Bloomberg Audio Studios, podcasts, radio news. This is Bloomberg Business Wait inside from the reporters and editors who bring you America's most trusted business magazine, plus global business, finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebek from Bloomberg Radio.
We're going to stay with Nvidia. Charlie setting us up really well. It is down about three days in a row, not about it is down three days in a row. That is confirmed, done, and it's a drop of about twelve percent, so putting it past that ten percent threshold that represents a correction on track to wipe out about four hundred billion dollars, pushing its market cap below three trillion dollars. I was thinking about our weekend last week,
how we said largest market cap, most valuable company. Then it went back, So it was kind of that back and forth, if you will.
Okay, but for context here, it still is up one hundred and forty four percent so far this year of stock in the s and P five hundred at shares trading for roughly twenty three times the companies projected sales over the next twelve months.
Carol right, but as our team writes Tim, there's a problem with the evaluation in the age of the AI boom. No one can really figure out what the chip makers revenues are actually going to be. Not the Wall Street analysts covering Nvidia or Nvidia execs themselves again our Bloomberg team reporting that out. So how our investors supposed to calculate whether or not the shares are expensive or not.
So here to help us tackle that question and really get once again to the fundamental story that is Nvidia is Bloomberg Inte Intelligence Senior Semiconductor analyst Cujohn Sabani. He is with us from San Francisco. Cujonkundon, It's good to have you here.
We do talk with you a.
Lot about Nvidia and the fundamental story. Remind us of that and how you see it fundamentally, what is Nvidia and the outlook for this company?
And I want to bring back to sort of the numbers, right like, whenever we are deviating, whether it's a hype or not, look at the numbers. Going back to sort of end of twenty twenty two, early twenty twenty three, when chad GPD really came alive in the world. If you look at Nvidia's numbers, right it had about per quarter revenue of about seven billion, approximately ten cents of earnings.
This is when the first time they started to see their data center revenue from which is all the AI really jump fast forward to right now, most recent the revenues have increased ford x EPs has increased about seven seven and a half x, and as of today, the market cap from that point, which was five hundred billion sort of six x. So if you look at the numbers there is really it was really a fundamental driven story.
So that at least should help sort of clarify some of these high versus reality and fundamentals, whether it justifies or not.
Okay, well, speaking of justification, a lot of people talk about the idea of Nvidia having this nobody else is doing what it's able to do when it comes to building the hardware that all these companies need to train their AI models on. Kun John, So, I'm wondering about when you think about projecting revenues from a Bloomberg intelligence analyst perspective here, how are you projecting revenues out over the next few quarters, over the next few years. How are you thinking about.
That yeah, I mean similar to most Seals head handlers. We have also struggled to get to the right number every quarter for them, and they keep on beating in raising. There's a few factors. Year one, as you must have heard this so many times, they continue to remain supply constraints, so that's difficult for us to know right like how much supply will come up and how much they can execute. And second, we keep looking at the spending pattern of
their largest customers. I mean, look in twenty twenty four, their largest hyper scale and cloud customers have already publicly announced that they are going to increase their CAPEX by forty percent year over year. And now there's even more than that. There's the Tier two cloud providers, the AI cloud providers, and enterprise spending coming on. So we try to keep a close eye to see if there is any signs of demand slowing, which we don't see at this point.
What's the replacement cycle for chips for nvideo, like how long do they last? How long will they upgrade? You know, and video talks about kind of the upgrade cycle being pretty quick one. So I'm just curious. I'm curious. So these companies that are the big spenders and that are building it out. Are they going to have to replace their N video chips? I don't know, every six months, twelve months, two years, I don't know.
Yeah, that would be a good answer. When if you are in a normalized cycle for any chip like you are in CPUs or for handsets. The challenge right now is every all of the customers are just rushing to get most powerful chips they can get their hands on and continue building. So we have to wait and reach a digestion phase where they sort of reach a normalized spending period and they start thinking about, Okay, now I'm
going to refresh my older AI chips. So right now, I think the replacement cycle is really short, even if you want to call it a replacement cycle. And as they come out with the newer black Well chips, their newer Gray Shopper, you know, two hundred ceries, customers are just picking them up and trying to put in as fust as possible. Because the the biggest gating factor right now
in upgrading these AI serversus power. So every new chip brings a lot more TCO, a lot more power per performance efficiencies.
John, we can't let you go without asking you about potential competition here in the space. It's something we ask Ian King a lot about who else out there is doing something at least on the development side that could get close to in video. What's your perspective there, I.
Mean on the merchants silicon it's the only other name viable contender there is AMD, which we've talked about multiple times. Again, they are also sub but look, the system software more than in media has even with a good GPU solution,
it's very hard to beat that. On the other end, there's the competition from the A six providers like the broadcoms not competing directly with in Nvidia's GPU right now, but I think in the long term it is going to eat into the wallet share and the dollars spend that its customers would be spending on in Vidia GPUs versus.
All right, Kunjhon, I know you don't recommend stocks and so on and so forth, but this three day route that we've seen that has wiped off about ten percent more than ten percent off and Vidia. It's in your view, not because the fundamental story is coming undone. Maybe it's, you know, for who knows what reason, but it's not because fundamentally and Vidia is falling apart.
Definitely not. We don't see any fundamental flags right now, especially over the last week.
All right, well, said Bloomberg Intelligence Senior semi conductor Alice kun John Sabani joining us from San Francisco.
Well, from the Nvidia narrative to one about the US rate environment, and to another. One of the most read stories on the Bloomberg today. It's about how, just as optimism is growing among investors that are rallying, US treasuries is about to take off, one key indicator in the bond market is flashing a worrying sign for anyone thinking about piling in.
Yep, let's get into it with Bloomberg News Economics editor Molly Smith in studio, also with us as Bloomberg Intelligence Chief US Interest rates strategist Ira Jersey. IRA's out there at BI headquarters in Princeton, New Jersey. I feel like I keep thinking of lost in space, warning, warning, warning, and if you're too young to understand, google it. All right, treasuries,
I know what you're talking about. No, no, no, no, I'm just kidding, all right, So treasuries are the customer raising their losses for the year guys, signs finally emerging that inflation the labor market are both truly cooling. All right, let me start with you. Trader's betting that may be enough for the Fed to start cutting your test rates as soon as September. Is that what we're seeing right now.
Well, that is what the market's pricing.
I actually suspect that the Fed will wind up waiting until sometime after the election to start its cutting cycle. But that's certainly why you've seen this rally. It's not because of supply, right. We actually get quite a lot of supply the next couple of days.
But the.
Fundamentals will still matter to the risk appetite for treasury securities. They're still the most liquid, safest asset in the world. So when you have people who think that the economy is going to be going to be slipping and people, you know, want to just find a safe haven, they're still going to find treasuries.
Okay, So let's talk a little bit about this idea that's raised in this article by our own Liz McCormick. The growing view that markets and that the economy is so called neutral rate, the theoretical level of borrowing costs that neither stimulates nor slows growth. Is actually much higher than policymakers are currently projecting, the idea that we are going to be high for longer or high for forever. Ara, what are you seeing when it comes to that front.
Yeah, this has been something that people in the market have been talking about for years, you know, basically since twenty twenty two and the inflation scare. It's you know, if the neutral rate used to be, say one percent, it's probably meaningfully higher than that today because we have, you know, significant shifts in the fundamentals of the economy. Not to mention the fact that we do have additional you know, pressures on trade flows and the like.
You no longer have the.
Globalization keep it to keep prices low for certain items. So the general consensus among almost every market participant is that it is higher than what it was for the last decade.
The question is how high, right, is.
It a two and a half percent more or less where the Fed thinks, or is it more like three and a half percent.
There are a lot of people who believe that that's the case.
Now, I actually think my view is that it is closer to two and a half percent than it is to three and a half or four.
But you know the.
Fact that a large part of the market and many market participants think that it might be somewhat higher. Maybe the FED can only cut interest rates by one hundred and fifty or two hundred basis points to get to neutral, will you know, will matter? And that is in a lot of people's market narratives.
Molly, come on in.
Yeah, I mean there are definitely Fed officials too, for what it's worth, who will say that the longer term neutral rate or what we call an economic circle our star. If you want to get a little wonky with the jargon, there is that they will even say themselves that they probably think that rate is higher than one it used
to be. But I mean, Ira just want to clarify this with you too, that our star is not necessarily the terminal rate here, right, I mean, those could be two different numbers of where the FED cuts to in this cycle versus the longer neutral rate over time.
Yeah, that's that's right, Molly.
So if you think about where no one really knows where our star is, right, it does. You can't know at x ante because the fact is that the economy moves. There's a lot of moot changes that will happen over the next two three five years for determining you.
Know, where is the is our star?
So you know, if let's say that our star is three percent right, just as a number, then presumably in a weak economic scenario, the Fed Reserve will cut to below that number in order to try to stimulate the economy.
But again, no one really knows exactly where our star is.
Our store in the nineteen eighties was much different than our store in the nineteen sixties or nineteen fifties, and that we can empirically know because we have economic evidence of where both short.
Term interistrates were and long term interistrates.
The other thing that I think is missed by a lot of these discussions about our star is that the financial system and the way that we fund is meaningfully different now than it even was ten years ago or even twenty years ago. No one funds, no corporation funds, was short term debt anymore. This doesn't happen, right, so
is our star where the FED funds rate. That's going to have a much different effect on a corporate business and capex and I like today than it did twenty five years ago when twenty five or thirty percent of industrial debt was short term debt that was going to be affected almost immediately by what the FED did.
It's a really good.
Point just to build on that a bit.
I believe it was Adrianna Kugler, a FED governor who was speaking last week or she was kind of alluding to this as well in saying that, you know, our star is not what dictates monetary policy. It like to Iver's point, you know, like this is just like I want to say, like imaginative, but it's really just more of like a concept, like in theory rather than in practice.
And like what's more useful for policy makers is how to understand how restrictive policy is right now in the short term, rather than estimating the neutral rate of interest in the long term.
Well to that, I mean, the FED has aggressively raised rates in the last year. We know that right before stopping the growth. US growth has not fallen off a cliff. US jobs market. I know there's a little bit of a debate out there, but it still seems tight, which makes one wonder, molly if the FED policy is not restrictive enough right now and suggests that the neutral rate needs to be higher.
And then you also have the camp though, who's arguing that monetary policy acts with long and variable legs.
Well, just to throw that out there, but we all want to know.
But no, that's exactly it, though, right, And that's exactly why, like you are, you're also wondering too, just like of the efficacy of policy in general, and like the transmission method, and like, do we have an economy that's just structurally more resistant to higher interest rates now than we did
in past tightening cycle? That's also a possibility. And you look at like the percentage of homesit that are mortgage free, and you know, people who maybe are not relying as much on credit cards, and like these ways that would actually like affect consumers more directly, and it's clearly not showing up in more clear signs of stress in those parts of the economy.
I wrote, let me just what happened to the neutral rate during the vulgar era?
Well, so the neutral rate was probably much higher, right, was probably more like six or seven percent. But part of that was that there was much structurally higher inflation. And to one of Molly's points, you know the the you know how those long and variable lags of monetary policy are going to affect things.
Goes back to what I was saying.
Earlier about who has the debt, what sectors are doing well. If you look at inflation today, inflation right now is driven almost one hundred percent by services, which is two factors, right, It's housing services and then non housing services, right, But the non housing service part of the economy is not affected by debt. Most people don't borrow money to start services businesses or to expand services businesses.
They use cash on hand.
So the thing is is that you're not going to see a significant slowdown now. It's much different than the nineteen seventies or nineteen eighties when companies were levering themselves and borrowed a lot of money in order to invest in their businesses and expand that's just not the case today.
So the fact is is that we've shifted a significant amount of the way that the economy functions, where interest rates are more at least in my opinion, are much more of a sentiment kind of indicator as opposed to having real effects on the economy, just because of the structural shifts and how we do business today versus previous generations.
Okay, so on this, Molly, I'm curious about the reads we get later this week when it comes to the Fed's preferred gauge of underlying inflation. What's expected here and how could this sort of change the outlook?
Yeah, so it's probably going to be another favorable inflation print. I think most economists are penciling in just a one tenth increase in the core PCEE inflation gauge. So that would be I think the smallest since November and pretty consistent with what we saw from the CPI and PPI reports a couple of weeks ago. So I mean, look, I think like it's I know, we talked about this last time too. I still find it just amazing how quickly the narrative has changed in terms of how we're
thinking about inflation here. That we had like the three horrible prints at the beginning of the year, we had one month that came in as expected, and now one month it's better than expected, and all of a sudden, inflation has resumed its downward trend. I'm not saying I necessarily disagree with that, but it's just amazing how we have just we have really just kind of gone back to being fully optimistic that inflation is pretty much going down again.
Yeah, it's pretty fascinating something we've talked about. Listen, both of you, thank you so much, really setting the right tone in terms of this week and what we are focusing on. Bloomberg News Economics editor Molly Smith and Bloomberg Intelligence Chief US interest rates strategist Ira Jersey.
We're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five pm. Easter Listen on Apple card Play and then brout Auto with a Bloomberg business act or wants us live on YouTube.
Well, jeff yass not a household name, a libertarian, a billionaire, a Wall Street veteran, obsessive poker player, big investor in the parent of TikTok as well, Tim, Yeah.
We're talking about the company called byte Dance. He's a former never trumper who's recently become an okay, fine, might as well be trumper, So writes Bloomberg's Anie Masa in a story that is among our most read on the Bloomberg Terminal. It is today's big take on the Bloomberg Terminal and at Bloomberg dot Com slash big take. Annie
Masa is Bloomberg News wealth reporter. She joins us here in the studio jeff yass okay, so he oversees Susquehanna International as you right, it's a trading from burrow deep in the machinery of modern finance.
He's a poker player.
He wrote about options for his thesis in college. Why are we talking about him right now?
Though?
The reason, and he's in the news so much recently, is he's a huge political donor.
There are two things. He's a huge political donor.
He kind of soared to the top of the list of biggest individual donors for much of this year in the twenty twenty four election cycle. And then the second thing is that he is a major investor in an app that most of us have heard of, TikTok or the byte Edance, which might be familiar to a lot of listeners. So for those two reasons, he this kind of stealthy, you know, veil of secrecy that he's spent his entire career enjoying has been blown up in the past year.
What's more important his political aspect or the TikTok or is just that it's both of those things combined.
They're a bit wrapped together.
So he is a major libertarian, and one of the things that I wrote about in the story is his kind of conversion when he was younger to like libertarian as and how at various points in his life he called on Milton Friedman personally for advice and has kind of built his.
Whole career and reputation that way.
So he's always been a big donor to libertarian causes. But as far as politics go, and as far as TikTok and Trump go, this perfect storm happened in the past year where he came on people's radars for having been such an investor in TikTok, and then this flip flop that Trump did in terms of tick in terms of TikTok and banning TikTok also kind of pinged people's radars, like why is.
He doing this? We'll have the two had a conversation, that's right.
So there was this moment where they had a conversation at a big Club for Growth event in not at mar Lago.
It was at the Breaker's hotel. The other.
Maybe more of stately yeah cousin, but you know, ten minutes away and so this conversation happened, and you know, Jeff Yass's camp says that they did not discuss TikTok. But subsequently Trump, you know, has come out in favor of keeping TikTok on the phones of all Americans, And subsequently Jeff has come out and said he will not donate money to Trump directly, but he supports him in the twenty twenty four election.
A big flip flop for the former president who during his administration tried to get TikTok to divest its American assets back in twenty twenty. We'll get to more of that, but I want to talk about your reporting process for this anny. Who did you speak to, who did you not speak to, and talk a little bit about how you reported out this piece.
Sure, without going through the entire list of names, it was a long line of the people I spoke to.
I did kind of try and get into.
People who've worked at Susquehanna or worked there, you know, friends of Jeff's. He has now gathered so much attention that there are activist groups that are organizing local campaigns in Pennsylvania where they're showing up and you know, protesting outside the office or events, So I talked to those people.
So I just tried to canvass locally in Pennsylvania because he is the richest man in Pennsylvania and donates a lot to politics at the local level as well as well as the Wall Street component.
Does he when he donates to politics is at both sides of the aisle?
No, it's it's really too conservative causes. He will donate in some cases, but his most major spending is for republic.
I think what's interesting about this story, and you write this, a billionaire flip flopping for Donald Trump is nothing new, right, We are increasingly seeing that as we get closer to the November election. So no judge, but why single out Jeff? Yeah, yes, And what did you want to know in all these conversations that you had that you really painted redible picture of this guy from kind of being a little kid to where he is now.
Yeah, I wanted to know.
Basically, My unifying question was this is this is someone who focuses a lot at a professional level on decision making, which might sound a little bit basic, but he kind of built this whole company, as you said earlier, on poker and decision and rational decision making and poker. So I was trying to really suss out.
Okay, so if this.
Is the moment in which he's you know, going publicly on record and saying that he supports Trump over Biden, it for you know, these purposes. This year, I was trying to get inside his head as much as I could without talking to him about why he's making that decision now. And so he's he like the bet he's making, the bet he's making, Yeah, the bet he's making exactly and what matters to him. So of course TikTok matters
a great deal to him. You know, he's worth forty seven billion dollars, but about a third of that comes from this stake, this early stake that his company took in TikTok. So that's a piece of it, but there
are other dimensions to it. He's a huge supporter of this kind of controversial program of school vouchers, So we get into that quite a bit in the story, and that is something that's very much in line with Trump's former Education secretary of Batsy Davos is a major supporter of school of voucher programs.
One thing that I really liked about this story was the history of Susquehanna and how the firm came to be. And you write in the piece Anny that it's even though it's a financial firm and a lot of financial it's you know, essentially considered part of the financial elite. This is not something that's on Wall Street. This is not you know, a guy who has homes right outside of New York City and commutes into New York City. This is this is Pennsylvania that we're talking about here.
Talk a little bit about the location of the firm and who he's had in his inner circle, what they've gone and done since they joined the firm and left the firm, and sort of what you learned there.
Yeah, so Susquehanna is based in a kind of unusual place for a big Wall Street firm. It's based in Balakinwood, Pennsylvania, which is a suburb of Philadelphia. And the reason that they were in Philadelphia to begin with, he got started trading options. Options are what kind of built the foundation of this entire company in Philly.
But as I write this story, you know, he.
Not a huge fan of taxes, so he's always optimizing for tax purposes, and by moving from the like, it's pretty clear that is something that's how people describe him.
Libertarian doesn't necessarily love taxes.
I mean the Club for Growth, right, this group that he supports, did you say it's an anti tax political advocacy group right, and.
Rationally, Yeah, I could accurately be described as an anti tax.
Some would say he really hates texts. Yeah, I mean all sorts of all sorts of people would tell you that. I'm sure Jeff would tell you that too.
But anyway, so he moved the company from Philadelphia to balakan Wood. Even that marginal little move, you know, saved money, you know, was savings on taxes. So you're tucked away absolutely, absolutely absolutely, but like you're tucked away outside of the kind of fray of Wall Street.
And they started with options.
But they've expanded to all sorts of different stuff anything you can think of, really, stocks, bonds.
Crypto swift.
Yeah, they like event contracts, yeah, all of this, and lottery, insurance kind of policies, all sorts of those things. So so that is something particular to the firm. And they have this culture where they train you using poker techniques and playing poker in Texas.
Hold on this is fascinating, right when he hires someone, right, they actually are playing.
This, yeah, because they want to see how you make decisions. How do you go about deciding what you know when you're playing a hand whether to bet, check or fold. And it actually doesn't matter as much do you win or lose that hand because luck can factor in, But did you make the right decision based.
On the probabilities?
And you know the players around the table, and they want to know how you made those decisions. So yeah, and so to your question, a lot of proprietary trading firms that are now kind of giants on Wall Street. The people who run those firms are often from Susquehanna.
Like a Jane Street for example.
Jane Street is the perfect example.
Yeah, but people want to know these people who are kind of protesting against them. They want the public at large want to like kind of say who he is, right, They want to get it out.
They just get about thirty seconds left here, though.
They want people to know his name more, and they are trying to work to combat his what they consider outsize influence in their state, right.
Which is like you know, we talk about follow the money with everything and anything, not alone, right, in terms of big political donors. Exactly incredible story, so much detail, another incredible piece of reporting. Annie, Thank you so much. Anie Masa, she's well reporter at Bloomberg News. As we said, this is among our most read stories on the Bloomberg
terminal as we speak. It's also the Bloomberg Big Take, which you can find on the Bloomberg Terminal at Bloomberg dot com slash Big Take, so definitely check it out.
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Eleven thirty June is Pride Month, and all this month Bloomberg Business Week is featuring of voices on topics related to equality. You right, remember, just a couple of weeks ago, we spoke to Sarah Kate Ellis. She's the CEO and president over at GLAD. Catch that conversation in our weekend podcast.
By the way, according to GLAD a study they did last last year, seventy percent of non LGBTQ people agree that companies should publicly support and include the lgbt community through practices like hiring, advertising, and sponsorship.
It was a great conversation, I feel like an eye opening and some statistics she shared with us in terms of acceptance, which is still an issue. She's been doing that, Sara Kate Ellis it is for ten years, and yes, progress, but there's a lot more to go when it comes to acceptance more generally.
Yeah, no question, companies, for their part, have gotten more outspoken in support of LGBTQ employees. Yet according to EY, a majority of these companies, or of these employees at these companies, they still feel that sharing parts of their identity at work could hold them back.
So for more we're joined by Karen Torinight. She is Global vice Chair of Diversity, Equity and Inclusiveness at EY, and she's joining Tim and me from New York. Karen, great to have you here with us. You know, talk to us a little bit about what you are hearing from companies when it comes to how members of the LGBTQ community feel within those companies. I'm curious to about EY and your own experiences. What you guys are seeing when it comes to this sure absolutely.
First off, thank you very much for having me, and thank you for highlighting this important topic.
I would say there's a few things happening.
One, you know, employees of all dimensions are actually, you know, feeling greater pressures than they ever have, whether it be wars, economic pressures, xenophobia, increase, political pressures, a whole host of.
Things all around the world. And we're certainly seeing that.
And I look at it as though employees are taking and carrying an extra backpack with them to work each day. And I would say our studies recently showed that not only are our lgbt Q plus employees carrying a backpack, but perhaps even a heavier backpack with them to work each day.
And at EY and.
I believe at other companies too, you know, we feel a piece of our job is to help lighten that back pack a bit. And it is particularly concerning because while employees rate workplaces as the second place most likely to belong, second only to home, but more so than their communities and their places of worship, et cetera.
You know, work is always not always a work. Workplace is not always a walk in the park.
For LGBTQ plus employees, and to your point, three quarters of them in a recent study that we did around the world show that there really are what I would call cautiously transparent, and they're not likely to necessarily share their identity at work because they feel that it will in fact hold them back and explain.
So, how do you explain that and sort of share the differences that you find in the research for how non LGBTQ employees feel about sharing those own personal details at work. What's what's sort of the benchmark here?
Well, I think I think, look, you know, we do.
We do see from our studies that you know, all employees are hesitant to share political affiliation, they're hesitant to share religion at work. They can also be hesitant to share other personal aspects.
So that is quite clear.
But it feels like from our studies that there's greater barriers and our LGBTQ plus folks feel like they are less likely to be sponsored, as an example, and they tend to feel that they're over mentored, meaning that they aren't endorsed for equitable assignments, or for visibility or for opportunities similar to their non LGBTQ plus counterparts.
Karen, a wise person always says to me, but are they right? Like, in other words, is it a feeling or are they really not getting those juicy opportunities? Like I am just curious. Right, there's a feeling and then there's the reality. And it seems to me that the reality is is that they're not getting those opportunities. What do we know on that front?
Well, I think there's a few things.
Not all LGBTQ plus employees are out at work, so it isn't necessarily something that you can measure as easily as you can, for example, gender identity, which people tend.
To be a bit more forthcoming about.
So that that's one piece, So you don't actually have all the data.
The other pieces, I think you have to be able to explain.
Do you have the policies, are you making for a respectful and safe workplace for everyone?
Do you offer role models?
And I'll give you an example, because it is an important piece for people to not only have affinity with peers and other colleagues and allies, but it's also really important.
We've heard the old adage you can't be what you can't see, you know, you know, I would say speak for EHY that you know, we're no stranger to having diverse leadership, and it's really important for us to have out LGBTQ plus leadership and we do at the country levels on our management committees, on our boards, on our senior clients serving capacity, and that really really makes a difference so that people can see, yes, you can advance,
you can advance to the highest levels within an organization. And I think that's particularly important, especially when people are seeing the workplaces around them actually retracting in some capacity or feels like they're retracting.
So how would you advise companies, because at the end of the day, that's what EI does. EI advises companies. They have a roster of clients. You tell them best practices when it comes to certainly to all aspects of business. How do you advise companies to shift at work given what you found in your research.
Yeah, I think there's a few things. Ton at the top is critical, meaning you have to have ironclad support for your commitment in this area. And that doesn't mean
you have to do everything perfect because none of us do. However, you have to be authentic and not just during pride months, which can vary around the world, meaning twelve months out of the year that you have consistent commitment and tone at the top accountability holding yourselves responsible for that also pretty un sexy things, Carolyn tim Lake policies, you know, but that showed employees that regardless of where you work, like at EUY, we will offer you a safe and
respectful environment and that is our commitment. The other thing that you can do, which tends to be a little harder, is making sure that your systems are equitable, and that your pay equity systems are equitable, your promotion systems.
And then the last thing that many companies you know.
I see around the world that do a nice job of this is offer affinity groups and those you know, those are not a LGBTQ plus strategy, but they're a huge enhancement. For example, we have them in seventy seven countries and we have you know, thousands of employees that belong to these networks, and that offers people not only role models, but it offers them the ability to share and have voice and have voice to leadership, so that it goes in two ways, not just with.
Each other but up through management.
And we've found that to be really, really helpful in guiding our level of authenticity in this place, in showing our support.
And I you know, always one of the things that comes up, whether it's affinity groups or just groups overall, Like what you want is everybody to be a part of the whole, right, and you want to be careful about not dividing everything up and keeping people, yes, into a group where they feel supported, but you want to make sure that that group then is you know, certainly
a part of the bigger, broader organization. So is there an understanding of that, because sometimes I think companies will set up a group or something and then it's like, okay, done, we did it. Like you, we're helping out a group, right, the importance is making sure that they're a part of the whole.
Yes, absolutely, And you don't want to be an isolated group. So there could be some benefits of course to having you know, a similar topic and a similar concern or things that you're working through. Absolutely, but you need allies in that, regardless of the demographic group.
But to your point, you also need to you know, you're not You're not.
This is not about fixing lgbt Q plus employees. This is about fixing environments and making sure that environments are as equitable as possible. So another example that you could consider to do is inclusive leadership behavior types of training which doesn't focus on people's beliefs necessarily focuses on how they behave in a workplace and how they could be a most inclusive colleague and team member uh to to
all of their employees. And we found that that that's been very beneficial to us in inclusion overall and belonging overall for everyone.
All Right, gott to leave it there, hey, Karen, thank you so much. Karen tour Night, she's global vice chair of Diversity, Equity and Inclusiveness over at EY joining us on this Monday in New York.
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Time, This is good drive to the globe. Do well by Ja Don on Bloomberg Radio.
All right, everybody, just about eighteen minutes to go until we wrap up the trade on this Monday. Our Alexandra Semanova writing the U Stock Market pouncing from one all time high to the next, but below the surface. She says, a uh waning share of stocks is participating in the
advanced spelling potential troublehead for equity. So tim, she writes, bifurcation between the S and P five hundred performance and breath has reached one of the worst levels in three decades, according to Bloomberg Intelligence data, the only two times since nineteen ninety five it's been as extreme as now came before drawdowns for US stocks. O. Great, something to think about it.
That's really good introduction. Introductory remarks, I should say for our next guest. Emily Roller was co chief investment strategist at John Hancock Investment Management. And that's because Emily, you say that, hey, it's been a good run. That's the good news. The bad news is likely to start to mean that bad news for markets soon. So it's not going to be like, you know, bad news is good news. It's like bad news is actually going to be bad news.
What is the evidence for the shift that you write about?
Yeah, so thanks for having me this afternoon. So we are seeing the labor market shift. You know, you look at some of the data that's come out as of late, you know, initial claims rising over the last couple of weeks certainly isn't great news. We're finding that it's harder to get a new job after you lose one. Job. Switching is not resulting in wage gains the way that it has previously. So we're watching closely for this next jobs report to see signs that that picture may deteriorate more.
We're also seeing inflation slowing right now. That's a great thing because we have to remember that inflation was awesome for corporate profits, especially for companies with a lot of pricing power that could pass that along. It actually resulted in record revenue growth. But that inflation impulse is fading now and we're seeing it in things like used car prices falling. We're seeing retailers actually start to make cuts. There's a few articles on Bloomberg today talking about fast
food chains actually starting to cut prices here. Even so we're seeing at the high end, we're seeing it at the low end, you know. Of course, housing is that last piece of the inflation picture that's really critical here. Housing is a huge component of CPI, and even though we're starting to see some cracks in the housing market, things like housing sentiment we saw last week are slowing building permits, new housing starts slowing. House prices are still up.
They're up six percent nearly on a year over year basis, which is pretty remarkable and shows the resilience of the housing market. So we need to see that inflation data come down on the shelter front in order to see the FED start to cut. But remember when inflation's slowing, that also means growth is slowing, margins are compressing, and corporate earnings are going to come down. So a long way of saying that this bad news ultimately is not going to be great for corporate profits.
Right, we also have FED Bank of San Francisco President Mary Daly. She's warning the US labor market is nearing an inflection point where further slowing could mean higher employment. That's our news story right on the Bloomberg. At the same time, Tim and I talked at the beginning of our broadcast about our Liz McCormick story about how long can high rates last? Bond markets say maybe forever, So I do wonder about what that means for the investment environment.
So tie it all together. First of all, real quickly recession or no recession then or earnings recession or no recession. What are you expecting.
We do see that a contraction ultimately unfolding, just the way it always has. We think there'll be some type of liquidity event or financial accident in the face of a higher cost of capital, which happens every time some sort of over levered or lower quality player will get exposed.
We'll have a contraction. Or maybe it's simply the unemployment rate rising, is margins compressed due to that higher cost of capital and slower revenue growth, And by the way, that means it's a great environment to pick up the income that's available in high quality bond. You just nailed it when you talked about the fact that bonds just haven't really sniffed this out yet. They haven't sniffed out lower growth and lower inflation, and bonyards are still up
on the year. Remember we started the year with the ten year treasury yield sitting at three eighty eight. We're right around four twenty four right now, So we've seen this backup in bon yields. That to us is creating a really attractive entry point. If you see inflation slowing, if you see growth slowing, Now maybe it doesn't move into straight line, but you can get paid to wait. High quality bonds are offering five to six percent income, and that is close to the highest levels they've been
over the past twenty years. So bonds are miths priced to us in an environment where we do eventually see a contraction unfolding.
What do you see the tenure doing in the next few months.
Yeah, I mean we think it made. It'll chop up around before it eventually falls if there is some type of oh great question. So you know, on average, if you look at the past few bed cutting cycles, the ten year treasury yield falls on average about two and a half percent from peak to trough. So that is a big drop. Say we peaked, you know, right around five percent. That brings us down to a two or three handle on the ten year treasure yield once we
get through the economic contraction. So if you're a big fan of bond math, that is a really attractive return from a duration standpoint, and then you get to add the income back in. So I think you could potentially even see double digit returns across areas like the ten year treasury yield in that contraction environment.
So are you saying, really what investors need to be thinking right now is much more fixed income exposure at this point and not equity exposure.
We still like equity exposure of Carol, And it's a very unpopular story to be talking about fixed income because it's certainly hasn't worked as well as just owning that one big stock and kind of letting it ride. I do still think there's opportunities in equities. The challenge is the starting point. So stocks are trading it elevated multiples.
If you look at the US tech sector, it's trading at thirty one times forward earnings right now, and that is the highest since we were coming down from the tech bubble in the late nineteen nineties. Now there's an old saying that valuations are not a catalyst. There probably needs to be some shift in the macro regime. We need to see earnings across technology companies falter and frankly they haven't. And the tech sectors got the best earnings across all S and P five hundred sectors. So the
fundamental case for owning tech stocks is there. It's just the valuations are looking awfully egregious to us. So we want to own them, but we want to diversify by looking at places like US mid cap stocks, which are trading at the deepest discount to their large cap counterparts in the late nineteen nineties. They benefit from an overweight to high quality industrial. So there's other areas to be in equity, but we like bonds to do some more heavy lifting and portfolio and we just want.
To end with an equity. In the last thirty seconds, shares of en Video down six percent, more than twelve percent over the last three days. Four hundred billion dollars in market cap just gone poof. How are you watching it?
Yeah, I can't remember a time when one stock ever meant this much to the market. It's so remarkable. I mean it was it's up one hundred and fifty percent. You're to day two hundred percent over the one year period. So I think it's certainly makes sense to expect some type of pullback in this name, but it's it's incredibly you know, it's it's amazing how important this one name
has been to the broad market. Again, it's a high quality stock, great balance sheet, lots of cash, but the multiple is pretty extended.
Ye.
Mirrors are Kunjan Sabani at Bloomberg Intelligence, who basically said It's a fundamentally driven story. Whether you look at revenues, EPs or market cap, you know it really, at least from his perspective, makes an awful lot of sense. Emily Hey, Thank you so much. Emily Roll and co. Chief Investment Strategies at John Hancock Investment Management, joining us in Boston.
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