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Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along

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Speaker 1: with Jonathan Farrell and Lisa Abramowitz. Join us each day

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Speaker 1: for insight from the best an economics, geopolitics, finance and investment.

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Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and

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Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com,

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Speaker 1: the Bloomberg Terminal, and the Bloomberg Business App.

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Speaker 2: Brian Levit joins US now Global Market Strategist to invest Go.

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Speaker 2: Some guests had the courage the confidence to stick with

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Speaker 2: it all the way up here today. Brian Levett one

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Speaker 2: of them. Brian, you say this, I would view any

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Speaker 2: near term challenges as a buying opportunity. Brian, why are

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Speaker 2: you still so constructive this equity market?

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Speaker 3: Well, typically, if you look, if you look at US history,

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Speaker 3: anytime inflation has peaked or come down, or just about

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Speaker 3: any time the FED is done tightening, you've done well

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Speaker 3: as an investor over the next couple of years. So

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Speaker 3: you know when I say in your term challenges, look,

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Speaker 3: we know that we still have to see the lagged

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Speaker 3: effects of all the policy tightening, and the economy is

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Speaker 3: still going to moderate or even weaken from here.

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Speaker 4: But history is on our side.

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Speaker 3: If you can look beyond just a handful of weeks

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Speaker 3: or a handful of months, markets tend to do very

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Speaker 3: well in the aftermath of tightening cycles. And we're getting

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Speaker 3: quite close to the end of the tightening cycle. If

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Speaker 3: we're not already there.

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Speaker 5: You guys are the byside.

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Speaker 1: You've got all your internal analysts, and you're also of

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Speaker 1: course speaking to people pitching equity and bond ideas, and

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Speaker 1: of course Invesco is a legendary bond house. If we

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Speaker 1: have sticky inflation, Brian Levitt, what does that do to

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Speaker 1: revenues of companies? They do better, don't they?

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Speaker 4: They do better.

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Speaker 3: Although I don't think that you know when we say inflation,

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Speaker 3: we don't mean you know that inflation is going to

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Speaker 3: sit here at these levels.

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Speaker 4: But to your point, they're going to come down but

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Speaker 4: likely be higher.

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Speaker 3: Inflation is likely going to be higher than it was

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Speaker 3: in the last cycle, which you're right.

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Speaker 4: That is nominal growth and.

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Speaker 3: That is supportive for for corporate earnings. The challenge that

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Speaker 3: we have, of course, though, is that you know how

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Speaker 3: much tight is the FED going to get and how

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Speaker 3: much more inverted is the seal curve going to get

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Speaker 3: and what type of economic response are we going to have?

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Speaker 3: So we still haven't We still haven't seen all of that.

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Speaker 3: So there's still challenges here, and we would still favor

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Speaker 3: more quality investments rather than you know, thinking about what

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Speaker 3: the beginning of the new cycle looks like. But again

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Speaker 3: investors should shouldn't I caution them on being too defensive here.

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Speaker 3: Even if you even if you have some retracement in

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Speaker 3: the next few weeks or the next few months, ask yourself,

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Speaker 3: will things be better over the next couple of years,

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Speaker 3: Will inflation be back to a more reasonable level, will

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Speaker 3: the FED be on the other side of this, and

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Speaker 3: will the economy be recovering? And I think the answered

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Speaker 3: all those questions are yes, which means we you know,

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Speaker 3: we don't want to be too defensive.

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Speaker 5: Now, I've got to.

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Speaker 1: Go to the allocation as global market strategist, is too

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Speaker 1: important US domestic quality versus international quality? Which way do

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Speaker 1: you tilt?

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Speaker 3: I think we need to be increasing our exposure to

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Speaker 3: international quality.

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Speaker 4: I mean, the US does well in these.

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Speaker 3: In the in the more challenging economic environments that could

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Speaker 3: be ahead of us. But if you're thinking ahead to

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Speaker 3: you know, the next stage of this, the.

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Speaker 4: End of tightening.

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Speaker 3: Well, that means that means the interest rate differential between

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Speaker 3: the US and Europe and some of the rest of

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Speaker 3: the world is going to narrow, and that tends to

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Speaker 3: mean the end of a strong dollar environment, which we've had.

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Speaker 4: For quite some time.

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Speaker 3: So most investors are light on international you know, building

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Speaker 3: up positions, you know, closer fifteen to twenty percent international.

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Speaker 4: Equity exposure, I think makes a lot of sense.

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Speaker 3: You're particularly giving the valuations and the catalysts of what

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Speaker 3: could be finally.

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Speaker 4: Peaked dollar, Brian.

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Speaker 2: Given what you just said, then are you anticipating a

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Speaker 2: change in equity market leadership.

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Speaker 3: Well, the equity market leadership will change when we get

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Speaker 3: to when we get to the other side of the

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Speaker 3: economic downturn, at least in the middle point of the

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Speaker 3: economic downturn. That's when you start to see more value,

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Speaker 3: more cyclical, emerging market, smaller caps participate.

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Speaker 4: So in the near term.

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Speaker 3: Here it's it's quality, it's it's larger cap, it's growthier,

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Speaker 3: and we're certainly seeing that in the in the market activity.

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Speaker 3: The shift comes typically in the in the midpoint of

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Speaker 3: the economic downturn and the market getting ahead of what

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Speaker 3: will be the new cycle. So I don't think we're

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Speaker 3: there yet, but we're on the path to that.

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Speaker 4: Brian.

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Speaker 2: What do you say to people who have been in

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Speaker 2: this market who are hearing a lot of people complain

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Speaker 2: about narrow breadth in the equity market, the ap performance

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Speaker 2: of ubercap, megacap tech names like Nvidia, Microsoft, and others. Brian,

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Speaker 2: what's your message to them this morning?

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Speaker 3: Well, the message is that this is playing out as

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Speaker 3: we think market cycles tend to play out. If you remember,

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Speaker 3: in the beginning of the year, the market thought we

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Speaker 3: were getting a soft landing, and so you saw value,

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Speaker 3: small caps, emerging markets do very well.

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Speaker 4: That was called mid October through probably.

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Speaker 3: The end of February, and when inflation remade sticky and

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Speaker 3: the Fed kept raising rates and the concerns of a

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Speaker 3: recession became more heightened, well, that's when we shifted back

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Speaker 3: towards a more defensive posture, quality, larger cap growthier. So

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Speaker 3: I'd say that these markets are playing out as you

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Speaker 3: would expect them to play out, given what the trajectory

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Speaker 3: of the economy is likely to be.

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Speaker 4: And you'll see broader participation in these markets. On the

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Speaker 4: other side of.

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Speaker 3: This again, we're not there yet, but at the midpoint

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Speaker 3: of the downturn and economic activity, you'll see a shift

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Speaker 3: towards investors favoring those names that are going to do

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Speaker 3: well in a cyclical economic recovery.

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Speaker 2: What a handful of name's doing well right now, and

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Speaker 2: one of them is in Nvidia. Brian, We've got to

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Speaker 2: leave it there, Brian Love at the AVESCO.

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Speaker 1: We thought we'd dive into this a little deeper than

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Speaker 1: the back and forth of OMG, MVDA men deep Sing.

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Speaker 1: It knows that when you do double E electrical engineering,

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Speaker 1: it starts out with the wheatstone bridge and then you

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Speaker 1: cross a bridge over to differential equations, and heaven forbid,

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Speaker 1: we get Maxwell and magnetism.

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Speaker 6: Right.

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Speaker 1: Mandeep Sing owns the high ground at Bloomberg Intelligence.

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Speaker 5: Mandeep this is a kid out.

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Speaker 1: Of Taiwan off the boat Oneida, Kentucky for population for ten.

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Speaker 1: He is a textbook immigrant. He parachutes into Corvallis in

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Speaker 1: Oregon State and magic happens.

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Speaker 5: When did the magic in Nvidia happen?

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Speaker 6: I mean this has been going on, I think for

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Speaker 6: the last almost twenty five years, and he has built that,

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Speaker 6: you know, in terms of focusing on a knit segment

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Speaker 6: and then really expanding this scope of computing and in

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Speaker 6: a way that it's so innovative in terms of disrupting

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Speaker 6: the existing framework around leveraging CPUs to really a new

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Speaker 6: style of computing. And I think that is where everyone

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Speaker 6: has been caught off guard with the pace of the

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Speaker 6: change that can bring. But clearly the innovation is there

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Speaker 6: and that's why everyone is so excited.

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Speaker 4: Take us not to the.

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Speaker 1: Hopes and dreams of AI three years, five years, ten

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Speaker 1: years out, but the here in present, not danger, but

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Speaker 1: the here in present reality. For Nvidia, can they sustain

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Speaker 1: the growth now of a fifty five multiple stock.

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Speaker 6: Well, So, I think it's a little hard in terms

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Speaker 6: of looking at it, you know, beyond twenty twenty three,

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Speaker 6: simply because right now we have easier comps and we

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Speaker 6: are just past this you know, cloud digestion phase. So

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Speaker 6: this happened to be a much shallow and correction. And

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Speaker 6: what everyone is expecting is for the market to really

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Speaker 6: do well in terms of the demand side, on the

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Speaker 6: data center side, to hold up for the next six

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Speaker 6: to eight quarters. I don't know if that will be

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Speaker 6: the case, given how much uncertainty we have. But one

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Speaker 6: thing we know is there is this secular shift from

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Speaker 6: CPUs to GPUs. And you know, really what they're selling

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Speaker 6: is almost two hundred thousand for a box, a server

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Speaker 6: box that used to cost ten thousand. So look at

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Speaker 6: the ASP increase that they have been able to generate

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Speaker 6: from this new device that they have created, and that

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Speaker 6: is quite powerful. When you see a company, you know,

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Speaker 6: kind of raising ASP's like this, that is very positive

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Speaker 6: for the growth margin.

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Speaker 7: And I think that's what you're seeing in their results

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Speaker 7: right now.

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Speaker 2: Manday the cheat guide to the market action this morning,

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Speaker 2: it's just to say well and videous up. Because they

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Speaker 2: anvelt some new products. I wonder how many people actually

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Speaker 2: know what those new products do. Mandate, you're someone who

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Speaker 2: probably does. Can you tell is what this new product

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Speaker 2: line appears?

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Speaker 6: Yeah. So the biggest use case is around training these

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Speaker 6: large language models. And what you need for this is

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Speaker 6: a lot of computational power, and a GPU can do

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Speaker 6: it in a very short period of time compared to

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Speaker 6: the traditional CPUs. Even if you stack a lot of CPUs,

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Speaker 6: you can train these large language models. So one thing

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Speaker 6: they've proven is not only is it an innovative way,

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Speaker 6: it's the only way you can train a large language

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Speaker 6: model and think of, you know, our computational requirement across

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Speaker 6: the board, across industry. You need this type of technology

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Speaker 6: to enhance the productivity. And that's something that's not like

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Speaker 6: it's going to drive a massive refreshed cycle. And that's

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Speaker 6: why everyone is so excited because the existing market needs

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Speaker 6: to refresh to the new way of computing. And that's

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Speaker 6: a pretty large market.

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Speaker 7: When you think of semiconductor as a six hundred billion dollar.

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Speaker 2: Market, who is that competition.

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Speaker 6: Competition would be you know, AMD, Intel to an extent.

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Speaker 6: The problem is they're so far behind, especially Intel, in

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Speaker 6: terms of focusing on GPUs and that's where you know,

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Speaker 6: they missed the boat for at least five years, where

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Speaker 6: they just didn't think this market was big enough and

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Speaker 6: they can't still catch up. I mean, there was some

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Speaker 6: rumors about n Video partnering with Intel so that Intel

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Speaker 6: can make their GPUs, but that's a boundary play. I'm

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Speaker 6: talking about that two hundred thousand ESP component that Nvidia

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Speaker 6: is selling.

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Speaker 7: Who can compete with that? And I think AMD is.

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Speaker 6: The closest right now for that along with the hyperscalers and.

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Speaker 1: The simplistic view of a fool like me is it's

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Speaker 1: about gaming.

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Speaker 5: Forget about that.

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Speaker 1: What does Innvidia mein Mandy for Productor and Gamble for

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Speaker 1: Minnesota mining and manufacturing for Ford Motor.

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Speaker 6: Yeah. So, I mean these companies spend billions of dollars

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Speaker 6: on their IT, you know, over time and when you

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Speaker 6: think about their data center footprint, that will completely go away.

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Speaker 6: It will be on cloud. And what large anguage models

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Speaker 6: do is not only you need to rent the basic

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Speaker 6: cloud capacity, you will run your AI on cloud. And

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Speaker 6: that's where Nvidia has positioned in self really well. It

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Speaker 6: is partnered with the likes of Microsoft. I don't think

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Speaker 6: all the hyperscalers are on board with Nvidia, but for

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Speaker 6: a traditional enterprise, they don't need to spend on it anymore,

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Speaker 6: especially on the infrastructure side. They will outsource everything to

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Speaker 6: these hyperscalers. And then video is trying to becoming one

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Speaker 6: of them.

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Speaker 2: Mandi when he talked over the weekend, I think everyone's

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Speaker 2: bista is you can translate what that means. Manday when

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Speaker 2: he talks over the weekend and uses the hyperbolic language

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Speaker 2: like tipping point, the dawn of a new computing gauge

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Speaker 2: and all those things Mandi, there are some people out

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Speaker 2: there who just don't have the specialized knowledge to really

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Speaker 2: understand where this is going. And it's a market of

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Speaker 2: faith for many people in the stock market who just

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Speaker 2: see the momentum and just think I need to be

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Speaker 2: a part of this, Mandi, do you have any kind

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Speaker 2: of cheek whatsoever to do a distinction between what is

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Speaker 2: real and what might be bs?

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Speaker 6: Well, so I look at you know who are the

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Speaker 6: key players who will determine the fate of this market,

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Speaker 6: and they are quite concentrated. I mean I mentioned about hyperscalers.

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Speaker 6: Then you have got Apple on the smartphone side. What

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Speaker 6: will Apple end up doing in terms of large anguige

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Speaker 6: models That will have a big influence in terms of

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Speaker 6: the size of the opportunity for someone like Nvidia, if

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Speaker 6: they do everything in house, then they're going directly to TSMC.

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Speaker 7: Right now, Nvidia has the technology, it has a monopoly.

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Speaker 6: But it's going to TSMC to make its chips if

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Speaker 6: Apple does the same, and granted they may not have

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Speaker 6: that technology that Nvidia has, but clearly you've got you know,

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Speaker 6: eight or ten players that will determine the size of

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Speaker 6: the opportunity and how this shakes out. And that's where

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Speaker 6: I think you have to watch out for what they do,

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Speaker 6: not what they say. And the only time will tell

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Speaker 6: what the hyperscalers will do. I can't imagine them paying

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Speaker 6: two billion dollars in media every year to upgrade their GPUs.

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Speaker 6: It's just too much capex. And that's what we're talking

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Speaker 6: about here in terms of the animal cap expend on

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Speaker 6: something like this.

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Speaker 2: Mandate excited for your coverage on this story for the

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Speaker 2: years to count. Never mind the wakes and they've sink

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Speaker 2: that have Glindagens hatogens.

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Speaker 1: Greg Valier knows is this ties directly in to our

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Speaker 1: sailors and our officers. Is they are on aircraft, carrier,

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Speaker 1: submarines and everything else in the military. And this budget debate,

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Speaker 1: mister Valier, is with AGF investments. Greg, you absolutely nailed

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Speaker 1: this morning by getting beyond the cable TV idiocy to

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Speaker 1: the Senate's outrage over the defense of our nation. What

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Speaker 1: are we going to see not in two days, what

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Speaker 1: are we going to see in five and six days

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Speaker 1: from senators worried about the Pentagon.

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Speaker 8: Well, it's going to be a big deal. And Lindsey Graham,

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Speaker 8: a famous hawk, blew a gasket and I think it

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Speaker 8: was Fox on Sunday because the defense spending in this

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Speaker 8: bill will be lower than the rate of inflation. So

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Speaker 8: for a country that doesn't spend as much as people

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Speaker 8: think we do out of our GDP on defense, this

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Speaker 8: really angers a lot of Republicans.

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Speaker 1: It angers Republicans. What I'm going to suggest that Democrats

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Speaker 1: are going to show up as well. I mean, this

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Speaker 1: is critical, Greg.

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Speaker 5: Is it a bipartisan fury of our officers and sailors?

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Speaker 5: Are infantrymen at risk? Is it bipartisan in the anger here?

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Speaker 4: It is?

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Speaker 8: But we can't default. I think people realize that a

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Speaker 8: default would be even worse. And during the course of

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Speaker 8: this year time, I think there'll be supplemental funding for

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Speaker 8: the Pentagon. There's ways you can still get money from

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Speaker 8: the government, and I think that you will see more

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Speaker 8: spending during the year. But there's a lot of complaints

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Speaker 8: right now. Just to bring it to tonight, there is

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Speaker 8: a big vote tonight in the House Rules Committee. I

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Speaker 8: think that Kevin McCarthy will prevail, But I think this

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Speaker 8: thing drags on because of Lindsay Graham and others into

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Speaker 8: next week and it probably gets right up until June fifth.

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Speaker 2: Well, great That's what I was going to last. Do

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Speaker 2: we have a week.

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Speaker 8: Well, that's a good question. Here's what I would say.

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Speaker 8: If we hit the deadline. The Treasury can sell bonds

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Speaker 8: out of the Highway Trust Fund. Treasury can sell bonds

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Speaker 8: out of the SOBI Security Trust Fund and pay them

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Speaker 8: back a week or two later. So I think it's

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Speaker 8: highly unlikely that we would see a default. And I

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Speaker 8: would add if there actually looked like there would be

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Speaker 8: at the fault, I think the markets would get so

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Speaker 8: jittery it would finally send a message to Washington.

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Speaker 6: Craig.

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Speaker 2: We asked ridiculous questions in politics sometimes like who wins,

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Speaker 2: who wins? Who won? After the weekend? Who do you

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Speaker 2: think is doing a better job of just presenting what

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Speaker 2: they got out of negotiations? Is it the president or

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Speaker 2: is it speaking McCarthy.

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Speaker 8: I think the President has always been underestimated as a negotiator,

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Speaker 8: and I think he did a pretty good job. The

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Speaker 8: surprise to me, though, is Kevin McCarthy thought. I think

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Speaker 8: he was held in low regard until a few months

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Speaker 8: ago he became House Speaker. He got something done. They

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Speaker 8: didn't get all that they wanted. In fact, in this

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Speaker 8: final deal, a lot of what they wanted whittled out,

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Speaker 8: especially on the total spending huts. But no, I give

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Speaker 8: both of them credit. But I think Kevin McCarthy is

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Speaker 8: now a serious player.

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Speaker 1: Mean, Greg the senator from West Virginia, got a pipeline

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Speaker 1: moving south from Harris. I believe it's Harris, West Virginia

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Speaker 1: on celt across the border. Maybe it's Harris where it

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Speaker 1: goes across the border to Pittsylvania, just southwest of Appomattox.

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Speaker 1: Can you give out pipelines there? It is from Bradshaw,

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Speaker 1: West Virginia to Pennsylvania, Virginia. Okay, there's a pipeline for

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Speaker 1: Joe Mansion. Can you give conservative Republicans a pipeline?

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Speaker 8: You can't give people anything? And this was audacious. That's

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Speaker 8: typical of Joe Mansion. He gets what he wants because

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Speaker 8: he's still whispering that he may run for president, so

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Speaker 8: everybody has to placate him.

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Speaker 2: Well, what about.

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Speaker 1: Ten to twelve, the fourteen people blocking Speaker McCarthy's efforts.

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Speaker 1: Can he give them a bone that's highway like or

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Speaker 1: pipeline like?

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Speaker 8: Sure, I'm sure there are people who are going to

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Speaker 8: have post offices and they're named after them. There's lots

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Speaker 8: of deals that are being cut right now to get

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Speaker 8: this one hold out to vote for them later in the.

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Speaker 2: Day, Hi, Greg, what do you make of what the

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Speaker 2: Republican candidates for the presidency have got to say about

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Speaker 2: the deal that was struck?

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Speaker 8: Well, DeSantis was really striking and said, you know, it

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Speaker 8: was a terrible deal and we're still headed toward you know,

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Speaker 8: financial ruin. It was a pretty strong statement. DeSantis now

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Speaker 8: is in a position where he's got to throw bombs

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Speaker 8: because he's so far behind that I'm not sure he

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Speaker 8: can catch up.

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Speaker 2: Greg, just a final word on defense spend in America,

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Speaker 2: and not for me to say what that level should be.

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Speaker 2: By the way, Greg, can you just go through the

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Speaker 2: numbers for us and you really paint a picture of

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Speaker 2: how much a percentage of overall spending defense spend naturally

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Speaker 2: is and get to the heart of the issue that

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Speaker 2: if you do want to do something about the deficit

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Speaker 2: in this country, don't they have to rethink what's happening

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Speaker 2: with defense?

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Speaker 8: Well, I would say, no, we're not spending enough on

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Speaker 8: defense as a percentage of GDP. We're spending less than

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Speaker 8: three percent. We complain all the time about Canada, They're

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Speaker 8: not spending three percent of GDP. A lot of other

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Speaker 8: countries aren't as well. And I think that the as

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Speaker 8: the Wall Street Journal can say instantly points out, we're

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Speaker 8: not spending enough on defense by any historical yardstick.

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Speaker 2: So, Greg, if that's the case, where does that leave

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Speaker 2: any negotiations over ever cutting spending and doing something about

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Speaker 2: the deficit.

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Speaker 8: Well, you got to talk about revenues at some point.

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Speaker 8: I mean, at some point we have to at least

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Speaker 8: look at taxes. I'm not saying we need a big,

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Speaker 8: huge one, but fearless forecast, guys, the next big fiscal

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Speaker 8: story is the expiration of the Donald Trump tax cuts

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Speaker 8: in a couple of years. That will make this fight

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Speaker 8: we've just went through look like a picnic.

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Speaker 2: Greg Valiere looking forward to that of Jeff. And if

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Speaker 2: you could be long, one thing right now would probably

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Speaker 2: be in video. If you could have been short over

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Speaker 2: the last two weeks, somethink it probably would have been

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Speaker 2: the treasury market. Katie Kaminski was short that treasury market.

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Speaker 2: The chief research strategistic Alpha Simplex joined us right now. Katie,

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Speaker 2: walk us through the thinking and whether that trade is

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Speaker 2: still very much on well, let's.

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Speaker 9: Just think about where we are in the cycle, and

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Speaker 9: let's think about what's happening in terms of long term cashlows.

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Speaker 9: I think people may be underestimating the effect of higher

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Speaker 9: rates on long term cashlows because they're just so used

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Speaker 9: to things going back to normal. And so what we've

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Speaker 9: seen is that the momentum in fixed income markets is

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Speaker 9: short and in some sense, the equity markets are saying

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Speaker 9: that things are okay. And if that's the case, then

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Speaker 9: the curve and we're going to tolerate the inflation, then

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Speaker 9: the curve is going to have to steepen, and particularly

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Speaker 9: the long end of the curve is what I'm looking at.

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Speaker 1: How do you link the equity market on a trend

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Speaker 1: based basis with the bond market? How do you take

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Speaker 1: trend based analysis of the ten year yield and fold

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Speaker 1: it over to trend based analysis of the Nasdaq?

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Speaker 9: Well, this is a good question because I think what's

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Speaker 9: happened to us, as those of us who are on

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Speaker 9: the mathematical, more technical side, is that we've seen some

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Speaker 9: very strong themes. We've seen strong equity momentum this year,

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Speaker 9: also seen continued support of the short trade and fixed income,

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Speaker 9: but we've been somewhat alone because most people have gone

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Speaker 9: back to being bullish on bonds this year. And what's

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Speaker 9: happening is you've seen correlations shift in March and you're

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Speaker 9: seeing new themes emerging. But the correlation between stocks and

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Speaker 9: bonds should we go back to an inflation, rising rates

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Speaker 9: or even a pause narrative is actually positive on being

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Speaker 9: short bonds and more neutral on equity. So you've got

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Speaker 9: to think about the correlations and how they're marking, as

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Speaker 9: well as the signals.

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Speaker 1: Well, the correlations and also with trend following. Can you

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Speaker 1: call a bear market low in October? We're now up

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Speaker 1: x percent on SPX, And I mean, I get the

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Speaker 1: correlations study, but actual trend based analysis Wells Wilder one

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Speaker 1: oh one. Did we establish a bull market in October?

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Speaker 4: Well?

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Speaker 9: I always say that we don't pick the bottoms and

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Speaker 9: we don't pick the tops. What we do is we

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Speaker 9: look for confirmation. And I can definitely say that we've

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Speaker 9: seen a massive turnarounds earning in October that has happened

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Speaker 9: across multiple asset classes. It was sort of peaked in

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Speaker 9: March when we saw sort of some weakness related to

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Speaker 9: the banking sector, but we have really seen a pretty

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Speaker 9: strong consolidation period since October, so I'm waiting for that

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Speaker 9: to shift, and the new trend may be long equity,

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Speaker 9: short bonds.

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Speaker 1: Again, Okay, this is a wheelhouse, and I know you're

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Speaker 1: looking at this in the Andrew lowbox just to the

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Speaker 1: left of the third base dugout at Fenway. But the

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Speaker 1: bottom line is the great Luisia Mota would say, Okay,

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Speaker 1: you've got consolidation and distribution, and then what what is

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Speaker 1: the then what for you in the equity market, what

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Speaker 1: is the signal to buy more in Vidia?

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Speaker 9: Well, I'd say I am a little more concerned about

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Speaker 9: the equity market because it has had such a strong run.

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Speaker 9: Could it keep going if we possibly? I think I'm

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Speaker 9: more interested in seeing a breakout and fixed income, which

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Speaker 9: is going the other direction. Because we're seeing that stocks

441
00:22:53,600 --> 00:22:56,480
Speaker 9: have come up so much. That suggests the equity market

442
00:22:56,560 --> 00:22:59,959
Speaker 9: thinks is very optimistic and thinks that sticky and flo

443
00:23:00,359 --> 00:23:02,720
Speaker 9: is going to be tolerated, which means that long term

444
00:23:02,720 --> 00:23:05,840
Speaker 9: cashows are more at risk. So for equities it's actually

445
00:23:05,840 --> 00:23:08,560
Speaker 9: looking pretty positive. People in general are thinking that we're

446
00:23:08,600 --> 00:23:11,760
Speaker 9: just going to tolerate some modern inflation. The problem's going

447
00:23:11,800 --> 00:23:14,560
Speaker 9: to be is when people realize, wait a minute, look

448
00:23:14,560 --> 00:23:16,879
Speaker 9: at these inflation numbers, they're coming back up instead of

449
00:23:16,880 --> 00:23:19,159
Speaker 9: going down more. I think what you're talking about the

450
00:23:19,240 --> 00:23:21,160
Speaker 9: UK is a perfect example.

451
00:23:20,920 --> 00:23:22,520
Speaker 2: So, Katie, I think what we're trying to figure out

452
00:23:22,560 --> 00:23:24,919
Speaker 2: is whether the high yields that you predict are going

453
00:23:24,960 --> 00:23:27,600
Speaker 2: to be a challenge or not to the narrow leadership.

454
00:23:27,800 --> 00:23:30,320
Speaker 2: So find the equity market, which has been dominated from

455
00:23:30,680 --> 00:23:32,600
Speaker 2: big cap growth, is that a challenge or not?

456
00:23:33,800 --> 00:23:36,760
Speaker 9: Definitely if you think about growth, I mean growth has

457
00:23:36,800 --> 00:23:40,320
Speaker 9: struggled a lot, and it was the most impacted sector

458
00:23:40,400 --> 00:23:42,800
Speaker 9: during last year, and now that we've had a little

459
00:23:42,800 --> 00:23:45,480
Speaker 9: bit of a slowing in interest rates, they've seemed to

460
00:23:45,640 --> 00:23:48,920
Speaker 9: really raged back. So you're right, if we do see

461
00:23:48,960 --> 00:23:51,359
Speaker 9: longer term cashlowers go up, that is the sector that

462
00:23:51,400 --> 00:23:53,600
Speaker 9: could be the most vulnerable because it has the most

463
00:23:53,640 --> 00:23:54,320
Speaker 9: duration risk.

464
00:23:54,440 --> 00:23:56,399
Speaker 2: Well, that would be a big challenge tom to the

465
00:23:56,400 --> 00:23:58,720
Speaker 2: index level getting to the year so far for the

466
00:23:58,800 --> 00:24:00,840
Speaker 2: nat stay which is at more than thirty, Katie, how

467
00:24:00,880 --> 00:24:04,399
Speaker 2: would you explain then how resilient the index level story

468
00:24:04,440 --> 00:24:06,600
Speaker 2: has been. Let's take the Nastak which had I think

469
00:24:06,600 --> 00:24:08,560
Speaker 2: one of his biggest weekly gains of the year so far,

470
00:24:09,119 --> 00:24:11,200
Speaker 2: just last week on the nast that one hundred. Despite

471
00:24:11,200 --> 00:24:13,560
Speaker 2: this move that we've seen in the treasury market, what

472
00:24:13,640 --> 00:24:15,560
Speaker 2: explains that Well, I.

473
00:24:15,520 --> 00:24:19,199
Speaker 9: Think I personally think we're only reverting back to recent

474
00:24:19,400 --> 00:24:22,600
Speaker 9: highs and yields. I'm looking for a breakout. I'd say

475
00:24:22,600 --> 00:24:24,439
Speaker 9: that we've just seen a little bit of movement and

476
00:24:24,480 --> 00:24:27,080
Speaker 9: fixed income relative to where we were earlier this year,

477
00:24:27,520 --> 00:24:30,240
Speaker 9: and that's why we've seen a resurgence. So I'm much

478
00:24:30,280 --> 00:24:33,480
Speaker 9: more thinking about the more extreme scenario as opposed to

479
00:24:33,560 --> 00:24:36,919
Speaker 9: a small adjustment back towards the high. Remember, the tenure

480
00:24:37,000 --> 00:24:40,760
Speaker 9: went to four percent earlier this year. We're not back

481
00:24:40,800 --> 00:24:43,199
Speaker 9: at that level yet, so I'm kind of watching for

482
00:24:43,240 --> 00:24:47,080
Speaker 9: that more than sort of the heck resurgence after a

483
00:24:47,080 --> 00:24:49,960
Speaker 9: period of really really strong tightening of rates which we

484
00:24:50,000 --> 00:24:50,720
Speaker 9: saw last year.

485
00:24:51,359 --> 00:24:54,080
Speaker 1: Katie, let's go all see to commodities.

486
00:24:54,480 --> 00:24:55,040
Speaker 5: Help me here.

487
00:24:55,080 --> 00:24:58,600
Speaker 1: The commodity trend is lower coppers off a cliff. It's

488
00:24:58,640 --> 00:25:00,919
Speaker 1: a China play, I get all the fun undamental chat.

489
00:25:01,160 --> 00:25:04,400
Speaker 1: What does a trend following look like in long trending,

490
00:25:04,680 --> 00:25:06,480
Speaker 1: persistently trending commodities.

491
00:25:07,800 --> 00:25:10,399
Speaker 9: Well, this is a good question because commodities have also

492
00:25:10,440 --> 00:25:14,160
Speaker 9: been decoupled somewhat from equity markets, we've seen downward pressure

493
00:25:14,200 --> 00:25:18,560
Speaker 9: and commodities, particularly the base metals, also energy. One thing

494
00:25:18,600 --> 00:25:20,800
Speaker 9: I've been watching quite a bit is the energy trade.

495
00:25:20,800 --> 00:25:24,320
Speaker 9: I mean, we've seen a massive downward trend and there's

496
00:25:24,400 --> 00:25:27,120
Speaker 9: all sorts of questions all the time from investors when

497
00:25:27,119 --> 00:25:29,119
Speaker 9: are we going to see that move up again? So

498
00:25:29,200 --> 00:25:31,359
Speaker 9: for right now, it doesn't look like that's going to

499
00:25:31,400 --> 00:25:34,560
Speaker 9: happen soon, but it is something that has been in

500
00:25:34,600 --> 00:25:37,760
Speaker 9: a downward trend for a very long time, which could

501
00:25:38,440 --> 00:25:40,360
Speaker 9: you know, if we see some sort of movement, there

502
00:25:40,359 --> 00:25:41,280
Speaker 9: could be something there.

503
00:25:41,280 --> 00:25:42,280
Speaker 4: But you're correct.

504
00:25:42,720 --> 00:25:48,320
Speaker 9: Commodities have been trading recessionary, equities have trading optimistic, and

505
00:25:48,440 --> 00:25:52,440
Speaker 9: treasuries also somewhat optimistic in terms of where yields are catty.

506
00:25:52,520 --> 00:25:55,040
Speaker 2: This was great just to clarify your thoughts on some things.

507
00:25:55,119 --> 00:25:59,480
Speaker 2: Caddy Simplex, Kennthy Kamitski there, it's going to be a new.

508
00:25:59,480 --> 00:26:11,720
Speaker 5: Night when you to speak to someone expert on this.

509
00:26:11,920 --> 00:26:14,879
Speaker 1: Also on macro strategy of North America at State Street,

510
00:26:15,280 --> 00:26:18,320
Speaker 1: Lee Ferris joined this morning. Lee, are you gonna go

511
00:26:18,359 --> 00:26:20,720
Speaker 1: to You're gonna go to see Lowton whatever it is

512
00:26:20,920 --> 00:26:23,560
Speaker 1: at the Hatters when Liverpool stops by.

513
00:26:24,600 --> 00:26:27,199
Speaker 10: I would love to. Yeah, it'd be fantastic to go

514
00:26:27,280 --> 00:26:29,800
Speaker 10: watch a Premier League game at Kenilworth Road. And whether

515
00:26:29,800 --> 00:26:31,280
Speaker 10: I'll be able to get a ticket, I'm not sure

516
00:26:31,359 --> 00:26:34,600
Speaker 10: because as Jonathan's that is not any tickets available, so

517
00:26:34,680 --> 00:26:36,640
Speaker 10: I think be pretty pretty tough to get one of those.

518
00:26:37,119 --> 00:26:38,320
Speaker 5: We're gonna see the ticket.

519
00:26:38,400 --> 00:26:41,200
Speaker 1: With inflation, let's just go to this because I think

520
00:26:41,240 --> 00:26:43,480
Speaker 1: it's something John and you are living with your families

521
00:26:43,560 --> 00:26:46,720
Speaker 1: and all. The inflation in the United Kingdom is of

522
00:26:46,760 --> 00:26:52,600
Speaker 1: an absolutely different character. We're talking about sticky inflation in America.

523
00:26:53,000 --> 00:26:57,640
Speaker 1: How sticky is nine percent food inflation in the United Kingdom?

524
00:26:58,560 --> 00:27:00,920
Speaker 10: Well, I think the food inflation is actually higher than that, Tom,

525
00:27:01,200 --> 00:27:05,960
Speaker 10: It's nineteen percent food inflation. Overall inflation is coming down

526
00:27:06,000 --> 00:27:10,440
Speaker 10: but still in the eighth Yeah, it's remarkable given how

527
00:27:10,800 --> 00:27:13,639
Speaker 10: the consumer in the UK is struggling, how real incomes

528
00:27:13,640 --> 00:27:16,520
Speaker 10: are falling, how mortgage rates have gone through the roof,

529
00:27:16,560 --> 00:27:18,600
Speaker 10: which is very different from what we're seeing here. New

530
00:27:18,640 --> 00:27:22,280
Speaker 10: mortgages here are higher but not existing because we're all

531
00:27:22,320 --> 00:27:26,040
Speaker 10: thirty year fixed. In the UK, people's existing mortgage payments

532
00:27:26,040 --> 00:27:30,080
Speaker 10: in some cases have trebled and yet inflation is proven

533
00:27:30,160 --> 00:27:32,800
Speaker 10: remarkably sticky, and this is such a difficult position for

534
00:27:32,800 --> 00:27:35,480
Speaker 10: the Bank of England. And it was interesting last week

535
00:27:35,680 --> 00:27:38,200
Speaker 10: we got the very strong inflation we're pricing four heights

536
00:27:38,200 --> 00:27:41,040
Speaker 10: by the Bank of England, but Sterling didn't go up.

537
00:27:41,680 --> 00:27:44,119
Speaker 10: Sterling went down last week on the back of that

538
00:27:44,280 --> 00:27:47,080
Speaker 10: because now the market is focused on, Okay, you're going

539
00:27:47,160 --> 00:27:49,240
Speaker 10: to have to hike a number of time secure inflation.

540
00:27:49,600 --> 00:27:51,440
Speaker 10: But what is that going to do to the economy

541
00:27:51,440 --> 00:27:53,520
Speaker 10: over the sort of you know, the medium term. And

542
00:27:54,160 --> 00:27:55,919
Speaker 10: the answer is it's not going to be pretty.

543
00:27:56,080 --> 00:27:59,000
Speaker 2: It's out a bit like September, a replay of some

544
00:27:59,160 --> 00:28:02,000
Speaker 2: of that some of that league. What's been amazing just

545
00:28:02,000 --> 00:28:04,080
Speaker 2: sitting here Lee over the last couple of weeks, speaking

546
00:28:04,080 --> 00:28:06,240
Speaker 2: to people like you, people we admire in the market,

547
00:28:06,800 --> 00:28:09,600
Speaker 2: is just feeling the tide start to turn. All this

548
00:28:09,760 --> 00:28:12,320
Speaker 2: enthusiasm for the rest of the world, for Europe breaking

549
00:28:12,400 --> 00:28:14,720
Speaker 2: down with a couple of data points out of China,

550
00:28:15,040 --> 00:28:17,119
Speaker 2: a reality check in the Eurozone, if you will, with

551
00:28:17,240 --> 00:28:20,080
Speaker 2: Germany potentially heading into a recession, and Lee, at the

552
00:28:20,080 --> 00:28:23,960
Speaker 2: same time, you've got this monster rap performance on the market.

553
00:28:24,040 --> 00:28:26,720
Speaker 2: Catwaight at S and P five hundred on the Nasdaq

554
00:28:26,840 --> 00:28:29,960
Speaker 2: relative to the equal weight, relative to what's developing in China,

555
00:28:30,080 --> 00:28:33,320
Speaker 2: overseas and elsewhere. And Lee, I'm just wondering, and Tom

556
00:28:33,359 --> 00:28:35,159
Speaker 2: and I've been talking about this going into the weekend

557
00:28:35,200 --> 00:28:37,840
Speaker 2: of coming out of it, whether we face another period

558
00:28:37,880 --> 00:28:41,960
Speaker 2: of US equity market exceptionalism because of this AI theme.

559
00:28:43,800 --> 00:28:47,040
Speaker 10: Well, I think because of the AI and also because

560
00:28:47,080 --> 00:28:49,040
Speaker 10: of the relative strength of the economy. And you know,

561
00:28:49,200 --> 00:28:51,120
Speaker 10: I've been on here and I've talked about this before.

562
00:28:51,600 --> 00:28:53,720
Speaker 10: The US is in a very different place from the

563
00:28:53,760 --> 00:28:56,280
Speaker 10: rest of the world, and ninety one percent of mortgage

564
00:28:56,280 --> 00:28:58,720
Speaker 10: has been thirty year fixed. Will do that. The consumer

565
00:28:58,800 --> 00:29:02,080
Speaker 10: here is just thing. We have a very strong labor market.

566
00:29:02,640 --> 00:29:05,680
Speaker 10: We still have excess savings from the pandemic. Yes it's

567
00:29:05,760 --> 00:29:08,520
Speaker 10: limited to those of higher income, but they're spending it.

568
00:29:09,440 --> 00:29:12,040
Speaker 10: And at the same time, we have this fixed rate economy,

569
00:29:12,080 --> 00:29:14,520
Speaker 10: whereas you look at the rest of the world. URBNZ

570
00:29:14,680 --> 00:29:17,640
Speaker 10: stopped hiking last week, worried about the consumer because mortgage

571
00:29:17,680 --> 00:29:20,200
Speaker 10: rates have gone up back in Canada. Have stopped, URBA,

572
00:29:20,280 --> 00:29:22,200
Speaker 10: have stopped. Bank of England have got to carry on

573
00:29:22,760 --> 00:29:24,640
Speaker 10: despite the fact it's probably going to mean a deep

574
00:29:24,680 --> 00:29:27,240
Speaker 10: recession in twenty twenty four. The US is in a

575
00:29:27,400 --> 00:29:30,040
Speaker 10: very different place. So you've got the AI element. You've

576
00:29:30,160 --> 00:29:32,560
Speaker 10: also got the underlying economy, which is in a very

577
00:29:32,640 --> 00:29:34,960
Speaker 10: different place from the rest of the world because the

578
00:29:35,160 --> 00:29:37,000
Speaker 10: structure of our lending market.

579
00:29:37,240 --> 00:29:40,040
Speaker 2: So Lee, this is peculiar for you, almost original, You

580
00:29:40,160 --> 00:29:42,800
Speaker 2: sound almost constructive the US seculary market, Is that right?

581
00:29:44,720 --> 00:29:47,560
Speaker 10: It's a relative story, John, I'm not sure I'm constructive

582
00:29:47,640 --> 00:29:52,280
Speaker 10: of the equity market absolute terms, but relative You've got

583
00:29:52,400 --> 00:29:54,720
Speaker 10: to look at the US and say, look, the US

584
00:29:54,840 --> 00:29:57,040
Speaker 10: economy is in a very different place from the rest

585
00:29:57,080 --> 00:30:00,840
Speaker 10: of the world. The FED, we're still pricing FED cutting

586
00:30:01,440 --> 00:30:04,440
Speaker 10: before anyone else, and that bit I don't understand. We've

587
00:30:04,480 --> 00:30:07,320
Speaker 10: taken out a lot of the cuts rightly, so we

588
00:30:07,480 --> 00:30:10,040
Speaker 10: still have a cut by January, and yet no one

589
00:30:10,080 --> 00:30:12,480
Speaker 10: else has a cut in that early. Why are we

590
00:30:12,600 --> 00:30:15,280
Speaker 10: got an earlier cut in the US when the economy

591
00:30:15,360 --> 00:30:17,880
Speaker 10: is holding up so much better than elsewhere and the

592
00:30:17,920 --> 00:30:20,720
Speaker 10: inflation is still sticky. We saw the PC on Friday.

593
00:30:21,080 --> 00:30:23,160
Speaker 10: Why are we going to be cutting before everywhere else?

594
00:30:23,240 --> 00:30:26,520
Speaker 10: That's actually you know, flirting with recession. In recession, on

595
00:30:26,600 --> 00:30:29,040
Speaker 10: the edge of recession, we're nowhere near it yet.

596
00:30:29,280 --> 00:30:31,120
Speaker 2: So Lee, just listening to you, they're the kind of

597
00:30:31,200 --> 00:30:33,480
Speaker 2: views that we wanted to push through the FX market

598
00:30:33,600 --> 00:30:35,600
Speaker 2: develop a little bit more dollar strength. We've seen some

599
00:30:35,720 --> 00:30:38,520
Speaker 2: of that. As you look at that differential potentially closing,

600
00:30:39,080 --> 00:30:40,680
Speaker 2: how would you play that scene.

601
00:30:41,840 --> 00:30:44,440
Speaker 10: I think you play it through the dollar. Yeah, you know,

602
00:30:44,480 --> 00:30:46,120
Speaker 10: I've been bullish on the dollar for a little while.

603
00:30:46,440 --> 00:30:48,680
Speaker 10: It's rallied back. Well, we've got over one forty one

604
00:30:48,720 --> 00:30:51,280
Speaker 10: dollar yen. That's probably come into the end of the story.

605
00:30:51,360 --> 00:30:53,440
Speaker 10: But I think when you look at euro dollar, you

606
00:30:53,560 --> 00:30:56,640
Speaker 10: look at cable, you look at the dollar against the

607
00:30:56,680 --> 00:30:58,960
Speaker 10: commodity currencies, I think this has got further to go.

608
00:30:59,080 --> 00:31:01,160
Speaker 10: I mean, I think, look, eventually, the dollar is going

609
00:31:01,240 --> 00:31:03,560
Speaker 10: to be a great sell. It's overvalued, it's over owned,

610
00:31:03,600 --> 00:31:07,440
Speaker 10: et cetera. But what we're seeing is institutional investors are

611
00:31:07,480 --> 00:31:09,640
Speaker 10: now buying dollars again, the first time we've seen that

612
00:31:09,760 --> 00:31:12,800
Speaker 10: since March. They've been strong dollar sellers. They flipped around,

613
00:31:12,800 --> 00:31:16,000
Speaker 10: they're buying it again. They're looking at this US exceptionalism

614
00:31:16,080 --> 00:31:19,120
Speaker 10: story again. So I think that that momentum and this

615
00:31:19,280 --> 00:31:22,360
Speaker 10: relative rate price thing can carry the dollar through probably

616
00:31:22,480 --> 00:31:24,600
Speaker 10: during Q three. We're going to see more dollar games.

617
00:31:24,640 --> 00:31:26,760
Speaker 10: We're up around three percent from the lows and the

618
00:31:26,840 --> 00:31:29,120
Speaker 10: d x Y I think there's another three to five

619
00:31:29,160 --> 00:31:30,360
Speaker 10: percent to go on that story.

620
00:31:30,480 --> 00:31:32,440
Speaker 2: Oh, give me some levels. Then we've got dollar index

621
00:31:32,560 --> 00:31:34,400
Speaker 2: right now just short of one I four cable at

622
00:31:34,440 --> 00:31:36,640
Speaker 2: one twenty four euro dollar, a break in one of

623
00:31:36,720 --> 00:31:39,640
Speaker 2: seven earlier, one of seven forty three. What do we

624
00:31:39,680 --> 00:31:41,480
Speaker 2: need to look out for on the single currency league?

625
00:31:42,520 --> 00:31:44,000
Speaker 10: I think we're going to see one o five before

626
00:31:44,040 --> 00:31:46,040
Speaker 10: we see one ten in euro dollar. We're going to

627
00:31:46,080 --> 00:31:48,040
Speaker 10: go below one oh five before we see one ten

628
00:31:48,120 --> 00:31:50,680
Speaker 10: again Sterling. I think we're going to see below one

629
00:31:50,800 --> 00:31:54,520
Speaker 10: twenty before we see one twenty five. And adding sternly,

630
00:31:54,560 --> 00:31:56,320
Speaker 10: we're going to get down back down towards one point

631
00:31:56,320 --> 00:31:58,640
Speaker 10: fifteen over the course of the second half of the year. Wow,

632
00:31:58,680 --> 00:32:01,920
Speaker 10: but I think certainly right now, Yeah, I'm looking at

633
00:32:02,200 --> 00:32:04,600
Speaker 10: the Embassis now we've seen the sort of dollar ye move.

634
00:32:05,000 --> 00:32:06,640
Speaker 10: I think the Embassis now is going to save a

635
00:32:06,720 --> 00:32:07,640
Speaker 10: dollar against Europe.

636
00:32:08,480 --> 00:32:10,440
Speaker 5: I just think this is too important. I mean, you

637
00:32:10,520 --> 00:32:13,959
Speaker 5: too are seriously knowledgeable about this. The new coach at Chelsea.

638
00:32:14,440 --> 00:32:15,160
Speaker 5: Are you kidding me?

639
00:32:15,200 --> 00:32:15,840
Speaker 10: I thought so.

640
00:32:16,080 --> 00:32:19,760
Speaker 2: I thought it fifteen call on cable to Pocketino.

641
00:32:19,880 --> 00:32:22,840
Speaker 1: I've rich just tak home about Pocketino's getting paid and

642
00:32:23,000 --> 00:32:24,120
Speaker 1: sterling you gets to convert.

643
00:32:24,160 --> 00:32:26,640
Speaker 5: It's going to be great. I mean, but the bottom

644
00:32:26,720 --> 00:32:28,080
Speaker 5: line is the guy is supposed to go to the

645
00:32:28,160 --> 00:32:30,680
Speaker 5: Tots and he went to Chelsea. What's that about?

646
00:32:31,120 --> 00:32:33,160
Speaker 2: You'll have to ask the man himself over a spurs,

647
00:32:33,800 --> 00:32:35,680
Speaker 2: you know, I say what Dan leaves up to, I've

648
00:32:35,680 --> 00:32:36,200
Speaker 2: got no idea.

649
00:32:36,240 --> 00:32:38,040
Speaker 5: Get on a plane, John, get over there and figure

650
00:32:38,240 --> 00:32:39,840
Speaker 5: we're yeah going on.

651
00:32:40,880 --> 00:32:43,200
Speaker 2: I mean, just me making some monster calls that TK.

652
00:32:43,560 --> 00:32:47,360
Speaker 1: Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify and

653
00:32:47,520 --> 00:32:51,680
Speaker 1: anywhere else you get your podcasts. Listen live every weekday

654
00:32:52,000 --> 00:32:55,440
Speaker 1: starting at seven am Eastern on Bloomberg dot Com, the

655
00:32:55,640 --> 00:33:00,120
Speaker 1: iHeartRadio app tune In, and the Bloomberg Business app. You

656
00:33:00,200 --> 00:33:04,240
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657
00:33:04,240 --> 00:33:08,200
Speaker 1: the Bloomberg Terminal. Thanks for listening. I'm Tom Keen, and

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Speaker 1: this is Bloomberg