Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amerie Hordernt join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
Speaker 2: from our global headquarters in New York City. We are
Speaker 2: live on Bloomberg Television weekday mornings from six to nine
Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or
Speaker 2: anywhere else you listen, and as always on the Bloomberg
Speaker 2: Terminal and the Bloomberg Business app. Julian and Manuel, I've ever,
Speaker 2: of course, selling US seventy seven to fifty price target
Speaker 2: for the S and P by year end, expecting more
Speaker 2: of everything that drove twenty five, more AI, more stimulus,
Speaker 2: more earnings, growth, more volatility. Julian joins us now for more.
Speaker 2: Julian and Monic, good morning, Good to see you, sir.
Speaker 2: Welcome to the program. Everything that worked last year is
Speaker 2: going to keep on working. The temptation to choose something new,
Speaker 2: find that new thing, why aren't you embracing it?
Speaker 3: So is here and again this concept of concentration risk.
Speaker 3: If you go back to the beginning of this century,
Speaker 3: when the top ten stocks were twenty five percent of
Speaker 3: the way in the s and P five hundred, there
Speaker 3: was a thought that could not be exceeded. We're now
Speaker 3: at forty percent, and frankly, again, if you think about
Speaker 3: concentration risk, you look at a market like Korea, we're
Speaker 3: in the COSTPI. You've got two stocks that account for
Speaker 3: forty five percent.
Speaker 4: So the point is, the math.
Speaker 3: Doesn't work for these stocks not to market perform or outperform.
Speaker 3: But the truth is is that the capital market cycle
Speaker 3: has yet to fully play out, and the beneficiary of
Speaker 3: a robust capital market cycle time and time again are
Speaker 3: the stocks that led you into this.
Speaker 2: So funny when it comes on a program later on
Speaker 2: this morning, saying dive into what's hamdling gon Asia, what's
Speaker 2: developing its South Korea, you're saying, take a step back, resist.
Speaker 5: No.
Speaker 3: Basically, what we're saying is is that you know, there
Speaker 3: should be a discomfort around the fact that the market
Speaker 3: is really clustering in this theme. But that discomfort, as
Speaker 3: we saw earlier at the end of last last year
Speaker 3: with the discomfort around the one marquee name that has
Speaker 3: taken on a great deal of debt to finance capex.
Speaker 3: The majority of these companies have you know, very very
Speaker 3: robust cash flow, and so therefore you're going to have
Speaker 3: this sort of virtuous cycle of earnings continue to be
Speaker 3: driven by these names.
Speaker 1: Is the bet right now just to bet on the
Speaker 1: biggest tech companies in both regions, both the US and China,
Speaker 1: betting that they can consolidate their dominance going forward, regardless
Speaker 1: of whether the US or China wins.
Speaker 3: It does come down to that to a great degree.
Speaker 3: And you know, we get asked all the time again,
Speaker 3: should we rotate to other sectors. There'll be plenty of
Speaker 3: opportunity to do it. Opportunistically. There's going to be a
Speaker 3: continued skirmish around healthcare towards the end of this month, obviously,
Speaker 3: in fact, with the one big beautiful bill tax benefits
Speaker 3: starting to kick in later this quarter. We think there's
Speaker 3: an opportunity for consumers beaten down consumer names to rally.
Speaker 3: But you step away and the bull market has been
Speaker 3: led by these names and these themes, and we think
Speaker 3: it's further to run.
Speaker 1: There might be some people who read what's going on
Speaker 1: in the news and then look at markets and say
Speaker 1: that everybody's just going la la la la, la la la.
Speaker 1: We're not going to listen to anything that could potentially
Speaker 1: be game changing. Is it just been on what you
Speaker 1: know and that you don't know so much you just
Speaker 1: ignore it.
Speaker 3: Well, I think again, part of the rationale around AI
Speaker 3: is you're still betting on something that you don't fully know. Okay,
Speaker 3: And for us, what we think is going to have
Speaker 3: happened in twenty twenty six is you're going to go
Speaker 3: from the inflection year twenty twenty five for AI adoption
Speaker 3: to the year where it accelerates when corporate global corporates
Speaker 3: realize that if they don't find ways to drive revenues
Speaker 3: and cut costs through using AI, they will be at
Speaker 3: a competitive disadvantage.
Speaker 6: When Lisa says things going on in the news, she
Speaker 6: means Venezuela, And you actually writen your note that you think,
Speaker 6: if anything, Venezuela increases the chances of an AI bubble.
Speaker 2: Why is that so?
Speaker 3: Think about a confluence of events. First of all, we
Speaker 3: found out a week and a half ago that the
Speaker 3: economy's last reading was actually stronger than expected. Thinking about
Speaker 3: the stimulus that's ahead, it sets up more economic upside
Speaker 3: in the US. In fact, our team just took its
Speaker 3: twenty twenty six forecast up to two point five percent.
Speaker 3: From a FED perspective, we actually think there won't be
Speaker 3: two cuts, they'll be three, possibly more.
Speaker 6: They have both growing economy, fiscal stimulus p touch a
Speaker 6: higher inflation, and then you're saying three federal reserve.
Speaker 3: Guts because you have a political backdrop where the impetus
Speaker 3: is to keep the consumer moving forward as we get
Speaker 3: to the midterm elections. Now on Venezuela, basically the issue
Speaker 3: here is long term. It's likely a moderating influence for
Speaker 3: oil prices, and if you think about oil prices staying
Speaker 3: flat for longer, that's bullish for long dated bonds.
Speaker 2: Let's punk Venezuela just from moment. Your view on the
Speaker 2: federal reserve becoming increasingly politicized in the last twenty four
Speaker 2: and has had a series of guests come on the
Speaker 2: program and talked about the unintended consequence of pushing for
Speaker 2: law of interest rights at a federal reserve, galvanizing the
Speaker 2: other members of a committee to push back against the
Speaker 2: push for law of interest rights. Why are you taking
Speaker 2: the other side of that?
Speaker 3: Essentially because a couple things is that for the most part,
Speaker 3: even though the economy is strung, there's still this dichotomy
Speaker 3: between what the labor market actually looks like. You know,
Speaker 3: obviously a lot of that has to do with immigration policy, etc.
Speaker 3: But the fact of the matter is is that politically
Speaker 3: and sort of psychologically, to see monthly job gains closer
Speaker 3: to zero than closer to one hundred thousand going forward
Speaker 3: will be something that you know, given the fact, and
Speaker 3: we also think that the tariff flow through has reasonably
Speaker 3: fully flown flowed through, and so you know, a moderate
Speaker 3: jobs environment and a lower inflation trajectory just continue to
Speaker 3: drive the ability to cut rates.
Speaker 2: Let's finish my pushing that through the equity market. Consumer
Speaker 2: discretion ry does it tend things around?
Speaker 3: We do think so. And again our sector preferences consumer discretionary,
Speaker 3: communication services, infotech, the subtexts, all of them have large
Speaker 3: exposure to AI. But in this algorithmic trading world, what's
Speaker 3: good for the consumer is going to flow through and
Speaker 3: be good for AI names and you know, boost that sector.
Speaker 2: Jenny, and you talked about the importance of sixty dollars crude.
Speaker 2: Just flash that out for us. Why is it so
Speaker 2: important to the stock market?
Speaker 3: Well, it's the stability of the price. And look, you know,
Speaker 3: I think one of the things that Trump has been
Speaker 3: very happy that he's been able to deliver going back
Speaker 3: to this first year, is that visibly, in terms of
Speaker 3: the affordability crisis, there is not an affordability crisis at
Speaker 3: the pump anymore. Gas prices have continued to fall, and
Speaker 3: what we've seen is that that has a tendency to
Speaker 3: bleed through to other areas. It has not yet, and
Speaker 3: it may not. I mean, if you think about what
Speaker 3: happened in the commodity market, it's yesterday, the surge and
Speaker 3: copper was anticipatory for this build out that we're going
Speaker 3: to have in Venezuela. But the fact is that the
Speaker 3: consumer among the prices that the consumer anchors on, the
Speaker 3: energy price is extremely important, and in that respect, sort
Speaker 3: of knowing that you're below three dollars a gallon is
Speaker 3: very psychologically beneficial.
Speaker 1: Is it consistent to have low oil prices and an
Speaker 1: outperforming energy sector.
Speaker 3: It's a rough go to think about that in the
Speaker 3: long term. But again, and I think we've seen this
Speaker 3: over the entirety of this rally, there's a massive dispersion.
Speaker 3: The lowest correlations of really in many years amongst stocks,
Speaker 3: and I think when you look at the energy sector,
Speaker 3: you're going to see winners and losers based on where
Speaker 3: this is all going.
Speaker 1: Do you see a reason to invest more in Latin
Speaker 1: America as a result of the don Roe doctrine that
Speaker 1: we keep hearing about?
Speaker 3: Interesting question. Frankly, The reason that we think that you know,
Speaker 3: the rest of the world, Latin America included, is more
Speaker 3: interesting is because we think you saw a very significant
Speaker 3: top in the dollar a year ago and all lse
Speaker 3: sequel again over the long haul, what we started to
Speaker 3: see was portfolio rebalancing away from the US dribs and
Speaker 3: drabs slowly, and frankly, that's not going to accelerate, given
Speaker 3: the fact that our view that the AI theme has
Speaker 3: further to run. But over the long term, if you believe,
Speaker 3: as we do, that you've made a significant top in
Speaker 3: the dollar, you want to diversify to the rest of
Speaker 3: the world.
Speaker 6: The oil majors are jumping on this news, not so
Speaker 6: much crude energy before the weekend as opposed to after
Speaker 6: the weekend. Would you have a different view on potentially
Speaker 6: wanting to invest in the US majors.
Speaker 3: Again, you look at twenty twenty five, one of the themes
Speaker 3: has been the Trump administration sort of influencing the selection
Speaker 3: of winners and losers on various themes. Obviously steal rare earths,
Speaker 3: et cetera. Clearly there's an element of this happening. Now
Speaker 3: we don't know what it looks like, but we do
Speaker 3: know that Donald Trump is a businessman, and the endorsement
Speaker 3: of Rodriguez, given her experience in the oil patch, really
Speaker 3: tells you that that's where the emphasis.
Speaker 6: Does potentially help put a lid on oil prices. But
Speaker 6: when you think about AI, there's one issue of affordability
Speaker 6: that Americans are dealing with, and that's electricity prices. How
Speaker 6: are you thinking about that this year, given it is
Speaker 6: a mitern election year.
Speaker 3: Well, there's no question that that is the push pull.
Speaker 3: It's been the push pull the entire year. But again,
Speaker 3: all else equal, the president has shown an ability to
Speaker 3: influence events that moderate oil prices, and at some point
Speaker 3: that's likely to flow through to the.
Speaker 4: Rest of it.
Speaker 3: But again, the intent is because of the recognition of
Speaker 3: the importance is AI of AI as a theme both
Speaker 3: for the US and on the US corporate life.
Speaker 2: And we finished with a sentiment check year end price
Speaker 2: targets seventy seven, fifty and busy speaking to clients. When
Speaker 2: you talk to them, are they more excited about what
Speaker 2: can go right this year or more worried about what
Speaker 2: can go wrong?
Speaker 3: I would say it's in balance, to be perfectly frank
Speaker 3: What bothers us is that this is the first time
Speaker 3: in my memory, going back to when I was on
Speaker 3: the buy side, that there was no strategists on the
Speaker 3: street that had a price target below where the index
Speaker 3: level is. Thank you Bloomberg for compiling that information and
Speaker 3: what we found that over the course of last year,
Speaker 3: when sentiment got tipped too far in one direction, you
Speaker 3: had pullbacks, and here we are at Vicks fourteen. So
Speaker 3: to assume that it's clear sailing, you know, for weeks
Speaker 3: on end, is probably a faulty assumption.
Speaker 2: Stay with us. More Bloomberg surveillance coming up after this.
Speaker 2: Investors look into a fresh lighte of economic data to
Speaker 2: kick off the new year. So I'll desigre Franklin temput
Speaker 2: and fixed income writing. I maintain a constructive outlook for
Speaker 2: US growth. There is a lot of uncertainty. However, I
Speaker 2: see the balance skewed towards inflation risk, especially in the
Speaker 2: first part of twenty six. And now John, just now
Speaker 2: for Mores and good morning. It's going to see you.
Speaker 5: Nice to see you.
Speaker 2: It's very nice to see you. Happy New Year. Let's
Speaker 2: talk about that source of inflation risk. What's the most
Speaker 2: prominent source of inflation risk for you in the team.
Speaker 5: The fiscal impulse.
Speaker 7: So you were just talking about the what we hope
Speaker 7: to see, but the reality is this week we already
Speaker 7: know the big beautiful Bill is going to hand out
Speaker 7: a lot of goodies across the board.
Speaker 5: We're talking about.
Speaker 7: The consumer, whether we're talking about industry, All of these
Speaker 7: factors lead to inflation, and we haven't actually something which
Speaker 7: comes on and then moves off the front page is
Speaker 7: the two thousand dollars rebate check. Remember that in the
Speaker 7: first three months of the Biden administration, we helicopter dropped
Speaker 7: fourteen hundred dollar checks. And I've always maintained that was
Speaker 7: one of the principal sources of the inflation burst. We
Speaker 7: saw that massive fiscal splurge. If we get that splurge
Speaker 7: in h one, it results in consumer demand. And I
Speaker 7: know that there is a lot of concern and angst
Speaker 7: about the labor market. The labor market is a different
Speaker 7: labor market. I don't think you can read thirty k
Speaker 7: jobs the same way you could read thirty k jobs
Speaker 7: two years ago. That's supposed to be balance right now.
Speaker 7: So if you're above thirty, you know the economy's kind
Speaker 7: of treading water.
Speaker 6: Do you see companies potentially passing on more of these
Speaker 6: higher costs if the consumer is able to do it
Speaker 6: because they have more money in their pocket.
Speaker 5: Yeah, I do.
Speaker 7: I do actually passing on the higher costs, but also
Speaker 7: genuine higher demand. The one thing which continues to flow
Speaker 7: through is the American American consumers desire to consume. And
Speaker 7: I'm very interested to know what the end of this
Speaker 7: Christmas season will look like. But looking at what we're
Speaker 7: hearing in real time, it looks like it's going to
Speaker 7: be a strong one.
Speaker 6: Putting these two stories together in Washington, DC right now,
Speaker 6: the President is clearly putting a lid on oil prices
Speaker 6: going up when it looks what's happening in Venezuela. But
Speaker 6: at the same time, they're going to potentially get more
Speaker 6: fiscal impulse ahead of the midterm election. Does the oil
Speaker 6: depression of a price help the potential statflationary fears you have.
Speaker 7: So it's not a it's not statulation. I'm expecting growth
Speaker 7: to two point seventy five to three percent, driven by
Speaker 7: that consumer demand, driven by the fact that we're getting
Speaker 7: private sector investment in this country. Between last year and
Speaker 7: this year. It's around one trillion dollars. That's more than
Speaker 7: what it's about as much Germany is going to do
Speaker 7: over ten years. So when you stop and put that
Speaker 7: into perspective, you've got a lot of tailwinds coming in
Speaker 7: for growth this year. So it's not really stagflation that
Speaker 7: I'm talking about. I'm just saying that I don't expect
Speaker 7: major advances on inflation.
Speaker 2: Now.
Speaker 5: Can oil be the game changer? I don't think so.
Speaker 5: I don't think in the near term.
Speaker 7: I think Venezuelan oil that's a two three year out
Speaker 7: story because yeah, there's a sentiment driven Yes there's going
Speaker 7: to be a lot more supply, but how much actual
Speaker 7: supply are you going to see in the new term.
Speaker 1: So we talk about inflation as though or a monolith,
Speaker 1: and inflation can be expressed through the market in many
Speaker 1: different ways. It can be a higher long end of
Speaker 1: the yield curve, you could see, for example, the dollar weeke,
Speaker 1: and substantially you could see metals prices go up significantly.
Speaker 1: Which node do you think will transmit through markets most directly, I.
Speaker 2: Think a little bit of all.
Speaker 7: So you're going to see a further steepening of the
Speaker 7: yield curve in my book, because I think the Fed
Speaker 7: should not have got up to three fifty, and if
Speaker 7: they actually go further than three fifty, I think it
Speaker 7: would be a substantial mistake. And we're going to see
Speaker 7: a significantly steeper yield curve because if we stop to think,
Speaker 7: the Fed has got one hundred and seventy five basis
Speaker 7: points and tenure yields are higher than they were before
Speaker 7: they started cutting, which means underlying the market's apparent sanguineness
Speaker 7: about everything that's going on, clearly there is some concern
Speaker 7: on the fiscal and the inflation.
Speaker 5: And in terms of the dollar, I'd say the dollar
Speaker 5: is a little bit mixed.
Speaker 7: In terms of the G three, I think we're pretty
Speaker 7: close to fair value against the euro actually, and I
Speaker 7: think we're massively overvalued.
Speaker 2: Jump in because you acknowledged the bulk of that move
Speaker 2: was in twenty four, not twenty five.
Speaker 5: Absolutely.
Speaker 2: In twenty five, the cut interest rates and bond yards
Speaker 2: on a ten year maturity actually fell, they didn't rise.
Speaker 2: What's changed for twenty five in the cutting cycle of
Speaker 2: last year compared to what we saw in twenty four because.
Speaker 7: I think this is the year you actually get if
Speaker 7: you get the fiscal impulse that I'm talking about, those
Speaker 7: tax rebate checks, those so the consumption demands, the tailwinds
Speaker 7: are stronger. I think in addition, on the non AI
Speaker 7: hyper scaling front, we actually haven't seen that much investment
Speaker 7: last year, and I think we probably will this year.
Speaker 7: So I think there are lots of tailwinds to growth
Speaker 7: this year that we didn't actually have last year, and
Speaker 7: you had everything related to the tariff related uncertainty which
Speaker 7: really skewed.
Speaker 5: One half of the year.
Speaker 7: So I think when Tariff's liberation Day was first announced,
Speaker 7: everyone was sure that meant a recession in the US.
Speaker 5: I didn't.
Speaker 7: I'm just eratulated, but it was, so I think we
Speaker 7: just start from a different spot.
Speaker 1: So a super Yeld curve in and of itself isn't
Speaker 1: necessarily negative for the market. It can be actually really positive.
Speaker 5: When it comes to financials.
Speaker 1: The absolute level of yields does matter? Yes, what's the
Speaker 1: stopping out point for ten year yields? Were suddenly risk
Speaker 1: assets lose their luster?
Speaker 5: So I think, you know, I'm not. I think that.
Speaker 7: Fixed in markets have shown an ability to absorb all
Speaker 7: the way to four seventy five and above. Equity markets,
Speaker 7: it's a different question, and I'm not an equity person,
Speaker 7: so I'll talk to that'd just say that, do I
Speaker 7: see ten year yields going back to those substantially above
Speaker 7: four fifty for close to four seventy five levels? I
Speaker 7: actually I do if you don't have the wild card,
Speaker 7: which is something which knocks the economy into a recession.
Speaker 7: And really that's it's just not my baseline. If I
Speaker 7: look at the tailwinds coming from Montree and fiscal policy
Speaker 7: right now, it's very hard to argue that we're heading
Speaker 7: for a weakening of the.
Speaker 2: Pretty guys love to talk about bonds, but people can
Speaker 2: talk about equacies. The spread in the last thirty minutes
Speaker 2: is three three cuts. You're basically at zero for this year,
Speaker 2: and during the man you want I've had the core
Speaker 2: equity guy is a three for this year.
Speaker 7: No, And I think that's the difference because I think
Speaker 7: equity people do get concerned. Certainly within my own film,
Speaker 7: my equity colleagues get very concerned when I say that,
Speaker 7: you know, honestly, they should have got last time. And
Speaker 7: I'm not sure they're going to cut at all this
Speaker 7: year this year.
Speaker 5: Really honest.
Speaker 1: How pretty guys talk about bonds and bond guys talk
Speaker 1: about equities all the time.
Speaker 2: They designed by saying we don't cover that.
Speaker 5: But let me tell you that's what happens every single
Speaker 5: I agree.
Speaker 2: What can I say? Starts a dropping by and I'm
Speaker 2: design the a Franklin sampleton stay with us. More Bloomberg
Speaker 2: surveillance coming up after this, Andrew Homholst, The city's got
Speaker 2: things to say on the data and on that too,
Speaker 2: and on base case. The unemployment rate rises to four
Speaker 2: point seven percent. Indie December jobs report continue itis trend
Speaker 2: higher and keeping the FED reducing policy interest rates. Andrew
Speaker 2: john Is now for more. Andre Camrnic Yeah, happy to
Speaker 2: year to you too. That's not such a happy new
Speaker 2: year for the labor market though, to drift towards five continues.
Speaker 8: We think so, and I think that, you know, we're
Speaker 8: in the business of forecasting these things on a monthly basis,
Speaker 8: there's a lot of volatility, we have some residual seasonality
Speaker 8: in the data. All those things kind of obscure what's
Speaker 8: going on. But if you just step back and look
Speaker 8: at what this labor market has done over the last
Speaker 8: two years, we've been trending higher in the unemployment rate.
Speaker 8: We've just been consistently trending higher in the unemployment rate.
Speaker 8: So we think that trend continues this year. We do
Speaker 8: think that can happen in the jobs report that we're
Speaker 8: going to get this week, with the participation rate coming
Speaker 8: up a little bit, maybe that's going to push the
Speaker 8: unemployment rate higher. But what I would really emphasize is
Speaker 8: that that broad trend towards loosening in the job.
Speaker 2: I talked about the hawkish two. As the FMC rotates
Speaker 2: and you get the regional voters, the new ones coming
Speaker 2: on board for a year, what is the credible case
Speaker 2: to stay on hold? What is that case of the moment?
Speaker 8: So I think it's all about how comfortable are you
Speaker 8: with the labor market, and then how much discomfort you
Speaker 8: have about inflation, and then, to some extent, financial conditions. Also,
Speaker 8: because financial conditions are easy, they've been easy for some time.
Speaker 8: And then on inflation, and this is where I think
Speaker 8: people really differ. We're above target on inflation. If you
Speaker 8: listen to Chair Powell, he'll say two point eight percent
Speaker 8: or so core PCE inflation, But go ahead and subtract
Speaker 8: about fifty basis points from that due to tariffs, you're
Speaker 8: down to two point three percent. So I think there's
Speaker 8: a core of more dubbish FED officials that are looking
Speaker 8: through that tariff inflation and are not that concerned about inflation.
Speaker 8: But there's a group that are still concerned about inflation.
Speaker 8: So it's going to be the jobs data that matter
Speaker 8: in terms of are we become a little bit more
Speaker 8: uncomfortable with the job market, this very low hiring job market,
Speaker 8: And then on the inflation data, and that could take
Speaker 8: a number of months, but we have a clear slowing
Speaker 8: trend in shelter prices. I do think that some of
Speaker 8: those concerns about inflation will dissipate over the course of
Speaker 8: this year. They may rise first before they dissipate later
Speaker 8: this year.
Speaker 1: One thing that Richmond President Tom Barkin talked about was
Speaker 1: that this is going to be clean data and that
Speaker 1: there he's looking forward to getting some clean data how
Speaker 1: much do you actually think this data will be the
Speaker 1: first clean read since the government shutdown?
Speaker 8: So I think on the jobs reported on the unemployment rate,
Speaker 8: this is really important in terms of the interpretation. A
Speaker 8: lot of people looked at that November unemployment rate and said, yeah,
Speaker 8: four point six percent, but maybe it got boosted because
Speaker 8: of the government shutdown. So even if we hold steady
Speaker 8: at four point six percent on the unemployment rate in
Speaker 8: the data for December, I think people will look at
Speaker 8: that and say, well, that was a clean four point
Speaker 8: six percent. And we've heard different FED officials different in
Speaker 8: terms of how clean or not they think that that
Speaker 8: number is.
Speaker 5: So yes, I do think.
Speaker 8: I think that especially on the inflation data. I think
Speaker 8: there are big questions about the inflation data during the
Speaker 8: shutdown period, But on the jobs data also there are
Speaker 8: some lingering questions. This job's report will help to resolve those,
Speaker 8: and you think that.
Speaker 1: It's going to resolve it in terms of possibly even
Speaker 1: getting a feder rate cut by the end of this month.
Speaker 5: And I just wonder how far that will go to.
Speaker 1: Bolstering a labor market that's being affected by other issues
Speaker 1: outside of any kind of monetary policy.
Speaker 8: Yeah, not very far right. So cutting interest rates twenty
Speaker 8: five basis points and doing it in this month versus
Speaker 8: doing it later this year, that's just not going to
Speaker 8: have a huge effect on the macroeconomy. But I think
Speaker 8: you're still watching the labor market because you're looking at
Speaker 8: three things. If the labor market is loosening, it's telling
Speaker 8: you maybe you're not really a neutral, Maybe you need
Speaker 8: to cut a little bit further. It's telling you there's
Speaker 8: going to be less inflationary pressure because we don't have
Speaker 8: this wage pressure, we don't have a tight labor market.
Speaker 8: And it's also telling you that maybe I want to
Speaker 8: start thinking about insurance. This is not something we're really
Speaker 8: hearing from FED officials now, but maybe I want to
Speaker 8: think about do I need to be at least at
Speaker 8: the bottom of the range of neutral. Maybe I'm going
Speaker 8: to need to go below neutral, because if you're actually
Speaker 8: getting to five percent unemployment and mean, I think it's
Speaker 8: a very obvious point, but one that's being missed a
Speaker 8: little bit in some of the rhetoric around this. The
Speaker 8: unemployment rate is moving higher gradually. It's good that it's
Speaker 8: a gradual move and not a sharp move. But if
Speaker 8: we just keep moving gradually higher. We will hit five percent,
Speaker 8: and you'll keep going north to five percent, and at
Speaker 8: some point we'll say we really have an issue with
Speaker 8: unemployment in this country.
Speaker 6: Andrew, when it comes to inflation, what about healthcare inflation
Speaker 6: given the fact that subidies are rising.
Speaker 8: Yeah, so we have this really complex technical issue now
Speaker 8: with the way that these healthcare subsidies are going to
Speaker 8: change as we go into twenty twenty six, that could
Speaker 8: have some direct effect on the CPI data. We don't
Speaker 8: think it's going to have much of an effect on
Speaker 8: the PCEE inflation data. But in terms of just consumer costs, right,
Speaker 8: this is a higher cost that consumers will be facing,
Speaker 8: but I don't think we'll have a big effect on
Speaker 8: the reported numbers.
Speaker 6: So when it comes to inflation, what is the biggest concern?
Speaker 9: Then?
Speaker 6: Terms of policy, because everyone will talk about tariffs, but
Speaker 6: this year's also healthcare. Do you think any of these
Speaker 6: will have an impact?
Speaker 8: I think what I would be watching in the inflation
Speaker 8: data or two things. One is do we see this
Speaker 8: continued gradual softening of services inflation. We're seeing it most
Speaker 8: clearly in shelter. We're not seeing it as clearly in
Speaker 8: non shelter services. That's one question. The other question is
Speaker 8: I was mentioning earlier Powell talking about this fifty basis
Speaker 8: points due to tariffs.
Speaker 5: Well, is.
Speaker 8: That strength that you have in goods prices? Is it
Speaker 8: really terrif related or are there other factors that are
Speaker 8: playing in to hire goods prices? Is that going to
Speaker 8: continue or is that going to dissipate? I don't know
Speaker 8: if policy can do a lot to address those things.
Speaker 8: And when people talk about affordability, honestly, I think a
Speaker 8: lot of what they're talking about is the expense of
Speaker 8: buying a house, which has to do with mortgage rates
Speaker 8: and that well, the FED cutting interest rates will will
Speaker 8: bring that down.
Speaker 2: So anjie, thanks, just body expensive? Everything's a jimpn Coast
Speaker 2: is sell English then, didn't it?
Speaker 8: Jim?
Speaker 2: I did a great job of this suff for research.
Speaker 2: The FED talks about one offs and one time changes
Speaker 2: because they're focused on the change the public is dealing
Speaker 2: with the price level that's right, and where prices are,
Speaker 2: it's just ridiculous. Anyone trying to buy food or pay
Speaker 2: the energy bill, it is absolutely ridiculous. Do you think
Speaker 2: the FED needs to reconcile the differences with a between
Speaker 2: how they look at inflation and how a public experience
Speaker 2: is it.
Speaker 8: I think certainly, and how they talk about that. It's
Speaker 8: very important to kind of get the rhetoric right around that,
Speaker 8: because it is true. I experienced that you go to
Speaker 8: the store and you're just shocked at how much everything costs.
Speaker 8: And that's I'm an economist. I understand inflation, I understand
Speaker 8: price level, but I still have that emotional experience of
Speaker 8: going to the store and realizing how expensive everything is. So, yes,
Speaker 8: the price level is higher, and I think that is
Speaker 8: something that should be communicated more clearly, is that the
Speaker 8: path forward, it's going to be difficult to bring that
Speaker 8: price level down, right. We're not trying to generate deflation. Now.
Speaker 8: What you would hope is that wages continue to grow, right,
Speaker 8: and we end up having real growth in real wage growth,
Speaker 8: And we are having some of that, which is a
Speaker 8: healthy thing. But honestly, you need years of that for
Speaker 8: people to feel better about these praises.
Speaker 2: Quick one to finish the new feed chair is his
Speaker 2: name Kevin.
Speaker 8: I think there's a high probability that his name will
Speaker 8: be Kevin, and I think that's.
Speaker 2: About all we can say right now, Andrew, thank you,
Speaker 2: stay with us. More Bloomberg Surveillance coming up after this.
Speaker 2: Let's talk about this market, Troy Geersky, our future standard
Speaker 2: writing in an environment where public equity valuations are stretched
Speaker 2: and it's very difficult to find growth outside of megacab
Speaker 2: tech middle market, private equity stands out as an oasis.
Speaker 2: Troy joins us now from what Troy, good morning and
Speaker 2: happy new year. Good morning, get us see in the studio.
Speaker 2: Thanks for coming in, buddy, Thank you. Let's talk about
Speaker 2: setting the tone for markets worldwide and in private markets
Speaker 2: for that matter. To what extent is the fate of
Speaker 2: one company, And I'm going to say it, Open Ai,
Speaker 2: that one company set the tone for the broader market.
Speaker 4: Well.
Speaker 9: As we discussing before, Open Ai has been at the
Speaker 9: cutting edge of obviously infrastructure for the complex, right, and
Speaker 9: that has driven competitive pressure for the hyperscalers, who are
Speaker 9: historically petrified of losing market share in various areas to
Speaker 9: spend money at prodigious rates.
Speaker 2: Right.
Speaker 9: The fact that thirty forty fifty, maybe even sixty basis
Speaker 9: points of contribution an omenal GDP will come this year.
Speaker 9: So they've been critically important in waking up the giants,
Speaker 9: so to speak. On a go forward basis, though, the
Speaker 9: hyperscalers are.
Speaker 4: Going to drive more and more of the outcomes.
Speaker 2: We believe what I'm getting at ready is the fights
Speaker 2: of the public market. How tight is it to what
Speaker 2: is happening in private markets and vice versa.
Speaker 9: Yeah, so there private markets tend to have an advantage
Speaker 9: for funding. Early, as you know, if you look back,
Speaker 9: you know fifteen twenty years it was all about small
Speaker 9: scale funding and then eventually going.
Speaker 4: Public, and that allowed you to grow.
Speaker 9: As private equity and private credit has grown up, they've
Speaker 9: been the preferred sources of financing. And then prior to that,
Speaker 9: of course, in growth areas you have venture capital.
Speaker 4: Credit.
Speaker 9: Infrastructure has led the way in terms of financing these projects.
Speaker 9: And then now of course you have a little more
Speaker 9: circular funding coming again from the largest five companies.
Speaker 3: In the world.
Speaker 1: There is this question though, and I think that just
Speaker 1: to build on what John is saying, Open AI and
Speaker 1: their investment has really fueled a lot of other investment
Speaker 1: in infrastructure in data centers has popped up the valuations
Speaker 1: of it at a time when suddenly people are looking
Speaker 1: for more efficiency. At what point does that pose a
Speaker 1: significant risk on a credit perspective to private credit and
Speaker 1: infrastructure investment.
Speaker 9: Is here well, So I think big picture right, if
Speaker 9: you're looking at the roics that at least are modeled
Speaker 9: out in data centers, and to be fair, remember the
Speaker 9: demand for compute, not just an AI, but obviously almost
Speaker 9: more importantly in old school SAS or other applications continues
Speaker 9: to outstrip demand. So you have tremendous demand for the
Speaker 9: computational powerless storage and you don't have enough supply yet.
Speaker 9: So trying to extrapolate in the near term that some
Speaker 9: struggle at OpenAI would lead to some circular backwash is hard.
Speaker 9: We could see twenty seven and twenty eight by then.
Speaker 9: If there's not an aroric, it's going to get a
Speaker 9: little bit tricky in terms of Ford capax budgets.
Speaker 1: Do you think that data centers are a good place
Speaker 1: to keep investing in or do you think that there
Speaker 1: needs to be a catch up trade with some of
Speaker 1: the energy sector as well From a private investment perspective,
Speaker 1: So look.
Speaker 9: Everything all analysis our team does, and we're a much
Speaker 9: smaller player roughly two billion in assets, is that Ford demand,
Speaker 9: particularly in situations that are funded by hyperscalers where you
Speaker 9: have that recurring revenue, that free cash flow look very attractive.
Speaker 9: The comparison I always use is if you look at
Speaker 9: senior security commercial real estate lending versus the senior part
Speaker 9: of the capital structure in data centers, you get an
Speaker 9: extra fifty to seventy basis points to pick up in
Speaker 9: hospitality for instance. However, once you move down into MEZC,
Speaker 9: given where we are in real estate cycle, you argably
Speaker 9: have more upside the next several years in the digital space.
Speaker 6: But to Lisa's point, is there a mismatch potentially for
Speaker 6: the energy that is needed to run these data centers
Speaker 6: that could potentially.
Speaker 4: Hold the story back?
Speaker 9: Well, it's a great point. So I think, big picture,
Speaker 9: this is back to demand that stripling supply. Right, So
Speaker 9: when we look at one of the risks to GDP
Speaker 9: growth this year, it's less about on the demand side
Speaker 9: and more about can you actually construct enough right, do
Speaker 9: you have enough copper?
Speaker 4: Do you have the political will?
Speaker 9: I mean the other day Bernie Sanders and Ron DeSantis
Speaker 9: agreeing on like constraining.
Speaker 4: Like how often do you see that?
Speaker 10: Right?
Speaker 4: So there are more.
Speaker 9: Challenges on the supply side, less challenges than the near
Speaker 9: term on the demand side, and so that tends to
Speaker 9: bode well for investments at least over the short intermedia term.
Speaker 2: Do you think that's going to be fullest disciplined on
Speaker 2: these plants and stealing them from spending lives. I think
Speaker 2: Michael Semblists of JP molk and I said, management talked
Speaker 2: about this recently. I've got compa through thirteen K. The
Speaker 2: electricity needs that. Lisa talked about the social she'll put
Speaker 2: back us pushback as wow, that's sub called gating. How
Speaker 2: much of a disciplinary thanked will that have on they
Speaker 2: spend us well?
Speaker 9: As of now, you know, given the size of the budgets,
Speaker 9: it looks like the spending side is set again. It's
Speaker 9: more on the supply side. So I wouldn't expect until
Speaker 9: twenty seven to twenty eight. Remember the key factor here
Speaker 9: is when will the ROI C for AI really show
Speaker 9: up in the real economy, Not in search, not in
Speaker 9: Gemini et cetera, But in the real economy everyone for
Speaker 9: the time being is wanting to spend.
Speaker 2: When you said the rate economy, which you may just
Speaker 2: explain it.
Speaker 9: So one of our kind of small trades in our
Speaker 9: multi strategy fund for instances trying to find players in
Speaker 9: broader industries medicine, you know, chemicals, energy, infrastructure, et cetera,
Speaker 9: where you can actually use these tools to meaningfully produce
Speaker 9: or boost productivity growth. That's starting the show evidence, but
Speaker 9: it's unclear if it's enough to drive the continued growth
Speaker 9: of spending. Right, and so what I'm talking here is
Speaker 9: you think of a flatlining and spending call it twenty
Speaker 9: seven to twenty eight.
Speaker 4: That will be fine for broader markets.
Speaker 9: We'll have a multiple correction, multiple compression, hyperscaler multiples to
Speaker 9: come down, but it will be very very.
Speaker 4: Challenging, if not catastrophe for hardware. So you know when
Speaker 4: you step.
Speaker 9: Back, whether it's public markets or private markets, I think
Speaker 9: the key in your portfolio is to have enough exposure
Speaker 9: to the AI trend that it can move the needle,
Speaker 9: but not so much that it causes significant damage.
Speaker 4: If it peters out, we can.
Speaker 2: Send to the detmalk is just saying this headline crossing
Speaker 2: a blimpack terminal broad come full pot defile for ink
Speaker 2: coming from that company. Lisa, just a crossing a terminal moment, Sagg.
Speaker 1: Yeah, and I wonder how much of it's going to
Speaker 1: be a fifty year tranch considering what we.
Speaker 2: Saw from some previous ones.
Speaker 1: It is interesting to see all the debt that is
Speaker 1: coming to market and the fact that it has been
Speaker 1: received so well. It has been in the public markets.
Speaker 1: Now following onto the private market financing, they do have
Speaker 1: a thirty year tranch. I don't see a fifty year tranche.
Speaker 5: But you know who's next, right, This isn't over.
Speaker 2: So new story, isn't it a new shift? There's a
Speaker 2: different character to all of this. Get started coming out
Speaker 2: of summer. We moved away from using cash flow and
Speaker 2: we started to move to the death story. I'm not
Speaker 2: talking about Broadcom and talked about what wassanta, but the
Speaker 2: oarraticles that it sworled towards the end of last year.
Speaker 1: Yeah, and it is a different proposition for the Oracles
Speaker 1: of the world, which doesn't have profit, but when you
Speaker 1: have at Google or Amazon, it's a very different story.
Speaker 1: I think that it was Torsion Slack who said that
Speaker 1: in twenty twenty four, seven percent of total investment grade
Speaker 1: issuance came from the tech sector. It was fourteen percent
Speaker 1: last year, and it came just for a couple of
Speaker 1: months all at.
Speaker 2: Once, Maison Trenty, you miss talking about bitcoin and public equities?
Speaker 2: Do you miss any of that?
Speaker 4: Not? Really?
Speaker 10: Just ask it and on that topic if I may,
Speaker 10: it's just a quickly out to ravate equity, So of
Speaker 10: course yeah, why so if you think of the AI,
Speaker 10: one of the nice things you can find are other
Speaker 10: sectors with tremendous growth in healthcare and it's not because
Speaker 10: of my engineering background. We're very excited about robotic surgery
Speaker 10: infusion care. Not maybe as juicy as AI has been
Speaker 10: the last two three years, but very good upside in
Speaker 10: limited downside.
Speaker 2: We're done for squeezing in that extra trait. Thank you
Speaker 2: guessing the feature standing. This is the Bloomberg Surveillance Podcast,
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