00:00:02 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 00:00:11 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amerie Hordern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business app. 00:00:36 Speaker 1: Begin this hour with stocks holding steady following a rally in tech. John Solspas of Oppenheimer one of the bulls, writing with S and P five. 00:00:42 Speaker 3: Hundred Q two earning season several weeks away. Newsflow, eco data and developments in. 00:00:47 Speaker 1: The Middle East are likely to drive market sentiment. John joins us now from more John, great to see you. 00:00:53 Speaker 4: Great to see you as well. 00:00:54 Speaker 1: Driving sentiment up or driving sentiment down? 00:00:57 Speaker 5: Well, you know I'm driving sentiment up, I'd say right now. We'll have to see the way the jobs number looks at the end of the week on Thursday or early this week. But we have to say, things are still remarkably good, and I think the operative word remains resilient. Resilient doesn't mean robust. It means resilient, not unchallenged. And every time we get the challenges towards that resilience, whether it's an economic data piece piece, a piece of information related to a setback in the negotiations in the Middle East, or whatever have you, it seems to be overcome by that resilience factor that either shows earnings better than expected, debt in better situation that it actually was thought to be. When the bears and the skeptics start trying to drag things down, and fundamentals remain very positive, and that's what you got. We watch the fundamentals. I don't go after the technicians. I respect them, but I'm intermediate to longer term investments. 00:01:58 Speaker 4: And you know we're all on. 00:01:59 Speaker 5: The upgrade cycle in terms of tech. Whenever the drama and the headlines are against technology, I tell my team that's. 00:02:06 Speaker 4: Many years younger than I am. 00:02:07 Speaker 5: I tell them, I said, let's sell the throw away, the PC and the laptop. Let's look for an abacus and for a slide rule will be all set. Thank you what you're doing and forgot about the GPS. When you get in the car, you need a yellow legal pad, write it in pencil, get a flashlight, get a map, get it. 00:02:24 Speaker 4: We're not going back. 00:02:25 Speaker 1: I can already see the fights ensuing in the car as you try to figure out the directions, because any of us old enough to remember that at the parents of the front. Either way, I am wondering, though, if there has been a shift in tone and whether we've seen that with respect to a real question about how much spending there actually can be on semiconductors, given the expense, given the pushback that you're seeing in markets, and give it the fact that debt investors are certainly. 00:02:48 Speaker 3: A little pick here. 00:02:49 Speaker 5: I think without a doubt you feel it and you see it, and it goes in this operation where you go day to day risk on, risk off, tach on, tech off, back and forth. It's an argument, but the good thing is I think it puts players on notice that be careful what you're doing, relating what your expectations are on this. And for investors, the idea is you have to be aware that there will be failures, there will be things that will not work out in AI and other things that will just think back on the Internet, and this is we don't think this is like the Internet bubble. This is very different. Both business and the consumer have tech deeply embedded. We're dependent on tech in our lives. 00:03:27 Speaker 4: So you know, overall, we just think it's uncertainty. 00:03:30 Speaker 5: It is very common in life, and it's always in the markets. There's an old adage that the markets don't like uncertainty. They love uncertainty. The traders have an opportunity to go after the next vanity plate, for the next new trophy automobile, and for intermediate to long term investors look for babies that get thrown out with the bathwater. 00:03:50 Speaker 3: Do you see this as a twenty twenty six story? 00:03:52 Speaker 6: Is this really more of a twenty twenty seven, twenty twenty eight story. 00:03:55 Speaker 5: I think it's genuinely twenty twenty six story. I think we have to see how twenty twenty seven develops going forward, because the changes today happen so much more quickly than ever before. As you know, I always say when I come on the show, I've been in this business for forty three years, so I've been every boom, bust and recovery cycle since nineteen eighty three. And the markets today because of the news flow and the accessibility of newsflow on organizations like like Bloomberg. As a result of that, the markets discount both bad news and good news very quickly. And it's a remarkable thing. It's actually a benefit to the markets. As I said, keeps everybody honest. You get shaken up every so often and you realize trees don't row to the sky. It's like, you know, you don't feel like, I'm not going to mention some of the people from the other busts in the past. 00:04:44 Speaker 4: They don't want to fight with people from the past. Some of them are in their graves. 00:04:48 Speaker 5: But the point is, the reality is this is a different world today. You have to look at structure and the structure of everything has changed via social media chnology that's utilized in business for pleasure, leisure, what have you. 00:05:04 Speaker 4: And it's a dramatic change. 00:05:06 Speaker 5: But you know, there's a whole generation that believes that we never had payphones or we never had rotary dials on telephones. 00:05:13 Speaker 6: So if you're concerned, though, are a little bit concerned with the AI trade, how are you had you against this? 00:05:18 Speaker 5: Well, I'm what I'm doing is, for instance, we have a dividend opportunity portfolio that I'm the manager of and I can't tell you what we own in it, but I can't give you this idea. 00:05:27 Speaker 4: We barbel it. 00:05:28 Speaker 5: So we have tech, we have we also have telephone companies, you know, we have utility companies, and it's all eleven sectors. It's diversified, and it has an ability so far over the nine years that it's been in existence to weather significant volatility and bounces very well, like a healthy count bounces, not like a dead count bounce. 00:05:51 Speaker 1: Do you think that the rotation that we've been seeing with the equal weight in the Russell two thousand our performing can continue? Do you think it has to keep performing in order to reach some of your targets. 00:06:02 Speaker 5: No, you know, I think I don't think it's the end for large caps. I just think and I don't think it's either the end for this run that we've seen in small caps. 00:06:11 Speaker 4: I think there's room on. 00:06:12 Speaker 5: The stage for large mids and smalls. We believe you have to be selective. You've got to look out for the junk, look out for the value traps. We like growth her value and GARB growth, which is growth at a reasonable price. 00:06:26 Speaker 4: So in technology, for instance. 00:06:28 Speaker 5: We don't necessarily we own some of the names you think of right away intact, but we own other names that most people don't think of that support those names. 00:06:36 Speaker 1: You've been in the business for more than forty years, as you were saying, can you characterize this moment to give us a sense of how different it is, I mean, or how similar it is to previous cycles of booms and bus just in terms of sentiment and in terms of novelty that a lot of people feel. 00:06:51 Speaker 5: Great question, it's I think markets are often considered to be mostly about fear and greed, and they're not. 00:06:59 Speaker 4: It's fear, greed and need genuine need. 00:07:02 Speaker 5: And today one of the things that structurally has changed the market so much is that the private investor, who for many years was treated with disregard by the institutions, today is in many ways more important than the institutions when it comes to the amount of direct investments and indirect investments that the private investor holds. It used to be when if you work for a wirehouse as they used to call them, they would tell you, if you find a qualified client, offer them five stocks for diversification, maybe a tax remunicipal bond or a mutual fund. Today, with the products that are available today and experience, that advisor can build a portfolio for an individual or for a family office that will rival major institutions, or that can rival major institutions. 00:07:49 Speaker 4: And they're investing seriously. It's not for cocktail party chatter. 00:07:53 Speaker 5: When the private investor used to come in usually once the market was up fifteen or twenty percent. 00:07:59 Speaker 4: They'd rise it up. 00:07:59 Speaker 5: They'd ride the last five or ten percent, then get disappointed. 00:08:03 Speaker 4: Today they come in much earlier and they stay. 00:08:06 Speaker 5: They recognize that studies that have said that it's more important to be in the market, that time in the market is more important than time in the market. 00:08:17 Speaker 4: For intermediate to longer term investors. 00:08:19 Speaker 5: And they're investing because social security will likely not be anywhere near what it was for the prior generations. And lastly on this is the other part of this is you'd no longer have defined benefit retirement plans for for most companies, so people need to make investment in decisions that are serious. 00:08:39 Speaker 2: Stay with US multilintex Savanta's coming up off to this. 00:08:51 Speaker 1: The US jocks on the verge of completing their best quarter in six years. Tech, however, on track for its worst months since March of twenty twenty five. Dan ives of what Bush writing tech talks have way over sold in June. They ultimately represent major buying opportunities as these bearish narratives have overshadowed the future massive growth prospects. Dan joins us now, and of course we're talking about tech. We're talking about hyperscalers in particular, which have been the huge losers until yesterday, where you actually saw a little bit of a turnaround. Why do you reject the notion that people are pushing back against the spending plans of some of these techno humus. 00:09:25 Speaker 7: Look, the hyperscalers is seven hundred billion. I mean, that's what's funding the AI revolution. I mean when you think about memory chip, synd Vidia to everything else. But that's just the first phase. Because what the hyperscalers are doing is this is the buildout. It's Vegas strip building in nineteen fifty five. But ultimately the monization now is going to come. I mean, when you look at Meta, they're not just spending to spend. You look at Microsoft, they essentially own the enterprise alphabet. Five percent of their customers have gone to the AI path. Same thing with Amazon. So my whole point is you've had this tech route having right now penalty box. Essentially, I think it's significantly outperformed second half of the year and I think earning season as we've seen in July, and this huge validation movement for big tech. 00:10:11 Speaker 1: So the biggest trip maybe is a decent analogy on the just actuality of it, not in the scale. I mean, we're talking JP Morgan expecting five and a half trillion dollars to spend on CAPEC spend for AI heading out to twenty thirty. We're talking about massive numbers that are accelerating, not decelerating, and capacity constrained companies, right, I mean, some of these companies have said, we can't give you all the compute you're looking for. So how do you see them monetizing without raising prices enough to really trickle into the cost of what everybody is spending on an everyday basis. 00:10:42 Speaker 7: Yeah, Well, first of every dollar is spent on let's say in n video chip, there's an eight to ten dollars multiplier. 00:10:48 Speaker 4: Across the rest of tech. So that's extremely important. 00:10:51 Speaker 3: In terms of what you see in terms of youtail some of the single. 00:10:53 Speaker 7: Stock moves just to broadening out what we're seeing in terms of tech, and you could argue for names a caterpillar another, but when it comes cyber scalers, look, it's an arms race. That's why the questions that can they actually cut cat backs? 00:11:06 Speaker 4: They can't. In there was like you're. 00:11:08 Speaker 7: Diving to the deep end of the pool because if they cut back, then they go behind others in line that will clearly go ahead of them and Thropic open AI. Ultimately as they go public, they'll just have more and more cash. And I think that's the reality right now. And to those the bearers will be like, oh, it's spending to nowhere, It's the opposite. I mean, you're essentially building on new economy for consumers, enterprises and for the first time in thirty years, the US is headed China when it comes to attack. 00:11:38 Speaker 3: But what about demand destruction? 00:11:40 Speaker 6: Does that happen, especially when seeing something like Apple come out and across the entire suite having to raise prices. 00:11:45 Speaker 7: Sure, Look, I mean there's gonna be negative. It's just like we see a memory because there's a women amount of memory tip players, you. 00:11:52 Speaker 3: Can just there is a breaking point though. 00:11:54 Speaker 4: There is a breaking point to a point where. 00:11:57 Speaker 7: Okay, if you continue at these eventually there's cannibalization. There's churn for Apple at these levels, one hundred bits of churn. Maybe when it comes to iPhone it'll be one hundred and fifty two hundred dollars price increase, but then there'll be substiteds from carriers and others. But look, now you actually you're seeing where it's called ram and getting or what we're seeing in terms of memory prices, that is going to have an impact, But I view it as it's paying a small tax on the broader ecosystem that's being built out by big tech. 00:12:33 Speaker 3: But if there is a. 00:12:33 Speaker 6: Little bit of a breaking point, when does it happen. 00:12:36 Speaker 7: Ooka, I think in the next six to nine months is where you need to see some sort of stabilization. When it comes to prices, you need to see scale, you need to see ultimately. But what we're seeing in terms on the token side where you need to see, like prices start to come down. Capacs will be about trillion dollars for big tech next year, but then the monsition starts, so essentially you start to actually now see demization piece, which is very important to just investors feeling like meta, they're not just spending like nineteen eighty is rock stars for no reason. 00:13:09 Speaker 1: There's one story that really caught my attention over the past couple of weeks. It's the idea of Microsoft shifting to Chinese large language models that are open source and that are cheaper. It's the idea of opening I pushing back their IPO and a question of how much open AI and how quickly the anthropics of the world can monetize given the cheaper competition overseas. How much do you see that as a pressure point that hasn't fully been realized or even actualized in terms of people's ideas. 00:13:38 Speaker 7: With my view, and I think you see with open AI anthropic, the models eventually will become commoditized and it's times to open AI inthropic. You'll have hundreds of models across the world, vertical specific. The value will be in the data how quickly that they can. 00:13:54 Speaker 4: Penetrate an enterprise. 00:13:56 Speaker 7: Microsoft in terms of the DELLA and the DELLA is scene around the corner, understanding like you have to ultimately diversify when it comes to miles and eventually it becomes. 00:14:04 Speaker 4: A global sort of game. 00:14:06 Speaker 7: But when it comes to Anthropic and open AI, they understand enterprise is golden goose. 00:14:11 Speaker 4: That's what they're going after. Now to some examp. 00:14:14 Speaker 7: Part of the reason that Microsoft that you see the stock to where it is because there's a view like okay, that becomes competitive. They had open AI, but now like where did they sit relative to enterprise? My view is on the enterprise, Microsoft will continue to be the ultimate winner. But it just shows it's a convergence. What's happening across the AI If. 00:14:34 Speaker 1: That's a commoditized resource, the large language models and it really is the data and the data providers are not open AI and anthropic, well, then what's the monetization prospect for some of these companies that potentially are going to IPO to a trillion dollars. 00:14:46 Speaker 7: Well, for them, it's all about I mean, if you look at anthropics growth, it's been unlike anything we've ever seen in terms of arr Now for open AI, it's now it's a bullseye on their back. They have to continue to monetize in the enterprise because enterprise, when you do all the data centers being built and all the memory and it's being built for what will be the use cases on enterprise, on the consumer software vendors, in my opinion, are the ones that it goes back to the second third the river, just like cybersecurity. So I think part of what I think investors, and I don't think it's reflecting they're selling the stocks, is like they're underestimating the scaling scope of what this is all going to look like. And I think we're just still We've talked about it. It's like party start nine pm, goes to four am, but to about eleven pm. 00:15:33 Speaker 6: Can you monetize a model that's currently restricted. 00:15:36 Speaker 7: No, And that's why when it comes to Anthropic, that's why they're playing they're starting to play nice. When it comes to government, you're seeing some sort of you know, compromise or at least some moving. 00:15:49 Speaker 4: Of the goalposts. 00:15:50 Speaker 7: And that's important because Anthropic right now, I mean, it's you're talking about the best model in the world you cannot beyond relative to what we see on the DoD in the Pentagon. That's why it's an important time for Dario and Anthropic to get some sort of compromise in when it comes to US government. 00:16:09 Speaker 2: Stay with us multile INPEX Savanna's coming up off to this. 00:16:21 Speaker 1: Crude heading for its biggest quarterly drop since twenty twenty. Morgan Stanley cutting its price forecast for the second time this year, as Amory was mentioning earlier warning of a potential glut. Morgans Stanley of course cutting its oil forecasts, looking now for seventy dollars at the end of twenty twenty seven. So it's not just a near term forecast to Amory, it's also longer term what we could potentially be seeing. 00:16:43 Speaker 6: I think the signal from the White House besn't really clear. We want to make sure that oil continues to flow. They didn't want to go into peak driving season with high prices on the consumer, and even with prices dropping across the United States, the President is still annoyed not dropping fast enough and actually going after per Truth Show. So last few days retail gasoline owners telling saying they're gouging and telling consumers that you report them and complain. 00:17:08 Speaker 1: Yeah, call President Trump with Joe from Senoko, Rebecca Baba and of a CIBC Private Wealth writing the market may be overestimating the pace of production recovery while underestimating a future inventory rebuilding demand Rebecca joins us. Now, Rebecca, you're one of the few who are holding onto this view that maybe oil prices aren't going to go up. 00:17:27 Speaker 3: How much pushback have you gotten recently? 00:17:29 Speaker 8: So I get a fair amount of pushback, But I would say this, you keep referencing the Morgan Stanley price cuts this morning, Guess what their targets are still above the strip where the strip is currently trading right now. So seventy dollars at the end of twenty seven is still above where the market has crude right now, which is closer to high sixties. So I think what's happening is some of the analysts that may maybe have overshot of where they thought crude would go. 00:17:53 Speaker 9: Are coming back to where the market is now. 00:17:56 Speaker 8: So in terms of the comment of what I'm making is essentially we are effectively pricing in all of this supply coming back to the market in a very even and measured way, and that demand, which has been impacted due to this conflict does not come back right So that's what's being priced right now, And to me, that's just a little bit overly optimistic on how quickly the supply is going to come back. We've already seen fits and starts here, and we did have a lot of Iranian crude sitting off the coast of China before the sanctions were waived, so that was immediate pressure on PROMPT right. And we've also had this spr release which has helped buffer this conflict. So we've had a lot of PROMPT supply and we're anticipating that this just carries forward in a very measured way, and that the demand drop that came out of China as they cut refinery runs and transitioned away from some of their more fossil fuel intensive petrochemical activities isn't going to rebound, And to me, that's just a little bit pessimistic. 00:18:59 Speaker 9: If you look at the head today. 00:19:01 Speaker 8: China has already said they're going to roll back some of their product export bands immediately. That is going to pull forward a little bit more crude demand. And I think that we're overestimating the downside, just as we had overestimated the upside at the height of the conflict. 00:19:17 Speaker 3: So where do you see prices ending the end of this year, Rebecca? 00:19:21 Speaker 8: So I think we can look at the end of the year and I can kind of see Brent Ti can see seventy five Ti eighty Brent, and I just think that again, we don't necessarily see this even distribution of flows resumed to eighty five. What I think is price is eighty five percent of flows resumed by the end of July is what's priced. I think that might get pushed out, and we don't necessarily see We are seeing this immediate reaction as ships have transited and Irani and sanctions have been waived. 00:19:52 Speaker 9: But if that gets pulled back, I. 00:19:55 Speaker 8: Don't think we see the acceleration of inventory builds that the market's anticipating. So I'm not drastically above the strip. I'm kind of looking seventy five eighty Brent, Ti. 00:20:05 Speaker 6: What do you make of the conventional wisdom that the next year we're going to potentially have another glut? 00:20:12 Speaker 9: So that is a really interesting question. 00:20:14 Speaker 8: I think twenty twenty seven is shaping up to be really challenging from a forecasting perspective. Right now, estimates have a surplus of about four million barrels a day for twenty twenty seven some and also are higher summer lower. 00:20:27 Speaker 9: But that's kind of the midpoint of the range there. 00:20:30 Speaker 8: That is going to be very indicative of how aggressively countries and decide to stockpile after this event. Right, if all of those four million barrels surplus is just kind of we don't need to rebuild inventories and it's just considered to be excess surplus in the market, we could see pressure in twenty twenty seven, and we could see the strip trend kind of closer to that seventy dollars level. 00:20:56 Speaker 9: In TI maybe sixty five. I tend to. 00:21:00 Speaker 8: Think, having read the headlines again this morning, that India says they're going to increase their strategic petroleum reserves, China has some rebuilding of stockpiles to do. India also wants to diversify away from Middle Eastern crude. I tend to think that's a scenario. We're anticipating this massive surplus, but what it's going to be as a rebuild in the market might not reflect quite as loose as that number kind of would headline number would it would say. So not thinking that we see this dramatic sixties fifties crude scenario next year, which I know some analysts are pointing to, I tend to think we hover around this kind of seventy seventy five level. 00:21:40 Speaker 6: What has thefact waivers done for this market? The fact of the matter is a running crude could flow freely at market price. 00:21:49 Speaker 8: This has been a huge factor, not just the o fact, but the fact that you can transact in dollars. I think has opened up a lot of Iranian crew to the market. Now, what I haven't seen is a tremendous amount of buying outside of China of Iranian crude. But what that does essentially is make Irani and crude available to places like India, which has significantly reduced their imports due to the sanctions, and makes it a more competitive barrel right in the market that can press other things lower. Typically, Irani and Crew traded at a huge discount because of those sanctions. It's now a free, floating market barrel, and that kind of just can. 00:22:29 Speaker 9: Press things lower. 00:22:30 Speaker 8: Now, this all assumes we're talking about a sixty day waiver here, so we don't know how that shakes out and if it'll get reimposed, but for now it's certainly the reason we're seeing the weakness in the prompt market, which I don't necessarily disagree with. I just when I look at the risk reward here, I think We've priced in a lot of a really optimistic scenario, and should that not play out, I think we have more upside than we do downside at current prices. 00:22:58 Speaker 2: This is the bloomberg S Evments podcast, bringing you the best in markets, economics, a gio politics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and as always, on the Bloomberg Terminal and the Bloomberg Business app.