3: one that's large enough that's systemically important in China, basically
Speaker 3: a bank that someone's heard of that's not significant enough
Speaker 3: to hurt the global economy. And I think you heard
Speaker 3: the secretary mention in the last question during that presser,
Speaker 3: why haven't you done that? And his response is, well,
Speaker 3: I don't want to, why would I blow up the
Speaker 3: global economy? That calibration is likely happening now to figure
Speaker 3: out What can you do that's significant enough that doesn't
Speaker 3: create unintended consequences, like in 2018 when Ole Deripaska was
Speaker 3: sanctioned and the U.S. briefly destabilized the world's aluminum sector
Speaker 3: for two weeks?
Speaker 2: Dan, President Xi is scheduled to come and meet with
Speaker 2: President Trump in September.
Speaker 7: How does that factor into all this?
Speaker 3: And they built that fun helipad for the visit as well.
Speaker 3: I mean, that's certainly a part of this calculus. Now,
Speaker 3: what I'm hoping for, and as we think we've heard
Speaker 3: at some point, hope isn't a strategy, is that the
Speaker 3: president is leveraging his relationship with President Xi to try
Speaker 3: and come up with a side deal to essentially push
Speaker 3: Iran forward. further away from China based on the way
Speaker 3: China responded yesterday overnight from the economic D-Day announcement on Monday.
Speaker 3: I'm not so sure that's happening, but that's hugely playing
Speaker 3: in the minds of the administration right now to not
Speaker 3: disrupt the relative detente we've been experiencing. So that's the
Speaker 3: real question is what are they going to do? The
Speaker 3: secretary kind of teased a bank that could be sanctioned
Speaker 3: by the end of this week.
Speaker 11: We've still got a few more days left.
Speaker 2: So net net here, it really comes down to China
Speaker 2: and how, I guess, serious the United States wants to
Speaker 2: get to China. But boy, that brings into discussion a
Speaker 2: whole host of issues here. Is there a time frame
Speaker 2: that you're kind of thinking?
Speaker 11: About?
Speaker 3: I mean, there is no time frame. We heard that
Speaker 3: from the secretary. There are other countries, to be clear.
Speaker 4: There's India.
Speaker 3: There's the UAE, which did announce last weekend that they
Speaker 3: were suspending trade with Iran, but it can't go to
Speaker 3: zero instantly. There's also Turkey, although interestingly, one of the
Speaker 3: Turkish banks was under criminal investigation for sanctions violation. That
Speaker 3: case was dropped by the DOJ in this administration. So
Speaker 3: it will be interesting to see where they go. There
Speaker 3: are other targets beyond China. There were sanctions designations made
Speaker 3: on Monday as part of this announcement, but none of
Speaker 3: them are really moving the needle.
Speaker 7: Dan, so it's interesting here.
Speaker 2: You know, we get this economic operation, economic outcast here.
Speaker 2: Does that suggest to you that military options by this
Speaker 2: administration are essentially off the table, at least for the
Speaker 2: near term?
Speaker 6: I forget who.
Speaker 3: Reported it yesterday, but that is what it sounds like.
Speaker 3: I mean, the shift now is from the Department of
Speaker 3: Defense slash war over to the Treasury Department to use
Speaker 3: sanctions and enforce them. That does seem like what the
Speaker 3: tact of the administration is. And we've heard from the
Speaker 3: president directly that they're looking to squeeze Iran economically. But
Speaker 3: you said it in the intro that They've been under
Speaker 3: sanctions for 40-something years. They're good at managing their existence
Speaker 3: under sanctions. Now, it's certainly getting harder in this environment
Speaker 3: since February, but it's not a slam dunk that this
Speaker 3: will happen instantly.
Speaker 2: It's interesting also because the domestic politics here, Dan, are
Speaker 2: kind of suggesting that I think probably most Americans are
Speaker 2: not supportive of the swore, certainly has not polled well.
Speaker 2: And we've got midterm elections. It seems like perhaps This
Speaker 2: president would like to get resolution of this thing sooner
Speaker 2: rather than later.
Speaker 11: And Iran knows that. They're a savvy adversary.
Speaker 3: It's highly unlikely that there would be an agreement between
Speaker 3: the U.S. and Iran before the midterms because Iran is
Speaker 3: going to use whatever mechanisms they have left to inflict
Speaker 3: pain back on the U.S.
Speaker 11: As the driver of this for the West.
Speaker 3: So that is going to be the thing to watch
Speaker 3: is will they even negotiate in good faith at this
Speaker 3: point because they know that this is so deeply unpopular
Speaker 3: in the U.S.
Speaker 4: Thank you so much. Really, really appreciate your expertise on this.
Speaker 4: He's with Oliver Wyman.
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Speaker 11: Thank you.