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Speaker 3: There is still data creeping out before the Christmas holiday.
Speaker 1: Initial job list claims.
Speaker 3: Scarlett coming in at two hundred and fourteen thousand, right, and.
Speaker 4: That is lower than expected. The estimate was for two
Speaker 4: hundred and twenty four thousand, and on a four week basis,
Speaker 4: the four week moving average, it's about two hundred and
Speaker 4: sixteen thousand, which is slightly lower than the previous four
Speaker 4: week period. On a continuing claims basis, we're looking at
Speaker 4: one point nine in terms of the claims for overall,
Speaker 4: and that's compared with one point nine.
Speaker 1: To ZHO as the consensus.
Speaker 4: So these are you know, it's a high frequency data point.
Speaker 4: It's something that we look at more carefully because the
Speaker 4: jobs numbers have been messed up by the government shutdown.
Speaker 4: We haven't gotten a lot of clarity on it, and
Speaker 4: we probably won't get a lot of clarity on those
Speaker 4: jobs numbers for a couple of months to come, especially
Speaker 4: if there's another shutdown potentially in January.
Speaker 3: Absolutely, the distortion from the jobs up from the shutdown
Speaker 3: longest in history.
Speaker 5: What's interesting, though.
Speaker 3: Is the continuing claims that is ticking higher, even though
Speaker 3: we do have the initial claims.
Speaker 1: A little bit softer.
Speaker 3: But to Scarlett's point, these data points really do matter,
Speaker 3: given the fact that we are dealing with potentially this
Speaker 3: distorted data right now. Financial markets though not seeing really
Speaker 3: any action, low volume today. It is Christmas, so potentially
Speaker 3: some individuals not really paying attention to their ecoscreen.
Speaker 1: Joining us now though, discuss more.
Speaker 3: Stephanie Roth of Wolf Research and Bloomberg's Michael Ball, thank
Speaker 3: you both for joining us being in studio. Merry Christmas
Speaker 3: to both of you. Let's just get your reaction, Stephanie.
Speaker 3: From the initial claims.
Speaker 5: Number, it's the data looks solid. It's telling us the
Speaker 5: labor market remains fairly, fairly well contained. The layoffs are
Speaker 5: pretty minimal. There was a bounce back in continuing claims.
Speaker 5: We have to remember that there was volatility around the
Speaker 5: Thanksgiving holiday. The trend seems like in Continuing claims is
Speaker 5: it's actually starting to take down over the past couple
Speaker 5: of weeks, which is a positive sign. Continuing claims are
Speaker 5: important to watch to gauge to what extent people who
Speaker 5: are currently unemployed are finding jobs the job finding rate.
Speaker 3: When you look at this data and compare it to
Speaker 3: what we saw in the latest job support with the inflicate,
Speaker 3: with the unemployment rate actually taking higher, though, what do
Speaker 3: you make of all of it? Or is it just
Speaker 3: too noisy?
Speaker 5: I wouldn't read into the unapployment rate ticking up in
Speaker 5: the last most recent print. I think there was an
Speaker 5: amount of the government shutdown that filtered into the data.
Speaker 5: BLS said that there was an impact from the government shutdown.
Speaker 5: They can't con necessarily quantify exactly how much. I firmly
Speaker 5: believe that in the next December print we will see
Speaker 5: that unployment rate taking down to potentially four to four,
Speaker 5: if not at least four or five.
Speaker 1: Michael, what do you make of this.
Speaker 6: Yeah, the timing was different too, right, So the re
Speaker 6: entries from sort of the college kids coming home had
Speaker 6: a factor. There's this sort of weirder feel to it
Speaker 6: that made it very questionable, again with every other data
Speaker 6: set we've seen from sort of the shutdown. So again
Speaker 6: traders are looking through it, waiting for January to get
Speaker 6: the December data with the hope it's cleaner. But to
Speaker 6: what you just said, uncertain if we will get that
Speaker 6: if there is a shutdown. The lots lots of questions,
Speaker 6: not a lot of answers.
Speaker 1: We've borne there before.
Speaker 4: So, Michael, given all of this, the fact that the
Speaker 4: labor data is going to be not corrupted but incomplete
Speaker 4: for a while, do you then look at the market
Speaker 4: focusing more on things like the weekly joblest claims, which
Speaker 4: didn't really get as affected by the garment shutdown because
Speaker 4: these are state compile numbers.
Speaker 6: Yeah, I think the continuing claims interesting. You did see
Speaker 6: some of that picked up in other survey data. And
Speaker 6: also what I'm looking at a lot is now is beagebook.
Speaker 6: The trending there has been much weaker. You have obviously
Speaker 6: three points growth inflation and the labor market there where
Speaker 6: you can kind of extract a trend, and all of
Speaker 6: it's been sort of negative, including the inflation, which is
Speaker 6: seemed to be stabilized, moved sort of from the forefront
Speaker 6: of the summer now to something secondary and instead now
Speaker 6: guys are talking about lower sales, lower activity, lower investment,
Speaker 6: and we saw some of that a little bit in
Speaker 6: the third quarter GDP, where the investment side was much
Speaker 6: kind of flatter than you would expect. Now there was
Speaker 6: an inventory drag clearly, and most of the power came
Speaker 6: from consumption. But my worry is if we moved past
Speaker 6: the AI pulse, the investment cap X story is much
Speaker 6: weaker and some of the pmis are reflecting that now.
Speaker 4: So for those who don't know, the base will compiles
Speaker 4: anecdotal evidence of what different FED regency taking place in
Speaker 4: their district. Is that based on activity or is it
Speaker 4: based on sentiment? Because we know the soft surveys tend
Speaker 4: to show consumers feeling worried, but in the end they
Speaker 4: end up spending anyway one hundred.
Speaker 6: Percent and sentiment based for sure. They obviously are you
Speaker 6: talking about real activity? And the FED presidents and some
Speaker 6: of the governors like to say they talked to contacts
Speaker 6: in their districts or contacts out there, and this is
Speaker 6: what they're referring to in a lot of ways. But
Speaker 6: to your point to shut down weight on sentiment, we
Speaker 6: obviously have seen consumer confidence hasn't really bounded yet. Business
Speaker 6: sentiment has been moddeling through. If you look at some
Speaker 6: of the regional Fed pmis, it can be quite funny
Speaker 6: when you look at the comments and how frustrated are
Speaker 6: with tariffs and with shutdowns, and.
Speaker 4: Of course it's not there just the jobs data that
Speaker 4: is left kind of incomplete Stuffhan we also see inflation,
Speaker 4: and the latest inflation report was a good example of
Speaker 4: that where we're not getting the full picture, and it
Speaker 4: looks like we're not going to get the full picture
Speaker 4: for a while.
Speaker 5: No, what we're going to see is the inflation data
Speaker 5: is likely to tick higher in the next couple months
Speaker 5: and up until April when we get the bounce back
Speaker 5: in terms of rent inflation, given some assumptions that BLS made.
Speaker 5: So what we'll probably see is an environment where inflation
Speaker 5: is picking higher. And I would actually take the other
Speaker 5: side on the growth from a growth perspective, and our
Speaker 5: expectation is that growth is going to start picking up.
Speaker 5: It's ready. It seems to be inflecting to some extent.
Speaker 5: The Q three GDP data, we're actually pretty decent, and
Speaker 5: my expectation is in Q one the narrative around the
Speaker 5: economy will be somewhat the opposite of what we've seen
Speaker 5: in the past couple months, where it's inflation is a
Speaker 5: little bit elevated and growth is also picking up.
Speaker 3: When it comes to growth, we have the GDP report
Speaker 3: for the third quarter rear view mirror, but more than
Speaker 3: four percent absolutely stellar. Know, the Commerce Secretary thinks that
Speaker 3: means we're all getting a four point.
Speaker 1: Three percent raise. If it were, that wouldn't be great.
Speaker 1: You know, our management.
Speaker 3: If you're watching the Commerce Secretary says, says, that's what
Speaker 3: it is. But when you see that kind of growth,
Speaker 3: do you think that's sustainable into twenty twenty six.
Speaker 5: No, And first of all, four point three percent real
Speaker 5: GDP growth does not mean nominal wages. That's a different concept.
Speaker 5: But putting that aside, you get up.
Speaker 1: With the Commerce Secretary Stephanie.
Speaker 5: Putting that aside. Is it sustainable?
Speaker 7: No?
Speaker 5: Because some of it was linked to net trade, which
Speaker 5: is which added one point six percentage points. What we're
Speaker 5: seeing is an economy that's running between two or two
Speaker 5: and a half percent. Our expectation as will be running
Speaker 5: around that trajectory for twenty twenty six. A four percent
Speaker 5: pace absolutely not sustainable, nor is that really the underlying
Speaker 5: trend anyway.
Speaker 3: And it got the attention of the President. He said,
Speaker 3: the financial news today was great. GDP is at more
Speaker 3: than four percent as opposed to a predicted but the
Speaker 3: modern market we have good news. The market stays evenor
Speaker 3: goes down because Wall Street's heads are wired differently. He says,
Speaker 3: no one that agrees with him cannot become the FED chair.
Speaker 3: What does the FED do with this kind of mixed
Speaker 3: match you're really describing.
Speaker 5: I think they're going to be on hold for a
Speaker 5: lot of next year, at least until we get the
Speaker 5: new chair. This is probably this was probably Powell's last cut.
Speaker 5: It's an environment where inflation is taking higher, like I said,
Speaker 5: employment's likely to start improving, so on point right, like
Speaker 5: we talked about earlier, taking down, and then the trend
Speaker 5: in perils is likely to be a bit better, in
Speaker 5: which case it's a tough environment for them to be cutting.
Speaker 5: So the President may very well not like what he's
Speaker 5: seeing in the first part of the year because the
Speaker 5: Fed's unlikely to be havel to these policy.
Speaker 4: Launch unless the data shows that the labor market is
Speaker 4: deteriorating so quickly bad headline numbers leading to a good
Speaker 4: market outcome. The President has made clear he doesn't like that.
Speaker 4: But will you just take it.
Speaker 1: In the end?
Speaker 6: Yeah, I mean, we'd have to have quite a print
Speaker 6: in January for the December data to make it just
Speaker 6: right so that they would move. And to your point,
Speaker 6: then it's no longer risk management cuts. The market takes
Speaker 6: it totally different. You're cutting now into weakness, and that's
Speaker 6: a totally different vibe to talk about. Lisa likes to
Speaker 6: talk about with the vibes. I knows she's not here today, right.
Speaker 6: That changes the whole vibe, right. The rotation, the reacceleration,
Speaker 6: And I understand what you're saying that basically there is
Speaker 6: this hope that the budget bill and that basically the
Speaker 6: coming up passing of the uncertainty from the shutdown from
Speaker 6: the tariffs will all have a better sort of pulse
Speaker 6: into the first half of next year. And that's why
Speaker 6: we see this rotation trade small cap cycle close even
Speaker 6: pockets of value have outperformed, but overall, again the worry
Speaker 6: is that now the FED further easing is not based
Speaker 6: on sort of that good vibe, It's just based on
Speaker 6: warriors and weakness, and then people have to change the sentiment.
Speaker 4: Sophie, what is your biggest concern? What is the most
Speaker 4: high impact but low probability event that could happen.
Speaker 5: In twenty twenty six? I would say, if we're wrong
Speaker 5: on the land market right, and we see the unemployment
Speaker 5: rate notably taking higher, that would of course be a
Speaker 5: sort of negative batchup. Granted, the FED in that environment,
Speaker 5: in theory, would be able to ease unless we get
Speaker 5: inflations starting to take higher, none of you. But if
Speaker 5: we have an environment where you see both sides of
Speaker 5: the FEDS made, they come into challenge and the inflation
Speaker 5: side is starting to really pick up, which is very
Speaker 5: possible in Q one in particular because Q one tends
Speaker 5: to have seasonal problems, that would be kind of the
Speaker 5: worst environment.
Speaker 1: Of course for both of you. Is there potential for
Speaker 1: recession in twenty twenty six, I.
Speaker 5: Don't think the odds are particularly high. I don't think
Speaker 5: they're particularly higher than the normal recessionary on somewhere between
Speaker 5: fifteen and twenty percent. Of course, the odds are never zero,
Speaker 5: but I don't think it's abnormally high at this factor.
Speaker 3: I guess the question I have, just you know, percolating
Speaker 3: the back of my mind is what does it mean
Speaker 3: if the AI trade.
Speaker 1: Is real and we actually see mass layoffs, that's.
Speaker 5: Not necessarily a recessionary back of course, it depends on
Speaker 5: how it all plays out. If we see an environment
Speaker 5: where the unemployt rate is just steadily moving slightly higher
Speaker 5: because you have AI, then you have strong growth, productivity,
Speaker 5: low inflation, that's not necessarily the worst backdop. If it's
Speaker 5: mass layoffs, then they come quite quickly. Of course that's
Speaker 5: a very different environment. But I think I think the
Speaker 5: way it might play out if it's really AI related
Speaker 5: is a more gradual upward pressure on the unemployment rate,
Speaker 5: which is not recessionary.
Speaker 6: Michael, Yeah, I think you did a shock, something unforseeable
Speaker 6: in a lot of ways to get us there, given
Speaker 6: the momentum is still strong. Again what I was saying earlier,
Speaker 6: I'm worried about this capex pulse. Outside of AI. The
Speaker 6: no higher no fire seems to be holding and as
Speaker 6: we're seeing now, although December look to have cool, the
Speaker 6: consumer has been resilient. Clearly it was in third quarter.
Speaker 6: We'll see what happens in the fourth. And that's all
Speaker 6: driving us into the new year with some good momentum.
Speaker 6: But to the point you know, there is still a
Speaker 6: veil concern with price levels, not necessarily the acceleration of prices,
Speaker 6: but the actual level still weighing on real disposable income
Speaker 6: and hurting the K economy, creating the K economy and
Speaker 6: hurting the lower half.
Speaker 4: The dollar is projected to be lower in twenty twenty
Speaker 4: six as well, and of course we see central banks
Speaker 4: around the rest of the world, in the UK, Europe
Speaker 4: cutting interest rates.
Speaker 1: Talk a little bit about how the dollar factors into
Speaker 1: all of this.
Speaker 6: Yeah, the dollar is the big debate, and I think
Speaker 6: it's interesting because you can spin a number of ways.
Speaker 6: If we do reaccelerate and they are less fed cuts
Speaker 6: for good reasons, one would think that just rate differentials
Speaker 6: alone would support the dollar broadly. Now, of course, there's
Speaker 6: all these idiosyncratic stories with the euro, with the yen
Speaker 6: and even elsewhere on the other g tens that make
Speaker 6: it hard to really look at the basket and say, Okay,
Speaker 6: we're going to have one move in the basket, but overall,
Speaker 6: I think it's just going to be more of an
Speaker 6: alpha from individual crosses and on the end Live team.
Speaker 7: We've been having this debate.
Speaker 1: Quite vigorously lately, Stephanie.
Speaker 4: It's the day before Christmas, It's Christmas Eve, so of
Speaker 4: course there's going to be a lot of people out
Speaker 4: there doing some last minute shopping. Consumer spending, retail sales
Speaker 4: will continue to hold up for December.
Speaker 5: Yeah, I think it should be pretty decent. If you
Speaker 5: look at the real time data, they look fairly steady.
Speaker 5: It seems that the consumer just continues to be fairly resilient.
Speaker 5: And then in twenty twenty six, at the beginning of
Speaker 5: the years, when you're going to start to get the
Speaker 5: impact from one big beautiful bill which then benefits from
Speaker 5: the lower end consumers from no tax on text, no
Speaker 5: tax in overtime via tax refunds that come.
Speaker 3: In, and potentially two thousand dollars checks presents voting tariff
Speaker 3: dividend checks.
Speaker 5: Let's see know about that.
Speaker 1: Let's see what Congress has to say about.
Speaker 3: Stephanie Roth of Wolf Research and my Bloomberg's Michael Ball,
Speaker 3: thank you both for coming and joining us in studio,
Speaker 3: spending your Christmas Eve morning with us.
Speaker 2: Stay with us, Multlmberg Savillah's coming up after this.
Speaker 3: Cameron Dawson of New Edge welth saying equities are undeniably
Speaker 3: expensive and there are signs of complacency, but this market
Speaker 3: can chop to new highs.
Speaker 1: Cameron joins us.
Speaker 3: Now, Cameron, give us a sense of what new highs,
Speaker 3: and merry Christmas to you what new highs we can
Speaker 3: have when it comes to equity markets next year.
Speaker 8: Wecome morning and Merry Christmas.
Speaker 9: I think it's time to dust off the old a dodge,
Speaker 9: which is respect the trend, but don't ignore the risks
Speaker 9: as we go into twenty twenty six.
Speaker 8: Respecting the trend appreciates the fact that.
Speaker 9: We're still very much in an uptrend in this market,
Speaker 9: and it's also being led by pro cyclical areas. You
Speaker 9: mentioned industrial commodities earlier. You also have leadership in things
Speaker 9: like banks as well as transport starting to turn higher.
Speaker 9: So there's a pro cyclical message coming out of this market.
Speaker 9: And you also have a very important uptrend in earning sestiments.
Speaker 8: And GDP estimates.
Speaker 9: And this has been the key fundamental underpinning as to
Speaker 9: why we keep being able to press new highs. As
Speaker 9: long as you're revising estimates higher, that's usually a good
Speaker 9: environment for risk taking. So the second half of that
Speaker 9: is don't ignore the risks, and that's where we look
Speaker 9: at things like valuations. We look at signs of things
Speaker 9: like complacency within markets, look at the vix turning ever
Speaker 9: lower each and every day, and so it could be
Speaker 9: in an environment where we're still able to carve out
Speaker 9: new highs because of those earning sestiments, but there could
Speaker 9: be some volatility and chop along the way simply because
Speaker 9: you have a high bar with valuations and a high
Speaker 9: bar with expectations as well.
Speaker 3: But you still think positioning is not yet stretched.
Speaker 1: What would get us to our point.
Speaker 9: Our favorite measure is looking at the Deutsche Bank consolidated
Speaker 9: equity positioning, and this is really measuring institutional positioning.
Speaker 8: And what's fascinating there.
Speaker 9: Is that we're in the sixty second percent hime, which
Speaker 9: is just about slightly overweight. But if you look at
Speaker 9: discretionary investors, there's still just neutral, and so we think
Speaker 9: that there's still room for more people to get dragged
Speaker 9: into this market. But if we're talking about positioning, we
Speaker 9: also have to mention households as well, and that's where
Speaker 9: you cannot make the argument that people are underweight equities.
Speaker 9: You can look at the AAII survey that looks at
Speaker 9: equity positioning that's at the highest level it's been since
Speaker 9: peaks like twenty eighteen and twenty twenty two. We've talked
Speaker 9: a lot about how margin loans have grown extraordinarily over
Speaker 9: the last six months at about a forty percent clip.
Speaker 9: So there are certainly signs that households are very fully invested, but.
Speaker 8: Some institutional investors have still.
Speaker 9: Sat on the sidelines, which just is likely why over
Speaker 9: the last six months or so every dip has gotten
Speaker 9: bought so rather quickly.
Speaker 4: Yeah, talk a little bit more about that money that's
Speaker 4: sitting on the sidelines, so a dry powder, if you will.
Speaker 4: We've talked a lot in the past about money market
Speaker 4: funds and how there's more than seven trillion dollars of
Speaker 4: money just sitting there waiting to be deployed. Maybe retail
Speaker 4: investors are fully invested, but that doesn't take away from
Speaker 4: the fact that there's always that possibility they could put
Speaker 4: more into the market.
Speaker 1: How are you thinking.
Speaker 4: About what would what it would take to get that
Speaker 4: money to be put to work.
Speaker 9: Yeah, we've never considered the money market funds as exactly
Speaker 9: fungible funds that could go into equities, meaning that these
Speaker 9: were savings and cash balances. They were typically held in
Speaker 9: cash savings accounts versus just things that were anxious and
Speaker 9: waiting to go into equities. So maybe at the margin,
Speaker 9: as you see those money market funds start to fall,
Speaker 9: it does incentivize people to look for other investments, but
Speaker 9: it's not necessarily a direct line straight into the equity market.
Speaker 9: So certainly money market rates falling could push investors into
Speaker 9: looking into other areas instead of just sitting on the
Speaker 9: sidelines and clipping coupons, but not necessarily seven trillion dollars
Speaker 9: of a wall of money that will go into equities.
Speaker 4: So the centrally that we have right now, how much
Speaker 4: of it is driven by technical factors like positioning versus
Speaker 4: true fundamentals, earnings growth, and the earnings outlook for twenty
Speaker 4: twenty six.
Speaker 9: Yeah, this time of year, we try not to read
Speaker 9: too much into the price action given volumes being so
Speaker 9: very light, and we do know that there tends to
Speaker 9: be some kind of window dress in dressing and positioning
Speaker 9: chases into year end. And what's really fascinating is that
Speaker 9: we saw the rotation and leadership start a little early
Speaker 9: this year. Typically we see leadership rotations where you have
Speaker 9: your classic dogs of the Dow or the last Shelby
Speaker 9: First trade that kicks off in January as people start
Speaker 9: to rebalance portfolios in a new tax year. But it
Speaker 9: seemed to start in November this year, where we saw
Speaker 9: value for example, outperform growth by five percent since November first,
Speaker 9: So maybe people are trying to get a little bit
Speaker 9: ahead of that. But at the end of the day,
Speaker 9: we try not to read too much into very end
Speaker 9: of year kind of race action simply because it doesn't
Speaker 9: reflect anything more than likely just positioning chasing.
Speaker 3: Kemer when it comes to the commodity space, if you
Speaker 3: look at what happened this year across the entire spectrum gold, silver, platinum, copper,
Speaker 3: do you look at that and you think you have
Speaker 3: to maintain part of this into twenty twenty six or
Speaker 3: do you think individuals should make sure that commodities are
Speaker 3: part of their portfolio.
Speaker 9: Yeah, we see commodities as a way to have an
Speaker 9: inflation hedge within portfolios, and they work really well when
Speaker 9: they work well, and they don't work so well a
Speaker 9: good portion of the time. So certainly we've been in
Speaker 9: an environment where that has been a very powerful uptrend
Speaker 9: for a lot of these commodities.
Speaker 8: I think the question is how much can it continue?
Speaker 9: Jeff to graph of renaissance Macro put out a great
Speaker 9: piece effectively saying, hey, when you've doubled your return in
Speaker 9: less than two years, the probability of you doing it
Speaker 9: again is extraordinarily low. So it gets back to this
Speaker 9: kind of overall notion of respect uptrends and not ignoring risks.
Speaker 9: Gold isn't a very powerful uptrend. We've been calling it
Speaker 9: the Chuck Norris of commodities. Nothing seems to be able
Speaker 9: to keep it down. It doesn't even touch its fifty
Speaker 9: day moving average. But if you look at longer term charts,
Speaker 9: it is extraordinarily overbought. So it wouldn't be surprising to
Speaker 9: see some kind of consolidation. But we do know that
Speaker 9: there still remains very powerful drivers, for example, central bank
Speaker 9: buying of gold, but also appreciate it has become somewhat memified,
Speaker 9: meaning that it has become effectively a momentum stock. You're
Speaker 9: seeing a lot of training and retail investors as well
Speaker 9: as investors overseas, So it could get a little bit
Speaker 9: over its skis and consolidate, but the uptrend is still
Speaker 9: very much there.
Speaker 1: Stay with us. Mulblomberg Savannah's coming.
Speaker 7: Up after this.
Speaker 1: Here's the latest a federal drug rule.
Speaker 3: The Trump administration can move forward with one hundred thousand
Speaker 3: dollars feet on new H one visa applications. Joining US
Speaker 3: now is Terry Hayes of Pangea Policy. Terry, I got
Speaker 3: to ask you, what do you make of this? Because
Speaker 3: tech CEOs have been going to the White House, and
Speaker 3: I imagine this has been part of the discussion as well.
Speaker 3: They want to make sure that they could still get
Speaker 3: the best in the brightest workers into the United States.
Speaker 10: Oh sure, Marry, Christmas mean Marie, and to you and
Speaker 10: de Scarlett first and most importantly, Yeah, they go to
Speaker 10: their White House and they talk about these things. But
Speaker 10: you know, the tech CEOs have a long list and
Speaker 10: we all know what they are. And the question is
Speaker 10: whether or not H one b's are at the very
Speaker 10: top of that list, And the answer is almost certainly
Speaker 10: they're not compared to AI and anti trust and competition
Speaker 10: and a variety of other things. So yeah, they are
Speaker 10: very important, but you know what you played with the
Speaker 10: lun there on the bumper has been very consistently the
Speaker 10: administration's policy that what it wants to do is not just,
Speaker 10: you know, not just keep those jobs here, but to
Speaker 10: train people up in the United States so that there's
Speaker 10: greater reliance on a United States workforce and frankly greater
Speaker 10: greater ability of that workforce to deal with the twenty
Speaker 10: first century tech challenges in AI and elsewhere. So this
Speaker 10: is not just a matter of the administration flexing its
Speaker 10: own power.
Speaker 7: It's got a policy point by.
Speaker 3: The President in twenty twenty four was on the All
Speaker 3: In podcast and he said that what he wants to
Speaker 3: do is that if you graduate from a college, I
Speaker 3: think you should get automatically as part of your diploma,
Speaker 3: a green card be able to stay in this country.
Speaker 3: That includes junior colleges too. What happened to that idea, I.
Speaker 10: Think it probably got I think they want an idea
Speaker 10: like that, But I think what ends up happening here
Speaker 10: is that it becomes less important when against the broader
Speaker 10: push on H one B's terry.
Speaker 1: Is this issue resolved?
Speaker 4: I mean, I know the US Chamber of Commerce was
Speaker 4: the one that initiated the lawsuit in October, and we
Speaker 4: know that following this ruling, the Chamber of Commerce can
Speaker 4: certainly appeal the ruling. But in their mind, is this
Speaker 4: something that's pretty much a done deal? And you know
Speaker 4: the organizations they represent can kind of move forward.
Speaker 7: Oh, I imagine they'll appeal at Scarlett. You know, there's.
Speaker 10: The thing that markets need to understand is that there
Speaker 10: are six hundred and seventy seven United States District Court judges.
Speaker 10: You know, there's always a district court judge making a
Speaker 10: ruling on something.
Speaker 7: There are two appeal levels above that.
Speaker 10: I have every confidence the Chamber of Commerce will continue
Speaker 10: to appeal. You know that said the arguments the Chamber
Speaker 10: and a lot of other folks may including the state
Speaker 10: of California and trying to overturn this policy, are telling
Speaker 10: all by itself. California, for example, said that, you know,
Speaker 10: one of the two of the reasons that was pushing
Speaker 10: back against the administration was because of the negative implications
Speaker 10: it would have for education and healthcare. Now, if you
Speaker 10: think brought more broadly about the kind of immigration policies
Speaker 10: that say Gavin Newsom is interested in. You know that
Speaker 10: the politicization of that becomes obvious.
Speaker 4: Well, speaking of decisions that were awaiting, of course, a
Speaker 4: Supreme Court is scheduled at some point in the New
Speaker 4: York to come out with its ruling on Trump's tariffs,
Speaker 4: those reciprocal tariffs. What's priced in right now? What is
Speaker 4: kind of the base case here? It seems as if,
Speaker 4: given the arguments that have been heard and the responses
Speaker 4: we've gotten from justices, it is that the Supreme Court
Speaker 4: will roll with those back.
Speaker 10: The base case is that is that the tariffs go away.
Speaker 10: I'm very much nonconsensus on this, as you might know.
Speaker 10: The for two reasons. One is that the court does
Speaker 10: not dispute the fundamental seriousness of the economic emergency. In
Speaker 10: other words, the court's not trying to evaluate whether or
Speaker 10: not there is an economic emergency or not. That actually
Speaker 10: wasn't even know there wasn't among the questions presented, wasn't
Speaker 10: discussed anything. Secondly, there are plenty of other tiff authorities
Speaker 10: that the president can use should this one be turned back. Thirdly,
Speaker 10: I think the court probably gives if there's an infirmity
Speaker 10: in the statute, the court probably gives.
Speaker 7: The Congress an opportunity.
Speaker 10: To correct it, and the Congress in fact will have
Speaker 10: that opportunity in what's now being called Big Beautiful Bill
Speaker 10: two dot oh Reconciliation Bill that I think comes up
Speaker 10: probably in the first quarter of calendar twenty six.
Speaker 7: So all this together means.
Speaker 10: That the wishing and hoping that there's going to be
Speaker 10: some massive tariff rollback and people are going to get
Speaker 10: a windfall is completely off base.
Speaker 1: Terry.
Speaker 3: When it comes to the GDP data yesterday, a lot
Speaker 3: of this is AI investment. Kevin Hassett, speaking to some
Speaker 3: reporters talking about the boom in AI, Trump in November
Speaker 3: says he loves AI, is not worried about it. How
Speaker 3: do you see this debate playing out in Washington, though,
Speaker 3: when you have individuals like Steve Bannon talking about constantly
Speaker 3: that AI might need layoffs by more Americans.
Speaker 10: The administration has made the decision that AI is the
Speaker 10: tail that wags the dog. I think that AI is
Speaker 10: the key to everything right or wrong. I think that's
Speaker 10: what they do. They talk The National Security strategy is
Speaker 10: very plain about that. The so called Genesis Mission or
Speaker 10: Genesis project that Trump announced is very plain about that.
Speaker 7: Even the.
Speaker 10: Defense Department's draft report on the Chinese military threat that
Speaker 10: came out earlier this week is very plain on that.
Speaker 10: So I think that's beyond debate, frankly within the administration,
Speaker 10: and I think that every policy that, every policy economic
Speaker 10: or otherwise that gets discussed, gets discussed and decided through
Speaker 10: the AI prism.
Speaker 3: I wonder what you make of the gallop pulling we
Speaker 3: had this week about Trump's approval rating, especially when it
Speaker 3: comes to the economy. Even among independents, his support has
Speaker 3: a low of twenty five percent. Americans are just not
Speaker 3: feeling everything the administration is touting. Do you think potentially
Speaker 3: going to the midterm election, they will make the same
Speaker 3: mistake the Biden administration.
Speaker 10: Made two points. One is that one is more obvious
Speaker 10: than the other. I think one is that the midterms
Speaker 10: are almost a year away, and in a situation where
Speaker 10: you've got ten percent or more of the House, which
Speaker 10: is really what's in play here, the tiny House majority,
Speaker 10: ten percent or more of the House seats are not
Speaker 10: only open, but we're not sure entirely who's going to
Speaker 10: be running for them. I think it's awfully premature to
Speaker 10: assume that the Democrats will sweep those. Secondly, I do
Speaker 10: not think the administration is going to make the same
Speaker 10: mistake that it did that the Biden administration did on
Speaker 10: assuming everybody understands.
Speaker 7: What they think and we'll conform to it.
Speaker 10: Finally, you know, I think people need to understand that
Speaker 10: the president is the most popular politician in America. By
Speaker 10: carry no water for Trump, by saying that, I will
Speaker 10: say that Trump's favorable unfavorable last week was minus nine
Speaker 10: compared to minus fourteen for Republicans, minus twenty three for
Speaker 10: Democrats overall, and that right track, wrong track since the
Speaker 10: twentieth of January has improved roughly by half. Last week
Speaker 10: it was sixteen and a half roughly, and January twentieth
Speaker 10: it was thirty two. They will attack the affordability problem strongly.
Speaker 10: They don't care about ideology. They'll attack it any way
Speaker 10: they can. That makes sense, and they've got a lot
Speaker 10: of time to do it.
Speaker 2: Stay with us. Mault Blomberg Surveillan's coming up after this.
Speaker 3: Stocks Little chains as a Santa Claus rally lift stocks
Speaker 3: to new all time highs. Michael o'rourk of Jones Trading,
Speaker 3: writing quote, we doubt most investors realize how expensive the
Speaker 3: S and P five hundred really is.
Speaker 1: There's no doubt in our mind. It is a bubble.
Speaker 3: There is strong fundamental business demand, but what matters is
Speaker 3: the price an investor pays for it. Michael joins us. Now, Michael,
Speaker 3: thank you so much for joining us. So you're bursting
Speaker 3: the bubble a little bit this morning. How should we
Speaker 3: think about going into next year?
Speaker 5: Now?
Speaker 11: I think, as we saw that GDP report, the economy
Speaker 11: is doing very well. Obviously AI is driving a lot
Speaker 11: of spending, but we have asset prices are very very
Speaker 11: much inflated. And you know that quote has to do
Speaker 11: with the top twenty marketcap names in the S and
Speaker 11: P five hundred are trading about forty times trailing earnings.
Speaker 11: And that's if you take out Tesla and twenty eight
Speaker 11: times forward earnings, so that you know, those are historically
Speaker 11: high valuations, historically high multiples. And it's funny you're just
Speaker 11: talking about the economy. I would say, you know, we
Speaker 11: talked about the K shaped economy. Uh, where the you know,
Speaker 11: the rich team to get richer and everyone else is
Speaker 11: left behind.
Speaker 7: It's the same thing in the stock market.
Speaker 11: You have these top twenty names driving the you know,
Speaker 11: the overall market, or obviously even that the maggate will
Speaker 11: drive the overall market. But a lot of stocks are
Speaker 11: being left behind on an evaluation basis. So there are
Speaker 11: many attractive names out there, but that's not where we
Speaker 11: are in the index level.
Speaker 3: But do you still want to remain that exposure to
Speaker 3: some of those high flyers, those twenty odd names.
Speaker 11: Now, I think, I think what's what we've seen in
Speaker 11: this market is a the crowding into those megacap names
Speaker 11: has led to crowding out of many other high quality.
Speaker 7: Blue chip names.
Speaker 11: So for example, in the pharmaceutical sector, with everybody chasing
Speaker 11: Lily because the zep bound, you know, and GLP drugs,
Speaker 11: a lot of large CAF former names have seen their
Speaker 11: multiples depressed pe multiples to single digits, and they're you know,
Speaker 11: they're paying somewhere between the three to you know, six
Speaker 11: seven percent dividend yield. So there are attractive areas in
Speaker 11: this market. I would rotate out of those dagger names
Speaker 11: and look, you know, down to the lower market caps,
Speaker 11: but still blue chip names out there in this market.
Speaker 4: Down to the lower market caps, would you go so
Speaker 4: far as to start bidding up the small caps? Every
Speaker 4: single time they look like they're gaining some momentum, they
Speaker 4: kind of lose steam and we start to see everyone
Speaker 4: rotate back into the big cap names because they can't
Speaker 4: get away from them.
Speaker 11: Well, so tho small caps are interesting because they're really,
Speaker 11: for the most part, an interest rate play or a
Speaker 11: FED rate cup play. So most of them momentum we
Speaker 11: see go into the Russell two thousand or the S
Speaker 11: and P six hundred has to do with, oh, we
Speaker 11: got a bad piece of economic out of the Fed's
Speaker 11: gonna lower rates or you know, inflation's coming in. I
Speaker 11: don't see they are more attractively valued. Of the six hundred,
Speaker 11: and the S and P fourgs are more attractively valued
Speaker 11: than it is in B five hundred on an index level.
Speaker 7: But you are in.
Speaker 11: A lot of cases just bouncing around with FED funds expectations, Whereas,
Speaker 11: like I said, there's a lot of blue chip companies
Speaker 11: out there, even in the consumer staples space where you're
Speaker 11: seeing the multiples come in, and they're names that I
Speaker 11: think you're getting out a discount that you can put
Speaker 11: await for a long time. Because everyone's crowding into the
Speaker 11: megicaps and chasing this AI trade.
Speaker 4: Yeah, you're talking about the bad news is good news dynamic,
Speaker 4: especially as it.
Speaker 1: Plays out for small caps.
Speaker 4: Michael, What do you worry about the most in twenty
Speaker 4: twenty six in terms of potential land minds? What is
Speaker 4: the single biggest risk out there?
Speaker 11: I think this AI trade. I do think of the bubble.
Speaker 11: I think there's massive speculation space. I think you're going
Speaker 11: to see some of these deals start to unwind or
Speaker 11: not come to fruition as far as funding rounds and
Speaker 11: things like that, and I think that's going to spook people.
Speaker 7: And you know, while the technology is phenomenal.
Speaker 11: I think what kind of got was lost by a
Speaker 11: lot of investors is the disruption is pretty easy, and
Speaker 11: we got our first go first.
Speaker 7: We shore cases that would deep seek early at the
Speaker 7: beginning of this year, but.
Speaker 11: Then last month when Google came out with Gemini three,
Speaker 11: people realized, oh wow, someone could do this better and
Speaker 11: they could do with cheaper chips. So I think that's
Speaker 11: a real risk to the you know, so much money
Speaker 11: chasing the AI trades start going to this new year, Michael.
Speaker 3: When you look at the third quarter GDP report AI
Speaker 3: investment and household consumption by obviously the higher income Americans.
Speaker 3: That's seventy percent of the growth. Those two components together
Speaker 3: what we saw on the third quarter of GDP. Obviously
Speaker 3: it's a rear view mirror, but that's where the money
Speaker 3: was spending.
Speaker 1: AI investment.
Speaker 3: So if you think that this is overdone, is it
Speaker 3: not just an issue for the stock market? Is this
Speaker 3: also a huge issue for the US economy, the real economy?
Speaker 11: Well, I would think it is because that's where the
Speaker 11: growth is, right, you know, like you said, we talked
Speaker 11: about this case shaped economy, and we have people.
Speaker 7: Worried about jobs.
Speaker 11: That labor market obviously has been under pressure since the summer,
Speaker 11: So if that slows down, it is an issue. I mean,
Speaker 11: I was looking at the contributions you know, to technologies
Speaker 11: and you know investment over the course of this year,
Speaker 11: and I think it totaled or equaled you know, the
Speaker 11: past several years.
Speaker 7: So it's been strong throughout the year, and the question is.
Speaker 11: Can you continue at the same pace and can it
Speaker 11: continue to do push this economy forward. Now that said,
Speaker 11: the present has announced a lot of initiatives to increase
Speaker 11: investment in this country, and so you know that appears
Speaker 11: to be coming through. So I do think we have
Speaker 11: to see that how it plays out in Q one
Speaker 11: Q two of next year, because right now it doesn't
Speaker 11: seem like the monum stopping. But again, even a slowdown
Speaker 11: will be you know a problem for stocks. Like what
Speaker 11: a lot of people forget is back in two thousand,
Speaker 11: when the Internet bubble pop you still had companies like
Speaker 11: Cisco Systems growing their revenues at fifty and sixty percent,
Speaker 11: you know, nine to twelve months after their stock peak.
Speaker 11: So there's still going to be fundamental growth out there.
Speaker 11: It's just at decelerations what's going to spook investors?
Speaker 4: Well speaking spooky investors, there were some concerns about the
Speaker 4: credit market. You had first brands Trinklor earlier this quarter,
Speaker 4: and of course the AI bubble feares are starting to
Speaker 4: show up as well. I look at Oracle bonds and
Speaker 4: Oracle credit default swaps. Do you see those bubble fears
Speaker 4: that you mentioned earlier showing up first in credit markets?
Speaker 4: And if that's the case, are we starting to see
Speaker 4: it already?
Speaker 7: Well?
Speaker 11: It is interesting, as you brought up. You know, we've
Speaker 11: seen that in the auto sector. So you've seen some
Speaker 11: weakness there. I mean, the tricky part of the credit space,
Speaker 11: the private credit space for the most part, is you really,
Speaker 11: you really don't know where the valuation, the true valuation is.
Speaker 11: We've seen some private credit funds list and they wind
Speaker 11: up listening at or in private real estate funds listing
Speaker 11: at seventy five percent of NAV or twenty five percent discount.
Speaker 11: So you know, there's more underlying weakness out there, but
Speaker 11: again it takes time to show up, you know, without
Speaker 11: real pricing, without transparent pricing and market pricing, it's hard
Speaker 11: to tell. But again, if if you know, if you
Speaker 11: have a private credit managers, you get a little more
Speaker 11: cautious out there and not writing the loans for these projects,
Speaker 11: or you're you know, or demanding tougher terms. Again, that
Speaker 11: becomes another potential headwind for the market or in the economy.
Speaker 4: Right right, I think about this sell size strategists and
Speaker 4: they're forecast for the market overall, and they are almost
Speaker 4: uniformly bullish. Michael about eleven percent gain for the S
Speaker 4: and P five hundred following three straight years of double
Speaker 4: digit growth. It feels like everyone's already priced in everything,
Speaker 4: which then leaves room for external shocks really damaging sentiment
Speaker 4: and therefore market pricing.
Speaker 11: Yeah, I mean when you look at when you look
Speaker 11: at the environment we're in, we have equity valuations are
Speaker 11: extremely rich, you know, whether you compare it to you know,
Speaker 11: the Russell two three thousands, two hundred and forty percent
Speaker 11: of GDP. If you take public and private stocks, I
Speaker 11: think they're about three hundred and twenty five or three
Speaker 11: hundred and thirty percent of GDP.
Speaker 7: These are record levels, right, you know.
Speaker 11: Bloomberd Intelligence came with the statistic that the largest two
Speaker 11: hundred private private companies are so their valuations increased by
Speaker 11: two trillion dollars. And then you have the entire crypto
Speaker 11: space out there, which is another three trillion dollars.
Speaker 7: So you have a lot of a lot of rich.
Speaker 11: Asset prices out there, and that will just make you
Speaker 11: more vulnerable, vulnerable to shocks should a bad piece of
Speaker 11: news come along.
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