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Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg

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Speaker 1: Surveillance Podcast. Catch us live weekdays at seven am Eastern

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Speaker 1: Listen on demand wherever you get your podcasts, or watch

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Speaker 1: us live on YouTube.

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Speaker 2: Joining us Jeffrey Rosenberg, Senior portfolio Manager, Systematic Multi Strategy

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Speaker 2: Fund at Blackrack. So you're a temper at Carnegie mel

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Speaker 2: And a million years ago, and some fancy finance guy

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Speaker 2: goes regression to the mean when you is a bond guy,

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Speaker 2: coupon guy. Look at the equity markers. Is it going

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Speaker 2: to be one big regression to the mean over the

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Speaker 2: next five years?

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Speaker 3: No?

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Speaker 4: I think you know, when you think about fixed income

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Speaker 4: versus equities, the big difference is fixed income.

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Speaker 5: Returns are a lot simpler. It's your coupon.

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Speaker 4: The price appreciation over time is not really where your

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Speaker 4: source of return is.

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Speaker 5: In equities is different.

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Speaker 4: It goes up into the right and so it isn't

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Speaker 4: about regression to the mean, whereas interest rates, it's a

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Speaker 4: little bit more about regression to the mean and a

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Speaker 4: little bit more about income over capital appreciation.

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Speaker 2: Blackrock, do we believe we see the productivity to drive

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Speaker 2: all this, you know, A I mean, it's not your wheelhouse.

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Speaker 2: I get it, it's off your remit, But do you

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Speaker 2: see an overlay of underestimation of productivity in America?

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Speaker 4: So it's a great topic, Tom, and you know it

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Speaker 4: obviously reminds us of the nineties debate. Productivity is everywhere

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Speaker 4: except in the statistics, and it's a similar kind of

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Speaker 4: you know, hope that you're getting this productivity. I think

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Speaker 4: to say that the AI impact is showing up in

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Speaker 4: the productivity data, you know, in a meaningful way, maybe

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Speaker 4: overstating the AI contribution to it. There's certainly a productivity boost,

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Speaker 4: and there's a certainly individual areas. I mean, we're all

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Speaker 4: experiencing the productivity boost individually in terms of the specific applications,

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Speaker 4: but whether you're seeing that across the economy that's accounting

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Speaker 4: for this productivity.

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Speaker 5: I think it's a little bit too early to say that.

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Speaker 6: Blackrock is the top liquid AUCS manager.

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Speaker 5: What is a liquid as to say.

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Speaker 4: A liquid alt is basically a strategy for delivering returns

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Speaker 4: without taking on kind of your fixed income exposure or

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Speaker 4: your equity exposure. You got a lot of that exposure

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Speaker 4: in your portfolios already. So what we try to do

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Speaker 4: is give you another source of returns without adding to

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Speaker 4: fixed income or equity. In my fund, we do it

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Speaker 4: with a fixed income replacement, So we try to provide

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Speaker 4: a defensive bond like alternative without really relying as much

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Speaker 4: on kind of duration and that total return that I

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Speaker 4: was talking about before. We do it with alternative strategies,

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Speaker 4: which are mostly bringing to the liquid mutual fund and

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Speaker 4: ETF vehicles long short, moret neutral strategies.

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Speaker 5: That's really what's kind of.

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Speaker 4: Underneath the hood in those strategies. So what are the

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Speaker 4: securities that get you there? So we do it across

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Speaker 4: all kinds of different securities. We have fixed income securities,

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Speaker 4: we have equity securities as well. We take a fixed

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Speaker 4: income lens to the selection of equities. We do this

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Speaker 4: from our experience in evaluating corporate credit. We turned it

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Speaker 4: onto the equity side and it lends a super interesting

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Speaker 4: return profile which we call defensive alpha, which is alpha

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Speaker 4: returns without market direction that tend to be really strong

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Speaker 4: when equity markets go down. That's the kind of alternative

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Speaker 4: to fixed income.

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Speaker 2: And this is curly, This is brilliant, folks. This is

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Speaker 2: a global Wall Street talk. Here. Rosenberg can't go duma,

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Speaker 2: so we're going fancy. Now stay with me on this, folks.

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Speaker 2: I'll try to explain it. Strategies like this need a

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Speaker 2: down market to achieve and excel and generate alpha. We

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Speaker 2: sort of like have an add and down market. So

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Speaker 2: you're stealed for what a five percent ticked down. Do

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Speaker 2: these strategies click in with a correction ten percent, do

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Speaker 2: they click in with a bear market eighteen percent? Or

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Speaker 2: do you need something worse?

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Speaker 5: It's a great question.

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Speaker 4: So first of all, it's not directional, so it's not

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Speaker 4: like put option buying where you really need the market

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Speaker 4: to go down. They're balanced and we have other strategies

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Speaker 4: inside that help to provide positive returns when markets are

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Speaker 4: going up. But on the defensive alpha side, Tom, it's

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Speaker 4: really about a quarter decline inequity markets, meaning a persistent

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Speaker 4: decline in equity market's over a quarter calendar period, So

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Speaker 4: it's not short term trading.

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Speaker 5: It's a little bit more.

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Speaker 4: Of a type of market move that is reflective of

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Speaker 4: more of a recession kind of fear. That's how we've

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Speaker 4: tuned the defensive alpha, and as you know, we've been

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Speaker 4: doing it over ten years as a thirteen out of

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Speaker 4: fourteen quarter track record of delivering that that positive alpha.

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Speaker 7: It's like the Yank defensive alpha US versus non US.

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Speaker 6: How do you guys allocate?

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Speaker 2: There?

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Speaker 6: Is that changed?

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Speaker 4: Yeah, it's really about the opportunity set of what types

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Speaker 4: of companies give us the ability to take credit insights

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Speaker 4: into the allocation algorithm. And so what we have mostly

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Speaker 4: is a US and large global universe of companies inside there,

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Speaker 4: it's not really taking on the factor exposure of geographic exposures.

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Speaker 4: It's really trying to neutralize to that and get to

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Speaker 4: the idiosyncratic risk. And so we can extract that idiosyncratic

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Speaker 4: risk out of global large issuers and US large and

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Speaker 4: mid sized companies.

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Speaker 2: Where's Jeff Rosenberg and rebalancing? I mean, Tempers had a

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Speaker 2: whole career studying this is the question of rebalancing a portfolio.

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Speaker 2: The x access the study of the when of it

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Speaker 2: or is it something else?

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Speaker 5: So it's an interesting, you know point.

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Speaker 4: You know, we look a lot at kind of risk

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Speaker 4: and risk rebalancing, and you know, one of the things

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Speaker 4: that you see from kind of long term studies there

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Speaker 4: is is you have this kind of countercyclical approach, and

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Speaker 4: so you want to look at countercyclical risk balancing as

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Speaker 4: opposed to pro cyclical risk balancing and pro risk. Pro

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Speaker 4: Cyclical risk balancing tends to be that which targets short

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Speaker 4: term measures of risk, so you end up kind of

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Speaker 4: doing the wrong thing. When risk is going down, portfolio

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Speaker 4: looks like it's less risky, you start adding notional So it's.

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Speaker 5: About balancing in our approach.

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Speaker 4: Balancing kind of the short term measures you can get

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Speaker 4: you into a pro cycled one with a little bit

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Speaker 4: longer term measure which helps you to avoid that and

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Speaker 4: be anti.

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Speaker 2: Fifty seconds, do you sense a leverage in the system

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Speaker 2: of our bullmarket frenzy? Is there shadows of leverage in there?

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Speaker 4: So you know, what's the big change here that we'd

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Speaker 4: be talking about it? And the big changes You know,

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Speaker 4: when you look at a kind of the AI frenzy,

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Speaker 4: what was different from the nineteen nineties frenzy. The big

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Speaker 4: difference was the nineteen nineties frenzy was all debt financed.

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Speaker 4: Right when you think about like the Internet bubble bursting

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Speaker 4: in the fixed income markets, that was the high yield

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Speaker 4: telcom media technology concentration of defaults because the back end

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Speaker 4: infrastructure was funded by debt, and it was funded predominantly

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Speaker 4: by debt. So when you think about that two default cycle,

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Speaker 4: it was sixtei verscent CMT bonds, global crossing WorldCom. You

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Speaker 4: look at this cycle and up until most recently, it's

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Speaker 4: all financed out a cash flow. Now the difference is

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Speaker 4: some of these debt financed transactions. And that's the piece

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Speaker 4: that we should kind of be paying attention to.

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Speaker 2: Jeffrey Rosenberg, thank you so much with us always on

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Speaker 2: the fedish sides and giving this perspective there and some

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Speaker 2: of the emotions of the effervescence and exuberance of moment.

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Speaker 5: Stay with us.

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Speaker 2: More from Bloomberg Surveillance coming up after this.

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Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live

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Speaker 1: weekday afternoons from seven to ten am Eastern Listen on

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Speaker 1: Applecarplay and Android Auto with the Bloomberg Business app, or

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Speaker 1: watch us live on YouTube.

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Speaker 5: Here's the way it rolls.

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Speaker 2: Some of our guests, like they all have an entourage.

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Speaker 2: One or two people got to hang out. Go to Starbucks,

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Speaker 2: you know, be sure the uber gets there, cantrell ser

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Speaker 2: she goes with five or six piece.

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Speaker 6: Sure, why not?

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Speaker 2: Levy, I gotta cut to the Chase. One of your

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Speaker 2: people walks in and says, talk about the Broncos. First,

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Speaker 2: is PIMCO paying for you to go to London to

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Speaker 2: Tottenham steaks? I wish to watch the Broncos.

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Speaker 8: I wish, sadly, no, sadly no, we do. We have

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Speaker 8: a we have a recent partnership with the Boston Celtics,

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Speaker 8: but not not not at ever team sadly so not not.

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Speaker 8: We know where to get seen neither the NU gets

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Speaker 8: north the Broncos.

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Speaker 2: Okay, the Chase send. What an exciting game against the Eagles.

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Speaker 8: Amazing, My goodness.

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Speaker 2: What was the observation?

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Speaker 8: I mean, I just I you know, it felt like

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Speaker 8: it was going to be sort of a predictable end.

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Speaker 8: The Eagles were going to beat us. But wow, was

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Speaker 8: that last that last fourth, last quarter? Pretty pretty pretty competive.

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Speaker 2: Is a shutdown going to beat America?

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Speaker 3: There?

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Speaker 7: Ye?

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Speaker 2: I loved it.

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Speaker 5: I loved it, so you know me.

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Speaker 8: I think that the conventional wisdom, probably right, is that

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Speaker 8: a short term shutdown doesn't really matter, doesn't matter for

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Speaker 8: the economy, doesn't matter for markets. I think that the

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Speaker 8: risk to that thinking is that this very likely looks

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Speaker 8: like it could be a prolonged shutdown. And just remember

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Speaker 8: that the last and the only real full shutdown that

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Speaker 8: we've had in the last few decades was in twenty

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Speaker 8: thirteen that lasted for sixteen days. The catalyst there was

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Speaker 8: to to increase the debt the debt ceiling. There is

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Speaker 8: no such catalyst, and so we don't really know what

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Speaker 8: happens to the economy sort of after a sixteen day period.

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Speaker 8: I think that that our.

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Speaker 5: Concern is that.

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Speaker 8: There are sort of these nonlinear economic impacts should the

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Speaker 8: governments shut down for longer than in two weeks, which

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Speaker 8: looks again more likely than not at this point, given

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Speaker 8: both sides are pretty comfortable in their positions, is.

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Speaker 7: There any I mean, what's the key issue here between

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Speaker 7: the two sides here for this shut down here?

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Speaker 5: Is there is there one issue that's keeping well?

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Speaker 8: I think the Democrats have sort of struggled with trying

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Speaker 8: to articulate the real issue. But what they seem to

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Speaker 8: be coalescing around is this expiration of the Obamacare expanded

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Speaker 8: subsidies that expire at the end of end of this year.

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Speaker 8: Even though republic many Republicans don't like Obamacare, they don't

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Speaker 8: like these enhanced subsidies. You do see some splintering among

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Speaker 8: the Republican caucus last night.

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Speaker 2: God, folks, this is the reality. This is ru Paul,

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Speaker 2: great question and answers. Marjorie Taylor Green says, President Trump,

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Speaker 2: your nuts. Two of my family members are going to

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Speaker 2: get crushed by that. How prevalent is that?

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Speaker 8: And also, I mean, if you look at who are

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Speaker 8: the beneficiaries of these hit hand subsidies, you know, three

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Speaker 8: quarters of the folks live in Trump and states that

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Speaker 8: voted for Trump. So this is this is a salient

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Speaker 8: political issue for the president and for you know, certain

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Speaker 8: members of the Republican Caucus. I think that's whay why

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Speaker 8: you saw, you know, Trump opened the window yesterday to

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Speaker 8: potentially negotiating over this. So I think that you know,

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Speaker 8: you know, our view is that there probably there has

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Speaker 8: to be a deal on this issue, whether it's after

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Speaker 8: the government reopens or before the government reopens, but this

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Speaker 8: will have to be addressed because I think politically speaking,

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Speaker 8: it's just too salient for again enough Republicans for them

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Speaker 8: not to do at least something. Now, there could be

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Speaker 8: some modifications or what have you, But again I think

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Speaker 8: that's probably going to be kind of table stakes at

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Speaker 8: this point.

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Speaker 7: So Supreme Court also begins a session today. Yeah, what

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Speaker 7: do we focus on there?

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Speaker 8: Well, So I think the two big cases obviously for

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Speaker 8: the market are going to be these AIPA tariffs, the

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Speaker 8: sort of legitimacy around those. Was this a violation of

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Speaker 8: this you know, broad statute and in which case? So

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Speaker 8: what is the ruling like do they have to pay

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Speaker 8: back the.

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Speaker 2: Tariffs?

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Speaker 8: And then also of course the Lisa Cook hearing, which

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Speaker 8: is going to be in January.

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Speaker 2: It looks like, Okay, I get the Newport Beach has

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Speaker 2: that just saw ten X, So we'll say when Taylor

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Speaker 2: Swift has you're flying around in the Felcon nine hundred ALEX,

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Speaker 2: you're immune from the area lights. Our listeners in viewers

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Speaker 2: are not immune from the shutdown. I just read CNN

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Speaker 2: from twenty nineteen where ten air traffic controllers went off

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Speaker 2: shutdown Atlanta, et cetera, and everybody had a Bart Simpson

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Speaker 2: cow is that where we're heading? Yeah, which this is

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Speaker 2: really about TSA and air traffic.

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Speaker 8: I think that could absolutely be the catalyst for a reopening,

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Speaker 8: right because if you look at what are the what

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Speaker 8: are the inflection points. October fifteenth, that's when missed you know,

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Speaker 8: pay from active military folks. November first, that's when the

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Speaker 8: openrollment for ACA comes out with when people will be

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Speaker 8: actually notified about that their premiums could be increasing. And

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Speaker 8: then there's just the political pain and TSA. The air

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Speaker 8: traffic control, I mean, in twenty nineteen was actually the

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Speaker 8: issue that ended up reopening the government, so that could

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Speaker 8: could very well be. But again, I think people are

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Speaker 8: you know, in Washington, feel very comfortable in the fact

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Speaker 8: that the House is anyven session. Yeah, I mean they're

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Speaker 8: not coming back into session anytime soon and maybe not

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Speaker 8: into even until.

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Speaker 2: Can they be comfortable if after a cup of coffee,

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Speaker 2: Newark was delayed an hour and two hours yesterday, that's.

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Speaker 8: Like any you know, I actually fly, I fly Middle

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Speaker 8: stat coach very often, so so I am very I'm

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Speaker 8: very familiar with the Newark you know, flight delays. And

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Speaker 8: I think again, I think a lot of folks will

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Speaker 8: just brush that off and until this really becomes a

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Speaker 8: real issue again, I think both sides are going to

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Speaker 8: sort of stay stay, stay where they are.

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Speaker 7: Can press any Trump fire these employees, federal employees, yees.

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Speaker 8: So I think that is a big question. I mean,

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Speaker 8: just to be very clear, there are no new authorities

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Speaker 8: that are imparted on the executive branch to fire employees

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Speaker 8: during a shutdown. I think there's a lot of confusion

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Speaker 8: about that. So it's the same laws that govern pre

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Speaker 8: shutdown versus during a shutdown. I think, you know, he's

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Speaker 8: obviously threatened to do that. Maybe he will actually you know,

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Speaker 8: go through on those threats. I think there is a

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Speaker 8: political issue though, I mean, once you start really firing people,

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Speaker 8: that doesn't necessarily pull particularly well. And of course, eighty

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Speaker 8: percent of federal workers are outside of the DMV area,

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Speaker 8: which is I think quite important. So outside of the

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Speaker 8: DC Maryland Virginia area are eighty percent. So this is

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Speaker 8: like not just this sort of Beltway kind of niche issue.

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Speaker 8: This does affect folks, and like this is important.

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Speaker 2: Seven hundred and fifty thousand people. Did you say eighty

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Speaker 2: percent are outside the beltway.

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Speaker 8: Eight percent of federal workers just in general, right, So,

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Speaker 8: I mean of those.

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Speaker 5: Kansas cities, those for a lot amounts.

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Speaker 2: I own money too, I've written all of them checks.

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Speaker 8: And again, like I mean, the president has vast authorities.

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Speaker 8: He's obviously, you know, try to sort of test the

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Speaker 8: limits of those authorities. So I'm not saying that he

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Speaker 8: won't necessarily fire folks. It's just that there is some

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Speaker 8: political ramifications of doing so, given that a lot of

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Speaker 8: these folks are not necessarily in that.

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Speaker 2: Paul and I read like over the weekend of the

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Speaker 2: Cook Political Report, that's somebody's doing well in the polls.

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Speaker 2: I'll pick on Spanberg or Virginia is doing well. How

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Speaker 2: does that play in Libby Cantrell's belt play right now?

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Speaker 4: Yeah?

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Speaker 5: I think.

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Speaker 8: I mean my own view is that we kind of

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Speaker 8: over index to these off cycle elections. Obviously there's a

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Speaker 8: gubernatorial race, both in Virginia and New Jersey. I think

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Speaker 8: the Democrats look like they're pulling better. That should we

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Speaker 8: should we extrapolate too much from that? No, I don't

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Speaker 8: think so. If they lose, then maybe that is a

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Speaker 8: canary in the coal mine. But again, I think there's

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Speaker 8: sort of too much inc that is.

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Speaker 2: Jere Schneider just emailed in and says I'll carry Liz's

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Speaker 2: bags that Todd him. It's a great stadium, Broncos Jets.

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Speaker 2: Libby Cantrell in London coming up in the NFL. Libby

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Speaker 2: Cantrell with Pimcot right now, stay with us. More from

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Speaker 2: Bloomberg Surveillance coming up after this.

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Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday

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Speaker 1: starting at seven eight on Applecarplay and Android Auto with

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Speaker 1: the Bloomberg Business App. You can also listen live on

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Speaker 1: Amazon Alexa from our flagship New York station, Just say

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Speaker 1: Alexa play.

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Speaker 2: Mark creatures Storry right now from the Royal Bank of

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Speaker 2: Canada RBC here on the Outlook Forward. What's great about this, Mike,

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Speaker 2: is you actually did a tour duty in the dark

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Speaker 2: climbs of the Bureau of Economic Analysis. Now it's not

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Speaker 2: BLS but BA. They use the same folders, the same

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Speaker 2: roll of decks, the same desks. Is BLS. What do

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Speaker 2: we not capture about the good people working at BLS

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Speaker 2: right now? With the shutdown and with the inability to

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Speaker 2: create a jobs.

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Speaker 3: Report, Well, we're just missing a lot of data that

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Speaker 3: we need. And you know, I think you can get

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Speaker 3: the general trends right now. There's a lot of alternative data.

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Speaker 3: When you think about the labor.

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Speaker 2: Mark trusted, is it a value?

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Speaker 3: I put more weight in the payroll report and the

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Speaker 3: employment report than I do these alternatives I think you

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Speaker 3: can still use them directionally, but the magnitude right now

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Speaker 3: is what matters. And you don't get a good reading

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Speaker 3: on magnitude from some of these alternative sets.

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Speaker 2: You just explain magnets. It's like a fancy where you'll learn

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Speaker 2: at it. Northeastern help me out here with what magnitude

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Speaker 2: means to our viewers and listeners.

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Speaker 5: So I'll give a good example.

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Speaker 3: We look a lot at the ISM surveys, you know,

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Speaker 3: ISM manufacturing and ISM services, and they have these diffusion indices,

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Speaker 3: and specifically for the employment report, and it's really just

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Speaker 3: a matter of reporting whether or not your employment levels

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Speaker 3: are going up, down, or staying the same. So you

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Speaker 3: don't know if it's increasing, did you hire ten people

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Speaker 3: one hundred people? So again you get a direction, but

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Speaker 3: you don't get the volume there. So it does mask

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Speaker 3: the ultimate impact on what you might estimate, for say

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Speaker 3: the unemployment rate.

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Speaker 7: So, in the absence of some real time data, how

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Speaker 7: do you think the US economy is doing these days?

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Speaker 5: I still think it's very foggy.

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Speaker 3: And what I mean by that is the signal we're

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Speaker 3: getting from data is unclear. And I'll give you a

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Speaker 3: good example of what's going on. We've talked a lot

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Speaker 3: about the pull forward of some activities, whether it's imports

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Speaker 3: that inventory build up. Right now, my wife and I

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Speaker 3: are pulling forward some purchases of furniture and some cabinets

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Speaker 3: because of the threat of tariffs. So you know, right

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Speaker 3: now I have a delivery coming to my house, and

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Speaker 3: in fact it's there right now. It's probably not a

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Speaker 3: purchase I would have made had the tariff threat been

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Speaker 3: off the table, but because they announced it, and I said,

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Speaker 3: you know, let's just go ahead and do this now,

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Speaker 3: and it'll probably sit in my garage for a couple

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Speaker 3: of months before it gets installed, but at least we'll

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Speaker 3: have it at a better price.

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Speaker 6: Interesting.

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Speaker 7: So, but we haven't necessarily seen inflation from these terrors

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Speaker 7: really at all. On one could argue, well, what's happening there,

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Speaker 7: because a lot of folks thought we'd see it.

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Speaker 3: Yeah, I think that's the interesting story right now, and

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Speaker 3: I think that's going to show up in two ways. First,

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Speaker 3: we do suspect that it's still early days for that

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Speaker 3: to show up. In terms of consumer prices, we saw

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Speaker 3: a bit of a surge in the producer prices. When

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Speaker 3: you look at the PPI that came out two months

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Speaker 3: ago came in very hot. So ultimately we think those

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Speaker 3: increased prices are going to be passed through to the consumer. Alternatively,

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Speaker 3: if we don't see that full extent of the pass through,

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Speaker 3: that's going to weigh on margins, and that really puts

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Speaker 3: a risk that labor really starts to weaken beyond what

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Speaker 3: we've already seen.

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Speaker 2: I look at where we are, and, as you say brilliantly,

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Speaker 2: the fog of it all, the overwhelming fog of the

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Speaker 2: last three quarters is we were wrong, wrong, wrong on

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Speaker 2: animal spirit, nominal, GDP eight, other issues, productivity, tech or that.

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Speaker 2: Do you see any ending to how wrong we've been

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Speaker 2: the last three quarters which leads to a successful outcome.

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Speaker 3: I'd like to hope that as economists and forecasters, we're

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Speaker 3: going to be wrong. But I still think there's a

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Speaker 3: situation in our view where we continue down this road

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Speaker 3: of kind of a stagflationary we call it stackflation light.

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Speaker 3: So what does that mean whether growth is coming in

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Speaker 3: at one percent one and a half percent, I think

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Speaker 3: you're going to continue to see the consumer slow, and

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Speaker 3: I think that's really important when you think about the economy.

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Speaker 3: The consumers is really the biggest driver here in the US,

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Speaker 3: and so these whether it's higher prices or loss of income,

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Speaker 3: that means a lot of consumers are going to have

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Speaker 3: to pull back.

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Speaker 2: Macreed, Thank you so much, senior US economist RBC here

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Speaker 2: stay with us. More from Bloomberg Surveillance coming up after this.

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Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each week

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Speaker 1: day starting at seven am Eastern on Applecarplay and Android

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Speaker 1: Auto with the Bloomberg Business app. You can also watch

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Speaker 1: us live every weekday on YouTube and always on the

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Speaker 1: Bloomberg terminal.

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Speaker 2: Joining us out to drive the conversation forwards. Do we

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Speaker 2: agree it's less frienic than yesterday? Yes, it's not like

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Speaker 2: yesterday was nuts. This is really timely. With Brent Shuddy

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Speaker 2: coming up later, Dan Skelley had a Morgan Stanley Take

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Speaker 2: two asprin call me in the morning. The Wealth Management

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Speaker 2: market research and strategy team. The frenzy that was there yesterday,

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Speaker 2: do you see it in your clients?

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Speaker 9: So we saw tom about one hundred billion dollars in

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Speaker 9: retail buying in the equity market in the past month.

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Speaker 6: That's a historic run.

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Speaker 9: So the frenzy is certainly starting to foment I wouldn't

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Speaker 9: say that Foment.

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Speaker 2: Like Fomo, you learned it from Lisa Shllett, continue.

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Speaker 9: Foment I wouldn't say it's completely overdone, because keep in

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Speaker 9: mind there's still seven trillion dollars money market allocation sitting

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Speaker 9: out there, so people aren't fully invested. But you're starting

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Speaker 9: to see the frenzy ramp up.

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Speaker 7: Are you concerned about this AI?

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Speaker 6: I had a concentration to MAG seven.

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Speaker 7: It's the consentration about this AI story seems to be

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Speaker 7: really just kind of kicking into a higher gear in

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Speaker 7: the last several weeks.

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Speaker 2: Paul.

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Speaker 9: It's great to see you as well, And look, it

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Speaker 9: is kicking into higher gear the more and more spending

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Speaker 9: announcements you hear, and how that spending is funded. Right,

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Speaker 9: we're starting to see leverage used in that ecosystem, which

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Speaker 9: is really a departure from the last year or two

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Speaker 9: where cash flow funded all the investing.

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Speaker 5: So we're keeping an eye on that.

442
00:22:39,119 --> 00:22:40,840
Speaker 9: But the second thing I would say is, though to

443
00:22:40,920 --> 00:22:43,960
Speaker 9: your point, at first, MAG seven is not only the

444
00:22:44,000 --> 00:22:46,359
Speaker 9: biggest spender but the biggest beneficiary of AI.

445
00:22:46,600 --> 00:22:47,520
Speaker 5: Right, Max seven.

446
00:22:47,280 --> 00:22:50,119
Speaker 9: Earnings up twenty eight percent in Q two, rest of

447
00:22:50,200 --> 00:22:53,399
Speaker 9: market up four percent in an economy that did like

448
00:22:53,560 --> 00:22:56,840
Speaker 9: seven percent nominal GDP. So I think the market is

449
00:22:56,880 --> 00:22:59,360
Speaker 9: really waiting, waiting when is the rest of the economy

450
00:22:59,359 --> 00:23:02,280
Speaker 9: in the market to monetize AI and is there a

451
00:23:02,320 --> 00:23:05,080
Speaker 9: wily coyote moment in the market before that happens.

452
00:23:05,400 --> 00:23:09,800
Speaker 2: How do you hedge equity? How do you provide protection

453
00:23:10,440 --> 00:23:13,160
Speaker 2: and equity and a retirement plan right.

454
00:23:13,000 --> 00:23:16,119
Speaker 9: Now for retirees or retirement planning yield?

455
00:23:16,240 --> 00:23:16,400
Speaker 2: Right?

456
00:23:16,440 --> 00:23:17,720
Speaker 5: Dividend yield has been out of.

457
00:23:17,920 --> 00:23:19,720
Speaker 2: Do Barbell sixty forty.

458
00:23:19,880 --> 00:23:21,440
Speaker 5: You could do Barbell sixty forty.

459
00:23:21,480 --> 00:23:24,280
Speaker 9: We want to add a little bit of energy, infrastructure

460
00:23:24,280 --> 00:23:26,840
Speaker 9: and real assets in addition to fixed income. We want

461
00:23:26,880 --> 00:23:30,000
Speaker 9: to generate income in some non traditional ways given all

462
00:23:30,040 --> 00:23:31,800
Speaker 9: the deficit spending.

463
00:23:31,440 --> 00:23:33,760
Speaker 2: In the other master limited partnership.

464
00:23:33,200 --> 00:23:38,320
Speaker 9: Correct dividend, correct contracted contracted cash flows, but also leverage

465
00:23:38,359 --> 00:23:42,560
Speaker 9: to AI spending empowering AI. So there's idiosyncratic upside there

466
00:23:42,560 --> 00:23:44,960
Speaker 9: as well. But coming back to how do you hedge, listen,

467
00:23:45,040 --> 00:23:47,399
Speaker 9: dividends and dividend yield has been out of favor for

468
00:23:47,440 --> 00:23:50,000
Speaker 9: two plus ye years. We see that as a really

469
00:23:50,000 --> 00:23:52,040
Speaker 9: reasonable traditional hedge at the moment.

470
00:23:51,840 --> 00:23:54,080
Speaker 2: You see dividend excuse me playing this? Is you see

471
00:23:54,080 --> 00:23:56,280
Speaker 2: dividend growth? Absolutely?

472
00:23:56,400 --> 00:23:59,920
Speaker 9: Quarter Absolutely, I think companies are spending a lot of

473
00:24:00,160 --> 00:24:00,640
Speaker 9: bive ax.

474
00:24:00,720 --> 00:24:01,360
Speaker 5: We're also set.

475
00:24:01,440 --> 00:24:03,679
Speaker 2: I mean, Paul's nuts about this. Could you imagine the

476
00:24:03,720 --> 00:24:06,600
Speaker 2: tech earning calls the end of October where they go,

477
00:24:06,640 --> 00:24:09,679
Speaker 2: We're going to initiate a dividend and go halfway to

478
00:24:09,760 --> 00:24:13,040
Speaker 2: a traditional dividend. I mean, Paul would be unreal.

479
00:24:12,960 --> 00:24:16,040
Speaker 7: An Apple computer. I keep talking Tim Cook here. When

480
00:24:16,080 --> 00:24:18,639
Speaker 7: you look at dividends, is it dividend growth? Is a

481
00:24:18,640 --> 00:24:21,360
Speaker 7: dividend payout? Is a dividend yield? How do you think

482
00:24:21,359 --> 00:24:21,639
Speaker 7: about it?

483
00:24:21,840 --> 00:24:24,560
Speaker 9: Excellent point Paul, And look in our dividend strategy, which

484
00:24:24,560 --> 00:24:27,040
Speaker 9: I actually have managed the past sixteen years. We do

485
00:24:27,119 --> 00:24:30,760
Speaker 9: a combination of both. We do traditional yield and dividend growth,

486
00:24:30,800 --> 00:24:35,240
Speaker 9: and that helps smooth out returns over cycles. Today where

487
00:24:35,240 --> 00:24:38,320
Speaker 9: I would buyas is more towards the dividend yield factor. Right,

488
00:24:38,320 --> 00:24:40,920
Speaker 9: particularly in a world where markets are pushing up against

489
00:24:40,960 --> 00:24:43,800
Speaker 9: all time highs and everyone's been risk gone, we think

490
00:24:43,840 --> 00:24:46,639
Speaker 9: some of that traditional defensive exposure makes sense.

491
00:24:47,400 --> 00:24:50,800
Speaker 6: So what are we doing here with valuation here? How

492
00:24:50,840 --> 00:24:52,240
Speaker 6: do you think about that? When you talk to your

493
00:24:52,600 --> 00:24:54,359
Speaker 6: Morgan Stanley clients.

494
00:24:54,320 --> 00:24:56,440
Speaker 9: Listen, two and a half years ago, we said the

495
00:24:56,480 --> 00:24:59,320
Speaker 9: market looks very different than it does data in nineteen

496
00:24:59,400 --> 00:25:01,960
Speaker 9: ninety and two one thousand thou thus you need to

497
00:25:02,040 --> 00:25:02,960
Speaker 9: trough and peak.

498
00:25:02,760 --> 00:25:04,200
Speaker 5: At higher levels of valuation.

499
00:25:04,359 --> 00:25:07,440
Speaker 9: That has been the case this whole rally, that being

500
00:25:07,480 --> 00:25:10,920
Speaker 9: set at twenty three times forward earnings. Now with inequity

501
00:25:10,960 --> 00:25:13,919
Speaker 9: risk premium trading at like fifteen or twenty basis points,

502
00:25:14,119 --> 00:25:17,080
Speaker 9: we would say valuation looks very full to rich, and

503
00:25:17,119 --> 00:25:18,919
Speaker 9: so we want to be hedging across some of these

504
00:25:18,920 --> 00:25:20,240
Speaker 9: exposures in the news yesterday.

505
00:25:20,240 --> 00:25:22,160
Speaker 2: I don't want you to talk about an individual stock.

506
00:25:22,200 --> 00:25:24,920
Speaker 2: I'm sure Morgan stealing compliance won't let you in the building.

507
00:25:25,359 --> 00:25:31,560
Speaker 2: But I look at Verizon, Okay, ten years total return, Paul,

508
00:25:31,600 --> 00:25:35,879
Speaker 2: they killed it four point five five percent yep, Verizon,

509
00:25:36,200 --> 00:25:40,000
Speaker 2: complete failure of a stock. Switch to CEO. Yesterday they

510
00:25:40,000 --> 00:25:42,840
Speaker 2: got the guy from PayPal in now. I got a

511
00:25:42,880 --> 00:25:46,679
Speaker 2: dividend of six point sixty six percent. It's trading like

512
00:25:46,720 --> 00:25:49,760
Speaker 2: a Banana Republic yield. And I got a five year

513
00:25:49,840 --> 00:25:54,360
Speaker 2: dividend growth rate of one point ninety five percent, Dan scaley,

514
00:25:54,680 --> 00:25:58,520
Speaker 2: how does our audience, our viewers are our listeners, how

515
00:25:58,520 --> 00:26:01,400
Speaker 2: do they avoid a trail like Verizon?

516
00:26:01,520 --> 00:26:03,560
Speaker 9: Keep an eye on the dividend growth, right, so we

517
00:26:03,880 --> 00:26:06,520
Speaker 9: if we even have high dividend or above average event yield,

518
00:26:06,600 --> 00:26:09,240
Speaker 9: you need a modicum of growth as well, because that's

519
00:26:09,240 --> 00:26:13,320
Speaker 9: a signal that's happening in other care nominal GDP fair,

520
00:26:13,359 --> 00:26:16,240
Speaker 9: that's happening in other telco carriers number one, Number two.

521
00:26:16,440 --> 00:26:19,320
Speaker 9: There are other sectors where you can source decent yield

522
00:26:19,440 --> 00:26:23,879
Speaker 9: and growth banks. One of them healthcare another example. So

523
00:26:24,160 --> 00:26:27,080
Speaker 9: what sectors are screening well for you? What factors are

524
00:26:27,119 --> 00:26:27,720
Speaker 9: screening wealth for you?

525
00:26:27,720 --> 00:26:29,240
Speaker 6: I'm not sure how you guys kind of do.

526
00:26:29,240 --> 00:26:32,720
Speaker 9: That, yeah, Paul. So it's been a very momentum bias market.

527
00:26:32,800 --> 00:26:36,120
Speaker 9: As we all know, it's been a junkier market, particularly

528
00:26:36,160 --> 00:26:40,840
Speaker 9: since April expectations around fiscal spend FED cuts. What we

529
00:26:40,880 --> 00:26:43,400
Speaker 9: want to do today is favorite quality, no doubt, as

530
00:26:43,440 --> 00:26:46,840
Speaker 9: defined by high profit margins and strong balance sheets, and

531
00:26:46,960 --> 00:26:50,520
Speaker 9: we're finding that today with a catalyst. Finally is healthcare.

532
00:26:50,640 --> 00:26:52,320
Speaker 9: I mean, look at the action and healthcare over the

533
00:26:52,400 --> 00:26:54,719
Speaker 9: last week or two. This is a sector we've been

534
00:26:54,760 --> 00:26:57,520
Speaker 9: pitching for the last three months. We think we're finally

535
00:26:57,560 --> 00:27:01,040
Speaker 9: past the point of maximum policy fee, and we're seeing

536
00:27:01,040 --> 00:27:03,960
Speaker 9: positive revisions on the earnings line, not.

537
00:27:03,920 --> 00:27:06,040
Speaker 2: You, but your securities. In analysis, what do they say

538
00:27:06,080 --> 00:27:09,040
Speaker 2: about the train wreck known as UNH.

539
00:27:09,200 --> 00:27:11,719
Speaker 9: So our analysts have been positive on you and ah,

540
00:27:11,800 --> 00:27:15,120
Speaker 9: it's been a bumpy road. Look, they had eighteen quarters

541
00:27:15,160 --> 00:27:18,080
Speaker 9: in a row, going back many years of beaten raised

542
00:27:18,200 --> 00:27:21,000
Speaker 9: a Swiss watch, like many themes, and you just mentioned

543
00:27:21,080 --> 00:27:24,040
Speaker 9: earlier one a minute ago, Like many examples. This year

544
00:27:24,080 --> 00:27:26,480
Speaker 9: they had a management change, and the new management is

545
00:27:26,520 --> 00:27:29,080
Speaker 9: the old management who took them through the previous era.

546
00:27:29,480 --> 00:27:33,200
Speaker 9: We've seen tremendous CEO change this year, I think record change.

547
00:27:33,200 --> 00:27:35,760
Speaker 9: And you've probably noted this as well. I just think

548
00:27:35,800 --> 00:27:39,840
Speaker 9: it speaks to how dynamic and challenging the environment is UNH.

549
00:27:39,880 --> 00:27:42,239
Speaker 2: The yield, even with a trouble marked down here with

550
00:27:42,280 --> 00:27:47,439
Speaker 2: all their challenges, two point five percent yield, thirteen percent

551
00:27:47,520 --> 00:27:50,119
Speaker 2: dividend growth rate. So it's like you polar opposite of

552
00:27:50,160 --> 00:27:50,679
Speaker 2: a Rizon.

553
00:27:50,800 --> 00:27:51,040
Speaker 5: Yep.

554
00:27:51,520 --> 00:27:53,359
Speaker 2: Yeah, But I want to make clear folks, I'm bringing

555
00:27:53,359 --> 00:27:56,720
Speaker 2: these names up. Mister Skelley, Good morning Ted. I'm bringing

556
00:27:56,760 --> 00:27:58,240
Speaker 2: the names up, not Dan Skelley.

557
00:27:58,280 --> 00:28:00,520
Speaker 6: Get my little down compliance over there more and Stanley

558
00:28:01,040 --> 00:28:01,280
Speaker 6: s ANDP.

559
00:28:01,440 --> 00:28:02,240
Speaker 5: Healthcare index.

560
00:28:02,440 --> 00:28:04,359
Speaker 7: You know, it's up like eleven to twelve percent since

561
00:28:04,720 --> 00:28:10,000
Speaker 7: early August. So a nice little pop there, Dan, What

562
00:28:10,040 --> 00:28:11,800
Speaker 7: are we doing with earnings coming up here in a

563
00:28:11,840 --> 00:28:14,639
Speaker 7: week or so. Earnings have to be I think they

564
00:28:14,680 --> 00:28:17,080
Speaker 7: have to be pretty darning good to support this multiple here.

565
00:28:17,320 --> 00:28:19,359
Speaker 9: Yeah, Paul, we're going to continue to see mag seven

566
00:28:19,359 --> 00:28:22,639
Speaker 9: earnings momentum. All of our digital ad checks, for example,

567
00:28:23,080 --> 00:28:25,040
Speaker 9: have checked very strong in the last week or two.

568
00:28:25,160 --> 00:28:28,679
Speaker 9: Number one, Number two consumer spending continues to power onwards,

569
00:28:28,720 --> 00:28:32,280
Speaker 9: so that should be positive. E commerce number three, cloud

570
00:28:32,359 --> 00:28:36,320
Speaker 9: acceleration in that cohort has been positive for several quarters.

571
00:28:36,320 --> 00:28:38,960
Speaker 5: We see no end in sight. So here's the key question.

572
00:28:39,120 --> 00:28:41,960
Speaker 9: The dollar less of a tail when this quarter versus

573
00:28:42,080 --> 00:28:45,360
Speaker 9: last quarter. And secondly, we collected more tariff revenue this

574
00:28:45,440 --> 00:28:49,160
Speaker 9: quarter versus last quarter. So those are two potential challenges

575
00:28:49,200 --> 00:28:52,360
Speaker 9: that did not exist in two Q, meaning we probably

576
00:28:52,400 --> 00:28:54,400
Speaker 9: don't have as much of a beat this quarter.

577
00:28:54,560 --> 00:28:55,640
Speaker 5: We have somewhat of a beat.

578
00:28:56,040 --> 00:28:58,360
Speaker 6: Interesting, Yeah, I didn't think about the dollar there be.

579
00:28:58,400 --> 00:29:00,600
Speaker 9: Sent flat flat line exactly exactly.

580
00:29:00,760 --> 00:29:01,840
Speaker 6: Yeah, into that big saw.

581
00:29:02,960 --> 00:29:05,360
Speaker 2: This was brilliant, Dan Scully, don't be a stranger. I'm really,

582
00:29:05,400 --> 00:29:08,600
Speaker 2: really good on and dividend growth. Mr Skelly sells on

583
00:29:08,600 --> 00:29:12,880
Speaker 2: mortgage Stanley's Wealth Management, market research and strategy team.

584
00:29:13,520 --> 00:29:18,400
Speaker 1: This is the Bloomberg Surveillance Podcast, available on apples, Spotify,

585
00:29:18,520 --> 00:29:22,800
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586
00:29:22,920 --> 00:29:26,360
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587
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589
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