1 00:00:02,529 --> 00:00:04,210 Speaker 1: Bloomberg Audio Studios. 2 00:00:04,690 --> 00:00:05,370 Speaker 2: Podcasts. 3 00:00:05,690 --> 00:00:06,210 Speaker 3: Radio. 4 00:00:06,650 --> 00:00:07,050 Speaker 4: News. 5 00:00:12,539 --> 00:00:16,680 Speaker 1: This is the Bloomberg Surveillance Podcast. Catch us live weekdays 6 00:00:16,739 --> 00:00:20,220 Speaker 1: at 7 a.m. Eastern on Apple CarPlay or Android Auto 7 00:00:20,300 --> 00:00:23,890 Speaker 1: with the Bloomberg Business App. Listen on demand wherever you 8 00:00:23,930 --> 00:00:26,970 Speaker 1: get your podcasts or watch us live on YouTube. 9 00:00:27,710 --> 00:00:29,430 Speaker 5: I've got Jess Metten sitting in for TK this morning. 10 00:00:29,450 --> 00:00:31,930 Speaker 5: I'm Paul Sweeney, live here in our Bloomberg Interactive Broker Studio, 11 00:00:31,950 --> 00:00:35,070 Speaker 5: streaming live on YouTube as well. Jess, all right, back 12 00:00:35,090 --> 00:00:37,760 Speaker 5: in my sell-side analyst days, when a salesman was booking 13 00:00:37,770 --> 00:00:39,440 Speaker 5: your Chicago visit, which you had to do like once 14 00:00:39,479 --> 00:00:41,020 Speaker 5: or twice a year to go see accounts in Chicago. 15 00:00:41,530 --> 00:00:43,370 Speaker 5: they would start with Northern Trust. 16 00:00:43,409 --> 00:00:44,150 Speaker 6: This was a big deal. 17 00:00:44,290 --> 00:00:45,989 Speaker 5: That was the deal. And then once you got the 18 00:00:46,030 --> 00:00:47,889 Speaker 5: Northern Trust meeting locked down, then you can build all 19 00:00:47,930 --> 00:00:49,050 Speaker 5: around that for the rest of the day. 20 00:00:49,150 --> 00:00:50,330 Speaker 6: So then the stress is over. 21 00:00:50,350 --> 00:00:55,740 Speaker 5: Exactly. Our next guest, Anvidi Bahuguna, is a global co-CIO 22 00:00:55,880 --> 00:00:59,060 Speaker 5: of Northern Trust Asset Management, joins us here in our 23 00:00:59,080 --> 00:01:03,860 Speaker 5: Bloomberg Interactive Brokers studio. Anvidi, what's the number one issue 24 00:01:03,880 --> 00:01:05,920 Speaker 5: that you and your team are talking about today? Because 25 00:01:05,940 --> 00:01:10,130 Speaker 5: for the longest time, It's been AI, and it's generally 26 00:01:10,170 --> 00:01:13,429 Speaker 5: been a really good thing for the marketplace now. Now 27 00:01:13,470 --> 00:01:15,470 Speaker 5: it seems like people are kind of asking some different questions. 28 00:01:15,510 --> 00:01:19,160 Speaker 5: How do you position that AI story within your investment framework? 29 00:01:20,100 --> 00:01:23,420 Speaker 7: Thank you, Paul, for having me. I think the question 30 00:01:23,540 --> 00:01:27,160 Speaker 7: is excellent because we have started tweaking our portfolios a 31 00:01:27,319 --> 00:01:33,089 Speaker 7: little bit this month, starting this month. On the growth side, 32 00:01:33,230 --> 00:01:37,310 Speaker 7: we have tremendous growth in the U.S., We do see 33 00:01:37,410 --> 00:01:40,130 Speaker 7: inflation moderating in fits and starts. 34 00:01:41,569 --> 00:01:43,550 Speaker 8: What's worrying us. 35 00:01:43,430 --> 00:01:46,370 Speaker 7: A bit is the fact that we still don't have 36 00:01:46,410 --> 00:01:51,180 Speaker 7: a handle on the geopolitics situation, which means maybe the 37 00:01:51,460 --> 00:01:56,420 Speaker 7: inflation story remains front and center for a while. And also, 38 00:01:57,500 --> 00:02:00,580 Speaker 7: the AI story is beginning to have a few cracks, 39 00:02:01,780 --> 00:02:06,140 Speaker 7: as you saw last week with Corweave. Now, we still 40 00:02:06,170 --> 00:02:09,380 Speaker 7: think that's a one-off and we are going to see 41 00:02:09,520 --> 00:02:14,540 Speaker 7: solid productivity boost from AI. We're going to see improvement 42 00:02:14,960 --> 00:02:17,580 Speaker 7: in the growth picture. All of that is still to come. 43 00:02:18,460 --> 00:02:21,440 Speaker 7: But one of the things that we are grappling with is, 44 00:02:22,240 --> 00:02:26,000 Speaker 7: do we begin to start worrying about a few growth 45 00:02:26,080 --> 00:02:29,620 Speaker 7: hedges in our portfolio? So far, we haven't needed growth 46 00:02:29,700 --> 00:02:34,460 Speaker 7: hedges because Being long equities has been a good trade. 47 00:02:34,880 --> 00:02:37,739 Speaker 7: Being short bonds has been a good trade. We've sort 48 00:02:37,760 --> 00:02:43,299 Speaker 7: of barbelled in the portfolios until September, cash and. 49 00:02:43,919 --> 00:02:44,380 Speaker 6: equities. 50 00:02:45,080 --> 00:02:49,320 Speaker 7: This month, we went and closed our bond underweight and 51 00:02:49,360 --> 00:02:52,660 Speaker 7: moved neutral bonds because if there are some cracks to 52 00:02:52,680 --> 00:02:56,360 Speaker 7: the story, you need a hedge and bond still remains 53 00:02:56,419 --> 00:02:58,220 Speaker 7: a pretty decent hedge in the portfolios. 54 00:02:58,530 --> 00:03:01,230 Speaker 6: I'm glad you brought this up. So the S & 55 00:03:00,160 --> 00:03:05,549 Speaker 6: P 500 Dividend Aristocrats Index. So this consists of... The 56 00:03:05,730 --> 00:03:08,510 Speaker 6: S & P 500 Dividend Aristocrats Addict. So it basically 57 00:03:08,530 --> 00:03:11,020 Speaker 6: consists of companies that have increased payouts for the last 58 00:03:11,020 --> 00:03:14,380 Speaker 6: 25 years. Month to date, it's up almost 6%. S & 59 00:03:13,740 --> 00:03:17,820 Speaker 6: P 500's flat. So we're seeing a lot of those 60 00:03:17,860 --> 00:03:21,090 Speaker 6: like staples, healthcare, energy, a lot of these other corners 61 00:03:21,120 --> 00:03:23,970 Speaker 6: of the market taking off this month relative to obviously 62 00:03:24,010 --> 00:03:27,089 Speaker 6: tech underperforming. How do you view that? Are those corners 63 00:03:27,130 --> 00:03:29,150 Speaker 6: of the area, those dividend payers, is that where you're 64 00:03:29,190 --> 00:03:31,010 Speaker 6: going right now if you're still staying with inequities? 65 00:03:31,830 --> 00:03:34,470 Speaker 7: That's an excellent question. And it sort of depends just 66 00:03:34,570 --> 00:03:37,810 Speaker 7: on what your opportunity set is. So if you are 67 00:03:37,830 --> 00:03:41,310 Speaker 7: planning for your client's entire asset allocation portfolio, you can 68 00:03:41,350 --> 00:03:44,380 Speaker 7: go to bonds for your income. And right now, bonds 69 00:03:44,410 --> 00:03:48,200 Speaker 7: are giving tremendous amount of income. Plus, you have the 70 00:03:48,240 --> 00:03:53,670 Speaker 7: potential for price appreciation if spreads come come in. If 71 00:03:53,710 --> 00:03:56,130 Speaker 7: you don't have that opportunity set, if you have to 72 00:03:56,210 --> 00:04:00,610 Speaker 7: look within the equity universe, which is what many investors do, 73 00:04:01,150 --> 00:04:04,990 Speaker 7: then what is your alternative to tech and AI, which 74 00:04:05,070 --> 00:04:07,930 Speaker 7: is 40% of the S & P index? And you 75 00:04:07,990 --> 00:04:10,030 Speaker 7: need to look for something else. And so I'm not 76 00:04:10,070 --> 00:04:14,330 Speaker 7: surprised at all that people are looking for those stocks 77 00:04:14,430 --> 00:04:18,790 Speaker 7: which have a negative beta to the tech sector. And 78 00:04:18,850 --> 00:04:21,390 Speaker 7: in our context at Northern Trust, what we do is 79 00:04:21,430 --> 00:04:26,830 Speaker 7: we quantitatively look at stocks with really good quality, low volatility, 80 00:04:27,440 --> 00:04:28,060 Speaker 7: and income. 81 00:04:29,040 --> 00:04:32,839 Speaker 5: All right, your title is Global Co-CIO. How do you 82 00:04:32,860 --> 00:04:35,580 Speaker 5: think about the US versus rest of the world these days? 83 00:04:36,560 --> 00:04:39,480 Speaker 7: So there again, I think it's very interesting that the 84 00:04:39,520 --> 00:04:43,320 Speaker 7: market is starting to look for alternatives to the U.S. story, 85 00:04:43,730 --> 00:04:46,830 Speaker 7: which at a market capitalized stock level is still very 86 00:04:46,870 --> 00:04:49,870 Speaker 7: much a tech story. So there are now parsing through 87 00:04:49,910 --> 00:04:53,240 Speaker 7: countries to say, where can I get diversification from tech? 88 00:04:54,089 --> 00:04:57,270 Speaker 7: So we are overweight emerging markets, but that's still a 89 00:04:57,310 --> 00:04:58,789 Speaker 7: tech story. 90 00:04:59,150 --> 00:05:01,070 Speaker 4: EM index has. 91 00:05:00,750 --> 00:05:05,250 Speaker 7: The best returns projected this year, higher than actually the 92 00:05:05,350 --> 00:05:09,969 Speaker 7: US returns at around 30%. And that means you're long Korea, 93 00:05:10,010 --> 00:05:13,870 Speaker 7: you're long Taiwan, you're long the tech. In fact, you're 94 00:05:13,910 --> 00:05:19,030 Speaker 7: longer small component of tech, you're long semiconductors. you would see, 95 00:05:19,150 --> 00:05:22,570 Speaker 7: just as you say, just dividend stocks outperforming, you will 96 00:05:22,680 --> 00:05:28,400 Speaker 7: see globally UK, Europe, which have less exposure to tech 97 00:05:28,460 --> 00:05:32,020 Speaker 7: in their indices, outperforming in this period. So that's one 98 00:05:32,100 --> 00:05:35,620 Speaker 7: area to look at. We are still very positive on 99 00:05:35,660 --> 00:05:38,350 Speaker 7: the AI and the productivity trade. So we are long 100 00:05:38,400 --> 00:05:44,570 Speaker 7: barbelled US and EM. But we are neutral Europe and UK. 101 00:05:44,610 --> 00:05:45,690 Speaker 7: We are not underweighted. 102 00:05:46,410 --> 00:05:48,650 Speaker 6: It's an interesting development because we saw periods of this 103 00:05:48,770 --> 00:05:51,620 Speaker 6: last year where after just so many booms within the 104 00:05:51,740 --> 00:05:54,279 Speaker 6: AI trade where the first quarter of last year, the 105 00:05:54,360 --> 00:05:58,800 Speaker 6: US greatly underperformed its counterparts internationally. But then we'd see 106 00:05:58,820 --> 00:06:01,580 Speaker 6: these bounce backs where it wouldn't necessarily stick just given 107 00:06:01,610 --> 00:06:04,410 Speaker 6: the earnings picture. being historically so strong at this point 108 00:06:04,430 --> 00:06:06,650 Speaker 6: in the cycle for the S & P 500. So 109 00:06:06,990 --> 00:06:10,729 Speaker 6: when you're seeing sort of these outperformances in certain nooks overseas, 110 00:06:10,970 --> 00:06:12,870 Speaker 6: I mean, how long can that really last? Because it 111 00:06:12,910 --> 00:06:16,060 Speaker 6: seems like people keep underestimating this bull run in U.S. 112 00:06:16,080 --> 00:06:18,320 Speaker 6: stocks and it keeps proving people wrong. 113 00:06:19,100 --> 00:06:23,580 Speaker 7: That is the number one client question we have because 114 00:06:23,620 --> 00:06:26,900 Speaker 7: it's so easy to have a home bias in your portfolios. 115 00:06:27,290 --> 00:06:27,500 Speaker 9: And U.S. 116 00:06:28,450 --> 00:06:30,290 Speaker 7: Is such a great country to have a home bias 117 00:06:30,410 --> 00:06:32,390 Speaker 7: in because the stocks do so well. 118 00:06:32,410 --> 00:06:34,270 Speaker 6: And the earnings growth. 119 00:06:34,450 --> 00:06:36,790 Speaker 7: And earnings growth is tremendous. Tremendous. 120 00:06:36,890 --> 00:06:38,610 Speaker 6: Yeah, I mean, the first half of earnings growth based 121 00:06:38,650 --> 00:06:42,580 Speaker 6: on Bloomberg Intelligence data averaged over 30%. So outside of 122 00:06:42,640 --> 00:06:44,799 Speaker 6: the bounce back from COVID or the great financial crisis, 123 00:06:44,820 --> 00:06:47,219 Speaker 6: that's about the greatest earnings growth we've seen in decades. 124 00:06:47,860 --> 00:06:51,040 Speaker 7: It's really a matter of if your opportunity set is 125 00:06:51,290 --> 00:06:54,089 Speaker 7: only equities and you need a hedge, then how do 126 00:06:54,110 --> 00:06:58,630 Speaker 7: you hedge? And we saw some benefits of strong US 127 00:06:58,670 --> 00:07:03,650 Speaker 7: dollar on top of US earnings in the last few months. 128 00:07:04,190 --> 00:07:07,760 Speaker 7: But if you notice last month, that's starting to reverse also. 129 00:07:08,240 --> 00:07:13,440 Speaker 7: Because right now, the strong yields on the front end 130 00:07:13,500 --> 00:07:20,810 Speaker 7: of the curve makes US a really attractive, pays from 131 00:07:20,930 --> 00:07:24,890 Speaker 7: currency pairs point of view also. So you see strength 132 00:07:24,930 --> 00:07:28,210 Speaker 7: in US dollar for that reason also. But that sees 133 00:07:28,310 --> 00:07:32,350 Speaker 7: some wobbles as the AI trade sees some wobbles. And 134 00:07:32,390 --> 00:07:37,360 Speaker 7: you see the currency also depreciate recently, USD, when you 135 00:07:37,400 --> 00:07:41,500 Speaker 7: saw people focusing not just on the monetary policy front anymore, 136 00:07:41,840 --> 00:07:45,810 Speaker 7: but also on the flows because So much money has 137 00:07:45,870 --> 00:07:49,970 Speaker 7: flown into the country, capital flows for stocks. If that 138 00:07:49,990 --> 00:07:53,390 Speaker 7: starts reversing, that's something to worry about. 139 00:07:53,390 --> 00:07:55,770 Speaker 5: 30 seconds left on fixed income here. Do I take 140 00:07:55,810 --> 00:07:59,170 Speaker 5: credit risk or just clip the U.S. two-year treasury at 141 00:07:59,170 --> 00:07:59,370 Speaker 5: 470 here? 142 00:07:59,830 --> 00:08:02,150 Speaker 8: So that was our stance, Paul, for a while. 143 00:08:02,230 --> 00:08:07,310 Speaker 7: But I think with the growth worries and how the 144 00:08:07,350 --> 00:08:11,710 Speaker 7: yields have widened recently, we are ready to take some 145 00:08:11,750 --> 00:08:12,429 Speaker 7: credit risk. 146 00:08:12,810 --> 00:08:13,370 Speaker 10: Nice to see. 147 00:08:14,110 --> 00:08:16,240 Speaker 5: Take some credit risk out there. I mean, so go 148 00:08:16,260 --> 00:08:19,540 Speaker 5: buy some SpaceX 30, 40-year bonds. 149 00:08:19,680 --> 00:08:19,860 Speaker 6: All right. 150 00:08:20,160 --> 00:08:21,980 Speaker 5: Anvidi, thank you so much for joining us. Really appreciate it. 151 00:08:22,300 --> 00:08:27,250 Speaker 5: Anvidi Bahugana, Bahuguna, excuse me, Global Co-CIO of Northern Trust 152 00:08:27,310 --> 00:08:29,390 Speaker 5: Asset Management out there in Chicago. 153 00:08:30,310 --> 00:08:33,330 Speaker 8: Stay with us. More from Bloomberg Surveillance coming up after this. 154 00:08:40,470 --> 00:08:44,069 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live 155 00:08:44,150 --> 00:08:46,230 Speaker 1: weekday afternoons from 7 to 10 a.m. 156 00:08:46,270 --> 00:08:46,670 Speaker 4: Eastern. 157 00:08:46,770 --> 00:08:50,069 Speaker 1: Listen on Apple CarPlay and Android Auto with the Bloomberg 158 00:08:50,090 --> 00:08:51,030 Speaker 1: Business app. 159 00:08:51,070 --> 00:08:51,610 Speaker 8: Or watch us. 160 00:08:51,670 --> 00:08:52,620 Speaker 1: Live on YouTube. 161 00:08:52,980 --> 00:08:57,600 Speaker 5: Violetta Todorova joins us here. Senior Research Analyst at Leverage Shares. Violetta, 162 00:08:57,620 --> 00:09:00,800 Speaker 5: thank you so much for joining us here. What's your 163 00:09:00,920 --> 00:09:04,900 Speaker 5: outlook for stocks here? Given that we're in an interest 164 00:09:04,920 --> 00:09:07,939 Speaker 5: rate environment where it seems to be higher, and much 165 00:09:07,980 --> 00:09:10,370 Speaker 5: higher relative to the last several years higher for longer 166 00:09:10,390 --> 00:09:12,690 Speaker 5: what does that mean for stocks in your perspective. 167 00:09:15,470 --> 00:09:18,679 Speaker 9: This is a very good question especially after we've seen 168 00:09:18,780 --> 00:09:24,260 Speaker 9: the bruising sell-off in semiconductor stocks last week. So just 169 00:09:24,280 --> 00:09:27,290 Speaker 9: to answer your question is If we look at the 170 00:09:27,350 --> 00:09:30,750 Speaker 9: three major indices in the US, the S & P 171 00:09:30,750 --> 00:09:34,429 Speaker 9: 500 is just a notch below its record high, while 172 00:09:34,490 --> 00:09:41,150 Speaker 9: the Nasdaq, it's retreated about 7%. But the Philadelphia Semiconductor 173 00:09:41,170 --> 00:09:46,160 Speaker 9: Index is down 24% from its record high. So every 174 00:09:46,200 --> 00:09:50,260 Speaker 9: sector is behaving differently, but the market is laser-focused on 175 00:09:50,300 --> 00:09:55,000 Speaker 9: technology stocks. and this earnings season will definitely put earnings 176 00:09:55,160 --> 00:09:59,730 Speaker 9: into the test. But as we are entering earnings season 177 00:09:59,770 --> 00:10:03,340 Speaker 9: this week in earnest, I just had a quick look 178 00:10:03,400 --> 00:10:06,120 Speaker 9: at the charts and especially I had a look at 179 00:10:06,140 --> 00:10:11,699 Speaker 9: the semiconductor index and I started noticing some signs of 180 00:10:11,800 --> 00:10:17,050 Speaker 9: weakness and the current sell-off is resembling the sell-offs we've 181 00:10:18,070 --> 00:10:24,429 Speaker 9: seen in 2022 and 2024, our momentum indicators have broke 182 00:10:25,150 --> 00:10:29,590 Speaker 9: below its bull market range, which means that the semiconductor 183 00:10:29,670 --> 00:10:33,580 Speaker 9: sector is prone to a deeper pullback. So when I 184 00:10:33,640 --> 00:10:35,640 Speaker 9: make an analogy between 2022 and 2024, those two years, 185 00:10:35,760 --> 00:10:46,160 Speaker 9: the Philadelphia Semiconductor Index dropped significantly. 49% and 43%, and 186 00:10:46,220 --> 00:10:49,860 Speaker 9: we are now down 24%. So I think we are 187 00:10:49,940 --> 00:10:53,980 Speaker 9: likely to see an initial rebound, especially for the next 188 00:10:54,040 --> 00:10:58,570 Speaker 9: couple of weeks throughout reporting season. However, over the next 189 00:10:59,040 --> 00:11:03,430 Speaker 9: four months, I think it could be potentially more weakness coming. 190 00:11:03,970 --> 00:11:07,730 Speaker 9: And let's not confuse things because a lot of journalists 191 00:11:07,770 --> 00:11:09,910 Speaker 9: are asking me, is it similar. 192 00:11:09,530 --> 00:11:10,870 Speaker 4: To the dot-com bust? 193 00:11:11,420 --> 00:11:14,700 Speaker 9: I think we are not having a similar setup when 194 00:11:14,760 --> 00:11:20,059 Speaker 9: the semiconductors index declined 84% and the bear market lasted 195 00:11:20,160 --> 00:11:25,020 Speaker 9: for two years. Those sell-offs throughout the bull market last 196 00:11:25,090 --> 00:11:30,430 Speaker 9: around seven to eight months. And given that semiconductors peaked 197 00:11:30,510 --> 00:11:34,950 Speaker 9: around June, I would expect furthermore weakness for another four 198 00:11:35,010 --> 00:11:39,230 Speaker 9: months maximum until we finally find the bottom and then 199 00:11:39,650 --> 00:11:44,790 Speaker 9: stocks recover. However, there would be other sectors outperforming in 200 00:11:44,830 --> 00:11:45,650 Speaker 9: the coming months. 201 00:11:46,210 --> 00:11:50,350 Speaker 6: Well, the bubble arguments, Paul, when a lot of this happens, 202 00:11:50,390 --> 00:11:51,709 Speaker 6: I mean, if you look at the PE on a 203 00:11:51,770 --> 00:11:54,479 Speaker 6: forward basis ratio for the S & P 500, still 204 00:11:54,500 --> 00:11:57,559 Speaker 6: around 19 times forward earnings. So, I mean, that's much 205 00:11:57,679 --> 00:12:03,080 Speaker 6: lower than when it peaked out over above 23%. about 206 00:12:03,100 --> 00:12:07,140 Speaker 6: a year ago. So I'm curious when, Violeta, when you're 207 00:12:07,160 --> 00:12:09,000 Speaker 6: looking at this, as far as when people want to 208 00:12:09,020 --> 00:12:12,260 Speaker 6: compare this to the dot-com bubble, obviously the valuations are 209 00:12:12,300 --> 00:12:15,040 Speaker 6: very different. And then also the earnings growth is backing 210 00:12:15,160 --> 00:12:18,370 Speaker 6: up a lot of these AI-related names and corners tied 211 00:12:18,420 --> 00:12:18,950 Speaker 6: to AI. 212 00:12:21,590 --> 00:12:24,590 Speaker 4: Absolutely. So the earnings are definitely here. 213 00:12:24,710 --> 00:12:28,449 Speaker 9: And just for Q3, we are expecting to see earnings 214 00:12:28,510 --> 00:12:33,420 Speaker 9: growth of above 30%. and still resilient earnings in Q4 215 00:12:33,580 --> 00:12:39,059 Speaker 9: and throughout 2027. So definitely we are not comparing. We 216 00:12:39,100 --> 00:12:43,650 Speaker 9: are not at the same situation back to 2000 during 217 00:12:43,710 --> 00:12:44,349 Speaker 9: the dot-com burst. 218 00:12:44,429 --> 00:12:46,670 Speaker 6: Right, not like a pets.com type situation. 219 00:12:48,490 --> 00:12:49,210 Speaker 4: Absolutely. 220 00:12:49,309 --> 00:12:54,910 Speaker 9: So I think earnings are so far supporting the equity market. 221 00:12:54,970 --> 00:12:58,580 Speaker 9: And despite the strongly rising treasury. 222 00:12:58,200 --> 00:12:59,559 Speaker 3: Yields, equities. 223 00:13:00,500 --> 00:13:02,020 Speaker 4: extended their bull run. 224 00:13:02,380 --> 00:13:04,370 Speaker 9: So I think we are going to see a little 225 00:13:04,400 --> 00:13:08,590 Speaker 9: bit of a reprieve in equities, given that the October 226 00:13:08,650 --> 00:13:11,290 Speaker 9: hike is pretty much on a pause. So we are 227 00:13:11,350 --> 00:13:15,390 Speaker 9: looking at three more interest rate hikes, one in December 228 00:13:15,530 --> 00:13:18,650 Speaker 9: and potentially another two in the first half of 2027. 229 00:13:18,650 --> 00:13:25,469 Speaker 9: So if we are seeing growth of between 25% and 30%. 230 00:13:25,470 --> 00:13:29,770 Speaker 9: I think that will be sufficient by itself just to 231 00:13:29,910 --> 00:13:37,060 Speaker 9: overtake these elevated borrowing costs. And I believe after three 232 00:13:37,080 --> 00:13:42,579 Speaker 9: interest rate hikes, we will reach the peak of this 233 00:13:42,620 --> 00:13:43,540 Speaker 9: hiking season. 234 00:13:43,620 --> 00:13:46,530 Speaker 4: But of course, everything remains dependent on. 235 00:13:46,530 --> 00:13:50,429 Speaker 9: The situation in the Strait of Hormuz and where Brent 236 00:13:50,530 --> 00:13:54,190 Speaker 9: prices are going. But looking at the recent deal between 237 00:13:54,290 --> 00:14:00,110 Speaker 9: Washington and Moscow with diesel, if we have a resolution 238 00:14:00,150 --> 00:14:02,740 Speaker 9: in the Middle East conflict in the next couple of 239 00:14:02,820 --> 00:14:06,040 Speaker 9: months and we see a retreat in Brent prices, I 240 00:14:06,080 --> 00:14:09,840 Speaker 9: think treasury yields will drop and most probably the Federal 241 00:14:09,940 --> 00:14:15,359 Speaker 9: Reserve wouldn't need to deliver two more hikes in 2027 242 00:14:15,360 --> 00:14:19,410 Speaker 9: if we start seeing Brent dropping to around $ 70 which 243 00:14:19,490 --> 00:14:23,330 Speaker 9: will be a massive tailwind for equities. But if we 244 00:14:23,370 --> 00:14:27,010 Speaker 9: presume that Brent remains around 100 and we get to 245 00:14:27,050 --> 00:14:31,560 Speaker 9: see another three interest rate hikes, I think those earnings 246 00:14:31,660 --> 00:14:35,740 Speaker 9: will be put on the test. And price action most 247 00:14:35,800 --> 00:14:38,820 Speaker 9: probably is going to be choppy, but I'm not bearish 248 00:14:39,020 --> 00:14:42,700 Speaker 9: as yet. I think there is further upside in equity markets. 249 00:14:43,120 --> 00:14:46,460 Speaker 9: Just the easy gains are behind us. And most probably 250 00:14:46,520 --> 00:14:49,460 Speaker 9: we will get to see increased volatility and more choppy 251 00:14:49,520 --> 00:14:53,140 Speaker 9: price action in the next 12 months. But the overall 252 00:14:53,220 --> 00:14:56,920 Speaker 9: trend remains up and I'm still quite supportive of equities. 253 00:14:57,420 --> 00:14:59,990 Speaker 5: Hi, Violetta. Thank you so much. We appreciate it, Violetta Todorova. 254 00:15:00,350 --> 00:15:04,870 Speaker 5: She's a senior research analyst for Leveraged Shares. Stay with us. 255 00:15:04,890 --> 00:15:07,470 Speaker 8: More from Bloomberg Surveillance coming up after this. 256 00:15:14,620 --> 00:15:18,220 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live 257 00:15:18,300 --> 00:15:20,360 Speaker 1: weekday afternoons from 7 to 10 a.m. 258 00:15:20,420 --> 00:15:20,830 Speaker 4: Eastern. 259 00:15:20,920 --> 00:15:24,210 Speaker 1: Listen on Apple CarPlay and Android Auto with the Bloomberg 260 00:15:24,250 --> 00:15:26,790 Speaker 1: Business app or watch us live on YouTube. 261 00:15:27,650 --> 00:15:32,220 Speaker 5: Our next guest notes, very simple. In bold, everything is 262 00:15:32,400 --> 00:15:36,180 Speaker 5: AI and rates. I'm going to start right there. Ben McMillan, 263 00:15:36,550 --> 00:15:40,250 Speaker 5: CIO of IDX Advisors. Ben, that's been kind of the 264 00:15:40,330 --> 00:15:42,550 Speaker 5: call here. People are starting to maybe ask some more 265 00:15:42,650 --> 00:15:45,530 Speaker 5: questions about the AI trade, particularly in the context of 266 00:15:45,570 --> 00:15:48,410 Speaker 5: maybe how some of that build-out is being financed in 267 00:15:48,480 --> 00:15:50,740 Speaker 5: an environment where we do have higher rates for longer. 268 00:15:51,140 --> 00:15:52,840 Speaker 5: How do you guys kind of put that together? 269 00:15:53,380 --> 00:15:54,260 Speaker 8: No, that's exactly it. 270 00:15:54,280 --> 00:15:55,320 Speaker 10: I mean, I think, you know, you go back a 271 00:15:55,360 --> 00:15:57,180 Speaker 10: year ago and it was just, you know, the AI 272 00:15:57,260 --> 00:15:59,180 Speaker 10: trade was kind of this, you know, one block trade 273 00:15:59,200 --> 00:16:00,740 Speaker 10: and maybe it was, you know, people dumping money into 274 00:16:00,760 --> 00:16:03,600 Speaker 10: an NVIDIA or whatever. And now, not surprisingly, 10 years 275 00:16:03,640 --> 00:16:06,610 Speaker 10: backing up, investors are becoming more discriminating. We're hearing talk 276 00:16:06,650 --> 00:16:08,160 Speaker 10: about people just saying, why don't I just buy the, 277 00:16:08,190 --> 00:16:10,350 Speaker 10: you know, long bonds and, you know, forget about it. 278 00:16:11,010 --> 00:16:13,570 Speaker 10: So capital is becoming more discerning. And then CoreWeave, I think, 279 00:16:13,590 --> 00:16:15,230 Speaker 10: was kind of the canary in the coal mine last week, 280 00:16:15,310 --> 00:16:17,310 Speaker 10: you know, as it relates to your point about how 281 00:16:17,330 --> 00:16:20,400 Speaker 10: these things are being funded. Because, you know, there's a lot, 282 00:16:20,440 --> 00:16:22,470 Speaker 10: you know, they went the debt route. Whereas you look 283 00:16:22,490 --> 00:16:25,030 Speaker 10: at some of the other so-called neoclouds, which, by the way, 284 00:16:25,070 --> 00:16:27,590 Speaker 10: let's back up. This is part of the AI trade 285 00:16:27,610 --> 00:16:30,950 Speaker 10: where they're basically the middleman, the GPU middleman. Somebody had 286 00:16:30,970 --> 00:16:32,970 Speaker 10: a good analogy. It's almost like WeWork, where they get 287 00:16:33,010 --> 00:16:36,190 Speaker 10: into these long debt obligations as it relates to power 288 00:16:36,210 --> 00:16:38,410 Speaker 10: centers and data centers and things like that. And then 289 00:16:38,430 --> 00:16:39,930 Speaker 10: they need to kind of go back and rent out 290 00:16:39,970 --> 00:16:42,630 Speaker 10: the GPUs, which themselves are a depreciating asset, et cetera, 291 00:16:42,670 --> 00:16:45,750 Speaker 10: et cetera. And, you know, CoreWeave borrowed a lot of 292 00:16:45,790 --> 00:16:47,550 Speaker 10: money to do that. And now all of a sudden, 293 00:16:47,630 --> 00:16:49,790 Speaker 10: Wall Street's looking at that and saying, wait a second, like, 294 00:16:50,030 --> 00:16:52,310 Speaker 10: you know, we need to be compensated more for this. 295 00:16:52,330 --> 00:16:54,130 Speaker 10: So you see their bonds back up. You see their 296 00:16:54,320 --> 00:16:56,480 Speaker 10: CDS explode. You know, meanwhile, you look at some other 297 00:16:56,540 --> 00:16:58,860 Speaker 10: parts of that ecosystem, like Nebius is a good example. 298 00:16:59,420 --> 00:17:01,060 Speaker 10: They have the same business model, but they funded it 299 00:17:01,120 --> 00:17:04,679 Speaker 10: with shareholder equity. And so they sold off, but we're 300 00:17:04,720 --> 00:17:07,220 Speaker 10: hearing a lot of chatter of some discerning investors saying, 301 00:17:07,240 --> 00:17:08,720 Speaker 10: all right, this might be a way to get in 302 00:17:08,780 --> 00:17:11,280 Speaker 10: on that trade. So anyway, back to the original point, 303 00:17:11,480 --> 00:17:13,680 Speaker 10: Wall Street is starting to really take a close look 304 00:17:13,720 --> 00:17:17,840 Speaker 10: now at the AI trade, quote unquote, and who's going 305 00:17:17,859 --> 00:17:18,820 Speaker 10: to come out of it alive. 306 00:17:19,080 --> 00:17:21,119 Speaker 6: And over the next two weeks, we'll have more than 50% 307 00:17:21,119 --> 00:17:23,700 Speaker 6: of the market cap by the S & P 500 reporting, 308 00:17:23,830 --> 00:17:27,330 Speaker 6: including NVIDIA's top customers. So you'll have Meta later this week. 309 00:17:27,390 --> 00:17:30,550 Speaker 6: We also have, over the next couple of weeks, Amazon, Microsoft, Google, 310 00:17:31,040 --> 00:17:33,530 Speaker 6: What are you expecting to hear from them when it 311 00:17:33,570 --> 00:17:36,710 Speaker 6: comes to this CapEx story and then obviously the debt 312 00:17:36,810 --> 00:17:39,320 Speaker 6: issue that a lot of people are scrutinizing? 313 00:17:39,790 --> 00:17:41,770 Speaker 10: Well, yeah, I think you're going to start to hear, 314 00:17:42,150 --> 00:17:45,010 Speaker 10: you know, a lot of talking, you know, about the 315 00:17:45,090 --> 00:17:47,830 Speaker 10: financial engineering behind this. So my guess is irrespective of 316 00:17:47,910 --> 00:17:49,470 Speaker 10: how they're doing it, these companies are going to want 317 00:17:49,490 --> 00:17:51,090 Speaker 10: to get ahead of this after seeing what happened to 318 00:17:51,130 --> 00:17:52,790 Speaker 10: CoreWeave and say, no, we're doing it a smart way. 319 00:17:52,810 --> 00:17:54,810 Speaker 10: We're thoughtful about this, you know, whatever it might be. 320 00:17:55,270 --> 00:17:56,790 Speaker 10: And I think you're also going to start to hear 321 00:17:56,850 --> 00:17:58,210 Speaker 10: to the extent, you know, you look at some of 322 00:17:58,230 --> 00:17:59,690 Speaker 10: these players, Meta is a good example. You know, a 323 00:17:59,710 --> 00:18:02,450 Speaker 10: lot of people said, all right, you know, Muse, you know, 324 00:18:02,550 --> 00:18:04,210 Speaker 10: why should we be excited about this? And they said, listen, 325 00:18:04,250 --> 00:18:06,859 Speaker 10: we own the audience. We have the mode already. You know, 326 00:18:06,880 --> 00:18:10,840 Speaker 10: this isn't a glorified middleman business. We can directly pump 327 00:18:10,880 --> 00:18:15,070 Speaker 10: Muse into billions of customers. For the bigger companies that 328 00:18:15,180 --> 00:18:18,389 Speaker 10: have that established moat, that have the cash behind it, 329 00:18:18,770 --> 00:18:20,670 Speaker 10: I think they're going to, for lack of a better term, 330 00:18:20,690 --> 00:18:22,950 Speaker 10: kind of flex on that. And then, of course, it 331 00:18:22,970 --> 00:18:26,700 Speaker 10: remains on earnings. There's been a real concern about earnings slowdown, 332 00:18:27,960 --> 00:18:30,619 Speaker 10: token slowdown. And we've even seen that in our own models. 333 00:18:30,820 --> 00:18:33,750 Speaker 10: We went from being entirely frontier spend to We're a 334 00:18:33,760 --> 00:18:36,780 Speaker 10: small company, but we spend $ 20, 000 a month on AI compute. 335 00:18:37,240 --> 00:18:39,700 Speaker 10: Over the year, over the last 18 months, that's shifted 336 00:18:40,280 --> 00:18:42,880 Speaker 10: almost entirely to open source, open weight models, as has 337 00:18:42,920 --> 00:18:44,800 Speaker 10: a lot of other companies. So again, that's in the 338 00:18:44,840 --> 00:18:47,760 Speaker 10: zeitgeist as well as we get closer to these IPOs. 339 00:18:47,900 --> 00:18:49,879 Speaker 6: Yeah, and I mean, Meta last month, after on the 340 00:18:49,900 --> 00:18:53,280 Speaker 6: back of that news from Muse, its stock was up 27% 341 00:18:53,280 --> 00:18:57,500 Speaker 6: in September. So that was its best month since November 2022. Obviously, 342 00:18:57,580 --> 00:18:58,960 Speaker 6: when it was in the tranche, a lot of people 343 00:18:58,980 --> 00:19:01,830 Speaker 6: were doubting Meta at that time. But it's up hundreds 344 00:19:01,850 --> 00:19:03,270 Speaker 6: of percents an hour since then. 345 00:19:03,369 --> 00:19:05,050 Speaker 5: Exactly. And I was just looking at a tweet from 346 00:19:05,070 --> 00:19:06,969 Speaker 5: Dan Ives this morning. He was saying, hey, on their 347 00:19:06,990 --> 00:19:08,830 Speaker 5: earnings call, one of the key issues is for them 348 00:19:08,890 --> 00:19:12,370 Speaker 5: to articulate kind of a monetization model for views. That'll 349 00:19:12,390 --> 00:19:15,330 Speaker 5: be key. On your platform at IDX, you have funds, 350 00:19:15,430 --> 00:19:18,629 Speaker 5: you have ETFs, mutual funds. Where are you seeing the 351 00:19:18,770 --> 00:19:19,670 Speaker 5: flows these days? 352 00:19:20,530 --> 00:19:23,730 Speaker 10: So it's interesting. We've got a commodity fund, which has 353 00:19:24,340 --> 00:19:26,240 Speaker 10: gotten a lot of interest over the last year or two. 354 00:19:26,280 --> 00:19:29,119 Speaker 10: We've actually got, we call it the Alternative Fiat Fund, 355 00:19:29,340 --> 00:19:34,160 Speaker 10: ticker symbols GLDB. And it's a risk-managed gold, Bitcoin, silver, 356 00:19:34,180 --> 00:19:36,960 Speaker 10: Ethereum fund. So that's kind of aimed at the, quote unquote, 357 00:19:36,980 --> 00:19:40,330 Speaker 10: debasement trade. And that's not surprisingly gotten a lot of 358 00:19:40,369 --> 00:19:44,560 Speaker 10: interest more recently. And so when we zoom back out, 359 00:19:44,570 --> 00:19:47,230 Speaker 10: because we manage a lot of portfolios separate and distinct 360 00:19:47,250 --> 00:19:50,540 Speaker 10: from our funds, a lot of interest in tactical fixed income, 361 00:19:50,580 --> 00:19:52,300 Speaker 10: a lot of interest overseas, you know, people are starting 362 00:19:52,320 --> 00:19:55,540 Speaker 10: to look at EM, people are looking at LATAM, you know, more, uh, again. 363 00:19:55,700 --> 00:19:58,139 Speaker 10: So I would say commodities more, more broadly as part 364 00:19:58,160 --> 00:20:00,180 Speaker 10: of the conversation. So it's, you know, it's back to 365 00:20:00,220 --> 00:20:02,960 Speaker 10: kind of, you know, blocking and tackling, you know, diversification, um, 366 00:20:04,310 --> 00:20:06,710 Speaker 10: You know, and being more mindful of kind of, you know, 367 00:20:06,770 --> 00:20:08,770 Speaker 10: risks in the portfolio. I will say, though, a lot 368 00:20:08,810 --> 00:20:12,109 Speaker 10: of conversations we have, because most of our clients are advisors, institutions, 369 00:20:12,609 --> 00:20:14,790 Speaker 10: you know, they're looking at it and saying, listen, Mag7, 370 00:20:14,970 --> 00:20:16,980 Speaker 10: you know, how do we do anything other than this? 371 00:20:17,020 --> 00:20:19,060 Speaker 10: You know, because our clients, you know, if the risk 372 00:20:19,100 --> 00:20:20,740 Speaker 10: is to the upside, you know, if we kind of 373 00:20:20,780 --> 00:20:22,660 Speaker 10: sit this out and go into S & P equal 374 00:20:22,680 --> 00:20:25,459 Speaker 10: weight or a quality tilt or something like that. So 375 00:20:25,480 --> 00:20:27,139 Speaker 10: a lot of people, a lot of investors are worried 376 00:20:27,180 --> 00:20:29,190 Speaker 10: about kind of how to play this with, you know, 377 00:20:29,830 --> 00:20:31,510 Speaker 10: with managing the quote unquote upside risk. 378 00:20:31,760 --> 00:20:33,560 Speaker 6: I put out this stat last week that ended up 379 00:20:33,619 --> 00:20:36,580 Speaker 6: being snapped about this 1% streak. The S & P 380 00:20:36,580 --> 00:20:39,540 Speaker 6: 500 went without at least a 1% decline. It was 381 00:20:39,540 --> 00:20:42,240 Speaker 6: 53 consecutive sessions, and then that was ended last Wednesday. 382 00:20:42,580 --> 00:20:45,639 Speaker 6: And then, of course, the VIX below 19. But obviously, 383 00:20:45,680 --> 00:20:48,240 Speaker 6: on a micro level, there's a lot of volatility going 384 00:20:48,310 --> 00:20:50,550 Speaker 6: on underneath the hood of the indexes. Talk to us 385 00:20:50,650 --> 00:20:52,730 Speaker 6: about that and when you can't really see it on 386 00:20:52,750 --> 00:20:53,250 Speaker 6: the VIX level. 387 00:20:53,270 --> 00:20:55,310 Speaker 10: So that's an excellent, excellent point. We actually had kind 388 00:20:55,390 --> 00:20:59,359 Speaker 10: of an internal research note about this, where And investors 389 00:20:59,380 --> 00:21:00,879 Speaker 10: are asking us, the VIX is so low, the VIX 390 00:21:00,920 --> 00:21:03,929 Speaker 10: is so low, and we've been calibrated. There's a generation 391 00:21:03,970 --> 00:21:06,070 Speaker 10: of investors who have been calibrated on buy the dip, 392 00:21:06,109 --> 00:21:06,590 Speaker 10: really since 2008. 393 00:21:06,590 --> 00:21:09,770 Speaker 5: Paul was just talking about this earlier. Yeah, exactly. 394 00:21:10,830 --> 00:21:13,850 Speaker 10: But you look at the VIX, and what was interesting 395 00:21:13,890 --> 00:21:15,560 Speaker 10: is if you look at the implied correlation, at least 396 00:21:15,680 --> 00:21:19,140 Speaker 10: as of last week, it was sitting in the first percentile, 397 00:21:19,740 --> 00:21:23,400 Speaker 10: saying that the stock's correlation to each other was so, 398 00:21:23,460 --> 00:21:23,980 Speaker 10: so low. 399 00:21:24,460 --> 00:21:26,200 Speaker 5: So you're seeing a lot of dispersion. 400 00:21:26,260 --> 00:21:28,669 Speaker 10: And again, this kind of correlates well to the headline 401 00:21:28,710 --> 00:21:31,350 Speaker 10: trade where we see S & P kind of closer 402 00:21:31,450 --> 00:21:35,730 Speaker 10: at all-time highs, but 50% or whatever in a bear market. 403 00:21:35,750 --> 00:21:37,390 Speaker 10: That same thing was happening in the VIX. And that's 404 00:21:37,430 --> 00:21:39,730 Speaker 10: a powder keg, which we actually saw to some degree 405 00:21:39,760 --> 00:21:42,210 Speaker 10: kind of. detonate on, you know, since then it's, you know, 406 00:21:42,250 --> 00:21:44,310 Speaker 10: VIX is backed up to whatever it is, 22, but 407 00:21:44,350 --> 00:21:46,490 Speaker 10: that is the latent risk that was there under the 408 00:21:46,510 --> 00:21:47,210 Speaker 10: hood to your point. 409 00:21:47,410 --> 00:21:49,570 Speaker 6: So what breaks that then? When do you see it 410 00:21:49,630 --> 00:21:52,649 Speaker 6: turn from a micro story to more of a macro story? 411 00:21:52,670 --> 00:21:54,790 Speaker 6: And then you see it reflected in the VIX and other, 412 00:21:54,830 --> 00:21:55,930 Speaker 6: those volatility gauges. 413 00:21:55,970 --> 00:21:57,770 Speaker 10: Well, I mean, I, you know, I think to some degree, 414 00:21:57,790 --> 00:22:00,630 Speaker 10: we kind of started seeing that on, on Friday and 415 00:22:00,670 --> 00:22:02,840 Speaker 10: I'm not surprised that it was credit that got it there. 416 00:22:02,859 --> 00:22:04,240 Speaker 10: You know what I mean? That's the old saying, you know, 417 00:22:04,280 --> 00:22:07,180 Speaker 10: the bond holders, you know, see the risks first and, 418 00:22:07,300 --> 00:22:09,119 Speaker 10: you know, Corweave was kind of the big headline and 419 00:22:09,140 --> 00:22:12,679 Speaker 10: that just kind of I think shocks Wall Street back into, okay, 420 00:22:12,900 --> 00:22:14,660 Speaker 10: we've got to be more discerning about the risks under 421 00:22:14,680 --> 00:22:18,780 Speaker 10: the hood there. And there's always, to some degree, a 422 00:22:18,820 --> 00:22:20,800 Speaker 10: contagion effect where people start to see that and all 423 00:22:20,820 --> 00:22:22,720 Speaker 10: of a sudden it's, all right, let's move out of 424 00:22:22,760 --> 00:22:25,780 Speaker 10: credit and long duration. Let's start to de-risk more generally, 425 00:22:26,320 --> 00:22:29,369 Speaker 10: potentially buy insurance. VIX goes up. That's not saying that 426 00:22:29,380 --> 00:22:32,669 Speaker 10: there's a crash imminently, but that is saying that the 427 00:22:32,710 --> 00:22:34,590 Speaker 10: headline number for the VIX was too low and we're 428 00:22:34,609 --> 00:22:35,850 Speaker 10: starting to see it re-rate normally. 429 00:22:35,869 --> 00:22:39,210 Speaker 5: All right, so you guys have an Arizona office in Scottsdale. 430 00:22:39,890 --> 00:22:39,990 Speaker 7: Yep. 431 00:22:40,010 --> 00:22:41,630 Speaker 5: And then you have one in St. 432 00:22:41,690 --> 00:22:42,490 Speaker 6: Pete. Yep. 433 00:22:43,150 --> 00:22:44,650 Speaker 5: Where's the Lake Tahoe office? 434 00:22:46,109 --> 00:22:49,469 Speaker 10: One of our guys is from Reno, so that would 435 00:22:49,490 --> 00:22:50,050 Speaker 10: be the next one. 436 00:22:50,109 --> 00:22:50,669 Speaker 6: Okay. 437 00:22:51,040 --> 00:22:51,490 Speaker 2: All right. 438 00:22:51,580 --> 00:22:54,220 Speaker 5: Not too bad. I see this more and more people 439 00:22:54,680 --> 00:22:57,359 Speaker 5: not in the city. I can't imagine doing that, but 440 00:22:57,480 --> 00:22:59,219 Speaker 5: a lot of people are. Ben McMillan, thanks so much 441 00:22:59,260 --> 00:23:01,520 Speaker 5: for joining us. Appreciate it. Ben McMillan, he's the CIO 442 00:23:01,560 --> 00:23:05,500 Speaker 5: of IDX Investors here. Stay with us. 443 00:23:05,780 --> 00:23:08,100 Speaker 8: More from Bloomberg Surveillance coming up after this. 444 00:23:15,250 --> 00:23:18,830 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live 445 00:23:18,910 --> 00:23:20,990 Speaker 1: weekday afternoons from 7 to 10 a.m. 446 00:23:21,050 --> 00:23:21,430 Speaker 4: Eastern. 447 00:23:21,560 --> 00:23:24,840 Speaker 1: Listen on Apple CarPlay and Android Auto with the Bloomberg 448 00:23:24,859 --> 00:23:25,460 Speaker 1: Business app. 449 00:23:25,680 --> 00:23:27,400 Speaker 8: Or watch us live on YouTube. 450 00:23:28,000 --> 00:23:28,260 Speaker 7: U.S. 451 00:23:28,340 --> 00:23:32,000 Speaker 5: Peak season for air freight and shipping. That's upon us 452 00:23:32,040 --> 00:23:33,040 Speaker 5: right now as we approach the holidays. 453 00:23:33,060 --> 00:23:33,780 Speaker 6: You're just telling the economy. 454 00:23:33,859 --> 00:23:36,430 Speaker 5: Exactly right. Telling the economy. We've got some hot wars 455 00:23:36,490 --> 00:23:39,690 Speaker 5: out there. What does it mean for the global shipping business? 456 00:23:39,810 --> 00:23:44,340 Speaker 5: Oscar de Baca. He is the CEO of DHL Global Forwarding. 457 00:23:44,359 --> 00:23:46,680 Speaker 5: He joins us here. Oscar, thanks so much for taking 458 00:23:46,700 --> 00:23:48,859 Speaker 5: the time here. Just give us an overview as you 459 00:23:48,900 --> 00:23:52,270 Speaker 5: guys approach your peak season for shipping. How is the 460 00:23:52,310 --> 00:23:52,850 Speaker 5: market out there? 461 00:23:53,760 --> 00:23:58,080 Speaker 2: It's complicated, and the flows around the globe, both air 462 00:23:58,100 --> 00:24:01,540 Speaker 2: and ocean freight, are obviously complicated, but you have to 463 00:24:01,580 --> 00:24:05,860 Speaker 2: continuously watch what's happening tomorrow. But at the same time, 464 00:24:05,880 --> 00:24:09,149 Speaker 2: we actually do see that the stocks are building up 465 00:24:09,190 --> 00:24:14,409 Speaker 2: in the U.S. If I take the containers, imports is 466 00:24:14,430 --> 00:24:17,770 Speaker 2: about 10% up compared to September last year. 467 00:24:18,369 --> 00:24:21,300 Speaker 3: So you actually really start to see that happening. 468 00:24:21,340 --> 00:24:24,010 Speaker 2: We see the same thing physically in our US businesses 469 00:24:24,950 --> 00:24:28,250 Speaker 2: where you see the retail stocks moving, the retail storage, 470 00:24:28,490 --> 00:24:33,190 Speaker 2: so inventory, moving up about 5% compared to last year. 471 00:24:33,650 --> 00:24:36,920 Speaker 2: We expect that that sort of will neutralize a little bit, 472 00:24:37,060 --> 00:24:39,480 Speaker 2: and it will be pretty similar to last year. But 473 00:24:40,260 --> 00:24:44,419 Speaker 2: all that in the background of a highly complex supply 474 00:24:44,440 --> 00:24:48,980 Speaker 2: chain around the globe, where we obviously. 475 00:24:47,790 --> 00:24:50,050 Speaker 3: Have to be quite inventive on a day-to-day basis. 476 00:24:50,560 --> 00:24:53,690 Speaker 6: Oscar, talk to us about the resilience of the global 477 00:24:53,730 --> 00:24:54,449 Speaker 6: supply chains. 478 00:24:56,450 --> 00:24:59,030 Speaker 2: Yeah, I think what is really interesting to see is, 479 00:24:59,040 --> 00:25:04,940 Speaker 2: I always say that since 2019, I think, And anybody 480 00:25:04,960 --> 00:25:07,460 Speaker 2: that has something to do with supply chains has learned 481 00:25:07,480 --> 00:25:11,060 Speaker 2: resilience really fast. And if you look how agile supply 482 00:25:11,100 --> 00:25:15,340 Speaker 2: chains are today compared to then and how fast we, 483 00:25:15,359 --> 00:25:20,860 Speaker 2: but also our customers can respond to the unexpected is impressive, 484 00:25:20,900 --> 00:25:24,179 Speaker 2: but also needed and required because let's face it, since 2020, 485 00:25:24,180 --> 00:25:27,880 Speaker 2: every six months there's been a at least a surprise 486 00:25:28,100 --> 00:25:33,750 Speaker 2: in basically the geopolitical environment, and therefore global supply chains. 487 00:25:33,990 --> 00:25:36,669 Speaker 2: If I take a simple example, the Suez Canal is 488 00:25:36,690 --> 00:25:39,790 Speaker 2: still only partly used compared to what it should be, 489 00:25:39,970 --> 00:25:44,470 Speaker 2: and that adds about 10 days to, or at least 10% 490 00:25:44,470 --> 00:25:48,320 Speaker 2: to the overall transit time, in this case, to New York. 491 00:25:48,340 --> 00:25:53,359 Speaker 2: But it does mean that the capacity requirements, so the 492 00:25:53,400 --> 00:25:58,000 Speaker 2: overall available capacity of ships, is therefore reduced by 10% 493 00:25:58,000 --> 00:26:04,140 Speaker 2: compared to an increased demand. Similar with air freight, where 494 00:26:04,160 --> 00:26:06,180 Speaker 2: you see that if I take the air freight into 495 00:26:06,200 --> 00:26:11,199 Speaker 2: the US, the demand is grown by 15%, while the 496 00:26:11,220 --> 00:26:18,389 Speaker 2: actual supply is in a single-digit increase because simple factors 497 00:26:18,410 --> 00:26:21,030 Speaker 2: that become the world can't produce that many new airplanes, 498 00:26:21,130 --> 00:26:24,080 Speaker 2: freight airplanes at the same time. So you see that 499 00:26:24,119 --> 00:26:27,400 Speaker 2: that's driving not only complexity, but also, of course, freight 500 00:26:27,440 --> 00:26:30,730 Speaker 2: rates up. both in ocean and air freight, more in 501 00:26:30,790 --> 00:26:35,870 Speaker 2: air freight even. So those complexities that together with other 502 00:26:35,910 --> 00:26:40,120 Speaker 2: things like growth, for instance, in AI data centers, which 503 00:26:40,170 --> 00:26:46,220 Speaker 2: is absorbing about 23%, sorry, 42% of the total capacity 504 00:26:46,280 --> 00:26:49,240 Speaker 2: in air freight at the moment is related to AI 505 00:26:49,280 --> 00:26:53,740 Speaker 2: data center buildup and all of that. So that's within 506 00:26:53,780 --> 00:26:55,580 Speaker 2: all the things that we're doing also and puts some 507 00:26:55,600 --> 00:26:59,090 Speaker 2: pressure on the on the overall supply chains as well. 508 00:26:59,470 --> 00:27:02,450 Speaker 5: Oscar talk to us about i guess these two hot 509 00:27:02,520 --> 00:27:04,899 Speaker 5: wars we're dealing with one in iran in the in 510 00:27:04,920 --> 00:27:06,840 Speaker 5: the broader middle east and then obviously the other one 511 00:27:06,920 --> 00:27:10,460 Speaker 5: in ukraine how does that impact kind of your business 512 00:27:10,520 --> 00:27:12,300 Speaker 5: on a day-to-day basis i would think it would push 513 00:27:12,340 --> 00:27:14,879 Speaker 5: your insurance rates up your cost of doing business up 514 00:27:14,940 --> 00:27:17,290 Speaker 5: which i guess you try to pass along to customers 515 00:27:17,330 --> 00:27:19,670 Speaker 5: how does that all has been playing out over the. 516 00:27:19,609 --> 00:27:20,149 Speaker 8: Last few years. 517 00:27:21,609 --> 00:27:26,590 Speaker 2: Obviously, to start with, you mentioned insurance. That's obviously something 518 00:27:26,609 --> 00:27:30,129 Speaker 2: for customers, but also for what we provide to our customers. Indeed, 519 00:27:30,770 --> 00:27:34,510 Speaker 2: specifically in the Middle East, in the hottest months that 520 00:27:34,530 --> 00:27:36,990 Speaker 2: we have behind us, that was actually really an issue, 521 00:27:37,010 --> 00:27:42,230 Speaker 2: the insurance cost for freight going through, for obvious reasons. 522 00:27:43,230 --> 00:27:46,450 Speaker 3: You see, the other point is that obviously the whole. 523 00:27:47,790 --> 00:27:52,250 Speaker 2: air space above Russia is obviously for, not for all, 524 00:27:52,270 --> 00:27:54,550 Speaker 2: but for most of the Western Airlines is closed. 525 00:27:54,590 --> 00:27:55,310 Speaker 3: So that means that. 526 00:27:55,630 --> 00:27:59,970 Speaker 2: Distances are longer. So that's an impact that it actually has. 527 00:28:00,770 --> 00:28:05,619 Speaker 2: I spoke earlier about the routing around Africa and not 528 00:28:05,640 --> 00:28:09,220 Speaker 2: the Suez Canal anymore. That has an impact on total capacity. 529 00:28:09,950 --> 00:28:16,450 Speaker 2: And then there's obviously the day-to-day responsiveness that is required 530 00:28:16,470 --> 00:28:17,970 Speaker 2: in organizing supply chain. 531 00:28:17,990 --> 00:28:21,109 Speaker 3: So to take an example, I don't think. 532 00:28:21,090 --> 00:28:26,020 Speaker 2: Any global company would anymore source their products from one 533 00:28:26,140 --> 00:28:29,260 Speaker 2: single continent, at least not their key components, but always 534 00:28:29,300 --> 00:28:32,659 Speaker 2: make sure that you have an alternative in different continents. 535 00:28:34,410 --> 00:28:37,630 Speaker 2: So that you can always respond to the unexpected. And 536 00:28:37,990 --> 00:28:41,590 Speaker 2: that obviously means that you get more complicated supply chains. 537 00:28:41,630 --> 00:28:46,210 Speaker 2: And the average kilometer driven per product has substantially increased 538 00:28:46,330 --> 00:28:47,990 Speaker 2: over the past years, as you can see in the 539 00:28:48,020 --> 00:28:50,400 Speaker 2: globalization radar that we published last week. 540 00:28:51,190 --> 00:28:52,950 Speaker 5: Oscar, thanks so much. We really appreciate getting a few 541 00:28:52,970 --> 00:28:55,950 Speaker 5: minutes of your time. Oscar DeBach, he's the CEO of 542 00:28:56,110 --> 00:28:59,800 Speaker 5: DHL Global Forwarding, getting the update on logistics. 543 00:29:00,040 --> 00:29:04,960 Speaker 1: This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, 544 00:29:05,080 --> 00:29:09,330 Speaker 1: and anywhere else you get your podcasts. Listen live each weekday, 545 00:29:09,330 --> 00:29:14,770 Speaker 1: 7 to 10 a.m. Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, 546 00:29:15,090 --> 00:29:18,150 Speaker 1: and the Bloomberg Business app. You can also watch us 547 00:29:18,250 --> 00:29:22,250 Speaker 1: live every weekday on YouTube and always on the Bloomberg Terminal.