WEBVTT - Bloomberg Surveillance TV: September 23rd, 2025 0:00:02.400 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.680 --> 0:00:15.480 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.520 --> 0:00:18.720 with Lisa Bromwitz and Amerie Hordernt. Join us each day 0:00:18.760 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.440 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.960 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.319 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:37.000 Terminal and the Bloomberg Business app. We begin the sour 0:00:37.000 --> 0:00:39.240 with stock Steady. Liz An sanders a child swat, wanting 0:00:39.280 --> 0:00:41.760 the market maybe too top heavy. Right in the following 0:00:41.800 --> 0:00:45.200 investor's face of risks, the market breath narrows and performance 0:00:45.240 --> 0:00:48.720 becomes overly dependent on a few dominant stocks. This dynamic 0:00:48.760 --> 0:00:51.680 can distort perceptions of market health. Lizan joins us now 0:00:51.680 --> 0:00:53.440 for more. Let's Ank and Mornic coome morning. Good to 0:00:53.479 --> 0:00:55.320 see you and welcome to New York. Thank you very much, 0:00:55.360 --> 0:00:57.560 thank you for coming in. Let's talk about that quote 0:00:57.680 --> 0:00:59.720 right there and whether you believe we're becoming more or 0:00:59.800 --> 0:01:01.800 less dependent on just a handful of stocks. 0:01:01.800 --> 0:01:04.240 At the moment, we're becoming. 0:01:04.600 --> 0:01:08.200 Still very dependent on a smaller handful of stocks. Though, 0:01:08.319 --> 0:01:10.720 So if you look at the cohort of the Magnificent seven, 0:01:11.920 --> 0:01:13.840 just to pick a cohort as opposed to say, the 0:01:13.880 --> 0:01:16.600 top ten, only four of those stocks now are at 0:01:16.640 --> 0:01:18.800 performing the S and P five hundred, and the best 0:01:18.840 --> 0:01:22.759 among them no surprise, in Video is only the forty 0:01:22.840 --> 0:01:25.520 seventh best performing stock in the S and P five hundred, 0:01:25.640 --> 0:01:29.200 meaning forty six stocks within that index have better performance 0:01:29.240 --> 0:01:32.480 than Nvidia, and Vidia is the largest contributor to cap 0:01:32.520 --> 0:01:35.320 weighted S and P gains, but it's not the best performer. 0:01:35.560 --> 0:01:38.199 The mag seven are all in the NASDAQ. In Vidia, 0:01:38.200 --> 0:01:40.240 as a number one performer among the mag seven, is 0:01:40.319 --> 0:01:43.479 ranked I think six hundred and thirtieth within the NASDAK. 0:01:43.959 --> 0:01:47.559 So I think we're starting to see more dispersion even 0:01:47.600 --> 0:01:50.120 among these concentrated cohorts. 0:01:50.160 --> 0:01:51.200 You've also got. 0:01:51.120 --> 0:01:54.760 Correlation within the S and P has come down, dispersion 0:01:54.800 --> 0:01:57.640 widening out. So I actually think it's not a bad 0:01:57.800 --> 0:01:59.880 backdrop from a. 0:01:59.480 --> 0:02:00.760 Stock pick perspective. 0:02:01.440 --> 0:02:03.560 It levels the plane field a little bit more for 0:02:03.680 --> 0:02:04.880 active relative capacity. 0:02:05.040 --> 0:02:06.760 Let's build on that just a little bit more so 0:02:06.840 --> 0:02:08.799 Kristin beddley A says he was with us about fifteen 0:02:08.800 --> 0:02:11.920 minutes ago, and she said, for long term investors, stick 0:02:11.919 --> 0:02:14.000 with a camp Whited index. That's the way to go. 0:02:14.240 --> 0:02:17.200 What are the risks around that given what you just said, Well. 0:02:17.000 --> 0:02:19.840 You've got the concentration problem embedded in that index. With 0:02:19.919 --> 0:02:23.320 the ten largest names representing forty percent of the index, 0:02:23.360 --> 0:02:25.799 that's an all time high. Even the top five names 0:02:26.040 --> 0:02:28.400 represent close to thirty percent of the index. So you 0:02:28.440 --> 0:02:33.280 are you're certainly guaranteeing the cap weighted return on the upside, 0:02:33.320 --> 0:02:34.520 but there's a downside to it. 0:02:34.520 --> 0:02:35.960 And now memories tend to be short. 0:02:36.160 --> 0:02:38.280 All you have to do is look back to earlier 0:02:38.320 --> 0:02:42.240 this year, the mid February to early April bear market 0:02:42.280 --> 0:02:44.400 in the case of the Nasdaq, near bear market in 0:02:44.400 --> 0:02:46.280 the case of the S and P. But many of 0:02:46.280 --> 0:02:50.560 those stacks stocks were the drags on performance. So it 0:02:50.600 --> 0:02:52.799 does work in the other way. And we always say 0:02:52.800 --> 0:02:57.080 to our investors pretty much all eleven point two trillion 0:02:57.120 --> 0:03:00.960 dollars of our client assets are individual investors, and leaving 0:03:01.000 --> 0:03:04.000 aside the take a passive approach and index to the SMP, 0:03:04.800 --> 0:03:09.160 you don't have to take the same concentration risk. If 0:03:09.200 --> 0:03:11.880 you're an institution and you're benchmarked against the cap weighted 0:03:11.960 --> 0:03:14.200 SMP on a quarterly basis, you are at the mercy 0:03:14.200 --> 0:03:16.560 of the construction of the indexes. But if you're an 0:03:16.560 --> 0:03:21.520 individual investor, you're not being benchmarked against the SMP on 0:03:21.560 --> 0:03:24.520 a quarterly basis, you can take more of a stock 0:03:24.560 --> 0:03:27.280 picking approach and not take that risk of having such 0:03:27.280 --> 0:03:28.600 a concentrated portfolio. 0:03:28.840 --> 0:03:31.640 Isn't that concentration of feature not a bug? And I 0:03:31.680 --> 0:03:33.360 say this at a time when we're talking about the 0:03:33.360 --> 0:03:35.480 potential for an outperformance of the S and P five 0:03:35.560 --> 0:03:39.440 hundred and the Nasdaq even with a labor economy that 0:03:39.640 --> 0:03:40.840 is questionable right now. 0:03:40.720 --> 0:03:43.040 Well, it's a feature in keeping the cap weighted index 0:03:43.120 --> 0:03:47.520 returns high. But here's a stat just since the April 0:03:47.560 --> 0:03:51.520 eighth closing low, SMP has not even had a two 0:03:51.600 --> 0:03:56.240 percent drawn down over that period of time, continual record highs. 0:03:56.680 --> 0:03:59.920 But the average member within the SMP has had a 0:03:59.920 --> 0:04:03.200 fourteen percent draw down since April eighth. The average member 0:04:03.240 --> 0:04:05.640 within the Nasdaq has had a thirty two percent draw 0:04:05.720 --> 0:04:08.400 down just since April eighth. So there's a lot of 0:04:08.520 --> 0:04:12.480 churn in rotation under the surface. It's a feature in 0:04:12.520 --> 0:04:16.560 that all you need is a few megacap stocks to 0:04:16.680 --> 0:04:19.679 bring those cap weighted indexes. I just think the fuller story, 0:04:20.360 --> 0:04:22.760 not the real story, but the fuller story is told 0:04:22.880 --> 0:04:25.080 under the surface of these cap weighted indexes. 0:04:25.400 --> 0:04:27.720 John was mentioning Kristin Bitterly, who is just here, and 0:04:27.760 --> 0:04:30.839 she is talking about the cap weighted and not necessarily 0:04:30.839 --> 0:04:34.880 the broadening outrage doesn't necessarily see that gaining traction. Do 0:04:34.960 --> 0:04:37.679 you disagree based on the idea that you have seen 0:04:38.120 --> 0:04:40.800 this draw down and the average stock outside of that 0:04:40.920 --> 0:04:45.200 magnificent seven, and that those companies potentially could be the 0:04:45.240 --> 0:04:48.480 most beneficially affected by a rate cutting cycle that a 0:04:48.520 --> 0:04:49.479 lot of people are expecting. 0:04:49.520 --> 0:04:52.960 Yeah, that's certainly the macro fundamental reason why small caps 0:04:52.960 --> 0:04:56.120 caught a bid, particularly given that the real surge was 0:04:56.200 --> 0:05:00.839 tied to Powell's Jackson Hole speech. I think one way 0:05:00.839 --> 0:05:03.040 to think about the broadening out the fact that Russell 0:05:03.080 --> 0:05:06.080 two thousand finally hit a new all time high. Last 0:05:06.080 --> 0:05:09.760 time prior to this one had occurred was twenty twenty one, 0:05:10.120 --> 0:05:13.120 is I think staying up in quality still makes a 0:05:13.120 --> 0:05:15.440 lot of sense, and one piece of advice that we 0:05:15.520 --> 0:05:19.200 provide to investors not to buy an index tracking but 0:05:19.240 --> 0:05:22.480 if you use index as a source for ideas, Russell 0:05:22.520 --> 0:05:25.960 two thousand is still on the lower quality end of 0:05:26.040 --> 0:05:28.159 the spectrum, given that forty percent of the stocks or 0:05:28.160 --> 0:05:33.599 some combination of nonprofitable or delbie companies, whereas the SMP 0:05:34.200 --> 0:05:38.080 uses a profitability filter in constructing their SMP six hundred, 0:05:38.279 --> 0:05:41.479 so it's inherently a higher quality index. 0:05:41.520 --> 0:05:43.120 And in fact, looking ahead. 0:05:43.120 --> 0:05:46.840 SMP six hundred earnings outlook versus s and P five 0:05:46.920 --> 0:05:50.280 hundred earnings outlook, the former has a much better trajectory 0:05:50.360 --> 0:05:52.640 mid to high twenty percent range in terms of twenty 0:05:52.640 --> 0:05:56.839 twenty six earnings versus more in the kind. 0:05:56.640 --> 0:06:00.200 Of mid teens for the SMP five hundred. 0:06:00.160 --> 0:06:02.480 Correlate is the rustle these small caps that do well 0:06:02.520 --> 0:06:06.320 with how quickly the FED continues on a cutting cycle. 0:06:06.440 --> 0:06:10.280 That I think would be a risk that the performance 0:06:10.360 --> 0:06:13.680 trend does not persist, is if the FED has to 0:06:13.720 --> 0:06:17.200 cut short the cutting cycle. Not dissimilar to what happened 0:06:17.760 --> 0:06:21.279 last fall. And you know, the one thing that's interesting 0:06:21.360 --> 0:06:23.240 is we've seen that edging up on the part of 0:06:23.240 --> 0:06:25.920 the long end very much in keeping with what happened 0:06:25.960 --> 0:06:28.000 last year when the fed cup by one hundred BIPs 0:06:28.400 --> 0:06:31.480 and the tenure went up by the same amount. Mortgage 0:06:31.520 --> 0:06:33.320 rates went up by eighty basis points. 0:06:33.839 --> 0:06:37.360 When you mentioned these cap weighted indexes, they're so sector 0:06:37.480 --> 0:06:40.960 focused and concentrated. So isn't it doing the opposite of 0:06:41.000 --> 0:06:44.919 what investors wants? Where are people diversifying again? 0:06:44.960 --> 0:06:46.680 I think the active approach. 0:06:46.760 --> 0:06:49.960 I think there's a reason why active ETFs, the growth 0:06:50.040 --> 0:06:52.960 rate in active ETFs is higher than the growth rate 0:06:53.040 --> 0:06:55.600 in passive ETFs. Now, part of the reason why it's 0:06:55.600 --> 0:06:57.919 a higher growth rate is it's coming off a lower 0:06:57.920 --> 0:07:01.400 base because passive ETFs been much more popular. But I 0:07:01.440 --> 0:07:05.200 think that is a bit of a tell that there 0:07:05.279 --> 0:07:11.320 are investors looking for opportunities outside of just the cap 0:07:11.400 --> 0:07:14.000 dominance within these cap weighted indexes. 0:07:14.160 --> 0:07:16.240 Does this feel bubbly to you? You've seen it all, 0:07:16.320 --> 0:07:17.040 let's finish that. 0:07:17.200 --> 0:07:19.120 I have seen it all. How does it feel almost 0:07:19.120 --> 0:07:22.800 forty years doing this? I'd say the big difference, probably 0:07:22.840 --> 0:07:24.800 the most important difference between now in the late nineteen 0:07:24.880 --> 0:07:27.960 nineties is there's more there there in terms of you know, 0:07:28.160 --> 0:07:32.440 massive cash flow generation. There's actually a denominator in the 0:07:32.480 --> 0:07:36.560 valuation equation. Now, there was no denominator in the valuation equation. 0:07:36.720 --> 0:07:38.880 I mean we all look now through the benefit of 0:07:38.920 --> 0:07:42.240 hindsight and say, boy, was that just so silly? And 0:07:42.320 --> 0:07:45.360 you know the attaching of dot com to companies that 0:07:45.400 --> 0:07:46.440 had nothing to do with that. 0:07:46.600 --> 0:07:48.000 So there is more there there. 0:07:48.160 --> 0:07:50.560 But again going back to that period just this year 0:07:50.600 --> 0:07:52.760 mid February to early April, when you had the deep 0:07:52.800 --> 0:07:55.920 seek news and concern about whether the massive amount of 0:07:55.920 --> 0:08:00.120 spend was indeed a protective moat built around these hyperscalers. 0:08:00.800 --> 0:08:04.760 I think that we can go through valuation adjustments, necessary 0:08:04.840 --> 0:08:07.600 valuation adjustments, or even just periods where you get about 0:08:07.640 --> 0:08:12.720 a profit taking that is distinguished from what ultimately happened 0:08:12.720 --> 0:08:15.000 in ninety nine two thousand. I think it's a right 0:08:15.080 --> 0:08:20.080 tail risk for the market. Maybe with similar probability is 0:08:20.120 --> 0:08:21.960 what would be the left tail risk, which I think 0:08:22.000 --> 0:08:24.160 the leftail risk is a recession, which I don't think 0:08:24.240 --> 0:08:27.760 is priced into the market. But these are much higher 0:08:27.880 --> 0:08:28.800 quality companies. 0:08:30.280 --> 0:08:33.760 Stay with us more Bloomberg surveillance coming up after this. 0:08:42.960 --> 0:08:45.800 Joining us surround the table, the former Deputy Treasury Secretary 0:08:46.040 --> 0:08:47.880 Wally at a m I Wally got to see us, sir. 0:08:47.920 --> 0:08:48.920 It's great to see you as well. 0:08:49.040 --> 0:08:52.199 You co author a piece recently in Foreign Affairs, the 0:08:52.240 --> 0:08:55.240 title of which readers follows, The world economy was already broken, 0:08:55.400 --> 0:08:57.120 but there is a better way to fix it. 0:08:57.480 --> 0:08:59.920 Can we address the broken piece? First? What's broken about? 0:08:59.960 --> 0:09:02.280 It's it? What was broken? Lretic At the. 0:09:02.160 --> 0:09:05.320 Core of what was broken was China's use of anti 0:09:05.360 --> 0:09:09.840 competitive behavior to manipulate the global trading system. And this 0:09:09.920 --> 0:09:12.079 is exactly what needs to be addressed. And I think 0:09:12.120 --> 0:09:14.640 President Trump has a choice. He can try and do 0:09:14.720 --> 0:09:17.760 what former presidents, including himself, has done, which is negotiate 0:09:17.800 --> 0:09:20.240 a bilateral deal with the Chinese, or he can work 0:09:20.280 --> 0:09:23.400 together with our allies and partners to put together a 0:09:23.440 --> 0:09:26.880 set of policies that will hold China accountable and lower 0:09:26.960 --> 0:09:28.880 tariffs on each other. And I think that's the choice 0:09:28.920 --> 0:09:30.280 that the president faces at the moment. 0:09:30.520 --> 0:09:32.559 John mentioned this earlier, and you mentioned it in your 0:09:32.640 --> 0:09:36.000 piece about China basically dumping in other markets, especially since 0:09:36.000 --> 0:09:38.000 the barrier of entry has gone up so high in 0:09:38.040 --> 0:09:40.800 the United States. Isn't that going to force countries like 0:09:40.840 --> 0:09:44.800 what Mexico is attempting to do, force countries to take 0:09:44.840 --> 0:09:48.400 on China themselves and basically do what you're saying a 0:09:48.440 --> 0:09:50.959 collective unity against China. 0:09:51.000 --> 0:09:53.040 I do think that gives the President an opportunity because 0:09:53.080 --> 0:09:55.280 if you're in Southeast Asia to day, you're in Europe today, 0:09:55.440 --> 0:09:59.200 you're seeing Chinese over capacity wash over your shores, ruining 0:09:59.200 --> 0:10:02.000 your manufacturings sector, and the question is what can you do? 0:10:02.280 --> 0:10:04.640 And alone it's hard for them to stand up to China. 0:10:04.880 --> 0:10:06.959 Working together with a large alley like the United States 0:10:07.040 --> 0:10:09.560 as possible, but ultimately, the thing that I found with 0:10:09.640 --> 0:10:12.760 all these countries is that they move when there's a leader, 0:10:12.800 --> 0:10:14.600 and the United States needs to be that leader. So 0:10:14.679 --> 0:10:16.880 if the President calls on them to work together to 0:10:16.920 --> 0:10:20.040 hold China accountable, I think it's possible. But left to 0:10:20.080 --> 0:10:22.120 their own devices, it's really hard to stand up to 0:10:22.160 --> 0:10:24.200 a big country like China or the United States. 0:10:24.520 --> 0:10:27.840 The Biden adminstration tried a multilateral approach and it didn't work. 0:10:28.440 --> 0:10:30.880 I think the difference now is that the President has 0:10:30.960 --> 0:10:33.800 changed the global trading system by putting tariffs in place 0:10:34.000 --> 0:10:36.760 that have reordered things, and it while it's created a 0:10:36.800 --> 0:10:39.520 lot of challenges, including headwinds here for consumers and for 0:10:39.559 --> 0:10:42.559 the economy, it now creates an opportunity because something new 0:10:42.640 --> 0:10:44.599 has to happen, And that's what we talk about in 0:10:44.640 --> 0:10:47.000 the piece that ultimately, now the President has the opportunity 0:10:47.040 --> 0:10:49.880 either say that we can all work together to make 0:10:49.920 --> 0:10:54.240 sure that China's anti competitive behavior stops, or we can 0:10:54.440 --> 0:10:58.080 try and negotiate China unilaterally. The unilateral approach hasn't worked 0:10:58.080 --> 0:10:59.440 in the past at. 0:10:59.320 --> 0:11:01.920 This point, though, So how do you work together with 0:11:02.000 --> 0:11:05.200 other countries when everyone is skeptical of one another and 0:11:05.360 --> 0:11:09.760 essentially you're forcing them to take a side Because ultimately, 0:11:09.960 --> 0:11:12.040 a lot of countries, as you've mentioned, are scared of 0:11:12.120 --> 0:11:14.400 China just as much as they're scared of the United States. 0:11:14.640 --> 0:11:16.400 I think you're right, there's a great deal of skepticism 0:11:16.480 --> 0:11:18.720 out there, but when you look at the global economy, 0:11:18.760 --> 0:11:21.600 it's still concentrated in the hands of countries that should 0:11:21.600 --> 0:11:24.040 be our closest allies. The G seven make up almost 0:11:24.080 --> 0:11:26.640 fifty percent of the global economy. If we were to act 0:11:26.720 --> 0:11:29.400 together only the G seven, it would be a large 0:11:29.480 --> 0:11:31.840 enough block to put real pressure on the Chinese. So 0:11:33.000 --> 0:11:34.800 we're going for the President to start with the countries 0:11:34.800 --> 0:11:37.600 that we're closest with, and ultimately the goal has to 0:11:37.640 --> 0:11:39.840 be that we create an economy that not only works 0:11:39.840 --> 0:11:42.319 better for the United States, which it should, but works 0:11:42.360 --> 0:11:45.640 better for other economies also because the more trade that 0:11:45.679 --> 0:11:48.079 you do if you're a country, the less age you're 0:11:48.080 --> 0:11:50.040 going to need in the future. So the key now 0:11:50.080 --> 0:11:52.840 for the president is to talk to these countries who 0:11:52.960 --> 0:11:56.319 ultimately need the United States, frankly because we are one 0:11:56.360 --> 0:11:59.280 of their biggest consumers in the world, to try and 0:11:59.400 --> 0:12:01.680 work with them to put pressure on the Chinese, because 0:12:01.679 --> 0:12:04.199 the unuilateral approach previously at least hasn't worked. 0:12:04.480 --> 0:12:06.440 I just been wondering how much the world order has 0:12:06.440 --> 0:12:08.959 already changed and already shifted away from the United States 0:12:09.120 --> 0:12:10.560 being able to play the role in the way that 0:12:10.600 --> 0:12:12.679 it could have even a. 0:12:12.600 --> 0:12:13.600 Couple of years ago. 0:12:13.920 --> 0:12:17.160 The idea, for example, of the Ukraine Russia war and 0:12:17.200 --> 0:12:20.000 the repatriation potentially of some of the holdings, and how 0:12:20.040 --> 0:12:24.000 much that's shifted foreign currencies, foreign governments to buy gold 0:12:24.200 --> 0:12:25.880 and diversify away from the dollar. 0:12:26.679 --> 0:12:27.360 Is it too late? 0:12:27.760 --> 0:12:30.199 I think everybody always says that, But one in twenty 0:12:30.240 --> 0:12:32.040 twenty two, I was looking at what should we do 0:12:32.160 --> 0:12:35.360 with regard to Russia when they were thinking about invading Ukraine, 0:12:35.559 --> 0:12:37.400 and the Russians had moved a bunch of their assets, 0:12:37.760 --> 0:12:41.959 but more than eighty eight percent of Russian bank transactions 0:12:42.240 --> 0:12:44.640 on one side was still the dollar. It's really hard 0:12:44.640 --> 0:12:46.360 to get away from the US economy. We are the 0:12:46.360 --> 0:12:48.880 biggest economy in the world, We're the biggest trading economy, 0:12:49.080 --> 0:12:51.400 and while that is shifting over time, I think this 0:12:51.480 --> 0:12:53.319 is the moment for us to try and make sure 0:12:53.320 --> 0:12:55.280 that we build a system that works better for us 0:12:55.320 --> 0:12:57.520 going future. If we wait too long, and we say 0:12:57.520 --> 0:13:00.880 this in the piece, China's use of antiq competitive behavior 0:13:01.120 --> 0:13:04.000 will fundamentally have changed the global economy in a way 0:13:04.000 --> 0:13:05.959 that will make it harder for the US to win 0:13:06.080 --> 0:13:08.280 going forward, and not just the US, but for other 0:13:08.320 --> 0:13:10.480 economies as well. That's why what we do over the 0:13:10.480 --> 0:13:11.560 next few years is critical. 0:13:11.720 --> 0:13:13.800 While you've been in the room, the President truths a 0:13:13.800 --> 0:13:16.400 lot about how annoyed he is with Europe that they 0:13:16.440 --> 0:13:20.160 continuously buy Russian fossil fuels. It's been very hard for 0:13:20.200 --> 0:13:22.400 them to really divest away. 0:13:22.720 --> 0:13:24.680 How difficult it is to deal with the Europeans. 0:13:24.840 --> 0:13:26.560 It is hard, but I think the US has a 0:13:26.559 --> 0:13:28.760 lot of leverage here, especially over one of the countries 0:13:28.760 --> 0:13:31.480 that he's doing this, Hungary, who is a big purchaser, 0:13:31.480 --> 0:13:33.640 and I think fundamentally one of the things we've got 0:13:33.679 --> 0:13:35.599 to do is work with the europe to both and 0:13:35.720 --> 0:13:38.440 their purchases of Russian energy. We did a lot to 0:13:38.480 --> 0:13:41.200 do that in terms of providing Europe with LNG to 0:13:41.280 --> 0:13:44.480 replace Russian energy, but we've also got to take actions 0:13:44.559 --> 0:13:47.600 not only against India but against China, who is a 0:13:47.640 --> 0:13:50.720 huge purchaser but also a huge seller of the goods 0:13:50.760 --> 0:13:52.559 to Russia that they need to build the weapons they 0:13:52.559 --> 0:13:54.080 want for this war in Ukraine. 0:13:54.920 --> 0:14:07.720 Sight with US Mulplinpex Savanna's coming up off to this, John, 0:14:07.760 --> 0:14:10.320 I guess now to discuss the head of Investment Solutions 0:14:10.360 --> 0:14:12.760 at City kristin Biddley Christin, good morning. 0:14:12.480 --> 0:14:14.360 Good morning, how are you so it's been too long. 0:14:14.600 --> 0:14:16.320 We've got some rain cuts or at least once a 0:14:16.360 --> 0:14:18.560 far the prospect of more to come. What kind of 0:14:18.559 --> 0:14:20.880 activity is that I'm looking for your clients and what 0:14:20.880 --> 0:14:22.360 are you advocating for them to do. 0:14:22.360 --> 0:14:22.840 At the moment. 0:14:23.000 --> 0:14:26.239 I think for right now, this was largely anticipated and expected, 0:14:26.320 --> 0:14:28.320 so I think if we would have had any change, 0:14:28.360 --> 0:14:30.320 then there would have been changes in the portfolio. But 0:14:30.360 --> 0:14:32.920 for right now, we're sticking to our guns and staying 0:14:32.960 --> 0:14:36.800 fully invested. We're balanced across fixing come inequities with equality 0:14:36.840 --> 0:14:39.360 buyers and also leaning towards the US market as well, 0:14:39.400 --> 0:14:42.120 And so for US, there's no real change unless we 0:14:42.160 --> 0:14:44.920 see a deterioration in the employment backdrop, or unless we 0:14:44.920 --> 0:14:46.560 see inflation start to accelerate. 0:14:46.640 --> 0:14:48.360 For people sitting in cash at the front end of 0:14:48.440 --> 0:14:50.880 the curve and looking at where FED funds is, which 0:14:50.920 --> 0:14:53.000 is still north of the curve all the way out 0:14:53.040 --> 0:14:55.880 close to tens at the moment, Yeah, just below tens 0:14:55.880 --> 0:14:58.600 at the moment or around that level, what are these 0:14:58.640 --> 0:15:01.320 saying to you about the incentive to go out along 0:15:01.320 --> 0:15:04.000 the curve and what kind of what kind of document 0:15:04.040 --> 0:15:05.840 can you make for them to get out of cash. 0:15:06.040 --> 0:15:06.920 That's a great elsewear. 0:15:07.040 --> 0:15:08.600 Yeah, it's a great question because when you look at 0:15:08.600 --> 0:15:10.800 cash is certainly building up on the sidelines, and I 0:15:10.800 --> 0:15:14.080 would say there's always that argument around the seven point 0:15:14.120 --> 0:15:16.760 six trillion dollars that's sitting on the sidelines, but quite candidly, 0:15:16.760 --> 0:15:19.840 that's only increasing, it's not decreasing. And so when you 0:15:19.880 --> 0:15:22.400 look at our portfolios, we're not advocating for long duration 0:15:22.520 --> 0:15:24.720 at all. I think you have to be weary of 0:15:24.760 --> 0:15:28.040 some inflationary pressures. So the average duration in our portfolios 0:15:28.360 --> 0:15:31.560 is around five years. I think that catalyst from going 0:15:31.560 --> 0:15:34.320 from cash into a five year duration. We have to 0:15:34.320 --> 0:15:36.880 be realistic about the investor psychology. So what we see 0:15:36.880 --> 0:15:40.120 more often is not your traditional sixty forty portfolio, but 0:15:40.200 --> 0:15:43.400 maybe a sixty thirty ten where that cash position people 0:15:43.480 --> 0:15:45.280 will hold it so they can be more nimble. 0:15:45.440 --> 0:15:48.360 There is this issue of what's the best hedge against inflation. 0:15:48.680 --> 0:15:50.880 Couldn't it just be stocks? Isn't that almost what people 0:15:50.880 --> 0:15:51.320 are better? 0:15:51.760 --> 0:15:52.040 Yeah? 0:15:52.080 --> 0:15:53.520 I think it is, and I think there's actually a 0:15:53.560 --> 0:15:56.080 defensive play in terms of the largest free cash flow 0:15:56.160 --> 0:15:57.160 generating companies. 0:15:57.400 --> 0:15:59.040 And I know you guys have been discussing. 0:15:58.680 --> 0:16:01.280 This all morning in terms of where should you be invested, 0:16:01.320 --> 0:16:04.680 particularly in equity markets. I think as an inflationary hedge, 0:16:04.760 --> 0:16:07.520 we have gold in our portfolios. I know many many 0:16:07.560 --> 0:16:10.320 ASCID managers do as well. But when you look at 0:16:10.360 --> 0:16:12.440 where you want to be within US equity markets, I 0:16:12.440 --> 0:16:14.840 think the major debate right now is do we want 0:16:14.880 --> 0:16:17.120 to lean into momentum and the winners or do we 0:16:17.160 --> 0:16:19.520 want to play this broadening out trade. I think the 0:16:19.560 --> 0:16:22.520 broadening out trade will certainly it can deliver returns. 0:16:22.560 --> 0:16:25.040 I think it's still tricky because when you look. 0:16:24.880 --> 0:16:28.680 At small caps, their earnings are declining, they're not growing, 0:16:29.040 --> 0:16:31.400 and then you look at these large companies, they've contributed 0:16:31.440 --> 0:16:34.000 over sixty percent of the earnings growth this year. So 0:16:34.040 --> 0:16:36.720 while it feels weird to be invested there, I think 0:16:36.720 --> 0:16:37.800 you have to play the momentum. 0:16:37.880 --> 0:16:39.840 At the same time, as we were talking about this morning, 0:16:39.880 --> 0:16:44.080 the Nvidia open aidl the idea that Nvidia is investing 0:16:44.080 --> 0:16:47.400 one hundred billion dollars for open ai to buy their 0:16:47.440 --> 0:16:48.440 products exactly. 0:16:48.480 --> 0:16:49.440 So it creates this. 0:16:49.440 --> 0:16:53.680 Feeling that we're all hinging on this circular bet with 0:16:53.840 --> 0:16:57.320 in big tech jet names that isn't yes yet getting 0:16:57.360 --> 0:17:00.560 ratified in the profitability in the rest of the economy. 0:17:00.600 --> 0:17:03.080 At what point does that feel wrong? 0:17:03.680 --> 0:17:06.359 I think the main question is almost what is the 0:17:06.359 --> 0:17:09.200 barecase from here? And that's one of the questions when 0:17:09.240 --> 0:17:12.119 we see all of this capac spending, when we see 0:17:12.400 --> 0:17:14.520 what is the timeline for that when you will actually 0:17:14.560 --> 0:17:17.359 see the returns? And I think investors are patient. I 0:17:17.400 --> 0:17:20.560 think it's more I saw a piece recently where it 0:17:20.560 --> 0:17:23.479 was innocent until proven guilty, and so looking out like 0:17:23.560 --> 0:17:26.480 one to three years, I think there's patients in that investment, 0:17:26.840 --> 0:17:29.400 But I do think we have Q three earnings coming up, 0:17:29.480 --> 0:17:31.639 and there's if there's one miss or if we don't 0:17:31.680 --> 0:17:33.640 have a beat and a raise, I think you will 0:17:33.640 --> 0:17:34.840 see a pullback in the market. 0:17:35.160 --> 0:17:37.360 When you talk to clients, what are the most concerned 0:17:37.359 --> 0:17:40.480 about right now? You mention your notes this tug of 0:17:40.480 --> 0:17:43.560 war between the AI story, but maybe even tariffs at 0:17:43.600 --> 0:17:47.680 some point hitting them next year. Our clients just dismissive, 0:17:47.680 --> 0:17:49.600 as Lisa Shallitt said, of what's coming out of policy 0:17:49.640 --> 0:17:51.439 or is it still in the back of their mind brewing. 0:17:51.600 --> 0:17:54.240 I agree with Lisa in her comments. I think there's 0:17:54.240 --> 0:17:56.399 almost like there's tariff fatigue. 0:17:56.440 --> 0:17:57.920 So it's almost that was. 0:17:57.880 --> 0:18:00.640 The dominating conversation a couple of months ago, and now 0:18:00.640 --> 0:18:03.919 it's not really even a question that clients are asking. 0:18:04.280 --> 0:18:06.880 And so I think the major thing on investors' minds 0:18:06.920 --> 0:18:09.960 right now is really trying to position for the longer term, 0:18:10.119 --> 0:18:13.440 understanding that short term there could be some volatility, there 0:18:13.480 --> 0:18:15.879 could be some pressure one way or the other. But 0:18:16.000 --> 0:18:19.639 where you position longer term and really the balance between 0:18:19.640 --> 0:18:21.360 private and public markets is. 0:18:21.280 --> 0:18:23.399 That a camp whites at US index is that how 0:18:23.440 --> 0:18:24.600 I think about it long time. 0:18:24.640 --> 0:18:27.679 Still still I think when you look at again, we're 0:18:27.720 --> 0:18:29.880 not in the camp of this broadening out trade right now, 0:18:30.240 --> 0:18:32.959 and so you could probably see some some strong returns, 0:18:33.000 --> 0:18:36.159 particularly with interest rates coming down, and you don't want 0:18:36.200 --> 0:18:38.159 to fight the FED on that. But I think like 0:18:38.200 --> 0:18:39.720 when you look at the name of the game is 0:18:39.800 --> 0:18:42.240 really quality and free cash flow generation, and who's going 0:18:42.320 --> 0:18:44.800 to be able to make those types of not one 0:18:44.880 --> 0:18:48.280 hundred billion dollar investments but similar to really kind of 0:18:48.280 --> 0:18:49.080