WEBVTT - Bloomberg Surveillance TV: May 6th, 2026 0:00:02.400 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.680 --> 0:00:15.480 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.520 --> 0:00:18.720 with Lisa Bromwitz and Amrie Hordert. Join us each day 0:00:18.760 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.440 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.960 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.319 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:37.920 Terminal and the Bloomberg Business App. General Karen Gibson of 0:00:37.920 --> 0:00:40.960 Academy Securities writing, as long as Iran retains the ability 0:00:40.960 --> 0:00:44.279 to contest astray, we could face enduring challenges to navigation. 0:00:44.360 --> 0:00:47.720 This may not end until we have an enduring diplomatic solution. 0:00:48.000 --> 0:00:50.280 General Gibson joins us now for more general Good morning, 0:00:50.320 --> 0:00:52.960 good morning. How much closer are we to that diplomatic solution. 0:00:53.240 --> 0:00:57.200 Well, I think the fact that there's an exchange of points, obviously, 0:00:57.240 --> 0:00:59.480 that we continue to talk, and that now we've paused 0:00:59.480 --> 0:01:01.480 and we'll weep forty eight hours to hear what Iran 0:01:01.560 --> 0:01:05.000 has to say. That's a positive development. It will be 0:01:05.040 --> 0:01:06.880 interesting to see what Iran has to say, and this 0:01:06.959 --> 0:01:08.800 is kind of it sounds a bit like what Iran 0:01:08.880 --> 0:01:12.560 has asked for to decouple. Let's address the navigation issues 0:01:12.600 --> 0:01:16.200 first and then get into the details of the nuclear negotia. 0:01:16.200 --> 0:01:17.640 How difficult will that sequencing? 0:01:17.680 --> 0:01:17.920 Big? 0:01:18.680 --> 0:01:20.760 I think depend on a couple of things, And of 0:01:20.800 --> 0:01:22.920 course I don't know what the details are in this 0:01:23.000 --> 0:01:27.000 one page memo. Do we retain the blockade until we 0:01:27.080 --> 0:01:31.240 get a nuclear agreement or is this just about getting 0:01:31.240 --> 0:01:32.520 ships in and out. 0:01:32.360 --> 0:01:33.080 Of the Gulf. 0:01:33.680 --> 0:01:35.240 When it comes to the straight up removes, why would 0:01:35.240 --> 0:01:37.440 Iron be willing to give up that leverage because that 0:01:37.520 --> 0:01:39.440 is really their one piece of leverage over the United 0:01:39.480 --> 0:01:40.480 States and the rest of the world. 0:01:40.520 --> 0:01:42.959 So I don't see how they even give it up. 0:01:43.000 --> 0:01:45.560 I mean, so in what I wrote that you quoted, 0:01:45.640 --> 0:01:48.000 it's their ability to contest. They don't even have to 0:01:48.000 --> 0:01:50.200 control the strait. They just have to have an ability 0:01:50.400 --> 0:01:53.640 to contest and make it more dangerous periodically, and as 0:01:53.720 --> 0:01:57.160 long as there is a drone within range of the straits, 0:01:57.200 --> 0:02:00.240 I think they will retain that ability to contest the 0:02:00.240 --> 0:02:01.320 straits if they choose. 0:02:01.360 --> 0:02:05.640 Even if we are moving into a phase where there's diplomacy, 0:02:05.880 --> 0:02:08.160 and they're going back and forth with these memos and 0:02:08.200 --> 0:02:10.959 then potentially even a meeting. They will just still try 0:02:11.000 --> 0:02:13.200 to maintain this ability to contest it with drones or 0:02:13.240 --> 0:02:14.280 whatever they have speed boats. 0:02:14.480 --> 0:02:16.640 I don't mean to say that they'll actively contest it. 0:02:16.680 --> 0:02:19.840 I just mean it's hard to eliminate that ability. And 0:02:19.880 --> 0:02:22.800 I think as long as there are there's positive progress 0:02:22.800 --> 0:02:26.280 for them economically in terms of lifting sanctions, in terms 0:02:26.320 --> 0:02:30.600 of prolonging the negotiation for a nuclear deal, it is 0:02:30.639 --> 0:02:34.600 in their benefit to demonstrate good faith into allow ships through. 0:02:34.960 --> 0:02:36.919 But they'll always, I think, have that ability. 0:02:37.000 --> 0:02:38.840 Last night the President put out a truth social posts 0:02:38.840 --> 0:02:42.560 saying that he was pausing Project Freedom. That's a humanitarian effort. 0:02:42.760 --> 0:02:43.799 Why would he pause it? 0:02:44.520 --> 0:02:47.200 I think yesterday's or I guess it was now the 0:02:47.280 --> 0:02:52.079 day before. The initial Project fre Freedom mission was interesting, again, 0:02:52.160 --> 0:02:55.720 like so many other things from a narrow military perspective, 0:02:56.000 --> 0:03:01.280 tactically successful. We safely escorted ships through Iran demonstrated there 0:03:01.320 --> 0:03:03.720 could be a cost for that kind of movement with 0:03:03.880 --> 0:03:06.720 their strike on the port in Fugyra for the Amoradis 0:03:06.840 --> 0:03:10.440 or hitting another ship or two, and so I think 0:03:10.680 --> 0:03:14.200 there's a desire to. Let's see if we can negotiate 0:03:14.280 --> 0:03:18.000 something that will ensure additional safe passage rather than do 0:03:18.120 --> 0:03:22.320 these contested navigation the results in strikes elsewhere. 0:03:22.560 --> 0:03:24.800 How important is China to all of this, given the 0:03:24.880 --> 0:03:28.000 fact that earlier this morning we had an official Chinese 0:03:28.040 --> 0:03:31.720 statement say that they were urging Iran to discuss this 0:03:31.800 --> 0:03:36.160 diplomatically and prevent any kind of resumption of kinetic warfare. 0:03:36.240 --> 0:03:39.160 So certainly it's very much in China's interests to have 0:03:39.320 --> 0:03:43.280 this safe navigation through the Strait because they receive so 0:03:43.440 --> 0:03:45.560 much of their oil and petrochemicals, not all of it, 0:03:45.640 --> 0:03:47.560 not even the majority, but they receive a lot of 0:03:47.560 --> 0:03:49.920 it through there. I think they have an ability to 0:03:49.960 --> 0:03:53.920 influence Ran because of the tremendous amount of product that 0:03:53.920 --> 0:03:55.680 they buy from them, But I don't think they want 0:03:55.680 --> 0:03:59.480 to own Iran's response. So we also have the she 0:03:59.640 --> 0:04:02.120 Trump coming up, and I'm sure this will be a topic. 0:04:02.280 --> 0:04:04.840 Well, I just want to tie this all together because 0:04:05.080 --> 0:04:08.560 until now we really haven't seen many official Chinese statements 0:04:08.600 --> 0:04:11.120 other than that they hope that there's restraint in all 0:04:11.200 --> 0:04:14.960 sides and that they never enjoy warfare, et cetera, et cetera. Otherwise, 0:04:15.000 --> 0:04:16.720 there's been pretty much of a back seat. A lot 0:04:16.720 --> 0:04:19.240 of people have been wondering where they're playing in this 0:04:19.400 --> 0:04:23.120 the speculation on various things. At this point, though, do 0:04:23.160 --> 0:04:25.359 you think they are a more key player because of 0:04:25.400 --> 0:04:27.880 the upcoming meetings with g and Trump and because of 0:04:27.920 --> 0:04:30.839 some of these backchannel communications between China and Iran. 0:04:31.000 --> 0:04:34.920 Certainly, I think the She Trump meeting raises their importance 0:04:35.080 --> 0:04:37.839 in this discussion, and it will color much of the 0:04:37.880 --> 0:04:43.360 discussion that will occur between those two leaders. And perhaps 0:04:43.360 --> 0:04:47.359 there's even some leverage they may use in trade negotiations. 0:04:47.440 --> 0:04:51.320 You know, their ability to influence Aron is something that 0:04:51.360 --> 0:04:55.799 they could offer as the two leaders discuss other issues. 0:04:55.920 --> 0:04:58.520 Headlines like this will certainly incentiviize things this from Bank 0:04:58.560 --> 0:05:00.839 of America just Mamsgay. The TI rates as follows, the 0:05:00.839 --> 0:05:03.440 summer of four dollar gas, not the four point fifty 0:05:03.440 --> 0:05:06.880 a gallon on average across this country will certainly lubricate 0:05:06.920 --> 0:05:07.360 the talks. 0:05:07.440 --> 0:05:09.400 I would say in the weeks to come, they might. 0:05:09.320 --> 0:05:11.120 Be lubricating some of the headlines and some of the 0:05:11.400 --> 0:05:13.360 dialing down of the rhetoric. Given the fact that oil 0:05:13.400 --> 0:05:15.920 prices in the United States had the highest average price 0:05:15.960 --> 0:05:18.520 is going back to July of twenty twenty two, heading 0:05:18.560 --> 0:05:20.880 into the midterms and heading into the summer driving season. 0:05:21.080 --> 0:05:23.120 This clearly is going to be on the minds of 0:05:23.160 --> 0:05:24.080 political operatives in. 0:05:24.080 --> 0:05:26.240 DC, and it's on the minds of every American that 0:05:26.360 --> 0:05:28.440 drives past a gas station. 0:05:28.720 --> 0:05:29.240 You see it. 0:05:29.320 --> 0:05:32.400 That is a tax on American families every single day. 0:05:32.400 --> 0:05:35.000 And this is what really hurt the Biden administration and 0:05:35.160 --> 0:05:37.920 obviously Trump, who said he was going to bring prices 0:05:37.960 --> 0:05:40.680 down for American people, understands what's going into the midtermal life. 0:05:40.440 --> 0:05:42.400 General and the seconds we have left. Clearly there is 0:05:42.400 --> 0:05:44.800 some optimism this morning. What is the language that you'd 0:05:44.800 --> 0:05:48.360 look for throughout this morning to validate signs of real progress. 0:05:48.760 --> 0:05:51.119 Well, if ARAN is going to be silent for forty 0:05:51.120 --> 0:05:53.200 eight hours, we may not see anything, but I would 0:05:53.200 --> 0:05:55.279 watch to see their rhetoric. You know, do they say 0:05:55.600 --> 0:05:58.160 we look forward to reviewing this or do they reject 0:05:58.200 --> 0:05:59.440 it out of hand immediately? 0:06:00.120 --> 0:06:01.080 Do they put out. 0:06:00.920 --> 0:06:05.440 Publicly stay with us More Bloomberg surveillance coming up after this. 0:06:14.600 --> 0:06:17.240 Paul Donovan, the chief economist the UBS Global Wealth Management, 0:06:17.320 --> 0:06:19.279 joins us now for more. Paul, welcome to the program. 0:06:19.360 --> 0:06:21.840 We'd lovely reflections on the latest news. But first of all, 0:06:21.880 --> 0:06:23.760 just set the stage for us with the US consumer. 0:06:23.960 --> 0:06:26.440 How close were we to a consumption crunch. 0:06:27.960 --> 0:06:30.479 Well, we're not out of the woods yet. I'm afraid 0:06:31.279 --> 0:06:33.839 what we are experiencing in the United States at the 0:06:33.880 --> 0:06:37.359 moment is, if you'll forgive the technical economic jargon, the 0:06:37.400 --> 0:06:40.800 wily coyote effect, we've run off the edge of the cliff. 0:06:41.279 --> 0:06:44.520 We're running through mid air. But we have not yet 0:06:44.560 --> 0:06:49.320 had economic gravity pulling us down. And that's because US 0:06:49.440 --> 0:06:54.200 consumers have been tapping into their savings rate to pay 0:06:54.600 --> 0:06:58.600 first for the tariffs and now for the higher gasoline prices. 0:06:58.880 --> 0:07:03.480 So as long as consumers are using savings, we can 0:07:03.520 --> 0:07:06.920 carry on with normal levels of consumption elsewhere. But if 0:07:06.960 --> 0:07:10.480 that burden gets too much, if they're no longer prepared 0:07:10.720 --> 0:07:14.200 to continue to draw down their savings rate to afford 0:07:14.360 --> 0:07:18.120 these shocks to consumption from terrorism, from oil prices, then 0:07:18.480 --> 0:07:22.240 economic gravity exerts itself and we drop down into the 0:07:22.280 --> 0:07:23.000 abyss poor. 0:07:23.080 --> 0:07:26.560 Typically, and that sounds terrifying, but typically when it comes 0:07:26.640 --> 0:07:29.960 to central bankers, they track a basket of goods for consumers. 0:07:30.000 --> 0:07:31.360 I remember a note you put out in the last 0:07:31.400 --> 0:07:34.120 few years a really important note about the frequency bias 0:07:34.520 --> 0:07:37.360 of the average consumer, that they pick one thing that 0:07:37.480 --> 0:07:40.040 matters to them and that shapes their perception of how 0:07:40.120 --> 0:07:42.760 high prices are. How's that going to shake their perception 0:07:42.800 --> 0:07:45.480 of how high prices are across the economy, and how 0:07:45.560 --> 0:07:47.640 might it change their attitudes to spend it. 0:07:48.960 --> 0:07:50.800 Well, So this is where I think we need to 0:07:50.800 --> 0:07:54.040 make a distinction in the world of social media hype 0:07:54.040 --> 0:07:58.800 and sensationalism, that consumers are very focused on high frequency 0:07:58.880 --> 0:08:04.400 purchases and that shapes their political perceptions as well. We've seen, 0:08:04.680 --> 0:08:08.840 for example, President Trump's approval rating on the affordability crisis 0:08:08.840 --> 0:08:11.920 in the States is very, very weak, and that's reflecting 0:08:11.960 --> 0:08:17.080 this false perception that inflation is higher than it actually is. 0:08:17.520 --> 0:08:21.040 Because you remember the price of gasoline, you remember the 0:08:21.080 --> 0:08:24.320 price of the Snickers bar. That's what shapes your inflation perception. 0:08:24.880 --> 0:08:28.560 The reality is, however, that consumers are saying everything's terrible, 0:08:28.720 --> 0:08:31.800 inflation is out of control, but they do still have 0:08:31.960 --> 0:08:34.920 the ability to go out and spend. And if an 0:08:34.920 --> 0:08:37.440 American consumer has the ability to go out and spend, 0:08:37.640 --> 0:08:39.679 they will go out and spend. And so that's what 0:08:39.679 --> 0:08:43.520 we're actually thinking, is this divorce between perception and reality 0:08:43.559 --> 0:08:44.160 taking place. 0:08:44.320 --> 0:08:46.000 Well, this to me is the reason why a lot 0:08:46.040 --> 0:08:49.120 of people are talking about the idea of some sort 0:08:49.160 --> 0:08:52.880 of new regime for inflation where consumers can complain about 0:08:52.880 --> 0:08:55.240 it all they want, feel terrible, but they're willing to 0:08:55.320 --> 0:08:57.600 absorb it in a way that maybe they weren't before 0:08:57.679 --> 0:08:58.400 the pandemic. 0:08:58.840 --> 0:09:00.480 Do you see that behavior. 0:09:00.200 --> 0:09:03.280 Trickling out in something that companies are taking advantage of. 0:09:04.800 --> 0:09:07.040 Well, I think certainly if we look at the US 0:09:07.080 --> 0:09:11.040 in particular, the tariffs would pass through to the consumer 0:09:11.280 --> 0:09:14.720 pretty much one hundred percent. Now, what I think we 0:09:14.760 --> 0:09:18.199 are seeing here is exactly the same thing that companies 0:09:18.559 --> 0:09:22.640 feel more confident about passing on the costs. We're not 0:09:22.840 --> 0:09:26.320 necessarily at this stage seeing profit lead inflation where they 0:09:26.400 --> 0:09:28.760 pass on the costs and then a bit more and 0:09:28.920 --> 0:09:32.240 increase their margin. That's not necessarily taking place. But certainly 0:09:32.320 --> 0:09:36.319 I think consumers have been more willing to accept the 0:09:37.320 --> 0:09:40.560 higher prices. And that's because not just in the States, 0:09:40.600 --> 0:09:44.080 but in Europe and the UK and Japan. Consumer balance 0:09:44.120 --> 0:09:47.439 sheets began this year in actually a very strong position. 0:09:47.679 --> 0:09:52.040 We've had unusually good conditions for the consumer, and so 0:09:52.240 --> 0:09:55.360 that has allowed them to weather the shock a bit 0:09:55.400 --> 0:09:58.880 more readily. If consumers have been more constrained, then I 0:09:58.920 --> 0:10:01.080 don't think they would be so willing to accept the 0:10:01.080 --> 0:10:01.959 price increases. 0:10:02.200 --> 0:10:03.959 Do you think then that we could see some sort 0:10:03.960 --> 0:10:08.280 of broadening out, some sort of consumer lead rally taking 0:10:08.280 --> 0:10:10.560 over from what we've seen, which has been dominated by tech. 0:10:11.760 --> 0:10:14.920 Well, I think certainly earnings growth for the time being 0:10:15.679 --> 0:10:19.120 for consumer companies is not going to be too adversely affected. 0:10:19.160 --> 0:10:20.920 If you can pass on the cost one hundred percent, 0:10:21.280 --> 0:10:24.800 then your earnings growth isn't going to be affected unless 0:10:25.400 --> 0:10:28.160 we get to that point where economic gravity suddenly kicks 0:10:28.160 --> 0:10:30.440 in the consumer says, actually, you know what, I'm not 0:10:30.520 --> 0:10:33.400 prepared to keep cutting back on saving. I'm going to 0:10:33.440 --> 0:10:37.920 cut back on consumption. And that might come either because 0:10:37.960 --> 0:10:41.400 there are concerns about job security. It might come because 0:10:41.440 --> 0:10:44.720 you start to see dramatically higher oil prices because of 0:10:44.760 --> 0:10:47.920 physical shortages around the world. It's not going to come 0:10:47.960 --> 0:10:50.400 I think in the next few months. It's something really 0:10:50.440 --> 0:10:53.640 I would be pushing out into late summer early October. 0:10:53.640 --> 0:10:57.960 Perhaps at the outset. That would be something which would 0:10:58.000 --> 0:11:01.600 then start to damage the volume of But right now, 0:11:02.040 --> 0:11:04.680 consumer companies are generally in an okay position. 0:11:04.760 --> 0:11:08.120 I would argue stay with us. More Bloomberg surveillance coming 0:11:08.200 --> 0:11:09.240 up after this. 0:11:18.760 --> 0:11:22.319 Chris Harvey of CIBC writing ATTACKO has catalyzed a sharp 0:11:22.400 --> 0:11:25.559 shift from risk after risk on. We believe geopolitical risk 0:11:25.679 --> 0:11:29.000 has crested, but risks are still lingering. Chris joined to 0:11:29.040 --> 0:11:31.440 stand for more. Chris and Mornic, You've had a great 0:11:31.480 --> 0:11:33.400 year so far. I'll say it for you. I remember 0:11:33.480 --> 0:11:34.719 catching up with you at the very start of the 0:11:34.800 --> 0:11:36.480 year and you said this market was sleeping on a 0:11:36.480 --> 0:11:38.679 lot of macro risk. Then we had to drop off 0:11:38.679 --> 0:11:40.960 in the equity market. I think it was March twenty seventh, 0:11:41.000 --> 0:11:43.400 you dropped a note and said, we're interested in adding 0:11:43.400 --> 0:11:46.559 some risk here, just slowly. Then this market's ripped. Where 0:11:46.600 --> 0:11:47.480 are you in the team now? 0:11:47.640 --> 0:11:50.320 So right now you've had a lot of catos play out. 0:11:50.440 --> 0:11:54.000 Equity markets are we're thinking more consolidation, We're thinking more 0:11:54.240 --> 0:11:55.920 you buy the room or you sell the news. 0:11:56.480 --> 0:11:57.960 Markets are ripping right now. 0:11:58.160 --> 0:12:00.960 That's great, But as you were talking about, we don't 0:12:01.000 --> 0:12:03.440 have a deal done just yet. Things are not moving 0:12:03.640 --> 0:12:05.920 through the straight of horror moves. Oil is not just 0:12:05.960 --> 0:12:08.520 going to it's dropping today, but gasoline prices are not 0:12:08.520 --> 0:12:10.480 going to drop that quick and until we have a 0:12:10.520 --> 0:12:13.760 deal done, it's hard to see this. In addition to that, 0:12:13.760 --> 0:12:16.400 that keeps the FED on hold, and so we're just 0:12:16.440 --> 0:12:19.040 thinking the short term, it's a bit more consolidation. We 0:12:19.320 --> 0:12:21.760 like the market longer term, but near term consolidated. 0:12:21.800 --> 0:12:24.440 Help me understand from where? So is it faith? The 0:12:24.440 --> 0:12:25.080 index level? 0:12:25.120 --> 0:12:25.360 Rally? 0:12:25.640 --> 0:12:27.320 Say the tech win is of the last month. Faith 0:12:27.360 --> 0:12:29.320 the rotation we're seeing so far this morning? 0:12:29.360 --> 0:12:29.640 What is it? 0:12:29.920 --> 0:12:30.160 John? 0:12:30.320 --> 0:12:32.679 It's not so much fade, it's just okay, we had 0:12:32.720 --> 0:12:35.480 that directional move we saw we thought there was ten 0:12:35.480 --> 0:12:38.440 percent upside here. We got a lot of that. Now 0:12:38.480 --> 0:12:41.679 it's about stockpicking right, get the portfolio right. What we've 0:12:41.720 --> 0:12:45.160 been saying all year long is hey, stay away from 0:12:45.200 --> 0:12:48.320 those the contrarian bet. What you want to do is 0:12:48.320 --> 0:12:50.680 you want to buy things that are working. We're still 0:12:51.160 --> 0:12:54.120 of that opinion. But right in you need to have 0:12:54.160 --> 0:12:56.559 good balance sheets, you need to have good fundamentals. Right, 0:12:56.600 --> 0:13:00.440 you have to marry the two. So focus that in 0:13:00.520 --> 0:13:03.480 your stock selection, in your portfolio. That's where the attention 0:13:03.559 --> 0:13:03.960 should be. 0:13:04.160 --> 0:13:06.079 So do you think that semis are expensive or a buy? 0:13:07.080 --> 0:13:09.960 What we think is I'm not going to answer that directly. 0:13:10.000 --> 0:13:14.320 What we think, Come on, Chris, his friends. 0:13:14.440 --> 0:13:16.520 You and I had this conversation earlier this year. It's like, 0:13:16.760 --> 0:13:19.000 don't go bond and fishing. A lot of semis still 0:13:19.120 --> 0:13:22.880 have positive price momentum, they have positive earnings, they have 0:13:22.960 --> 0:13:26.480 good sentiment. Will we say by them, Yeah, they should 0:13:26.480 --> 0:13:29.199 be part of the portfolio. Part of the portfolio should 0:13:29.280 --> 0:13:31.760 be things that are working part of the portfolio. What 0:13:31.840 --> 0:13:33.960 you should be doing is staying away from things that 0:13:33.960 --> 0:13:36.720 are broken. The economy is not going to value out. 0:13:37.200 --> 0:13:39.360 You have to have things that are working in the portfolio, 0:13:39.640 --> 0:13:41.480 but you also have to have good fundamentals, and you 0:13:41.520 --> 0:13:43.480 have to have a good balance sheet, and semis match 0:13:43.520 --> 0:13:43.959 up some of that. 0:13:44.280 --> 0:13:46.720 Some people have noted that this rally feels a little 0:13:46.720 --> 0:13:49.360 bit different in earnings just because the earnings have come 0:13:49.400 --> 0:13:52.080 in so strong, and frankly, it's so broad based. It's 0:13:52.080 --> 0:13:54.840 not coming just from the tech sector. Deuid you Bank 0:13:54.880 --> 0:13:57.640 pointed out that all eleven top level sectors are expected 0:13:57.679 --> 0:13:59.080 to show your over year earnings growth for. 0:13:59.120 --> 0:14:00.959 First time in four years. 0:14:01.360 --> 0:14:03.719 Does that give you confidence or are you saying this 0:14:03.760 --> 0:14:06.000 is a one off for easy comps and a couple 0:14:06.000 --> 0:14:07.920 of other reasons say away. 0:14:08.320 --> 0:14:10.439 So what we've been saying is, hey, go with the 0:14:10.480 --> 0:14:13.240 AI beneficiaries on the bounce, go with the AI beneficiaries. 0:14:13.440 --> 0:14:15.839 You can get them in utilities, you can get them industrials, 0:14:15.960 --> 0:14:17.960 you can get them in tech. That's a pretty broad base. 0:14:18.280 --> 0:14:20.920 The one thing we're still not there is we're not 0:14:21.080 --> 0:14:24.120 there on small caps, right. We're not negative, we're not positive, 0:14:24.320 --> 0:14:27.600 but we need for me, we're not going to hit everything. 0:14:28.120 --> 0:14:30.160 What we want for small caps to work is we 0:14:30.200 --> 0:14:32.680 want race to go down. We want a stronger economy, 0:14:32.800 --> 0:14:34.760 and I'm just not seeing that yet right. And what 0:14:34.800 --> 0:14:37.280 we saw in earning season is if you're AI or 0:14:37.320 --> 0:14:41.160 AI adjacent, great, If you're a general cyclical, you're saying, yeah, 0:14:41.200 --> 0:14:43.560 I'm not really sure about what's going on. And if 0:14:43.600 --> 0:14:46.360 you look at what's happened to small caps since the 0:14:46.400 --> 0:14:48.680 middle part of January, they really have an outperformed, or 0:14:48.880 --> 0:14:50.400 they've only outperformed by a little bit. 0:14:51.200 --> 0:14:53.040 I'm still worried about the back half of the year 0:14:53.080 --> 0:14:54.240 for earnings and earnings growth. 0:14:54.280 --> 0:14:57.240 We need the FED to get involved, we need race 0:14:57.280 --> 0:14:59.440 to go lower for for that to really work longer. 0:14:59.560 --> 0:15:01.760 This is what he and Chris, because I did ask 0:15:01.760 --> 0:15:04.080 if you'd fade the rotation as part of the story, 0:15:04.120 --> 0:15:06.440 because you're seeing that our performance on smalls this morning, 0:15:06.720 --> 0:15:08.520 small caps up by more than two percent off the 0:15:08.520 --> 0:15:10.520 back of this moving crude, off the back of this 0:15:10.600 --> 0:15:14.360 move in yields. Would you fade that? Then specifically, I. 0:15:14.520 --> 0:15:15.080 Would fade that. 0:15:15.160 --> 0:15:17.440 Here's here's something that's really interesting. So we're going to 0:15:17.520 --> 0:15:19.960 have the Russell rebalance in June. If you look at 0:15:20.000 --> 0:15:22.440 the top names in the Russell, I think they account 0:15:22.440 --> 0:15:24.080 for about twenty five percent of the return. 0:15:24.400 --> 0:15:25.680 You're going to graduate those out. 0:15:26.200 --> 0:15:28.680 Okay, So what's going to drive small caps at that 0:15:28.720 --> 0:15:30.560 point in time? Again, you're going to have to have 0:15:30.600 --> 0:15:32.640 the macro on your side. And for the macro to 0:15:32.680 --> 0:15:35.840 be on your side, that means a then that's more 0:15:35.840 --> 0:15:39.480 accommodative rates that are lower and an economy that's accelerating. 0:15:39.720 --> 0:15:40.720 We just don't have that right now. 0:15:40.720 --> 0:15:42.240 I've got to watch you that. Outside of tech, what 0:15:42.240 --> 0:15:42.560 do you. 0:15:42.640 --> 0:15:45.920 Like again, it's the I don't mean to be evasive, 0:15:45.920 --> 0:15:49.320 but it's the AI beneficiary. So in utilities, it's more 0:15:49.360 --> 0:15:52.160 the gen co companies. In industrials, it's the one the 0:15:52.320 --> 0:15:54.680 cooling companies in tech. 0:15:55.120 --> 0:15:55.480 It is. 0:15:55.520 --> 0:15:56.640 It's the secular themes. 0:15:56.760 --> 0:15:58.040 It's more than secular themes. 0:15:58.040 --> 0:16:01.360 It's really it's hard to get involved with these general 0:16:01.360 --> 0:16:03.960 growth themes because we're they're saying, if you listen to 0:16:04.000 --> 0:16:08.400 an earning season, hey, we're not sure. Hey, it's unclear, right, 0:16:08.480 --> 0:16:11.080 And the economy is not accelerating at this point in time. 0:16:11.280 --> 0:16:13.640 When it comes to the FED, though, they need potentially 0:16:13.680 --> 0:16:15.800 a resolution in the conflict in the Middle East to 0:16:15.880 --> 0:16:20.080 understand where inflation's going, right, they do so for small caps. 0:16:20.080 --> 0:16:22.520 Actually it's reliant on what is going on abroad. 0:16:22.600 --> 0:16:23.040 That's right. 0:16:23.120 --> 0:16:26.240 So here's the bold case, right that we get some 0:16:26.280 --> 0:16:29.800 sort of resolution between the US and Iran. The worst 0:16:29.800 --> 0:16:32.480 FED can say, hey, this is a supply shock, we. 0:16:32.440 --> 0:16:33.240 Can look through it. 0:16:34.320 --> 0:16:36.960 FED funds are too restrictive at this point in time, 0:16:37.000 --> 0:16:40.480 we need to lower them. And suddenly small caps begin 0:16:40.560 --> 0:16:42.760 to work. Small caps begin to work, the consumer begins 0:16:42.760 --> 0:16:46.480 to work. Why because helocks become more attractive, Auto loans 0:16:46.520 --> 0:16:50.240 become more attractive, and then the economy begins to accelerate, 0:16:50.560 --> 0:16:53.760 and we can start talking about the housing market getting involved, 0:16:54.080 --> 0:16:56.960 and the housing bill that hasn't become a larger yet. 0:16:57.160 --> 0:16:59.120 I keep thinking about what Max Kettner said at the 0:16:59.160 --> 0:17:01.600 beginning of the show, which is that this equity market 0:17:01.640 --> 0:17:06.040 is increasingly independent from the economy and is increasingly economically 0:17:06.119 --> 0:17:08.520 independent the S and P five hundred. At least if 0:17:08.520 --> 0:17:10.439 the FED were to cut rates because they have an 0:17:10.480 --> 0:17:12.800 excuse to do so, and that would spur some sort 0:17:12.800 --> 0:17:15.480 of rally in small caps and beyond. Would that cause 0:17:15.480 --> 0:17:18.600 a bubble in big tech that seems so far to 0:17:18.640 --> 0:17:21.280 already be flying without that kind of stimulation. 0:17:21.600 --> 0:17:22.760 Yeah, I don't. 0:17:22.760 --> 0:17:24.560 Know if it causes a bubble in big tech. But 0:17:24.720 --> 0:17:26.679 can we talk about a melt up? Yes, we can 0:17:26.720 --> 0:17:29.359 talk about a melt up again. What would happen is 0:17:30.040 --> 0:17:33.360 tech is working. It would continue to work, but now 0:17:33.359 --> 0:17:35.399 you're going to start to bring in all those economically 0:17:35.440 --> 0:17:39.240 sensitive names and oh, by the way, activities should start 0:17:39.240 --> 0:17:41.000 to kick off. The one thing we haven't talked about 0:17:41.280 --> 0:17:44.479 is the credit markets are very, very healthy, very strong. 0:17:44.720 --> 0:17:46.400 We should see more mina activity. 0:17:46.480 --> 0:17:48.840 In addition to that, there are all these storied IPOs 0:17:49.119 --> 0:17:51.600 talking about coming to market. We could see that and 0:17:51.800 --> 0:17:55.560 suddenly we have risk being recycled and a very strong 0:17:55.840 --> 0:17:59.920 reinforcing risk on cycle. Could that be a melt up. 0:18:00.040 --> 0:18:02.520 Could that be I don't think bubble, but could that 0:18:02.560 --> 0:18:03.359 be a melt up? 0:18:03.800 --> 0:18:04.920 Certainly in the back half. 0:18:04.720 --> 0:18:06.520 Of the year, this move in creates oupen We just 0:18:06.520 --> 0:18:09.480 saw a ninety six handle on Brent just moments ago 0:18:09.560 --> 0:18:10.760 at the front end of the future's curve. 0:18:10.840 --> 0:18:13.119 Ninety seven this morning. Yeah, and it's not just the 0:18:13.160 --> 0:18:14.640 front end we keep talking about that. 0:18:14.840 --> 0:18:16.399 The back end also seeing a rally. 0:18:16.400 --> 0:18:17.680 Also the other way. 0:18:17.840 --> 0:18:20.120 Also seeing a selloff. I guess it's the right kind 0:18:20.119 --> 0:18:21.720 of sell off for this market. When you take a 0:18:21.720 --> 0:18:24.840 look at Brent crude, people are expecting a resolution because 0:18:24.840 --> 0:18:27.720 both sides want a resolution. It takes a little bit 0:18:27.720 --> 0:18:29.760 more than that, but that seems to be the tone 0:18:29.800 --> 0:18:31.520 coming out, at least from Iran. 0:18:31.359 --> 0:18:31.959 And the units. 0:18:32.000 --> 0:18:34.240 Just tracking the oil majors in the pre market. Excellent 0:18:34.600 --> 0:18:37.960 Exon closed February at one fifty fifty before this war started. 0:18:38.160 --> 0:18:40.879 This war didn't help. The end of this war might hurt. 0:18:41.080 --> 0:18:43.080 The stock is down to the pre market by five percent. 0:18:43.119 --> 0:18:46.000 It's now trying to get one forty seven. In Ettie Trink, you. 0:18:46.000 --> 0:18:49.199 Saw concerns about what it will cause to rebuild some 0:18:49.240 --> 0:18:52.320 of the facilities in the Middle East and what has 0:18:52.400 --> 0:18:54.000