WEBVTT - Bloomberg Surveillance TV: January 29, 2025 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.600 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.440 --> 0:00:18.400 with Lisa Bromwitz and am Marie Hordern. Join us each 0:00:18.480 --> 0:00:21.360 day for insight from the best in markets, economics, and 0:00:21.400 --> 0:00:24.720 geopolitics from our global headquarters in New York City. We 0:00:24.760 --> 0:00:27.400 are live on Bloomberg Television weekday mornings from six to 0:00:27.480 --> 0:00:31.000 nine am Eastern. Subscribe to the podcast on Apple, Spotify, 0:00:31.200 --> 0:00:33.479 or anywhere else you listen, and as always on the 0:00:33.479 --> 0:00:36.879 Bloomberg Terminal and the Bloomberg Business app. We begin the 0:00:36.920 --> 0:00:39.680 sour stocks rising as traiders await the FED decision and 0:00:39.720 --> 0:00:42.960 earnings from big tech. Julian and Manuel have Evercore staying 0:00:43.000 --> 0:00:45.960 overweight tech on a three month view. While the dust settles, 0:00:46.040 --> 0:00:49.640 many of these names, particularly the Semis, may remain pressured 0:00:49.680 --> 0:00:52.199 on a three quarter and three year view. You want 0:00:52.200 --> 0:00:54.280 to buy these, Julian joins us now for more. Junian, 0:00:54.280 --> 0:00:56.520 good morning, good morning. I can't believe it's only Wednesday. 0:00:56.640 --> 0:00:58.880 I said on Tuesday. It found like it's already Friday. 0:00:59.080 --> 0:01:01.280 Let's get into these earn little bit like say you say, 0:01:01.640 --> 0:01:04.520 maybe by over a three quarter, multi year view. 0:01:04.880 --> 0:01:09.280 Why because essentially what we saw over the last three 0:01:09.360 --> 0:01:14.600 days tells you that the importance of AI as a 0:01:14.640 --> 0:01:19.880 revolutionary technology that's going to advance the world is not 0:01:20.040 --> 0:01:24.120 only robust, but is an absolute imperative. Okay, and the 0:01:24.160 --> 0:01:28.040 stocks reacted the way they did on Monday because of 0:01:28.080 --> 0:01:32.119 this sort of psychological displacement with regard to deep seek. 0:01:32.920 --> 0:01:35.960 But what it really means is that now the race 0:01:36.040 --> 0:01:40.280 is on to implement and from our work twenty twenty 0:01:40.280 --> 0:01:42.640 five and the work we did almost two years ago 0:01:42.720 --> 0:01:47.280 now when AI first it was introduced, is that twenty 0:01:47.319 --> 0:01:49.880 twenty five was going to be the inflection year in 0:01:50.040 --> 0:01:52.760 adoption and this catalyzes it. 0:01:52.840 --> 0:01:54.920 So what does that mean for sector preferences as we 0:01:54.960 --> 0:01:57.080 shift away from Annapolis to adopt us. 0:01:57.080 --> 0:01:57.880 What does that look like? 0:01:58.480 --> 0:02:02.480 So there has been over the last year or to 0:02:02.960 --> 0:02:08.160 a swath of companies across industries who constantly. 0:02:07.680 --> 0:02:09.239 Speak to the idea of AI. 0:02:09.760 --> 0:02:13.640 Again, a lot of it is largely anecdotal, because I 0:02:13.680 --> 0:02:16.640 think there's been a reticence to talk about what cost 0:02:16.680 --> 0:02:19.920 savings looks like versus things that drive revenue, and frankly, 0:02:20.000 --> 0:02:21.840 companies are still trying to figure out. 0:02:21.800 --> 0:02:22.960 What that mix looks like. 0:02:23.560 --> 0:02:26.600 But those are the companies that are forward about it, 0:02:26.639 --> 0:02:28.800 and we're going to hear a lot more. It's not 0:02:28.880 --> 0:02:32.320 just the earnings calls of the mag seven this period 0:02:32.400 --> 0:02:32.800 that matter. 0:02:32.880 --> 0:02:35.480 It's the earnings calls of the other companies. 0:02:35.240 --> 0:02:37.960 And those that are talking about it and telling you 0:02:38.200 --> 0:02:39.240 how they're deploying. 0:02:39.480 --> 0:02:40.639 Are the names you want to own? 0:02:40.760 --> 0:02:43.040 Do you think that this is actually the tipping point 0:02:43.080 --> 0:02:45.920 that so many people were waiting for were suddenly some 0:02:45.960 --> 0:02:47.919 of the biggest winners. And it's not just in Nvidia, 0:02:47.960 --> 0:02:51.280 it's also the power generators which didn't recover really yesterday 0:02:51.639 --> 0:02:53.760 are not going to necessarily benefit in the same way 0:02:53.760 --> 0:02:55.079 that they did in twenty twenty four. 0:02:56.600 --> 0:03:01.840 There's a bifurcation going on, and you actually, if you're 0:03:01.960 --> 0:03:05.800 j Powell and you're Donald Trump, you like the fact 0:03:06.000 --> 0:03:08.959 that yields have come in over the last couple of 0:03:09.040 --> 0:03:12.239 days because the implication is the news that we had 0:03:12.280 --> 0:03:15.880 over the weekend in terms of deep seek is actually 0:03:15.919 --> 0:03:21.639 a disinflationary impulse. But the downside of that is as 0:03:21.639 --> 0:03:25.839 a power producer, it's much more difficult to see what 0:03:25.919 --> 0:03:29.040 the next three years looks like. And whenever you have 0:03:29.760 --> 0:03:34.200 a company or a theme that one moment had sort 0:03:34.200 --> 0:03:38.200 of this concept of infinite growth, whatever that number was, 0:03:38.560 --> 0:03:41.880 and then all of a sudden, it's infinite minus a handicap. 0:03:43.240 --> 0:03:45.040 That's punishing for the stocks. 0:03:45.080 --> 0:03:47.040 Is that the right way to interpret the movie yields 0:03:47.240 --> 0:03:50.840 that it was an expression of greater disinflation as a 0:03:50.840 --> 0:03:53.280 result of technological advance or was it simply a risk 0:03:53.320 --> 0:03:56.200 off move knee jerk basically by bonds. 0:03:56.400 --> 0:03:59.400 Well, you would have said that except for the fact 0:03:59.400 --> 0:04:03.279 that yields ended up on their lows yesterday basically unchanged 0:04:04.160 --> 0:04:07.920 with the market recovering. So I think there was certainly 0:04:07.920 --> 0:04:12.880 an element of that on Monday. But the other message, 0:04:12.880 --> 0:04:16.960 and again obviously overnight we've seen more rhetoric about the 0:04:17.000 --> 0:04:21.080 intention to reduce the size of government. All in this 0:04:21.160 --> 0:04:24.160 has calmed the bond market down, and from our point 0:04:24.160 --> 0:04:26.320 of view, talking about the names and the sectors that 0:04:26.360 --> 0:04:30.159 we like, the bull market leaders, yield's remaining calm is 0:04:30.160 --> 0:04:31.880 a very important part of that thesis. 0:04:31.960 --> 0:04:34.799 It, Sonning depends why on the conference board numbers yesterday 0:04:35.279 --> 0:04:38.720 went great? Why have we settled down on bond yoats? 0:04:38.800 --> 0:04:40.640 Is it just good stuff or is this some pad 0:04:40.640 --> 0:04:41.440 stuff in that too. 0:04:43.240 --> 0:04:47.720 Look, even when things are going gangbusters in an economy. 0:04:48.040 --> 0:04:51.040 You can always find the one, two or three items 0:04:51.279 --> 0:04:55.080 that are unsettling. You look deep enough, you find them. 0:04:55.520 --> 0:04:59.680 But frankly, from our point of view, you're in a 0:04:59.720 --> 0:05:03.160 mode where and again I'll go back to your introduction, 0:05:03.800 --> 0:05:04.600 we think. 0:05:04.560 --> 0:05:06.159 It's skip not pause. 0:05:06.279 --> 0:05:11.440 Okay, why because basically, the trend towards inflation if you 0:05:11.480 --> 0:05:15.040 think about it, the last several months, very much like 0:05:15.160 --> 0:05:17.520 the spring of twenty twenty four, you had a couple 0:05:17.520 --> 0:05:21.720 of months in there where the thesis was questioned about 0:05:21.800 --> 0:05:23.560 the trend of travel of inflation. 0:05:23.760 --> 0:05:27.200 You paused, but yet it kept going. 0:05:27.640 --> 0:05:31.680 And the weakening of some of those data elements, continuing 0:05:31.760 --> 0:05:36.520 claims moving to new multi year highs among them, tell 0:05:36.560 --> 0:05:40.760 you that the trend of inflation moving lower is intact. 0:05:40.880 --> 0:05:41.920 And that's what the Fed wants. 0:05:41.880 --> 0:05:44.279 Is that cool? Traite dependent. We'll head down to Washington, 0:05:44.360 --> 0:05:47.080 catchup with the marine about five minutes time. Is your 0:05:47.120 --> 0:05:50.000 call on a skip and not a pause? Traite dependent? 0:05:50.320 --> 0:05:53.839 And what happens this weekend? Avoid tariffsaw implement them? 0:05:54.480 --> 0:06:00.760 So very good question, and I think the answered there 0:06:01.040 --> 0:06:05.039 is is, if you look back, Donald Trump learned a 0:06:05.080 --> 0:06:08.760 lot from his first term in office, okay. And one 0:06:08.760 --> 0:06:11.520 of the things that he learned was that the bond 0:06:11.600 --> 0:06:15.440 market really could call the shots for the degree of 0:06:15.560 --> 0:06:19.960 policy implementation. And you know how far you pressed once 0:06:20.000 --> 0:06:23.200 things were announced. So in that respect, there is an 0:06:23.279 --> 0:06:26.839 element of that to it. But we do think that, 0:06:27.040 --> 0:06:30.320 you know, you go back to the original appointment of Vessent, 0:06:30.880 --> 0:06:34.799 there is an acknowledgment of the importance of financial markets 0:06:34.880 --> 0:06:39.120 and the desire not to disrupt that narrative to be 0:06:39.240 --> 0:06:41.480 able to long term implement policy. 0:06:41.640 --> 0:06:43.880 We'll get into the details when we speak with Emory 0:06:43.920 --> 0:06:46.680 in just a moment, but you said, just in general, 0:06:46.800 --> 0:06:49.760 as a stock analyst, as an equity analyst, more broadly, 0:06:50.200 --> 0:06:53.320 looking at the path of policy, it looks like basically 0:06:53.400 --> 0:06:56.760 a repeat of twenty eighteen. And yet in twenty eighteen 0:06:57.120 --> 0:06:59.279 the S and P ended the year down six and 0:06:59.279 --> 0:07:01.440 a quarter percent, and why is this time different? 0:07:01.720 --> 0:07:04.920 So if you look at it, the path in twenty 0:07:04.960 --> 0:07:09.800 eighteen was very violatile, and actually at midyear you were 0:07:09.880 --> 0:07:14.120 up substantially, almost double digits, and then what happened was 0:07:14.440 --> 0:07:19.680 you got to a point where the bottom vigilantes stepped in. 0:07:19.680 --> 0:07:23.240 In twenty eighteen, three percent on the ten year yield 0:07:23.520 --> 0:07:26.080 was the equivalent of five percent on the ten year 0:07:26.120 --> 0:07:27.560 yield right now, and. 0:07:27.480 --> 0:07:28.840 We've already seen. 0:07:30.120 --> 0:07:32.600 Whether it's the last couple months, we're going back to 0:07:33.000 --> 0:07:35.520 the start of this bull market cycle, that once you 0:07:35.600 --> 0:07:38.560 get towards five percent, the markets don't like that. 0:07:38.920 --> 0:07:41.120 And so that is well known. 0:07:41.120 --> 0:07:42.960 Which is the reason why the commentary that we will 0:07:42.960 --> 0:07:45.680 get this afternoon won't necessarily be from Mark Zuckerberg, it 0:07:45.720 --> 0:07:49.560 won't necessarily be from Sacha Nadella, it won't necessarily be 0:07:49.600 --> 0:07:51.840 from fedchair J. Powell, will be from Donald Trump in 0:07:51.880 --> 0:07:54.600 response to fedshair J. Powell with regardless of what he said, 0:07:54.600 --> 0:07:57.520 and if there is a pause and not a skip, 0:07:57.600 --> 0:07:59.560 if there is an indication that this is it and 0:07:59.560 --> 0:08:01.360 they are on and that frankly there's even a chance 0:08:01.400 --> 0:08:03.800 of them hiking rates again, how big would the tantrum 0:08:03.880 --> 0:08:05.560 be in markets? 0:08:05.600 --> 0:08:07.760 Pretty substantial. I mean you're talking to help big with 0:08:07.840 --> 0:08:09.000 the tantrum be in the White House? 0:08:09.480 --> 0:08:11.760 Well, I mean we already know that that answer. I 0:08:11.760 --> 0:08:13.640 mean the question is, you know, this. 0:08:13.640 --> 0:08:15.320 Is sort of par for the course, so they already 0:08:15.320 --> 0:08:17.880 have it and pre write they basically just presco anyway, 0:08:17.920 --> 0:08:18.280 carry on. 0:08:18.440 --> 0:08:23.400 But again the point being here that at the valuations 0:08:23.440 --> 0:08:27.119 where we are in the market. Both you know, less 0:08:27.160 --> 0:08:30.880 than perfect and or very good news is met with 0:08:31.000 --> 0:08:34.600 violent reactions. So basically we have deep seek. On Monday, 0:08:34.640 --> 0:08:37.520 we have, you know, a pretty substantial selloff, but that 0:08:37.679 --> 0:08:42.760 was preceded by ten days of literally parabolic gains given 0:08:42.800 --> 0:08:45.360 the fact that the inflation news was so good. So 0:08:46.200 --> 0:08:50.000 where's the next three to five percent? Well, let's see 0:08:50.040 --> 0:08:52.480 what we hear from the White House, and you know, 0:08:52.640 --> 0:08:57.360 let's see what the corporate what the dialogue around deep 0:08:57.360 --> 0:09:01.400 seek is in these reporters this afternoon. The long term 0:09:01.640 --> 0:09:04.600 trend of travel is still higher in our view. 0:09:04.440 --> 0:09:06.200 At least we were talking about this earlier this morning 0:09:06.240 --> 0:09:08.640 before we came on air, that we were basically seen 0:09:08.640 --> 0:09:11.160 from Donald Trump, the President, a similar approach that we've 0:09:11.160 --> 0:09:13.560 seen from Elon Musk, the CEO, but this time to 0:09:13.600 --> 0:09:15.959 federal government and not to a private company. 0:09:16.080 --> 0:09:19.720 Similar approach, I would say, basically the same approach. In fact, 0:09:19.720 --> 0:09:22.720 the email sent to federal workers yesterday had. 0:09:22.679 --> 0:09:24.360 The subject fork in the road. 0:09:24.520 --> 0:09:28.079 That is the same email subject that Elon Musk used 0:09:28.200 --> 0:09:31.760 in an email to Twitter now Acts when he was 0:09:31.800 --> 0:09:34.600 talking about downsizing the staff. There can you do the 0:09:34.640 --> 0:09:36.840 same in a federal government, the courts will. 0:09:36.720 --> 0:09:39.440 Decide Juda and Emmanuel. Of ever, course, still with us, Julian, 0:09:39.520 --> 0:09:41.600 A lot to unpack here. Let's start with trade. Lisa 0:09:41.640 --> 0:09:44.360 mentioned GM. She's right to pick up on General Motors. 0:09:44.400 --> 0:09:47.360 GM's numbers went bad, The outlook was okay, nothing wrong here. 0:09:47.679 --> 0:09:50.280 Stock was down by close to nine percent of the close. 0:09:50.400 --> 0:09:54.560 How investible are somebody sectors some of these stocks without 0:09:54.600 --> 0:09:56.880 getting that clarity on trade? 0:09:57.080 --> 0:10:01.200 Well, I mean the share proce reaction, yes, spoke for itself. 0:10:02.240 --> 0:10:06.720 But again similar to how one is thinking about the 0:10:06.760 --> 0:10:10.640 share price reactions in the mag seven, et cetera on 0:10:10.720 --> 0:10:14.040 Monday to deep seek. These are the kinds of things 0:10:14.160 --> 0:10:17.360 that if you're a long term investor, you know that 0:10:17.440 --> 0:10:20.960 whatever comes out in the beginning, whether it's it's you know, 0:10:21.080 --> 0:10:23.760 twenty five percent across the board or what have you. 0:10:23.800 --> 0:10:27.840 And we know that the automobile industry is going to 0:10:27.880 --> 0:10:31.480 be the most impacted if that kind of tax is 0:10:31.520 --> 0:10:35.800 taken towards Mexico, but that it is not likely to 0:10:35.840 --> 0:10:37.760 sustain itself infinitely. 0:10:37.840 --> 0:10:39.000 It sort of never has. 0:10:39.679 --> 0:10:43.080 And those are the kinds of times, particularly at valuations, 0:10:43.120 --> 0:10:47.000 when you're talking about four and five times earnings. Granted, 0:10:47.040 --> 0:10:51.560 the earnings will be handicapped, but that's where long term 0:10:51.600 --> 0:10:53.120 investors find value. 0:10:53.280 --> 0:10:54.079 Just hold on a second. 0:10:54.080 --> 0:10:56.440 Are you saying that you bought GM yesterday. 0:10:57.080 --> 0:10:59.000 I'm not saying, okay, I'm. 0:10:58.880 --> 0:11:00.679 Just wondering, you know, is it too early? 0:11:00.800 --> 0:11:01.240 Right? Is it? 0:11:01.280 --> 0:11:04.320 Basically this right now is noise and you can't really 0:11:04.320 --> 0:11:06.040 get involved in it. And at a certain point you 0:11:06.040 --> 0:11:08.160 can start to say, all right, now I can start 0:11:08.160 --> 0:11:09.080 picking up the pieces. 0:11:09.120 --> 0:11:14.600 Well again, it's it's it's evaluation sensitive thing. A lot 0:11:14.640 --> 0:11:18.200 of these companies, if you look at it, we like 0:11:18.520 --> 0:11:22.840 five year average valuations. Okay, a lot of these companies 0:11:22.920 --> 0:11:27.440 are trading at substantial discounts to their five year average valuation. 0:11:27.960 --> 0:11:31.800 So I have a numerical advantage coming in that allows 0:11:31.840 --> 0:11:35.320 me to sort of ride out the volatility, even if 0:11:35.360 --> 0:11:38.840 it's multiple quarters for that kind of you know, potential 0:11:38.920 --> 0:11:39.640 change in earnings. 0:11:39.800 --> 0:11:42.959 Chilly and certainly volatile, volatile week, that's for sure. I 0:11:43.000 --> 0:11:45.880 have an apost few days, gentle amen. While of Ebico 0:11:54.840 --> 0:11:56.760 Basis shout out to Mulk and Stanley, saying the search 0:11:56.920 --> 0:11:59.640 in long term bond yields has created a headwind for 0:11:59.720 --> 0:12:02.840 US equacies, which have ridden valuation expansion for the better 0:12:02.880 --> 0:12:06.079 part of twenty seven months. The market narrative is now 0:12:06.120 --> 0:12:10.040 focused on show me Earning's achievement. Lisa John's staff more, 0:12:10.160 --> 0:12:13.199 Lasa Kimonic Komarnick cost some Earning's achievement over in Europe 0:12:13.240 --> 0:12:15.760 ass them out just absolutely stunning, and we saw how 0:12:15.840 --> 0:12:18.840 stock investors rewarded them. Would you look for from some 0:12:18.880 --> 0:12:20.880 of the big tech players not just the southfternoon, but 0:12:20.920 --> 0:12:21.720 over the next week. 0:12:21.960 --> 0:12:24.560 So look, I think obviously, you know, tech is under 0:12:24.559 --> 0:12:27.760 the spotlight, you know, not just given the fact that 0:12:27.880 --> 0:12:32.160 their performance has been somewhat really lackluster since you know, 0:12:32.240 --> 0:12:36.120 the first week in December. But you know, the expectation 0:12:36.480 --> 0:12:38.840 for twenty twenty five and twenty twenty six is that 0:12:38.920 --> 0:12:42.760 earnings growth rates are going to decelerate, right, and that 0:12:42.760 --> 0:12:46.320 that element has been math and that's what's kind of 0:12:46.360 --> 0:12:49.760 baked in, And so I think people are looking for 0:12:50.120 --> 0:12:53.000 that guidance more than what they do for the fourth quarter, 0:12:53.080 --> 0:12:55.880 but looking for that guidance to see, you know, are 0:12:55.960 --> 0:12:59.520 in fact the tech companies more measured or are they 0:12:59.559 --> 0:13:03.400 more optimistic? And I think that's that guidance forward guidance 0:13:03.400 --> 0:13:06.200 that's really going to carry the day here, because you know, 0:13:06.280 --> 0:13:10.840 coming into twenty twenty five twenty twenty six for tech companies, 0:13:10.920 --> 0:13:13.839 I think some of the expectations were a little bit 0:13:13.920 --> 0:13:15.119 more realistic. 0:13:15.440 --> 0:13:17.560 Does it get hard is to justify the big spending 0:13:17.559 --> 0:13:20.360 they've been doing following the news of the last week 0:13:20.600 --> 0:13:21.920 and the price sanction of Monday. 0:13:22.480 --> 0:13:25.360 Certainly, you know, it raises the question on what is 0:13:25.400 --> 0:13:27.040 your capex efficiency? 0:13:27.480 --> 0:13:27.680 Right? 0:13:27.760 --> 0:13:31.480 Do you really need to spend you know, as much 0:13:31.520 --> 0:13:34.600 capex and build as many data centers with as many 0:13:34.679 --> 0:13:38.560 GPUs that use as many in video chips? Are you 0:13:38.640 --> 0:13:41.559 going to be able to, through process and software engineering, 0:13:42.320 --> 0:13:46.320 as we've seen, do things you know, cheaper and faster, 0:13:46.880 --> 0:13:50.000 especially if you're willing to use an open source chassis. 0:13:50.320 --> 0:13:52.480 And I think that these open source chassis are going 0:13:52.520 --> 0:13:55.840 to get more and more and more sophisticated, and they're free. 0:13:56.640 --> 0:13:57.800 And that's that's. 0:13:58.200 --> 0:14:00.600 I think the magic here that we're going to have 0:14:00.640 --> 0:14:02.640 to watch and look. I don't think that this is 0:14:02.720 --> 0:14:06.040 new news to Sam Altman or or you know, to 0:14:06.400 --> 0:14:08.559 the folks at Microsoft and Google, but I do think 0:14:08.559 --> 0:14:09.440 they're going to now. 0:14:09.320 --> 0:14:10.240 Have to talk about it. 0:14:10.400 --> 0:14:12.720 Earning Season used to be launched by the big banks, 0:14:12.840 --> 0:14:15.280 and it seems as if now that's shifted, it really 0:14:15.360 --> 0:14:17.640 is the tech players and there is a broader economic 0:14:17.720 --> 0:14:21.200 read through depending on what happens there. We've been talking 0:14:21.200 --> 0:14:23.640 a lot about whether we are reaching the tipping point 0:14:24.000 --> 0:14:27.040 at which investment in AI is moving away from the 0:14:27.120 --> 0:14:29.640 chips and the data centers into broader application. 0:14:30.280 --> 0:14:32.880 What would you have to hear at today's. 0:14:32.520 --> 0:14:36.200 Earnings reports to think this is truly that tipping point. 0:14:36.640 --> 0:14:41.320 I think it's it's them, not you know, taking up 0:14:41.360 --> 0:14:44.280 the guidance on cap X. I think it's them answering 0:14:44.320 --> 0:14:47.440 the questions, hey, we've put the number out there at X, 0:14:48.040 --> 0:14:52.120 you know that's our number, right, and being somewhat combative 0:14:52.280 --> 0:14:55.280 with analysts on that. I think that would scare people 0:14:55.360 --> 0:14:58.080 if they're if they suggest that there's no incremental upside 0:14:58.120 --> 0:14:59.480 to their CAPAX spend. 0:14:59.280 --> 0:15:02.160 As an investment, does that make you more optimistic about 0:15:02.160 --> 0:15:06.040 the rest of the universe they could potentially benefit from 0:15:06.200 --> 0:15:07.000 AI adaption. 0:15:07.360 --> 0:15:11.000 Yeah, So that's to me, I think the great question Lisa, Right, 0:15:11.040 --> 0:15:12.800 So I think that there's two things. 0:15:12.880 --> 0:15:14.479 I think there's. 0:15:14.280 --> 0:15:18.120 One among the mag seven themselves who are going to 0:15:18.160 --> 0:15:21.920 be the ones who actually grab onto this and say, 0:15:22.040 --> 0:15:26.000 you know what, we've actually been studying this. We do 0:15:26.080 --> 0:15:28.120 think we're going to be able to be more effective, 0:15:28.120 --> 0:15:32.040 more efficient and spend twenty percent less. And then there's 0:15:32.080 --> 0:15:35.960 going to be the folks who are the adopters, right, 0:15:36.000 --> 0:15:42.080 who are apps, guys are who are actually developing tools 0:15:42.120 --> 0:15:47.640 that are using you know, agent AI, the sales forces 0:15:47.680 --> 0:15:50.120 of the world, the accentures. 0:15:49.400 --> 0:15:50.000 Of the world. 0:15:50.040 --> 0:15:52.680 Who are that next wave of companies who are who 0:15:52.760 --> 0:15:55.800 are going to say, hey, we're using these tools, We're 0:15:55.880 --> 0:15:59.160 driving efficiencies and effectiveness, we know how to do this, 0:15:59.520 --> 0:16:03.360 and that they're the next market leaders in this you know, 0:16:03.560 --> 0:16:05.160 tech diffusion cycle. 0:16:05.320 --> 0:16:06.840 Is it too early to jump on that theme? Would 0:16:06.840 --> 0:16:08.800 you think the starting gun was found on Monday? 0:16:08.880 --> 0:16:11.360 I well, I think the starting gun on it was 0:16:11.880 --> 0:16:14.480 probably fired in the fourth quarter of last year. If 0:16:14.480 --> 0:16:17.280 you look at those stocks, they've started to move, but 0:16:17.560 --> 0:16:19.840 you know, for them, we still think it's kind of 0:16:19.840 --> 0:16:21.800 bottom of the first inning, top of the second. 0:16:21.880 --> 0:16:23.720 When do we start to see the big efficiency gains 0:16:23.720 --> 0:16:26.440 and sectors like the financials We've been hearing about this 0:16:26.520 --> 0:16:28.520 now for years. When it comes to the bank, Yeah, 0:16:28.600 --> 0:16:30.920 the banks could benefit big time. You could see them 0:16:30.960 --> 0:16:33.760 become really efficient we hear from the CEOs, each additional 0:16:33.800 --> 0:16:36.680 dollar revenue will become less and less labor intensive. Are 0:16:36.680 --> 0:16:37.240 we close to that? 0:16:38.280 --> 0:16:41.360 So I want to define close? Right? Look, I think 0:16:41.920 --> 0:16:44.200 a lot of effort is being expended, a lot of money, 0:16:44.240 --> 0:16:48.240 a lot of consulting dollars are being expended here. I 0:16:48.320 --> 0:16:51.560 still think that in terms of moving the needle on margins, 0:16:51.600 --> 0:16:55.240 you're still probably two to three years away from seeing, 0:16:55.360 --> 0:16:58.880 you know, companies truly be able to say we're hiring 0:16:59.000 --> 0:17:02.800 many fewer people, our productivity has gone up by you know, x, 0:17:02.960 --> 0:17:07.199 Y or z. Because it's most of these businesses, the 0:17:07.359 --> 0:17:11.720 stakes of getting it wrong are so high that before 0:17:11.800 --> 0:17:15.560 you really start pulling people out and relying on machines 0:17:15.640 --> 0:17:19.320 to do your you know, client service or your customer 0:17:19.359 --> 0:17:23.439 interaction or your billing or whatever, you're going to have 0:17:23.440 --> 0:17:24.200 to know that it works. 0:17:24.280 --> 0:17:26.160 This is all very nuanced, and a lot of areer 0:17:26.280 --> 0:17:28.160 clients are probably thinking. 0:17:27.880 --> 0:17:29.840 All right, market's going to go up or down, and. 0:17:29.880 --> 0:17:31.600 What do we have to look at to figure out 0:17:31.600 --> 0:17:34.160 where we should invest? And if there is some sort 0:17:34.240 --> 0:17:36.440 of macro theme, it really does come down to the 0:17:36.520 --> 0:17:39.120 yield space. This idea that you see some of these 0:17:39.119 --> 0:17:43.720 stories is potentially constructive, earning's growth is potentially positive, and 0:17:43.800 --> 0:17:46.919 yet it all hinges on what happens today. 0:17:47.000 --> 0:17:47.639 We've about to share J. 0:17:47.760 --> 0:17:50.359 Powell, not necessarily today, but just generally with the bond market. 0:17:50.520 --> 0:17:52.960 Can you talk about that relationship? Sure? 0:17:53.119 --> 0:17:55.879 I mean, look, I think what we've seen is, you know, 0:17:55.920 --> 0:17:59.240 the magic number has been four point five percent. When 0:17:59.240 --> 0:18:01.919 we get yields through four point five percent on the 0:18:01.960 --> 0:18:05.600 ten year, we've seen those positive correlations between yields and 0:18:05.680 --> 0:18:09.120 stock prices. You know the quote that Jonathan started with it, 0:18:09.200 --> 0:18:12.320 you know that starts becoming a headwind to valuations. Now, 0:18:12.320 --> 0:18:15.000 why is four point five percent such a magic number? 0:18:15.080 --> 0:18:15.240 Right? 0:18:15.480 --> 0:18:18.760 I constantly explain to people, Look, we've been in an 0:18:18.800 --> 0:18:23.320 economy that's been nominally growing at more than five percent 0:18:23.440 --> 0:18:27.080 per year, and as long as you're growing faster than 0:18:27.119 --> 0:18:29.320 your cost of capital, you're going to be able to 0:18:29.400 --> 0:18:34.320 cover your interest payments. Right as those interest rates get 0:18:34.400 --> 0:18:37.600 closer and closer to that nominal growth rate of five percent, 0:18:38.119 --> 0:18:42.119 that ability to cover pay interest payments gets harder. You 0:18:42.200 --> 0:18:45.000 start thinking, well, are some of these companies actually going 0:18:45.080 --> 0:18:49.040 to have dented margins because they're their cost of capital 0:18:49.160 --> 0:18:52.240 may actually be six and maybe you know GDP is 0:18:52.240 --> 0:18:56.840 only five and so you know, we're we're watching the 0:18:56.880 --> 0:19:00.280 direction of the long end. What we have observed is 0:19:00.280 --> 0:19:02.520 that a lot of the movement on the long end 0:19:02.600 --> 0:19:06.600 has been driven by two things, not inflation expectations, actually. 0:19:06.280 --> 0:19:07.360 By our analytics. 0:19:07.600 --> 0:19:12.360 What we're looking at is we've had positive economic growth surprises, right, 0:19:12.400 --> 0:19:15.080 so that's taken up the real component. And we've had 0:19:15.080 --> 0:19:17.879 an increase in the term premium. And as I know, 0:19:18.000 --> 0:19:21.200 you know, you know, having kind of you know, studied 0:19:21.480 --> 0:19:24.120 fixed income for a really long time, you know, over 0:19:24.720 --> 0:19:28.359 the last you know, eighty years, term premiums on the 0:19:28.400 --> 0:19:30.639 long end have been as wide as one hundred and 0:19:30.680 --> 0:19:31.719 fifty basis points. 0:19:32.080 --> 0:19:34.040 Term premiums, for your listeners. 0:19:33.840 --> 0:19:37.000 Who may not know this, are basically just the extra 0:19:37.160 --> 0:19:41.359 risk premium that investors demand for policy uncertainty, right, for 0:19:41.359 --> 0:19:45.720 for the fact that time over time things change anything 0:19:45.720 --> 0:19:47.480 from policy to technology to. 0:19:48.920 --> 0:19:49.399 Et cetera. 0:19:50.200 --> 0:19:52.680 And so, you know, I think what we what we're 0:19:52.760 --> 0:19:55.159 looking at is, you know, what are the drivers of 0:19:55.200 --> 0:19:59.840 those interest rates. What has been interesting is FED expectations 0:20:00.080 --> 0:20:03.000 got crushed in the fourth quarter. So for us, our 0:20:03.080 --> 0:20:05.680 observation of what's happened over the last you know, six 0:20:05.760 --> 0:20:08.480 eight weeks is it hasn't been that much about the FED. 0:20:09.280 --> 0:20:10.879 So this is a very long winded way of me 0:20:10.920 --> 0:20:13.440 answering your question. Look, I think Powell today is gonna 0:20:13.440 --> 0:20:16.280 be very measured. I think he's going to say very 0:20:16.320 --> 0:20:19.080 little in this press conference, and I think he's going 0:20:19.080 --> 0:20:22.480 to try to say as little as possible about anything 0:20:22.560 --> 0:20:25.840 that has to do at the White House, anything about tariffs, 0:20:25.880 --> 0:20:29.560 anything about debts and deficits. I think he's going to 0:20:29.960 --> 0:20:33.560 really walk a very fine line, and he's going. 0:20:33.560 --> 0:20:36.840 To stick to the script of we're data driven. That's it. 0:20:37.080 --> 0:20:40.640 We've had some stronger data. We think inflations under control. 0:20:40.720 --> 0:20:42.000 We're watching and waiting. 0:20:42.240 --> 0:20:44.399 So all of that said, if the FED is no 0:20:44.440 --> 0:20:48.199 longer in the driver's seat, the policy uncertainty is in 0:20:48.200 --> 0:20:51.520