WEBVTT - Single Best Idea with Tom Keene: Stuart Kaiser & Bryan Whalen

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>The single best idea, of course it would be after

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<v Speaker 2>the fact, but tune into the FED to Sides this afternoon,

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<v Speaker 2>which is a show we invented to just say let's

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<v Speaker 2>have good conversation around a FED meeting. I remember when,

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<v Speaker 2>you know, the first time we put it together ages ago.

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<v Speaker 2>I think Scarlett Foo was with me at the time,

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<v Speaker 2>and the basic idea was there's a lot of different opinions.

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<v Speaker 2>I can't remember a time where there's more people swing

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<v Speaker 2>in one way and more people swing in the other

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<v Speaker 2>way that we see right now. And I would codify

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<v Speaker 2>it in economics with Tom Percelli, who was on today

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<v Speaker 2>with p Jim who said, look, they're going to cut rates.

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<v Speaker 2>They have to cut rates, and he gave four reasons,

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<v Speaker 2>and Lindsay piegsa At Stiefel, who says they're wrong. They

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<v Speaker 2>need to get out front, raise rays, clamped this thing down,

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<v Speaker 2>stopped this inflation trend, and then bring them down. And

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<v Speaker 2>that's what we're trying to do at surveillance. We'll see

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<v Speaker 2>if we can effort them for conversation next week or

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<v Speaker 2>even the week on a single best idea today, two

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<v Speaker 2>really different views here. The first one is Stuart Kaiser.

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<v Speaker 2>Stuart Kaiser's a city group. He has been not a

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<v Speaker 2>rabbid bull, but he's been someone that said, here's the

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<v Speaker 2>framework for American exceptionalism, American GDP, and it's going to

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<v Speaker 2>lead into higher stock prices. He looks at the broadening

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<v Speaker 2>of the market and he says in earning season, it's

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<v Speaker 2>tough to get the data right.

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<v Speaker 3>The problem with the broadening theme for US has been

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<v Speaker 3>it doesn't work in two conditions, one when you have

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<v Speaker 3>risk rising and two, frankly during earnings because the fact

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<v Speaker 3>is your Microsoft's, your Apples, your Amazons, your Google's are

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<v Speaker 3>just putting up huge numbers. It harkens back a little

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<v Speaker 3>bit to the late nineties when you were basically introducing

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<v Speaker 3>a new technology into the system and you assumed a

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<v Speaker 3>forecasts really large revenue growth, but you were a little on

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<v Speaker 3>certain about, you know, both the size and timing of it.

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<v Speaker 3>So I think what you're having is to your point,

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<v Speaker 3>people are compartmentalizing a little bit, right, Like, I need

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<v Speaker 3>to have some AI exposure on let me choose the

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<v Speaker 3>way to do that, and then off to the side

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<v Speaker 3>of that, I kind of need to model the rest

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<v Speaker 3>of the market, you know, as a little bit independently.

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<v Speaker 3>So it is a challenge, but it's a good challenge

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<v Speaker 3>to have, right I think it's a good challenge to

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<v Speaker 3>have that you have this large thematic revenue growth impulse

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<v Speaker 3>kind of coming through the system and look at this

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<v Speaker 3>is why you know, we've kind of joked the Nvidia

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<v Speaker 3>earnings report in late May is priced as big an

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<v Speaker 3>event as payrolls on Friday. Not only is it a

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<v Speaker 3>big theme, it's also an uncertain theme. And even at

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<v Speaker 3>the S and P level, that risk is being priced

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<v Speaker 3>very aggressibly.

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<v Speaker 2>Stud Kaiser City Group. There very sharp, huge response today

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<v Speaker 2>and we'll get them back soon. I really want to

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<v Speaker 2>emphasize that in the earning season we're in, there's different

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<v Speaker 2>metrics that I hear and they come into vogue, that

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<v Speaker 2>come out of vogue, and one of them off the

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<v Speaker 2>tech juggernaut we've seen so far with Apple tomorrow is

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<v Speaker 2>not organic revenue growth, which I think is pretty intuitive.

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<v Speaker 2>It's like, okay, here's the company. Forget about acquisitions and

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<v Speaker 2>all that, what's the actual interior revenue growth of the company.

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<v Speaker 2>And of course, Coca Cola with a blowout eleven percent statistic.

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<v Speaker 2>But one to start looking at is annual recurring revenue

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<v Speaker 2>aar R. Somebody had this out on Twitter. I'm sorry,

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<v Speaker 2>I can't cite them. I don't have it in front

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<v Speaker 2>of me. But aarr is really really interesting about what's

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<v Speaker 2>the belief in what a recurring revenue is at Google

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<v Speaker 2>or at Amazon, or what we'll see from Apple, where

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<v Speaker 2>there's a huge mystery about their recurring at revenue. That's

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<v Speaker 2>a phrase, excuse me, I'm fighting a plague. That's a

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<v Speaker 2>phrase that I think you really got to get used

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<v Speaker 2>to in a two thousand and twenty five. You also

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<v Speaker 2>get used to people with a venerable pass. Brian Whalen

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<v Speaker 2>is at TCW. They're a ginormous West Coast Byside institution,

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<v Speaker 2>lots of penchip, lots of institutional money. And he's in

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<v Speaker 2>fixed income. And what's important is he was in the

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<v Speaker 2>trenches at DLJ Donaldson, Lufkin, Jenarett, ages Ago, and so

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<v Speaker 2>he brings a huge knowledge base of fixed income dynamics.

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<v Speaker 2>And he's where I am, and where I am doesn't matter,

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<v Speaker 2>but it really matters if Ken Rogoff of Harvard's at

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<v Speaker 2>the same place. Ken Rogoff with David Wesson looked for

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<v Speaker 2>that on Wall Street Week and Professor Rogoff was adamant.

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<v Speaker 2>He's focused on the inflation adjusted yields plural and I

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<v Speaker 2>totally agree with this that what we really care about,

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<v Speaker 2>including Jerome Poal this afternoon, is an analysis of the

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<v Speaker 2>real yield. Brian Whalen of TCW on the.

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<v Speaker 1>Real yield, I think that's the knockout blow. I don't

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<v Speaker 1>think this two point seven. I don't think this market

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<v Speaker 1>could really even handle two point five. But if we

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<v Speaker 1>saw a jump up to like two point seven percent,

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<v Speaker 1>which is you know rates, last time we were at

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<v Speaker 1>these levels that kind of level and real interest rates

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<v Speaker 1>right before the financial crisis, clearly, you know, the economy,

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<v Speaker 1>the markets couldn't handle it. This time around, we do

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<v Speaker 1>the same thing, and then what would happen is that

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<v Speaker 1>if you get rates up that high, you're going to see,

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<v Speaker 1>you know, equity markets crater, and then you're going to

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<v Speaker 1>hit financial conditions. And what you're going to see is

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<v Speaker 1>a consumer who's already stressed and they're borrowing a lot

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<v Speaker 1>more than they used to. And yes, spending is high,

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<v Speaker 1>but they're doing it because of the wealth effects, because

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<v Speaker 1>they look at their equity market portfolio and they say, hey,

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<v Speaker 1>I feel I feel good. I've got more money than

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<v Speaker 1>I had last year. Once you see that drop on

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<v Speaker 1>your screen, you know, and you know on your broker

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<v Speaker 1>screen that changes, that'll be the end.

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<v Speaker 2>Let me translate this because that was a pro conversation

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<v Speaker 2>right now, the ten year inflation adjusted yield. There's different

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<v Speaker 2>measurements of this, there's different regimes you can use. Is

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<v Speaker 2>two point twenty seven percent? Not that long ago, we're

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<v Speaker 2>at one point nine something and it was like, are

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<v Speaker 2>you kidding me? We're going to go through two percent?

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<v Speaker 2>And we've gone up to two point two seven percent,

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<v Speaker 2>And mister Whaleen there's talking about not he's not predicting,

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<v Speaker 2>but he's saying, if you get a ten year real

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<v Speaker 2>yield to two point four two point five and I

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<v Speaker 2>believe he said two point seven percent, there you put

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<v Speaker 2>some real stress on the balance sheets of America, the

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<v Speaker 2>different individual the home and the corporate balance sheets as well.

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<v Speaker 2>We've gone a little along Today's single best idea or

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<v Speaker 2>out on Apple, car Play and Android all sorts of

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<v Speaker 2>new things, including a complete two hour, fifty six minute

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<v Speaker 2>epic replay of the show. Look for that three PMS

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<v Speaker 2>two thirty pmsh out on Bloomberg podcasts and of course

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<v Speaker 2>on YouTube. We're building it out. Search Bloomberg podcasts and

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<v Speaker 2>look for Bloomberg surveillance. There it is Kaiser and Whyland,

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<v Speaker 2>Kaiser and Whalan are single best idea

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<v Speaker 3>Wo