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We've got Callie Cox. She's a US investment analyst at each Brow and she's joining us on zoom. Callie. Always great to have you on. Thanks so much for making time for us this afternoon. As Jess was kind of mentioning, uh, market optimism right now looking really good. Market is up today, tech earnings really strong. Is that optimism out there warranted in your view?
Yeah, I definitely think it is. And by the way, I am so jealous of whoever's going to the Beyonce concert.
It's Maddie.
CALLI fly up and come with me to Met Life tomorrow night.
Oh my gosh, give me, give me some give me some time and I'll book my flight. Great, so excited for that. But you know, I really think it does. I think the optimism is warranted because investors, the economy, and the FED all seem to be on the same page.
Now.
There's no fighting the FED at this moment. No, earnings are coming out better than expected once again. Economic data is turning back up, especially on the consumer side. It's really hard to find a bearish narrative in this market.
So seasonality looking at seag go in the terminal, you could pull up the heat map and look at historically how August September typically the worst months of the year. But we've also seen seasonality buck the trend, say like June swoon that didn't come to fruition, but July still was strong. But one of the big ones was just looking at the presidential cycle, the last three quarters were typically the strongest and that actually overlapped with what we've
seen with this rally. How do you view the stock market heading into this weaker period seasonally wise?
Yeah, so I'm glad you brought up seasonality because if I had to pick out two things that make me nervous, I'd probably say seasonality and sentiment, Because you're right, we're heading into weaker season of the year. You know, considering that we have a lot of people on vacation, volumes are lower. That can result in some error pockets of selling and you know buying. Quite honestly, if there's a headline that moves markets, and we saw that yesterday with
yield curve control. You know, arguably a headline that probably didn't mean much for the US investor, it does for foreign exchange markets. It has you know, certain effects on company earnings and individual stocks, but on the whole, you know, when you're in a low volume period, you can see markets swing around a lot more. I'm not sure if
that'll come to fruition this year. I mean, obviously we see a lot of momentum in the stock market right now, but at these levels, at this point, with rates so high, we are telling customers to, you know, consider a plan for if stocks fall. What would you do if we saw prices fall five or ten percent? Is it worth hedging, you know, is it worth making it making a plan
to maybe buy some more shares? So you know, we're aware of the fact that prices could drop, and this is a part of the year where you know, we do see those air pockets and storms pop up.
So then how are you advising clients to position or do you think that would be a buying opportunity if you do see the S and P five hundred pull back five ten percent.
Well, I will say we've been more optimistic than the average Wall Street firm out there. We've been saying since November or December that you know, it's really hard to see stocks sell off when investors are prepared for the worst. And I don't think you can say that right now. I think sentiment is a lot more positive than it was, you know, seven or eight months ago. But you know, at the same time, we're seeing a lot of positive
conditions swing in the bulls favor. So we think it's dangerous to let go of risk entirely in the first year of what looks like a bull market. I mean, the S and P five hundred rises an average of forty three percent in the first year of every bull market that we've seen since nineteen fifty. So we're telling our customers hold on to risk, but look at quality risk,
look at companies that you think can weather recession. And on the bond side or outside of stocks, you really think about what could help you if a recession were to materialize. I mean, bonds, especially longer term treasury bonds, have been one of those classic recession hedges, and you know, if we see prices fall, they could at the very least provide you a sanity hedge in terms of, you know, managing your emotions and what could be a tough sell off.
Do you think the Bears are going to get anything right this year?
Oh, that's such a charged question. I mean, I think they have gotten a few things right. I mean, have we not forgotten that in March and in April? I mean, we had a banking scare that resulted from tighter policy, and that's still happening in the background. Of course, lending has picked up, but overall, we're looking at tighter conditions, and I think I think the pessimists are right in that, you know, we should still be aware of, you know, the lags that we could see in tighter monetary policy.
So you know, it looks like we might be saved for the next month or two. But I'm certainly not
one to step out there and say everything's okay. And that's why you know, we're telling customers again to you know, maybe look at some bonds, maybe look at diversifying your portfolio, and you know, maybe think about one of those more complex views where everything's going great right now, but you know, maybe there could be some differentiation among sectors or potentially some weakness in the overall market.
What is sentiment telling us? When you have someone like Mike Wilson, obviously a well known bear on Wall Street, throwing in the towel this week saying that they were wrong but still holding a thirty nine hundred price target at the end of this year for the S and P five hundred, When does sentiment get a little bit too frothy for you?
Well, the mood is getting better, and I wouldn't describe it as frothy quite yet. I actually wrote a note this week on the you know phrase we all know irrational exuberance and why we might not be be seeing irrational exuberance right now, especially after you know such a such an encouraging FED meeting and more I mean more importantly and encouraging FED press conference. I'd say now that you know, sentiment of course is getting better and investors
have a right to feel better about the future. I think when it starts to get frothy is when we do start getting those conflicting signals. You know, data potentially weakening, seeing a lot of weakening and leading indicators. I mean, I'm looking at the job markets leading indicators right now, and you know, if we saw them weaken substantially in the weeks and months ahead, then I would probably raise
the red flag and say, hey, something's wrong here. But right now it's it's pretty incredible to me about how many data series are turning in the bulls favor. So you know, stay on watch. Anything can happen. But you know, the market's momentum is moving higher, and if you're feeling encouraged about the future, there is a reason why you should feel that way.
Yeah.
Well, that momentum clearly driven by the AI euphoria. And we had that note from Michael Harten at this morning saying that rates are still too low to pop what he calls the AI baby bubble. I wonder, Kelley, to what extent do you foresee the fundamentals justifying these valuations for some of the n video like names out there in the second half of the year, and we have just about forty five seconds left.
Sure.
Well, first of all, you can't call a bubble until you're past it. So that's the first thing I tell it anybody, if everybody asked me, if anybody asked me if AI is in a bubble. But I think we're already seeing some of those fundamentals come out. We're seeing companies like semiconductor companies raising their sales guidance. We're seeing
other companies invest in AI technology, you know. So I think we're seeing it play out, But we have to remember that AI is an emerging theme and it could take some time to really see that show up in the numbers. For now, I mean, it's anybody's guests, So I'm not surprised people are excited about it, But at the same time, I'm not ready to call it a bubble.
I feel like we have to get to a point where there's IPOs, where AI is probably attached to the name right, and we just aren't quite there yet. Do you feel that way, Kelly.
I don't know if that's where I would get work, But where I would get worried is if we didn't see AI flow into the economy and we didn't see it utilized by companies. We didn't see it commercialized, if you will, and I think that's a step that any groundbreaking technology needs to.
Make, right. That's gonna be the big question. Yeah, these companies can keep saying AI on their earnings calls, but how is Kroger going to monetize their AI usage there. Callie, thank you so much for joining us on this Friday. It's always a pleasure to get you on our coverage. That was Callie Cox. She's a US investment analyst at e Toro. She's also got great commentary on Twitter, so follow her over there for more.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the iHeartRadio app and the Bloomberg Business app, or watch us live on YouTube.
Better to come in and chat with us more about what's happening in the crypto space than Everett Milman, chief market analysts at Gainesville Coins, joining us on on zoom and to chat with us more about how this particular asset class has been performing. Thank you so much for joining us, and I want to get your take just
as far as sort of the wild ride. I know there's obviously so many coins when we are talking about the crypto space, but your view on Bitcoin right now and while it's trading once again below that psychological level of thirty thousand.
Right Thank you so much for having me on.
It has been interesting to see that although we know bitcoin has experienced incredible volatility over the course of its history, over the much of this summer, it has remained fairly steady,
kind of trading sideways around that thirty thousand level. And it raises an interesting question about whether or not bitcoin actually can function as money, because you have, on the one hand, the idea of a store of value that it needs to be steady and stable, But on the other hand, money is supposed to be used for spending, and in that sense, Bitcoin perhaps is better characterized as digital gold as purely a store of value, because as a medium of exchange it runs into this problem that
is known as Gresham's law. Basically that bad money drives out good money. Bad money money that depreciates in value, people are going to want to spend that as quickly as possible, to get their hands on real things with it before it becomes worthless.
Bitcoin.
If a price does simply keep going up, as a lot of the advocates and evangelists certainly hope, that's not very good as money. That is the opposite problem that people would simply hoard the bitcoin and never use it as money or spend it. So I think that that brings up this interesting philosophical question about sure. I think bitcoin has established itself as a unique asset class, perhaps less so for other cryptocurrencies. But then the question does become, well,
what is bitcoin? Is it money or is it simply kind of like a digital gold bar that you just put in the vault and keep.
In a wallet, the question that regulators are going to be tasked with answering. And having said that, we've got some regulatory news on the terminal crossing around three pm Eastern that Apple the Apple App Store rules face lawmaker scrutiny over crypto and NFTs. And this comes basically after complaints from the likes of Coinbase saying that Apple's in app purchase system doesn't support crypto, so they weren't able to comply with the Apple App Store rules even if
they had tried. And now those questions are going to be dealt with by regulators. But having said that, I'm curious what do you think about the role of big tech companies when it comes to regulatory questions for crypto. Does a company like Apple help you in your quest to get crypto regulation clarity or does it hurt that effort?
That is kind of a conundrum, right.
It really brings up this question that cryptocurrency itself gets at the heart at how much control do we want governments to have over this three new world of the future of digital money, Because whether it is a tech company, a private enterprise, or indeed the government with the CBDC issuing these digital currencies, that does inevitably seem to be the path forward in the future, and up to now, somewhat confusingly, we've seen the SEC and the CFTC essentially
attempt regulation purely by enforcement, and I think that what we're going to need in terms of clarity is actual legislation from Congress. So there are a few crypto bills that are currently being debated, one on stable coins and
another the Loomis Jilibrand bill that is being workshopped. I would be very interested to see what comes out on the other end of those two laws, if indeed they do become laws, because there has to be some level of clarity about not just what kind of influence we're going to allow tech companies to have in the crypto space, but what is the government's position on these things, And
I think it's been very unclear. That's really all that we can say at this point is that the government has not been able to establish a clear position, and rather than letting the executive branch and its agencies try and kind of grasp in the dark and change direction in midstream, it would be very helpful if Congress could come up with some sensible rules that go beyond simply, you know, punishing bad actors like FTX, and it actually
established some framework for how do we think of cryptocurrencies and bitcoin relative to regular money or other forms of payments and transactions.
And one of these biggest debates, especially in this crypto space, is what should and shouldn't count as a security in the eyes when it comes to US regulators. What's your view on that right?
And as you referenced, we recently had the Ripple case in court and I think we got sort of a mixed or ambiguous response that Ripple seems have been vindicated that it is not a security, but it really was only looking the court was very narrowly looking at one aspect of sort of the creation of the token, not the downstream distribution of Ripple. Tooken's XRP when it gets to the secondary market or to retail In my opinion, I think it's fairly clear that most cryptocurrencies, as they
are currently constructed, they are securities. They function like securities, they're traded on exchanges, but they are obviously not quite the same as other existing financial instruments. That being said, I think that is another one of these hot button issues that are at the center of the future of the crypto space that we need more clarity, we need sensible regulation in order for things to evolve and develop further than where they are right now, because everything is sort of in limbo.
Well it is sort of in limbo, and that makes me wonder whether there's kind of a credibility question, least a pr question for crypto.
This week, the.
Terminal Tracker when it comes to word counts show that the Barbie movie got more mentions on the terminal than Bitcoin did, and that feels like a bad indicator for you for the second half.
Of the year.
Ah, that's a fair point. Obviously, the public consciousness or.
Awareness of bitcoin as an investment has waxed and waned, and I think it's interesting to take into account that although cryptocurrency itself has inescapably become a bit of a political issue, we have multiple presidential candidates that are openly taking a stance. The most recent polling shows that actually the majority of the public is somewhat indifferent right now
to what happens with cryptocurrency and where policy goes. And obviously within the space there are still mean coins and this curious culture of I would say unseriousness that characterizes the broader crypto space. But as of right now, without the clear legal framework, I think that that is simply the cost of admission, so to speak, in order to engage with some of the more interesting and promising ideas that are coming out of crypto.
We only have about twenty seconds left. But what's the top question you hear from clients.
Is what do I do with my cryptocurrency? Where do I put it? And I think that there is sort of a knowledge gap when it comes to using the technology. How do you get crypto into cold storage? How do you spend it? Those really basic questions about how do you even use the technology. So it's a user experience.
Question definitely, and I feel like that's been going on for a while too. When it comes to blockchain, Well, thank you so much by going through breaking this down with us that's Everett Millman, chief market analysts at Gainesville Coin, speaking us about crypto all things and what's happening with bitcoin.
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Well, if you've got a great guest coming on to talk with us about all of the deal's news out there. Mitch Berlin is the vice chair of Strategy and Transactions at EY and he's joining us on Zoom from New Hope, Pennsylvania. Mitch, thanks so much for coming on with us on this Friday. As we were talking about it's been a tough environment to get deals done for the first half of the year, what would you say is going to be the single biggest catalyst to change that?
It has been a difficult year. Thanks for having me, by the way. I think that the biggest catalyst for
improving the Difficut lemonade market is predictability. Predictability in where the economy is going you know, you build these models to take your business case to the board, to do these deals based on a predictable economy, and if the economy is unstable, it's very hard to give board's confidence that those those predictable models that underlie your business case are actually going to come to realization.
When you're speaking with CEOs, what are they telling you about how they feel about the direction of the economy right now?
I think they're cautiously optimistic. They know that they need to actually do transactions if they want to transform, because M and A is the fastest path to transformation versus doing it organically. They're watching very closely. They're looking at the valuations out there. There's still a significant mismatch between the cost of capital evaluations, and one of those two things have to come down in addition to a predictable economy for M and A really to pick up again.
So what would have to be rectified between those two what would we need to see happen?
Well, you know, we do think that sometime in early twenty twenty four, hopefully the FED will will decrease the FED borrowing, right, so the cost of capital may come down, But if not, ultimately those that need to sell their businesses will have will have to become more realistic on what those businesses are worth, and we'll see a decrease
in evaluations. We already have seen a slight decrease in valuations, but not enough to trigger a strong m and a market like we had in twenty twenty one or twenty twenty.
So you mean, say the Federal Reserve does end up officially concluding sometime at the end of this year, but then keeps the terminal rate at a particular level. That's going to cost some issues there because they're not obviously cutting rates, they're still keeping them elevated, right.
But at least keeping them elevated is still predictable, right, so then other things can adjust up and down to accommodate that. It's when you never know where it's going to be three months from now that creates havoc.
Well, some of that havoc is happening with the Live Nation stock hitting it's fifty two week highs earlier today and then dropping as much as sixteen percent today. And I don't need you to talk about Live Nation specifically here, but I just think it's the perfect example of the challenge when it comes to M and A. Right now they have all this cash on hand because of all of this consumer spending on concert they were looking into some M and A. Now they get hit with this
DOJ suit. So in your recommendation, how should companies be thinking about the cost of benefit analysis of getting into M and A when we are in such a tough regulatory environment and it might just be more beneficial to say, I'm just going to keep this dry powder on the sidelines for.
A little bit.
I think we are.
But we have seen some successes against the FTC as well, you know where you know where they have where companies haven't gone up against FTC and actually one, so I would you know. I do think you have to, though, add additional time into your M and A timeline, particularly for large deals. I do think the M and A environment is only going to get more challenging. These new M and A guidelines are out for the first time
in thirteen years. The FTC has revised these times. These guidelines most likely will make M and A more difficult, It'll make it more expensive. But if you build in the timeline, you know, I do think you can manage it, and we have seen successful fights against some of the FTC lawsuits AI.
I have to get your thoughts on this because we constantly talk about this and how it impacts particular segments of the market. What are you seeing as far as how it's impacting M and A and are there particular sectors and industries that are maybe benefiting from that.
Yeah, Well, it's interesting because AAI is the number one topic for the CEOs that we speak with. Last year is supply chain, the circular economy. This year, it's all about AI, and it's proven out in the numbers. About a third of the deals in the last six months have been tech deals, a lot of which are related to AI. So the few sectors that are really heavy players in the M and A markets relates to AI or healthcare, so they're looking at AI to help with
medical research and diagnostics to make them more predictable. Financial services is using AI to make risk assessment, you know, to make more robust risk assessment decisions as they make their investment decisions. And then consumer and retails also heavily looking at AI to gauge consumer sentiment to better forecast inventory and demand management. Overall.
Mitch final forty five seconds here, which industry. Do you anticipate benefiting the most from M and A deals in the second half of twenty twenty three.
I think we're going to see a lot in Life sciences, and I think we're going to see a lot in consumer We've already seen their decrease. They continue to decline like every other sector a year over year, but they're declining at a smaller rate and the value of those deals are getting bigger. So we'll end up seeing more deals and bigger deals from those two sectors. Particularly life sciences.
You always have the patent cliss things coming off patent and the life sciences companies need to continue to build the R and D pipeline, and the best way to do that is through acquisitions.
Yeah, and we've seen a lot of movement in that space as well in the past couple of weeks, As Jess was mentioning, we are starting to see an uptick in these M and A deals, So definitely good sign for you and your colleagues there. Metch heading into the second half of this year. I really appreciate, really appreciate you joining us on this Friday afternoon. Thank you so much.
That was Mitch Berlin. He's the vice chair of Strategy and Transactions for EY America's joining us on Zoom from New Hope, Pennsylvania to talk about the M and A space.
I'm brother Marco, a journal How about you let me drive?
Oh no, no, no, no, honey, please, I'll do the driving gravel.
Let's mate, I want to try it. It's a good question time.
This is the drive to the Globe.
Dot com for me.
Think well, Brogn on Bloomberg Radio.
I'm really enjoying this Friday music. Jess beIN Madison Mills here the Bloomberg Interactive Brokers studio, filling in for Carol Masser and Tim Sedovik. So keep the girl power going with the rest of the afternoon. Matt, yeah, oh yeah. And it's been such a huge week. Obviously we've been talking about these wrapping up, these central bank meetings. Clearly the Federal Reserve obviously raising interest rates once again earlier this week. But the big thing this didn't come with
those economic projections and the dot plots. Those are quarterly, so we will get another read on that actually two months from now, on September twentieth. A lot of data in between now and then, but we want to break down just the view here as far as positioning, also the outlook for when it comes to central banks as well as the economy. So who better to do it with than Greg Halter, director of research at Carnaby Investment Council, who is joining us on zoom. Greg, thank you so
much for joining us on a Friday afternoon. I wanted to first just kind of get your take here of what FED Chair Jerome pal said on Wednesday, his view and then your outlook as far as the inflation data that we got this morning with the Employment Consts Index as well as the Fed's preferred gauge when it comes to the PCE.
INDI here, yes, first of all, thank you for having me a pleasure to join you. Relative to the feeder reserve and what was announced this week pretty much as expected, raising the FED funds rate to five and a quarter at to five and a half, which is by the way highest in twenty two years. This morning we did get the PCE, which is the FEDS preferred inflation measure three point zero percent overall four point one ex food and energy both down versus may in the lowest in
two years. So for the FED looking at data data data. Those are some good data points obviously one period, but the trend has been downward, so we think that is a positive overall for the markets.
Well, you are just the best guest for us to possibly have when it comes to FED moves because of your experience with the Federal Reserve Bank of Cleveland, Greg, So I'm hoping that you can give us some inside intel into what the thinking of these Federal Reserve people is because it feels like you can pick your poison when it comes to the data and what narrative you want. So I'm curious if you can kind of put it into baseball terms for me here what inning are we
in when it comes to the fight against inflation? Is the game almost over here? Or are we getting some pushback?
Interesting question and relative to my experience with the FED the Fed of Cleveland, I was actually a commissioned bank examiner. I did get to sit in Alan Greenspan's chair at the FED, but in terms of policy, I was not involved in that other than the standpoint of examining banks and bank holly companies, which obviously became a very important topic in March of this year. So from that standpoint, you know, where are we probably in the eighth inning.
That's really optimistic.
Greg well, although.
I will caution that by pointing out that commodities we're seeing some reflation currently. For instance, gasoline futures are up thirty percent since early May, diesel is up twenty five percent. Some metals have been rising, like lead, tin, nickel, zinc, iron ore, things we don't normally think about, but they're certainly used every day in manufacturing. So that's the question.
Where are we in terms of commodities which had been tamed and coming down, And as we know, the long tailed areas like wages and rents have continued to be sticky. So it is intriguing and you look at what's happened to at least the stock market, and the stock market really has not seemed to care what's happened with inflation,
interesting divergence. One thing I'd like to point out is that over the last three years we have seen things that have never and never say never, but never happened before, at least in many lifetimes. You know, the last pandemic was nineteen eighteen or so, no computers and no global trade.
So from the standpoint of trying to make decisions on things that have happened over the last three years, and then applying traditional economic forecasts and base cases, a lot of that has gone out the window, and I think that's really cost some issues for the economists out there when.
You're putting together research for not just the stock market but also the bond market. What do you think the diversence between the two is telling us about the direction of the economy.
Probably Number one is, don't discount the consumer. It's been amazing. It's seventy percent of our economy two thirds basically, and the consumer somehow, some way continues to amaze on the upside in terms of being resilient. That's about all I can say. It's it is quite amazing, especially considering that we've had the highest pace of increases in interest rates in forty years, and yet here we are. You know, we hear the economic dire, the gloom, yet there's been
no recession, at least technically. And you know, where I am in Cleveland, there's plenty of manufacturing business going on, new buildings being constructed. Home prices and home building are kind of through the roof, still bidding wars, so there's lots of divergences here, so to try and apply anything that is traditional in today's day and age is interesting to say the.
You mentioned some of the construction and manufacturing work that you're seeing. I'm curious when you think about Bidenomics in the US bringing chip production stateside. Are you concerned at all about the impact Bidenomics could have when it comes to the inflation picture and stimulating the economy while the FED is trying so hard to fight inflation. And we've got about forty five seconds left for you.
Sure, another great question. I think it's a good thing to bring manufacturing back. We've got Intel down south of US one hundred and twenty miles in the Columbus area putting up a big facility. You know, the question is can they find workers? Can they find qualified workers? That remains to be seen. But the spillover effects of these types of things are huge, from not just the plant, but the workers. They have to eat, they have to shop. It's just a huge multiplier impact.
Great, well, it's been such a pleasure speaking with you and being able to get insight on all things FED and especially this interesting take what's been happening in particular corners of the commodity market and what that could mean with a tricky dynamic here for the FED, even though obviously we're seeing some bright spots here in green shoots when it comes to some of this latest batch of inflation data. So that's Greg Halter, director of Research at Carnavy Investment Council.
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