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Speaker 2: Incredibly important.
Speaker 3: Somebody said, like ten billion dollars or some ginormous NUMBERD
Speaker 3: is a ginormous excellence. Julian Emmanuel joins as chief Equity
Speaker 3: and quand strategist Evercore ISI with a definitive note. What's
Speaker 3: distinctive about your daily research note that your team writes
Speaker 3: for you? We know you don't write it, But what's
Speaker 3: distinctive about the note now versus the other previous quarters?
Speaker 3: OMG earnings are better than we thought.
Speaker 4: That's the headline, Tom, and the reality is it's broader
Speaker 4: than you might have thought. I'm balance right. We know
Speaker 4: Tech's going to beat. Tech has beaten, it will continue
Speaker 4: to beat. But one of the more malign sectors, energy
Speaker 4: is also showing very consistent beats, as is financials, which
Speaker 4: was the story that started us off on what is
Speaker 4: likely to be double digit earning.
Speaker 3: Squirrel, you bring it over all. The heritage of Edheimen.
Speaker 3: Evercorn Frankly, you know Isi and frankly, Evercore.
Speaker 2: Is this just because GDP was better than we expected?
Speaker 3: I mean, is this just a real or even nominal
Speaker 3: GDP pop is helping out broad earnings?
Speaker 5: Well, that's certainly part of it.
Speaker 4: It's also this idea that the stress from tariffs has
Speaker 4: sort of dissipated through the system in unseen ways. But again,
Speaker 4: it is the story of what it's been, certainly the
Speaker 4: three years of this bull market, and going back further
Speaker 4: than that, is that every time you think the corporate
Speaker 4: America can't find a way to make margins you know
Speaker 4: better or at least stable at these high levels, productivity
Speaker 4: tends to happen.
Speaker 6: It tends to happen.
Speaker 7: You're right, I mean, don't underestimate the corporate entity out
Speaker 7: there or the consumer. Where do we go here from
Speaker 7: the stock market? I'm guessing a lot of the questions
Speaker 7: you get from your clients is, boy, it feels rich here.
Speaker 6: How do we think about it? Where do we go
Speaker 6: from here?
Speaker 2: So it does.
Speaker 4: And frankly, when you think about the wall of worry,
Speaker 4: we like that because that means there is.
Speaker 5: A wall of worry. I will say in the last
Speaker 5: week or so.
Speaker 4: The fact that September and October were as positive as
Speaker 4: they were have gotten people very, very bullish, and almost
Speaker 4: rightly so, because seasonality tends to be good in November
Speaker 4: and December. But when you think about all this event risk, geopolitical,
Speaker 4: monetary earnings, elections, etc. There may be a step back
Speaker 4: in here. But again, the story of the long time story,
Speaker 4: the AI driven bull market, as we've seen by the
Speaker 4: news flow in the last twenty four hours, is largely
Speaker 4: on track.
Speaker 6: What do you make of gold? What a run that was?
Speaker 6: Is pullback that was?
Speaker 3: That is?
Speaker 6: I don't know? What do you make of gold?
Speaker 4: We think, actually so a lot of our conversations this
Speaker 4: summer in the fall have been about bubbles in the market,
Speaker 4: in the stock market. We think you're a long way
Speaker 4: from that in the s and P. Five hundred and
Speaker 4: in the AI story. But gold could be the bubble
Speaker 4: that has burst in our view, because if you think
Speaker 4: about it, the same reasons that people were buying gold,
Speaker 4: fear of inflation being more permanent, that is not coming
Speaker 4: to roost. It it's still too high, but it is
Speaker 4: on track to come down in twenty twenty six. And
Speaker 4: then this whole idea of the debasement trade. Ye, the
Speaker 4: quote unquote debasement trade. We'll call bunk on that because
Speaker 4: if you think about it, A the dollar has been
Speaker 4: very stable the last several months.
Speaker 5: B yields our law.
Speaker 3: That's right, we're going to go Julian Emmanuel with this,
Speaker 3: folks at evercore Isi here to set up the earning season.
Speaker 3: Let me take the sixty thousand macro view. I'm looking
Speaker 3: to the screen this morning and I see a jump condition,
Speaker 3: and it's because of Donald Trump. He's over in Asia,
Speaker 3: he's getting, as he would say, deals done. I have
Speaker 3: a three day jump condition in ren Minby's strength. I
Speaker 3: got Sterling flat on their back as well. Some of
Speaker 3: the evercore Isi view into your earnings belief for Q
Speaker 3: one of next year, for Q two, does this every
Speaker 3: ninety day idiocy olmng earnings. We thought they'd be terrible,
Speaker 3: they're doing phenomenal. Do we just continue this bad habit?
Speaker 4: Look, we think high single digit earnings growth is in
Speaker 4: our future for twenty twenty six. And you know, frankly
Speaker 4: again to your point this morning in Asia, go back
Speaker 4: to w when the President was in the Middle East,
Speaker 4: deals were getting done, Deals are the lifeblood of what's
Speaker 4: powering the economy and specifically the AI shop.
Speaker 2: So do you take your terminal value out farther? What
Speaker 2: are the rooms today? Google?
Speaker 3: Meta, Facebook, Facebook, Ye Facebook? Do you take your terminal
Speaker 3: value out for Fortress Zuck? Do you take it out
Speaker 3: instead of three years? Find your study? Are you because
Speaker 3: of this juggernaut economy? Do you take it up to
Speaker 3: seven years?
Speaker 4: Well, you have to be careful because the counter veil
Speaker 4: here is again we remember twenty twenty was a low
Speaker 4: in global bond yields, and likely at some point we
Speaker 4: are going to move higher in global bond yields, particularly
Speaker 4: since deficits around the world continue to expand. So that's
Speaker 4: that's part of the offset. But on balance, when you
Speaker 4: think about it, you hear the potential for productivity you're
Speaker 4: gains from AI. You're only starting to see it, but
Speaker 4: that is part of the long term story that causes us.
Speaker 4: In our view, you don't get full AI adoption until
Speaker 4: twenty twenty eight, so we're certainly looking out to there.
Speaker 7: We got lots of obviously earnings today, but we also
Speaker 7: have to fit today here.
Speaker 6: What are you going to be listening for?
Speaker 4: From our chairman so this one seems kind of easy,
Speaker 4: and you know, we're going to get the twenty five cut.
Speaker 4: We're going to get a sort of no promises data
Speaker 4: dependency or lack of data dependency for December. But the
Speaker 4: bottom line is is that the burden of proof is
Speaker 4: on the data to be either too hot in inflation
Speaker 4: or you know, too hot in terms of job growth
Speaker 4: to not cut another twenty five And.
Speaker 5: You know, maybe we're not even going to get any
Speaker 5: more data.
Speaker 6: So I don't know, maybe it's just recency bias. With
Speaker 6: the headlines. It seems like they've seen a lot of
Speaker 6: job cuts out there.
Speaker 7: Don't if it's material, I don't know, if it's yeah,
Speaker 7: yesterday was a wow day. I mean, I don't know
Speaker 7: if this is AI related, if this is just seasonal,
Speaker 7: or if this is anecdotal. How do you guys think
Speaker 7: about the labor market or how do you think the
Speaker 7: Fed thinks about the libor market?
Speaker 5: So it's incredibly challenging.
Speaker 4: You know, first of all, if you go to immigration policy,
Speaker 4: we don't know what the break even monthly payroll adds
Speaker 4: is to keep the unemployment rates steady. It was one
Speaker 4: hundred and twenty thousand last year. Our people think it's
Speaker 4: closer to sixty thousand. But if you assume that migration
Speaker 4: is actually that negative, that number might be twenty or
Speaker 4: thirty thousand.
Speaker 5: So that alone is an incredible problem.
Speaker 3: I mean, folding yesterday, what was it, Paul, we had
Speaker 3: thirty four thousand and fourteen thousand.
Speaker 2: I can there's at math matth is old news.
Speaker 3: If we have AI layoffs at these big companies, how
Speaker 3: does that change something as prosaic is given the shutdown,
Speaker 3: we don't know non farm payrolls or the un deployment rate.
Speaker 4: So here's the flip side of this. Tom and David
Speaker 4: Weston did an amazing interview a few days ago with
Speaker 4: the head of Arizona State University. Is that the transformative
Speaker 4: power of AI in the education field. Imagine this. We
Speaker 4: have a chronic shortage of doctors, the chronic shortage of
Speaker 4: healthcare professionals because half the time they just don't want
Speaker 4: to commit to the payback period that it takes. Could
Speaker 4: AI actually shorten that payback period?
Speaker 5: Absolutely?
Speaker 4: Could AI make it more enticing for teachers where the
Speaker 4: attrition rate has been enormous in recent years, to go
Speaker 4: back into those areas. It's the economy transforming, you know,
Speaker 4: creative destruction, and you don't want to be on the
Speaker 4: destruction side. But it is how economies advanced.
Speaker 3: Get one more in here, folks. So you know Lisa Matteo,
Speaker 3: Paul Sweeney yesterday at BAM mutual Oh yeah, driven by AI,
Speaker 3: exactly right, Julian.
Speaker 6: Is there something that screens well for you guys right now,
Speaker 6: whether it's sectors or factors, what do you, guys, what
Speaker 6: gets your attention these days?
Speaker 5: So we actually think that.
Speaker 4: This is the week where you're seeing the end of
Speaker 4: mutual fun, tax laws selling, and from our point of view,
Speaker 4: when you think it is particularly in a year this strong,
Speaker 4: but there are lots and lots of stocks that are
Speaker 4: down on the year. A number of them are in
Speaker 4: the healthcare sector. Healthcare is at very depressed valuations, and
Speaker 4: healthcare is the focus of the shutdown.
Speaker 3: Twenty seconds ed Iiman and your team their recession call.
Speaker 4: No recession, that they were firm about it during February,
Speaker 4: March and April. They continue to be firm about it.
Speaker 4: The call is for one and a half percent growth
Speaker 4: next year. In my mind, that risk es to the upside.
Speaker 3: Julian, Manuel, don't be stranger we'll see you Monday morning,
Speaker 3: seven am as well. He's with Evercore i EI, their
Speaker 3: chief equity and quantitative strategists. He lifts some market futures
Speaker 3: up nineteen with our news.
Speaker 2: Stay with us.
Speaker 3: More from Bloomberg Surveillance coming up after this.
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Speaker 2: We need to get brief right now.
Speaker 3: Thomas Simmons joins US now chief feel as Economists at
Speaker 3: Jeffries as well. I love the bottom of your note
Speaker 3: where AIAI and all this caught to the chase and
Speaker 3: Jeffries is you know, there's sort of like a hip ferm.
Speaker 2: They're like involved in all this texture.
Speaker 3: How much is AI scaring the young kids or the
Speaker 3: older kids as well, the sixty year olds. Is it
Speaker 3: a revolution like nineteen ninety five in the Internet.
Speaker 8: I think eventually will be, although I'm not particularly sure
Speaker 8: that it's there just yet. I think that it's an
Speaker 8: easy kind of scapegoat to look at AI and say, oh,
Speaker 8: all of these firms are probably not hiring young college
Speaker 8: graduates because they have chatbots that do their job, or
Speaker 8: they have coding resources that you know, replace all of
Speaker 8: these IT focused majors and whatnot. I think it's actually
Speaker 8: significantly more risky for older folks, right, So, like if
Speaker 8: you were, for instance, a professional who did a lot
Speaker 8: of photo editing. I mean that's been a pretty democratized
Speaker 8: technology in terms of how AI has been kind of
Speaker 8: put in your pocket with your cell phone. So I
Speaker 8: think it's more in terms of like consumption of services
Speaker 8: on the consumer end, we see less demand for very
Speaker 8: specialized services. And I imagine that you know, as people
Speaker 8: progress through their careers and they get kind of close
Speaker 8: to the end of them, then the issue is more
Speaker 8: so that they kind of, you know, they're runways a
Speaker 8: lot shorter in terms of whether when you know, sort
Speaker 8: of how much more big time they thought they had
Speaker 8: before retirement and that sort of thing.
Speaker 7: So given that background, they're on the labor market, there
Speaker 7: are obviously FED focuses on the labor market, focuses on
Speaker 7: price stability, inflation.
Speaker 6: How do you think they're going to proceed here?
Speaker 7: What do you think the message FED Chairman JPAW would
Speaker 7: like to get across.
Speaker 8: Today, I think that the message is pretty much unchanged
Speaker 8: really from where it was after Jackson Hole. I mean,
Speaker 8: I think that there was a c change in the
Speaker 8: sort of perception of how healthy the labor market was.
Speaker 8: You know, you refer to this curious balance of how
Speaker 8: surprising it is that sort of demand and supply and
Speaker 8: the labor market come down at the same time, and
Speaker 8: then very shortly afterwards you see data that suggests that, well,
Speaker 8: maybe it isn't quite as imbalanced as it maybe appeared
Speaker 8: to be earlier in the year, And nothing that we've
Speaker 8: seen since then has really, you know, kind of challenged
Speaker 8: that narrative.
Speaker 2: You know.
Speaker 8: I think that it's one thing to kind of look
Speaker 8: at the labor market and say, well, we're not in
Speaker 8: the midst of some sort of collapse, some sort of
Speaker 8: like really you know, spiraling weakness. However, I do think
Speaker 8: that if you look at the history of labor market data,
Speaker 8: economic data in general, equilibria tend not to last forever, right, So,
Speaker 8: like it's nice that we're at this balance point. Is
Speaker 8: the risk that from a very balanced point you reaccelerate
Speaker 8: to something quite strong or is it probably more balance
Speaker 8: towards the downside where things kind of start to sling.
Speaker 3: We Robert Kaplan and yesterday of Harvard Business School, of
Speaker 3: gold and Sax the former president of the FED, and
Speaker 3: we spent a good amount of time talking about retraining
Speaker 3: in this bargain that we blew it on clothing industry,
Speaker 3: the clothing industry the Carolinas decades and decades ago at Jeffries.
Speaker 3: Do you see a dislocation of labor now and coming forward?
Speaker 2: Jeffrey's sensor run pretty lean.
Speaker 8: So fortunately, I think that our you know, kind of
Speaker 8: corporate culture is aimed at making sure everybody is kind
Speaker 8: of utilizing technology as much as possible. We're pretty careful
Speaker 8: about it, I imagined most other competitors of ours are
Speaker 8: as well. You know, obviously there's information security issues that
Speaker 8: you want to make sure you have buttoned up before
Speaker 8: you just kind of dump out this technology to everybody.
Speaker 8: But you know, it's it's always a risk, right, I mean,
Speaker 8: whenever we've had relatively or you know, revolutionary changes in technology,
Speaker 8: part of the problem is that it looks like it's
Speaker 8: going to be this huge productivity boom that you get
Speaker 8: from it. Eventually, in the long run, you more or
Speaker 8: less do get that, But in the meantime you have
Speaker 8: this kind of messy period where people waste a lot
Speaker 8: of time kind of trying to figure out how to
Speaker 8: use it, and it ends up being kind of an
Speaker 8: investment in productivity, whereas down for a little bit before
Speaker 8: it comes up. So I don't get the sense that
Speaker 8: we're necessarily looking at this as like, oh, we will
Speaker 8: never need to hire more people. I think that that's
Speaker 8: going to be a monstrous mistake if businesses actually do that,
Speaker 8: because you know, it's just a kind of law of
Speaker 8: the universe that your labor force ages every day and
Speaker 8: you need a talent pipeline to continue to fill in
Speaker 8: for people who are moving on for all sorts of
Speaker 8: different reasons, whether that's retirements or pivots to other things.
Speaker 7: How are you viewing inflation out there? I think a
Speaker 7: lot of folks, myself included, are pleasant surprise that we
Speaker 7: haven't seen higher level inflation that may have resulted from terrorists.
Speaker 6: Right, I haven't really seen it in the numbers here.
Speaker 8: How do you guys view that, I, you know, early
Speaker 8: on was really confused about how to interpret the whole tarif.
Speaker 8: I think that you know, most of folks in my
Speaker 8: profession were you know, either suffering for some righteous indignation
Speaker 8: about how silly and kind of you know, misdirected the
Speaker 8: policy is. But that's not for us to debate or
Speaker 8: really it's just trying to figure out what the what
Speaker 8: the impact is. And you know, we've seen a lot
Speaker 8: of price increases in a lot of different goods and
Speaker 8: services for many years. I think a great example of
Speaker 8: something that's really kind of illustrative of the whole situation
Speaker 8: is in auto and home insurance. Right, if your auto
Speaker 8: insurance rates rise, you are pretty much immediately going to switch.
Speaker 2: You don't get utility.
Speaker 8: From like the service that one of these you know,
Speaker 8: insurers provides you on a day to day basis. You
Speaker 8: need them maybe three or four times in your life,
Speaker 8: hopefully fewer than that. So there's a first mover disadvantage
Speaker 8: amongst the insurers to raise their rates, right, like they
Speaker 8: would say, we'll try to capture market share from people
Speaker 8: who are getting away from the companies that are kind
Speaker 8: of forced to move with prices. I think that we're
Speaker 8: going to see that with goods too. I mean, like
Speaker 8: they're very substitutable across a number of different vectors and
Speaker 8: you know, to this point, we haven't really seen much
Speaker 8: in the inflation data that's shown that prices have risen significantly.
Speaker 8: I think it's kind of crazy to look at one
Speaker 8: hundred plus percent tariff rates on China and then say
Speaker 8: a nine tenths increase in like window coverings is the
Speaker 8: result of of that.
Speaker 3: The heart of the matter is, are we in the
Speaker 3: phrase that I'm using more and more now is a
Speaker 3: decline in purchasing power among a huge body of Americans?
Speaker 2: Okay?
Speaker 3: Within the tariffs and the debate, how do we withstand prices?
Speaker 3: And the research so far is we're accepting higher prices, right.
Speaker 8: I think there is enough of the consumer base that
Speaker 8: is accepting higher prices, right. I think that we focus
Speaker 8: a lot of people who are struggling appropriately, so there's
Speaker 8: policy action needs to be taken to try to help
Speaker 8: people out. But like anyone who bought a home or
Speaker 8: refinance their mortgage before twenty twenty has not suffered any
Speaker 8: shelter inflation in five years, right, They've actually had their
Speaker 8: purchasing power.
Speaker 6: Increase over that whole time.
Speaker 8: And I think that that's one of the key reasons
Speaker 8: why we've seen the consumer writ large done so well here,
Speaker 8: And I think that businesses will probably focus on that
Speaker 8: and say, hey, if I'm charging a lot for a
Speaker 8: frivolous option on a car, for instance, maybe I can
Speaker 8: bump the price of that quite a lot while keeping
Speaker 8: the base price lower so the broad consumer doesn't suffer
Speaker 8: the same kind of inflation pressure as the ones who
Speaker 8: are sort of better able to accept this price.
Speaker 2: How much of.
Speaker 3: This consumer boom that we have, you know, I don't
Speaker 3: even know if they're doing Atlanta GDP now, but let's
Speaker 3: call it two point five percent plus real GDP now
Speaker 3: almost four four point four, four point eight, whatever it is.
Speaker 3: How much of that do you calculate as a wealth effect?
Speaker 6: A lot?
Speaker 2: I do think that it's Lisa, A lot doesn't cut it.
Speaker 8: I don't want a number eighty five ninety Yeah, No,
Speaker 8: I pop is wealth effect. When folks ask me what
Speaker 8: my biggest sort of concern downside risk thing that keeps
Speaker 8: me up at night sort of thing, is my concern
Speaker 8: is that we're going to get some sort of big
Speaker 8: decline in asset prices that I think will crush the
Speaker 8: consumer in the aggregate overnight. Right Like, I do think
Speaker 8: that there's reasons why we see kind of weakening participation
Speaker 8: amongst different groups in the labor market. Part of that
Speaker 8: is because they've made enough money or they have enough
Speaker 8: assets that they can retire early or reduce their work
Speaker 8: load or that sort of thing that changes very quickly
Speaker 8: if prices kind of you know, enter into a very
Speaker 8: nasty sort of negative spiral. So it's not so much
Speaker 8: that I think people are saying like, oh, my portfolio
Speaker 8: went up x percent overnight, I can spend that much more.
Speaker 8: It's more so like, how comfortable am I such that
Speaker 8: I can make some more? You know, I have more
Speaker 8: flexibility in my spending choices because of how well I'm
Speaker 8: doing with my assets.
Speaker 3: What's your GDP twelve months for real GDP?
Speaker 8: Turish, I'm a little higher than that. I think we're
Speaker 8: closer to like two and a half. I think that, yeah, well,
Speaker 8: I mean, have.
Speaker 2: We ever seen apatanism from Jefferies? I've always been an optimist.
Speaker 8: I've am more amongst the most optimist economists mystic economists
Speaker 8: out there, I would say, but I think that it's
Speaker 8: underappreciated on a couple of different fronts. One, wealthier households
Speaker 8: are actually going to get a tax break with the
Speaker 8: big increase in salt deductions. Yeah, everybody in this room,
Speaker 8: I think, is you know, kind of aware of that.
Speaker 8: But I also think it's underappreciated that we actually have
Speaker 8: much more certainty on fiscal policy now than we would
Speaker 8: in previous years. Oh, tariffs are Yeah, they're kind of
Speaker 8: in the rear view mirror, like I think the kind
Speaker 8: of range of outcomes is narrower. But also just the
Speaker 8: investment incentives and the tax structure. It's not that long
Speaker 8: ago several years in the recent past where the IRS
Speaker 8: was like reprinting tax forms on New Year's Eve because
Speaker 8: some tax law had just been passed at the eleventh hour.
Speaker 8: We've known the kind of broad strokes of what the
Speaker 8: policy is going to look like since Independence Day, and
Speaker 8: that's I can't remember the last year we've had something
Speaker 8: like that where there's been enough time for business planning
Speaker 8: for next year. So I think that we'll get some
Speaker 8: dovetailing between stronger consumer and also business investment.
Speaker 2: Thank you, Thomas Simms.
Speaker 3: I really appreciate the break with Jeffreys aer or real
Speaker 3: Dosa optimism moving forward, and we do that on this
Speaker 3: FED day as well. Stay with us more from Bloomberg
Speaker 3: Surveillance coming up after this.
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Speaker 9: Eleven thirty is John Murray.
Speaker 3: The last time he was in was really interesting about
Speaker 3: his Texas and you know, just the boom that's out
Speaker 3: there as well. How do you respond to people who
Speaker 3: say it's not a boom, it's not a technological productivity
Speaker 3: driven moment that we're in in.
Speaker 10: Are you talking about Texas or are we talking about
Speaker 10: the stuff mona Texas?
Speaker 2: Right, don't New Jersey.
Speaker 3: I mean to me, there's a lot of people out
Speaker 3: there doubting what we're living.
Speaker 2: Well.
Speaker 10: I think that, you know, if you look at what's
Speaker 10: going on in the markets, a lot of things are
Speaker 10: being driven by earnings and that creates stability. I think
Speaker 10: that's been one of the biggest reasons we've seen some
Speaker 10: of these mega compounders continue in the marketplace today. And
Speaker 10: I think that China is a really interesting component of
Speaker 10: this because it has a lot of these mega compounder
Speaker 10: companies trading at much lower multiples. And fun fact, we're
Speaker 10: almost at Halloween. Since Halloween of twenty twenty two when
Speaker 10: the market bottomed, the Chinese index is beating the S
Speaker 10: and P five hundred. That's within Nvidia doing everything it's done.
Speaker 10: So I think there's some really interesting opportunities out there,
Speaker 10: and I want to talk about a handful of them.
Speaker 9: But I also want to talk a little.
Speaker 10: Bit about a QT at some point today, because that's
Speaker 10: a literaryropical.
Speaker 7: I mean, that's something all I care about is what
Speaker 7: the FED is going to do with rates, but it
Speaker 7: is what are they doing with their balance sheet as well?
Speaker 6: How are you thinking about it?
Speaker 10: Yeah, let me say I was actually thinking about coming
Speaker 10: on air today and I was going through things I
Speaker 10: wanted to discuss, and it occurred to me that we
Speaker 10: have a third mandate for the FED, and the first
Speaker 10: two unemployment and inflation. But the third mandate is inherited,
Speaker 10: and that is managing balance sheet liquidity. Post the GFC,
Speaker 10: they entered into this new world era where they have
Speaker 10: to continually monitor what they're doing on their balance sheet,
Speaker 10: and this is really a new mandate for them. And
Speaker 10: if you look at what happened in nineteen, those reserves
Speaker 10: on the federal balance sheet dipped lower below that three
Speaker 10: trillion mark, and that created real scares in the repo market.
Speaker 10: We're seeing the similar thing today. Why is the Fed
Speaker 10: all of a sudden stopping QT. What is the reason
Speaker 10: for that? Well, it has to do with the ability
Speaker 10: for banks to lend money in that repo market, and
Speaker 10: that reserves on their balance sheet close to that three
Speaker 10: trillion mark is a big deal. So the reason I
Speaker 10: say this is because because we live in a world
Speaker 10: now where defense always going to be focused on what
Speaker 10: is on their balance sheet and how much and if
Speaker 10: they're doing q E or QT, I think that creates
Speaker 10: a real dynamic at play in the financial plumbing and
Speaker 10: in the financial markets. And one reason I like regional
Speaker 10: banks they will benefit with QT coming to an end
Speaker 10: because that will make it easier for them to lend
Speaker 10: money and that will produce a pop in their nims.
Speaker 3: It is a general statement the banks are behind, right,
Speaker 3: and this melt up the banks.
Speaker 2: Oh yeah or behind? Oh yeah? How behind is behind?
Speaker 9: They're really behind? They're flager date the.
Speaker 3: I know, but on a p or book price to book,
Speaker 3: you know, the stuff you look at, measure the behind
Speaker 3: that they are.
Speaker 2: Tom.
Speaker 10: You can get regional banks on a price to book
Speaker 10: basis at the same level that they were in May
Speaker 10: of twenty twenty three when you had the SVB and our.
Speaker 9: First public blow up. They're cheap.
Speaker 2: So what's the catalyst to make that look in video like?
Speaker 9: Aha? Well, three things.
Speaker 10: The first I would mention, I think that the stopping
Speaker 10: of QT is a real tailwind.
Speaker 9: Deregulation.
Speaker 10: That's a big component with what's going on with the
Speaker 10: Trump administration, so they want to continue that. We're seeing
Speaker 10: him in the activity already. So you know, you've seen
Speaker 10: Cadence get purchased recently so by Huntingdon Bank shares, so
Speaker 10: I think they'll see more M and A. But I
Speaker 10: think the main driver is two big pieces valuation and
Speaker 10: earnings growth. You've got earnings growth coming out of these
Speaker 10: banks in the high teens sometimes even twenty percent, so
Speaker 10: stepergield curve, low valuations, fast earnings, deregulation and then the
Speaker 10: stopping of QT. All those things coalesce into a pretty
Speaker 10: interesting basket.
Speaker 3: Jack Murray with his chief investment officer at NFJA. We
Speaker 3: welcome all of you across America. We welcome at you
Speaker 3: in Texas where he is from, and we say good
Speaker 3: morning on YouTube as well worldwide.
Speaker 2: Good one.
Speaker 3: We're on the Pacific Rim where Tyler Kendall is in Korea,
Speaker 3: good morning and good night, I should say, in India
Speaker 3: as well. Thanks for your attendance on a daily basis
Speaker 3: on YouTube. Subscribe to Bloomberg Podcast.
Speaker 7: Paul Sweet Johnny, you mentioned China here, and we've got
Speaker 7: President Trump meeting with President She tomorrow, presumably in South Korea.
Speaker 7: What is your China call here? So we've been very
Speaker 7: bullish on China. We got very bullish, as I mentioned
Speaker 7: back in twenty twenty two. We've stayed long China.
Speaker 10: I think actually in our international and our Emerging market funds,
Speaker 10: we might be the top allocators within that region in
Speaker 10: China gues, So we're really bullish there. You know, what
Speaker 10: I would say is that the fact that they're meeting
Speaker 10: is a real positive. There's definitely been you know, some
Speaker 10: hand gar and aids thrown back and forth between the two.
Speaker 10: I think that the last time they met was back
Speaker 10: in two thousand and nineteen. That was for a brief
Speaker 10: period in Japan. And before that it was at mar Lago.
Speaker 10: They're not going to meet in Korea without some positives
Speaker 10: to share for the market. The reality is President she
Speaker 10: knows that he needs to continue the strength in his economy.
Speaker 10: He wants to open up some of the pathways for communication.
Speaker 10: So I think that there are real positives that could
Speaker 10: come out of this EVS or one thing they're going
Speaker 10: to tackle.
Speaker 9: Rare earths are another.
Speaker 10: The rare earth thing is funny because they're actually not
Speaker 10: rare as we know.
Speaker 9: They're just refined in China.
Speaker 10: But these are real levers and the reality is we
Speaker 10: need the two superpowers to work together. So I think
Speaker 10: this could be a real catalyst. But to be quite candid,
Speaker 10: I think the main catalyst is you've got a lot
Speaker 10: of earnings growth coming out of China, really low valuation,
Speaker 10: and they're a sleeper in the AI trade.
Speaker 9: And if you look at.
Speaker 10: What's going on in the US, I mean, Jensen Wand
Speaker 10: came out this summer and said that Deep Seek and
Speaker 10: Tencent and Bobby he said their models are as good
Speaker 10: as ours. And I don't really think that Americans are
Speaker 10: fully pricing that in and I think there was a
Speaker 10: lot of scare you know, maybe several months back about
Speaker 10: delisting at eight RS. You know that has not come
Speaker 10: to fruition. I do not think that would be good
Speaker 10: for either country. The reality is China wants capital. She
Speaker 10: wants money to flow into China, and he wants investment
Speaker 10: from the US. And Trump knows that he needs to
Speaker 10: work with you to find a path here. Finanall is
Speaker 10: the big wild card. If they find a way to
Speaker 10: talk about that and restrict some of that coming to
Speaker 10: the US, that'd be a big win. So this is
Speaker 10: probably the beginning of meetings. I would expect they meet again,
Speaker 10: hopefully around Christmas time, maybe mar Lago. Maybe we get
Speaker 10: another meeting in Florida between g and Trump.
Speaker 3: Do you model and the prison here for John Murray
Speaker 3: folks is Texas, which we all agree is it's a
Speaker 3: unique separate and I mean I needed a passport to
Speaker 3: get through the George Bush Airport in Houston.
Speaker 10: Yeah sure, yeah, you know, customers, I think it's the
Speaker 10: ninth largest economy in the world.
Speaker 2: Is thank you.
Speaker 9: Yeah, yeah, it's really big.
Speaker 3: So if we do this China Ai thing and all
Speaker 3: the happy talking Trump and G and all, that, does
Speaker 3: that mean the Chinese economy actually lifts up and they
Speaker 3: get back to a real consumption that's been missing.
Speaker 9: I think it's very possible. I really do.
Speaker 10: I think that if you look at what's going on,
Speaker 10: you know, Jack maw coming back was a big deal.
Speaker 10: Pony Moss come out, he's the CEO of Tencent in
Speaker 10: support of some of the moves that G is making.
Speaker 10: So I think that she can take a page from
Speaker 10: the playbook of Trump that you need to be working
Speaker 10: with your top leaders of the biggest companies, the biggest
Speaker 10: employers in order for the country to thrive. So I
Speaker 10: think that G is doing that. He did clean house
Speaker 10: in his cabinet recently. That's an interesting move that he made,
Speaker 10: so he definitely has stacked it with people that are
Speaker 10: aligned with him. But if I'm being honest, it's no
Speaker 10: different than generally what we see here in the US,
Speaker 10: people trying to put people around them that they think
Speaker 10: are aligned with them.
Speaker 9: So I do think that we have some upside here.
Speaker 6: Well, now, emmy learning China, well program.
Speaker 3: Note on that Elizabeth Economy with us here recently, and
Speaker 3: you know she's so subtle.
Speaker 2: Time shut up and read this book. Sure, I mean,
Speaker 2: she's so gentle about it.
Speaker 3: Yep, And I'm actually reading a book on the Chinese
Speaker 3: milllitary because doctor Economy said a stupid read it. Absolutely,
Speaker 3: I don't have a report on it yet, but you know,
Speaker 3: like you say, they replaced generals.
Speaker 2: And yeah, aderals as.
Speaker 7: Such, Mike proxy for China has always been Ali Baba
Speaker 7: and the stocks up one hundred and ten percent a
Speaker 7: year to date. So my boy Joe Sai getting it
Speaker 7: done there at Ali Baba. You guys are value investors.
Speaker 7: How do you define value? So we look at value
Speaker 7: through a few dimensions. The first is based on evaluation
Speaker 7: relative to a company's history, the market, and peers. But
Speaker 7: I will tell you that the peer group is the
Speaker 7: real crown jewel of our research because peers are not homogeneous.
Speaker 7: Think about the housing market, for example, if you look
Speaker 7: at homes you know in New York or California, you
Speaker 7: really have to create homogeneous peer sets to determine if
Speaker 7: a house is expensive or cheap. It's not just you know,
Speaker 7: every house on your block is not a comp. So
Speaker 7: if we take regional banks, you can't say that they're
Speaker 7: all comps because some have wealth management, some are tied
Speaker 7: to interest rates. So you need to really have a
Speaker 7: statistically tight group and.
Speaker 3: Single best buy. Are you allowed to say like this
Speaker 3: is our single best buy.
Speaker 10: Well, that would be if I do the single best
Speaker 10: buy it. I have a one stock portfolio, so we
Speaker 10: run diversified. But I will tell you that Ali Baba
Speaker 10: is our top weight in our international So it's nice.
Speaker 3: Paul's really on top of this. Well, give us twenty seconds,
Speaker 3: Ali Baba.
Speaker 9: Go okay, So Ali Baba.
Speaker 10: First thing I'll say is they have they have made
Speaker 10: a commitment to do over fifty two billion in cloud
Speaker 10: infrastructure over the next three years. That's an enormous commitment
Speaker 10: to AI. You're trading at some of the lowest valuations
Speaker 10: on EVA to EBITDA basis over the last decade. We
Speaker 10: have a long way to go. They've been increasing their
Speaker 10: dividend and they now pay a dividend. Ali Baba went
Speaker 10: from a growth stock to a value stock. So you've
Speaker 10: got dividing growth, You've got tons of cash in the
Speaker 10: balance sheet, big investments in AI. I think the future
Speaker 10: is really bright for these guys. This is a combination
Speaker 10: of Amazon in VideA. You have all these components tied
Speaker 10: together within the Baba infrastructure. Cloud infrastructure Chips Models Retails
Speaker 10: that covers it.
Speaker 2: You guys, I see you. You're on with Robin Hood
Speaker 2: right now. Absolutely.
Speaker 6: I belong to Joe Sigh for a long time.
Speaker 10: Tell me one thing about quick qick quick. Taiwan is
Speaker 10: the big wildcard. What is going to happen with Taiwan?
Speaker 10: If we looked at the playbook for Hong Kong, they
Speaker 10: took it back, and they did it slowly, but they
Speaker 10: did take it back. I think that that's going to
Speaker 10: be the play very slowly.
Speaker 3: John, Thank you John Mowery with his Chief Investment Officer
Speaker 3: NFJ there.
Speaker 2: Stay with us.
Speaker 3: More from Bloomberg Surveillance coming up after this.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Applecarplay and Android Auto
Speaker 1: with the Bloomberg Business app. You can also listen live
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Speaker 1: Alexa play Bloomberg eleven thirty.
Speaker 3: In two thousand and six, they found a tree which
Speaker 3: is growing to the sky. It's out in California. It's
Speaker 3: a redwood. It's a secret where it is. They want
Speaker 3: to keep the idiots away from it. It's over a
Speaker 3: football field tall, which is nuts. It's our example of
Speaker 3: trees to the sky. Alicia Levine knows that earnings revenues
Speaker 3: the stock market in Nvidia, it doesn't grow into the sky.
Speaker 3: Head of Investment Strategy and Forest Wisdom at BNY Wealth
Speaker 3: joins us this morning, how close are we to redwood
Speaker 3: height in this stock market?
Speaker 11: So I don't think we're at redwood height, because I
Speaker 11: do think the earnings are delivering and coming in better
Speaker 11: than expected. And the multiple that we're at today now
Speaker 11: we're at twenty three times, but for most of the
Speaker 11: year we were at twenty two times forward earnings, which
Speaker 11: is where we were a year ago when we worried
Speaker 11: about expensive markets. It's the earning that are driving this market.
Speaker 11: And so I don't see redwood to the sky. I
Speaker 11: see a very careful path upward, climbing that tree.
Speaker 3: And now the fedor doing differential equations today, Okay, let's
Speaker 3: look at a quadratic glide path. Sure, we're spending all
Speaker 3: this money on CAPEX. There's another curve line which is
Speaker 3: someday it's going to pay off as well. Where in
Speaker 3: the X access do we learn if AI pays off?
Speaker 3: If you've got quadratic glide pass crossing at some point.
Speaker 11: Look, it's a great question, I would say as a
Speaker 11: market matter, I'd say I'd say you need to have
Speaker 11: visibility into the next eighteen to twenty four months here, right,
Speaker 11: Like it can't.
Speaker 6: Be five years.
Speaker 3: Right.
Speaker 6: If it's five years, you're.
Speaker 11: Going to wind up with a market that's going to
Speaker 11: reset at the top here. So I think it has
Speaker 11: to be eighteen to twenty four months. This is how
Speaker 11: we invest our client capital. We do twelve to eighteen
Speaker 11: months forward. That's probably the right time horizon. That's why
Speaker 11: we use far forward earnings on the S and P,
Speaker 11: not the trailing. I think the trailing is irrelevant. It's
Speaker 11: the forward. It's always looking forward. So if you have
Speaker 11: a monetization of the cap X within the next eighteen
Speaker 11: months or so, then the market's fine. Then you're opening.
Speaker 3: You don't hear that in the conference calls, Yeah, Carol
Speaker 3: on timblebeyond, like do we go down on down?
Speaker 2: Do we go down four thousand points?
Speaker 11: So it's no, I mean it's I don't think it's today.
Speaker 11: I don't think it's the earnings call. It's forty eight
Speaker 11: hours is so let's call it rich. It's a rich
Speaker 11: forty eight hours, it can be up for two days
Speaker 11: straight just on what could affect the markets. It's not today,
Speaker 11: but it has to be some visibility. And as you know,
Speaker 11: some of the companies that have actually shown to monetize
Speaker 11: some of their investments earlier have done better than others,
Speaker 11: and where there was a question about it. I can't
Speaker 11: talk about specific names, but you saw the stocks languish
Speaker 11: for a year or eighteen months because there's investment with
Speaker 11: no payoffs. So it is very clear that there has.
Speaker 6: To be some.
Speaker 11: ROI here.
Speaker 9: Coming down to the bottom line, how do you.
Speaker 6: Think about the one Big Beautiful bill.
Speaker 7: A lot of folks are saying that's going to be
Speaker 7: a real driver for growth in twenty twenty six.
Speaker 6: We're worried about tariffs in the short.
Speaker 7: Term, but how about in twenty twenty six with some
Speaker 7: of the legislation that has passed.
Speaker 11: So I think it's a huge driver. It largely offset
Speaker 11: the drags for tariffs on the corporate sector in the aggregate.
Speaker 11: And I'm saying that slowly and clearly because not every company,
Speaker 11: for instance, a furniture company, is going to feel the
Speaker 11: effects of the One Big Beautiful bill. But overall, the
Speaker 11: tax consequences and the cash flow nature of investing offsets
Speaker 11: the drag for tariffs. It's enormous on the corporate sector,
Speaker 11: which is this year, which is why earnings are so strong.
Speaker 11: We don't see the effects of tariffs. And in the
Speaker 11: first quarter of twenty twenty six you have the consumer
Speaker 11: support coming from the tax code, so refunds from the
Speaker 11: IRS February, March, and April. So you're supporting the lower
Speaker 11: end of the consumer that are available to get these
Speaker 11: refunds while you're supporting corporates.
Speaker 9: It's huge.
Speaker 2: Well, Paul, to me, that's the question of the day
Speaker 2: that you asked.
Speaker 3: I mean, to me, it's been underanalyzed. Yep, it's been
Speaker 3: under It's not in the zeitgeist here as well. And
Speaker 3: you just look at it as one big stimulus, I mean,
Speaker 3: the big beautiful stimulus.
Speaker 11: I think is I think the more important point here
Speaker 11: is when you think about modeling this, it's been very univariable.
Speaker 11: What are the effects of tariffs on an economy? Well,
Speaker 11: that's fine, everything else being equal, but everything else is
Speaker 11: not equal. It's a dynamic model. There's fiscal policy as well,
Speaker 11: coming with the unusual trade policy for the country, and
Speaker 11: actually it's offsetting it and encouraging capex twenty seconds.
Speaker 3: If we get lower interest rates, there's a univariable ambiguity there.
Speaker 3: We can have a positive construct with lower rates.
Speaker 11: Camera absolutely, absolutely, I do.
Speaker 3: Okay there, I'm pretty I'm just reading Forbozi here, trying
Speaker 3: to keep up.
Speaker 11: Look, you know we are lower rates, higher market, everything
Speaker 11: else being equal, as long as inflation doesn't get to
Speaker 11: four percent. Okay, so the market's accepting three. The Feds
Speaker 11: restarted the cutting cycle at inflation at three percent.
Speaker 3: Michael Barr's taking notes. Alicia Levine, thank you so much.
Speaker 3: With Bny there on the lift in the market.
Speaker 2: Let us make notes. She has said participate in equities.
Speaker 2: She has been correct.
Speaker 1: This is the Bloomberg Surveillance podcast, available on Apple, Spotify,
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