1 00:00:02,529 --> 00:00:13,780 Speaker 1: Bloomberg Audio Studios Podcasts Radio News This is the Bloomberg 2 00:00:13,820 --> 00:00:17,889 Speaker 1: Surveillance Podcast. Catch us live weekdays at 7 a.m. Eastern 3 00:00:18,290 --> 00:00:21,930 Speaker 1: on Apple CarPlay or Android Auto with the Bloomberg Business app. 4 00:00:22,329 --> 00:00:25,680 Speaker 1: Listen on demand wherever you get your podcasts or watch 5 00:00:25,739 --> 00:00:26,980 Speaker 1: us live on YouTube. 6 00:00:27,320 --> 00:00:30,000 Speaker 2: Joining us here in studio right now is a real treat, 7 00:00:30,380 --> 00:00:32,159 Speaker 2: James Eggehoff, Chief U.S. 8 00:00:32,300 --> 00:00:35,810 Speaker 3: Economist, BNP Paribas, the BNP Paribas offices in Paris. 9 00:00:36,170 --> 00:00:36,470 Speaker 2: Awesome. 10 00:00:36,510 --> 00:00:37,810 Speaker 3: Been there many times. 11 00:00:38,210 --> 00:00:40,250 Speaker 2: James, thanks so much for joining us here. Talk to 12 00:00:40,290 --> 00:00:44,870 Speaker 2: us about what you're seeing in this U.S. economy right now. 13 00:00:45,070 --> 00:00:47,089 Speaker 2: Seems pretty darn solid. 14 00:00:47,229 --> 00:00:49,320 Speaker 4: Look, we've been optimistic on the U.S. all year. I 15 00:00:49,420 --> 00:00:51,440 Speaker 4: think the economy is doing really well and it's staged 16 00:00:51,460 --> 00:00:53,880 Speaker 4: to keep doing well. We think it's benefiting from stimulative 17 00:00:53,920 --> 00:00:58,040 Speaker 4: monetary policy, stimulative fiscal policy, stimulative wealth effects from all 18 00:00:58,060 --> 00:01:02,380 Speaker 4: the equity rally. and stimulative effects on investment demand from AI. 19 00:01:02,800 --> 00:01:04,740 Speaker 4: We think that that's poised to continue. We think the 20 00:01:04,840 --> 00:01:07,750 Speaker 4: Fed's rate hike last week was really good news. It 21 00:01:07,790 --> 00:01:11,090 Speaker 4: shows that the Fed is embracing this optimistic narrative. Walsh 22 00:01:11,190 --> 00:01:14,009 Speaker 4: used the word optimism in his press conference. And we're 23 00:01:14,050 --> 00:01:16,570 Speaker 4: seeing that the Fed is prepared, it's willing and able 24 00:01:16,610 --> 00:01:19,450 Speaker 4: to use its tools to keep the expansion. 25 00:01:18,990 --> 00:01:21,759 Speaker 5: Healthy and balanced. And I do get your notes that 26 00:01:21,780 --> 00:01:23,679 Speaker 5: you send out to clients. So I saw last week 27 00:01:23,740 --> 00:01:26,200 Speaker 5: after the Fed's decision that you were sticking with an 28 00:01:26,240 --> 00:01:29,340 Speaker 5: expected another hike in December and January. But this week, 29 00:01:29,390 --> 00:01:31,770 Speaker 5: we get more than a half dozen Fed speakers. We 30 00:01:31,790 --> 00:01:34,350 Speaker 5: did hear from Austin Goolsbee earlier this morning saying the 31 00:01:34,390 --> 00:01:37,030 Speaker 5: road to 2% inflation may not be painless. So you 32 00:01:37,050 --> 00:01:39,730 Speaker 5: were talking about how you might potentially add a hike 33 00:01:39,950 --> 00:01:42,790 Speaker 5: for that October meeting, depending on what you hear throughout 34 00:01:42,830 --> 00:01:45,770 Speaker 5: this week. What did you view with Goolsbee's comments this morning? 35 00:01:45,810 --> 00:01:47,870 Speaker 5: And what else are you watching for from these Fed 36 00:01:47,890 --> 00:01:48,550 Speaker 5: speakers this week? 37 00:01:48,730 --> 00:01:50,470 Speaker 4: Look, we agree that the road might not be painless. 38 00:01:50,530 --> 00:01:53,800 Speaker 4: And we think ultimately the risks to our Fed path, 39 00:01:53,840 --> 00:01:54,760 Speaker 4: we have the pack we just had. 40 00:01:54,780 --> 00:01:55,360 Speaker 5: We have two more. 41 00:01:55,400 --> 00:01:57,300 Speaker 4: We have one in December, one in January. We think 42 00:01:57,320 --> 00:01:59,980 Speaker 4: the risks are to a more concerted, a longer and 43 00:02:00,000 --> 00:02:02,980 Speaker 4: a stronger tightening cycle, just because the growth impulse in 44 00:02:03,000 --> 00:02:05,540 Speaker 4: the economy is so strong, because inflation has gotten a 45 00:02:05,560 --> 00:02:08,970 Speaker 4: little bit sticky, and because it's important to build credibility. 46 00:02:08,990 --> 00:02:12,710 Speaker 4: So we see those features of the economy as meaning 47 00:02:12,730 --> 00:02:14,510 Speaker 4: that it's going to be a bit harder to fight 48 00:02:14,550 --> 00:02:16,549 Speaker 4: inflation than maybe the Fed had thought the past few 49 00:02:16,570 --> 00:02:18,410 Speaker 4: years and that it might think now. So there's the 50 00:02:18,440 --> 00:02:19,390 Speaker 4: risk that they have to do a bit more. 51 00:02:19,910 --> 00:02:22,510 Speaker 2: So on the underlying inflation, I mean, we've got WTI 52 00:02:22,790 --> 00:02:25,450 Speaker 2: crude oil at or near 100 bucks a barrel. 53 00:02:25,650 --> 00:02:26,990 Speaker 3: That's not good for inflation. 54 00:02:27,380 --> 00:02:30,579 Speaker 2: John Tucker's paying 450 a gallon at the Wawa Route 55 00:02:30,580 --> 00:02:33,890 Speaker 2: 36 in Jersey. Talks about underlying inflation. What are you 56 00:02:33,910 --> 00:02:34,450 Speaker 2: seeing out there? 57 00:02:34,510 --> 00:02:35,150 Speaker 3: How do you feel about it? 58 00:02:35,350 --> 00:02:37,889 Speaker 4: Look, and it's worse if you're a truck driver. You 59 00:02:37,930 --> 00:02:40,600 Speaker 4: can pay $ 6. 57 for diesel, and we're starting to talk 60 00:02:40,620 --> 00:02:43,320 Speaker 4: about being over $ 200 a gallon. So one of the 61 00:02:43,380 --> 00:02:45,419 Speaker 4: risks to the economy that we see is that we 62 00:02:45,440 --> 00:02:47,940 Speaker 4: can get continued rises in energy prices. Our view has 63 00:02:47,990 --> 00:02:50,570 Speaker 4: been that the economy is going to be resilient to that. 64 00:02:51,100 --> 00:02:53,320 Speaker 4: So long as we don't get back to a price 65 00:02:53,380 --> 00:02:55,800 Speaker 4: in inflation adjusted level like we got in 2008, which 66 00:02:56,200 --> 00:02:58,320 Speaker 4: would be something like well over 200. And look, we 67 00:02:58,380 --> 00:03:00,950 Speaker 4: could get there. If things get worse, we're not there now. 68 00:03:01,070 --> 00:03:03,050 Speaker 4: So we think we're in good shape now. But that's 69 00:03:03,090 --> 00:03:05,450 Speaker 4: a risk to monitor. We think ultimately inflation in the 70 00:03:05,510 --> 00:03:08,350 Speaker 4: US is driven by momentum. And so we've had now 71 00:03:08,510 --> 00:03:11,930 Speaker 4: over five years of high inflation, including the big surge 72 00:03:11,950 --> 00:03:15,190 Speaker 4: in inflation during the pandemic reopening. We think it's just 73 00:03:15,830 --> 00:03:19,130 Speaker 4: accumulated inertia. In order to fight that inertia, the Fed 74 00:03:19,169 --> 00:03:21,960 Speaker 4: might just have to push push harder into it. The 75 00:03:22,000 --> 00:03:24,239 Speaker 4: Fed's been hoping that inflation would just sort of peter 76 00:03:24,300 --> 00:03:27,480 Speaker 4: out by itself without the need for having to push 77 00:03:27,500 --> 00:03:29,540 Speaker 4: back on the labor market. And that might not work. 78 00:03:29,560 --> 00:03:30,670 Speaker 4: The Fed's coming to terms with that. 79 00:03:30,930 --> 00:03:32,930 Speaker 5: What do you think is the biggest risk to your call? 80 00:03:34,150 --> 00:03:36,070 Speaker 4: Look, we think that if you're an economist and you're 81 00:03:36,110 --> 00:03:38,190 Speaker 4: worried about the risk, you're mostly worried about some kind 82 00:03:38,210 --> 00:03:40,700 Speaker 4: of imbalance. And for us, for most of you, the 83 00:03:40,740 --> 00:03:42,650 Speaker 4: risk was that the Fed wouldn't act. And the Fed 84 00:03:42,670 --> 00:03:45,330 Speaker 4: would let the economy overheat. We get the late unemployment 85 00:03:45,350 --> 00:03:47,410 Speaker 4: rate to fall too much. And then the Fed would 86 00:03:47,470 --> 00:03:49,610 Speaker 4: have to sort of like you jump like it had 87 00:03:49,630 --> 00:03:53,670 Speaker 4: been hit by cattle prod and respond excessively. And when 88 00:03:53,690 --> 00:03:56,210 Speaker 4: you start seeing these big amplifying moves, that's when you 89 00:03:56,250 --> 00:03:59,190 Speaker 4: worry about something having a recession. The fact that we're 90 00:03:59,230 --> 00:04:02,570 Speaker 4: seeing the Fed respond more timely now and showing that 91 00:04:02,590 --> 00:04:04,510 Speaker 4: they're on the path to stabilize and the economy reduces 92 00:04:04,560 --> 00:04:06,970 Speaker 4: that risk. We're worried about the war. We also think 93 00:04:07,010 --> 00:04:10,900 Speaker 4: that AI is primarily driven by optimism right now. That's fine. 94 00:04:11,060 --> 00:04:13,390 Speaker 4: That's a normal part of this phase of the technology cycle. 95 00:04:13,790 --> 00:04:17,010 Speaker 4: But if something happens that causes people to somehow lose 96 00:04:17,029 --> 00:04:19,690 Speaker 4: some of that optimism about the commercialization of AI, that 97 00:04:19,710 --> 00:04:21,430 Speaker 4: could be a problem too. But right now, we think 98 00:04:21,450 --> 00:04:22,289 Speaker 4: these risks are manageable. 99 00:04:22,830 --> 00:04:28,919 Speaker 2: And the consumer seems really strong, resilient. How do you 100 00:04:29,000 --> 00:04:31,840 Speaker 2: view the consumer here? We know there's this K-shaped economy, 101 00:04:31,880 --> 00:04:34,010 Speaker 2: but the It just seems like the upper end of 102 00:04:34,029 --> 00:04:36,710 Speaker 2: the K is kind of driving the bus here at 103 00:04:36,730 --> 00:04:37,090 Speaker 2: the moment. 104 00:04:37,470 --> 00:04:40,109 Speaker 4: There's a lot of debate about how K-shaped the economy 105 00:04:40,150 --> 00:04:42,630 Speaker 4: really is or whether it's any more K-shaped than it 106 00:04:42,650 --> 00:04:45,100 Speaker 4: always has been. There is wealth and income inequality in 107 00:04:45,120 --> 00:04:47,180 Speaker 4: this country, but that's not new. We think the wealth 108 00:04:47,500 --> 00:04:49,900 Speaker 4: gains that are coming from the stock market do accrue 109 00:04:50,020 --> 00:04:52,620 Speaker 4: to more affluent people, but that it seems to be 110 00:04:52,680 --> 00:04:54,920 Speaker 4: working through to the rest of the economy. So, so 111 00:04:54,960 --> 00:04:57,539 Speaker 4: long as people have a job, they're comfortable that their 112 00:04:57,560 --> 00:05:00,690 Speaker 4: job's going to be stable and the market remains resilient, 113 00:05:01,050 --> 00:05:02,930 Speaker 4: we think the consumer will remain resilient as well. 114 00:05:03,730 --> 00:05:07,630 Speaker 5: When you're viewing the direction for, especially how much the 115 00:05:07,770 --> 00:05:12,310 Speaker 5: AI prospects are contributing to GDP, if a lot of 116 00:05:12,330 --> 00:05:15,130 Speaker 5: those companies are obviously tapping the debt markets to spend more, 117 00:05:15,190 --> 00:05:17,750 Speaker 5: if they're pulling back on that potentially, depending on where 118 00:05:17,800 --> 00:05:20,560 Speaker 5: the rate cycle is for hiking, how does that then 119 00:05:21,020 --> 00:05:23,480 Speaker 5: potentially slow economic growth? 120 00:05:23,779 --> 00:05:26,000 Speaker 4: So first of all, I talked to quite a few 121 00:05:26,040 --> 00:05:28,520 Speaker 4: clients in the data center and the hyperscaler space, like 122 00:05:28,540 --> 00:05:29,540 Speaker 4: we're a big institution. 123 00:05:29,900 --> 00:05:30,800 Speaker 3: And I'm not hearing that. 124 00:05:30,860 --> 00:05:33,339 Speaker 4: So what I'm hearing is that people are very optimistic 125 00:05:33,480 --> 00:05:35,840 Speaker 4: on the demand for compute, on the commercial demand for 126 00:05:35,920 --> 00:05:38,260 Speaker 4: AI applications. And yes, rates are going up. 127 00:05:38,310 --> 00:05:38,960 Speaker 6: They see that. 128 00:05:39,270 --> 00:05:40,849 Speaker 4: They've been trying to get ahead of that the past 129 00:05:40,870 --> 00:05:43,340 Speaker 4: few months with supply, with issuance. but that that's not 130 00:05:43,360 --> 00:05:45,820 Speaker 4: going to derail their plans. So ultimately, we think that 131 00:05:45,860 --> 00:05:48,520 Speaker 4: the AI cycle is robust to this. That may be 132 00:05:48,560 --> 00:05:50,640 Speaker 4: a reason the Fed has to do more, because if 133 00:05:50,670 --> 00:05:53,070 Speaker 4: the Fed's objective actually is to sort of take a 134 00:05:53,089 --> 00:05:54,930 Speaker 4: little bit of the punch bowl away, sort of the 135 00:05:54,990 --> 00:05:58,450 Speaker 4: old Lou McKesney Martin quote, that they may have to 136 00:05:58,490 --> 00:06:00,330 Speaker 4: take a little bit more of the punch bowl away 137 00:06:00,750 --> 00:06:02,420 Speaker 4: to get people to chill out a little bit. So 138 00:06:02,450 --> 00:06:05,240 Speaker 4: that's more the risk is that there's not enough response 139 00:06:05,260 --> 00:06:05,720 Speaker 4: and the Fed. 140 00:06:05,640 --> 00:06:06,060 Speaker 5: Has to do more. 141 00:06:06,940 --> 00:06:11,490 Speaker 3: The 10-year Treasury yield, 4.95%, 5%. Is that kind of 142 00:06:11,510 --> 00:06:13,190 Speaker 3: the new normal? And is that OK? 143 00:06:13,910 --> 00:06:15,930 Speaker 4: So our view for a while has been that we 144 00:06:15,970 --> 00:06:19,289 Speaker 4: are going into a period of prolonged high growth. And 145 00:06:19,770 --> 00:06:22,390 Speaker 4: that means that the neutral rate, the rate that the 146 00:06:22,450 --> 00:06:24,330 Speaker 4: Fed has to maintain on average over time, is going 147 00:06:24,350 --> 00:06:25,570 Speaker 4: to be higher. And that means that we're going to 148 00:06:25,589 --> 00:06:26,589 Speaker 4: be in a higher rate environment. 149 00:06:26,980 --> 00:06:27,789 Speaker 3: Another way of putting it is. 150 00:06:27,770 --> 00:06:29,800 Speaker 4: If you want 90s type growth, you might have to 151 00:06:29,839 --> 00:06:32,680 Speaker 4: have 90s type rates. And some of that is getting 152 00:06:32,720 --> 00:06:35,200 Speaker 4: priced in. I think some of my buy-side clients are 153 00:06:35,220 --> 00:06:36,900 Speaker 4: starting to think about where should the 10-year, where should 154 00:06:36,940 --> 00:06:39,380 Speaker 4: the 30-year be in a world where productivity growth is 155 00:06:39,400 --> 00:06:41,980 Speaker 4: going to be really high. So look, there's some room 156 00:06:42,020 --> 00:06:43,660 Speaker 4: for a rally here, here and there. We think the 157 00:06:43,720 --> 00:06:46,710 Speaker 4: Fed is showing some credibility. We might have some stabilization 158 00:06:46,730 --> 00:06:49,089 Speaker 4: in the war at some point, hopefully. Those things would 159 00:06:49,110 --> 00:06:50,870 Speaker 4: be good for the 10-year. But ultimately, we don't think 160 00:06:50,970 --> 00:06:53,690 Speaker 4: going back to a much lower level of rates. We 161 00:06:53,710 --> 00:06:54,770 Speaker 4: think we're in a high-growth environment. 162 00:06:55,050 --> 00:06:58,760 Speaker 3: James, undergraduate degree, Cornell, computer science. Then you go get 163 00:06:58,800 --> 00:06:59,760 Speaker 3: the NBA Chicago. 164 00:06:59,779 --> 00:07:03,040 Speaker 2: Dude, that is a lot of math over that period 165 00:07:03,060 --> 00:07:03,300 Speaker 2: of time. 166 00:07:03,540 --> 00:07:04,900 Speaker 3: I mean, you like math, I guess. 167 00:07:05,060 --> 00:07:06,620 Speaker 4: I do like math, but I find in this job 168 00:07:06,670 --> 00:07:10,470 Speaker 4: I'm mostly reading Truth Social at times. It isn't always helpful, 169 00:07:10,610 --> 00:07:15,190 Speaker 4: but I do aspire to it being useful. 170 00:07:15,690 --> 00:07:16,290 Speaker 2: Stay with us. 171 00:07:16,590 --> 00:07:19,810 Speaker 3: More from Bloomberg Surveillance coming up after this. 172 00:07:27,080 --> 00:07:30,680 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live 173 00:07:30,760 --> 00:07:33,940 Speaker 1: weekday afternoons from 7 to 10 a.m. Eastern. Listen on 174 00:07:34,040 --> 00:07:37,310 Speaker 1: Apple CarPlay and Android Auto with the Bloomberg Business app 175 00:07:37,510 --> 00:07:39,250 Speaker 1: or watch us live on YouTube. 176 00:07:40,250 --> 00:07:42,570 Speaker 3: Let's talk the bond market. Let's talk credit. 177 00:07:43,370 --> 00:07:45,270 Speaker 2: And, you know, the story of 2026, one of the 178 00:07:45,350 --> 00:07:48,960 Speaker 2: main themes has been all the new issuance from the 179 00:07:49,220 --> 00:07:51,520 Speaker 2: AI players. A lot of tech companies who you don't 180 00:07:51,800 --> 00:07:54,740 Speaker 2: normally see in the bond market because you have such 181 00:07:55,240 --> 00:07:56,900 Speaker 2: tons of cash on their balance sheet, lots of free 182 00:07:56,920 --> 00:07:59,160 Speaker 2: cash flow. They didn't need the bond market. Now they 183 00:07:59,200 --> 00:08:01,830 Speaker 2: do for all this AI capex. What's it mean for 184 00:08:02,110 --> 00:08:05,150 Speaker 2: the investment grade bond market for that return to Amanda Linem? 185 00:08:05,310 --> 00:08:08,330 Speaker 2: She's a chief credit strategist at a little shop called 186 00:08:08,370 --> 00:08:12,060 Speaker 2: Goldman Sachs. Amanda, how do you guys think about all 187 00:08:12,100 --> 00:08:14,900 Speaker 2: the AI issuance that has come into the market and 188 00:08:14,920 --> 00:08:17,000 Speaker 2: that is expected to come into the market over the next, 189 00:08:17,200 --> 00:08:18,120 Speaker 2: I don't know, 18 months or so? 190 00:08:19,180 --> 00:08:19,740 Speaker 7: Good morning. 191 00:08:20,020 --> 00:08:22,070 Speaker 8: Thank you for having me. So I think there are 192 00:08:22,090 --> 00:08:23,590 Speaker 8: a couple of ways to think about this, Paul. One 193 00:08:23,670 --> 00:08:26,250 Speaker 8: is to just frame the scale and scope. And you 194 00:08:26,310 --> 00:08:29,370 Speaker 8: rightly point to the group of hyperscalers that have been 195 00:08:29,770 --> 00:08:32,880 Speaker 8: in focus for the markets. But actually, our work suggests 196 00:08:32,940 --> 00:08:36,420 Speaker 8: that as sizable as those CapEx needs are from the hyperscalers, 197 00:08:36,720 --> 00:08:40,320 Speaker 8: they represent just 40 percent of the AI related issuance 198 00:08:40,360 --> 00:08:43,689 Speaker 8: that's coming through the global corporate credit markets. So given 199 00:08:43,730 --> 00:08:46,900 Speaker 8: that swift acceleration, which actually started in 2025, it's intensified 200 00:08:46,920 --> 00:08:54,350 Speaker 8: through 2026. We've counted nearly 600 billion of global AI-related 201 00:08:54,390 --> 00:08:57,390 Speaker 8: debt issuance so far this year, and we think it's 202 00:08:57,470 --> 00:09:01,090 Speaker 8: poised to accelerate even further in 2027. What that means 203 00:09:01,150 --> 00:09:05,010 Speaker 8: is that the diversification value of sectors outside of that theme, 204 00:09:05,050 --> 00:09:09,210 Speaker 8: so banks, healthcare, energy, food and beverage, it's all the 205 00:09:09,250 --> 00:09:11,910 Speaker 8: more important for investors. And so that's really, I think, 206 00:09:12,030 --> 00:09:15,920 Speaker 8: a key driver of the increased focus on sector diversification 207 00:09:15,940 --> 00:09:16,220 Speaker 8: from here. 208 00:09:16,740 --> 00:09:17,880 Speaker 6: Talk to us more about. 209 00:09:17,700 --> 00:09:21,050 Speaker 5: The bifurcation between AI-related spreads and the rest of the 210 00:09:21,130 --> 00:09:23,670 Speaker 5: market and how you view kind of the trajectory of 211 00:09:23,710 --> 00:09:25,860 Speaker 5: this in the midst of the Fed beginning to hike 212 00:09:25,900 --> 00:09:26,300 Speaker 5: rates again. 213 00:09:27,140 --> 00:09:28,140 Speaker 7: Sure. Thank you, Jess. 214 00:09:28,179 --> 00:09:31,550 Speaker 8: It's a great question. I think the bifurcation has persisted. 215 00:09:31,570 --> 00:09:33,910 Speaker 8: And as you noted, it's really between AI and the 216 00:09:33,970 --> 00:09:35,050 Speaker 8: broader rest of the market. 217 00:09:35,350 --> 00:09:37,670 Speaker 7: I think what it has driven. 218 00:09:37,230 --> 00:09:39,830 Speaker 8: In our view is almost a shift in the way 219 00:09:39,910 --> 00:09:43,130 Speaker 8: that we think investors should think about quality and being 220 00:09:43,190 --> 00:09:45,730 Speaker 8: defensive in the credit market. And that's true in both 221 00:09:45,929 --> 00:09:48,450 Speaker 8: IG and high yield. And so one of the views 222 00:09:48,510 --> 00:09:51,580 Speaker 8: that we have is to selectively move down in credit 223 00:09:51,640 --> 00:09:56,220 Speaker 8: quality from in IG were overweight BBBs against the higher 224 00:09:56,280 --> 00:09:59,690 Speaker 8: rated cohorts of the market. And in high yield, for example, 225 00:09:59,710 --> 00:10:02,380 Speaker 8: in the US, were overweight single Bs versus double Bs. 226 00:10:02,880 --> 00:10:05,090 Speaker 8: it's really driven by two factors and it speaks to 227 00:10:05,130 --> 00:10:09,890 Speaker 8: this bifurcation. While the reflex historically to be more defensive 228 00:10:09,929 --> 00:10:12,750 Speaker 8: or move up in quality was to move up in ratings, 229 00:10:13,230 --> 00:10:15,290 Speaker 8: if you do that in this environment, what you do 230 00:10:15,370 --> 00:10:18,650 Speaker 8: is you subject yourself to two more pronounced headwinds. The 231 00:10:18,670 --> 00:10:21,180 Speaker 8: first is the supply angle that we mentioned and the 232 00:10:21,240 --> 00:10:22,760 Speaker 8: second is a duration headwind. 233 00:10:23,400 --> 00:10:25,819 Speaker 7: On the supply angle, the higher end of the. 234 00:10:25,920 --> 00:10:30,199 Speaker 8: IG and high yield rating cohorts have generated a disproportionately 235 00:10:30,260 --> 00:10:33,610 Speaker 8: large share of supply relative to prior years. And again, 236 00:10:33,630 --> 00:10:36,809 Speaker 8: that's driven largely by the AI theme, even in high yield. 237 00:10:37,250 --> 00:10:39,990 Speaker 8: And then two, by moving up in ratings and moving 238 00:10:40,030 --> 00:10:42,929 Speaker 8: into tighter spread bonds, what you do is... you lose 239 00:10:42,970 --> 00:10:46,179 Speaker 8: that spread cushion to buffer total returns from higher rates. 240 00:10:46,580 --> 00:10:49,920 Speaker 8: And so for that reason, we actually like being selectively 241 00:10:49,960 --> 00:10:53,160 Speaker 8: down in credit quality, of course, very mindful of kind 242 00:10:53,200 --> 00:10:56,120 Speaker 8: of that left tail of the credit market that seems 243 00:10:56,160 --> 00:10:59,370 Speaker 8: to persistently lag. But growth is good enough in our view. 244 00:10:59,640 --> 00:11:02,410 Speaker 8: Credit fundamentals are solid. And really, it just fits with 245 00:11:02,450 --> 00:11:04,390 Speaker 8: our view that if you're allocating to credit, you should 246 00:11:04,410 --> 00:11:07,010 Speaker 8: be doing that for yield and income, not for a 247 00:11:07,110 --> 00:11:10,069 Speaker 8: potential total return boost from tighter spreads or lower rates. 248 00:11:10,630 --> 00:11:13,819 Speaker 2: Amanda, you have some of the best tech research analysts 249 00:11:14,160 --> 00:11:15,960 Speaker 2: on Global Wall Street there at Goldman Sachs. What are 250 00:11:15,980 --> 00:11:20,120 Speaker 2: they telling you about, I guess, the need for more CapEx? 251 00:11:20,160 --> 00:11:22,370 Speaker 2: How long does this cycle last? How long is your 252 00:11:22,410 --> 00:11:24,690 Speaker 2: investment grade mark? You're going to be asked to kind 253 00:11:24,730 --> 00:11:25,949 Speaker 2: of fund a lot of this stuff. 254 00:11:26,720 --> 00:11:28,979 Speaker 8: We sure do have the best equity research tech analysts. 255 00:11:29,540 --> 00:11:33,400 Speaker 8: So our debt issuance forecast for 2027 and even through 256 00:11:33,420 --> 00:11:36,710 Speaker 8: the outer years, they're directly informed in large part by 257 00:11:36,780 --> 00:11:39,630 Speaker 8: the CapEx estimates of our equity team. And then we 258 00:11:39,690 --> 00:11:42,330 Speaker 8: assume a share of that CapEx spend that will be 259 00:11:42,370 --> 00:11:45,470 Speaker 8: debt financed. As you know, Paul, this is a multi-year trend. 260 00:11:46,050 --> 00:11:48,329 Speaker 8: This is something that it's not going to be kind 261 00:11:48,350 --> 00:11:49,390 Speaker 8: of a one and done. 262 00:11:49,230 --> 00:11:50,010 Speaker 7: Wave of issuance. 263 00:11:50,190 --> 00:11:53,020 Speaker 8: We expect this to be a present theme in the 264 00:11:53,059 --> 00:11:56,880 Speaker 8: corporate credit markets through 2030, even 2031. 265 00:11:56,880 --> 00:11:59,000 Speaker 7: Based on the CapEx trajectory that we see. 266 00:11:59,020 --> 00:12:03,050 Speaker 8: I think the key angle, though, is that over time, 267 00:12:03,290 --> 00:12:07,610 Speaker 8: as that market issuance pattern extends further, We think that 268 00:12:07,770 --> 00:12:11,050 Speaker 8: other markets, in particular other financing channels, will need to 269 00:12:11,110 --> 00:12:13,829 Speaker 8: play a larger role in financing some of this need, 270 00:12:14,270 --> 00:12:18,480 Speaker 8: specifically the private credit markets, private infrastructure, private real estate, 271 00:12:18,750 --> 00:12:22,459 Speaker 8: where there's a collective $ 4. 5 trillion of dry powder across 272 00:12:22,600 --> 00:12:26,460 Speaker 8: all private market strategies, even including private equity. We see 273 00:12:26,500 --> 00:12:29,040 Speaker 8: a greater role for those markets to step in. That's 274 00:12:29,059 --> 00:12:32,000 Speaker 8: not to say that there's not additional runway in the 275 00:12:32,080 --> 00:12:34,200 Speaker 8: traditional financing corporate bond markets. 276 00:12:34,240 --> 00:12:34,920 Speaker 7: There for sure is. 277 00:12:35,720 --> 00:12:39,280 Speaker 8: At least $ 500 billion by our estimates in US IG alone. 278 00:12:39,750 --> 00:12:41,709 Speaker 8: But just given the scale and scope of this need, 279 00:12:41,730 --> 00:12:44,270 Speaker 8: we believe a wide range of financing channels will need 280 00:12:44,290 --> 00:12:48,309 Speaker 8: to participate across structures, markets, and even currencies. 281 00:12:48,750 --> 00:12:51,650 Speaker 5: Amanda, any particular red flags you're beginning to see within 282 00:12:51,970 --> 00:12:53,490 Speaker 5: the AI-related debt issuance? 283 00:12:54,630 --> 00:12:57,590 Speaker 8: Well, I just think it's not necessarily a red flag, 284 00:12:57,650 --> 00:13:00,860 Speaker 8: but it's a recognition of what is different this time 285 00:13:00,980 --> 00:13:04,060 Speaker 8: versus prior periods of active re-leveraging. And if I had 286 00:13:04,100 --> 00:13:07,320 Speaker 8: to put it very simply, the credit market works best 287 00:13:07,440 --> 00:13:11,500 Speaker 8: in funding periods of active re-leveraging when the need is quantifiable, 288 00:13:11,900 --> 00:13:14,520 Speaker 8: when there's an end in sight, And ideally, when there's 289 00:13:14,559 --> 00:13:17,100 Speaker 8: a period of debt reduction on the back of any 290 00:13:17,160 --> 00:13:21,660 Speaker 8: debt issuance, for a variety of reasons, this multi-year period 291 00:13:21,860 --> 00:13:26,000 Speaker 8: of AI-related debt issuance, where CapEx estimates have been moving higher, 292 00:13:26,040 --> 00:13:28,670 Speaker 8: by the way, it's just a different phenomenon than what 293 00:13:28,710 --> 00:13:30,329 Speaker 8: the corporate credit market is used to. 294 00:13:30,730 --> 00:13:32,290 Speaker 7: That's why you see in some. 295 00:13:32,150 --> 00:13:37,630 Speaker 8: Cases that we expect larger markets in the private financing channels, 296 00:13:37,670 --> 00:13:41,490 Speaker 8: for example, to play a more meaningful role as it extends. So, 297 00:13:41,890 --> 00:13:44,930 Speaker 8: I think it's important to realize that typically when the 298 00:13:44,980 --> 00:13:49,160 Speaker 8: corporate credit market sees these large jumbo debt deals, it's for, 299 00:13:49,200 --> 00:13:51,699 Speaker 8: for example, a debt-funded M & A transaction. 300 00:13:52,000 --> 00:13:53,560 Speaker 7: That's kind of the end of the issuance. 301 00:13:53,780 --> 00:13:56,970 Speaker 8: And then the corporate borrower is focused on debt reduction 302 00:13:57,070 --> 00:13:59,829 Speaker 8: following that. This is just a very different backdrop. 303 00:13:59,850 --> 00:14:01,530 Speaker 7: And so I think it's important to acknowledge that. 304 00:14:02,070 --> 00:14:06,709 Speaker 2: Amanda, one of the questions I have is, it feels 305 00:14:06,730 --> 00:14:10,080 Speaker 2: like maybe this AI spending level This is the new normal. 306 00:14:10,480 --> 00:14:13,590 Speaker 2: I'm not sure once you build whatever you need to build, 307 00:14:13,790 --> 00:14:16,490 Speaker 2: whether it's a data center or whatever, does it go 308 00:14:16,530 --> 00:14:19,220 Speaker 2: back to pre-AI CapEx levels? 309 00:14:19,440 --> 00:14:20,160 Speaker 3: I'm not so sure. 310 00:14:21,490 --> 00:14:23,530 Speaker 8: I think it's hard to know, and it's probably out 311 00:14:23,570 --> 00:14:25,729 Speaker 8: of my wheelhouse. I'll defer to the tech experts on 312 00:14:25,790 --> 00:14:27,890 Speaker 8: that one. But I think the key question for corporate 313 00:14:27,910 --> 00:14:32,330 Speaker 8: credit investors is, is there a financing runway to accommodate 314 00:14:32,390 --> 00:14:35,530 Speaker 8: this spend? And I certainly think that from the corporate 315 00:14:35,550 --> 00:14:38,200 Speaker 8: credit investor side, there's a lot of demand for this paper. 316 00:14:38,340 --> 00:14:40,740 Speaker 8: Tech is actually still a pretty small share of the 317 00:14:40,820 --> 00:14:44,060 Speaker 8: overall corporate credit market, despite the issuance numbers that I 318 00:14:44,100 --> 00:14:46,720 Speaker 8: mentioned at the start, which is pretty astounding. And as 319 00:14:46,740 --> 00:14:50,380 Speaker 8: we move forward, I think investors will pick their spots 320 00:14:50,420 --> 00:14:52,960 Speaker 8: in terms of where they might want to participate more fully. 321 00:14:53,020 --> 00:14:55,000 Speaker 8: But in general, the message from our side is that 322 00:14:55,260 --> 00:14:58,440 Speaker 8: we are not concerned about access to capital for the 323 00:14:58,540 --> 00:15:01,180 Speaker 8: AI theme from a corporate credit side. We just expect 324 00:15:01,240 --> 00:15:04,540 Speaker 8: more nuanced conversations about where exactly to take this risk 325 00:15:04,680 --> 00:15:08,250 Speaker 8: and at what price as the multi-year issuance cycle moves 326 00:15:08,370 --> 00:15:09,670 Speaker 8: on from the investor perspective. 327 00:15:10,530 --> 00:15:13,110 Speaker 3: Amanda, thank you so much. Appreciate it. As always, Amanda Lanham, 328 00:15:13,150 --> 00:15:14,830 Speaker 3: Chief Credit Strategist at Goldman Sachs. 329 00:15:19,090 --> 00:15:22,670 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live 330 00:15:22,750 --> 00:15:25,940 Speaker 1: weekday afternoons from 7 to 10 a.m. Eastern. Listen on 331 00:15:26,040 --> 00:15:29,300 Speaker 1: Apple CarPlay and Android Auto with the Bloomberg Business app 332 00:15:29,520 --> 00:15:31,220 Speaker 1: or watch us live on YouTube. 333 00:15:31,240 --> 00:15:33,840 Speaker 2: Let's check in with our next guest, Nancy Lazar, chief 334 00:15:34,000 --> 00:15:37,540 Speaker 2: global economist at Piper Sandler. Nancy, thanks so much for 335 00:15:37,600 --> 00:15:39,920 Speaker 2: joining us here. I love and I think our listeners 336 00:15:39,940 --> 00:15:41,570 Speaker 2: would love to get your thoughts on what we heard. 337 00:15:42,260 --> 00:15:46,230 Speaker 2: From the Federal Reserve last week, the hike started, came in. 338 00:15:46,270 --> 00:15:48,750 Speaker 2: We had a 25 basis point hike as the market 339 00:15:48,770 --> 00:15:51,050 Speaker 2: was anticipating. What else did you take away from the 340 00:15:51,090 --> 00:15:51,550 Speaker 2: Fed meeting? 341 00:15:52,790 --> 00:15:55,810 Speaker 9: Well, it's to listen seriously to what Chair Warsh says. 342 00:15:56,190 --> 00:15:58,790 Speaker 10: He said one of the key indicators, economic indicators he's 343 00:15:58,850 --> 00:16:04,010 Speaker 10: watching are weekly unemployment claims. It's a hard statistic, great 344 00:16:04,050 --> 00:16:08,010 Speaker 10: historical relationship with the labor market. And claims are down 10% 345 00:16:08,010 --> 00:16:12,660 Speaker 10: on a year-over-year basis, which means the labor market is 346 00:16:12,760 --> 00:16:16,600 Speaker 10: healing really quickly. Layoffs are down. And that also implies 347 00:16:16,800 --> 00:16:19,620 Speaker 10: employment is indeed going up. So listen to what he 348 00:16:19,680 --> 00:16:22,970 Speaker 10: says and watch what he's watching, which is the labor 349 00:16:22,990 --> 00:16:26,930 Speaker 10: market along with inflation. And there's maybe more truth than 350 00:16:26,990 --> 00:16:30,510 Speaker 10: fiction to the relatively strong payroll employment report we had 351 00:16:30,590 --> 00:16:34,380 Speaker 10: for the month of August. So claims, I think, were 352 00:16:34,480 --> 00:16:36,790 Speaker 10: a mirror into what he was thinking, which is the 353 00:16:36,850 --> 00:16:39,890 Speaker 10: economy's on solid footing, labor market is healing. 354 00:16:40,370 --> 00:16:43,820 Speaker 9: And inflation is sticky. He has a diffusion index. We 355 00:16:43,860 --> 00:16:45,920 Speaker 9: have our inflation diffusion index. 356 00:16:46,260 --> 00:16:50,040 Speaker 10: It tells you there's too many prices that are increasing 0.3% 357 00:16:50,040 --> 00:16:52,840 Speaker 10: or more. And that just highlights that we are now 358 00:16:52,900 --> 00:16:56,310 Speaker 10: seeing sticky inflation. And then third, and then I'll stop, 359 00:16:56,730 --> 00:16:59,030 Speaker 10: is that does this strength in the labor market then 360 00:16:59,070 --> 00:17:02,630 Speaker 10: imply that, say, in 2027, we could actually see even 361 00:17:02,670 --> 00:17:07,230 Speaker 10: a further broadening out of inflation into wage inflation. And 362 00:17:07,270 --> 00:17:09,770 Speaker 10: we think that's going to become more of a story 363 00:17:09,869 --> 00:17:13,280 Speaker 10: indeed as we see this stronger labor market then leading 364 00:17:13,300 --> 00:17:15,100 Speaker 10: to stronger wage inflation in 2027. 365 00:17:15,100 --> 00:17:18,300 Speaker 5: Hey, Nancy, we didn't hear too much from Kevin Warsh 366 00:17:18,460 --> 00:17:21,000 Speaker 5: about the Fed's balance sheet. What are you watching there? 367 00:17:22,420 --> 00:17:25,340 Speaker 10: Well, we watch the balance sheet closely. It's still very, 368 00:17:25,380 --> 00:17:29,070 Speaker 10: very elevated. We also watch money supply. He is a monetarist. 369 00:17:29,090 --> 00:17:31,350 Speaker 10: He made that clear in the monetary policy report. 370 00:17:31,369 --> 00:17:32,030 Speaker 9: He made that. 371 00:17:31,930 --> 00:17:36,210 Speaker 10: Clear at Jackson Hole. And we watch the banking system. 372 00:17:36,260 --> 00:17:38,800 Speaker 10: We watch bank lending. Bottom line is there's a lot 373 00:17:38,840 --> 00:17:42,010 Speaker 10: of liquidity in the economy. And that helps explain, one, 374 00:17:42,109 --> 00:17:45,889 Speaker 10: why economic activity is solid and getting stronger, and two, 375 00:17:46,630 --> 00:17:50,670 Speaker 10: why inflation is indeed sticky. So the balance sheet, although 376 00:17:50,710 --> 00:17:53,450 Speaker 10: it's off its peak, is still very elevated. It provides 377 00:17:53,490 --> 00:17:55,980 Speaker 10: a lot of liquidity to Wall Street. Therefore, it provides 378 00:17:56,020 --> 00:17:58,440 Speaker 10: a lot of liquidity for financial markets and is a 379 00:17:58,480 --> 00:18:01,500 Speaker 10: contributor to the strength in the economy. More simply, though, 380 00:18:01,960 --> 00:18:06,660 Speaker 10: watching money supply M2 growth, which is what classically monetarists 381 00:18:07,200 --> 00:18:08,919 Speaker 10: me included, have watched. 382 00:18:08,960 --> 00:18:10,740 Speaker 9: It's growing 7% right now. 383 00:18:11,260 --> 00:18:15,640 Speaker 10: And 7% money supply growth, 7% bank loan growth, very 384 00:18:15,700 --> 00:18:19,050 Speaker 10: strong government spending right now led by defense. That all 385 00:18:19,090 --> 00:18:22,250 Speaker 10: suggests nominal activity is going to stay strong, which is very, 386 00:18:22,270 --> 00:18:26,770 Speaker 10: very supportive of corporate revenue, corporate revenue growth. So balance sheet, money, 387 00:18:26,869 --> 00:18:30,070 Speaker 10: bank loans, government spending all point to a lot of 388 00:18:30,090 --> 00:18:33,450 Speaker 10: liquidity helping to support the economy and cushion it, quite frankly, 389 00:18:33,869 --> 00:18:37,620 Speaker 10: from this backup in interest rates For now. 390 00:18:38,100 --> 00:18:40,320 Speaker 2: Hey, Nancy, I guess I should not be, but I 391 00:18:40,359 --> 00:18:43,830 Speaker 2: continue to be, I guess, pleasantly surprised by the resilience 392 00:18:44,460 --> 00:18:45,310 Speaker 2: of the U.S. 393 00:18:45,430 --> 00:18:47,450 Speaker 3: Consumer here. How do you view the U.S. 394 00:18:47,490 --> 00:18:52,570 Speaker 2: Consumer who is facing inflation. 395 00:18:50,630 --> 00:18:53,050 Speaker 3: Issues, particularly at the gas pump and some other places? 396 00:18:53,130 --> 00:18:56,190 Speaker 3: But boy, the U.S. consumers more than hanging in there. 397 00:18:57,430 --> 00:18:59,510 Speaker 9: Well, well said. Totally, totally agree. 398 00:18:59,830 --> 00:19:04,040 Speaker 10: Nominal consumer spending, which is what drives revenue for all 399 00:19:04,060 --> 00:19:06,240 Speaker 10: these big retailers, are growing. 400 00:19:05,940 --> 00:19:07,780 Speaker 9: Right now 6%. 401 00:19:07,780 --> 00:19:11,040 Speaker 10: That's echoed, say, by an American Express, whose revenues are 402 00:19:11,080 --> 00:19:14,650 Speaker 10: actually up 8%, and Visa, whose revenues are up 12%. 403 00:19:14,650 --> 00:19:17,230 Speaker 10: So my point is I love to look at multiple 404 00:19:17,369 --> 00:19:20,210 Speaker 10: different indicators to gauge what's going on in the economy, 405 00:19:20,530 --> 00:19:24,580 Speaker 10: in this case looking at consumer-oriented companies. Second, it's really 406 00:19:24,619 --> 00:19:28,060 Speaker 10: the high to middle income consumers that's driving consumer spending. 407 00:19:28,460 --> 00:19:32,160 Speaker 9: Consumer confidence is kind of stuck. Don't use U of Mish. 408 00:19:32,200 --> 00:19:34,119 Speaker 10: If you use Conference Board or our own daily survey, 409 00:19:34,359 --> 00:19:36,180 Speaker 10: consumer confidence is kind of sluggish. 410 00:19:36,240 --> 00:19:38,020 Speaker 9: It's not collapsing, but it is sluggish. 411 00:19:38,380 --> 00:19:41,870 Speaker 10: Whereas what you just suggested is indicated, and I agree with, 412 00:19:41,930 --> 00:19:42,610 Speaker 10: is that the U.S. 413 00:19:42,650 --> 00:19:43,609 Speaker 9: Consumer has been resilient. 414 00:19:43,850 --> 00:19:46,330 Speaker 10: What's the disconnect between spending and confidence? 415 00:19:46,710 --> 00:19:51,160 Speaker 9: Well, everybody's treated equal, high, middle, low-income consumers are treated 416 00:19:51,320 --> 00:19:53,140 Speaker 9: equal in the consumer confidence numbers. 417 00:19:53,220 --> 00:19:56,879 Speaker 10: It's a measure of people, whereas nominal consumer spending is 418 00:19:56,920 --> 00:20:00,060 Speaker 10: a dollar metric, right? And so the high, middle-income consumers 419 00:20:00,160 --> 00:20:03,960 Speaker 10: drive that particular indicator. I think that's what's surprising people. 420 00:20:04,280 --> 00:20:06,500 Speaker 10: And we saw that certainly also in the August retail 421 00:20:06,540 --> 00:20:13,010 Speaker 10: sales data. And the middle income consumer is getting stronger here. 422 00:20:13,700 --> 00:20:17,969 Speaker 10: Goods producing jobs, manufacturing jobs, construction jobs are high paying 423 00:20:18,010 --> 00:20:21,370 Speaker 10: jobs and wages in that sector are growing 4 percent. 424 00:20:21,690 --> 00:20:24,530 Speaker 10: And income in that space for those consumers is also 425 00:20:24,590 --> 00:20:28,560 Speaker 10: now hitting all time highs, even adjusted for inflation. So 426 00:20:28,900 --> 00:20:31,720 Speaker 10: consumer spending is resilient, one, because the high-end consumer has 427 00:20:31,740 --> 00:20:33,780 Speaker 10: been driven by, supported by the stock market, which is 428 00:20:33,840 --> 00:20:36,680 Speaker 10: supported by all this liquidity in the economy. And two, 429 00:20:36,820 --> 00:20:41,640 Speaker 10: now the middle-income consumer is doing better because of the 430 00:20:41,760 --> 00:20:45,590 Speaker 10: strength we're getting in these construction jobs, manufacturing jobs. 431 00:20:45,869 --> 00:20:46,790 Speaker 9: And that was just echoed. 432 00:20:47,109 --> 00:20:50,889 Speaker 10: Manufacturing is very strong. Breadth in manufacturing is broadening out. 433 00:20:51,270 --> 00:20:56,050 Speaker 10: Jobs in manufacturing are picking up, now joining construction jobs, 434 00:20:56,109 --> 00:20:58,050 Speaker 10: supporting that middle-income consumer. 435 00:20:58,350 --> 00:21:00,090 Speaker 9: The low end consumer gets a lot of the press 436 00:21:00,230 --> 00:21:00,990 Speaker 9: and my heart bleeds. 437 00:21:01,109 --> 00:21:03,990 Speaker 10: I mean, they're in a terrible situation given gasoline prices 438 00:21:04,170 --> 00:21:06,280 Speaker 10: and they are in a lot of these lower paying jobs. 439 00:21:07,040 --> 00:21:07,460 Speaker 9: Gotcha. 440 00:21:07,859 --> 00:21:11,899 Speaker 10: That needs to change because in politics, everyone's counted the 441 00:21:11,940 --> 00:21:14,659 Speaker 10: same at the voting booth. But but at the end 442 00:21:14,700 --> 00:21:17,340 Speaker 10: of the day, consumer spending solid because of that middle 443 00:21:17,820 --> 00:21:20,159 Speaker 10: income consumer now joining the high income consumer. 444 00:21:22,540 --> 00:21:23,159 Speaker 2: Stay with us. 445 00:21:23,460 --> 00:21:26,680 Speaker 7: More from Bloomberg Surveillance coming up after this. 446 00:21:33,950 --> 00:21:37,550 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live 447 00:21:37,630 --> 00:21:39,710 Speaker 1: weekday afternoons from 7 to 10 a.m. 448 00:21:39,760 --> 00:21:40,150 Speaker 3: Eastern. 449 00:21:40,260 --> 00:21:43,560 Speaker 1: Listen on Apple CarPlay and Android Auto with the Bloomberg 450 00:21:43,580 --> 00:21:44,820 Speaker 1: Business app or. 451 00:21:44,680 --> 00:21:47,960 Speaker 3: Watch us live on YouTube. Stephanie Gilda joins us here. 452 00:21:48,000 --> 00:21:51,700 Speaker 3: She's the CIO of Robinhood. Stephanie, what are the folks 453 00:21:51,820 --> 00:21:54,410 Speaker 3: on your platform, what are they buying and selling these days? 454 00:21:55,430 --> 00:21:58,390 Speaker 11: So they, you know, in July, we saw them sort 455 00:21:58,410 --> 00:22:01,149 Speaker 11: of net buying cool off. But since that kind of 456 00:22:01,170 --> 00:22:04,530 Speaker 11: pullback in the markets, they've been back at it much 457 00:22:04,570 --> 00:22:06,490 Speaker 11: more in the single stock base, for example, than the 458 00:22:06,550 --> 00:22:10,949 Speaker 11: ETF space. And what we have also been noticing, and 459 00:22:10,970 --> 00:22:13,090 Speaker 11: I think, you know, our stock price often can be 460 00:22:13,210 --> 00:22:17,860 Speaker 11: correlated with Bitcoin. crypto and Bitcoin. But that's not our 461 00:22:17,880 --> 00:22:20,280 Speaker 11: full business at all. We have a pretty diversified business. 462 00:22:20,859 --> 00:22:23,700 Speaker 11: But what we've been seeing customers do is definitely more 463 00:22:23,880 --> 00:22:27,200 Speaker 11: back in the AI trade, just trading the differences between 464 00:22:27,700 --> 00:22:31,080 Speaker 11: hyperscalers and picks and shovel stocks, which you're starting to 465 00:22:31,119 --> 00:22:33,320 Speaker 11: see change a lot in the last week or so. 466 00:22:33,340 --> 00:22:36,020 Speaker 11: And the other thing I noticed, too, is that I 467 00:22:36,040 --> 00:22:41,600 Speaker 11: think for a crypto was not doing as well for 468 00:22:41,619 --> 00:22:44,000 Speaker 11: a lot of the year, they were using prediction markets 469 00:22:44,080 --> 00:22:47,369 Speaker 11: to trade the small changes in prices. So kind of 470 00:22:47,410 --> 00:22:49,310 Speaker 11: saying like, where will the price be or will it 471 00:22:49,350 --> 00:22:50,010 Speaker 11: be above. 472 00:22:49,770 --> 00:22:50,410 Speaker 6: A certain amount? 473 00:22:51,270 --> 00:22:54,129 Speaker 11: And I think that's probably going to start changing now 474 00:22:54,150 --> 00:22:57,409 Speaker 11: that you've seen a pop in crypto and perhaps breaking 475 00:22:57,510 --> 00:22:57,810 Speaker 11: out a little. 476 00:22:57,890 --> 00:23:00,129 Speaker 5: I'm curious with your clients, are they willing to let 477 00:23:00,170 --> 00:23:02,300 Speaker 5: go of some of their AI high flyers? Do they 478 00:23:02,340 --> 00:23:04,060 Speaker 5: want to take profits in those and go elsewhere? Or 479 00:23:04,080 --> 00:23:05,500 Speaker 5: do they want to continue to hang on to that 480 00:23:05,540 --> 00:23:06,600 Speaker 5: and add to that positioning? 481 00:23:07,460 --> 00:23:11,800 Speaker 11: Um, I like generally speaking, behaviorally, our customers don't have 482 00:23:11,840 --> 00:23:15,010 Speaker 11: a problem taking profits. Um, and I think you, you know, 483 00:23:15,200 --> 00:23:17,510 Speaker 11: you see it, whether they're hanging on to a piece 484 00:23:17,550 --> 00:23:19,630 Speaker 11: and kind of trading around it, but you definitely see 485 00:23:19,670 --> 00:23:21,310 Speaker 11: like meta is one of the things that, you know, 486 00:23:21,330 --> 00:23:23,310 Speaker 11: they've sold recently. Cause that's actually had a pretty good 487 00:23:23,369 --> 00:23:27,280 Speaker 11: run going back into something like an Oracle. Um, and so, 488 00:23:27,650 --> 00:23:30,280 Speaker 11: you know, I, I don't, we look across platform rather 489 00:23:30,320 --> 00:23:33,640 Speaker 11: than individual positions, but they definitely are happy to take 490 00:23:33,680 --> 00:23:36,530 Speaker 11: a profit and move on to something that's maybe looking cheaper. 491 00:23:36,730 --> 00:23:43,109 Speaker 6: What are the most active stocks? Right now, it's Micron, Sandus. 492 00:23:43,390 --> 00:23:45,169 Speaker 5: So the two best performers in the first half of 493 00:23:45,190 --> 00:23:45,900 Speaker 5: the year for the S & P. 494 00:23:46,020 --> 00:23:48,120 Speaker 6: Yeah, I mean, it's certainly. 495 00:23:48,140 --> 00:23:50,440 Speaker 5: But they've also come back down since the stocks peaked 496 00:23:50,500 --> 00:23:52,360 Speaker 5: in June. So they're a lot cheaper, even though they're 497 00:23:52,400 --> 00:23:55,290 Speaker 5: still obviously doing very well this year. I guess when 498 00:23:55,330 --> 00:23:57,650 Speaker 5: those PE drops slightly, they're going back in and they're buying. 499 00:23:57,690 --> 00:23:57,850 Speaker 2: Yeah. 500 00:23:57,890 --> 00:24:01,670 Speaker 11: And I wouldn't equate buying with activity. Like I think, 501 00:24:01,710 --> 00:24:03,330 Speaker 11: you know, it could be that they were, you know, 502 00:24:03,350 --> 00:24:05,129 Speaker 11: kind of deciding to trim it. Like those are the 503 00:24:05,170 --> 00:24:07,710 Speaker 11: most actively, but the most, you know, the most bought, 504 00:24:07,750 --> 00:24:11,480 Speaker 11: for example, has been more Nvidia and Oracle. 505 00:24:12,200 --> 00:24:16,700 Speaker 5: And Nvidia has underperformed those peers tremendously this year compared 506 00:24:16,720 --> 00:24:18,800 Speaker 5: to how it performed in recent years. So that's interesting 507 00:24:18,820 --> 00:24:20,140 Speaker 5: that they're going back and buying Nvidia. 508 00:24:20,900 --> 00:24:23,680 Speaker 3: You mentioned Bitcoin, but I, again, kind of didn't pay 509 00:24:23,720 --> 00:24:25,520 Speaker 3: attention until this morning. We're at 85,000 on Bitcoin. It's 510 00:24:27,890 --> 00:24:30,020 Speaker 3: Do the Robinhood folks, do they buy the momentum? 511 00:24:31,160 --> 00:24:34,540 Speaker 11: I think you do start seeing, like, you know, crypto 512 00:24:34,580 --> 00:24:37,000 Speaker 11: in general goes through these, like, seasonal things. And I 513 00:24:37,040 --> 00:24:40,230 Speaker 11: think after you had that big pop, what was it, 514 00:24:40,240 --> 00:24:42,800 Speaker 11: a couple weeks ago, you are starting to see people 515 00:24:42,859 --> 00:24:45,310 Speaker 11: pay attention. I personally have been watching it saying, you know, 516 00:24:45,350 --> 00:24:47,430 Speaker 11: I want to see if it can actually break out 517 00:24:47,470 --> 00:24:48,969 Speaker 11: of the kind of range that it's been in. 518 00:24:49,030 --> 00:24:50,150 Speaker 6: And I think it did that. 519 00:24:50,270 --> 00:24:51,790 Speaker 3: Yeah, it kind of feels like it. You know, like. 520 00:24:51,690 --> 00:24:55,709 Speaker 11: Friday and this weekend. So, yes, people certainly pay attention 521 00:24:55,730 --> 00:24:56,010 Speaker 11: to that. 522 00:24:56,230 --> 00:24:56,750 Speaker 1: Steph, you've got. 523 00:24:57,170 --> 00:25:00,600 Speaker 3: Robin Hood Strategies, your digital advisors. Talk to us about that. 524 00:25:00,660 --> 00:25:02,060 Speaker 3: What is that? 525 00:25:02,260 --> 00:25:04,340 Speaker 6: It's definitely a different part of the platform. 526 00:25:05,100 --> 00:25:07,460 Speaker 11: We kind of have a focus at the company on 527 00:25:07,680 --> 00:25:10,399 Speaker 11: making sure we take care of our active traders, but 528 00:25:10,420 --> 00:25:13,859 Speaker 11: then also understand that not as people kind of change 529 00:25:13,900 --> 00:25:16,080 Speaker 11: in their lives and their careers, they need to get 530 00:25:16,180 --> 00:25:19,760 Speaker 11: more time. And so we've created a set of portfolios 531 00:25:19,780 --> 00:25:22,070 Speaker 11: that you can invest in that will do the investing 532 00:25:22,109 --> 00:25:22,440 Speaker 11: for you. 533 00:25:22,460 --> 00:25:23,320 Speaker 1: And we. 534 00:25:25,030 --> 00:25:26,430 Speaker 6: Tried to innovate in a couple of ways. 535 00:25:26,530 --> 00:25:28,070 Speaker 11: One is that we actually have single stocks in the 536 00:25:28,090 --> 00:25:32,270 Speaker 11: portfolios versus a lot of other, you know, robos out 537 00:25:32,310 --> 00:25:34,990 Speaker 11: there that just kind of buy a group of ETFs. 538 00:25:35,450 --> 00:25:36,810 Speaker 6: We leave you messages. 539 00:25:36,450 --> 00:25:39,859 Speaker 11: About what's happening in your portfolio directly from me and 540 00:25:39,880 --> 00:25:40,359 Speaker 11: my team. 541 00:25:40,520 --> 00:25:44,280 Speaker 6: And then we actually, our fees are capped. 542 00:25:44,720 --> 00:25:46,459 Speaker 11: So if you're a gold member, you don't pay more 543 00:25:46,480 --> 00:25:48,639 Speaker 11: than $ 250 a year for the service. 544 00:25:48,920 --> 00:25:50,540 Speaker 5: How does someone, if they want to invest in one 545 00:25:50,560 --> 00:25:53,020 Speaker 5: of those portfolios, the newer ones you're talking about, how 546 00:25:53,040 --> 00:25:53,900 Speaker 5: do you go about doing that? 547 00:25:55,330 --> 00:25:57,860 Speaker 11: Well, we recognize a couple of things. One is that 548 00:25:57,890 --> 00:26:01,699 Speaker 11: we have a general like philosophy that we think the 549 00:26:01,740 --> 00:26:05,140 Speaker 11: markets have substantially changed kind of post 2022 and rates 550 00:26:05,160 --> 00:26:07,639 Speaker 11: started going up. And as a result of that, we 551 00:26:07,700 --> 00:26:10,480 Speaker 11: wanted to make sure we gave people the best opportunity 552 00:26:10,520 --> 00:26:13,540 Speaker 11: to make money over time. And that means that we 553 00:26:13,560 --> 00:26:16,869 Speaker 11: put you in single names in addition to ETFs. we 554 00:26:16,910 --> 00:26:19,070 Speaker 11: have a couple of different things that we do. We 555 00:26:19,150 --> 00:26:21,210 Speaker 11: ask them a couple of questions and we make sure 556 00:26:21,250 --> 00:26:24,380 Speaker 11: they're in the right risk return profile. Um, and then, 557 00:26:24,780 --> 00:26:27,700 Speaker 11: you know, we have an investment process that's grounded in 558 00:26:27,740 --> 00:26:30,700 Speaker 11: behavioral finance, um, which is very different, I'd say than a. 559 00:26:30,640 --> 00:26:31,520 Speaker 6: Lot of other places too. 560 00:26:31,560 --> 00:26:33,160 Speaker 5: How do you decide on the single stocks? 561 00:26:33,880 --> 00:26:36,040 Speaker 11: Well, that's what I, so we start with a quantitative 562 00:26:36,080 --> 00:26:38,730 Speaker 11: investment process that kind of keeps our emotion out of it, 563 00:26:38,810 --> 00:26:41,330 Speaker 11: but that's pretty easily to get caught up in that. 564 00:26:41,410 --> 00:26:44,169 Speaker 11: And then we have an overlay, um, from our team 565 00:26:44,210 --> 00:26:49,040 Speaker 11: and we use, um, artificial intelligence quite a bit to 566 00:26:49,080 --> 00:26:51,120 Speaker 11: help support our investment research. 567 00:26:51,280 --> 00:26:53,659 Speaker 5: So then is it more unique to that individual how 568 00:26:53,700 --> 00:26:56,900 Speaker 5: you're picking those individual stocks and more broadly? 569 00:26:57,609 --> 00:27:00,210 Speaker 11: It's kind of a mix. We want to obviously have 570 00:27:00,250 --> 00:27:04,689 Speaker 11: scale for our investors. We have over 350,000 customers and 571 00:27:04,730 --> 00:27:08,470 Speaker 11: we have over $ 2 billion in assets. But you can 572 00:27:08,530 --> 00:27:13,020 Speaker 11: customize your account. You can restrict stocks. You can change 573 00:27:13,080 --> 00:27:16,940 Speaker 11: the risk return profile of your portfolio directly. So there's 574 00:27:16,960 --> 00:27:19,939 Speaker 11: a lot of ways we can make it customized and 575 00:27:19,960 --> 00:27:23,560 Speaker 11: personalized for you. But we do a lot of work 576 00:27:23,640 --> 00:27:24,200 Speaker 11: behind the scenes. 577 00:27:24,660 --> 00:27:29,609 Speaker 1: This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, 578 00:27:29,710 --> 00:27:33,990 Speaker 1: and anywhere else you get your podcasts. Listen live each weekday, 579 00:27:33,990 --> 00:27:39,410 Speaker 1: 7 to 10 a.m. Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, 580 00:27:39,730 --> 00:27:42,780 Speaker 1: and the Bloomberg Business app. You can also watch us 581 00:27:42,880 --> 00:27:46,880 Speaker 1: live every weekday on YouTube and always on the Bloomberg Terminal.