Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
Speaker 1: my co host Matt Miller. Every business day we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moven news.
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Speaker 3: All right, so let's see if it matters to Fill Orlando,
Speaker 3: chief Equity strategis of It Federated Hermez joining us to
Speaker 3: talk about that. Feel so good to have you here
Speaker 3: on Bloomberg with Billy and myself. What is it that
Speaker 3: you find interesting and what are you seeing in terms
Speaker 3: of trends and flows right now?
Speaker 2: First of all, thank you very much for having me
Speaker 2: back on. We were expecting that the powerful rally that we
Speaker 2: saw in the equity market, largely driven by that you know,
Speaker 2: relatively narrow group of eight technology stocks in the first
Speaker 2: seven months of the year, that there was going to
Speaker 2: be a reversion of the mean. And you know, certainly
Speaker 2: the August, September, October time frame is as good as
Speaker 2: any for that to occur, and so we thought the
Speaker 2: pullback might take the s and p back down about
Speaker 2: the forty two hundred level, or so let's call it
Speaker 2: a ten twelve percent correction. A good chunk of that
Speaker 2: has happened, and certainly the backup and interest rates you know,
Speaker 2: benchmark tens going from you know, three and a half
Speaker 2: percent up into the four and a half percent neighborhood
Speaker 2: here over the last couple of months has facilitated that.
Speaker 2: The thing that I find really interesting when you talk
Speaker 2: about flows, and I'm going to throw in a little
Speaker 2: bit of amateur technical analysis here, is that our bond
Speaker 2: guys tell us that once the benchmark tens broke about
Speaker 2: the four thirty five level or thereabouts on yield, there
Speaker 2: really wasn't a lot of overhead resistance until you get
Speaker 2: up to a five handle. So it's interesting that you've,
Speaker 2: you know, you hear a lot of the you know
Speaker 2: experts and well known people in recent days talking about
Speaker 2: the fact that they wouldn't be surprised to see treasuries
Speaker 2: at five percent.
Speaker 4: For six or seven or well.
Speaker 2: I don't know that I'm willing to step in front
Speaker 2: of that freight train just yet, but certainly it's interesting
Speaker 2: that our duration committee is not adding to duration lengthening
Speaker 2: duration here, you know, with this big move up into
Speaker 2: the four and a half percent neighborhood, I sort of
Speaker 2: think they they're sort of seeing that a five percent
Speaker 2: number is reality, and let's let's cool our jets a
Speaker 2: little bit until we get a little bit better feel
Speaker 2: for what's going on.
Speaker 5: Yeah, And so, looking at some of the major averages
Speaker 5: so far this year, the equal weight to S and
Speaker 5: P five hundred is now actually read on the year.
Speaker 5: This is obviously the SMP still up eleven percent.
Speaker 6: Where are you putting money to work? And what do
Speaker 6: you make of that?
Speaker 5: Just given the magnificent seven for better or worse, is
Speaker 5: still holding major averages higher.
Speaker 2: Well, if you look at the perform of the equity
Speaker 2: market over the course of the last couple of months
Speaker 2: since this correction started, the growthier technology oriented names disproportionately
Speaker 2: are the ones that are giving up some of the games,
Speaker 2: and that makes perfect sense. The areas that we like,
Speaker 2: that we've liked have been the areas that were left
Speaker 2: for dead in the first seven months of the year.
Speaker 2: Domestic large cap value, smaller cap names, international names, stocks
Speaker 2: that have lower valuation profiles, higher dividend yield support and
Speaker 2: we see that rotation. So energy, for example, which has
Speaker 2: been one of our favorite categories. You couldn't give that
Speaker 2: stuff away in the first six months of the year.
Speaker 2: Now everyone loves energy. Well, you know, crude oil has
Speaker 2: also gone from the mid sixties into the low nineties
Speaker 2: over the last three or four months. Again based upon
Speaker 2: you know, technical analysis or momentum or whatever. Some folks
Speaker 2: are now saying, well, you know, crew's going to get
Speaker 2: to one hundred. The fundamentals Back in June, when crude
Speaker 2: was sitting at sixty five dollars a barrel told us
Speaker 2: that we could get to eighty or ninety. We're there
Speaker 2: probably earlier than we thought. And now we're starting to
Speaker 2: get some momentum that may take crude back up to park.
Speaker 4: Yeah.
Speaker 3: It's kind of interesting, right, and we do talk about
Speaker 3: that certainly at Bloomberg in terms of the energy price impact. Hey, Phil,
Speaker 3: thank you so much, really appreciate it. Fill Orlando Chief
Speaker 3: Acrety strategist of it Federated Urmes joining us with his
Speaker 3: market out look. I'm Carol Masser along with Bailey Lipshelt.
Speaker 3: You are listening and watching Bloomberg Markets on this Monday,
Speaker 3: and this is Bloomberg Radio.
Speaker 7: You're listening to the Team Ken's our line program Bloomberg
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg dot Com,
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Speaker 8: Nancy Curtin and partner of Global C the head of
Speaker 8: the investment advisory at out the TEDAM and Global, Thanks
Speaker 8: for being with us today.
Speaker 9: Get it.
Speaker 8: You heard the Jamie Downing there mentioned what I did.
Speaker 8: They could handle seven to eight percent rates the ten
Speaker 8: year at four sixty five. That would appear to be
Speaker 8: at least partially in the driver's sea for equities. What
Speaker 8: is your outlook for rates and the impact on the
Speaker 8: risk assets?
Speaker 10: Well, look, you know, near term we're a bit cautious here,
Speaker 10: and we said to clients at the end of July
Speaker 10: that trees don't grow into the skies. You know, after
Speaker 10: twenty percent total return of the S and P five hundred,
Speaker 10: we needed to pull back a correction of consolidation. Okay,
Speaker 10: but if we look at the fundamentals, the reason that
Speaker 10: we have near term caution is what I call sort
Speaker 10: of a litany of triple loows. You know, the first
Speaker 10: is the higher rates that Jamie mentioned and that you've
Speaker 10: mentioned in your program. These higher rates are coming at
Speaker 10: the long end that sets the cost of capital for companies.
Speaker 10: So that's going higher. In part maybe it's about a
Speaker 10: long term view on structural inflation. It's also about a
Speaker 10: rising term premium. I think investors getting to grips with
Speaker 10: the size of the fiscal deficits. So you know, higher
Speaker 10: interest costs for companies and borrowers. You also have higher
Speaker 10: oil and that's a tax on the consumer. And finally
Speaker 10: you have a higher dollar and dollars up about seven
Speaker 10: percent from the July low. So I put those three
Speaker 10: things together. I've got a higher cost of capital, I've
Speaker 10: got a tax on the consumer, and I've got global tightening.
Speaker 10: So we do expect growth to slow. Growth to slow
Speaker 10: in the United States in particular, but by the way,
Speaker 10: that's no bad thing. The third quart of the United
Speaker 10: States growth has been accelerating here. Whether the number comes
Speaker 10: in at three percent or three and a half or
Speaker 10: two point six, it's going to be higher than the
Speaker 10: second quarter. And we do think it's important that growth slows,
Speaker 10: and that's part of what has to happen here to.
Speaker 5: Down inflation and Nancy. All we talk about seemingly is
Speaker 5: the Magnificent seven driving major indexes higher. When we look
Speaker 5: at some of the steam coming off of those big
Speaker 5: technology companies, where are you looking to put money to
Speaker 5: work in terms of growth sectors, growth assets, whether it's
Speaker 5: in the US or outside.
Speaker 10: So, first of all, as I said, a notive caution
Speaker 10: here near term, although I wouldn't be at all surprised
Speaker 10: to see a year end rally. But let's go back
Speaker 10: to the fundamentals that I just mentioned. We need to
Speaker 10: get inflation lower. We think it will grind lower as
Speaker 10: we head into twenty twenty four. And remember, for our
Speaker 10: clients who are long term investors, we're not trying to
Speaker 10: trade in trade out of the market anyway. That's fools erin.
Speaker 10: As you know, you missed the best days and markets,
Speaker 10: you miss Allian's share of the return. But as we
Speaker 10: look forward to twenty twenty four, we think there's a
Speaker 10: possibility of a soft landing, which is to say, central
Speaker 10: banks are able to get inflation low enough that they
Speaker 10: can dial back on this tightening cycle, ease a bit
Speaker 10: of financial conditions, and that can lead the groundwork for
Speaker 10: a bit more of a cyclical recovery, other parts of
Speaker 10: the market and economy that haven't participated doing better. And
Speaker 10: so yes, while we have US large cap everyone does
Speaker 10: know the S and P five hundred and the Magnificent
Speaker 10: seven are such a large component of the index. But
Speaker 10: we also have diversification and things like MidCap rest of
Speaker 10: world areas that trade at a thirty to forty percent
Speaker 10: discount to US large cap, and we think these are
Speaker 10: the areas if we can get a cyclical recovery next year.
Speaker 10: We see market breadth widening in these the areas in
Speaker 10: particular that will participate and as they said, trade at
Speaker 10: much more attractive valuations.
Speaker 8: Nancy, welcome to the fourth quarter, the end of the
Speaker 8: earnings recession. I mean, comparison's going to be a lot
Speaker 8: easier going forward, right.
Speaker 10: Well, not only that, but look, as I just mentioned,
Speaker 10: the third quarter growth has been pretty strong here, so
Speaker 10: we wouldn't be at all surprised to see third quarter
Speaker 10: earnings come in above expectations. And by the way, the
Speaker 10: people that have been wrong have been the top down
Speaker 10: and the strategists. The people that have been right have
Speaker 10: been largely the bottom up analysts, And if you look
Speaker 10: at analyst expectations, you know, and if you just give
Speaker 10: their price gain times the index weight, you know. According
Speaker 10: to factset, most analysts bottom up are expecting a pretty
Speaker 10: decent recovery over the next year. Now, critical to earnings
Speaker 10: are critical to market is that we actually see some
Speaker 10: positive earnings growth. That's our view that we'll get it.
Speaker 10: Whether we get to forty six to forty next year
Speaker 10: or something less or more than that remains to be seen.
Speaker 10: But positive earnings growth is absolutely critical here because markets
Speaker 10: have moved higher on price, we now need earnings not
Speaker 10: just to beat, you know, do better, less downside, less
Speaker 10: negative actually produce that positive earnings growth. But that is
Speaker 10: our view. Again, it remains to be seen, and like
Speaker 10: everybody else, will be watching the data.
Speaker 5: And Nancy soft landing, is it possible? What are you
Speaker 5: expecting in terms of where the economy is going?
Speaker 10: So look, what is the definition of a soft line.
Speaker 10: It has like no formal economic definition, but basically it
Speaker 10: means if plation can come down without huge damage to
Speaker 10: the economy and out huge damage to the labor market.
Speaker 10: And we think that remains a possibility. Nobody can be
Speaker 10: sure here, but that is our view, and part of
Speaker 10: it is by the way, is we do think economic
Speaker 10: growth will slow. We think it needs to slow from
Speaker 10: the rather toward pace of the third quarter. But actually
Speaker 10: there are other parts of GDP that are kicking in here.
Speaker 10: KAPEC spend in the second quarter was up seven and
Speaker 10: a half percent. Trade is a positive contribution to GDP
Speaker 10: growth because we're bringing production back home again and that
Speaker 10: means where we're exporting more than we're importing. We think
Speaker 10: the government will remain broadly stimulative, just given the programs
Speaker 10: that have passed already. So while the consumer was slow,
Speaker 10: we think there are other parts of the economy that
Speaker 10: will kick in, and we do think there's a likely
Speaker 10: possible soft landing. Now they're very unusual in history. We'll
Speaker 10: only seem like two since the nineteen seventies. But both
Speaker 10: of those have also coincided with an increase in cap
Speaker 10: x span that I just mentioned and also innovation.
Speaker 8: Nancy, always a pleasure, appreciate it. Thanks for being with
Speaker 8: us on the program today. Nancy Kurtin, the chief investment
Speaker 8: Officer out the health of TETAM and global.
Speaker 7: You're listening to the tape. Ken's Are Live program Bloomberg
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the
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Speaker 8: Let's say hello to our next guest. We've got to
Speaker 8: get them seated first, and the higher edg chat. And
Speaker 8: we're also welcoming Bloomberg stand at Lauren in on this discussion.
Speaker 8: Our resident education expert here at Bloomberg, Reginald Derosius. As
Speaker 8: the president of Rice University. You know, I want to
Speaker 8: start out it was over the weekend that the student
Speaker 8: loan payments began. I wanted to get your take on
Speaker 8: that first off, after the pandemic induced delay that was
Speaker 8: initiated by the Biden administration.
Speaker 9: Yeah.
Speaker 11: So for Rice, as I mentioned a few times, we're
Speaker 11: no loan institution. We meet full need, and so at
Speaker 11: least from our perspective, we really work hard to make
Speaker 11: sure that we provide a full financial need for our
Speaker 11: students where need blind. As an admissions organization and so
Speaker 11: from our student body, it's not as much of an issue.
Speaker 11: I know it's an issue for many students. Across the
Speaker 11: country the issue of the loan repayment.
Speaker 8: Janet Lauren joining us in studio or education expert. I
Speaker 8: want to bring you into the discussion.
Speaker 12: So we were talking a little bit earlier about graduate loans.
Speaker 12: Later this year, perhaps next year, you're going to see
Speaker 12: the student loan portfolio of new loans are going to
Speaker 12: be mostly for graduate students instead of undergrads.
Speaker 6: Can you talk a little.
Speaker 12: Bit about graduate education and programs and how those are funded,
Speaker 12: especially by loans, and how some of your students, how
Speaker 12: are they doing in terms of income.
Speaker 11: Yeah, So we have a number of graduate programs at RICE,
Speaker 11: and particularly in the business and in the engineering side
Speaker 11: of things, data science, engineering and then business. One of
Speaker 11: the things we focused on recently is making sure in
Speaker 11: addition to the full time programs where students do have
Speaker 11: to stop work and in some cases take out a loan,
Speaker 11: we have programs now that are part time, that are online.
Speaker 11: We have a fifth year of the online MBA at RICE.
Speaker 11: Online program popular in large part to allow the flexibility
Speaker 11: for people to be able to continue to work while
Speaker 11: they do these programs online on their own time. And
Speaker 11: that's really helped with the affordability piece. And we have
Speaker 11: that both on the engineering and the management side and
Speaker 11: business side, and in both cases these students come out
Speaker 11: doing very well financially.
Speaker 12: And he was just telling us about a new program
Speaker 12: that was custom designed for students to work at Chevron
Speaker 12: where the employer pays. That's certainly the way to go
Speaker 12: if you can get someone else to pay for your
Speaker 12: master's degree. Can you tell us a little.
Speaker 4: Bit about that.
Speaker 11: Absolutely. So this was a program that we designed in
Speaker 11: concert with Chevron where they were very interested in taking
Speaker 11: their employees who didn't have a background in data science
Speaker 11: but needed to understand more about data science and AI.
Speaker 11: And we take around twenty five people per year through
Speaker 11: that program. We've crafted it specifically for people in that industry,
Speaker 11: and we really provide them with the skill sets to
Speaker 11: be data science within the context of what they're doing
Speaker 11: at Chevron. And we're looking to do more of that
Speaker 11: with the various indus trees that are in the city
Speaker 11: of Houston.
Speaker 8: You know, I got to answer about artificial intelligence. How
Speaker 8: is that impacting higher education? And I don't mean just
Speaker 8: like you know, looking at term papers and like, oh
Speaker 8: my god, where did this come from? Because you didn't
Speaker 8: write this kid right.
Speaker 11: So in many ways, I mean there's a research piece
Speaker 11: and then there's education piece. The research pieces, it's impacting
Speaker 11: just nearly every field that's there. Where you happen to
Speaker 11: be across the street from the largest medical center in
Speaker 11: the world, the Texas Medical Center, with many institutions and
Speaker 11: medical schools there, and their number one interest in working
Speaker 11: with RICE is around AI and data science because they
Speaker 11: know it's rapidly transforming that those industries into healthcare.
Speaker 6: Similarly, the energy.
Speaker 11: Industry is being transformed through AI and data science, and
Speaker 11: so we're forming a lot more partnerships and we're seeing
Speaker 11: how research in that space is really transforming nearly every industry.
Speaker 11: And so we're really focused on making sure we build
Speaker 11: our faculty with that expertise so that we can be
Speaker 11: a major player in some of the research that's taken
Speaker 11: place in the city of Houston and around the world.
Speaker 11: On the education side, clearly we hatch YOUTP and other
Speaker 11: tools like that. Our approach has been to understand that
Speaker 11: it's here and make sure that we craft our assignments
Speaker 11: and our exams with the understanding that students have access
Speaker 11: to this. And now we're even asking our faculty to
Speaker 11: on their syllabus, to ask the students whether or not
Speaker 11: they're using it for then assignment, just to understand whether
Speaker 11: or not they're they're going to use it and make
Speaker 11: sure you keep that in mind as you're reviewing the assignment.
Speaker 5: And given the shift that we've seen with a number
Speaker 5: of companies moving to Texas, how does that position or
Speaker 5: better position RICE graduates to be better set up for
Speaker 5: careers after college.
Speaker 11: Very well, both at the undergraduate level, We've always worked
Speaker 11: hard to prepare our students to be able to work
Speaker 11: in a variety of industries. Replace our students very well.
Speaker 11: Our students are very well regarded. We have a robust,
Speaker 11: rigorous undergraduate education that's a good mix of both technical
Speaker 11: training as well as a broad based liberal arts education.
Speaker 11: So we've done a great job at the undergraduate level
Speaker 11: preparing our students. What was mentioning earlier, Janet was mentioning
Speaker 11: is one of the things we're focused on now is
Speaker 11: how do we grow more graduate programs that help with
Speaker 11: the upskilling that's needed for all the industries in the
Speaker 11: city of Houston. And that's why we're growing more of
Speaker 11: these professional master's programs and engineering in the Business School
Speaker 11: and other areas where we know there's a major need
Speaker 11: in the city of Houston.
Speaker 8: Are there enough student visas to go around? And I
Speaker 8: wonder if you could weigh in on that.
Speaker 11: Yeah, we particularly at the gradual level, in particular at
Speaker 11: the doctoral level, many of our doctoral students are are
Speaker 11: foreign students, and we've been challenged. I think many universities
Speaker 11: are challenged every year with the ability to get students
Speaker 11: in the timely fashion, getting their visas in the timely fashion,
Speaker 11: to be able to come here and do their doctoral work.
Speaker 11: It's mostly really at the doctoral level. We have a
Speaker 11: large number of foreign students. About half of our PhD
Speaker 11: students are from outside the US, and that's that's something
Speaker 11: that's been a challenge for us, and I think many
Speaker 11: of my peer peer institutions.
Speaker 8: Let me just reintroduce everyone here, Reginald Derocious, the president
Speaker 8: of Rice the University, discussing higher education, among other things.
Speaker 8: Janet Lauren from Bloomberg News or education expert. I'm John
Speaker 8: Tucker along with Bailly Lipschultz. You want to weigh in again.
Speaker 12: Yeah, we were talking a little bit when we were
Speaker 12: meeting with reporters and editors about attracting faculty you're growing
Speaker 12: not only your student body but your faculty. Can you talk,
Speaker 12: Is it a challenge to get people to want to
Speaker 12: move to Texas, especially if they're coming from the coasts.
Speaker 11: So yeah, so we are growing. We're adding two hundred
Speaker 11: faculty for university of all size. It's pretty sign significant.
Speaker 11: We have about seven hundred faculty currently at Rice, and
Speaker 11: we're growing undergraduate student body by twenty percent. You know,
Speaker 11: we find that if we can get people to Texas,
Speaker 11: we can get people to Houston and they can see
Speaker 11: how cosmopolitan it is, how diverse it is, the rich culture, museum,
Speaker 11: the museum, culture and music culture that we do well
Speaker 11: in recruiting people, and so we've been able to so
Speaker 11: far to exceptionally talented group of faculty to Rice. We're
Speaker 11: really pleased with that and we will continue to work hard.
Speaker 11: The main thing is to get them there. Hopefully not
Speaker 11: during the summer when it's one hundred and four degrees
Speaker 11: as it was most of the summer, but we get
Speaker 11: them a nice time of the year and they really
Speaker 11: are surprised as to how diverse and cosmopolitan and what
Speaker 11: a great city it is.
Speaker 8: The research that you do does that then generate business
Speaker 8: that the university and the researchers can then capitalize on.
Speaker 11: Absolutely it does. And one of our big focuses moving
Speaker 11: forward as a university is helping to accelerate that. And
Speaker 11: so we've created when I became President and Office of
Speaker 11: Innovation and Commercialization with the sole purpose of helping our
Speaker 11: faculty in concert in some cases with industry, to commercialize
Speaker 11: their research and have new startups in the Houston area.
Speaker 11: And we have a new innovation district about a mile
Speaker 11: and a half from campus, is called the Ion District,
Speaker 11: with the sole purposes around fourteen acres of land right
Speaker 11: between Rice and downtown, with the sole purpose of industry
Speaker 11: to create more startups in the high tech area of
Speaker 11: in Houston.
Speaker 8: Does any of that conflict and wonder your thoughts on
Speaker 8: that conflict with the idea behind research in the first place.
Speaker 6: It doesn't conflict.
Speaker 11: It's fact it's synergistic. And increasingly now it used to
Speaker 11: be people recruiting faculty to universities they're really interested in
Speaker 11: the lab space more importantly in the graduate student quality,
Speaker 11: but now they also want to know what resources do
Speaker 11: you have to help them start a business or start
Speaker 11: a company from their research. It's becoming a part of
Speaker 11: what universities do on the research side, absolutely, and we
Speaker 11: want to make sure that we are equipped to help
Speaker 11: out faculty who have the interest in doing that. Not
Speaker 11: all disciplines do that, not all faculty have that interest,
Speaker 11: but those that do, we want to put the infrastructure
Speaker 11: there for them to be able to do that.
Speaker 12: And then do you often help them, you know, with
Speaker 12: patents and then and then licenses. We do companies.
Speaker 11: We have an entire office that does that and increasingly
Speaker 11: now we have we've uh, we have some seed funding
Speaker 11: for them who want for the faculty who want to
Speaker 11: start a company, just allow them to get off campus,
Speaker 11: have space somewhere else off campus, because you really can't
Speaker 11: do that on campus. And we have new seed grant
Speaker 11: program that allow them to do that.
Speaker 12: And then if there are innovations that are licensed, the
Speaker 12: university keep some of that revenue.
Speaker 6: They do.
Speaker 11: There's always a split, and sometimes we negotiated abortion goals
Speaker 11: to the university, a portion goals to the founder of
Speaker 11: the company and his or her partners, and.
Speaker 12: That's often coming from government research grants.
Speaker 11: In some cases it's coming from government grants, in some
Speaker 11: cases it might be coming from private industry. Grants and
Speaker 11: there are different contracts depending on where it's coming from.
Speaker 12: So another potential revenue source.
Speaker 6: It is, it is.
Speaker 11: It takes the time sometimes to develop that, but absolutely
Speaker 11: it is.
Speaker 12: That comes to mind Lyrica at Northwestern.
Speaker 11: Erica, Northwest and there are a few of them obviously,
Speaker 11: Google at Stanford and many others like that.
Speaker 8: How the el's doing.
Speaker 11: They're doing well, We're three and two. We had a
Speaker 11: big win earlier this year against our partner down the street,
Speaker 11: University Houston, for time in thirteen years that we beat them.
Speaker 11: And we're excited about being in a new conference, American
Speaker 11: Athletic Conference.
Speaker 8: And will you explain to me how this is all working,
Speaker 8: because it's a complete mystery college sports at this.
Speaker 9: Point, you know.
Speaker 8: I mean, if you're in California, you know, on the
Speaker 8: lacrosse team, you now have to get on a plane
Speaker 8: to play on the East coast.
Speaker 6: Or yeah, Syracuse, right, I mean that really.
Speaker 8: Imporacts a student's ability to then it.
Speaker 11: Does, No, it does. I think a lot of us
Speaker 11: are concerned about the conference realignment. My daughter was a
Speaker 11: student athlete at Rice. She was on a soccer team.
Speaker 11: She just graduated in May.
Speaker 12: Congratulations, thank you, and I.
Speaker 11: Saw the work, the hard work that she did, traveling
Speaker 11: around the country to play games and coming back late
Speaker 11: at night and having to study for an exam the
Speaker 11: next day. So I think there's a lot of concern
Speaker 11: about the conference realignment. I'm a big proponent of intercollegiate athletics.
Speaker 11: I think it's an important part of a university. I
Speaker 11: think the student athletes at Rice are incredible people to
Speaker 11: be able to balance competing at the highest level with
Speaker 11: the academics produce as leaders, and we will continue to
Speaker 11: support them despite some of the challenges that that we're
Speaker 11: facing right now in the industry.
Speaker 8: That was a fascinating discussion. Good to see you, nice
Speaker 8: to meet you, Thanks for sing thank you to you
Speaker 8: than you appreciate it. And Janet, you too. Reginald de Rosius,
Speaker 8: the President of Rice University and Bloomberg News Higher Education
Speaker 8: reporter Janet Lauren.
Speaker 7: You're listening to the Team Can't Live program Bloomberg Markets
Speaker 7: weekdays at ten am Eastern on Bloomberg dot Com, the
Speaker 7: iHeartRadio app, and the Bloomberg Business App, or listen on
Speaker 7: demand wherever you get your podcast.
Speaker 8: With that in the background. Our next guest, Matt Stuckey
Speaker 8: to senior portfolio manager at Northwestern Mutual with your market
Speaker 8: outlook and expectations to what extent are rates in the
Speaker 8: driver's seat and do you have an adequate explanation for us?
Speaker 13: Yeah, those are all really important points, and we do
Speaker 13: think rates are ultimately going to be the driver of
Speaker 13: the outcome of this FED tidening cycle, which from our perspective,
Speaker 13: is of recession, the timing of which we think is uncertain.
Speaker 13: I think that we've been surprised with resiliency that we've
Speaker 13: seen from the economy throughout twenty twenty three, especially within
Speaker 13: the labor markets. But I think anytime we look at
Speaker 13: FED tightening cycles since World War Two, ten out of
Speaker 13: thirteen of those cycles have resulted in a recession, and
Speaker 13: the three that did not did not end up there
Speaker 13: and resulted in a soft landing. The FED was not
Speaker 13: in inflation hiding mode and they certainly are today. So
Speaker 13: you know, we think the outlook is fairly is fairly
Speaker 13: kind of headed towards you know, the recession camp. However,
Speaker 13: you know, the timing of which is uncertain. So ultimately,
Speaker 13: the tightening of monetary policy conditions in the form of
Speaker 13: rates are likely going to be the driver of the
Speaker 13: en macro result.
Speaker 5: Yeah, but it does feel like we've been talking about
Speaker 5: a potential recession for quite some time. With that call,
Speaker 5: I guess, kind of what are we ignoring or what's
Speaker 5: different this time than it had been for really the
Speaker 5: past year.
Speaker 13: Well, I think the big difference is going to be
Speaker 13: just the passage of time, and let me kind of
Speaker 13: explain what that will explain what that means. You know,
Speaker 13: if we look back to twenty twenty, what happened, We
Speaker 13: had such a big refinancing opportunity for individuals as well
Speaker 13: as companies in terms of kind of what the balance
Speaker 13: you look like. Unfortunately that you know, you're you're deferring
Speaker 13: kind of those those larger interest pains out into the future.
Speaker 13: But as companies have to come back and refinance those issues,
Speaker 13: you know, it does start to dig into growth outlooks.
Speaker 13: And I think you're actually seeing a case study on
Speaker 13: this in the utility sector right now. Look at next
Speaker 13: Steir Energy as an example of kind of reducing forward
Speaker 13: growth as a result of the higher interest rate environment.
Speaker 13: It just essentially costs more to fund the projects that
Speaker 13: they need to grow, and you know, that's just a
Speaker 13: case study for what's likely to unfold the higher the
Speaker 13: longer that rate state and it's kind of higher rate environment.
Speaker 8: Is it the defensive shares that we need to focus
Speaker 8: on now?
Speaker 13: Well, ultimately, defensive parts of the market you are going
Speaker 13: to have their time to shine in terms of the
Speaker 13: market cycle. But certainly defensive parts of the market that
Speaker 13: are rate sensitive, like utilities, are feeling the pain right now.
Speaker 5: And I know you called out wages being something you're
Speaker 5: keeping an eye on and think that you know it
Speaker 5: is going to have kind of a higher impact on
Speaker 5: what lies ahead.
Speaker 6: What's the thinking behind that? Why are you focused on wages?
Speaker 13: Well, ultimately we think wages are kind of the last
Speaker 13: kind of standing component of the inflation equation that the
Speaker 13: FED is fighting against. We have a hard time seeing
Speaker 13: and I think the FED likely would agree with this,
Speaker 13: that you know, for sustainable move lower to the fedes
Speaker 13: two percent goal, wages have to be a part of
Speaker 13: a part of that picture and age environment of four
Speaker 13: and a half percent year in the ear, even though
Speaker 13: it's it's falling and kind of getting down underneath, the
Speaker 13: Fed's kind of four percent tolerance level still is not
Speaker 13: going to cut it as it relates to kind of
Speaker 13: the services component of the inflation equation. You know, John
Speaker 13: Williams talked about this in a Bloomberg interview a week
Speaker 13: or two ago and talked about a three point two
Speaker 13: to three point five percent wage rate that's kind of
Speaker 13: being necessary for the Fed hitting their two percent goal.
Speaker 13: We're a ways from that today. And if you look
Speaker 13: through history, you sustainable moves move lower moves lower in
Speaker 13: wages typically only happen, you know, when when recessions occur.
Speaker 13: So we think that ultimately, what's likely to take place
Speaker 13: again this cycle?
Speaker 8: Where is the team allocating assets at this point?
Speaker 13: You know, we've taken our time over the last couple
Speaker 13: of years leaning into you know, upward moves and rates,
Speaker 13: and you know, this leg up in rates over the
Speaker 13: last three months has been no eccepstion'. We've recently, for
Speaker 13: the first time in the last seven years, been over
Speaker 13: We just moved to an overweight position in fixed income.
Speaker 13: But that's been you know, a two to three year
Speaker 13: process for our team. You know, we do like the
Speaker 13: real interest rate environment that we're getting as fixed income investors.
Speaker 13: You know, real rates on the tenure are you know,
Speaker 13: above two point three percent that's the highest that we've
Speaker 13: seen since two thousand and seven. We think that there's
Speaker 13: multiple ways for individual investors to have an advantaced position here.
Speaker 13: You know, either through a recessionary outcome where the FED
Speaker 13: responds with lower real interest rates, or if inflation does
Speaker 13: continue to move lower, you know, those real rates are
Speaker 13: still attractive in an your environment.
Speaker 8: Hey, how tough has your job become? I mean, do
Speaker 8: you have customers saying, look, Matt, I can you know,
Speaker 8: stick money in a Marcus account and have absolutely no
Speaker 8: fees associated with that and still get a pretty decent
Speaker 8: return on my money or even you know, a short
Speaker 8: term treasuries bills.
Speaker 13: Yeah, that's a common conversation we're having, and not so
Speaker 13: much in terms of, you know, whether or not it
Speaker 13: makes sense to have a more diversified portfolio, but more
Speaker 13: within the conversation about how should we be allocating within
Speaker 13: fixed income. You know, it's really comfortable to sit in
Speaker 13: the front end of the curve not deal with any
Speaker 13: volatilities it relates to movements and rates, or movements and
Speaker 13: credit spreads. But we do think that duration is a
Speaker 13: wonderful diversification tool in one's investment portfolio, particularly just because
Speaker 13: of the refinancing risk. You know, certainly it was comfortable
Speaker 13: to sit in the front end of the curve in
Speaker 13: two thousand and six, two thousand and seven. However, you
Speaker 13: know when you went to kind of go back if
Speaker 13: you were sitting into your notes as an example, and
Speaker 13: buy those again come two thousand and nine, it was
Speaker 13: a very very painful conversation saying, yeah, those five percent
Speaker 13: rates are gone. You know, you have to lock those
Speaker 13: in over longer periods of time to have that kind
Speaker 13: of a great diversification asset within one's investment portfolio. So
Speaker 13: the conversation is more about diversification and kind of walking in,
Speaker 13: you know, truly locking in higher for longer within your portfolio,
Speaker 13: versus just avoiding volatility at all costs.
Speaker 5: Matt, we had Jamie Diamond say, when asked if rates
Speaker 5: can go to seven percent, the answer is yes.
Speaker 6: Is that something you agree with?
Speaker 5: And where are you going to be putting money to
Speaker 5: work if we see rates getting into the seven percent range, Well, I.
Speaker 13: Think it's possible in financial markets. You know, I think
Speaker 13: that's probably more of a tail risk scenario. But you know,
Speaker 13: if if we do see that happen, I think we
Speaker 13: would be aggressive buyers of just pure rate. In that environment,
Speaker 13: we would avoid credit.
Speaker 8: Welcome to the fourth quarter, By the way, what the
Speaker 8: comparison's got to be a lot easier. But what's what's
Speaker 8: your expectation as we move forward on the earnings front?
Speaker 13: You know, the earnings inside of the picture I think
Speaker 13: is a tough one to figure out right here. You know,
Speaker 13: we've been in a decelerating, rined growth environment. We dipped
Speaker 13: into negative territory in twenty twenty three. But as you
Speaker 13: look into what's King of baked in in terms of
Speaker 13: consensus expectations for the fourth quarter and especially into the
Speaker 13: front half of twenty twenty four, there's a natural acceleration
Speaker 13: of earnings growth kind of coming back into the s
Speaker 13: and P five hundred, you know, kind of capping off
Speaker 13: with a second quarter of twenty twenty four calling for
Speaker 13: double digit earnence growth. You know, I kind of scratched
Speaker 13: my head at that number. You know, that would be
Speaker 13: one of the kind of kin of abnormal abnormal situations
Speaker 13: that I've ever seen, where the economy naturally re accelerates
Speaker 13: in the face of significant monetary policy tightening. I guess
Speaker 13: it's possible, but for me, I think I'm skeptical, and
Speaker 13: you know, to me, I think it's kind of more
Speaker 13: of the same what we've se been seeing late lately,
Speaker 13: where companies are going to continue to try and put
Speaker 13: price down on consumers and consumers are pushing back with
Speaker 13: kind of unit volume declines for a lot of companies.
Speaker 13: So yeah, I question how long that dynamic can persist.
Speaker 13: Certainly the consensus is calling for that as we pushed
Speaker 13: into twenty twenty four, but you know, we're cautious with that,
Speaker 13: with that consensus estimate, and so it's another reason why
Speaker 13: we prefer fixed income over traditional equities at the margin.
Speaker 8: Here, Matt, A pleasure, appreciate it. Matt Stuckey, Senior portfolio
Speaker 8: manager at Northwestern Mutual.
Speaker 7: You're listening to the tape Can's our live program, Bloomberg
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Speaker 8: President Biden urging house speaker McCarthy to follow up quickly
Speaker 8: with funding for Ukraine this comes just hours they up
Speaker 8: to Congress pants that spending bill without funding for Ukraine,
Speaker 8: and we say hello to our next guest, ed Price,
Speaker 8: a senior fellow at NYU and a principal at ERKO
Speaker 8: joining us. Now, how is this being received?
Speaker 14: Well, personally, I think it's insane. You know, remember when
Speaker 14: I was growing up, the Russians were going to kill
Speaker 14: us at the drop of a hat, and now we
Speaker 14: seem to have an opportunity to kill bad guys with
Speaker 14: pennies on the dollar and we don't want to do it.
Speaker 14: I mean, does that strike you guys as normal? I
Speaker 14: mean I thought the Republicans at least used to be
Speaker 14: into that sort of thing.
Speaker 8: Yeah, And at this point, what is your outlook in
Speaker 8: terms of whether or not this is actually to get
Speaker 8: reintroduced and there will be funding for Ukraine?
Speaker 14: I think it has to be. I think that if
Speaker 14: the Democrats, if the Biden administration were to come to
Speaker 14: any sort of deal with the House Republicans that did
Speaker 14: not include funding for Ukraine, they have to give up
Speaker 14: their entire democracies versus autocracies foreign policy. Then that's basically
Speaker 14: the Biden doctrine, I would argue, So they have to
Speaker 14: do it. But again I'm a bit surprised and slightly dismayed,
Speaker 14: if I'm being honest with you.
Speaker 8: You just recently wrote a paper just to switch gears
Speaker 8: for a moment. Forget about the bricks, what about the VIPs.
Speaker 8: First of all, we have to, with the apologies to
Speaker 8: Jim O'Neill, you and Neil explain what the bricks are
Speaker 8: and how they've been replaced by the VIPs.
Speaker 14: So Jim O'Neil, in his genius about twenty years ago,
Speaker 14: came up with this very famous acronym brick, which was Brazil, Russia, India,
Speaker 14: and China. Later South Africa joined in to make the bricks.
Speaker 14: And his argument was, well, if you look at long
Speaker 14: term GDP trends in those countries, eventually they will take
Speaker 14: over the so called West. That's kind of happening, which
Speaker 14: is great in my bid for acronym fame. The other
Speaker 14: day I said, well, hold on the second, the bricks
Speaker 14: are a thing. We know about the bricks. What about
Speaker 14: the VIPs. Vietnam, India, the Philippines, Saudi Arabia. These are
Speaker 14: the countries Uncle Sam really needs to get on board
Speaker 14: if he wants to win the twenty first century.
Speaker 8: Alright, let's start with Vietnam, because I will argue that Vietnam,
Speaker 8: once an enemy of the United States, is now one
Speaker 8: of our best friends in the region.
Speaker 14: That's true. I mean, I would argue that Vietnam is
Speaker 14: never our enemy. If we're thinking about South Vietnam, the
Speaker 14: country as was, and it was actually the communist north. Right,
Speaker 14: Maybe that's nitpicking that was the enemy, but that actually
Speaker 14: makes your point even better because now the communists in
Speaker 14: Hanoi are friends with Uncle Sam. So you might say, Look,
Speaker 14: Vietnam is a slam dunk, but it is still nominally
Speaker 14: a communist country. They've seriously got beef with China, but
Speaker 14: that doesn't necessarily mean that they're at the level of treaty.
Speaker 5: Ally in India somehow is both in the bricks and
Speaker 5: also in the VIPs.
Speaker 14: Yes, I knew you guys would point that out. That's
Speaker 14: very smart. Yes, India is in the bricks. It's a
Speaker 14: quincidential member of the bricks. But India also behaves however
Speaker 14: India wants to behave. This is the non aligned tradition,
Speaker 14: and it's a member of the quad as well as
Speaker 14: accepting Russian arms imports.
Speaker 9: So I think.
Speaker 14: India is to play for, and India is important because
Speaker 14: it essentially has the deciding vote in World War iie,
Speaker 14: how big it is and who wins.
Speaker 8: What does the Philippines have for us?
Speaker 14: Well, the Philippines is essentially a massive aircraft carrier. I
Speaker 14: mean this is the Chinese want the Spratley's, they want
Speaker 14: the nine dash line.
Speaker 8: I will argue that does not come cheaply because mister
Speaker 8: marcos As did his father charged as exorbitant fees to
Speaker 8: the United States for there.
Speaker 14: Yes, I think that's probably true. And there was a
Speaker 14: time in American history where we might have annexed the
Speaker 14: Philippines outright and chose not to. So we've decided not
Speaker 14: to be a formal empire. And the cost of that
Speaker 14: is that you have to get on board with local politics,
Speaker 14: you have to pay people to get on board with
Speaker 14: your vision of the world, and you have to keep
Speaker 14: up soft power engagements.
Speaker 5: Right, And how does the US get kind of on
Speaker 5: better terms with Saudi Arabia? Is that just through you know,
Speaker 5: golf partnerships or letting them by sporting teams.
Speaker 14: Well, that's part of it, for sure, But I think
Speaker 14: that really and truly the Saladis needs security. The reason
Speaker 14: the Saudis and his rollies are willing to sit around
Speaker 14: a table is their common distaste for Iran, and I
Speaker 14: think that if we provide the Saudis essentially with modern
Speaker 14: defense weapons, modern defense systems, they will be more inclined
Speaker 14: to help us out with oil supply problems should the
Speaker 14: Russians later down the line decide to restrict oil supply.
Speaker 8: Can these countries, especially with Vietnam, effectively replace China as
Speaker 8: the place where the United States manufacturers go to get
Speaker 8: the cheap labor and stuff produced well.
Speaker 14: So this is a multi trillion dollar question, right. I
Speaker 14: think the assumption in the back of American business people's
Speaker 14: minds is that there is a place to replace China.
Speaker 14: There's some place in the world, a combination maybe of Vietnam,
Speaker 14: Mexico and so on for near shuring, friends shoring, and
Speaker 14: so on. I think the problem is that the disruption
Speaker 14: entailed between the United States and China decoupling or even
Speaker 14: effectively shrinks the oval size of the global economy. It's
Speaker 14: hugely disruptive. So I don't think there's ever going to
Speaker 14: be a one for one replacement. Countries such as India
Speaker 14: I don't think that works.
Speaker 8: Yeah, And in terms of the other countries, what is
Speaker 8: the future of the relationships between the United States and
Speaker 8: these other countries as you can tell, well, I'm hoping
Speaker 8: that is it based on manufacturing or something else.
Speaker 14: I think ultimately people are considering two possible futures. One
Speaker 14: is some sort of continuation of Pax Americana orbeit damaged,
Speaker 14: and another is some sort of Chinese hegemony. And whereas
Speaker 14: for the last maybe twenty years, people were slightly more
Speaker 14: comfortable with China rising as this commercial power, now I
Speaker 14: think some regional players, particularly Vietnam and the Philippines scratching
Speaker 14: their heads and thinking, well, maybe we wouldn't quite like
Speaker 14: that as much as the international trading system that we
Speaker 14: have now led by Uncle.
Speaker 6: Sam going for a longer acronym.
Speaker 5: What kind of countries could have been playing for a
Speaker 5: position in the VIPPS basket that you built.
Speaker 14: Right, Well, I mean it only had space for four,
Speaker 14: so I had to mold the analysis around the acronym.
Speaker 14: I think countries in the global South are going to
Speaker 14: be important. I think Mexico's already on board. Brazil is huge,
Speaker 14: but again that's firmly in the bricks. I mean, you
Speaker 14: can see what they're doing with the goal backed currency project.
Speaker 14: I mean, ultimately, ultimately it would be nice to have
Speaker 14: Russia on board. And I think that one of the
Speaker 14: you know, to sort of echo Vladimir Putin's words, it
Speaker 14: wasn't the collapse of the Soviet Union that was the
Speaker 14: greatest strategy of geopolitics in the twentieth century. In my money,
Speaker 14: it was the fact that we didn't then give a
Speaker 14: Marshall Plan two point zero two Russia and sufficiently get
Speaker 14: them on board with the Western system, you know, maybe
Speaker 14: even NATO membership, maybe even EU membership. So ultimately, I
Speaker 14: think the player is to try and get Russia back
Speaker 14: into the system.
Speaker 8: And nice to see again. Thanks for rescued by the studios.
Speaker 8: We appreciate it. Ed Price, senior fellow at NYU, the
Speaker 8: principal at Ergo on the geopolitical risks and the latest
Speaker 8: research that he's doing.
Speaker 7: You're listening to the tape Can't Our Live program Bloomberg
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the
Speaker 7: tune in app, Bloomberg dot Com, and.
Speaker 9: The Bloomberg Business app.
Speaker 7: You can also listen live on Amazon Alexa, from our
Speaker 7: flagship New York station, just say Alexa play Bloomberg eleven.
Speaker 3: Thirty with an investment outlook is Evanna della Vesca. She
Speaker 3: is founder in CIO at Spear invest They describe theirs
Speaker 3: them as a fundamental asset manager and an etf issuer
Speaker 3: specializing investments in industrial technology value chain. So I'm curious
Speaker 3: to see what her take is on the market. She
Speaker 3: joins us here in studio, Nice to have you here
Speaker 3: with us. How are you?
Speaker 4: Thanks for having me on, Carol, Hey remind our world.
Speaker 3: I did the description off your website, but to be honest,
Speaker 3: tell us about what you guys do and what you
Speaker 3: focus on well.
Speaker 15: As you mentioned, Carol, we focus on B too B technology,
Speaker 15: and our niche focus allows us to really have a
Speaker 15: good sense of what's going on in tech, specifically in
Speaker 15: B to B business to business where companies are selling
Speaker 15: products to other companies. So we are pretty positive on
Speaker 15: the cycle. We think we're at the bottom of the cycle.
Speaker 15: What we're seeing today is that hardware bottom, and we're
Speaker 15: just in the early innings of investments of hardware investments.
Speaker 15: We think this is going to be a pretty big
Speaker 15: data center investment cycle ahead of US, and that's going
Speaker 15: to really drive the rest of technology out of this downturn.
Speaker 5: So continuing to see more upside for a company like
Speaker 5: in Video, which already has tripled this year and is
Speaker 5: one of the best performers in.
Speaker 15: The US, absolutely, So what's happened to in Vidia for example,
Speaker 15: as we saw numbers bottom and increase of the bottom,
Speaker 15: the stock is just getting cheaper and cheaper on traditional
Speaker 15: valuation metrics. So we believe what we're going to see
Speaker 15: with Nvidia. Historically the focus has been growth investors and
Speaker 15: people trying to capture the AI hype, but as we
Speaker 15: go forward, really there is fundamental support from the numbers here,
Speaker 15: So we believe that as you go forward, there's going
Speaker 15: to be value investors that will be looking at this
Speaker 15: at the stock.
Speaker 6: Talking about AI, talking about data centers, while though.
Speaker 4: The event video is value stock, value stock.
Speaker 5: That's one point one trillion dollars more upside after a
Speaker 5: triple different world arm the biggest IPO in the world
Speaker 5: this year, talking up a lot of AI soft.
Speaker 6: Bank town talking up their partnerships within VideA.
Speaker 5: Is that a company that you see upside with alongside
Speaker 5: the likes of an Invidia or an AMD.
Speaker 15: So we don't own ARM at the moment, they are
Speaker 15: indirectly an AI play. But what I would question investors
Speaker 15: is that over time everything is going to be an
Speaker 15: AI play. Right, So you're going to have most applications
Speaker 15: have AI embedded in them, and most products will be
Speaker 15: able to will be able to enable AI to run
Speaker 15: on them. So over time, we believe ARM will benefit
Speaker 15: from this trend, but it's not nearly as big of
Speaker 15: a beneficiary as Nvidia would be.
Speaker 4: At this point in time.
Speaker 3: Do we think about the AI in the same vein
Speaker 3: that we thought about going online?
Speaker 4: Right in the Internet?
Speaker 3: And at some point I remember having these conversations every
Speaker 3: company is going to be an Internet play.
Speaker 4: Well they're not even retail.
Speaker 3: While online and mobile ordering and all that good stuff,
Speaker 3: we still think about brick and mortar, And I'm just wondering, like,
Speaker 3: can we think about them as the same thing. To
Speaker 3: hear you say everything's going to be an AI play,
Speaker 3: I just remember saying that about the Internet. Everything's going
Speaker 3: to be an Internet play, and I don't know that
Speaker 3: it's actually played out that way.
Speaker 15: Well, that's an interesting point. So when I say everything
Speaker 15: is going to be an AI play, AI will take
Speaker 15: part in most of applications that we use. That doesn't
Speaker 15: mean that every company is investable and every company will
Speaker 15: offer value. So that's where we come in. We try
Speaker 15: to look at the fundamentals, model out how much earnings
Speaker 15: potential does each company have, where does that stand compared
Speaker 15: to the street estimates, And we're really looking for capturing
Speaker 15: alpha of opportunities where people are maybe seeing out on
Speaker 15: or not understanding how they are related to AR or
Speaker 15: how they're going to benefit.
Speaker 3: Because I remember one of the ways of thinking about
Speaker 3: the Internet play was like ups right, everybody's ordering, so
Speaker 3: you know, very different. So how do you think about it?
Speaker 3: Where do you think will be the best opportunities. Is
Speaker 3: it somebody who's making the chips for the AI sector
Speaker 3: or is it something else.
Speaker 15: So what we see is opportunities across several layers of AI.
Speaker 15: So the first layer is the hardware layer, which we
Speaker 15: talked about, so that would be in VIDIMD, Marvel, basically
Speaker 15: companies that not only offer GPUs but just broader data
Speaker 15: center networking equipment as well. We still see those as
Speaker 15: being in the early innings. The next layer of opportunity
Speaker 15: will be in.
Speaker 4: The data layer. So here you have a lot.
Speaker 15: Of software companies that offer services in addition to the
Speaker 15: cloud vendors that are also in this data layer. In
Speaker 15: addition to them, they offer services such as data streaming,
Speaker 15: enabling you to organize your data better. So this is
Speaker 15: where we see a lot of opportunities right now because
Speaker 15: they're not necessarily called AI and they're not necessarily seeing
Speaker 15: the benefiting the numbers just yet because.
Speaker 4: It's a little too early.
Speaker 15: But over the cycle, we believe we're going to start
Speaker 15: seeing it as we get into next year.
Speaker 4: And it's your third layer.
Speaker 15: And then the third layer would be the application layer.
Speaker 15: And this would be like the application that go either
Speaker 15: directly to businesses or directly to consumers. So an example
Speaker 15: would be Chad GPT, an example would be Microsoft Office Copilot.
Speaker 15: So these are the actual applications, and that's probably the
Speaker 15: most uncertain layer because we're still trying to figure out
Speaker 15: how much are consumers willing to pay, how much our
Speaker 15: company is willing to pay for these products, how much
Speaker 15: do they actually cost on the back end, because running
Speaker 15: on GPUs is pretty costly. So this is where there
Speaker 15: is the most uncertainty. There are going to be some
Speaker 15: winners as well, But there's going to be some losers
Speaker 15: as well, right, companies that are not going to be
Speaker 15: able to make the business case work.
Speaker 5: Well, when you're talking AI, you can't not talk about
Speaker 5: the dot com bubble and one of those things that
Speaker 5: you're mentioning though, and I've seen this being mentioned the
Speaker 5: barecase against Nvidia. Cisco was building the Internet and was
Speaker 5: going to be this behemit that made all the money,
Speaker 5: but it was actually companies that were working on the
Speaker 5: applications and actually benefiting from that.
Speaker 6: I know you mentioned that's kind of in like, we
Speaker 6: haven't scratched the surface of that.
Speaker 5: But where are you seeing the money going to be
Speaker 5: made in the longer term with AI being built out.
Speaker 15: Well, we believe there is going to be opportunities across
Speaker 15: all three layers.
Speaker 9: Right.
Speaker 15: So in the hardware layer, we're still in the early innings,
Speaker 15: so it will take few years. Hardware is very cyclical,
Speaker 15: so we'll go through cycles, right, So this is just
Speaker 15: where the early innings of this cycle. It takes usually
Speaker 15: several years for you to be putting the infrastructure in place,
Speaker 15: and then at some point the valuations will reflect the
Speaker 15: strength of the cycle and we would be looking to
Speaker 15: exit those investments, and then the second layer, we're just starting, right,
Speaker 15: So that's going to be a little later cycle if
Speaker 15: you want to think about it from that perspective, and
Speaker 15: it's going to be a lot less cyclical. There is
Speaker 15: still clickality in it, right, like you will go through
Speaker 15: natural down downturns in that layer as well. But it's
Speaker 15: all about how much is priced in today versus how
Speaker 15: much upside you see.
Speaker 5: We're in a new month, we're in a new quarter,
Speaker 5: earning seasons on the horizon, and Vidia has been the
Speaker 5: big driver for this entire space. Can they live up
Speaker 5: to your expectations in this next quarter and.
Speaker 4: They report next November twenty First.
Speaker 15: Well, we still see a lot of upside to the numbers.
Speaker 15: The CEO mentioned that capacity is higher each quarter, so
Speaker 15: it's increasing each quarter, so they should be able to
Speaker 15: beat numbers. I think where investors may be mismodeling the numbers,
Speaker 15: and this is why they keep beating by such large
Speaker 15: margin is on the pricing side. So everybody's focused on volume,
Speaker 15: everybody's focused on hey, are they really going to be
Speaker 15: able to produce this many chips? The key is pricing
Speaker 15: just because these new products the h one hundred is
Speaker 15: priced at a two to three times premium to the
Speaker 15: prior prior version. You're seeing a big uplift to earnings
Speaker 15: from the pricing side.
Speaker 3: Is there a tangential play off of this, like I
Speaker 3: think about security, is that like what is the other
Speaker 3: aspects that we're maybe not talking about that's kind of
Speaker 3: AI pure but none the less important in this play.
Speaker 4: And just get about forty five seconds.
Speaker 15: Absolutely, so that cybersecurity would be in that second layer,
Speaker 15: so the data layer, so as you're talking about how
Speaker 15: to use the data, key will be how are you
Speaker 15: going to secure this data as well? So we're going
Speaker 15: to see a lot of companies first protecting applications on
Speaker 15: the cloud, so cloud is a big team. And then
Speaker 15: another big theme is companies trying to embed security in
Speaker 15: their applications earlier in the process, so before they even
Speaker 15: write the code. So those are the two big themes
Speaker 15: in cybersecurity.
Speaker 6: Are there any names in particular that you guys like, Yeah.
Speaker 15: We like z scaler a lot, so that's a cloud
Speaker 15: a networking play, and then we also like CrowdStrike. That
Speaker 15: would be more going downstream into embedding cybersecurity in the applications.
Speaker 3: Is there one AI company that we're not talking about
Speaker 3: that we should and again just got about fifteen seconds.
Speaker 15: Well, there's a lot we disclose all our holdings on
Speaker 15: our website and some of them.
Speaker 4: Are directed in the headlines that you think we should
Speaker 4: be paying notes.
Speaker 15: Cloud Flat would probably not be getting enough attention. They
Speaker 15: are building out a very unique network of GPUs and
Speaker 15: they're enabling companies to be able to run these GPUs
Speaker 15: and use a lot of the lllms. So I think
Speaker 15: that's one maybe that I would highlight.
Speaker 3: Great perspective on AI and I feel like covered ground
Speaker 3: that we don't always cover.
Speaker 4: So thank you.
Speaker 3: Evanad Levska. She's founder in CIO at Spear Invest joining
Speaker 3: us here in studio.
Speaker 7: You're listening to the tape Can't our live program Bloomberg
Speaker 7: Markets weekdays at ten am Eastern on Bloomberg Radio, the
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Speaker 3: Well, let's see what our next guest has to say
Speaker 3: about kind of the macro environment that we are living in.
Speaker 3: And what type of investments investors are really trending to
Speaker 3: with us right now? Is Amanda Rabello, head of Extracker
Speaker 3: sales US. I'm sure at the global asset manager DWS
Speaker 3: Group Extrackers of course, the ETF brand owned by DWS,
Speaker 3: which has roughly nine hundred billion in assets under a manager.
Speaker 4: She joins us in studio. Hello, Hello, how are you?
Speaker 4: I'm very well, thanks, How are you good? What do
Speaker 4: you make of the macro environment?
Speaker 3: We're kind of happy to start off a new quarter,
Speaker 3: but it doesn't mean things won't carry over.
Speaker 4: How do you see it?
Speaker 16: Yeah, I think that what we feel is that FED
Speaker 16: policy is being felt in the slowing housing market, and
Speaker 16: we see that there are higher rates which are really
Speaker 16: a reflection of real rates as opposed to like higher
Speaker 16: inflation expectations. From the equity perspective, we're expecting by the
Speaker 16: end of the year that SMP is going to be
Speaker 16: at forty one hundred, and we do expect that there
Speaker 16: will be a rebound into next year to around the
Speaker 16: forty five hundred level, but it's a bit about months.
Speaker 6: Yeah, I was not expecting to go there.
Speaker 16: So if you think you'll depressed, we're depressed as.
Speaker 5: Well looking at different benchmarks. So you sp equal weighted,
Speaker 5: we were saying turn negative for the year today. Is
Speaker 5: that going to be trending more towards the downside given
Speaker 5: that call? Or do you see the Magnificent seven some
Speaker 5: of those bigger technology shares underperforming the rest of the
Speaker 5: kind of market.
Speaker 15: Yeah.
Speaker 16: So actually equal weight is something that we've been speaking
Speaker 16: to investors for a long time. We actually have a
Speaker 16: product in Europe which is almost five years old, and
Speaker 16: you know, I think that all of these kind of
Speaker 16: sexual overweights are definitely something that investors are thinking about.
Speaker 16: Only last week we actually had clients also asking us
Speaker 16: about how do they get rid of overweights in financials
Speaker 16: as well, for example, you know, especially and I don't
Speaker 16: think that's necessarily a big name financially like the big
Speaker 16: name financial so not even like the fears around smaller
Speaker 16: banks and more banks collapsing. I think that, you know,
Speaker 16: at the end of the day, there is a need
Speaker 16: for stepping away from market cap weighted. We think it
Speaker 16: makes sense a little bit more to think about quality
Speaker 16: and value inherent in.
Speaker 12: US large caps.
Speaker 16: So we've been speaking a lot about our co product
Speaker 16: quality as a reasonable price so it's based on like
Speaker 16: the Russell one thousand, thinking about those stocks that display strong,
Speaker 16: strong components or a strong kind of direction towards quality
Speaker 16: and value. And we think that usually we kind of
Speaker 16: think more about single.
Speaker 4: Facts quality in today's environment.
Speaker 16: Yeah, so quality is thinking about you know, kind of
Speaker 16: smaller draw downs, but also thinking about robustness and paying
Speaker 16: out dividends as well, and you know divs more more broadly.
Speaker 16: You know, there's a lot of demand for bird in
Speaker 16: hand basically, so if you can't be sure where your
Speaker 16: price return is going to be, at least thinking about
Speaker 16: your total return, but grabbing the dividend beforehand.
Speaker 3: That feels conservative to me when I think people are
Speaker 3: I think about old dividend reinvestment plans.
Speaker 16: Even if you don't need income, right people are asking
Speaker 16: for this.
Speaker 5: Well, when you look at the market right now, we
Speaker 5: have a ten year old yield at four point sixty
Speaker 5: nine percent. Jamie Diamond was asked if rates can go
Speaker 5: to seven percent. He said, the answer is yes. What
Speaker 5: starts to break if we see rates in the seven
Speaker 5: percent range?
Speaker 16: Well, I think, really you think about kind of the
Speaker 16: impact something that we're speaking about on the desk, A
Speaker 16: lot is consumer credits, right, So then I think already
Speaker 16: we start to feel the pinch all of us, you know,
Speaker 16: like people in our industry, for example, we're definitely not
Speaker 16: at the brunt of like having kind of very tight
Speaker 16: kind of earnings and so forth, like from a household perspective.
Speaker 16: But if even we're complaining about oil prices, about the
Speaker 16: price of gas, about the price of milk, eggs, kind
Speaker 16: of all of these things, then I think a lot
Speaker 16: of people start to be more dependent on credit cards,
Speaker 16: for example, and you obviously see then like a higher
Speaker 16: rate that they need for financing.
Speaker 9: Then.
Speaker 16: So, I mean, I was in the industry in two
Speaker 16: thousand and seven. I remember US launching GMAC bonds at
Speaker 16: par and then two weeks later they're selling it like
Speaker 16: sixty five to the dollar. I'm hoping it's not going
Speaker 16: to be as drammass as dramatic as that, but I
Speaker 16: think that there is a possibility that you start to
Speaker 16: feel like more pressure on the consumer from.
Speaker 3: That from a credit perspective, that feels pretty negative. Yeah,
Speaker 3: that we could actually get there on the consumer side
Speaker 3: of things. And you know, we always talk about how
Speaker 3: important the consumer is, certainly to the US economy and
Speaker 3: keeping momentum going. So yeah, are you saying that we
Speaker 3: could potentially see an seven eight feel But it's the
Speaker 3: consumer version of the story.
Speaker 16: I think it kind of ends up transpiring through the
Speaker 16: whole system potentially. But what's interesting is that maybe versus
Speaker 16: two thousand and seven, you actually have more global equity
Speaker 16: firms now that are reliant on kind of US consumer
Speaker 16: revenues and vice versa. Right, So maybe there's kind of
Speaker 16: scope for some contagion in some regard in terms of
Speaker 16: you know, I'm from the UK, foots one hundred is
Speaker 16: not just about UK consumer spending and UK kind of
Speaker 16: industrial demand, the same for you know, dax KAC forty
Speaker 16: and likewise the SMP as well with the rest of
Speaker 16: the world, and especially now you start to see kind
Speaker 16: of more broadly not just US rates going up, but
Speaker 16: also European rates as well for example. Then I think
Speaker 16: it's maybe not not something that we can always isolate.
Speaker 5: So new month, new quarter earnings are on the horizon.
Speaker 5: What matters the most when we go into the fourth quarter.
Speaker 5: You said forty one hundred on the SMP. We haven't
Speaker 5: been that level since the day, So is that that's
Speaker 5: me since is that earnings breaking is that the FED
Speaker 5: hiking again, is that the economic data really kind of
Speaker 5: petering out.
Speaker 4: So we do think that.
Speaker 16: There are some opportunities even despite this this kind of
Speaker 16: embarish tone that in that projection, what we quite like
Speaker 16: is we think there's some opportunities in small cap. We
Speaker 16: think again it goes back to buying the right names
Speaker 16: within the S and P five hundred as well if
Speaker 16: you if you do want to look at large cap
Speaker 16: and then also in the MIDP part, we quite like
Speaker 16: thinking about Europe as well. And that's not just because
Speaker 16: we're a European house. We do think even our US
Speaker 16: American's CIO thinks this as well. There is some opportunity
Speaker 16: in European equities. Obviously, they were hammered last year, you know,
Speaker 16: continue to be hammered into the first half of the
Speaker 16: year as well, so we think there's a value component there.
Speaker 16: And then when you think about European equities they typically
Speaker 16: always yield more than US equities as well. So SMP
Speaker 16: did yield is about one point five five percent the
Speaker 16: EUROSOX fifty for examples around I think four thirty five
Speaker 16: something like that. And then if you think about a
Speaker 16: dividend focused strategy on international equities, of which European equities
Speaker 16: is a large part of that. Think about HTEPH for example.
Speaker 16: In our range, you can end up yielding something like
Speaker 16: five point six five percent on an annual Live.
Speaker 3: Amanda, were you guys as negative? This feels pretty negative?
Speaker 3: Were you as negative a month ago? Two months ago?
Speaker 16: I think we were feeling around the same level, to
Speaker 16: be honest, Ye, But then you know, you see days
Speaker 16: like today where the screen is read again because r.
Speaker 4: We go back pre August and it felt like it
Speaker 4: just kept getting.
Speaker 6: Better and everyone was exciting. There was no one really
Speaker 6: calling a forty one hundred for sure.
Speaker 16: Yeah, I think it's forty one hundred forecast. It emerged
Speaker 16: from US at the end of August, so we've had
Speaker 16: it on for about a month.
Speaker 4: Yeah, for about a month. Okay. It's just interesting.
Speaker 3: That feels like a much more negative tone, although it
Speaker 3: kind of seems to me to fit with some conversations
Speaker 3: we've been having with folks about like maybe we're underestimating
Speaker 3: that it could be worse off than we thought.
Speaker 5: Yeah, and if we see a US recession, how long
Speaker 5: and how deep does that go?
Speaker 6: I guess with your kind of expectations.
Speaker 4: Just got about five seconds, I think.
Speaker 16: To be honest, we haven't yet thought about how long
Speaker 16: that will be, but when we do, we'll.
Speaker 4: Get back to you.
Speaker 3: All right, Well, we will definitely check in. Meta Rebello,
Speaker 3: head of ex Tracker Sales over at DWS Group. This
Speaker 3: is Bloomberg Radio.
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