WEBVTT - Outlook for Markets, Consumers, and Tech 0:00:02.400 --> 0:00:10.600 Bloomberg Audio Studios, podcasts, radio news. 0:00:11.920 --> 0:00:16.320 This is the Bloomberg Surveillance Podcast. Can't just live weekdays 0:00:16.320 --> 0:00:19.560 at seven am Eastern on Apple car Player, Android Auto 0:00:19.720 --> 0:00:23.080 with the Bloomberg Business App, Listen on demand wherever you 0:00:23.120 --> 0:00:26.200 get your podcasts, or watch us live on YouTube. 0:00:26.520 --> 0:00:28.280 I just go to our first guest here, Robert Teeter. 0:00:28.320 --> 0:00:31.479 He's a chief investment strategist Silver Crest Asset Management joints 0:00:31.520 --> 0:00:33.320 us here in our Bloomberg and Directive Brookers studio. So 0:00:33.320 --> 0:00:36.879 it gets a double gold star coming in on right 0:00:36.960 --> 0:00:42.120 and early exactly. Robert again just mentioning the lack of 0:00:42.159 --> 0:00:44.360 participation may be in this marketplace when you look at 0:00:44.360 --> 0:00:48.680 the SMP up twenty six percent, the SP equal Weighted 0:00:48.720 --> 0:00:51.720 Index up twelve thirteen to fourteen percent, So big divergence 0:00:51.760 --> 0:00:53.120 there is that a concern for you. 0:00:53.560 --> 0:00:55.840 It is a bit of a concern. I think most 0:00:55.880 --> 0:00:58.600 of it is tied to moves in interest rates. In 0:00:58.880 --> 0:01:00.640 my view, we've had a lot of the head fakes 0:01:00.680 --> 0:01:04.000 where you've had enthusiasm over rates coming down more quickly. 0:01:04.040 --> 0:01:07.279 That's led to a broadening out of markets and once again, 0:01:07.400 --> 0:01:09.440 you know we've had that rug pulled out from under 0:01:09.520 --> 0:01:11.840 us with you know, rate expectations for next year now 0:01:11.880 --> 0:01:14.640 being dialed back pretty significantly, and with the ten year 0:01:14.640 --> 0:01:16.600 heading higher, and is the rate on the ten year 0:01:16.600 --> 0:01:19.440 heads higher, people get more and more concerned about smaller companies, 0:01:19.760 --> 0:01:21.840 and you have that narrowing of the market where the 0:01:21.880 --> 0:01:24.840 winners keep winning and the laggards keep lagging by quite 0:01:24.880 --> 0:01:27.520 a bit. The tide could turn for twenty twenty five, 0:01:27.560 --> 0:01:30.480 but that's been the strongest relationship that we've seen for 0:01:30.640 --> 0:01:33.679 that relationship between large and small has been where rates 0:01:33.680 --> 0:01:34.760 are and where they're headed. 0:01:35.080 --> 0:01:37.560 So how are you advising clients to position going at 0:01:37.600 --> 0:01:38.199 in next year. 0:01:38.680 --> 0:01:41.840 We're pretty enthusiastic about small caps for next year. One 0:01:41.880 --> 0:01:43.720 of the key reasons is the M and A works. 0:01:44.080 --> 0:01:47.520 It is it's almost for a long time not working. Yes, 0:01:48.720 --> 0:01:51.040 but we do see a couple of new catalysts and 0:01:51.040 --> 0:01:53.960 those are really with the change in Washington. So M 0:01:53.960 --> 0:01:56.080 and A backdrop, you know, that was a very slow 0:01:56.160 --> 0:01:58.200 environment for most of twenty twenty four. 0:01:58.680 --> 0:01:59.800 Everything we're hearing is. 0:01:59.760 --> 0:02:02.200 That the backlog of deal activity is picking up. People 0:02:02.240 --> 0:02:05.160 are pretty enthusiastic. That tends to accrue to small caps. 0:02:05.160 --> 0:02:07.760 They tend to be the acquisition target and that gets 0:02:07.800 --> 0:02:10.200 you a premium there, and that helps a bit. We 0:02:10.240 --> 0:02:12.960 think the broadening out will continue slowly as rates heads 0:02:13.000 --> 0:02:14.560 slowly lower over the course. 0:02:14.400 --> 0:02:15.359 Of twenty twenty five. 0:02:15.400 --> 0:02:18.000 I'll probably say slowly three or four times, but we 0:02:18.040 --> 0:02:20.480 do think that's headed lower. That alleviates a little pressure 0:02:20.520 --> 0:02:22.920 as well. And then lastly, we see some of this 0:02:23.040 --> 0:02:26.240 profit margin expansion that's been mainly in large caps broadening 0:02:26.280 --> 0:02:28.440 out to the small cap space as well. Of course, 0:02:28.440 --> 0:02:30.720 there are a lot of non earners in indices like 0:02:30.720 --> 0:02:33.240 the Russell two thousand, but we do think there's potential 0:02:33.240 --> 0:02:36.320 for profit margin gain as AI and productivity spreads to 0:02:36.440 --> 0:02:38.160 a broader segment of the market. 0:02:38.240 --> 0:02:40.280 I just pulled up in my g where I have 0:02:40.320 --> 0:02:42.000 a lot of my charts saved. It's the Russell two 0:02:42.040 --> 0:02:44.280 thousand relative to the S and P five hundred year 0:02:44.320 --> 0:02:46.240 to date. So if you look at this year, it's 0:02:46.320 --> 0:02:49.400 underperforming the S and P five hundred by fourteen percentage points, 0:02:49.400 --> 0:02:52.880 So that would be the worst underperformance since actually nineteen 0:02:52.960 --> 0:02:54.960 ninety eight, in the fourth consecutive year in a row 0:02:55.120 --> 0:02:56.959 that the Russell two thousands under performed the S and 0:02:57.000 --> 0:02:58.600 P five hundred. So when you look at an index 0:02:58.680 --> 0:03:01.080 like that versus the S and P six hundred, better 0:03:01.120 --> 0:03:03.560 earnings potential in the six hundred obviously than the two 0:03:03.600 --> 0:03:06.440 thousand because of the zombie companies in the two thousand. 0:03:06.639 --> 0:03:07.840 Which way do you play that? 0:03:08.240 --> 0:03:11.520 Yeah, Absolutely towards the S and P six hundred, the earners. 0:03:11.840 --> 0:03:14.800 Sometimes when you get these these quick turns, it accrues 0:03:14.840 --> 0:03:17.239 to the whole index and some of the quote unquote 0:03:17.240 --> 0:03:20.160 garbage rallies faster. But I think for the full twenty 0:03:20.240 --> 0:03:23.000 twenty five, the reason we're enthusiastic about small caps it 0:03:23.040 --> 0:03:26.239 is the higher quality, profitable companies in small cap narrowing 0:03:26.240 --> 0:03:28.160 the gap against their large cap competitors. 0:03:28.240 --> 0:03:31.040 Which ones do you think are more competitive and more 0:03:31.080 --> 0:03:32.800 profitable in particular industries? 0:03:33.000 --> 0:03:36.000 Yeah, I think it's really a stock by stock situation, 0:03:36.280 --> 0:03:38.600 not only in small cap but in large cap as well. 0:03:38.680 --> 0:03:40.840 So our view has been that the driver going forward 0:03:40.880 --> 0:03:43.480 will be, you know, less from the economic side, less 0:03:43.480 --> 0:03:46.240 from the multiple side, and more from the earnings growth side. 0:03:46.400 --> 0:03:48.480 And the earnings growth side we see really coming from 0:03:48.520 --> 0:03:50.680 profit margins rather than the top line. And so it's 0:03:50.760 --> 0:03:54.080 just this case by case implementation of you know, technology 0:03:54.160 --> 0:03:57.160 enabled efficiencies boosting margins, and that can come in any 0:03:57.160 --> 0:03:58.800 industry or any company at any time. 0:03:58.880 --> 0:04:00.400 So it's a harder market. 0:04:00.440 --> 0:04:02.280 We think it is one that lends itself more to 0:04:02.320 --> 0:04:06.160 stock selection, understanding management teams, understanding you know, how the 0:04:06.320 --> 0:04:09.440 environment might shift from the creators of AI to the 0:04:09.520 --> 0:04:12.200 users of AI, and those users of AI really deploying 0:04:12.200 --> 0:04:13.920 in an effective way to boost margins. 0:04:14.160 --> 0:04:15.480 What are we doing in the bond market here? 0:04:15.520 --> 0:04:16.960 I can sit there in a two year treasure and 0:04:17.000 --> 0:04:18.279 get four point three three percent. 0:04:18.279 --> 0:04:19.000 I don't have to be a. 0:04:18.960 --> 0:04:21.960 Hero, do I take you credit risk here? We have 0:04:22.000 --> 0:04:24.920 not been big fans of credit risk. You're absolutely right. 0:04:24.960 --> 0:04:26.800 You get a pretty good yield without taking on that 0:04:26.880 --> 0:04:31.520 illiquidity premium or in private and the credit risk premium 0:04:31.520 --> 0:04:33.840 in the credit space. So we've been pretty cautious there. 0:04:34.000 --> 0:04:36.159 You know, we've missed out obviously. Those are areas that 0:04:36.160 --> 0:04:38.360 have done quite well, but pretty easy to sit at 0:04:38.360 --> 0:04:39.719 the short end of the curve and get, you know, 0:04:39.760 --> 0:04:42.080 close to five percent and be pretty content there. 0:04:42.480 --> 0:04:45.040 So when people want to talk about especially the annual 0:04:45.040 --> 0:04:46.840 gains in the S and P five hundred being up 0:04:46.960 --> 0:04:49.800 once again more than twenty percent this year, second consecutive 0:04:49.839 --> 0:04:51.800 year in a row and the first time we've seen 0:04:51.800 --> 0:04:54.760 that since the late nineteen nineties. How are you thinking 0:04:54.800 --> 0:04:57.000 next year can shape out? And can that continue to 0:04:57.040 --> 0:04:59.360 where we'll still have double digit maybe even more than 0:04:59.360 --> 0:05:02.640 twenty percent again for potentially a third consecutive year in a row. 0:05:02.920 --> 0:05:04.920 I see that as a pretty low probability. 0:05:05.000 --> 0:05:07.599 So our base case is really nine percent gains, just 0:05:07.640 --> 0:05:11.320 tracking earnings higher, holding multiples where they are. Street consensus 0:05:11.360 --> 0:05:13.839 is more like, you know, fifteen percent fourteen percent earnings, 0:05:13.880 --> 0:05:16.760 where at about nine you could see a case where 0:05:16.920 --> 0:05:19.680 enthusiasm builds. We've got pretty high multiples here. You know, 0:05:19.720 --> 0:05:22.480 most of the twenty twenty four gain, about two thirds 0:05:22.520 --> 0:05:24.480 of it has come from multiple expansions, So we think 0:05:24.480 --> 0:05:27.360 we've kind of pulled forward some gains. Unlikely to see 0:05:27.400 --> 0:05:29.479 that happen, but you know, you could always push higher 0:05:29.480 --> 0:05:32.640 to those nineties type of multiples. I think that's that's unlikely. 0:05:33.160 --> 0:05:35.080 And the big key for us is really the economy. 0:05:35.120 --> 0:05:38.080 If there's no recession, we think that earnings backdrop holds 0:05:38.120 --> 0:05:40.920 and the gains continue, but only at the high single 0:05:40.960 --> 0:05:42.440 digit level, not not much more than that. 0:05:42.520 --> 0:05:43.920 Why did you, I mean the street, I think one 0:05:43.920 --> 0:05:44.360 of the risks. 0:05:44.360 --> 0:05:46.960 Perhaps in a market in twenty twenty five, is the 0:05:47.000 --> 0:05:49.520 earnings risk because I think I've got to fed it's 0:05:49.520 --> 0:05:51.479 going to cut maybe a couple of times, so that's. 0:05:51.279 --> 0:05:52.560 Not really going to be a catalyst for me. 0:05:52.800 --> 0:05:55.599 Earnings really have to come through for this market to 0:05:55.600 --> 0:05:59.120 move higher. And again thirteen fourteen, fifteen percent earning shots, 0:05:59.120 --> 0:06:02.120 which seems to be dialed into street consensus, that seems 0:06:02.120 --> 0:06:05.560 pretty I'm not to say aggressive, but boy, that's a 0:06:05.560 --> 0:06:06.080 heavy lift. 0:06:06.080 --> 0:06:08.040 I would think I think it's a heavy lift as well, 0:06:08.120 --> 0:06:10.320 especially when you look through at at a sector level. 0:06:10.440 --> 0:06:12.400 You know, some of the cyclical sectors are expected to 0:06:12.400 --> 0:06:14.720 see pretty high earnings gains. I'm not sure how that 0:06:14.760 --> 0:06:18.320 happens unless the economy reaccelerates, and I don't see that happening. 0:06:18.320 --> 0:06:20.880 I certainly don't see a recession. But if you're tracking 0:06:20.960 --> 0:06:23.720 along at two two and a half percent GDP, I'm 0:06:23.760 --> 0:06:25.479 not sure how you get an acceleration in some of 0:06:25.480 --> 0:06:27.440 the cyclical space. So that's one reason we're a bit 0:06:27.480 --> 0:06:30.320 more conservative on the earnings front than street consensus. 0:06:30.400 --> 0:06:32.719 We'll leave about thirty seconds left, But what's the top 0:06:32.760 --> 0:06:35.159 advice you'd give your clients going into twenty twenty five. 0:06:35.480 --> 0:06:36.600 Yeah, I think it's stay the course. 0:06:36.640 --> 0:06:39.080 You know, Paul was mentioning about the long term, you know, 0:06:39.160 --> 0:06:41.440 compounding effect, and I think, really stay the course here. 0:06:41.480 --> 0:06:44.880 There's no immediate you know, big recession. There's no giant 0:06:44.880 --> 0:06:48.520 imbalance in markets right now. Economy looks okay, earnings look okay. 0:06:48.600 --> 0:06:50.800 Just keep compounding that earnings growth going forward. 0:06:51.000 --> 0:06:52.960 That's a message I give to my kids. 0:06:52.960 --> 0:06:56.680 Three or humor in the working force, match your four one. 0:06:56.760 --> 0:06:57.280 That's right. 0:06:57.360 --> 0:06:58.800 Yeah, and I thweek they're doing it. 0:06:58.760 --> 0:07:00.800 And I think that's going to be it. So good thing. 0:07:00.880 --> 0:07:02.800 Robert Teeter, thank you so much for joining us. Robert Teeter, 0:07:03.200 --> 0:07:06.279 chief investment strategy is Silver Cross Asset Men and Management, 0:07:06.320 --> 0:07:10.360 joining us here in studio on Friday, December twenty seventh. 0:07:10.400 --> 0:07:14.320 I mean that exactly. I mean definitely. So we appreciate that. 0:07:18.920 --> 0:07:22.760 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:07:22.880 --> 0:07:26.160 weekday afternoons from seven to ten am Easter Listen on 0:07:26.200 --> 0:07:29.440 Apple car Play and Android Auto with a Bloomberg Business app, 0:07:29.560 --> 0:07:31.320 or watch us live on YouTube. 0:07:31.840 --> 0:07:34.080 I know, as long as I can remember, you probably 0:07:34.120 --> 0:07:35.760 know this better than me, But it just seems like 0:07:36.120 --> 0:07:40.280 tech has been leading this market forever and I can't 0:07:40.280 --> 0:07:42.880 imagine a market where tech does not lead. 0:07:43.040 --> 0:07:45.200 I mean, is you know it doesn't lead. 0:07:45.120 --> 0:07:47.760 Us hard all different acronyms. We've gone from things to 0:07:48.040 --> 0:07:50.280 Matt seven's. Now people want to call it batman if 0:07:50.280 --> 0:07:51.320 you throw in break data. 0:07:51.560 --> 0:07:53.600 Now. 0:07:53.640 --> 0:07:55.080 Our next guest has been on top of all this, 0:07:55.160 --> 0:07:58.280 Melissa Auto, head of TMT Research at sp Global Visible 0:07:58.320 --> 0:08:03.040 Alpha Joints US. Here in our our studio, Melissa, what 0:08:03.120 --> 0:08:05.640 is your call on what are some of your. 0:08:05.600 --> 0:08:07.560 Top picks in global tech? 0:08:07.600 --> 0:08:10.640 Because again it feels like if this market's going to 0:08:10.680 --> 0:08:13.520 move higher, another leg higher after two twenty plus years 0:08:13.520 --> 0:08:17.080 in performance, technology has got to leave us yet again? 0:08:17.400 --> 0:08:19.840 Do you think technology can lead this market yet again? 0:08:20.520 --> 0:08:23.280 Good morning, Happy holidays twenty twenty five. 0:08:23.320 --> 0:08:24.240 Here we call yep. 0:08:26.080 --> 0:08:28.760 You know, I think there are a couple trends that 0:08:28.800 --> 0:08:31.760 we're really looking at for twenty twenty five. First and foremost, 0:08:31.800 --> 0:08:33.880 are we going to start to see an upgrade cycle? 0:08:34.800 --> 0:08:37.560 We were looking for that this year it didn't really 0:08:37.679 --> 0:08:42.440 pan out. Apple and Dell look very well positioned to 0:08:42.480 --> 0:08:47.920 benefit from an upgrade cycle based on visible African census. 0:08:47.920 --> 0:08:52.760 We're seeing that analysts haven't really taken their numbers up 0:08:52.760 --> 0:08:56.400 for an upgrade cycle. But if we do start to 0:08:56.440 --> 0:08:59.760 see a catalyst there, that would be an interesting theme 0:09:00.760 --> 0:09:04.360 enterprises coming in and saying, Okay, we need to upgrade 0:09:04.840 --> 0:09:09.520 our employees laptops, our employees iPhones, and we saw that 0:09:10.360 --> 0:09:16.440 in mass in COVID and so you know, we haven't 0:09:16.480 --> 0:09:19.440 really seen that cycle kick in yet. So over the 0:09:19.480 --> 0:09:25.320 next say, six to eighteen months, that could potentially be 0:09:25.360 --> 0:09:29.000 a window where that kicks into gear and would be positive. 0:09:29.440 --> 0:09:32.640 It's interesting looking at Apple specifically because the stocks up 0:09:32.679 --> 0:09:34.880 about thirty five percent year to date, and if you 0:09:35.280 --> 0:09:37.040 think back to the first quarter of this year, that 0:09:37.120 --> 0:09:39.440 was one of its worst underperformances relative to the S 0:09:39.480 --> 0:09:43.560 and P five hundred since the dot com bubble bursting there. 0:09:44.120 --> 0:09:47.160 But since made a bottom in the middle of April, 0:09:47.200 --> 0:09:49.160 it's just continued to taken off and to fight a 0:09:49.200 --> 0:09:51.640 lot of those expectations. Obviously, in early May it announced 0:09:51.679 --> 0:09:54.959 that another historic buyback program that still needs to execute 0:09:55.320 --> 0:09:57.360 a lot of that on. But when you're thinking about 0:09:57.400 --> 0:09:59.839 more of the fundamentals versus the technicals, where do you 0:10:00.240 --> 0:10:02.600 this is pointing in the direction when you have other 0:10:02.640 --> 0:10:05.920 stocks like Nvidia and a very different type of chip company. 0:10:05.960 --> 0:10:07.960 But when you're thinking about how to position into that 0:10:08.000 --> 0:10:08.440 next year. 0:10:09.160 --> 0:10:12.520 Indeed, we're an interesting point with Apple. They were a 0:10:12.520 --> 0:10:16.720 bit late to the game around the whole AI theme. 0:10:17.400 --> 0:10:22.600 They came out in June at WWDC and revealed their 0:10:22.679 --> 0:10:27.840 Apple Intelligence and the market got very excited about that. 0:10:28.120 --> 0:10:31.200 It drove some upside in the stock, and then you know, 0:10:31.240 --> 0:10:33.680 it's sort of petered out. And I think we're coming 0:10:33.720 --> 0:10:37.719 into twenty twenty five potentially with this upgrade cycle in 0:10:37.840 --> 0:10:43.720 mind and the idea that AI may start to drive 0:10:43.840 --> 0:10:48.320 more of an enterprise adoption, and that enterprise adoption could 0:10:48.360 --> 0:10:53.640 potentially lead us into a broader adoption. And I think 0:10:53.720 --> 0:10:57.760 that's what the market is, that there's some market consensus 0:10:57.800 --> 0:11:01.199 around that theme. There's a lot of debate. 0:11:00.960 --> 0:11:03.040 Though, AI. 0:11:04.880 --> 0:11:06.680 How much are you buying into this AI thing? I 0:11:06.679 --> 0:11:11.840 mean everybody's telling me. You know, Gene Munster, you know, 0:11:11.880 --> 0:11:14.200 he put it into context of it's it's bigger than 0:11:14.200 --> 0:11:16.960 the Internet potentially. How do you think about it? How 0:11:16.960 --> 0:11:19.680 does that factor into your kind of your thematic research AI? 0:11:21.400 --> 0:11:26.840 The challenge with AI is that in building AI application, 0:11:27.040 --> 0:11:29.760 So we've seen to your point, we've seen a lot 0:11:29.760 --> 0:11:32.839 of innovation in the chip and in the model. Where 0:11:32.920 --> 0:11:36.280 the challenge is the is in the application layer. And 0:11:36.480 --> 0:11:38.840 part of the reason for that is that the application 0:11:39.000 --> 0:11:45.920 layer requires deep domain expertise, and in order to have 0:11:46.000 --> 0:11:51.560 the application really resonate with the user and really be 0:11:51.800 --> 0:11:57.120 useful to us, it requires a high degree of accuracy. 0:11:57.640 --> 0:12:00.719 And I think that's where it's becoming challengeing, is that 0:12:01.160 --> 0:12:04.320 when you have an agent or you have some sort 0:12:04.360 --> 0:12:15.200 of generative AI bot or tool, it's not as smooth 0:12:15.440 --> 0:12:19.760 or as streamlined or as accurate sometimes as the user 0:12:19.880 --> 0:12:22.000 needs it to be. And so I think that's where 0:12:22.200 --> 0:12:26.200 you know, you're getting some pushback, particularly in enterprises, where 0:12:26.280 --> 0:12:30.200 companies are saying, hey, if we're going to have our salespeople, 0:12:30.240 --> 0:12:31.679 if we're going to have marketing, if we're going to 0:12:31.720 --> 0:12:35.240 have you know, the business side really leveraging this, it 0:12:35.360 --> 0:12:38.760 needs to be very high quality. And I think that's 0:12:38.800 --> 0:12:42.600 where you know, if you're looking for a hotel, for example, 0:12:42.640 --> 0:12:47.040 and it's a little bit off, that's one thing, But 0:12:47.120 --> 0:12:50.079 if you're having it write an email for a customer, 0:12:50.200 --> 0:12:54.480 that's a different thing. So I think having the domain 0:12:54.520 --> 0:12:58.080 expertise in the application layer is probably making it a 0:12:58.080 --> 0:13:02.439 bit slower than the market had initially expected. 0:13:02.880 --> 0:13:04.880 So, Paul, who do you think is the best performing 0:13:04.920 --> 0:13:06.760 stock in the S and P five hundred this year? 0:13:07.160 --> 0:13:09.600 Because there's one stock that comes in mind, so you 0:13:09.600 --> 0:13:12.280 would think it was, it's actually it was for most 0:13:12.320 --> 0:13:12.679 of the year. 0:13:12.720 --> 0:13:13.439 It's Vistra. 0:13:14.040 --> 0:13:16.440 Actually, so it's the power producers that are tied to 0:13:16.440 --> 0:13:18.239 the AI play and utilities. 0:13:18.320 --> 0:13:19.600 So actually that stocks up. 0:13:20.400 --> 0:13:23.000 Gosh, if you look at that f VST is actually 0:13:23.000 --> 0:13:25.640 the ticker symbol on this up two hundred and seventy 0:13:25.760 --> 0:13:27.880 four percent. So when it comes to more of the 0:13:28.000 --> 0:13:31.720 data center type plays, I'm wondering what's your view on 0:13:31.760 --> 0:13:33.760 that when it's beyond even just what you think of 0:13:33.800 --> 0:13:35.760 the cohort of the mag seven if you're thinking about 0:13:35.760 --> 0:13:38.400 those sort of data center plays that people are investing in. 0:13:38.400 --> 0:13:41.280 Because Nvidia actually up one hundred and eighty three percent 0:13:41.320 --> 0:13:42.079 year today. 0:13:42.000 --> 0:13:46.199 Right, Yeah. I mean SMP Global four or five to 0:13:46.200 --> 0:13:48.520 one research has done a lot of work on the 0:13:48.679 --> 0:13:53.240 energy side of it, and Vistra fits right into that. 0:13:53.360 --> 0:14:00.840 With the potential merger of Energy Harbor, they are likely 0:14:00.880 --> 0:14:04.320 to really benefit from the AI data center energy consumption. 0:14:04.440 --> 0:14:05.360 I mean that it's. 0:14:06.640 --> 0:14:14.839 The reality is that all this computation and the velocity 0:14:14.920 --> 0:14:19.040 of power that is required for a data center is going. 0:14:18.800 --> 0:14:23.920 To increase real quick thirty seconds. Microsoft what you call there? 0:14:24.720 --> 0:14:29.760 You know, Microsoft's interesting. They recast their accounting lines. They 0:14:29.800 --> 0:14:34.200 now have an AI services line, and what's amazing about 0:14:34.200 --> 0:14:37.480 that is that we can start to really see how 0:14:37.520 --> 0:14:43.680 AI is dropping into their P and L. And Microsoft 0:14:44.640 --> 0:14:47.000 last year did about four billion dollars in that line, 0:14:47.040 --> 0:14:49.360 and then based on Visible Aphric consensus, that's going to 0:14:49.480 --> 0:14:53.240 eighteen billion dollars by fiscal year twenty six, So some 0:14:53.280 --> 0:14:55.160 real acceleration there. 0:14:55.800 --> 0:14:59.200 Yeah, it's just been extraordinary here. So I guess my 0:14:59.280 --> 0:15:03.600 takeaway is AIS like a thing, and it's impacting a 0:15:03.600 --> 0:15:04.960 lot of companies. 0:15:04.840 --> 0:15:06.960 And we're gonna be talking about it more and more 0:15:07.000 --> 0:15:07.280 and more. 0:15:07.320 --> 0:15:08.640 But I remember it just you know, a couple of 0:15:08.680 --> 0:15:12.360 quarters ago, every company, yes and P five hundred talked about. 0:15:13.880 --> 0:15:15.800 Great Kroger was one of them too. 0:15:16.120 --> 0:15:19.040 Yeah, I mean mcconnald's Yeah, I don't know. Melissa Auto, 0:15:19.040 --> 0:15:21.160 thank you so much for joining us. Melissa Auto. She's 0:15:21.160 --> 0:15:24.960 out of TMT Research, SMP Global, Visible Alpha, joining us 0:15:24.960 --> 0:15:32.080 here in our Bloomberg Interactive Brokers Studio. 0:15:32.920 --> 0:15:37.200 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:15:37.320 --> 0:15:40.520 starting at seven am Eastern on applecar Play and Android 0:15:40.560 --> 0:15:43.400 Auto with the Bloomberg Business App. You can also listen 0:15:43.520 --> 0:15:46.600 live on Amazon Alexa from our flagship New York station, 0:15:47.000 --> 0:15:49.720 Just Say Alexa playing Bloomberg eleven thirty. 0:15:50.000 --> 0:15:51.000 Jennifer Lee joins us. 0:15:51.280 --> 0:15:54.840 She's a senior Congress She's a managing director at BMO 0:15:55.160 --> 0:15:58.640 Capital Markets. Jennifer, as we think about twenty twenty five, 0:15:58.720 --> 0:15:59.040 I'm not. 0:15:59.000 --> 0:16:01.200 Even sure where tot. I mean, let's just start. 0:16:01.240 --> 0:16:05.680 We've got a new administration coming in in the United States. Uh, 0:16:05.760 --> 0:16:07.920 We've got a new Congress about to be seated in 0:16:07.960 --> 0:16:12.200 the new year. What do you expect from again the 0:16:12.200 --> 0:16:14.680 new sheriff in town. From an economic perspective, I don't 0:16:14.680 --> 0:16:18.440 know if it's you know, tax policy, if it's if 0:16:18.440 --> 0:16:22.080 it's you know, tariffs, if it's uh, you know, changes 0:16:22.080 --> 0:16:24.520 in immigration policy. There's a lot of moving parts. How 0:16:24.560 --> 0:16:27.360 does that impact your outlook for this US economy? 0:16:28.240 --> 0:16:30.600 Well, good morning, Happy holidays to both, and thank you 0:16:30.640 --> 0:16:31.240 very much for. 0:16:31.160 --> 0:16:31.680 Having me on. 0:16:31.720 --> 0:16:34.560 You know, this is a it's that key word uncertainty. 0:16:35.080 --> 0:16:38.920 You know, expect the unexpected. There is so much unknowns 0:16:38.960 --> 0:16:41.680 as we're heading into the new year with the new 0:16:41.960 --> 0:16:45.440 Trump administration. He's already talked about what he plans to 0:16:45.480 --> 0:16:47.160 do with everything that he wants to do on is 0:16:47.160 --> 0:16:49.400 to do list. Whether or not he's going to be 0:16:49.440 --> 0:16:51.920 checking them all off on day one, Uh, that will 0:16:51.960 --> 0:16:56.080 be very interesting to see. But certainly tariffs are the 0:16:56.160 --> 0:16:58.800 key uh, or is the key measure that he's planned 0:16:58.800 --> 0:17:01.280 to play out to roll out. He's already talking about 0:17:01.400 --> 0:17:05.000 the ten twenty percent blanket tariff on all three trillion 0:17:05.040 --> 0:17:08.080 dollars worth of goods coming into the US, and that 0:17:08.119 --> 0:17:10.800 will be already significant compared to what he did back 0:17:10.840 --> 0:17:13.399 in twenty seventeen, which was, you know, targeted tariffs on 0:17:13.440 --> 0:17:15.280 about three hundred billion dollars worth of good So this 0:17:15.320 --> 0:17:18.960 is a bigger impact. And of course twenty five percent 0:17:19.080 --> 0:17:23.399 tariffs on Canada and Mexico, an extra ten percent on China. 0:17:23.440 --> 0:17:25.000 Maybe this is on top of the sixty percent, So 0:17:25.000 --> 0:17:26.480 I'm not sure what the figure is going to be. 0:17:26.760 --> 0:17:29.080 So there's a lot of unservedy I think heading into 0:17:30.240 --> 0:17:32.520 into this new year. But terrorists is certainly or certainly 0:17:32.600 --> 0:17:38.440 the key factor. Taxes corporate tax, targeted tax cuts, I think, 0:17:38.760 --> 0:17:41.920 which would be great for corporate America, and of course 0:17:42.000 --> 0:17:45.560 different tax relief measures for those who are you know, 0:17:45.640 --> 0:17:49.280 are reading overtime, Social Security, and of course all those 0:17:49.280 --> 0:17:53.879 other other issues like the biggest deportation effort ever in 0:17:53.960 --> 0:17:57.760 the US, cleaning out all all the extra stuff that 0:17:57.800 --> 0:17:59.640 you know doesn't need to be spent. That's where doage 0:17:59.680 --> 0:18:01.439 comes in. And so a lot of things on his 0:18:01.560 --> 0:18:04.040 to do list about how that is going to play 0:18:04.080 --> 0:18:06.240 out remains to be seen, and I think this is 0:18:06.240 --> 0:18:08.240 why we're expecting a lot of uncertainty as we start 0:18:08.240 --> 0:18:08.720 the new year. 0:18:09.000 --> 0:18:11.879 The latest estimate for the Atlanta Fed's GDP NOW model 0:18:11.920 --> 0:18:15.200 for the current fourth quarter actually above three percent Paul. 0:18:15.320 --> 0:18:18.240 And of course we were talking about earlier the economic 0:18:18.400 --> 0:18:20.840 growth projections. If you look at the ECFC function and 0:18:20.880 --> 0:18:22.320 the terminal that can pull it up for you on 0:18:22.359 --> 0:18:25.600 a quarterly as well as an annual basis. So, Jennifer, 0:18:25.640 --> 0:18:28.960 I'm curious because year after year, especially coming out of COVID, 0:18:29.240 --> 0:18:32.080 there's so much doom and gloom even for the expectations 0:18:32.080 --> 0:18:34.720 in twenty twenty three, twenty twenty four, that a lot 0:18:34.720 --> 0:18:36.800 of economists ended up being on the wrong side of 0:18:36.840 --> 0:18:38.919 that and getting it wrong. So what are people getting 0:18:38.920 --> 0:18:41.439 wrong about next year? Because I feel like once we 0:18:41.480 --> 0:18:43.240 wrap up a year and look ahead, we always have 0:18:43.320 --> 0:18:46.320 these kind of anticipations that never quite come to fruition 0:18:46.400 --> 0:18:47.320 when you look a year out. 0:18:48.600 --> 0:18:50.920 That is true, and we have been, I think on 0:18:50.960 --> 0:18:53.840 too low on our growth expectations. We were never in 0:18:53.840 --> 0:18:56.560 the recession camp, thankfully, but we're you know, I think 0:18:56.560 --> 0:18:59.040 everyone was always too low on their growth expectations. We've 0:18:59.040 --> 0:19:01.760 got about two about two and a quarter percent, just 0:19:01.800 --> 0:19:03.880 under two and a half percent penciled in for next year. 0:19:04.400 --> 0:19:08.040 Where I think where the myths has been is certainly 0:19:08.040 --> 0:19:11.320 from the US consumer. The US consumer continues to be 0:19:11.520 --> 0:19:15.280 the big driving force of the the broader US economy. 0:19:15.359 --> 0:19:17.600 That and of course over the past few years was 0:19:17.640 --> 0:19:20.840 all the business investment and government spending as well. Helped 0:19:21.160 --> 0:19:23.919 with the Chips Act in the IRA that's certainly helped 0:19:24.200 --> 0:19:27.119 boost the economy of the US consumer continues to surprise, 0:19:27.600 --> 0:19:30.840 and we should always say, never ever underestimate the US consumer. 0:19:31.000 --> 0:19:34.040 Just the last November data for personal income and spending 0:19:34.080 --> 0:19:38.439 showed continuing spending. It wasn't exactly super strong, but it 0:19:38.520 --> 0:19:40.679 was still spent. They were still spending. And also in 0:19:40.680 --> 0:19:43.200 those areas that if things are really tough, we wouldn't 0:19:43.240 --> 0:19:47.280 be spending on, like regret, recreational goods and services, recreational 0:19:47.359 --> 0:19:50.560 vehicles that area. There's a bit of a pullback on 0:19:50.720 --> 0:19:56.320