Speaker 1: This is the Bloomberg Surveillance Podcast.
Speaker 2: I'm Tom Keene, along with Jonathan Farrell and Lisa Abramowitz.
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Speaker 3: Slew A FED speak today Collins Bouman, Harker Jefferson on
Speaker 3: Tap Cleveland FED, President of Rundamessa, speaking to the ft
Speaker 3: and saying, quote, I don't really see a compelling reason
Speaker 3: to pause. I would see more of a compelling case
Speaker 3: for bringing rates up and then holding for a while
Speaker 3: until you get less uncertain about where the economy is going.
Speaker 3: There's some good news. Bob Michael takes the other side
Speaker 3: of that of JP Morgan Asset Management, saying that we
Speaker 3: are going to get a pause. We expect the FED
Speaker 3: to pause hiking rates at the June f MC meeting
Speaker 3: and believe we have seen the last rate hike for
Speaker 3: this cycle. And the good news for Bob Michael is
Speaker 3: it sounds like his boss agrees with him to listen.
Speaker 4: You know, my simple view is that you know, the
Speaker 4: the right to pause at this point has been a
Speaker 4: big increase, you know, five hundred basis points, so take
Speaker 4: a pause. But I do think it's possible they're going
Speaker 4: to raise a little bit more.
Speaker 3: Take a pull.
Speaker 1: It sounds like a fish ready to go out.
Speaker 3: He looks secretary right. Okay, he looks melon like ready
Speaker 3: to sell the country.
Speaker 2: Andrew Mellon, Yeah, did you see Bob Michael is under secretary?
Speaker 3: I can see see.
Speaker 1: That joining us now, Robert Michael.
Speaker 2: Bob Michael had a fixed income JP Morgan Asset Management.
Speaker 2: And I want to go back to nineteen eighty four.
Speaker 2: You're a youngling at bankers Trust. Ian Rush is with Liverpool.
Speaker 2: They're doing better than good. This is way way back.
Speaker 2: And the basic idea is we used to clip coupons.
Speaker 2: Would you be sitting with mister Diamond now saying that
Speaker 2: we can make coupon and total return?
Speaker 5: Now?
Speaker 2: Are we going to see price up yeeld down in
Speaker 2: a basic bond portfolio.
Speaker 6: I can't tell you how relieved I am not to
Speaker 6: hear him tell me that I should be preparing for
Speaker 6: seven percent. So I'll take what I can from him
Speaker 6: that we're due for a pause and that should relax
Speaker 6: the markets. No, one hundred percent. This is the time
Speaker 6: where you clip coupons because yields have reset materially higher
Speaker 6: from where they were at the end of twenty twenty one. Actually,
Speaker 6: when you look at real yields in the bond market,
Speaker 6: they're the highest level going back fifteen seventeen years. We're
Speaker 6: going to get some capital appreciation on top of the
Speaker 6: coupon clipping. I'm looking for close to double digit returns
Speaker 6: on the Bloomberg aggregate over the next year.
Speaker 1: This is the key statement.
Speaker 2: And what's important about this is mister Diamond back to
Speaker 2: bank when actually knows what an.
Speaker 1: SMP blue book is. I mean, you have a blue
Speaker 1: book and you have bonds in it.
Speaker 2: You go through and you try to buy bonds for
Speaker 2: price up, yield down.
Speaker 1: Which kind of bonds will give you.
Speaker 2: The best pop there to get your double digit return.
Speaker 6: Well, we're currently intermediate government bonds look good to us,
Speaker 6: So we're thinking the five year treasury. We feel we've
Speaker 6: been given a gift in here with the backup in yields. Sure,
Speaker 6: we swung a little bit low and yields the market
Speaker 6: got all excited. Now it's going the other way. We
Speaker 6: do think that we're going to see three percent across
Speaker 6: the coupon curve by the end of the summer, and
Speaker 6: the five year seems to be the sweet spot, so
Speaker 6: we like that, and then we like high quality credit,
Speaker 6: so for sure we're going into investment grade corporates. We're
Speaker 6: actually starting to see a lot of overseas investors returning
Speaker 6: to the US investment grade corporate bond market. They're attracted
Speaker 6: by the yields there.
Speaker 2: The yields you jentlemor folds right into the disinflation deflationary
Speaker 2: Chinese impulse.
Speaker 3: Some of this you would state just on the yield
Speaker 3: curve for people who aren't familiar with what drives different
Speaker 3: parts of the yield curve. What is special about a
Speaker 3: five year maturity? Why is that the sweet spot for you?
Speaker 6: Because it gives you a couple of things. One, it
Speaker 6: gives you a reasonably high level of yield. Sure it's
Speaker 6: not cash. Cash is sitting out there at over five percent,
Speaker 6: but that's the cash trap. At this part of the cycle.
Speaker 6: You put money there and then a year from now
Speaker 6: it's gone. Your cash run rate is probably below four
Speaker 6: percent a year from now, so you've lost all of that,
Speaker 6: and then the yell curve starts to adjust to a
Speaker 6: central bank that's cutting rates again. We still think we're
Speaker 6: going to be in recession by the end of the year.
Speaker 6: Everything that's happened so far this year continues to tell
Speaker 6: us end of the year recession and first FED rate
Speaker 6: cut in September, and I know the recent data throw
Speaker 6: some of that into speculation. Not in our book. Things
Speaker 6: are playing out the way they should exactly.
Speaker 3: So five year in the treasury market one got it, okay,
Speaker 3: ig ton of amount coming from abroad, got that, okay.
Speaker 3: High yield you've got within your call a rate cut
Speaker 3: coal in September. Does it make sense to be buying
Speaker 3: high yield and taking more more credit risk at a
Speaker 3: time whether Fed's going to be cutting rights because you
Speaker 3: anticipate the economy is going to weaken.
Speaker 6: So I'm listening to the conversation at the start about
Speaker 6: the equity market and how we're isolating. Nvidia and a
Speaker 6: couple things have driven this rally, but there are other
Speaker 6: things that are lagging.
Speaker 7: Now.
Speaker 6: I'm a bond guy, which makes me an equity market expert,
Speaker 6: but I see a lot of I see a lot
Speaker 6: of Yeah, exactly, I see a lot of what's going
Speaker 6: on the equity market, in the high yield market, and
Speaker 6: we've parsed through all of this, and what you're looking
Speaker 6: at is the triple C universe is a thousand basis
Speaker 6: points over, so it's already coming under pressure, and the
Speaker 6: double B universe is in the three hundreds over, so
Speaker 6: that differentiation is already occurring. This is very different than
Speaker 6: where we were back in August September. Whenever we hit
Speaker 6: six hundred basis points. Oh, for pretty much most of
Speaker 6: the market was about six hundred basis points over. That
Speaker 6: was probably the time to take a shot over the
Speaker 6: near term. Now is not. Now the market is telling
Speaker 6: you there is differentiation beneath the surface. Investors are seeing
Speaker 6: cracks forming and they're trying to get out of the way.
Speaker 8: You said that things are playing out as they should
Speaker 8: to get to a recession by the end of the
Speaker 8: year and to get a fed to cut rates by September.
Speaker 8: Does that mean that we're in this sort of inflection
Speaker 8: point that we're going to see a rapid deceleration in
Speaker 8: some of the economic data in a way that we
Speaker 8: just haven't yet with all the upside surprises.
Speaker 6: Absolutely, and we've talked about this before, from the last
Speaker 6: FED rate hike until recession, it's historically averaged about a
Speaker 6: thirteen month period, so that long and variable takes time.
Speaker 6: We're now getting into a year and a quarter. We're
Speaker 6: going to start hitting the window when the four to
Speaker 6: seventy five basis point rate hikes start to hit. And
Speaker 6: you're already hearing about the funding pressure to businesses and
Speaker 6: households at a higher rate level, it's causing them to
Speaker 6: rethink things, and then the higher cost of everything that's
Speaker 6: causing them to rededicate where their spending goes to. So
Speaker 6: that catch up is coming. And some of the inflation
Speaker 6: data we're looking at Europe overnight or this morning came
Speaker 6: in so often. I know Italy surprised a little bit
Speaker 6: to the upside, but everything seems to be slowing down.
Speaker 6: The one thing that seems to have gone under the radar.
Speaker 6: Forget about what's going on in China. Look at the
Speaker 6: Bloomberg Commodities Index. It was one hundred and forty ish
Speaker 6: about a year ago. It's below one hundred now, and
Speaker 6: the trend is diving south at a rate that you
Speaker 6: only see headed into recession. So the weakness is there,
Speaker 6: the cumulative and lagged or catching up.
Speaker 8: This is important. A lot of people push back against
Speaker 8: commodities being a real signal this time around. This time
Speaker 8: is different with a lot of different things than I
Speaker 8: could see.
Speaker 6: Right, you don't use them for anything.
Speaker 8: But hold on a second.
Speaker 7: But here's the issue.
Speaker 8: People saying that because of China and the inability to
Speaker 8: get that right, because of Russia and their willingness to
Speaker 8: pump much more than their allotted amount to try to
Speaker 8: get money to fund the war. Because of all of
Speaker 8: these issues, you're seeing distortions in the commodity market that
Speaker 8: do not comply with what they're seeing on the ground.
Speaker 8: How much are you using this as a key signal
Speaker 8: saying or where we should be?
Speaker 6: Well, you still have very low unemployment in the US.
Speaker 6: Everyone's talking about three and a half percent unemployment. Everyone's
Speaker 6: talking about wages have gone up and that there's a
Speaker 6: stickiness to core inflation. Everyone's talking about consumers want to
Speaker 6: spend on travel and leisure so that the demand is there.
Speaker 6: But if the demand is at a high enough level,
Speaker 6: you are going to see commodities prices pushed higher. People
Speaker 6: are spending on things. In buying things, it's just not
Speaker 6: a rate that sustains itself with the amount of supply.
Speaker 6: We're now seeing the bottlenecks have cleared.
Speaker 3: Well, this is awesome by Michael jpmorganism management.
Speaker 2: We're going to go to the congressman from in between
Speaker 2: the Cubs and the Brewers, Jamesville, Wisconsin. Brian Style joins
Speaker 2: us now Republican from Wisconsin with all that heritage of
Speaker 2: former Speaker Paul Ryan. Congressman, I'm going to go back
Speaker 2: to the election of twenty eighteen. You won with fifty one,
Speaker 2: maybe fifty two percent of the vote. You've done better
Speaker 2: in recent elections, doing better like sixty percent or whatever.
Speaker 2: I want you to comment on the vociferous conservative Republicans
Speaker 2: and what they're doing to Republicans who are more middle
Speaker 2: of the road. What is the damage being done by
Speaker 2: the strident Republicans to the oh more in the middle
Speaker 2: of the road.
Speaker 5: This vote is going to be a little bit of
Speaker 5: a vote of strange bedfellows. I think what you're going
Speaker 5: to see is, at the end of the day, there's
Speaker 5: some members that are going to allow perfection to be
Speaker 5: the enemy of the good all of us, I think
Speaker 5: would like to see us get our true fiscal house
Speaker 5: in order in the United States. This bill is only
Speaker 5: a step in the right direction, but it's a step
Speaker 5: in the right direction. It's the largest spending cuts that
Speaker 5: we're going to ever see in the United States of America.
Speaker 5: It has work requirements, it helps workers get back to work,
Speaker 5: and it does all this without raising taxes. And so
Speaker 5: at the end of the day, there's some people that
Speaker 5: would like to see a perfect bill, but I think
Speaker 5: if we have a good bill, you got to vote
Speaker 5: for it.
Speaker 2: Congressman Jim Garretty in the Washington Post had a brilliant
Speaker 2: half paragraph yesterday which said, Look, the Republicans have a
Speaker 2: narrow majority in the House. Can you expand that power
Speaker 2: in Washington with President Trump? After this budget debate? Can
Speaker 2: you get there with Donald Trump November of twenty twenty
Speaker 2: four to move beyond a narrow majority in the House.
Speaker 5: We're going to see now to the election in twenty
Speaker 5: twenty four is a lot of voices coming to the table,
Speaker 5: and I think the one that's going to be successful
Speaker 5: is the candidate that's going to talk about the future
Speaker 5: of the United States of America, about how we're going
Speaker 5: to grow the economy and address the fiscal situation that
Speaker 5: we're in. We're going to have a number of voices
Speaker 5: at the table. I don't think that's a bad thing,
Speaker 5: because I think we need to dramatically change course in Washington,
Speaker 5: in particular, following two years of dramatic increases of spending.
Speaker 8: A lot of people talk about the real discussion being
Speaker 8: entitlements and whether Social Security checks are going to have
Speaker 8: to be reduced, whether Medicare and Medicaid are going to
Speaker 8: have to receive less funding. Are you putting those things
Speaker 8: on the table in your discussion about further fiscal restraint.
Speaker 5: In this bill, we're only really dealing with eleven percent
Speaker 5: of the federal budget, and dealing with eleven percent, we
Speaker 5: got one point five trillion dollars of savings for the
Speaker 5: American people. But you're right, at the end of the day,
Speaker 5: it's the entitlement programs that are driving costs higher. This
Speaker 5: is going to be an opportunity here to bring Democrats
Speaker 5: and Republicans to the table to address those programs and
Speaker 5: really protect in particular social Security and Medicare for generations
Speaker 5: to come. But that's going to require a bipartisan approach
Speaker 5: of folks coming to the table, encourage of candidates who
Speaker 5: are running for president in twenty twenty four to talk
Speaker 5: about the reforms that are ultimately going to be needed.
Speaker 8: There's a large question around whether that will actually happen,
Speaker 8: and we've been having it with a lot of cynicism.
Speaker 8: I'm sure you have your own with insight from inside
Speaker 8: the Beltway. Wendy Schiller of Brown University was on the
Speaker 8: show earlier and she said Kevin McCarthy will remain Speaker
Speaker 8: of the House simply because the Democrats will back him
Speaker 8: if the Republicans won't, because at least it will be
Speaker 8: some sort of cohesive voice that is better than the alternative.
Speaker 8: Does that concern you that Kevin McCarthy will remain speaker,
Speaker 8: but perhaps only at the behest of Democrats who are
Speaker 8: concerned about the alternative.
Speaker 5: I actually disagree with the analysis. I think Kevin McCarthy
Speaker 5: will remain Speaker with Republican votes. I actually don't even
Speaker 5: think you'll see a motion to vacate. We had a
Speaker 5: robust family conversation last night intil the late hours of
Speaker 5: the evening talking about this legislation. And while it's true
Speaker 5: there are some Republicans that would like to see a
Speaker 5: better bill. They think that they could get a perfect bill.
Speaker 5: At the end of the day, I think everybody in
Speaker 5: the room recognizes that this bill is a step in
Speaker 5: the right direction, and they're appreciative of the Republican negotiating
Speaker 5: team that moved the ball forward. You got to remember
Speaker 5: we started with the president saying that he was going
Speaker 5: to refuse to negotiate. He put his head in the sand,
Speaker 5: he went to Delaware, went off to Japan rather than negotiating,
Speaker 5: and at the end of the day, we came back
Speaker 5: with one comp five trillion dollars in savings.
Speaker 2: Car you sound like Paul Ryan on an off day.
Speaker 2: Come on, congressman, let's be come on. What I'm hearing
Speaker 2: in the zeitgeist right now from Anne Marie Horden is
Speaker 2: Democrats are taking a victory lap because they pretty much.
Speaker 1: Got what they wanted.
Speaker 2: Modern Republicans like you are saying, Okay, let's get this
Speaker 2: done and move on, and you got a bunch of
Speaker 2: people trying to block this and shut down the government.
Speaker 2: I got to go back to the fact you lived
Speaker 2: Paul Ryan's decline as Speaker.
Speaker 1: Of the House.
Speaker 2: I want to go from Bayer to Ryan to McCarthy.
Speaker 2: What does a speaker have to do now? Not to
Speaker 2: be Paul Ryan, not to be John Bahner.
Speaker 5: I think, actually the Republicans are quite unified in the
Speaker 5: House right now, and I think that shows when we
Speaker 5: passed the Limit Save Grow Act, many people across the
Speaker 5: United States underestimated the ability of Republicans to come together
Speaker 5: and unify and pass a bill. In fact, President Biden
Speaker 5: didn't think we could do it either. That was part
Speaker 5: of his negotiating tactics, and at the end of the day,
Speaker 5: we came together. I think the Republican conference in the
Speaker 5: House is quite unified to address the spending challenges that
Speaker 5: we face.
Speaker 2: But you know the speaker, Okay, I'll go with that,
Speaker 2: But the answer is John, the speaker, the speakership here.
Speaker 1: Is under real threat and it comes up suddenly?
Speaker 2: Did it come up suddenly? Congressman for Paul Ryan, was
Speaker 2: everything fine? And then boom, you're his aid in office,
Speaker 2: and all of a sudden, boom, he's under threat by
Speaker 2: these Republicans.
Speaker 5: I was working in the private sector for quite some time,
Speaker 5: so I wasn't on Capitol Hill for about twenty years
Speaker 5: before I ran for office. But I think what you
Speaker 5: see is at the end of the day that these
Speaker 5: things can rise on. Okay, but if you talk to
Speaker 5: Republican members, we're unified in the House Representatives. I think
Speaker 5: everyone recognizes that this is a good bill. There's just
Speaker 5: some conservative and Republican members that would like to have
Speaker 5: a better bill. That's not the bill that's on the table.
Speaker 3: Congressman, I'm just a spectator and watching this play out
Speaker 3: for a long time, both within the United States and
Speaker 3: abroad as well, and every single time we get into
Speaker 3: this tobacco, we just raised the debt seating again and
Speaker 3: again and again and again. Whether that's a Republican president
Speaker 3: or a Democratic president, it's the same outcome. We raise
Speaker 3: the debt ceiling. Bron You heard JP Morgan's Jamie Diamond
Speaker 3: come in from the break there saying, I wish one
Speaker 3: day they'd get rid of the whole debt ceiling thing.
Speaker 3: Why do we still have it? And isn't it somewhat
Speaker 3: embarrassing for the president, whether Republican or Democrat, to go
Speaker 3: abroad to places like Japan for the G seven to
Speaker 3: try and lead the global effort on a whole bunch
Speaker 3: of issues to then be looking back and have this
Speaker 3: em type tobacco playing out at home.
Speaker 5: In a period of time of dividing government, there's actually
Speaker 5: a few opportunities to negotiate the spending reforms that are needed,
Speaker 5: in particular a period of time when executive authority has
Speaker 5: grown so dramatically. In this bill, we actually address the
Speaker 5: fact that the President tried to dramatically alter student loan
Speaker 5: payments that never went through Congress in the first place. Unfortunately,
Speaker 5: based on executive overreach, what we have is so few
Speaker 5: opportunities to get spending under control where the executives both
Speaker 5: parties are absolutely right continue to spend money through executive action.
Speaker 5: And this negotiation allows us to actually bring the president
Speaker 5: to the table and have a conversation about how we're
Speaker 5: going to get spending under control. And I think again,
Speaker 5: at the end of the day, this is overall a
Speaker 5: good bill moving us in the right direction.
Speaker 3: Yeah, the one bill assigned Congressman, don't you see where
Speaker 3: this is coming though? That ultimately, and we're out of time,
Speaker 3: So if you want to continue this conversation, by all means,
Speaker 3: come back another time. It just feels like we're in
Speaker 3: the process now of deliberately manufacturing crises to do exactly
Speaker 3: what you just explained it. At some point that's going
Speaker 3: to write the confidence in this country and potentially the
Speaker 3: ust market too. So we've got to leave it that, Congressman,
Speaker 3: if you want to continue, happy to do that another time,
Speaker 3: Congressman Brian style of that of Wisconsin.
Speaker 2: Right now, we're going to talk the talk of the
Speaker 2: moment in video with Angelo Zeno, senior equity analyst at CFIRA, who,
Speaker 2: in a brilliant note, has a courage to write what
Speaker 2: everybody's thinking. Which is the only way you can justify
Speaker 2: this is to extend your timeline.
Speaker 1: Angelo, you go right out to twenty.
Speaker 2: Twenty four, and you say, look, with a twenty five
Speaker 2: percent growth pop, you're buying a forty multiple stock, why
Speaker 2: don't you extrapolate out to twenty twenty five?
Speaker 9: Yeah, I mean, listen, I think you can. I think
Speaker 9: there's always danger with kind of trappling the numbers out right,
Speaker 9: But I will say this, we are believers in kind
Speaker 9: of the entire video story, in kind of the AI story,
Speaker 9: the fact that kind of GPU's going to increasingly represent
Speaker 9: a bigger percentage of CAPEX dollars for these cloud companies.
Speaker 9: We do think over time over the next three to
Speaker 9: five years, the comhid and annual growth rate for GPUs
Speaker 9: and specifically that of Nvidia on the accelerator side of
Speaker 9: things in the cloud can grow at an annualized piece
Speaker 9: of north of kind of twenty to twenty five percent,
Speaker 9: and that can kind of get you to an EPs.
Speaker 1: Growth rate over time for in Vidia.
Speaker 9: Again north of twenty percent. If you're a believer that
Speaker 9: you know the top line for this company can continue
Speaker 9: to grow at a mid to high teams percentage pace.
Speaker 1: Are there other invidias out there?
Speaker 9: So we actually wrote a piece back in late March
Speaker 9: about kind of the biggest winners of kind of the
Speaker 9: generative AI boom within the semiconductor industry, and we kind
Speaker 9: of pointed to four names at that point in late March.
Speaker 9: And those four names were one, of course, in Nvidia,
Speaker 9: AMD is another name clearly a beneficiary and the GPU
Speaker 9: side of things over time as well. And then the
Speaker 9: other two names are more kind of network connectivity type names,
Speaker 9: and they were there were Marvel as well as Broadcom,
Speaker 9: a name that we think is highly underappreciated, a number
Speaker 9: a name that's going to report tomorrow.
Speaker 8: Night at the close, I'm wondering what a tech company
Speaker 8: is right now and which companies can actually take advantage
Speaker 8: of artificial intelligence. Some of this technology very clear cut
Speaker 8: AMD or in Nvidia, but what about Meta what about
Speaker 8: just in a broader sense, other companies that could potentially
Speaker 8: gain from the productivity of investments and artificial intelligence? How
Speaker 8: do you value which companies will gain and which actually
Speaker 8: won't at all and potentially could even lose.
Speaker 9: Yeah, listen, I think that's probably the most important question
Speaker 9: we get from investors right now. It's from a monetization perspective,
Speaker 9: who are going to be the biggest winners kind of
Speaker 9: from this AI boom? And that's really ant you know,
Speaker 9: it's a tough question to answer and say, you know,
Speaker 9: to your point, kind of the easy answer right now
Speaker 9: is on the semiconductor side of things, That is on
Speaker 9: the infrastructure side of the and kind of playing that
Speaker 9: and that's clearly where the kind of the the action
Speaker 9: has been.
Speaker 1: Here in recent weeks.
Speaker 9: Now when you kind of look kind of more forward
Speaker 9: looking in nature, when we think about some of the
Speaker 9: larger capaning stocks, I'd say Microsoft clearly at the top
Speaker 9: of the list in our view. I mean with with
Speaker 9: copilot out there with the potential to kind of see
Speaker 9: significant pricing power on that side of things. We think
Speaker 9: the light of line of sight is highly visible in
Speaker 9: when where over the next decade should be a clear
Speaker 9: winner in our view. Now, other names like an alphabet
Speaker 9: as well as menta, we think they're going to be
Speaker 9: a little bit tougher calls. And that's why you don't
Speaker 9: see kind of the multiple to the extent where you
Speaker 9: see that of the Microsoft's of the world. And the
Speaker 9: big reason for that is, you know, are they going
Speaker 9: to get really get the ROI potential or are they
Speaker 9: going to give advertisers out there the ROI from this AI.
Speaker 9: But we think there is some kind of positives out there,
Speaker 9: but I don't think it's as clear as potentially a
Speaker 9: name like Microsoft out there.
Speaker 8: So you can be a believer in this story, and
Speaker 8: I think that anyone who sees the way that people
Speaker 8: are using chat GPT like artificial intelligence has to be
Speaker 8: something of a believer, if not at least a very
Speaker 8: open recipient of this information. But you do have some
Speaker 8: naysayers out there about the valuation, basically saying that the
Speaker 8: rally that you have seen so far thirty one percent
Speaker 8: in big tech stocks so far this year is at
Speaker 8: risk of petering out. This according to City Analysts, basically
Speaker 8: saying that positioning is just such that it's rife for
Speaker 8: profit taking. I mean, do you sort of play into that?
Speaker 7: Do you just sort of look past that?
Speaker 8: Do you think that anything like that will just be
Speaker 8: a buying opportunity? How are you playing sort of the
Speaker 8: tactical ride up that we've seen in prices that can't
Speaker 8: really continue at this pace.
Speaker 9: Yeah, I mean, listen, I mean, in terms of the
Speaker 9: performance here that there is we think going to be
Speaker 9: some sort of AI fatigue here potentially in the coming weeks,
Speaker 9: some sort of digestion that's probably going to be needed.
Speaker 9: Now that said, I mean, we remain very big believers
Speaker 9: that the valuation actually is not as extended I think
Speaker 9: as many people out there think, especially as you kind
Speaker 9: of look out to a calendar twenty twenty four bases
Speaker 9: for names like in Nvidia and others where kind of
Speaker 9: there are within their five to ten year historic historical ranges,
Speaker 9: Especially when you start thinking about kind of the growth
Speaker 9: tied to a number of these names. I'd also point to,
Speaker 9: you know, names like a Microsoft and others where Listen,
Speaker 9: at this point in time, I'd say, kind of, the
Speaker 9: risk of the downside on EPs estimates are probably very low,
Speaker 9: and there's probably upside potential to those estimates, So we
Speaker 9: kind of continue to we want to be one on
Speaker 9: a lot of these names that are AI related, and
Speaker 9: I would say, kind of, you kind of want to
Speaker 9: have a basket of names. You don't want to grow
Speaker 9: your eggs in one basket, and you want to be
Speaker 9: buying kind of on any any pullbacks. But listen, it's
Speaker 9: definitely gotten a bit hot to an extent, especially on
Speaker 9: the semi side of things. But the four names that
Speaker 9: we highlighted, we think continue to be the biggest winners
Speaker 9: and the names you want to buy on those pullbacks.
Speaker 3: So you want to belong. Some people feel like they
Speaker 3: have to be longer. It's just going through the ambust recommendations.
Speaker 3: I love this forty nine buys, eight holds and one
Speaker 3: guy who cann't care less about career risk with the South. Now, Angelo,
Speaker 3: that's what wanted to finish on. Do you sense the
Speaker 3: so called career risk associated with this given how quickly
Speaker 3: it's moving, is there pressure that you have to be long?
Speaker 9: I think that's a great point. I mean, listen, I
Speaker 9: think listen. I think there's always risk of kind of
Speaker 9: you know, there's always risk on that side of things,
Speaker 9: but you know, we are fundamental by nature and to
Speaker 9: us the fundamentals that are screaming by right now, and
Speaker 9: for that reason, I think you continue to need to
Speaker 9: pound the table on these type of names. And I
Speaker 9: think especially on a name like Nvidio, when you kind
Speaker 9: of look at the multiples at about forty low forties
Speaker 9: on a calendar twenty four basis, and then you look
Speaker 9: at the growth tied to it three to five years
Speaker 9: from now, and you kind of look at how early
Speaker 9: we are. If you're a believer of kind of let's say,
Speaker 9: autonomous vehicles and what have you, there is risk to
Speaker 9: potentially having a cell to be tactical the nature rather
Speaker 9: than kind of a beating kind of the you know,
Speaker 9: the table on the longer term outlook on these areas.
Speaker 9: And I think that's what you need to do for
Speaker 9: investors out there right now.
Speaker 3: Interesting, Angela, always great to hear from you. Thank you,
Speaker 3: Angela Zena, the of cf RA. We've got to catch
Speaker 3: up with Emily Rowland Co. Chief Investment strategistic John Hancock Investments,
Speaker 3: Emily credit where it's due. I've been speaking to you
Speaker 3: all year. You push back against that europe euphoria. You
Speaker 3: remained committed to the growth equity story the United States
Speaker 3: over the rest of the world, not the rest of
Speaker 3: the world over the United States. Emily. Are you're sticking
Speaker 3: with it?
Speaker 10: Yeah, John, we are, absolutely, And it does feel like
Speaker 10: markets are sort of getting the memo right now.
Speaker 7: In terms of the macroeconomic environment.
Speaker 10: You know, we're looking at decelerating growth, as you all
Speaker 10: have mentioned, disappointing data in China. This morning we saw
Speaker 10: japan industrial production and retail sales both disappointing.
Speaker 7: And you've seen this big rotation into US markets.
Speaker 10: And that's been exhibited by a lot of the cross
Speaker 10: asset action, seeing a bid for treasuries. Finally, over the
Speaker 10: last couple of days here you're seeing the dollar get
Speaker 10: a bid. And of course this massive rotation into US
Speaker 10: quality growth stops, which we've talked about for some time.
Speaker 10: So that's got some key implications for portfolios, especially if
Speaker 10: you think about, you know, some of these trend following
Speaker 10: strategies that have bought you know, the Japan they've bought
Speaker 10: Europe based on positive price momentum. You might see that
Speaker 10: reverse and actually exacerbate some of the flows out of
Speaker 10: those areas of the market.
Speaker 1: You're going to get me in trouble.
Speaker 2: Mentioned the trend following strategies, Emily, I'm glad you mentioned Japan.
Speaker 2: We haven't mentioned that this morning, and those are shocking numbers.
Speaker 2: Within this is sticky inflation. Everybody's doing real analysis, but
Speaker 2: we live in a nominal world. Are we going to
Speaker 2: be surprised by okay, revenue growth that supports US blue chips?
Speaker 10: Well, I think it's a great point because inflation has
Speaker 10: definitely helped these companies that have a lot of pricing power,
Speaker 10: especially companies that have high operating leverage, and we've seen
Speaker 10: that be absolutely critical in terms of supporting margins. We
Speaker 10: think it's going to be hard to sustain that going forward.
Speaker 10: Of course, bottom line costs are elevated, whether it's the
Speaker 10: cost of capital. Wage growth still fairly elevated, though there
Speaker 10: are signs that that's coming down, and then clearly demand
Speaker 10: is starting to slow.
Speaker 7: We're seeing that way back in the supply chain.
Speaker 10: If you look at things like the ISM index of
Speaker 10: new orders, which is our favorite leading indicator, no offense.
Speaker 10: I know everybody has a favorite leading indicator, but that's
Speaker 10: our the John Hancock and that's going to put up
Speaker 10: pressure on margins. It's going to cause companies to need
Speaker 10: to defend their margins going forward, and that's ultimately going
Speaker 10: to result.
Speaker 7: And the unemployment rate rising.
Speaker 10: We haven't seen that happen yet, but we think that
Speaker 10: that's something that comes in the next couple of quarters here.
Speaker 8: There's been growing theme in a lot of the notes
Speaker 8: that I've been reading about this inflection point that we
Speaker 8: seem to be coming up upon, not that just that
Speaker 8: we've been halfway through the year, but also that some
Speaker 8: of the main factors driving the first half are shifting.
Speaker 8: Do you see that as well, and we're going to
Speaker 8: be the features of this inflection point.
Speaker 7: Yeah.
Speaker 10: Well, some of the main drivers that have been supporting
Speaker 10: the market we've talked about it was really China reopening
Speaker 10: back in the fourth quarter of last year and better
Speaker 10: weather in Europe, which causes massive rotation into European equities.
Speaker 10: It caused a dollar to weaken, which really supported risk assets.
Speaker 10: There's been almost a perfect correlation with the dollar weakening
Speaker 10: and risk assets rallying and vice versa, and you're seeing
Speaker 10: some of those things shift now again as this rotation
Speaker 10: comes back to the US. The economic data not great
Speaker 10: across the globe, but it's actually better in the US
Speaker 10: right now, which is a big shift over the last
Speaker 10: couple of quarters. So stronger dollar bid for treasuries. We
Speaker 10: think that's where some of the opportunities are from here.
Speaker 10: And I think that again, the market action of the
Speaker 10: past couple of days to us makes a ton of
Speaker 10: sense given the fact that we are in a decelerating
Speaker 10: growth environment and that recession is likely to unfold.
Speaker 3: Emily great, cool so far here today on the equity market,
Speaker 3: together with the same Thank you, Emily Rowland of John
Speaker 3: Hancock Investment Management.
Speaker 2: William Lee joins US now chief economist and Milken Institute. Billy,
Speaker 2: let's start with green Spanny in one oh one is
Speaker 2: China and they're slow down, going to export, disinflation and deflation.
Speaker 11: Well, China cannets for much of anything right now, but
Speaker 11: I hope what they do with is disinflation for the
Speaker 11: rest of the world. Right now, China's recovery has really faltered.
Speaker 11: We can see that the piet not only is manufacturing down,
Speaker 11: but it looks like the consumption is on its way
Speaker 11: going to go down as well, with unemployment rates at
Speaker 11: twenty percent for youth unemployment, So China is not in
Speaker 11: good shape right now. And I think we are looking
Speaker 11: around and seeing what is going to pull China out
Speaker 11: of the douldrums.
Speaker 2: What is the degrees of freedom and autocracy has Sunday
Speaker 2: afternoon New York time when they're supposed to provide stimulus.
Speaker 11: It's pretty limited, right because not only is the federal
Speaker 11: debt out of control, the municipal level debt is out
Speaker 11: of control. So the general channels for fiscal policy have
Speaker 11: been through the municipal governments to try to hire more people,
Speaker 11: build more projects and stuff like that. Well, right now
Speaker 11: they can't do that. So the amount of fiscal policy
Speaker 11: that we have is really limited. And monetary policy, I mean,
Speaker 11: you can lower rates, but people are just going to
Speaker 11: stay there and not borrow because they're going to ask
Speaker 11: themselves where am I going to spend the money in
Speaker 11: order to make money in the future if the demand
Speaker 11: is so slow. So China right now is snowballing into
Speaker 11: a fairly bad static plateau.
Speaker 8: Static plateau that's been priced in or not Bill.
Speaker 11: You know, I think one of the things that we
Speaker 11: have to look at is where is it being priced.
Speaker 11: One of the things we talked about at the Milking
Speaker 11: conference that just end a month ago was that a
Speaker 11: lot of the investors going into China going into the
Speaker 11: private markets, and we really can't see a lot of that.
Speaker 11: But in order to get into the private markets, one
Speaker 11: thing that everyone made clear was they need a good surpose.
Speaker 11: They needed someone to guide them through to find good
Speaker 11: investment opportunities. And a lot of the investors claim they've
Speaker 11: got some good sharpers there and they're getting good bargains
Speaker 11: because the slowdown is affecting valuations both in the public
Speaker 11: and private markets. But the real question to ask is
Speaker 11: will you get the kind of returns you're hoping for?
Speaker 11: And there I have my doubts because the democratics are
Speaker 11: working against them. And on top of that, the possibility
Speaker 11: of technological change, which would be the one thing that
Speaker 11: boosts the Johnny's economy, is also not going to be
Speaker 11: there because policy has been really anti innovation, anti technology,
Speaker 11: and it's hard to see that changing.
Speaker 8: Which is John what you were pointing to when you
Speaker 8: were taking a look at the tech indexes over in
Speaker 8: China versus the tech indexes in the US and that
Speaker 8: huge bifurcation between the two. Bill that's maybe on a
Speaker 8: domestic level, What about internationally has this been priced in
Speaker 8: in terms of the impulse that China had on Europe?
Speaker 8: We were talking about the euro and how much has
Speaker 8: come off some of its earlier highs.
Speaker 11: Well, the RIM and be right now is weaker that
Speaker 11: it's been for godd knows how long, and so in
Speaker 11: that sense it's being priced it. But for me, the
Speaker 11: EFS market is very short term. The real question is
Speaker 11: are investors pricing in growth opportunities over the next five years.
Speaker 11: Are they putting the marginal dollar into China or a
Speaker 11: they're putting it somewhere else? And I think more often
Speaker 11: than not they're looking somewhere else.
Speaker 2: Bill, You've got a great ability to move away from
Speaker 2: the Pacific RIM in the three cities we focus on
Speaker 2: all the time. What's the rest of China look like?
Speaker 2: With the unemployment rates that are.
Speaker 11: Being reported, that's a great question. Up until now, I
Speaker 11: would have said the prospects for any kind of innovation,
Speaker 11: any kind of employment growth are going to come out west.
Speaker 11: Because the Milkton study for the greatest performing cities in
Speaker 11: China landed on Chindu as a small innovation hub, and
Speaker 11: we still stand by those numbers. But unfortunately these numbers
Speaker 11: are getting dated, and right now I'm not sure if
Speaker 11: even out west the innovation helps will be able to
Speaker 11: give the kind of employment that the way that they
Speaker 11: hope for.
Speaker 2: We've been here before and the answer is Beijing always
Speaker 2: blinks and moves away from a totalitarian mindset, the autocracy
Speaker 2: of President g and they move to some form of
Speaker 2: liberality and capitalism.
Speaker 1: You're saying, it's not going to happen this time. See
Speaker 1: he's points out on radio.
Speaker 2: You can't see that, Professor Lee is I'm gonna I
Speaker 2: gotta duck because the chart's coming in.
Speaker 11: Tom. President she's blinking, is gonna involve maybe a slightly
Speaker 11: different wrinkle. He's going to rely on nationalism, perhaps some militarism,
Speaker 11: some expansion of Huberts into the rest of Asia, because
Speaker 11: after all, he wants Asia to be the currency area
Speaker 11: for the China for the rem and be so. So
Speaker 11: I think these are the kind of places we should
Speaker 11: look for any kind of resuscitation of you of Chinese nationalisms,
Speaker 11: which is they're going to try to instill pride in
Speaker 11: the Chinese people without giving them jobs, and that's going
Speaker 11: to be a cute trick.
Speaker 8: Well, how do what does that mean in terms of
Speaker 8: international business? And I say this is JP Morgan has
Speaker 8: their conference and plays nice, albeit in a brilliantly diplomatic
Speaker 8: pro American but also pro China kind of speech by
Speaker 8: Jamie Diamond. How much can you really see a decoupling
Speaker 8: or a willingness to exacerbate that on the Chinese side
Speaker 8: in light of the economic challenges.
Speaker 11: Well, Lisa, we have a love fest by US CEOs,
Speaker 11: going back to Tim Cook and now Elon Musk and
Speaker 11: Jamie Diamond is very slick and being able to say
Speaker 11: I'm a true American. I really am a patriot. So
Speaker 11: when you vote for me, remember that even though I'm
Speaker 11: asking you to come to China and support my people.
Speaker 11: And I think going forward we're going to see more
Speaker 11: of that, because the question is the people who are
Speaker 11: in China have to con their maintain their business and
Speaker 11: really contain what they've gained. But the marginal dollar the investors.
Speaker 11: He's sitting here in the West thinking of going to China,
Speaker 11: what are they going to see? And I think They're
Speaker 11: going to see a lot of opportunities in osion in
Speaker 11: Korea and in the quad country surrounding Charla, because that's
Speaker 11: where a lot of the innovative industries are moving to.
Speaker 8: I want to end the conversation where we began, where
Speaker 8: you're talking about sort of a stagnant plateau. What is
Speaker 8: that stagnant plateau in China? What is that rate of
Speaker 8: growth that's going to be the new normal and going
Speaker 8: to drive demand for the luxury goods that have gotten
Speaker 8: bid up for commodities that have surprised a lot of
Speaker 8: people to downside this year.
Speaker 11: Well, Lisa, the official number is a five handle for
Speaker 11: growth going forward, and I think you're going to see
Speaker 11: more likely a three handle than five. So I think
Speaker 11: that's the kind of order magnitude you're thinking of, because
Speaker 11: with population stagnant, any kind of massive productivity growth can't
Speaker 11: get them above.
Speaker 3: Three for obvious reasons. Bill market participants are going to
Speaker 3: be very interested in the next move on stimulus to
Speaker 3: get the PMI back above fifty. As you know, that's
Speaker 3: not what the leader of the Chinese Commuist Party is
Speaker 3: going to be focused on. They're going to be taking
Speaker 3: a multi decade view, and Bill, I'm far more interested
Speaker 3: in the kind of FIS school moves that they make
Speaker 3: to stimulate more investment in certain parts of the economy
Speaker 3: that are going to be highly competitive with the United
Speaker 3: States and Europe, particularly as the US retrenches and refuses
Speaker 3: in some parts to do business with the Chinese government. Now, Bill,
Speaker 3: what are you focused on with regards to that?
Speaker 1: Well?
Speaker 11: Absolutely, In fact, if you look at where the Chinese
Speaker 11: are meeting and where they or not, they're not meeting
Speaker 11: with Defense Secretary of Austin, so they don't want to
Speaker 11: talk military because we know what they're going to do
Speaker 11: there is not very powerful for the US. But I
Speaker 11: think the place that they're meeting with is Genial Romando.
Speaker 11: It's the Commerce Secretary. They're hoping to leverage some action
Speaker 11: on the tariffs. They're hoping to leverage some action on
Speaker 11: cutting the semiconductor restrictions, and their information blackout is going
Speaker 11: to leverage what our investors actually see. They're going to
Speaker 11: shape the story for global investors to be so wonderful
Speaker 11: that that investors carries is coming. But in order to
Speaker 11: do the due diligence require information to do the due diligence.
Speaker 11: It's something that's being restricted as we speak by the
Speaker 11: Chinese government and going forward, I don't see that lifting.
Speaker 3: That last point is so important Bill, clarity transparency. How
Speaker 3: do I know what the unemployment rate actually is in China?
Speaker 3: Measuring it is hard enough. But when we hear youth
Speaker 3: unemployment something like twenty percent, just how bad is it?
Speaker 1: Bill?
Speaker 11: It is that bad or worse? And if it wasn't worse,
Speaker 11: we would hear more about informal data. But instead we
Speaker 11: see companies like Win being wound down by the government.
Speaker 11: We see due diligence, companies like Bane being queried by
Speaker 11: the officials. So I think the Chinese will making very
Speaker 11: clear We're going to feed you the information you need,
Speaker 11: but it's from us.
Speaker 3: Bill lake Milkin, Hi. Bill got to catch up.
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