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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Hello and welcome to another episode of the Odd Lots podcast.

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Speaker 3: I'm Joe Wisenthal and.

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Speaker 4: I'm Tracy Allaway.

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Speaker 2: Tracy, it's my favorite time of year.

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Speaker 4: Do you know what I was going to say, the

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Speaker 4: exact same thing. I was going to make, the exact

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Speaker 4: same comment.

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Speaker 2: It's Outlook season, twenty twenty five Outlook season, and our

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Speaker 2: inboxes get flooded with various flavors of big picture outlooks,

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Speaker 2: micro picture outlooks. Fifteen things to watch for within the

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Speaker 2: industrial and trucking segments of the economy. Fifteen big questions

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Speaker 2: we have.

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Speaker 4: For Here's a list of all the things Trump is

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Speaker 4: going to make great again.

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Speaker 2: Yeah, all these things, and these are some of my

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Speaker 2: favorite cell side notes to read every year, but they

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Speaker 2: always make for a thoughtful something to do around this

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Speaker 2: time of year.

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Speaker 4: Here's the big question. Do you go back and look

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Speaker 4: at the twenty twenty three outlooks?

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Speaker 3: I never do.

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Speaker 2: I people always in our industry joke about that, they like,

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Speaker 2: let's go back, and I've seen it happen twice.

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Speaker 4: But on a serious note, I know the analysts who

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Speaker 4: produce these outlooks like it is their actual job to

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Speaker 4: try to forecast the future. But like I find it

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Speaker 4: so difficult, especially in the current context with so many

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Speaker 4: uncertainties and the new administration coming in. I just I

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Speaker 4: don't even know how you begin to, like try to

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Speaker 4: figure out what the level of the S and P

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Speaker 4: five hundred is going to be under those like very

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Speaker 4: uncertain conditions.

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Speaker 2: Well, you know, most of the time stocks go up

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Speaker 2: and the economy grows.

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Speaker 4: And that that would be your outlook is like, well,

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Speaker 4: stocks are probably going to go up.

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Speaker 2: Stocks will go up with the economy will grow. In

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Speaker 2: two and a half, three and a half. Anyway, we

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Speaker 2: have much better guests.

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Speaker 4: Yes, we have people who actually do.

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Speaker 2: That and are really truly some of the best in

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Speaker 2: the industry. And it is a real treat. We actually

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Speaker 2: have them both together, which makes for an extraordinary opportunity.

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Speaker 2: So I'm very excited. We have two guests, two of

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Speaker 2: the perfect guests, I should say. We're gonna be speaking

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Speaker 2: with Jan Hatziis, chief economist and head of Global Investment

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Speaker 2: Research at Goldman Sachs, and David Coston, chief US equity

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Speaker 2: strategist at Goldman SACS. David and Jana, this is such

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Speaker 2: a thrill to have you on both at the same

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Speaker 2: time and just talk about what twenty twenty five is like,

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Speaker 2: because there's obviously a lot to talk about. I don't

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Speaker 2: know to start it with you Yan, like, actually, do

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Speaker 2: you accept the premise that it's a difficult time. It

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Speaker 2: feels difficult, it feels tricky, it feels like there's a

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Speaker 2: lot of questions and uncertainties. Do you accept the premise

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Speaker 2: that it's an unusually tricky time to be making a

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Speaker 2: short term or medium term forecast?

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Speaker 5: I think it is a difficult time just because there's

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Speaker 5: more uncertainty than normal about the policy environment. So you

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Speaker 5: have all the usual uncertainties around whether the consumer is

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Speaker 5: going to continue to spend we think yes, where inflation

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Speaker 5: that's going to continue to trend down X, any new

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Speaker 5: shocks we think yes, Whether the Fed will still deliver

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Speaker 5: cuts just based on the underlying trend in the economy.

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Speaker 5: And then you have to think about the potential impulses,

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Speaker 5: both on the positive and the negative side, and obviously

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Speaker 5: we'll get into those, but that just adds to the

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Speaker 5: variability around the central forecast.

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Speaker 4: I have a lot of procedural questions when it comes

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Speaker 4: to the outlooks. My first one is do you guys

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Speaker 4: like talk to each other before you do your respective outlooks,

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Speaker 4: because I imagine what the market does is obviously going

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Speaker 4: to depend a lot on what the economy does.

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Speaker 6: There are I guess nearly a thousand people in the

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Speaker 6: research department at Goma. Yan is the head of the

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Speaker 6: research department, and within Macro probably one hundred people, and

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Speaker 6: we are pretty coordinated. Every week have a conversation about

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Speaker 6: what's happening in the different regions around the world economically,

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Speaker 6: in commodities, in strategy and rates. So we're pretty coordinated

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Speaker 6: at the macro level.

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Speaker 4: Do you ever disagree we do?

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Speaker 5: I do think that we spend a lot of time

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Speaker 5: trying to get to the bottom of what the disagreement

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Speaker 5: is about, and that often brings views more closely together.

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Speaker 5: I think in the end we do try to present

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Speaker 5: a coherent overall picture, but that doesn't mean that every

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Speaker 5: nuance is exactly the same. I mean, I think there

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Speaker 5: is sort of a spectrum between having just one view

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Speaker 5: of the world where there's zero room for individual kind

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Speaker 5: of creativity, and just having a bunch of people that

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Speaker 5: have independent views that are not coherent. You have to

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Speaker 5: find a place somewhere in the middle. I think we're

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Speaker 5: more towards the coherent side than what I see, you

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Speaker 5: know in many other research organizations where it's really more

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Speaker 5: individuals than a team effort.

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Speaker 2: We're going to get into all the actual details, but

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Speaker 2: I kind of like asking some of these procedural questions. Okay,

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Speaker 2: so you make an S and P. Five hundred forecast

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Speaker 2: for the year twenty twenty five, you talk to clients,

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Speaker 2: et cetera. You know, I can't imagine there are that

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Speaker 2: many people in the investment industry. Maybe I'm wrong, And

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Speaker 2: tell me if I'm wrong, who's like David says, the

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Speaker 2: SMP is going to X, so that's what we're gonna

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Speaker 2: buy or we're gonna sell or et cetera. How do

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Speaker 2: you view, like, what is your goal when you're talking

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Speaker 2: to clients, when you're putting out a forecast for the

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Speaker 2: S and P five hundred, and when you think about

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Speaker 2: the value that you bring to clients from making these

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Speaker 2: forecasts that Tracy and I love getting in our inboxes

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Speaker 2: this time of year, Like, what are you hoping is

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Speaker 2: the end fruit of that?

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Speaker 6: Well, there's a variety of customers or clients that we

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Speaker 6: think about, and I would say framing the issues is

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Speaker 6: probably the most important thing we do. Identifying investment strategies

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Speaker 6: inside of the market is a big area of focus.

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Speaker 6: We think about segmenting the clients of Goldman Sachs. We

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Speaker 6: have hedge funds, mutual funds, pension funds, insurance companies, endowments,

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Speaker 6: sovereign funds. Each of those constituencies are looking for something

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Speaker 6: a little bit different the mixed asset portfolio. On the

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Speaker 6: part of number of endowments and pension funds, sovereign wealth funds,

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Speaker 6: they're quite interested in the index level because they think

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Speaker 6: about the alternatives between equities and credit, private credit, public credit, commodities,

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Speaker 6: private equity, etc. And so those are issues for those

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Speaker 6: type of clients. If you're thinking about and when we

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Speaker 6: talk to and interact on a daily basis with hedge

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Speaker 6: funds and mutual funds, they're focused on oftentimes investment strategies

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Speaker 6: inside of the market, and those are some of the reasons.

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Speaker 6: But in terms of your specifics on how you think

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Speaker 6: about the index level, that is something people think about broadly.

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Speaker 6: Do they put more risk on or do they take

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Speaker 6: less risk? Is the market going to pay for excitement

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Speaker 6: or is it going.

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Speaker 5: To pay for boredom?

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Speaker 6: How do you think about shifting your portfolio to reflect

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Speaker 6: those Those are basically the variety of conversations that we

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Speaker 6: have on a daily basis.

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Speaker 4: So this time last year, I think we were still

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Speaker 4: maybe not as much as earlier, but we were still

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Speaker 4: kind of in recession expectation mode. And you know that

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Speaker 4: obviously went on for like two years with the yield

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Speaker 4: curve inversion and the surveys showing that the vibes were down,

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Speaker 4: and everyone worried that consumer spending would eventually drop off

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Speaker 4: and that sort of thing. And yet here we are,

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Speaker 4: tail end of twenty twenty four. Recession hasn't emerged. The

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Speaker 4: Fed is now cutting rates, which presumably takes some of

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Speaker 4: the pressure off. Yeah, you were one of the economists

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Speaker 4: who I think got this right. You were in the

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Speaker 4: soft landing camp. From what I remember when we spoke

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Speaker 4: to you. What was it that you saw that kind

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Speaker 4: of played out effectively in twenty twenty four.

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Speaker 5: I'd say the key to the soft landing call over

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Speaker 5: the last couple of years was, I think to recognize

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Speaker 5: that this is a very different business cycle that was

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Speaker 5: much more driven by the pandemic and the post pandemic

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Speaker 5: ambalanced US that emerged really in twenty twenty twenty one,

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Speaker 5: and climbing out of a hole that was really a

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Speaker 5: supply side hit is very different from squeezing down inflation

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Speaker 5: that had emerged because of an overheating. If you have

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Speaker 5: an overheated economy and the level of activity is just

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Speaker 5: too high and the level of demand is too high,

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Speaker 5: to bring that back to normal, you almost have to

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Speaker 5: have a decline in economic activity, which is almost the

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Speaker 5: definition of a recession. But if you're climbing out of

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Speaker 5: a hole on the supply side, and supply chains go

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Speaker 5: back to normal, libor force participation goes back to normal,

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Speaker 5: we get an additional boost to supply from immigrants coming

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Speaker 5: into the workforce, and you know, we'll get into some

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Speaker 5: of these things. All of that means you can see

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Speaker 5: declining inflation and increases in real output and employment at

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Speaker 5: the same time time, and that's basically what we've been

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Speaker 5: seeing over the last couple of years. So for me,

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Speaker 5: that's the most important difference. I think there was too

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Speaker 5: much extrapolation from past business cycles, and too many people

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Speaker 5: looked at when inflation is at five percent or six percent,

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Speaker 5: there's always been a recession because those were much more

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Speaker 5: demand driven cycles rather than supply driven cycles.

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Speaker 2: So we're recording this, by the way, on November twenty sixth.

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Speaker 2: The S and P as of the moment I'm saying

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Speaker 2: this is that six four point seventy two extraordinary gains,

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Speaker 2: nearly twenty six percent gains from the start of the year.

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Speaker 3: I guess I'm not surprised.

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Speaker 2: David that, given this sort of easy mode disinflation that

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Speaker 2: we had in twenty twenty four, that we've had such

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Speaker 2: a great year for the stock marketing. You have a

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Speaker 2: call of sixty five hundred for your your in twenty

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Speaker 2: twenty five target, which is about a little over seven

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Speaker 2: seven percent from where we are.

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Speaker 3: How come how much?

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Speaker 2: So it's gonna be it's gains, And you know, I

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Speaker 2: think a lot of people would be happy with seven

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Speaker 2: percent gains.

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Speaker 3: You do that for ten straight years of.

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Speaker 4: Age Shoe's thesis that stocks go up.

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Speaker 3: Yeah, Well, so how do you get there?

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Speaker 6: All right, let's talk about some of the building blocks

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Speaker 6: for how we get there. Number one is earnings, and

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Speaker 6: earnings are expected to grow in our model around eleven

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Speaker 6: percent this year, meaning twenty twenty five looking ahead, and

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Speaker 6: about seven percent in calendar twenty twenty six. We've got

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Speaker 6: a couple of years of continued expansion in earnings. How

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Speaker 6: do we get the earnings, Well, we can think about

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Speaker 6: sales growing roughly five percent. Most companies over time grow

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Speaker 6: their sales and their revenues by roughly nominal GDP, so

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Speaker 6: we'll call that around five percent, a little bit of

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Speaker 6: a margin expansion, and that's going to lead to the

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Speaker 6: growth rate. Now, the growth rate of eleven percent is a

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Speaker 6: little higher than that. You have some issues around healthcare

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Speaker 6: in particular. We are not expecting the write off of

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Speaker 6: so much in process R and D, and so we

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Speaker 6: get very very specific about some things. But our models

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Speaker 6: would show around eleven percent earnings growth for the coming year,

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Speaker 6: and we are affecting that the multiple actually come down slightly. Currently,

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Speaker 6: the market multiples around twenty or nearly twenty three times

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Speaker 6: forward earnings market prices consensus as opposed to our earnings estimates,

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Speaker 6: which is a little bit below consensus, and the idea

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Speaker 6: of the multiple declining Joe of maybe twenty one and

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Speaker 6: a half times is our model. So the bottom line,

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Speaker 6: how do we get there? You're looking at eleven percent

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Speaker 6: earnings growth. By this time next year, the market will

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Speaker 6: be pricing off of the twenty twenty six earnings. That's

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Speaker 6: why we have to look out for two years. And

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Speaker 6: the idea of a market multiple or multiple of around

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Speaker 6: twenty one and a half times what is ultimately a

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Speaker 6: twenty twenty six estimate supports six five hundred is it target?

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Speaker 4: So you're talking about earnings expansion. All of us presumably

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Speaker 4: woke up to headlines this morning about Trump imposing tariffs

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Speaker 4: on Some.

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Speaker 3: Of us checked the news last night before that.

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Speaker 4: Okay, well, I didn't I want to sleep early. I

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Speaker 4: was blissfully unaware of global politics and trade policy. But anyway,

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Speaker 4: presumably higher input costs would eventually feed into corporate earnings.

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Speaker 4: I guess is that on your radar at all?

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Speaker 5: Well, it certainly should be. As far as China tariffs

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Speaker 5: are concerned, I mean, we do expect a significant increase

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Speaker 5: in China tariffs, and we're building in about a twenty

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Speaker 5: percentage point increase in the average rate on US imports

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Speaker 5: from China. I think it's also pretty likely that we'll

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Speaker 5: get some additional tariffs outside of China. We're thinking auto tariffs,

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Speaker 5: potentially on Europe and Mexico. And then of course there

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Speaker 5: were some announcements or threats of broader tariffs on both

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Speaker 5: Mexico and Canada. You know, we'll have to see whether

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Speaker 5: that ultimately happens. There is a renegotiation of the US

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Speaker 5: Mexico or Canada trade agreement that will have to occur

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Speaker 5: over the next couple of years. So I think there

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Speaker 5: still will be a number of rounds before this actually

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Speaker 5: gets finalize. But clearly tariffs are the in all of you,

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Speaker 5: the biggest risk to what otherwise is quite a positive outlook.

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Speaker 5: I mean, we're pretty optimistic on the US growth outlook

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Speaker 5: for twenty twenty five. We're you know, two and a

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Speaker 5: half percent again, half a percentage point or a little

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Speaker 5: more above the current Bloomberg consensus. But we're watching the

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Speaker 5: tariff situation closely, and I'm sure there's going to be

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Speaker 5: many twists and turns before all of this becomes totally clear.

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Speaker 2: Our turiff's inflationary, because I could see it both ways. Right,

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Speaker 2: on the one hand, they throw sand into the gear,

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Speaker 2: so to speak, of the global economy, and that is

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Speaker 2: in a costly process. Right, there's a readjustment et cetera.

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Speaker 2: On the other hand, I think new Treasury Secretary nominee

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Speaker 2: Scott Best and made some quotes they don't have to

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Speaker 2: be per se inflationary, because yes, imports may cost more,

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Speaker 2: but then you know, sort of a kind of it

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Speaker 2: struck me as sort of a monitor's framework. There's less

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Speaker 2: money in households, and then that reduces demand elsewhere, and

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Speaker 2: that brings prices lower, and so the overall price level

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Speaker 2: or the rate of inflation doesn't change as much as

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Speaker 2: an economist. Someone asks you our terriff's inflationary. How do

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Speaker 2: you think through that question, I.

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Speaker 5: Would say tariffs raised prices, and we can see that

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Speaker 5: very clearly from when they have been applied, including some

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Speaker 5: of the China tariffs in the first Trump administration. They

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Speaker 5: fed through to prices in the categories the relatively few

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Speaker 5: categories where they were applied, and.

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Speaker 4: This is such achanical it's really good.

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Speaker 5: So yes, I would say that's quite clear. Whether that

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Speaker 5: is ongoing inflation, that's much less clear because these are

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Speaker 5: really price level effects. They're sort of like value added

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Speaker 5: tax increases in various European countries. We've seen this time

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Speaker 5: and time again. There's a one time increase in the

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Speaker 5: price level, a one time increase in inflation, but the

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Speaker 5: inflation then drops out twelve months after. Assuming that there

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Speaker 5: are no major second round effects through inflation expectations, then

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Speaker 5: of course central banks would become a lot more concerned

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Speaker 5: if you did see a big increase in inflation expectations,

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Speaker 5: wages ongoing escalation, if there is a you know, tit

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Speaker 5: for tat trade war that keeps going, obviously that would

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Speaker 5: also have a longer tail, But initially it is a

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Speaker 5: price level impact.

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Speaker 4: David, I'm going to ask what is possibly an unfair question,

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Speaker 4: but can you pretend to be the entire stock market

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Speaker 4: right now and tell me, like, what is happening today?

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Speaker 4: Stocks are up about point four to oh percent off

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Speaker 4: the back presumably of those tariff headlines we had, like

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Speaker 4: a drop in Asia stocks overnight, but US stocks recover

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Speaker 4: pretty quickly. What is it that investors see here?

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Speaker 6: Well, the biggest discussion point that I'm in having with

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Speaker 6: portfolio managers has to do with the expectation that small

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Speaker 6: business confidence is likely to increase sharply. That was the

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Speaker 6: experience at the beginning of the first Trump administration. Actually,

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Speaker 6: it started to happen between the election, and actually the

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Speaker 6: inauguration that took place back in twenty sixteen early twenty seventeen,

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Speaker 6: it was a surge in small business optimism. And so

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Speaker 6: the discussions are and around the expectation that portfolio managers

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Speaker 6: have that this is going to be a repeat of

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Speaker 6: the last administration, and there's a lot of enthusiasm the

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Speaker 6: expectation that there's less sort of muscular antitrust environment, that

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Speaker 6: there is an idea of small businesses investing, and that

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Speaker 6: optimism is therefore likely to benefit a lot of companies

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Speaker 6: whose customers are small and medium sized businesses, and that's

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Speaker 6: one of the investment strategies we have for the current year.

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Speaker 6: We work with the individual analysts at Goldman and we've

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Speaker 6: identified a group of stocks where more than fifty percent

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Speaker 6: of their revenues are coming from small and medium sized businesses.

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Speaker 6: And so there's investment opportunities that we look at on

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Speaker 6: the back of the expectation of a more robust economic

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Speaker 6: or more positive business environment. And again it's about the expectations,

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Speaker 6: the perception of what is like could happen. And so

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Speaker 6: as back to your question, Tracy, that's the topic is

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Speaker 6: that not necessarily the topic of today, not necessarily, but

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Speaker 6: that broadly in the last couple of weeks has been

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Speaker 6: the central topic right now that the last NFIB survey

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Speaker 6: was around the thirteenth percentile versus history, so quite low,

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Speaker 6: and the expectation of many as it's going to surge

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Speaker 6: in the coming months.

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Speaker 2: You mentioned the regulatory environment one of your other themes

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Speaker 2: for twenty twenty five, and this has come up a lot,

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Speaker 2: as expectations of more liberal m and a regulatory environment,

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Speaker 2: more deals being relighted. I think we can understand that

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Speaker 2: you also are still bullish on the really big megacap stocks,

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Speaker 2: and you said something in your twenty twenty five out

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Speaker 2: look that I kind of take an issue with. You said, like,

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Speaker 2: the primary question for mutual fund managers over the last

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Speaker 2: two years is whether they got the big megacap story right,

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Speaker 2: which is true, but it's also true for arguably like

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Speaker 2: fifteen years at this point, because really what we should

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Speaker 2: have all been doing for the last fifteen years is

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Speaker 2: just by Microsoft and Alphabet and Meta and really ignore

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Speaker 2: everything else. You're still bullish on them. What would have

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Speaker 2: to change, What conditions would have to change such that

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Speaker 2: the mag seven or whatever permutation is hot? Maybe one

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Speaker 2: pops in and one drops out. What would have to

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Speaker 2: change for these handful of stocks to not be the

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Speaker 2: big winners of the market going forward.

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Speaker 6: So, Joe, the driver of these stocks over the past

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Speaker 6: decade has been superior earnest growth, saparitor sales growth, superior

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Speaker 6: earnest growth in terms of the comparison with the rest

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Speaker 6: of the market, and so that has been a terrific

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Speaker 6: investment strategy for for a long time. The largest companies

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Speaker 6: really driving the index well, our analysis would sugges just

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Speaker 6: that most of the market, including the largest stocks, are

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Speaker 6: trading around fair value right now, and that it is

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Speaker 6: earning's growth in the coming year that's likely to drive

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Speaker 6: the performance of the market. Well, the superior earnings growth

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Speaker 6: of these largest stocks is likely to diminish, in our opinion,

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Speaker 6: in the coming year. So let's put some numbers around that.

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Speaker 6: This year Counter twenty twenty four, the largest companies, the

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Speaker 6: Magnificent seven as they're called. Those companies had thirty three

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Speaker 6: percent expected. Well, now, Spectacles is the fourth quarter, but

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Speaker 6: let's use that as a full year number. Earnings growth

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Speaker 6: around thirty three percent, and that compares around three percent

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Speaker 6: for the four hundred and ninety three remaining companies in

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Speaker 6: the SMB five hundred. That's thirty percentage points excess growth rate.

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Speaker 6: And the coming year the expectations use consensus for a

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Speaker 6: moment is around eighteen percent versus twelve percent. That's a

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Speaker 6: six percentage point gap. So from thirty percentage points to

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Speaker 6: six percentage points, and you look into twenty twenty six

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Speaker 6: and that's going to narrow yet further until around four

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Speaker 6: percentage points. So relative earnings growth is going to be

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Speaker 6: the explanation in our view of a narrowing premium return.

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Speaker 6: And so if I put some numbers around that, very specifically,

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Speaker 6: you had sixty three percentage points of outperformance excess return

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Speaker 6: of the largest docks versus the market in twenty twenty three.

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Speaker 6: It's running around twenty two percentage points this year, and

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Speaker 6: our forecast next year is probably around seven percentage points.

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Speaker 6: So the largest cap stocks likely to continue to perform

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Speaker 6: in our view, but by a much much smaller margin

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Speaker 6: than has been last couple of years.

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Speaker 4: I want to go back to what David was saying

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Speaker 4: about animal spirits and maybe bringing yan and my question

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Speaker 4: is going to sound very weird, but bear with me.

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Speaker 4: Do animal spirits actually matter for the economy. And the

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Speaker 4: reason I ask that is because you know, for the

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Speaker 4: past couple of years, the surveys have been coming in terrible.

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Speaker 4: You know, if you looked at the consumer sentiment surveys,

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Speaker 4: it was like the worst economic period ever or in many,

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Speaker 4: many years, but the economy kept.

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Speaker 3: Growing spending consumers.

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Speaker 5: Yeah, I mean, I agree you have to take a

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Speaker 5: lot of these survey results with a large grain of salt.

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Speaker 5: There is also evidence that even relative to the pre

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Speaker 5: pandemic period, where it was already a mistake to extrapolate

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Speaker 5: one to one from surveys into activity, that that relationship

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Speaker 5: has gotten even looser. And I think you have to

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Speaker 5: be particularly careful with surveys that ask how are you feeling,

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Speaker 5: as opposed to what are you doing? If you take

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Speaker 5: them somewhat more objective surveys that ask about production and

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Speaker 5: orders and inventories and employment, you can put a bit

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Speaker 5: more weight on that, But if it's really pure confidence surveys,

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Speaker 5: you do have to be pretty careful. I mean, I

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Speaker 5: agree that the small business survey is likely to show

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Speaker 5: very large increase over the next couple of months, but

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Speaker 5: I would only feed a relatively small portion of that

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Speaker 5: into our expectations on actual capital spending. We do expect

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Speaker 5: some lift up in terms of cap X in an

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Speaker 5: environment that is viewed as friendlier from a regulatory perspective,

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Speaker 5: where we'll probably also get a bit of additional tax cuts.

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Speaker 5: I mean, it's mostly about extending the twenty seventeen tax cuts,

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Speaker 5: but we do think there will probably be some additional

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Speaker 5: fresh tax cuts. I think all of that is going

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Speaker 5: to be supportive, but more at the margin. I don't

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Speaker 5: think it's going to be a massive pickup, you know. Overall,

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Speaker 5: my basic view is the economy has been recovering at

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Speaker 5: a generally better than expected pace, and I think that's

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Speaker 5: going to continue. If we're looking at consensus service going

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Speaker 5: into twenty twenty.

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Speaker 6: Five, and that's largely priced into the market, which is

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Speaker 6: now trading around twenty three times forward earnings, which are

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Speaker 6: historically a very high multiple, and that is reflective in

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Speaker 6: our interpretation of the backdrop that Yan has described.

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Speaker 2: There's obviously a lot of policy uncertainty, and we'll talk

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Speaker 2: more about it with the new Trump administ and its

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Speaker 2: visions and how seriously it's going to take tariffs and

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Speaker 2: deportations and rebuilding American manufacturing all these questions, there is

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Speaker 2: a short term uncertainty, however, which is that there's still

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Speaker 2: some ambiguity about the trajectory of inflation itself. And at

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Speaker 2: one point it looked like a December rate cut was

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Speaker 2: going to be a total lock, and actually right now

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Speaker 2: it looks like, according to the market, it's like a

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Speaker 2: sixty forty scenario, So it's not guaranteed. There are still

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Speaker 2: some lingering questions about the inflation trajectory. Question to both

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Speaker 2: of you, which is a y sort of like where

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Speaker 2: do you see this sort of short term push and

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Speaker 2: pull in terms of the rate trajectory? And then to David,

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Speaker 2: how much when you think about valuation specifically, is it

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Speaker 2: contingent on some of these questions about what's going on

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Speaker 2: with the further cutting cycle and.

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Speaker 5: So forth on inflation. I think the underlying trends are

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Speaker 5: looking quite favorable, and I base that not just on

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Speaker 5: the actual price number, okay, but also on the rebalancing

440
00:24:01,280 --> 00:24:04,760
Speaker 5: that we've seen in the labor market. And we're basically

441
00:24:04,840 --> 00:24:08,400
Speaker 5: back to where we were in twenty nineteen in terms

442
00:24:08,440 --> 00:24:11,560
Speaker 5: of the supply demand balance in the labor market, if

443
00:24:11,600 --> 00:24:16,000
Speaker 5: not a little bit looser We've seen, for example, declines

444
00:24:16,160 --> 00:24:20,200
Speaker 5: in the quit rate and in some of the surveys

445
00:24:20,280 --> 00:24:24,600
Speaker 5: of labor shortages to levels that are a little bit

446
00:24:24,640 --> 00:24:28,720
Speaker 5: below where they were in twenty nineteen. We've seen deceleration

447
00:24:29,040 --> 00:24:32,280
Speaker 5: in wage growth. All of that, to me says that

448
00:24:33,320 --> 00:24:36,200
Speaker 5: this inflation process is on track. There is an upside

449
00:24:36,240 --> 00:24:39,240
Speaker 5: risk again maybe more price level effect, but an upside

450
00:24:39,280 --> 00:24:41,840
Speaker 5: risk from the terriffs. But X that, I think we're

451
00:24:41,880 --> 00:24:46,080
Speaker 5: on a path back to around two percent by the

452
00:24:46,200 --> 00:24:49,440
Speaker 5: end of next year, which then because of our terraff assumptions,

453
00:24:49,480 --> 00:24:52,320
Speaker 5: becomes two point four percent in terms of our actual forecast.

454
00:24:52,359 --> 00:24:55,320
Speaker 5: But X that around two percent, and I think in

455
00:24:55,359 --> 00:24:57,920
Speaker 5: that kind of environment, the Fed's going to say, you know,

456
00:24:58,119 --> 00:25:01,000
Speaker 5: four and a half to four and three quarter, that's

457
00:25:01,080 --> 00:25:03,919
Speaker 5: still a very high nominal funds rate, which will become

458
00:25:03,920 --> 00:25:06,960
Speaker 5: a higher real funds rate as you go through next year.

459
00:25:07,320 --> 00:25:09,200
Speaker 5: So I think they're still going to want to deliver

460
00:25:09,640 --> 00:25:13,280
Speaker 5: several cuts. A December cut is all forecast, it's certainly

461
00:25:13,320 --> 00:25:17,000
Speaker 5: not a foregone conclusion. We'll get some important data before then,

462
00:25:17,480 --> 00:25:20,320
Speaker 5: and then we have ongoing cuts as we go through

463
00:25:20,520 --> 00:25:22,720
Speaker 5: next year, and we think ultimately will land in the

464
00:25:22,920 --> 00:25:25,840
Speaker 5: low to mid threes for the funds rate, which is

465
00:25:25,880 --> 00:25:28,280
Speaker 5: a bit below what markets are pricing now. But I

466
00:25:28,280 --> 00:25:31,160
Speaker 5: would remind you that if you go back a couple

467
00:25:31,200 --> 00:25:34,080
Speaker 5: of months, markets who are priced for terminal fed funds

468
00:25:34,160 --> 00:25:37,720
Speaker 5: rate in the two point seven percent range, So that

469
00:25:37,920 --> 00:25:42,320
Speaker 5: was clearly very low relative to you know, certainly what

470
00:25:42,359 --> 00:25:45,359
Speaker 5: we expected. Now. I think the market's price may be

471
00:25:45,440 --> 00:25:47,800
Speaker 5: a little bit higher than is appropriate in our view.

472
00:25:48,560 --> 00:25:51,240
Speaker 6: So there's a lot of things happening on the back

473
00:25:51,280 --> 00:25:56,240
Speaker 6: of your question and the idea of investment strategies around inflation.

474
00:25:56,359 --> 00:25:59,240
Speaker 6: What's the source of the inflation that may occur, And

475
00:25:59,359 --> 00:26:02,760
Speaker 6: we can think of US companies that are selling abroad

476
00:26:02,960 --> 00:26:05,760
Speaker 6: compared with US companies that are selling domestically. If you're

477
00:26:05,760 --> 00:26:08,359
Speaker 6: concerned about tariffs and what that might be from a

478
00:26:08,359 --> 00:26:11,520
Speaker 6: price level point of view, the risk of retaliatory tariffs

479
00:26:11,560 --> 00:26:14,520
Speaker 6: is certainly there, and so owning companies whose customer base

480
00:26:14,720 --> 00:26:17,000
Speaker 6: is in the United States, while of course long the

481
00:26:17,040 --> 00:26:20,280
Speaker 6: supply chain, they may have increased the prices the idea

482
00:26:20,400 --> 00:26:23,200
Speaker 6: of those type of stocks generally doing better. As part

483
00:26:23,200 --> 00:26:25,680
Speaker 6: of our view, you can think about wage inflation as well.

484
00:26:25,720 --> 00:26:29,960
Speaker 6: We have companies where labor costs are relatively low. And

485
00:26:30,000 --> 00:26:32,320
Speaker 6: when I talk about labor costs, I think of the wage,

486
00:26:32,640 --> 00:26:36,320
Speaker 6: not just wages, salaries and bonuses and stock based compensation

487
00:26:36,480 --> 00:26:38,800
Speaker 6: and healthcare benefits, which of course in the US are

488
00:26:38,800 --> 00:26:41,520
Speaker 6: born by the corporate sector. And there are companies where

489
00:26:41,560 --> 00:26:44,960
Speaker 6: that's quite low, relatively low labor intensive companies is compared

490
00:26:44,960 --> 00:26:48,639
Speaker 6: with high labor cost companies. And think that's a area

491
00:26:48,640 --> 00:26:52,560
Speaker 6: again we're looking for strategies, investment strategies around these different

492
00:26:52,600 --> 00:26:55,920
Speaker 6: macro themes that Yan has described and we talk about

493
00:26:56,520 --> 00:26:58,359
Speaker 6: in our teams at Gobenzachs.

494
00:27:14,160 --> 00:27:18,160
Speaker 4: One thing I'm wondering as we enter another Trump administration.

495
00:27:18,440 --> 00:27:20,600
Speaker 4: You know, Joe and I and other journalists, we have

496
00:27:20,640 --> 00:27:23,320
Speaker 4: it kind of easy where we either see the headlines

497
00:27:23,359 --> 00:27:25,600
Speaker 4: at night before we go to bed, or if we're

498
00:27:25,600 --> 00:27:28,000
Speaker 4: saying people, we see them in the morning when we

499
00:27:28,040 --> 00:27:30,720
Speaker 4: wake up, and all we have to do is write

500
00:27:30,720 --> 00:27:34,560
Speaker 4: them up. Basically what Trump is saying. When you wake

501
00:27:34,640 --> 00:27:37,639
Speaker 4: up and see the headlines in the morning, how like

502
00:27:37,960 --> 00:27:41,720
Speaker 4: reactive is your work to some of the stuff coming

503
00:27:41,720 --> 00:27:44,359
Speaker 4: out of Donald Trump's mouth? And I guess the count

504
00:27:44,400 --> 00:27:47,440
Speaker 4: true social account yeah, And I guess the consensus right

505
00:27:47,440 --> 00:27:51,360
Speaker 4: now is you should take Trump seriously, but perhaps not literally.

506
00:27:51,440 --> 00:27:54,520
Speaker 4: And I guess my question is like when does that change.

507
00:27:55,800 --> 00:27:59,959
Speaker 5: Well, it certainly changes once you have actual government policy

508
00:28:00,160 --> 00:28:03,200
Speaker 5: that can be implemented. During the transition. Of course, that's

509
00:28:03,320 --> 00:28:07,560
Speaker 5: not the case. So in terms of changing our forecast,

510
00:28:07,880 --> 00:28:10,800
Speaker 5: you know, the hurdle now would be quite a bit

511
00:28:10,880 --> 00:28:14,640
Speaker 5: higher than once we actually were back in the second

512
00:28:14,680 --> 00:28:19,120
Speaker 5: Trump administration. In terms of providing a comment on some

513
00:28:19,160 --> 00:28:23,560
Speaker 5: of these announcements or tariff threats, yeah, there's a lot

514
00:28:23,600 --> 00:28:26,280
Speaker 5: of demand for that, and so we did write a

515
00:28:26,320 --> 00:28:32,560
Speaker 5: comment on yesterday's announcements around the Canada, China, Mexico tariffs,

516
00:28:32,640 --> 00:28:36,159
Speaker 5: but ultimately said, some of this is very consistent with

517
00:28:36,200 --> 00:28:39,120
Speaker 5: what we had been assuming, namely the China tariffs, and

518
00:28:39,200 --> 00:28:42,560
Speaker 5: maybe even a little bit lower than what ultimately is

519
00:28:42,680 --> 00:28:46,440
Speaker 5: likely to materialize. But then on Mexico and Canada, we

520
00:28:46,520 --> 00:28:49,280
Speaker 5: would take this with more of a grain of salt

521
00:28:49,400 --> 00:28:53,200
Speaker 5: because there will be a whole process around that renegotiation.

522
00:28:53,760 --> 00:28:58,000
Speaker 5: And ultimately we did have some similar tariff threats in

523
00:28:58,040 --> 00:29:01,120
Speaker 5: the first Trump administration on Canada and Mexico, which ultimately

524
00:29:01,120 --> 00:29:06,880
Speaker 5: didn't materialize because NAFTA effectively just became USMCA, but not

525
00:29:06,960 --> 00:29:08,640
Speaker 5: with a huge number of changes.

526
00:29:09,800 --> 00:29:13,040
Speaker 6: Think about it in terms of horizon arbitrage. There is

527
00:29:13,160 --> 00:29:17,400
Speaker 6: lots of price noise that happens every day. And then

528
00:29:17,440 --> 00:29:21,560
Speaker 6: there's investment themes that may be less connected with the administration,

529
00:29:21,600 --> 00:29:24,040
Speaker 6: whether it's Donald Trump, Joe Biden, what have you. The

530
00:29:24,280 --> 00:29:27,280
Speaker 6: idea of artificial intelligence AI that everyone talks about, well,

531
00:29:27,280 --> 00:29:31,920
Speaker 6: that's really less affected by some of the government policies.

532
00:29:32,160 --> 00:29:34,760
Speaker 6: It may be depending on the policies that get implemented,

533
00:29:34,760 --> 00:29:39,040
Speaker 6: but the idea of more productivity growth, or idea of

534
00:29:39,080 --> 00:29:42,600
Speaker 6: more efficiency, or the infrastructure build out relating to AI,

535
00:29:42,920 --> 00:29:45,240
Speaker 6: those are some of the themes that are probably independent

536
00:29:45,680 --> 00:29:48,280
Speaker 6: of the administration. These are the things that are having

537
00:29:48,280 --> 00:29:50,960
Speaker 6: in the technology world. And that's a discussion point that

538
00:29:51,280 --> 00:29:54,040
Speaker 6: I look at with portfolio managers who may have an

539
00:29:54,280 --> 00:29:56,800
Speaker 6: investment horizon that may be three to five years out.

540
00:29:56,840 --> 00:29:58,680
Speaker 6: What stocks should they own, how should they position their

541
00:29:58,680 --> 00:30:02,000
Speaker 6: portfolio as compared with maybe some more focusing on the

542
00:30:02,080 --> 00:30:04,680
Speaker 6: day to day announcements of tariffs, which may be implemented,

543
00:30:04,760 --> 00:30:07,440
Speaker 6: may not be Maybe that may be variable.

544
00:30:07,720 --> 00:30:10,080
Speaker 5: One thing I would just say is that on tariffs,

545
00:30:10,720 --> 00:30:13,960
Speaker 5: this is to a large extent up to the president

546
00:30:14,000 --> 00:30:17,000
Speaker 5: and up to the White House. So it does deserve

547
00:30:17,720 --> 00:30:24,440
Speaker 5: more attention than some other policy pronouncements, which require Congress

548
00:30:24,440 --> 00:30:29,200
Speaker 5: to hash out a reconciliation bill and ultimate tax legislation.

549
00:30:29,440 --> 00:30:32,880
Speaker 5: So it is important to focus on the things when

550
00:30:32,920 --> 00:30:36,880
Speaker 5: there are announcements that are effectively under the control of

551
00:30:36,920 --> 00:30:37,600
Speaker 5: the White House.

552
00:30:38,200 --> 00:30:42,400
Speaker 2: The Treasury Secretary nominee has, according to report, been pitching

553
00:30:42,440 --> 00:30:47,280
Speaker 2: Trump on this idea three three threes, improved growth via deregulation,

554
00:30:48,080 --> 00:30:53,000
Speaker 2: smaller deficits, and more barrels of oil. Let's set aside

555
00:30:53,080 --> 00:30:56,920
Speaker 2: the oil for a second. Do you see any prospect

556
00:30:57,000 --> 00:31:01,160
Speaker 2: of a meaningful change in the spending trajectory? And do

557
00:31:01,240 --> 00:31:04,800
Speaker 2: you see any meaningful opportunity for further pickup in trend

558
00:31:04,800 --> 00:31:07,680
Speaker 2: growth from more favorable regulatory environment.

559
00:31:07,880 --> 00:31:12,640
Speaker 5: So I think these are aspirational goals. They're both pretty ambitious.

560
00:31:13,240 --> 00:31:16,920
Speaker 5: I mean both a three percent of GDP federal deficit.

561
00:31:17,800 --> 00:31:21,440
Speaker 5: That's not what we're expecting. That's not what the Congressional

562
00:31:21,440 --> 00:31:25,520
Speaker 5: Budget Office is expecting. I mean, we think it's going

563
00:31:25,560 --> 00:31:28,680
Speaker 5: to be closer to six percent. Probably maybe we can

564
00:31:28,680 --> 00:31:31,640
Speaker 5: bring that down. Bringing it down to three percent would

565
00:31:31,640 --> 00:31:35,680
Speaker 5: be certainly very desirable. I think we will ultimately need

566
00:31:35,720 --> 00:31:38,600
Speaker 5: to bring it back down to something like three percent,

567
00:31:38,680 --> 00:31:42,920
Speaker 5: and to bring the primary deficit, the x interest federal

568
00:31:42,960 --> 00:31:47,160
Speaker 5: budget deficit back down to somewhere around zero, depending on

569
00:31:47,840 --> 00:31:51,800
Speaker 5: where growth and real interest rates ultimately balance out. But

570
00:31:51,840 --> 00:31:54,360
Speaker 5: that's going to be a process that's going to require

571
00:31:54,760 --> 00:31:56,520
Speaker 5: an enormous amount of effort, and.

572
00:31:56,520 --> 00:31:59,719
Speaker 2: That would take real political effort to cut into very sensitive,

573
00:31:59,760 --> 00:32:00,480
Speaker 2: veryos spending.

574
00:32:00,560 --> 00:32:00,680
Speaker 4: Right.

575
00:32:00,840 --> 00:32:06,840
Speaker 5: That's right, because such a large chunk of government spending

576
00:32:06,960 --> 00:32:11,520
Speaker 5: is basically entitlement programs, defense, and debt service. That doesn't

577
00:32:11,640 --> 00:32:16,960
Speaker 5: leave a lot of discretionary non defense spending that's maybe

578
00:32:16,960 --> 00:32:19,240
Speaker 5: a little bit easier to cut than some of those

579
00:32:19,400 --> 00:32:23,280
Speaker 5: other categories. You know, fifteen percent or so of total

580
00:32:23,360 --> 00:32:26,880
Speaker 5: federal spending is you know, non defense discretionary, so a

581
00:32:26,920 --> 00:32:30,640
Speaker 5: relatively small share. And that then leaves the tax side,

582
00:32:30,720 --> 00:32:34,479
Speaker 5: and you know, obviously there's no desire to deliver a

583
00:32:34,480 --> 00:32:37,680
Speaker 5: sizeable tax cut, certainly not with this administration. So it's

584
00:32:37,680 --> 00:32:40,720
Speaker 5: going to be very difficult. On the growth side. We're

585
00:32:40,760 --> 00:32:44,680
Speaker 5: on the optimistic side of at least the economist consensus

586
00:32:44,720 --> 00:32:48,360
Speaker 5: if you take the federal reserve, the media, and longer

587
00:32:48,480 --> 00:32:51,680
Speaker 5: term GDP growth rate is one point eight percent. We're

588
00:32:51,720 --> 00:32:55,200
Speaker 5: at two point one percent. You know, maybe that can

589
00:32:55,240 --> 00:32:59,080
Speaker 5: be lifted somewhat. Getting to three again would be very

590
00:32:59,120 --> 00:33:04,040
Speaker 5: difficult urely, given the demographics. If you have the labor

591
00:33:04,080 --> 00:33:07,720
Speaker 5: force grow at only a pretty slow pace, you know,

592
00:33:07,840 --> 00:33:11,080
Speaker 5: not a lot of natural population growth because of low

593
00:33:11,160 --> 00:33:15,520
Speaker 5: birth rates, and probably much lawer immigration. So even if

594
00:33:15,520 --> 00:33:18,480
Speaker 5: you're a productivity optimist, and I would say I'm on

595
00:33:18,520 --> 00:33:21,680
Speaker 5: the more optimistic side as far as productivity is concerned,

596
00:33:21,960 --> 00:33:23,760
Speaker 5: getting to three will be difficult.

597
00:33:24,040 --> 00:33:26,880
Speaker 4: Let's talk about immigration, because, as you pointed out, you know,

598
00:33:26,960 --> 00:33:30,040
Speaker 4: tariffs are largely under the purview of the president. Maybe

599
00:33:30,080 --> 00:33:34,240
Speaker 4: immigration is a little bit different. What's been the impact

600
00:33:34,360 --> 00:33:37,800
Speaker 4: of immigration on the economy from the past, you know,

601
00:33:37,840 --> 00:33:40,080
Speaker 4: three or four years or so, and how do you

602
00:33:40,120 --> 00:33:43,600
Speaker 4: see that unfolding going forward, given that we don't really

603
00:33:43,680 --> 00:33:46,280
Speaker 4: know what's coming. We could have mass deportations, or we

604
00:33:46,320 --> 00:33:49,080
Speaker 4: could have something you know, around the edges, or maybe

605
00:33:49,600 --> 00:33:50,440
Speaker 4: nothing happens.

606
00:33:51,160 --> 00:33:57,480
Speaker 5: So it's been very important in boosting growth and nevertheless

607
00:33:57,520 --> 00:34:01,600
Speaker 5: bringing down inflation. So it's obviously a very controversial topic

608
00:34:01,640 --> 00:34:04,400
Speaker 5: from a political perspective, But if you just look at

609
00:34:04,440 --> 00:34:08,400
Speaker 5: the economics, if you bring more people into the workforce,

610
00:34:09,040 --> 00:34:13,399
Speaker 5: especially at a time of very serious labor supply constraints,

611
00:34:13,719 --> 00:34:17,080
Speaker 5: and in particular, very serious labor supply constraints at the

612
00:34:17,080 --> 00:34:20,360
Speaker 5: bottom end of skill distribution in twenty twenty one twenty

613
00:34:20,400 --> 00:34:23,480
Speaker 5: two in areas like bars and restaurants, you know, in

614
00:34:23,520 --> 00:34:28,160
Speaker 5: other areas like that construction, having that large influx of

615
00:34:28,719 --> 00:34:32,640
Speaker 5: people has boosted growth and probably at the margin also

616
00:34:32,760 --> 00:34:36,160
Speaker 5: helped to bring down inflation. At least has helped to

617
00:34:36,160 --> 00:34:38,880
Speaker 5: bring down wage inflation in some of these areas to

618
00:34:39,040 --> 00:34:42,880
Speaker 5: levels that are more sustainable. Now there is already a

619
00:34:42,960 --> 00:34:47,719
Speaker 5: deceleration in the immigrant inflow if you look at it

620
00:34:48,000 --> 00:34:51,360
Speaker 5: on a you know, month on month kind of annual

621
00:34:51,440 --> 00:34:57,160
Speaker 5: rate perspective. In late twenty twenty three, we were running

622
00:34:57,239 --> 00:35:00,840
Speaker 5: above three million at an annual rate. Are now probably

623
00:35:00,880 --> 00:35:04,040
Speaker 5: a little bit between one and a half and two million,

624
00:35:04,400 --> 00:35:07,040
Speaker 5: and that is likely to you know, come down further,

625
00:35:07,239 --> 00:35:13,160
Speaker 5: even before you see an additional tightening of restrictions on

626
00:35:13,440 --> 00:35:17,319
Speaker 5: people coming in and increased deportations. You know, we'll see

627
00:35:17,320 --> 00:35:19,960
Speaker 5: how large the deportations are ultimately going to be. If

628
00:35:20,000 --> 00:35:24,520
Speaker 5: you go back to say the Obama administration, we were

629
00:35:25,120 --> 00:35:28,560
Speaker 5: averaging something like four hundred thousand per year. You know,

630
00:35:28,600 --> 00:35:31,000
Speaker 5: I think it's probably going to be higher than that,

631
00:35:31,680 --> 00:35:35,480
Speaker 5: but whether it's going to be dramatically higher than that

632
00:35:35,480 --> 00:35:37,160
Speaker 5: that I think is still less clear. Yes, it is

633
00:35:37,280 --> 00:35:39,520
Speaker 5: up to the executive branch, it's up to the president.

634
00:35:39,760 --> 00:35:42,560
Speaker 5: But unlike with tariffs, there are going to be a

635
00:35:42,560 --> 00:35:48,319
Speaker 5: lot more logistical issues around deportations and moving immigration to

636
00:35:48,400 --> 00:35:51,480
Speaker 5: much lower levels or into negative territory than with tariffs.

637
00:35:51,480 --> 00:35:56,760
Speaker 5: With tariffs, it's administratively relatively easy. So if I'm thinking about,

638
00:35:57,400 --> 00:36:01,400
Speaker 5: you know, supply the sort of growth negative tariffs on

639
00:36:01,440 --> 00:36:04,200
Speaker 5: the one side, and then immigration on the other, I'm

640
00:36:04,200 --> 00:36:06,480
Speaker 5: more worried about tariffs than I am about immigration.

641
00:36:06,920 --> 00:36:11,280
Speaker 2: David, you mentioned you know we're talking, you talk to clients,

642
00:36:11,280 --> 00:36:15,319
Speaker 2: and one of the dominant conversations Scott Bessant gets named

643
00:36:15,440 --> 00:36:19,920
Speaker 2: Treasury Secretary nominee. Maybe his three percent deficit to GDP

644
00:36:20,520 --> 00:36:22,960
Speaker 2: goal is very aspirational. Maybe some of his growth ambitions

645
00:36:22,960 --> 00:36:27,040
Speaker 2: are aspirational, But it strikes me that, like, ultimately he

646
00:36:27,080 --> 00:36:29,760
Speaker 2: does not strike me as some sort of like major

647
00:36:30,600 --> 00:36:34,440
Speaker 2: shake up, We're going to totally rethink how the economy works.

648
00:36:34,480 --> 00:36:34,680
Speaker 3: Guy.

649
00:36:34,760 --> 00:36:38,040
Speaker 2: He sort of has a traditional macro background, seems to

650
00:36:38,080 --> 00:36:40,640
Speaker 2: have very good understanding when you talk to clients. How

651
00:36:40,680 --> 00:36:43,320
Speaker 2: far does that go, you know, in terms of thinking,

652
00:36:43,400 --> 00:36:46,520
Speaker 2: being able to think long term and avoiding the noise

653
00:36:46,640 --> 00:36:49,360
Speaker 2: of the day to day headlines. The fact that Scott

654
00:36:49,440 --> 00:36:52,080
Speaker 2: Bessont is likely going to be the Treasury secretary, the

655
00:36:52,120 --> 00:36:54,560
Speaker 2: fact that, according to reports that just hit the headlines,

656
00:36:54,760 --> 00:36:57,560
Speaker 2: someone fairly mainstream like Kevin Hassett is going to be

657
00:36:57,680 --> 00:37:00,279
Speaker 2: running a ne EC. Is this the kind of thing

658
00:37:00,320 --> 00:37:02,759
Speaker 2: that just makes investors? Do they get comfortable when they

659
00:37:02,760 --> 00:37:03,400
Speaker 2: hear these headlines?

660
00:37:03,440 --> 00:37:04,319
Speaker 3: What are those chats like?

661
00:37:04,680 --> 00:37:07,680
Speaker 6: I would say that is a pretty good characterization of

662
00:37:07,719 --> 00:37:10,680
Speaker 6: how portfolio managers are thinking about it right now. Based

663
00:37:10,719 --> 00:37:13,879
Speaker 6: on his background. Number of people myself included known him

664
00:37:13,920 --> 00:37:17,359
Speaker 6: for some period of time as a portfolio manager, and

665
00:37:17,400 --> 00:37:21,719
Speaker 6: he's viewed again perception as sort of more mainstream. Of course,

666
00:37:21,719 --> 00:37:23,920
Speaker 6: a lot of the policies will depend on the president,

667
00:37:24,040 --> 00:37:26,920
Speaker 6: and so it'd be up to the treasure Secretary and

668
00:37:26,920 --> 00:37:29,319
Speaker 6: the other cabinet members to carry out those policies, and

669
00:37:29,360 --> 00:37:34,120
Speaker 6: that remains asion indicated that some uncertainty around what those

670
00:37:34,160 --> 00:37:34,840
Speaker 6: ultimately will be.

671
00:37:35,600 --> 00:37:37,400
Speaker 4: So one of the reasons we'd like to talk to

672
00:37:37,440 --> 00:37:39,560
Speaker 4: you is because you go out and talk to other

673
00:37:39,560 --> 00:37:43,080
Speaker 4: people too. Your clients, portfolio managers. As you just mentioned,

674
00:37:43,360 --> 00:37:46,680
Speaker 4: what are some of the more interesting questions that you

675
00:37:46,760 --> 00:37:50,840
Speaker 4: are getting this year and what's maybe different to this

676
00:37:51,040 --> 00:37:52,439
Speaker 4: time in twenty twenty three.

677
00:37:53,640 --> 00:37:56,760
Speaker 5: Well, it's much more around policy and much less around

678
00:37:57,040 --> 00:37:59,680
Speaker 5: the underlying path of the economy. I mean, I think

679
00:38:00,000 --> 00:38:04,239
Speaker 5: where again, going through beyond the policies which we've discussed

680
00:38:04,680 --> 00:38:09,439
Speaker 5: a little bit of the concern around higher inflation. It's

681
00:38:09,440 --> 00:38:12,120
Speaker 5: certainly true that the last couple of prints have been

682
00:38:12,160 --> 00:38:14,480
Speaker 5: a little bit higher. We talked about it earlier. I'm

683
00:38:14,480 --> 00:38:18,440
Speaker 5: not super concerned about it, but it wouldn't be shocking

684
00:38:18,480 --> 00:38:21,600
Speaker 5: if we saw the next few months a little bit

685
00:38:21,600 --> 00:38:26,440
Speaker 5: of upward pressure. First quarter has been a sort of

686
00:38:26,520 --> 00:38:32,719
Speaker 5: seasonally higher sequential inflation period, I think partly because seasonal

687
00:38:32,719 --> 00:38:36,440
Speaker 5: adjustment is difficult, especially post pandemic, and there is some

688
00:38:36,480 --> 00:38:39,640
Speaker 5: residual seasonality which we may see again. So there are

689
00:38:39,680 --> 00:38:44,880
Speaker 5: definitely questions around inflation. There are questions around, you know,

690
00:38:44,960 --> 00:38:49,759
Speaker 5: the longer term neutral funds rate. Our star know to

691
00:38:49,760 --> 00:38:54,040
Speaker 5: what extent has it risen relative to the pre pandemic period.

692
00:38:55,000 --> 00:38:58,160
Speaker 5: You know, our view is that it probably never was

693
00:38:58,280 --> 00:39:01,400
Speaker 5: quite as low as many people thought in twenty eighteen

694
00:39:01,400 --> 00:39:05,720
Speaker 5: twenty nineteen. We were never that sold on the secular

695
00:39:05,760 --> 00:39:09,680
Speaker 5: stagnation story, and you know, it might not be quite

696
00:39:09,760 --> 00:39:13,759
Speaker 5: as high as many observers now think. I mean, we're

697
00:39:13,840 --> 00:39:16,360
Speaker 5: still in the low to mid threes and nominal terms,

698
00:39:16,440 --> 00:39:19,200
Speaker 5: low to mid ones in real terms, but there's certainly

699
00:39:19,239 --> 00:39:21,520
Speaker 5: a lot of discussion around that. There's a lot of

700
00:39:21,520 --> 00:39:27,760
Speaker 5: discussion around Europe and the impact potentially of higher tariffs

701
00:39:27,800 --> 00:39:31,120
Speaker 5: or maybe just the trade policy uncertainty. You know, in

702
00:39:31,160 --> 00:39:35,360
Speaker 5: advance of any actual tariff increases on Europe, what is

703
00:39:35,400 --> 00:39:39,480
Speaker 5: that doing to an economy that's already pretty soft. And

704
00:39:39,960 --> 00:39:42,719
Speaker 5: it's an area where we're actually well below consensus. We

705
00:39:42,760 --> 00:39:46,520
Speaker 5: have a zero point eight percent forecast for EU area

706
00:39:46,600 --> 00:39:49,680
Speaker 5: growth in twenty twenty five, which is four or five

707
00:39:49,760 --> 00:39:55,360
Speaker 5: tenths below the Bloomberg consensus or the ECB and and

708
00:39:55,440 --> 00:39:57,839
Speaker 5: a lot of that is around trade policy uncertainty, which

709
00:39:57,880 --> 00:40:01,200
Speaker 5: seems to have a particularly negative impact in Europe. So

710
00:40:01,480 --> 00:40:04,560
Speaker 5: definitely another big topic of conversation.

711
00:40:04,239 --> 00:40:06,000
Speaker 3: David, and take a stab at the same question.

712
00:40:06,040 --> 00:40:08,400
Speaker 6: Sure, there's a variety of things that portfolio managers are

713
00:40:08,400 --> 00:40:10,920
Speaker 6: focused on right now, and the first is something you

714
00:40:11,040 --> 00:40:14,560
Speaker 6: reference earlier, Joe, which is the idea of the largest

715
00:40:14,560 --> 00:40:17,840
Speaker 6: stocks in the market are now representing more than a

716
00:40:17,880 --> 00:40:21,080
Speaker 6: third of the S and P five hundred equity capitalization.

717
00:40:21,239 --> 00:40:23,400
Speaker 6: So the question is, you know, how does one position

718
00:40:23,480 --> 00:40:25,880
Speaker 6: in that. You look at the mutual fund community, for example,

719
00:40:26,000 --> 00:40:28,880
Speaker 6: seventy five percent of mutual funds are lagging their benchmark.

720
00:40:29,120 --> 00:40:31,759
Speaker 6: It's not a criticism, it's just the data so far

721
00:40:32,160 --> 00:40:35,239
Speaker 6: and those companies. What's been consistent about those funds has

722
00:40:35,280 --> 00:40:38,920
Speaker 6: been they have been underweight these positions in the largest stocks,

723
00:40:39,200 --> 00:40:41,960
Speaker 6: and so the idea of perhaps having an index weight

724
00:40:42,320 --> 00:40:45,800
Speaker 6: for the largest companies and then choosing to generate alpha

725
00:40:45,840 --> 00:40:48,440
Speaker 6: or seek alpha in the rest of the market is

726
00:40:48,520 --> 00:40:52,080
Speaker 6: probably the better strategy. That's number one. That was something

727
00:40:52,120 --> 00:40:54,480
Speaker 6: that the twenty five percent of the mutual funds that

728
00:40:54,520 --> 00:40:57,680
Speaker 6: are outperforming have tended to tended to do. That's number one.

729
00:40:57,760 --> 00:41:01,400
Speaker 6: Number two, relating to Yon's observe as, it's a perpetual

730
00:41:01,480 --> 00:41:06,240
Speaker 6: question of well, what about these global markets Europe, Asia, China, Japan,

731
00:41:06,840 --> 00:41:09,560
Speaker 6: Is this their opportunity to outperform the US. The relevant

732
00:41:09,719 --> 00:41:13,480
Speaker 6: evaluation metrics are really really eye catching, which is that

733
00:41:13,640 --> 00:41:18,200
Speaker 6: the multiple forward pe multiple for the US equity markets

734
00:41:18,239 --> 00:41:22,440
Speaker 6: now roughly twenty three times, and it's about thirteen times

735
00:41:22,480 --> 00:41:26,560
Speaker 6: for Europe and Japan and China is even lower than that.

736
00:41:26,800 --> 00:41:29,520
Speaker 6: And so that question is well for a decade, it's

737
00:41:29,560 --> 00:41:31,560
Speaker 6: still been the US. Is this the time? Is the

738
00:41:31,600 --> 00:41:35,640
Speaker 6: valuation gap so significant that the opportunity set at the

739
00:41:35,680 --> 00:41:38,560
Speaker 6: lower end of the valuation scale? Does that represent good opportunities?

740
00:41:38,560 --> 00:41:41,919
Speaker 6: So I'd say those are two major questions. The third

741
00:41:42,000 --> 00:41:46,080
Speaker 6: question that is highly debated is on AI and the

742
00:41:46,120 --> 00:41:49,600
Speaker 6: idea is of the huge capital investments that some of

743
00:41:49,640 --> 00:41:53,359
Speaker 6: the hyperscalers and other companies making these investments, what will

744
00:41:53,400 --> 00:41:56,759
Speaker 6: the ROI turn on investment be of the AI that

745
00:41:56,760 --> 00:42:00,120
Speaker 6: they're making, And so that is a question that's and

746
00:42:00,200 --> 00:42:02,120
Speaker 6: flowed over the course of the year. A lot of

747
00:42:02,120 --> 00:42:04,879
Speaker 6: the companies who are involved in the infrastructure build out

748
00:42:04,920 --> 00:42:09,040
Speaker 6: have done particularly well. Those pe multiples have expanded and

749
00:42:09,080 --> 00:42:11,279
Speaker 6: the share prices have done better than the growth rate

750
00:42:11,400 --> 00:42:14,640
Speaker 6: in the underlying growth of earnings, and so our focus

751
00:42:14,719 --> 00:42:17,600
Speaker 6: has been on companies in the third phase. As we

752
00:42:17,640 --> 00:42:20,520
Speaker 6: think about it, the third phase of AI infrastructure build out.

753
00:42:20,640 --> 00:42:23,640
Speaker 6: First phase is Navidia's own kind of unique story. The

754
00:42:23,640 --> 00:42:26,120
Speaker 6: second phase is the infrastructure and the third phase is

755
00:42:26,160 --> 00:42:29,800
Speaker 6: the companies we think of whose revenues will be enhanced

756
00:42:30,080 --> 00:42:32,440
Speaker 6: by AI, and a lot of the software companies and

757
00:42:32,520 --> 00:42:37,560
Speaker 6: their price return this year have basically matched the earnings

758
00:42:37,600 --> 00:42:40,640
Speaker 6: growth trajectory, and so the opportunity does exist there in

759
00:42:40,680 --> 00:42:43,120
Speaker 6: some cases for a multiple expansion, So that would be

760
00:42:43,320 --> 00:42:44,880
Speaker 6: an area of focus. So those are some of the

761
00:42:45,080 --> 00:42:47,520
Speaker 6: topics that are debated with fund manager right now.

762
00:42:48,040 --> 00:42:48,600
Speaker 3: Tracy.

763
00:42:48,760 --> 00:42:51,320
Speaker 2: First of all, it feels like international out performance is

764
00:42:51,360 --> 00:42:52,480
Speaker 2: always one year away.

765
00:42:52,360 --> 00:42:54,720
Speaker 4: Or oh, I know, we're always waiting for EM.

766
00:42:54,800 --> 00:42:57,680
Speaker 2: We're always waiting for EM and Japan and Europe. One

767
00:42:57,760 --> 00:42:59,920
Speaker 2: day they're going to have their day. But also to

768
00:43:00,000 --> 00:43:02,239
Speaker 2: refor it's another shops performers. But I always love looking

769
00:43:02,280 --> 00:43:05,239
Speaker 2: at the via AML hedge fund survey and one of

770
00:43:05,280 --> 00:43:07,360
Speaker 2: the things they ask is what's the most crowded trade?

771
00:43:07,640 --> 00:43:09,919
Speaker 2: And it's always big tech, and it's always big tech

772
00:43:09,920 --> 00:43:11,879
Speaker 2: that wins. And I think about how glad I am

773
00:43:11,880 --> 00:43:14,279
Speaker 2: that I'm not a portfolio manager, and how sick to

774
00:43:14,320 --> 00:43:16,480
Speaker 2: my stomach of it have to be did the big

775
00:43:16,520 --> 00:43:18,680
Speaker 2: source of l F I just have to ride the

776
00:43:18,719 --> 00:43:21,279
Speaker 2: most crowded trade? Anyway, I'm glad I don't have that

777
00:43:21,440 --> 00:43:23,040
Speaker 2: job where I have to just do the same trade

778
00:43:23,080 --> 00:43:24,759
Speaker 2: as everyone else to outperform.

779
00:43:24,880 --> 00:43:27,600
Speaker 4: We're all glad to Yeah. Well, actually, speaking of jobs,

780
00:43:27,680 --> 00:43:30,600
Speaker 4: Joe and I came up with a contrarian trade idea

781
00:43:30,800 --> 00:43:35,240
Speaker 4: based on AI, which is by Europe as a beneficiary

782
00:43:35,440 --> 00:43:41,320
Speaker 4: of productivity enhancing technology hormachical because their productivity is really low.

783
00:43:41,680 --> 00:43:44,200
Speaker 4: Would that work? You guys should see the expression on

784
00:43:44,280 --> 00:43:45,040
Speaker 4: David's face.

785
00:43:44,920 --> 00:43:48,840
Speaker 3: Right, he looks like he did bit into a lemon.

786
00:43:50,200 --> 00:43:52,040
Speaker 4: No one likes our contrarian ideas.

787
00:43:52,440 --> 00:43:53,200
Speaker 5: It could work.

788
00:43:53,840 --> 00:43:55,239
Speaker 6: I think maybe you used to think about it in

789
00:43:55,360 --> 00:43:59,160
Speaker 6: terms of M and A activity. The idea of the

790
00:43:59,200 --> 00:44:03,320
Speaker 6: companies in the stays much higher profit margins, and the idea,

791
00:44:03,640 --> 00:44:07,680
Speaker 6: I guess Tracy your hypothesis is perhaps their margin expansion

792
00:44:08,120 --> 00:44:13,799
Speaker 6: would be potentially enhanced by the adoption of AI. That

793
00:44:14,320 --> 00:44:19,160
Speaker 6: one question is on the source of the potential margin enhancement.

794
00:44:19,239 --> 00:44:22,800
Speaker 6: Is that labor driven and you have more efficiency therefore

795
00:44:22,880 --> 00:44:25,640
Speaker 6: fewer jobs. Is that sort of a orthogonal to what

796
00:44:25,680 --> 00:44:28,040
Speaker 6: the objective are? Has seem a lot of the European governments,

797
00:44:28,080 --> 00:44:30,600
Speaker 6: and so I think there's some debate around that. Could

798
00:44:30,640 --> 00:44:31,520
Speaker 6: it be a trade?

799
00:44:33,000 --> 00:44:35,480
Speaker 4: I'm not a buyer Goleman isn't going to set up

800
00:44:35,520 --> 00:44:36,440
Speaker 4: that index.

801
00:44:36,239 --> 00:44:39,759
Speaker 2: Just do you have ai macro thoughts? And to my

802
00:44:39,840 --> 00:44:42,239
Speaker 2: mind there's potentially two ways it could go down. One

803
00:44:42,400 --> 00:44:44,960
Speaker 2: is just the macro impact of all the capital spending.

804
00:44:44,960 --> 00:44:46,960
Speaker 2: Does it move the dial at all in any sort

805
00:44:47,000 --> 00:44:49,520
Speaker 2: of categories that are important on the top level. But

806
00:44:49,560 --> 00:44:52,759
Speaker 2: I guess more importantly, you know, looking a few years

807
00:44:52,760 --> 00:44:54,719
Speaker 2: out when you think about productivity, when you think about

808
00:44:54,760 --> 00:44:57,440
Speaker 2: labor growth, are we at the stage yet where you

809
00:44:57,480 --> 00:45:00,000
Speaker 2: can make interesting predictions about the impact of this stuff.

810
00:45:01,160 --> 00:45:04,279
Speaker 5: So on the near charm impact, we generally have not

811
00:45:04,680 --> 00:45:07,839
Speaker 5: viewed that as all that large. I mean, these are

812
00:45:07,960 --> 00:45:10,880
Speaker 5: huge numbers in a very small part of the economy,

813
00:45:11,000 --> 00:45:15,200
Speaker 5: but in terms of boosting you know, near term growth,

814
00:45:15,840 --> 00:45:18,920
Speaker 5: it's very difficult to get anything more than you know,

815
00:45:18,960 --> 00:45:21,560
Speaker 5: a very small sort of tenth of a percentage point

816
00:45:21,719 --> 00:45:26,400
Speaker 5: or something like that. And in terms of the broader

817
00:45:26,480 --> 00:45:30,000
Speaker 5: impact on potential growth, I think we're also still probably

818
00:45:30,040 --> 00:45:33,759
Speaker 5: several years away. But then we're actually pretty optimistic when

819
00:45:33,840 --> 00:45:37,200
Speaker 5: it comes to sort of late twenty twenties, early two

820
00:45:37,280 --> 00:45:40,800
Speaker 5: thousand and thirties, and a little over a year ago

821
00:45:41,320 --> 00:45:45,080
Speaker 5: we raised our long term potential growth estimate for the

822
00:45:45,239 --> 00:45:48,120
Speaker 5: US by four tenths of a percentage point. We were

823
00:45:48,120 --> 00:45:50,960
Speaker 5: at one point eight percent for the sort of years

824
00:45:50,960 --> 00:45:53,760
Speaker 5: around two thousand and thirty. We're now two point two percent,

825
00:45:54,320 --> 00:45:58,439
Speaker 5: which is no, that's a pretty sizable boost, and it's

826
00:45:58,480 --> 00:46:03,120
Speaker 5: really driven by the fact that AI can replace a

827
00:46:03,160 --> 00:46:07,200
Speaker 5: lot of the tasks, not necessarily the jobs, but the

828
00:46:07,280 --> 00:46:12,520
Speaker 5: tasks within certain jobs that are being done, you know,

829
00:46:12,600 --> 00:46:15,640
Speaker 5: at sort of low and mid levels of white collar

830
00:46:15,719 --> 00:46:19,000
Speaker 5: work at the moment, and that is ultimately going to

831
00:46:19,000 --> 00:46:22,000
Speaker 5: be productivity enhancing. Of course, it does mean some labor

832
00:46:22,040 --> 00:46:26,880
Speaker 5: market upheaval, although we would emphasize that the labor market

833
00:46:26,920 --> 00:46:30,960
Speaker 5: impact is going to occur over a period of time

834
00:46:31,239 --> 00:46:34,360
Speaker 5: and there will also be new jobs that will be created.

835
00:46:34,400 --> 00:46:37,239
Speaker 5: So historically, when you go back, it's actually not that

836
00:46:37,440 --> 00:46:42,640
Speaker 5: easy to find instances of technological unemployment that were visible,

837
00:46:43,000 --> 00:46:46,040
Speaker 5: you know, in the overall economy. Typically when you have

838
00:46:47,000 --> 00:46:51,359
Speaker 5: large increases in productivity growth, those are actually typically low

839
00:46:51,400 --> 00:46:55,000
Speaker 5: unemployment periods rather than high unemployment periods, even though at

840
00:46:55,040 --> 00:46:59,239
Speaker 5: the individual job level or industry level you might see

841
00:46:59,600 --> 00:47:04,000
Speaker 5: quite a lot of job destruction. But overall we're optimistic

842
00:47:04,040 --> 00:47:06,560
Speaker 5: over the longer term, but in the short term it's

843
00:47:06,560 --> 00:47:08,400
Speaker 5: probably still going to be more limited.

844
00:47:08,800 --> 00:47:12,160
Speaker 4: I can't wait to be a prompt engineer, generating AI

845
00:47:12,440 --> 00:47:15,160
Speaker 4: written podcasts. That's our future.

846
00:47:15,160 --> 00:47:18,480
Speaker 3: We can already are. Yeah, we're already data providers.

847
00:47:18,600 --> 00:47:21,200
Speaker 4: Yeah, that's true, David. I just have one more question,

848
00:47:21,440 --> 00:47:24,600
Speaker 4: which is whose ideal was it to write the Equity

849
00:47:24,640 --> 00:47:27,719
Speaker 4: Outlook through the lens of lessons learned from the Art

850
00:47:27,760 --> 00:47:28,200
Speaker 4: of the Deal.

851
00:47:28,719 --> 00:47:32,400
Speaker 6: Well, last year we referenced Taylor Swift. We said the

852
00:47:32,440 --> 00:47:35,239
Speaker 6: subtitle of the report was all you need to do

853
00:47:35,320 --> 00:47:39,280
Speaker 6: is stay invested, and that was the strategy for calendar

854
00:47:39,400 --> 00:47:42,400
Speaker 6: twenty twenty four. And a reference to your first question

855
00:47:42,520 --> 00:47:45,319
Speaker 6: of this podcast, you asked, do anyone look back and

856
00:47:45,360 --> 00:47:47,920
Speaker 6: see what we wrote in you do here? We certainly

857
00:47:47,920 --> 00:47:50,480
Speaker 6: do and think about it as a report card. What

858
00:47:50,640 --> 00:47:52,799
Speaker 6: was the impetus for the Art of the Deal and

859
00:47:52,840 --> 00:47:55,760
Speaker 6: why we titled that or subtitled that for our twenty

860
00:47:55,800 --> 00:47:58,120
Speaker 6: twenty five outlook. Part of it is the M and

861
00:47:58,160 --> 00:48:02,000
Speaker 6: A environment and the idea that our forecast is for

862
00:48:02,040 --> 00:48:04,400
Speaker 6: a twenty five percent increase in M and A in

863
00:48:04,520 --> 00:48:08,759
Speaker 6: calendar year twenty twenty five. That's part driven by our

864
00:48:08,800 --> 00:48:11,480
Speaker 6: forecast of the use of cash of corporate America S

865
00:48:11,520 --> 00:48:13,920
Speaker 6: and P five hundred companies will spend about four trillion

866
00:48:14,040 --> 00:48:17,279
Speaker 6: dollars of cash next year, and a good portion of

867
00:48:17,280 --> 00:48:19,600
Speaker 6: that we have a twenty percent gain or increase in

868
00:48:19,680 --> 00:48:22,960
Speaker 6: the cash devoted to M and A activity. So that

869
00:48:23,080 --> 00:48:25,200
Speaker 6: was one of the impetuses that thought about the Art

870
00:48:25,239 --> 00:48:28,160
Speaker 6: of the Deal. And then it is remarkable and for

871
00:48:28,200 --> 00:48:31,040
Speaker 6: all the listeners of the Outloud's podcast, I would suggest

872
00:48:31,120 --> 00:48:33,080
Speaker 6: you go back and read the report. Read the book.

873
00:48:33,320 --> 00:48:35,640
Speaker 6: The Art of the Deal was written or co ghost

874
00:48:35,680 --> 00:48:39,239
Speaker 6: written perhaps by Donald Trump thirty seven years ago, and

875
00:48:39,440 --> 00:48:42,879
Speaker 6: many of the characterizations of the transactions in his whole

876
00:48:42,920 --> 00:48:46,560
Speaker 6: thought process was pretty interesting. So we went back revisited

877
00:48:46,600 --> 00:48:48,520
Speaker 6: that in my first edition copy for when I was

878
00:48:49,000 --> 00:48:52,200
Speaker 6: way back in the day, and that was the impetus

879
00:48:52,239 --> 00:48:54,720
Speaker 6: for why we thought about that as an organizing structure

880
00:48:54,840 --> 00:48:55,960
Speaker 6: for our Outlook report.

881
00:48:56,000 --> 00:48:57,040
Speaker 4: Do you have a first edition?

882
00:48:57,680 --> 00:48:59,319
Speaker 6: Are you used to nineteen eighty seven?

883
00:48:59,360 --> 00:49:01,040
Speaker 3: Wow? Oh wow, I'm gonna have to go read it.

884
00:49:01,320 --> 00:49:02,640
Speaker 3: I should read it. I will read it.

885
00:49:02,920 --> 00:49:04,960
Speaker 4: Yeah, I haven't read it either. Isn't there a sequel

886
00:49:05,000 --> 00:49:05,799
Speaker 4: as well? Oh?

887
00:49:05,840 --> 00:49:06,760
Speaker 6: There's many many books.

888
00:49:07,120 --> 00:49:09,640
Speaker 5: Yeah, we did references.

889
00:49:09,880 --> 00:49:12,520
Speaker 6: There's the art of the comeback that he wrote ten

890
00:49:12,600 --> 00:49:15,440
Speaker 6: years later nineteen ninety seven, and a whole sequence of

891
00:49:16,320 --> 00:49:17,120
Speaker 6: books that he's written.

892
00:49:17,200 --> 00:49:17,840
Speaker 4: Oh my gosh.

893
00:49:17,880 --> 00:49:20,759
Speaker 2: Okay, David and Jon, thank you so much for coming

894
00:49:20,800 --> 00:49:22,839
Speaker 2: on out launch. This is a true treat to have

895
00:49:22,880 --> 00:49:25,320
Speaker 2: you both and maybe I don't know, let's make it

896
00:49:25,320 --> 00:49:26,480
Speaker 2: an annual tradition.

897
00:49:26,560 --> 00:49:28,000
Speaker 3: We'll do it again next year.

898
00:49:28,120 --> 00:49:29,880
Speaker 5: Thank you, Thank you exciting us.

899
00:49:29,920 --> 00:49:46,160
Speaker 3: Thank you so much. That was Thank you, Tracy. That

900
00:49:46,200 --> 00:49:48,080
Speaker 3: was a real treat. That was really fun having David

901
00:49:48,080 --> 00:49:48,880
Speaker 3: and On together.

902
00:49:49,120 --> 00:49:52,200
Speaker 4: I know, I wonder if they've ever done an external

903
00:49:52,239 --> 00:49:53,360
Speaker 4: appearance together, like.

904
00:49:53,680 --> 00:49:54,920
Speaker 3: An external media appearance.

905
00:49:55,080 --> 00:49:55,839
Speaker 4: Yeah, that's what I mean.

906
00:49:55,880 --> 00:49:57,239
Speaker 3: I guess we could have asked them.

907
00:49:57,280 --> 00:49:59,200
Speaker 4: I'm sure they have spoken to clients.

908
00:49:59,320 --> 00:49:59,560
Speaker 3: Yeah.

909
00:49:59,600 --> 00:50:02,759
Speaker 2: But there was, you know, just one random thing that

910
00:50:02,880 --> 00:50:06,040
Speaker 2: stuck out from me that I hadn't realized, like I

911
00:50:06,160 --> 00:50:08,960
Speaker 2: knew it or I had a good idea in my

912
00:50:09,080 --> 00:50:11,719
Speaker 2: mind that the reason big tech companies have done so

913
00:50:11,760 --> 00:50:15,480
Speaker 2: well is because they're earnings juggernauts. Right. There's other things

914
00:50:15,520 --> 00:50:17,560
Speaker 2: that go on flows and there, but like, they make

915
00:50:17,640 --> 00:50:19,640
Speaker 2: so much money and they're so large, and yet they

916
00:50:19,719 --> 00:50:21,360
Speaker 2: still put up like thirty percent numbers.

917
00:50:21,360 --> 00:50:23,279
Speaker 3: It's insane. But I had not realized like.

918
00:50:23,600 --> 00:50:26,839
Speaker 2: A quite how wide that gap has been and over

919
00:50:26,840 --> 00:50:29,760
Speaker 2: the last two years between their earnings growth and everyone

920
00:50:29,880 --> 00:50:32,880
Speaker 2: the other four hundred ninety three stocks, and b that

921
00:50:32,960 --> 00:50:35,800
Speaker 2: the consensus is for a major shrinking in that gap

922
00:50:35,840 --> 00:50:37,040
Speaker 2: going into twenty twenty five.

923
00:50:37,280 --> 00:50:39,640
Speaker 4: Yeah, that's right. Well. The other thing I was thinking

924
00:50:39,760 --> 00:50:44,600
Speaker 4: was the differentiation between different Trump policies as well, and

925
00:50:44,680 --> 00:50:47,359
Speaker 4: like maybe dividing them up by how much is under

926
00:50:47,440 --> 00:50:50,799
Speaker 4: the purview of the president versus like what things need

927
00:50:50,920 --> 00:50:54,919
Speaker 4: congressional approvement and where there are those sort of political

928
00:50:55,239 --> 00:50:59,360
Speaker 4: limits and guideposts in place. I guess like that seems

929
00:50:59,360 --> 00:51:03,000
Speaker 4: a reasonable way to view some of these risks. I

930
00:51:03,040 --> 00:51:05,319
Speaker 4: still think there's a lot of stuff up in the air.

931
00:51:05,480 --> 00:51:07,520
Speaker 2: Yeah, And you know, it seems to me and we

932
00:51:07,640 --> 00:51:10,760
Speaker 2: sort of joked in the beginning that like the GDP

933
00:51:10,920 --> 00:51:13,000
Speaker 2: usually grows like two and a half three percent and

934
00:51:13,560 --> 00:51:16,040
Speaker 2: stocks usually go up, And that's true. And it seems

935
00:51:16,080 --> 00:51:19,040
Speaker 2: like even with the sort of some of the unorthodox

936
00:51:19,120 --> 00:51:23,560
Speaker 2: or heterodox economic views of the incoming Trump administration, the

937
00:51:23,600 --> 00:51:26,760
Speaker 2: impacts right now expected to be marginal. Right, so even

938
00:51:27,480 --> 00:51:30,919
Speaker 2: tariffs aren't expected if they go through as expected, aren't

939
00:51:30,960 --> 00:51:33,880
Speaker 2: expected to have a radical change to say the inflation

940
00:51:34,000 --> 00:51:37,640
Speaker 2: trajectory or whatever. And you know, it seems like what

941
00:51:37,800 --> 00:51:40,520
Speaker 2: people are anxious about, what you're talking about, maybe some

942
00:51:40,560 --> 00:51:43,560
Speaker 2: clients are talking about, is the idea of like genuine

943
00:51:43,640 --> 00:51:47,200
Speaker 2: policy uncertainty. And that means not a debate about ten

944
00:51:47,239 --> 00:51:50,920
Speaker 2: percent versus twenty percent tariffs, which is, you know, you

945
00:51:51,080 --> 00:51:53,680
Speaker 2: shave some percents off GDP, you shave some earnings off,

946
00:51:53,680 --> 00:51:58,759
Speaker 2: and life goes on, versus like the seeming potential for

947
00:51:58,880 --> 00:52:02,000
Speaker 2: some gen andly radical rethink of how we do business

948
00:52:02,040 --> 00:52:02,800
Speaker 2: with the rest of the world.

949
00:52:02,880 --> 00:52:05,279
Speaker 4: Yeah, totally. And I think that's like that's a.

950
00:52:05,320 --> 00:52:08,080
Speaker 3: Po's the big one, right, it seems plausible. Yeah.

951
00:52:08,160 --> 00:52:11,920
Speaker 4: Yeah, Well, in the meantime, sign up for our twenty

952
00:52:12,040 --> 00:52:16,319
Speaker 4: twenty five investment outlook titled GDP normally increases two to

953
00:52:16,360 --> 00:52:18,520
Speaker 4: three percent and stocks normally go up.

954
00:52:18,640 --> 00:52:22,320
Speaker 2: This way, we're gonna title our newsletter on Mondays.

955
00:52:21,480 --> 00:52:22,520
Speaker 3: Out Let's do it all?

956
00:52:22,600 --> 00:52:22,839
Speaker 1: Right?

957
00:52:22,960 --> 00:52:23,680
Speaker 4: Shall we leave it there?

958
00:52:23,760 --> 00:52:24,480
Speaker 3: Let's leave it there.

959
00:52:24,600 --> 00:52:27,239
Speaker 4: This has been another episode of the All Thoughts podcast.

960
00:52:27,360 --> 00:52:30,879
Speaker 4: I'm Tracy Alloway. You can follow me at Tracy Alloway and.

961
00:52:30,800 --> 00:52:33,520
Speaker 2: I'm Joe Wisenthal. You can follow me at The Stalwart

962
00:52:33,800 --> 00:52:37,000
Speaker 2: follow our producers Carmen Rodriguez at Carman Ermann Dash, Ol

963
00:52:37,000 --> 00:52:40,120
Speaker 2: Bennett at dashbod and Cal Brooks at cal Brooks. Thank

964
00:52:40,160 --> 00:52:43,240
Speaker 2: you to our producer Moses Ondem More odd lags content,

965
00:52:43,280 --> 00:52:46,040
Speaker 2: go to Bloomberg dot com slash odd lots, where have transcripts,

966
00:52:46,040 --> 00:52:48,759
Speaker 2: a blog and a daily newsletter and you can chat

967
00:52:48,800 --> 00:52:52,320
Speaker 2: about all of these topics, including macro including markets twenty

968
00:52:52,320 --> 00:52:56,399
Speaker 2: four to seven in our discord discord gg slash odlocks and.

969
00:52:56,480 --> 00:52:58,520
Speaker 4: If you enjoy all thoughts. If you like it when

970
00:52:58,520 --> 00:53:01,880
Speaker 4: we bring you not just one but two Goldman Strategists,

971
00:53:02,040 --> 00:53:04,840
Speaker 4: then please leave us a positive review on your favorite

972
00:53:04,880 --> 00:53:09,360
Speaker 4: podcast platform. And remember, if you are a Bloomberg subscriber,

973
00:53:09,520 --> 00:53:12,560
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974
00:53:12,640 --> 00:53:16,160
Speaker 4: listen to all of our episodes absolutely ad free. All

975
00:53:16,200 --> 00:53:18,400
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976
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Speaker 4: Apple Podcasts and follow the instructions there. Thanks for listening.