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Speaker 2: This is Bloomberg business Week inside from the reporters and
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Speaker 2: Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Speaker 1: Carol Master along with Tim Stenovik, live at Bloomberg invest
Speaker 1: in downtown Manhattan. Well, the nowzech one hundred. You know
Speaker 1: some of the numbers. It's up nearly forty percent from
Speaker 1: the late October low and video is up more than
Speaker 1: one hundred and fifty percent this year, one five h
Speaker 1: percent this year. Super micro computers up two hundred percent,
Speaker 1: Metas up more than forty Netflix is up forty.
Speaker 3: I mean, we could go.
Speaker 1: On and on and on.
Speaker 4: Alphabet thirty percent so far this year.
Speaker 5: Even better, Let's get to someone who is constantly tracking
Speaker 5: the global equity market and patterns, who earlier at Bloomberg
Speaker 5: invest talked about tech, talked about the tech bubble two
Speaker 5: point zero or nuts with us as Bomberg Intelligence Global
Speaker 5: had a portfolio strategy and chief equity strategist, Gina mard Adams.
Speaker 5: She's here on site at Bloomberg invest So a bubble,
Speaker 5: yeah your name?
Speaker 1: Well did you first of all, did you ask the
Speaker 1: audience if they thought no, okay, good, okay?
Speaker 6: I had no time only only to share all of
Speaker 6: my immense amount of slides.
Speaker 4: And the research shows that yeah.
Speaker 6: So look, a lot of the research we did really
Speaker 6: just compared the current environment to nineteen ninety nine, which
Speaker 6: I think most people think of as the classic bubble.
Speaker 6: But we do look at three really key differences between
Speaker 6: today's market environment and bubbles of the past. The first
Speaker 6: is sentiment and price trend. What we've seen in the
Speaker 6: market over the last five years is an eighty five
Speaker 6: percent ascension in prices. If you can look at big
Speaker 6: bubbles like the late nineteen nineties, the late nineteen twenties,
Speaker 6: you had four hundred percent gains in some cases, you know,
Speaker 6: at least two hundred percent. So this is just a
Speaker 6: tiny gain over the last five years because we've had
Speaker 6: those major corrections in the process. The second thing to
Speaker 6: think about is really fundamentals. When you look at valuations,
Speaker 6: you know, valuation spreads are nowhere near peak levels of
Speaker 6: even twenty twenty one, which you could claim was the
Speaker 6: market bubble, or two thousands, so valuation spreads are nowhere
Speaker 6: near those levels. Valuation spreads when we look at the
Speaker 6: most expensive stocks and compare those to the least expensive stocks,
Speaker 6: I do believe are the best representative of what sort
Speaker 6: of market sentiment or froth exists, because the earnings environment
Speaker 6: has really supported rotation into those more expensive stocks. For
Speaker 6: the most part, the priciest stocks in the index are
Speaker 6: actually the price that the stocks that have earnings growth,
Speaker 6: because there just hasn't been a lot of earnings growth elsewhere.
Speaker 1: You're just back from traveling, yes, and I'm sure you've
Speaker 1: been talking about this. Yes, Are there believers? Are people
Speaker 1: more skeptical about the runout?
Speaker 6: You know, I think there are a lot of skeptics.
Speaker 6: There are a lot of people that are just very worried.
Speaker 6: The concern really really emanates from concentration risk, though, which
Speaker 6: is the third kind of third point of how this
Speaker 6: environment is different, because we're incredibly sensitive today to what
Speaker 6: goes on in tech. I mean, before the advent of
Speaker 6: even the AI acceleration, tech was thirty percent of the
Speaker 6: market cap of the S and P five hundred back
Speaker 6: in the peak of the market bubble in ninety nine
Speaker 6: two thousand. We didn't get that, you know, it was
Speaker 6: just there, just wasn't this kind of influence. AI in
Speaker 6: particular has an extraordinary amount of influence, and it's a
Speaker 6: global phenomenon, and that's what fear. But what sparks a
Speaker 6: lot of fear is we are very dependent upon a
Speaker 6: continued solid environment for tech stocks. Can we trust tech stocks?
Speaker 6: Can we trust these companies are going to be able
Speaker 6: to put up this kind of earnings growth? It is
Speaker 6: anticipated by the consensus? And can you make money in
Speaker 6: an environment where such a few amount of stocks is
Speaker 6: actually carrying the index growth? And so there's a frustration.
Speaker 1: You gave us questions that we should probably ask can
Speaker 1: we trust? Can you make money? Yeah?
Speaker 7: You can?
Speaker 6: But it's very narrow, okay, right, And it's very difficult
Speaker 6: to beat the index. Think about across markets. Most major
Speaker 6: markets have stronger index level returns down in the United
Speaker 6: States over this quarter, yet the index is up. It's
Speaker 6: the same in many markets around the world. So it's
Speaker 6: really difficult if you're an active manager to be the
Speaker 6: index without leaning really heavily into AI in tech right now.
Speaker 6: And that makes folks fair, which.
Speaker 1: Just kind of feeds thing, right, The momentum.
Speaker 3: It does.
Speaker 6: I think that there has been this very big earnings
Speaker 6: case for tech stocks, though in AI stocks at large,
Speaker 6: and that's going to change in the second half of
Speaker 6: this year. And this is what we spend a lot
Speaker 6: of our time talking about, is can we get that
Speaker 6: incremental change in fundamentals that can support rotation into other
Speaker 6: parts of the market. We've been waiting and waiting and
Speaker 6: waiting for it. We've also been contending with this rolling
Speaker 6: recession throughout various industries for the last two years. It's
Speaker 6: just really difficult for investors who are accustomed to kind
Speaker 6: of the cycle, the economic cycle driving everything, and this
Speaker 6: has been a very different cycle.
Speaker 5: Gina, How are you in the team thinking about productivity
Speaker 5: growth as a result of AI being implemented at companies
Speaker 5: that are not tech companies.
Speaker 6: Yeah, we think about it. It's not in any numbers yet. No,
Speaker 6: it's not in any numbers. It's not even mentioned by companies.
Speaker 5: So the way that you work on it, But how
Speaker 5: do you think about that that it's like, Okay, we're
Speaker 5: talking about all the AI. Yeah, that's happening in terms
Speaker 5: of the training of these lams, all the chips that
Speaker 5: Nvidia is selling all the chips that folks are buying,
Speaker 5: but what's the ultimate.
Speaker 6: It's all inside tech and communications. So far, it's like
Speaker 6: this one little unit inside very big unit actually inside
Speaker 6: the broader market. So we're seeing implementation, we're seeing buying,
Speaker 6: We're seeing all of the AI impact occur inside tech
Speaker 6: and communications or TMT industries with some consumer discretionary because
Speaker 6: Amazon is a consumer discretionary company, right.
Speaker 4: So that's why.
Speaker 6: Yeah, So it's really it's very centered right now. Now,
Speaker 6: will it SPA. You know, we're tracking a number of things.
Speaker 6: We look at transcripts from companies every quarter and we
Speaker 6: track their mentions of AI and their degree of optimism
Speaker 6: around AI. We look at the Census Bureau does a
Speaker 6: lovely survey of all industries and they are planned and
Speaker 6: implementation and impacts from AI. So we look at that
Speaker 6: that's every other week. There are sectors that are starting
Speaker 6: to mention it as a potential having some potential, and
Speaker 6: that's largely financials in real estate so far. So we're
Speaker 6: watching financials in real estate. Utilities are suspiciously not mentioning AI.
Speaker 6: So that's the other side of the story is for
Speaker 6: some reason, there's this market frenzy around utilities being a
Speaker 6: huge beneficiary. Utilities companies themselves are saying, oh, stop, that's interesting.
Speaker 6: They're not even mentioning it yet, and they're not talking
Speaker 6: about it really benefiting them or spending on it.
Speaker 1: So that's fascinating because at milk and that was a
Speaker 1: big play. It wasn't Nvidia and the chips necessarily that
Speaker 1: was interesting tools, but it was and the energy needed
Speaker 1: for data centers.
Speaker 7: You know.
Speaker 1: One of the things that was interesting yesterday is pul
Speaker 1: Quirk came out corporation. They do polls, and they were
Speaker 1: talking about, yes, they were still doing maintenance, sales and stuff,
Speaker 1: but people weren't spending so much. It was another consumer
Speaker 1: discretionary or sign of a consumer discretionary slowdown. How are
Speaker 1: you thinking about that space and maybe what it tells
Speaker 1: us about those companies.
Speaker 6: But the economy, Yeah, sure, we talked about this a
Speaker 6: lot coming into twenty twenty four because we are anticipating
Speaker 6: seeing a consumer slowdown in twenty twenty four and the
Speaker 6: consumer sectors do look somewhat vulnerable to that slowdown, consumer
Speaker 6: discretionary and consumer staples. Now, what's really interesting about this
Speaker 6: is this could have very small impacts on the s
Speaker 6: and P five hundred at large. And this goes to
Speaker 6: the concentration of market cap in the S and P
Speaker 6: five hundred, which is less and less about consumers. I've
Speaker 6: been in this business long enough to remember when I
Speaker 6: really cared about what was happening for the consumer, because
Speaker 6: consumer retail was a big portion of the s and
Speaker 6: P five hundred, So not so much, it's tiny. Now,
Speaker 6: think about name and the name of retailer in the
Speaker 6: s and P five hundred. That's not Target or Walmart.
Speaker 6: You can't because yeah, or Amazon. Those are home improvement
Speaker 6: on Amazon. Yeah, Amazon, which is more a tech company
Speaker 6: consumer retailer. Right. So, but it's very difficult to get
Speaker 6: that read through.
Speaker 5: But what about a company like meta platforms it's suppor
Speaker 5: or alphabet that are supported through advertising right now?
Speaker 4: Yes, if those companies that are.
Speaker 5: Paying to advertise are not seeing their customers show up,
Speaker 5: then they're going to pull back on advertising.
Speaker 6: Well, let's think about the companies that are paying for advertising.
Speaker 6: Are they car companies? Are they housing companies? What kind
Speaker 6: of companies pay for advertising?
Speaker 8: Now?
Speaker 6: And you need That's where I think we need to
Speaker 6: do the mental gymnastics, because we make the presumption that
Speaker 6: we live in this environment that existed ten or fifteen
Speaker 6: years ago. But what if Netflix is the primary buyer
Speaker 6: of ads? What if Disney is the primary buyer of
Speaker 6: ads and those expenditures are no longer discretionary expenditures for
Speaker 6: the consumer, They're staples, right, So I think you have
Speaker 6: to you have to do the work to think through
Speaker 6: the impacts of all of these economic indicators that and
Speaker 6: I completely agree with you. I spent my life prior
Speaker 6: to becoming a strategist as a consumer economist. The consumer
Speaker 6: was my life, my life blood. I thought that was
Speaker 6: the end all be all, And then I have spent
Speaker 6: the last fifteen years as an equity strategist understanding that
Speaker 6: my consumer forecast is only going to peripherally impact my
Speaker 6: equity market forecast.
Speaker 1: So just got about thirty seconds. The lifeblood of the
Speaker 1: equity market is what then? Now? Tech?
Speaker 7: That's it.
Speaker 6: I mean forty percent of the market cap of the
Speaker 6: index is tech plus Meta and Google and Amazon.
Speaker 1: And Tesla and justifiably.
Speaker 6: And that is what drives the US equity market from
Speaker 6: large cap perspective. Now small cups is a very different animal,
Speaker 6: and I think we should be watching this pretty carefully
Speaker 6: because small caps is more about healthcare and financials, a
Speaker 6: little bit of energy industrials. Small caps have been basically
Speaker 6: flatlining for three years running, we keep talking about and
Speaker 6: it may be more reflective of what's going on in
Speaker 6: the broader economy than the large cup index.
Speaker 1: Such good stuff. Thank you so much, so appreciate it.
Speaker 1: We know you've been traveling a lot, so good to
Speaker 1: get some time. Bloomberg Intelligence Global of Portfolio Strategy and
Speaker 1: Chief Equity Strategist Gina Martin Adams.
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Speaker 1: You are listening and watching Bloomberg BusinessWeek. We're live at
Speaker 1: Bloomberg invest in downtown Manhattan. And what's interesting about Bloomberg
Speaker 1: invest is that you end up getting to hear from
Speaker 1: people from all of the investment world, really just different
Speaker 1: types of investing, different types of investing platforms. And that
Speaker 1: really brings us to our next guest, and she happens
Speaker 1: to be one of Bloomberg Business week's ones to watch.
Speaker 1: These are the investors, money managers, executives and strategists who
Speaker 1: are shaping the future of finance.
Speaker 5: We're talking about Elise Colleen, who founded the venture capital's
Speaker 5: firm still Mark five years ago, offering up both institutional
Speaker 5: venture capital and knowledge and expertise in Bitcoin. At Last
Speaker 5: joins us more for more on her journey in today's
Speaker 5: landscape here at bloom Burg invest Atleast.
Speaker 8: How are you, I'm well, thank you for having me.
Speaker 5: Well, thanks so much for joining us. Before we get
Speaker 5: into what you guys are doing, I just got to
Speaker 5: get your comments on what we heard from SEC chair
Speaker 5: Gary Gensler. I don't know if you were in there listening,
Speaker 5: of course, okay, because he spoke a little earlier and
Speaker 5: he declined to give a timeline for launching spot Ether ETF,
Speaker 5: but did say that it's going smoothly, and he said
Speaker 5: there's also significant non compliance when it comes to crypto.
Speaker 4: How do you take us comments?
Speaker 8: So Gensler has been very consistent in the guidance that
Speaker 8: he's provided to the crypto and bitcoin ecosystems, and I
Speaker 8: thought that his comments today we were consistent with comments
Speaker 8: of the past. We know that many operators in the
Speaker 8: crypto sphere are operating in a non compliant way. Still, Mark,
Speaker 8: of course, is focused on the Bitcoin landscape, so that
Speaker 8: falls outside of our mandate, though we're tracking it nonetheless.
Speaker 8: On the ETF side, of course, while we expect and
Speaker 8: it seems Gary Gensler also expects for an Ethereum spot
Speaker 8: ETF to be live this year. What we've seen in
Speaker 8: other markets, for example, in Hong Kong, where the Bitcoin
Speaker 8: and Ethereum ETF spot ETF's launched on the same day,
Speaker 8: we saw much more modest activity around the spot ETF
Speaker 8: relative to Bitcoin. In Hong Kong, we saw about fourteen
Speaker 8: percent of the activity and assets go to ethereum and
Speaker 8: the rest of that balance go to Bitcoin.
Speaker 1: You know, if you could talk to Share Gensler right now,
Speaker 1: what would you ask him or what would you want
Speaker 1: to discuss with him?
Speaker 8: I think where we're curious how he will move forward
Speaker 8: is around issues related to money transmission and how that
Speaker 8: relates to Bitcoin's payment network, the Lightning network. We are
Speaker 8: interested and hopeful that those at the SEC will take
Speaker 8: a researched and studied approach to how they will designate
Speaker 8: money transmitters in the field so that they are precise
Speaker 8: and discrete in those definitions, rather than taking a broad
Speaker 8: swipe at defining actors as money transmitters where they wouldn't
Speaker 8: properly otherwise.
Speaker 1: Be you're making investments in that air, of course, said
Speaker 1: where you know when you look at the VC landscape
Speaker 1: or what you guys are involved in, is that where
Speaker 1: a lot of the money's going in the opportunistic aspect
Speaker 1: of the crypto world or Bitcoin specifically.
Speaker 8: So in Bitcoin, about half of our current investments is
Speaker 8: in the payment space. Right We've invested heavily in Lightning
Speaker 8: network infrastructure, so both at the core protocol level, in
Speaker 8: companies that are developing sort of the AWS model to
Speaker 8: the payments network, and then in data companies that provide
Speaker 8: compliance so KYCML services for payments on Lightning as well
Speaker 8: as routing across this payment channel network.
Speaker 3: While that's an.
Speaker 8: Opportunity, there's a breadth of opportunities in the Bitcoin private
Speaker 8: market space. We invest in payments, of course, but we've
Speaker 8: also invested in opportunities around Bitcoin as an asset and
Speaker 8: have been really excited to see that ecosystem so quickly mature,
Speaker 8: including upon the tailwinds of the robustness of activity for
Speaker 8: the Bitcoin ETF.
Speaker 5: Talk a little bit about the opportunity you see when
Speaker 5: it comes to the payments network and Lightning specifically here,
Speaker 5: because I'm curious about the way that people buy bitcoin
Speaker 5: right now and sort of how you think about somebody
Speaker 5: who is quote unquote investing in bitcoin. Sure, because it
Speaker 5: seems like still it's looked at as something that will
Speaker 5: increase in value, and it's the type of thing that
Speaker 5: will go up in value to a lot of the
Speaker 5: bowls out there. I don't think it's widely seen yet
Speaker 5: as something to be used to transact.
Speaker 8: Yes, that's changing. So we know that over the twenty
Speaker 8: more twenty four month period between twenty twenty one and
Speaker 8: twenty twenty three, ending August twenty twenty three, there was
Speaker 8: a twelve hundred percent growth in Bitcoin's payment network. We
Speaker 8: know that about seven hundred thousand monthly active users are
Speaker 8: leveraging the network and they're using it to make payments
Speaker 8: that average twelve dollars per transaction. So payments that are
Speaker 8: most efficient cost effective on the Lightning network versus traditional
Speaker 8: financial networks. Now something relevant.
Speaker 1: To chase small payments.
Speaker 8: Exactly fifty percent of payments on the Lightning network are
Speaker 8: micro payments in fact, so they're transacting at pennies, quarters,
Speaker 8: fifty cents.
Speaker 1: Mostly we don't know where they are or do we
Speaker 1: know where they're happening.
Speaker 8: We do know where they're happening. So there's a lot
Speaker 8: of Lightning Network adoption in emerging markets, as you've begun
Speaker 8: to say, but we're also seeing payments in gaming, and
Speaker 8: we will see payments in the AI and LLM space.
Speaker 8: That's been relevant to today's conversations across money managers on stage.
Speaker 8: We've heard a lot about the most important investment opportun
Speaker 8: news of the next ten years being the energy transition
Speaker 8: and LLM and AI infrastructure. In AI and LLLM and infrastructure,
Speaker 8: you have to be thinking about the proper the proper
Speaker 8: payment partner to the new capabilities introduced by this emerging field.
Speaker 5: It's such a volatile currency though, in the sense that
Speaker 5: you know, up four percent today but could be down
Speaker 5: you know, twenty percent from just recent highs as of yesterday.
Speaker 5: Does that hold it back as something to be used
Speaker 5: for payments?
Speaker 8: Well, so for payments, and especially if we're talking about
Speaker 8: micro transactions, we're talking about short duration hold we're really
Speaker 8: talking about using bitcoin as an infrastructure rather than as
Speaker 8: an asset, so you're.
Speaker 5: Not holding it for long. You can exactly to fiat
Speaker 5: currency very quickly.
Speaker 8: That's exactly right. But there's something else happening in Lightning
Speaker 8: beyond its match to AI and LM activity, and that
Speaker 8: is that stable coins are coming to Lightning network, so soon,
Speaker 8: as soon as the end of this year, you'll be
Speaker 8: able not just to transact bitcoin, but to transact digital
Speaker 8: dollars on Lightning, and that solves the pain point that
Speaker 8: you addressed of bitcoin's volatility, which is relevant to certain
Speaker 8: populations for sure.
Speaker 1: At least just got about a minute left. What does
Speaker 1: a mature bitcoin payment world look like? In your view, a.
Speaker 8: Mature bitcoin payment world looks like reliable payments, payments that
Speaker 8: can meet Visa's threshold of ninety nine point ninety nine
Speaker 8: percent payment reliability. It looks like businesses and enterprise being
Speaker 8: able to operate payments in a compliant way that's consistent
Speaker 8: with their existing payment operations. And we're seeing the ecosystem
Speaker 8: developed to introduce enterprise tools that allow that, including through
Speaker 8: portfolio companies of ours such as Ambus Technologies.
Speaker 1: When does it happen.
Speaker 8: It's happening now.
Speaker 1: But in a real wide mass adoption.
Speaker 8: I see so first first movers have adopted lightning for payments.
Speaker 8: Those with the most acute pain points, like those sending
Speaker 8: cross border payments, have begun to adopt. And from the
Speaker 8: learnings of those pilots and early movements, we will see
Speaker 8: other businesses follow that are seeking more efficient and cheaper payments.
Speaker 1: Very cool stuff, really fascinating. Thank you so much. We
Speaker 1: totally get why you are one of the ones to
Speaker 1: watch by Bloomberg Business Week. At least Colleen, thank you
Speaker 1: so much. Thank you so much, really appreciate. She's founding
Speaker 1: partner at still Mark. Here at Bloomberg in Bath.
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Speaker 1: Larrah alligans with them. She's Steve, investment officer at Neuveen.
Speaker 1: Talk about man, They've got so much under management, see
Speaker 1: so much when it comes to investor, think if you will.
Speaker 1: Sarah is chief investment officer and she also manages more
Speaker 1: than one hundred billion dollars in equity strategies. She joins
Speaker 1: us here from Bloomberg invest Hello, Helo, Hi.
Speaker 3: Good to see you.
Speaker 1: It's been that kind of weekday year, you know, the momentum.
Speaker 1: How do you see the environment right now? When there
Speaker 1: is it feels like Sarah like some conflicting signals out there.
Speaker 9: Well, first of all, just looking at the markets with
Speaker 9: the consolidation that we're seeing in stocks like in Vidio.
Speaker 9: I mean, markets were up something like eight out of
Speaker 9: nine days just recently. In Nvidia has been just flag
Speaker 9: bearer stock for the rally we've seen year to date.
Speaker 9: Nvidia is just back at early June level. So this
Speaker 9: consolidation in the market cap loss for that stock is
Speaker 9: not a huge deal.
Speaker 3: It's just raising a couple.
Speaker 1: Of weeks cosses in your view.
Speaker 9: And I think what we need to focus on on
Speaker 9: the second half is three things that see economy, election,
Speaker 9: and earnings. So first looking at the economy, the news
Speaker 9: is not all great. Both the consumer and employment markets
Speaker 9: are starting to show signs of a slowdown. Consumers, we're
Speaker 9: seeing higher delinquencies. We're seeing discounting at fast food restaurants,
Speaker 9: lower foot traffic. Consumer is starting to feel the pain
Speaker 9: the elections of employment markets. Payrolls have been strong, but
Speaker 9: you look at unemployment claims, they're almost at cycle highs.
Speaker 9: Second elections in the second half, we've already seen non
Speaker 9: US volatility in areas like India, South Africa, France, and
Speaker 9: we're approaching the US election. Good news is US markets
Speaker 9: tend to be up in an election year. Mad news
Speaker 9: is we see a lot more volatility. That's probably what
Speaker 9: we'll be looking at in the second half. But it's
Speaker 9: not all doom and gloom. Earnings are looking still pretty strong.
Speaker 9: Second quarter earnings expected to grow over ten percent year
Speaker 9: over year, and I think if companies led by tech
Speaker 9: and dominate earnings again, then the markets should stabilize.
Speaker 5: Okay, you gave us a lot to think about in
Speaker 5: a short time, So I just want to focus on
Speaker 5: the consumer because I have also.
Speaker 1: Been interested, not any calmer after that.
Speaker 5: To see the discounting that we've seen at some of
Speaker 5: the fast food restaurants. And you're mentioning some softness when
Speaker 5: it comes to the labor market. How does that then
Speaker 5: play into tech companies and tech earnings. We just had
Speaker 5: this conversation with Gina Martin Adams and our chief equity
Speaker 5: strategy here at Bloomberg Intelligence, and she talked to us
Speaker 5: about the disconnect between what the can consumer's doing and
Speaker 5: what happens at tech companies with this economy.
Speaker 9: Well, tech companies are all different animals. Let's just start
Speaker 9: everyone talks about the tech sector. Let's look at semiconduction
Speaker 9: versus software. You're to date the gap and perform. This
Speaker 9: is something like forty five percent with semis dominating and crushing.
Speaker 3: Software as a sector.
Speaker 9: So it's all different tech companies that have strong AI tailwinds.
Speaker 9: Of course, we're going to continue to do well because
Speaker 9: AI is here to say it's not just hype. Companies
Speaker 9: need to incorporate that into their business models to drive productivity.
Speaker 9: Consumer related tech companies could start to struggle more.
Speaker 3: But again it depends.
Speaker 9: Look at Meta, which is more of a consumer outlook.
Speaker 9: But they started cutting costs so early in the cycle
Speaker 9: that you saw their first quarter earnings, you know they
Speaker 9: were still strong for at least earning's point of view.
Speaker 9: And Apple, a very consumer driven company where so much
Speaker 9: negativity was getting baked into the stock price. It was lagging,
Speaker 9: and now we're in a cycle of seasonal trade for
Speaker 9: Apple that's been very strong.
Speaker 7: I want to ask you.
Speaker 1: About AI a little bit because it's been like the
Speaker 1: catchword for everyone. I'm getting ready for the next earning cycle,
Speaker 1: you know, So we count how many times executives say
Speaker 1: it having said that AI productivity, we're still figuring that
Speaker 1: out right, We're early in the game. Do you know
Speaker 1: if that starts to see a little bit of a pullback,
Speaker 1: does the market lose a lot of momentum as a result,
Speaker 1: because so much seems to be tied to that narrative.
Speaker 9: Well, that's a great question because tech and AI has
Speaker 9: been such a driver of not owner only earnings, but
Speaker 9: market returns since the beginning of twenty twenty three. So
Speaker 9: what we need to see is for the markets to
Speaker 9: broaden out if tech starts to pull back. If you
Speaker 9: look at second quarter earnings, actually I mentioned they're going
Speaker 9: to be up a little Their consensus is up a
Speaker 9: little over ten percent, right, non tech earnings are expected
Speaker 9: to be up almost eight percent of that, So it
Speaker 9: is supposed to be a broader second quarter earning significant
Speaker 9: If that's true, I think the market broaden out, but
Speaker 9: I agree it's not the healthiest market when it's driven
Speaker 9: by very few companies. It's like a stock with only
Speaker 9: one catalyst. Our catalyst is tech. It's basically in video.
Speaker 9: If in VideA doesn't work, what happens to the rest
Speaker 9: of the market. I think that is add some fragility
Speaker 9: to the markets.
Speaker 5: Hey, speaking of stocks, we are still getting earnings, believe
Speaker 5: it or not. I do want to bring our viewers
Speaker 5: and listeners some news shut us A. FedEx are higher
Speaker 5: by eight percent right now in after hours. The company
Speaker 5: did report fourth quarter adjusted EPs that beat analyst estimates.
Speaker 5: Also said that it sees twenty twenty five adj justed
Speaker 5: EPs to twenty ten dollars from twenty dollars to twenty
Speaker 5: two dollars. The estimate was for twenty dollars and eighty
Speaker 5: five cents, So some optimism.
Speaker 1: Now do you care about it? Like a transportation company
Speaker 1: and what it tells you? Do you look at that
Speaker 1: sector for clues?
Speaker 9: I think transports can be very important clues with the sector.
Speaker 3: I was thinking of FedEx.
Speaker 9: If you asked my family the amount of FedEx is
Speaker 9: and ups is that come to my house? Is a
Speaker 9: telling sign that the transportation sector is still very strong.
Speaker 9: But transportation infrastructure is a sector.
Speaker 3: That we've liked for many years.
Speaker 9: We think it's a multi year, multi decade play for
Speaker 9: a few reasons here. Number one near shoring and on
Speaker 9: shoring of manufacturing and post covid US wants to bring
Speaker 9: manufacturing closer to home. Electrification of our grids to meet
Speaker 9: renewable energy demand. We'll have to increase our grids by
Speaker 9: over fifty percent over the next decade plus. All of
Speaker 9: this is positive for infrastructure. That's a sector which has
Speaker 9: numerous tail ones.
Speaker 5: You're like setting me up perfectly for more breaking news,
Speaker 5: so that we have Sarah Volkswagen plans to make a
Speaker 5: five billion dollar investment into Ribban, Ribbing and Volkswagen plan
Speaker 5: a joint venture for next gen evs. I'm looking up
Speaker 5: shares of the bulk.
Speaker 1: Companies keep spending like they have been given a boost.
Speaker 1: There's a lot of liquidity out there, whether there's government
Speaker 1: you know, infrastructure spending and different kinds of plans. But
Speaker 1: it does feel like I don't know what are we missing.
Speaker 1: What is the big risk? Is it the elections? Is
Speaker 1: it that with this, you know, near shoring onshore, and
Speaker 1: that everything is actually going to be more expensive going
Speaker 1: forward because labor's more expensive. Like a chip made here
Speaker 1: versus a chip may be made over in Taiwan is
Speaker 1: probably going to be more expensive. I don't know, Like,
Speaker 1: what is the big risk that wears you the most.
Speaker 3: Well for a market that wants its rate cuts.
Speaker 9: We've already seen inflation reaccelerate earlier this year, so we
Speaker 9: moderated at the end of last year. It starts reaccelerating
Speaker 9: this year. Now we're seeing it moderate again. If we
Speaker 9: see a few more months of that, we could get
Speaker 9: to your first rate cut. But what if ristrates are
Speaker 9: here to stay? What does that mean for the US deficit?
Speaker 9: What does this mean for companies that are small and
Speaker 9: highly leveraged and want to go public one day if
Speaker 9: the IPO markets aren't that healthy.
Speaker 3: I think it's just so different from where.
Speaker 9: We were from twenty ten to twenty twenty that a
Speaker 9: lot of investors and younger investors aren't used to that.
Speaker 9: If you take a look at history though, pre the
Speaker 9: global financial crisis, going back about fifty years, interest rates
Speaker 9: were federal fund rates were on average a little bit
Speaker 9: below six percent and post the GFC, they were basically
Speaker 9: a little bit below one percent.
Speaker 3: So it's not a new normal, it's just an old normal.
Speaker 9: We're going back to that normal cycle that we saw
Speaker 9: pre the GSC. But I don't know if many of
Speaker 9: us in our careers or even where we are and lifespans.
Speaker 3: Are used to that.
Speaker 4: What did that normal look like?
Speaker 9: Though?
Speaker 4: In terms of.
Speaker 9: Rates, I think it looks you know, if you take
Speaker 9: rates that were sub one percent below post the GFC
Speaker 9: and almost six percent pre the GFC, I think rates
Speaker 9: are probably more normally in the three to four was
Speaker 9: the yead normality post the GFC, right, yeah, right, exactly right, Yeah,
Speaker 9: and they were sub one percent. That's the abnormal period
Speaker 9: rather than the period that we're going back.
Speaker 1: Are we wrong to have the comveration of like, oh
Speaker 1: my god, what is a higher rate environment going? You know,
Speaker 1: we talk about you know the FED, you know, the
Speaker 1: fed's target that maybe it needs to run hotter. Are
Speaker 1: there negative implications or is it?
Speaker 6: No?
Speaker 1: Wait a minute, that's a little bit more kin to
Speaker 1: historically how markets operate, and we do just find.
Speaker 9: I think we just need to evolve how we think
Speaker 9: about it. So the one thing at neuvene is. We're
Speaker 9: very strong in publics and private investings. I've talked about
Speaker 9: how the sixty to forty equity fixed income portfolio will
Speaker 9: evolve to fifty thirty twenty equity fixed income twenty percent
Speaker 9: and altern I mean, sorry, equities fifty percent, fixed income
Speaker 9: thirty and alternatives twenty percent. Why do we like alternatives?
Speaker 9: One is public and private infrastructure fra structure, an area
Speaker 9: with so many tailwinds. Also a hedge for inflation. Farmland
Speaker 9: which is a large part of our alternative portfolio. Farmland
Speaker 9: has beaten inflation by eight and a half percent on
Speaker 9: a thirty year basis. So there's these non public ausset
Speaker 9: classes that are great inflation hedges, provide income to investors
Speaker 9: have all these tailwinds, just need to think differently about
Speaker 9: how is it invest Wait.
Speaker 1: Wait, yea, how does that work?
Speaker 4: How does that work? Lows on farmland? Does that work?
Speaker 9: So farmland you get two things. You get the price
Speaker 9: appreciation of the land. Obviously it only well over time. Right,
Speaker 9: the same with stocks, Right, you get it if you
Speaker 9: sell it.
Speaker 5: But a finite there's a finite amount of farmland, whereas stocks.
Speaker 9: You know, right, which also makes it more of an
Speaker 9: attractive asset class actually, and then the income from farmland
Speaker 9: and the crops, so it is sort of stock and
Speaker 9: bond like income from bonds stock like appreciation.
Speaker 1: Help me out, though, So investors own the farmland, but
Speaker 1: then somebody operates and cultivates it and develops it.
Speaker 7: Yes, And is it.
Speaker 1: Like big companies or is it just big the big
Speaker 1: industrial farmers.
Speaker 3: I mean, it can't be a variety.
Speaker 1: Okay, sorry, it's just fascinating great.
Speaker 5: I mean we have we have the author of this
Speaker 5: book that's out today. It's called Free the Land, How
Speaker 5: we Can Fight Poverty.
Speaker 3: I feel like everything I talk about editorial.
Speaker 4: Earlier today, I mean, this is wild.
Speaker 1: Well they talk about, you know, land as a commodity
Speaker 1: and the commodification I was.
Speaker 4: Talking about it's the ultimate supply demand.
Speaker 1: Exactly right, it is the supply demand. How does climate
Speaker 1: change play into that? Because I do think climate change
Speaker 1: is certainly impacting where we can farm.
Speaker 9: I think it is definitely can impact your crops, your yields.
Speaker 9: A lot of our crops are very concentrated in certain
Speaker 9: regions of the world, soy is concentrated, corn is concentrated.
Speaker 3: Those are risks.
Speaker 9: I think climate the shift to renewable energy is something
Speaker 9: that's important to talk about. I mentioned it's a tail
Speaker 9: for infrastructure. But another area I think is important is
Speaker 9: how from a commodity point of view, we're not necessarily
Speaker 9: ready to cross that bridge to renewable energy. What US
Speaker 9: has been under investing in copper for many years now.
Speaker 9: I think US copper production is down about fifty percent
Speaker 9: in the last quarter century.
Speaker 3: So are we.
Speaker 9: Ready copper, cobalt, lithium, all the things that go into
Speaker 9: electric vehicles, solar wind batteries. Are we ready for that?
Speaker 9: In terms of our commodities. I don't think so we are.
Speaker 1: Does all the money come from the private markets for that?
Speaker 1: In your view? Where does it all come from?
Speaker 9: Ultimately, the money to invest and increase our commodity production.
Speaker 9: I think it can come from a variety of places,
Speaker 9: you know. I'm just I'm more worried. Also, that's inflationary again,
Speaker 9: if we are not, if we don't have the supply
Speaker 9: of commodities to meet our demands to move towards renewable energy,
Speaker 9: then it's going to be inflationary for copper, cobalt, lithium.
Speaker 5: I'm wondering how you're thinking about the role of alternatives
Speaker 5: in someone's portfolio right now, especially if they're not necessarily
Speaker 5: a high net worth individual, because you deal with a
Speaker 5: lot of money of folks who are you know, quote
Speaker 5: unquote normal people who are relying on you for their retirement.
Speaker 9: Well, I think, you know, the race for alternatives is
Speaker 9: that last mile getting it into the hands of the
Speaker 9: individual investor. We are getting it, you know, institution. It's
Speaker 9: an institutional play. It is a high net worth play.
Speaker 9: It's moving in that direction. I think the final mile
Speaker 9: will be getting it into the hands.
Speaker 3: Of institutional investors.
Speaker 9: So that happens, then, I think it will over time
Speaker 9: and if for individual investors, and that that will provide
Speaker 9: them that less correlation in their asset classes in their
Speaker 9: portfolio and more diversification. I started in the industry as
Speaker 9: an investor almost twenty about twenty nine years ago, and
Speaker 9: back then it was, you know, you picked equity, you
Speaker 9: pick fixed income, you know, you picked.
Speaker 3: Real estate as an asset class to work in.
Speaker 9: And now you look today, I mean you can just
Speaker 9: in our firm farm land, at equity, infrastructure.
Speaker 3: There's just so many interesting asset classes now.
Speaker 1: So you've seen a bunch of market cycles. What's interesting
Speaker 1: about this market cycle today and is something different this
Speaker 1: time around?
Speaker 9: Well, I was a small cap growth investor in the
Speaker 9: late nineties. I am still a global equity portfolio manager.
Speaker 9: So I've been investing, you know, from pre from about
Speaker 9: the mid nineties until today. So people talk about the
Speaker 9: tech bubble, what's AI? Does it look like the Internet
Speaker 9: bubble that we saw in the late nineties. I think
Speaker 9: it's different in the sense, first of all, as an
Speaker 9: investor in the late nineties, when the Internet first started
Speaker 9: to become something that was more widely known, we had
Speaker 9: so many companies. We all remember ipets and all the
Speaker 9: different companies that you could invest in that weren't really
Speaker 9: on a path to profitability. Today, in artificial intelligence, there's
Speaker 9: basically two huge players in Vidia, Microsoft, some other players.
Speaker 9: Supply is limited of public companies. Given the rate regime
Speaker 9: we're in, it's not as easy to take a small company,
Speaker 9: make it profitable, take it public.
Speaker 3: So I think we have.
Speaker 9: A huge supply demand imbalance, which is why you've seen
Speaker 9: these huge runs in these AI so distortion in the
Speaker 9: public markets because of that huge.
Speaker 3: Demand lack of supply.
Speaker 1: I don't I don't if it just doesn't lead to
Speaker 1: some kind of distortion.
Speaker 9: Well, if you look at Nvidia on a valuation basis,
Speaker 9: actually trace it a discount to the semiconductor sector average.
Speaker 9: It's not an expensive So everybody keeps saying if you
Speaker 9: look at their earnings growth and their earnings power, it's
Speaker 9: it's not actually in expensive spot. So that's I think
Speaker 9: that's what you know is the pushback on the bears.
Speaker 3: On in video.
Speaker 1: All right, but oh sorry, so finish.
Speaker 3: But like we learned in.
Speaker 9: Late nineties, consolidation phases will exist when when there's a
Speaker 9: new technology and a shift like we're seeing to AI.
Speaker 1: I'm just going to say, this is the podcast to
Speaker 1: download on your way home. If you missed any of
Speaker 1: it came in midway, this is the one to listen to.
Speaker 1: What did jem Thank you so much? Really appreciate me?
Speaker 1: Sarah Malliks. She's chief investment officer at Nudie and joining
Speaker 1: us right here at Bloomberg invest.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Can't Us
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Speaker 1: All right, So there's headlines happening, there's people surrounding, there's
Speaker 1: a little bit of a break at Bloomberg Investment. We
Speaker 1: are here with the individual who has been working her
Speaker 1: butt off, i can say, over the last few months
Speaker 1: to put this together. Bloomberg Global Finance Correspondent Shanelli Bossik
Speaker 1: is here. She is, of course, co host to with
Speaker 1: Tim on Bloomberg Crypto Tuesdays on Bloomberg TV. How are
Speaker 1: you How are you doing in? I don't know what
Speaker 1: are you taking away from the events so far?
Speaker 10: I think you hear the background, You're running off adrenaline
Speaker 10: a little bit here.
Speaker 7: It feels like a.
Speaker 4: Sports game, especially with these headsets on right.
Speaker 10: Yeah, no, seriously, but it does feel like game time
Speaker 10: here because we're halfway through the year. Obviously a lot
Speaker 10: of concerns, you're sure you've been covering a lot of them,
Speaker 10: but there's also a lot of optimism in terms of
Speaker 10: the way things might shape up. So, for example, when
Speaker 10: we were just talking to Paula Taubman, who's the COEOPJT Partners,
Speaker 10: and he's in an industry investment banking where things have
Speaker 10: not rebounded, and you know, he thinks he thinks that
Speaker 10: after the election cycle into next year, there's more clarity
Speaker 10: and so maybe we're not operating on the time horizons
Speaker 10: here that anyone would like to be really benefiting from
Speaker 10: the fruits of their investments.
Speaker 7: But next year might be a brighter year.
Speaker 5: Okay, Paul Talbyn just one of the many folks who
Speaker 5: you've already interviewed today. Give us a rundown of some
Speaker 5: of the conversations that you've had.
Speaker 7: Yeah, one of the.
Speaker 10: More interesting conversations also is with Cliff Astness. Cliff Astes
Speaker 10: is the federal AQR, of course, and remember he had
Speaker 10: a couple of tough years there before the COVID pandemic hit.
Speaker 10: He's had a historic rebound, record breaking returns at his
Speaker 10: fund and he thinks the market is less efficient now.
Speaker 10: That has a lot of ramification. Why he thinks it's
Speaker 10: a few reasons. He thinks that the prolonged low interest
Speaker 10: rates could be a candidate for why this has happened.
Speaker 10: Mean stocks putting some pricing out of whack with fundamentals,
Speaker 10: passive investing, and a lot of debate about how much
Speaker 10: each of those things is playing a role to the
Speaker 10: wild price movements, astortion and prices that we're seeing in
Speaker 10: the market.
Speaker 1: If there's you know, it's so funny, like we'll go
Speaker 1: to some kind of event, you know this, You go
Speaker 1: to a financial event and there's like something everyone is
Speaker 1: talking about. I feel like increasingly it's been a lot
Speaker 1: of AI. Is there something In years past it's been
Speaker 1: crypto weallyk at about thirty seconds. Is there something that
Speaker 1: you feel like?
Speaker 7: Private assets?
Speaker 1: Private assets?
Speaker 7: Everyone had something.
Speaker 4: To say, meaning alternatives.
Speaker 10: Alternatives, private, private equity, venture capital.
Speaker 7: How do you get in and how do you not
Speaker 7: get hurt when you get They don't know yet, right,
Speaker 7: they don't know yet.
Speaker 5: There are a lot of people who were worried about
Speaker 5: pain and private equity coming down the pipe.
Speaker 1: Well, and I think about we just don't know in
Speaker 1: private credit. I mean, there's so much money chasing it
Speaker 1: at this point, right, Like you just don't wonder, And
Speaker 1: you do wonder when there's so much money, does it
Speaker 1: tend to take on risk your investments or so.
Speaker 10: Doesn't Boas Weinstein has this huge activist campaign against closed
Speaker 10: down funds at black Rock, and.
Speaker 7: These are in the equity market for the most part.
Speaker 10: Sometimes more liquid assets you have to wonder whether you'll
Speaker 10: start seeing activists in these other funds that are being
Speaker 10: sold to retail investors for private assets too.
Speaker 1: Such good stuff. We know you're busy, Get back to work.
Speaker 4: No, have a drink.
Speaker 1: I'm ready for a while, Okay, Luberg Global Finance Co
Speaker 1: Responish Sinalibosic live here from Bloomberg Investors.
Speaker 2: This is the Bloomberg Business Week podcast, available on Apple, Spotify,
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