1 00:00:02,360 --> 00:00:06,720 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,640 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordernt. Join us each day 4 00:00:18,720 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,840 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,919 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,000 --> 00:00:36,879 Speaker 2: Terminal and the Bloomberg Business app. We begin this out 10 00:00:36,920 --> 00:00:39,159 Speaker 2: with Stock's attempting to rally following the biggest one day 11 00:00:39,240 --> 00:00:41,800 Speaker 2: drop in a month. Keith Leerner of Truest writing, the 12 00:00:41,880 --> 00:00:44,440 Speaker 2: encouraging development is that this is still looking more like 13 00:00:44,560 --> 00:00:49,400 Speaker 2: rotation than broad based liquidation. Keith joins us now for more. Keith, 14 00:00:49,440 --> 00:00:51,519 Speaker 2: I don't know when you wrote that, but does it 15 00:00:51,520 --> 00:00:53,320 Speaker 2: apply to the price sanction of the last twenty four 16 00:00:53,360 --> 00:00:53,840 Speaker 2: hours too? 17 00:00:55,000 --> 00:00:55,240 Speaker 3: Oh? 18 00:00:55,480 --> 00:01:02,720 Speaker 4: Yes, certainly, and I he good fryad. 19 00:01:02,080 --> 00:01:02,360 Speaker 3: Listen. 20 00:01:02,400 --> 00:01:04,080 Speaker 4: Even yesterday, you know we had that, you know, some 21 00:01:04,160 --> 00:01:06,039 Speaker 4: big cap tech names down a lot, and then you 22 00:01:06,040 --> 00:01:08,160 Speaker 4: looked at the board yesterday you had energy up you 23 00:01:08,160 --> 00:01:11,240 Speaker 4: had industrials up, you had financials up, you had healthcare up. 24 00:01:11,680 --> 00:01:13,680 Speaker 3: So I think we're still seeing this big move up. 25 00:01:13,720 --> 00:01:16,440 Speaker 4: But I also like, if you zoom out a bit here, Jonathan, 26 00:01:16,840 --> 00:01:19,080 Speaker 4: back when we had that rally off the lows in 27 00:01:19,600 --> 00:01:22,400 Speaker 4: March for the SMP, there was only one sector that 28 00:01:22,440 --> 00:01:24,640 Speaker 4: I performed one and that was tech, and Tech was 29 00:01:24,720 --> 00:01:27,800 Speaker 4: up forty seven percent. The closest sector behind it was 30 00:01:27,880 --> 00:01:31,280 Speaker 4: that was lagged it by almost by sorry, by more 31 00:01:31,319 --> 00:01:34,440 Speaker 4: than twenty percent. So you know, you had expectations we 32 00:01:34,560 --> 00:01:37,240 Speaker 4: set higher. It was one sector that's very dominated, and 33 00:01:37,280 --> 00:01:39,640 Speaker 4: now that money is rotating to other areas, and to 34 00:01:40,160 --> 00:01:43,320 Speaker 4: the point that you just discussed, it's not leaving the market, 35 00:01:43,360 --> 00:01:45,840 Speaker 4: it's just rotating to other areas. And you're also having 36 00:01:45,880 --> 00:01:47,520 Speaker 4: some pretty good numbers yesterday. If I looked at the 37 00:01:47,520 --> 00:01:50,320 Speaker 4: board yesterday, you had a lot of these industrials, you know, 38 00:01:50,680 --> 00:01:51,800 Speaker 4: up three, four, five. 39 00:01:51,640 --> 00:01:52,400 Speaker 3: Percent, okaith. 40 00:01:52,440 --> 00:01:53,840 Speaker 2: I think in some ways that speaks to what we're 41 00:01:53,840 --> 00:01:56,240 Speaker 2: talking about in the bond market too. I mentioned these 42 00:01:56,320 --> 00:01:59,280 Speaker 2: rolling shocks that we're experiencing right now through energy, through 43 00:01:59,280 --> 00:02:01,280 Speaker 2: interest rates and market, and I think it's important to 44 00:02:01,280 --> 00:02:03,960 Speaker 2: points now we've had the energy shot we've had the 45 00:02:03,960 --> 00:02:06,640 Speaker 2: bond market Jitters, we haven't had the growth scare in case. 46 00:02:06,680 --> 00:02:09,600 Speaker 2: Does that speak to maybe your enthusiasm for this rotation 47 00:02:09,639 --> 00:02:11,880 Speaker 2: in equities, which is a risk anset that should be 48 00:02:11,919 --> 00:02:14,960 Speaker 2: sensitive to the growth back drop. You believe that can continue? 49 00:02:15,680 --> 00:02:16,359 Speaker 3: Yeah, I do. 50 00:02:16,520 --> 00:02:18,560 Speaker 4: I will also say at the same time, Jonathan, you 51 00:02:18,600 --> 00:02:21,440 Speaker 4: know we're still positive on tech longer term. I just 52 00:02:21,480 --> 00:02:23,800 Speaker 4: think as I mentioned that it got too far, you know, 53 00:02:23,800 --> 00:02:25,959 Speaker 4: it went too far too fast, and now you're resetting, 54 00:02:25,960 --> 00:02:28,720 Speaker 4: and as we've been discussing this morning, you know, the 55 00:02:28,760 --> 00:02:30,560 Speaker 4: economy continues to prove resilient. 56 00:02:30,639 --> 00:02:32,920 Speaker 3: In fact, I think you know, most on Wall. 57 00:02:32,720 --> 00:02:35,200 Speaker 4: Street, if you thought, you know, maybe a month ago, 58 00:02:35,200 --> 00:02:37,080 Speaker 4: if you said, hey, yielder at four to seventy, where's 59 00:02:37,080 --> 00:02:39,200 Speaker 4: the stock market? You probably would think it would be, 60 00:02:39,360 --> 00:02:41,160 Speaker 4: you know, hit a bit more. And you are seeing 61 00:02:41,200 --> 00:02:44,520 Speaker 4: some of those tin those higher financial conditions hit in 62 00:02:44,600 --> 00:02:46,400 Speaker 4: more of the growth areas of the market. But all 63 00:02:46,440 --> 00:02:49,120 Speaker 4: in all, you know, I would trade a stronger economy 64 00:02:50,000 --> 00:02:52,000 Speaker 4: within a week or one with a little bit higher rates, 65 00:02:52,000 --> 00:02:54,280 Speaker 4: and I think that's what the market's doing because ultimately 66 00:02:54,320 --> 00:02:57,880 Speaker 4: that should still feed into stronger earnings, which continues to 67 00:02:57,880 --> 00:02:59,760 Speaker 4: be the north star of this bull market, which. 68 00:02:59,600 --> 00:03:00,880 Speaker 5: Is the reason, like Keith, we're seeing a lot of 69 00:03:00,880 --> 00:03:02,400 Speaker 5: people say their rotation is intact. 70 00:03:02,639 --> 00:03:04,440 Speaker 1: But maybe the Magnificent seven or. 71 00:03:04,400 --> 00:03:08,080 Speaker 5: More specifically, the hyperscalers are no longer the same kind 72 00:03:08,080 --> 00:03:10,320 Speaker 5: of bet that they were, say six months ago. Yesterday 73 00:03:10,560 --> 00:03:14,200 Speaker 5: the biggest one day decline going back to Liberation Day 74 00:03:14,240 --> 00:03:16,800 Speaker 5: and some of the turmoil there. In twenty twenty five, 75 00:03:17,040 --> 00:03:19,920 Speaker 5: almost eight hundred billion dollars in value raised from this 76 00:03:19,960 --> 00:03:20,880 Speaker 5: particular index. 77 00:03:20,960 --> 00:03:23,160 Speaker 1: Is it a buying opportunity or is it a warning shot? 78 00:03:24,840 --> 00:03:26,200 Speaker 3: Maybe somewhere in the middle. 79 00:03:26,240 --> 00:03:28,600 Speaker 4: I mean, with one of the economies we wrote about, 80 00:03:29,280 --> 00:03:31,760 Speaker 4: you know, coming out of last month was that, you know, 81 00:03:31,800 --> 00:03:34,160 Speaker 4: the tech sector was up eighteen percent at the time. 82 00:03:34,200 --> 00:03:36,600 Speaker 4: At the same time, the Mag seven was actually down 83 00:03:36,600 --> 00:03:39,280 Speaker 4: for the year, and that's a lot of because of semiconductors. So, 84 00:03:40,080 --> 00:03:41,800 Speaker 4: you know, I would say more broadly, not just the 85 00:03:41,800 --> 00:03:43,240 Speaker 4: MAG seven. I mean, the one thing that kind of 86 00:03:43,240 --> 00:03:45,320 Speaker 4: stood out to me is, you know, late last year, 87 00:03:45,360 --> 00:03:48,080 Speaker 4: the technology sector was training for about a thirty two multiple. 88 00:03:48,240 --> 00:03:49,720 Speaker 3: Now that's down to about twenty three. 89 00:03:50,120 --> 00:03:52,440 Speaker 4: The premium for tech to the overall market early in 90 00:03:52,440 --> 00:03:54,400 Speaker 4: this pool market was about forty five percent. 91 00:03:54,480 --> 00:03:56,960 Speaker 3: That was the peak and now we're down to about ten. 92 00:03:57,040 --> 00:03:59,600 Speaker 4: So at least at least the good news to me 93 00:03:59,680 --> 00:04:01,360 Speaker 4: is you're setting expectations. 94 00:04:01,360 --> 00:04:02,840 Speaker 3: And even though, as you know, not. 95 00:04:03,080 --> 00:04:05,600 Speaker 4: Saying something specific about a recommendation for stocks, but like 96 00:04:05,760 --> 00:04:09,160 Speaker 4: you know, Google and revenue and Intel's revenue numbers with 97 00:04:09,200 --> 00:04:11,960 Speaker 4: twenty five percent, it's hard pressed to find that. So oh, 98 00:04:12,280 --> 00:04:14,960 Speaker 4: I still think ultimately that tech will be a buying opportunity. 99 00:04:15,240 --> 00:04:16,600 Speaker 3: Is it right here right now? 100 00:04:16,600 --> 00:04:18,760 Speaker 4: I'm not sure about that yet, But ultimately I think 101 00:04:18,760 --> 00:04:20,680 Speaker 4: money will go take back into tech. And the last 102 00:04:20,680 --> 00:04:22,359 Speaker 4: thing I also say is we continue to have this 103 00:04:22,720 --> 00:04:27,040 Speaker 4: love hate relationship with tech. This is the fifth pullback 104 00:04:27,240 --> 00:04:28,440 Speaker 4: of at least ten percent. 105 00:04:28,200 --> 00:04:29,039 Speaker 3: During this bull market. 106 00:04:29,120 --> 00:04:32,000 Speaker 4: During the entire bull market, tech has doubled the S 107 00:04:32,000 --> 00:04:34,159 Speaker 4: and P five hundred. So it's just, you know, like 108 00:04:34,160 --> 00:04:35,839 Speaker 4: I said, the love hate relationship that we're seeing, it. 109 00:04:35,839 --> 00:04:37,160 Speaker 1: Does feel a little bit different this time. 110 00:04:37,200 --> 00:04:38,520 Speaker 5: And I know I'm going to get pillar aid for 111 00:04:38,520 --> 00:04:40,599 Speaker 5: saying that because those are the most hated words in 112 00:04:40,920 --> 00:04:44,360 Speaker 5: financial markets. There is a new cost to borrow money 113 00:04:44,560 --> 00:04:46,440 Speaker 5: for some of these hyper scalers in particular, and I 114 00:04:46,480 --> 00:04:49,200 Speaker 5: wanted to buifurcate the tech universe into the hyper scaler 115 00:04:49,240 --> 00:04:51,440 Speaker 5: suspenders and then the receivers. As John does a good 116 00:04:51,520 --> 00:04:53,280 Speaker 5: job of talking about the wealth transfer. 117 00:04:53,560 --> 00:04:54,280 Speaker 1: At this point, it. 118 00:04:54,240 --> 00:04:56,880 Speaker 5: Does seem like the charge is getting bigger for a 119 00:04:56,880 --> 00:05:00,159 Speaker 5: lot of these hyper scalers. Their desires are continuing to 120 00:05:00,200 --> 00:05:02,960 Speaker 5: grow at paces that we cannot track, and there has 121 00:05:03,040 --> 00:05:05,240 Speaker 5: been a sense of concern in markets at a time 122 00:05:05,279 --> 00:05:07,560 Speaker 5: of already elevated bond yields around the world. 123 00:05:08,040 --> 00:05:10,200 Speaker 1: Doesn't this change the calculus. 124 00:05:09,680 --> 00:05:11,800 Speaker 5: On some level, on a multiple level, or even just 125 00:05:11,839 --> 00:05:13,159 Speaker 5: on a growth prospect level. 126 00:05:13,920 --> 00:05:15,800 Speaker 4: Yeah, certainly, And I would say at least, you know, 127 00:05:15,839 --> 00:05:18,040 Speaker 4: one thing we've been released on the track, even more closely, 128 00:05:18,200 --> 00:05:21,400 Speaker 4: is breaking out all the technology big cat tech stocks 129 00:05:21,400 --> 00:05:24,080 Speaker 4: and look at credit spreads and then moving up and 130 00:05:24,279 --> 00:05:28,159 Speaker 4: even like Oracle being the poster child, you're seeing when 131 00:05:28,200 --> 00:05:31,159 Speaker 4: CDXIT makes a new high, the stock is moving lower. 132 00:05:31,279 --> 00:05:33,160 Speaker 4: So now I think it is very important. I think 133 00:05:33,160 --> 00:05:34,719 Speaker 4: it is one of the main the key risks that 134 00:05:34,760 --> 00:05:37,120 Speaker 4: we're looking at. But I guess as I think about 135 00:05:37,160 --> 00:05:39,720 Speaker 4: things is you know, we were training at a thirty 136 00:05:39,760 --> 00:05:42,600 Speaker 4: two multiple, now we're down to a twenty three. That 137 00:05:42,800 --> 00:05:45,360 Speaker 4: premium that I mentioned has really evaporated. So at least 138 00:05:45,560 --> 00:05:49,039 Speaker 4: in my mind, the market has has has re rated 139 00:05:49,160 --> 00:05:52,000 Speaker 4: down because of those very risks that you're talking about. 140 00:05:52,040 --> 00:05:53,839 Speaker 3: So I guess the question, the open question is is 141 00:05:53,839 --> 00:05:54,920 Speaker 3: it we rated enough? 142 00:05:55,560 --> 00:05:58,000 Speaker 4: And again, you know, on a very short term, I 143 00:05:58,040 --> 00:06:00,039 Speaker 4: think it's a difficult call. But I think at this 144 00:06:00,080 --> 00:06:03,200 Speaker 4: point at least we really reset expectations. Again, not that 145 00:06:03,240 --> 00:06:06,880 Speaker 4: recommendations on individuals because that's not my area of focus. 146 00:06:06,960 --> 00:06:09,000 Speaker 4: But even like you look at you after what happened 147 00:06:09,040 --> 00:06:13,279 Speaker 4: with Alphabet, you're treating out a sub pe relative to 148 00:06:13,279 --> 00:06:16,200 Speaker 4: the overall market as far as a discount now, and 149 00:06:16,240 --> 00:06:17,920 Speaker 4: at the same time you've seeing these companies with really 150 00:06:17,920 --> 00:06:20,000 Speaker 4: strong revenue growths. So I think all that's in the 151 00:06:20,040 --> 00:06:22,480 Speaker 4: mixed Lisa, But I think again I would still think 152 00:06:22,480 --> 00:06:24,679 Speaker 4: I'm giving tech longer term the benefit of the doubt. 153 00:06:24,880 --> 00:06:27,320 Speaker 2: Yesterday was different, and Bromo, I'm pleased to went there. 154 00:06:27,400 --> 00:06:30,960 Speaker 2: Yesterday was different because this equity market punished the spending 155 00:06:30,960 --> 00:06:34,159 Speaker 2: of Alphabet and Tesla and didn't reward the chip makers, 156 00:06:34,480 --> 00:06:36,480 Speaker 2: which is where the money would go. Same as we're 157 00:06:36,520 --> 00:06:38,120 Speaker 2: down on the session yesterday, which I think would be 158 00:06:38,160 --> 00:06:39,560 Speaker 2: surprising for a lot of people. If they looked at 159 00:06:39,560 --> 00:06:41,960 Speaker 2: the numbers of the spend coming out of the likes 160 00:06:41,960 --> 00:06:44,080 Speaker 2: of Alphabet and the likes of Tesla. So you have 161 00:06:44,120 --> 00:06:47,120 Speaker 2: to question the effectiveness of the spend, return on investment, 162 00:06:47,520 --> 00:06:50,000 Speaker 2: and the durability the sustainability of the spend as well, 163 00:06:50,040 --> 00:06:53,480 Speaker 2: and the cost of capital is going to become increasingly important. 164 00:06:53,520 --> 00:06:55,440 Speaker 2: I think you can see that in bonds and increasingly 165 00:06:55,640 --> 00:06:57,800 Speaker 2: just on the margin just a little bit more. You 166 00:06:57,800 --> 00:06:58,680 Speaker 2: can see it in credit too. 167 00:06:59,080 --> 00:07:01,040 Speaker 5: Right now you're starting to see this spreads widen, as 168 00:07:01,440 --> 00:07:03,680 Speaker 5: Keith was just talking about, and yesterday we saw some 169 00:07:03,680 --> 00:07:06,680 Speaker 5: real pushback. But you're right, normally the wealth transfer would 170 00:07:06,720 --> 00:07:08,920 Speaker 5: be alive and well you'd see that inverse relationship. 171 00:07:08,960 --> 00:07:10,760 Speaker 1: The idea that it's not indicates. 172 00:07:10,400 --> 00:07:13,360 Speaker 5: That maybe people don't believe that spend project can really 173 00:07:13,360 --> 00:07:15,560 Speaker 5: continue at the pace that it is, or that there's 174 00:07:15,560 --> 00:07:18,480 Speaker 5: going to be enough competitive pressure to lower prices, lower 175 00:07:18,520 --> 00:07:21,400 Speaker 5: margins and potentially get some new competitors into the field. 176 00:07:21,440 --> 00:07:23,360 Speaker 2: I'm not going to draw firm conclusions from twenty four 177 00:07:23,400 --> 00:07:25,520 Speaker 2: hounds of price sanction. Lisa won't either, but Keith is 178 00:07:25,560 --> 00:07:28,360 Speaker 2: notable that yesterday Chips didn't rally that had a nice 179 00:07:28,400 --> 00:07:32,520 Speaker 2: little run going into warnings Monday, Tuesday, decent few days 180 00:07:32,520 --> 00:07:35,200 Speaker 2: of gains, three days, I believe on the sami's keith. 181 00:07:35,600 --> 00:07:37,760 Speaker 2: Then things started to change just yesterday. What was your 182 00:07:37,760 --> 00:07:40,600 Speaker 2: reaction to that, Well, I mean, I think it. 183 00:07:40,560 --> 00:07:43,640 Speaker 4: Is important, as you mentioned right now, there's so much 184 00:07:43,760 --> 00:07:47,960 Speaker 4: uncertainty about how all the AI spending turns into a 185 00:07:48,120 --> 00:07:51,080 Speaker 4: cash flow like and when. But I also remindful it 186 00:07:51,240 --> 00:07:53,680 Speaker 4: was like, you know, semiconductor just came off an eighty 187 00:07:53,800 --> 00:07:56,720 Speaker 4: percent plush quarters, so in some ways I think that 188 00:07:57,200 --> 00:08:00,560 Speaker 4: was anticipating these good numbers and you. 189 00:08:00,520 --> 00:08:01,480 Speaker 3: Know it's priced in. 190 00:08:01,640 --> 00:08:04,400 Speaker 4: So it does tell you at this point that this 191 00:08:04,520 --> 00:08:07,960 Speaker 4: kind of cooling or this reset in tech and semiconductors 192 00:08:08,000 --> 00:08:09,680 Speaker 4: likely has a bit further to go because it was 193 00:08:09,720 --> 00:08:12,280 Speaker 4: so overheat. In fact, the move that we have seen 194 00:08:12,280 --> 00:08:14,800 Speaker 4: in semi conductors over the last year is the strongest 195 00:08:14,800 --> 00:08:17,160 Speaker 4: we have seen since the late nineties. 196 00:08:18,000 --> 00:08:19,040 Speaker 3: But ultimately, I think one. 197 00:08:18,920 --> 00:08:21,000 Speaker 4: Of thing that's different so far, and we can you know, 198 00:08:21,080 --> 00:08:23,680 Speaker 4: debate this is evaluations are half of what they were 199 00:08:23,720 --> 00:08:25,600 Speaker 4: in the semi conductors back in the late nineties, and 200 00:08:25,640 --> 00:08:28,320 Speaker 4: earning trends are much stronger. Obviously, we are still asking 201 00:08:28,360 --> 00:08:31,760 Speaker 4: the question of what's normalized earnings as well. But I 202 00:08:31,800 --> 00:08:33,840 Speaker 4: think the main point, going back to where I started is, 203 00:08:33,920 --> 00:08:35,280 Speaker 4: you know, you just you had a lot of good 204 00:08:35,320 --> 00:08:38,040 Speaker 4: news priced into this quarter, So I'm not surprised you're 205 00:08:38,040 --> 00:08:40,480 Speaker 4: not seeing the reaction because you were up eighty percent 206 00:08:40,600 --> 00:08:41,400 Speaker 4: for the overall. 207 00:08:41,480 --> 00:08:45,280 Speaker 2: In depth stay with US, multiple Imberg surveillance coming up 208 00:08:45,600 --> 00:08:46,080 Speaker 2: after this. 209 00:08:55,480 --> 00:08:56,280 Speaker 1: So here's the lisis. 210 00:08:56,320 --> 00:08:59,080 Speaker 2: This morning, the White House taunting efforts to find inflation. 211 00:08:59,200 --> 00:09:03,320 Speaker 2: The President announced an expansion of the rate payer Protection Pledge. 212 00:09:03,400 --> 00:09:06,120 Speaker 2: The President now scheduled to deliver an economic message in 213 00:09:06,160 --> 00:09:09,319 Speaker 2: the key mautaground state of Michigan on Monday. Monica Guarre 214 00:09:09,360 --> 00:09:11,640 Speaker 2: and the team over at Morgan Stanley writing in their 215 00:09:11,679 --> 00:09:15,400 Speaker 2: midterm election preview the following, even when growth is resilient, 216 00:09:15,640 --> 00:09:19,199 Speaker 2: voters often discount healthy macro data when their lived experience 217 00:09:19,240 --> 00:09:23,800 Speaker 2: is defined by higher cost for gas, groceries, rent, and utilities. 218 00:09:23,960 --> 00:09:26,600 Speaker 2: Monica joins US now for more Monica Conmonic Warner. It's 219 00:09:26,600 --> 00:09:27,880 Speaker 2: good to see this is going to be a major 220 00:09:27,920 --> 00:09:30,400 Speaker 2: issue into the midterms. What can you do between now 221 00:09:30,440 --> 00:09:31,640 Speaker 2: and then if you're a policymaker. 222 00:09:32,080 --> 00:09:34,720 Speaker 6: If you're a policy maker, you're looking for every Avenue. 223 00:09:34,760 --> 00:09:38,760 Speaker 6: I think that the Trump announcement around corporations contributing to 224 00:09:39,240 --> 00:09:42,000 Speaker 6: power generation and trying to reduce those costs as one 225 00:09:42,040 --> 00:09:44,680 Speaker 6: of those measures. But you have to balance that with 226 00:09:44,800 --> 00:09:48,080 Speaker 6: what's happening geopolitically and globally. When we see what's happening 227 00:09:48,280 --> 00:09:51,599 Speaker 6: with US and Iran pressures on gas prices, right and 228 00:09:52,080 --> 00:09:55,920 Speaker 6: that elevation as well as you know, concerns at the 229 00:09:56,000 --> 00:09:58,319 Speaker 6: local level or just around housing, and that's more of 230 00:09:58,400 --> 00:10:01,240 Speaker 6: a local issue, not and that the federal government can 231 00:10:01,280 --> 00:10:02,520 Speaker 6: just come in and cut. 232 00:10:02,480 --> 00:10:05,760 Speaker 7: It's the last week of Congress in terms of before 233 00:10:05,800 --> 00:10:07,680 Speaker 7: their summer holiday that you have both the House and 234 00:10:07,720 --> 00:10:10,960 Speaker 7: the Senate in session. Gas prices are going up, Americans 235 00:10:11,000 --> 00:10:12,840 Speaker 7: are pushing back in polls about this war. Are they 236 00:10:12,920 --> 00:10:14,920 Speaker 7: going to do something when it comes to at least 237 00:10:14,960 --> 00:10:16,840 Speaker 7: some of the immediate effects of the pump. 238 00:10:17,400 --> 00:10:20,200 Speaker 6: So what's really interesting about this is that you see, 239 00:10:20,240 --> 00:10:21,280 Speaker 6: you know, like you said. 240 00:10:21,080 --> 00:10:22,360 Speaker 1: It's really unpopular war. 241 00:10:22,440 --> 00:10:26,199 Speaker 6: About fifty nine percent of the population is not in favor. 242 00:10:26,679 --> 00:10:29,840 Speaker 6: And Congress has actually moved, you know, to rebuke the president. 243 00:10:29,880 --> 00:10:33,320 Speaker 6: A Republican held House has rebuked the president with this 244 00:10:34,040 --> 00:10:36,760 Speaker 6: gop you know, War Act saying that they are not 245 00:10:36,880 --> 00:10:40,480 Speaker 6: in favor of continuation. However, Senate's not going to move 246 00:10:40,480 --> 00:10:44,400 Speaker 6: on that, So it's mainly symbolic. And in the same hand, 247 00:10:44,800 --> 00:10:45,640 Speaker 6: right one hand. 248 00:10:45,480 --> 00:10:46,679 Speaker 1: You're saying, you know, we're not in favor. 249 00:10:47,480 --> 00:10:50,680 Speaker 6: There are moneying ninety five billion right for more spending 250 00:10:50,679 --> 00:10:52,920 Speaker 6: on the Iran war. So what are they going to do? 251 00:10:53,000 --> 00:10:56,280 Speaker 6: There's limited tools that they can actually pull on. Maybe 252 00:10:56,320 --> 00:10:59,400 Speaker 6: you look to releasing more from the Strategic Petroleum Reserve 253 00:10:59,520 --> 00:11:01,920 Speaker 6: in the US, but even that is very limited. We 254 00:11:01,960 --> 00:11:05,600 Speaker 6: already have dwindling levels of the SPR to historic lows, 255 00:11:06,000 --> 00:11:09,040 Speaker 6: and any sort of shift there would maybe alter pricing 256 00:11:09,320 --> 00:11:11,640 Speaker 6: for a week or two ahead of the midterms, so 257 00:11:11,679 --> 00:11:14,280 Speaker 6: you would have to really time it strategically. 258 00:11:14,360 --> 00:11:16,679 Speaker 7: The other risk this morning, of course, is the reintroduction 259 00:11:16,760 --> 00:11:19,200 Speaker 7: of new tariffs. The market seem to be brushing this off, 260 00:11:19,200 --> 00:11:22,040 Speaker 7: but some analysts I'm talking to are saying their clients 261 00:11:22,120 --> 00:11:25,920 Speaker 7: corporations really care they're going through these lists. Is this 262 00:11:26,040 --> 00:11:28,520 Speaker 7: going to be an issue for this White House with 263 00:11:28,600 --> 00:11:30,040 Speaker 7: some of these C suite executives. 264 00:11:30,360 --> 00:11:33,560 Speaker 6: Well, what we've seen is that the broader and our view, 265 00:11:33,600 --> 00:11:36,520 Speaker 6: we think that the broader costs passed through to the 266 00:11:36,520 --> 00:11:39,560 Speaker 6: individual related to tariffs has peaked and is starting to 267 00:11:39,600 --> 00:11:42,760 Speaker 6: come down. You know, we have seen a lower inflation print. However, 268 00:11:43,040 --> 00:11:47,160 Speaker 6: all this macro you know activity could turn that tide right. 269 00:11:47,200 --> 00:11:51,760 Speaker 6: It's just was a small disinflationary you know, moment in June. 270 00:11:52,000 --> 00:11:54,960 Speaker 6: So for us, we're still you know, very much watching 271 00:11:55,000 --> 00:11:58,439 Speaker 6: that number and seeing you know, what the what Congress 272 00:11:58,600 --> 00:12:01,160 Speaker 6: and you know the Trump is going to do to 273 00:12:01,160 --> 00:12:04,000 Speaker 6: actually move on it. Now, what's important here for us 274 00:12:04,080 --> 00:12:08,600 Speaker 6: when we're thinking about tariffs in the future is the 275 00:12:08,640 --> 00:12:11,640 Speaker 6: full package for the consumer and how they're going to 276 00:12:11,679 --> 00:12:16,360 Speaker 6: respond in the midterms. And so from the political science lens, 277 00:12:16,559 --> 00:12:19,439 Speaker 6: we're looking at gas prices, which in years where there 278 00:12:19,520 --> 00:12:22,120 Speaker 6: is an increase from the prior January you get a 279 00:12:22,160 --> 00:12:23,480 Speaker 6: loss about thirty two seats. 280 00:12:23,480 --> 00:12:24,760 Speaker 1: So it really puts the. 281 00:12:24,760 --> 00:12:27,880 Speaker 6: GOP already on the back foot, not just because historically 282 00:12:27,880 --> 00:12:30,040 Speaker 6: you get a turnover in midterms, but then you also 283 00:12:30,080 --> 00:12:34,160 Speaker 6: have the gas price component also dragging on the. 284 00:12:34,120 --> 00:12:35,280 Speaker 1: Likelihood of re election. 285 00:12:35,760 --> 00:12:38,160 Speaker 5: So that's the election picture and sort of the lead 286 00:12:38,240 --> 00:12:41,079 Speaker 5: up to it. From a market perspective, I understand that 287 00:12:41,120 --> 00:12:43,679 Speaker 5: I've got a very skewed kind of view on a 288 00:12:43,760 --> 00:12:45,840 Speaker 5: lot of things. But yesterday I saw the data on 289 00:12:46,960 --> 00:12:49,360 Speaker 5: the news about the tariffs and I thought, oh, they're 290 00:12:49,400 --> 00:12:51,160 Speaker 5: looking for new revenue to plug some of the gaps 291 00:12:51,200 --> 00:12:52,800 Speaker 5: because the deficits. 292 00:12:52,280 --> 00:12:54,640 Speaker 1: Going up so much. Maybe this could help bond yields. 293 00:12:55,000 --> 00:12:57,040 Speaker 5: Is that even in their calculus, because at this point 294 00:12:57,120 --> 00:12:59,720 Speaker 5: you're seeing bond yields really get carried away and affecting 295 00:12:59,720 --> 00:13:01,520 Speaker 5: some of the area is that they've been talking about 296 00:13:01,559 --> 00:13:02,400 Speaker 5: the most, like housing. 297 00:13:02,520 --> 00:13:04,920 Speaker 6: Well, you have to remember that the tariffs that have 298 00:13:04,960 --> 00:13:08,640 Speaker 6: been recently announced are largely symbolic. Right you're saying, you know, 299 00:13:08,640 --> 00:13:11,360 Speaker 6: Trump came out and said one hundred percent tariffs on pharma, 300 00:13:11,400 --> 00:13:14,880 Speaker 6: but that starts in twenty twenty eight, again post elections. 301 00:13:14,880 --> 00:13:17,720 Speaker 6: So it's not necessarily a mid term factor. Nor do 302 00:13:17,800 --> 00:13:20,079 Speaker 6: I think that it's really a revenue plug, because it's 303 00:13:20,080 --> 00:13:22,199 Speaker 6: giving a long runway in order to get you know, 304 00:13:22,320 --> 00:13:25,320 Speaker 6: these generics back to the US. In addition, when you 305 00:13:25,320 --> 00:13:28,640 Speaker 6: think about the USMCA renegotiations, we've said long for a 306 00:13:28,679 --> 00:13:30,240 Speaker 6: long time now over and over again that this was 307 00:13:30,240 --> 00:13:31,880 Speaker 6: going to be a pressure point for the summer, and 308 00:13:31,920 --> 00:13:34,040 Speaker 6: we're starting to see that comes ahead on the fifty 309 00:13:34,040 --> 00:13:37,720 Speaker 6: percent on Canada that we think could have the biggest impacts. 310 00:13:37,760 --> 00:13:40,400 Speaker 6: But again that's still an opening bid. And when you're 311 00:13:40,400 --> 00:13:42,679 Speaker 6: working with Trump, you have to remember this administration we 312 00:13:42,720 --> 00:13:44,040 Speaker 6: always land somewhere in the middle. 313 00:13:44,320 --> 00:13:45,959 Speaker 1: So as far as the tear of. 314 00:13:45,960 --> 00:13:48,520 Speaker 6: Component, I think it's a little less risky than say 315 00:13:48,800 --> 00:13:50,280 Speaker 6: the gas and US are on. 316 00:13:50,360 --> 00:13:51,120 Speaker 1: Piece of the equation. 317 00:13:51,200 --> 00:13:53,320 Speaker 2: I sherely suspinse I was looking at the bumb market too, 318 00:13:54,040 --> 00:13:57,480 Speaker 2: Stay with us Mulblomberg surveillance. Coming up off to this, 319 00:14:06,760 --> 00:14:10,280 Speaker 2: the Republican Senator Dave mccorhomick, coming fresh off last week's 320 00:14:10,280 --> 00:14:14,040 Speaker 2: Pennsylvania Defense and Innovation summits, securing ten billion dollars in 321 00:14:14,120 --> 00:14:16,840 Speaker 2: new investments for his state. The US Senator Dave McCormick 322 00:14:17,080 --> 00:14:18,800 Speaker 2: joins us now for more. Good morning, sir, it's going 323 00:14:18,840 --> 00:14:20,760 Speaker 2: to say yeat morning. Let's talk about the nature of 324 00:14:20,760 --> 00:14:24,160 Speaker 2: this challenge, and the character of the challenge defensively has 325 00:14:24,240 --> 00:14:26,480 Speaker 2: changed as well, and the Middle East a fantastic example 326 00:14:26,480 --> 00:14:28,320 Speaker 2: of that this morning. What do we need to change 327 00:14:28,400 --> 00:14:30,240 Speaker 2: when we think about the kind of investments that needs 328 00:14:30,240 --> 00:14:31,400 Speaker 2: to be made in this country. 329 00:14:31,440 --> 00:14:34,320 Speaker 8: Well, there's three big changes that have happened. The World's 330 00:14:34,320 --> 00:14:37,880 Speaker 8: getting more dangerous to the nature of warfare is changing 331 00:14:37,960 --> 00:14:42,040 Speaker 8: dramatically with drone's autonomy AI. And Third, we've had apathy 332 00:14:42,440 --> 00:14:45,200 Speaker 8: within our defense ecosystem, so we need to introduce new 333 00:14:45,200 --> 00:14:49,960 Speaker 8: players into our defense ecosystem, drone manufacturers and all sorts 334 00:14:49,960 --> 00:14:53,000 Speaker 8: of other unique capabilities. And we need to change the 335 00:14:53,040 --> 00:14:55,560 Speaker 8: way we procure defense systems. So it needs to be 336 00:14:55,600 --> 00:14:57,840 Speaker 8: much faster, it needs to be much more competitive. We 337 00:14:57,920 --> 00:15:01,080 Speaker 8: need to constantly be innovating. So the focus of the 338 00:15:01,080 --> 00:15:04,160 Speaker 8: summit was to bring together the traditional industrial base. 339 00:15:04,240 --> 00:15:04,880 Speaker 3: We've gone. 340 00:15:06,320 --> 00:15:08,760 Speaker 8: To one percent of global shipbuilding, so we need to 341 00:15:08,760 --> 00:15:11,560 Speaker 8: go back to the core industrial base, but introduce all 342 00:15:11,560 --> 00:15:14,320 Speaker 8: these new technologies into the mix. So the goal of 343 00:15:14,360 --> 00:15:17,720 Speaker 8: that was to bring those players together. Have the President 344 00:15:17,800 --> 00:15:21,120 Speaker 8: have his cabinet there, have all the major primes, all 345 00:15:21,160 --> 00:15:23,560 Speaker 8: the emergent technologies, all the big investors, because you need 346 00:15:23,600 --> 00:15:26,560 Speaker 8: the capital, and talk about ways to move forward in 347 00:15:26,720 --> 00:15:29,920 Speaker 8: accelerating our ability to man the battlefield with this next 348 00:15:29,960 --> 00:15:30,840 Speaker 8: generation of weapons. 349 00:15:31,080 --> 00:15:33,320 Speaker 7: It's an important conversation to have now because we are 350 00:15:33,360 --> 00:15:34,600 Speaker 7: relying on inventories. 351 00:15:34,600 --> 00:15:36,080 Speaker 1: When it comes to the war in the Middle East. 352 00:15:36,560 --> 00:15:39,120 Speaker 7: All that has been given in terms of Russia's invasion 353 00:15:39,120 --> 00:15:42,480 Speaker 7: of Ukraine. Where are we on defense inventories. 354 00:15:42,880 --> 00:15:45,960 Speaker 8: Well, I think where we were adequate in terms of 355 00:15:46,000 --> 00:15:48,480 Speaker 8: being able to continue to conduct military operations, but there's 356 00:15:48,520 --> 00:15:51,960 Speaker 8: no doubt that we need to ramp up our production capacity. 357 00:15:52,000 --> 00:15:54,880 Speaker 8: Let me just give me an example. In Ukraine, they 358 00:15:54,920 --> 00:15:59,000 Speaker 8: make ten thousand drones a day a day. We have 359 00:15:59,160 --> 00:16:02,360 Speaker 8: nowhere near that manufacturing capacity here at home. So we 360 00:16:02,360 --> 00:16:05,720 Speaker 8: need to ramp up that manufacturing capacity. In shipbuilding as 361 00:16:05,760 --> 00:16:09,560 Speaker 8: another example, we in Philadelphia build a shipyard. We build 362 00:16:09,640 --> 00:16:12,000 Speaker 8: one ship a year. We need to go to twenty, 363 00:16:12,040 --> 00:16:14,840 Speaker 8: which we're doing over the next five years. So we've 364 00:16:14,920 --> 00:16:17,800 Speaker 8: let ourselves become more dependent on others, and we've let 365 00:16:17,840 --> 00:16:21,880 Speaker 8: ourselves locked into looking backwards at last year's for thirty 366 00:16:21,920 --> 00:16:25,120 Speaker 8: year old platforms as opposed to embracing this next generation 367 00:16:25,160 --> 00:16:25,920 Speaker 8: of technolog. 368 00:16:25,600 --> 00:16:26,960 Speaker 1: When it comes to the next generation of technology. 369 00:16:26,960 --> 00:16:28,640 Speaker 7: When it comes to the Iran War, we've been heard 370 00:16:28,640 --> 00:16:30,760 Speaker 7: from Palentier executives this is going to be the first 371 00:16:30,800 --> 00:16:33,520 Speaker 7: war that really was conducted by AI. Are you concerned 372 00:16:33,560 --> 00:16:36,680 Speaker 7: that China is building a model like Kimmy K three 373 00:16:36,680 --> 00:16:38,640 Speaker 7: off of our technology? 374 00:16:38,760 --> 00:16:39,800 Speaker 1: Yeah, no, absolutely. 375 00:16:39,800 --> 00:16:42,360 Speaker 8: I mean China has a tradition of stealing our elouctual 376 00:16:42,400 --> 00:16:46,280 Speaker 8: property and using that to their advantage. That's why we 377 00:16:46,320 --> 00:16:48,840 Speaker 8: need to continue to do all the things necessary to 378 00:16:48,960 --> 00:16:52,120 Speaker 8: lead in the AI race. I always like to say 379 00:16:52,160 --> 00:16:56,280 Speaker 8: that we can. I'd rather have our hand than China's hand, 380 00:16:56,400 --> 00:16:58,320 Speaker 8: but it depends on what we do. So we need 381 00:16:58,360 --> 00:17:02,120 Speaker 8: to embrace the compute capacity and the energy capacity needed 382 00:17:02,360 --> 00:17:03,720 Speaker 8: to be in the lead. We need to make sure 383 00:17:03,760 --> 00:17:08,719 Speaker 8: we don't overly constrain our innovators because this is really 384 00:17:09,480 --> 00:17:12,399 Speaker 8: the most important technology race of our lifetimes. 385 00:17:12,440 --> 00:17:14,159 Speaker 2: And we are throwing tons of capital. 386 00:17:14,200 --> 00:17:15,920 Speaker 1: That's it. We're throwing tons, and that's what's. 387 00:17:15,720 --> 00:17:17,639 Speaker 2: Different about this moment. I think for Treasury and I 388 00:17:17,680 --> 00:17:20,080 Speaker 2: want to make that pivot. I think it's important. The 389 00:17:20,080 --> 00:17:22,359 Speaker 2: ministry costs a lot of money. We know that, and 390 00:17:22,400 --> 00:17:24,520 Speaker 2: the deficit wasn't a problem because we didn't see the 391 00:17:24,520 --> 00:17:26,480 Speaker 2: biggest companies on the planet raising the capital to the 392 00:17:26,480 --> 00:17:28,920 Speaker 2: extent they are now. And you start to see these 393 00:17:28,960 --> 00:17:30,879 Speaker 2: moves and you're in a fantastic scene. I mentioned this 394 00:17:30,920 --> 00:17:32,959 Speaker 2: earlier on the program. You're in many ways the perfect 395 00:17:33,000 --> 00:17:35,680 Speaker 2: scene because you bring to the Senate experience on both 396 00:17:35,680 --> 00:17:38,920 Speaker 2: the geopolitics, the cost of war, and Wall Street how 397 00:17:38,960 --> 00:17:41,400 Speaker 2: you finance it. Are you starting to get concerned about 398 00:17:41,400 --> 00:17:43,520 Speaker 2: what's happening with the bond market here at these levels, 399 00:17:43,560 --> 00:17:45,760 Speaker 2: and if not, when well this we. 400 00:17:45,680 --> 00:17:47,760 Speaker 8: Are in uncharted territory. I think last time I was 401 00:17:47,800 --> 00:17:49,400 Speaker 8: here we talked about this. We've got a couple things 402 00:17:49,480 --> 00:17:52,119 Speaker 8: going on. We're in the middle of this geopolitical shock 403 00:17:52,200 --> 00:17:54,400 Speaker 8: with what's happening in the Middle East, and we're also 404 00:17:54,520 --> 00:17:58,160 Speaker 8: in the biggest capital boom and productivity wave that we've 405 00:17:58,200 --> 00:18:00,919 Speaker 8: ever seen. So I think we're dieting both things at 406 00:18:00,960 --> 00:18:03,000 Speaker 8: the same time. And we talked about my friend Kevin 407 00:18:03,000 --> 00:18:06,720 Speaker 8: worsh now in this unique position because he has these 408 00:18:06,720 --> 00:18:11,159 Speaker 8: inflationary pressures coming, but we also have this huge productivity 409 00:18:11,160 --> 00:18:14,359 Speaker 8: boom coming. And I think he's wisely said, we're going 410 00:18:14,440 --> 00:18:17,480 Speaker 8: to launch these committees, We're going to figure out how 411 00:18:17,480 --> 00:18:19,520 Speaker 8: we're going to think about the models for the future. 412 00:18:20,040 --> 00:18:23,600 Speaker 8: And he's also talked in I think very convincing ways 413 00:18:23,640 --> 00:18:27,960 Speaker 8: about the need to guard against inflation. And so I 414 00:18:28,760 --> 00:18:32,280 Speaker 8: think for the foreseeable future, we've got all these factors 415 00:18:32,280 --> 00:18:34,240 Speaker 8: and we need to just keep our powder drive. 416 00:18:34,320 --> 00:18:35,520 Speaker 2: I think he should hut next week. 417 00:18:35,880 --> 00:18:37,200 Speaker 3: I think we should keep our powder drive. 418 00:18:37,880 --> 00:18:42,160 Speaker 8: That means helped well listen Unfortunately not in that position, because. 419 00:18:42,040 --> 00:18:45,840 Speaker 2: Senator Warren, your colleague from Massachusetts, has another problem calling 420 00:18:45,880 --> 00:18:48,280 Speaker 2: out the Federate zet. You're in a position where you 421 00:18:48,320 --> 00:18:49,160 Speaker 2: can sign what you think. 422 00:18:49,440 --> 00:18:53,280 Speaker 8: Yeah, listen, I think given all those factors and uncertainty, 423 00:18:53,440 --> 00:18:56,000 Speaker 8: I would like to see interest rates stay where they are. 424 00:18:56,640 --> 00:19:01,480 Speaker 2: This is the Bloomberg's Events podcast, bringing youst in markets, economics, 425 00:19:01,480 --> 00:19:04,440 Speaker 2: and geopolitics. You can watch the show live on Bloomberg 426 00:19:04,480 --> 00:19:07,639 Speaker 2: TV weekday mornings from six am to nine am Eastern. 427 00:19:07,920 --> 00:19:11,280 Speaker 2: Subscribe to the podcast on Apple, Spotify, or anywhere else 428 00:19:11,320 --> 00:19:13,920 Speaker 2: you listen, and as always, on the Bloomberg Terminal and 429 00:19:14,040 --> 00:19:15,280 Speaker 2: the Bloomberg Business app.