Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along
Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day
Speaker 1: for insight from the best an economics, geopolitics, finance and investment.
Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and
Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com,
Speaker 1: the Bloomberg Terminal and the Bloomberg Business app. Man Deep
Speaker 1: Singh is a smart guy senior technolical analysts and Bloomberg Intelligence.
Speaker 1: What you learn from mister Nadella yesterday this was the
Speaker 1: mother of all home run reports.
Speaker 2: Yeah, I mean the Azure acceleration. I think they sort
Speaker 2: of sandbag expectations because last quarter it was like one
Speaker 2: percent contribution from AI related stuff. This quarter was three percent,
Speaker 2: and the expectation is it's going to keep growing. But
Speaker 2: everyone knows that they are looking to deploy their large
Speaker 2: anglage models, trained their l and look, this is a
Speaker 2: secular trendo.
Speaker 3: I mean, Tyler Radkey, it's sad.
Speaker 1: Your published I believe was this morning, maybe late last night,
Speaker 1: and you just basically said, you know, this is like
Speaker 1: a complete report to find what co.
Speaker 3: Pilot is yeah.
Speaker 2: So right now they have a GitHub co pilot which
Speaker 2: basically allows developers to be more productive because it's right
Speaker 2: for a fee for a fee, and they're charging ten
Speaker 2: dollars and they have about ten million, uh you know
Speaker 2: people signed up, so it's it's already a pretty sizable revenue.
Speaker 3: It's like your newsletter about that. Wow, you've got ten
Speaker 3: million people.
Speaker 4: It all right, so they can you know, you can
Speaker 4: hire a chat GPT to fill a seat, which I
Speaker 4: think will be a beautiful thing one day. But this
Speaker 4: raises this question and I'm going to steal some of
Speaker 4: Katie Sunder because she had a really good point earlier.
Speaker 4: This idea of have we overplayed AI and not emphasized
Speaker 4: the cloud enough? Was the real surprise for Microsoft really
Speaker 4: just purely the cloud and the AI discussion not really
Speaker 4: there and the same story except the verse kind of
Speaker 4: sentiment for Google.
Speaker 2: I mean, look at how much these companies are investing
Speaker 2: in capex to build their infrastructure. So clearly there is
Speaker 2: a huge upfront investment. And in terms of the monetization,
Speaker 2: copilot is one form, then renting your cloud infrastructure is
Speaker 2: the second big form, and they are launching a big
Speaker 2: three sixty five copilot starting November first, so that could
Speaker 2: add to the revenue in addition to what we heard
Speaker 2: about GitHub. And look, at the end of the day,
Speaker 2: cloud training is where the money is because that's where
Speaker 2: the GPUs lie. I mean, everyone knows NBDIA had a
Speaker 2: big lift because of the GPU demand. Well guess what
Speaker 2: who are buying these GPUs? It's so hyperscalers and then
Speaker 2: they are renting it out.
Speaker 4: The big fear right now is that Google's gap, its
Speaker 4: lag behind the cloud competitors, is only growing.
Speaker 3: Do you see this as evidence of that?
Speaker 2: I think Google again is more niche in the sense
Speaker 2: that they don't have a legacy in enterprise business as
Speaker 2: Microsoft does. So clearly they have to build it from
Speaker 2: scratch and they're focusing more on the AI side of things,
Speaker 2: rightfully so, and in this case, some of the deals
Speaker 2: are lumpy. So I won't make a lot out of
Speaker 2: the miss last night. I know everyone focused on their
Speaker 2: two percentage point miss, but look, they are building this
Speaker 2: from scratch and it's at a very healthy thirty two
Speaker 2: billion dollar run rate growing at over twenty twenty five percent,
Speaker 2: and to my mind, it's going to accelerate because they
Speaker 2: are one of the biggest buyers of GPUs as well,
Speaker 2: So where would you rent the GPU capacity? Besides Microsoft
Speaker 2: and Amazon, it's Google.
Speaker 5: And deip I also want to talk a little bit
Speaker 5: about search because this line from Microsoft's earnings caught my
Speaker 5: eyes that you take a look at being search and
Speaker 5: news advertising sales increasing ten percent in the quarter. So
Speaker 5: it seems a little bit like advertising spent has stabilized.
Speaker 5: But when it comes to being versus Google, does bing
Speaker 5: have any hope of taking serious market share from Google?
Speaker 2: I think satan Adella walked back his comments you know,
Speaker 2: during the testimony that he was aiming for share, but
Speaker 2: he conceded it's very hard to take share from Google,
Speaker 2: and Google's results last night showed that at one hundred
Speaker 2: and eighty billion dollars round rate, if you're growing double digits.
Speaker 2: That just goes to show how much power you have.
Speaker 2: Where Snapchat group five percent, it's much smaller, and I
Speaker 2: think you get to see where the ad pricing power lies.
Speaker 3: In the ex did Greifeld get the memo that we're
Speaker 3: being free, we don't talk about we don't talk about
Speaker 3: being here you big all the time?
Speaker 5: Well, I lost it almost an hour.
Speaker 3: If you could do better.
Speaker 5: Let's see, are we allowed to talk about Snapchat? I
Speaker 5: don't know, but let's talk about snap.
Speaker 1: They make great tools, are out of Ohio, and I
Speaker 1: love their socket wrench.
Speaker 5: Can you take my AI? Okay, let's talk about Snapchat.
Speaker 5: Because they came out with earnings. The share spiked fifteen
Speaker 5: percent after hours. Now you take a look at shares,
Speaker 5: they're actually, I don't know, down slightly. What were we
Speaker 5: so psyched about at around four pm yesterday that we're
Speaker 5: not excited about it? What's six fifty three in the morning.
Speaker 2: I mean, clearly, the top line print was better than expected.
Speaker 2: But when it comes to the guidance, that EBITDN number
Speaker 2: is the key for a company like Snapchat because they
Speaker 2: keep losing money. So because they had a positive EBITDT quarter,
Speaker 2: everyone thought it's going to continue. But in their guide
Speaker 2: they were quite wage about where the leverage is going
Speaker 2: to come from, and it was just too uncertain to
Speaker 2: figure out whether this is sustainable or not.
Speaker 4: But it goes to this question, this larger question of
Speaker 4: how the market is measuring the performance the response and
Speaker 4: you talked about how you actually disagree with the response
Speaker 4: to the Google to the Google earnings that you think
Speaker 4: people are overplaying the slight miss and they're underplaying the
Speaker 4: potential for AI. Does that mean that right now, just
Speaker 4: from a market perspective, any results that show you the
Speaker 4: money are the ones that are going to be rewarded,
Speaker 4: not the ones that show you hope, which is what
Speaker 4: some people were really trading on with the AI promises
Speaker 4: of your.
Speaker 2: Yeah, I mean results matter. And in Google's case, there
Speaker 2: was an operating income as well, but they are investing
Speaker 2: and is with Google I see, you know, YouTube being
Speaker 2: a very big business. In fact, YouTube subscription growth has
Speaker 2: accelerated past all the streaming players, so that live NFL
Speaker 2: content is working. Cloud is another driver's search remains robot.
Speaker 2: So the durability of earnings is there with a.
Speaker 3: Name like Google.
Speaker 2: Yes, they may have a bad you know, a slight
Speaker 2: miss when it comes to operating margin, but it doesn't
Speaker 2: change the fact that they've got all these large businesses
Speaker 2: with a long runway, and I think that's the thing
Speaker 2: to focus.
Speaker 1: Can you extrapolate out to Apple here? I believe it's
Speaker 1: November two, whatever day. That is, if we saw a
Speaker 1: Microsoft do what they do, are we going to give
Speaker 1: the same joy, the same completeness, as Tyler Redken talks about,
Speaker 1: Are we going to get that from Apple?
Speaker 2: Very unlikely given the what's going on with China and
Speaker 2: their focus on moving the supply chain. And look, they're
Speaker 2: a hardware company, so we know PC and smartphone markets
Speaker 2: are still bottoming out, so they will not have big quarter.
Speaker 2: And the one risk factor for Alphabet going back to
Speaker 2: that is if Apple decides to do their own large
Speaker 2: anglid model on the phone and take out the distribution
Speaker 2: they have for Google, which has come under scrutiny. That's
Speaker 2: a big risk for Google Search. I mean, other than that,
Speaker 2: I don't see any risks for the business. But if
Speaker 2: Apple decides to do their search and maps and everything
Speaker 2: large anglid model, that's a big risk.
Speaker 1: Mande, thank you so much, I got I gave more questions.
Speaker 1: Mandy's singing with us. We'll have them on here. Over
Speaker 1: this arc of these tech earnings, we start strong with
Speaker 1: Marvin Lowe, senior global macro strategists at Stage Street. Here
Speaker 1: in this time of confusion and cacophony, I guess I
Speaker 1: have to rebalance, I have to reallocate. Is the rebalanced
Speaker 1: formula changed because of this yield move.
Speaker 6: I mean, for sure, everyone's thinking about, you know, whether
Speaker 6: sixty forty is appropriate. What we're seeing in terms of
Speaker 6: the institual investor is that they're so underweight fixed income
Speaker 6: at this point because the losses have been so great
Speaker 6: that they're still trying to catch up. If you're a
Speaker 6: bond bull, it's encouraging because they're still engaged with the
Speaker 6: asset class. But do they settle below that forty percent
Speaker 6: once we get there?
Speaker 1: I thought of you, they said, marvinlow is going to
Speaker 1: open the show, and I thought of you. In a
Speaker 1: cold of winter, Peter Lynch used to walk around the
Speaker 1: streets of Boston without a coda. He looked like Jim Geordan,
Speaker 1: except it was ten below zero and he'd have his
Speaker 1: value lines and he's walking to meetings with Will and
Speaker 1: the rest of Betina and the rest of them. Okay, great,
Speaker 1: that's all fine and well. But to me, the securities
Speaker 1: analysis now is just out the window. It's about survival.
Speaker 1: How do you survive in an allocated portfolio?
Speaker 6: I mean, for sure, you are reevaluating duration in terms
Speaker 6: of a story, and you have to remember that duration
Speaker 6: is much more than just your fixed income holdings. The
Speaker 6: US equity market is very heavy, So you've got to
Speaker 6: be really conscious of where those long yields are affecting
Speaker 6: your portfolio. Keeping powder dry right now is not a crime,
Speaker 6: absolutely not, particularly given the shape of the curve, particularly
Speaker 6: given that the fed's going to be you know, higher
Speaker 6: for longer, probably for a lot longer than people think.
Speaker 6: In my mind, you know, keep that powder dry because
Speaker 6: things are still going to be rough going into next year.
Speaker 4: What does that mean powder dry? Because it doesn't just
Speaker 4: mean that you take cash and you put it in
Speaker 4: a mattress. Do you put it into t bills? Do
Speaker 4: you just keep it into your treasuries?
Speaker 6: I love bills. Two years feel pretty good to me
Speaker 6: at this point. Also, you know, if you wanted to
Speaker 6: extend from your bill uh structure in your portfolio, I
Speaker 6: think you know, you could add that kind of duration.
Speaker 6: You can nibble on the tenure for sure, you know,
Speaker 6: if you like that income. But yeah, you know, I'm
Speaker 6: looking at the short end out to two years.
Speaker 4: Does this mean that you're concerned about risk equity valuations
Speaker 4: and other parts of the market that maybe haven't fully
Speaker 4: comprehended the level and have ignored it because volatility that's
Speaker 4: gotten so much more significant than what we're seeing in
Speaker 4: equity volatility.
Speaker 6: You know, for sure, if we look at you know,
Speaker 6: even since the since the Milies conflict, it's been rates
Speaker 6: that have moved. Everyone else has been kind of frozen,
Speaker 6: if you will. The dollar hasn't really moved, effects hasn't moved,
Speaker 6: and equities are trading, you know, fairly well in a
Speaker 6: wider range. They're not reflecting the volatility that rates are showing.
Speaker 6: And you know, ultimately, I say to a lot of folks,
Speaker 6: the most important number out there is that ten year yield.
Speaker 6: And that ten year yield is unanchored right now.
Speaker 5: And that's what I want to talk about, saying in
Speaker 5: the fixed income market for rate now, I mean, the
Speaker 5: most important question, it feels like, is why are rates rising?
Speaker 5: And I'm looking through your notes and you right that
Speaker 5: you would push back against the buyer strike thesis. Why
Speaker 5: is that?
Speaker 6: First off? You know, like I said, the institutional investor
Speaker 6: is still buying. They're still trying to get back to
Speaker 6: their benchmarks. We actually are able to also look across
Speaker 6: border flows at that institutional level and they're still buying.
Speaker 6: So they're buying it on hedge. There's various stories around
Speaker 6: the dollar that you could infer from that. But mof
Speaker 6: data around Japanese buyers, they're still engaged. China kind of
Speaker 6: looking at tics data, tick data. They're not buying as much,
Speaker 6: but they're buying based on what their reserves let them buy.
Speaker 6: So we really haven't seen that kind of buyer strike.
Speaker 6: That seems to be one of the themes.
Speaker 3: That are out there.
Speaker 6: Certainly, all of the issuance is an overhang, and so
Speaker 6: I agree with you, Lisa, it's like these auctions become
Speaker 6: more and more important, particularly as we go into November
Speaker 6: and understand how the next phase of all this deficit
Speaker 6: funding is going to look like. But the buyers are engaged.
Speaker 6: There's just a lot of paper right now, and the
Speaker 6: knife is pretty big and falling.
Speaker 5: Still well to that point, Okay, maybe there's not a
Speaker 5: buyer strike, but there is a lot of supply here,
Speaker 5: and with that in mind, you look forward to next week,
Speaker 5: which is going to be very fun because we have
Speaker 5: the refunding announcement in addition to the actual FED decision
Speaker 5: for the direction of this market from here, Which do
Speaker 5: you think is more important?
Speaker 6: You know what, I think the supply is more important.
Speaker 6: The FEDS message is pretty well crafted at this point.
Speaker 6: It shows that they don't really have a handle on
Speaker 6: how this is going to evolve, and I think that's
Speaker 6: part of the volatility out there. But given that they've
Speaker 6: pulled back and turned more you know, less hawkish, if
Speaker 6: you will, with the volatility in the market, they're not
Speaker 6: looking to introduce much more into it at this point.
Speaker 6: We have nothing christ in for November. That's correct. I
Speaker 6: think they're ultimately done. The question really winds up being
Speaker 6: how much longer we stay at these what they believe
Speaker 6: is restricted levels.
Speaker 4: It sounds really gloomy, sounds pretty rough, sounds concerning a
Speaker 4: zure of Microsoft posted a twenty nine percent sales gain
Speaker 4: in their cloud services business. At a certain point, you
Speaker 4: take a look at the gloom of the doom, and
Speaker 4: you take a look at some of the cash producers,
Speaker 4: and they're minting money. So at a certain point, why
Speaker 4: are they not the havens?
Speaker 6: You know, I believe I believe they still are. You know,
Speaker 6: we do like those big motes that are ultimately quite defendable.
Speaker 6: And if you're looking at the return that you get
Speaker 6: from cash, and you got these companies that can generate
Speaker 6: the cash and actually return it back however they decide
Speaker 6: it's an advantage.
Speaker 3: So evaluation key thing.
Speaker 1: I get what you're saying, but in this earning season
Speaker 1: we're proving it once again.
Speaker 3: Then do you less.
Speaker 1: Diversify and do you shift from index to more active management?
Speaker 6: You know, I think that active managers are going to
Speaker 6: have their day in the sun. It's been a while.
Speaker 3: I want to quote you on that.
Speaker 1: Robert Armstrong was brilliant in the ft yesterday. Looking at
Speaker 1: the recent track record of active management, and you're saying
Speaker 1: this is the time for active managers.
Speaker 6: Correctly, it matters, and these duration discussions that we're talking about,
Speaker 6: rather than just nearly willy going into it based on
Speaker 6: kind of what an overall market capitalization is allowing you
Speaker 6: to do, becomes important.
Speaker 3: To my mind.
Speaker 1: It's going to be interesting. Marvin Low, thank you so much, greatly, greatly.
Speaker 1: I appreciate it. I love the phrase keeping your powder dry.
Speaker 1: Assistance here. Editor in chief cbe emails in from London
Speaker 1: and he says, keep your powder dry, Tom, come on
Speaker 1: know your Cromwell English Civil War sixteen forty two, Oliver Cromwell,
Speaker 1: keep your powder dry, your English history for this morning
Speaker 1: to do. The other in chief said I have to
Speaker 1: do that. You know, when British history comes into what we're.
Speaker 4: Talking about, you have to talk Oliver Cromwell, gunpowder, Well's
Speaker 4: the other Civil War. All I can say is your
Speaker 4: nailing the keeping your powder dry. How's the triple evertail cash,
Speaker 4: triple levers dot cash is.
Speaker 1: Doing fine here, But this is really important and Lisa,
Speaker 1: this goes to the technical construction of the market. Now
Speaker 1: we've got to pull back a price up yield down,
Speaker 1: but on a technical basis, there's like zero veracity to it.
Speaker 1: We need a lot of constructive work here to begin
Speaker 1: to demonstrate lower yields.
Speaker 4: On a technical basis, it's still a ping pong. I mean, basically,
Speaker 4: what you're seeing the redow every day is another ping
Speaker 4: pong and you're not sure where it's going to bounce
Speaker 4: and if it's going to hit a weird corner on
Speaker 4: the ping pong table. And that's sort of where we are,
Speaker 4: which goes to Marvin's point. We are sort of getting
Speaker 4: unanchored in terms of where that yield is, whether it
Speaker 4: is fundamental or whether to your point, Katie, it's something
Speaker 4: about the refinancing.
Speaker 3: People disagree with the ECB media coming up.
Speaker 1: I guess quickly to Marvin Lowe, here is the ECB unanchored.
Speaker 6: No, and it's because their transmission mechanism is clearer than
Speaker 6: what we're dealing with here. We're seeing these higher yields
Speaker 6: make their way into their economy right now. In terms
Speaker 6: of Powell said it last week, based on the evidence,
Speaker 6: we might not be restrictive, even though they've been saying
Speaker 6: that they're restricted for the well they're gettings are restricted
Speaker 6: for the last three to six months.
Speaker 3: Marvin, thank you so much.
Speaker 1: Gregory Vllier of AGF Investments Rights every morning, he says
Speaker 1: geopolitics could be quote the trickiest issue in next year
Speaker 1: twenty twenty fours. Public opinion, especially among young voters, seems
Speaker 1: to be shifting towards isolationism. The idea of spending another
Speaker 1: one hundred billion in Ukraine and Israel, it's increasingly unpopular. Nevertheless,
Speaker 1: Biden has a police pical opportunity to become an effective
Speaker 1: wartime president. This with decent support in Congress, that from
Speaker 1: Greg Valier and Lisa. This is something I've brought up.
Speaker 1: You've heard me like a broken record talk about America's
Speaker 1: history of isolationism and is now a demographic isolationism.
Speaker 4: And how much is that going to really play out,
Speaker 4: especially into the next contours of two front conflict. Right
Speaker 4: it's both in Israel and Ukraine, and Greg Valier are
Speaker 4: joining us right now. I want to start there is
Speaker 4: there the political support to support Israel in addition to
Speaker 4: Ukraine going forward through not just the next month, not
Speaker 4: just the next two months, but six months to a year.
Speaker 7: Well that's the key question, isn't it. And I do
Speaker 7: since over the last few weeks a waning of support.
Speaker 7: I think that Biden has enough backing in the Senate.
Speaker 7: I think he's got Mitch McConnell and Lindsey Graham and
Speaker 7: many others who are very hawkish. But I say young
Speaker 7: people are not in enthusiastic. A lot of Americans don't
Speaker 7: want to spend one hundred billion dollars more so it's soft.
Speaker 7: But I still think that Biden has enough support to
Speaker 7: get an aid package, probably not until the middle of
Speaker 7: the winter.
Speaker 4: Craig, what do you make of the fact that you're
Speaker 4: essentially getting a Democratic party that doesn't seem to back
Speaker 4: Israel and is actually moving away from it, and a
Speaker 4: president that's trying to lead the charge in that effect.
Speaker 7: Well, it's quite a dichotomy. It's really almost shocking to
Speaker 7: see the Democrats, the party that supported Israel so aggressively
Speaker 7: for decades and decades, now looking a little bit softer.
Speaker 7: I do think though, that we will get a deal done.
Speaker 7: My issue is the timing. I think we're still many
Speaker 7: weeks away from anything new for Ukraine, Israel, Taiwan, US
Speaker 7: border with Mexico. That's still a ways off in terms
Speaker 7: of getting it enacted.
Speaker 5: Well, Greg, walk us through the ramifications of that. If
Speaker 5: we don't get an aid package approved until mid December,
Speaker 5: as you outlined, what would that mean for this war.
Speaker 7: I think it sends a very bad signal to our allies,
Speaker 7: at the least ambiguous, but I would argue it sends
Speaker 7: a signal that the US is losing a bit of
Speaker 7: its resolved. You know, we all recall in the last
Speaker 7: year a year and a half that was the big
Speaker 7: issue that we would lose our resolve on Ukraine. If
Speaker 7: we lose our resolve on Ukraine and Israel, that to
Speaker 7: me sends a really negative signal.
Speaker 5: And let's tie this into what we're seeing play out
Speaker 5: in the House right now and the efforts to elect
Speaker 5: a speaker there because a week two weeks ago, I
Speaker 5: would have asked if the Israel Hamas war would have
Speaker 5: put more urgency behind this process. But that doesn't seem
Speaker 5: to necessarily have materialized, Greg.
Speaker 7: No, it doesn't. I think this deadline of November seventeenth
Speaker 7: is going to come and go. I can't see them
Speaker 7: getting a budget done by the seventeenth. So the new
Speaker 7: speaker if we get one. Because nobody's ever heard of
Speaker 7: this guy, but he has a pretty good reputation. He
Speaker 7: also is a denier that Biden was elected president. That
Speaker 7: is not my cup of tea, but he has denied
Speaker 7: frequently that this is a fake election result. He's going
Speaker 7: to have to answer for that. But I think we're
Speaker 7: going to go well past the seventeenth of November to
Speaker 7: get a deal done.
Speaker 4: How much? Greg? Is former President Trump driving the bus here?
Speaker 4: We heard from him this morning congratulating all of the
Speaker 4: congressman and saying that Mike Johnson is the strong suggestion
Speaker 4: from him.
Speaker 7: Well, it looks like Trump has veto power, doesn't it.
Speaker 7: The guy from Minnesota lasted for like eight hours before Trump,
Speaker 7: and then Trump boasted that I killed the nomination. So
Speaker 7: Trump is taking a very overt role in the House,
Speaker 7: and I've got to think there are a lot of
Speaker 7: House members who resent it.
Speaker 4: How much is there still discussion about some sort of
Speaker 4: bipartisan answer. We heard that for a hot second, and
Speaker 4: then it was dropped because it was politically not viable
Speaker 4: on either side.
Speaker 7: I wouldn't put the chances at much more than twenty percent.
Speaker 7: If that, I think it's unlikely that we could get it.
Speaker 7: If this thing totally breaks down and we get into
Speaker 7: the winter without anything, well then all bets are off,
Speaker 7: and I think Hakeem Jeffries might have to intervene, but
Speaker 7: it's not coming yet.
Speaker 5: And Greg, this drama, this disarray that we're seeing in
Speaker 5: the House among the Republicans. Have we seen the Democrats
Speaker 5: try to capitalize off of that?
Speaker 7: Not as much as I would have expected. I think
Speaker 7: they're sitting back. What's the old saying, if your opponent
Speaker 7: is self destructing, don't get in the way. So I
Speaker 7: think the Democrats will stay pretty muted, but at some
Speaker 7: point they may have to be called to enter this fight.
Speaker 1: Riik Viliah, I want to go back to a comment
Speaker 1: you said, because I really think we need to paint
Speaker 1: this picture the New York Times reporting Mark Santorio of
Speaker 1: the war east of Kerson. This is done by the
Speaker 1: Black Sea folks. This is east of Odessa, east of Romania,
Speaker 1: and the Ukrainian forces are surprising by moving east along
Speaker 1: the shores of the Black Sea again east of Kirsan.
Speaker 1: What do they need from us that's going to wait
Speaker 1: for the winter financing by America? Do they literally run
Speaker 1: out of artillery, run out of ammunition?
Speaker 7: Well, timing is everything, Tom, and I think that they've
Speaker 7: only got another few weeks before it's the mud season,
Speaker 7: and we have four months of mud and ice, and
Speaker 7: you know, basically a stalemate. They will get more arms,
Speaker 7: I think from Western Europe, but I again looking at Washington,
Speaker 7: I think it's going to come later rather than sooner.
Speaker 4: All wars have always been marked by propaganda efforts. We've
Speaker 4: always seen that through history. It's something very notable. This
Speaker 4: time feels different, though, whether it's Ukraine or whether it's Israel.
Speaker 4: And some of the images that are coming out in
Speaker 4: social media, some of the battles that are coming out
Speaker 4: in social media, how do you view this information war
Speaker 4: as having a materially different nature than previous ones.
Speaker 7: Well, the first casualty of war is we all know
Speaker 7: is the truth. And I think it's going to continue
Speaker 7: to be very difficult to ascertain who's winning who's losing.
Speaker 7: I don't think that's going to change.
Speaker 3: Greg Villiers, thank you so much.
Speaker 1: With AGF investments, always an important morning note.
Speaker 3: Pier, we get rebrief here. He's been on the show
Speaker 3: way too much.
Speaker 1: It's a it's a folks part of our team, but
Speaker 1: actually huge value at Stephen Rashuda joins us down chief
Speaker 1: US economist in Missoo's securities. We all get the consumer boom.
Speaker 1: We all get that we were wrong. We're in the
Speaker 1: vicinity of.
Speaker 3: Five percent Q three GDP okay.
Speaker 1: Great, but I got an I, I got a G
Speaker 1: and I got an NX.
Speaker 3: On the back end. Are they going to help out
Speaker 3: the booming consumer?
Speaker 8: That's the real question, you know. I think you could
Speaker 8: look maybe for a little bit from trade. The real
Speaker 8: key question is the government component, because to be honest
Speaker 8: with you, we don't have any good priori data when
Speaker 8: it comes to government spending. We do have the monthly
Speaker 8: Treasury statement of receipts in outlays and we can look
Speaker 8: at that, but those don't translate well into the GDP accounts,
Speaker 8: they don't translate as clearly as other components do. So
Speaker 8: we're looking at most of the other components and saying
Speaker 8: nothing else is contributing. So you down to maybe a
Speaker 8: little from trade and how much we get from government.
Speaker 3: Is there a.
Speaker 1: Separation in the eye of big business, ginormous business, successful, profitable,
Speaker 1: Microsoft like business investment and everybody else flat on their back.
Speaker 8: Well, there clearly is. And when you look at the
Speaker 8: shipments of non defense, non aircraft capital goods, which is
Speaker 8: the key driver of the equipment investment components that you're
Speaker 8: looking at, they're really showing you that on a real basis,
Speaker 8: we're doing nothing in terms on average in terms of
Speaker 8: investing in this economy. But in an environment where you
Speaker 8: still have sort of an excess supply globally of tradable goods,
Speaker 8: it's not surprising that we're seeing that.
Speaker 5: And I want to talk a little bit about a
Speaker 5: story that ran on the terminal yesterday that if you
Speaker 5: take a look at the deficit. The US government ran
Speaker 5: a two trillion dollar deficit in the fiscal year through September,
Speaker 5: and then you think about what's happening in the bond market,
Speaker 5: you think about a ten year at five percent. Does
Speaker 5: that level make more sense when you think about the
Speaker 5: deficits that we're running.
Speaker 8: Well, it certainly makes more sense when you think about
Speaker 8: the deficits worrying, but it also makes more sense when
Speaker 8: you ask yourself the question what level of inflation does this.
Speaker 3: Federal Reserve want?
Speaker 8: You know, they seem to give lip service to the
Speaker 8: two percent numbers, but they seem to also be paying
Speaker 8: a lot of attention to the employment aspects. So they've
Speaker 8: kind of shifted the dual mandate. What used to be
Speaker 8: inflation first, then employment comes along as a result. Now
Speaker 8: it's almost like, well, we want to get employment first
Speaker 8: and see what happens with inflation later, and you know,
Speaker 8: maybe we'll tolerate three. So the upward movement in the
Speaker 8: tenure note is reflecting a new fair value, which I
Speaker 8: don't think markets have fully discounted yet.
Speaker 5: So does that tell you that they still see that
Speaker 5: link between the unemployment rate and what's happening in inflation
Speaker 5: that to get inflation back to two percent you do
Speaker 5: need to get unemployment of I.
Speaker 8: Think most investors see that. Unfortunately, I don't think this
Speaker 8: Federal Reserve does. And if you were at the New
Speaker 8: York Economics Club lunch the other day with Jerome Powell.
Speaker 8: You really got a sense. You really got a sense
Speaker 8: that these people are he in particular as well, are
Speaker 8: looking at the things like the jilt S data, which,
Speaker 8: to be honest with you, there isn't that much history
Speaker 8: behind the jailt stata number one and number two. The
Speaker 8: history we have is only available for what we call
Speaker 8: credit recessions, recessions that were driven by a credit crunch.
Speaker 8: This is not a recession that would be driven by
Speaker 8: a credit crunch. This is an inflation monetary policy, and
Speaker 8: that's a different story, and therefore the reaction it function
Speaker 8: is very different.
Speaker 3: Did you feed David Weston's questions? They were so vicious
Speaker 3: and so mean spirit. I'm like, we shootos given him
Speaker 3: those questions.
Speaker 8: I thought he could have gotten even harder if he did.
Speaker 1: Yeah, well, you know, there'd be like a pharaoh was there.
Speaker 1: Can you imagine John Farrow doing the Economic Club in
Speaker 1: New York.
Speaker 5: It would have been good television.
Speaker 1: That would be good entertainment, it'd be sport. Powell, I
Speaker 1: don't think it was game changing. I think he's just
Speaker 1: trying to get from event to event. Waiting for the
Speaker 1: data Kating.
Speaker 5: I will say that the thing that stuck with me
Speaker 5: from that appearance was the focus on financial conditions. I mean,
Speaker 5: I think he said financial conditions at least fifteen times.
Speaker 5: When you look at financial conditions, you think about the
Speaker 5: lag of monetary policy. Have we finally started to see that?
Speaker 8: Well, see, I don't follow the financial conditions in disease
Speaker 8: that are on the street, particularly because they're reflecting long
Speaker 8: term interest rates, which, to be honestly, should be driven
Speaker 8: by inflation, not by real rates. That's number one. Number two,
Speaker 8: I don't look at it because they're looking at currency,
Speaker 8: and the currency is really not part of the financial conditions.
Speaker 3: In the marketplace.
Speaker 8: I look at the availability of companies to bring paper
Speaker 8: to market and get that paper sold, and I look
Speaker 8: at the Treasury's ability to bring a ridiculous amount of
Speaker 8: paper to market and get it sold, and all these
Speaker 8: markets are functioning beautifully. So I sit there and say,
Speaker 8: you know what there really is and illiquidity in the system.
Speaker 8: Financial conditions aren't tightening in the sense that really matters
Speaker 8: to the economy. It's tightening in the sense that we're
Speaker 8: trying to measure what would cause a credit crunch, But
Speaker 8: there is no preconditions for a credit crunch. There's no
Speaker 8: asset liability mismatch, and there's no valuation problem to be triggered,
Speaker 8: and therefore these things are looking for the wrong indicator.
Speaker 3: Halloween, I'm going as Gamma this year. That's my Greek
Speaker 3: letter this year. But after Halloween, we've got a FED
Speaker 3: meeting and.
Speaker 1: We have a jobs report, the first jobs report questioned
Speaker 1: for October folks with mister Rashudo of Bazoo.
Speaker 3: Is it finally going to slow down? I don't think so.
Speaker 8: No, because you're in an environment still where the initial
Speaker 8: n employment claims are telling you that we still have
Speaker 8: a very very tight labor market to continuing claims numbers
Speaker 8: are telling you we still have a very very tight
Speaker 8: labor market. So the people that are getting laid off
Speaker 8: are getting hired fairly quickly. So I don't think it
Speaker 8: will show up. And will there be some potential for
Speaker 8: a little bit of weakness in the payroll employment number
Speaker 8: in the headline number month over a month, a little
Speaker 8: bit of a change, sure, but we're not saying substance
Speaker 8: of change in the underlying dynamics of the labor mark.
Speaker 3: Stee thank you so much.
Speaker 1: We've took it for the frequent visits as well, really
Speaker 1: really valuable. Stephen Rashudo with this with Missoo's securities today.
Speaker 3: This is right.
Speaker 1: Now for Global Wall Street, the Interview of the day.
Speaker 1: Everybody's fundamental based. Katie Kaminski is weaned on the technician
Speaker 1: technical analysis of trend, going back to the giant Wells
Speaker 1: Wilder of nineteen seventy eight.
Speaker 3: She's with alpha simplex.
Speaker 1: Katie an opening question, what's a trend right now in equities?
Speaker 9: So equities right now, we finally see some of our
Speaker 9: signals tick short net, which kind of is surprising to me.
Speaker 9: And second of all, the biggest trade and biggest thing
Speaker 9: to fall in. This goes with what Lisa's saying divergence.
Speaker 9: We've seen long signals in big tech megacap and we're
Speaker 9: seeing short signals in the small cap. That tells the
Speaker 9: consumer the average stock is in trouble. Your big high
Speaker 9: names they are doing well, but your average stock is
Speaker 9: worried about higher rates.
Speaker 1: Katie Kimisky and I studied Tishushande on beta. I'm not
Speaker 1: a big believer in beta. For those of you from
Speaker 1: Global Wall Street, Katie in this world, do you have
Speaker 1: to do beta as a sector study or index study
Speaker 1: or can you actually have the conceit and confidence to
Speaker 1: do beta on individual securities.
Speaker 9: So we tend to think about looking at sectors because
Speaker 9: we're trading more in the futures markets, but we do
Speaker 9: also look at some of cash equity strategies as well,
Speaker 9: and we're definitely seeing tilts right now. You're seeing people
Speaker 9: talking a lot more about tilts to defensive tilts towards
Speaker 9: oil companies. So right now, I think this divergence trade
Speaker 9: is about finding certain areas of the market that are
Speaker 9: going to do better or worse in a higher rate environment.
Speaker 9: But it is tricky because it's uncharted water. We haven't
Speaker 9: really figured out what's going to happen next. That's pretty
Speaker 9: much the theme worse thinking and seeing is that we
Speaker 9: got to the higher rates.
Speaker 3: What's next?
Speaker 9: Which stocks are going to succeed, which are going to
Speaker 9: be able to refinance, which are going to waivers through
Speaker 9: this new environment?
Speaker 4: Katie, I was so excited to speak with you today
Speaker 4: because you follow trends and I'm looking for a trend
Speaker 4: in the ten year yield and yet it's up. But
Speaker 4: it's also you know, we've we're talking about a ping
Speaker 4: pong ball. Pick your metaphor. How can you find a
Speaker 4: trend in a market that's unanchored?
Speaker 9: Good question. I've been asking this myself as well. Because
Speaker 9: we have seen consistent short trends for months, I have
Speaker 9: still yet to see a steepener in the relative positioning
Speaker 9: and trend signals. That's something that I've been kind of
Speaker 9: looking for to understand when we might have an inflection point.
Speaker 9: There was a little bit more pressure on the long
Speaker 9: end this month, which is something that kind of brought
Speaker 9: my attention to the fact that we might be eventually
Speaker 9: at a buying point. It does feel right now in
Speaker 9: terms of how we're seeing the market's trade, that we're
Speaker 9: at a point where there's some interest to buy because
Speaker 9: we've come so far in this disinversion in the yield curve,
Speaker 9: and so I think the next step is going to
Speaker 9: be what's the next phase of this bond trade. Is
Speaker 9: it wait and see and see if we see something
Speaker 9: that could push us to a new shape of the
Speaker 9: yield curve, or do we go to a state where
Speaker 9: we have worse financial conditions and we have to actually
Speaker 9: tighten stop tightening and thus see you know, the shorter
Speaker 9: end has to release some of the pressure.
Speaker 4: Are you still short bonds?
Speaker 5: Yes?
Speaker 4: Okay, So are you basically seeing this as a sign
Speaker 4: that there could still be more yield increases to come,
Speaker 4: even though you are seeing a bid to buy come
Speaker 4: in around the margins.
Speaker 9: Yes, Lisa. And what's amazing to me is that signals
Speaker 9: in the technical space have been short and fixed income
Speaker 9: for two years almost consistently. That hasn't happened in many decades,
Speaker 9: And I think what we need to start to see
Speaker 9: is to see some consolidate and see some actual view
Speaker 9: that that trade might turn around. But so far I
Speaker 9: keep looking for it, and I haven't seen the end
Speaker 9: of this trade yet. So that suggests that we haven't
Speaker 9: seen the bottom of perhaps the long end of the
Speaker 9: bond market as of yet. I think we might see
Speaker 9: it in the next three to six months.
Speaker 5: So maybe yields have more room to climb here. But
Speaker 5: can we talk about the importance of five percent, because
Speaker 5: I think it was very telling that you had the
Speaker 5: ten year treasure yield just kiss five percent earlier this
Speaker 5: week and then immediately drop in the path to higher yields.
Speaker 5: How much of a hurdle will five percent be.
Speaker 9: Well, five percent was a pretty important philosophical boundary for
Speaker 9: many investors, and maybe it also represents a buying point
Speaker 9: if you think about it from the investor perspective. As
Speaker 9: yields go up, there starts to be more and more
Speaker 9: of a trade off between at what point do you
Speaker 9: not worry about the entry point of that particular investment,
Speaker 9: and you start saying, it's actually pretty good to lock
Speaker 9: in five percent over these horizons, and there is some
Speaker 9: risk that we might have deteriorating financial conditions, so purchasing
Speaker 9: those bonds might actually seem like a good idea. And
Speaker 9: that's what I'm hearing from investors as well. We're starting
Speaker 9: to see more discussions about the trade off for the
Speaker 9: risk of investing in risky assets versus the return of
Speaker 9: fixed income. That has become so much more more interesting
Speaker 9: than it was a few years ago.
Speaker 5: Well, we're talking about the level here. Let's talk about
Speaker 5: rate of change a little bit, because the rate of
Speaker 5: change has been shocking over the past few months. You
Speaker 5: look over through the next few months, are things going
Speaker 5: to calm down?
Speaker 9: Well, I think these things come in spurts and in runs,
Speaker 9: and I think we've gone through a pretty strong run
Speaker 9: in terms of trends. And one thing that we note
Speaker 9: in the trend falling space is that fixed income is
Speaker 9: not linear. It tends to accelerate very quickly when it
Speaker 9: wants to, and then it can be very smooth for
Speaker 9: some period of time. It feels like we've gone through
Speaker 9: one of those phases and now there's going to be
Speaker 9: some consolid until we see something that has the ability
Speaker 9: to move that curve again. So far, we need to
Speaker 9: have something a little bit more extreme, perhaps some deteriorating
Speaker 9: financial conditions or just an excess supply of treasuries that
Speaker 9: just has difficulty, you know, kind of consolidating.
Speaker 1: Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify, and
Speaker 1: anywhere else you get your podcasts. Listen live every weekday
Speaker 1: starting at seven am Eastern i Bloomberg dot Com, the
Speaker 1: iHeartRadio app, tune.
Speaker 3: In, and the Bloomberg Business App.
Speaker 1: You can watch us live on Bloomberg Television and always
Speaker 1: on the Bloomberg Terminal.
Speaker 3: Thanks for listening. I'm Tom Keen, and this is Bloomberg