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Speaker 2: This is an honor actually with a service to the
Speaker 2: International Monetary Fund.
Speaker 3: And now at Berenberg Bank.
Speaker 2: Holger Schmieting, a truly expert on continental Europe, on the
Speaker 2: core of Germany, the Netherlands of France, all the challenges
Speaker 2: of Eastern Europe, over to Ireland, maybe a booming Ireland,
Speaker 2: the challenges of the United Kingdom and across the Atlantic.
Speaker 2: Doctor Schmiding, thank you so much for joining on this
Speaker 2: moment to stay for Germany. There is a point and
Speaker 2: I clearly remember this in my ute of an America
Speaker 2: after the war, in absolute awe of Conrad at no
Speaker 2: hour is the gentleman who dragged Germany out of the
Speaker 2: Marshall Plan and out of the rebuild into something approximating
Speaker 2: a modern parliamentary system with all the distraction of the
Speaker 2: Berlin Wall. Would Conrad add an hour and know the
Speaker 2: Germany of this Monday morning.
Speaker 4: Well, he would probably be quite disappointed because we now
Speaker 4: have right wing fringe parties and left wing fringe parties
Speaker 4: in the sense of being at the somewhat extreme ends
Speaker 4: of the political spectrum. We have these parties with more
Speaker 4: than one third of the seats in German Parliament. That
Speaker 4: was clearly clearly not the case under our law or
Speaker 4: anywhere over the last last decades. Germany is facing significant problems.
Speaker 4: The key is that the next government tackles the issues
Speaker 4: that people are worried about. This includes migration, this includes
Speaker 4: very much the lack of growth. If these issues are
Speaker 4: now not tackled forcefully, then the result of the next
Speaker 4: election in four years time could be even.
Speaker 2: Us The solution for Germany in this goes from a
Speaker 2: share of Germany of the forties and fifties to particularly
Speaker 2: the collapse of the wall and all the reunification of
Speaker 2: eighty nine ninety ninety one.
Speaker 3: Holger Schmiding.
Speaker 2: The speed of parliamentary process has always been slow motion
Speaker 2: by United Kingdom standards and of course by the fractious
Speaker 2: American standard. Can Germany speed up their parliamentary process?
Speaker 3: Given the challenges right.
Speaker 4: Now, well, given the challenges that we have to build
Speaker 4: a coalition first before mister Mattz, the leader of the
Speaker 4: center right, will be chancellor.
Speaker 5: This is not easy to speed it up.
Speaker 4: The chancellor to be Mister Matz aims to have the
Speaker 4: coalition talks over by Easter, which is about eight weeks
Speaker 4: from now. That by continental European standards for building a
Speaker 4: coalition would actually be fairly fast. But at a time
Speaker 4: when we get almost every day news from Donald Trump
Speaker 4: out of the US, that is of course a problem.
Speaker 5: We have a bid over well, vacuum is too much
Speaker 5: over world.
Speaker 4: But we have a bit of a period right now
Speaker 4: where Germany and Europe cannot really act fully and that
Speaker 4: is of course a quite unfortunate thing.
Speaker 5: At the moment Holgar, it's.
Speaker 6: Being reported that the far right alternative for Germany, the
Speaker 6: AfD party, doubled its support to become the second strongest
Speaker 6: party with twenty point eight percent of the vote. Is
Speaker 6: the expectation that that momentum in terms of growth for
Speaker 6: this party will continue going forward.
Speaker 4: Well. First of all, the AfD fortunately did not do
Speaker 4: significantly better than opinion polls had projected beforehand, and it
Speaker 4: will now depend on the new government by maths whether
Speaker 4: it can tackle the issues the AfD really feeds on discontent,
Speaker 4: especially discontent about controlled migration, where quite likely the new
Speaker 4: government will take a harsher approach, but it also needs
Speaker 4: the return to economic growth to dent the appeal of
Speaker 4: these parties at the left wing or the right wing
Speaker 4: part of the political spectrum.
Speaker 6: The economic challenges Holger talk to us about really kind
Speaker 6: of what they are and in reality what can be
Speaker 6: done to address them.
Speaker 4: The economic challenges are that the core of the German economy,
Speaker 4: the middle stand these small and medium sized companies which
Speaker 4: often have their dominant position in global markets in a
Speaker 4: tiny meach. That these companies are no longer investing as
Speaker 4: much at home as they should. They are unhappy about bureaucracy,
Speaker 4: They are unhappy about the political uncertainty that we had
Speaker 4: in the last fifteen months during the demise of the
Speaker 4: old government. They complained about regulations, excessive business type is
Speaker 4: excessive payroad taxes.
Speaker 5: So we need to do.
Speaker 4: Quite a bit in this country to strengthen our pare.
Speaker 4: It is less about physical space. Yes we need physical
Speaker 4: space for the military, but it's mostly about the more
Speaker 4: difficult outward supply side. Crow growth reforms, which include pruning
Speaker 4: of welfare benefits so that people seem more reason to
Speaker 4: work rather than on beyond welfare, which includes a few
Speaker 4: other things deregulation. If we get back to that, and
Speaker 4: there's a bit of a chance that we do get
Speaker 4: back to that under the new government, then the German
Speaker 4: economy can do well as long as Donald Trump, with
Speaker 4: trade war threats and is Ukraine policy does not get
Speaker 4: in the way.
Speaker 3: If it's just joining us around the world.
Speaker 2: Holger schmating a Behreenberg Bank with this was some very
Speaker 2: good answers, a learning process and the German elections. What
Speaker 2: it means for Europe, what it means of course for Germany,
Speaker 2: and a curse across Atlantic what it means for America
Speaker 2: again with Behrenberg Bank, Paul, I.
Speaker 6: Think I speak for a lot of Americans when I
Speaker 6: looked at the map of the voting in Germany and
Speaker 6: it really just surprised me the strength of the far
Speaker 6: right alternative for Germany in the eastern part of the country,
Speaker 6: the geographic differences in political support here. Can you give
Speaker 6: assist a little history there and how the various parties
Speaker 6: and a coalition might try to deal with that.
Speaker 4: Well, the map really looks stop if you look at
Speaker 4: it in a sort of first half the post which
Speaker 4: party came number one, Well, then we really have pretty
Speaker 4: much a clear East West divide.
Speaker 5: This says many reasons.
Speaker 4: Part is that in East Germany fear of economic transformation
Speaker 4: is more prevalent in the west. After all, the East
Speaker 4: had after the collapse of communism in nineteen ninety a
Speaker 4: very very painful transition. Part of that is also that
Speaker 4: in East Germany there is more of an inclination in
Speaker 4: the sense of let's rather do a deal with poutine
Speaker 4: with the Russians than give money to Ukraine. The East
Speaker 4: Germans have been occupied by the Soviet Union the Russians
Speaker 4: of course for a long long time, so that's a
Speaker 4: bit different. There is alls in East Germany there are
Speaker 4: a bit of a feeling of being left behind.
Speaker 5: As for demographic.
Speaker 4: Means, quite a few people from the more rural regions
Speaker 4: of East Germany have left for the cities, partly in
Speaker 4: the West, and so this left behind feeding is more
Speaker 4: prevalent over there. Again, the government needs to tagle deep
Speaker 4: seated fears about migration, uncontrolled migration, and get economy going
Speaker 4: in order to address that.
Speaker 2: Part of the work of Bloomberg surveillance over the years folks,
Speaker 2: and I think of American experts like Richard Clarita expert
Speaker 2: and Germany at Columbia University here Adam Posen at the
Speaker 2: Peterson Institute are delicate questions.
Speaker 3: We do that now with Holger speeding Holgar the Great Fear.
Speaker 2: Not so much in America, where I think it's distant.
Speaker 2: But what I see in the European press is is
Speaker 2: any sort of analogue not back to World War Two,
Speaker 2: but back to nineteen eighteen to nineteen twenty three and
Speaker 2: the invention of something called the National Socialist German Workers Party?
Speaker 3: Is it overdone? Is a media ploy?
Speaker 2: Give us a measurement, doctor Schmieting of the analogue back
Speaker 2: to another time of the far right in Germany.
Speaker 5: I think this is far overdone. The far right is
Speaker 5: not like that.
Speaker 4: We had a bit of a party, or we have
Speaker 4: a bit of a party called bs W which tried
Speaker 4: to combine a kind of national tinge art on migration
Speaker 4: with a social tinge a lot more welfare. And this
Speaker 4: bs W did not do that well. They only got
Speaker 4: just below five percent of the votes. It is much
Speaker 4: more a feeling of left behind. And what I said
Speaker 4: about the remembering the pains of transition that is behind
Speaker 4: the strength of.
Speaker 5: The AfD in the East.
Speaker 4: And the AfD is a nasty party and they do
Speaker 4: have some neo aasis, but it's an exaggeration to say
Speaker 4: we are back to day where we were in the
Speaker 4: early nineteen thirties. I think an analogy for the political
Speaker 4: situation in Europe is much more like the one before
Speaker 4: World War One, you could say, where we had a
Speaker 4: lot of nations competing with each other, rather than a
Speaker 4: European union. What we now see is a bit of
Speaker 4: a rise of return to nation rather than focusing on
Speaker 4: European issues.
Speaker 2: Doctor Schmiding, well, thank you for that. There was a
Speaker 2: very elegant answer to a very delicate question, doctor Schmiding.
Speaker 2: If we have an isolationist America is posited by the
Speaker 2: President of the United States, how does that affect all
Speaker 2: of continental Europe and particularly your Germany.
Speaker 5: It of course affects us a lot.
Speaker 4: First of all, we are relatively open to global trade.
Speaker 4: We depend on global trade, and isolationist America, the protectionist
Speaker 4: America is bad for American consumers with higher prices and
Speaker 4: bad for our companies which can.
Speaker 5: Deliver and do deliver great goods.
Speaker 4: Even more importantly, an isolationist America that does no longer
Speaker 4: have a protective umbrella over its European allies means, of
Speaker 4: course that we a have to do much more on
Speaker 4: our own to defend against Putin, and we really.
Speaker 5: Should do that. But it also by putting.
Speaker 4: Into doubt the basic premise of NATO we defend each
Speaker 4: other against any potential aggressor. That is an encouragement to
Speaker 4: potential aggressives, that is an encouragement to the nationalists, and
Speaker 4: that of course is something we would not like to
Speaker 4: see all in all. To some extent, the Trump policy
Speaker 4: seems to boil down to I don't like the European Union.
Speaker 4: I would rather have without the European Union, the ability
Speaker 4: to deal with all these middle or small states in Europe,
Speaker 4: or an individual basis, because then the American advantage would
Speaker 4: be big in each case.
Speaker 5: So getting rid of this kind.
Speaker 4: Of joint market f one hundred and fifty million consumers
Speaker 4: in Europe seems to be one of the things that's
Speaker 4: underpinning the Trump approach to Europe, which of course is
Speaker 4: a challenge to us, as the European Union, our common
Speaker 4: market is the basis of our prosperity and to some
Speaker 4: extent of our peace.
Speaker 6: Hobert on immigration here in the US. Here in the US,
Speaker 6: it's relatively straightforward dealing with immigration. We know who's coming
Speaker 6: into this country, we know where they're coming in. It's
Speaker 6: just a political will to limit that if we choose
Speaker 6: to do so. How is it in Germany.
Speaker 4: Well, we could close our borders much more than we
Speaker 4: have done. Of course, that would have repercussions on our
Speaker 4: immediate europe neighbors. Yeah, who might then be stuck with
Speaker 4: more of those migrants who actually want to get into
Speaker 4: the richer Germany. So there are European repercussions upon taking
Speaker 4: a halter approach at the German borders. The ultimate solution is,
Speaker 4: of course, a to be tougher on the German borders,
Speaker 4: to send the message to people far away, don't even
Speaker 4: try to come to us, because even if you make
Speaker 4: it to our neighboring countries, you may not make.
Speaker 5: It to Germany.
Speaker 4: And second, to better protect the common external borders of
Speaker 4: the European Union so that the uninvited migrants do not
Speaker 4: even get into any of the EU member states. It
Speaker 4: is a process that is on its way European migration
Speaker 4: policy is being toughened and the numbers are coming down,
Speaker 4: But of course it is this is Europe, a process
Speaker 4: that takes time, and the populace feed off on what
Speaker 4: they think were past mistakes rather than on what is
Speaker 4: the current Stars.
Speaker 2: Of Holger, thank you so much, greatly, greatly appreciate it
Speaker 2: this morning, Holger schmading delicate questions there in Germany.
Speaker 3: I hope that was informative. I learned a lot there.
Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live
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Speaker 3: Joining us now Michael Wilson.
Speaker 2: He's chief US equity strategist at Morgan Stanley and exceptionally
Speaker 2: well timed here with a really smart Sunday note A
Speaker 2: bit ago on alpha over beta. Explain the Greek letters,
Speaker 2: Mike Wilson to us, What is alpha?
Speaker 3: What is beta? And why does alpha win?
Speaker 2: Hey?
Speaker 7: Good morning, Tom.
Speaker 8: Yeah, I think most of your listeners understand this. Beta
Speaker 8: is sort of your market level risk, where you just
Speaker 8: own the index and an alpha would be your stock picking.
Speaker 7: It's that simple.
Speaker 8: And you know what's happened in the last three months
Speaker 8: is that the the index itself has gone sideways and
Speaker 8: and but there's been great opportunity under the surface. And
Speaker 8: that's really the job of most investors is to pick
Speaker 8: stocks and try to beat people. So it's it's a
Speaker 8: good it's a good outcome if it can sustain for
Speaker 8: active managers.
Speaker 7: And by the way, people say, oh.
Speaker 8: Stock picking market, it doesn't mean it's easy, but I
Speaker 8: mean it does feel like what we're dealing with.
Speaker 3: Kids kills me.
Speaker 2: He puts at the end of his notepall enjoy your Sunday.
Speaker 2: Come on, Mike, that's a Sunday, Mike. I'm looking at
Speaker 2: the Bloomberg launch pad and I got a one ninety
Speaker 2: nine on the ten year real yield. My idiot ambiguity
Speaker 2: meter is that's a slowing economy. When you look at
Speaker 2: Seth Carpenter and companies work, do you model in a
Speaker 2: slowing or level economy where we walk away from double
Speaker 2: digit earnings growth?
Speaker 7: Yeah?
Speaker 8: Well, I mean, remember the economy is not always the
Speaker 8: market or earnings. And what we've seen in the last
Speaker 8: I would say a really three years is an economy
Speaker 8: that looks fairly robust at the you know, at the
Speaker 8: aggregate level you can talk about at the consumer level
Speaker 8: or just in terms of GDP, but then when you
Speaker 8: look at earnings grow for the last several years, it's
Speaker 8: been pretty lousy for most companies until recently, recently we've
Speaker 8: seen a pickup.
Speaker 7: More companies are starting to grow again, and I.
Speaker 8: Attribute this to essentially the government being you know, crowding
Speaker 8: out if you will, much of the economy. That is
Speaker 8: the reason we have inflation. For the main the main
Speaker 8: reason we have inflation, too much government spending. Also it
Speaker 8: has it has kept interest rates higher than they would
Speaker 8: be normally. So real interest rates at two percent is
Speaker 8: actually quite high tom as you know, for in the
Speaker 8: last fifteen years, and we're such a financialized economy that
Speaker 8: you know, that has had a sort of a breaking
Speaker 8: effect on you know, businesses that don't have easy access
Speaker 8: to capital. So I think the FED right now is
Speaker 8: sort of in a you know, a tighter place than
Speaker 8: they probably want to be. They would like to cut rais,
Speaker 8: but they can't because inflation now is picking its head
Speaker 8: up again, so they're on hold.
Speaker 7: They're not going to raise rais in our view, but.
Speaker 8: We're trying to find that equilibrium now, like how big
Speaker 8: should the government be? How how can we liberate the
Speaker 8: private economy in a way where we have better velocity
Speaker 8: kind of in the in the real private economy than
Speaker 8: just government.
Speaker 6: Mike, I'm looking also your chart book where you guys
Speaker 6: track what companies are actually saying on their conference calls,
Speaker 6: what's top of mind for corporate America, And I guess,
Speaker 6: not surprisingly, one of those key issues is tariffs. How
Speaker 6: did teriffs kind of factor into kind of your view
Speaker 6: of inflation and maybe how the FED will proceed and
Speaker 6: how that might impact stocks.
Speaker 8: Yeah, well, I think the FED has told you, you know,
Speaker 8: pretty straightforward since December that the uncertainty around terrace is
Speaker 8: another reason why they're probably going to take a pause
Speaker 8: on the rate cutting campaign.
Speaker 7: Now, remember, they have another lever.
Speaker 8: They can use, which I think they will, which is
Speaker 8: to basically end QT finally, which is you know, a
Speaker 8: decent amount of repurchases then across the curve. They can
Speaker 8: probably start doing that in May or June. And that's
Speaker 8: another lever that they can sort of pull on. As
Speaker 8: far as companies go, I mean, companies are always you know,
Speaker 8: trying to incorporate these changes into their their business models
Speaker 8: and how they're running their own companies. And tariffs are
Speaker 8: front and center right now because not only is that
Speaker 8: a potential heament, but it's also uncertainty because you know,
Speaker 8: one day we have them, on the next day they're
Speaker 8: being delayed, and look, that's what companies have to manage
Speaker 8: that process. The good news is, I think in the
Speaker 8: last round of teriffs back in eighteen a lot of
Speaker 8: companies did relocate some manufacturing, some final assembly at the
Speaker 8: areas like Mexico. I think that may be one of
Speaker 8: the reasons why the President is going after Mexico because
Speaker 8: that was kind of backdoor way of avoiding pariffs on China.
Speaker 8: So it's just going to be, you know, six months
Speaker 8: of uncertainty, and that's why companies are mentioning it because
Speaker 8: you know, they don't want to get caught, you know,
Speaker 8: in a way where they're riding too high and then
Speaker 8: tariffs end up being a headwind for their growth expectations
Speaker 8: and equity.
Speaker 2: Marcus, we have Mike Wilson with us, with Morgan Stanley,
Speaker 2: Bob Doll to join later.
Speaker 3: We welcome all of you on your commute.
Speaker 2: Accrastination on all over different radio platforms and on Bloomberg podcasts.
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Speaker 6: Paul Mike, We're gonna get We're gonna hear from Nvidia
Speaker 6: Wednesday after the close. That's one of the last big,
Speaker 6: big companies reporting earnings in this in this cycle. Here,
Speaker 6: what did you take away from this quarterly's earnings cycle?
Speaker 6: And you know, more importantly, maybe the guidance you've been
Speaker 6: paying attention to.
Speaker 7: Well, first of all, it shows that fourth quarter was
Speaker 7: boon times. Now.
Speaker 8: Some of that, once again was government fiscal deficit was
Speaker 8: up forty percent year every year. But also there was
Speaker 8: some excitement around you know, just a clean election, maybe
Speaker 8: have more pro growth, you know, administration, and so there
Speaker 8: was more activity in the fourth quarter. And so what
Speaker 8: we're seeing now is kind of just that holling off
Speaker 8: a bit. Then maybe we get a little ahead of ourselves.
Speaker 8: Higher rates and hire.
Speaker 7: A strong dollar was weighing on some of the guidance
Speaker 7: for twenty five.
Speaker 8: You know, companies tend to do that seasonally anyways, they
Speaker 8: want to lower the bar a bit at the beginning
Speaker 8: of the year. But then the other things that have
Speaker 8: been we've been focused on really in no particular order,
Speaker 8: terrorists as you already mentioned. Number two, we have immigration enforcement,
Speaker 8: which has been a huge fiscal boost and also a
Speaker 8: labor supply boost. And then we have dose, right, the
Speaker 8: Department Government efficiency. They they're off to an aggressive start.
Speaker 8: I'm optimistic that probably more optimistic than the most that
Speaker 8: they can make some headway there. But remember, the more
Speaker 8: successful they are in the short term, the more growth
Speaker 8: negative that is in the near term before you get
Speaker 8: to the good stuff. And then of course the positive
Speaker 8: effects of policy like deregulation, maybe extending the tax cuts,
Speaker 8: those come later in the year.
Speaker 7: Those those require congressional approval, and.
Speaker 8: So that's just not you know, that's going to take
Speaker 8: six to twelve months, and so the bad stuff first
Speaker 8: and good stuff comes later.
Speaker 2: Mike will So to get back to your idea that
Speaker 2: ELFA is the way this works, and let's just generalize
Speaker 2: that as individual stock selection. What is the Mike Wilson process?
Speaker 2: There is it securities research, Graham, Dot and coddlet bottom up.
Speaker 2: Is it a cell side concept of looking at what's
Speaker 2: going to win or is it more factor based where
Speaker 2: you're looking at different items and trying to figure out
Speaker 2: like say, well we'll momentum or something else win.
Speaker 8: That's a great question, Tom, and it has changed over
Speaker 8: over time. I think the main thing that's changed in
Speaker 8: the institutional world anyways is the time horizon. So you know,
Speaker 8: twenty years ago, you know, I would say institutional investors
Speaker 8: were kind of in the six to twelve month time horizon.
Speaker 8: It's now, you know, one to three months and in
Speaker 8: some cases one to three days.
Speaker 7: So that's what's.
Speaker 8: Changed, and that means you just got to be really
Speaker 8: laser focused on kind of news at the margin, whether
Speaker 8: it's fundamental news around a specific company, whether it's a
Speaker 8: macro changing event that can affect certain companies differently, so
Speaker 8: all the things we look at. I would say that
Speaker 8: quantitative analysis and factor analysis has probably picked up the
Speaker 8: most most institutional investors now putting ourselves as advising them
Speaker 8: use that tool, and it's quite helpful. As you mentioned,
Speaker 8: price momentum is probably the most important factor variably because
Speaker 8: everybody likes to perform, and I would say, you know,
Speaker 8: that can also get you in trouble because what ends
Speaker 8: up happening is you end up is I like to say,
Speaker 8: using price as your analysts as opposed to doing the
Speaker 8: analysis and then letting price follow. And I think that's
Speaker 8: just the where we live in now. Everybody's short termism.
Speaker 8: I don't think that's going to change anytime soon.
Speaker 2: Bottle that for all of you worldwide, whatever your sophistication.
Speaker 2: What Mike Wilson just said there and Paul Sweene and
Speaker 2: I lived this of where three years became eighteen months
Speaker 2: and twelve months became three months. And what are we
Speaker 2: doing the window dress at the end of the quarter.
Speaker 2: The short term ism now? And how can you prosper
Speaker 2: by pushing against that? Is Mike Wilson alluded to there.
Speaker 2: That was extraordinary.
Speaker 6: Yeah, a lot of it. I think coincident with the
Speaker 6: growth of hedge funds as well. Mike, what screens well
Speaker 6: for you guys these days?
Speaker 8: Well, getting back to the stock picking, I mean, you know,
Speaker 8: now this particular factor always screens well, but it's extremely
Speaker 8: important now is earning your vision breath. So companies that
Speaker 8: are showing are showing the ability to kind of you know,
Speaker 8: continue to raise numbers.
Speaker 7: You're getting paid for that more now that you normally do.
Speaker 8: You always get paid for that, but now you're getting
Speaker 8: paid for it more and you're getting punished for it.
Speaker 7: On the other side. The other factor that's really working
Speaker 7: is quality.
Speaker 8: Quality has been working really well the last two or
Speaker 8: three years because of that sort of crowding out feature.
Speaker 3: But in the.
Speaker 8: Fall we saw a movement towards low quality, and then
Speaker 8: now we're giving that back. So large cap, quality, earning
Speaker 8: division breath. Those are the three most important factors. And
Speaker 8: of course pricealmnum still you know, is important as well.
Speaker 6: How About on the industry side, what stands out to
Speaker 6: you guys these days.
Speaker 7: So it's been consistent really since November.
Speaker 8: Financials mainly the banks as opposed to other financials and
Speaker 8: capital markets companies. Software particularly relative to say semi connectors
Speaker 8: and hardware, they're less affected by tariffs, and there's some
Speaker 8: reinvestment now as we go from the enabler to the
Speaker 8: adoption layer for AI. That should benefit media entertainment, you know,
Speaker 8: not just the media and entertainment and a traditional media
Speaker 8: entertainment names are doing well.
Speaker 7: Remember those are mostly domestic businesses, yeah, mostly domestic. Yeah.
Speaker 8: And then of course services, consumer services, which is the
Speaker 8: one part of the private economy which is still doing
Speaker 8: quite well.
Speaker 7: Services is doing much better than goods.
Speaker 3: Mike.
Speaker 6: I'm guessing from your clients you get an evaluation question
Speaker 6: or two every day. Boy, this market seems expensive. How
Speaker 6: do you respond generally?
Speaker 8: You know, we don't get many questions on evaluation anymore.
Speaker 8: I think people have given up on that metric. That
Speaker 8: metric is faded, and it's importance in the short term, okay,
Speaker 8: And as I like to say, you know, in the
Speaker 8: short term, valuation doesn't matter at all. In the long term,
Speaker 8: it's the only thing that matters. So we've seen, you know,
Speaker 8: as race went back through four and a half percent
Speaker 8: of the upside, we identified that as an.
Speaker 7: Area where valuation would matter. It has mattered, but not
Speaker 7: to the degree that it has historically.
Speaker 8: So I'm not sure what's going to get us, you know,
Speaker 8: for that to become in vogue again.
Speaker 7: But it's it's not an important factor at the moment.
Speaker 6: Told us about breath of the market, Mike. A lot
Speaker 6: of folks in a tors and slot today was just
Speaker 6: out with the note from Apollo, just talking about the
Speaker 6: concentration within this equity market, particularly in big cap US
Speaker 6: technology names, and how that's really relative to the rest
Speaker 6: of the world just getting more and more pronounced. How
Speaker 6: do you think about breath or lack of breath in
Speaker 6: this market.
Speaker 7: Well, it gets back to quality.
Speaker 8: So and I would say the as bad as the
Speaker 8: concentration is in the US, you know, we have like
Speaker 8: five stocks are thirty percent, it's even worse in places
Speaker 8: like Germany where we have three stocks or thirty five percent,
Speaker 8: or in parts of eight. And what's going on is
Speaker 8: the same thing that's going on here, which is that
Speaker 8: people are crowding into kind of these large camp quality stocks.
Speaker 8: It just so happens that the US has more of them, so,
Speaker 8: you know, but in other places of the world there's
Speaker 8: fewer them, while the crowding is even more so, so
Speaker 8: it's just more of the same.
Speaker 7: You know.
Speaker 8: Basically people, you know, the markets are smart. They've crowded
Speaker 8: into what's working. What's working is large camp quality, particularly
Speaker 8: quality growth, because they have scale and they can operate
Speaker 8: in this world where perhaps rates are high, the government
Speaker 8: is a big part of the economy, you have a
Speaker 8: lot of uncertainty. Multipolar world, geopolitics is you know, kind
Speaker 8: of putting pressure on certain regions, and you know, I
Speaker 8: think that continues for the foreseeable future. The thing they
Speaker 8: could change that which I'm getting a little excited about
Speaker 8: it is if we can shrink the government. So imagine
Speaker 8: this of a recession in government. I'm not sure that
Speaker 8: that would be that bad for the private economy. I'm
Speaker 8: not sure we're going to get that, but if we did,
Speaker 8: that would potentially change that dynamic.
Speaker 2: Mike Wilson very quickly here talk about enthusiasm. I mean
Speaker 2: Michigan State taking up Michigan and basketball. That was like
Speaker 2: Big Ten Classic, wasn't it.
Speaker 8: Well, there's a classic for if you're not a Michigan fan.
Speaker 8: But we can still come back. The Big Ten is
Speaker 8: always competitive time, as I like to say, in both
Speaker 8: basketball and football and other sports as well.
Speaker 7: So and Big Blue has had a good run.
Speaker 2: Yeah, I mean they're in second place. I mean they
Speaker 2: have the two teams up top of Big Ten. Is important?
Speaker 2: Why is USC in the Big Ten? Does Michael Wilson understand?
Speaker 3: Please tell the kids from.
Speaker 6: Los Angeles to come all the way to Piscataway, New
Speaker 6: Jersey to play basketball.
Speaker 3: Oregon, it's in the Big Ten. Mike Wilson, this is Unamerican.
Speaker 2: I hope Michigan takes every victory from the way pushes
Speaker 2: those Westerners.
Speaker 3: Out of it.
Speaker 2: Mister Wilson is with Morgan Stanley. Thank you so much,
Speaker 2: Mike Wilson.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 3: So what you got to do.
Speaker 2: For Bob Dahl, particularly having Mike Wilson and then Bob
Speaker 2: Dole's great Bob Dahll with is the Crossmark Global right now?
Speaker 3: Bob, you know what I did. I did all imitson.
Speaker 2: So I go back to what I call the Guadalcanal
Speaker 2: Low of nineteen forty two, and you strap out a
Speaker 2: log Dow Jones Industrial average and we're really not all
Speaker 2: that extended. I mean, we're out one standard deviation. But
Speaker 2: do you see an extension of prices right now? Do
Speaker 2: you see an exuberance right now that I'm missing?
Speaker 9: Well, the way I see the exuberance, if there is
Speaker 9: any I think you're raising a good question is about valuation.
Speaker 10: It's rare.
Speaker 9: We see stock selling it twenty two to twenty three
Speaker 9: times earnings unless we're in a recession and have depressed earnings.
Speaker 10: Earnings are far from depressed, of course.
Speaker 9: And it's likely that those earnings are going to fall
Speaker 9: short of expectations.
Speaker 2: I look the total return from that nineteen forty two
Speaker 2: low Paul dow Jones seven point seven percent here, So
Speaker 2: there's that single digital return.
Speaker 6: Worth exactly Bob. As Tom mentioned, we were just talking
Speaker 6: to Mike Wilson Morgan Stanley and I asked him, you know,
Speaker 6: how many valuation questions does he get every day? And
Speaker 6: he says not many. Is that in and of itself
Speaker 6: a reason for concern?
Speaker 10: It is?
Speaker 9: I find the same thing went out on the stump
Speaker 9: talking to financial advisors. Very few questions about valuation. It's
Speaker 9: more about, you know, the Trump agenda and AI and
Speaker 9: other subjects that generally the looking for a positive answer.
Speaker 10: They don't want to hear the yellow flag of value.
Speaker 6: So how do you try to how do you try
Speaker 6: to frame that valuation discussion as a either a headwind,
Speaker 6: a risk or maybe not so much.
Speaker 9: Yeah, My view is the valuation is a bad short
Speaker 9: term indicator. We all know that, but you can look
Speaker 9: at the long term returns one, three, five, ten years
Speaker 9: after certain pe ratios, and it's over the five and
Speaker 9: ten year periods. It's a great indicator. So it doesn't
Speaker 9: tell us markets are going to have subpar returns starting
Speaker 9: tomorrow for the next three months, but it could mean
Speaker 9: for the next three to five years.
Speaker 3: What do you do with MAG seven?
Speaker 2: I mean, you know, Bob, you're too young to remember
Speaker 2: nifty to fifty, but I'm sorry. Maybe it's a nifty
Speaker 2: seven is what we ought to call it. Yep, that's
Speaker 2: what people own, right.
Speaker 10: Yeah, there's a lot of ownership.
Speaker 9: My accountant recommendation is own some MAG seven, but be
Speaker 9: underweight those benchmarks.
Speaker 10: It's it's a.
Speaker 9: Big, big, big waiting, as you know. And my fundamental
Speaker 9: backing is to look at quarterly projections of consensus numbers
Speaker 9: for the MAG seven and then the other four ninety three.
Speaker 9: MAG seven growth rates are slowing for ninety three are rising,
Speaker 9: and that tells me I want to be underweight the
Speaker 9: MAG seven and overweight the four ninety three.
Speaker 6: All right, we're about eighty eighty five percent of the
Speaker 6: way through this earnings season here, Bob, what's your takeaway here.
Speaker 3: What have you heard?
Speaker 6: What's the guidance kind of suggest to you.
Speaker 9: The numbers have been very, very good, with a few
Speaker 9: notable and visible exceptions. As you know, the banks, the
Speaker 9: financials out of the gates were just amazing numbers. The
Speaker 9: problem in my view is revenues are up five percent,
Speaker 9: earnings are up fifteen percent. I can't expect margins to
Speaker 9: expand at that pace going forward. That's almost what's necessary
Speaker 9: to eke the twenty twenty five and now early twenty
Speaker 9: twenty six numbers, they're for strong Earnie's gains.
Speaker 10: I think they're overstated.
Speaker 6: Bob.
Speaker 3: We've got a.
Speaker 2: Crushing market drawdown from the recent higher down two point
Speaker 2: one percent. I'm absolutely just crushing.
Speaker 3: This came up this weekend, and it's a phrase from
Speaker 3: you know, years ago, Bob dog. If we get like a.
Speaker 2: Ten or twelve percent correction, an eight percent correction, dare
Speaker 2: I say fourteen percent?
Speaker 3: South? Do shares move from weekends into strong hands? What
Speaker 3: does that mean?
Speaker 9: So generally, as you know, as we go down, more
Speaker 9: and more people want to sell. They don't sell at
Speaker 9: the top, they sell as things are moving down. So
Speaker 9: it would concern me somewhat, but I come back to
Speaker 9: not just evaluations, but the fundamentals. Are we in the
Speaker 9: face now of some sort of growth scare. Whether the
Speaker 9: whether the scare leads to actual slowing growth, who knows.
Speaker 9: But when you look at recent housing data and the
Speaker 9: bad tail sales, the consumer sentiment numbers the housing data.
Speaker 9: As I already mentioned.
Speaker 10: You have to wonder somewhat if things are going to
Speaker 10: slow down a bit. My guess is they probably will.
Speaker 3: Bob Doll, thank you so much.
Speaker 2: The cross mark this morning just a wonderful way to
Speaker 2: get Monday started.
Speaker 3: Here.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Apple Corplay and Android
Speaker 1: Auto with the Bloomberg Business app. You can also watch
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Speaker 1: Bloomberg terminal.
Speaker 3: The daily front page is the Lisa Mantale Hour. She
Speaker 3: was at one am working on this. What do you have?
Speaker 2: Lisa?
Speaker 11: This is starting with the Wall Street Journal. So they're
Speaker 11: saying there's a shift in the housing market. Buyers are
Speaker 11: finally starting to get the upper hand again. Redford is
Speaker 11: saying the average home now changing hands for less than
Speaker 11: two percent less than the price on the listing two percent. Yes,
Speaker 11: So the reason why I know growing lists of supply
Speaker 11: of home on the market, the houses on the market
Speaker 11: are there a bit longer. The most buyer friendly area
Speaker 11: now is actually the Florida market, Miami and Fort Lauderdale. Yes,
Speaker 11: because the things are starting to change here, but it's
Speaker 11: not everywhere. They also point that out. They point out like,
Speaker 11: for example, wike Off, New Jersey, there was this house
Speaker 11: there that sold three hundred thousand dollars over the asking
Speaker 11: price for all cash. So it kind of depends where
Speaker 11: your live. But they're say they're starting to see this shift.
Speaker 11: I'm starting to see it a little bit too. On
Speaker 11: a personal love because I've been actively looking. I've been
Speaker 11: outpriced in New Jersey. But you know what, I went
Speaker 11: to Pennsylvania and I went.
Speaker 6: Under that and I went under it.
Speaker 11: So now you have the extra, you know, side place
Speaker 11: for the family to enjoy on the weekends, and you
Speaker 11: still get your place, but you don't have to be
Speaker 11: so competitive and be outpriced and frustrated.
Speaker 3: What do you see on the shore, I mean it's
Speaker 3: just crazy.
Speaker 6: Yeah, and people buy something if it wasn't built in
Speaker 6: the last ten or fifteen years. They knock it down
Speaker 6: and build something. Yes, yes, that's amazing.
Speaker 11: Okay, so something new at Springs Raining they were testing
Speaker 11: out the robot empires. They had it in the miners
Speaker 11: like the past few years.
Speaker 6: Yeah, but I see.
Speaker 11: The thing is is that it's not actually erupt so
Speaker 11: the umpire is there. The only people that can challenge
Speaker 11: it is a picture of the catcher of the batter.
Speaker 11: Those are only three people that can challenge it, and
Speaker 11: when they do, you only get two misses.
Speaker 6: Kind of like football. I guess it's the same thing.
Speaker 11: So that's a difference. But what they're finding is that
Speaker 11: they're not sure if it's going to work or not.
Speaker 11: I mean, it could be in twenty twenty six, but
Speaker 11: do people want this? Do the fans want it?
Speaker 6: Do the players want it?
Speaker 2: It's not as clean as the incredible rule changes of
Speaker 2: two years ago.
Speaker 3: Yeah, it's all there is Terry.
Speaker 2: Francona, the smartest guy in the planet. Do you know
Speaker 2: he's down the Reds. He's out there, you know with
Speaker 2: the Cincinnati Reds.
Speaker 6: A lot of.
Speaker 2: Terry Franconis is we're not going to do it because
Speaker 2: it's not going to be in the majors this year, right, distract.
Speaker 3: So I think it's like a year ahead.
Speaker 6: Yeah, there's maybe.
Speaker 7: Not.
Speaker 11: But but the thing is is if you're a batter,
Speaker 11: you know, and you see it and and you know
Speaker 11: that it's not a strike, but you you're mad and
Speaker 11: you don't want to strike out, and you challenge it, Well,
Speaker 11: you're risking materials.
Speaker 3: You're going to have this or we're going to have
Speaker 3: you know, calling the balls.
Speaker 11: So I don't know, I don't know that's parents will
Speaker 11: take that one.
Speaker 6: Okay.
Speaker 11: The Mark German he was were had in the in
Speaker 11: the in the studio last week. Okay, so his Power
Speaker 11: On newsletter actually asked a question, do you go for
Speaker 11: the cheaper iPhone or do you go for the regular,
Speaker 11: the normal one? And he actually breaks it down. We're
Speaker 11: talking about the iPhone sixteen E. So it's five hundred
Speaker 11: and ninety nine dollars one hundred and seventy more than
Speaker 11: the iPhone se that it's replacing.
Speaker 5: So should you buy it?
Speaker 11: The price difference he said, it amounts so an extra
Speaker 11: eight dollars a month if you have that two year
Speaker 11: installment plan. And he says, oh, you're not missing much
Speaker 11: by buying the sixteen over the regular. He feels confident
Speaker 11: recommending the cheaper option as a good enough phone. So
Speaker 11: his basic advice here it is, if your current iPhone
Speaker 11: is out of date, right you're paying for new devices
Speaker 11: up front, you get the sixteen eight. But if you're
Speaker 11: looking to upgrad to the more recent phone with extra
Speaker 11: bells and whistles, paying on an installment plan, you spring
Speaker 11: for the standard iPhone sixteen. So he kind of breaks
Speaker 11: it down.
Speaker 4: I mean.
Speaker 6: Issues he put. He says, Look the various features. I
Speaker 6: didn't even know they were there. It's at like.
Speaker 11: If you camera features, video features, those kind of things,
Speaker 11: phone call with Okay.
Speaker 2: Well, thank you Mark German for being with us and
Speaker 2: profound with his release this morning of job formation in America.
Speaker 3: Lisa Mateo, thank you so much the newspapers.
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