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Speaker 2: We're starting off strong way lead chief investment strategists at
Speaker 2: some firm I think I've heard of at Blackrock, I
Speaker 2: don't know something, or Blackrock, I think I did do something.
Speaker 2: They manage some money there. We're going to chat with
Speaker 2: her and get her thoughts on these markets. Mark Valentino,
Speaker 2: head of Business Banking at Citizens Bank, on kind of
Speaker 2: Black Friday sales and kind of how they're shaping up
Speaker 2: and how the retail sales outlook is for the holiday season.
Speaker 2: Alysta Russen, Chief Extecnive Officer l tech Ai on growing
Speaker 2: stress in the opaque private credit market.
Speaker 3: And we'll talk about that private credits to.
Speaker 2: People are a little bit concerned about what's going on
Speaker 2: on their Bloomerk Surveillance is brought to you by cone Restinc.
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Speaker 2: put their industry expertise to work for you. Whaley joins
Speaker 2: us here global chief investment Strategists at black Rock Walley.
Speaker 3: Twenty twenty five, Boys, you just look at the numbers.
Speaker 2: The top line numbers, smp F fifteen percent, the NASDAG
Speaker 2: up twenty percent, fixed income give me high single digit
Speaker 2: total returns. Pretty much a solid year for investors. How
Speaker 2: about twenty twenty six. How are you guys kind of
Speaker 2: framing twenty twenty six?
Speaker 4: We have positive risk heading into twenty twenty six. Our
Speaker 4: outlook is called pushing limits, and it's really about making
Speaker 4: sense of large numbers being talked about and what do
Speaker 4: we need to believe to justify this huge amount of
Speaker 4: AI spent.
Speaker 5: So currently, when we look at the.
Speaker 4: Incremental revenue of these big tech companies heading into twenty
Speaker 4: thirty end of this decade, they fall short of justified
Speaker 4: this huge amount of capex. You know, we're talking about
Speaker 4: credible estimates pointing to eight trillion dollars of spend by
Speaker 4: twenty thirty. Those are huge numbers. So right now, the
Speaker 4: forecast for short, but the potential of AI goes beyond
Speaker 4: existing business lines. So if we have a situation where
Speaker 4: growth breaks out from the historical two percent trend. Never
Speaker 4: happened before for sustained period, but now possible.
Speaker 6: Because of AI.
Speaker 4: And also if we have a situation where tech companies
Speaker 4: keep a good share of the additional revenues being created
Speaker 4: as tech is applied to other sectors, then the numbers
Speaker 4: can add up. But you've got to be leaving some
Speaker 4: pretty incredible and unprecedented things to justify this unprecedented amount
Speaker 4: of capex spent.
Speaker 7: I'm looking at Bloomberg mag seven total return Index up
Speaker 7: not twenty four percent so far this year? Are you
Speaker 7: expecting the same caliber of returns to continue into next year?
Speaker 7: You expect tech to be the leader as we look
Speaker 7: into twenty twenty six.
Speaker 4: I do expect concentration first before broader diffusion. When we
Speaker 4: think about the AI trade, we're talking about an environment
Speaker 4: where there is going to be more leverage, there is
Speaker 4: going to be more scrutiny over the individual company fundamentals.
Speaker 4: So if you think about the latest correction in tech
Speaker 4: and more broadly in risk assets, actually you see greater differentiation. Right.
Speaker 5: You see Alphabet doing.
Speaker 4: Better because of the model Gemini three and TPU, and
Speaker 4: you see Oracle doing a bit worse because of negative
Speaker 4: free cash flow as well as greater indebtedness, so greater
Speaker 4: differentiation concentration before broadening out. And I'm paying very close
Speaker 4: attention to if there are new revenues being created on
Speaker 4: top of existing business lines to really understand if the
Speaker 4: wrong way of AI is as big as people are hoping.
Speaker 2: For, if the AI expectations may be ahead of themselves
Speaker 2: at this stage, are you pulling back from some of
Speaker 2: those names here? Are you hedging some of that secure
Speaker 2: at this point? Are you trying to diversify away from
Speaker 2: that a little bit?
Speaker 4: Well, that's the thing. There is no place to hide.
Speaker 4: There is no proper diversification in this environment. So one
Speaker 4: of the key themes in our outlook is diversification mirage.
Speaker 4: We call it a mirage because the old diversifiers are
Speaker 4: not reliably working and this last twenty four hours of
Speaker 4: price action is case in point. So you know, we
Speaker 4: look at a seemingly mixed diversified portfolio and we think
Speaker 4: that it is a proper diversification, but that would be
Speaker 4: highly misleading because the whole market is being driven by
Speaker 4: just a handful of singular principal components and AI being one,
Speaker 4: So we can't get away from making big calls active calls,
Speaker 4: and where AI is heading towards and investment decisions made
Speaker 4: in the guise of diversification may well end up being
Speaker 4: huge active bets. So let's make those bets very intentional
Speaker 4: ones rather than unintentional ones.
Speaker 7: So when we think about AI and all the energy
Speaker 7: that's needed for this, it's going to get a lot
Speaker 7: of energy. How are you thinking about the energy sector?
Speaker 4: That is a constraint that is binding already. So as
Speaker 4: we think about the AI ambition running up against constraints,
Speaker 4: which is why we frame the outlook on pushing limits.
Speaker 4: There are three types of limits. One is energy and
Speaker 4: the physical limit, and we're running up against those limits already.
Speaker 4: One is financing limits, and right now we actually don't
Speaker 4: see that being a constraint because even though leverage is
Speaker 4: going higher and big Tech they have issued one hundred
Speaker 4: million dollars of that just the last quarter, which is
Speaker 4: higher than previous years, the starting point is very healthy, right,
Speaker 4: so there is room to leverage up. There is a
Speaker 4: feature is not a constraint at this moment. And then
Speaker 4: there is the political constraint. We're talking about impact of
Speaker 4: AI on jobs and what that means in terms of
Speaker 4: the policy response regulatory response. So these are the constraints,
Speaker 4: but right now the one that is buying is energy.
Speaker 4: So when we talk about credible estimates taking copecks focus
Speaker 4: up to AID trillion dollars by the end of the decade,
Speaker 4: the consideration for energy may well bring that back.
Speaker 2: So as we step back and think about twenty twenty six,
Speaker 2: I guess geopolitics we have to think about that a
Speaker 2: little bit. We still have an active situation in Ukraine.
Speaker 2: The Mid East has been quiet for the last several months,
Speaker 2: but still doesn't feel like that's settled by any stretched imagination.
Speaker 2: Then we have ongoing tensions between the US and China,
Speaker 2: but it seems like the markets kind of discounted all
Speaker 2: of that.
Speaker 3: I mean, is that something we need to worry about
Speaker 3: for twenty twenty.
Speaker 2: Six because it seems like a black swamt could come
Speaker 2: out of anywhere.
Speaker 4: Yeah, So we assess the impact of geopolitics on markets,
Speaker 4: we need really firmly established a transmission mechanism, right So, so far,
Speaker 4: a lot of the geopolitical flare ups have been good
Speaker 4: opportunity for market or participants to buy the deep and
Speaker 4: you look at how markets have down there has been
Speaker 4: a good strategy. So if we see the impact of
Speaker 4: a geopolitical event having a lasting effect on oil price,
Speaker 4: for example, and then feeding through to inflation, inflational expectations,
Speaker 4: not just the twelve month expectations, maybe even longer expectations,
Speaker 4: and then there is a proper feedback loop. But if
Speaker 4: we're talking about a very swift spike and then coming
Speaker 4: back down, then that's not something at least from a
Speaker 4: longer portfolio construction perspective, we bake that in. You look
Speaker 4: at geopolitical risk, premium is very flat at the moment.
Speaker 7: So when we think about geopolitics, what if you make
Speaker 7: of potential opportunities when we think about energy or defense
Speaker 7: for that matter. I mean we've been seeing a large
Speaker 7: bid in European defense.
Speaker 5: That's right.
Speaker 4: So for Europe so far this year, we have approached
Speaker 4: investing through a very selective way. We like industrials within
Speaker 4: that defense, we like utility, and we also like financials
Speaker 4: because of cheap valuations as well as its potential to
Speaker 4: be disrupted by AI.
Speaker 6: So defense as.
Speaker 4: An evergreen theme, especially given the commitment of natal countries
Speaker 4: to increase their defense spending that is structural. We think
Speaker 4: that there is definitely a place for strategic kind of
Speaker 4: allocation to this theme. But it has round out quite
Speaker 4: a lot in terms of price so far this year.
Speaker 4: So we're actually rotating within our European tactical US our
Speaker 4: location from industrials defense into healthcare as a sector that
Speaker 4: actually has great valuation opportunities as well as also open
Speaker 4: and ripe for AI disruption. But strategically, yeah, definitely we
Speaker 4: want to have exposure to that despite the geopolitical headgelines
Speaker 4: or because of geopolitical hedgelines, because the strategic direction of
Speaker 4: travel is very clear.
Speaker 2: Really, I love the black Rock offices over in London
Speaker 2: there they were right next to our old Bloomberg offices
Speaker 2: and Finsbury Circus.
Speaker 3: Now we're over Queen Victoria Street.
Speaker 2: But not too far from your new The new office
Speaker 2: a great part of town in the city of London.
Speaker 2: Love it, love it, especially around this time of year.
Speaker 3: The city of London is just awesome.
Speaker 2: Way Lee, Global, Chief Investment Strategists for black Rock, thanks
Speaker 2: so much for joining us.
Speaker 3: We appreciate it to stay with us. More from Bloomberg
Speaker 3: Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch US Live
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Speaker 3: Meredith Whitney darkins a door here.
Speaker 2: She is the chief executive officer of Meredith Whitney Advisory Group,
Speaker 2: longtime voice on Global Wall Street. Meredith, we're kind of
Speaker 2: right in the middle of the holiday shopping season.
Speaker 3: How do you think the consumer's doing out there?
Speaker 8: Well, it seems as if the retail results have been idiosyncratic.
Speaker 8: But I can tell you what I've become very nervous
Speaker 8: about is what has powered the US economy for the
Speaker 8: last five years, which is is what I call the
Speaker 8: avocado toast generation. So it's between twenty four and thirty eight,
Speaker 8: so it's the older gen Z and the younger millennials, and.
Speaker 3: They've really hit a wall.
Speaker 8: They started hit a wall the summer, so they've been
Speaker 8: powering spending, spending at Chipotle, Sweet Greens. I mean, the
Speaker 8: idea of spending a twenty bucks for salad or a
Speaker 8: brito bowl. You don't see me in line at a Chipotle,
Speaker 8: but I'm not round bagging it, but at any rate.
Speaker 8: So the restaurant started to talk about the fact that
Speaker 8: this demographic was really struggling because of the resumption of
Speaker 8: student debts, and we went further into that, and if
Speaker 8: you look at what the avocado dost generation have, they's
Speaker 8: actually have amassed a lot of debt over the last
Speaker 8: five years. So they've got twenty eight percent of all
Speaker 8: consumer debt. They've got about three hundred dollars less or
Speaker 8: more into their spending.
Speaker 3: So we think about.
Speaker 8: COVID stimulus as being a massive stimulus impact on the consumer.
Speaker 8: It was eight hundred and fourteen billion student debt four bearance,
Speaker 8: four hundred billions, So COVID stimulus went out to one
Speaker 8: hundred and sixty five million Americans. Debt four bearans went
Speaker 8: out to fewer than forty million Americans with fifty percent
Speaker 8: of the of the spending power. So this demographic had
Speaker 8: a massive amounts of discretionary spending power and that's not
Speaker 8: going to come into the economy. And so I think
Speaker 8: you see names. I was surprised by urban outfitter being
Speaker 8: so strong because that caters to a very avocado toasty
Speaker 8: type demographic. But I think you're going to see more
Speaker 8: and more pressure throughout this year and into next because
Speaker 8: a they have got a tremendous amount of debt, they
Speaker 8: have no equity, and they have no way out. And
Speaker 8: what's going to happen is this. The Treasure Department has
Speaker 8: this top program where it's going to garnish tax refunds,
Speaker 8: and the Department of Education is aggressive on the twenty
Speaker 8: percent serious delinquent and charged off loans. They're going to
Speaker 8: start pulling this back and that's going to hurt them
Speaker 8: a lot. And obviously we know the low end is
Speaker 8: really uh is really strained.
Speaker 7: So what's the elasticity of this consumer group which I
Speaker 7: would call the Mata generation.
Speaker 3: Oh, that's avocado toast generation. I think it works, or.
Speaker 8: You call the fresh fresh coffee generation option, Yeah, it's true.
Speaker 8: The elasticity is going to come down to I don't
Speaker 8: think there's a lot of elasticity with this demographic that
Speaker 8: has so much debt.
Speaker 3: So the debt gets worse.
Speaker 8: So the student debt is the one part of the
Speaker 8: economy that has the highest delinquencies, the highest charge offs.
Speaker 8: I think that's going to bleed into auto lending because
Speaker 8: the avocadoast generation owns thirty five percent of the auto
Speaker 8: debt outstanding, So that's going to make a crowded out
Speaker 8: so you're going to see it factor in the elasticity
Speaker 8: I think is really interesting in terms of one factor.
Speaker 8: One trend that we've been tracking very closely has been
Speaker 8: home equity loan extraction and that's been the fastest growing
Speaker 8: loan category of any consumer loan category, and that started
Speaker 8: in twenty twenty the sum in Earnest the summer of
Speaker 8: twenty twenty four. And what's really interesting is historically that's
Speaker 8: home equity loan extractions have been used for home renovations,
Speaker 8: but now they're increasingly used for cash management. So since
Speaker 8: twenty twenty two, there's been over a fifty percent rise
Speaker 8: in home equity extractions use of cash management. Now that
Speaker 8: is every week we look at this, I pull it
Speaker 8: through Bloomberg and it continues to accelerate. Now it's only
Speaker 8: available for the prime market, so if you have any
Speaker 8: type of credit ding on your credit score, you can
Speaker 8: access the equity in your home. But avocado toasters by
Speaker 8: and large don't own homes, so they have no equ tap.
Speaker 8: And if they do own homes, they've got high LTVs. Right,
Speaker 8: because they have an owned homes that long, so they
Speaker 8: don't have much equity to tap. So that feeds into
Speaker 8: very little elasticity in this group. And then you think
Speaker 8: about when you look at twenty twenty six and people
Speaker 8: get excited about one beautiful bill tax refunds.
Speaker 3: Well, if you own a.
Speaker 8: Bunch of student debt, you're going to get tax refund garnishment.
Speaker 8: So I don't see it's a great question. I don't
Speaker 8: see a lot of elasticity within this group. Now that said,
Speaker 8: there's still so much money swashing through the system, but
Speaker 8: it's at the high end.
Speaker 2: You know, this case shaped economy. Meredith, Is it something
Speaker 2: that's always been out there?
Speaker 3: Is it more.
Speaker 2: Pronounced in the last ten or fifteen years? And it
Speaker 2: wasn't the pacity you think, because it just seems like
Speaker 2: it's really pronounced these days.
Speaker 8: Yeah, there's without a doubt it's gotten so much more
Speaker 8: pronounced in the last really since the Great Financial crisis.
Speaker 8: And you know, it's said by probably the most esteem
Speaker 8: person in this bill that you have you can have
Speaker 8: you know wage, you know, you can have income disparities,
Speaker 8: but when it reaches a breaking point, it's not good
Speaker 8: for society and I think at this point it's reached
Speaker 8: a breaking point. So the BA puts out numbers whereby
Speaker 8: you see who controls what amount of spending over the
Speaker 8: course of the years. And I've been going back to
Speaker 8: early two thousands and you can see in terms of
Speaker 8: spending how much the low end contributes, how much the
Speaker 8: high end contributes, and that's just been diverging. So the
Speaker 8: most recent number shows the bottom forty percent contributes only
Speaker 8: twenty two percent of spending, whereas the top forty contributes
Speaker 8: sixty two percent.
Speaker 3: That was much more.
Speaker 8: Uh, that wasn't equal, but it was much more even
Speaker 8: let's say seventeen years ago.
Speaker 7: So in terms of the lower end consumer, where is
Speaker 7: the majority of their money going? I was hearing anecdotally
Speaker 7: even during Black Friday sales, people were actually purchasing necessities.
Speaker 3: Yeah.
Speaker 8: Yeah, So I think so tomorrow and Thursday, the Dollar
Speaker 8: stores report, and I think that'll be a really good
Speaker 8: insight into the lower end. Now, Walmart is not the
Speaker 8: lower end. Walmart is everybody in the shopping experience is
Speaker 8: just so spectacular that more and more people go to Walmart.
Speaker 8: But the dollar store it's not exactly the case. But
Speaker 8: I always say people drive to Walmart and walk to
Speaker 8: the dollar stores, and the dollar stores may benefit because
Speaker 8: you've had consolidation at Party City, and some of the
Speaker 8: things you may go and get, you know, wrapping paper
Speaker 8: and birthday items. But on essentials, it's really catch as
Speaker 8: catch can, and I think surely people are going to
Speaker 8: be buying basic essentials. I think what's also interesting is
Speaker 8: because chains like McDonald's have offered more value and really
Speaker 8: captured the value meal, people are eating more out more
Speaker 8: because it's cheaper to eat out than homes, and that
Speaker 8: always shifts.
Speaker 4: For a while.
Speaker 8: When they were going away from the value value meals,
Speaker 8: people were buying more essentials. It all depends, but I
Speaker 8: think it's it is clear that over fifty two percent
Speaker 8: of households, probably a lot over fifty two percent of
Speaker 8: households are barely getting.
Speaker 3: By Meredith, thank you so much for joining us.
Speaker 2: Meredith Whitney, Chief executive Officer of Meredith Whitney Advisory Group
Speaker 2: and Lawrenceville Class of eighty seven.
Speaker 3: Eighty eight, first class of girls to.
Speaker 2: Drive class girls to graduate from the Lawrenceville School for
Speaker 2: like two hundred years as all boys. It was after
Speaker 2: my time, unfortunately, but it was a great thing because
Speaker 2: it was a one of the greatest things that ever
Speaker 2: happened to lawrencevill schools having girls comes in because the
Speaker 2: boys dress better, they sit up at their desk, They're
Speaker 2: no more screwing around.
Speaker 3: Because the girls came in, they were smarter than us.
Speaker 3: Positive influence.
Speaker 2: It was unbelievable. They lifted the school dramatic. It's the
Speaker 2: best decision of schools ever made. And I have to
Speaker 2: admit Lawrencell did it the right way. They invested in
Speaker 2: the school before the girls got there, so when the
Speaker 2: girls got there they felt like I think they felt
Speaker 2: like they were part of the team there at.
Speaker 8: The Carlisle Hotel. It was amazing and they were so welcoming.
Speaker 8: It was just an incredible educational experience. And I loved
Speaker 8: it because if someone had a problem with someone as
Speaker 8: a pylon.
Speaker 3: Yep, exactly right. Aaron Whitney, thank you so much. We
Speaker 3: appreciate it. Stay with us. More from Bloomberg Surveillance coming
Speaker 3: up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
Speaker 1: weekday afternoons from seven to ten am Eastern Listen on
Speaker 1: Applecarplay and Android Auto with the Bloomberg Business app or
Speaker 1: watch us live on YouTube.
Speaker 2: Cameron Dawson joins us here in studio. Cameron, we've had
Speaker 2: a little bit of waffling in the market over the
Speaker 2: last several weeks. Is that just a little bit of
Speaker 2: I don't know, We've had such a great run coming
Speaker 2: off the April lows that maybe we're just stepping back
Speaker 2: and reassessing here, or we have something different going on
Speaker 2: out there.
Speaker 9: Do you think we would categorize this as a very
Speaker 9: healthy digestion simply because we saw such a powerful rally,
Speaker 9: mostly in September and October in some of the most
Speaker 9: speculative portions of the market. So to see some rationality
Speaker 9: come back in, we would see it as a good thing.
Speaker 6: The reality is that you.
Speaker 9: Are still rising GDP forecasts, you're still increasing EPs forecasts,
Speaker 9: which would tell us that this kind of correction and
Speaker 9: churn is more short and shallow, versus something that's deeper
Speaker 9: and more protracted, which would come.
Speaker 7: If you were cutting forecasts. So, of course we've just
Speaker 7: entered December. I'm really stopping from saying ho ho ho.
Speaker 7: But we always talked about the Santa Claus rally, right,
Speaker 7: and this usually happens in the back half of December
Speaker 7: when we see a rally into year end.
Speaker 6: How are you thinking about that right now?
Speaker 7: Of course it is December second and we are seeing
Speaker 7: some shakiness, But what's your view.
Speaker 9: Yeah, we've been thinking that if there was one thing
Speaker 9: that could bring Santa Claus to town, it would be
Speaker 9: positioning and the fact that if you look at things
Speaker 9: like the Deutsche Bank Consolidated Positioning Index, it's still just
Speaker 9: right below neutral and even discretionary investors are only in
Speaker 9: the twenty six percentile.
Speaker 3: So what's the consolidated positioning thing? What does that mean?
Speaker 9: It's a Deutsche Bank index, and it's been very very
Speaker 9: helpful in understanding when institutional investors are either all in
Speaker 9: the market or very short. It's one of the things
Speaker 9: that since the April lows, it actually got down to
Speaker 9: the first percentile. So we've been making the argument since
Speaker 9: that time that as long as investors were underweight this market,
Speaker 9: that dips would be bought because people would need to
Speaker 9: chase into into the strength. And so that is the
Speaker 9: setup into your end, which is that the chase could
Speaker 9: be on mostly because you also have the backdrop that
Speaker 9: EPs forecasts are still going up, so you have a
Speaker 9: fundamental reason for people to get longer this market.
Speaker 7: What about as we talk about dip buying, how are
Speaker 7: you thinking about retail traders right now in this environment?
Speaker 9: That's an incredibly different story. Retail investors are all in.
Speaker 9: If you look at the AAII allocation, it's at seventy
Speaker 9: and a half percent.
Speaker 6: That's the peak that we got to back in.
Speaker 9: Twenty twenty one, twenty eighteen, twenty twenty four, all times
Speaker 9: that were then followed by more market kind of weakness.
Speaker 9: You've also seen a lot of growth in finram margin
Speaker 9: loan balances. They were growing at a pace of thirty
Speaker 9: five percent over the last six months. To put that
Speaker 9: into context, going back to twenty twenty, we were only
Speaker 9: growing at a pace of thirty percent. So you actually
Speaker 9: have margin loans growing faster today than they did at
Speaker 9: a time when rates were near zero. So what you've
Speaker 9: seen is households move into a full risk on allocation,
Speaker 9: whereas institutions have much more sat on the sidelines.
Speaker 3: Do we like that? Do we like the retailers getting
Speaker 3: in there?
Speaker 9: So look, clearly we're seeing the perils of high leverage
Speaker 9: and getting unwound, mostly in things like the cryptospace There
Speaker 9: was a great article on the terminal this morning talking
Speaker 9: about how some of these leveraged ETPs to things like
Speaker 9: strategy are down eighty ninety percent, and so clearly there
Speaker 9: are signs that there was a lot of froth and
Speaker 9: a lot of speculation that was going on in certain
Speaker 9: cohorts of retail traders. An article in the Journal yesterday
Speaker 9: talking about how servicemen in the US are trading stocks
Speaker 9: and so is this the same as the shoeshine person
Speaker 9: telling you stock tips back in nineteen twenty nine. Not
Speaker 9: so sure, But clearly there has been a speculative fervor
Speaker 9: in certain pockets of the market.
Speaker 7: So speculative burger definitely, and focus here, But how are
Speaker 7: you thinking about defensive sectors? Say, maybe healthcare utilities?
Speaker 6: Yeah, it's interesting.
Speaker 9: There's a great function on the terminal called RRG, the
Speaker 9: relative rotation graph, and what you can see is that
Speaker 9: as you have seen a rotation out of things like
Speaker 9: the mag seven, which is tech, telecom communication services, and
Speaker 9: consumer discretionary, that has benefited utilities, it's benefited healthcare. Now
Speaker 9: the big question is is healthcare is rally reflecting just
Speaker 9: the fact that it was very underloved under owned and
Speaker 9: very cheap, or is it actually reflecting a more defensive
Speaker 9: bid within this market. I think it's more the former
Speaker 9: than the latter. Not necessarily, this is a market where
Speaker 9: everybody's looking for safety.
Speaker 2: Keron, I still think earnings matter, and I think we've
Speaker 2: had very good earnings this year, the second quarter, the
Speaker 2: third quarter, really strong earnings.
Speaker 3: Here are the earnings at a level that can support
Speaker 3: this market?
Speaker 4: Here?
Speaker 9: Do you think? I thought it was really interesting a
Speaker 9: couple days ago you had Max Kuttner on and he
Speaker 9: was arguing that you've seen earnings in the third quarter
Speaker 9: go up so much that now the fourth quarter is
Speaker 9: implying a sequential decline, meaning that the fourth quarter earnings
Speaker 9: estimates are likely too low, or at least are a
Speaker 9: very low bar.
Speaker 6: To jump over.
Speaker 9: That implies to us that there's still room for four
Speaker 9: Q earnings to be revised higher. That is usually a
Speaker 9: good environment for risk taking. Maybe not on a day
Speaker 9: to day basis, but usually that is supportive for things
Speaker 9: like equities to continue to rally.
Speaker 7: We've been hearing a lot from retailers as of late,
Speaker 7: and it's been a bit of a mixed picture. But
Speaker 7: I mean, we did have black Friday that it just passed,
Speaker 7: and we saw a lot of strength in the consumer there.
Speaker 7: How are you thinking about the retail space right now
Speaker 7: terms of investment opportunities and just more broadly.
Speaker 9: Yeah, that Black Friday growth certainly was encouraging, but it
Speaker 9: came with a few important caveats. It is not inflation adjusted,
Speaker 9: which means that you have seen big price increases for
Speaker 9: certain goods, so it's not necessarily reflecting volumes, and in
Speaker 9: certain areas, volumes were likely weaker because prices had gone
Speaker 9: up so much. And also you had this big search
Speaker 9: and buy now, pay later. And the big question is
Speaker 9: how much are people reaching and adding to leverage in
Speaker 9: order to be able to fund their spending. And what
Speaker 9: we have seen is that there's still room and aggregate
Speaker 9: for households to add to leverage. Maybe not in some
Speaker 9: of the lower income side of things, but if you
Speaker 9: look at broader household leverage ratios, they're nowhere near where
Speaker 9: they were back prior to the Great Financial Crisis.
Speaker 6: For example, I.
Speaker 2: Can actually make some money in the fixed income market
Speaker 2: in twenty twenty five. Here, I mean, I'm looking at
Speaker 2: the GO function on the Bloomberg terminal. I'm seeing kind
Speaker 2: of mid to very high single digitortal returns across the
Speaker 2: fixed income space here?
Speaker 3: How do you think about that?
Speaker 6: Yeah, isn't it incredible?
Speaker 4: Way?
Speaker 9: I mean, we've had rallies and everything, and for a
Speaker 9: while Muni's were sitting on the sidelines, but they had
Speaker 9: a great November as some of those supply demand dynamics
Speaker 9: became more favorable. I think the question as we go
Speaker 9: into twenty twenty six is what's going to happen with
Speaker 9: the treasury curve? Do we see upward pressure on longer
Speaker 9: term bond yields because of what's going on with fiscal deficits,
Speaker 9: because of what's going on with sticky inflation. We're now
Speaker 9: at a tenure treasury that touched near four percent last week.
Speaker 6: That seemed very low given the piece of inflation that
Speaker 6: we have.
Speaker 9: So I think it's a question of do we have
Speaker 9: that same kind of total return potential as we get
Speaker 9: into twenty twenty six, simply because the starting point is
Speaker 9: much lower yields today, and.
Speaker 7: As we've been talking about bonds, just the rate market
Speaker 7: more generally. Of course, we do have the Federal Reserve
Speaker 7: meeting this month. What are your expectations heading into that?
Speaker 5: Meeting.
Speaker 9: So we do think that they will cut, and that
Speaker 9: is what the market is pricing and I think it
Speaker 9: checked this morning in ninety five percent.
Speaker 6: Probability that we're going to get to cuts. We are
Speaker 6: going to get a cut.
Speaker 9: We do not think that the FED, though, will give
Speaker 9: guidance as to what they want to do in twenty
Speaker 9: twenty six, meaning this FED will not It'll be a
Speaker 9: meeting by meeting.
Speaker 6: They will commit to a rate path.
Speaker 9: But that may not matter as much if we get
Speaker 9: the nomination for who's going to be FED shair, because
Speaker 9: what that creates the potential for is that shadow FED
Speaker 9: kind of commentary. If we get, for example, Kevin Hassett
Speaker 9: coming in and saying being nominated as FED chair and saying, hey,
Speaker 9: we're going to three percent, the market will price that
Speaker 9: in with greater certainty. However, there is a big caveat
Speaker 9: and catch there.
Speaker 6: If you get.
Speaker 9: Somebody like Hassett get nominated, The question is can he
Speaker 9: rally the troops of the FED to vote in in
Speaker 9: line with what he is pushing for. And that remains
Speaker 9: a big question simply because he's an outsider and probably
Speaker 9: has the perception of being the most politically captured candidate
Speaker 9: that Trump could choose.
Speaker 2: Camer Let me tell your clients, how do you talk
Speaker 2: to them about alternative investments, whether it's private equity, private credit,
Speaker 2: hedge funds.
Speaker 3: Is that something that comes up a lot.
Speaker 9: Oh, it's incredibly important, mostly because a lot of our
Speaker 9: clients can tolerate illiquidity. But we think it's really important
Speaker 9: to be highly selective within each of those asset classes.
Speaker 9: So take private equity, for example. Instead of going into
Speaker 9: things like high valued growth equity and large cat buyout,
Speaker 9: we've been focusing on things like lower middle market secondaries
Speaker 9: GP stakes, things that we've found to have are a
Speaker 9: much more attractive return profile, less sensitive to the capital
Speaker 9: market cycle. We've been focusing a lot on venture. Over
Speaker 9: the course of the last year, we've been doing a
Speaker 9: lot of work in infrastructure, as well as more uncorrelated assets,
Speaker 9: so things that would FI fallow a little bit more
Speaker 9: on the esoteric side of things, things like water rights
Speaker 9: and litigation finance. The idea being is that we want
Speaker 9: to make sure that our alternatives do provide a source
Speaker 9: of diversification. So if your alternatives are relying on something
Speaker 9: like the US consumer and consumer lending, which some of
Speaker 9: the asset back finance does you're not really getting the
Speaker 9: diversification you're going for.
Speaker 7: Cameron, has been a really interesting year as we think
Speaker 7: about currency, specifically the US dollar. I'm looking at the
Speaker 7: Bloomberg Dollars BOT index down about almost seven percent on
Speaker 7: pace to end the year. With that decline here, how
Speaker 7: are you thinking about the US dollar? Is this the
Speaker 7: place to be right now?
Speaker 6: Yeah?
Speaker 9: Well, the dollar fell primarily at the start of the
Speaker 9: year and has now been flat for the last six months.
Speaker 6: And what you saw was the dollar poke.
Speaker 9: Its head up above the two hunder day moving outage
Speaker 9: back last week and start to fade lower. The question
Speaker 9: we have is that a false breakout. What we're looking
Speaker 9: as international money market futures show dollar positioning, and what
Speaker 9: you can see is that they were deeply, deeply negative,
Speaker 9: deeply underweight at the beginning of the year, which coincided
Speaker 9: with the low and the dollar. That underweight positioning has
Speaker 9: now been closed, but there's still a lot of room
Speaker 9: for investors to get more long the dollars. So if
Speaker 9: you see a little bit more dollar strength, that could
Speaker 9: cause more dollar length in positioning, which could then feet
Speaker 9: on dollar strength and thus we get more of an upside,
Speaker 9: but that still remains to be seen as the technicals
Speaker 9: still raise a few eyebrows.
Speaker 2: What's your twenty twenty sixth theme? Have you written something
Speaker 2: like that?
Speaker 1: Oh?
Speaker 3: Man?
Speaker 9: So we play the I like to go with the
Speaker 9: price is right kind strategy, so that when we go last,
Speaker 9: you know, if you want to win the price is right,
Speaker 9: it's really best to go last.
Speaker 6: So we always wait till the second week of.
Speaker 9: January to publish our outlet because what we like to
Speaker 9: know is what everybody else has said, and then we
Speaker 9: can get a sense of where consensus is.
Speaker 6: Call it cheating or call it wise.
Speaker 2: So what do you I mean? It seems like, you know,
Speaker 2: I'm not sure what's changed here. I feel like we've
Speaker 2: got a decent earnings background. I feel like we've got
Speaker 2: fedis cutting interest rates. I get my economy still growing.
Speaker 2: It feels like twenty twenty six could be another decent
Speaker 2: year if unless something crazy happens.
Speaker 9: It also feels a little bit like back to the
Speaker 9: future because the same questions are qualms that we could
Speaker 9: have about this market and this economy are the same
Speaker 9: today as we had this timeline last year. You could
Speaker 9: look at high valuations. You could look at concentrated equity positioning.
Speaker 9: You could look at the fact that peripheral labor market
Speaker 9: data is weakening and does that turn into an even
Speaker 9: weaker labor market. All observations that you could make this
Speaker 9: time last year you.
Speaker 6: Could make today.
Speaker 9: Do they become more accurate in your concerns today after
Speaker 9: the strong rally that we've had versus what they were
Speaker 9: last year?
Speaker 3: All Right, I don't know.
Speaker 2: It seems like a pretty decent backdrop for me. Cameron Dawson,
Speaker 2: We appreciate getting a few minutes of your time, Chief
Speaker 2: Investment Officer at New edgewelth joining us here.
Speaker 3: Stay with us. More from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
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Speaker 2: Time for newspapers with Lise MITTEO Ah, you've been waiting
Speaker 2: for it.
Speaker 3: Okay.
Speaker 5: Have you heard of slop bowl fatigue?
Speaker 3: I have not. Now it's a thing. Now you have,
Speaker 3: Now you will, Okay.
Speaker 5: So it's when you go to like the fast food
Speaker 5: fast casual and you stand in front of the counter
Speaker 5: and you point out what you want and they have
Speaker 5: a bowl of either rice or lettuce and they just
Speaker 5: slop everything inside of it. Okay, so people are apparently
Speaker 5: getting tired of it. Think like Chipotle, Cava, Sweet Green,
Speaker 5: like they all slash their financial targets. So instead of instead,
Speaker 5: what they're doing is they're choosing things with more texture,
Speaker 5: things like sandwiches or tacos. You know, they can fill
Speaker 5: you up, they cost a little bit less. And Bloomberg
Speaker 5: spoke to Steve El's he's actually the founder of Chipotle.
Speaker 5: He left the company in twenty twenty. He started this
Speaker 5: new like counter company called counter Service. They have a
Speaker 5: location in Manhattan. But he's saying, yes, they are a
Speaker 5: bowl free zone. People want more handheld and that's apparently
Speaker 5: the new trend.
Speaker 7: So I mean it can be messy, I guess, but
Speaker 7: I don't know.
Speaker 5: I just always amaze, like how much they put on it.
Speaker 3: Yeah, I said, I want to walk in.
Speaker 2: It's like what I like, the first time I was
Speaker 2: at Sweet Green, I had to be schooled by somebody
Speaker 2: because I didn't know how to order, and you know,
Speaker 2: I was the old guy holding.
Speaker 3: Up the line.
Speaker 2: So there was a young Bloomberg person behind me who
Speaker 2: saved me. I think the person she's like, sir, this
Speaker 2: is this is how you want to do it.
Speaker 5: They're looking out for one another exactly.
Speaker 3: But I'm just the deli guy. I'm old school here. Okay.
Speaker 5: So you like the handheld sam which are the go
Speaker 5: to It's easier to take home.
Speaker 2: Don We live in a part of the world where
Speaker 2: we have great delis, so you take advantage of it.
Speaker 3: Desizza, that's it.
Speaker 6: That's all you got.
Speaker 5: Okay, So this one's interesting. Bosses are going to new
Speaker 5: extremes to get their workers to use a I.
Speaker 6: Okay.
Speaker 5: So, for example, companies like IBM, they're paying cash, they're
Speaker 5: awarding points that are resuemable for gift cards. They're giving
Speaker 5: out merch invitations to like showcase their solutions at company
Speaker 5: events to kind of put them on a stage and
Speaker 5: present this because companies invested all this money into AI systems,
Speaker 5: but their workers are kind of hesitant because some of
Speaker 5: them saying, well, AI is going to make their job
Speaker 5: disappear faster, so they don't really want to go, or
Speaker 5: they don't have the time for the training or some
Speaker 5: people are saying they don't want to share their AI
Speaker 5: tactics because that gives them like a little competitive edge,
Speaker 5: you know. So maybe I don't want to share it
Speaker 5: because I want to.
Speaker 2: Back in the day, when I'm starting on investment banking,
Speaker 2: was I was a good modeler, so I could model
Speaker 2: really well and know all the macros for the Excel
Speaker 2: spreadsheets things. I felt like I had like an edge
Speaker 2: there for two or three or four years, but then
Speaker 2: that skill became less valuable as you get further in
Speaker 2: your career. But I think AI, I mean, you have
Speaker 2: to embrace it, don't you. If you're a young person
Speaker 2: coming up, that's the.
Speaker 5: Thing too, Like you, I feel like you do have
Speaker 5: no option.
Speaker 3: Exactly.
Speaker 5: So yeah, it's just interesting because like they're giving bonuses
Speaker 5: for people who do do it. Okay, there's a brownie
Speaker 5: point exactly.
Speaker 3: All right.
Speaker 5: So this one stuck out to me because we all have,
Speaker 5: you know, the smartphone, right, but this one is a
Speaker 5: trifle phone. Okay, So this is from Samsung. It's their
Speaker 5: first trifle smartphone, the Galaxy Z trifle so basically has
Speaker 5: two hinges and it collapsed, you know, it opens up
Speaker 5: to like a ten inch display, So it's like a
Speaker 5: little mini tablet. Yeah, you got to look at the picture.
Speaker 5: Four hundred and fifty dollars.
Speaker 3: Okay. It starts in South.
Speaker 5: Korea, that's where it's launching on December twelfth, and then
Speaker 5: it'll kind of make its way to the US, China, Taiwan, Singapore.
Speaker 3: United Arab Embrates.
Speaker 5: So if you look, oh yeah, see if you're watching YouTube,
Speaker 5: there you go.
Speaker 3: That's what it looks like.
Speaker 4: This.
Speaker 3: It's kind of cool. I mean, big screen.
Speaker 5: I'm just afraid it's going to break, right, it's like
Speaker 5: a tablet at this point it becomes a mini tablet.
Speaker 6: Right, Yeah, it's a stimulating I don't know, if.
Speaker 3: You're watching shows or movies and stuff, that's.
Speaker 5: Gaming exactly exactly.
Speaker 3: That's it. It's not about the film anymore.
Speaker 2: This seems basically a camera slash TV that you can
Speaker 2: make a phone call on.
Speaker 7: Did you fold it back up when you want to
Speaker 7: put it to your ear for a yes, yes you do.
Speaker 5: It folds back up to the regular size. But actually
Speaker 5: Huawei actually came out with the first Trifle back in
Speaker 5: like twenty twenty four, but it's the first first hand
Speaker 5: I'm sung so kind of interesting. And I know people
Speaker 5: are sounding off on the YouTube on the YouTube chat
Speaker 5: and they're saying, yeah, they're afraid that it's going to break,
Speaker 5: so yeah, shoot, all.
Speaker 3: Right, not for the kids.
Speaker 2: All right, newspapers, thank you very much for We appreciate that
Speaker 2: the trifold phone.
Speaker 3: I'm happy with my iPhones.
Speaker 1: This is the Bloomberg Surveillance Podcast, available on Apple, Spotify,
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