Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is Bloomberg business Week inside from the reporters and
Speaker 2: editors who bring you America's most trusted business magazine, plus
Speaker 2: global business, finance and tech news. The Bloomberg Business Week
Speaker 2: Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Speaker 3: I know somebody who's watching all this very very closely.
Speaker 1: It's got to be busy.
Speaker 3: That is Gina Martin Adams. She's Bloomberg Intelligence Chief equity strategist.
Speaker 3: She's here in our Bloomberg Interactive at Brokers Studio. Gina
Speaker 3: on a daylight today and the context stuff. Where we
Speaker 3: are with earning season, Where do we even begin?
Speaker 4: Yeah, good question, you know, you tell me it's been
Speaker 4: so busy between you know, the different policy shifts that
Speaker 4: we've experienced over the last couple of weeks, right in
Speaker 4: the midst of earning season, which is a pretty exciting
Speaker 4: earning season. Frankly, you know, I think big picture where
Speaker 4: we begin is what's happening in the end agregate, and
Speaker 4: what's happening in the aggregate is a pretty significant rotation,
Speaker 4: and we're all kind of trying to dismiss it as
Speaker 4: it is a temporary it's not really lasting. But you know,
Speaker 4: small caps six hundred as an example, is touching close
Speaker 4: to new highs at this point in time. We've seen
Speaker 4: some really strong recovery on the on the policy put trade,
Speaker 4: the Powell trade. What's going to happen at the FED
Speaker 4: is extremely meaningful for driving stocks returns, and fundamentally, what's
Speaker 4: happening outside of the MAG seven is really important to
Speaker 4: keep your eye on. We have seven percent earnings growth
Speaker 4: for that group. It's the first quarter of earnings growth
Speaker 4: since twenty twenty two, So suddenly we're starting to see
Speaker 4: some recovery. Financials have been leading that charge. Small cap
Speaker 4: financials in particular have been surging. We saw a massive
Speaker 4: beat among the financials companies. So what happens with tech
Speaker 4: can be very distracting, right because tech expectations were the highest,
Speaker 4: These were the biggest stocks. But what's happening beneath that
Speaker 4: is very compelling evidence of a pretty big bull market
Speaker 4: starting to emergen.
Speaker 1: Stocks enough to support the overall indices. Though, yes, when
Speaker 1: those other names are so influent.
Speaker 4: Depends on your index, right, the S and P five percent? No, yeah,
Speaker 4: so the MAG seven is just too big. These megacap
Speaker 4: stocks have driven all the valuation rerating so far this year,
Speaker 4: and stocks are up double digits. It's been a great
Speaker 4: year as far as the S and P five hundred
Speaker 4: is concerned, because of that concentrated gain. If those stocks
Speaker 4: turn over and become more volatile, as I think we're
Speaker 4: starting to see, it's really difficult for the rest the
Speaker 4: other four ninety three to make up for that loss
Speaker 4: of leadership. Instead, the S and P five hundred maybe
Speaker 4: churns in a sideways fashion. If the MAGS seven do fine, yeah,
Speaker 4: and the rest is catching up, that's an incredible market.
Speaker 4: And I think that that's actually a possibility given what
Speaker 4: we've seen in earnings so far.
Speaker 5: Well that's in terms of MAG seven or in terms.
Speaker 4: Of the MAG seven. Maybe they're not actually turning over,
Speaker 4: but they're moving into a period of just not no
Speaker 4: longer being leaders on the market, and that's okay. They
Speaker 4: don't have to lead for the S and P five
Speaker 4: hundred to move higher. So it is a critical question
Speaker 4: for the index. Beyond that, non domestic stocks are breaking out,
Speaker 4: small caps are breaking out, sort of global equities are
Speaker 4: suddenly emerging as real possibilities. Japan's been weak without a doubt.
Speaker 4: China is still a little dodgy, but Europe's been doing fantastically,
Speaker 4: Canada's breaking out, so there's there's some interesting opportunities that
Speaker 4: are starting to emerge.
Speaker 3: Is it a long term in your view, trend that
Speaker 3: will start to see diversification away from winners in the
Speaker 3: S and P five hundred? I mean the S ANDP
Speaker 3: has beat everybody for the last three decade.
Speaker 4: Yeah, we should, you know, over a decade. That's a
Speaker 4: little outside my pay grade to be quite honesome. I'll
Speaker 4: just take over the next year ready and go with that.
Speaker 4: But I do think what we should see is some
Speaker 4: of the laggards of this cycle start to catch up.
Speaker 4: And by the cycle, I mean for me, it was
Speaker 4: a critical moment in twenty twenty two when the earning
Speaker 4: stream for the.
Speaker 1: Globe started to turn over.
Speaker 4: The S and P five hundred was at the early
Speaker 4: stages of that. Small caps joined in the party. Europe
Speaker 4: is just now getting past its low point, right. The
Speaker 4: S and P five hundred, led by the megacaps, led
Speaker 4: the uptrend in twenty twenty three. Now we're starting to
Speaker 4: see the rest of the world's economy start to participate.
Speaker 4: And it's difficult to paint it with one big brush
Speaker 4: US versus the rest. It's not necessarily that's not necessarily
Speaker 4: what's going on. But there are some laggards of that
Speaker 4: cyclical recovery that are starting to get on board, and
Speaker 4: I would anticipate that the results of that is some
Speaker 4: of that just hasn't had any attention. Some of those
Speaker 4: stocks just have been left for dead. Looks. You know,
Speaker 4: nobody's even putting any capital to work outside of the
Speaker 4: US and the Megan It's amazing.
Speaker 1: I feel like conversations used to be much more like, oh, yeah,
Speaker 1: you always want to make sure if something overseas, and
Speaker 1: it really has been so US focused.
Speaker 4: Yeah.
Speaker 1: You put out research today right that fed rate cut
Speaker 1: cycles outside of recessions have historically have historically led to
Speaker 1: global risk rally. Yeah, outside of recessions. We had a
Speaker 1: conversation earlier with our Ira Jersey and he's still thinking
Speaker 1: that we're going to get some kind of recession.
Speaker 4: Well, the earnings stream would tell you not, that's not happening.
Speaker 4: So you know, I care most about earnings, and earnings
Speaker 4: went through a recession in twenty twenty two, and they're
Speaker 4: in a recovery. Now will earnings turn over and hint
Speaker 4: some kind of recession emerging in twenty twenty five. That's
Speaker 4: a real possibility, but it's not happening right now. And
Speaker 4: the way that we structure our product is really all
Speaker 4: about real time movements, what's happening in real time, not
Speaker 4: what do we think is going to happen into the future.
Speaker 4: And so from an equities perspective, I think it's important
Speaker 4: to acknowledge where we are in the cycle and where
Speaker 4: we are is actually improving. We're improving off of lows.
Speaker 4: For instance, in Europe. Europe had its worst quarter of
Speaker 4: year over year growth just in the first quarter, and
Speaker 4: it's starting to dig out of that recessionary experience, at
Speaker 4: least in terms of the stock market, right that's not
Speaker 4: necessarily the economy, and I know that there are very
Speaker 4: big differences on occasion. The US is in very similar
Speaker 4: position where we were digging our way out of that
Speaker 4: earnings recession but really just led by a few names.
Speaker 4: Now we're starting to see some real earnings growth emerge
Speaker 4: small caps, for instance. By the end of this year,
Speaker 4: the analyst community is telling us we're going to get
Speaker 4: small cap revenue.
Speaker 1: Growth they've been upping numbers and they've been.
Speaker 4: Moving higher, So I do think it's important to follow
Speaker 4: the c clinton. Certainly, if recessionary signals emerge in the
Speaker 4: earning stream, then I have to get a little bit worried.
Speaker 4: But will we or won't we fall into recession in
Speaker 4: the economy? You know, I think we've I've learned my
Speaker 4: lesson the hard way over the last several years. I
Speaker 4: can't project what the economy is going to do, and
Speaker 4: neither can the stock market, So we're going to stick
Speaker 4: to earnings, and that's what really drives stock prices.
Speaker 3: Do you know one thing that keeps coming up in
Speaker 3: conversations that we have internally when we're planning for our
Speaker 3: show is a conversation that we had with you back
Speaker 3: at Bloomberg invest where you talked about AI and you
Speaker 3: talked about I believe. I asked you the question about
Speaker 3: whether or not we're seeing AI gains show up in
Speaker 3: non AI specific companies, and you said that that hasn't
Speaker 3: happened yet. Here we are, it's only been six weeks
Speaker 3: since we've had that conversation, but we're hearing from more
Speaker 3: companies over the last couple of weeks. About how AI
Speaker 3: is helping them. Has your view shifted at all or
Speaker 3: we still not seeing margin improvement things.
Speaker 4: I think it's early yet in the earning season. I
Speaker 4: need to get further through the consumer numbers and the
Speaker 4: industrials numbers to make really vast conclusions. In financials, which
Speaker 4: was the one area that we already were detecting companies
Speaker 4: talking about implementing AI and utilizing AI to drive growth,
Speaker 4: we are starting to see some real margin improvements, some
Speaker 4: real cost cutting measures. So there's a little bit happening
Speaker 4: in financials.
Speaker 3: What's happening They're able to hire fewer analysts, are they
Speaker 3: able to use get rid of customer service agents because
Speaker 3: they can use chatbots? What do we know?
Speaker 4: Well, so far, what we know is it's making them faster, Okay, right,
Speaker 4: So if anything, it's just making turnover faster. It's not
Speaker 4: necessarily resulting in job cuts, which I think is everybody's
Speaker 4: biggest year is that the bots are going to replace us.
Speaker 4: We haven't necessarily seen that.
Speaker 3: I'm scared of it.
Speaker 4: But it is making existing worksporce faster at what they do,
Speaker 4: so I would say it's just making profitability improvements and
Speaker 4: efficiency gains more than anything else will that change going forward.
Speaker 4: We're certainly open to seeing that. I'm most curious to
Speaker 4: see how it impacts the industrial space in the consumer
Speaker 4: space because those are big, big swaths of the economy
Speaker 4: that can really make a big difference in the overall
Speaker 4: economic outlook. And we just haven't seen enough companies come
Speaker 4: out with reports yet, so we'll see. It is something
Speaker 4: that we're definitely tracking. I think that from a tech perspective,
Speaker 4: it's still very much a big part of the conversation.
Speaker 4: I think you get fits and starts depending upon the
Speaker 4: company that you're talking to as to whether or not
Speaker 4: the analyst community maybe got ahead of their skis and
Speaker 4: anticipating the impact or not. And that's really a company
Speaker 4: to a company specific conversation, and that's having an impact
Speaker 4: on stock prices. But net there, we're still in the upweight.
Speaker 1: Okay, well, but in terms of like fundamental analysis, when
Speaker 1: you look at a company, I feel like you go
Speaker 1: back a year and if somebody reported and they didn't
Speaker 1: talk about AI or talk about how they're planning some
Speaker 1: of their investing, they got penalized in the trade. Now
Speaker 1: it's like we're a little bit more, you know, kind
Speaker 1: of scrutinizing, you know, the CAPEX spend and looking for
Speaker 1: the ROI is that smart to be thinking about that?
Speaker 1: I mean, you know what I think about. Companies have
Speaker 1: to invest for the future, and sometimes it takes a while,
Speaker 1: but I'm curious how you.
Speaker 5: Are looking at them.
Speaker 4: Yeah, I think it's too early for AI specific capital
Speaker 4: spending to really overwhelm capital spending trends across the entire index,
Speaker 4: but it is a really big focus within the tech
Speaker 4: and communications space and the tech I call those tech
Speaker 4: and tech adjacent companies where it is very clear that
Speaker 4: you have to spend and have to now spend smart.
Speaker 4: A year ago you had to spend now you have
Speaker 4: to spend smart. In those groups the rest of the index,
Speaker 4: I think there's a lot of tolerance for spending on this.
Speaker 4: CAPEX is really just at long term average share of sales,
Speaker 4: so we're not looking at an ende that is overspent
Speaker 4: by any stretch of the imagination, and sales are improving incrementally,
Speaker 4: So as long as cash flow and sales are improving,
Speaker 4: there's a lot of wiggle room for them to spend
Speaker 4: a bit more. And frankly, I think that the market
Speaker 4: loves to see spending in the anticipation of future growth prospects.
Speaker 4: So I think that these companies can announce a lot
Speaker 4: more spending outside of tech and tech adjacent without having penalties.
Speaker 1: Kind of explained the metastory right in terms of all
Speaker 1: the spending, and yet they're bread and butter helped by AI.
Speaker 1: But in terms of advertising, even though we can't quite
Speaker 1: quantify maybe the impact, it certainly shows. I want to
Speaker 1: go back to the markets, because here we are looking
Speaker 1: at a day where we are seeing a fair amount
Speaker 1: of selling. I want to go back to something like
Speaker 1: the socks which up seven percent yesterday, down eight percent today,
Speaker 1: Like that's a wide gap. So I'm trying to understand.
Speaker 1: Definitely a lot more volatility in this market, but I'm
Speaker 1: not quite sure what it says to me about kind
Speaker 1: of where we go from here, especially if I hear
Speaker 1: from you that, hey, guys, earnings look pretty good and
Speaker 1: it's widening out just the usual suspects.
Speaker 4: Yeah, I think it's a great point because semiconductors have
Speaker 4: been our fearless leader in this market advance for the
Speaker 4: last year and a half or however long it's been.
Speaker 4: Semiconductors has been this very strong, very big breakout sector,
Speaker 4: and so loss of leadership in semiconductors is always going
Speaker 4: to be someone uncomfortable, and without a doubt, we have
Speaker 4: lost a lot of that leadership. It is now a
Speaker 4: very volatile contributor on a day to day basis. Investors
Speaker 4: are getting a little bit nervous, and justifiably so considering
Speaker 4: how extremely overbought that sector was, and I think this
Speaker 4: is the really important point. New investment opportunities are emerging
Speaker 4: outside of that space. And something we did talk about
Speaker 4: six weeks ago when we were together is we went
Speaker 4: through an anomalous period of time where and AI affiliated organizations,
Speaker 4: in particular semiconductors, really drove all of the optimism on
Speaker 4: the index. It was the only source of sort of
Speaker 4: growth and capital naturally concentrated there. So it has been
Speaker 4: very painful as some of that is unwound and sought
Speaker 4: new sources of opportunity. But in the longer term, it
Speaker 4: is a much healthier market if it has more than
Speaker 4: one leader, and I do think we're moving into a
Speaker 4: slightly healthier market condition, but that can be kind of
Speaker 4: painful in the short run. You know, when you had
Speaker 4: your biggest champion that suddenly kind of takes a back seat,
Speaker 4: and you have all these new smaller leaders kind of
Speaker 4: move forward.
Speaker 3: Gina. One thing that has changed significantly since we last
Speaker 3: spoke to you is what the election looks like in November. Yeah,
Speaker 3: how is your team watching a change at the top
Speaker 3: of the ticket And yeah, who could be in the
Speaker 3: White House come January.
Speaker 5: Yeah.
Speaker 4: I think that there are two issues that are really
Speaker 4: important to watch, and that is how policy prescriptions play
Speaker 4: out on trade and how they play out on tax.
Speaker 4: And what I think is most important to watch in
Speaker 4: this election is really, no matter who you watch, we
Speaker 4: have a populist sort of tax structure that could emerge
Speaker 4: over the course of the next year, no matter who's
Speaker 4: in office. And this is important to consider because I
Speaker 4: think there is a mental constant among most people that
Speaker 4: invest in stocks that there's one party that's historically been
Speaker 4: much friendlier to companies in terms of tax and the
Speaker 4: other one is less friendly. But in this election, it
Speaker 4: looks to us like tax rates are generally going to
Speaker 4: change and go higher, no matter who is at the
Speaker 4: top of the ticket and who wins in November, and
Speaker 4: I think that that's incredibly important to watch. Trade is
Speaker 4: the other issue to watch, but it'll depend upon how
Speaker 4: policy prescriptions evolve over time.
Speaker 1: Any of you who are listening watching missed any of it,
Speaker 1: You got to download our podcasts because that's everything you
Speaker 1: need to know. Thank you as always, Gina Martin Adams
Speaker 1: are Bloomberg Intelligence Chief Equity Strategy.
Speaker 2: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 2: live weekday afternoons from two to five pm Easter Listen
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Speaker 1: So Market's certainly front and center, but also front and
Speaker 1: center is geo political news. And this has to do
Speaker 1: with Russia, freeing Wall Street Journal reporter Van Gershkovich as
Speaker 1: well as Gerald Kremlin critics in the largest prisoner exchange
Speaker 1: with the Western decades in return for a prized assassin
Speaker 1: sought by President Vladimir Putin. President Biden addressing the exchange,
Speaker 1: calling it a good day earlier from the White House,
Speaker 1: he was surrounded by family members of the four prisoners
Speaker 1: who are now coming home to the US.
Speaker 6: This still would not have been made possible without our
Speaker 6: allies Germany, pauland Slovenia and Norway. In Turkey. They all
Speaker 6: stepped up. The deal that made this possible was a
Speaker 6: feat of diplomacy and friendship. Friendship vulnerable countries help get
Speaker 6: this done. They joined a difficult complex negotiations at my request,
Speaker 6: and I personally thanked them all again.
Speaker 3: That was President Biden. Earlier today from the White House
Speaker 3: with Moore, were joined by doctor Angelas Stant, senior fellow
Speaker 3: at Brookings Institution, also the author of Putin's World, Russia
Speaker 3: Against the West End with the Rest. She's a former
Speaker 3: National intelligence officer for Russia and Eurasia at the National
Speaker 3: Intelligence Council. Also served in the Office Policy Planning at
Speaker 3: the US Department of State. He joins us now from Nantucket.
Speaker 3: Doctor Stent. Always appreciate you taking the time and joining
Speaker 3: us on a Bloomberg business week. Why is this swap
Speaker 3: happening right now?
Speaker 4: So?
Speaker 5: I think, first of all, we have to congratulate the
Speaker 5: Biden administration, the White House Estate Department, all the people
Speaker 5: who work very, very hard and tirelessly to get this done.
Speaker 5: I think it's happening now because Putin really wanted this
Speaker 5: assassin from Germany back. I think the message that he's
Speaker 5: trying to send to his own people when they try
Speaker 5: and recruit them to join the intelligence services. You know,
Speaker 5: we have your back, and we're not going to let
Speaker 5: you die in some other prison you know where. We're
Speaker 5: going to take care of you. So I think it
Speaker 5: was very important for him to get this particular man back.
Speaker 5: But also I think it's partly to show that, hey,
Speaker 5: you can negotiate with us, we're reasonable, and to sort
Speaker 5: of make the Ukrainians look as if they're not reasonable
Speaker 5: because right now, of course, the Ukrainians are saying they're
Speaker 5: not going to go negotiate with Russia because there's nothing
Speaker 5: to negotiate. So I suspect there are a number of
Speaker 5: reasons for this, and Putin obviously decided not to wait
Speaker 5: until the US election to do this, but to do
Speaker 5: this now.
Speaker 1: That's what I wondered, Why not wait until the next administration.
Speaker 1: Is there any you think strategizing around that in terms
Speaker 1: of who might ultimately we know we're going to get
Speaker 1: a change. We know it's not going to be President Biden.
Speaker 1: It's either going to be we assume at this point,
Speaker 1: either Donald Trump or Kamala Harris. Do you think any
Speaker 1: of that played in to his thinking?
Speaker 5: Angela, Well, I think when the Kremlin looks at what's
Speaker 5: happening in the US. They see all the polarization and
Speaker 5: the chals here, and they're actually not quite sure what's
Speaker 5: going to happen after November. Don't forget Germany was a
Speaker 5: key country in this because Chancellor Schultz had to agree
Speaker 5: to release an assassin who was in a German prison
Speaker 5: as part of a US deal essentially with Rocha, although
Speaker 5: it was multinational, as President Biden said today in his remarks,
Speaker 5: but they just weren't sure what was going to happen.
Speaker 5: And at least they knew that at this point. And
Speaker 5: apparently Vice President Harris also was negotiating earlier on with
Speaker 5: Chancellor Schultz. She was involved in this, so they knew
Speaker 5: that it could happen with the current people in the administration,
Speaker 5: but they just weren't sure about what would happen after November.
Speaker 5: And I think at that point, who you know, he
Speaker 5: got back a number of spies, you know, the Russians
Speaker 5: got from the Western country spies, and what the West
Speaker 5: got was sixteen people who were essentially political prisoners. It
Speaker 5: was probably viewed to be a better deal for Russia.
Speaker 3: Better deal for Russia, So talk to US a little
Speaker 3: bit about Vidim Krasikov, who was serving a life sentence
Speaker 3: in Germany for a twenty nineteen killing of a Chechen
Speaker 3: separatist in a Berlin park. What do we need to
Speaker 3: know about him?
Speaker 5: So what you need to know about him was that
Speaker 5: you know, he joined the Russian security services. He was
Speaker 5: a trained assassin. He had assassinated other people before, and
Speaker 5: he very methodically planned how he got to Germany. The
Speaker 5: man he killed was a Georgian citizen, but an ethnic
Speaker 5: che who was a rebel and who'd been involved in
Speaker 5: fighting the Russian government, and so he was sent to
Speaker 5: assassinate him. He had, of course a false passport. He
Speaker 5: traveled to Germany via various other countries composed as a tourist,
Speaker 5: and he shot the man in broad daylight in the Teargarten,
Speaker 5: one of the main parks in Berlin. He was apprehended
Speaker 5: shortly thereafter. For years he wouldn't tell them who he
Speaker 5: really was. It took the German police, obviously with other
Speaker 5: in conjunction with other services, trying to figure out who
Speaker 5: the man was. And he was in prison in Germany
Speaker 5: having been convicted of this. So he is a trained
Speaker 5: assassin and from everything. We know Putin really wanted him back.
Speaker 5: He was the number one person that Russia wanted back.
Speaker 1: So if this is maybe a show of faith on
Speaker 1: the part of Russian Russia and Russian President Vladimir Putin, Angela,
Speaker 1: is it also showing that he might be open to
Speaker 1: some kind of negotiation to end this war?
Speaker 5: Ball But you know, if you listen to what National
Speaker 5: Security Advisor Jake Sullivan said earlier today, there really is
Speaker 5: no connection between this prisoner swap, which was meticulously worked
Speaker 5: out over months and which is a kind of a
Speaker 5: finite negotiation, and the much broader question of how would
Speaker 5: you begin negotiations to have a cease fire or to
Speaker 5: see an end to the war with Ukraine. And we
Speaker 5: do know that what Putin would like to use is
Speaker 5: to sit down with the US president two if there
Speaker 5: are going to be negotiations, and President Biden was also
Speaker 5: asked Thatt briefly today that's not going to happen with
Speaker 5: this administration. We don't know about what would happen after.
Speaker 3: January, doctor stan If Americans who travel to Russia understand
Speaker 3: that they could be arrested and held and indeed convicted
Speaker 3: for things that they have no connection to or did
Speaker 3: not do. What are the implications of that for a
Speaker 3: relationship that is certainly already strained. I mean, I think
Speaker 3: about the freedom of the press and the lack of
Speaker 3: reporting that we see from Russia. Very few news organizations
Speaker 3: have a lot of journalists in Russia currently, So it's very.
Speaker 5: Dangerous to be a Western journalist in Russia now, and
Speaker 5: I think most Western journalists have left. There are a few.
Speaker 5: There are a few Americans there, I think going forward,
Speaker 5: and the State Department has already warned people for months,
Speaker 5: Americans think twice about going to Russia because we do
Speaker 5: know that this is a modus operandi that Putin has.
Speaker 5: Some of the people who were released today were arrested
Speaker 5: before the full scale invasion of Ukraine, almost because Putin
Speaker 5: was planning this to take hostages. So Russia does this.
Speaker 5: It's not the only country, Irano, a number of other
Speaker 5: countries clearly that do this, that is to arrest people
Speaker 5: and hold them hostages. So I think the messages, whatever
Speaker 5: the negotiation was, that produced this success. Today, it's still
Speaker 5: very dangerous for an American to travel to Russia without
Speaker 5: knowing exactly, you know, what they should be doing, and
Speaker 5: without really keeping their mouth shut.
Speaker 1: Doubt about it in your view. I mean, US officials
Speaker 1: have accused Moscow of basically, you know, taking American hostages
Speaker 1: to basically release or win the release of their own
Speaker 1: Russian agents and others. Moscow says that's not the case.
Speaker 1: But do you believe that is their mode as you
Speaker 1: just kind of said, oh, I.
Speaker 5: Think it is. I think if you look at the
Speaker 5: Americans who were released, three with US citizenship and one
Speaker 5: bloody were Kara Musa, who has a green card, you
Speaker 5: know these are not spies. These were people who were
Speaker 5: legitimately in Russia doing other things they I mean, in
Speaker 5: Kara Musa's case, he certainly criticized the government. The other
Speaker 5: three Americans were there either doing reporting, recording or in
Speaker 5: Paul Wieman's course case, I guess, on vacation. And the
Speaker 5: other the Russians who were released today are all political
Speaker 5: opposition people. And then the other the German nationals and
Speaker 5: one man from Yellarius who were released. There are none
Speaker 5: of these people are remotely spies. So this is clearly
Speaker 5: a political hostage taking, whereas, of course the people who
Speaker 5: were released to Russia, most of them with spies and criminals.
Speaker 1: So how does it make you nervous that the people
Speaker 1: that were released back to Russia are spies and criminals,
Speaker 1: and how does it kind of factor into your thinking
Speaker 1: about Russian President Vladimir Putin's ambitions still his ambition.
Speaker 5: I mean, they're back in Russia now, so and they're
Speaker 5: not going to leave Russia or certainly they're not going
Speaker 5: to come to the West anytime soon. So I think Putin,
Speaker 5: you know, the Russians, we know have heightened their espionage
Speaker 5: activities in Europe, in the United States for some years
Speaker 5: now already, and so I think it doesn't really change
Speaker 5: the view of Russia as seeing the West as its enemy,
Speaker 5: of believing it can win in Ukraine, that it can
Speaker 5: outlast the US and the European countries. I think what
Speaker 5: it means is there were practical reasons for Putin to
Speaker 5: engage in this exchange that we've talked about, but not
Speaker 5: much is going to change in any.
Speaker 3: Future, Doctor Sten. Thirty seconds left on what happens in November.
Speaker 3: If when there is a change at the White House
Speaker 3: come January twentieth, how does that impact relations between Russia
Speaker 3: and the US. If it's Harris, if it's Trump.
Speaker 5: Well, I think if it's Harris, there's going to be continuity.
Speaker 5: We know the people who've been working for her in
Speaker 5: this administration, the Vice President's office, so I think they
Speaker 5: would be continuity. If it's Donald Trump, we don't know.
Speaker 5: He has said a number of things. He said that
Speaker 5: he's going to end the ward, you know, in forty
Speaker 5: eight hours, and a number of other things, but we
Speaker 5: really don't have any sense of what he would actually do,
Speaker 5: so I think that's a big unknown. And I think, again,
Speaker 5: coming back to what we discussed before, this is probably
Speaker 5: why this exchange has taken place now.
Speaker 1: All right, so appreciate it. Everything just explained so clearly.
Speaker 1: Angela Again, Angela Stent, thank you so much. Really appreciate it.
Speaker 1: See your fellow over at the Brookings Institution. Joining us
Speaker 1: from Washington, DC.
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Speaker 3: As the big tech earnings parade continue, Shares of Meta
Speaker 3: platforms off and running at its high up eleven percent,
Speaker 3: up right now by four point four percent, the most
Speaker 3: in six months earlier, the nearly one point three trillion
Speaker 3: dollar market cap Megacap reported better than expected sales in
Speaker 3: the second quarter, the fourth quarter in a row of
Speaker 3: more than twenty percent growth. It also gave an upbeat
Speaker 3: sales forecast after the close yesterday, signaling Carol at the
Speaker 3: company's investments in AI are helping it sell more targeted
Speaker 3: as Yeah.
Speaker 1: Their Kpe spent to by the way, also moved up
Speaker 1: with a roundup of the quarter and the II trade
Speaker 1: that investors are obsessed about but increasingly scrutinizing. Back with
Speaker 1: us is Bloomberg Intelligence senior Tech Industry Alice Man Deep
Speaker 1: seeing right here in studio. Great to have you here.
Speaker 1: So is the rally, which at its high was up
Speaker 1: about eleven percent. We saw it in the aftermarket. We're
Speaker 1: trying to understand, like the capex bender is up, but
Speaker 1: what they are showing in terms of what they're making
Speaker 1: on ads that delivered and is that why investors are happy?
Speaker 7: I think a couple of things to call out here.
Speaker 7: One is Meta is uniquely positioned now with their large
Speaker 7: anglid model. And you know, it's hard to put it
Speaker 7: in numbers in terms of how much really that drove
Speaker 7: the growth in the quarter. But when you hear their
Speaker 7: earnings call, it wasn't about metawverse. Metawverse is like not
Speaker 7: even in their reference once. It was all AI and
Speaker 7: the fact that they have their own large anglid model
Speaker 7: and they are able to apply it to their family
Speaker 7: of apps, whether it's the Blue app, Instagram, WhatsApp that
Speaker 7: was called you know, big adoption in the US here,
Speaker 7: and how they see that monetization. I mean, that was
Speaker 7: to me the standout thing and that was a complete
Speaker 7: shift from you know, twelve months back when they were
Speaker 7: just so abeat on metaverse. So clearly changing narrative. And look,
Speaker 7: you may say Reality Labs still lost four point five
Speaker 7: billion dollars, but a lot of those investments are going
Speaker 7: towards integrating AI within their ray Bang glasses, so they
Speaker 7: are looking at the AI opportunity everywhere they are operating
Speaker 7: because of their own large anguin model should.
Speaker 1: Go ahead, Royl, Well, but if advertising revenue had disappointed,
Speaker 1: it's still their bread and butter. We'd be having a
Speaker 1: different conversation.
Speaker 7: Absolutely, But that's the thing about AI. It's all about
Speaker 7: data and compute, and Meta has a lot of that
Speaker 7: because of their scale. So that's why they're doing so
Speaker 7: well with that ad revenue, because they're applying that in
Speaker 7: their products, in their ad stack. I mean, they called
Speaker 7: out how their ad campaign management has become so much
Speaker 7: easier with generative AI tools, and advertisers are finding a
Speaker 7: lot of ROI in that.
Speaker 3: It's very clear that the company has done a very
Speaker 3: good job pivoting to AI. But my question for you,
Speaker 3: man Deep, is was it a strategic mistake to rename
Speaker 3: this company Meta Platforms and publicly say going all in
Speaker 3: on the metaverse when it seems like they've made, at
Speaker 3: least internally a real pivot to AI. And look, I
Speaker 3: know they're related, but you know we're not doing this
Speaker 3: in the metaverse yet.
Speaker 7: I think the name change is all gone now. I mean,
Speaker 7: clearly they got a lot of slack for you know,
Speaker 7: the metaverse spend and the shift for a while. And look,
Speaker 7: we're still going through those easy comps. Second half, the
Speaker 7: comps get much tougher, so it'll be hard to sustain
Speaker 7: that twenty percent plus top line growth. But it was
Speaker 7: music to everyone's ears. The fact that you know, they
Speaker 7: are just they've moved on from the metaverse.
Speaker 3: It seems yeah, it really does seem like that. One
Speaker 3: thing that they did call out, one thing that Mark
Speaker 3: Zuckerberg called out right at the beginning of the press
Speaker 3: release was these ray Bann glasses that you alluded to.
Speaker 3: How big of a product is that? How do you
Speaker 3: think about that product at Bloomberg Intelligence.
Speaker 7: I mean, look, Meta's strategy is very clear. They want
Speaker 7: to have vertical integration where they own the hardware and
Speaker 7: the operating system and then deploy their AI on top
Speaker 7: of that. What they don't like is deploying their AI
Speaker 7: on Apple's iPhone or on Android. They want to own everything,
Speaker 7: which is why you know, Mark Zuckerberg had this big
Speaker 7: pivot towards ar VR, and with ar they find that
Speaker 7: opening that even though the addressable market will not be
Speaker 7: as big as the smartphones and PCs, but it will
Speaker 7: still be a good chunk of people who may want,
Speaker 7: you know, like a glass based voice assistant, and that
Speaker 7: could have a lot of use cases. It may not
Speaker 7: serve as a full fledged phone, but it could still
Speaker 7: be pretty handy in terms of driving productive.
Speaker 1: Now the platform to read all those ads are going
Speaker 1: to come at you through AI. Having said that, when
Speaker 1: I think about we kind of keep having these conversations
Speaker 1: man deep about jen Ai and large language models and
Speaker 1: the application and the productivity. Is it easy the application
Speaker 1: in terms of ads? Is that why they're having such
Speaker 1: a big payoff?
Speaker 4: Like?
Speaker 1: Is that an easy application?
Speaker 7: Do you know what I'm saying?
Speaker 1: Well, so I'm trying to figure at how Jenai impacts
Speaker 1: our world, right, it makes us more productive, how it
Speaker 1: pays off in terms of financial returns. It's the easy route.
Speaker 7: The best way to contrast it is with Microsoft. You look,
Speaker 7: they're making a big bed on AI and they're monetizing
Speaker 7: it through their you know, the ads stack, the cloud infrastructure, right,
Speaker 7: and also the co pilots. So everyone is looking for
Speaker 7: one of the big applications of generative AI co pilots
Speaker 7: and the other one is chat pot Chat pot is
Speaker 7: where you know, Meta has a lot of room because
Speaker 7: one they have engagement. You know, people spend maybe two
Speaker 7: hours across their family of apps.
Speaker 1: If your Matt Biller maybe eight hours.
Speaker 7: But anyway, so that's where if you deploy AI capabilities
Speaker 7: and then they have the most sophisticated ad stack. It becomes,
Speaker 7: you know, such a huge revenue opportunity.
Speaker 3: Just twenty seconds. What are the questions that people are
Speaker 3: asking of these virtual assistants in Meta's family of apps
Speaker 3: that it's able to answer.
Speaker 7: Well all sorts of things that you are looking at,
Speaker 7: Let's say a marketplace or groups where people already had
Speaker 7: a conversation. The chatpot has become so sophisticated that it
Speaker 7: can answer any basic question that people may have on
Speaker 7: a Facebook group, or you know, any sort of interaction
Speaker 7: you have had on WhatsApp Messenger. The chat pot can
Speaker 7: understand that really cool stuff.
Speaker 1: Meta up four percent today, It's up almost forty percent
Speaker 1: here in twenty twenty four, Man Deep saying, always always amazing.
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Speaker 1: All right, it's an interesting day. Morning morning.
Speaker 5: Maybe not.
Speaker 1: I don't know. Stock's getting hit. Bond's a rolling treasury
Speaker 1: tenure we talked about breaking below four percent. Swap traders
Speaker 1: now fully pricing in three rate reductions this year. Those
Speaker 1: days a five six percent on the ten year seem
Speaker 1: a long long time ago. I feel like it's like
Speaker 1: a Star Wars movie, a long long.
Speaker 3: Time ago in the galaxy far far away.
Speaker 5: Yes, exactly.
Speaker 3: Well, we got a perfect guest to talk about what
Speaker 3: is going on with the ten year and what she
Speaker 3: thinks it's going to do over the next few months
Speaker 3: and maybe even year. We got Katie Kaminski with us.
Speaker 3: She's chief research strategist and portfolio manager at Alpha Simplex.
Speaker 3: She joins us from Boston, Massachusetts. A favorite guest when
Speaker 3: it comes to the treasury trade trade, no doubt, A
Speaker 3: good day to have you on. With the tenure falling
Speaker 3: below four percent for the first time since this winter,
Speaker 3: what do you make of what's going on in the
Speaker 3: treasury market today?
Speaker 5: Well, the thing is things have changed.
Speaker 8: We've seen signals go from short to long in fixed income,
Speaker 8: and I think we're going to continue to see that.
Speaker 8: The biggest change. I'm starting to feel like today reminds
Speaker 8: me a lot of June, where people are starting to
Speaker 8: get concerned about demand destruction, and that is just a
Speaker 8: very different market than a strong economy with higher rates.
Speaker 8: It's really more about weakness and is this really weak demand?
Speaker 8: And I think that means a stronger bond market.
Speaker 1: Well, go back to you said signals have gone from
Speaker 1: short to long. Explain that.
Speaker 8: So in the trend falling space, we are looking at
Speaker 8: where the direction is moving in different markets, and for
Speaker 8: almost the last three years, it's been mostly short signals
Speaker 8: in fixed income, and now we're actually seeing net flattening
Speaker 8: out and also long positioning in fixed income, which is
Speaker 8: a suggestion that sort of tides have turned and that
Speaker 8: these markets are actually starting to shift back to more
Speaker 8: of a long positioning with cuts potentially on the way
Speaker 8: in the short term. So I think that that's really
Speaker 8: a big change from the last three years.
Speaker 1: Where did the change come from?
Speaker 4: Was it?
Speaker 1: Thank you J Powell yesterday saying September like we're finally
Speaker 1: getting to it. Is it weak economic data? I mean
Speaker 1: We've been having conversations internally our Bill Maloney that we
Speaker 1: were just in here like that this market trade doesn't
Speaker 1: completely make sense. So I'm just curious, what is it
Speaker 1: specifically that has said, Okay, things are differently guys.
Speaker 8: Well, I think there was some interesting weaker economic data
Speaker 8: this week, right. The challenge has always been that it's mixed, right,
Speaker 8: and so I think people are a little nervous because
Speaker 8: obviously valuations are very high, and as other central bankers
Speaker 8: have already started to cut rates, like the Bank of
Speaker 8: England today, and you start to see that there's a
Speaker 8: lot more pressure on the FED. So it's really both
Speaker 8: the FED and also just general risk off concern about
Speaker 8: the fact that the weak economic data is starting to
Speaker 8: show up, which means that bonds are likely going to
Speaker 8: rally and stocks may recover. Have to sort of retract
Speaker 8: a little.
Speaker 1: Bit any time I would say it any of this
Speaker 1: Katie about the US presidential race and the outcome come November.
Speaker 8: I think definitely that's part of the uncertainty we're seeing.
Speaker 8: Sort of most people are a little ambivalent about how
Speaker 8: to think about risk going into the second half of
Speaker 8: the year and what potential outcomes might be. They seem
Speaker 8: to be very broad. There's just really not a clear path.
Speaker 8: The only things that are sort of certain are that
Speaker 8: we're probably going to see cuts, so that would explain
Speaker 8: the ten years of breaking that four percent bound. But
Speaker 8: in general, I think uncertainty is never very good for equities.
Speaker 8: We're seeing a lot of it right now.
Speaker 3: Hey, Katie, the FED is it behind the ball? Did
Speaker 3: it drop the ball? Not cutting?
Speaker 8: Well, I would say that, you know, the FED had
Speaker 8: been looking at very different data than some of the
Speaker 8: other central banks, so I'm not surprised given how they've
Speaker 8: been a little bit more cautious. But as we start
Speaker 8: to see data that is confirming weaker economic data, they're
Speaker 8: going to have to react more. And I think that's
Speaker 8: where you know, they could get behind the ball in
Speaker 8: the sense if that data continues to come in negative,
Speaker 8: it's just going to be more certain that we do
Speaker 8: have cuts later this year. But of course, our data
Speaker 8: has been very different from some of those economies that
Speaker 8: cut a little bit earlier.
Speaker 1: How low can we go on the ten percent? I
Speaker 1: mean ten percent? How long can we go?
Speaker 3: You and I I'm mixing metaphors.
Speaker 1: Kim and I were just saying what is wrong with
Speaker 1: our break.
Speaker 7: I can't.
Speaker 3: I'm like, am I drop the curve behind the ball?
Speaker 1: I can't saying activism.
Speaker 3: Active activision A. Yeah, yeah, we're just it's it's August.
Speaker 1: Yeah it should be Friday, but it tain't, as they say,
Speaker 1: So how lo can we go on the tenure? In
Speaker 1: your view?
Speaker 8: Well, it's really going to depend what happens to economic
Speaker 8: weakness and the data that comes out. I wouldn't be surprised,
Speaker 8: especially if we have a serious retraction inequities, that you're
Speaker 8: going to see yields go down a lot more because
Speaker 8: that risk off trade would definitely be visible if we
Speaker 8: do see sort of a strong reversal inequity markets. So
Speaker 8: I'd say that, you know, even though the market is
Speaker 8: expecting three cuts, you might still see yields dropping quite
Speaker 8: a bit more if people get nervous.
Speaker 1: What's quite a bit more? You know, we we at
Speaker 1: Kallenberg love these numbers, or I.
Speaker 8: Know you love numbers. I think I think that's hard
Speaker 8: to say. I mean, if you look at where we've come,
Speaker 8: we've gone about one percent from the peak, so we
Speaker 8: could potentially see another couple of percent. So maybe we
Speaker 8: could get that back into the three range this year.
Speaker 8: I'm not thinking extremely low. I think it's going to
Speaker 8: take time, but you know, you could definitely see pretty
Speaker 8: big moves and bonds if it's a sort of reversal,
Speaker 8: you know, retraction and equities that is really indicative of
Speaker 8: a risk off move where people are actually seeing reprising.
Speaker 1: So three percent if we see that reversal retraction, yes, likely, yeah, okay, all.
Speaker 3: Right, you know what, you know, We'll hold you to it, Katie.
Speaker 3: We always do when you come.
Speaker 1: Back at the digital recording.
Speaker 3: Well, how should we think about the curve or the
Speaker 3: new normal of the curve in this post COVID environment.
Speaker 8: That's it's tricky because you know, really when you think
Speaker 8: about the curve, it has to do a lot as
Speaker 8: well with future expectations and also relative yield valuations between
Speaker 8: different different you know, different currencies as well. And I
Speaker 8: think for now we've seen a lot of inversion and flattening.
Speaker 8: Maybe we'll eventually see a steepening at some point. I
Speaker 8: know that that's what everybody was expecting at the beginning
Speaker 8: of the year, but we'll have to wait and see.
Speaker 8: I think right now we've seen long term yields being
Speaker 8: more bullish than short term yields. So that may indicate
Speaker 8: that the longer term expectations for the long end of
Speaker 8: the curve are lower yields, but it's still very uncertain
Speaker 8: how long it's going to take for the short end
Speaker 8: of the curve and how much time.
Speaker 7: That's going to take.
Speaker 1: You know, Katie, in a year where we have geopolitical
Speaker 1: we have a US presidential race, we have earnings, we
Speaker 1: have AI, we have you know, go through all the
Speaker 1: things that are out there, you know, trying to make
Speaker 1: sense of FED policy or monetary global monetary policy. Thirty
Speaker 1: seconds left here. What is the thing that you think
Speaker 1: investors just should always keep an eye on to really
Speaker 1: get an idea of kind of where we go on
Speaker 1: the fixed income side of things.
Speaker 8: Well, I think what is important now is once the
Speaker 8: tide has turned, now you're seeing that fixed income is
Speaker 8: definitely there's signals that we're going to see higher at
Speaker 8: lower rates, and so if that's the case, oftentimes people
Speaker 8: don't move quickly enough. So really be aware that you're
Speaker 8: going to have a big repricing and if fields come down,
Speaker 8: and write something to take.
Speaker 1: Advantage of when it moves right exactly Katiekimitski, Thank you
Speaker 1: so much, Chief Research Strategies Portfolio manager of at Alpha Simplex.
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