WEBVTT - Bloomberg Surveillance TV: August 20th, 2025 0:00:02.400 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.680 --> 0:00:15.480 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.520 --> 0:00:18.720 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.760 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.440 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.960 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.319 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:37.000 Terminal and the Bloomberg Business App. I'm very pleased to 0:00:37.000 --> 0:00:39.280 say that joining us on this program, Howard Mark joins 0:00:39.360 --> 0:00:41.199 us some more. Howard, Welcome to the program, Sir. 0:00:41.320 --> 0:00:41.920 I want to start. 0:00:42.040 --> 0:00:44.199 We want to start with a central question that you 0:00:44.280 --> 0:00:46.960 pose yourself. Why asset price is so strong in the 0:00:46.960 --> 0:00:50.360 face of what you view as net negative developments. Howard, 0:00:50.400 --> 0:00:51.639 can you share your thoughts with us? 0:00:54.000 --> 0:00:56.280 I'm glad to be with you this morning. Of course, 0:00:56.760 --> 0:01:01.160 as the quote you just put on the screen indicates, 0:01:02.280 --> 0:01:07.280 you know, this is all just feeling and an opinion. 0:01:07.480 --> 0:01:10.880 None of this is factual, but it does seem that 0:01:11.640 --> 0:01:15.200 stocks are expensive relative to what I call fundamentals. Or 0:01:15.760 --> 0:01:20.639 you might call reality. And you know, the outstanding reason 0:01:20.720 --> 0:01:24.120 I think is that, you know, there hasn't been a 0:01:24.160 --> 0:01:28.520 serious market correction in sixteen years, so people get out 0:01:28.520 --> 0:01:35.839 of the habit of thinking about market corrections. The biggest 0:01:35.880 --> 0:01:38.440 single mistake. I've been thinking a lot what is the 0:01:38.480 --> 0:01:42.520 biggest single mistake investors make? And I've concluded that it 0:01:42.560 --> 0:01:46.080 is that they conclude that the way things are today 0:01:46.160 --> 0:01:47.960 is the way it will always be, and the things 0:01:48.000 --> 0:01:51.120 that have been happening will always continue to happen, whereas 0:01:52.080 --> 0:01:55.520 reversion to the mean is much more likely. So I 0:01:55.600 --> 0:01:59.760 just think that it's worked very well. Being in equity 0:02:00.560 --> 0:02:03.280 investor has worked very well. Doing it on leverage has 0:02:03.320 --> 0:02:07.040 worked even better. Concentrating in a few stocks has gone 0:02:07.160 --> 0:02:11.680 very well. Investors are by nature optimistic, and that optimism 0:02:11.720 --> 0:02:18.960 dies hard. And you know, I just think that the 0:02:19.000 --> 0:02:22.880 fluctuations of the market are mostly related to psychological fluctuations, 0:02:23.680 --> 0:02:29.320 and people go from neutrality to liking stocks, to liking 0:02:29.320 --> 0:02:32.480 them a lot, to liking them a ton, to liking 0:02:32.480 --> 0:02:38.920 them too much, and that's the continuation that creates bubbles. 0:02:39.000 --> 0:02:43.320 And you know, we're we probably in the early days 0:02:43.320 --> 0:02:43.560 of that. 0:02:44.639 --> 0:02:48.400 When you talk about liking Howard, maybe liking these assets 0:02:48.400 --> 0:02:51.640 a little bit too much. Can you put into perspective 0:02:52.040 --> 0:02:55.320 the last time you saw this type of environment that 0:02:55.440 --> 0:02:58.600 left you thinking, maybe some of the opportunities aren't as 0:02:59.080 --> 0:03:01.480 great when it comes to buying some of these assets 0:03:01.520 --> 0:03:04.360 at the current valuations. Is there another time that this 0:03:04.440 --> 0:03:07.040 sort of reminds you of in any capacity? 0:03:09.560 --> 0:03:14.920 Well, I guess, Lisa, the last time was probably around 0:03:15.680 --> 0:03:22.760 a ninety ninety seven when the market was kind of 0:03:22.800 --> 0:03:29.000 falling in love with tech stocks, and you know, the 0:03:29.040 --> 0:03:31.760 market was rocketing along. People were not worried about the 0:03:31.840 --> 0:03:35.840 level of valuations. People were extremely optimistic about the opportunities 0:03:35.840 --> 0:03:42.040 for the Internet, and you know, Alan Greenspan famously cautioned 0:03:42.760 --> 0:03:48.480 that there might be irrational exuberance. Now I picked ninety 0:03:48.520 --> 0:03:55.200 seven because even though green Span was concerned about exuberance, 0:03:55.600 --> 0:03:59.160 the market went on to rise for another two and 0:03:59.240 --> 0:04:02.600 a half to three years. So remember I said, we're 0:04:02.600 --> 0:04:06.800 in the early days. We're not at a critical at 0:04:06.840 --> 0:04:13.560 a nutty valuation. I'm certainly not ringing the alarm bells 0:04:13.600 --> 0:04:16.720 as the quote that you had on the screen said, 0:04:17.200 --> 0:04:19.520 no reason to think there'll be a correction soon. But 0:04:21.120 --> 0:04:24.720 the point is that things are expensive. They may go on, 0:04:25.200 --> 0:04:27.240 they may go on to become more expensive, but the 0:04:27.240 --> 0:04:29.640 fact that they're expensive it should not be lost. 0:04:30.080 --> 0:04:31.960 And Howard, I think a lot of people point to, 0:04:32.160 --> 0:04:35.080 in terms of the echoes of the late nineties, the 0:04:35.120 --> 0:04:38.479 tech sector of the market as being the most overvalued. 0:04:38.600 --> 0:04:40.400 What I thought was so interesting about your memo is 0:04:40.440 --> 0:04:42.960 that that wasn't your take, That that wasn't your bigger 0:04:43.000 --> 0:04:45.800 concern in the market at a time when people are 0:04:45.880 --> 0:04:48.719 counting on a certain robustness of growth and a certain 0:04:48.800 --> 0:04:52.240 kind of inflationary backdrop. Why is it that tech Is 0:04:52.240 --> 0:04:54.279 it the focus of your concern this time around? 0:04:57.160 --> 0:05:01.279 A tech contributes to the aura it surrounds the markets, 0:05:01.320 --> 0:05:03.359 and a lot of people have been citing the fact 0:05:03.360 --> 0:05:06.760 that the so called Magnificent seven stocks like Amazon and 0:05:06.800 --> 0:05:12.000 Alphabet have been contributing disproportionally to the rise, and they 0:05:12.040 --> 0:05:17.839 are responsible for more than seven stocks. Their dollar gains 0:05:17.960 --> 0:05:21.839 have been responsible for more than half of all the 0:05:21.880 --> 0:05:24.599 gains in the five hundred stocks in the S and 0:05:24.640 --> 0:05:28.680 P seven out of five hundred. But they're great companies, 0:05:28.680 --> 0:05:31.760 they're at high valuations. I think that I can't say 0:05:31.760 --> 0:05:37.840 those valuations are excessive, but the other four hundred and 0:05:37.880 --> 0:05:42.200 ninety three stocks are quite highly valued, not as highly 0:05:42.200 --> 0:05:44.280 as the magnizins of seven, but nobody says they're the 0:05:44.279 --> 0:05:48.120 same quality companies, quite highly valued relative to history. And 0:05:49.720 --> 0:05:55.360 it is the the fact that high valuations are being 0:05:55.360 --> 0:05:59.360 applied to more average companies that I think is more 0:05:59.520 --> 0:06:03.599 alarming then the fact that exceptional evaluations are being applied 0:06:03.640 --> 0:06:04.800 to exceptional companies. 0:06:05.360 --> 0:06:07.560 How there's a quote you use in this memo. I 0:06:07.640 --> 0:06:10.640 enjoyed this quote. You said, he who knows only his side, 0:06:10.680 --> 0:06:13.680 his own side of the case, knows little of that. 0:06:14.279 --> 0:06:15.839 And then I worked through the rest of the memo 0:06:15.960 --> 0:06:18.280 and there was a conclusion there about credit. And I 0:06:18.360 --> 0:06:21.280 just wonder whether you focus on equities in this note 0:06:21.480 --> 0:06:23.720 offers you a greadit perspective on how much value is 0:06:23.760 --> 0:06:24.960 offered in credit right now? 0:06:26.839 --> 0:06:32.560 Well, you know, it's as John Stewart Mill said, and 0:06:32.760 --> 0:06:35.680 I believe it was eighteen fifty nine, you have to 0:06:35.720 --> 0:06:38.960 know all the sides of the story to understand whether 0:06:39.040 --> 0:06:46.880 your side holds water. And I cite the book case 0:06:46.920 --> 0:06:51.800 there for why the market isn't overvalued. I think that's 0:06:51.880 --> 0:06:55.320 part of the job. But as you say, you know 0:06:55.520 --> 0:06:59.640 my conclusion is that it's as I said before, I'm 0:06:59.680 --> 0:07:02.080 not really seeing an alarm belt, but I do think 0:07:02.080 --> 0:07:06.800 it's time for some caution. And you know, this is 0:07:06.839 --> 0:07:08.599 a little bit of what we call on Wall Street 0:07:08.839 --> 0:07:14.200 talking your own book. But you know what I do, 0:07:13.600 --> 0:07:19.000 what Oakrey does is mostly something called credit buying the 0:07:19.120 --> 0:07:32.440 debts of companies, and debt is inherently more defensive than equities. 0:07:33.000 --> 0:07:36.000 And you have a promise of payment, you know what 0:07:36.040 --> 0:07:39.600 your return will be. They if they pay interest in 0:07:39.680 --> 0:07:42.640 principle has promised and most of the time they do. 0:07:43.040 --> 0:07:43.120 So. 0:07:43.960 --> 0:07:46.560 I just think that this is a time to put 0:07:46.560 --> 0:07:50.240 a little more defense into your portfolio, and investing in 0:07:50.320 --> 0:07:54.360 credit as opposed to equities is one way to do it. 0:07:54.400 --> 0:07:55.880 Is it still defensive, Howard? 0:07:55.920 --> 0:07:58.920 If you're looking at credit spreads that are the tightest 0:07:58.960 --> 0:08:02.600 since nineteen ninety, I'm looking at investment grade credit spreads 0:08:02.760 --> 0:08:05.320 are thought to be a more defensive part of the 0:08:05.320 --> 0:08:08.200 credit market. I mean, is that sort of question what 0:08:08.240 --> 0:08:10.880 it means for it to be defensive where the evaluations 0:08:10.880 --> 0:08:12.920 are high there as well? 0:08:13.040 --> 0:08:18.200 Well? First of all, it's what you see debt or 0:08:18.240 --> 0:08:21.800 fixed income or bonds or what I call credit, all 0:08:22.000 --> 0:08:26.320 different words for the same thing is different in nature 0:08:26.640 --> 0:08:31.600 from equities because you do have a promised contractual rate 0:08:31.640 --> 0:08:36.760 of return, and you can say that the promised contractual 0:08:36.800 --> 0:08:40.720 return isn't as high as it has been historically, or 0:08:40.760 --> 0:08:45.280 the increment that it provides over treasuries to compensate for 0:08:45.320 --> 0:08:49.560 the credit risk isn't as higher as high as it 0:08:49.559 --> 0:08:54.160 has been historically. But you can't say that they don't 0:08:54.200 --> 0:08:59.440 promise seven and a half percent, and a promise of 0:08:59.440 --> 0:09:01.040 seven and a half percent you're going to pay for 0:09:01.080 --> 0:09:03.520 some fees. You're once in a while going to encourage 0:09:04.320 --> 0:09:09.200 encounter a credit loss. I think it's highly likely to 0:09:09.280 --> 0:09:13.079 provide let's say, a return in the sixties over the 0:09:13.080 --> 0:09:19.040 next ten years. A contractual guarantee approaching something in the 0:09:19.080 --> 0:09:23.520 sixes over the next ten years is I think more 0:09:23.559 --> 0:09:28.439 defensive than being in the stock market at these elevated valuations. 0:09:28.559 --> 0:09:35.640 That's the point. And you know you just said tighter 0:09:35.679 --> 0:09:41.160 than they have been since ninety eight. And if you 0:09:41.280 --> 0:09:45.160 looked at where they were in ninety eight, and you 0:09:45.880 --> 0:09:49.079 hypothesize that put an investment in a portfolio HYO bonds 0:09:49.080 --> 0:09:53.160 in ninety eight, how did you do over the last 0:09:53.160 --> 0:09:56.240 seventeen years? Of twenty seven years, and I think you 0:09:56.320 --> 0:10:00.720 did fine. That's my point. It has a high probability 0:10:00.720 --> 0:10:06.880 of doing fine, whereas stocks, if the valuations are elevated, 0:10:07.600 --> 0:10:11.640 have some reasonable probability of doing less than fine. 0:10:12.880 --> 0:10:17.000 Is the United States still the focal point for defensive investments? 0:10:20.920 --> 0:10:25.160 You know? I think? I said in the memo that 0:10:25.200 --> 0:10:27.600 I think the US is still the best place in 0:10:27.640 --> 0:10:32.120 the world to invest. The things that make the US exceptional, 0:10:32.679 --> 0:10:35.400 the spirit of innovation, the free markets, the rule of law, 0:10:35.520 --> 0:10:41.360 the capital markets, the growth and dynamism, the great companies. 0:10:41.520 --> 0:10:45.360 These things are still all true. But as I said 0:10:45.360 --> 0:10:48.200 in the memo, we're the best place. We may be 0:10:48.240 --> 0:10:51.800 a little less best than we used to be. The 0:10:51.840 --> 0:10:56.000 world is thinking that maybe the US is a little 0:10:56.000 --> 0:11:01.760 best less best than it used to be. I can't 0:11:01.920 --> 0:11:08.200 argue against that. I mean, fundamentally, as an investment environment, 0:11:10.800 --> 0:11:15.000 I think things are a little bit deteriorated. 0:11:16.679 --> 0:11:18.920 Is there a place that you see has more opportunities 0:11:18.960 --> 0:11:22.240 right now, just based on valuations and based on maybe 0:11:22.640 --> 0:11:27.000 affirming up of contract law and other aspects that really 0:11:27.080 --> 0:11:29.680 lead to a robust investment backdrop. 0:11:31.880 --> 0:11:34.079 Well, as I say, I still think we're the best 0:11:34.080 --> 0:11:43.600 place in the world to invest. And you know, we're 0:11:43.640 --> 0:11:48.120 a great car at a high price. You can get 0:11:48.160 --> 0:11:52.640 some cars around the world that are not as great 0:11:52.800 --> 0:12:00.559 as ours cheaper. Which do you prefer less good at 0:12:00.600 --> 0:12:04.640 a cheaper price or better at a more expensive price. 0:12:05.920 --> 0:12:09.120 So you know, other parts of the world do not 0:12:09.200 --> 0:12:16.520 have our dynamism, and lots of places in the world 0:12:16.559 --> 0:12:22.840 are overregulated compared to the United States, But if they're 0:12:22.880 --> 0:12:29.040 on sale relative to the US, it's not unreasonable to 0:12:29.360 --> 0:12:31.560 want to have some representation there. 0:12:32.240 --> 0:12:35.720 Stay with us More Bloomberg Surveillance coming up after this. 0:12:45.120 --> 0:12:49.840 Eugenio Alamann for Remond James, writing the following inflationary effects 0:12:49.840 --> 0:12:54.000 from taris should start making inroads into those nominal retail numbers, 0:12:54.000 --> 0:12:56.640 and we should expect to see weakness and consumer demound 0:12:56.960 --> 0:12:59.880 during the rest of the year. Eugenia joins US Now 0:13:00.080 --> 0:13:02.360 for more. Welcome to the program sir, what's your read 0:13:02.440 --> 0:13:04.120 on the US consumer. Let's just build on what you 0:13:04.160 --> 0:13:06.439 said there and how broad based will that weakness be. 0:13:07.920 --> 0:13:10.760 Yeah, we have been seen weakness in the US consumer 0:13:10.840 --> 0:13:12.960 for a while. The first two quarters of the year 0:13:13.520 --> 0:13:19.840 were relatively low, I mean weak, and as we expect 0:13:20.440 --> 0:13:26.000 the full impact of times continued to make in roads. 0:13:27.440 --> 0:13:30.440 We are expecting the consumer to continue to slow down. 0:13:31.840 --> 0:13:37.400 So our second, third quarter and fourth quarter expectation is very, 0:13:37.480 --> 0:13:41.920 very weak, very very close to recession. We are still 0:13:41.960 --> 0:13:45.760 not calling a recession. We have fifty percent recession, but 0:13:47.240 --> 0:13:51.080 it is a very smooth slowing down of the consumer. 0:13:51.160 --> 0:13:57.480 There is no falling of of consumer demand, but it 0:13:57.600 --> 0:14:03.120 is weakening. I mean we have employment numbers weekend considered, 0:14:03.120 --> 0:14:08.440 aurienda is going to continue to keep the consumer contained. 0:14:08.640 --> 0:14:12.079 Can we focus on the potential for further bifurcation within 0:14:12.120 --> 0:14:12.720 the consumer? 0:14:13.000 --> 0:14:13.440 Eugenia. 0:14:13.520 --> 0:14:15.400 This came from the Bank of America Institute, and they 0:14:15.400 --> 0:14:18.199 said total credit and debit card spending per household increase 0:14:18.280 --> 0:14:20.760 one point eight percent year over year in July, the 0:14:20.840 --> 0:14:23.800 highest growth rate since January. So bounce back and spend 0:14:23.840 --> 0:14:26.080 in July coming through the summer. But they also said 0:14:26.120 --> 0:14:29.120 this the difference in wage growth between higher and lower 0:14:29.120 --> 0:14:33.840 income households the largest since February twenty twenty one. Is 0:14:33.880 --> 0:14:36.400 there something more regressive about the policy effort of the 0:14:36.480 --> 0:14:38.640 past few months that you see playing out in a 0:14:38.680 --> 0:14:40.200 much more negative way in the months to come. 0:14:41.200 --> 0:14:44.960 Yeah, it is clear that tires effect are very regressive 0:14:45.120 --> 0:14:52.160 effect the lower income individuals households compared to the higher 0:14:52.160 --> 0:15:00.480 income and we have seen this wave of a splitting consumer, 0:15:01.160 --> 0:15:04.280 let's say, in terms of income for a while. I mean, 0:15:04.280 --> 0:15:08.440 we also have student loans that are going to have 0:15:08.520 --> 0:15:14.200 to be repaid again, so those spendings are going to 0:15:14.520 --> 0:15:19.360 come down on discretionary side of the economy. So yes, 0:15:19.520 --> 0:15:25.240 I mean, we are concerned that this bifurcation of the 0:15:25.240 --> 0:15:31.000 consumer through income levels will will put I mean, will 0:15:31.040 --> 0:15:34.120 help to weaken the consumer even further. 0:15:34.560 --> 0:15:36.440 How much do you see some of the retail sales 0:15:36.520 --> 0:15:39.640 data that we've been getting is somewhat clouded, Eugenio, given 0:15:39.680 --> 0:15:42.840 the fact that inflation has been present. You have seen 0:15:42.840 --> 0:15:46.320 a couple of key goods really see pretty significant inflationary pops, 0:15:46.520 --> 0:15:50.160 and that's included in the absolute number that people then say, look, 0:15:50.240 --> 0:15:50.880 it shows. 0:15:50.600 --> 0:15:53.160 The consumer is strong, the consumer is robust. 0:15:54.640 --> 0:15:57.960 Yeah, I mean, the biggest issue with nom with retail 0:15:58.080 --> 0:16:02.160 sales is that they are nominal. Right. The DA used 0:16:02.200 --> 0:16:05.680 to calculate some real retail sales, but they don't have 0:16:05.800 --> 0:16:09.720 enough resources, so they no longer calculate them. So every 0:16:09.720 --> 0:16:13.080 time that we see nominal retail sales, we say wait 0:16:13.120 --> 0:16:17.240 a second. Yes, it was relatively strong in July, but 0:16:17.880 --> 0:16:21.040 you have to take into account that most of it 0:16:21.080 --> 0:16:27.280 is probably price increases. So that is one of the 0:16:27.320 --> 0:16:31.040 reasons that we say that the consumer consumer demand has 0:16:31.320 --> 0:16:34.840 been slowing down, so you have to take away and 0:16:34.960 --> 0:16:39.640 increases in prices. We are seeing some increases in prices. 0:16:41.200 --> 0:16:44.480 A third of consumption is good, so those are the 0:16:44.520 --> 0:16:49.280 ones that are most impacted by by tires, and there 0:16:49.280 --> 0:16:53.240 are goods that affect the lower end consumer more than 0:16:53.280 --> 0:16:59.120 the upper end consumer. So it is concerning. We don't 0:16:59.160 --> 0:17:02.080 see a crisis, so we don't see something funny enough 0:17:03.760 --> 0:17:11.640 right now, but you know, the shock from times is 0:17:11.680 --> 0:17:14.040 going to continue to making roads. 0:17:13.840 --> 0:17:18.800 Into Stay with us. More Bloomberg Surveillance coming up after this. 0:17:28.240 --> 0:17:30.640 Eric Friedman of US Bank writing, as long as CAPEX 0:17:30.680 --> 0:17:34.080 continues and technology diffusion occurs at a measured pace, we 0:17:34.119 --> 0:17:37.960 see further upside, but would not mind the pause. The refreshes. 0:17:38.280 --> 0:17:40.399 Eric joins us now for more. Eric, welcome to the program. 0:17:40.480 --> 0:17:42.240 So last time we spoke a little more than a 0:17:42.280 --> 0:17:44.480 month ago. Around a month ago, I remember you were 0:17:44.480 --> 0:17:48.520 maintaining that overweight risk on posture. Eric, are you maintain 0:17:48.600 --> 0:17:50.199 in that posture going through summer. 0:17:51.200 --> 0:17:53.320 Yeah, Jonathan, we are great to see you as always. 0:17:53.359 --> 0:17:56.000 I think that our viewpoint is certainly trees don't grow 0:17:56.040 --> 0:17:58.400 to the sky, and I think a level of skepticism 0:17:58.440 --> 0:18:01.600 around you know, leads. That's a great point made about 0:18:01.600 --> 0:18:04.359 the return on capital with an AI that for us 0:18:05.000 --> 0:18:07.520 is really the big factor. We think that with respect 0:18:07.520 --> 0:18:10.439 to technology, we are seeing that diffusion pick up. 0:18:10.480 --> 0:18:11.880 In other words, we're. 0:18:11.680 --> 0:18:15.840 Seeing more access to AI technologies across a broader plethora 0:18:15.840 --> 0:18:18.360 of companies, which is a good thing. At the same time, 0:18:18.400 --> 0:18:20.879 though companies have to make money. This is about return 0:18:21.040 --> 0:18:23.720 of shareholder capital and so you can't just have a 0:18:23.760 --> 0:18:25.480 plan where you want to spend a bunch of money 0:18:25.480 --> 0:18:28.480 on AI. There needs to be some evidence if you 0:18:28.520 --> 0:18:31.520 will have returned. So we think that CAPEX is a 0:18:31.560 --> 0:18:34.240 good guide. It's not the only guide, but we're starting 0:18:34.240 --> 0:18:37.440 to see more companies talk about those returns on their 0:18:37.480 --> 0:18:40.320 capital deployed, which for us is still a positive. 0:18:40.359 --> 0:18:42.680 So again we're still risk on. We think consumers hang 0:18:42.720 --> 0:18:43.159 in there. 0:18:43.359 --> 0:18:46.359 We think CAPEX continues, but again we would not be 0:18:46.400 --> 0:18:48.200 surprised to see a bit of a pullback, which we'd 0:18:48.240 --> 0:18:51.119 like to be buyers of especially as we get deeper 0:18:51.160 --> 0:18:53.760 into the doldrums, if you will, pre labor Day. 0:18:53.840 --> 0:18:56.440 So you've got a pro rispose quite clearly, and you've 0:18:56.440 --> 0:18:58.679 had that every time we've spoken over the last several times. 0:18:58.880 --> 0:19:01.240 What would begin to construc in that pro respose for you? 0:19:01.359 --> 0:19:01.520 Eric? 0:19:01.520 --> 0:19:02.880 What could you point too specifically? 0:19:03.760 --> 0:19:04.440 I think two things. 0:19:04.520 --> 0:19:07.080 Number one would be, Jonathan, the consumer rolls over, which 0:19:07.119 --> 0:19:09.199 we can't discount. We'd like to say that we have 0:19:09.240 --> 0:19:13.320 a working thesis mentality about consumers. A lot of concern 0:19:13.400 --> 0:19:16.200 about did we see a huge pull forward in demand 0:19:17.280 --> 0:19:20.679 around the Liberation Day announcement in the week shortly thereafter, 0:19:21.119 --> 0:19:23.520 and will that return? In other words, will that demand 0:19:23.560 --> 0:19:26.359 actually resurface. We have a couple of data points we 0:19:26.800 --> 0:19:28.959 can look at. Number one is back to school sales, 0:19:29.000 --> 0:19:32.080 and then number two is what we're hearing about the 0:19:32.080 --> 0:19:35.159 holiday shopping season. So we'll have some good evidence right now. 0:19:35.600 --> 0:19:38.840 Our high frequency data checks, things like TSA data, things 0:19:38.920 --> 0:19:42.400 like open table bookings are still very robust, So consumers 0:19:42.440 --> 0:19:44.960 are not rolling over. The second area that where we 0:19:45.000 --> 0:19:48.320 could be wrong would be companies actually don't use this 0:19:48.440 --> 0:19:51.959 opportunity with a bit more tear iff clarity to hire people. 0:19:52.240 --> 0:19:54.760 And again we do think the labor market softness has 0:19:54.800 --> 0:19:56.680 been very well documented. 0:19:56.359 --> 0:19:57.880 That for us is a red flag. 0:19:58.000 --> 0:20:01.720 So those two elements consumer pulling back, but then also 0:20:01.800 --> 0:20:04.920 the notion of will businesses actually come back to higher 0:20:04.960 --> 0:20:07.120 folks now that we have a little more tear if clarity, 0:20:07.600 --> 0:20:10.480 that for us would be a bit of the concerning points. 0:20:10.480 --> 0:20:13.359 It would take that glass half fle thesis to task. 0:20:13.600 --> 0:20:15.719 Relative to where we are right now, it seems like 0:20:15.960 --> 0:20:18.359 the potential for disappointment is in the four hundred and 0:20:18.400 --> 0:20:21.159 ninety three, based on what you just said, not necessarily 0:20:21.160 --> 0:20:25.959 the magnificent seven. You never said in that entire risk paradigm, 0:20:26.160 --> 0:20:28.280 the idea that suddenly we're in a bubble in tech 0:20:28.359 --> 0:20:31.000 valuations and that it would crash as people lost faith 0:20:31.040 --> 0:20:34.240 in just how much artificial intelligence could actually do. Why 0:20:34.359 --> 0:20:37.119 is that not necessarily a concern for you in the 0:20:37.160 --> 0:20:40.040 same way that just sort of the more humdrum aspects 0:20:40.040 --> 0:20:42.159 of just a slowing consumer would be. 0:20:43.280 --> 0:20:43.440 Yeah. 0:20:43.520 --> 0:20:45.880 I think that's a very thoughtful challenge, Lis. 0:20:45.920 --> 0:20:49.200 I mean, if you look at the broader marketplace right now, 0:20:49.680 --> 0:20:54.280 you look what's really developing from a core spend standpoint, 0:20:54.720 --> 0:20:59.080 we need to see a development beyond AI and cyberspect 0:20:59.200 --> 0:21:01.680 that's something that is a very played out thesis. Again, 0:21:01.720 --> 0:21:05.360 we're weary of being involved for too long. I think 0:21:05.359 --> 0:21:08.679 that that's something that gives us again some level of 0:21:08.720 --> 0:21:11.760 skepticism about the rest of the of the markets participation. 0:21:11.880 --> 0:21:14.280 One thing that I want to really emphasize it I 0:21:14.280 --> 0:21:17.239 think is probably undercovered, is is that cash flows are 0:21:17.280 --> 0:21:20.879 actually becoming more valuable. If anything, when we look at 0:21:20.920 --> 0:21:23.960 our discount and cash flow models when we're evaluating the 0:21:24.000 --> 0:21:26.679 other four hundred and ninety three companies out there, you know, 0:21:26.720 --> 0:21:29.800 there's the expectation that FED funds goes down to three 0:21:29.880 --> 0:21:32.960 percent by the end of calendar year twenty twenty six. 0:21:33.040 --> 0:21:36.840 That's a pretty significant development. Again, that's not necessarily new news, 0:21:36.880 --> 0:21:38.399 if you will. I mean, the forward curve has that 0:21:38.480 --> 0:21:41.719 pretty well priced in. But when we're discounting cash flows, 0:21:41.760 --> 0:21:44.840 we're using a much lower interest rate, which makes those 0:21:44.840 --> 0:21:46.679 cash flows more valuable. 0:21:46.760 --> 0:21:48.320 So, if anything, you know, we. 0:21:48.359 --> 0:21:51.600 Think that that should the FED continue with a more 0:21:51.720 --> 0:21:55.800 measured gradual reduction for a prolonged period of time. Again, 0:21:55.800 --> 0:21:58.000 the move from four point three three to three percent 0:21:58.359 --> 0:22:01.520 on a discout rate that has been hero impacts on 0:22:01.600 --> 0:22:04.600 stock valuation. So I think if anything leads so what 0:22:04.640 --> 0:22:07.600 would be another challenge, if you will, would be if 0:22:07.640 --> 0:22:11.359 the FED decides to be more incremental, if the yeld 0:22:11.400 --> 0:22:14.720 curve doesn't have that twist shape, and in fact the 0:22:14.720 --> 0:22:17.280 front of the curve remains more elevated, that would make 0:22:17.280 --> 0:22:20.200 that four to ninety three less valuable. Because we think 0:22:20.240 --> 0:22:22.560 that that will likely be the outcome. The FED will 0:22:22.920 --> 0:22:25.760 be measured but still bring the front rates down. That 0:22:25.800 --> 0:22:29.720 makes the other four ninety three more attractive, even with 0:22:29.880 --> 0:22:31.439 more prosaic sales growth. 0:22:31.760 --> 0:22:33.760 This is the reason why so many people are thinking 0:22:33.840 --> 0:22:36.720 that ten am on Friday Eastern Time is going to 0:22:36.720 --> 0:22:39.760 be so pivotal for equity m bond markets. Given the 0:22:39.800 --> 0:22:43.320 fact that potentially FED chair Jay Powell could come out 0:22:43.359 --> 0:22:45.919 and say in September we're going to cut, or in 0:22:45.960 --> 0:22:47.160 September we're not going to cut. 0:22:47.160 --> 0:22:48.520 He's not going to say either of those things. What 0:22:48.560 --> 0:22:49.720 are you actually going to hear? 0:22:50.080 --> 0:22:52.280 That will give you a sense of whether this market 0:22:52.520 --> 0:22:54.560 has baked in too many rate cuts or has gotten 0:22:54.600 --> 0:22:58.040 a little bit overly excited about the pace of the 0:22:58.119 --> 0:22:59.439 easing cycle that's ahead. 0:23:00.560 --> 0:23:03.240 I think it is very much a horse race, Lisa 0:23:03.280 --> 0:23:06.080 about which risk is the FED more focused on. Again, 0:23:06.119 --> 0:23:09.480 the labor market is softening, That's that is something that 0:23:09.520 --> 0:23:12.320 we think has been evidenced for a couple of months, 0:23:12.400 --> 0:23:16.199 a couple of quarters, versus what about this inflation issue? 0:23:16.280 --> 0:23:19.119 Is in fact inflation going to be more ephemeral in nature. 0:23:19.240 --> 0:23:22.600 So I do think that the labor market, you know, 0:23:22.840 --> 0:23:25.680 sort of having the lead if you will, right now, 0:23:25.800 --> 0:23:29.240 versus a little bit of a viewpoint that perhaps the 0:23:29.280 --> 0:23:32.840 FED is rounding down with its inflation expectations. Again, the 0:23:32.880 --> 0:23:36.600 Fed has had many opportunities to come off that two 0:23:36.640 --> 0:23:40.560 percent long term inflation target and they haven't budged. We 0:23:40.640 --> 0:23:43.040 do think that the Fed is actually rounding down if 0:23:43.080 --> 0:23:45.439 you will say, hey, if we see something in the 0:23:45.480 --> 0:23:48.800 mid twes, that's probably okay to start a or at 0:23:48.880 --> 0:23:52.280 least to continue the rate cutting cycle. But again I 0:23:52.320 --> 0:23:55.080 think that the terminal rate leads to probably lasting I'd say, 0:23:55.560 --> 0:23:57.840 is of the utmost important to us. Again, while we 0:23:57.880 --> 0:24:00.400 are very focused on where the front of the curve 0:24:00.480 --> 0:24:02.440 maybe in twenty twenty six. 0:24:02.560 --> 0:24:04.840 We also care a lot about how long it'll actually 0:24:04.880 --> 0:24:05.280 be there. 0:24:05.320 --> 0:24:09.960 The FED has been very stealthily increasing their terminal level 0:24:10.119 --> 0:24:13.760 of FED funds that has material implications for equity investors 0:24:13.840 --> 0:24:17.800 like us. If we're discounting again a higher terminal rate, 0:24:18.040 --> 0:24:20.320 that's not a good thing. So we think that two 0:24:20.400 --> 0:24:22.600 things are really important. Number one, how long will we 0:24:22.680 --> 0:24:25.440 actually be at that terminal rate? At Number two, which 0:24:25.440 --> 0:24:27.320 of those two risks of the Fed more focused on. 0:24:27.400 --> 0:24:29.960 We think that right now the labor market softness is 0:24:29.960 --> 0:24:32.600 getting a little more attention from the Fed versus inflation, 0:24:32.720 --> 0:24:35.680