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Speaker 3: Amy with Silverman RBC joins us this morning.
Speaker 2: Amy. What do the derivatives, variantskurtosis, the rest of it?
Speaker 2: What's the character the nature of this pullmarket when you
Speaker 2: look at the cross moments.
Speaker 4: Hey, good morning guys. So you know one thing I've
Speaker 4: been analogizing this too, is right now, the airplane may
Speaker 4: have stabilized, we're at a steady altitude, but everyone still
Speaker 4: remembers the turbulence. We might still have our seatbelt time,
Speaker 4: we probably have our eyes closed. And that's a little
Speaker 4: bit the positioning we're seeing in the directors market. So
Speaker 4: you know your headline Vixen is normalized a lot, but
Speaker 4: all those secondary moments that you talk about, your skew,
Speaker 4: your volatility of ball, you know, those are still pretty high.
Speaker 4: And for good reason. You know, institutional memory is short,
Speaker 4: and we still remember what happened a few weeks ago.
Speaker 2: Are we under owned Tech into Nvidia? Folks ed Ludlow
Speaker 2: a special tomorrow in the six o'clock evening hour with
Speaker 2: mister rying from in Vidia, Amy was Silberman. Are we
Speaker 2: under owned on tech? Or is Tech over owned?
Speaker 4: Look from a positioning perspective, it feels like a lot
Speaker 4: of people have already jumped in the pool. The reason
Speaker 4: I say that is when you look at historical position
Speaker 4: and every earnings except this one for Nvidia, you know,
Speaker 4: it was very very long that call SKU. People really
Speaker 4: need to jump in, so they're holding that right tail
Speaker 4: in the options market to do so. You don't see
Speaker 4: that this time around. It's much more even. So. You know,
Speaker 4: people aren't overly bearish, but they're also not overly bullish.
Speaker 4: And to me, that not being overly bullish is very
Speaker 4: very different than that past I'd say six to eight quarters.
Speaker 4: You know, ever since we got that May twenty twenty
Speaker 4: three blowout number.
Speaker 2: Damian Goldwin Sachs making a huge deal about this. A
Speaker 2: lot of the you know, I don't know I'm gonna say,
Speaker 2: is a generalization. Hedge funds yeap are not They're not
Speaker 2: piled into in video right now.
Speaker 5: Well, you know what I mean, Tom and Amy. You
Speaker 5: can help me with this. You know, I'm not really
Speaker 5: so concerned whether or not the skew on Nvidia is
Speaker 5: platty or leptocritotic. What I'm really more concerned with is
Speaker 5: real demand for hedging. It's taken me, I mean for months,
Speaker 5: for months, I've been talking to people about costs for protections, cheap,
Speaker 5: you should be hedging here. You know, equity market at
Speaker 5: all time highs. Nobody would take my call. Nobody would
Speaker 5: talk to me. What are you hearing now from investors?
Speaker 4: Yeah, welcome to my life. You're exactly right. You know,
Speaker 4: people don't want to hear about it when realized, well
Speaker 4: it is hitting eight and VIX is kind of just
Speaker 4: floating along. But it usually takes some sort of draw
Speaker 4: down in the market to remind people why you hedge
Speaker 4: in the first place. I will tell you those calls
Speaker 4: are picking up, and I will tell you that the
Speaker 4: cost protection on a historical basis is still relatively inexpensive. Sure,
Speaker 4: is it more expensive than it was three weeks so absolutely,
Speaker 4: but on a kind of longer tail basis, you know,
Speaker 4: it's still relatively attractive and you can structure ways to carry.
Speaker 3: That cost across the nation and worldwide.
Speaker 2: Just to help you out with a jargon of young sessour,
Speaker 2: his golf game right now is Lepto kutah, So that's
Speaker 2: where he got that phrase.
Speaker 3: Trump jam.
Speaker 6: We got to ask you about this.
Speaker 5: I know that in Vidia earnings it's a big the
Speaker 5: more option markets are pricing in a big move here,
Speaker 5: you know what other events over the next let's say
Speaker 5: thirty days are really pricing in big moves if you
Speaker 5: look at overnight option markets. Obviously you have NFP on
Speaker 5: the sixth of September, but you know after that, I
Speaker 5: mean we've got some FED meetings, We've got CPI, I
Speaker 5: mean what about BOJ, what about boee c B. Do
Speaker 5: you see any other central banks moving markets?
Speaker 4: Not nearly as much as you know that NFP you mentioned,
Speaker 4: and obviously the FED, I will tell you September tends
Speaker 4: to be a conference season, so you know, everyone's kind
Speaker 4: of back into the office. There's a lot of single
Speaker 4: name conferences that come up in industry conferences, and that
Speaker 4: usually tends to kind of surprise people. So you get
Speaker 4: some sort of fundamental idiosyncratic information that comes out of those.
Speaker 4: Those are usually kind of underpriced, and those are some
Speaker 4: things we watch for in September.
Speaker 2: Amy, is there any science here that cash is moving?
Speaker 2: I mean, rates have come in a little bit off
Speaker 2: the power speech, But does RBC see cash moving to
Speaker 2: new places?
Speaker 4: So you know, in some ways, Tom, it's still the
Speaker 4: same old story, but I think there's going to be
Speaker 4: new themes. Obviously, one is just what we're doing and
Speaker 4: seeing in terms of small MidCap value versus growth. You know,
Speaker 4: you get that flight to safety back to the megacap
Speaker 4: tech names when you have those drawdowns. But one thing
Speaker 4: that I think investors have been itching to do, we
Speaker 4: just haven't quite got there, is to go back into
Speaker 4: these wider breadth names. And when you see that call
Speaker 4: Skew pickup, it's usually a forward indicator that those kind
Speaker 4: of themes are starting to move again.
Speaker 5: You know, I just want to ask you one last question, Amy,
Speaker 5: I mean, it's gotten increasingly difficult for hedge funds or
Speaker 5: you know, anybody who's greater on a marked and market basis,
Speaker 5: you know, to find a free lunch in this market.
Speaker 5: You know, it used to be the basis trade. Then
Speaker 5: it was the FX carry trade. Talk to us about
Speaker 5: the impact of US rest of world rate compression. Do
Speaker 5: you see that impacting equities here?
Speaker 4: Yeah, it to some of the great it has a
Speaker 4: little bit already. But I think you know what's interesting
Speaker 4: to me is when you got that major draw down
Speaker 4: a few weeks ago, it really shook all these carry
Speaker 4: trades a little, right, But in our space and equity
Speaker 4: volatility space, we actually saw some folks double down. So
Speaker 4: when you ask about a free lunch, people are still
Speaker 4: betting on that to some degree. I think that's absolutely fascinating.
Speaker 4: You know, So maybe that doesn't work as much in
Speaker 4: FX anymore, but you still people kind of you know,
Speaker 4: they're still saying, like, we think that exists in the
Speaker 4: equity wall premium space, and we're still going to try
Speaker 4: it for the months to come.
Speaker 2: Amy, We're silverman, Thank you so much. RBC Capital. Now
Speaker 2: an in Nvidia actually not a pontificator, but somebody that
Speaker 2: actually knows what they're talking about. Walmart at the bottom
Speaker 2: of the income statement makes three cents on the dollar.
Speaker 2: In Nvidia, at the bottom of the income statement, makes
Speaker 2: fifty five cents on the dollar.
Speaker 3: Can they sustain fifty five.
Speaker 2: Cents on the dollar at the bottom of the income statement.
Speaker 7: I think they can, at least for the next two years.
Speaker 7: It's very hard to look at the landscape beyond that,
Speaker 7: given how fast this space is moving, but clearly they
Speaker 7: have the product lead to do that.
Speaker 2: Men dig sing with us from Bloomberg Intelligence. So just
Speaker 2: simply these chips, these things they sew that we don't understand.
Speaker 2: Do they depreciate, do they become obsolescent? What's the Nvidia
Speaker 2: advantage to what happens to these chips once they sell them?
Speaker 7: They do depreciate, and think of you know, your old PCs.
Speaker 7: I mean, they're still around. They're not as useful as
Speaker 7: the new ones, but you can still use them for
Speaker 7: some sort of computation. It's the same way with nvideo GPUs,
Speaker 7: albeit they're much larger in terms of you know, the
Speaker 7: compute capacity they are sitting in a data center, and
Speaker 7: they do depreciate, but the usefulness will last for at least,
Speaker 7: you know, good eight to ten years. And that's where
Speaker 7: you know, companies that are pulling together all these joint
Speaker 7: data centers with clusters of GPUs, they have an advantage
Speaker 7: because large angline models are all about scaling. The next
Speaker 7: model is going to be ten times bigger GPT five.
Speaker 7: Same thing with lamafoor. And you need more compute capacity
Speaker 7: and the only company that can provide it right now
Speaker 7: is in Vidia. The Intel CPUs or the AMD gear
Speaker 7: just doesn't work when it comes to doing this in
Speaker 7: parallel computing.
Speaker 5: Man, the revenue growth margin EPs, which data points can
Speaker 5: be most watched by the markets as in video releases,
Speaker 5: And you know when I look at it, actually I
Speaker 5: look at margins, I look at the H twenty, I
Speaker 5: look at the Chin specific AI accelerator Nvidia, you know,
Speaker 5: and I know a lot of people are focused on that.
Speaker 6: They're focused on black Well shipments, whatever that is.
Speaker 5: Talk to us about you know what the smart analysts
Speaker 5: on the street are looking for tonight when in VideA releases.
Speaker 7: I would say more revenue and gross margin, and in
Speaker 7: that order simply because right now they are undershipping demand.
Speaker 7: I mean Nvidia has and it's by a lot. That's
Speaker 7: why you see it in their pricing. That's why gross
Speaker 7: margins are going up. But we haven't reached that point
Speaker 7: where the market supply has caught up with the demand.
Speaker 7: And it'll be the case tonight as well.
Speaker 2: And loadload tomorrow night a special one hour Bloomberg Technology
Speaker 2: on this juggernaut. What is your Man Deep Singh question
Speaker 2: to Jensen?
Speaker 7: Well, so I want to hear from Jensen how he
Speaker 7: looks at the scaling laws for these large language models.
Speaker 7: I mean, in the end, this wave is going to
Speaker 7: have some sort of a CAPEX digestion, even though it's
Speaker 7: a long tail when it comes to this capex investments
Speaker 7: that will see with Generator AI there will be a
Speaker 7: digestion phase. So what I want to know from Jensen
Speaker 7: is what is he seeing in terms of scaling of
Speaker 7: these large language models and when will we see a
Speaker 7: pause in terms of evaluating the ROI on the investments
Speaker 7: that companies are making.
Speaker 2: Remind me where the money is in AI. I went
Speaker 2: out on Twitter. They have this grac thing and I
Speaker 2: searched my name and it was hilarious. What came up?
Speaker 2: What is the actual use of AI that Man Deep
Speaker 2: Singh sees.
Speaker 7: I mean right now, if you talk to a developer,
Speaker 7: they would rave about how much productivity jen Ai has
Speaker 7: added to their workflow. And it's just doing simple things,
Speaker 7: you know, simple searches that people were doing on Google
Speaker 7: before the cop pilot brings it inside whatever editor that
Speaker 7: they are working. So it's more about an assistant that
Speaker 7: can do simple task like for an analyst, it's like
Speaker 7: having an associate who can do basic searches, basic data gathering,
Speaker 7: and that's quite powerful because it saves you so much time.
Speaker 7: So we're not talking about high end you know, competition
Speaker 7: that will change the world. Now, it's about doing simple
Speaker 7: tasks in a way where it drives more productivity. And
Speaker 7: we are seeing a lot of instances of that.
Speaker 5: Man deep since August the seventh, when in video stock
Speaker 5: kind of you know, found its base there, the market
Speaker 5: cap is two point four trillion today, just a few
Speaker 5: weeks later it's three point one trillion dollars. That's a
Speaker 5: seven hundred and fifty billion dollar gain in terms of
Speaker 5: market cap. I mean, it's hard to wrap your head
Speaker 5: around a number like that. I mean when the market
Speaker 5: came off, when a video stock came off, that a
Speaker 5: lot of people lose money. Do they have short term
Speaker 5: memory loss? I mean, like, how can it snap back
Speaker 5: so quickly? I mean seven hundred and fifty billion, that's
Speaker 5: mega millions on steroids, Tom, I mean, how do you
Speaker 5: quantify that?
Speaker 7: That just goes to show what kind of an investor
Speaker 7: base they have. Yeah, and if I was Jensen, these
Speaker 7: are not the kind of investors I want to have
Speaker 7: because I want, you know, investors who will be part
Speaker 7: of the long term story. And we know the long
Speaker 7: term story is quite strong when it comes to Nvidia
Speaker 7: and generate a AI. But clearly there are people who
Speaker 7: are trading the stock and that's where you see a
Speaker 7: forty percent round trip for no reason.
Speaker 2: Do they have any Apple characteristics of use of cash,
Speaker 2: of perchance dividend growth, or even with all that cash
Speaker 2: coming in fifty five cents in the dollar, share buyback.
Speaker 7: Probably a buyback could happen, but they just did a
Speaker 7: stock split, so you know, I find it hard to
Speaker 7: believe that they will be buying back their stock at
Speaker 7: this phase when they are growing, you know, forty fifty percent.
Speaker 7: The growth rates will taper in the second half next year,
Speaker 7: but clearly a high growth company like Nvidia, they have
Speaker 7: so much room to invest, they'll probably be looking for
Speaker 7: some acquisitions.
Speaker 2: September nine, Apple out the new toy. Your opinion of
Speaker 2: the Act of September nine.
Speaker 7: I mean it's huge because when we talk about deploying
Speaker 7: generative AI, the number one real estate is your phone,
Speaker 7: and Apple just has to capitalize on doing that. They
Speaker 7: don't have their own large angreg model, but they own
Speaker 7: the distribution when it comes to, you know, the smartphone
Speaker 7: base that they have, and that's where you know, deploying
Speaker 7: Jenai on phone is a lot more powerful than deploying
Speaker 7: Jenai on the cloud. And I think Apple can show
Speaker 7: that on September.
Speaker 6: Man, deep, where are we in the semi cycle?
Speaker 5: I mean seriously, I mean like we saw a lot
Speaker 5: of stockpiling or semiconductor chips after COVID, after the pandemic
Speaker 5: you know by China, and you know the sanctions obviously
Speaker 5: due to the trade war, so a lot of noise there.
Speaker 5: I'm here is where you believe we are in the
Speaker 5: semiconductor cycle.
Speaker 7: I mean I pay a lot of attention to the
Speaker 7: lead times. When the lead times start to compress in semiconductors,
Speaker 7: that's when you know you're a closer to an end
Speaker 7: right now. The lead times aren't compressing. Even though TSMC
Speaker 7: is expanding capacity, the lead times are still growing. In fact,
Speaker 7: there are delays off, you know, producing black leaves, so
Speaker 7: we don't have that insight yet.
Speaker 2: Brilliant Mandy, thank you so much. Bendy's singing, they're an
Speaker 2: in video.
Speaker 7: Ed.
Speaker 2: Your Denny joins us, your DNNY research ed. You have
Speaker 2: a lonely call if you go out not eighteen months,
Speaker 2: but seventeen months, sixteen months, who's counting? You have an
Speaker 2: interpolated extrapolation of the SPX to Dow fifty thousand, one
Speaker 2: hundred and six, which is up twenty one point five
Speaker 2: percent out sixteen months.
Speaker 3: How lonely do you feel?
Speaker 2: How lonely is your bullishness on a in our stock market?
Speaker 8: Certainly more people that are optimistic about the outlook for
Speaker 8: the economy there there were back in twenty twenty two,
Speaker 8: In early twenty twenty two and through twenty twenty three,
Speaker 8: we work pretty lonely with the idea that there wouldn't
Speaker 8: be a recession. And that was definitely a contrary call because, look,
Speaker 8: it was logical to expect that with the FED raising
Speaker 8: interest rates from a FED funds rate of zero to
Speaker 8: five andred quarter percent, that that kind of tightening would
Speaker 8: cause a recession. We argued that we were in enrolling
Speaker 8: recessions that were impacting the various sectors of the economy
Speaker 8: without taking us down. And we argued that the consumer
Speaker 8: was fundamentally resilient, that this idea that they'd run out
Speaker 8: of excess savings missed the point that there were what
Speaker 8: seventy million baby boomers with seventy five trillion dollars of
Speaker 8: retirement assets and the retiring.
Speaker 2: I mean I got up one hundred and twenty eight
Speaker 2: percent from the pandemic low. Here when we get to
Speaker 2: Dow fifty thousand again, this is off sixty six thousand something.
Speaker 2: Edgar Denny's most optimistic call for twenty twenty six. Tell
Speaker 2: us your confidence in your X axis, the ability to
Speaker 2: have pullbacks like we saw in early August, or just
Speaker 2: the confidence of out six months out, one year out,
Speaker 2: fourteen months.
Speaker 8: Well, I think the market has demonstrated not only that
Speaker 8: it's a bull market, but it's a it's a very
Speaker 8: supercharged bull market. I think what's supercharging that is there's
Speaker 8: still a tremendous amount of liquidity in the financial system.
Speaker 8: You know, the increase in indust rates encouraged a lot
Speaker 8: of people to pile into money market mutual funds. So
Speaker 8: we have a record six trillion dollars in money market
Speaker 8: mutual funds, and two and a half training of that
Speaker 8: is retail, and is the Fed lowers interust rates that money.
Speaker 8: Some of that money will pour into the stock market
Speaker 8: and the into the bond market. So you know, every
Speaker 8: time the market goes down, look at what happened in
Speaker 8: early August. The market had a panic attack and it
Speaker 8: didn't last very long, and we basically did a ben
Speaker 8: you jump, and we just rebounded completely.
Speaker 2: Damien says, if you get an Edgeyard Denny end of
Speaker 2: twenty six call which interpolates over to Dow fifty thousand,
Speaker 2: is there talking point? That's thirteen point four percent per
Speaker 2: year from the pandemic bottom when you were the only
Speaker 2: one I know that wasn't assent in cash.
Speaker 5: Edgar Denny, you wrote the book on central bank balance
Speaker 5: sheet finance. I mean, I've been reading your work on
Speaker 5: this for many, many years. It really has helped me
Speaker 5: kind of be a better analyst myself. You know, I'm
Speaker 5: looking at the combined central bank balance sheets of the FED,
Speaker 5: the ECB, the BOJ, and the PBOC. Right now twenty
Speaker 5: five point seven trillion in assets, well off the high
Speaker 5: of thirty one trillion we saw, you know, back in
Speaker 5: twenty twenty two. At what point does the ship stop?
Speaker 5: I mean, I know these balance sheets are still relatively
Speaker 5: large as a percentage of GDP, But what are your
Speaker 5: thoughts here? I mean, at what point does something snap?
Speaker 8: Well, you know, there's been a lot of talk. I've
Speaker 8: been doing this for over forty years and I can't
Speaker 8: tell you how many times people said this is going
Speaker 8: to end badly. And I don't call people using the
Speaker 8: expression when is it going to snap? But I think
Speaker 8: that's the same thing as when will it end badly?
Speaker 8: And so far, you know, occasionally we've had corrections. Occasionally,
Speaker 8: we've had bear markets. Occasionally we've had recessions. These things
Speaker 8: really don't happen that often, right they and we get
Speaker 8: past them.
Speaker 6: Uh.
Speaker 8: And anybody who was smart enough to get out at
Speaker 8: the top of the stock market probably wasn't smart enough
Speaker 8: to get out to get in at the bottom. I mean,
Speaker 8: it's it's a it's a tricky thing to get the
Speaker 8: tops in the bottoms and I'm sort of in the
Speaker 8: Professor Siegel camp, the Warren Buffett camp that says, uh,
Speaker 8: you really got to stay stay in the market. Uh.
Speaker 8: And I think where I've brought some value is I've
Speaker 8: been pretty good at picking bottoms still working on tops.
Speaker 6: Well, well, let me.
Speaker 2: Review that October. There's been two October lows, twenty two
Speaker 2: and twenty three. I'd call the twenty two low the
Speaker 2: Yard Denny and Campora low. Between their combined ages, they
Speaker 2: go back to George Washington and Ed Yard Denny and
Speaker 2: Roelfhanka Pork completely different, both said shut up and by
Speaker 2: October of twenty two.
Speaker 5: And Ralph alkmpora's chief market technical guy. I mean for
Speaker 5: anyone who doesn't know out there, but I'll say this.
Speaker 5: You know what you called my attention to some years ago,
Speaker 5: Ed is when you look at the four big central banks.
Speaker 5: I'm talking to PBOC, not the Bank of England here.
Speaker 5: You know, if you combine their balance sheets back in
Speaker 5: twenty eighteen twenty nineteen, when they started to taper, and
Speaker 5: you know, the growth in those balance sheets combined started
Speaker 5: to decline, we saw hard landing. We saw a really
Speaker 5: painful event back then at the end of twenty nineteen
Speaker 5: into twenty twenty. Now we've been seeing the same thing,
Speaker 5: but it's been going on since the middle of twenty
Speaker 5: twenty two. I mean, so nothing is broken this time
Speaker 5: to your point, But you know, how much further can
Speaker 5: we go on with the global money supply contracting at
Speaker 5: this pace?
Speaker 8: Well, I think when you look at the central banks,
Speaker 8: and I'm looking at the I've had the Bank of Japan,
Speaker 8: the ECB as the three main central banks that combined
Speaker 8: the assets of you know, the pessimists during the bull
Speaker 8: market that came after the Great Financial Crisis, the pessimists
Speaker 8: were showing a chart of the combined assets of the
Speaker 8: central banks versus the S and P five hundred and said, oh, look,
Speaker 8: the only thing that's really driving this bull market is
Speaker 8: all this liquidity. And you know, a couple of years
Speaker 8: ago they started to retrench on their quantitative easing, some
Speaker 8: of them are doing they've been doing quantitative tightening. And
Speaker 8: yet here we are at a record high and the
Speaker 8: equal weight to SMP five hundred, and we're almost at
Speaker 8: a record high in the S and P five hundred.
Speaker 8: So there's a lot going on here. It's not all
Speaker 8: about central banks. It's also about people working hard in
Speaker 8: companies and generating earnings and earnings driving the market higher.
Speaker 6: Talking a bit of dollar weeks.
Speaker 2: Needed fifty of twenty six off the Leman low, five
Speaker 2: hundred and ninety three percent, eleven point five percent per
Speaker 2: year on the Dow Jones Industrial average. Edgard Denny, I
Speaker 2: got a really difficult question here, and I got very
Speaker 2: strong feelings about this. You know, Damien mentions the fossilness
Speaker 2: of Edyard Denny. It used to be Robert Stoveall on
Speaker 2: the floor of the New York Stock Exchange. There was
Speaker 2: a girl named Maria who was the money on me
Speaker 2: that invented the clothes. I mean Maria single had good
Speaker 2: morning to Marie. I don't know where she is.
Speaker 6: She's she takes off day Sama. They related Robertson.
Speaker 2: Yeah, Sam is Robert's son.
Speaker 6: Really, Maria takes a whole month of August off.
Speaker 3: She's a she's that huge.
Speaker 2: But anyways, Maria's out there doing her thing. Edgar Denny's
Speaker 2: on Wall Street week with lou Rukaiser, And.
Speaker 6: That was your total financial coverage.
Speaker 2: Your Red Barons every Saturday morning is at their Red Barons.
Speaker 2: And what is Mario Gabelli doing Edgar Denny, how do
Speaker 2: we remain bullish in the financial media modern social media
Speaker 2: frenzy of twenty twenty four.
Speaker 8: Well, I think the pessimism comes mostly from people who
Speaker 8: are focusing on the biggest picture of macroeconomic policy. Washington
Speaker 8: gets a lot of weight in their calculations, and uh,
Speaker 8: I agree, it's hard to put much lipstick on that
Speaker 8: pig in Washington, certainly on the fiscal side and on
Speaker 8: the monetary side. I think they've done it pretty well
Speaker 8: so far. But I am kind of critical of the
Speaker 8: FED turning two dubbish on Friday when Paul gave his
Speaker 8: speech at Jackson Hole. But I think what the pessimism
Speaker 8: misses is the strength of the and resilience of the
Speaker 8: US economy. It's the most powerful economy in the world.
Speaker 8: It's highly diversified. Nobody does technology better than we do.
Speaker 8: Maybe the Chinese are second, but many of their technologies
Speaker 8: they basically ripped ripped off from us. But clearly we're
Speaker 8: in the forefront of technology in the industrial sector. We're
Speaker 8: getting better and better now that we're doing on shoring.
Speaker 8: The financial sector is amazing. Nobody's got consumers like we do.
Speaker 8: You know, when our consumers are happy, they spend. When
Speaker 8: they're depressed, the spend even more. And so I think,
Speaker 8: you know, real GDP is at an all time record high.
Speaker 8: Real consumption per household? Is it an all time record high? All,
Speaker 8: let's talk about you know, only a few people prospering.
Speaker 7: Just it.
Speaker 8: Can't work. It can't. An economy can't work where only
Speaker 8: a few people prosper. And you can't have record real
Speaker 8: GDP without a lot of people prospering. And that's what
Speaker 8: we're saying.
Speaker 2: Edge R Danny damiensrs all fired up for some global
Speaker 2: dollar questions. Let me get this in here before Damien
Speaker 2: takes off. To me Ed, I rarely do this, folks,
Speaker 2: but in my optimism of the American experiment, to me,
Speaker 2: it is productivity. Productivity is a three ratio function. Keeping
Speaker 2: it simplistically, I've got capital dynamics, labor dynamics, and mister
Speaker 2: Solo's total factor productivity. All of this work is off
Speaker 2: Chad Jones. Now I think out at Stanford Edgar Denny
Speaker 2: talk about our productivity, our complete mystery of it, and
Speaker 2: when we're going to finally realize we're different.
Speaker 8: Well, a great rebound in terms of the growth rate
Speaker 8: it was two point nine percent on a year over
Speaker 8: year basis last year, and the trend average has been
Speaker 8: around two point one percent. I think we're heading towards
Speaker 8: three and a half to four and a half percent
Speaker 8: by the end of the decade. And I think that's
Speaker 8: I mean, that's what's driving my rolling twenty twenty scenario.
Speaker 8: It's my base case. It's not the only scenario that
Speaker 8: could unfold, but it's I give it a sixty percent probability.
Speaker 8: And I think, again with pessimists tend to ignore and
Speaker 8: miss is that technology solves a lot of our problems.
Speaker 8: And our biggest problem right down on a global basis,
Speaker 8: is a shortage of relatively young workers. We've seen kind
Speaker 8: of geriatric demographic profiles around the world as fertility rates
Speaker 8: have gone down and people have aged, and that labor
Speaker 8: shortage is particularly skilled young workers, is forcing companies to
Speaker 8: augment the productivity of workers with technology. And we've really
Speaker 8: never had so much technology available that's so powerful as
Speaker 8: we do today. And by the way that the technology
Speaker 8: we have is no longer just about brawn, about making
Speaker 8: things faster, carrying them faster. It's increasingly about the brain.
Speaker 8: The brain technology is the ones that make us smarter
Speaker 8: are really taking off here. So I think when you
Speaker 8: put it all together, I'm looking for a productivity growth
Speaker 8: boom this decade, the Roaring twenty twenties decade, and I
Speaker 8: think it's already started. And I think it actually started
Speaker 8: in twenty fifteen when productivity growth was zero point five
Speaker 8: percent on a twenty quarter annualized trailing basis, and now
Speaker 8: we're already at almost two percent.
Speaker 5: Right, I have to ask you this. I mean, I
Speaker 5: consider both of us to be card counters. We focus
Speaker 5: on central bank balance sheets, we focus on money supply.
Speaker 5: These are key inputs for our analysis, for a view
Speaker 5: of the market. But there's a huge gray market out there.
Speaker 5: There's shadow banks, there's offshore money, there's crypto, there's China,
Speaker 5: North Korea, rush he India. How do you account for
Speaker 5: that when you're trying to, you know, count cards and
Speaker 5: beancount the world and money and liquidity, I mean, how
Speaker 5: do you look at that?
Speaker 8: Well, again, I think we've all learned there's a lot
Speaker 8: of moving parts and inflation, there's a lot of moving
Speaker 8: parts and forecasting the economy, the consumer.
Speaker 7: And so on.
Speaker 8: So it's really one of the moving parts. I certainly
Speaker 8: try as much as I can not to ignore the
Speaker 8: global perspective when I try to forecast what's going on
Speaker 8: in the US. As a matter of fact, one of
Speaker 8: the reasons we predicted that there would be no recession
Speaker 8: in the US and that inflation would still come down
Speaker 8: is we saw what everybody else was saying but wasn't
Speaker 8: connecting the dots, and that is as a recession in China,
Speaker 8: as a depression in the property market, and they've been
Speaker 8: exporting deflation to the world, and so we see that's
Speaker 8: been a big contributor in bringing down inflation rates. With
Speaker 8: regards to the currencies, we remained positive on the dollar.
Speaker 8: There's still a very strong up trend that started in
Speaker 8: twenty ten. I think the US came out of the
Speaker 8: Great Financial Crisis in better shape and is restructured in
Speaker 8: better shape than anybody else in the world. And so
Speaker 8: we continue to overweight what we call the home portfolio
Speaker 8: versus the go global portfolio.
Speaker 2: Urst and Slack emails and says good morning to doctoring
Speaker 2: at an interest in Slack at Apollo Global Management.
Speaker 3: I look at Yard Denny.
Speaker 2: It's the great gloom that's out there. And I'll say
Speaker 2: every Friday afternoon, the gloom reappears, and all.
Speaker 3: That it's timeless. It's ageless.
Speaker 2: I mean, ed you and I and my mother, remember
Speaker 2: Joe Grahamville. I mean, you know, just as one example,
Speaker 2: it's always there. Speak ed Yard Denny to people that
Speaker 2: struggle to have a growth optimism that literally almost like
Speaker 2: new Testament, old Testament are back at a time where
Speaker 2: there wasn't the dynamics of the American economy. Speak to
Speaker 2: those cautious right now, Well, I.
Speaker 8: Think you were right to bring up the topic of productivity,
Speaker 8: because productivity is very deaf. That makes everything better. It's
Speaker 8: a win win win situation. With the better than expected productivity,
Speaker 8: you get better than expected really economic growth, which I
Speaker 8: think we're seeing. With the better than expected productivity, you
Speaker 8: get lower than expected inflation. I mean, it's still not
Speaker 8: widely recognized that the recent inflation has come down so
Speaker 8: dramatically and so sharply. Is because unit labor costs inflation
Speaker 8: is down to zero point five percent on a year
Speaker 8: over year basis, and that's the underlying inflation rate. And
Speaker 8: that's because productivity is really a TuS comeback. Productivity allows
Speaker 8: wages to rise faster than prices which has been actually
Speaker 8: occurring for over a year now to the benefit mostly
Speaker 8: of lower wage workers, believe it or not. And then finally,
Speaker 8: better productivity is great for corporate profit margins, which we
Speaker 8: think is going to go to a new record high
Speaker 8: in twenty twenty five and beyond. So you put it
Speaker 8: all together, and I think the key is to look
Speaker 8: at technology lead productivity growth boom, which I think has
Speaker 8: already started and will continue.
Speaker 2: Ed generous of you to spend this half far with
Speaker 2: us Edward or Denny there on a call and remind
Speaker 2: you that out to the end of twenty twenty six
Speaker 2: has SPX six thousand plus. Call goes out to adow
Speaker 2: A fifty thousand, the only one I know in the
Speaker 2: company they pronounce a seen rich correctly. Like Damian Sassar
Speaker 2: is Will Kennedy joining us now for Queen Victoria Street.
Speaker 2: Will Kennedy executive editor for Everything Known to Commodities in energy?
Speaker 2: Will what price per barrel Brent does Saudi Arabia want?
Speaker 3: I've lost track of that.
Speaker 1: I think it's an excellent question. They probably be higher
Speaker 1: than it is today, but I think that they are
Speaker 1: going to have to think quite strategically over the coming
Speaker 1: months and into next year about how they get it there,
Speaker 1: because they have challenges in managing the market right now
Speaker 1: and they have some decisions to make about how they
Speaker 1: want to do that. We're in a transition period right now,
Speaker 1: and you've seen this for some of the coverage from
Speaker 1: US and elsewhere. We've had a tight summer in the
Speaker 1: oil markets. Things have been shin on the ground, lots
Speaker 1: of good demand from people driving and flying. But people
Speaker 1: see it changing, and especially next year as we're geting
Speaker 1: into twenty twenty five, there's increasing concern that the market
Speaker 1: will be oversupplied. That's partly down to OPEC putting oil
Speaker 1: into the market, but it's also down to in different
Speaker 1: demand in some parts of the world and strong supply
Speaker 1: from elsewhere. So how Saudi Arabia responds to that, Well,
Speaker 1: that's going to be the most important question during the
Speaker 1: rest of this year.
Speaker 5: Well, I haven't been to TRIPLEI in quite some time,
Speaker 5: but you got to help me out here. Why are
Speaker 5: we so concerned about Libya again? What is going on
Speaker 5: on the ground and what's the impact on oil prices.
Speaker 1: Well, Libya has been relatively stable in the last few years.
Speaker 1: We're getting about a million bals a day out of Libya.
Speaker 1: The politics remain complicated, but everyone had found a working
Speaker 1: solution to keep the oil going despite the tensions between
Speaker 1: the government and Tripoli and the powers in the eastern
Speaker 1: part of the country in Benghazi. Now that seems to
Speaker 1: be falling down, the tensions seem to be rising and
Speaker 1: in the east they can control most of the oil
Speaker 1: export terminals, so they are using oil as leverage in
Speaker 1: their battle with the central government in Tripoli, and it
Speaker 1: is clearly having an impact on markets. For all that
Speaker 1: I said that people are wired about oversupply. Over the
Speaker 1: last few days, clearly that threat to what is more
Speaker 1: than a million pounds a day of supply has rattled
Speaker 1: traders and we saw we saw a jump up. So
Speaker 1: I think it's a reminder that despite the overall balances
Speaker 1: looking a little looser than they have been, that the
Speaker 1: market also is at the mercy to geopolitical events across
Speaker 1: the Middle East, and those haven't gone away well.
Speaker 5: Well, I mean just today, I mean Goldman Saxy's Brent
Speaker 5: averaging seventy seven dollars a balance twenty twenty five CD
Speaker 5: group seeing you know, basically risks to their outlook and
Speaker 5: seeing a lower price for oil.
Speaker 6: But you know, I want to shift the gas here.
Speaker 6: I want to shift to Rush.
Speaker 5: I want to shift to the Arctic LERG two right,
Speaker 5: Russia's new gas terminal that started production. I believe what
Speaker 5: is the impact on gas I mean, what is the
Speaker 5: impact on gas markets globally from that? I mean like
Speaker 5: there's been word that you know, there are you know,
Speaker 5: tankers that are you know, offloading and then you know
Speaker 5: doing all sorts of stuff in the Mediterranean Sea. You know,
Speaker 5: and talk to us a little bit about what if
Speaker 5: any impact that's going to have on energy prices going forward.
Speaker 1: Well, global gas markets remain fairly tight. There's plenty of
Speaker 1: demand for LNG and going into the winter, I think
Speaker 1: there's the European winter, there's some concern that we may
Speaker 1: have some tightness. There are a couple of immediate reasons
Speaker 1: while that's taken place. Egypt, which is often expected, is
Speaker 1: a sort of swing sometimes the imports, sometimes exports. It
Speaker 1: looks like it's going to keep importing. That surprised some
Speaker 1: traders and that's tightened the market. And Brazil has also
Speaker 1: drawn a lot of imports because it has weak hydropowers.
Speaker 1: You've got those two things in the shorter term, long
Speaker 1: story short, still demand for Russian gas, so there it's
Speaker 1: finding its way to market through especially if you're LNG.
Speaker 1: We've continued to the energy go to yoape and the
Speaker 1: Shenanigans that you mentioned, evidence that people are finding ways
Speaker 1: to get that gas into the global market because the
Speaker 1: global market wants that gas.
Speaker 2: Well, this is tangential to the remit in London, but
Speaker 2: I'm sorry, from seed to Shining Sea, it matters. Corn
Speaker 2: is cratering. It's under four dollars of bushel. I don't
Speaker 2: know if that translates in London, but do we have
Speaker 2: a gloom within our soft's study at Bloomberg News that
Speaker 2: corn could depress back under three dollars a bushel down
Speaker 2: to two. I mean, how fragile is corn and wheat
Speaker 2: and a boom year a bumper crop year in America.
Speaker 1: I think this is a trend globally that probably has
Speaker 1: requires a little bit more attention in the last few years.
Speaker 1: As we after the invasion in Ukraine and that obviously
Speaker 1: uphended global wheat markets. People got very upset about the
Speaker 1: prospects for prices. I think that period in grain markets,
Speaker 1: and by that I mean wheat, corners you mentioned soy
Speaker 1: that appears to be broadly over We are seeing some
Speaker 1: good harvests. We are seeing markets well supplied across those
Speaker 1: three main crops, and prices are lower and seem to
Speaker 1: be heading lower. So as we get into the time
Speaker 1: of year when people are looking at how much has
Speaker 1: been bought in, especially in Russia and North America, yes,
Speaker 1: crop markets appear weak, and I think obviously that's bad
Speaker 1: for the US farmers, but it is another reason why
Speaker 1: commodities pressures into inflation, perhaps less than they have been.
Speaker 2: I mean years ago, Will Kennedy, Stewart Whiles, and Justin
Speaker 2: Kerrigan they had me in a pub. They drank me
Speaker 2: under the table and they promised me. They said, Tom,
Speaker 2: you've got to go to the Bloomberg and look at
Speaker 2: a semi large chart of inflation adjusted corn.
Speaker 3: So I actually did.
Speaker 2: I want to take that over my overhead in Will Kennedy,
Speaker 2: it's amazing. Back to the seventies, horn inflation adjusted is
Speaker 2: ten dollars a bushel in today's dollars, and now it's
Speaker 2: just absolutely crater.
Speaker 5: I mean, Tom, the Will and the boys play that
Speaker 5: game when they're drinking their guinness where they have to
Speaker 5: take the first sip, and it has to be the
Speaker 5: level of to be below the crest and the top
Speaker 5: of the guineas word, it's a big game out there.
Speaker 6: Will it is guys play that will? Am I wrong?
Speaker 6: Do you guys not do that out there? At the
Speaker 6: end of every year I.
Speaker 1: Worked there, I think it's not sever I've done for
Speaker 1: a while. I think I can still manage it though, Lise.
Speaker 7: Lisa, It's July.
Speaker 3: Will Kennedy, thank you so much.
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