WEBVTT - Surveillance: Levitt on Fed's path forward 0:00:05.160 --> 0:00:08.480 This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 0:00:08.520 --> 0:00:12.360 with Jonathan Farrell and Lisa Abramowitz. Join us each day 0:00:12.400 --> 0:00:16.840 for insight from the best an economics, geopolitics, finance and investment. 0:00:17.280 --> 0:00:22.119 Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 0:00:22.320 --> 0:00:26.600 anywhere you get your podcasts, and always on Bloomberg dot Com, 0:00:26.640 --> 0:00:29.840 the Bloomberg Terminal, and the Bloomberg Business App. 0:00:30.000 --> 0:00:32.640 Brian Levit joins US now Global Market Strategist to invest Go. 0:00:32.840 --> 0:00:35.040 Some guests had the courage the confidence to stick with 0:00:35.120 --> 0:00:38.000 it all the way up here today. Brian Levett one 0:00:38.040 --> 0:00:41.160 of them. Brian, you say this, I would view any 0:00:41.200 --> 0:00:44.680 near term challenges as a buying opportunity. Brian, why are 0:00:44.680 --> 0:00:46.800 you still so constructive this equity market? 0:00:48.040 --> 0:00:50.520 Well, typically, if you look, if you look at US history, 0:00:50.560 --> 0:00:53.360 anytime inflation has peaked or come down, or just about 0:00:53.360 --> 0:00:56.080 any time the FED is done tightening, you've done well 0:00:56.360 --> 0:00:58.680 as an investor over the next couple of years. So 0:00:59.000 --> 0:01:01.000 you know when I say in your term challenges, look, 0:01:01.040 --> 0:01:03.680 we know that we still have to see the lagged 0:01:03.720 --> 0:01:06.080 effects of all the policy tightening, and the economy is 0:01:06.120 --> 0:01:09.040 still going to moderate or even weaken from here. 0:01:09.520 --> 0:01:11.360 But history is on our side. 0:01:11.440 --> 0:01:14.040 If you can look beyond just a handful of weeks 0:01:14.120 --> 0:01:16.720 or a handful of months, markets tend to do very 0:01:16.760 --> 0:01:19.240 well in the aftermath of tightening cycles. And we're getting 0:01:19.319 --> 0:01:21.480 quite close to the end of the tightening cycle. If 0:01:21.520 --> 0:01:22.600 we're not already there. 0:01:22.560 --> 0:01:23.800 You guys are the byside. 0:01:24.200 --> 0:01:26.640 You've got all your internal analysts, and you're also of 0:01:26.680 --> 0:01:30.000 course speaking to people pitching equity and bond ideas, and 0:01:30.040 --> 0:01:33.200 of course Invesco is a legendary bond house. If we 0:01:33.280 --> 0:01:37.600 have sticky inflation, Brian Levitt, what does that do to 0:01:37.800 --> 0:01:41.160 revenues of companies? They do better, don't they? 0:01:42.600 --> 0:01:43.319 They do better. 0:01:43.360 --> 0:01:46.840 Although I don't think that you know when we say inflation, 0:01:47.240 --> 0:01:49.480 we don't mean you know that inflation is going to 0:01:49.560 --> 0:01:50.800 sit here at these levels. 0:01:50.840 --> 0:01:53.000 But to your point, they're going to come down but 0:01:53.200 --> 0:01:54.040 likely be higher. 0:01:54.080 --> 0:01:56.080 Inflation is likely going to be higher than it was 0:01:56.120 --> 0:01:57.600 in the last cycle, which you're right. 0:01:57.680 --> 0:01:59.200 That is nominal growth and. 0:01:59.200 --> 0:02:03.400 That is supportive for for corporate earnings. The challenge that 0:02:03.480 --> 0:02:05.840 we have, of course, though, is that you know how 0:02:05.920 --> 0:02:07.440 much tight is the FED going to get and how 0:02:07.520 --> 0:02:09.880 much more inverted is the seal curve going to get 0:02:09.919 --> 0:02:12.640 and what type of economic response are we going to have? 0:02:12.680 --> 0:02:15.840 So we still haven't We still haven't seen all of that. 0:02:16.040 --> 0:02:19.680 So there's still challenges here, and we would still favor 0:02:19.720 --> 0:02:23.160 more quality investments rather than you know, thinking about what 0:02:23.280 --> 0:02:26.680 the beginning of the new cycle looks like. But again 0:02:27.680 --> 0:02:31.600 investors should shouldn't I caution them on being too defensive here. 0:02:31.680 --> 0:02:35.720 Even if you even if you have some retracement in 0:02:36.160 --> 0:02:39.960 the next few weeks or the next few months, ask yourself, 0:02:40.000 --> 0:02:42.280 will things be better over the next couple of years, 0:02:42.320 --> 0:02:45.000 Will inflation be back to a more reasonable level, will 0:02:45.040 --> 0:02:47.080 the FED be on the other side of this, and 0:02:47.120 --> 0:02:49.799 will the economy be recovering? And I think the answered 0:02:49.840 --> 0:02:52.720 all those questions are yes, which means we you know, 0:02:52.800 --> 0:02:54.160 we don't want to be too defensive. 0:02:54.200 --> 0:02:55.200 Now, I've got to. 0:02:55.200 --> 0:02:57.960 Go to the allocation as global market strategist, is too 0:02:58.040 --> 0:03:03.160 important US domestic quality versus international quality? Which way do 0:03:03.160 --> 0:03:03.600 you tilt? 0:03:04.600 --> 0:03:06.880 I think we need to be increasing our exposure to 0:03:07.120 --> 0:03:08.320 international quality. 0:03:08.320 --> 0:03:11.239 I mean, the US does well in these. 0:03:11.400 --> 0:03:14.839 In the in the more challenging economic environments that could 0:03:14.840 --> 0:03:17.519 be ahead of us. But if you're thinking ahead to 0:03:18.200 --> 0:03:20.040 you know, the next stage of this, the. 0:03:20.160 --> 0:03:21.280 End of tightening. 0:03:21.360 --> 0:03:25.560 Well, that means that means the interest rate differential between 0:03:25.600 --> 0:03:27.239 the US and Europe and some of the rest of 0:03:27.280 --> 0:03:30.440 the world is going to narrow, and that tends to 0:03:30.480 --> 0:03:33.480 mean the end of a strong dollar environment, which we've had. 0:03:33.520 --> 0:03:34.520 For quite some time. 0:03:34.720 --> 0:03:38.480 So most investors are light on international you know, building 0:03:38.560 --> 0:03:43.320 up positions, you know, closer fifteen to twenty percent international. 0:03:42.720 --> 0:03:44.600 Equity exposure, I think makes a lot of sense. 0:03:44.600 --> 0:03:47.280 You're particularly giving the valuations and the catalysts of what 0:03:47.360 --> 0:03:49.440 could be finally. 0:03:49.040 --> 0:03:50.000 Peaked dollar, Brian. 0:03:50.040 --> 0:03:52.160 Given what you just said, then are you anticipating a 0:03:52.240 --> 0:03:54.240 change in equity market leadership. 0:03:55.200 --> 0:03:58.880 Well, the equity market leadership will change when we get 0:03:58.960 --> 0:04:01.560 to when we get to the other side of the 0:04:01.600 --> 0:04:03.800 economic downturn, at least in the middle point of the 0:04:03.880 --> 0:04:06.840 economic downturn. That's when you start to see more value, 0:04:06.960 --> 0:04:11.000 more cyclical, emerging market, smaller caps participate. 0:04:11.120 --> 0:04:12.680 So in the near term. 0:04:12.600 --> 0:04:17.000 Here it's it's quality, it's it's larger cap, it's growthier, 0:04:17.080 --> 0:04:21.040 and we're certainly seeing that in the in the market activity. 0:04:21.520 --> 0:04:25.880 The shift comes typically in the in the midpoint of 0:04:25.920 --> 0:04:29.160 the economic downturn and the market getting ahead of what 0:04:29.240 --> 0:04:31.640 will be the new cycle. So I don't think we're 0:04:31.800 --> 0:04:33.919 there yet, but we're on the path to that. 0:04:34.240 --> 0:04:34.480 Brian. 0:04:34.520 --> 0:04:36.120 What do you say to people who have been in 0:04:36.120 --> 0:04:38.640 this market who are hearing a lot of people complain 0:04:38.720 --> 0:04:42.200 about narrow breadth in the equity market, the ap performance 0:04:42.240 --> 0:04:48.560 of ubercap, megacap tech names like Nvidia, Microsoft, and others. Brian, 0:04:48.600 --> 0:04:50.040 what's your message to them this morning? 0:04:50.960 --> 0:04:52.920 Well, the message is that this is playing out as 0:04:52.960 --> 0:04:56.000 we think market cycles tend to play out. If you remember, 0:04:56.040 --> 0:04:59.240 in the beginning of the year, the market thought we 0:04:59.240 --> 0:05:02.880 were getting a soft landing, and so you saw value, 0:05:03.040 --> 0:05:05.559 small caps, emerging markets do very well. 0:05:05.600 --> 0:05:10.240 That was called mid October through probably. 0:05:09.800 --> 0:05:13.279 The end of February, and when inflation remade sticky and 0:05:13.320 --> 0:05:16.360 the Fed kept raising rates and the concerns of a 0:05:16.440 --> 0:05:20.800 recession became more heightened, well, that's when we shifted back 0:05:20.839 --> 0:05:25.120 towards a more defensive posture, quality, larger cap growthier. So 0:05:25.960 --> 0:05:28.560 I'd say that these markets are playing out as you 0:05:28.600 --> 0:05:31.760 would expect them to play out, given what the trajectory 0:05:31.760 --> 0:05:33.520 of the economy is likely to be. 0:05:33.800 --> 0:05:38.599 And you'll see broader participation in these markets. On the 0:05:38.640 --> 0:05:39.360 other side of. 0:05:39.320 --> 0:05:42.720 This again, we're not there yet, but at the midpoint 0:05:42.720 --> 0:05:45.720 of the downturn and economic activity, you'll see a shift 0:05:45.800 --> 0:05:49.839 towards investors favoring those names that are going to do 0:05:49.960 --> 0:05:52.320 well in a cyclical economic recovery. 0:05:52.520 --> 0:05:54.200 What a handful of name's doing well right now, and 0:05:54.240 --> 0:05:56.120 one of them is in Nvidia. Brian, We've got to 0:05:56.160 --> 0:05:58.440 leave it there, Brian Love at the AVESCO. 0:06:02.200 --> 0:06:05.200 We thought we'd dive into this a little deeper than 0:06:05.320 --> 0:06:09.680 the back and forth of OMG, MVDA men deep Sing. 0:06:09.760 --> 0:06:14.840 It knows that when you do double E electrical engineering, 0:06:14.880 --> 0:06:17.560 it starts out with the wheatstone bridge and then you 0:06:17.640 --> 0:06:21.560 cross a bridge over to differential equations, and heaven forbid, 0:06:21.600 --> 0:06:23.520 we get Maxwell and magnetism. 0:06:23.640 --> 0:06:23.839 Right. 0:06:24.320 --> 0:06:27.160 Mandeep Sing owns the high ground at Bloomberg Intelligence. 0:06:27.600 --> 0:06:29.080 Mandeep this is a kid out. 0:06:28.920 --> 0:06:34.640 Of Taiwan off the boat Oneida, Kentucky for population for ten. 0:06:34.680 --> 0:06:39.560 He is a textbook immigrant. He parachutes into Corvallis in 0:06:39.680 --> 0:06:42.640 Oregon State and magic happens. 0:06:43.120 --> 0:06:45.960 When did the magic in Nvidia happen? 0:06:47.680 --> 0:06:50.279 I mean this has been going on, I think for 0:06:50.400 --> 0:06:53.080 the last almost twenty five years, and he has built that, 0:06:53.800 --> 0:06:57.920 you know, in terms of focusing on a knit segment 0:06:58.080 --> 0:07:02.000 and then really expanding this scope of computing and in 0:07:02.040 --> 0:07:06.040 a way that it's so innovative in terms of disrupting 0:07:06.160 --> 0:07:10.720 the existing framework around leveraging CPUs to really a new 0:07:10.760 --> 0:07:14.120 style of computing. And I think that is where everyone 0:07:14.160 --> 0:07:16.400 has been caught off guard with the pace of the 0:07:16.520 --> 0:07:20.440 change that can bring. But clearly the innovation is there 0:07:20.800 --> 0:07:22.360 and that's why everyone is so excited. 0:07:22.480 --> 0:07:23.680 Take us not to the. 0:07:23.560 --> 0:07:26.600 Hopes and dreams of AI three years, five years, ten 0:07:26.720 --> 0:07:31.160 years out, but the here in present, not danger, but 0:07:31.280 --> 0:07:35.200 the here in present reality. For Nvidia, can they sustain 0:07:35.280 --> 0:07:38.960 the growth now of a fifty five multiple stock. 0:07:40.280 --> 0:07:44.520 Well, So, I think it's a little hard in terms 0:07:44.640 --> 0:07:48.560 of looking at it, you know, beyond twenty twenty three, 0:07:48.600 --> 0:07:52.280 simply because right now we have easier comps and we 0:07:52.640 --> 0:07:57.520 are just past this you know, cloud digestion phase. So 0:07:57.720 --> 0:08:01.480 this happened to be a much shallow and correction. And 0:08:01.840 --> 0:08:05.320 what everyone is expecting is for the market to really 0:08:05.360 --> 0:08:07.640 do well in terms of the demand side, on the 0:08:07.720 --> 0:08:10.760 data center side, to hold up for the next six 0:08:10.840 --> 0:08:13.400 to eight quarters. I don't know if that will be 0:08:13.480 --> 0:08:16.640 the case, given how much uncertainty we have. But one 0:08:16.680 --> 0:08:19.640 thing we know is there is this secular shift from 0:08:19.760 --> 0:08:23.760 CPUs to GPUs. And you know, really what they're selling 0:08:24.040 --> 0:08:27.920 is almost two hundred thousand for a box, a server 0:08:28.040 --> 0:08:31.600 box that used to cost ten thousand. So look at 0:08:31.600 --> 0:08:34.240 the ASP increase that they have been able to generate 0:08:34.480 --> 0:08:37.840 from this new device that they have created, and that 0:08:37.960 --> 0:08:40.200 is quite powerful. When you see a company, you know, 0:08:41.400 --> 0:08:44.960 kind of raising ASP's like this, that is very positive 0:08:44.960 --> 0:08:45.920 for the growth margin. 0:08:46.000 --> 0:08:48.680 And I think that's what you're seeing in their results 0:08:48.760 --> 0:08:49.080 right now. 0:08:49.120 --> 0:08:51.319 Manday the cheat guide to the market action this morning, 0:08:51.360 --> 0:08:53.120 it's just to say well and videous up. Because they 0:08:53.160 --> 0:08:55.880 anvelt some new products. I wonder how many people actually 0:08:55.920 --> 0:08:58.920 know what those new products do. Mandate, you're someone who 0:08:58.920 --> 0:09:00.960 probably does. Can you tell is what this new product 0:09:00.960 --> 0:09:01.800 line appears? 0:09:02.679 --> 0:09:07.360 Yeah. So the biggest use case is around training these 0:09:07.440 --> 0:09:10.520 large language models. And what you need for this is 0:09:11.000 --> 0:09:14.120 a lot of computational power, and a GPU can do 0:09:14.240 --> 0:09:17.600 it in a very short period of time compared to 0:09:17.640 --> 0:09:20.880 the traditional CPUs. Even if you stack a lot of CPUs, 0:09:20.960 --> 0:09:24.040 you can train these large language models. So one thing 0:09:24.080 --> 0:09:27.200 they've proven is not only is it an innovative way, 0:09:27.600 --> 0:09:30.000 it's the only way you can train a large language 0:09:30.000 --> 0:09:33.640 model and think of, you know, our computational requirement across 0:09:33.640 --> 0:09:38.040 the board, across industry. You need this type of technology 0:09:38.559 --> 0:09:43.080 to enhance the productivity. And that's something that's not like 0:09:43.240 --> 0:09:45.920 it's going to drive a massive refreshed cycle. And that's 0:09:45.960 --> 0:09:49.800 why everyone is so excited because the existing market needs 0:09:49.840 --> 0:09:52.560 to refresh to the new way of computing. And that's 0:09:52.600 --> 0:09:53.720 a pretty large market. 0:09:53.720 --> 0:09:56.480 When you think of semiconductor as a six hundred billion dollar. 0:09:56.280 --> 0:09:57.800 Market, who is that competition. 0:09:59.520 --> 0:10:03.240 Competition would be you know, AMD, Intel to an extent. 0:10:03.320 --> 0:10:07.000 The problem is they're so far behind, especially Intel, in 0:10:07.080 --> 0:10:10.040 terms of focusing on GPUs and that's where you know, 0:10:10.080 --> 0:10:13.640 they missed the boat for at least five years, where 0:10:13.679 --> 0:10:16.679 they just didn't think this market was big enough and 0:10:16.960 --> 0:10:19.240 they can't still catch up. I mean, there was some 0:10:19.360 --> 0:10:23.240 rumors about n Video partnering with Intel so that Intel 0:10:23.240 --> 0:10:26.280 can make their GPUs, but that's a boundary play. I'm 0:10:26.320 --> 0:10:30.480 talking about that two hundred thousand ESP component that Nvidia 0:10:30.559 --> 0:10:30.920 is selling. 0:10:30.960 --> 0:10:33.040 Who can compete with that? And I think AMD is. 0:10:32.960 --> 0:10:36.720 The closest right now for that along with the hyperscalers and. 0:10:36.800 --> 0:10:39.360 The simplistic view of a fool like me is it's 0:10:39.360 --> 0:10:40.040 about gaming. 0:10:40.080 --> 0:10:40.839 Forget about that. 0:10:41.280 --> 0:10:45.719 What does Innvidia mein Mandy for Productor and Gamble for 0:10:45.920 --> 0:10:49.880 Minnesota mining and manufacturing for Ford Motor. 0:10:51.800 --> 0:10:55.640 Yeah. So, I mean these companies spend billions of dollars 0:10:55.679 --> 0:10:59.520 on their IT, you know, over time and when you 0:10:59.559 --> 0:11:03.320 think about their data center footprint, that will completely go away. 0:11:03.920 --> 0:11:07.160 It will be on cloud. And what large anguage models 0:11:07.200 --> 0:11:09.520 do is not only you need to rent the basic 0:11:09.559 --> 0:11:13.160 cloud capacity, you will run your AI on cloud. And 0:11:13.280 --> 0:11:16.800 that's where Nvidia has positioned in self really well. It 0:11:16.920 --> 0:11:19.640 is partnered with the likes of Microsoft. I don't think 0:11:19.679 --> 0:11:22.840 all the hyperscalers are on board with Nvidia, but for 0:11:22.880 --> 0:11:26.480 a traditional enterprise, they don't need to spend on it anymore, 0:11:26.559 --> 0:11:29.640 especially on the infrastructure side. They will outsource everything to 0:11:29.720 --> 0:11:32.800 these hyperscalers. And then video is trying to becoming one 0:11:32.800 --> 0:11:33.120 of them. 0:11:33.320 --> 0:11:35.920 Mandi when he talked over the weekend, I think everyone's 0:11:35.920 --> 0:11:40.040 bista is you can translate what that means. Manday when 0:11:40.040 --> 0:11:42.680 he talks over the weekend and uses the hyperbolic language 0:11:42.720 --> 0:11:45.640 like tipping point, the dawn of a new computing gauge 0:11:45.640 --> 0:11:48.040 and all those things Mandi, there are some people out 0:11:48.080 --> 0:11:50.559 there who just don't have the specialized knowledge to really 0:11:50.640 --> 0:11:53.320 understand where this is going. And it's a market of 0:11:53.360 --> 0:11:55.440 faith for many people in the stock market who just 0:11:55.480 --> 0:11:57.280 see the momentum and just think I need to be 0:11:57.320 --> 0:11:59.600 a part of this, Mandi, do you have any kind 0:11:59.600 --> 0:12:02.120 of cheek whatsoever to do a distinction between what is 0:12:02.160 --> 0:12:04.199 real and what might be bs? 0:12:05.880 --> 0:12:08.760 Well, so I look at you know who are the 0:12:08.960 --> 0:12:11.600 key players who will determine the fate of this market, 0:12:11.640 --> 0:12:15.280 and they are quite concentrated. I mean I mentioned about hyperscalers. 0:12:15.559 --> 0:12:19.000 Then you have got Apple on the smartphone side. What 0:12:19.080 --> 0:12:21.840 will Apple end up doing in terms of large anguige 0:12:21.880 --> 0:12:24.360 models That will have a big influence in terms of 0:12:24.400 --> 0:12:28.079 the size of the opportunity for someone like Nvidia, if 0:12:28.080 --> 0:12:32.439 they do everything in house, then they're going directly to TSMC. 0:12:32.600 --> 0:12:36.160 Right now, Nvidia has the technology, it has a monopoly. 0:12:35.880 --> 0:12:38.480 But it's going to TSMC to make its chips if 0:12:38.520 --> 0:12:41.040 Apple does the same, and granted they may not have 0:12:41.080 --> 0:12:44.360 that technology that Nvidia has, but clearly you've got you know, 0:12:44.760 --> 0:12:47.480 eight or ten players that will determine the size of 0:12:47.480 --> 0:12:50.600 the opportunity and how this shakes out. And that's where 0:12:50.679 --> 0:12:52.600 I think you have to watch out for what they do, 0:12:52.720 --> 0:12:55.559 not what they say. And the only time will tell 0:12:55.600 --> 0:12:58.760 what the hyperscalers will do. I can't imagine them paying 0:12:59.000 --> 0:13:04.400 two billion dollars in media every year to upgrade their GPUs. 0:13:04.679 --> 0:13:07.880 It's just too much capex. And that's what we're talking 0:13:07.920 --> 0:13:10.720 about here in terms of the animal cap expend on 0:13:10.800 --> 0:13:11.480 something like this. 0:13:11.679 --> 0:13:14.760 Mandate excited for your coverage on this story for the 0:13:14.840 --> 0:13:17.400 years to count. Never mind the wakes and they've sink 0:13:17.440 --> 0:13:18.840 that have Glindagens hatogens. 0:13:29.080 --> 0:13:32.640 Greg Valier knows is this ties directly in to our 0:13:32.920 --> 0:13:36.840 sailors and our officers. Is they are on aircraft, carrier, 0:13:36.960 --> 0:13:40.880 submarines and everything else in the military. And this budget debate, 0:13:40.920 --> 0:13:45.240 mister Valier, is with AGF investments. Greg, you absolutely nailed 0:13:45.240 --> 0:13:50.240 this morning by getting beyond the cable TV idiocy to 0:13:50.320 --> 0:13:54.720 the Senate's outrage over the defense of our nation. What 0:13:54.800 --> 0:13:57.000 are we going to see not in two days, what 0:13:57.040 --> 0:13:59.360 are we going to see in five and six days 0:13:59.640 --> 0:14:02.520 from senators worried about the Pentagon. 0:14:04.080 --> 0:14:06.440 Well, it's going to be a big deal. And Lindsey Graham, 0:14:06.800 --> 0:14:10.280 a famous hawk, blew a gasket and I think it 0:14:10.320 --> 0:14:15.199 was Fox on Sunday because the defense spending in this 0:14:15.320 --> 0:14:18.559 bill will be lower than the rate of inflation. So 0:14:19.240 --> 0:14:21.480 for a country that doesn't spend as much as people 0:14:21.760 --> 0:14:25.480 think we do out of our GDP on defense, this 0:14:25.640 --> 0:14:27.640 really angers a lot of Republicans. 0:14:28.080 --> 0:14:30.880 It angers Republicans. What I'm going to suggest that Democrats 0:14:30.880 --> 0:14:34.000 are going to show up as well. I mean, this 0:14:34.080 --> 0:14:35.040 is critical, Greg. 0:14:35.480 --> 0:14:41.119 Is it a bipartisan fury of our officers and sailors? 0:14:41.320 --> 0:14:46.200 Are infantrymen at risk? Is it bipartisan in the anger here? 0:14:47.600 --> 0:14:48.000 It is? 0:14:48.200 --> 0:14:52.440 But we can't default. I think people realize that a 0:14:52.600 --> 0:14:55.960 default would be even worse. And during the course of 0:14:55.960 --> 0:14:59.320 this year time, I think there'll be supplemental funding for 0:14:59.480 --> 0:15:04.480 the Pentagon. There's ways you can still get money from 0:15:04.520 --> 0:15:06.840 the government, and I think that you will see more 0:15:06.840 --> 0:15:09.640 spending during the year. But there's a lot of complaints 0:15:09.680 --> 0:15:12.440 right now. Just to bring it to tonight, there is 0:15:12.480 --> 0:15:14.800 a big vote tonight in the House Rules Committee. I 0:15:14.840 --> 0:15:18.800 think that Kevin McCarthy will prevail, But I think this 0:15:18.840 --> 0:15:22.600 thing drags on because of Lindsay Graham and others into 0:15:22.680 --> 0:15:27.040 next week and it probably gets right up until June fifth. 0:15:27.200 --> 0:15:29.160 Well, great That's what I was going to last. Do 0:15:29.240 --> 0:15:30.280 we have a week. 0:15:31.760 --> 0:15:35.160 Well, that's a good question. Here's what I would say. 0:15:35.240 --> 0:15:41.840 If we hit the deadline. The Treasury can sell bonds 0:15:41.920 --> 0:15:44.720 out of the Highway Trust Fund. Treasury can sell bonds 0:15:44.720 --> 0:15:47.160 out of the SOBI Security Trust Fund and pay them 0:15:47.160 --> 0:15:50.400 back a week or two later. So I think it's 0:15:50.480 --> 0:15:53.000 highly unlikely that we would see a default. And I 0:15:53.000 --> 0:15:55.400 would add if there actually looked like there would be 0:15:55.480 --> 0:15:57.640 at the fault, I think the markets would get so 0:15:57.840 --> 0:16:00.960 jittery it would finally send a message to Washington. 0:16:01.000 --> 0:16:01.200 Craig. 0:16:01.240 --> 0:16:04.400 We asked ridiculous questions in politics sometimes like who wins, 0:16:04.480 --> 0:16:07.000 who wins? Who won? After the weekend? Who do you 0:16:07.000 --> 0:16:09.680 think is doing a better job of just presenting what 0:16:09.720 --> 0:16:12.800 they got out of negotiations? Is it the president or 0:16:12.880 --> 0:16:13.840 is it speaking McCarthy. 0:16:14.720 --> 0:16:18.160 I think the President has always been underestimated as a negotiator, 0:16:18.520 --> 0:16:21.040 and I think he did a pretty good job. The 0:16:21.120 --> 0:16:24.520 surprise to me, though, is Kevin McCarthy thought. I think 0:16:24.520 --> 0:16:27.200 he was held in low regard until a few months 0:16:27.240 --> 0:16:32.520 ago he became House Speaker. He got something done. They 0:16:32.560 --> 0:16:34.720 didn't get all that they wanted. In fact, in this 0:16:34.800 --> 0:16:37.480 final deal, a lot of what they wanted whittled out, 0:16:38.240 --> 0:16:42.880 especially on the total spending huts. But no, I give 0:16:42.920 --> 0:16:44.920 both of them credit. But I think Kevin McCarthy is 0:16:44.960 --> 0:16:46.600 now a serious player. 0:16:47.560 --> 0:16:51.720 Mean, Greg the senator from West Virginia, got a pipeline 0:16:52.040 --> 0:16:55.440 moving south from Harris. I believe it's Harris, West Virginia 0:16:55.760 --> 0:16:58.280 on celt across the border. Maybe it's Harris where it 0:16:58.320 --> 0:17:02.680 goes across the border to Pittsylvania, just southwest of Appomattox. 0:17:03.320 --> 0:17:06.080 Can you give out pipelines there? It is from Bradshaw, 0:17:06.119 --> 0:17:09.760 West Virginia to Pennsylvania, Virginia. Okay, there's a pipeline for 0:17:09.840 --> 0:17:15.600 Joe Mansion. Can you give conservative Republicans a pipeline? 0:17:17.359 --> 0:17:21.000 You can't give people anything? And this was audacious. That's 0:17:21.080 --> 0:17:24.680 typical of Joe Mansion. He gets what he wants because 0:17:24.720 --> 0:17:27.439 he's still whispering that he may run for president, so 0:17:27.480 --> 0:17:29.400 everybody has to placate him. 0:17:29.760 --> 0:17:30.680 Well, what about. 0:17:32.000 --> 0:17:36.840 Ten to twelve, the fourteen people blocking Speaker McCarthy's efforts. 0:17:36.880 --> 0:17:40.639 Can he give them a bone that's highway like or 0:17:40.840 --> 0:17:41.679 pipeline like? 0:17:42.920 --> 0:17:44.960 Sure, I'm sure there are people who are going to 0:17:45.040 --> 0:17:48.080 have post offices and they're named after them. There's lots 0:17:48.119 --> 0:17:50.000 of deals that are being cut right now to get 0:17:50.040 --> 0:17:52.800 this one hold out to vote for them later in the. 0:17:52.840 --> 0:17:55.119 Day, Hi, Greg, what do you make of what the 0:17:55.720 --> 0:17:58.240 Republican candidates for the presidency have got to say about 0:17:58.240 --> 0:17:59.080 the deal that was struck? 0:18:00.160 --> 0:18:03.000 Well, DeSantis was really striking and said, you know, it 0:18:03.040 --> 0:18:05.720 was a terrible deal and we're still headed toward you know, 0:18:05.800 --> 0:18:10.040 financial ruin. It was a pretty strong statement. DeSantis now 0:18:10.119 --> 0:18:12.120 is in a position where he's got to throw bombs 0:18:12.400 --> 0:18:16.080 because he's so far behind that I'm not sure he 0:18:16.119 --> 0:18:16.760 can catch up. 0:18:17.000 --> 0:18:20.200 Greg, just a final word on defense spend in America, 0:18:20.800 --> 0:18:22.800 and not for me to say what that level should be. 0:18:23.440 --> 0:18:26.199 By the way, Greg, can you just go through the 0:18:26.280 --> 0:18:29.320 numbers for us and you really paint a picture of 0:18:29.760 --> 0:18:33.520 how much a percentage of overall spending defense spend naturally 0:18:33.640 --> 0:18:35.840 is and get to the heart of the issue that 0:18:35.880 --> 0:18:37.920 if you do want to do something about the deficit 0:18:37.960 --> 0:18:41.359 in this country, don't they have to rethink what's happening 0:18:41.359 --> 0:18:41.880 with defense? 0:18:43.400 --> 0:18:46.119 Well, I would say, no, we're not spending enough on 0:18:46.200 --> 0:18:49.960 defense as a percentage of GDP. We're spending less than 0:18:49.960 --> 0:18:53.280 three percent. We complain all the time about Canada, They're 0:18:53.280 --> 0:18:55.680 not spending three percent of GDP. A lot of other 0:18:55.760 --> 0:18:58.800 countries aren't as well. And I think that the as 0:18:58.840 --> 0:19:01.440 the Wall Street Journal can say instantly points out, we're 0:19:01.480 --> 0:19:05.399 not spending enough on defense by any historical yardstick. 0:19:05.720 --> 0:19:07.960 So, Greg, if that's the case, where does that leave 0:19:08.000 --> 0:19:11.600 any negotiations over ever cutting spending and doing something about 0:19:11.600 --> 0:19:12.160 the deficit. 0:19:13.320 --> 0:19:15.880 Well, you got to talk about revenues at some point. 0:19:16.200 --> 0:19:18.280 I mean, at some point we have to at least 0:19:18.359 --> 0:19:20.720 look at taxes. I'm not saying we need a big, 0:19:20.800 --> 0:19:24.240 huge one, but fearless forecast, guys, the next big fiscal 0:19:24.280 --> 0:19:27.960 story is the expiration of the Donald Trump tax cuts 0:19:28.000 --> 0:19:30.240 in a couple of years. That will make this fight 0:19:30.320 --> 0:19:32.520 we've just went through look like a picnic. 0:19:33.119 --> 0:19:40.320 Greg Valiere looking forward to that of Jeff. And if 0:19:40.320 --> 0:19:42.640 you could be long, one thing right now would probably 0:19:42.720 --> 0:19:44.880 be in video. If you could have been short over 0:19:44.920 --> 0:19:48.160 the last two weeks, somethink it probably would have been 0:19:48.400 --> 0:19:51.720 the treasury market. Katie Kaminski was short that treasury market. 0:19:51.760 --> 0:19:55.919 The chief research strategistic Alpha Simplex joined us right now. Katie, 0:19:55.920 --> 0:19:58.480 walk us through the thinking and whether that trade is 0:19:58.480 --> 0:20:01.240 still very much on well, let's. 0:20:01.040 --> 0:20:02.840 Just think about where we are in the cycle, and 0:20:02.920 --> 0:20:06.439 let's think about what's happening in terms of long term cashlows. 0:20:06.480 --> 0:20:11.760 I think people may be underestimating the effect of higher 0:20:11.840 --> 0:20:14.880 rates on long term cashlows because they're just so used 0:20:14.880 --> 0:20:17.400 to things going back to normal. And so what we've 0:20:17.440 --> 0:20:20.600 seen is that the momentum in fixed income markets is 0:20:20.640 --> 0:20:24.240 short and in some sense, the equity markets are saying 0:20:24.280 --> 0:20:27.560 that things are okay. And if that's the case, then 0:20:27.600 --> 0:20:29.960 the curve and we're going to tolerate the inflation, then 0:20:30.000 --> 0:20:32.639 the curve is going to have to steepen, and particularly 0:20:32.720 --> 0:20:34.400 the long end of the curve is what I'm looking at. 0:20:34.680 --> 0:20:36.760 How do you link the equity market on a trend 0:20:36.800 --> 0:20:39.960 based basis with the bond market? How do you take 0:20:40.359 --> 0:20:44.080 trend based analysis of the ten year yield and fold 0:20:44.119 --> 0:20:46.760 it over to trend based analysis of the Nasdaq? 0:20:47.960 --> 0:20:49.960 Well, this is a good question because I think what's 0:20:50.040 --> 0:20:52.800 happened to us, as those of us who are on 0:20:52.840 --> 0:20:55.840