1 00:00:02,400 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 2 00:00:11,680 --> 00:00:15,480 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,720 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,760 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,440 --> 00:00:24,920 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,960 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,319 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:37,479 Speaker 2: Terminal and the Bloomberg Business app. Ohmar Aguilar, Schwabasse and 10 00:00:37,560 --> 00:00:40,519 Speaker 2: Management writing, we are getting some corrections within the frothy 11 00:00:40,560 --> 00:00:43,400 Speaker 2: areas of the market. It is time to use volatility 12 00:00:43,680 --> 00:00:47,640 Speaker 2: to rebalance exposures to reduce concentration. I'm joined us now 13 00:00:47,680 --> 00:00:49,960 Speaker 2: for more. I'm always good to get your thoughts on things, sir. 14 00:00:50,040 --> 00:00:52,760 Speaker 2: Let's get into it. What would you be reducing right now? 15 00:00:52,880 --> 00:00:54,320 Speaker 2: What would you be taking advantage of? 16 00:00:55,160 --> 00:00:59,480 Speaker 3: Well, we have been experiencing one of the biggest and 17 00:00:59,640 --> 00:01:03,440 Speaker 3: largest momentum markets that we have had since the late nineties, 18 00:01:04,080 --> 00:01:07,039 Speaker 3: and think, you know, the exposures that people may have 19 00:01:07,080 --> 00:01:10,680 Speaker 3: had to the traditional that momentum you know type trades 20 00:01:10,800 --> 00:01:14,160 Speaker 3: are very high, and I think we have been encouraging 21 00:01:14,200 --> 00:01:17,120 Speaker 3: clients over the last you know, two months to try 22 00:01:17,120 --> 00:01:20,120 Speaker 3: to use this periods of volatility to try to reduce 23 00:01:20,200 --> 00:01:24,040 Speaker 3: exposure to that momentum trade. We have seen these, you know, 24 00:01:24,120 --> 00:01:27,160 Speaker 3: that can actually go very quickly as you know, the 25 00:01:27,240 --> 00:01:31,319 Speaker 3: AI trade expending on capex and increasing capex. Continue to 26 00:01:31,520 --> 00:01:34,679 Speaker 3: just emphasize that sort of megacap you know, dominance that 27 00:01:34,760 --> 00:01:37,200 Speaker 3: we have seen. You know, one of the statistics that 28 00:01:37,240 --> 00:01:40,480 Speaker 3: we keep on showing is that you know, only seventeen 29 00:01:40,560 --> 00:01:42,919 Speaker 3: percent of stocks within the S and P five hundred 30 00:01:42,959 --> 00:01:45,680 Speaker 3: have been able to outperform the market this year. 31 00:01:46,120 --> 00:01:48,280 Speaker 4: So that tells you a lot of that level. 32 00:01:48,000 --> 00:01:51,360 Speaker 5: Of concentration that you know, if we go back in history, 33 00:01:51,560 --> 00:01:53,560 Speaker 5: you know, when it comes down to momentum trades, they 34 00:01:53,600 --> 00:01:55,920 Speaker 5: tend to be online very very quickly, and we have 35 00:01:56,000 --> 00:01:58,880 Speaker 5: seen some of these headwachs already over the last. 36 00:01:58,880 --> 00:01:59,520 Speaker 4: Couple of months. 37 00:01:59,760 --> 00:02:02,400 Speaker 2: I've heard this sycrament repeatedly throughout the whole year, and 38 00:02:02,480 --> 00:02:04,800 Speaker 2: if I listen to people as they offer that encouragement 39 00:02:04,840 --> 00:02:06,280 Speaker 2: to move out of these names, I would have missed 40 00:02:06,280 --> 00:02:08,480 Speaker 2: out on the rally because that's what supported the index. 41 00:02:09,040 --> 00:02:10,760 Speaker 2: What are you suggesting paper should buy instead? 42 00:02:11,919 --> 00:02:14,160 Speaker 5: Well, I think if you look at the fundamentals of 43 00:02:14,200 --> 00:02:16,960 Speaker 5: the economy and you look at where what is happening. 44 00:02:17,200 --> 00:02:19,639 Speaker 5: You know, we have been encouraging clients to just take 45 00:02:19,680 --> 00:02:22,520 Speaker 5: this Barbelle approach and take a look at the fundamentals 46 00:02:22,520 --> 00:02:24,240 Speaker 5: of what is the corporate. 47 00:02:23,880 --> 00:02:25,960 Speaker 4: Earnings growth that you see on these areas. 48 00:02:26,200 --> 00:02:28,280 Speaker 5: You know, normally what you see in this you know, 49 00:02:28,440 --> 00:02:31,480 Speaker 5: probably not very clear economic picture because of the lack 50 00:02:31,520 --> 00:02:34,200 Speaker 5: of data. You know, we have seen the softness in 51 00:02:34,240 --> 00:02:36,440 Speaker 5: the labor market, We have seen softness in the house 52 00:02:36,560 --> 00:02:39,880 Speaker 5: and market. We clearly see this deceleration of economic growth 53 00:02:39,880 --> 00:02:43,080 Speaker 5: with inflation stays you know high, and what that would 54 00:02:43,120 --> 00:02:46,079 Speaker 5: recommend is for people to start moving into the cyclical 55 00:02:46,120 --> 00:02:48,600 Speaker 5: part of the market and being more defensive. We're not 56 00:02:48,639 --> 00:02:51,200 Speaker 5: necessarily thinking that the economy is going to crush or 57 00:02:51,280 --> 00:02:52,960 Speaker 5: is going to go into very hard landing. 58 00:02:53,200 --> 00:02:56,919 Speaker 4: But clearly we see you know, the potential. 59 00:02:56,639 --> 00:02:58,520 Speaker 5: For these to go to US law down and only 60 00:02:58,600 --> 00:03:01,600 Speaker 5: companies with a strong balance will do. We actually saw 61 00:03:01,639 --> 00:03:04,640 Speaker 5: on the performance of dividend payer stocks you know, this year. 62 00:03:04,840 --> 00:03:06,960 Speaker 5: This is the this is the opportunity to take a 63 00:03:06,960 --> 00:03:08,520 Speaker 5: look at those companies that can. 64 00:03:08,520 --> 00:03:09,400 Speaker 4: Actually do well. 65 00:03:09,440 --> 00:03:11,680 Speaker 5: So starting to go into that part of the market 66 00:03:11,680 --> 00:03:14,560 Speaker 5: is started, well, interest rates were probably coming down if 67 00:03:14,600 --> 00:03:17,480 Speaker 5: they already started the FED, you know, reducing rates. 68 00:03:17,600 --> 00:03:20,800 Speaker 4: That also provides a little bit of ability. 69 00:03:20,280 --> 00:03:23,320 Speaker 5: For cyclicals and sort of mid sized companies to start 70 00:03:23,360 --> 00:03:25,680 Speaker 5: doing well. And I think I will emphasize the fact that, 71 00:03:25,760 --> 00:03:28,160 Speaker 5: you know, earnings potentially is sort of the biggest part 72 00:03:28,160 --> 00:03:29,720 Speaker 5: of what the market might look at. 73 00:03:29,919 --> 00:03:34,080 Speaker 6: OMAR does Defensive means something different today than it meant, 74 00:03:34,080 --> 00:03:35,119 Speaker 6: say five years ago. 75 00:03:37,160 --> 00:03:41,520 Speaker 5: Stability, Lisa, stability is what we actually think about. Defensive 76 00:03:41,640 --> 00:03:45,040 Speaker 5: is not the traditional consumer staples utilities trade and in fact, 77 00:03:45,160 --> 00:03:47,600 Speaker 5: utilities tends to be more driven by AI these days 78 00:03:47,640 --> 00:03:49,280 Speaker 5: than what is the traditional AI. 79 00:03:49,560 --> 00:03:50,520 Speaker 4: But it's really more. 80 00:03:50,440 --> 00:03:53,880 Speaker 5: Stability in earnings what we actually think about being defensive. 81 00:03:54,120 --> 00:03:57,200 Speaker 5: You know, higher quality names in terms of profitability and 82 00:03:57,280 --> 00:04:01,280 Speaker 5: profit margins. You know, stability is a big part of it. 83 00:04:01,320 --> 00:04:04,480 Speaker 5: Do you think about it companies that did very well 84 00:04:04,480 --> 00:04:07,400 Speaker 5: through all this period of uncertainty around targets and around 85 00:04:07,600 --> 00:04:10,680 Speaker 5: you know, labor market costs increasing, et cetera. Where those 86 00:04:10,680 --> 00:04:14,680 Speaker 5: companies that had very good profit margins, So the are 87 00:04:14,760 --> 00:04:18,040 Speaker 5: the ones that are able to steal not necessarily pass 88 00:04:18,160 --> 00:04:21,240 Speaker 5: through the increased prices to the consumers. You know, those 89 00:04:21,279 --> 00:04:24,440 Speaker 5: companies that are squeezing their profit margins will have no 90 00:04:24,640 --> 00:04:26,720 Speaker 5: choice to actually pass. 91 00:04:26,480 --> 00:04:28,320 Speaker 4: Through those prices to the consumers. 92 00:04:28,360 --> 00:04:31,719 Speaker 5: So we clearly emphasize that ability of continue to have 93 00:04:31,760 --> 00:04:36,080 Speaker 5: sustainability of earnings, quality of earnings, and healthy profit margins. 94 00:04:36,279 --> 00:04:38,119 Speaker 6: A number of people have come on the show this morning, 95 00:04:38,120 --> 00:04:40,080 Speaker 6: and I've talked about how there still is quite a 96 00:04:40,120 --> 00:04:42,120 Speaker 6: bit of dynamism under the surface, and you talked about 97 00:04:42,160 --> 00:04:45,080 Speaker 6: the cyclical sides of the market that could potentially do better, 98 00:04:45,160 --> 00:04:46,679 Speaker 6: especially if the Fed cuts rates. 99 00:04:46,520 --> 00:04:48,039 Speaker 7: Again next month. 100 00:04:48,360 --> 00:04:50,839 Speaker 6: At the same time, people are seeing more inflationary pressures 101 00:04:50,880 --> 00:04:54,359 Speaker 6: come in, whether it's from stimulus efforts, whether it is 102 00:04:54,440 --> 00:04:57,800 Speaker 6: from the energy costs. And I'm just wondering whether increasingly 103 00:04:58,120 --> 00:05:01,400 Speaker 6: the idea of diversification is starting to look very different 104 00:05:01,480 --> 00:05:03,640 Speaker 6: for you, with the bond market maybe not having the 105 00:05:03,640 --> 00:05:06,039 Speaker 6: same kind of profiles it has in the past. 106 00:05:06,920 --> 00:05:09,960 Speaker 5: Well, the versification is clearly the name of the game, 107 00:05:10,000 --> 00:05:12,400 Speaker 5: and that has not going to change. I think the 108 00:05:13,400 --> 00:05:16,840 Speaker 5: main concern that we continue to have is the fact that, yes, 109 00:05:16,880 --> 00:05:19,080 Speaker 5: as we see in the bond market, you know, a 110 00:05:19,200 --> 00:05:23,240 Speaker 5: steeper yield curve when we see inflation expectations continue to rise, 111 00:05:23,279 --> 00:05:25,679 Speaker 5: and that is a big component of what I think, 112 00:05:25,760 --> 00:05:28,080 Speaker 5: you know, we may see we were starting to see 113 00:05:28,080 --> 00:05:30,800 Speaker 5: a little bit of movement on the credit market. 114 00:05:30,839 --> 00:05:32,840 Speaker 4: Clearly this is the time where you. 115 00:05:32,760 --> 00:05:35,880 Speaker 5: Know, diversification and maintain the levels of quality in the 116 00:05:35,920 --> 00:05:38,680 Speaker 5: bond selection is actually a key part of it. I 117 00:05:38,680 --> 00:05:41,400 Speaker 5: don't necessarily think that duration is sort of a play 118 00:05:41,440 --> 00:05:44,120 Speaker 5: in the mode market at the moment, but I guess 119 00:05:44,160 --> 00:05:46,839 Speaker 5: the expectations have been said. But I think the shape 120 00:05:46,839 --> 00:05:48,680 Speaker 5: of the yield curve and the movements that you have 121 00:05:48,800 --> 00:05:51,640 Speaker 5: as you see you know, sticky inflations and you see 122 00:05:52,640 --> 00:05:56,600 Speaker 5: a continuation of that expectations that we're going to have 123 00:05:56,960 --> 00:05:59,000 Speaker 5: a more steeper year cleve is sort of a big 124 00:05:59,000 --> 00:06:01,080 Speaker 5: part of what we are encouraging clients to look at. 125 00:06:01,520 --> 00:06:04,440 Speaker 5: On the equity side, again, you know earnings, you know potential, 126 00:06:04,440 --> 00:06:09,240 Speaker 5: and diversification suggests reducing the concentration. And I cannot emphasize 127 00:06:09,240 --> 00:06:12,279 Speaker 5: that even more because you know the level of concentration 128 00:06:12,440 --> 00:06:15,200 Speaker 5: that there is in terms of the majority of portfolios, 129 00:06:15,320 --> 00:06:18,080 Speaker 5: it is you know, pretty high, and I think diversifying 130 00:06:18,120 --> 00:06:20,560 Speaker 5: away from it even if the means that having to 131 00:06:20,600 --> 00:06:23,560 Speaker 5: buy some of the companies that have been underperforming this 132 00:06:23,680 --> 00:06:26,280 Speaker 5: year is actually a healthy thing to do it for investors. 133 00:06:26,279 --> 00:06:28,880 Speaker 2: And I can I just follow up because we get 134 00:06:28,920 --> 00:06:31,799 Speaker 2: this argument so many times on this program. We can't 135 00:06:31,839 --> 00:06:33,760 Speaker 2: just buy something counts for the sake of buying something, 136 00:06:33,800 --> 00:06:35,440 Speaker 2: haunts for the sake of reducing concentration. 137 00:06:35,600 --> 00:06:35,800 Speaker 1: Risk. 138 00:06:36,240 --> 00:06:38,880 Speaker 2: Concentration has been a theme because that's where the earnings 139 00:06:38,920 --> 00:06:41,640 Speaker 2: power has been. And I'm trying to understand why you 140 00:06:41,640 --> 00:06:43,919 Speaker 2: want to go somewhere else. What is it about being 141 00:06:44,000 --> 00:06:46,240 Speaker 2: somewhere else If it's just for the sake of being 142 00:06:46,279 --> 00:06:46,840 Speaker 2: somewhere else. 143 00:06:48,240 --> 00:06:51,919 Speaker 5: Well, I think the fundamentals or the corporations you know, 144 00:06:52,000 --> 00:06:54,440 Speaker 5: tend to basically look at, you know, where the market 145 00:06:54,480 --> 00:06:56,680 Speaker 5: and the price tends to be driven is about that 146 00:06:56,720 --> 00:07:00,200 Speaker 5: earnings potential and the free type flow generation. And as 147 00:07:00,240 --> 00:07:02,800 Speaker 5: you're right, you know, the companies that have done very 148 00:07:02,839 --> 00:07:05,320 Speaker 5: well so far, you know, tend to be driven a 149 00:07:05,360 --> 00:07:09,080 Speaker 5: lot by that earnings potential free cash flow generation, and 150 00:07:09,160 --> 00:07:12,280 Speaker 5: in many cases that have provided a good performance. Now 151 00:07:12,280 --> 00:07:14,320 Speaker 5: when you look at what that means in terms of 152 00:07:14,360 --> 00:07:17,920 Speaker 5: sustaining that rate of earnings potential, that's where the risk 153 00:07:18,040 --> 00:07:20,840 Speaker 5: you know stays and therefore you know the size of 154 00:07:20,880 --> 00:07:22,560 Speaker 5: that you know, concentration. 155 00:07:22,680 --> 00:07:24,960 Speaker 4: When you have companies that could be. 156 00:07:24,520 --> 00:07:27,680 Speaker 5: Between three and four percent of the active risk that 157 00:07:27,760 --> 00:07:31,320 Speaker 5: goes into your portfolios, that tends to be fairly risky. Now, 158 00:07:31,360 --> 00:07:35,080 Speaker 5: there are areas that are still also generating significant amount 159 00:07:35,120 --> 00:07:38,760 Speaker 5: of earnings that are significantly potential for free cas folow 160 00:07:38,760 --> 00:07:42,040 Speaker 5: generation that are not you know, that high levels of valuation. 161 00:07:42,200 --> 00:07:45,920 Speaker 5: So looking at those undervaluation companies that still have the 162 00:07:45,960 --> 00:07:48,720 Speaker 5: same characteristics, the same factors with some of the others, 163 00:07:48,760 --> 00:07:51,240 Speaker 5: but you don't necessarily have to go into these very 164 00:07:51,320 --> 00:07:54,000 Speaker 5: high multiples is actually a very healthy thing to do. 165 00:07:54,080 --> 00:07:57,200 Speaker 7: Where do I sign the moment? Where aren't they well, 166 00:07:57,320 --> 00:07:57,800 Speaker 7: you know they. 167 00:07:58,040 --> 00:08:00,880 Speaker 5: Are you know significant in areas in infrastructure, there are 168 00:08:00,920 --> 00:08:03,680 Speaker 5: significant areas you know, within even technology. 169 00:08:03,720 --> 00:08:06,200 Speaker 4: If you actually look just a technology excluding you. 170 00:08:06,240 --> 00:08:09,440 Speaker 5: Know the max seven, you know there are components within 171 00:08:09,680 --> 00:08:11,880 Speaker 5: you know, technology that are still pretty good that their 172 00:08:11,920 --> 00:08:15,120 Speaker 5: capitals expenditure is still to increase their roes and the 173 00:08:15,280 --> 00:08:18,480 Speaker 5: ros continue to use very healthy there are still being 174 00:08:18,520 --> 00:08:21,480 Speaker 5: a very this is the time where stock selection matters 175 00:08:21,480 --> 00:08:24,720 Speaker 5: and looking at factors that drive performance, you know matter 176 00:08:24,960 --> 00:08:28,160 Speaker 5: you actually see areas within you know, the cyclical markets, 177 00:08:28,160 --> 00:08:31,320 Speaker 5: whether it's in materials, whether it's in energy, in those 178 00:08:31,440 --> 00:08:34,040 Speaker 5: you know, or is there's very very good opportunities that 179 00:08:34,120 --> 00:08:34,560 Speaker 5: you can have. 180 00:08:34,880 --> 00:08:36,000 Speaker 4: You know, again, we have been. 181 00:08:35,880 --> 00:08:37,760 Speaker 5: Talking about it, you know, I've been talking into your 182 00:08:37,800 --> 00:08:40,440 Speaker 5: program about you know, going into small caps. You know, 183 00:08:40,520 --> 00:08:43,160 Speaker 5: we still think that it's early to go into small cap. 184 00:08:43,240 --> 00:08:45,920 Speaker 5: There still need to be some structural pieces that could 185 00:08:45,920 --> 00:08:49,040 Speaker 5: benefit those small cap companies. You don't necessarily have to 186 00:08:49,040 --> 00:08:51,200 Speaker 5: go all the way and try to overweight small cap. 187 00:08:51,320 --> 00:08:53,160 Speaker 4: But then looking at those you know that. 188 00:08:53,200 --> 00:08:56,080 Speaker 5: Tend to be you know, multiples that are decent with 189 00:08:56,160 --> 00:08:58,920 Speaker 5: earnings potential at Flickastion generation is the way to go. 190 00:09:00,120 --> 00:09:03,600 Speaker 2: Stay with us more Bloomberg surveillance coming up after this. 191 00:09:13,080 --> 00:09:16,400 Speaker 2: An increasing number of Democratic lawmakers calling for Senate Minority 192 00:09:16,480 --> 00:09:19,160 Speaker 2: Leader Chuck Schumer to step aside after famous to stall 193 00:09:19,280 --> 00:09:21,520 Speaker 2: members of his party from a Green to a Republican 194 00:09:21,559 --> 00:09:24,559 Speaker 2: deal to reopen the government. Joining US now Henrida, Trace 195 00:09:24,800 --> 00:09:28,560 Speaker 2: a Vader Partners Henrietta a reality check for politicians in Washington. 196 00:09:28,720 --> 00:09:31,040 Speaker 2: They've had two already, they had one twelve months ago. 197 00:09:31,320 --> 00:09:35,000 Speaker 2: In the general, the general public weren't happy with affordability, 198 00:09:35,040 --> 00:09:36,800 Speaker 2: the cost of living in this country, and look to 199 00:09:36,840 --> 00:09:39,120 Speaker 2: Republicans to try and fix it. And they're wanting to 200 00:09:39,200 --> 00:09:40,880 Speaker 2: vote for whoever is going to come out with a 201 00:09:40,880 --> 00:09:44,560 Speaker 2: good idea, and their ideology is not cemented, it's not fixed. 202 00:09:44,600 --> 00:09:47,160 Speaker 2: They'll shift from one party to another with ease. You 203 00:09:47,200 --> 00:09:48,920 Speaker 2: and I have talked about that. How do you think 204 00:09:48,920 --> 00:09:50,640 Speaker 2: that sets us up for the midterms next year? 205 00:09:51,480 --> 00:09:54,320 Speaker 1: Yeah, I mean, that's exactly what last Tuesday's election showed. 206 00:09:54,440 --> 00:09:57,840 Speaker 1: It wasn't just that Democrats came out. The exit polling 207 00:09:57,920 --> 00:10:00,319 Speaker 1: shows that it was Trump voters who went for him 208 00:10:00,320 --> 00:10:02,200 Speaker 1: in twenty twenty four who swung right back to the 209 00:10:02,200 --> 00:10:04,920 Speaker 1: Democratic Party this cycle. And that's a combination of the 210 00:10:04,960 --> 00:10:09,160 Speaker 1: president's economic policies more than anything else. So what Democrats 211 00:10:09,200 --> 00:10:11,880 Speaker 1: have done here with this shutdown is not keep an 212 00:10:11,880 --> 00:10:14,360 Speaker 1: eye on affordability, which was of course the talking point 213 00:10:14,400 --> 00:10:21,480 Speaker 1: of the Tuesday elections, but the inflation, grocery prices, healthcare prices. 214 00:10:21,520 --> 00:10:22,920 Speaker 8: I mean, I'll be honest. 215 00:10:22,679 --> 00:10:24,520 Speaker 1: You guys know I don't like healthcare even I know 216 00:10:24,600 --> 00:10:27,400 Speaker 1: now that the insurance premiums for people over the age 217 00:10:27,400 --> 00:10:30,640 Speaker 1: of sixty are going to increase nine hundred and nineteen 218 00:10:30,720 --> 00:10:33,760 Speaker 1: dollars as a result of not extending these ACA subsidies. 219 00:10:33,760 --> 00:10:36,240 Speaker 1: And we just spent forty one days saying that back 220 00:10:36,240 --> 00:10:37,560 Speaker 1: to back. We're going to have a vote on it 221 00:10:37,600 --> 00:10:40,000 Speaker 1: in December. We'll do it again in January. So I 222 00:10:40,040 --> 00:10:43,520 Speaker 1: think that for the Democrats, just keeping this message alive 223 00:10:44,120 --> 00:10:47,719 Speaker 1: is outside of the Beltway, sending the message that has 224 00:10:47,880 --> 00:10:49,800 Speaker 1: just won an election and looks like it'll be a 225 00:10:49,800 --> 00:10:52,040 Speaker 1: repeat of twenty eighteen based off what we're seeing in 226 00:10:52,120 --> 00:10:52,520 Speaker 1: the polling. 227 00:10:52,880 --> 00:10:55,120 Speaker 6: To build on that, Henrietta, do you think that this 228 00:10:55,240 --> 00:10:57,880 Speaker 6: shutdown was futile for the Democrats or do you think 229 00:10:57,880 --> 00:10:59,960 Speaker 6: that it actually yielded some political benefits. 230 00:11:00,800 --> 00:11:03,040 Speaker 1: They get yielded a lot of political benefits. I'll cover 231 00:11:03,080 --> 00:11:05,480 Speaker 1: a couple. Number one I think is setting up Schumer 232 00:11:05,520 --> 00:11:09,760 Speaker 1: to step down and pave the way for the senator 233 00:11:09,760 --> 00:11:11,760 Speaker 1: from Hawaii to come in and be the next Democratic 234 00:11:11,840 --> 00:11:15,679 Speaker 1: leader in the Senate side. That's pretty plainly something that's 235 00:11:15,679 --> 00:11:17,920 Speaker 1: building within the Democratic conference on the Senate side. I 236 00:11:17,920 --> 00:11:20,520 Speaker 1: think that's something that Schumer is ushering in himself. And 237 00:11:20,559 --> 00:11:23,440 Speaker 1: he took a lot of arrows by voting against this bill, 238 00:11:23,559 --> 00:11:26,720 Speaker 1: by agreeing to let the eight moderates cross the line. 239 00:11:26,800 --> 00:11:29,480 Speaker 1: It's exactly however many you needed. I think that's what 240 00:11:29,559 --> 00:11:31,960 Speaker 1: leadership does, especially on the Democratic side. You've seen it 241 00:11:31,960 --> 00:11:34,200 Speaker 1: in the past. Joe Biden just did it last year. 242 00:11:34,960 --> 00:11:39,240 Speaker 1: On the messaging side, think about where the numbers are. 243 00:11:39,600 --> 00:11:44,160 Speaker 1: President Trump's approval rating has cut again in half. You 244 00:11:44,200 --> 00:11:47,560 Speaker 1: went from negative seven to negative thirteen in the polling 245 00:11:47,600 --> 00:11:50,880 Speaker 1: averages just since October. And on the congressional ballot in 246 00:11:50,960 --> 00:11:54,320 Speaker 1: generic polling, the Democrats went from plus one in the 247 00:11:54,320 --> 00:11:55,480 Speaker 1: generic ballot. 248 00:11:55,240 --> 00:11:57,120 Speaker 8: On October first to plus four. 249 00:11:57,200 --> 00:11:59,920 Speaker 1: Now that's enough to get you the midterm House election, 250 00:12:00,240 --> 00:12:01,920 Speaker 1: and that's the goal of leadership. 251 00:12:01,960 --> 00:12:02,559 Speaker 9: There's a lot of. 252 00:12:02,480 --> 00:12:05,040 Speaker 6: Time between now and the midterms, and it really includes 253 00:12:05,040 --> 00:12:07,199 Speaker 6: the beginning part of next year when we could potentially 254 00:12:07,240 --> 00:12:11,000 Speaker 6: get tax rebates. You can call them the tariff dividend, 255 00:12:11,040 --> 00:12:12,360 Speaker 6: you can call them whatever you want. 256 00:12:12,400 --> 00:12:13,360 Speaker 9: But a lot of people are. 257 00:12:13,280 --> 00:12:17,439 Speaker 6: Expecting more money in people's pockets come January and February. 258 00:12:17,440 --> 00:12:19,720 Speaker 6: How much do you expect that to really skew things 259 00:12:19,760 --> 00:12:23,040 Speaker 6: the other direction back toward the Republicans heading into the midterms. 260 00:12:24,040 --> 00:12:27,640 Speaker 1: Why do you need a two thousand dollars rebate? What's 261 00:12:27,679 --> 00:12:31,480 Speaker 1: the problem is the inflation still rising? Is affordability still 262 00:12:31,480 --> 00:12:33,679 Speaker 1: a problem? Didn't we just pass a one big, beautiful 263 00:12:33,679 --> 00:12:36,520 Speaker 1: bill with three and a half trillion dollars of deficit increases. 264 00:12:36,800 --> 00:12:39,120 Speaker 8: Why do we need a two thousand dollars dividend check. 265 00:12:39,080 --> 00:12:41,679 Speaker 1: That, by the way, will not be paid for by 266 00:12:41,760 --> 00:12:44,280 Speaker 1: tariffs because the tariffs don't bring in that kind of revenue. 267 00:12:44,440 --> 00:12:47,120 Speaker 1: In the two thousand Cares Act, we passed the exact 268 00:12:47,120 --> 00:12:49,880 Speaker 1: same kind of rebate check Trump is talking about right now. 269 00:12:50,040 --> 00:12:52,680 Speaker 1: It costs two hundred and ninety two billion dollars. The 270 00:12:52,720 --> 00:12:55,839 Speaker 1: tariffs have brought in eighty nine billion dollars. If we 271 00:12:55,960 --> 00:12:59,920 Speaker 1: give two thousand dollars to every eligible American, that's off 272 00:13:00,080 --> 00:13:03,240 Speaker 1: four hundred billion dollars spending provision. So you're going to 273 00:13:03,280 --> 00:13:07,160 Speaker 1: increase the deficit to provide tax cuts to Americans who 274 00:13:07,160 --> 00:13:10,440 Speaker 1: are suffering from inflation because of taris. I don't think 275 00:13:10,480 --> 00:13:11,760 Speaker 1: that's a winning message. 276 00:13:11,400 --> 00:13:12,960 Speaker 2: At a time when it's a question mark of the 277 00:13:12,960 --> 00:13:15,640 Speaker 2: policy itself and whether it which stands. They screwtiny at 278 00:13:15,640 --> 00:13:18,720 Speaker 2: the Supreme Court in the coming month as well, Henriette said, 279 00:13:18,840 --> 00:13:21,120 Speaker 2: where do they have space to offer some kind of 280 00:13:21,120 --> 00:13:23,160 Speaker 2: giveaways and change policy? 281 00:13:24,000 --> 00:13:27,200 Speaker 1: You know, it's It's amazing because when I speak with Republicans, 282 00:13:27,240 --> 00:13:29,800 Speaker 1: they plainly don't want to go through the very difficult 283 00:13:29,840 --> 00:13:32,640 Speaker 1: activity of passing a fiscal year twenty six budget and 284 00:13:32,679 --> 00:13:36,040 Speaker 1: a fiscal year twenty six reconciliation bill. Democrats wouldn't want 285 00:13:36,080 --> 00:13:39,040 Speaker 1: to either. It's extremely difficult. Voters opens up all your 286 00:13:39,040 --> 00:13:41,200 Speaker 1: members to vote e rama. But what you could do 287 00:13:41,320 --> 00:13:44,080 Speaker 1: is you could get sixty votes to extend the ACA 288 00:13:44,120 --> 00:13:46,280 Speaker 1: subsidies and then think about what we just talked about. 289 00:13:46,400 --> 00:13:49,120 Speaker 1: You get every family with two sixty year olds in 290 00:13:49,160 --> 00:13:51,400 Speaker 1: the House on Medicare and Medicaid, you can get nine 291 00:13:51,480 --> 00:13:53,920 Speaker 1: hundred nineteen dollars for each of them back in their pockets. 292 00:13:54,000 --> 00:13:56,960 Speaker 8: If you are a household with kids with twenty. 293 00:13:56,679 --> 00:13:59,160 Speaker 1: Thirty forty year olds, the ACA subsidies get extended, you 294 00:13:59,200 --> 00:14:00,600 Speaker 1: get two hundred up. 295 00:14:01,200 --> 00:14:03,000 Speaker 8: So there's a pretty easy path to. 296 00:14:03,000 --> 00:14:05,600 Speaker 1: Sixty votes if you want it, and we'll have those 297 00:14:05,640 --> 00:14:07,880 Speaker 1: votes in December and then again in late January. And 298 00:14:07,880 --> 00:14:10,600 Speaker 1: if you want ustimate the economy quickly get money back 299 00:14:10,600 --> 00:14:13,440 Speaker 1: into consumers pockets, the AC s is a really fast 300 00:14:13,480 --> 00:14:15,360 Speaker 1: way to do it, and a lot of Republicans would 301 00:14:15,400 --> 00:14:18,240 Speaker 1: like to see that too. Look at Alabama, Boozyana, Mississippi. 302 00:14:18,240 --> 00:14:19,240 Speaker 8: That's where those voters are. 303 00:14:20,080 --> 00:14:20,720 Speaker 7: Stay with us. 304 00:14:21,040 --> 00:14:33,120 Speaker 2: More Bloomberg surveillance coming up after this. Dan Skelley of 305 00:14:33,160 --> 00:14:35,960 Speaker 2: Mork and Stanley writing, while the fundamental backdrop for the 306 00:14:36,000 --> 00:14:40,160 Speaker 2: market has improved from the panic stricken spring, our current valuations, 307 00:14:40,200 --> 00:14:42,720 Speaker 2: investors are not being compensated for a high degree of 308 00:14:42,760 --> 00:14:44,480 Speaker 2: policy and earnings risk. 309 00:14:44,560 --> 00:14:46,400 Speaker 7: Dan joins a snap for more dank and monic. 310 00:14:46,200 --> 00:14:46,680 Speaker 9: Morning, John. 311 00:14:46,680 --> 00:14:48,560 Speaker 2: Do you think that catches the pushback we're seeing across 312 00:14:48,600 --> 00:14:50,360 Speaker 2: several single names out of the past few weeks. 313 00:14:50,640 --> 00:14:51,040 Speaker 9: Definitely. 314 00:14:51,080 --> 00:14:53,600 Speaker 10: And by the way, I think the volatility in the 315 00:14:53,680 --> 00:14:56,920 Speaker 10: rotation that we're seeing among single names is healthy. I mean, 316 00:14:56,960 --> 00:14:59,680 Speaker 10: the idea is if everything was going up euphorically, then 317 00:14:59,720 --> 00:15:02,120 Speaker 10: maybe we could talk more about a bubble. But you 318 00:15:02,200 --> 00:15:06,440 Speaker 10: are seeing the market reward winners and penalized losers, and 319 00:15:06,440 --> 00:15:08,520 Speaker 10: so I think that's a healthy trend. I think, frankly, 320 00:15:09,000 --> 00:15:11,880 Speaker 10: there's seemingly a bubble and everyone guessing whether or not 321 00:15:11,880 --> 00:15:12,760 Speaker 10: we're in a bubble or not. 322 00:15:13,160 --> 00:15:15,680 Speaker 2: A bubble in bubbles correct, not in the credit market, 323 00:15:15,800 --> 00:15:16,800 Speaker 2: credit markets wide open. 324 00:15:16,840 --> 00:15:19,080 Speaker 7: Suppose somebody is spending. Do you think that reminds the case? 325 00:15:19,200 --> 00:15:21,360 Speaker 10: I think that remains the case and is likely to 326 00:15:21,400 --> 00:15:24,040 Speaker 10: be so for the foreseeable future. You've seen some of 327 00:15:24,080 --> 00:15:26,560 Speaker 10: these bond deals way over subscribed, as you know, in 328 00:15:26,600 --> 00:15:29,200 Speaker 10: the last couple of months, and so we're just not 329 00:15:29,280 --> 00:15:31,080 Speaker 10: yet at that point where things are starting to look 330 00:15:31,080 --> 00:15:31,680 Speaker 10: more concerning. 331 00:15:32,120 --> 00:15:36,320 Speaker 6: Bubble of a bubble, bubble in bubble and bubble took. Okay, honestly, 332 00:15:36,400 --> 00:15:37,640 Speaker 6: this is so derivative. 333 00:15:37,680 --> 00:15:40,840 Speaker 9: I'm having a hard time increase. 334 00:15:40,440 --> 00:15:42,840 Speaker 6: Of the bubble in bubble talk, I know, but it's true. 335 00:15:42,960 --> 00:15:44,520 Speaker 6: There is this feeling that right now there is a 336 00:15:44,520 --> 00:15:46,080 Speaker 6: lot of fear out there. I just want to go 337 00:15:46,080 --> 00:15:47,480 Speaker 6: back to the point that you made that it's healthy 338 00:15:47,480 --> 00:15:50,080 Speaker 6: to see swings like this. It's healthy to see swings 339 00:15:50,160 --> 00:15:54,040 Speaker 6: in one stock name evaluations mark evaluations of two hundred 340 00:15:54,080 --> 00:15:57,080 Speaker 6: and sixty four billion dollars. 341 00:15:56,600 --> 00:15:57,320 Speaker 11: In one day. 342 00:15:57,600 --> 00:15:59,840 Speaker 6: The idea that we saw that kind of gain just 343 00:16:00,040 --> 00:16:02,440 Speaker 6: on Monday alone in the likes of Nvidia, after seeing 344 00:16:02,440 --> 00:16:05,080 Speaker 6: two hundred million dollars lost in one day, how is 345 00:16:05,120 --> 00:16:08,320 Speaker 6: this healthy? Doesn't it really point to concentration risk in 346 00:16:08,360 --> 00:16:10,080 Speaker 6: another kind of way in the index? 347 00:16:10,400 --> 00:16:13,240 Speaker 10: Sure, it's an excellent point, Lisace. I'll say a couple 348 00:16:13,280 --> 00:16:16,120 Speaker 10: of things. So first is what I'm describing is among 349 00:16:16,160 --> 00:16:19,400 Speaker 10: the mag seven themselves, you saw a handful half of 350 00:16:19,440 --> 00:16:21,680 Speaker 10: them up on earnings and half of them down on earnings, 351 00:16:21,680 --> 00:16:23,960 Speaker 10: And so I think that's really what we're looking at. 352 00:16:23,960 --> 00:16:26,720 Speaker 10: But I think to your point, in terms of absolute 353 00:16:26,840 --> 00:16:30,880 Speaker 10: market values, it certainly speaks to the crowding that's happened 354 00:16:30,880 --> 00:16:33,120 Speaker 10: not only this year, but going back fifteen years. 355 00:16:33,320 --> 00:16:35,239 Speaker 9: Really since eight. We've seen this winner. 356 00:16:35,040 --> 00:16:39,120 Speaker 10: Take all phenomena for almost two decades now, and it 357 00:16:39,200 --> 00:16:42,160 Speaker 10: speaks to just again just how much the market share 358 00:16:42,200 --> 00:16:46,480 Speaker 10: winners have differentiated themselves versus everyone else. Last point, you 359 00:16:46,600 --> 00:16:48,800 Speaker 10: reference ninety eight ninety nine, which we're starting to hear 360 00:16:48,880 --> 00:16:51,320 Speaker 10: more and more of. Obviously, let's not forget that in 361 00:16:51,360 --> 00:16:54,680 Speaker 10: the stretch from kind of the fall of ninety nine 362 00:16:54,760 --> 00:16:57,480 Speaker 10: to the spring of two thousand and NASTAC doubled over 363 00:16:57,480 --> 00:16:58,840 Speaker 10: a seven or eight month period. 364 00:16:59,200 --> 00:17:01,360 Speaker 9: That is truly what a blowoff top looks like. We 365 00:17:01,400 --> 00:17:02,440 Speaker 9: haven't seen that of yet. 366 00:17:02,560 --> 00:17:03,280 Speaker 11: There's also this. 367 00:17:03,280 --> 00:17:07,000 Speaker 6: Question of how far the AI trend is diverging from 368 00:17:07,000 --> 00:17:09,680 Speaker 6: the underlying economy, and we keep going back to this 369 00:17:10,040 --> 00:17:12,480 Speaker 6: how difficult it is to get a gauge on what's 370 00:17:12,520 --> 00:17:15,760 Speaker 6: happening with people feeling pretty negative on the economy, pretty 371 00:17:15,760 --> 00:17:18,280 Speaker 6: negative about their spending power. At the same time that 372 00:17:18,320 --> 00:17:20,840 Speaker 6: you're seeing these runaway gains and these expectations for all 373 00:17:20,880 --> 00:17:22,280 Speaker 6: this profitability and efficiency. 374 00:17:22,480 --> 00:17:23,400 Speaker 11: How do you scare that? 375 00:17:23,800 --> 00:17:27,080 Speaker 10: So it's a case shaped market economy, it's a case 376 00:17:27,080 --> 00:17:32,560 Speaker 10: shaped socioeconomic recovery. Post COVID, everything is diverging. We wrote 377 00:17:32,600 --> 00:17:35,440 Speaker 10: about this recently in our letter, talking about the market 378 00:17:35,440 --> 00:17:37,320 Speaker 10: is not the economy. The economy is not the market. 379 00:17:37,680 --> 00:17:39,560 Speaker 10: And when you look at the changing nature of this 380 00:17:39,640 --> 00:17:42,879 Speaker 10: economy really since COVID, but going back I'll say a 381 00:17:42,920 --> 00:17:46,640 Speaker 10: decade plus, it's a services led economy. All we've done 382 00:17:46,720 --> 00:17:49,480 Speaker 10: is wring our hands around tariffs and trade. This year 383 00:17:49,640 --> 00:17:52,680 Speaker 10: trade is eleven percent of GDP. This is a service's economy. 384 00:17:53,000 --> 00:17:56,920 Speaker 10: AI spending is being funded largely by cash flow, so 385 00:17:56,960 --> 00:17:59,560 Speaker 10: we're seeing that as being somewhat more insulated from ebbs 386 00:17:59,600 --> 00:18:02,280 Speaker 10: and flows in the economy. And increasingly it's a high 387 00:18:02,359 --> 00:18:04,720 Speaker 10: end consumption market. I mean, one of the things we 388 00:18:04,760 --> 00:18:07,200 Speaker 10: haven't talked about enough, we think is that ten percent 389 00:18:07,240 --> 00:18:09,520 Speaker 10: of the population controls forty. 390 00:18:09,240 --> 00:18:10,520 Speaker 9: To fifty percent of the spending. 391 00:18:10,880 --> 00:18:13,320 Speaker 10: And that's a cohort that's been reflated in terms of 392 00:18:13,320 --> 00:18:17,880 Speaker 10: wealth effect exposure to acid prices, houses and stock markets, 393 00:18:18,280 --> 00:18:22,080 Speaker 10: and so we're seeing that bifurcation across not just the market, 394 00:18:22,240 --> 00:18:25,000 Speaker 10: but every component of the changing nature of our economy. 395 00:18:25,080 --> 00:18:27,239 Speaker 6: Does that make you want to expand out to some 396 00:18:27,320 --> 00:18:30,960 Speaker 6: of the areas that are more susceptible to spending, whether 397 00:18:31,000 --> 00:18:32,760 Speaker 6: it's on the high income, which seems like an AI 398 00:18:32,840 --> 00:18:35,560 Speaker 6: trade at this point, or whether it's on the lower income. 399 00:18:35,640 --> 00:18:38,359 Speaker 6: The sort of bet on some sort of cyclical improvement. 400 00:18:38,520 --> 00:18:42,159 Speaker 10: Very selectively where there's also a fundamental catalyst. So we 401 00:18:42,200 --> 00:18:45,479 Speaker 10: don't want to just make macro and factor bets. We 402 00:18:45,520 --> 00:18:48,200 Speaker 10: want to also marry that with some type of idiosyncratic 403 00:18:48,280 --> 00:18:51,720 Speaker 10: catalysts in whatever stock call or sector call you're making. 404 00:18:51,760 --> 00:18:55,320 Speaker 10: For example, financials, Obviously there's a lot of macro inputs 405 00:18:55,480 --> 00:19:00,200 Speaker 10: rates the economy lending, but at the moment idiosyncratically there's 406 00:19:00,240 --> 00:19:04,000 Speaker 10: a capital market's recovery, there's the regulation coming from the administration, 407 00:19:04,440 --> 00:19:07,400 Speaker 10: So you always want to have some type of fundamental catalyst. Lastly, 408 00:19:08,040 --> 00:19:11,800 Speaker 10: as we've seen expectations around the FED dial down for December, 409 00:19:11,880 --> 00:19:14,680 Speaker 10: we were almost one hundred percent priced a month or 410 00:19:14,720 --> 00:19:17,400 Speaker 10: two ago. Now we're sixty percent price. We've seen all 411 00:19:17,400 --> 00:19:21,240 Speaker 10: of those small cap and higher cyclical stocks trade off 412 00:19:21,240 --> 00:19:23,320 Speaker 10: as well. So tell me what the Fed's going to 413 00:19:23,320 --> 00:19:24,680 Speaker 10: do in December. I'll tell you if I want to 414 00:19:24,680 --> 00:19:25,200 Speaker 10: make that trade. 415 00:19:25,200 --> 00:19:27,600 Speaker 2: Well, there's some excitement that maybe we'll get some economic data. 416 00:19:27,640 --> 00:19:29,919 Speaker 2: How relevant is that data to this market? 417 00:19:30,320 --> 00:19:31,240 Speaker 9: It's super relevant. 418 00:19:31,240 --> 00:19:32,719 Speaker 10: And all of your guests and you all have been 419 00:19:32,760 --> 00:19:35,680 Speaker 10: talking about this concept of flying through the fog, which 420 00:19:35,680 --> 00:19:39,200 Speaker 10: we've been doing with the government data. We think basically 421 00:19:39,280 --> 00:19:41,639 Speaker 10: trying to triangulate all the different inputs in terms of 422 00:19:41,720 --> 00:19:44,879 Speaker 10: private market surveys and providers. We actually might see a 423 00:19:44,920 --> 00:19:47,239 Speaker 10: slight tick up in the unemployment rate when we come 424 00:19:47,280 --> 00:19:49,240 Speaker 10: out of that fog in the following weeks. 425 00:19:49,400 --> 00:19:51,280 Speaker 2: Is not enough to hold back the index because we've 426 00:19:51,280 --> 00:19:53,320 Speaker 2: had the lust each ob numbers a year at a stop. 427 00:19:53,359 --> 00:19:54,440 Speaker 7: Market's been just fined. 428 00:19:54,680 --> 00:19:56,800 Speaker 9: Probably not, So it's a great point. Probably not. 429 00:19:57,000 --> 00:19:59,119 Speaker 10: And the index is going to continue to follow the 430 00:19:59,280 --> 00:20:02,600 Speaker 10: AI sentiment and the earnings trend, which continues to be 431 00:20:02,760 --> 00:20:03,280 Speaker 10: really strong. 432 00:20:03,520 --> 00:20:05,560 Speaker 6: So what's your highest conviction trade heading into your end? 433 00:20:06,480 --> 00:20:08,520 Speaker 10: So heading into year end, I have to say that 434 00:20:08,680 --> 00:20:11,919 Speaker 10: the AI power and the AI infrastructure basket, which has 435 00:20:12,000 --> 00:20:15,760 Speaker 10: sold off more recently, still looks really really compelling. We 436 00:20:15,920 --> 00:20:18,480 Speaker 10: came into this year expecting capital spend to be three 437 00:20:18,560 --> 00:20:21,320 Speaker 10: hundred billion. It's tracking towards five hundred billion. But in 438 00:20:21,440 --> 00:20:23,440 Speaker 10: terms of what we heard from the tech players over 439 00:20:23,440 --> 00:20:25,840 Speaker 10: the last month, we're going to look at maybe seven 440 00:20:25,960 --> 00:20:28,200 Speaker 10: hundred billion going into next year. So if you think 441 00:20:28,280 --> 00:20:31,760 Speaker 10: downstream in terms of all the industrial power in different 442 00:20:31,880 --> 00:20:35,040 Speaker 10: utility components, we think that trade still looks really compelling, 443 00:20:35,400 --> 00:20:35,960 Speaker 10: and it's sold. 444 00:20:36,040 --> 00:20:37,920 Speaker 9: Let's come off a little bit off the highs. 445 00:20:39,119 --> 00:20:42,560 Speaker 2: Stay with us multiple impax Savannan's coming up after this. 446 00:20:51,720 --> 00:20:51,960 Speaker 9: Venue. 447 00:20:52,040 --> 00:20:55,320 Speaker 2: Christianer mcmarkley's maintaining his bearish s and P five hundred 448 00:20:55,480 --> 00:20:59,040 Speaker 2: year end target of sixty four point fifty as earning 449 00:20:59,160 --> 00:21:01,439 Speaker 2: season continue news when it joins us now for more 450 00:21:01,800 --> 00:21:04,600 Speaker 2: Good morning, sir, good morning, sixty four to fifty, justify 451 00:21:04,640 --> 00:21:05,440 Speaker 2: yourself my front. 452 00:21:06,000 --> 00:21:07,879 Speaker 12: So that is a base case, and we have an 453 00:21:07,960 --> 00:21:11,439 Speaker 12: upside case of seven thousands. Figue that you look at 454 00:21:11,480 --> 00:21:13,280 Speaker 12: it more as as range at this point in time. 455 00:21:14,240 --> 00:21:16,160 Speaker 12: But listen, we have been it's just that the market 456 00:21:16,240 --> 00:21:18,840 Speaker 12: has been moving ahead. So we moved our price target 457 00:21:19,040 --> 00:21:22,320 Speaker 12: in early September, right, and so already the markets moved ahead, 458 00:21:22,880 --> 00:21:26,680 Speaker 12: so you know, we remain cautiously optimistic. Actually, looking into 459 00:21:26,720 --> 00:21:29,639 Speaker 12: next year, we are more optimistic. We expect earnings to increase, 460 00:21:30,240 --> 00:21:33,280 Speaker 12: you know, double digits, ten to eleven percent, so I think, 461 00:21:33,440 --> 00:21:36,199 Speaker 12: and the earning season right now is extremely robust. 462 00:21:36,280 --> 00:21:37,320 Speaker 11: I mean, this is surprised. 463 00:21:37,359 --> 00:21:40,200 Speaker 12: Even as to the upside, we were more optimistic, but 464 00:21:40,320 --> 00:21:42,520 Speaker 12: this is building momentum from the second quarter. 465 00:21:43,000 --> 00:21:46,120 Speaker 2: Yeah, what's happening in corporate America that's generating double digit 466 00:21:46,160 --> 00:21:46,760 Speaker 2: earning growth? 467 00:21:47,040 --> 00:21:48,080 Speaker 7: What are these companies doing? 468 00:21:48,480 --> 00:21:48,520 Speaker 12: So? 469 00:21:48,640 --> 00:21:49,480 Speaker 11: I think one is. 470 00:21:49,720 --> 00:21:53,400 Speaker 12: If you look at the tech companies specifically, they're already 471 00:21:53,560 --> 00:21:56,840 Speaker 12: monetizing AI to a decent extent, and that is showing 472 00:21:56,960 --> 00:22:00,240 Speaker 12: up in their overall profitability. So they're laying off people 473 00:22:00,280 --> 00:22:02,760 Speaker 12: and yet they're highly profitable and they're still spending. So 474 00:22:02,880 --> 00:22:05,800 Speaker 12: that's one part of it. Af of course, is being 475 00:22:05,880 --> 00:22:09,119 Speaker 12: tested and adopted to varying extents. Still, enterprises sage is 476 00:22:09,160 --> 00:22:11,240 Speaker 12: quite low. But one of the interesting things we are 477 00:22:11,320 --> 00:22:14,720 Speaker 12: noticing right now is operating leverage is improving to a 478 00:22:14,840 --> 00:22:18,919 Speaker 12: broader cross section of industries. In other words, companies are 479 00:22:18,960 --> 00:22:21,400 Speaker 12: doing a better job at cost control relative to their 480 00:22:21,480 --> 00:22:25,560 Speaker 12: sales growth. Now that has been our fundamental concern outside 481 00:22:25,600 --> 00:22:29,600 Speaker 12: of tech, especially that there's been a problem pressure on margins. 482 00:22:29,960 --> 00:22:32,600 Speaker 11: So it doesn't mean it's good across the board. 483 00:22:33,280 --> 00:22:37,320 Speaker 12: Some sectors are still having a tough time, for example, stables, discretionary, 484 00:22:37,600 --> 00:22:42,359 Speaker 12: but overall we've seen an improvement in cost control relative. 485 00:22:41,960 --> 00:22:45,240 Speaker 11: To sales class, so more positive operating leverage in the system. 486 00:22:45,440 --> 00:22:47,360 Speaker 6: It sounds like you're kind of leading into the ballcase. 487 00:22:47,640 --> 00:22:50,080 Speaker 6: At what point do you just reject the base case 488 00:22:50,200 --> 00:22:51,840 Speaker 6: and go with the ballcase heading into your end? 489 00:22:52,080 --> 00:22:53,960 Speaker 11: Good question, So if you wait for two weeks you'll 490 00:22:54,000 --> 00:22:54,800 Speaker 11: know the answer. 491 00:22:56,320 --> 00:22:59,480 Speaker 7: Here you might come the base case, so you know, 492 00:22:59,800 --> 00:23:01,800 Speaker 7: the the point is, you know. 493 00:23:01,840 --> 00:23:04,879 Speaker 12: We normally come up with that outlooks, you know, sometime 494 00:23:04,920 --> 00:23:07,359 Speaker 12: towards the second half of November, where we you know, 495 00:23:07,440 --> 00:23:10,600 Speaker 12: up data numbers, so this year, next year. So directionally, 496 00:23:10,680 --> 00:23:13,359 Speaker 12: it's very evident that the US is turning out to 497 00:23:13,400 --> 00:23:15,440 Speaker 12: be strong. So especially when you compare US to the 498 00:23:15,480 --> 00:23:17,760 Speaker 12: rest of the world, which means Europe and Airbag, the 499 00:23:17,840 --> 00:23:20,680 Speaker 12: divisions are running better, the profitability is running better, the 500 00:23:20,720 --> 00:23:23,280 Speaker 12: expectation of margins are better, and that's the reason why 501 00:23:23,359 --> 00:23:25,200 Speaker 12: we created a higher multiple than the rest of the world. 502 00:23:25,400 --> 00:23:26,560 Speaker 7: You've been traveling around a lot. 503 00:23:26,720 --> 00:23:27,719 Speaker 11: I don't know how you made it back. 504 00:23:27,760 --> 00:23:31,680 Speaker 6: Congratulations, But there is a sense that the dialogue is 505 00:23:31,720 --> 00:23:33,960 Speaker 6: completely shifted from earlier this year, where it was so 506 00:23:34,119 --> 00:23:37,680 Speaker 6: America go into Europe for the promise of growth, the 507 00:23:37,840 --> 00:23:42,680 Speaker 6: actual spending of Germany. That's flipped was what was the environment, like, 508 00:23:42,760 --> 00:23:43,800 Speaker 6: what was the sentiment. 509 00:23:43,600 --> 00:23:46,920 Speaker 12: Like, yeah, since I just came back from Europe, and 510 00:23:47,080 --> 00:23:50,359 Speaker 12: so there's a certain layer of frustration over there because 511 00:23:50,440 --> 00:23:52,960 Speaker 12: my trip earlier, I would say, in early March, there's 512 00:23:52,960 --> 00:23:56,520 Speaker 12: a lot of skepticism about us, about tech, about what 513 00:23:56,720 --> 00:23:59,719 Speaker 12: multiples you pay for it, about AI more broadly speaking, 514 00:24:00,320 --> 00:24:02,959 Speaker 12: and underlying that was the enthusiasm of what the fiscal 515 00:24:03,359 --> 00:24:08,159 Speaker 12: sort of spending expectation out of Germany for example. So 516 00:24:08,320 --> 00:24:11,520 Speaker 12: I think what many of them will realize is that 517 00:24:11,840 --> 00:24:13,800 Speaker 12: they were wrong. So they were right for about two months. 518 00:24:14,119 --> 00:24:17,160 Speaker 12: So there's a level of frustration on that. There's also 519 00:24:17,320 --> 00:24:19,480 Speaker 12: this fear of missing out, so the question of do 520 00:24:19,600 --> 00:24:22,680 Speaker 12: we jump in or not. So that's an overall question. 521 00:24:22,720 --> 00:24:24,720 Speaker 12: But if you look at a scale, like somebody was 522 00:24:24,760 --> 00:24:27,879 Speaker 12: pointing out to me, you know, germal fiscal spending in 523 00:24:28,000 --> 00:24:30,240 Speaker 12: Germany over the next ten years is going to be 524 00:24:30,359 --> 00:24:33,320 Speaker 12: in a few hundred billion dollars. We're talking about wanted 525 00:24:33,359 --> 00:24:36,480 Speaker 12: to have trillion in AI capex in the next few years. 526 00:24:37,160 --> 00:24:42,119 Speaker 12: So the scale of what's happening over here is simply astounding. 527 00:24:43,000 --> 00:24:46,600 Speaker 12: But I think some level of skepticism I sense in 528 00:24:46,720 --> 00:24:50,159 Speaker 12: terms of the return on investment in AI that is 529 00:24:50,280 --> 00:24:53,440 Speaker 12: I think reasonable because nobody knows, which is a fact, 530 00:24:53,960 --> 00:24:57,359 Speaker 12: as to what the true profitability will be. And that 531 00:24:57,520 --> 00:25:00,680 Speaker 12: is important not in itself, because the the scale of 532 00:25:00,760 --> 00:25:04,720 Speaker 12: spending is so massive that the market is effectively putting 533 00:25:04,720 --> 00:25:07,240 Speaker 12: one hundred percent probability that this is going to be 534 00:25:07,920 --> 00:25:12,360 Speaker 12: truly transformational, more so than the four other big tech 535 00:25:12,440 --> 00:25:15,400 Speaker 12: cycles we've had since the mid eighties, from the PCs 536 00:25:15,760 --> 00:25:18,720 Speaker 12: to internet to mobile in the middle of cloud, and 537 00:25:18,840 --> 00:25:22,800 Speaker 12: we have AI now that better play out because that's 538 00:25:22,840 --> 00:25:24,520 Speaker 12: what the market is telling you is going to happen. 539 00:25:24,800 --> 00:25:26,879 Speaker 2: That's why people are so skeptical. I just heard from 540 00:25:26,920 --> 00:25:29,440 Speaker 2: my Bloomberg subscribe it directly. I can share the message 541 00:25:29,640 --> 00:25:32,520 Speaker 2: with you. We know the enormous aion capital spend numbers, 542 00:25:32,560 --> 00:25:34,520 Speaker 2: but what we don't know is the return on that capital. 543 00:25:35,000 --> 00:25:37,160 Speaker 2: The market is discounting that the returns on the Aion 544 00:25:37,240 --> 00:25:40,880 Speaker 2: campex will be significantly superior to the tech company's legacy returns. 545 00:25:41,040 --> 00:25:43,160 Speaker 2: Is this really going to be the case? Is it durable? 546 00:25:43,640 --> 00:25:45,520 Speaker 2: Feels like a stretch? Do you hear a lot of 547 00:25:45,560 --> 00:25:47,000 Speaker 2: that kind of sentiment on the road. 548 00:25:47,040 --> 00:25:48,520 Speaker 12: Yeah, so I think I hear a lot of that, 549 00:25:48,680 --> 00:25:52,600 Speaker 12: And I think the frustration the difficulty is literally nobody, 550 00:25:52,800 --> 00:25:55,080 Speaker 12: even if you talk to tech experts, have an idea 551 00:25:55,640 --> 00:26:00,879 Speaker 12: about how to quantify the scale of productive improvement. The 552 00:26:00,960 --> 00:26:02,720 Speaker 12: other thing is, you know, still a lot of it 553 00:26:02,880 --> 00:26:06,159 Speaker 12: is coming from having a better cost pace right, in 554 00:26:06,200 --> 00:26:08,920 Speaker 12: other words, being able to do more with less. But 555 00:26:09,119 --> 00:26:11,040 Speaker 12: the real use case will also come in the top 556 00:26:11,080 --> 00:26:13,119 Speaker 12: line itself, which is where in the early stages. And 557 00:26:13,240 --> 00:26:17,800 Speaker 12: like I said, enterprise usage is still in the early stages. 558 00:26:18,200 --> 00:26:22,159 Speaker 12: So I think that skepticism is reasonably warranted. But what 559 00:26:22,280 --> 00:26:24,159 Speaker 12: I do point out, and I think we've discussed it 560 00:26:24,240 --> 00:26:26,240 Speaker 12: in the past, the big tech as a group who 561 00:26:26,280 --> 00:26:29,040 Speaker 12: are doing most of the spending, their multiples have generally 562 00:26:29,119 --> 00:26:32,119 Speaker 12: been easing over the last two to three years, so 563 00:26:32,800 --> 00:26:36,200 Speaker 12: they are earning into the multiples they're spending. But I 564 00:26:36,240 --> 00:26:38,359 Speaker 12: think the big question now is also shifted into the 565 00:26:38,440 --> 00:26:42,359 Speaker 12: funding landscape. So far, all the funding has come from 566 00:26:42,480 --> 00:26:45,560 Speaker 12: organic cash flows, and in fact the big tech companies 567 00:26:45,600 --> 00:26:48,919 Speaker 12: are spending fifty to fifty on buybacks and on capital spending. 568 00:26:49,359 --> 00:26:53,000 Speaker 12: But going forward, given the scale of spending increasing, their 569 00:26:53,040 --> 00:26:55,639 Speaker 12: credit markets are going to be tapped in varying to 570 00:26:55,720 --> 00:26:59,200 Speaker 12: varying extent public private asset back and things like that. 571 00:27:00,000 --> 00:27:00,800 Speaker 11: That's a question. 572 00:27:00,840 --> 00:27:01,960 Speaker 7: It's that goodnews toy stocks. 573 00:27:02,680 --> 00:27:03,639 Speaker 11: Well, you know, some. 574 00:27:03,760 --> 00:27:06,879 Speaker 12: Amount of bladdagh being used by companies is actually optimal, right, 575 00:27:06,960 --> 00:27:10,480 Speaker 12: so you're using a balance sheet efficient sly. But it 576 00:27:10,560 --> 00:27:14,560 Speaker 12: also means that the equity markets now have another source 577 00:27:14,600 --> 00:27:16,880 Speaker 12: to take a queue from in terms of how risk 578 00:27:17,040 --> 00:27:20,840 Speaker 12: is being priced right and where is risk clearing and 579 00:27:20,960 --> 00:27:23,720 Speaker 12: how does it compare to what we see the equity markets. 580 00:27:23,800 --> 00:27:26,160 Speaker 12: But if you look at the scale as of now, 581 00:27:26,520 --> 00:27:30,040 Speaker 12: we broadly estimate that in the tech area AI related 582 00:27:30,119 --> 00:27:32,320 Speaker 12: there's been about call it one hundred and sixty odd 583 00:27:32,480 --> 00:27:34,800 Speaker 12: billion which has been raised in public and private markets. 584 00:27:35,280 --> 00:27:37,760 Speaker 12: If you look at the marketcap of big tech companies, 585 00:27:37,800 --> 00:27:41,440 Speaker 12: I'm not even to include Oraclelendus it's touching twenty one trillion. 586 00:27:41,960 --> 00:27:46,120 Speaker 12: So I think the scale is very modest and many 587 00:27:46,160 --> 00:27:49,280 Speaker 12: of these spenders are highly profitable, but as. 588 00:27:49,200 --> 00:27:50,200 Speaker 11: The scale of spending. 589 00:27:50,240 --> 00:27:52,280 Speaker 12: So if you tell me that a trillion is going 590 00:27:52,320 --> 00:27:56,800 Speaker 12: to be funded in credit markets, that's slightly a different story, right, 591 00:27:57,280 --> 00:27:58,959 Speaker 12: And I think that's what people are asking. 592 00:28:00,160 --> 00:28:03,680 Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best 593 00:28:03,720 --> 00:28:07,000 Speaker 2: in markets, economics, and geopolitics. You can watch the show 594 00:28:07,080 --> 00:28:10,000 Speaker 2: live on Bloomberg TV weekday mornings from six am to 595 00:28:10,160 --> 00:28:13,880 Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify 596 00:28:14,080 --> 00:28:16,280 Speaker 2: or anywhere else you listen, and as always, on the 597 00:28:16,320 --> 00:28:18,720 Speaker 2: Bloomberg Terminal and the Bloomberg Business app.