1 00:00:02,520 --> 00:00:13,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg 2 00:00:13,840 --> 00:00:17,920 Speaker 1: Surveillance Podcast. Catch us live weekdays at seven am Eastern 3 00:00:18,200 --> 00:00:22,000 Speaker 1: on Apple CarPlay or Android Auto with the Bloomberg Business App. 4 00:00:22,360 --> 00:00:25,680 Speaker 1: Listen on demand wherever you get your podcasts, or watch 5 00:00:25,760 --> 00:00:27,120 Speaker 1: us live on YouTube. 6 00:00:27,280 --> 00:00:29,840 Speaker 2: This is a really exquisite hour for Global Wall Street 7 00:00:29,840 --> 00:00:33,520 Speaker 2: on Monday. Dive into some conversations. Matt Hornbach from Morgan 8 00:00:33,600 --> 00:00:37,640 Speaker 2: Stanley will be listen critically as tenure in Japan for 9 00:00:37,800 --> 00:00:42,199 Speaker 2: Morgan Stanley years ago. Helene ray you may not know 10 00:00:42,280 --> 00:00:50,960 Speaker 2: the name. Helene ray Ry is exquisite on European macro economics, 11 00:00:51,000 --> 00:00:53,680 Speaker 2: and again we'll look at the transatlantic picture there. But 12 00:00:53,760 --> 00:00:55,680 Speaker 2: what Paul and I wanted to do was give you 13 00:00:56,360 --> 00:00:59,560 Speaker 2: just a tone of the equity market. There's no one 14 00:00:59,560 --> 00:01:02,480 Speaker 2: better to do that. With a lengthy conversation with Lori 15 00:01:02,600 --> 00:01:06,600 Speaker 2: Kelvisena of RBC Capital Markets, Laurie I said this at 16 00:01:06,600 --> 00:01:10,320 Speaker 2: seven o one this morning. I was thunderstruck by the 17 00:01:10,440 --> 00:01:19,640 Speaker 2: repetitive not gloom, but timidity, intentiveness, tentativeness this weekend in 18 00:01:19,800 --> 00:01:26,000 Speaker 2: equity pundits. I mean, everybody's rationalizing a nervous market. All 19 00:01:26,040 --> 00:01:29,480 Speaker 2: this history, this history that are you that nervous? 20 00:01:31,280 --> 00:01:33,600 Speaker 3: Hi? So thanks for having me Tom. Look, I would 21 00:01:33,640 --> 00:01:36,200 Speaker 3: say that I feel pretty neutral on the back half 22 00:01:36,240 --> 00:01:38,240 Speaker 3: of the year. And I know that everybody hates it 23 00:01:38,280 --> 00:01:41,160 Speaker 3: when equity strategists are neutral, because we're supposed to have 24 00:01:41,240 --> 00:01:43,479 Speaker 3: high conviction and come in and pound tables and those 25 00:01:43,520 --> 00:01:47,120 Speaker 3: sorts of things. But I do have some things that 26 00:01:47,200 --> 00:01:50,560 Speaker 3: are concerning me. I sat down with myself, you know, 27 00:01:50,600 --> 00:01:52,440 Speaker 3: sort of around the July fourth holiday when we were 28 00:01:52,440 --> 00:01:54,640 Speaker 3: sort of resetting the second half outlook, and said, you know, 29 00:01:54,680 --> 00:01:57,120 Speaker 3: how much downside do I think those things are worth 30 00:01:57,160 --> 00:01:59,480 Speaker 3: to me? And to be honest, I didn't feel like 31 00:01:59,520 --> 00:02:01,800 Speaker 3: we were doing for another growth scare or retest of 32 00:02:01,800 --> 00:02:03,920 Speaker 3: the April lows that you know, I do see some 33 00:02:04,000 --> 00:02:05,760 Speaker 3: things that I think can challenge us a little bit 34 00:02:05,760 --> 00:02:07,200 Speaker 3: in the short term, but they feel to me like 35 00:02:07,240 --> 00:02:09,480 Speaker 3: garden variety type pullbacks, which are in the five to 36 00:02:09,480 --> 00:02:12,520 Speaker 3: ten percent range and never fun, but something that you 37 00:02:12,560 --> 00:02:13,480 Speaker 3: can recover from. 38 00:02:13,560 --> 00:02:16,960 Speaker 2: Well, but that's normal. We've forgotten. Paul helped me sure 39 00:02:17,160 --> 00:02:19,640 Speaker 2: corrections are normal. Yes, am I right? 40 00:02:19,840 --> 00:02:22,440 Speaker 4: Absolutely, and I balloom this. 41 00:02:22,480 --> 00:02:26,640 Speaker 2: Weekend was comical. We're in this, I mean, come on, Paul, 42 00:02:26,680 --> 00:02:30,160 Speaker 2: we're up annualize it. We're fourteen percent on a twelve 43 00:02:30,160 --> 00:02:31,640 Speaker 2: months solbrid basis. 44 00:02:31,760 --> 00:02:31,959 Speaker 5: Yep. 45 00:02:31,960 --> 00:02:33,920 Speaker 4: And look where we came from from Off that line. 46 00:02:33,639 --> 00:02:34,960 Speaker 2: I just said, I'm lost. 47 00:02:35,080 --> 00:02:37,320 Speaker 4: So, Laurie, I guess maybe one of the key issues 48 00:02:37,320 --> 00:02:40,200 Speaker 4: for investors these days over the next coming weeks will 49 00:02:40,200 --> 00:02:43,000 Speaker 4: be earnings. And we're very, very early into this earning cycle. 50 00:02:43,040 --> 00:02:45,480 Speaker 4: Is there any takeaways plus or minus or are we 51 00:02:45,520 --> 00:02:46,679 Speaker 4: just kind of plugging along here? 52 00:02:47,560 --> 00:02:49,800 Speaker 3: Yeah? And look, I think it kind of circles back to, 53 00:02:50,000 --> 00:02:52,320 Speaker 3: you know, some of the comments Tom just made. Right, 54 00:02:52,760 --> 00:02:54,920 Speaker 3: So we've come off week one. There was sort of 55 00:02:54,919 --> 00:02:57,520 Speaker 3: a drizzle of early reporters that came in prior to 56 00:02:57,600 --> 00:03:00,760 Speaker 3: last week, and I think, you know, maybe this contributed 57 00:03:00,800 --> 00:03:03,360 Speaker 3: to some of that timidity or a little bit of caution. 58 00:03:04,040 --> 00:03:06,679 Speaker 3: But what I heard last week from the financial companies 59 00:03:06,720 --> 00:03:09,880 Speaker 3: in particular, was everything is fine, the consumer is resilient, 60 00:03:10,000 --> 00:03:12,480 Speaker 3: we're managing through we're talking to all our customers. This 61 00:03:12,520 --> 00:03:14,680 Speaker 3: is what we're hearing. But at the same time, I 62 00:03:14,720 --> 00:03:17,160 Speaker 3: was seeing words like guarded and there was definitely some 63 00:03:17,240 --> 00:03:20,360 Speaker 3: conservatism that was still going into the outlooks. And remember, 64 00:03:20,440 --> 00:03:22,600 Speaker 3: these companies are not on the forefront of tariffs for 65 00:03:22,639 --> 00:03:24,440 Speaker 3: the most part that we heard last week, but they 66 00:03:24,440 --> 00:03:27,200 Speaker 3: were still referring a lot to the uncertainty and the 67 00:03:27,240 --> 00:03:30,480 Speaker 3: policy backdropped there. So was there maybe a little bit 68 00:03:30,480 --> 00:03:32,920 Speaker 3: of scarring that's keeping them a little bit you know, 69 00:03:33,040 --> 00:03:36,920 Speaker 3: vigilant and on guard going forward. Absolutely, And that to 70 00:03:37,040 --> 00:03:39,760 Speaker 3: me was the biggest takeaway dumb question. 71 00:03:40,480 --> 00:03:43,400 Speaker 2: Are FED rate cuts good for the stock market? 72 00:03:45,320 --> 00:03:48,040 Speaker 3: I think that the market had gotten maybe a little 73 00:03:48,040 --> 00:03:51,000 Speaker 3: too optimistic in the short term about thinking the rate 74 00:03:51,080 --> 00:03:54,200 Speaker 3: cuts were coming soon. If you look at our rate 75 00:03:54,280 --> 00:03:57,440 Speaker 3: strategy team, Blake Gwenn actually pushed his call recently from 76 00:03:57,560 --> 00:04:00,760 Speaker 3: September for the first cut back into December. And as 77 00:04:00,800 --> 00:04:03,520 Speaker 3: I was talking to investors back in June time, you know, 78 00:04:03,560 --> 00:04:06,080 Speaker 3: and you know, sort running all around the country and 79 00:04:06,120 --> 00:04:09,080 Speaker 3: talking to people, and part of the bull thesis was 80 00:04:09,120 --> 00:04:12,080 Speaker 3: getting those rate cuts sooner rather than later. So I 81 00:04:12,080 --> 00:04:14,520 Speaker 3: think as we dial down some of the short term 82 00:04:14,560 --> 00:04:17,560 Speaker 3: implications or short term expectations for FED cuts, I think 83 00:04:17,560 --> 00:04:19,160 Speaker 3: that could cause a little bit of angst in the 84 00:04:19,200 --> 00:04:21,360 Speaker 3: market in the short term. But I do think, you know, 85 00:04:21,400 --> 00:04:23,799 Speaker 3: going back to Blake's call, he's pushed those cuts into 86 00:04:23,839 --> 00:04:25,920 Speaker 3: next year. So it does feel like they're coming. I 87 00:04:25,920 --> 00:04:28,000 Speaker 3: think if you were to take them completely off the table, 88 00:04:28,440 --> 00:04:31,120 Speaker 3: that would do you know, some damage. I think that 89 00:04:31,320 --> 00:04:34,440 Speaker 3: pushing back the rate cuts because of a resilient economy 90 00:04:35,760 --> 00:04:37,800 Speaker 3: and to kind of wait and see on inflation, I 91 00:04:37,800 --> 00:04:40,279 Speaker 3: think the market, you know, can absorb that without a 92 00:04:40,279 --> 00:04:42,120 Speaker 3: ton of damage, but it may create some short term 93 00:04:42,160 --> 00:04:45,159 Speaker 3: hiccuffs for a market that's come so far, so fast 94 00:04:45,160 --> 00:04:46,200 Speaker 3: in a short amount of time. 95 00:04:47,040 --> 00:04:50,400 Speaker 4: So, Laurie, what August first is going to be another 96 00:04:50,480 --> 00:04:52,800 Speaker 4: date on this whole tariff discussion. It just feels like 97 00:04:52,839 --> 00:04:57,120 Speaker 4: the market maybe has gotten complacent about tariffs and the 98 00:04:57,200 --> 00:05:00,599 Speaker 4: risk they may present in terms of e narmer growth 99 00:05:00,680 --> 00:05:03,560 Speaker 4: or inflation. Maybe that's we're going to get refocused come 100 00:05:03,560 --> 00:05:05,800 Speaker 4: this August first deadline. How are you thinking about that? 101 00:05:06,839 --> 00:05:08,520 Speaker 3: I think that's a great question. I'll tell you my 102 00:05:08,560 --> 00:05:10,600 Speaker 3: macro colleagues and I at RBC, you know, when we 103 00:05:10,640 --> 00:05:13,520 Speaker 3: compare notes on the tariff discussion, you know, we we're 104 00:05:13,560 --> 00:05:15,560 Speaker 3: sort of like, is anybody bringing up the deadline in 105 00:05:15,600 --> 00:05:18,600 Speaker 3: your meetings? And it's like, basically, no, is what we're 106 00:05:18,600 --> 00:05:21,440 Speaker 3: hearing across different asset classes. And I think there has 107 00:05:21,520 --> 00:05:24,039 Speaker 3: been a view, you know, when I've proactively brought it 108 00:05:24,120 --> 00:05:27,760 Speaker 3: up with investors that you know, we're seeing a lot 109 00:05:27,800 --> 00:05:29,719 Speaker 3: of you know, I don't want to use the word theater, right, 110 00:05:29,760 --> 00:05:33,240 Speaker 3: but I think there is an expectation that there there is, 111 00:05:33,320 --> 00:05:35,240 Speaker 3: you know, sort of an image that's going on, and 112 00:05:35,279 --> 00:05:37,120 Speaker 3: things are going to be pushed back and things are 113 00:05:37,120 --> 00:05:39,000 Speaker 3: not going to end up being that dire. You know, 114 00:05:39,040 --> 00:05:41,000 Speaker 3: where I shake out Paul as I do think that 115 00:05:41,080 --> 00:05:43,200 Speaker 3: we're going to have more tariffs than what we had 116 00:05:43,200 --> 00:05:44,840 Speaker 3: to start of the year, and I think that there 117 00:05:44,880 --> 00:05:48,719 Speaker 3: are inflationary impacts. So where I'm concerned about complacency is 118 00:05:48,760 --> 00:05:50,960 Speaker 3: when I have investors coming into me and saying, hey, 119 00:05:50,960 --> 00:05:54,400 Speaker 3: we got this soft CPI print, see tariffs aren't inflationary, 120 00:05:54,720 --> 00:05:57,240 Speaker 3: and I just don't think that's realistic. I think companies 121 00:05:57,279 --> 00:05:59,680 Speaker 3: have been working through a lot of inventory, and they've 122 00:05:59,680 --> 00:06:02,440 Speaker 3: been put plans into place, and you're starting to see 123 00:06:02,440 --> 00:06:06,000 Speaker 3: those gears of price increases turning. They're just turning very slowly. 124 00:06:06,080 --> 00:06:07,719 Speaker 3: But to be honest, this isn't that different from what 125 00:06:07,839 --> 00:06:10,200 Speaker 3: happened back in twenty eighteen. And if you look at 126 00:06:10,200 --> 00:06:13,080 Speaker 3: twenty nineteen earnings, they were flat with twenty eighteen for 127 00:06:13,120 --> 00:06:15,640 Speaker 3: the S and P so I worry that investors are 128 00:06:15,920 --> 00:06:17,960 Speaker 3: kind of saying, hey, we're not getting anything and we're 129 00:06:18,000 --> 00:06:19,640 Speaker 3: just going to get stuff later, and it's going to 130 00:06:19,680 --> 00:06:21,880 Speaker 3: actually impair the outlook for next year a bit. 131 00:06:22,440 --> 00:06:23,800 Speaker 2: We say good morning to all of you and you 132 00:06:24,520 --> 00:06:28,000 Speaker 2: across America. Good morning on Serious Exem Channel one twenty one, 133 00:06:28,320 --> 00:06:31,839 Speaker 2: ninety nine and one FM. Nathan Ager Radio in Washington 134 00:06:32,360 --> 00:06:35,800 Speaker 2: ninety two nine FM. Huge response for Arnold's out in 135 00:06:35,839 --> 00:06:39,240 Speaker 2: East Orleans today. I just so much. It's a killer. 136 00:06:39,320 --> 00:06:42,840 Speaker 2: It's like it's like my childhood. You know, I'm looking 137 00:06:42,920 --> 00:06:46,599 Speaker 2: Paul August one is like this big date. I'm not 138 00:06:46,760 --> 00:06:50,760 Speaker 2: focused because I'm looking at WWE SummerSlam, the two day 139 00:06:50,800 --> 00:06:54,799 Speaker 2: combo ticket out at MetLife Stadium. The seats I deserve 140 00:06:55,000 --> 00:06:56,640 Speaker 2: are nine hundred and thirty dollars. 141 00:06:56,720 --> 00:06:58,360 Speaker 4: Sure, that's for WLF. 142 00:06:58,000 --> 00:07:02,920 Speaker 2: Summer Slam met Light. And you know, with Lauren Calvasina, 143 00:07:03,160 --> 00:07:06,719 Speaker 2: I'm looking at this fixation here and it's just an 144 00:07:06,760 --> 00:07:10,040 Speaker 2: excuse to get in cash. Is there any value to 145 00:07:10,120 --> 00:07:13,720 Speaker 2: cash right now? Or does Lauren Calvasina say forget about 146 00:07:13,720 --> 00:07:17,120 Speaker 2: the WWE SummerSlam, you got to be in the market. 147 00:07:18,640 --> 00:07:20,880 Speaker 3: Well, look, I'm an equity strategist. Right, So I'm always 148 00:07:20,880 --> 00:07:23,440 Speaker 3: going to want you to be investing in stocks. You know, 149 00:07:23,480 --> 00:07:25,880 Speaker 3: that's just sort of the nature of the beast. And 150 00:07:25,920 --> 00:07:28,520 Speaker 3: we did, you know, sort of take the approach, you know, 151 00:07:28,560 --> 00:07:30,800 Speaker 3: when we've had conversations, especially I would say with newer, 152 00:07:30,880 --> 00:07:34,400 Speaker 3: younger investors this year of it's always impossible, you know, 153 00:07:34,400 --> 00:07:36,680 Speaker 3: just sort of in real time call turns in the market. So, 154 00:07:37,160 --> 00:07:39,480 Speaker 3: you know, I think clients have been sort of doubting 155 00:07:39,520 --> 00:07:41,680 Speaker 3: their own ability to sort of forecast some of the 156 00:07:42,080 --> 00:07:44,040 Speaker 3: noise coming out of DC and some of you know, 157 00:07:44,080 --> 00:07:46,600 Speaker 3: the drama and the headlines and say, you know, I 158 00:07:46,680 --> 00:07:49,080 Speaker 3: have sort of a reasonable expectations of where things are 159 00:07:49,080 --> 00:07:50,840 Speaker 3: going to be next year, let me just kind of 160 00:07:50,920 --> 00:07:53,920 Speaker 3: ignore the short term and position for the long term. 161 00:07:53,960 --> 00:07:55,760 Speaker 3: And I don't you know, I think it is a 162 00:07:55,800 --> 00:07:58,040 Speaker 3: little early to be looking at twenty twenty six. But 163 00:07:58,080 --> 00:07:59,720 Speaker 3: I sympathize with the impulse. 164 00:08:00,200 --> 00:08:04,880 Speaker 4: I do small cap mid cap relative to what I 165 00:08:04,920 --> 00:08:07,720 Speaker 4: think I hear most often, which is large cap growth. 166 00:08:07,800 --> 00:08:11,120 Speaker 4: So how do you think about different market cap plays here? 167 00:08:11,920 --> 00:08:13,840 Speaker 3: So it's a great question. I mean, if you look 168 00:08:13,880 --> 00:08:16,120 Speaker 3: at the hedge funds, they like to place small caps 169 00:08:16,400 --> 00:08:19,080 Speaker 3: on dialing up and dialing down FED expectations, and I 170 00:08:19,080 --> 00:08:20,920 Speaker 3: think we're in the moment of kind of dialing down 171 00:08:21,040 --> 00:08:23,600 Speaker 3: short term FED expectations. And these folks tend to be 172 00:08:23,640 --> 00:08:25,880 Speaker 3: short term in nature. They're not making twenty twenty six 173 00:08:25,920 --> 00:08:28,640 Speaker 3: bets yet, and so if I'm, you know, sort of 174 00:08:28,640 --> 00:08:31,560 Speaker 3: in the process of taking small caps, I think that, 175 00:08:31,760 --> 00:08:33,640 Speaker 3: you know, it's hard for me to see the short 176 00:08:33,679 --> 00:08:37,040 Speaker 3: term out performance pop from that perspective. I also think 177 00:08:37,080 --> 00:08:40,160 Speaker 3: that smaller cap companies have a harder time managing around 178 00:08:40,200 --> 00:08:43,600 Speaker 3: issues like tariffs. I've been reading some nine SMP transcripts 179 00:08:43,640 --> 00:08:45,520 Speaker 3: recently and I've absolutely seen that in some of the 180 00:08:45,559 --> 00:08:48,000 Speaker 3: prints that I've looked at, And I think you want 181 00:08:48,040 --> 00:08:50,640 Speaker 3: economic tailwinds back, and that's like two and a half 182 00:08:50,679 --> 00:08:54,840 Speaker 3: percent GDP and FP ramping ism, manufacturing moving up. I think, 183 00:08:54,960 --> 00:08:57,199 Speaker 3: you know, if I look across the street, the expectations 184 00:08:57,200 --> 00:09:00,000 Speaker 3: are for a sluggish economic growth backdrop for quite some time. 185 00:09:00,160 --> 00:09:02,560 Speaker 3: So people are trying to get bullish on small caps. 186 00:09:02,880 --> 00:09:05,440 Speaker 3: I'm really kind of scratching my head on Laurie. 187 00:09:05,280 --> 00:09:08,720 Speaker 2: Thank you. That was brilliant. And the issue here, Lori Calvicina, 188 00:09:08,880 --> 00:09:10,920 Speaker 2: is we've been trying to get bullish in small caps 189 00:09:10,920 --> 00:09:16,000 Speaker 2: for what ten for fifteen years? I mean, it's ridiculous 190 00:09:16,040 --> 00:09:19,000 Speaker 2: on the large cap question, and you're going to say, well, 191 00:09:19,040 --> 00:09:20,880 Speaker 2: it's not something I really look at, But come on, 192 00:09:21,280 --> 00:09:27,559 Speaker 2: everybody listening is wedded to ten twenty thirty stocks. What's 193 00:09:27,640 --> 00:09:29,600 Speaker 2: that vision out three years? 194 00:09:30,920 --> 00:09:33,000 Speaker 3: So look, and you know we do do work on that, 195 00:09:33,040 --> 00:09:36,600 Speaker 3: you know, we just we put our horizons a bit 196 00:09:36,640 --> 00:09:38,640 Speaker 3: broader as well. And look, I would say, if I'm 197 00:09:38,679 --> 00:09:42,800 Speaker 3: thinking very very short term, we do often see the 198 00:09:42,800 --> 00:09:46,440 Speaker 3: megacap growth stocks sort of seed their earnings leadership and 199 00:09:46,520 --> 00:09:50,160 Speaker 3: seed their performance leadership during reporting season. So what do 200 00:09:50,280 --> 00:09:52,400 Speaker 3: I mean by that, Well, you tend to see outside 201 00:09:52,400 --> 00:09:54,720 Speaker 3: of reporting season, the rate of upward divisions are earning 202 00:09:54,760 --> 00:09:57,360 Speaker 3: sentiment is really really strong for the top ten companies 203 00:09:57,400 --> 00:09:59,720 Speaker 3: relative to the rest of the SMP, and that tends 204 00:09:59,760 --> 00:10:02,840 Speaker 3: to down during reporting season as people actually start to 205 00:10:02,880 --> 00:10:04,640 Speaker 3: think about the other companies and then you see a 206 00:10:04,640 --> 00:10:07,280 Speaker 3: little bit more relative excitement there. So we may be 207 00:10:07,400 --> 00:10:10,720 Speaker 3: heading into something like that. Now, if I'm thinking out 208 00:10:10,800 --> 00:10:12,680 Speaker 3: you know, the next few years, I'll tell you what 209 00:10:12,720 --> 00:10:15,640 Speaker 3: I've been hearing on the road from investors is maybe 210 00:10:15,679 --> 00:10:19,440 Speaker 3: a more rational view of where AI is headed and 211 00:10:19,480 --> 00:10:22,400 Speaker 3: it's you know, kind of moved from instant gratification and 212 00:10:22,840 --> 00:10:26,640 Speaker 3: instant you know, sort of injecting optimism into earnings, at 213 00:10:26,760 --> 00:10:29,200 Speaker 3: least outside of those you know, top megacap names. It's 214 00:10:29,240 --> 00:10:31,320 Speaker 3: not going to be the thing that fixes you know, 215 00:10:31,360 --> 00:10:34,400 Speaker 3: things for everybody right now. But I think companies are 216 00:10:34,720 --> 00:10:36,880 Speaker 3: investors are realizing that companies is just going to take 217 00:10:36,920 --> 00:10:40,000 Speaker 3: them more time to get this technology right and additive 218 00:10:40,000 --> 00:10:42,920 Speaker 3: to earnings. And if you look out longer term earnings 219 00:10:42,920 --> 00:10:45,080 Speaker 3: growth forecasts are still stronger for the mag seven than 220 00:10:45,120 --> 00:10:46,640 Speaker 3: the rest of the market. They're just slowing down. 221 00:10:46,559 --> 00:10:48,920 Speaker 2: A little, kay, But you don't do an individual stock. 222 00:10:49,000 --> 00:10:52,480 Speaker 2: There's a small company Redmond, Washington. We won't mention it, 223 00:10:52,679 --> 00:10:55,280 Speaker 2: and the bottom line is it's got a thirty eight multiple. 224 00:10:55,800 --> 00:10:59,680 Speaker 2: But the answer is out three years a Lori kelvisine 225 00:10:59,720 --> 00:11:04,440 Speaker 2: is showing out three years. You just assume they earn 226 00:11:04,520 --> 00:11:08,680 Speaker 2: their way into a denominator which makes a thirty eight multiple, 227 00:11:08,760 --> 00:11:09,880 Speaker 2: right now? Rational? 228 00:11:10,040 --> 00:11:12,760 Speaker 3: Right, Well, what I'll tell you I'm seeing in my 229 00:11:12,800 --> 00:11:14,559 Speaker 3: Decktom and Tom, you and I have known each other 230 00:11:14,600 --> 00:11:16,960 Speaker 3: a long time. I am sort of like anti theme, 231 00:11:17,080 --> 00:11:19,760 Speaker 3: anti fad, like I am never you know, sort of 232 00:11:19,800 --> 00:11:22,160 Speaker 3: drinking the kool aid on the next hot thing. But 233 00:11:22,280 --> 00:11:24,720 Speaker 3: I've been calmed down a little bit on this AI 234 00:11:24,760 --> 00:11:27,520 Speaker 3: theme because when I look at the top ten megacap 235 00:11:27,600 --> 00:11:29,160 Speaker 3: names in the S and P five hundred, which are 236 00:11:29,240 --> 00:11:32,320 Speaker 3: largely AI plays, and I do a median PE of 237 00:11:32,360 --> 00:11:35,199 Speaker 3: those companies, and I compare it to the long term 238 00:11:35,200 --> 00:11:38,120 Speaker 3: growth expectations, and I take those two things right, and 239 00:11:38,160 --> 00:11:41,320 Speaker 3: I look at MAG seven versus rest of the S 240 00:11:41,400 --> 00:11:44,560 Speaker 3: and P. The relative PE line is the same line 241 00:11:44,640 --> 00:11:47,160 Speaker 3: as the relative long term earnings growth line, so they're 242 00:11:47,160 --> 00:11:51,120 Speaker 3: getting different multiples, but it's based on the differing perceptions 243 00:11:51,120 --> 00:11:53,720 Speaker 3: of what the long term earnings growth rates are. And 244 00:11:53,760 --> 00:11:55,960 Speaker 3: that's been very similar to what we tend to see 245 00:11:56,000 --> 00:11:57,680 Speaker 3: over time. I think there was a breakdown in that 246 00:11:57,720 --> 00:12:00,839 Speaker 3: relationship around the GFC briefly, but this is even how 247 00:12:00,880 --> 00:12:03,880 Speaker 3: stocks behaved back in the nineties and early two thousands. 248 00:12:04,080 --> 00:12:06,760 Speaker 3: So I think you've really got to tackle those long 249 00:12:06,840 --> 00:12:09,320 Speaker 3: term earnings growth expectations. And you've either got to just 250 00:12:09,400 --> 00:12:12,719 Speaker 3: like bang down the MAG seven trade and say their 251 00:12:12,800 --> 00:12:14,920 Speaker 3: numbers are way too optimistic, or you've got to look 252 00:12:14,920 --> 00:12:16,240 Speaker 3: at the rest of the market and say it's way 253 00:12:16,240 --> 00:12:19,400 Speaker 3: too pessimistic and move those up and we're just not 254 00:12:19,600 --> 00:12:22,079 Speaker 3: seeing any change in that relative gap, so they're kind 255 00:12:22,120 --> 00:12:24,200 Speaker 3: of each getting the relative pe they deserve. 256 00:12:24,600 --> 00:12:27,640 Speaker 2: That's the key issue, Paul, is we haven't seen a 257 00:12:27,760 --> 00:12:31,840 Speaker 2: change in the zeitgeist. Everybody's publishing and all that opinions 258 00:12:31,880 --> 00:12:33,760 Speaker 2: in that, but it's still the way it is. Paul, 259 00:12:33,800 --> 00:12:34,760 Speaker 2: get one more in here with. 260 00:12:34,760 --> 00:12:38,319 Speaker 4: LORI evaluation here, Laurie, how do you kind of break 261 00:12:38,320 --> 00:12:40,319 Speaker 4: that down for your clients here? Just of the market 262 00:12:40,320 --> 00:12:40,760 Speaker 4: in general? 263 00:12:41,600 --> 00:12:44,120 Speaker 3: So look small caps, you know, had hit recession lows 264 00:12:44,120 --> 00:12:46,440 Speaker 3: on April eighth, and they're now back to average, so 265 00:12:46,480 --> 00:12:48,600 Speaker 3: they're fine, but they're not super cheap the way they 266 00:12:48,600 --> 00:12:50,600 Speaker 3: were S and P. If I look at a market 267 00:12:50,600 --> 00:12:53,679 Speaker 3: cap weighted multiple, never got cheap, did work its way 268 00:12:53,720 --> 00:12:55,679 Speaker 3: down from peak, and no, it's right back up to peak. 269 00:12:55,960 --> 00:12:57,520 Speaker 3: If I look at rest of S and P and 270 00:12:57,600 --> 00:13:00,240 Speaker 3: just do an equal weighted multiple over there, think we're 271 00:13:00,240 --> 00:13:03,160 Speaker 3: trade around eighteen times. It had been down around sixteen. Again, 272 00:13:03,240 --> 00:13:05,520 Speaker 3: never got to average, but it's not quite back to peak. 273 00:13:05,760 --> 00:13:07,439 Speaker 3: So I feel like in the short term there's a 274 00:13:07,440 --> 00:13:09,120 Speaker 3: little bit of a catch up tray that the rest 275 00:13:09,120 --> 00:13:11,760 Speaker 3: of the market needs to do relative to the mag 276 00:13:11,880 --> 00:13:15,040 Speaker 3: seven you can watch that Russell pe really closely, because 277 00:13:15,080 --> 00:13:16,920 Speaker 3: what it did this past time was peak out around 278 00:13:16,960 --> 00:13:19,559 Speaker 3: the twenty sixteen through twenty eighteen highs. We're way far 279 00:13:19,640 --> 00:13:21,960 Speaker 3: off from that yet, so maybe that's an uber bowl argument. 280 00:13:22,440 --> 00:13:25,360 Speaker 3: But I see different valuations in different parts of the market, 281 00:13:25,400 --> 00:13:27,520 Speaker 3: and the capwaight at SMP is getting worrisome again. 282 00:13:27,880 --> 00:13:30,640 Speaker 2: Laurie, thank you so much. Lori kelviseen a terrific brief there, 283 00:13:30,800 --> 00:13:33,640 Speaker 2: RBC Capital Markets. What we'd like to do on a Monday, 284 00:13:33,679 --> 00:13:37,040 Speaker 2: Folks's iniquities, Bond's currencies and commodities. 285 00:13:42,520 --> 00:13:46,120 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live 286 00:13:46,160 --> 00:13:49,320 Speaker 1: weekday afternoons from seven to ten am Eastern. Listen on 287 00:13:49,440 --> 00:13:52,840 Speaker 1: Apple Karplay and Android Auto with the Bloomberg Business app, 288 00:13:53,000 --> 00:13:54,760 Speaker 1: or watch us live on YouTube. 289 00:13:55,120 --> 00:13:56,760 Speaker 2: Just one of the things you're doing here mid July 290 00:13:57,000 --> 00:14:00,640 Speaker 2: into a July thirty FED meeting or any is coming 291 00:14:00,679 --> 00:14:05,079 Speaker 2: out stillantis can? I isn't stillantis Chrysler, Yes, but it's 292 00:14:05,080 --> 00:14:10,280 Speaker 2: a combo like yeah, I think Fiat Renault Poojit like 293 00:14:10,360 --> 00:14:11,400 Speaker 2: I don't know what's in there. 294 00:14:11,520 --> 00:14:12,040 Speaker 6: I don't know. 295 00:14:12,200 --> 00:14:16,200 Speaker 2: Bob Michael's looking at me like Tom you're butchering the pronunciations. 296 00:14:16,600 --> 00:14:19,120 Speaker 2: We started with Troy Guyski in Deborah Cunningham and now 297 00:14:19,160 --> 00:14:23,400 Speaker 2: Bob Michael with JP Morgan here, and my great theme 298 00:14:23,480 --> 00:14:26,680 Speaker 2: is over the weekend, just lots of be careful, lot 299 00:14:26,680 --> 00:14:30,080 Speaker 2: of worry and caution and all that. I looked at 300 00:14:30,080 --> 00:14:34,240 Speaker 2: a famous blended bond market fun not JP Morgan, and 301 00:14:34,320 --> 00:14:36,160 Speaker 2: I think year to date, if I make it an 302 00:14:36,240 --> 00:14:40,440 Speaker 2: annualized statistic, is a six and a half percent return 303 00:14:40,520 --> 00:14:43,480 Speaker 2: in the bond market. Things aren't that bad, are they. 304 00:14:44,240 --> 00:14:44,600 Speaker 6: They're not. 305 00:14:45,040 --> 00:14:49,920 Speaker 7: There's a phenomenal resilience to both the US economy and 306 00:14:50,200 --> 00:14:54,240 Speaker 7: US markets or bond markets globally. To be honest, if 307 00:14:54,240 --> 00:14:56,120 Speaker 7: you look at some of the things that have gone 308 00:14:56,120 --> 00:14:58,560 Speaker 7: on this year, none of them are good for the 309 00:14:58,640 --> 00:15:02,880 Speaker 7: bond market. You've got tariffs that means higher prices, higher inflation. 310 00:15:03,320 --> 00:15:06,720 Speaker 7: You've got the one big beautiful Bill Act that means 311 00:15:06,920 --> 00:15:10,200 Speaker 7: a lot more spending, which supports higher prices. Each of 312 00:15:10,240 --> 00:15:13,720 Speaker 7: those two are north of three trillion dollars. Then you 313 00:15:13,840 --> 00:15:18,520 Speaker 7: have the sell American noise out there constantly that should 314 00:15:18,520 --> 00:15:21,720 Speaker 7: be putting pressure on US bonds. And then there's talk 315 00:15:21,840 --> 00:15:25,200 Speaker 7: of global issuance in bonds going through the roof. You're 316 00:15:25,200 --> 00:15:28,160 Speaker 7: seeing some of that that should put pressure on bond 317 00:15:28,240 --> 00:15:31,720 Speaker 7: But through all of that, here we are with the 318 00:15:31,800 --> 00:15:35,040 Speaker 7: ten year treasury flat to the Fed funds rate where 319 00:15:35,080 --> 00:15:37,880 Speaker 7: it's been for most of the year. You're grabbing the coupon, 320 00:15:38,800 --> 00:15:42,360 Speaker 7: you're getting the coupon, and as long as there's no 321 00:15:42,440 --> 00:15:46,240 Speaker 7: recession on the horizon, you're buying credit and picking up 322 00:15:46,280 --> 00:15:47,360 Speaker 7: the incremental yield. 323 00:15:47,800 --> 00:15:50,840 Speaker 4: Where do you see value in credit these days? Because 324 00:15:50,960 --> 00:15:52,560 Speaker 4: again it looks to me, I'm just looking at the 325 00:15:52,840 --> 00:15:55,280 Speaker 4: end go function, the Bloomberg terminal. The best performance has 326 00:15:55,280 --> 00:15:57,080 Speaker 4: been US corporate high yield. 327 00:15:58,200 --> 00:16:03,400 Speaker 7: It has been and we've always said, in any backup 328 00:16:03,640 --> 00:16:06,840 Speaker 7: in high yield, you buy it unless you think you're 329 00:16:06,880 --> 00:16:10,760 Speaker 7: going into recession. Then by definition that's when you worry. 330 00:16:10,800 --> 00:16:14,160 Speaker 7: That's when you get out because there will be de risking, 331 00:16:14,640 --> 00:16:18,320 Speaker 7: that's when corporate profitability drops. And everyone's worried about the 332 00:16:18,360 --> 00:16:22,280 Speaker 7: false rising. But the reality is there's a ton of 333 00:16:22,320 --> 00:16:25,760 Speaker 7: money on the sidelines looking to get into the bond market. 334 00:16:26,200 --> 00:16:32,160 Speaker 7: Both institutional and retail investors feel under allocated to fixed income. 335 00:16:32,320 --> 00:16:34,640 Speaker 2: Can I ask a rude question? First? One a Monday 336 00:16:34,680 --> 00:16:38,000 Speaker 2: Room question at JP market. How much is a ton 337 00:16:38,040 --> 00:16:41,120 Speaker 2: of money? Like if somebody shows up, is it like 338 00:16:41,160 --> 00:16:45,120 Speaker 2: one hundred million? Ah? You know what's the measurement of 339 00:16:45,160 --> 00:16:46,080 Speaker 2: a ton of money? 340 00:16:46,280 --> 00:16:47,960 Speaker 7: Bigger than a couple bushels? 341 00:16:49,480 --> 00:16:52,480 Speaker 4: So why are they underinvested market? Because for the first 342 00:16:52,520 --> 00:16:56,560 Speaker 4: time in fifteen years we can actually get total coupon 343 00:16:56,680 --> 00:16:57,240 Speaker 4: return here. 344 00:16:57,240 --> 00:16:58,040 Speaker 3: Why are they under. 345 00:16:58,200 --> 00:17:01,440 Speaker 7: Yeah, that's as you just said it, the first time 346 00:17:01,480 --> 00:17:04,720 Speaker 7: in fifteen years. It was the fifteen years before that 347 00:17:05,200 --> 00:17:08,960 Speaker 7: the zero and negative interest rate policy. People looked at 348 00:17:09,000 --> 00:17:11,399 Speaker 7: bonds and said, eh, not going to do it, and 349 00:17:11,440 --> 00:17:14,720 Speaker 7: either left money in cash or went into alternatives. Now 350 00:17:14,720 --> 00:17:18,320 Speaker 7: they feel overallocated to alternatives, under allocated to bonds and. 351 00:17:18,320 --> 00:17:21,320 Speaker 2: Our global Wall Street question of the day adding in 352 00:17:21,440 --> 00:17:24,920 Speaker 2: your intern slash junior analysts whatever they're calling them, a 353 00:17:25,240 --> 00:17:29,520 Speaker 2: JP Morgan summer analysts, summer analysts. How many people are 354 00:17:29,600 --> 00:17:37,000 Speaker 2: under Bob Michael just twenty thousand, four hundred, four hundred, 355 00:17:37,040 --> 00:17:39,760 Speaker 2: four hundred is how many of those people have never 356 00:17:39,800 --> 00:17:42,520 Speaker 2: really seen a coupon market? How many of this is 357 00:17:42,560 --> 00:17:46,920 Speaker 2: all new? Out of four hundred? Seriously, is this all new? 358 00:17:47,240 --> 00:17:51,680 Speaker 7: Now? You're you're right, the majority of people in our 359 00:17:51,760 --> 00:17:57,080 Speaker 7: business have been in the industry post Great Financial Crisis, 360 00:17:57,600 --> 00:18:02,760 Speaker 7: so central bank intervention di stortion of bond markets looks normal. 361 00:18:03,240 --> 00:18:07,240 Speaker 7: Whereas we as a franchise the broader JP Morgan Chase Field, 362 00:18:07,240 --> 00:18:10,080 Speaker 7: we are going back to a world that existed pre 363 00:18:10,200 --> 00:18:12,000 Speaker 7: financial crisis. 364 00:18:11,440 --> 00:18:13,880 Speaker 2: When Russia blew up. I went back and read the 365 00:18:13,920 --> 00:18:17,200 Speaker 2: history of JP. Morgan in Russia in nineteen oh seven. 366 00:18:17,400 --> 00:18:20,040 Speaker 4: That's how far back we go, exactly right, what a history? 367 00:18:21,119 --> 00:18:25,919 Speaker 4: So our Federal Reserve? How are you parsing through the 368 00:18:25,960 --> 00:18:28,480 Speaker 4: noise and so on about leadership at the FED as 369 00:18:28,720 --> 00:18:31,520 Speaker 4: and then getting down to where policy may shake out 370 00:18:31,560 --> 00:18:32,080 Speaker 4: for the FED? 371 00:18:32,600 --> 00:18:39,359 Speaker 7: Well, I do believe that the FED members the FOMC 372 00:18:39,640 --> 00:18:43,600 Speaker 7: do come in every day, look at data and try 373 00:18:43,800 --> 00:18:48,439 Speaker 7: to make the best possible decisions. So they understand the 374 00:18:48,480 --> 00:18:52,479 Speaker 7: importance of their role. They understand the judgment that history 375 00:18:52,520 --> 00:18:56,119 Speaker 7: will make. They get all of that. They're in a 376 00:18:56,119 --> 00:19:00,520 Speaker 7: difficult position because they know prices will go up once 377 00:19:00,760 --> 00:19:04,520 Speaker 7: the full strength of tariffs hits, and maybe even this 378 00:19:04,680 --> 00:19:08,520 Speaker 7: quarter there will be more passed through from corporate America. 379 00:19:08,920 --> 00:19:12,359 Speaker 7: They also feel that it could slow down growth, that 380 00:19:12,880 --> 00:19:16,800 Speaker 7: if there are higher prices, businesses and households will probably 381 00:19:16,880 --> 00:19:20,960 Speaker 7: spend a bit less, So why not just hold rates 382 00:19:21,000 --> 00:19:24,399 Speaker 7: where they are for now and see some of these 383 00:19:24,520 --> 00:19:27,640 Speaker 7: impacts in the real data. I think that's the right 384 00:19:27,720 --> 00:19:30,320 Speaker 7: thing to do. And as we start out with, markets 385 00:19:30,320 --> 00:19:32,639 Speaker 7: are doing great, the economy is doing it fine. 386 00:19:32,440 --> 00:19:35,480 Speaker 2: And pomportant to zeitgeist this weekend, mister Bessan, sitting on 387 00:19:35,560 --> 00:19:38,000 Speaker 2: the couch in the Oval office, Yes, suggested to the 388 00:19:38,000 --> 00:19:39,240 Speaker 2: president slow things down. 389 00:19:39,320 --> 00:19:41,639 Speaker 4: Yep, exactly. I'm looking through your notes here, Bob. One 390 00:19:41,640 --> 00:19:43,199 Speaker 4: of the things that jumped out of me is local 391 00:19:43,320 --> 00:19:44,200 Speaker 4: emerging market. 392 00:19:44,280 --> 00:19:45,399 Speaker 6: That tell us about that. 393 00:19:45,480 --> 00:19:47,160 Speaker 4: How do you think about emerging markets today? 394 00:19:48,560 --> 00:19:48,919 Speaker 6: Local? 395 00:19:49,240 --> 00:19:53,159 Speaker 7: Well, Emerging markets in general have been overlooked for the 396 00:19:53,240 --> 00:19:56,160 Speaker 7: last seven or eight years, and when we look at 397 00:19:56,640 --> 00:20:02,680 Speaker 7: flows into different assets classes, they've gone into equity, some 398 00:20:02,720 --> 00:20:05,600 Speaker 7: have trickled into different parts of the bond market, but 399 00:20:06,000 --> 00:20:11,119 Speaker 7: with shocking consistency, there have been outflows from emerging market 400 00:20:11,160 --> 00:20:14,600 Speaker 7: equities and emerging market debts. So they've been orphaned, yet 401 00:20:14,640 --> 00:20:18,600 Speaker 7: they've done well. And this tells you that there's greater 402 00:20:18,680 --> 00:20:24,359 Speaker 7: support in emerging market debt than crossover buyers. Investors like 403 00:20:24,520 --> 00:20:28,480 Speaker 7: me who run global aggregate funds and look at emerging 404 00:20:28,520 --> 00:20:31,680 Speaker 7: markets as an ow to benchmark bet When we look 405 00:20:31,720 --> 00:20:34,840 Speaker 7: at the emerging markets, they have very high real yields 406 00:20:34,880 --> 00:20:39,399 Speaker 7: to them. They've got central banks who are as efficient 407 00:20:39,560 --> 00:20:44,280 Speaker 7: as any central bank in managing policy for growth and inflation, 408 00:20:45,160 --> 00:20:50,280 Speaker 7: and they also have the benefit of very strong domestic support. 409 00:20:50,359 --> 00:20:51,120 Speaker 6: There are wealth. 410 00:20:50,920 --> 00:20:54,920 Speaker 7: Management platforms, pension funds, and insurance companies that go in 411 00:20:55,200 --> 00:20:58,719 Speaker 7: and support the local markets. We can get higher real yields. 412 00:20:58,720 --> 00:21:02,959 Speaker 7: I can put together a portfolio of South America and 413 00:21:03,040 --> 00:21:06,240 Speaker 7: Europe and parts of Asia that will yield close to 414 00:21:06,359 --> 00:21:07,040 Speaker 7: eight percent. 415 00:21:07,240 --> 00:21:10,639 Speaker 2: All eight percent, phenomenal. Yeah, And what's the real yield 416 00:21:10,680 --> 00:21:12,520 Speaker 2: off that get out over three percent? 417 00:21:12,640 --> 00:21:14,719 Speaker 7: Oh yeah, it's going to be close to four percent. 418 00:21:15,520 --> 00:21:18,719 Speaker 2: What's what's a tension point on the ten year US 419 00:21:18,880 --> 00:21:21,800 Speaker 2: real yield? One point ninety three one point ninety four 420 00:21:22,160 --> 00:21:25,520 Speaker 2: this morning, by my measurement, is that like not four 421 00:21:25,560 --> 00:21:29,640 Speaker 2: percent obviously, but like two point five percent? Our world changes. 422 00:21:29,920 --> 00:21:37,200 Speaker 7: Yeah, it's amazing the amount of disinflation and deflation we 423 00:21:37,280 --> 00:21:41,680 Speaker 7: had pre COVID, the amount of inflation we had during COVID. 424 00:21:41,600 --> 00:21:42,720 Speaker 2: And now we're going the other way. 425 00:21:42,920 --> 00:21:46,600 Speaker 7: Yeah, And how break evens somehow always hovered between two 426 00:21:46,680 --> 00:21:49,000 Speaker 7: and two and a half percent above two and a 427 00:21:49,040 --> 00:21:50,280 Speaker 7: half percent would weary men. 428 00:21:50,880 --> 00:21:53,440 Speaker 2: The late Great Stanley Fisher told me the day Paul 429 00:21:53,480 --> 00:21:56,360 Speaker 2: Samuelson threw the chalk in the room and almost bounced 430 00:21:56,359 --> 00:22:00,239 Speaker 2: it off his head. When you're lecturing the cherubs at 431 00:22:00,320 --> 00:22:03,679 Speaker 2: JP Morgan on the real yield, have you ever thrown 432 00:22:03,760 --> 00:22:06,240 Speaker 2: the chuck when they say it doesn't matter? 433 00:22:07,080 --> 00:22:07,280 Speaker 6: You know? 434 00:22:07,760 --> 00:22:10,919 Speaker 2: Have you ever gotten upset in a lecture on the 435 00:22:10,960 --> 00:22:13,760 Speaker 2: inflation ajusting yield is a residual? 436 00:22:14,880 --> 00:22:17,480 Speaker 7: You know. I hear a lot of things that make 437 00:22:17,560 --> 00:22:20,119 Speaker 7: me upset, but I've been in the markets for a 438 00:22:20,160 --> 00:22:23,200 Speaker 7: long time. You just absorb it and move on. 439 00:22:23,359 --> 00:22:27,360 Speaker 2: I can't say enough, folks at Wisdom, they're nominal GDP 440 00:22:27,560 --> 00:22:32,080 Speaker 2: and real GDP dynamics in nominal yield, the current yield, 441 00:22:32,119 --> 00:22:36,240 Speaker 2: the one we all know is in the real yield 442 00:22:36,480 --> 00:22:41,440 Speaker 2: is the residual after you take out inflation and those dynamics. 443 00:22:41,480 --> 00:22:44,439 Speaker 2: You have to tattoo to your brain and massage every 444 00:22:44,480 --> 00:22:48,040 Speaker 2: single day of your career to keep up with people 445 00:22:48,119 --> 00:22:48,919 Speaker 2: like Bob Michael. 446 00:22:49,119 --> 00:22:49,679 Speaker 6: Not Michael. 447 00:22:49,680 --> 00:22:51,440 Speaker 2: Thank you so much for JP Morgan. 448 00:22:51,880 --> 00:22:55,760 Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday 449 00:22:55,800 --> 00:22:58,840 Speaker 1: starting at seven am Eastern on Apple Coarclay and Android 450 00:22:58,840 --> 00:23:01,879 Speaker 1: Auto with the Bloomberg Business app. You can also listen 451 00:23:01,960 --> 00:23:05,240 Speaker 1: live on Amazon Alexa from our flagship New York station. 452 00:23:05,760 --> 00:23:08,440 Speaker 1: Just say Alexa play Bloomberg eleven thirty. 453 00:23:08,720 --> 00:23:12,520 Speaker 2: There's a point in Hong Kong, and it's confusing. There's 454 00:23:12,560 --> 00:23:16,440 Speaker 2: two mandarins. There's the old bandarin and there used to 455 00:23:16,480 --> 00:23:19,200 Speaker 2: be an mbire and something new with it, and there's 456 00:23:19,200 --> 00:23:21,400 Speaker 2: a new mandarin if you go over by the old mandarin. 457 00:23:22,000 --> 00:23:26,240 Speaker 2: Across from the charming little trolley car is the fortress 458 00:23:26,280 --> 00:23:29,720 Speaker 2: of the Hong Kong Shanghai Bank in Corporation. And as 459 00:23:29,720 --> 00:23:33,240 Speaker 2: you can imagine, HSBC, Yes, out of London, but so 460 00:23:33,400 --> 00:23:37,280 Speaker 2: much out of Hong Kong is absolutely definitive on all 461 00:23:37,560 --> 00:23:42,160 Speaker 2: the stuff that makes it go. Driving that in our 462 00:23:42,160 --> 00:23:45,080 Speaker 2: guest in studio here in New York today is one 463 00:23:45,080 --> 00:23:48,200 Speaker 2: of the most important voices in semiconductor out of Wharton 464 00:23:48,240 --> 00:23:52,920 Speaker 2: Frankly joined us with HSBC. This morning. You're given a 465 00:23:53,040 --> 00:23:58,960 Speaker 2: lecture in America on the Pacific rim semiconductor market. What's 466 00:23:59,000 --> 00:24:00,440 Speaker 2: the first thing you talk about. 467 00:24:02,160 --> 00:24:06,679 Speaker 6: I think when you think about semiconductors, it's that the 468 00:24:06,720 --> 00:24:09,600 Speaker 6: dominance of where Asia is, especially where Taiwan is in 469 00:24:09,680 --> 00:24:13,320 Speaker 6: terms of how dominant TESMC is. I think people often 470 00:24:13,400 --> 00:24:15,640 Speaker 6: now are starting to recognize how important that supply chain 471 00:24:15,720 --> 00:24:16,200 Speaker 6: is right now. 472 00:24:16,320 --> 00:24:18,640 Speaker 2: I mean, I look at tay I learned this Taiwan 473 00:24:18,800 --> 00:24:23,840 Speaker 2: is seventy percent of Taiwan is seventy percent owned by 474 00:24:23,840 --> 00:24:28,120 Speaker 2: the foreign you know people that INTERSBC represents in that 475 00:24:28,240 --> 00:24:31,000 Speaker 2: Would that change at all within the geopolitics? Do we 476 00:24:31,080 --> 00:24:35,080 Speaker 2: just still see a dominance of international investment in Pacific 477 00:24:35,200 --> 00:24:37,400 Speaker 2: RIM semiconductor and technology. 478 00:24:37,920 --> 00:24:41,119 Speaker 6: Yeah, I mean, I mean TSMC is seventy five percent 479 00:24:41,119 --> 00:24:44,399 Speaker 6: owned by foreigners, foreign investors. But also I think this 480 00:24:44,480 --> 00:24:47,000 Speaker 6: past year does a lot of changes because they're now 481 00:24:47,000 --> 00:24:50,800 Speaker 6: spending more money and production in the US. So they've 482 00:24:50,800 --> 00:24:55,080 Speaker 6: talked about thirty percent of their most advanced two nanometer 483 00:24:55,200 --> 00:24:57,800 Speaker 6: production will be in the US over the next few years. 484 00:24:57,960 --> 00:25:01,439 Speaker 6: So I think this investment process is been surprising, frankly 485 00:25:01,480 --> 00:25:03,560 Speaker 6: to most of us in terms of how quickly it's 486 00:25:03,560 --> 00:25:04,320 Speaker 6: moving in the pace. 487 00:25:04,840 --> 00:25:08,719 Speaker 4: So how do you and your clients think about global 488 00:25:08,760 --> 00:25:13,600 Speaker 4: trade tensions? Uh, teriffs, just the instability it seems like 489 00:25:13,680 --> 00:25:17,080 Speaker 4: in global trade because your business is semiconductor business, that 490 00:25:17,320 --> 00:25:21,119 Speaker 4: the technology business is truly a global business. Global supply 491 00:25:21,280 --> 00:25:23,679 Speaker 4: change everywhere. How do you guys account for that? 492 00:25:24,680 --> 00:25:27,399 Speaker 6: I think like most industries, you know, everyone's dealing with 493 00:25:27,440 --> 00:25:30,720 Speaker 6: the uncertainty around tariffs. But I think what's different is 494 00:25:30,800 --> 00:25:34,840 Speaker 6: the the importance of semiconductors right now in the global economy, 495 00:25:34,880 --> 00:25:37,920 Speaker 6: especially with AI, right it is is such an important 496 00:25:38,280 --> 00:25:41,639 Speaker 6: engine of all the AI and infrastructure investment. So I 497 00:25:41,640 --> 00:25:43,840 Speaker 6: think there is going to be you know, there there 498 00:25:43,880 --> 00:25:45,960 Speaker 6: will be ongoing uncertainty when it comes to tarifs, but 499 00:25:46,000 --> 00:25:48,320 Speaker 6: I think the market has started to shrug this off, 500 00:25:48,400 --> 00:25:51,400 Speaker 6: right And I think you know, especially you know, if 501 00:25:51,400 --> 00:25:54,240 Speaker 6: you talk about AI infrastructure, you know a lot of 502 00:25:54,280 --> 00:25:57,200 Speaker 6: it is you know, it's been driven by enterprise. So 503 00:25:57,520 --> 00:25:59,520 Speaker 6: this the tariff impact is not going to be as 504 00:25:59,560 --> 00:26:02,199 Speaker 6: significant because I think if you talked about consumer, they 505 00:26:02,200 --> 00:26:04,119 Speaker 6: will become a bigger impact because you're going to consumer 506 00:26:04,200 --> 00:26:06,440 Speaker 6: is going to feel that immediate impact of terrorists. 507 00:26:06,840 --> 00:26:10,760 Speaker 2: On a thermodynamic basis, where does the energy come from 508 00:26:11,960 --> 00:26:16,520 Speaker 2: out five years, ten years to just appease your industry? 509 00:26:16,680 --> 00:26:18,760 Speaker 2: I mean, where do you have a worry, like a 510 00:26:18,760 --> 00:26:21,800 Speaker 2: lot of other people that the electricity just won't show 511 00:26:21,880 --> 00:26:23,159 Speaker 2: up to make all this stuff go. 512 00:26:24,640 --> 00:26:26,879 Speaker 6: I think it is an issue that people talk about, 513 00:26:26,920 --> 00:26:30,520 Speaker 6: but we haven't really seen that really materialize yet. I 514 00:26:30,520 --> 00:26:34,080 Speaker 6: do think the infrastructure build will continue. I think everybody 515 00:26:34,119 --> 00:26:37,520 Speaker 6: recognizes the importance of AI right now and why it's 516 00:26:37,560 --> 00:26:39,520 Speaker 6: so important to invest it in. You know, for example, 517 00:26:39,560 --> 00:26:42,720 Speaker 6: if you look at Sovereign AI right now in the 518 00:26:42,720 --> 00:26:46,200 Speaker 6: announcements earlier in the year about you know, Saudi Arabia 519 00:26:46,240 --> 00:26:48,880 Speaker 6: going to invest this huge amount of deness. But there's 520 00:26:48,920 --> 00:26:51,400 Speaker 6: also the question are they ready yet because they need 521 00:26:51,400 --> 00:26:53,560 Speaker 6: to build the infrastructure in terms of the energy. But 522 00:26:53,600 --> 00:26:55,280 Speaker 6: I think it will eventually. I think it'll go hand 523 00:26:55,320 --> 00:26:55,640 Speaker 6: in hand. 524 00:26:55,680 --> 00:26:57,560 Speaker 2: A year ago, my book of the year two years 525 00:26:57,600 --> 00:27:01,000 Speaker 2: trailing was Chris Miller's Chip War to me is an 526 00:27:01,000 --> 00:27:04,640 Speaker 2: ignorant one was just fabulous and Morris Chang was front 527 00:27:04,680 --> 00:27:08,680 Speaker 2: and center through that, the eminence of Taiwan's semiconductor. Who's 528 00:27:08,720 --> 00:27:12,040 Speaker 2: the next Morris Chain? Did they just BCC's on the 529 00:27:12,080 --> 00:27:13,959 Speaker 2: Pacific rim? 530 00:27:14,080 --> 00:27:17,840 Speaker 6: I think you're going to start to see some sort 531 00:27:17,880 --> 00:27:20,280 Speaker 6: of right now in China. What you're starting to see 532 00:27:20,320 --> 00:27:24,040 Speaker 6: is that they are basically creating their own infrastructure, their 533 00:27:24,040 --> 00:27:28,240 Speaker 6: own ecosystem, right So you're basically developing almost two sets 534 00:27:28,280 --> 00:27:31,800 Speaker 6: of two sets of systems one for China and one 535 00:27:31,800 --> 00:27:34,720 Speaker 6: for outside of China. Now in China, right now, I 536 00:27:34,760 --> 00:27:38,040 Speaker 6: think if you look at the foundry business, this SMC 537 00:27:39,280 --> 00:27:41,480 Speaker 6: is probably going to be the national champion in China, 538 00:27:42,080 --> 00:27:43,879 Speaker 6: but there will be a lag in terms. 539 00:27:43,760 --> 00:27:46,119 Speaker 2: Of will they have the sophistication of nanos or are 540 00:27:46,160 --> 00:27:48,760 Speaker 2: they more like a micron just crank out the chips. 541 00:27:49,080 --> 00:27:51,560 Speaker 6: They are doing foundry, which is similar to tastem see, 542 00:27:51,600 --> 00:27:54,919 Speaker 6: but there will be many generations behind. But what I 543 00:27:54,920 --> 00:27:58,399 Speaker 6: think the Chinese industry has managed to do is to 544 00:27:58,440 --> 00:28:01,880 Speaker 6: become to manage to be much more effective in terms 545 00:28:01,880 --> 00:28:04,879 Speaker 6: of producing without having to spend as much money. They 546 00:28:04,920 --> 00:28:07,360 Speaker 6: will not quite be at the equal footing, but they 547 00:28:07,400 --> 00:28:08,560 Speaker 6: can make some inroads. 548 00:28:08,760 --> 00:28:10,720 Speaker 2: We said good evening to all of you across a 549 00:28:10,760 --> 00:28:14,320 Speaker 2: specific RAM and good morning on your commute across America. 550 00:28:14,440 --> 00:28:18,480 Speaker 2: Frank Lee does he's with HSBC on chips, Paul, Frank, 551 00:28:18,760 --> 00:28:19,560 Speaker 2: where are we? 552 00:28:19,720 --> 00:28:21,680 Speaker 4: I mean a lot of folks like myself this AI 553 00:28:21,760 --> 00:28:25,040 Speaker 4: think we're trying to get our heads around AI. A 554 00:28:25,080 --> 00:28:27,159 Speaker 4: lot of folks are telling us, hey, man, think in 555 00:28:27,240 --> 00:28:30,119 Speaker 4: the scale of the Internet. Think in this is the 556 00:28:30,160 --> 00:28:34,720 Speaker 4: scale of like electricity. Where are we in that evolution 557 00:28:34,960 --> 00:28:36,800 Speaker 4: of AI. Where do you think we are in that 558 00:28:36,920 --> 00:28:38,680 Speaker 4: game here? How earlier, how late? 559 00:28:39,280 --> 00:28:41,320 Speaker 6: I think no one really knows the answer to that. 560 00:28:42,200 --> 00:28:46,320 Speaker 6: But we do know that these companies, these massive hyperscalers, 561 00:28:46,440 --> 00:28:50,280 Speaker 6: the way they're investing is unprecedent, and it's the first 562 00:28:50,280 --> 00:28:53,360 Speaker 6: two years of the AI story was really just these hyperscalers, 563 00:28:53,400 --> 00:28:56,400 Speaker 6: this four or five companies investing. There was always this 564 00:28:56,480 --> 00:28:58,400 Speaker 6: question about, well, can they actually make money? Can he 565 00:28:58,520 --> 00:29:03,000 Speaker 6: monetize that question? And it's still being somewhat unanswered today. 566 00:29:03,240 --> 00:29:06,560 Speaker 6: But it's clear that the spending needs to continue. But 567 00:29:06,640 --> 00:29:09,400 Speaker 6: it's not just these hyperscalers. Now it's cleared out the enterprise, 568 00:29:10,400 --> 00:29:12,920 Speaker 6: you know, and and even sovereigns are now looking at this. 569 00:29:13,800 --> 00:29:15,480 Speaker 4: You know, we think about we were talking about China, 570 00:29:15,760 --> 00:29:17,640 Speaker 4: and it's become more and more apparent. I think over 571 00:29:17,680 --> 00:29:20,560 Speaker 4: the last three, four, five, six years that there's this 572 00:29:21,520 --> 00:29:25,600 Speaker 4: tech cold war between China and maybe the rest of 573 00:29:25,600 --> 00:29:28,920 Speaker 4: the world. A is that is that accurate? And B 574 00:29:30,000 --> 00:29:33,600 Speaker 4: is that problematic? I mean for just tech development. I mean, 575 00:29:34,040 --> 00:29:36,400 Speaker 4: if you can't sell into China or your limited way 576 00:29:36,440 --> 00:29:38,480 Speaker 4: you can sell into China, if that maybe we don't 577 00:29:38,480 --> 00:29:40,520 Speaker 4: get some of the China tech coming out of China. 578 00:29:40,800 --> 00:29:41,880 Speaker 4: How do you think about that? 579 00:29:42,440 --> 00:29:46,480 Speaker 6: Yeah, it's a very complex one because you do see, 580 00:29:46,920 --> 00:29:50,200 Speaker 6: you know, the latest change for the end video chip. 581 00:29:50,240 --> 00:29:52,160 Speaker 6: They were banned earlier in the year and now they're 582 00:29:52,200 --> 00:29:54,120 Speaker 6: actually allowed to sell in. So it shows you I 583 00:29:54,120 --> 00:29:57,720 Speaker 6: think there's a lot of there's still a lot of unknowns, 584 00:29:57,760 --> 00:30:00,600 Speaker 6: and I think both signs are still working in terms 585 00:30:00,600 --> 00:30:03,600 Speaker 6: of trying to figure out what's the right balance. And 586 00:30:03,600 --> 00:30:06,560 Speaker 6: then if you look at what China has done really 587 00:30:06,560 --> 00:30:09,160 Speaker 6: well is the EV I mean the EV industry they 588 00:30:09,200 --> 00:30:11,480 Speaker 6: have and they pulled their own semic counter industry with 589 00:30:11,560 --> 00:30:13,560 Speaker 6: it because a lot of the chips that go in 590 00:30:13,600 --> 00:30:16,600 Speaker 6: through the Chinese evs are now being produced by Chinese companies. 591 00:30:16,640 --> 00:30:18,520 Speaker 2: But those are basic chips, right. 592 00:30:18,600 --> 00:30:22,120 Speaker 6: They're not as advanced, right, They're not as advanced as 593 00:30:22,640 --> 00:30:25,280 Speaker 6: you know, the Nvidio chipper goes into AI me. 594 00:30:25,400 --> 00:30:27,920 Speaker 2: I know, Nicholas cout callos and covers Apple for you. 595 00:30:27,960 --> 00:30:29,640 Speaker 2: I don't want you to give me a bihold cell 596 00:30:30,120 --> 00:30:33,440 Speaker 2: an Apple. But do you just assume that the technology, 597 00:30:33,520 --> 00:30:38,240 Speaker 2: the nanowness of Apple and others like Apple just continues 598 00:30:38,280 --> 00:30:44,320 Speaker 2: that we continue to see technological innovation down to minimum nanos. 599 00:30:44,560 --> 00:30:46,760 Speaker 6: Well, I think if you attend to the minus nuts, 600 00:30:46,880 --> 00:30:50,280 Speaker 6: oh oh bullieve yeah. I think if you look at 601 00:30:51,760 --> 00:30:55,160 Speaker 6: particularly economy like Apple, right, one of the challenges that 602 00:30:55,160 --> 00:30:59,400 Speaker 6: you see they are facing is their AI angle is 603 00:30:59,440 --> 00:31:02,560 Speaker 6: not very right now because it's very much driven by 604 00:31:02,720 --> 00:31:05,720 Speaker 6: consumer and iPhone right. So this is ultimately the problem 605 00:31:05,760 --> 00:31:09,280 Speaker 6: today is that the AI investment is on infrastruture. 606 00:31:09,320 --> 00:31:10,840 Speaker 2: Okay, I got to get you in trouble here so 607 00:31:10,880 --> 00:31:12,520 Speaker 2: you can't go home. We're you gonna stay here and 608 00:31:12,560 --> 00:31:15,840 Speaker 2: be with us once a week. Frankly, Apple's just got 609 00:31:15,840 --> 00:31:18,680 Speaker 2: to do an agreement with somebody who's very AI. Right, 610 00:31:19,240 --> 00:31:20,800 Speaker 2: Why do they have to do their own AI? 611 00:31:21,240 --> 00:31:23,480 Speaker 6: Well? I think right now they made it push for AI. 612 00:31:23,600 --> 00:31:26,480 Speaker 6: They basically talked about Apple Intelligence last year, but it 613 00:31:26,520 --> 00:31:29,880 Speaker 6: didn't stick because it hasn't resulted in selling more iPhones. 614 00:31:30,040 --> 00:31:32,280 Speaker 6: But what's very interesting is this morning there's you know, 615 00:31:32,320 --> 00:31:35,480 Speaker 6: just talk about a foldable iPhone coming perhaps next year. 616 00:31:35,760 --> 00:31:37,960 Speaker 6: So will that be the start? Because I think a 617 00:31:38,080 --> 00:31:40,160 Speaker 6: year and a half ago, two years ago, everybody thought 618 00:31:40,200 --> 00:31:43,560 Speaker 6: ultimately we're gonna have aipcs, we're gonna have AI smartphones, 619 00:31:43,920 --> 00:31:46,360 Speaker 6: but it hasn't really materialized. Like people are saying, well, 620 00:31:46,400 --> 00:31:47,600 Speaker 6: do I need to change my SHND? 621 00:31:47,640 --> 00:31:50,240 Speaker 2: So who's gonna cut to the chase? No one's listening. 622 00:31:50,600 --> 00:31:53,280 Speaker 2: Compliance isn't listening, Frankly, who's gonna win? 623 00:31:53,840 --> 00:31:56,920 Speaker 6: Who's gonna win? What the AI race right now? It's 624 00:31:56,920 --> 00:31:59,640 Speaker 6: the people that do the picks and shovels, It's Nvidia, 625 00:31:59,720 --> 00:32:02,600 Speaker 6: It's it's all the chip guys because they're making money 626 00:32:02,640 --> 00:32:06,080 Speaker 6: and they don't. There's no angle of monization. So keebo spending. 627 00:32:06,120 --> 00:32:08,080 Speaker 2: We got to do one stock with Frankly, just to 628 00:32:08,080 --> 00:32:11,880 Speaker 2: get them in trouble. EMC is not EMC of Boston, 629 00:32:11,880 --> 00:32:15,720 Speaker 2: Good morning, ninety two nine Elite MC two two three 630 00:32:15,800 --> 00:32:19,080 Speaker 2: eight t T or whatever. Who is this tiny company 631 00:32:19,080 --> 00:32:20,160 Speaker 2: in Taiwan? I don't know. 632 00:32:20,800 --> 00:32:23,960 Speaker 6: It's interesting this company is they make what they calls 633 00:32:24,360 --> 00:32:27,200 Speaker 6: very upstream material as the CCL lamin in and it 634 00:32:27,240 --> 00:32:29,479 Speaker 6: goes into all the high end chips. Right So what 635 00:32:29,640 --> 00:32:32,520 Speaker 6: nvideo is doing right now, this is one of the 636 00:32:32,720 --> 00:32:35,680 Speaker 6: very upstream components that sells into it. So again it's 637 00:32:35,680 --> 00:32:37,880 Speaker 6: a very niche area, but it's an important part. 638 00:32:37,960 --> 00:32:41,360 Speaker 2: Did I do? Okay? I talk like it's just it's 639 00:32:41,440 --> 00:32:43,400 Speaker 2: just amazing how dumb I could be. 640 00:32:43,640 --> 00:32:46,000 Speaker 6: No, I mean, it's very impressive. You know this company 641 00:32:46,040 --> 00:32:47,240 Speaker 6: is a very extreme company. 642 00:32:47,280 --> 00:32:49,760 Speaker 2: Well, you know that's the way we rock and roll here. 643 00:32:50,040 --> 00:32:51,800 Speaker 2: I think we need to be an on Kong. I 644 00:32:51,840 --> 00:32:55,120 Speaker 2: got twenty I got thirty seconds. We're hearing Hong Kong 645 00:32:55,240 --> 00:32:59,440 Speaker 2: is beginning to amend adjust to the politics of the region. 646 00:32:59,840 --> 00:33:02,920 Speaker 2: Is you're a changed in new Hong Kong now. 647 00:33:04,280 --> 00:33:09,080 Speaker 6: I think there's been a renewed confidence in Hong Kong 648 00:33:09,160 --> 00:33:11,400 Speaker 6: and in China in general since the beginning of the year. 649 00:33:12,080 --> 00:33:14,200 Speaker 6: I think the last two years they've been the last 650 00:33:14,200 --> 00:33:16,600 Speaker 6: couple of years, it's been a very tough time, but 651 00:33:16,680 --> 00:33:19,000 Speaker 6: it feels like they're turning the corner right. And so 652 00:33:19,040 --> 00:33:21,840 Speaker 6: you see there's a lot especially after Deep Seek, I 653 00:33:21,880 --> 00:33:25,160 Speaker 6: gave a lot of people in China confidence because they 654 00:33:25,160 --> 00:33:27,520 Speaker 6: now feel like, look, we have an AI solution. Right. 655 00:33:27,640 --> 00:33:30,120 Speaker 6: It may not be the best solution as us, but 656 00:33:30,160 --> 00:33:32,280 Speaker 6: it's a solution that works for us. Right. 657 00:33:32,560 --> 00:33:34,880 Speaker 2: Shrill to have you with listeners, studios, Frankly, thank you 658 00:33:35,000 --> 00:33:35,840 Speaker 2: so much, Thank you. 659 00:33:41,200 --> 00:33:45,120 Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday 660 00:33:45,160 --> 00:33:48,200 Speaker 1: starting at seven am Eastern on Apple Coarclay, and Android 661 00:33:48,200 --> 00:33:51,200 Speaker 1: Auto with the Bloomberg Business app. You can also watch 662 00:33:51,280 --> 00:33:54,240 Speaker 1: us live every weekday on YouTube and always on the 663 00:33:54,240 --> 00:33:55,320 Speaker 1: Bloomberg terminal. 664 00:33:55,560 --> 00:34:00,760 Speaker 2: So I cheated. I looked at Jordan Rochester's research. Okay, 665 00:34:00,920 --> 00:34:05,600 Speaker 2: out of Miszoo. Cheated a second time, I looked at LinkedIn. 666 00:34:05,800 --> 00:34:09,040 Speaker 2: We're at a glorious update out of LinkedIn. Okay, thank 667 00:34:09,080 --> 00:34:13,640 Speaker 2: you Miszoo for letting mister Rochester do that over the weekend. 668 00:34:13,880 --> 00:34:18,319 Speaker 2: LDP in power for seven decades, sort of out the 669 00:34:18,360 --> 00:34:23,320 Speaker 2: door within a goofy parliamentary system. Here to explain strong 670 00:34:23,800 --> 00:34:27,960 Speaker 2: yen in ever stronger? Yeah, I think that means week dollar. 671 00:34:28,320 --> 00:34:32,040 Speaker 2: Jordan Rochester at Missuo frame out the yen move in 672 00:34:32,120 --> 00:34:34,160 Speaker 2: a year from now, Jordan, where can the en be? 673 00:34:35,400 --> 00:34:36,440 Speaker 5: Good morning, everybody. 674 00:34:36,480 --> 00:34:38,160 Speaker 8: Well, look, I think Doddian's gonna be on a one 675 00:34:38,280 --> 00:34:40,960 Speaker 8: thirty five to one thirty eight handle in a year's time. 676 00:34:41,000 --> 00:34:42,520 Speaker 5: That's sort of where we'll be trading. 677 00:34:43,000 --> 00:34:46,720 Speaker 8: And that's predicated Tom on the Bank Japan raising rates 678 00:34:47,000 --> 00:34:48,720 Speaker 8: and that's still on track. 679 00:34:49,239 --> 00:34:54,320 Speaker 2: Does that destabilize Japan in particularly the inflation that caused 680 00:34:54,360 --> 00:34:58,440 Speaker 2: the anger of the voters, particularly on the course staple. 681 00:34:58,280 --> 00:35:02,120 Speaker 8: Rice should bring down goods inflation, so it should be 682 00:35:02,120 --> 00:35:05,520 Speaker 8: benefiting the Japanese consumer. In that way, it'll be dragging 683 00:35:05,560 --> 00:35:08,680 Speaker 8: on the Japanese exporter, so all harm profits. But the 684 00:35:08,719 --> 00:35:11,319 Speaker 8: difficulty for the Bank of Japan tom has been as 685 00:35:11,320 --> 00:35:14,399 Speaker 8: you've kind of mentioned there, rice inflation. Food inflation has 686 00:35:14,440 --> 00:35:16,560 Speaker 8: been one of those things that I've made the boj 687 00:35:16,760 --> 00:35:17,320 Speaker 8: wrong footed. 688 00:35:17,440 --> 00:35:20,080 Speaker 5: For most of this year. We've had CPI prints. 689 00:35:20,080 --> 00:35:22,400 Speaker 8: We've had about seven of them now this year, but 690 00:35:22,440 --> 00:35:25,160 Speaker 8: for four of them they've come in stronger than expected, 691 00:35:25,600 --> 00:35:28,600 Speaker 8: and that's thanks to the food inflation, sushi, rice prices 692 00:35:28,920 --> 00:35:32,160 Speaker 8: and the correlation between a stronger yen usually leads to 693 00:35:32,360 --> 00:35:33,600 Speaker 8: lower inflation for Japan. 694 00:35:33,920 --> 00:35:36,200 Speaker 5: We haven't had that in the past six or seven months. 695 00:35:36,840 --> 00:35:39,879 Speaker 4: So Jordan, is that the reason. I mean, I think 696 00:35:39,880 --> 00:35:42,200 Speaker 4: a lot of folks hearing that the Bank of Japan 697 00:35:42,280 --> 00:35:44,920 Speaker 4: is raising rates seems kind of out of step with 698 00:35:44,960 --> 00:35:46,359 Speaker 4: the rest of the world, where many of the central 699 00:35:46,360 --> 00:35:49,440 Speaker 4: banks are cutting rates, including potentially here the Federal Reserve 700 00:35:49,480 --> 00:35:51,480 Speaker 4: a couple of times here in the US this year. 701 00:35:52,560 --> 00:35:55,840 Speaker 8: Yeah, Japan has completely decorated it south from the global 702 00:35:56,239 --> 00:35:58,640 Speaker 8: monetary cycle. It's quite rare, actually, It's usually all center 703 00:35:58,680 --> 00:36:01,239 Speaker 8: banks go up and down in rates in line with 704 00:36:01,280 --> 00:36:02,319 Speaker 8: whatever the Fed does. 705 00:36:02,640 --> 00:36:03,520 Speaker 5: But Japan's had a. 706 00:36:03,520 --> 00:36:06,520 Speaker 8: Very structural, big shift in its labor market that we 707 00:36:06,600 --> 00:36:10,200 Speaker 8: had a lot of FX depreciation in previous years that 708 00:36:10,320 --> 00:36:12,720 Speaker 8: essentially released the genie from the bottle. 709 00:36:13,080 --> 00:36:14,359 Speaker 5: So inflation is out there. 710 00:36:14,400 --> 00:36:18,080 Speaker 8: Inflation expectations amongst firms and households are higher than what 711 00:36:17,800 --> 00:36:21,640 Speaker 8: they are. And what Japan's long term story has been, 712 00:36:21,840 --> 00:36:25,040 Speaker 8: it's been about demographic decline and a shrinking labor force. 713 00:36:25,320 --> 00:36:27,880 Speaker 8: But what we're seeing now is demand for Japanese labor 714 00:36:27,920 --> 00:36:31,880 Speaker 8: going up. We're seeing record exports of semiconductors in Japan, 715 00:36:31,920 --> 00:36:34,799 Speaker 8: for example, But the labor force has been shrinking, and 716 00:36:34,880 --> 00:36:37,560 Speaker 8: so combine that together you've got stronger wage growth. 717 00:36:37,640 --> 00:36:39,760 Speaker 5: And that's the genie that has been released from the bottle. 718 00:36:39,960 --> 00:36:42,319 Speaker 2: What is the significance? Jordan is a student of this. 719 00:36:42,400 --> 00:36:45,759 Speaker 2: I think a Robbie Feldman over at Morgan Stanley as well. Jordan, 720 00:36:45,840 --> 00:36:48,719 Speaker 2: you are a huge student of this. What's the so 721 00:36:48,880 --> 00:36:52,759 Speaker 2: what for the United States? If we get strong yen 722 00:36:53,719 --> 00:36:58,440 Speaker 2: LDP in the parliamentary system destabilizes, what's the so what 723 00:36:59,000 --> 00:37:00,600 Speaker 2: for someone living in des Moines? 724 00:37:01,800 --> 00:37:02,720 Speaker 5: What a great record? 725 00:37:02,760 --> 00:37:04,760 Speaker 8: So what is one of the ones I've actually bothered 726 00:37:04,760 --> 00:37:09,359 Speaker 8: to learn in terms of what it means for Japan, Tom, what. 727 00:37:09,320 --> 00:37:16,400 Speaker 2: Does it mean from America? From America? Stop des Moines 728 00:37:16,600 --> 00:37:19,960 Speaker 2: is in Iowa? Okay, it's not in order to showgun Okay. 729 00:37:20,200 --> 00:37:21,560 Speaker 2: What's it mean for Iowa? 730 00:37:22,840 --> 00:37:25,799 Speaker 8: Well, it means that Japanese exports are going to become 731 00:37:25,880 --> 00:37:27,799 Speaker 8: less competitive if you have a stronger end, and it 732 00:37:27,880 --> 00:37:31,160 Speaker 8: means that the US car industry will have something of 733 00:37:31,200 --> 00:37:32,839 Speaker 8: a bit of a boon to it. You've also got 734 00:37:32,920 --> 00:37:35,560 Speaker 8: throw on top of the tariffs. Domestic production of US 735 00:37:35,600 --> 00:37:39,360 Speaker 8: cars should go up, so it should you combined, it's 736 00:37:39,160 --> 00:37:40,920 Speaker 8: it's it's what Trump wants. 737 00:37:41,680 --> 00:37:46,000 Speaker 4: Well Jordan, for years, when nobody's talked about Japan until 738 00:37:46,120 --> 00:37:48,399 Speaker 4: just recently, isn't a little inflation or even a modern 739 00:37:48,400 --> 00:37:51,880 Speaker 4: amount of inflation isn't that good for the Japanese economy 740 00:37:51,880 --> 00:37:52,320 Speaker 4: in general? 741 00:37:53,320 --> 00:37:55,240 Speaker 8: If you asked Governor you Wade at the Bank Japan, 742 00:37:55,360 --> 00:37:58,279 Speaker 8: he would probably say yes. But if you ask the 743 00:37:58,320 --> 00:38:00,080 Speaker 8: consumer on the street who's finding that. 744 00:38:00,200 --> 00:38:03,480 Speaker 5: Real wages a weeker, they would disagree. So it depends 745 00:38:03,480 --> 00:38:03,960 Speaker 5: who you ask. 746 00:38:04,040 --> 00:38:06,799 Speaker 8: But from an economic point of view, this is the 747 00:38:06,840 --> 00:38:10,239 Speaker 8: moment we've been waiting for. It's why I start climb 748 00:38:10,280 --> 00:38:12,640 Speaker 8: meetings off by saying how excited I am about Japan. 749 00:38:12,960 --> 00:38:15,319 Speaker 8: There is a structural shift hire and rates. There are 750 00:38:15,360 --> 00:38:17,520 Speaker 8: trades to do, there's money to be made, but there 751 00:38:17,520 --> 00:38:20,200 Speaker 8: are people who are struggling to put money together to 752 00:38:20,200 --> 00:38:21,040 Speaker 8: buy the groceries. 753 00:38:21,080 --> 00:38:23,000 Speaker 5: So you have to think about who you're asking. 754 00:38:23,320 --> 00:38:26,200 Speaker 2: Hugely valuable, Jordan Rochester, thank you so much and really 755 00:38:26,239 --> 00:38:30,439 Speaker 2: appreciate your effort on LinkedIn. Hugely informative how to fick 756 00:38:30,480 --> 00:38:36,040 Speaker 2: a macro strategy from Missuo Jordan Rochester in London and Japan. 757 00:38:36,520 --> 00:38:40,440 Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday 758 00:38:40,480 --> 00:38:43,880 Speaker 1: starting at seven am Eastern on Applecarplay and Android Auto 759 00:38:43,920 --> 00:38:46,879 Speaker 1: with the Bloomberg Business app. You can also listen live 760 00:38:46,920 --> 00:38:50,520 Speaker 1: on Amazon Alexa from our flagship New York station, Just 761 00:38:50,560 --> 00:38:53,760 Speaker 1: say Alexa play Bloomberg eleven thirty There. 762 00:38:53,760 --> 00:38:56,239 Speaker 2: People emailed me yesterday and they said, she's got like 763 00:38:56,360 --> 00:38:59,160 Speaker 2: fourteen minutes worth of newspaper. Should we get right to it? 764 00:38:59,280 --> 00:38:59,759 Speaker 6: Right to it? 765 00:39:00,000 --> 00:39:02,880 Speaker 2: I think we should Lisa Manteo for the Monday newspapers. 766 00:39:02,960 --> 00:39:04,960 Speaker 9: Okay, this is something I noticed, but I wasn't sure 767 00:39:05,000 --> 00:39:07,080 Speaker 9: if it was just me because I'm cheap or. 768 00:39:06,960 --> 00:39:08,880 Speaker 2: Thrifty thrifty fifty fifty. 769 00:39:08,880 --> 00:39:13,320 Speaker 9: As I like to say, Amazon is apparently quietly raising 770 00:39:13,400 --> 00:39:15,960 Speaker 9: its prices. Back in April, it said it would keep 771 00:39:15,960 --> 00:39:18,200 Speaker 9: a lid on them. So the Wall Street Journal they 772 00:39:18,239 --> 00:39:20,960 Speaker 9: looked into some e commerce data. They found that prices 773 00:39:21,040 --> 00:39:24,480 Speaker 9: rose on about twelve hundred of the cheapest household goods, 774 00:39:24,520 --> 00:39:27,680 Speaker 9: even those that are made domestically saw some increases, a 775 00:39:27,719 --> 00:39:30,560 Speaker 9: lot of them Melissa as everyday essentials few examples. So 776 00:39:30,600 --> 00:39:33,920 Speaker 9: this is price changes from January twentieth to about July first. 777 00:39:34,400 --> 00:39:37,840 Speaker 9: The highest price rise was one hundred and thirty six percent. 778 00:39:37,920 --> 00:39:40,440 Speaker 9: It was for this ear rinse for dogs and cats. 779 00:39:40,480 --> 00:39:42,080 Speaker 9: I don't know what that's about, but but it's a 780 00:39:42,080 --> 00:39:46,960 Speaker 9: big price increase. Using eye drops up about seventy three percent. 781 00:39:47,040 --> 00:39:51,880 Speaker 9: Even some say isn't so protein shakes twenty five percent? 782 00:39:52,320 --> 00:39:55,600 Speaker 9: And what small is at Walmart lowered their prices on 783 00:39:55,640 --> 00:39:57,440 Speaker 9: the same items by nearly two percent. 784 00:39:57,480 --> 00:39:59,920 Speaker 2: So why is it tariffs? Is it they just wan 785 00:40:00,080 --> 00:40:02,000 Speaker 2: to make you know, they're trying to make more money, Like. 786 00:40:02,080 --> 00:40:06,479 Speaker 9: The company is saying the products weren't representative of their 787 00:40:06,640 --> 00:40:12,320 Speaker 9: prices overall, so they're kind of addressing it that way. 788 00:40:12,360 --> 00:40:15,880 Speaker 9: But that's what this and that's pretty broad big. 789 00:40:15,960 --> 00:40:18,560 Speaker 4: I mean, that's the question. I mean, to the extense 790 00:40:18,600 --> 00:40:21,680 Speaker 4: the turfs impact prices. I mean, are companies going to 791 00:40:21,760 --> 00:40:23,200 Speaker 4: take it in their margin? Are they going to pass 792 00:40:23,280 --> 00:40:26,000 Speaker 4: on to consumers? To date, it seems like they've been 793 00:40:26,040 --> 00:40:28,960 Speaker 4: taking in their margin. I guess the question for a 794 00:40:29,000 --> 00:40:30,719 Speaker 4: lot of folks is how long will that last? 795 00:40:30,760 --> 00:40:34,240 Speaker 2: Okay? Is it quickly? There's never enough time? But Lisa, 796 00:40:34,640 --> 00:40:38,360 Speaker 2: is Amazon a cardboard box company doing other stuff? Or 797 00:40:38,440 --> 00:40:41,080 Speaker 2: is there a fancy cloud company moving boxes? 798 00:40:41,680 --> 00:40:44,760 Speaker 4: If you're a consumer, it's the retail. If you're an investor, 799 00:40:44,960 --> 00:40:46,800 Speaker 4: it's the cloud next. 800 00:40:46,960 --> 00:40:49,760 Speaker 9: Okay, have you heard of the gen z stare? 801 00:40:50,560 --> 00:40:51,319 Speaker 2: This is driving me? 802 00:40:51,840 --> 00:40:53,200 Speaker 3: Okay, let me give you an example. 803 00:40:55,280 --> 00:40:57,200 Speaker 9: Coffee counter right, and you ask for it and they 804 00:40:57,280 --> 00:40:59,040 Speaker 9: sit there. If you're watching on YouTube and they go 805 00:41:00,480 --> 00:41:02,920 Speaker 9: and they just stare at you, it's this blank stare. 806 00:41:03,000 --> 00:41:04,000 Speaker 9: Sometimes there's long. 807 00:41:05,360 --> 00:41:05,600 Speaker 2: House. 808 00:41:05,920 --> 00:41:07,759 Speaker 9: It does not, but I notice it when I go 809 00:41:07,840 --> 00:41:10,600 Speaker 9: out and I see the kids behind the counter. They 810 00:41:10,600 --> 00:41:12,960 Speaker 9: say it's all the talk on social media, but they 811 00:41:13,000 --> 00:41:15,080 Speaker 9: say they talk to experts at them at about it, 812 00:41:15,120 --> 00:41:18,760 Speaker 9: and they say sometimes silence is the best way to handle. 813 00:41:18,920 --> 00:41:20,680 Speaker 9: But they say the real big thing is that these 814 00:41:20,719 --> 00:41:22,920 Speaker 9: kids grow up on screens. You know, gen Z is 815 00:41:22,920 --> 00:41:25,520 Speaker 9: what thirteen to twenty eight, So they grew up on screens. 816 00:41:25,520 --> 00:41:29,120 Speaker 9: They're used to just staring, So that could be the 817 00:41:29,160 --> 00:41:31,960 Speaker 9: issue behind it. But gen Z says they don't even 818 00:41:32,000 --> 00:41:34,279 Speaker 9: notice they're doing it. They're saying it's overblown, We're not 819 00:41:34,320 --> 00:41:36,080 Speaker 9: doing it, even though their parents are telling them that 820 00:41:36,120 --> 00:41:36,840 Speaker 9: they are doing it. 821 00:41:37,160 --> 00:41:40,040 Speaker 2: I go to Jeffrey Sachs with a great book fifteen 822 00:41:40,080 --> 00:41:43,360 Speaker 2: years ago, and we're fifteen years on from his iconic 823 00:41:43,440 --> 00:41:47,000 Speaker 2: statement on kids fallen behind, and it's just been sped 824 00:41:47,080 --> 00:41:50,040 Speaker 2: up with those technology. I read an entire I read 825 00:41:50,080 --> 00:41:52,680 Speaker 2: ae hundred and fifty page book yesterday. Tiny book, not 826 00:41:52,719 --> 00:41:55,640 Speaker 2: a big deal. How many kids are reading a book 827 00:41:55,840 --> 00:41:59,120 Speaker 2: over a weekend like zero? We used to live on them. 828 00:41:59,200 --> 00:42:04,240 Speaker 9: Yeah, My daughters has her summer reading Project Life. 829 00:42:04,400 --> 00:42:08,040 Speaker 2: Until Brian gotta be there. 830 00:42:08,200 --> 00:42:11,120 Speaker 6: She came home and said, Bruce, who. 831 00:42:11,760 --> 00:42:14,800 Speaker 9: Okay, last time quickly because we touched upon it earlier. 832 00:42:15,400 --> 00:42:18,080 Speaker 9: The cancelation of the late show it's talking about with 833 00:42:18,200 --> 00:42:20,480 Speaker 9: Stephen Colbert is at the end to late night TV, 834 00:42:20,600 --> 00:42:24,359 Speaker 9: so screen time. Bloomberg Lucas's Shaw newsletter said a couple 835 00:42:24,360 --> 00:42:27,720 Speaker 9: of things. First, fewer people are watching. It's the most 836 00:42:27,840 --> 00:42:30,840 Speaker 9: watch of the three major talk shows, but it attracts 837 00:42:30,920 --> 00:42:33,279 Speaker 9: less advertising. And then he gets into the numbers. The 838 00:42:33,360 --> 00:42:35,680 Speaker 9: show costs about one hundred million a year to produce. 839 00:42:36,040 --> 00:42:38,839 Speaker 9: It's on pace to lose more than forty million this 840 00:42:38,960 --> 00:42:43,120 Speaker 9: year an additional fifty million next year. And the reasons 841 00:42:43,160 --> 00:42:46,520 Speaker 9: they say why people are falling off is because a 842 00:42:46,520 --> 00:42:50,040 Speaker 9: lot more people are watching the clips on YouTube or 843 00:42:50,080 --> 00:42:52,840 Speaker 9: Instagram or TikTok. They don't want to watch the whole show, 844 00:42:53,120 --> 00:42:55,360 Speaker 9: you know, short term attentions. Man, They just want the 845 00:42:56,040 --> 00:42:58,839 Speaker 9: nuts and bolts of it. And then trying to get 846 00:42:58,880 --> 00:43:02,279 Speaker 9: a host is hard because comedians can actually earn more 847 00:43:02,320 --> 00:43:05,319 Speaker 9: money doing those you know, those stand up shows that 848 00:43:05,360 --> 00:43:05,800 Speaker 9: they do it. 849 00:43:05,960 --> 00:43:08,279 Speaker 2: James Kimmel's out in the Hamptons with his kids, right, 850 00:43:08,560 --> 00:43:11,040 Speaker 2: You're like, you know, we're waiting for the infie. Yeah, exactly, 851 00:43:11,560 --> 00:43:13,799 Speaker 2: Howard start, you know, hang it out. Lisa Poteo, thank 852 00:43:13,840 --> 00:43:15,799 Speaker 2: you so much for the newspaper. Did your daughter get 853 00:43:15,800 --> 00:43:17,319 Speaker 2: home from the concert? She did. 854 00:43:17,360 --> 00:43:20,120 Speaker 9: I picked her up in the lot, the mom and 855 00:43:20,239 --> 00:43:20,719 Speaker 9: dad lot. 856 00:43:22,320 --> 00:43:24,680 Speaker 2: Lisa Poteo, thank you so much. 857 00:43:25,000 --> 00:43:29,839 Speaker 1: This is the Bloomberg Surveillance podcast available on Apple, Spotify, 858 00:43:29,920 --> 00:43:34,240 Speaker 1: and anywhere else you get your podcasts. Listen live each weekday, 859 00:43:34,360 --> 00:43:37,600 Speaker 1: seven to ten am Easter and on Bloomberg dot Com, 860 00:43:37,719 --> 00:43:41,560 Speaker 1: the iHeartRadio app, tune In, and the Bloomberg Business app. 861 00:43:41,840 --> 00:43:44,960 Speaker 1: You can also watch us live every weekday on YouTube 862 00:43:45,239 --> 00:43:47,240 Speaker 1: and always on the Bloomberg terminal