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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
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Speaker 1: Peter Sheer of Academy Security is writing, now we can
Speaker 1: watch the data and let the countdown to the Santa
Speaker 1: Rally begin, and you put a little smiley emoji and
Speaker 1: there is a real question here. Is this ultimately a
Speaker 1: market that wants to go up and is going to
Speaker 1: go up because there is a garth of other information
Speaker 1: to really prevent it from doing otherwise.
Speaker 3: Yeah, and I think you're seeing it. The Russell two
Speaker 3: thousands doing very well. I think there's still questions around
Speaker 3: and you know the big tech, the AI story, but
Speaker 3: you're seeing the equal weight S and P five hundred
Speaker 3: do better. Russell two thousand. I think it's helpful that
Speaker 3: the FED is buying some T bills up to forty
Speaker 3: billion dollars a month, so you're seeing all that. I think,
Speaker 3: you know, the Oracle earnings yesterday kind of spook the
Speaker 3: market a little bit, and I think that's maybe the
Speaker 3: one susceptibility is there's a lot more questions around the
Speaker 3: AI data center. But it rates are coming down. I
Speaker 3: think we're going to get rate cuts faster than markets pricing.
Speaker 3: That should be really good for small caps and the
Speaker 3: broad economy.
Speaker 1: How much better are you feeling about big tech given
Speaker 1: the fact that you've seen such a lack of enthusiasm
Speaker 1: following some of these earnings, you know.
Speaker 3: I think there's still questions about valuations there. The one
Speaker 3: thing that's I think coming up in every conversation we
Speaker 3: have is more and more questions about the electricity bottleneck.
Speaker 3: How are we going to run some of these things
Speaker 3: if we can't produce the electricity?
Speaker 4: So I think again we're.
Speaker 3: Going to see a lot of investment into electricity next year.
Speaker 4: That's going to be a story.
Speaker 3: I still think that come the next election, electricity and
Speaker 3: electricity costs are going to be an election issue.
Speaker 5: Peter, how much do you look at a company like
Speaker 5: Broadcom or Oracle as a proxy for this nascent industry
Speaker 5: as a whole.
Speaker 3: There's kind of that collection looking at what they're doing.
Speaker 3: You're also trying to figure out how, you know, again
Speaker 3: the Disney announcement yesterday, how are starks reacting to this?
Speaker 3: And you know, it feels that we've kind of gone
Speaker 3: through this period. If you raise your hand say anything AI,
Speaker 3: your stock shoots higher.
Speaker 4: Now there's a lot of questions.
Speaker 3: People are trying to figure out where's this going to work,
Speaker 3: how's it actually going to work? And you know, again,
Speaker 3: you know going to be somewhat facetious. If you spend
Speaker 3: fifty million dollars and you hire ten fewer people, how
Speaker 3: much are you paying those people?
Speaker 4: Maybe you shouldn't have done that.
Speaker 3: So I think the AI story is growing and we're
Speaker 3: seeing the use, but now it's kind of there's a
Speaker 3: little bit more question are you spending it, are you
Speaker 3: getting value?
Speaker 4: How do you want to use it going forward?
Speaker 5: At LISTA mentioned the high expectations that we've had for
Speaker 5: a lot of these companies. Is this a moment to
Speaker 5: recalibrate or rethink what those expectations are. So I look
Speaker 5: at a company like WORKLID, look at a company like Broadcom.
Speaker 5: There's been a lot of happy talk. It has performed
Speaker 5: very well quarter after quarter after quarter. Now we're a
Speaker 5: point where maybe we just can't reach those expectations that
Speaker 5: have been in place for so long.
Speaker 3: Right, it gets much more difficult. So again, one of
Speaker 3: the trades we've liked is you are either underweight QQQ
Speaker 3: or you know, the Nasdaq one hundred, and you overweight
Speaker 3: either the S and P five hundred equal weight or
Speaker 3: the Rustle two thousand. I think that's the performance is
Speaker 3: going to come as we realize all these other companies
Speaker 3: who are benefiting from AI, they should trade maybe at
Speaker 3: better multiples the businesses here, And you're starting to see
Speaker 3: rates come down again, which helps a lot of those
Speaker 3: companies much more than it helps I think the big companies.
Speaker 4: We're kind of walking in tyrope. Though.
Speaker 1: I remember just a couple of months ago people saying
Speaker 1: that if the AI trade doesn't work, it's going to
Speaker 1: bring down everything, because ultimately the entire market and economy
Speaker 1: has been propped up by AI hopes and dreams. Why
Speaker 1: has that changed in terms of a narrative, so substantially well.
Speaker 3: I think we're still seeing the investing going on in
Speaker 3: that part, so the spend is still there. So I
Speaker 3: think if that spend really drops, that's where you start
Speaker 3: really getting the trouble. Then we start questioning, Okay, where's
Speaker 3: this economy had? And I'm definitely not quite saying green
Speaker 3: about the economy. I think there are some risks there.
Speaker 3: I think the jobs data, I think a lot of
Speaker 3: companies are actually going to budget less spending next year.
Speaker 3: I think it's going to start flowing through the economy
Speaker 3: where you slowly see the upticking tears, right, is this
Speaker 3: terar for revenue keeps coming in slowly but surely two
Speaker 3: and forty two hundred and fifty three hundred billion. That's
Speaker 3: when you start feeling the impact on that. I think
Speaker 3: the job market's a little bit sketchy. What I did
Speaker 3: of all the day I saw this week. I still
Speaker 3: look at the jolts quit very very closely. To me,
Speaker 3: that's the closest we get to crowdsourcing. We're back to
Speaker 3: levels in the quits rate. I think it was one
Speaker 3: point eight or something. It goes back to twenty fifteen.
Speaker 3: People aren't comfortable leaving their jobs. That tells you everyone
Speaker 3: knows the job market's a little bit sketchy than maybe.
Speaker 4: The data shows. I'm so glad you went there.
Speaker 1: Next week we get the November jobs report, which of
Speaker 1: course is delayed, and a lot of people in very
Speaker 1: in particular, was really annoyed that we didn't get it
Speaker 1: before the FED meeting, and we seem to get indication
Speaker 1: from fedcher J.
Speaker 4: Powell that there is.
Speaker 1: This weakness in the labor market that you're talking about.
Speaker 1: How pivotal is that report to highlight that things aren't
Speaker 1: falling off a cliff. Yes, if that's going to cut rates,
Speaker 1: but that the economy is actually still hanging in there.
Speaker 3: Well, I hope it's pivotal and shows that we're not
Speaker 3: falling off the cliff. I think there is a risk
Speaker 3: that this data comes in much weaker than we're expecting,
Speaker 3: and it's kind of this wake up call. Okay, we've
Speaker 3: all been talking about this jobless recovery, and yeah, the
Speaker 3: data center spend's been driving a lot of the economy.
Speaker 3: Where are the jobs, who's getting the jobs? Where they come?
Speaker 3: And again, everything I talked to and probably near and
Speaker 3: dear to my heart your kids graduating college. The job
Speaker 3: market looks very bleak right there, from compared to what
Speaker 3: it's been a few years ago. So I think we
Speaker 3: might be starting to get the data that really starts
Speaker 3: confirming whoa something's not quite working, and I think everything's
Speaker 3: been a little bit tall, and let's see how these
Speaker 3: things play out.
Speaker 4: Let's see how the trade deals play out.
Speaker 3: Let's see now we're at that proof is in the pudding,
Speaker 3: and I'm a little bit nervous that the job's data
Speaker 3: is going to show this is not working the way.
Speaker 4: We hoped it would be.
Speaker 5: How are you thinking about FED timing and insurance? I
Speaker 5: think Claire Jones are the fts to question a lot
Speaker 5: of us had going into that meeting, which is, why
Speaker 5: do this cut now?
Speaker 6: Why not wait till January?
Speaker 5: We would have the data that we're talking around because
Speaker 5: we haven't had. Why not wait into Jai or did
Speaker 5: he give you a satisfactory answer to that in that
Speaker 5: press conference?
Speaker 4: You know?
Speaker 3: I think the ultimate reason is they are concerned about jobs,
Speaker 3: and there's just enough out there, I think on the
Speaker 3: jobs data and not just official data. I think it's
Speaker 3: anecdotally right. There's no one I'm hearing talk about, oh,
Speaker 3: there's some great underlying strength, and you.
Speaker 4: Know, it was kind of weird.
Speaker 3: They did raise the GDP forecast, but again they didn't
Speaker 3: seem to know a company that with a big job growth,
Speaker 3: So I think that's why they did it. And honestly,
Speaker 3: I think you're going to see a lot of pressure.
Speaker 3: I think the market is going to get to three
Speaker 3: percent on FED funds way faster. I think we get
Speaker 3: there by the summer, and market it's not pricing in
Speaker 3: two cuts next year until September.
Speaker 4: I think power will have to cave. I think we're
Speaker 4: going to have to move.
Speaker 3: And this is going to be an aggressive cycle where
Speaker 3: we've been maybe a little bit tight too long, too
Speaker 3: dependent on allowing that AI spend to maybe cloud or
Speaker 3: cover up that there's an underlying weekly economy going on.
Speaker 5: Curious if you noticed something that I did during that
Speaker 5: press conference was the Fed cheer very willing to engage
Speaker 5: with AI in a way that he hadn't been able
Speaker 5: to before. So there were a number of colloquies with
Speaker 5: Howard Schneider and Neil Erwin Steve Leisman. They asked about AI,
Speaker 5: how much he's thinking about it, and he was pretty optimistic.
Speaker 5: You know, he talked about the prospects of AI spend
Speaker 5: continuing here at a moment when we are candidly kind
Speaker 5: of wondering about how long that's likely to persist. What
Speaker 5: did you make of that His kind of recognition of
Speaker 5: the fact that this is going to be rather seismic
Speaker 5: going forward.
Speaker 4: I think it's good. I think it all makes sense.
Speaker 3: Again, we are going to continue to use AI, people
Speaker 3: are going to refine how they use AI.
Speaker 6: They're going to admit it. He uses it, which I
Speaker 6: thought was interesting.
Speaker 4: I think, you know, I've used it multiple different ways.
Speaker 7: You know.
Speaker 4: If I'm on Twitter, I didend to use GROCK.
Speaker 3: If I'm on my desktop, I tend to use chat
Speaker 3: GTT or something like that. So I think it's important part.
Speaker 3: But again, I think we also see some of the limitations.
Speaker 3: And I'm still at this concern that we're basically paying
Speaker 3: twenty thirty prices for twenty twenty five technology, and so
Speaker 3: it's not quite where we want it to be, and
Speaker 3: people are going to be a little bit more thoughtful
Speaker 3: on their spend. And I keep coming back to whether
Speaker 3: it's the dats of the digital acid treasury companies. You know,
Speaker 3: when there was this you raise your hand, use raise
Speaker 3: free money. It's going to continue as soon as you
Speaker 3: start really questioning are we getting the value and what
Speaker 3: are the limitations? Again, I keep thinking that it's going
Speaker 3: to be electricity and power generation is the limitation.
Speaker 4: People are going to have to think twice. That's where
Speaker 4: it's going to stall out a little bit.
Speaker 1: David, I'm so glad that Peter talked about this, the
Speaker 1: idea of are we getting the value? I think about
Speaker 1: chat EBT, I look up medical problems with GROCK. I say,
Speaker 1: is this real? And that's what everybody does is real.
Speaker 4: It's real there.
Speaker 1: So it's sort of a certain point you can either
Speaker 1: go to the mark manual or you could actually just
Speaker 1: not have digital manufacturing of concepts, and then all of
Speaker 1: a sudden you clarify those two issues. Are we actually
Speaker 1: solving some of the issues that people think will create
Speaker 1: the product boom that's being priced into the market.
Speaker 5: I've heard skeptics say you can take out a calculator
Speaker 5: and do two plus two is four. If you do
Speaker 5: it through chet GPT, it's going to take I don't
Speaker 5: know how much more energy to do that. Then it
Speaker 5: will be my little solar powered calculator.
Speaker 6: But this is a real issue.
Speaker 5: I think people are kind of I think it's emblematic
Speaker 5: the fact that we're trying to fumble through this figuring out.
Speaker 6: Sort of what the best use case is.
Speaker 5: We're doing that individually, you with your medical interests or whatever,
Speaker 5: and you know, but just why broadst Then there's this
Speaker 5: whole enterprise facet of this as well, which is I
Speaker 5: think companies are still embracing this largely, but in a
Speaker 5: kind of blind way, not knowing how it's going to
Speaker 5: be applicable to what they're doing.
Speaker 3: Yeah, and you know, I again have to jokingly say,
Speaker 3: I think in some cases if they just ask their
Speaker 3: employees have been there three or four years what they
Speaker 3: should do, they'd probably get a really good answer. Maybe
Speaker 3: we should go back to empowering our employees too. Like
Speaker 3: people know the situation and some of this feels a
Speaker 3: little bit like a crutch. And again, there's going to
Speaker 3: be useful parts of it. I think the limitation is
Speaker 3: how much data you have, How useful is your data?
Speaker 3: You got to plug it into there so people are
Speaker 3: using it. I think it's you know, makes people slightly
Speaker 3: more productive. I don't think it's kind of this be
Speaker 3: on end all that ultimately it should get to right.
Speaker 3: It's going to do more and more, it's going to
Speaker 3: get better and better. I just don't see the technology
Speaker 3: quite at that level. And when I try and use it,
Speaker 3: it's great until you realize, oh it hallucinated a ticker symbol,
Speaker 3: and now I'm like, now what else do I have
Speaker 3: to check? What else do I really need to go?
Speaker 3: And also it's how do you learn if you kind
Speaker 3: of rely on it for too much?
Speaker 2: Stay with us multpleinpeg. Savannah's coming up off to this.
Speaker 1: Here's the latest shoppers gearing up for what is expected
Speaker 1: to be a record breaking holiday season, despite consumer confidence
Speaker 1: tumbling to its lowest levels going back to April. Joining
Speaker 1: us now is Elena shall get Cheva of the conference board. Lena,
Speaker 1: could you give us some color around the retail sales
Speaker 1: data that we're going to be getting next week as
Speaker 1: well as this holiday shopping season?
Speaker 4: Is it wonderful?
Speaker 1: Is is people looking for deals and being picky and
Speaker 1: just sort of back ending some of their purchases to
Speaker 1: try to get the best bang for their buck.
Speaker 7: I think so. I think the latest earnings results are
Speaker 7: telling us that consumers are shifting towards value and essentials,
Speaker 7: and you know, clubs and value retailers doing great means
Speaker 7: that consumers are really concerned about what is going on
Speaker 7: in terms of prices, and they are really shifting towards
Speaker 7: those savings. So I think we are looking at a
Speaker 7: healthy holiday season, but not necessarily the best one. So
Speaker 7: I think, you know, probably the results of the Thanksgiving
Speaker 7: holiday was we're a little bit overstating the health of
Speaker 7: the consumer.
Speaker 5: Jih and great to see you, And I'd love for
Speaker 5: you to put in the context for us where we
Speaker 5: are in the capacity the companies have their willingness to
Speaker 5: absorb costs because of these tariffs. I might posit that
Speaker 5: maybe this holiday Christmas season is kind of the last
Speaker 5: gas for them to do this before maybe in the
Speaker 5: new year we begin to see some of that trickling
Speaker 5: down to consumers in anticipating that might be the case,
Speaker 5: or what's the status of that sort their willingness to
Speaker 5: do that.
Speaker 7: Yeah, thanks, thanks for the question. I think you're right.
Speaker 7: I think holidays is probably going to be okay. But
Speaker 7: our modeling and the conference board shows that the bulk
Speaker 7: of the tariffs impact will be evident in the beginning
Speaker 7: of twenty twenty six, so Q one, Q two, and
Speaker 7: that is where we see the biggest softening in consumer demand. Actually,
Speaker 7: so I think despite the fact that you know, the
Speaker 7: new cycle kind of moved away from tariffs a little
Speaker 7: bit in recent months, consumers are still feeling the burden.
Speaker 7: They still failing, prices are elevated, and they are shifting
Speaker 7: their spending patterns. Actually, at the Conference Board, we survey
Speaker 7: consumers by different types of income, so the whole spectrum
Speaker 7: of income groups that we reach out to, and what
Speaker 7: I see in our consumer confidence data is a broad
Speaker 7: based decline in income expectations. I see a broad based
Speaker 7: decline in consumer confidence over the course of twenty twenty five.
Speaker 7: This is the time to kind of like look back
Speaker 7: at the year and assess what's called what happened? And
Speaker 7: there was a twenty four point decline in consumer confidence
Speaker 7: over the course of twenty twenty five. Consumers earning making
Speaker 7: more than one hundred and twenty five thousand dollars a year,
Speaker 7: the decline in their confidence was also sizable, something like
Speaker 7: minus seventeen points.
Speaker 5: I'm still having a hard time kind of squaring the
Speaker 5: sentiment data with the hard data. What we're seeing in
Speaker 5: terms of people, yes out there spending money. I kind
Speaker 5: of imagine Santa Claus filling is sack with gritted teeth.
Speaker 5: He's doing it, but maybe he's not feeling good about
Speaker 5: the crisis that he's paying. Is that reflective of what
Speaker 5: we're seeing here? And what do you make of that
Speaker 5: seeming disconnect between again the hard data and the sentiment
Speaker 5: data that you watch so closely.
Speaker 7: I think it's the timing issue, and you know, to
Speaker 7: a certain degree, we did see some softening in consumer spending.
Speaker 7: The actual data in September already, right, So look at
Speaker 7: the personal income and spending reports for that month. Obviously
Speaker 7: it's very stale, but that shows that, you know, there
Speaker 7: was some softening in spending on non durable butos for example, right,
Speaker 7: and as things are getting more and more expensive. I
Speaker 7: think we do see that. We'll get another piece of
Speaker 7: evidence next week when retail sales data comes out. I
Speaker 7: think it's not a collapse, it's somewhat softer growth in
Speaker 7: consumer spending. But obviously a big risk is the labor market.
Speaker 7: So what happens to the labor market going into Twined
Speaker 7: twenty six will matter the most for the pace of
Speaker 7: consumer spending.
Speaker 8: Elena, good to see you. So the labor differential which
Speaker 8: you're highlighting, I think is key here where people if
Speaker 8: you have a job, you're okay because they also are
Speaker 8: not picking up. But do you think housing affordability is
Speaker 8: another reason why consumer sentiment is that week? Because I'm
Speaker 8: trying to see do the two hundred and one seventy
Speaker 8: five basis points of rate cuts do they help housing affordability?
Speaker 8: Do you think these rate cuts can actually improve consumer
Speaker 8: sentiment or we continue to see this disconnect and sort
Speaker 8: of wait for that timing to play out.
Speaker 7: I apre Yeah, I think that you know, you're referring
Speaker 7: to the level of interest rates, and even if interest
Speaker 7: rates continue to edge lower in terms of mortgage rates,
Speaker 7: that could improve affordability. But the big part of the
Speaker 7: affordability calculation is prices, and prices are still elevated. Well
Speaker 7: maybe they're growing at a slower pace, but they're still growing.
Speaker 7: So you have that one million dollar house and it's
Speaker 7: now a million and five thousand, so it's still it's
Speaker 7: still very unaffordable to a lot of people out there.
Speaker 7: Maybe at the margin it could help, but I think
Speaker 7: we just need continued growth in real wages going forward,
Speaker 7: as Chair Powell mentioned earlier this week, to kind of
Speaker 7: outgrow from you know, the economy needs to grow into
Speaker 7: that kind of state where consumers will be able to
Speaker 7: afford a little bit more and you know, be happy
Speaker 7: again about how they are faring.
Speaker 2: Stay with us Mobilemberg Surveillance Coming up after this.
Speaker 1: Sticking with AI and the application of it is inking
Speaker 1: a billion dollar steak in open AI and licensing more
Speaker 1: than two hundred of its characters to the startup. Jason
Speaker 1: Mazine of City Writing, we suspect Disney views the use
Speaker 1: of its IP as a free form of marketing. The
Speaker 1: use of these characters should help sustain and potentially build
Speaker 1: long term brand value. Jason has a buy rating on
Speaker 1: shares of Disney with one hundred and forty five dollars
Speaker 1: price ticket. These shares are up four tens percent in
Speaker 1: pre market trading. Jason joins us now, Jason.
Speaker 2: Thank you so much for being with us.
Speaker 1: I thought this was a fascinating move and the part
Speaker 1: of Disney, it kind of goes to the heart of
Speaker 1: the anxiety for content creators. Is AI going to be
Speaker 1: a partner? Is it going to be accounibal? Is it
Speaker 1: going to make you obsolete. What do you take from
Speaker 1: this approach from Disney?
Speaker 9: Well, there's part of this deal we like, Lisa, in
Speaker 9: part that we don't. The part that we like is
Speaker 9: we'd rather see a commercial deal than litigation, and so
Speaker 9: we like the idea that they've inked something. We think
Speaker 9: Disney is going to get some cash for the use
Speaker 9: of its IP and we like the idea that the
Speaker 9: use case has been ring fenced these animated characters short
Speaker 9: form video that makes a ton of sense. The part
Speaker 9: I don't like is the billion dollar investment.
Speaker 5: And explain why. I have another question. Let me taste
Speaker 5: that out of here a little bit. Why are you
Speaker 5: sitt down on this investment, which I think some could
Speaker 5: argue is sort of them you know, a solidifying a
Speaker 5: stake here in a company that has had more than
Speaker 5: buzz over the last couple of years, and a lot
Speaker 5: of people are thinking it's kind of the future of tech.
Speaker 4: More broadly, well, Disney has.
Speaker 9: First of all, I've never had an investor tell me
Speaker 9: that they invest in Disney because they haven't a stud
Speaker 9: venture capital arm. It's just not what investors care about
Speaker 9: that are Disney shareholders. The reason I think that is
Speaker 9: is Disney tends to have a propensity to invest it's capital.
Speaker 9: It's sort of the peak of the mania. And so
Speaker 9: I could go back to, you know, the Info Seek
Speaker 9: investments that they made in the nineties. They never went
Speaker 9: anywhere a bunch of video game developers. When video games
Speaker 9: are growing very quickly, they shut all those down. A
Speaker 9: couple of years ago, they invested in Epic Games. I
Speaker 9: think it was a billion and a half dollar investment.
Speaker 9: We'll see where that goes. But that was at the
Speaker 9: height of the metaverse. And now we have the height
Speaker 9: of AI and we see a billion dollar equity investment.
Speaker 9: So you know, maybe this works out really well for Disney.
Speaker 9: But call me a bit skeptical, poor.
Speaker 6: One out for infras Seke. Haven't thought of that company
Speaker 6: in a long time.
Speaker 5: But let's get back to the use case here, Jason,
Speaker 5: because I am very curious about this. It strikes me
Speaker 5: maybe we're closer to Ann, Marie and John being out
Speaker 5: and Micky, you'll be sitting at the table with Lesa
Speaker 5: or Steamboat WILLI or Donald Duck. But I want to
Speaker 5: ask about Sora, because my sense of Sora, this product
Speaker 5: that Open Ai has made is that it hasn't gotten
Speaker 5: a lot of widespread adoption or interest. There's that kind
Speaker 5: of flash at the beginning when my Twitter feed was
Speaker 5: just filled with these kind of insane ten second videos
Speaker 5: that people were making, I think just to showcase or
Speaker 5: show off the technology that OpenEye had made. But I
Speaker 5: don't get the sense it has a lot of cultural
Speaker 5: currency now. And I'm curious to sort of when you
Speaker 5: think about the way in which open ai is going
Speaker 5: to use this, do you have a sort of satisfactory
Speaker 5: answer from the company, a sense of sort of how
Speaker 5: much this is going to be you know, used for
Speaker 5: PR or marketing employees, you say, or just use more generally.
Speaker 9: I don't know, it's all very much TBD. I would
Speaker 9: say that I had a number of investors paying me
Speaker 9: yesterday and say that they believe that open ai is
Speaker 9: sort of de emphasizing SOA and I would agree with
Speaker 9: you it doesn't have a huge amount of cultural currency.
Speaker 9: I think we're still in the early days of sort
Speaker 9: of consumer adoption and embracing of all of these tools.
Speaker 9: So TBD, But I can't I don't think it's going to.
Speaker 4: Be a bad thing.
Speaker 9: And you know, we've had a number of other companies
Speaker 9: in our coverage universe that have licensed their IP and
Speaker 9: receive checks that are you know, on the magnitude of
Speaker 9: fifty million dollars a year. That's a that's a mix
Speaker 9: of sort of a fixed payment and a usage based payment.
Speaker 1: Jason, if I were an actor in Hollywood, would I
Speaker 1: be excited about the steal or worried about the steal?
Speaker 9: Well, I would say that you are, I guess excited
Speaker 9: at one level, and that the you know, there's nothing
Speaker 9: in here that sort of allows open AI to use
Speaker 9: the likeness of actors or actresses. But in another level,
Speaker 9: it doesn't answer the threshold question because this is an
Speaker 9: easier deal for Disney to do because it has so
Speaker 9: many animated characters, the two hundred or so that you
Speaker 9: referred to, And so I think there's still an outstanding
Speaker 9: question of how these AI tools are going to be
Speaker 9: used for the bulk of the IP that exists in Hollywood.
Speaker 2: Stay with us mulblindpeg Savannah's coming up off to this.
Speaker 1: Global stocks pushing into record territory after the Federal Reserve's
Speaker 1: latest interest rate cut. Lezanne Sounders of Charles Schwab remaining
Speaker 1: cautious into twenty twenty six, saying we believe the macro
Speaker 1: environment will continue to be unstable, but stocks can likely
Speaker 1: churn higher given a firmer earnings backdrop. Lizanne joins us
Speaker 1: now in Lizan, this is what a lot of people
Speaker 1: are saying. Just watch the earnings, show me the money,
Speaker 1: and the companies can do that, and then you'll start
Speaker 1: to see gains. Just how do you think it's going
Speaker 1: to play out in terms of a tale of two halves,
Speaker 1: a tail of rotation, et cetera.
Speaker 10: Well, you know, we've been talking a lot and writing
Speaker 10: a lot about the case shape nature of this cycle.
Speaker 10: It's become a bit ubiquitous. But I think one place
Speaker 10: where you're actually already starting to see convergence is in
Speaker 10: the earnings growth rates of the tech AI, megacap tech.
Speaker 10: You know, different cohorts their earnings progress. So if you
Speaker 10: look at any of those cohorts a year and a
Speaker 10: half ago, you were running at earnings to your earnings
Speaker 10: growth rates of about fifty percent, But those have been decelerating,
Speaker 10: maybe into the twenty percent rain, where the other part
Speaker 10: of the market is actually seeing accelerating rate of earnings growth.
Speaker 10: So I'm a big believer in the old adage about
Speaker 10: you know better or worse can often matter more than
Speaker 10: good or bad. And I think it's the trajectory of
Speaker 10: earnings that is one of the reasons why we've seen
Speaker 10: some dislocations within these prior leadership areas, only two of
Speaker 10: the mag seven outperforming the S and P and opportunities
Speaker 10: that are being found outside of those prior leadership names.
Speaker 5: Well, Zam, we've been having a lot of attention to
Speaker 5: sentiment data, in part because we just haven't had the
Speaker 5: hard data as a result of this government shut down.
Speaker 5: But you and Kevin Gordon I have coined a new
Speaker 5: word here. It's the vibe pression. You're warning about a
Speaker 5: vibe pression, and I wonder if you kind of spell
Speaker 5: out how much of a what it is first of all,
Speaker 5: and then how much of a warrior it is for you?
Speaker 6: Is we move ahead here to twenty.
Speaker 10: Twenty six, I think you know it used to be
Speaker 10: talked about just in the context of soft economic data
Speaker 10: versus hard economic data. So soft data would be the
Speaker 10: survey based data, and that's where you're still showing incredibly
Speaker 10: dour outlooks. You look at New Michigan's consumer sentiment kind
Speaker 10: of plumbing its cycle lows here at the same time,
Speaker 10: as part of the Conference Board's index, their consumer confidence Index,
Speaker 10: and they have different cohorts that represent the survey respond
Speaker 10: It's Conference Board tends to skew a little bit wealthier.
Speaker 10: But Conference Sport has a question about expectations for stock prices,
Speaker 10: that's absolutely through the roof. You mish has a question
Speaker 10: about expectations for the unemployment. That's through the roof. That
Speaker 10: is one of the ultimate disconnects. That maybe is a
Speaker 10: reference to this session vib pression or the way we
Speaker 10: used to think of it as much weaker soft data
Speaker 10: relative to hard data. You probably see a little bit
Speaker 10: of convergence in twenty twenty six, and by convergence probably
Speaker 10: moves in both directions.
Speaker 5: I'm curious when you think about dispersion, where you see
Speaker 5: things kind of moving here in twenty twenty six. So
Speaker 5: if we're not going to be wagging our chins about
Speaker 5: the magnificent seven and the hyperscalers in twenty twenty six
Speaker 5: to the three which we have in twenty twenty five,
Speaker 5: where do you see that conversation moving in the year ahead.
Speaker 10: So I think as it relates to AI. The story
Speaker 10: is certainly not in the review mirror, but I think
Speaker 10: there's maybe an increasing focus even beyond data centers, which
Speaker 10: was the more recent surge area relative to the hyperscalers
Speaker 10: and the original picks and shovels companies, I think the
Speaker 10: shift is more toward the adopters, the effective adopters, not
Speaker 10: just in a very general set, but actually starting to
Speaker 10: get meat put on the bones in terms of impact
Speaker 10: on productivity, what it means for labor costs, can it
Speaker 10: help improve profit margins? So I think that may be
Speaker 10: one of the newer themes that develops within AI is
Speaker 10: that adopter theme. But you're also seeing broader participation in
Speaker 10: other segments of the market, healthcare having some of the
Speaker 10: best breath right now.
Speaker 4: Now.
Speaker 10: We would also caution against simplistic, monolithic sector based investing
Speaker 10: because there's a lot of dispersion within sectors, and that's
Speaker 10: where we think you want to apply that factor based analysis,
Speaker 10: at least as an add on to sector based analysis.
Speaker 10: And the factors that we're focused on right now, to
Speaker 10: use an old school acronym, are very garp like. So
Speaker 10: you don't want to sacrifice growth just for value. You
Speaker 10: want to look for value, but you want to have
Speaker 10: those growth characteristics as well.
Speaker 8: Lazan is bad news good news for stocks, I mean
Speaker 8: ahead of next week, Meaning if you get weak economic data,
Speaker 8: well then the Fed's going to cut a lot more.
Speaker 8: Maybe do really qy and so equities can look through
Speaker 8: it or you think either the rotation trade or actually
Speaker 8: equy evaluations are at risk if the uneployment rate keeps rising.
Speaker 10: Maybe marginally bad is okay from a FED reaction function perspective,
Speaker 10: but really bad news, especially in the labor market, regardless
Speaker 10: of what that means for the trajectory of monetary policy,
Speaker 10: I think is bad news, particularly given that the support
Speaker 10: for this economy, consumer spending resilience that has largely been
Speaker 10: a function of not just health in the labor market,
Speaker 10: but confidence about the labor market. You start to see
Speaker 10: weaker than expected numbers to a significant degree that feeds
Speaker 10: not just back into the consumption channels, but very quickly
Speaker 10: back into the confidence channels.
Speaker 1: So, Lezana, are you buying the idea of a jobless recovery?
Speaker 1: Can we see that in twenty twenty six fueling the
Speaker 1: rotation or is that kind of implausible given what you
Speaker 1: just said.
Speaker 10: Well, if you look at the ADP data of the
Speaker 10: job growth has been concentrated recently in larger companies, companies
Speaker 10: with five hundred employees or more. Anything below that is
Speaker 10: really where you're seeing the compression. You see that divide
Speaker 10: in terms of corporate profits to very strong SMP profits
Speaker 10: thirteen fourteen percent. Yet NIPPA based version of profits National
Speaker 10: Income and Product accounts, which is millions of companies, public companies,
Speaker 10: private companies first half of the year and we don't
Speaker 10: have the third quarter data yet was actually in slight
Speaker 10: negative territory and that's being reflected in the labor market
Speaker 10: as well. So that's where I do think the bifurcations persist.
Speaker 10: I think the net is it looks just sluggish, but
Speaker 10: I think you have to find tooth comment in terms
Speaker 10: of size of company in particular.
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Speaker 1: Mm hmm