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Speaker 3: Stocks trading their record highs once again after Friday's AI pullback,
Speaker 3: Sarah Hunt of Alpine Saxon Woods, writing.
Speaker 4: We think this illustrates a level of.
Speaker 3: Concern from investors that there is too much spending on
Speaker 3: the horizon and not enough cash flow to fund it.
Speaker 3: Sarah joins us now for more, Sarah, wonderful to see you.
Speaker 3: Thank you for being here.
Speaker 4: Good morning. It's great to be here. So is it
Speaker 4: enough fear?
Speaker 3: Is it enough skepticism to make you actually interested in
Speaker 3: AI once again?
Speaker 4: Or does it need to go a little bit further.
Speaker 5: Well, it certainly seemed like enough last week. I mean
Speaker 5: there were some big moves last week, and I don't
Speaker 5: think the market. I mean, you look at Broadcom's earnings
Speaker 5: and the numbers themselves were very good. It's back to
Speaker 5: the expectations problem and the second derivative problem which Cameron
Speaker 5: just mentioned, which is what happens when you're still spending
Speaker 5: a lot of money, but you're not spending it quite
Speaker 5: as fast as you were. And the more you spend,
Speaker 5: the bigger that the problem of large numbers comes in.
Speaker 5: And can I go ten percent on every ten percent
Speaker 5: or twenty percent every year every year? And I think
Speaker 5: that's an issue. And now people are starting to question
Speaker 5: where is that money coming from? And it wasn't that
Speaker 5: question didn't happen in the beginning. And you've got some
Speaker 5: real issues with companies that used to be cash rich
Speaker 5: now getting more sset heavy. And I think that that's
Speaker 5: a little bit an absorption issue for investors right now.
Speaker 3: But have we gone a little too far with this
Speaker 3: with the idea that Microsoft and Google really are going
Speaker 3: to face some sort of solvency risk or some sort
Speaker 3: of serious existential question because they're borrowing a bit from
Speaker 3: the bond market, right I mean, have we sort of
Speaker 3: thrown the baby out with the bathwater, to use John
Speaker 3: Soulfus's term. Given the fact that people seem skeptical more
Speaker 3: broadly of the promise that they embraced two weeks ago.
Speaker 5: I think that that is just indicative of what we've
Speaker 5: been living with for the last several years. Out of
Speaker 5: the pandemic, which is narrative ships every day, and yes,
Speaker 5: the pessimism gets wildly bad, and then it gets wildly
Speaker 5: fantastic again. And this is why I wouldn't say that
Speaker 5: this is a moment where you have to go, oh
Speaker 5: my goodness, we have to change everything, but you have
Speaker 5: to think about what who else might benefit and how
Speaker 5: that's going to go. And I actually think that even
Speaker 5: the story about the CDs for Oracle, I think that's
Speaker 5: much more about hedging the stock than it is about
Speaker 5: actually thinking that Oracle's not going to pay its spons
Speaker 5: back in the end. So I think a lot of
Speaker 5: this is the mechanics of how that spend is going
Speaker 5: to come about. And I don't think it's a really
Speaker 5: challenging the fact that money's going to get spent.
Speaker 1: I want to say that group think is great, but
Speaker 1: I want to pick up on what you just said there,
Speaker 1: which is we have all of these narrative shifts, doling narratives.
Speaker 1: What does that say to you just about conviction investors,
Speaker 1: conviction in this not not just this trade, but in
Speaker 1: the prospect's.
Speaker 5: FAYI generally it is difficult to have because it's hard.
Speaker 5: I mean, it's the conviction that is going to be
Speaker 5: a big thing. It's going to make a lot of changes.
Speaker 5: I think hasn't changed. What those changes are going to be,
Speaker 5: who is going to benefit from those changes, and how
Speaker 5: fast they're going to be implemented seems to be a
Speaker 5: big part of the current concern.
Speaker 4: It was easier to say at the.
Speaker 5: Beginning of the year, we see a ton of expending
Speaker 5: on infrastructure. There's still going to be a ton of
Speaker 5: spending on infrastructure. But now that that's getting questioned, is
Speaker 5: that the peak of infrastructure spend discussion? Now do we
Speaker 5: have to look at use cases and who's using it
Speaker 5: and how they're using it, and is this going to
Speaker 5: improve margins? Because in the end, that's what it all
Speaker 5: comes down to. Is it going to make people more money?
Speaker 5: Because if it isn't, then it isn't going to raise earnings.
Speaker 5: Then it's less exciting than if it is going to
Speaker 5: raise earn.
Speaker 1: No, it's December. I'm in retrospective mood. Perhaps you are
Speaker 1: as well. You mentioned that question wasn't being asked at
Speaker 1: the beginning, which was hou is all this going to
Speaker 1: be paid for? It's going to be cash? Is it
Speaker 1: going to be dead? What do you make of that
Speaker 1: in hindsight now, the fact that people weren't wrestling with
Speaker 1: those questions to begin with.
Speaker 5: I think with every big investing enthusiasm, there is a
Speaker 5: willingness to suspend belief about whether or not and how
Speaker 5: things have to happen to get to the point where
Speaker 5: everyone's excited about And I think that it doesn't mean
Speaker 5: that we won't suspend that disbelief again. Right, So, there's
Speaker 5: going to be some technological changes. I don't see how
Speaker 5: you get the molecules and the electrons to as many
Speaker 5: data centers as we have, so I think that there
Speaker 5: will be changes, and those changes are going to occur
Speaker 5: in ways that are right now difficult to parse, so
Speaker 5: you don't know who's going to win and who's going
Speaker 5: to lose.
Speaker 1: There.
Speaker 5: I think it was very clear at the infrastructure beginning
Speaker 5: who is the winners, and now it's like, Okay, who's
Speaker 5: going to win now? And are the winners really over
Speaker 5: or is that just something that isn't going to grow as.
Speaker 3: Found you get the conversation of the weekend was you
Speaker 3: almost need bubbles to fuel technological advancement. I mean, I
Speaker 3: know that that sounds really strange and perverse, but there
Speaker 3: is a sort of element of you need thatcham to
Speaker 3: finance absolutely everything. Is there sort of this feeling that
Speaker 3: you need to see the broadening out in the trade,
Speaker 3: the idea that other companies benefit from AI to keep
Speaker 3: the am machine chugging, right, that in order for people
Speaker 3: to justify valuations where they are in the big tech giants,
Speaker 3: you need to see participation on a broader scale.
Speaker 5: I think you absolutely need to see that participation. And
Speaker 5: I think that that was a question even earlier in
Speaker 5: this year, in the beginning at the end of last year,
Speaker 5: which was who's going to use this? And then Walmart
Speaker 5: came out and said a few things about how it
Speaker 5: was helpful for margins, and other companies came out and said, yes,
Speaker 5: we can use it this way and it's going to
Speaker 5: be and that sort of solved the short term problem,
Speaker 5: but longer term that has to broaden out, and that
Speaker 5: has to be This is also the question about small caps.
Speaker 5: Can they use this to make some margin improvements because
Speaker 5: the small cap earnings revolution was supposed to happen two
Speaker 5: years ago and then last year and then this year,
Speaker 5: and is that.
Speaker 4: Really going to come through?
Speaker 5: And I think all of those things are very important
Speaker 5: as we go forward, and where valuations are right now,
Speaker 5: it's even more important.
Speaker 3: This is where the economy starts to matter again. This
Speaker 3: is where, all of a sudden, when we were talking
Speaker 3: about how anything related to AI could be at its
Speaker 3: own universe and the economy could keep sort of dragging
Speaker 3: along and basically being in a recession if it weren't
Speaker 3: for that AI investment. At what point can you see
Speaker 3: this expansion, this broadening out unless you see economic data
Speaker 3: like what we're going to be getting this week really
Speaker 3: pick up.
Speaker 5: It's interesting because I think that the government shutdown has
Speaker 5: not only made the data that's current difficult to see
Speaker 5: what happened just recently, but it also may have shifted
Speaker 5: some activity into next year.
Speaker 4: So it's going to be interesting to see that.
Speaker 5: You do have to see an economy that keeps jogging
Speaker 5: along if it doesn't, you're going to have a problem.
Speaker 5: There's no question that that's going to be an issue.
Speaker 5: That's an issue for earnings, earnings lead evaluations, and that's
Speaker 5: the circle that investors are looking at.
Speaker 1: Speaking of circles, let's talk about circular investment and your
Speaker 1: sort of thoughts on that right now. I mean, we
Speaker 1: can't have this conversation about it, i AI without going
Speaker 1: back to that. And I'm curious how worriesome that is
Speaker 1: to you. Have you been sufficient have your worries been
Speaker 1: significantly or sufficiently assuaged by these companies saying that it's
Speaker 1: not a big deal.
Speaker 5: I'm not sure that I can say one way or
Speaker 5: the other it's definitely not a big deal or it's
Speaker 5: a huge big deal. I know that in two thousand
Speaker 5: there were a lot of issues with vendor financing. It
Speaker 5: was quite simple, right that companies were selling.
Speaker 1: Stuff that we say circular deals and vendor financing are
Speaker 1: the same thing.
Speaker 5: I don't think that you can because I think that
Speaker 5: there are some some of the players in that circle
Speaker 5: have much more cash than they did before. So last
Speaker 5: time it was vendors financing who didn't have the cash
Speaker 5: to companies who didn't have the cash. Now, there is
Speaker 5: cash in the mix, and there's quite a bit of cash.
Speaker 5: And that's where you're seeing the have and have nots
Speaker 5: on the tech side of who's as rich and who's
Speaker 5: not and who are people concerned about whether or not
Speaker 5: they're going to raise money or not. Again, I don't
Speaker 5: think the Oracle anyone's concerned that it's going to go bankrupt.
Speaker 5: But I think that there are concerns about overburdening balance
Speaker 5: sheets right now.
Speaker 1: Lisa brought us to the economy, let me go back
Speaker 1: to that sort of to pull us away from that.
Speaker 1: They're just remote. But I'm curious, how do you think
Speaker 1: about growth in the year ahead. Are you, to borrow
Speaker 1: a phrase from competers, you're saying not saying when about it?
Speaker 1: Or are you feeling like prospects are good, things are
Speaker 1: going in the right direction.
Speaker 5: I think it's tough because the K shaped economy is
Speaker 5: a real thing that people who are spending the most
Speaker 5: money are the people who have the most money. The
Speaker 5: lower end consumer is not doing well. A lot of
Speaker 5: the companies that track that are not doing well, and
Speaker 5: I think it's going to be that's really a question. Now,
Speaker 5: how much have we owed overstated jobs. Right, So in
Speaker 5: Poll's conference he talked about some of those overstatements and
Speaker 5: maybe instead of generating jobs, we're losing jobs every month.
Speaker 5: How much is that really occurring? What can we see
Speaker 5: and what do wages look like? Because all of those
Speaker 5: things matter. It's great that the high end can spend,
Speaker 5: but you really need for the full economy to chug
Speaker 5: a long you need broader participation.
Speaker 3: Which is the reason why everyone's watching and hoping for
Speaker 3: this broader participation in the equity space. Sarah Hunt of
Speaker 3: Alpine Saxon Woods is with us for the hour.
Speaker 2: And stay with us. Mult Blomberg Surveillance coming up off
Speaker 2: to this.
Speaker 3: Here's the latest President Trump telling the Wall Street Journal
Speaker 3: he's unsure his economic policies will lead to midterm wins.
Speaker 3: An NBC News poll showing the president's approval rating down
Speaker 3: to forty two percent. Is economic concerns way on Americans.
Speaker 3: Henrietta Treys of Veta Partners joins us now for more. Henriette,
Speaker 3: how do you sort of view this interview in the
Speaker 3: Wall Street Journal, in particular with President Trump, where he's
Speaker 3: saying that people just haven't felt the ramifications or the
Speaker 3: benefits from some of his policies. Will that actually make
Speaker 3: any headway early twenty twenty six.
Speaker 6: Yeah, that's absolutely true.
Speaker 7: The one big beautiful bill went into effect immediately for corporations. Indeed,
Speaker 7: we've seen that corporate tax revenue has dropped by about
Speaker 7: a third into federal coffers this year.
Speaker 6: That's because of.
Speaker 7: The tax preferences that went out very quickly after they
Speaker 7: passed that bill on the corporate side. But the individual
Speaker 7: side is back end loaded and starts in the new
Speaker 7: year when the tax filing season starts. So when you
Speaker 7: think about the odds of a reconciliation bill two point
Speaker 7: zero for example, or the two thousand dollars tire freebate
Speaker 7: checks for example, that requires another Act of Congress. And
Speaker 7: as far as the White House is thinking about it,
Speaker 7: and indeed, when I talk to Republican staff on the
Speaker 7: House and Senate side, they're saying, you know, we already
Speaker 7: did the individual tax cuts, you just haven't seen them yet.
Speaker 7: So when Kevin has it comes out and says twenty
Speaker 7: twenty six is going to be a boon year for
Speaker 7: the consumer and individuals, it's because the tax preferences that
Speaker 7: hit the individual side of the docket.
Speaker 6: Really start in the new year.
Speaker 7: So if you are really looking forward to the salt
Speaker 7: deduction that's coming for you, there's a really small segment
Speaker 7: of the economy that's on the no taxes on tips,
Speaker 7: no taxes on overtime piece that all starts in the
Speaker 7: new year, and they're hoping that that's going to be
Speaker 7: enough to overcome the continued hit of tariffs, the continued
Speaker 7: negative narrative around affordability and the high cost of living, housing,
Speaker 7: healthcare going up by one thousand dollars, etc.
Speaker 1: We'll see, henriettas you talked to staffers on the hill,
Speaker 1: I'm curious what they want this president to be doing.
Speaker 1: So you lay out very clearly sort of the benefits
Speaker 1: that will be very evident imagined to the American public
Speaker 1: here come in the new year. What do they make
Speaker 1: of his emphasis on immigration, on foreign policy, him not
Speaker 1: talking about affordability. What would they like him to be
Speaker 1: doing more, and what's the reaction to him not doing
Speaker 1: more on that front.
Speaker 7: It's a real mixed bag with the same answer. Get
Speaker 7: President Trump on the campaign trail, and for Republicans, they
Speaker 7: really want to see that because the majority of the
Speaker 7: new voter turnout of the last decade of sort of
Speaker 7: the magabase. They're here for President Trump, They're not here
Speaker 7: for your average run on the mill, rank and file Republican.
Speaker 7: So those members really want President Trump to come to
Speaker 7: their district, come on the campaign trail. You know, they
Speaker 7: would have liked to see him more in Tennessee, for example,
Speaker 7: a couple of weeks ago to boost the numbers, because
Speaker 7: he is a turnout generating machine, and there's a lot
Speaker 7: of anxiety on the Republican side about going into a
Speaker 7: midterm election cycle where the president himself, who is highly
Speaker 7: popular with the Republican base and MAGA voters, is not
Speaker 7: on the docket. Those voters tend to not show up
Speaker 7: in a midterm, which is why you saw such as
Speaker 7: shell lacking for the Republican Conference.
Speaker 6: In twenty eighteen.
Speaker 7: They don't want to see a repeat of that, So
Speaker 7: they really want Trump to get on the cam Hayne trail,
Speaker 7: come rally their voters, and get the turnout machine. Unfortunately,
Speaker 7: that's what Democrats also want, because they know that Republican
Speaker 7: voters that are still the court of a President Trump
Speaker 7: are more likely to stay home. And the majority of
Speaker 7: Americans now have a negative view of the Republican Party's
Speaker 7: handling of the state of the economy, inflation, prices, housing,
Speaker 7: and healthcare, and those are the top five issues of
Speaker 7: voters going into the midterm cycle. So Democrats similarly want
Speaker 7: President Trump to be.
Speaker 6: Front and center.
Speaker 7: So it's really a tough road to hoe for the
Speaker 7: Republican conference and for President Trump in particular. He's got
Speaker 7: to get out there. He's got to talk about affordability.
Speaker 7: But the more he talks about it, the more health Democrats.
Speaker 7: So it's sort of a catch twenty two.
Speaker 4: Good morning, Henrietta. So what of all those things.
Speaker 5: That you mentioned, it seems to me that one of
Speaker 5: the most important things to try to nail down right
Speaker 5: now is healthcare because you can't really change a rise
Speaker 5: in price levels.
Speaker 4: Whenever you do about further.
Speaker 5: Height doesn't matter as much as changing what's going to
Speaker 5: happen now with those subsidies. And this is a train
Speaker 5: wreck that's been coming and pushed off and pushed off
Speaker 5: and pushed off. Is there any do you think that
Speaker 5: they can get something done in a timeframe that's going
Speaker 5: to be meaningful? And do you think that there's enough
Speaker 5: bipartisan anything, because everybody is going to be affected by this.
Speaker 4: How does that look in your opinion?
Speaker 7: Yeah, I'm not shy about making projections. There's no chance
Speaker 7: that they fix Obamacare before the end of the year,
Speaker 7: so we're going off the cliff. To put it into perspective,
Speaker 7: that's twenty two million people that are going to be hit.
Speaker 6: Four million people will lose their insurance.
Speaker 7: If you're sixty years and older, your premiums are going
Speaker 7: up by almost one thousand dollars in the new year.
Speaker 6: That's going to happen.
Speaker 7: There is this period of time between January fifth and
Speaker 7: January thirtieth where they could find a solution.
Speaker 6: Our odds are pretty slim, my colleagues.
Speaker 7: Spenser Proman is our healthcare expert, and he's now down
Speaker 7: to twenty five percent that we get any two year,
Speaker 7: one year extension.
Speaker 6: Of the ACA subsidies.
Speaker 7: And you can hear it from Republicans in the United
Speaker 7: States Senate who saw this train wreck coming, as you
Speaker 7: rightly point.
Speaker 6: Out, and consider this a subsidy that needs to expire.
Speaker 7: We have a thirty eight trillion dollar debt load in
Speaker 7: the United States. Let's cut this and make sure that
Speaker 7: it is not extended. Unfortunately, when American consumers look at
Speaker 7: Republicans speak to the healthcare issue.
Speaker 6: We're now on y're sixteen of not having an alternative
Speaker 6: to Obamacare, so that leads to an erosion of trust.
Speaker 7: Within voters of Democrats and Republicans alike around the entire
Speaker 7: concept of healthcare. For the Republican conference, i'mer speaker Bayner
Speaker 7: had the best quote the other day. He basically said,
Speaker 7: I've been in all these meetings with Republicans for decade now,
Speaker 7: and we've never all been on the same page. And
Speaker 7: so as long as that's the case, you're not going
Speaker 7: to see a fix, then we'll go into the year
Speaker 7: with that one.
Speaker 2: Stay with us. Mulblomberg surveillance coming up after.
Speaker 3: This, Poojaree Room of Barclays writing we expect a non
Speaker 3: farm payroll and employment flat in October and up fifty k.
Speaker 4: In November, providing further evidence.
Speaker 3: That the labor market is not is slowing but not breaking.
Speaker 3: Poo just realm of Barclays joining us now, Pooja, great
Speaker 3: to see you, Thank you so much for being with USKS.
Speaker 3: So just looking at slowing but not breaking. What's the
Speaker 3: difference between the two. How narrow is the gap between
Speaker 3: slow and before and between broken.
Speaker 4: Yeah, I think that's a great question.
Speaker 8: I think we're getting close to the point where people,
Speaker 8: ourselves included, are seeing risks clearly to the downside. But
Speaker 8: in terms of breaking that is a world where you
Speaker 8: expect labor markets slack to shoot up, you know, pick
Speaker 8: up very rapidly, and that's not something we're seeing either
Speaker 8: in the official day or in some of the other statistics,
Speaker 8: like you know, think about job openings and the separations
Speaker 8: rate there or jobless claims data. So it is a
Speaker 8: labor market which for a while now has been stuck.
Speaker 8: You know, we're not hiring, but we're not firing as much,
Speaker 8: so there's very little dynamason risks, sure of the downside,
Speaker 8: but we still think we're.
Speaker 4: Not at that point where we're ready to fall off
Speaker 4: the cliff.
Speaker 3: Well, I guess I'm wondering if we're at an inflection
Speaker 3: point of sorts, or maybe we've been grinding along. We
Speaker 3: could be heading toward an inflection point. Why wouldn't it
Speaker 3: be to the upside, Because we have seen smaller businesses
Speaker 3: really pull back and hiring. The hiring has been concentrated
Speaker 3: in the larger companies. If they get some stimulus if
Speaker 3: there is these rate cuts that kind of start percolating
Speaker 3: through the economy, why wouldn't we see a pickup in
Speaker 3: hiring rather than sort of the other way around.
Speaker 8: That's a great question, and I think that's a very
Speaker 8: feasible scenario to keep in mind, just given you know,
Speaker 8: we are quite constructive about growth into twenty twenty six.
Speaker 8: We're seeing a lot of positive impulses that could keep
Speaker 8: the economy highly support and in that world, yes, you
Speaker 8: could have a labor market that actually stabilizes. In fact,
Speaker 8: our own forecast, official forecast has the labor market looking
Speaker 8: quite resilient in twenty twenty six, and we have the
Speaker 8: unemployment rate coming down. So I think we really subscribe
Speaker 8: to that view that there is a world where the
Speaker 8: labor market stabilizes and eventually starts to look better. But
Speaker 8: given where we are now, I think it's reasonable to
Speaker 8: also see that risks could very well be to the downside.
Speaker 8: It would take very little to push the labor market
Speaker 8: in the opposite direction.
Speaker 1: I'm curious how you think about the legacy of what
Speaker 1: we have been through here with this government shut down,
Speaker 1: the delay of data that we hadn't seen before, and
Speaker 1: all the while there was this conversation about what might
Speaker 1: be a decent substitute for the data that we weren't
Speaker 1: getting from the Labor Department. How could we get as
Speaker 1: good as sense as we could about the state of
Speaker 1: the labor market life not having that data. Now that
Speaker 1: we're beyond it, I'm curious of what we've learned about
Speaker 1: how good a sense we have of the jobs market
Speaker 1: in this country. We've heard from the Fed share suggesting
Speaker 1: perhaps are more fundamental problems with the way that these
Speaker 1: numbers are are collected and counted. How are you thinking
Speaker 1: about what we've been through?
Speaker 8: Absolutely so, I would say this that the government shut
Speaker 8: down basically brought to the forefront the fact that we
Speaker 8: are highly, highly reliant on official statistics, and there's a
Speaker 8: good reason why. You know, we have very talented statisticians
Speaker 8: who've been doing it the right way for a very
Speaker 8: long time. But at the same time, I think it
Speaker 8: also exposed the wonderabilities of suddenly not having these data,
Speaker 8: or now we're in a scenario where the data could
Speaker 8: be clouded in some sense. Right to answer your question,
Speaker 8: we have looked at a dashboard of indicators which are
Speaker 8: quite useful, and our reasonable alternatives to get a gauge
Speaker 8: where the economy is headed. And you know these come
Speaker 8: in different shapes and forms. You've got job openings data,
Speaker 8: you've got job postings, some of them about hiring, so
Speaker 8: it gives you a decent picture of where things are.
Speaker 8: But we still don't think those are enough to substitute
Speaker 8: the official statistics.
Speaker 1: I suspectedly it's going to ask my inflation am before
Speaker 1: we get there. Let me just ask you that the
Speaker 1: FED speak the mony. I'm sorry that Mike was mentioning
Speaker 1: all that we're going to hear from and I'm curious,
Speaker 1: what are you listening for? In specific, we've talked a
Speaker 1: lot about the silent of sense, the quietest sense that
Speaker 1: happened at that meeting. What are we likely to learn
Speaker 1: from kind of pan and believe speakers who are going
Speaker 1: to be giving remarks and the interviews over the course
Speaker 1: of the week.
Speaker 8: Yeah, I think the one thing that stood out in
Speaker 8: the December FO and C meeting is just how divergent
Speaker 8: views are within the committee. I mean, if you just
Speaker 8: look at even the dot plot for example, in twenty
Speaker 8: twenty six, seven participants felt that it's appropriate to whold
Speaker 8: rate steady where they are now, so I think going
Speaker 8: into this week and also just you know, beyond this week,
Speaker 8: we want to get a sense of who's thinking how
Speaker 8: For example, we did hear from Goolsby that his descent
Speaker 8: was to some part tied to the fact that he
Speaker 8: didn't have enough data to go by, right, And so
Speaker 8: that gives you some insight into I guess what he's
Speaker 8: looking for. And you know, we're likely to get similar
Speaker 8: insights from others, and I'm sure like a lot of
Speaker 8: other FED watches, we will be trying to you know,
Speaker 8: we're trying to place them on the dove hog lineup
Speaker 8: to see exactly where their minds are at and to
Speaker 8: go to give us a sense really of what the
Speaker 8: reaction function is for each of these participants.
Speaker 3: Over the weekend, San Francisco FED president Mary Daily put
Speaker 3: out a blog post and she was talking about why
Speaker 3: she supported cutting rates the last meeting, and she talked
Speaker 3: about how, yes, it was a very difficult decision because
Speaker 3: there is this dual mandate that's very much in conflict.
Speaker 4: She was talking about inflation.
Speaker 3: Yes, I always got to talk about it and how
Speaker 3: it has been really punitive for these families. But she said,
Speaker 3: how you get down to two percent matters because if
Speaker 3: you get there too quickly, you break the labor market,
Speaker 3: and then you've got families grappling with both above average
Speaker 3: inflation and potential job losses. Do you think that there
Speaker 3: is this theory right now presiding over the FED to
Speaker 3: run the economy a bit hot, especially at a time
Speaker 3: of technological transition, with artificial intelligence posing some existential questions
Speaker 3: around the labor market, in order to avoid some sort
Speaker 3: of labor markets scarring at the expense of inflation knocketting
Speaker 3: down to two percent any time in the near future.
Speaker 8: Well, I okay, Well, this is what I think stood
Speaker 8: out to me in the December presser. There seems to
Speaker 8: be this view in the FED that inflation is really
Speaker 8: not a problem right now. In fact, Chair Powell's own
Speaker 8: comments on inflation is he's quite sanguine about it. I
Speaker 8: think in some part of the press that he did
Speaker 8: think that inflation, you strip it out of all the
Speaker 8: tariff effects, is somewhere in the low twos. Then he
Speaker 8: mentioned something about productivity also likely to support the economy.
Speaker 8: So if you sort of put all those views together,
Speaker 8: I think there is this view out there in among
Speaker 8: the FED participants that inflation is perhaps not a problem
Speaker 8: to be concerned about, and what they need to be
Speaker 8: concerned about right now is the labor market. That's perhaps
Speaker 8: what you know Mary Daily is also subscribing to.
Speaker 4: In some sense.
Speaker 8: My own take is I think it's a little too
Speaker 8: premature to think that inflation is going to take care
Speaker 8: of itself. You know, we at Barclay's have been saying
Speaker 8: for a while that we are yet to see the
Speaker 8: full effects of tariffs on the inflation data. And sure,
Speaker 8: while it may be a one time price shock, I
Speaker 8: think it's a little too early to declare victory on
Speaker 8: inflation yet.
Speaker 2: Stay with US multile imperg surveillance coming up after this.
Speaker 3: Keith Lerder of Truest writing, we are still positive tech
Speaker 3: longer term, but in the near term there is a
Speaker 3: lack of a catalyst for the sector, so investors will
Speaker 3: need to be patient.
Speaker 4: Investors known for their patients.
Speaker 3: Keith joins us. Now, okay, thank you so much for
Speaker 3: being with us. I just want to start there. I mean,
Speaker 3: do you think that this so off that we've seen
Speaker 3: or on a performance I should say probably putting it
Speaker 3: more fairly. In the tech sector is something that can
Speaker 3: persist for a longer period of time or is this
Speaker 3: sort of like an end of the year melt off
Speaker 3: given how much it's been outperforming.
Speaker 9: Yeah, well for us, great to be with you.
Speaker 10: I didn't realize it was the actually last full trading
Speaker 10: week of the years, so that's exciting in some ways.
Speaker 10: So to your points, specifically at LISA, I still think
Speaker 10: tech is long term leadership.
Speaker 9: But to your point, we.
Speaker 10: Went up off the loads about seventy percent versus thirty
Speaker 10: five percent for the S and P five hundred, and
Speaker 10: now you get all these different questions as well.
Speaker 9: So I just think it's a point.
Speaker 10: Where you know that we have to kind of rebuild
Speaker 10: that wall of warrior, which we're doing. But at the
Speaker 10: end of the day, the earnings momentum for the tech
Speaker 10: sector is still the strongest one out there. So I
Speaker 10: think in the air term, I think the challenge is
Speaker 10: what is the catalyst to move this up, Because you know,
Speaker 10: we just went through an earning season. People are focused
Speaker 10: on obviously Oracle and video comes out with some news
Speaker 10: about some more chip selling to China, it's not moving it.
Speaker 10: So I think it's just maybe a digestion phase, and
Speaker 10: I think, you know, the next year at some point,
Speaker 10: maybe that's three months or six months from now, we'll
Speaker 10: see money rotate back into it. And when we look
Speaker 10: historically at bull markets, maybe my final point here is
Speaker 10: the leadership of a bull market tends to endoor towards
Speaker 10: the end, notwithstanding periodic you know, pull and rotations. We're
Speaker 10: seeing one of those rotations right now on this kind
Speaker 10: of boarding theme, and I think that boarding theme, at
Speaker 10: least in their term, has a bit more to go.
Speaker 3: You found somewhat skeptical of it long term. Is that correct, Keith,
Speaker 3: that this broadening theme maybe is a short term lip
Speaker 3: but not necessarily a twenty twenty six full year trend.
Speaker 7: No.
Speaker 10: I think, you know, Lisa, if we were here a
Speaker 10: year ago, I think the theme was very similar about
Speaker 10: this boarding theme. It didn't work out, but I know
Speaker 10: I do think next year there's more of a reason
Speaker 10: that we can see more broading. So I think a
Speaker 10: lot of times people think about it's tech or X
Speaker 10: and of you it can be both, especially as we
Speaker 10: have these sharp rotations. But you know, the good news,
Speaker 10: I think as we think about the equal weight index,
Speaker 10: were we came into this year around the seventeen multiple
Speaker 10: We're ending the year around the seventeen multiple and it's
Speaker 10: been mostly earnest with The key for next year is
Speaker 10: is profit margin and do we see the adoption and
Speaker 10: the profit margins dot to expand for these four ninety
Speaker 10: three But I think listen to their term. Were all
Speaker 10: seeing some positive action. We had industrials breakout last week.
Speaker 10: The equ Weight index just made a fifty two week high.
Speaker 9: Here's an interest.
Speaker 10: Since that, guys, you know, the EQUAT index is only
Speaker 10: up about four percent since the November peak right after
Speaker 10: the election, so almost more than a year we'll only
Speaker 10: have four percent.
Speaker 9: So no, I think it has further to go. I
Speaker 9: just think it's both not either or there's.
Speaker 1: A tendency to have this kind of monomoniacal focus on
Speaker 1: the big tech names, the Magnificent seven and the like.
Speaker 1: Do you foresee us you look into your crystal ball
Speaker 1: more eagerness to look overseas in the year ahead. Of course,
Speaker 1: it's done. Markets overseas have done extremely well this year
Speaker 1: in many cases, Are you looking more to Europe for
Speaker 1: instance in twenty twenty six?
Speaker 10: I don't know that we're looking more, but it's kind
Speaker 10: of a similar story when we look around the globe.
Speaker 10: I just checked this morning, ninety eight percent of the
Speaker 10: markets we tract more than forty countries around the globe,
Speaker 10: they were in up trends, defined as above their tunia
Speaker 10: day moving averages.
Speaker 9: So it's kind of that similar story we just had.
Speaker 9: It's like either or no. Both.
Speaker 10: We still have a tilt towards the US because that's
Speaker 10: where the innovation and earnings are there. And let's you know,
Speaker 10: if we think about the last year, the US underperformed,
Speaker 10: but that was after a you know, in the prior year,
Speaker 10: the US had outperformed by the most since the nineties
Speaker 10: in twenty twenty four, so we had a bit of
Speaker 10: mean version and almost all the increase in international was
Speaker 10: pevaluation that earnings and the currency side. So I think
Speaker 10: as we move into next year, we had a bit
Speaker 10: of a revaluation. Currency has come down to the US dollars,
Speaker 10: so I think both will do well. We're still tilting
Speaker 10: towards the US on the margin.
Speaker 1: We've been kind of threading this needle over the course
Speaker 1: of the three hours this morning. Mike Wilson's note Mike Wilson,
Speaker 1: Morgan Stanley right about how we are now firmly back
Speaker 1: in a good as bad, bad as good regime. As
Speaker 1: you look ahead to this week and the data that
Speaker 1: we're going to get, how are you thinking you're in
Speaker 1: agreement with mister Wilson.
Speaker 9: I think the market like Scoldilocks.
Speaker 10: I think we want an economy that is still you know,
Speaker 10: kind of chugging along.
Speaker 9: We expect a modest uptick into next.
Speaker 10: Year, with you know, with inflation that doesn't get out
Speaker 10: of control, which we don't think it will, and interest
Speaker 10: rates that remain you know, kind of in this range
Speaker 10: that it's been overall. So I would say on the margin,
Speaker 10: you know, solid news is good news. I don't think
Speaker 10: we want extreme. If it's something that's really much stronger
Speaker 10: to the upside for the economy, that probably means rates
Speaker 10: go up and that will hit maybe valuations. If we
Speaker 10: see a real weakening in the in the labor market
Speaker 10: continues and it's divergence between GDP data and the labor market,
Speaker 10: I think that's problematic as well. So I think, you know,
Speaker 10: we're using an analogy for our outlook, the seventhing in a stretch.
Speaker 10: I think we want something kind of in the middle
Speaker 10: between those two extremes.
Speaker 3: Do you think Keith that this market's fully wrapped its
Speaker 3: heads around the idea that we have seen the end
Speaker 3: of one of the biggest global easing cycles ever outside
Speaker 3: of some sort of recession.
Speaker 10: You know, it's an interesting question because it hasn't really
Speaker 10: come up a whole lot in conversations as I speak
Speaker 10: with investors.
Speaker 9: So I think that is, you know, a potecially a risk.
Speaker 10: And I think the other thing, you know, all things
Speaker 10: come back, All roles lead back to the ten year treasury.
Speaker 10: As we think about next year, we still are positive.
Speaker 10: We think that the uptrend deserves the benefit of the doubt.
Speaker 10: But going to your point about central banks, I mean,
Speaker 10: I think the key tell for next year and the
Speaker 10: risk fact that we'll be watching is the ten year,
Speaker 10: which again seems relative to be contained at this point.
Speaker 10: But that is a shift, and I think, just like
Speaker 10: this past year, I think earnings will be the key.
Speaker 9: Again.
Speaker 10: We expect solid earnings and we do expect those earnings
Speaker 10: to born out as we move through twenty twenty six.
Speaker 3: When you talk about earnings, this kind of leaves us
Speaker 3: in the same place of yes, bonds may offer a hedge,
Speaker 3: but maybe you don't want that hedge In twenty twenty six,
Speaker 3: maybe you want to be exposed to the equity space
Speaker 3: and then on the short end of the yield curve
Speaker 3: at a time of yield curve steepening. I mean, how
Speaker 3: do you look at that kind of interplay given the
Speaker 3: fact that people are expecting enough growth an accommodator fed
Speaker 3: despite that ongoing growth and this yield curve steepening that
Speaker 3: we have seen really start to reassert itself.
Speaker 10: Yeah, So overall, heading into the year, we do have
Speaker 10: a modest killed towards equity relative to fixed income. In cash,
Speaker 10: we're still overweight gold as well, which.
Speaker 9: We've been overweighted all year long.
Speaker 10: And then on the on the fixed income side, you know,
Speaker 10: again going back to the analogy around baseball, we still
Speaker 10: look at fixed income as that consistent head kind of
Speaker 10: collecting that coupon, you know, all and all over the
Speaker 10: last year where the equity markets have done pretty well,
Speaker 10: we are having a solid year in fixed income with
Speaker 10: high quality returning six seven percent. And I think as
Speaker 10: we think about next year, we talked about this, there's
Speaker 10: a lot of cross currents. There's a midterm election year,
Speaker 10: and there's a scenario where the economy is stronger than
Speaker 10: expectations or there's a scenario where the labor market weekends
Speaker 10: further and the latter one you would actually want bonds.
Speaker 10: So I think going back to diversifications, kind of a
Speaker 10: simple diversification aspect, you still.
Speaker 9: Want to have bonds.
Speaker 10: Are they at a modestly lower rate, Yes, but I
Speaker 10: still think it makes sense. But we are peering that
Speaker 10: with some exposure to gold still into the new year.
Speaker 1: Let's stick with the diversification. So there's this market Mason
Speaker 1: rebuilding the wall of worry as you look beyond tech,
Speaker 1: if you look beyond big tech telecommunications as well, where
Speaker 1: do you see opportunity sector wise here in the year
Speaker 1: ahead that might have been neglected in twenty twenty five.
Speaker 10: Sure so where we were overweight tech and communications for
Speaker 10: most of this past year and we still are again,
Speaker 10: We're still positive long term. What we've been doing is
Speaker 10: making incremental changes based on this bordening theme. So you know,
Speaker 10: over the recent months we added healthcare. You know, healthcare
Speaker 10: is a sector where just you know, a little bit
Speaker 10: of good news can go a long way. I know
Speaker 10: it's done better recently, but it's out. I'm sorry it's underperformed.
Speaker 10: The S and P by over fifty percent over the
Speaker 10: last three years, and that's a historic extreme. So you
Speaker 10: just get a little good news that can go along
Speaker 10: a way. And we're seeing valuations attractive and some better
Speaker 10: fundamentals there as well. And then just last week we
Speaker 10: upgraded industrials. Industrials was a hot sector early in the year.
Speaker 10: Since July, I kind of moved sideways, only up about
Speaker 10: two percent. It just broke to the upside of a
Speaker 10: five month trading range. And as we think about this
Speaker 10: economic uptick that we envisioned and some of the benefits
Speaker 10: from the one big beautiful bill, like accelerated depreciation, we
Speaker 10: think that's an area that should benefit as well.
Speaker 9: So again tech communications.
Speaker 10: Now paired with healthcare and industrials and something else, we're
Speaker 10: looking closely out, not.
Speaker 9: Quite, not quite there to upgrade.
Speaker 10: You know, Financials with that steeper curve that Lisa mentioned early,
Speaker 10: are acting very well.
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