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Speaker 1: Hey, Odd Lots listeners, the Odd Lots tour continues and

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Speaker 1: our next stop is in Chicago.

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Speaker 2: That's right. Joe and I will be at the City

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Speaker 2: Winery Chicago on October 15th for a live Odd Lots recording.

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Speaker 2: Tickets are on sale now at Bloomberg.com forward slash Odd Lots.

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Speaker 1: And of course, a special thank you to Barclays for

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Speaker 1: supporting Odd Lots Live.

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Speaker 2: So that's October 15th at City Winery in Chicago. Get

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Speaker 2: your tickets now.

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Speaker 1: Bloomberg Audio Studios. Podcasts, radio, news. Hello and welcome to

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Speaker 1: another episode of the Odd Laws Podcast. I'm Joe Weisenthal.

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Speaker 2: And I'm Tracy Allaway.

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Speaker 1: Tracy, this, it dawned on me the other day, the

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Speaker 1: market's kind of crazy right now. No, no, it's like seriously,

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Speaker 1: it's like we're sort of used to all this stuff

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Speaker 1: and everything and that. And then one day, one moment,

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Speaker 1: I realized, oh, markets are really crazy these days.

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Speaker 2: I would say weird. I find them very weird at

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Speaker 2: the moment with like the biggest tension being what's happening

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Speaker 2: in the bond market and the stock market. By the way,

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Speaker 2: I have a huge caveat for this episode, which is

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Speaker 2: we're recording this on September 29th. I've been away for

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Speaker 2: the past week on vacation. I probably should have put

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Speaker 2: up my like normal going on vacation warning. So something

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Speaker 2: is about to blow up. Turns out it was the

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Speaker 2: bond market.

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Speaker 3: Yeah.

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Speaker 1: Actually, it's funny you say that because the way I

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Speaker 1: think about the market right now is so much is

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Speaker 1: happening and nothing is happening in the specific sense that

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Speaker 1: it's like, okay, we're in the middle of a war.

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Speaker 1: with Iran. And so many, we're just like, oh, it's

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Speaker 1: just this headline. Trump says negotiations are going good. And

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Speaker 1: then it's like people move on. There's some crazy model leap,

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Speaker 1: et cetera, by one of the AI companies. Huge news,

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Speaker 1: but also so regularly cadence now that even that almost

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Speaker 1: becomes noise. Obviously the movements in the bond market, I guess,

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Speaker 1: like that is probably the one thing that does feel

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Speaker 1: novel about maybe just the last few weeks is But

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Speaker 1: even there, a lot of that angst has been going

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Speaker 1: around a long time. So it's like, there's so much

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Speaker 1: of everything. There's no one thing that just... You know,

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Speaker 1: I was thinking, like yesterday, September 28th, it was announced

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Speaker 1: that David Zervos was going from Jeffries to.

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Speaker 2: I saw that. I was in Connecticut with no electricity,

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Speaker 2: and even I saw that.

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Speaker 1: Ten years ago... If that is announced, that would be

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Speaker 1: like a really big thing people talk about. People would

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Speaker 1: have been all this stuff and it barely broke through.

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Speaker 1: But that would have been a time where that would

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Speaker 1: have been the biggest sort of market related or Wall

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Speaker 1: Street related story of the day.

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Speaker 2: It feels like stock markets are sort of overwhelmed and

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Speaker 2: or inured to everything happening except trying to make money. No.

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Speaker 2: Like that is the one impulse that remains. That never

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Speaker 2: gets old.

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Speaker 1: No. And that's arguably the point of the whole thing. Anyway.

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Speaker 1: We need like a sort of big rambling state of

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Speaker 1: the markets episode. And we really do have the perfect guest,

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Speaker 1: someone who used to be our colleague here at Bloomberg.

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Speaker 1: We are, of course, speaking to Luke Kawa, head of

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Speaker 1: markets at Sherwood News. Luke, thank you for coming back

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Speaker 1: on Odd Lots.

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Speaker 3: Great to be here. Thanks for having me, Al.

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Speaker 1: Let me start on something niche, actually, because there's so

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Speaker 1: much going on. Suddenly, lately, markets are having a great year.

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Speaker 1: S & P up over 12% or about that as

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Speaker 1: the time I'm talking. I see a lot of talk

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Speaker 1: about breadth. This is, everyone's talking about market breadth these days.

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Speaker 3: What's that all about? Yeah, I think why they're talking

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Speaker 3: about breadth is because it's absolutely god-awful. There's been a

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Speaker 3: lot of different stats to show it. You can say

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Speaker 3: the average stat is XYZ, below its high. Well, the

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Speaker 3: S & P 500 is, you know, as of writing about,

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Speaker 3: you know, 1.5% off of its high. The one I

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Speaker 3: came up with that bothered a lot of people the

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Speaker 3: other day was, coming into this week, the S &

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Speaker 3: P 500 was 0.5% off record high. Mm-hmm. just 51.2%

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Speaker 3: of stocks were above their 200 day. The last time

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Speaker 3: we had that proximity to a high with that few

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Speaker 3: stocks above the 200 day was literally the day after

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Speaker 3: the dot-com bubble peak. So that gets a lot of

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Speaker 3: people mad, but then you have to point out, okay, wait,

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Speaker 3: breadth was also that bad in 1998. The market ripped

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Speaker 3: for another two years after that. So it really is

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Speaker 3: a case of, and I think to unify a lot

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Speaker 3: of what you were talking about in the intro, Is

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Speaker 3: the market inert to higher rates? No, a lot of

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Speaker 3: the market isn't. The S & P 500 equal weight

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Speaker 3: certainly isn't. The Russell 2000 certainly isn't. However, basically, to me,

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Speaker 3: there seems to be just this big bet that the

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Speaker 3: AI impulse will continue to eat and swallow the world

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Speaker 3: until who knows what puts a stop to it, whether

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Speaker 3: that's kind of credit conditions, the capacity to lend, whether

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Speaker 3: that's regulation. But right now, the pricing to me just

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Speaker 3: looks like more and more betting on a singular factor

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Speaker 3: to be able to drive growth. Think about it. When's

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Speaker 3: the last time that there seemed to be more confidence

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Speaker 3: in European industrials than the US consumer during a period

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Speaker 3: of strong growth? I cannot ever remember that happening outside

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Speaker 3: of maybe like Euro boom, what was it, 2017 for

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Speaker 3: a couple months.

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Speaker 2: I mean, it is true that in higher rates, so

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Speaker 2: rates are a blunt tool for the Fed, right? And

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Speaker 2: they're going to hurt something like a home builder a

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Speaker 2: lot more than an AI company that is issuing like

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Speaker 2: mega deals into the bond market, I would imagine. Is

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Speaker 2: it the case that, you know, maybe the bet on

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Speaker 2: AI makes sense in that environment? Maybe the AI companies

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Speaker 2: are the ones that are less rate sensitive than a

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Speaker 2: lot of other businesses out there.

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Speaker 3: I think right now that's like a perfect encapsulation of

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Speaker 3: conventional wisdom. To me, it's also very interesting that as

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Speaker 3: we've had this latest explosion higher in yields and we've

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Speaker 3: talked about like, oh, it's the AI impulse this, that.

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Speaker 3: It's also come at a time where hyperscaler credit spreads,

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Speaker 3: none of them are at their wides of the year

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Speaker 3: at the long end. It comes after a September of,

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Speaker 3: you can tell me how much USIG and USIG issuance

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Speaker 3: there was by hyperscalers. I believe that's a zero for September.

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Speaker 3: So it's, yeah, so very, very interesting.

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Speaker 2: They cut back a lot because they got a little

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Speaker 2: bit spooked with the CapEx response from the market.

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Speaker 3: So that to me is something that like, hey, a

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Speaker 3: lot of this in the bond market, both a response

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Speaker 3: to stronger growth and the potential for issuance, a lot

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Speaker 3: of this is like the classic Mark Dow belated overreaction

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Speaker 3: to something we've been thinking and talking about for a

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Speaker 3: long while. And then I think the, the question is

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Speaker 3: how long can the cyclicals that are doing well, you know, operationally,

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Speaker 3: at least how long can you, they be plumbing 52

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Speaker 3: week lows, a lot of these, and is it just

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Speaker 3: because AI is doing so well? And I think that's

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Speaker 3: the kind of important part to be making the important

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Speaker 3: point to be making that so much of this market

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Speaker 3: has been dispersion. Helene Meisler calls it the either or market.

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Speaker 3: I've called it, you know, the Elaine George market, Jerry's friends,

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Speaker 3: only one can do well at the right time. But

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Speaker 3: that's been a really, really defining trademark of 2026. At

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Speaker 3: first it was semi-software. I think more recently it's been

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Speaker 3: like this idea of inertia stocks versus the general AI beneficiaries.

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Speaker 3: And that to me is a bit of an important twist.

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Speaker 3: It's this idea that like It's not just one layer

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Speaker 3: of AI that benefits. It's multiple layers through software, through

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Speaker 3: the hardware providers that get to benefit from an impulse

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Speaker 3: like Muse, like Agentic Commerce, and then others that get hit.

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Speaker 3: So that to me is at least a bit of

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Speaker 3: a nuance in how the market treats AI and the impulse.

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Speaker 3: But for me, it's just really a sign of the

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Speaker 3: mechanics that have continued to dominate and just continuing to

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Speaker 3: play out.

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Speaker 4: It's interesting.

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Speaker 1: I looked up a chart of McDonald's and... That was

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Speaker 1: doing really well up until, and then it peaked on

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Speaker 1: March 3rd and then it's been straight down. So it's

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Speaker 1: like basically when the Iran war started, that was.

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Speaker 2: Wait, was that when the CEO ate- Oh.

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Speaker 1: Reluctantly ate part of the cheeseburger? I forgot about that.

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Speaker 1: But it's just like any consumer name you can think

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Speaker 1: of right now. The stock is awful. Nike is the

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Speaker 1: classic example.

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Speaker 3: That's crazy.

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Speaker 1: That was $ 180 stock in 2021. It's 35 now. I mean,

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Speaker 1: there's just like I mean, granted, it had a huge

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Speaker 1: run up in 2021, too. But like any like just

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Speaker 1: sort of like regular business that is they're just doing terrible.

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Speaker 3: It's it's crazy. Like and when you look at Nike,

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Speaker 3: one of the things that stands out and I think

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Speaker 3: you could apply this more recently to a Walmart, possibly

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Speaker 3: to a Costco. And I'll tie this back to software,

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Speaker 3: oddly enough. But these were relatively expensive stocks that didn't

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Speaker 3: have exceptional top line growth. in a world where nominal

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Speaker 3: growth has been accelerating. That's been what the bond market

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Speaker 3: move is about. That's what stock market resilience is about.

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Speaker 3: Why do you want to own those stocks? Why do

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Speaker 3: you want to own the stocks that aren't growing that fast,

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Speaker 3: that are expensive, when everything else is growing very fast?

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Speaker 3: So I think for what happened for a while is

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Speaker 3: that a lot of these consumer names, Walmart and Costco

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Speaker 3: in particular, they were stand-ins for the software stocks that

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Speaker 3: were bound to be disrupted by AI. Because if you

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Speaker 3: think about it, if you're going to spend a certain

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Speaker 3: amount at Walmart every month. That looks to me like

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Speaker 3: an ARR kind of revenue profile that you've got there.

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Speaker 3: Costco is literally a subscription kind of membership in a

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Speaker 3: lot of ways. So I think that was a stand-in

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Speaker 3: for disruption fears. And as software has come back, you've

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Speaker 3: seen kind of multiples there deflate. So I think it is,

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Speaker 3: we got to find someone to punish. Maybe it's just

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Speaker 3: because everyone's very invested, but when AI is doing well,

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Speaker 3: you got to find someone to punish.

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Speaker 2: What about just in terms of pure earnings expectations, what

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Speaker 2: we're seeing here? Because this is the other thing that

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Speaker 2: in theory should be happening, which is you hear about

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Speaker 2: productivity gains from AI. You should be seeing people get

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Speaker 2: excited about the possibility of cutting labor costs, I don't know,

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Speaker 2: coming up with new products with AI or whatever. And

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Speaker 2: in theory, you should be seeing that go into the

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Speaker 2: earnings estimates for future years. Are we seeing any of that?

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Speaker 3: I would say in theory and in practice, what we

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Speaker 3: continue to see more of is the AI hardware impulse

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Speaker 3: as just the straight fuel for earnings. Goldman had a

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Speaker 3: good note released a couple of days ago where they

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Speaker 3: said about half of earnings growth this year is expected

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Speaker 3: to be just driven by hyperscaler CapEx. So pretty, pretty

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Speaker 3: big impulse. We're talking about how strong growth has been,

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Speaker 3: earnings growth has been this year. And you can just

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Speaker 3: link it and distill it just down to that one factor.

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Speaker 3: And then also, if you look at, okay, they also

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Speaker 3: ran in a separate note. what do we think explains

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Speaker 3: multiples across Russell 1000 stocks? And the answer they came

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Speaker 3: up with was more so than usual, it's three years

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Speaker 3: forward sales estimates. Right now, the one year forward sales

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Speaker 3: estimates and those revisions have almost no explanatory power. So

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Speaker 3: sales growth right now and for the near future, it's

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Speaker 3: priced in. We all know it. We see the backlogs,

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Speaker 3: all this, all that. The real bet on what you're

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Speaker 3: willing to pay for is the kind of three years

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Speaker 3: out thing. And when I did a scan of stocks

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Speaker 3: that were just both expensive and had so markets willing

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Speaker 3: to reward them and fairly high sales estimates. Your bloom energies,

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Speaker 3: a lot of the optic stocks, those are the ones

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Speaker 3: that pop out there. So that's been kind of the

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Speaker 3: way to earn a higher valuation right now. In this market,

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Speaker 3: it's betting on the continuation of the hardware trade.

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Speaker 1: Yeah, this is something interesting. Both Tracy and I love

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Speaker 1: the hair charts, the Medusa charts of all sorts, where

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Speaker 1: you see historical expectations of trajectory. And one of the

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Speaker 1: ones you're starting to see more is just the CapEx one.

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Speaker 1: And so you look at what sell side had estimated

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Speaker 1: hyperscaler CapEx would be in 2023 and over the next

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Speaker 1: three years. And then that keeps getting revised higher. And

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Speaker 1: it seems like it's continuous. And so I'm curious, there

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Speaker 1: is some number exists, right? So maybe, I don't know

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Speaker 1: what it is. They'll say like, okay, they're expected to

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Speaker 1: spend 1.2 trillion over X period of time. And that's up.

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Speaker 1: But how much of the trade is essentially a trade

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Speaker 1: that then the estimates will keep getting revised higher for spending.

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Speaker 3: I got to think a solid chunk right now. And

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Speaker 3: there's at some point, I think there has to be

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Speaker 3: this handoff from that to a kind of more broader set.

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Speaker 3: And when NVIDIA, and it was either a quarter ago

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Speaker 3: or one before that, they actually kind of rejiggered how

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Speaker 3: they're organizing... their earnings to account for the fact that

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Speaker 3: we expect sovereign AI and robotics and physical AI on-prem stuff.

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Speaker 3: We expect that to be contributing more and more to

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Speaker 3: our sales going forward. It's going to be real small

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Speaker 3: now to start, but we expect that to be a

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Speaker 3: bigger driver than hyperscalers and potentially neoclouds, but they're doing

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Speaker 3: all they can to support that. going forward. So I

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Speaker 3: think right now that is a huge, huge chunk of

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Speaker 3: the trade, the bulk of the trade. But the promise

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Speaker 3: of AI is that it has to be more applicable

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Speaker 3: than that, right? To your point, it has to have

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Speaker 3: the productivity booms. It has to have the labor saving.

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Speaker 3: If it doesn't, then what are we here for is

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Speaker 3: kind of, I think, the question at some point.

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Speaker 1: Yeah.

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Speaker 2: Did you see the chart? I think it was in

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Speaker 2: Adam Tooze's newsletter this morning saying that The CapEx expenditure

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Speaker 2: on AI is now like the biggest.

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Speaker 1: Infrastructure boom of all time.

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Speaker 3: Oh, yeah, yeah.

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Speaker 2: There have been two great papers.

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Speaker 1: I saw the economist Hannah Lustig, I'm not sure if

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Speaker 1: I'm pronouncing his name right, who's saying that to justify

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Speaker 1: all the spending that they estimate, like a handful of

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Speaker 1: companies will have to get revenue that's like 9% of

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Speaker 1: GDP in order to justify it, which is just like unbelievable.

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Speaker 3: It's ambitious. Ambitious.

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Speaker 2: I'll put it that way. So I promised myself I

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Speaker 2: wasn't going to talk exclusively fixed income in this conversation,

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Speaker 2: but we can't have Fluke on without talking more about

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Speaker 2: fixed income. Bond yields rising. So these are the headlines

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Speaker 2: that I saw when I was on vacation last week.

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Speaker 2: The 10-year going to above 5%, 30-year rising as well.

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Speaker 2: What's your story for, I guess I should divide it up,

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Speaker 2: global bond yields rising and then U.S. Treasury yields rising specifically?

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Speaker 3: Predominantly, I think it's the same story for both or

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Speaker 3: the same. Like if you had to do a principal

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Speaker 3: component analysis or something, I think what would stick out

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Speaker 3: across the board is it's the global growth impulse. It's activity.

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Speaker 3: It's both in the U.S. and globally. I think we

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Speaker 3: see the industrial side of every economy is doing incredibly

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Speaker 3: well and expected to do so. And I think something

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Speaker 3: you wrote a while ago kind of fits into this

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Speaker 3: about that which can be repurposed for AI will be

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Speaker 3: with reference to Ford. I believe that it seems as

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Speaker 3: though the impulse is just getting more widely shared. You

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Speaker 3: have an impulse this big, it's bound to lift a

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Speaker 3: lot of boats. And I would say that's kind of

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Speaker 3: what's happening throughout the global economy. That is far and away,

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Speaker 3: I would say, the one thing to think of if

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Speaker 3: you just had an elevator pitch with someone, why are

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Speaker 3: bond yields high? Because growth is really strong, that's putting

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Speaker 3: inflation up, and central banks are expected to respond to that.

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Speaker 2: Wait, but we haven't had a huge move in break-evens

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Speaker 2: in the US, for instance.

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Speaker 3: Yeah, but I think that somewhat speaks to the idea

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Speaker 3: that central banks are going to be quote-unquote credible in

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Speaker 3: keeping a lid on inflation over time. You can believe

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Speaker 3: that or not, because if you've been a hold to

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Speaker 3: maturity buyer of five-year US treasuries from at any point

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Speaker 3: in 2011 to 2021, outside of like a little before

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Speaker 3: the shale bust, if you got in there, you have

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Speaker 3: negative real returns for the entire period.

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Speaker 1: I'm actually very curious. I find this, the stability of

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Speaker 1: breakevens to be very surprising because usually what people say

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Speaker 1: is like, well, yeah, naturally people think the Fed is

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Speaker 1: going to take its dual mandate seriously. And okay, we're

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Speaker 1: going to, they're going to have to raise rates to roughly,

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Speaker 1: I think it's, and Therefore, inflation will be a little

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Speaker 1: over 2%. Are you surprised that after years and years

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Speaker 1: of the Fed missing its inflation target, there hasn't been

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Speaker 1: more like, no, we do not think, we do not

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Speaker 1: have the confidence that the Fed will be able to

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Speaker 1: maintain stable inflation in the years ahead? Or why isn't

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Speaker 1: it manifesting on that chart? Oh.

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Speaker 3: I would say in a word, yes. I'm genuinely surprised

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Speaker 3: by that.

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Speaker 1: Yeah, I find this really surprising.

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Speaker 3: I think it is an odd dynamic. The best explanation

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Speaker 3: I have for it is just thinking back to when

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Speaker 3: I'd be in meetings and we're discussing asset allocation, especially

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Speaker 3: during 2022 at UBS and 2023, high inflation environment. Basically,

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Speaker 3: bonds become the residual at a certain point. Like You

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Speaker 3: buy bonds when you're worried about growth and you don't

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Speaker 3: think there's going to be that much inflation. If you

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Speaker 3: think growth is fine and it's inflationary, well, you know,

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Speaker 3: it's cash or short term and a lot of stocks

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Speaker 3: or stocks, commodities, a little bit of cash. So it's

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Speaker 3: just like bonds are kind of the thing you make

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Speaker 3: the final decision on. So I would say the fact

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Speaker 3: that a lot of this is driven by real yields

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Speaker 3: might come back to a thing of like, How do

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Speaker 3: we get bonds to be more attractive relative to stocks?

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Speaker 3: And a lot of people will do your earnings yield

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Speaker 3: less the plain vanilla yield on bonds. You should probably

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Speaker 3: be doing it versus the real yield. Stock earnings are

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Speaker 3: more of a real stream of assets. So I think

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Speaker 3: in order to get bonds to be a more competitive

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Speaker 3: asset with stocks, you do need to see reals rising

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Speaker 3: and that a lot of the move is effectively saying like, hey,

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Speaker 3: I can't justify buying a 2% even real return, 3%

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Speaker 3: real return when.

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Speaker 3: This is what I think is on offer in AI.

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Speaker 3: So I think having it come through reels is part

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Speaker 3: of that story and part of why part of the

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Speaker 3: decision-making process in terms of how a cross asset investor

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Speaker 3: would be looking at bonds.

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Speaker 2: Or you go the financial repression route and just make

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Speaker 2: everyone hold bonds, right? That's like, that's an actual possibility.

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Speaker 1: Or we need to have a big national campaign to

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Speaker 1: to get people to stop spending money and to put

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Speaker 1: their money into AI bonds a la war bonds, right?

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Speaker 3: I mean, yeah, with people already putting some weight on

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Speaker 3: PDoom with not liking the noise from data centers and

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Speaker 3: their environment, I think what America needs right now is

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Speaker 3: to be told to spend less so that the AI

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Speaker 3: boom can more fully run its course. I'm not running

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Speaker 3: as a third party candidate and I'm also probably not allowed,

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Speaker 3: but that would be definitely my platform.

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Speaker 2: I would classify that under financial repression, but I'm sure

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Speaker 2: you see it differently.

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Speaker 1: It is a form of financial repression. Yeah, yeah, totally.

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Speaker 1: Just make it patriotic. This is actually a worrisome dynamic

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Speaker 1: to me in thinking about the economy, which is people

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Speaker 1: perceive that AI supremacy is going to be crucial for

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Speaker 1: national security, right? I believe this is a widely held

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Speaker 1: view in Washington, etc., If we actually then took that

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Speaker 1: idea seriously, we would be saying, yeah, we want to

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Speaker 1: depress the non-AI parts of the economy to free up

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Speaker 1: real resources for the build-out, et cetera. Clearly, no one

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Speaker 1: can say this or articulate this or say, we're going

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Speaker 1: to tax consumption of this. We're going to tax consumption

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Speaker 1: of boats, anything that could be stripped for its parts

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Speaker 1: to be put into a data center, et cetera. But-

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Speaker 1: if it is a matter of like existential national security,

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Speaker 1: that would be the way we would be doing policy.

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Speaker 2: Right.

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Speaker 3: Almost certainly. And then you have to go like with, man,

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Speaker 3: if I'm being told I can't still can't buy a

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Speaker 3: house because of the, that's, that's going to bother the

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Speaker 3: hell out of me. So I think there is, and

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Speaker 3: it's not like, and it's.

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Speaker 1: Not like the nuclear, the nuclear race where once a

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Speaker 1: country has achieved a bomb, it is then in the

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Speaker 1: club of nuclear powers. There's like, it's never ending because

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Speaker 1: it's like, there's no like reason to presume. It's like, Oh,

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Speaker 1: we got the capabilities here.

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Speaker 3: And when I, hear that, what I immediately think of is, damn,

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Speaker 3: we don't know how easy we had it, speaking as

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Speaker 3: a policymaker, back in the post-GFC era. There were no, like,

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Speaker 3: did trade-offs exist?

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Speaker 1: Did trade-offs do.

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Speaker 3: Not exist for an entire cycle? We still probably didn't

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Speaker 3: do it optimally, but pretty darn close. And now I

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Speaker 3: grew up hearing about how central banks- just by virtue

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Speaker 3: of saying inflation was going to be 2%, that was

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Speaker 3: one of the important factors that would help it be 2%

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Speaker 3: over time. I think now we're learning that that's junk that,

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Speaker 3: completely junk that. You got to prove it over time

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Speaker 3: or else you will be in a situation we are

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Speaker 3: right now where people really apparently don't like to hold bonds.

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Speaker 2: So Joe described this as a crazy market. I described

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Speaker 2: it as a weird market. Can you choose your one

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Speaker 2: word for describing the market? And then you're over at

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Speaker 2: Robinhood now. I'm sure you see some interesting retail investment

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Speaker 2: trends and color, and maybe a little bit of flow. Like,

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Speaker 2: what are you seeing at the moment?

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Speaker 3: Yeah. So if I had to summarize the cross asset,

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Speaker 3: how I see it, like last year ago was Tina.

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Speaker 3: And there is no alternative. Yes, there is no alternative.

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Speaker 3: This is too fast to fade both prices and earnings,

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Speaker 3: just moving too fast to fade. And speed is something

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Speaker 3: that I think has completely defined 2026. If you look

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Speaker 3: at the monthly change between semis and software, Those have

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Speaker 3: had some of its most four violent moves in either

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Speaker 3: direction this year alone. I remember when Silver was going crazy,

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Speaker 3: but that was this year. Absolutely nuts moves all over

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Speaker 3: the place. And to make this an AI thing, we

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Speaker 3: were being told AI compresses economic time. And I think

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Speaker 3: that was both because the power of the technology, the

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Speaker 3: need to be able to look forward and see what

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Speaker 3: has disrupted. And now because of agents who can work

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Speaker 3: when we're asleep. So this idea of a compression of

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Speaker 3: time and speed manifesting in the markets is really, really

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Speaker 3: what sticks out to me. And in terms of the

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Speaker 3: retail side, the trading I've seen, so I can describe

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Speaker 3: net single stock purchases at Robinhood. So the absolute peak

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Speaker 3: for that, the rolling 21 day peak happened right about

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Speaker 3: in late June, let's call it. So around Micron's earnings then,

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00:21:56,359 --> 00:21:59,460
Speaker 3: that was the overall peak. There was one before that

434
00:21:59,920 --> 00:22:05,100
Speaker 3: in early November 2025, which coincided roughly with a really

435
00:22:05,140 --> 00:22:07,780
Speaker 3: big spec asset peak, in my view, in October 2025.

436
00:22:07,760 --> 00:22:11,960
Speaker 3: That's still, in some senses, we haven't fully recovered from.

437
00:22:12,000 --> 00:22:14,940
Speaker 3: So a spec? A spec asset, like a lot of things,

438
00:22:14,960 --> 00:22:19,179
Speaker 3: like Palantir, Bitcoin, quantum stocks, so many of these things.

439
00:22:19,460 --> 00:22:20,360
Speaker 1: Yes, yes.

440
00:22:20,380 --> 00:22:22,939
Speaker 3: And even call option volumes in total, those peaked for

441
00:22:22,980 --> 00:22:25,199
Speaker 3: a while and rolled over. But that was a huge

442
00:22:25,340 --> 00:22:28,010
Speaker 3: spec top that we're still kind of clawing our way

443
00:22:28,050 --> 00:22:32,250
Speaker 3: back from in some senses. So there's that. And more recently,

444
00:22:32,310 --> 00:22:35,770
Speaker 3: what we've seen is supposed to be traditionally a slow month,

445
00:22:35,810 --> 00:22:40,969
Speaker 3: September for retail. It's really rebounded quite, quite strongly. September,

446
00:22:41,430 --> 00:22:44,910
Speaker 3: last numbers I have are about 89% of the peak

447
00:22:45,050 --> 00:22:48,040
Speaker 3: that we saw in June, we're back to. So it's

448
00:22:48,060 --> 00:22:49,540
Speaker 3: been a really strong month for buying.

449
00:22:49,560 --> 00:22:51,400
Speaker 2: It's because I went on vacation and spent a lot

450
00:22:51,420 --> 00:22:51,720
Speaker 2: of money.

451
00:22:51,920 --> 00:22:54,840
Speaker 3: And a lot of it's the names you would suspect.

452
00:22:54,920 --> 00:22:59,650
Speaker 3: It's your Microns, your SpaceXes, those lead it. But every

453
00:22:59,670 --> 00:23:02,050
Speaker 3: day when I look at this, There's a name in

454
00:23:02,070 --> 00:23:04,510
Speaker 3: the top 25. I consider myself someone who knows a

455
00:23:04,530 --> 00:23:06,330
Speaker 3: lot of tickers. There is a name that I do

456
00:23:06,369 --> 00:23:09,320
Speaker 3: not recognize and have to look up very often. It's fun.

457
00:23:09,410 --> 00:23:12,390
Speaker 3: It's a sign of how people look for volatility. People

458
00:23:12,430 --> 00:23:15,640
Speaker 3: look to get rich quick, look at options trading. Stock

459
00:23:15,680 --> 00:23:17,879
Speaker 3: market is a place where we go to express our

460
00:23:17,900 --> 00:23:20,760
Speaker 3: views about the long-term earnings power of corporate America. And

461
00:23:20,800 --> 00:23:22,479
Speaker 3: we do it with options with four days or less

462
00:23:22,500 --> 00:23:25,440
Speaker 3: to expiry. That's the story of the world we.

463
00:23:25,380 --> 00:23:25,800
Speaker 2: Live in now.

464
00:23:26,560 --> 00:23:31,210
Speaker 1: The October 2025 speculative assets boom it does not get

465
00:23:31,280 --> 00:23:33,619
Speaker 1: talked about that much, but it's fun. It's a good chart.

466
00:23:33,660 --> 00:23:36,740
Speaker 1: Like if you just pull up Bitcoin and Palantir, how

467
00:23:36,820 --> 00:23:42,080
Speaker 1: close their peaks were together around October, they both recently

468
00:23:42,140 --> 00:23:45,720
Speaker 1: sort of hit a low in June.

469
00:23:46,060 --> 00:23:46,460
Speaker 3: I'm sorry.

470
00:23:46,500 --> 00:23:50,409
Speaker 1: I saw it was six, but I love like, actually

471
00:23:50,990 --> 00:23:53,650
Speaker 1: I love the framing of speed because it seems very

472
00:23:53,850 --> 00:23:56,149
Speaker 1: relevant to even how I introduced this. And one of

473
00:23:56,170 --> 00:24:00,700
Speaker 1: the things that like the AI is, singularity type people

474
00:24:00,840 --> 00:24:04,800
Speaker 1: talk about, Kurzweil talked about, et cetera, is this notion

475
00:24:04,820 --> 00:24:08,900
Speaker 1: of like, okay, if you measure time by how long

476
00:24:08,940 --> 00:24:11,970
Speaker 1: it takes for the world, the earth to revolve around

477
00:24:12,010 --> 00:24:15,510
Speaker 1: the sun, that's like stable. If you measure time by

478
00:24:15,609 --> 00:24:17,670
Speaker 1: how long does it take for there to be a

479
00:24:17,750 --> 00:24:22,690
Speaker 1: headline worthy event, which is a different, legitimately different way

480
00:24:22,770 --> 00:24:26,720
Speaker 1: to measure time This is like extraordinary because, and it

481
00:24:26,760 --> 00:24:30,639
Speaker 1: goes to the intro, which is just the pace of

482
00:24:30,780 --> 00:24:34,720
Speaker 1: headline worthy events is just extraordinary. And then you see

483
00:24:34,740 --> 00:24:38,159
Speaker 1: it manifest. Therefore, then in the speed of the movements

484
00:24:38,240 --> 00:24:40,440
Speaker 1: of the, whatever underlying asset you're trading.

485
00:24:40,869 --> 00:24:41,030
Speaker 2: Yeah.

486
00:24:41,070 --> 00:24:43,770
Speaker 3: Spooze and blues should have been like all across my

487
00:24:43,790 --> 00:24:45,970
Speaker 3: Twitter feed yesterday. And it probably got drowned out within,

488
00:24:46,030 --> 00:24:47,890
Speaker 3: you know, a couple of minutes. That's for the uninitiated.

489
00:24:47,910 --> 00:24:51,229
Speaker 3: That's your David. Yeah. Old motto there back in the day.

490
00:24:51,680 --> 00:24:53,820
Speaker 2: Wait, is it headlines, though, or is there also an

491
00:24:53,880 --> 00:24:56,300
Speaker 2: element of market structure in here? Because the other thing

492
00:24:56,340 --> 00:24:58,800
Speaker 2: that's happened is we have a lot more pod shops

493
00:24:58,840 --> 00:25:01,159
Speaker 2: that are out there that seem to be affecting the

494
00:25:01,200 --> 00:25:04,210
Speaker 2: market and causing sharp swings. We have a lot more products.

495
00:25:04,250 --> 00:25:06,450
Speaker 2: We have a lot more zero day call options, things

496
00:25:06,510 --> 00:25:08,770
Speaker 2: like that. And this has been an ongoing trend in

497
00:25:08,790 --> 00:25:10,870
Speaker 2: the market for a while where we see the mean

498
00:25:10,930 --> 00:25:14,189
Speaker 2: reversals happening really, really fast now, much faster than they

499
00:25:14,310 --> 00:25:14,590
Speaker 2: used to.

500
00:25:15,270 --> 00:25:19,190
Speaker 3: I certainly think both the higher participation of retail, the

501
00:25:21,390 --> 00:25:23,649
Speaker 3: increased AUM, if you want to call it that, in

502
00:25:23,670 --> 00:25:28,130
Speaker 3: the pod shop models with tighter stops, even agentic trading,

503
00:25:28,190 --> 00:25:30,190
Speaker 3: which from what I can see so far seems to

504
00:25:30,230 --> 00:25:32,610
Speaker 3: be a little more Momo driven than most in terms

505
00:25:32,670 --> 00:25:35,110
Speaker 3: of the rules people will put in to do this. Yeah,

506
00:25:35,190 --> 00:25:38,389
Speaker 3: I think all of that and overlay the dispersion trade

507
00:25:38,410 --> 00:25:40,660
Speaker 3: on top of that, I think all of that does

508
00:25:40,700 --> 00:25:44,180
Speaker 3: contribute to an environment where you do get a lot

509
00:25:44,260 --> 00:25:47,310
Speaker 3: more single stock volatility and a lot less at the

510
00:25:47,369 --> 00:25:50,550
Speaker 3: index level. And that means even when markets are doing

511
00:25:50,690 --> 00:25:53,390
Speaker 3: absolutely nothing, it's the classic duck with its feet underwater

512
00:25:53,410 --> 00:25:55,870
Speaker 3: going crazy. We always have something to talk about even

513
00:25:55,890 --> 00:25:58,930
Speaker 3: when the stock market is completely aimless for months.

514
00:25:59,210 --> 00:26:01,550
Speaker 1: This reminds me, you know, I don't trade, but one

515
00:26:01,590 --> 00:26:04,190
Speaker 1: of the projects I sort of want to see how

516
00:26:04,369 --> 00:26:08,129
Speaker 1: easy it is to build now is like an agentic

517
00:26:08,230 --> 00:26:11,490
Speaker 1: trading bot and like paper trade on Kelsey or something.

518
00:26:11,609 --> 00:26:14,600
Speaker 1: And it like Go do a bunch of academic research,

519
00:26:15,220 --> 00:26:18,740
Speaker 1: find where people speculate that there might be mispricing, and

520
00:26:18,780 --> 00:26:22,780
Speaker 1: then create a systematic thing. Make no mistakes and go.

521
00:26:22,840 --> 00:26:25,520
Speaker 1: I've started to fiddle around with that, but I haven't

522
00:26:25,619 --> 00:26:28,159
Speaker 1: really done it. Do you see a lot of people

523
00:26:28,240 --> 00:26:30,130
Speaker 1: diving headlong into figuring this out?

524
00:26:30,810 --> 00:26:33,869
Speaker 3: I see a lot of people diving or tiptoeing, at least,

525
00:26:33,950 --> 00:26:36,290
Speaker 3: into setting it up. It's honestly something... I want to

526
00:26:36,310 --> 00:26:37,490
Speaker 3: look at a lot more because I think it has

527
00:26:37,530 --> 00:26:40,530
Speaker 3: some fun implications potentially for market structure. Like, hey, if

528
00:26:40,550 --> 00:26:44,010
Speaker 3: you've got an agent setting up rules for trading, does

529
00:26:44,030 --> 00:26:45,969
Speaker 3: that mean there's less orders, less stops out there? Does

530
00:26:45,990 --> 00:26:48,510
Speaker 3: that mean, what does that do to market visibility? That

531
00:26:48,570 --> 00:26:51,010
Speaker 3: kind of thing. So I'm interested in that and kind

532
00:26:51,030 --> 00:26:53,530
Speaker 3: of how that manifests. And I do need to, I think,

533
00:26:53,550 --> 00:26:55,800
Speaker 3: talk to more people that have their fingers on the button,

534
00:26:56,260 --> 00:26:58,180
Speaker 3: so to speak. But I really think it also has

535
00:26:58,460 --> 00:27:02,260
Speaker 3: the potential to, again, exacerbate volatility. It seems like basically

536
00:27:02,320 --> 00:27:05,760
Speaker 3: everything we've done and been moving towards has the potential

537
00:27:05,780 --> 00:27:07,119
Speaker 3: to exacerbate single day volatility.

538
00:27:23,320 --> 00:27:24,959
Speaker 2: Can I put you on the spot and ask you,

539
00:27:24,980 --> 00:27:27,720
Speaker 2: I guess, the question that everyone is wondering? Because a

540
00:27:27,740 --> 00:27:29,660
Speaker 2: lot of people will look at this market and say, like,

541
00:27:29,720 --> 00:27:32,540
Speaker 2: it does, in fact, look a little bit bubbly. It's, again,

542
00:27:32,720 --> 00:27:37,280
Speaker 2: weird that we've been able to shake off interest rate pressures,

543
00:27:37,760 --> 00:27:41,629
Speaker 2: a freaking war with Iran, all of that. What are

544
00:27:41,650 --> 00:27:43,930
Speaker 2: the sort of warning signs that you're looking out for

545
00:27:44,010 --> 00:27:48,609
Speaker 2: for a durable turnover, I guess, in stocks? You mentioned

546
00:27:48,670 --> 00:27:51,170
Speaker 2: breadth earlier, but again, like breadth can give a false

547
00:27:51,230 --> 00:27:53,679
Speaker 2: positive like we saw in 1998.

548
00:27:53,680 --> 00:27:56,020
Speaker 3: Yeah. Breath is not something that I would use as

549
00:27:56,040 --> 00:27:59,889
Speaker 3: like a sufficient or even necessary cause for this. I'm

550
00:27:59,910 --> 00:28:02,450
Speaker 3: very boring and I like to stick for what drives

551
00:28:02,470 --> 00:28:05,250
Speaker 3: stocks over the long term. Also kind of does help

552
00:28:05,290 --> 00:28:08,150
Speaker 3: drive them over the medium term and shorter term. It's earnings.

553
00:28:08,830 --> 00:28:12,130
Speaker 3: I took a look at recently. So what would happen

554
00:28:12,410 --> 00:28:15,620
Speaker 3: if you waited until S & P 500 earnings revisions

555
00:28:15,670 --> 00:28:17,820
Speaker 3: were 5% off their 52 week high? What if you

556
00:28:17,840 --> 00:28:20,920
Speaker 3: were like, And we all know analysts are notoriously late.

557
00:28:20,960 --> 00:28:24,260
Speaker 3: You've definitely missed the top. But how bad would that be?

558
00:28:24,340 --> 00:28:26,840
Speaker 3: How far off would that be? The only place where

559
00:28:26,859 --> 00:28:30,310
Speaker 3: you're really, really getting killed on that for the past

560
00:28:30,550 --> 00:28:33,510
Speaker 3: six or seven bear markets is COVID. Just because it

561
00:28:33,550 --> 00:28:35,649
Speaker 3: happened so fast and absolutely nobody had time and we

562
00:28:35,690 --> 00:28:38,570
Speaker 3: were already in the whole lockdown by the time it happened.

563
00:28:38,610 --> 00:28:41,340
Speaker 3: But pretty much every other time, if you held for

564
00:28:41,420 --> 00:28:45,320
Speaker 3: two years backwards even after the time that estimates have

565
00:28:45,340 --> 00:28:47,080
Speaker 3: been cut so you know you're arriving late to the

566
00:28:47,120 --> 00:28:49,440
Speaker 3: party admittedly most of the time you're still you know

567
00:28:49,500 --> 00:28:51,600
Speaker 3: looking at pretty healthy gains so my kind of thing

568
00:28:51,640 --> 00:28:54,840
Speaker 3: is hey if you've been invested you can probably afford

569
00:28:54,900 --> 00:28:57,200
Speaker 3: to wait for earnings to start to crack at the

570
00:28:57,270 --> 00:28:59,950
Speaker 3: index level and have some kind of warning signal you're

571
00:28:59,970 --> 00:29:02,390
Speaker 3: getting out yeah beyond that i think it's folks like

572
00:29:02,430 --> 00:29:05,690
Speaker 3: you who are keenly focused on the credit market and

573
00:29:05,710 --> 00:29:08,230
Speaker 3: some of the peculiarities happening there yeah that are going

574
00:29:08,250 --> 00:29:10,830
Speaker 3: to be i think in the best position to be

575
00:29:10,890 --> 00:29:13,580
Speaker 3: able to spot okay like When has this kind of

576
00:29:13,600 --> 00:29:16,940
Speaker 3: financial ingenuity gone too far? Because one of the things

577
00:29:17,000 --> 00:29:20,520
Speaker 3: that was high conviction for me was when hyperscalers went

578
00:29:20,560 --> 00:29:23,840
Speaker 3: negative FCF, okay, you have two choices right now. Either

579
00:29:23,880 --> 00:29:26,160
Speaker 3: the AI boom slows or the financing starts to get

580
00:29:26,180 --> 00:29:30,170
Speaker 3: more creative. The financing has gotten more creative. So at

581
00:29:30,190 --> 00:29:33,450
Speaker 3: a certain point, it's interesting to think about because when

582
00:29:33,470 --> 00:29:36,850
Speaker 3: you think about sources of profits right now, hyperscaler capex, obviously,

583
00:29:36,890 --> 00:29:39,489
Speaker 3: and more of that debt financed. And we do have

584
00:29:39,510 --> 00:29:42,840
Speaker 3: a big fiscal... deficit. So can you think of more

585
00:29:43,100 --> 00:29:46,420
Speaker 3: safe places to be sourcing your profits from than hyperscaler

586
00:29:46,440 --> 00:29:48,920
Speaker 3: debt and fiscal debt? That's pretty darn safe until it

587
00:29:48,960 --> 00:29:51,920
Speaker 3: isn't your classic kind of Minsky and formula there. So

588
00:29:51,960 --> 00:29:55,610
Speaker 3: that's one thing that honestly has me surprised that multiples

589
00:29:55,660 --> 00:29:58,590
Speaker 3: haven't even been more supported. Just the fact that this

590
00:29:58,610 --> 00:30:00,590
Speaker 3: debt comes from kind of safe places. Right.

591
00:30:00,810 --> 00:30:03,270
Speaker 1: Talk to us a little bit more about if you're

592
00:30:03,370 --> 00:30:07,230
Speaker 1: on the recipient end of hyperscaler spending, it almost feels

593
00:30:07,260 --> 00:30:10,180
Speaker 1: like a bond at this point, right? Not really, but

594
00:30:10,200 --> 00:30:12,060
Speaker 1: that's kind of what you're saying, which is like, these

595
00:30:12,120 --> 00:30:15,420
Speaker 1: are big structural things. It could be fairly predictable. On

596
00:30:15,460 --> 00:30:18,070
Speaker 1: the other hand, when you look at who some of

597
00:30:18,110 --> 00:30:21,370
Speaker 1: the recipients of this money are going to be, like

598
00:30:22,480 --> 00:30:25,260
Speaker 1: It's not literally the recipients of the CapEx money, but

599
00:30:25,420 --> 00:30:28,160
Speaker 1: kind of like CoreWeave CDS. How do you think about

600
00:30:28,770 --> 00:30:32,630
Speaker 1: credit angst among some of the AI players with the

601
00:30:32,690 --> 00:30:34,890
Speaker 1: assumption that AI spending is just going to keep going

602
00:30:34,910 --> 00:30:35,370
Speaker 1: through the moon?

603
00:30:35,870 --> 00:30:38,810
Speaker 3: Yeah, I think you can pretty closely map in a

604
00:30:38,850 --> 00:30:42,410
Speaker 3: lot of cases, just a straight up concern about the

605
00:30:42,710 --> 00:30:45,030
Speaker 3: level of debt and just look at your classic debt ratios.

606
00:30:45,130 --> 00:30:48,570
Speaker 3: And there's a reason why Oracle stands out versus all

607
00:30:48,590 --> 00:30:51,729
Speaker 3: the other major hyperscalers. on this and kind of use

608
00:30:51,750 --> 00:30:52,330
Speaker 3: that to fly.

609
00:30:52,370 --> 00:30:53,730
Speaker 1: What's the reason that they say that?

610
00:30:53,750 --> 00:30:57,860
Speaker 3: I would say just relatively more indebtedness than, than peers

611
00:30:57,990 --> 00:31:00,740
Speaker 3: or just like less credit worthiness to begin with. That's

612
00:31:00,760 --> 00:31:02,940
Speaker 3: why I think a big recent thing that's happened is

613
00:31:03,420 --> 00:31:08,800
Speaker 3: Nvidia trying to effectively credit wrap, make everyone the safest

614
00:31:08,980 --> 00:31:12,480
Speaker 3: AI borrower possible. But, but yeah, no, I do think it's,

615
00:31:12,720 --> 00:31:14,800
Speaker 3: I do think we live in a world where now

616
00:31:14,940 --> 00:31:19,820
Speaker 3: a lot of companies both aren't necessarily treated as unimpeachable

617
00:31:19,940 --> 00:31:23,580
Speaker 3: ai beneficiaries and also the the second derivatives turned we

618
00:31:23,620 --> 00:31:26,380
Speaker 3: are no longer pricing in the the fastest earnings revisions

619
00:31:26,440 --> 00:31:28,460
Speaker 3: across the board ever at some point you've got to

620
00:31:28,480 --> 00:31:31,250
Speaker 3: make the transition from hyper growth to growth at a

621
00:31:31,270 --> 00:31:34,310
Speaker 3: reasonable price and a lot of stocks post the q3

622
00:31:34,330 --> 00:31:37,210
Speaker 3: momentum road are still also trying to do that only

623
00:31:37,270 --> 00:31:40,750
Speaker 3: have two semiconductor companies that have made 52 week highs

624
00:31:40,770 --> 00:31:44,170
Speaker 3: in q3 only two amd and skyworks in the s.

625
00:31:44,080 --> 00:31:48,150
Speaker 4: & p 500 interesting crazy Speaking of like Oracle being different,

626
00:31:48,230 --> 00:31:50,150
Speaker 4: Greg Ip at the Wall Street Journal had a really

627
00:31:50,170 --> 00:31:53,490
Speaker 4: good tweet the other day observing the fact that, okay,

628
00:31:54,150 --> 00:31:57,770
Speaker 4: the one thing that makes the AI boom weird is

629
00:31:57,870 --> 00:32:01,250
Speaker 4: that it's not being financed by the fruits of the

630
00:32:01,450 --> 00:32:01,989
Speaker 4: AI boom, right?

631
00:32:02,030 --> 00:32:03,270
Speaker 3: So you have all these internet, right?

632
00:32:03,670 --> 00:32:05,950
Speaker 1: And so it's like the companies that are best positioned

633
00:32:05,970 --> 00:32:10,090
Speaker 1: to spend have their own money printers. Facebook has a

634
00:32:10,770 --> 00:32:16,760
Speaker 1: gigantically profitable businesses. Google has search, et cetera. Oracle is like, No,

635
00:32:16,800 --> 00:32:19,760
Speaker 1: I mean, nothing against Oracle. It's a good, successful company,

636
00:32:20,200 --> 00:32:23,760
Speaker 1: but it does not have that pure money spigot the

637
00:32:23,820 --> 00:32:28,230
Speaker 1: way the other hyperscalers had. And actually, right now, today,

638
00:32:28,250 --> 00:32:31,250
Speaker 1: we continue to see their CDS spike.

639
00:32:32,090 --> 00:32:36,590
Speaker 2: Speaking of financial engineering and cash spigots, there's a headline

640
00:32:36,950 --> 00:32:40,890
Speaker 2: that came across the terminal just as we started this conversation, Luke.

641
00:32:41,810 --> 00:32:44,670
Speaker 2: Slight tangent, but I think it's still relevant. Man City

642
00:32:44,750 --> 00:32:49,170
Speaker 2: inflated revenue cut costs by £ 900 million Premier League fines.

643
00:32:49,230 --> 00:32:50,590
Speaker 2: They're going to be sanctioned. We don't know what the

644
00:32:50,610 --> 00:32:55,100
Speaker 2: sanctions are just yet, but immediate reaction. Let's do sports.

645
00:32:55,320 --> 00:33:00,440
Speaker 3: Yeah, immediate reaction couldn't happen to a better man Manchester team. Hey,

646
00:33:00,540 --> 00:33:03,080
Speaker 3: you know... You're a Man U fan, right? Yes. Yeah,

647
00:33:03,100 --> 00:33:06,440
Speaker 3: so this is, you know, what is it, FAFO? I'll

648
00:33:06,460 --> 00:33:10,000
Speaker 3: keep it to that. And I'm very much hoping that

649
00:33:11,040 --> 00:33:14,460
Speaker 3: I will tolerate Arsenal retroactively getting trophies if it means

650
00:33:14,520 --> 00:33:17,880
Speaker 3: we can also retroactively get one as well. And that

651
00:33:17,900 --> 00:33:18,860
Speaker 3: takes a lot for me to say.

652
00:33:19,120 --> 00:33:21,620
Speaker 2: Joe thinks the Premier League is the bull case for Europe.

653
00:33:22,080 --> 00:33:25,980
Speaker 3: Oh, yeah. I loved those competing articles. I will not

654
00:33:26,120 --> 00:33:28,460
Speaker 3: say which one I enjoyed more. I love all my

655
00:33:28,660 --> 00:33:29,290
Speaker 3: parents equally.

656
00:33:30,120 --> 00:33:32,110
Speaker 1: You know our friend Guan?

657
00:33:32,230 --> 00:33:33,350
Speaker 2: Yeah.

658
00:33:33,470 --> 00:33:36,570
Speaker 1: He got me a gift. The Shenzhen Pang City Football Club.

659
00:33:36,610 --> 00:33:37,710
Speaker 1: He got me one of their jerseys.

660
00:33:37,730 --> 00:33:38,290
Speaker 3: What colors?

661
00:33:38,930 --> 00:33:41,670
Speaker 1: It's blue. They're owned by Man City. It's part of

662
00:33:41,690 --> 00:33:45,740
Speaker 1: the same corporation or something like that. There's some sort

663
00:33:45,760 --> 00:33:48,880
Speaker 1: of connection. Shenzhen Peng City FC is part of the

664
00:33:48,940 --> 00:33:53,750
Speaker 1: city football group network alongside Manchester City. And I think

665
00:33:53,910 --> 00:33:55,770
Speaker 1: like Manchester City.

666
00:33:55,830 --> 00:33:57,910
Speaker 3: What's the equivalent of the championship league over there?

667
00:33:58,210 --> 00:34:01,970
Speaker 1: I don't know. I want to learn more. Like every American,

668
00:34:02,090 --> 00:34:03,910
Speaker 1: first of all, their jerseys are the same color as

669
00:34:03,950 --> 00:34:07,600
Speaker 1: the Manchester City jerseys. But every American, you know, it's like, oh,

670
00:34:07,620 --> 00:34:09,850
Speaker 1: we get excited about the World Cup and then we

671
00:34:09,870 --> 00:34:12,410
Speaker 1: forget about soccer. Not me. Me and my son have

672
00:34:12,450 --> 00:34:17,130
Speaker 1: been watching the UEFA tournament that's happening right now. Spain

673
00:34:17,190 --> 00:34:20,430
Speaker 1: versus England was really good. Harry Kane missed a penalty kick.

674
00:34:20,710 --> 00:34:21,069
Speaker 3: Love that.

675
00:34:21,150 --> 00:34:24,620
Speaker 1: We saw the Netherlands versus Serbia game. So I am

676
00:34:24,719 --> 00:34:27,500
Speaker 1: not one of the Americans who just stops paying attention

677
00:34:27,580 --> 00:34:28,859
Speaker 1: to soccer when it ends.

678
00:34:28,980 --> 00:34:32,319
Speaker 3: I like that. You're the hipster American soccer fan. This

679
00:34:32,380 --> 00:34:33,460
Speaker 3: is very good.

680
00:34:33,780 --> 00:34:34,060
Speaker 1: No, hey.

681
00:34:34,840 --> 00:34:38,540
Speaker 3: What else are you supposed to do? Like in the

682
00:34:38,580 --> 00:34:41,640
Speaker 3: morning on the weekends, you have kids, so there's things

683
00:34:41,660 --> 00:34:42,960
Speaker 3: to do. But like, hey, for the rest of us,

684
00:34:43,300 --> 00:34:44,200
Speaker 3: what else is there to do?

685
00:34:44,260 --> 00:34:46,680
Speaker 2: Well, you never know. Also, maybe China football will become

686
00:34:46,739 --> 00:34:49,080
Speaker 2: a huge thing if the UAE can't spend money in

687
00:34:49,140 --> 00:34:49,840
Speaker 2: the UK anymore.

688
00:34:50,060 --> 00:34:50,339
Speaker 3: Oh, yeah.

689
00:34:50,420 --> 00:34:53,120
Speaker 1: I think it's going to be huge.

690
00:34:53,160 --> 00:34:55,299
Speaker 3: We're just putting Luke on the spot.

691
00:34:55,360 --> 00:34:58,070
Speaker 1: It's like, Luke, another football question.

692
00:34:58,140 --> 00:34:59,790
Speaker 3: If we're going to transition to a sport, I was

693
00:34:59,870 --> 00:35:01,169
Speaker 3: really hoping we'd go to hockey next.

694
00:35:01,969 --> 00:35:04,710
Speaker 1: To bring it back to markets for a second, There

695
00:35:04,730 --> 00:35:08,169
Speaker 1: was an interesting note in my inbox, Terry Wiseman over

696
00:35:08,250 --> 00:35:13,130
Speaker 1: at Macquarie. And he had pointed out that like, okay,

697
00:35:13,150 --> 00:35:16,730
Speaker 1: so we talk about these huge spending impulses, et cetera.

698
00:35:17,350 --> 00:35:20,300
Speaker 1: And the two big ones, obviously AI and then structural

699
00:35:20,340 --> 00:35:23,970
Speaker 1: government entitlements, et cetera, that keeps going up. And then

700
00:35:24,200 --> 00:35:27,000
Speaker 1: he points out though, that like wars are really expensive.

701
00:35:27,460 --> 00:35:30,660
Speaker 1: And so markets people look at the around war headlines.

702
00:35:30,840 --> 00:35:34,399
Speaker 1: It seems like mostly through the lens of the oil price, right?

703
00:35:34,760 --> 00:35:38,460
Speaker 1: To the extent that people trading their interest in the

704
00:35:38,500 --> 00:35:40,500
Speaker 1: Iran war is basically like, OK, when is this trade?

705
00:35:40,520 --> 00:35:41,939
Speaker 1: When is it going to open? What are the prices

706
00:35:41,960 --> 00:35:45,810
Speaker 1: of oil? Diesel spreads maybe. But he points out it's

707
00:35:45,830 --> 00:35:49,509
Speaker 1: like wars are very expensive. And he's like, is this

708
00:35:49,550 --> 00:35:53,330
Speaker 1: like this is a third driver of inflationary impulse that

709
00:35:53,370 --> 00:35:56,680
Speaker 1: doesn't get much attention. But defense spending rising for years

710
00:35:56,719 --> 00:35:57,339
Speaker 1: all around the world.

711
00:35:57,820 --> 00:36:03,590
Speaker 3: Yeah, wars are expensive, rearmaments expensive, trying to reshore and

712
00:36:03,610 --> 00:36:07,489
Speaker 3: build domestic capacity of semiconductors is expensive. Yeah, all of

713
00:36:07,550 --> 00:36:11,590
Speaker 3: this is really, really expensive. It is the defining feature

714
00:36:11,730 --> 00:36:14,709
Speaker 3: of this era, like how much we are willing to

715
00:36:14,830 --> 00:36:17,930
Speaker 3: kind of tolerate the side effects that are in our

716
00:36:17,969 --> 00:36:23,690
Speaker 3: face every day of policies that are definitely bottom line inflationary.

717
00:36:24,400 --> 00:36:27,940
Speaker 1: Anything else really stand out for you right now as

718
00:36:27,960 --> 00:36:29,360
Speaker 1: being kind of eye-opening in this market?

719
00:36:31,180 --> 00:36:33,640
Speaker 3: I don't have much else. The only thing, I do

720
00:36:33,680 --> 00:36:39,029
Speaker 3: think it is just borderline psycho that the idea that

721
00:36:39,550 --> 00:36:42,870
Speaker 3: European equal weight is closer to an all-time high than U.S.

722
00:36:42,930 --> 00:36:47,210
Speaker 3: equal weight when we're running around 6% nominal growth right

723
00:36:47,250 --> 00:36:52,340
Speaker 3: now in the U.S. absolutely boggles my mind that U.S.

724
00:36:52,360 --> 00:36:56,029
Speaker 3: consumer discretionary has become the new punching bag for the

725
00:36:56,050 --> 00:36:59,590
Speaker 3: market in a strong growth environment. In a quarter where

726
00:36:59,610 --> 00:37:03,850
Speaker 3: it's estimated to contribute, what, 2.8 percentage points to growth. Nuts, amazing.

727
00:37:04,370 --> 00:37:07,510
Speaker 1: I guess one question I have in addition to that is,

728
00:37:08,810 --> 00:37:11,030
Speaker 1: in a different era, there would have just been so

729
00:37:11,070 --> 00:37:15,120
Speaker 1: much more attention to how bad the housing market is.

730
00:37:15,400 --> 00:37:18,940
Speaker 1: It used to be housing was the business cycle. Well, A,

731
00:37:18,969 --> 00:37:21,890
Speaker 1: housing was the business cycle for multiple reasons. People spent

732
00:37:21,969 --> 00:37:24,600
Speaker 1: out of their home, equity, et cetera. Now we have

733
00:37:24,620 --> 00:37:28,240
Speaker 1: this miserable punk housing market, and it hardly seems to matter.

734
00:37:28,660 --> 00:37:32,460
Speaker 2: But now AI is the business cycle, which worries.

735
00:37:31,560 --> 00:37:34,420
Speaker 1: Me because you get the same dynamic. And this wealth

736
00:37:34,480 --> 00:37:39,330
Speaker 1: effect of people spending out of their stock market gains.

737
00:37:39,630 --> 00:37:43,390
Speaker 1: I'm just curious, your take on, I don't know, either

738
00:37:43,510 --> 00:37:45,770
Speaker 1: way you look at it, whether it's like The salience

739
00:37:45,810 --> 00:37:48,149
Speaker 1: of the stock market and the wealth effect, or just

740
00:37:48,250 --> 00:37:51,230
Speaker 1: the general market's lack of interest in housing these days.

741
00:37:51,590 --> 00:37:54,410
Speaker 3: Well, perfect timing, right? It wasn't an earlier this year

742
00:37:54,510 --> 00:37:58,529
Speaker 3: when Americans share wealth from stocks versus from housing also

743
00:37:58,590 --> 00:38:01,529
Speaker 3: crossed overs. Yeah, it is a, it does feel like

744
00:38:01,570 --> 00:38:03,620
Speaker 3: a seminal moment in that front. And when you think

745
00:38:03,640 --> 00:38:06,819
Speaker 3: about why housing was the business cycle, it's because you,

746
00:38:06,960 --> 00:38:10,660
Speaker 3: you had these spillover effects to consumption via HELOCs or

747
00:38:10,700 --> 00:38:13,759
Speaker 3: just via wealth effect. from that and also, you know,

748
00:38:13,800 --> 00:38:17,160
Speaker 3: spillovers from housing markets doing better, you're buying more consumer durables.

749
00:38:17,540 --> 00:38:19,719
Speaker 3: You can just take all of that and transfer it

750
00:38:19,760 --> 00:38:22,430
Speaker 3: over to AI, right? Like you can just take, that's

751
00:38:22,450 --> 00:38:24,169
Speaker 3: where the construction impulse comes from. That's where the wealth

752
00:38:24,250 --> 00:38:27,250
Speaker 3: impulse comes from. And as we've talked about, it's rivaling

753
00:38:27,290 --> 00:38:29,410
Speaker 3: or surpassing everything we've ever done in terms of the

754
00:38:29,450 --> 00:38:32,450
Speaker 3: CapEx boom in size. So do I think it lasts forever?

755
00:38:32,570 --> 00:38:32,730
Speaker 1: No.

756
00:38:32,750 --> 00:38:34,890
Speaker 3: Do I think it's kind of more of an anomaly

757
00:38:34,910 --> 00:38:35,669
Speaker 3: around now?

758
00:38:35,770 --> 00:38:36,130
Speaker 2: Certainly.

759
00:38:36,150 --> 00:38:39,190
Speaker 3: Because like at the end of the day, we're all

760
00:38:39,370 --> 00:38:42,310
Speaker 3: either businesses trying to make a profit or consumers trying

761
00:38:42,350 --> 00:38:44,649
Speaker 3: to buy something we like. All of this has to

762
00:38:44,790 --> 00:38:49,230
Speaker 3: eventually be good for somebody downstream at the end of

763
00:38:49,250 --> 00:38:51,930
Speaker 3: this or else there is no point to anything we're doing.

764
00:38:52,210 --> 00:38:54,720
Speaker 3: So there is no point to the profit if there's

765
00:38:54,760 --> 00:38:57,259
Speaker 3: no kind of consumer intent for it in the long

766
00:38:57,300 --> 00:38:59,150
Speaker 3: run and a consumer income to buy it.

767
00:38:59,620 --> 00:39:02,839
Speaker 2: Yeah, the circularity and the size is what starts to

768
00:39:02,880 --> 00:39:05,759
Speaker 2: worry you, I think. And when you hear that people

769
00:39:05,800 --> 00:39:09,140
Speaker 2: are using their stocks, their stock market gains to buy stuff,

770
00:39:09,540 --> 00:39:12,660
Speaker 2: which is helping the economy along, along with the AI

771
00:39:12,739 --> 00:39:16,310
Speaker 2: CapEx build out, and that's leading to stock gains and

772
00:39:16,830 --> 00:39:20,270
Speaker 2: relative economic growth. And then it just becomes very perpetual

773
00:39:20,270 --> 00:39:21,140
Speaker 2: motion machining.

774
00:39:21,140 --> 00:39:23,760
Speaker 1: Something that you've talked about for a long time that

775
00:39:23,760 --> 00:39:27,040
Speaker 1: I've started to think about is like this idea of

776
00:39:27,080 --> 00:39:30,239
Speaker 1: like something big is going to happen soon, right? And

777
00:39:30,260 --> 00:39:32,120
Speaker 1: that big could be, it's like, oh, maybe there was

778
00:39:32,140 --> 00:39:35,739
Speaker 1: like a major catastrophe like caused by a bot or whatever,

779
00:39:35,760 --> 00:39:39,129
Speaker 1: or sorry, an AI model, or there's something big could

780
00:39:39,170 --> 00:39:44,029
Speaker 1: be like Utopia and everyone, real weight, real wealth goes

781
00:39:44,110 --> 00:39:46,810
Speaker 1: up dramatically and things get a lot cheaper, et cetera.

782
00:39:47,190 --> 00:39:50,890
Speaker 1: Or there's something big could be a major reshuffling of

783
00:39:51,330 --> 00:39:54,270
Speaker 1: people's place in the labor market in some way. But

784
00:39:54,310 --> 00:39:59,489
Speaker 1: I'm curious whether like, okay, some thing that everyone just

785
00:39:59,510 --> 00:40:01,910
Speaker 1: sort of has out there is going to happen, whether

786
00:40:01,950 --> 00:40:04,410
Speaker 1: that leads to like a dip in the savings rate,

787
00:40:04,750 --> 00:40:09,739
Speaker 1: because it's like, well, like, This, you know, that's a

788
00:40:09,780 --> 00:40:10,399
Speaker 1: real thing yet.

789
00:40:10,700 --> 00:40:13,219
Speaker 3: It's the exact opposite of the, like, right. If you

790
00:40:13,280 --> 00:40:15,680
Speaker 3: fear nuclear war, then just buy stocks anyways, because if

791
00:40:15,719 --> 00:40:17,279
Speaker 3: it's in the price, I think now, like you could

792
00:40:17,340 --> 00:40:20,230
Speaker 3: reasonably argue the other side, like, Hey, if, If the

793
00:40:20,250 --> 00:40:23,529
Speaker 3: world's doomed in 10 years, why am I saving it all?

794
00:40:23,670 --> 00:40:24,830
Speaker 3: I find that fun and interesting.

795
00:40:24,850 --> 00:40:26,730
Speaker 1: Do you think that's a real thing yet?

796
00:40:27,110 --> 00:40:30,000
Speaker 3: I don't think if you're someone with children, you could

797
00:40:30,040 --> 00:40:35,320
Speaker 3: possibly countenance the, hey, I'm going to sacrifice future welfare

798
00:40:35,360 --> 00:40:37,490
Speaker 3: for that. So I don't think it's something that could

799
00:40:37,530 --> 00:40:41,910
Speaker 3: gain broad traction. But in terms of infecting people's minds,

800
00:40:41,969 --> 00:40:44,750
Speaker 3: I think we're kind of definitely already there.

801
00:40:45,330 --> 00:40:48,450
Speaker 2: If AI kills us all by setting off a nuclear weapon,

802
00:40:48,750 --> 00:40:50,569
Speaker 2: our portfolios will be on fire.

803
00:40:50,680 --> 00:40:53,130
Speaker 1: And you'll feel stupid for not having gone out to eat.

804
00:40:53,140 --> 00:40:56,700
Speaker 2: If AI doesn't kill us all, then our portfolios will

805
00:40:56,739 --> 00:40:57,560
Speaker 2: also be on fire.

806
00:40:58,400 --> 00:40:58,960
Speaker 1: That's a good one.

807
00:40:59,040 --> 00:41:01,299
Speaker 2: Thank you. I've tweeted that before, so I'm recycling my

808
00:41:01,360 --> 00:41:01,640
Speaker 2: own jokes.

809
00:41:01,660 --> 00:41:02,020
Speaker 1: That's fine.

810
00:41:02,060 --> 00:41:02,419
Speaker 3: That's fine.

811
00:41:02,680 --> 00:41:05,259
Speaker 1: Luke, that was a lot of fun. I love your framing.

812
00:41:05,820 --> 00:41:08,000
Speaker 1: Great stuff. Appreciate you coming back on Outbox.

813
00:41:08,540 --> 00:41:10,940
Speaker 3: Always a pleasure. Keep it up, guys. I love following

814
00:41:10,980 --> 00:41:11,719
Speaker 3: and reading what you guys do.

815
00:41:25,430 --> 00:41:28,330
Speaker 1: There's a lot of fun. We could talk to Luke

816
00:41:28,370 --> 00:41:31,649
Speaker 1: for hours. And I do think, you know, I went

817
00:41:31,690 --> 00:41:34,470
Speaker 1: into this episode, it's like, oh, there's a crazy market.

818
00:41:34,790 --> 00:41:38,569
Speaker 1: I love the speed characterization that Luke gave. I think

819
00:41:38,590 --> 00:41:39,290
Speaker 1: that's perfect.

820
00:41:39,510 --> 00:41:41,250
Speaker 2: No, I think that makes a lot of sense. And again,

821
00:41:41,410 --> 00:41:43,820
Speaker 2: in my mind, there's two things happening here, which is

822
00:41:44,340 --> 00:41:46,960
Speaker 2: you have a change in the actual structure and makeup

823
00:41:47,040 --> 00:41:49,240
Speaker 2: of the market. And you also have just the headlines

824
00:41:49,940 --> 00:41:52,819
Speaker 2: flying thick and fast. It's so hard to keep up.

825
00:41:52,900 --> 00:41:55,600
Speaker 2: And if you see one negative headline on a Monday,

826
00:41:55,739 --> 00:41:58,550
Speaker 2: chances are you might see a positive headline on a Tuesday.

827
00:41:58,969 --> 00:42:02,690
Speaker 2: Even if you don't believe the positive headlines, you know

828
00:42:02,750 --> 00:42:04,670
Speaker 2: the markets will react to them. And so you're just

829
00:42:04,690 --> 00:42:07,090
Speaker 2: sort of ping-ponging back and forth between the news flow.

830
00:42:07,250 --> 00:42:09,160
Speaker 1: I want to build something like where we just look.

831
00:42:09,340 --> 00:42:13,460
Speaker 1: The history of red headlines would be an interesting... chart

832
00:42:13,500 --> 00:42:16,140
Speaker 1: right yeah and it would be really curious to look

833
00:42:16,700 --> 00:42:19,160
Speaker 1: over trends about the pacing of them there's got to

834
00:42:19,180 --> 00:42:19,839
Speaker 1: be some way to do.

835
00:42:19,780 --> 00:42:21,950
Speaker 2: That one thing i'd be interested in it used to

836
00:42:21,969 --> 00:42:26,130
Speaker 2: be the case with early machine reading trading as we

837
00:42:26,210 --> 00:42:28,010
Speaker 2: used to call it no one calls it that anymore

838
00:42:28,370 --> 00:42:30,969
Speaker 2: that people would actually step away when there was a

839
00:42:30,989 --> 00:42:32,680
Speaker 2: big headline so there was a little bit of a

840
00:42:32,739 --> 00:42:36,299
Speaker 2: dip in liquidity because it took like a second for

841
00:42:36,320 --> 00:42:37,900
Speaker 2: a lot of the machines to read the news and

842
00:42:37,920 --> 00:42:40,549
Speaker 2: like figure out how to react I doubt that's the

843
00:42:40,590 --> 00:42:42,860
Speaker 2: case anymore. I would be very curious to see what

844
00:42:42,890 --> 00:42:46,239
Speaker 2: liquidity provision actually looks like around headlines. But I don't

845
00:42:46,280 --> 00:42:47,620
Speaker 2: know if anyone's done a study.

846
00:42:48,480 --> 00:42:51,299
Speaker 1: I worry about plenty of things.

847
00:42:52,060 --> 00:42:53,960
Speaker 2: Okay. Shall we leave it there?

848
00:42:54,060 --> 00:42:54,560
Speaker 1: Let's leave it there.

849
00:42:54,900 --> 00:42:56,989
Speaker 2: All right. This has been another episode of the All

850
00:42:57,010 --> 00:42:59,770
Speaker 2: Thoughts Podcast. I'm Traci Allaway. You can follow me at

851
00:42:59,910 --> 00:43:00,690
Speaker 2: Traci Allaway.

852
00:43:00,870 --> 00:43:03,710
Speaker 1: And I'm Joe Weisenthal. You can follow me at The Stalwart.

853
00:43:03,969 --> 00:43:07,200
Speaker 1: Follow our producers, Carmen Rodriguez at Carmen Armand, Dashiell Bennett

854
00:43:07,300 --> 00:43:10,460
Speaker 1: at Dashbot, Kale Brooks at Kale Brooks, and Kevin Lozano

855
00:43:10,680 --> 00:43:13,460
Speaker 1: at Kevin Lloyd Lozano. And follow our guest, Luke Kawa

856
00:43:13,700 --> 00:43:16,460
Speaker 1: at LJ Kawa. For more Odd Lots content, go to

857
00:43:16,480 --> 00:43:19,440
Speaker 1: Bloomberg.com slash Odd Lots. We have a daily newsletter on

858
00:43:19,580 --> 00:43:21,700
Speaker 1: all of our episodes. And you can chat about all

859
00:43:21,719 --> 00:43:26,259
Speaker 1: of these topics 24-7 in our Discord, Discord.gg slash Odd Lots.

860
00:43:26,640 --> 00:43:28,620
Speaker 2: And if you enjoy Odd Lots, if you like it

861
00:43:28,719 --> 00:43:31,390
Speaker 2: when we do these markets episodes, then please leave us

862
00:43:31,410 --> 00:43:34,720
Speaker 2: a positive review on your favorite podcast platform. And remember,

863
00:43:34,800 --> 00:43:37,310
Speaker 2: if you are a Bloomberg subscriber, you can listen to

864
00:43:37,469 --> 00:43:40,469
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865
00:43:40,510 --> 00:43:43,549
Speaker 2: do is find the Bloomberg channel on Apple Podcasts and

866
00:43:43,630 --> 00:43:46,130
Speaker 2: follow the instructions there. Thanks for listening.