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Speaker 1: Bloomberg Audio Studios, podcasts, radio news, and Android auto with

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Speaker 1: the Bloomberg Business App. Listen on demand wherever you get

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Speaker 1: your podcasts, or watch us live on YouTube.

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Speaker 2: Let's get to the bond market here. So we had

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Speaker 2: CPI came in better than expected, yet you have yields

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Speaker 2: lower by two basis points in the front end head

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Speaker 2: scratcher for me Ira Jersey, Bloomberg Intelligence Senior US Interest

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Speaker 2: Rates strategist. So in my one plus one equals two,

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Speaker 2: you get inflation less of a problem. Therefore the Fed

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Speaker 2: won't have to cut. Why are my yield lower here?

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Speaker 3: Well that's well, it's not only that the Fed won't

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Speaker 3: have to cut, but that the Fed can maybe cut

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Speaker 3: a little bit, right we take Yeah, So you know,

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Speaker 3: lower inflation and inflation below target or at their target

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Speaker 3: is a necessary condition for the Federal Reserve to cut.

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Speaker 4: So so the.

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Speaker 3: Fact that you only had a zero point two percent

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Speaker 3: month on month on inflation not a massive surprise. Quite frankly,

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Speaker 3: it wasn't a huge miss really when you look at

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Speaker 3: a lot of the details. But it was also a

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Speaker 3: good sign because people are worried that tariffs are gonna

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Speaker 3: have an effect. But remember the tariff's only went into

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Speaker 3: effect last month, so we're not going to see that

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Speaker 3: on shelf prices until this month and next month. So

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Speaker 3: I think the market in general like this relatively muted

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Speaker 3: reaction from the market is something that we're gonna have

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Speaker 3: to look through, at least on the inflation front for

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Speaker 3: the next until we get the prints from the next

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Speaker 3: couple of months.

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Speaker 5: What's the FED looking at IIRO these days? Is it

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Speaker 5: focusing more on inflation or more on growth? Because I

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Speaker 5: think a lot of folks are probably concerned that whatever

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Speaker 5: inflation levels we get, it's going to kind of hurt

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Speaker 5: growth more.

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Speaker 4: So what do you think the Fed's looking at?

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Speaker 3: Yeah, well, this is certainly the conundrum that the Federal

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Speaker 3: Reserve is going to have going forward, particularly if we

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Speaker 3: get an increase in inflation and then we see a

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Speaker 3: significant downshift in growth and certainly the job market. Right,

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Speaker 3: Remember that growth itself is not what the Federal Reserves

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Speaker 3: mandate is.

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Speaker 4: It's really the job market.

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Speaker 3: So you can have slow growth or no growth with

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Speaker 3: a job market that's okay but not great, And I

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Speaker 3: think that that's the that's the potential, you know, big

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Speaker 3: issues that the FED might go to. So Ja Powell

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Speaker 3: last week was pretty clear in saying that, look, we're

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Speaker 3: going to basically focus on whichever of the two parts

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Speaker 3: of our dual mandate is farther from where we want

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Speaker 3: it to be. So if inflation jumps to five percent

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Speaker 3: and unemployment is still kind of, you know, four and

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Speaker 3: a half percent and not climbing quickly, then they're going

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Speaker 3: to focus on inflation. But if inflation kind of hovers

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Speaker 3: two and a half three percent, but it looks like

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Speaker 3: we're going to have negative job prints and we're going

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Speaker 3: to have five plus percent unemployment rate, then the Fed

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Speaker 3: will key on that and cut interest rates and maybe

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Speaker 3: give up a little bit on its inflation fighting mode

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Speaker 3: for at least some temporary period of time.

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Speaker 4: But you know, we're still far away from that.

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Speaker 3: I mean, our view had been going into this year,

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Speaker 3: and I think I mentioned it to you guys last week,

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Speaker 3: is that we always thought that that the market was

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Speaker 3: priced for the Fed to cut too early. Cutting in

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Speaker 3: June or July we never thought was a realistic possibility

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Speaker 3: because of this, you know, dueling economic scenarios that you

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Speaker 3: just laid out, Paul. So so now we're probably pricing

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Speaker 3: for something a bit more realistic. You know, fourth quarter

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Speaker 3: only two cuts this year, you know, you know, that's

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Speaker 3: kind of where we think the market's going to kind

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Speaker 3: of find a steady state.

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Speaker 2: So does that mean that around four percent is the

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Speaker 2: top for the two year?

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Speaker 3: Yeah, I think it is unless we wind up getting

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Speaker 3: some pretty some better economic data, so you know, we

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Speaker 3: had an upside surprise on next month's employment and we

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Speaker 3: wind up having decent retail sales data, all of those things.

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Speaker 3: I don't think that anything above four to twenty probably

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Speaker 3: on the two year makes sense. Like there's no reason

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Speaker 3: right now for the two year to be trading above

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Speaker 3: the federal fund rate, right So why would you sell

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Speaker 3: off fifty basis points in the two year unless you

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Speaker 3: really thought the Fed was going to hike, which I

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Speaker 3: think is not really it's much more likely that they

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Speaker 3: stay They stay steady for the next two years, and

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Speaker 3: it is at the increase rates at any time over

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Speaker 3: the next two years. That being said, just the financial

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Speaker 3: fair value right now on the two year note we

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Speaker 3: have at three point eight percent, So maybe the market's

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Speaker 3: gone just a little bit too far being very close

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Speaker 3: to four percent right now.

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Speaker 5: Are international investors still buying US treasures?

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Speaker 4: Are they still mad at US.

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Speaker 3: Now they are, And in fact, if you look at

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Speaker 3: the recent treasury auctions, they have been purchasing just the

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Speaker 3: same amount that they had been over the past couple

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Speaker 3: of years. Actually around ten percent of the recent treasury

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Speaker 3: auctions went to foreign investors, and that's pretty much in

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Speaker 3: line some of the investors that I've been speaking to say, well, look,

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Speaker 3: it's an economic decision that we're making. If our choice

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Speaker 3: is to buy our local government debt or by treasuries

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Speaker 3: and then hedge some of our currency risk or all

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Speaker 3: of our currency risk, and we can still pick up

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Speaker 3: yields compared to our home currency, to our home bond market,

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Speaker 3: then we're going to keep doing that trade. And so

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Speaker 3: until that economics changes, or there's real fear that the

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Speaker 3: US is going to default on its debt or something

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Speaker 3: like that, I think private foreign investors, in particular, are

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Speaker 3: you just going to keep buying?

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Speaker 5: Hey?

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Speaker 2: I are always good to catch up. I are a

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Speaker 2: Jersey Bloomberg Intelligence senior US Interest Rate a strategist at

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Speaker 2: joining us there.

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Speaker 1: So you're listening to the Bloomberg Intelligence podcast. Catch us

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Speaker 1: Live weekdays at ten am Eastern on Applecarcklay and Android

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Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever

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Speaker 1: you get your podcasts, or watch us live on YouTube.

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Speaker 5: Pretty solid day after a big, big, big move yesterday

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Speaker 5: in the equity indices.

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Speaker 4: Let's see what the professionals are doing.

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Speaker 5: Sarah Ponzik joins US first vice president of Wealth Management

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Speaker 5: UBS Private Wealth Management.

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Speaker 4: She's down there in Boca Raton, Florida. If you care,

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Speaker 4: eighty two.

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Speaker 5: And mostly Sonny in Boca today. I mean, if if

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Speaker 5: that's your gig, fine, enjoy it. I don't know.

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Speaker 4: We go for the change of seasons here, which Sarah

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Speaker 4: does not much. Jealous, Sarah, this is all that.

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Speaker 6: Sarah, You're jealous. No, if I make you feel any better.

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Speaker 6: We had a really bad storm yesterday. I have palm

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Speaker 6: fronds all over the house.

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Speaker 4: So it happens.

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Speaker 6: Today's sunny and warm and humid. But we are starting

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Speaker 6: to get some good brain.

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Speaker 4: Good for our good friends in South Florida. There.

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Speaker 5: Hey, Sarah, what do you tell your clients? I mean, boy,

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Speaker 5: you've had a market that just a few weeks ago

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Speaker 5: was down twenty percent from its peak. Now just year today,

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Speaker 5: we're back to flat. Are slightly up here, I mean

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Speaker 5: the volatility has been amazing. What do you tell your

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Speaker 5: clients these days?

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Speaker 6: It's been a whirlwind these past six weeks or so.

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Speaker 6: However long it's been, it feels like it's been a

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Speaker 6: lot longer than that, I think, I think for all

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Speaker 6: of us. But the message throughout April, which was really

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Speaker 6: the month in which we saw the brunch of the volatility,

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Speaker 6: was that you need to stick with your plan, and

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Speaker 6: you certainly don't want to be selling out of stocks

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Speaker 6: at the lows. If anything, if you were someone who

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Speaker 6: had had a liquidity event, if you had been sitting

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Speaker 6: on cash for a long time, that was the time

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Speaker 6: you wanted to start phasing into markets and start deploying

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Speaker 6: your capital and taking advantage of the volatility. Because, yes,

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Speaker 6: Liberation Day was certainly a day, I'm sure we all remember,

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Speaker 6: a very volatile one at that. But the expectation was

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Speaker 6: that was peak uncertainty, that was peak pessimism, and the

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Speaker 6: hope was that there would be negotiations, that we would

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Speaker 6: see come to the forefront between the United States and

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Speaker 6: other countries, particularly China, and that we would see these

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Speaker 6: tariff rates come down. Now, thankfully, that is what's happened,

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Speaker 6: and we've seen markets react very favorably to that at

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Speaker 6: this point in time, you Alex, you know, you just

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Speaker 6: ran through the numbers. Really, it says if markets have

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Speaker 6: made up all of those losses. It's pretty amazing to

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Speaker 6: think about, considering the sp at a time was almost

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Speaker 6: down twenty percent at its low, and now we're just

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Speaker 6: about flat. So sure, at this point the risk reward

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Speaker 6: doesn't look quite as favorable as it looked when the

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Speaker 6: market was down ten, fifteen, eighteen percent, But the outlook

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Speaker 6: is still pretty positive from here, especially with the expectation

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Speaker 6: that you know, hopefully trade negotiations will continue, and you

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Speaker 6: know growth is slowing a bit, Inflation you know, is

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Speaker 6: under control, as we saw this morning. So there's other

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Speaker 6: reasons fundamentally to continue to think that, you know, twelve

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Speaker 6: months from now, the market's going to be higher than

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Speaker 6: where we are today.

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Speaker 2: So if the calls you were getting a month ago

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Speaker 2: were what do I do? What's changing? I'm kind of

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Speaker 2: freaking out. What are the calls you're getting now today?

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Speaker 6: Well, people certainly feel better. It's really interesting. You know,

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Speaker 6: typically investors, we all know that you want to be

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Speaker 6: fearful when people are greedy, and greedy when people are fearful,

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Speaker 6: but in actuality, you know, people don't don't always act

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Speaker 6: that way.

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Speaker 4: You know.

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Speaker 6: It's interesting that, you know, the calls that we were

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Speaker 6: getting at the April lows, when markets were down between

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Speaker 6: fifteen and twenty percent, were more panicky, asking do we

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Speaker 6: need to change our strategy? What should we be doing here?

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Speaker 6: Should we be selling stocks, buying bonds, buying gold? And

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Speaker 6: we did meet some tweaks, but certainly weren't selling stocks

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Speaker 6: at those levels. It was more so talking about adding

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Speaker 6: at those levels. Now people feel better, you know, people,

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Speaker 6: It's interesting you would think that when markets are at

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Speaker 6: the highs, people are saying, should I take chips off

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Speaker 6: the table? But that's not necessarily the case. People feel better,

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Speaker 6: people feel more optimistic now that we're seeing, you know,

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Speaker 6: countries come to the table and discuss and these teriff

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Speaker 6: rights come down. With that said, I mean, I'm actually

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Speaker 6: about to have a conversation with a client who has

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Speaker 6: a big home purchase coming up over the next couple

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Speaker 6: of months. That's someone given that we've seen a rally,

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Speaker 6: that you might want to consider taking chips off the

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Speaker 6: table if you have a big near term purchase coming

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Speaker 6: up and you need liquidity. You need cash. Okay, you

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Speaker 6: probably feel pretty great now you're not selling with stocks

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Speaker 6: down fifteen percent, you're selling with them flat now on

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Speaker 6: the year roughly, so that you're someone who has something

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Speaker 6: like that coming up that changes the parameters. But we

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Speaker 6: typically like to say, you know, to clients who have

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Speaker 6: near term events where they need cash on hand, or

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Speaker 6: if you're someone who is retired and you're spending down

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Speaker 6: your portfolio, we typically recommend that you have a liquidity

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Speaker 6: buffer in your portfolio, say you know, for whatever that

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Speaker 6: project is, or say you know, even two to three

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Speaker 6: years of expenses, because that way, when the market does

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Speaker 6: fall and it's going to happen, and it's natural, you know,

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Speaker 6: we're all going to witness many more of these in

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Speaker 6: our lifetimes most likely, you know. That way, you're not

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Speaker 6: freaking out because you know you have the cash on

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Speaker 6: hand to meet the expense needs that you need in

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Speaker 6: the near term.

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Speaker 4: Sarah, thank you so much for joining us. Always appreciate

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Speaker 4: getting a few minutes of your time.

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Speaker 5: Sarah Ponzek, first vice president of wealth management at UBS

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Speaker 5: Private Wealth Management.

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Speaker 4: Down there and book time, Florida.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast Catch US Live

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Speaker 1: weekdays at ten am Eastern on Apple Coarclay, and Android

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Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever

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Speaker 1: you get your podcasts, or watch US live on YouTube.

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Speaker 2: All right, well, let's get to one of the most

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Speaker 2: underperforming stocks within the market today, dragging on the Dow

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Speaker 2: Jones Industrial Average. Now, I know many people don't look

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Speaker 2: at it, but nonetheless it's a pretty chunky move, so

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Speaker 2: it's worth discussing. And that's United Health. Glenn lessev Is,

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Speaker 2: Bloomberg Intelligence Senior equity analyst joins us. Now, So suspending

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Speaker 2: the twenty twenty five outlook, naming a new CEO, what

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Speaker 2: was the biggest surprise here?

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Speaker 7: So the biggest surprise was suspending the twenty twenty five guidance.

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Speaker 7: And this comes after the company lowered twenty twenty five

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Speaker 7: out cloak just about three weeks ago when the company

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Speaker 7: reported first quarter results.

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Speaker 4: So what's the problem with this business?

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Speaker 5: I thought the healthcare insurance business just just rips it.

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Speaker 7: Well, it all goes in cycles, right, It is surprising

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Speaker 7: that United is having these problems basically that began in

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Speaker 7: at the start of twenty twenty four.

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Speaker 8: If you remember there was a.

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Speaker 7: Change healthcare attack, and after that, it just seems that

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Speaker 7: United management was trying to fix things while other things

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Speaker 7: fell apart and has been on the back foot. And

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Speaker 7: that's probably one of the reasons that the CEO that

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Speaker 7: led the company see in twenty twenty one, I believe,

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Speaker 7: left the company and the chairman and former CEO is

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Speaker 7: taking the reins to sort of reposition United for you know,

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Speaker 7: next phase growth.

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Speaker 2: So, right, well, where is that it's going to come from?

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Speaker 2: Because there are higher than expected medical costs, right and

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Speaker 2: some reimbursement struggles. Can you walk us through we learned about.

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Speaker 8: That, yes, basically.

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Speaker 7: So basically, the company cited that the medical cost trend

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Speaker 7: among new members in the unit's medicare portfolio is accelerating

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Speaker 7: relative to the first quarter trends, which was higher than

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Speaker 7: expected already. Basically, if it continues, the company can always

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Speaker 7: sort of try to get more premium per member from

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Speaker 7: the government as it deals with Medicare, to sort of

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Speaker 7: to reset the margin expectations or normalize the margins. That

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Speaker 7: being said, you know, if the medical costs continue to accelerate,

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Speaker 7: and specifically with the sort of with everything that's going

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Speaker 7: on in Washington, with the sort of funding overhanging all that,

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Speaker 7: it may become a problem over the longer term. But

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Speaker 7: at the same time, you know, managed care companies can

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Speaker 7: always exit under performing markets. It just may take a

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Speaker 7: little bit longer than sort of investors would like to see.

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Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live

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Speaker 1: weekdays at ten am Eastern on Applecarplay and Android Auto

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Speaker 1: with the Bloomberg Business app. Listen on demand wherever you

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Speaker 1: get your podcasts, or watch us live on YouTube.

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Speaker 5: Another stock in the news Microsoft, So this is cutting

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Speaker 5: three percent of its employees to reduce management layers.

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Speaker 4: I'm looking at the stock here. It's pretty much unchanged

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Speaker 4: on the day. It's up six percent year to date.

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Speaker 5: But anytime Microsoft does anything, we want to get to

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Speaker 5: the bottom of it. On a rag rana he does that.

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Speaker 5: Force's Bloomberg Intelligence Senior Technology channelst onnurags.

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Speaker 4: It's just kind of annual culling of the ranks.

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Speaker 5: Or is this saying something about Microsoft and maybe where

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Speaker 5: it sees its future.

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Speaker 9: I think it's a little bit of both, because you know,

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Speaker 9: and the numbers three percent does not say much. But

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Speaker 9: at the same time, Microsoft is not hiring at the

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Speaker 9: same pace that it used to. And I think one

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Speaker 9: of the areas where it is deploying AI is coding

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Speaker 9: or you know, R and D. That's an area where

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Speaker 9: we anticipate productivity to improve because of the tools we have,

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Speaker 9: and not anticipating headcount to grow up. Second thing, Microsoft

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Speaker 9: is investing very heavily in AI right now. The capex

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Speaker 9: is going to be extremely high, you know, as north

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Speaker 9: those eighty billion dollars for the next twelve months, and

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Speaker 9: you know that they have to offset some of that

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Speaker 9: pressure on gross margins with cuts on the operating expense

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Speaker 9: side so that the net operating margin doesn't get impacted.

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Speaker 8: So I think I think it's a little bit of

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Speaker 8: all the above.

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Speaker 4: Was this a surprise, Not really.

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Speaker 8: I mean three percent to me does not come as

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Speaker 8: a surprise.

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Speaker 9: Three percent is you know, in an environment like right

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Speaker 9: now where companies are not anticipating the real attrition rate,

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Speaker 9: so on a normalized basis of a company is seeing

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Speaker 9: attrition employee attrition between ten to fifteen percent. We're not

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Speaker 9: seeing that right now, so the company has to do

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Speaker 9: something in order to get back to the normal range

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Speaker 9: of their financial planning. So it is I said this

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Speaker 9: doesn't sound too much to me, but they could be

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Speaker 9: a little bit more based on you know, who they

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Speaker 9: are trying to get rid of. If it's higher on

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Speaker 9: the paychecks, then I think it has to do with,

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Speaker 9: you know, protecting your margins.

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Speaker 5: An Rob talk to us about just what the investment

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Speaker 5: thesis is regarding Microsoft right now. Given some of the

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Speaker 5: tariff uncertainty, given some of the geopolitics uncertainty, what's the

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Speaker 5: call on Microsoft these days?

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Speaker 9: You know, for the last few years we have been

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Speaker 9: saying this is probably one of the cleanest stories in

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Speaker 9: AI and software land because it doesn't get impacted with tariffs.

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Speaker 9: There is some marginal secondary impact because of you know,

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Speaker 9: if we do get into an economic slowdown. But the

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Speaker 9: real benefit for them is they are hosting chat GPT,

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Speaker 9: the most favorite app of consumers right now, and they

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Speaker 9: get the benefit of that. So if you have let's say,

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Speaker 9: you know, your user base goes from two hundred million

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Speaker 9: users to three hundred to four hundred now we are

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Speaker 9: close to about five hundred million users, it really helps

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Speaker 9: Microsoft because they are hosting that app, and as those

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Speaker 9: users use chappid JAGGPT for a longer period of time,

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Speaker 9: they get to make more money.

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Speaker 8: So I think that's really one of the bigger.

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Speaker 9: Benefits where they are offsetting the risk that we are

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Speaker 9: seeing that other software vendors are seeing because of the

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Speaker 9: lack of headcount growth across the tech landscape.

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Speaker 2: So based on that, do we think that we're going

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Speaker 2: to see other tech companies follow suit in this particular way.

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Speaker 2: Like if Microsoft is a creme de la creme, as

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Speaker 2: you see it, who's next?

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Speaker 9: So Alex, when you look at it, as I said,

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Speaker 9: three percent does not scare me as much. But if

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Speaker 9: over the next six months we start companies come out

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Speaker 9: and say, well, I'm laying off like sevent to ten

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Speaker 9: percent of my workforce, that is concerning because that's concerning

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Speaker 9: for two reasons.

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Speaker 8: One, these companies.

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Speaker 9: Do buy software from other companies such as a Workday

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Speaker 9: or a sales force, because these two companies are seeing

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Speaker 9: some pressure on their seat growth because their end customers

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Speaker 9: are not hiding as much. So lack of hiding is

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Speaker 9: concerned not just for the companies or the industry themselves,

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Speaker 9: but for the software landscape as well, because primarily this

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Speaker 9: is a seat based monetization.

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Speaker 5: Model anark before we got all enmeshed in terrors over

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Speaker 5: the last few months, we seemingly talk to.

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Speaker 4: You every day about the AI story.

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Speaker 5: That's kind of follow the radar screen a little bit

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Speaker 5: here for I think Global Wall Street, not for you guys.

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Speaker 4: What is the AI story today?

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Speaker 5: What's the feeling in the marketplace about AI as a

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Speaker 5: growth story for tech?

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Speaker 8: Yeah.

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Speaker 9: One of the things Code one of the things that

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Speaker 9: deep Seat did for the entire space was divided the

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Speaker 9: space in two different buckets. One was the AI infrastructure

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Speaker 9: play and the other one is more on the application

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Speaker 9: side of it, and Microsoft i think guided them a

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Speaker 9: little bit towards that framework because when you look at it,

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Speaker 9: Microsoft is really focused on the inferencing side of it,

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Speaker 9: which is hosting the applications. Things that are more on

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Speaker 9: the infrastructure side, whether it's the chip building from Nvidia

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Speaker 9: or a recent type like code viv, they have not

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Speaker 9: done as well as some of the other vendors because

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Speaker 9: people are wondering, why do I need to play the

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Speaker 9: infrastructure game because it's CAPEX heavy and we do not

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Speaker 9: know how things are going to shape up in the

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Speaker 9: next two to three years. One thing is sort of

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Speaker 9: certain that even after three years, the number of use

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Speaker 9: cases on AI is going to rise. So you're going

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Speaker 9: to be on the application or the inference side of

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Speaker 9: things rather than the infrastructure side of things.

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Speaker 2: Right, And that's going to be a lot more profitable

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Speaker 2: going forward, but it also requires something very different at

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Speaker 2: the end of the day. Right, You're going to have

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Speaker 2: basically locations that are closer to the actual use point, right,

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Speaker 2: so closer to where I am and where you are,

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Speaker 2: versus out in the middle of nowhere. But you have

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Speaker 2: a huge heavy load. How does that change either investment

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Speaker 2: or power usage, et cetera.

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Speaker 9: That's probably one of the most important questions out there

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Speaker 9: right now. Like a Microsoft is saying, for my training needs,

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Speaker 9: I will go to those data centers that are out

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Speaker 9: in the boondogs in middle of nowhere, and that could

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Speaker 9: be my data center or I could lease it from

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Speaker 9: somebody like a Corvive. But for the application side, I'm

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Speaker 9: going to create or lease smaller data centers that are

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Speaker 9: well connected where I'm going to do the inferencing or

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Speaker 9: from the user point of view.

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Speaker 4: All right, Don Ragrana, thank you so much. We appreciate that.

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Speaker 5: On a rogron it covers all the technology stuff for

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Speaker 5: Bloomberg Intelligence, getting the latest on Microsoft.

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Speaker 4: I thank all three percent of their workforce.

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Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify,

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