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Let's broaden out a little bit and let's get into maybe investors have they been reacting since we got that FED decision and what we are seeing with investment flows and what's going on in terms of activity.
For that, we turned to Stephanie gild, chief investment officer over at Robinhood Markets. You joined us here in the Bloomberg Business Week Studio. Stephanie, I wanted to start with what's happening on the Robinhood platform because you certainly have a certain segment of the investing population.
What are you seeing on Robinhood right now?
We're seeing still not buying, but it's it's been more muted, i'd say, than it was before, and it's been in some of the things that have been going down or had like Netflix, for example, You've also seen where there's been sales, it's been more in the AI oriented names. So I've kind of shared this before, but our customers tend to hold corepositions and trade around them, meaning they buy when they go down and sell when they go up.
But we're seeing a little bit differently where there seem to be like being more subjective about what they're investing in. And that's why I say, like it was kind of interesting to see in video being sold and you know, things that are kind of under.
Pressure, so selling as rather than selling as they have gone up a lot and taking some profits, they're selling as they're going down.
Yeah, but they probably have embedded profits because they will them all year. So I think that's like kind of giving up a little bit on the AI trade for now.
Well, like I totally get it.
Like you know, Tim and I were talking about Oracle, like it is still up almost fourteen percent year to date, but we've seen a more than forty percent decline from.
Some of them when it hit a record back in in September.
Excuse me, so, I mean, are there how much can you dig deeper into.
The data in terms of what you're seeing?
Is it mag seven names that people are getting out of Is it all tech?
Is it just AI related? Like what are you just say?
I related that I've seen, and then some of the like core we you know those kind of names are like.
Cloud, Yeah, exactly.
You've also seen some buying in just broad based ETFs and some t bill oriented ones that like kind of make me feel like diversification, you know, kind of parking things rather than trying to pick.
So less playing the market and more like long term diversified index funds I think for.
Now, Like for now, usually we see that activity when there's a big dip, like they go into ETFs first and then they play the differences and names.
How are they playing this? Uh?
I don't want to call it a crypto winter yet, but we're down another three percent on bitcoin, hovering around ninety thousand dollars per bitcoin right now.
How's that played out?
Of the last couple of weeks in the stocks, I've seen actually some buying and like the micro strategy names, but on the crypto side, have actually seen more selling than buying.
Interesting.
Yeah, So instead of actually holding the patterns that you're seeing, instead of actually holding the cryptocurrency, people are instead putting money into the proxies or the hoarders.
Yeah there, I mean, if you can make that relationship. I kind of look at two different dashboards and crypto versus, but I did think it was interesting to see buying into the the equity related.
Yeah, because certainly strategy has had its own set of of challenges. Okay, so let's bo back out a little bit big macro picture right now. We haven't had a chance to speak to you in a few weeks, and given what we heard from Jay Powell, we just heard from Mike McKee about different views of the economy coming from different people, where do you sit.
I think the economy's okay, actually, like I think when you're this is totally anecdotal, but at my feeling is that like New York City is busy, travel is lot, like I actually think the consumers generally okay. That being said, the lower end consumer is still not doing well, and I don't think they've been doing well for a while.
So I actually and I.
Do think things got overvalued market wise, So I do, and I also think that the FED is caught between a rock and a hard place because you do have this explosive growth growth in the AI trade growth and credit markets, and so they have to kind of worry about that being overblown and that creating increased inflation. Obviously we don't know what's going to happen with terrorists, but that's creating an issue for them too. Then you do
have the lower end consumer that is still struggling. So it makes me think of like Europe post two thousand and eight, when they had to worry about like Spain versus Germany. And so that's why I think there's so much of a debate within the FED. And you know, Powell did say, like, don't even look at the data that's going to come out next week.
Do you agree with him?
Who doesn't yet?
I yes, I'm like, and I don't. I worry about the quality of it too. Like in general, I.
Want to ask you about I'm looking you know, we're almost at the end of the year, so we can look at the S and P five hundred, the major industry groups and see what really did well or didn't do. I mean, communications services names thirty one percent, higher information tech twenty three percent. So even though I mean the mag seven, even if we start to see you know, pullbacks on some of these names or the AI trade
still outperforming. Industrials up almost twenty percent, financials up thirteen percent. I'm looking at the S and P Composite Pharmaceuticals Index. It's up of almost twenty one percent. Now, yeah, yeah, finally exactly. So I'm just curious, what else can you you dig deeper in a year where we've talked so much about AI, We've talked about rare earths, we have seen some you know m and a activity going on.
What is it that you have also.
Seen that are interesting and you can get an idea of what investors are interested in what they are not interesting?
Have been kind of starting I've been bottom fishing, like we've been, yeah, sort of store. I sorted like the Russell one thousand into you know, top and bottom players, and it just felt like there was a rotation that started on October twenty ninth, which was when we had that like six percent pullback, and a lot of those names, like of the top one hundred, the ones that are up the most one hundred most this year, forty one of them are in a negative return since October twenty ninth.
So I've been We've been kind of looking around, being like where is there still growth? And I actually think like the other thing we've been doing this year is investing with in alignment to fiscal policy because we do think like what the Trump administration is doing is important to understand, and I think the consumer is going to be more important for them this year or coming into
the next year, I should say. And so we've been looking more in like the retail space of players that are interesting and so.
So retailers, tailor and brand names.
In retail, like on holding Lululemon, like they're down, you know, they're down double digits this year or maybe not, maybe not on after the yes yearly so yes, there is down fifty percent, it's up ten percent or so today, And so we just think like there is value to be found there while we wait to see what happens in the tech world.
But on a Lulu for example, there seems doesn't a lot of that depend on who the next CEO of the company is, and they don't even know who that's going to be.
There is execution risks there now for thee with obviously the change in the CEO, but I think it also it lost some shine on its brand, and I think they have done a lot to try to turn that around, and you've seen that in gap this year, which is also like, I think they're further into that journey, but I think it actually creates an opportunity.
Yeah, perhaps been doing really well of late.
Yeah, it's now up about eleven percent year to date. But your point is right that if the consumer feels better and is out there spending, if we get more juice in terms of the way of stimulus, you know, whether you believe it's the right strategy or not, if there's more money in the pocket of consumers.
Trying not to invest.
In my heart, I know, I know, I know, I know it's going to go somewhere, and so there are names that will certainly benefit. Great staff love digging deep into your platform. Stephanie Gilch, chief investment office at robin Hood Markets, Joining us right here on Bloomberg Business Week Daily.
Stay with us.
More from Bloomberg Business Week Daily coming up after this.
You're listening to the Bloomberg Business Weekdaily Podcast. Catch us live weekday afternoons from two to five pm Eastern Listen on Apple CarPlay and the Android Auto with the Bloomberg Business app, or watch us live on YouTube.
All right, let's get to a stock we've been talking about. We're talking about Lululemon. Stock is the number one gainer in both the S and P five hundred Nasdaq one hundred, up just shy of twelve percent. Even so, the stock is still down forty five percent year to date. We did see the stock rally after the company boosted its full year outlook and announced him that it's CEO would step down.
The company searching for a replacement for Calvin McDonald. Do will depart the top post at the end of January. Putamgyle is Bloomberg Intelligence Senior analyst, free Commerce anath Leisure. She joins us from New Jersey. So, first of all, were you as surprised by the market as the market was by this move?
You know, I kind of expected a move similar to this because Little Lemon has just not been performing well, right, So when you have instances in retail where there's just no point of understanding how they're going to turn this business around, when it takes a longer time, there is usually some sort of management change. So this was in
my mind a little overdue. And it'll be interesting to see on who fills these shoes, because I think that's key to the turnaround in the vision that they put forward.
So on that, who do you think, like, what are some names that are being banded about the analyst community right now?
You know, names I don't know about, but we do know that we want to product lead. I would like to see a product led leader because at the end of the day, retail is about product and Lula Lemon needs to bring its product back in play ahead of competition and really where consumers feel like they're getting something that they can't get anywhere else.
You know, it's interesting.
First of all, you go to the dees page of Lululemon and under management.
There's no no names there right now, which I don't know. Is there something wrong with my screen or I don't know?
You think, point, how often is it that we see a CEO exited.
Ye out a plan for a new one? Yeah, exactly, a big deal yesterday.
So that's a good point put him.
You say, it's long overdue, and so like, why isn't it that they internally or the board didn't say this ain't working because he's been there for a few years now, So why why did it take them so long? Or did they not give him enough time to figure it out. Calvin MacDonald we're talking about.
Well, he's been with Little Lemon for seven years, I think since twenty eighteen, right, so he's had a bairent amount of time there when he came on board. The excitement once you know all about the personal care remember us talking about it. Where will they enter this business that has seventy eighty percent margins and it would be so great? And I'd say during the pandemic, things were working great, right for not just them, for anyone who had active war. That is how people dressed. That was
the movement. It was to be healthy, it was to be out, It was to work out and really lounge at home while you're working. So what happened post pandemic? And that's really where we kind of think about what did the leadership do to stay ahead of trends? And I think as we exited the pandemic, we didn't see as much innovation as we would have liked, because you saw competitors like Alo, like Vori and others really come in with competitive product, sometimes at similar price points and
took mind share and wallet share of the shopper. So that just brought us to question, do we need vision from a leader that has the product background to really drive a product ledterc And keep in mind, over the last few years, Lululeman has had several leaders leave the company, so there has been turnover.
You know, it's interesting you go back to Yeah, I forgot about that when.
He came in.
His background, I mean, he had been president CEO of Sephora USA for five years, right, So the expectation.
Was Sears I think before that run and.
Sears before that.
But the Sephora thing I find interesting because people kind of love that model. I mean, was the hope right that they was he was going to bring actual products right, like whether and which do have incredibly high margins, whether it's I don't know, is it skincare? Like what was it that he they thought he was going to bring in?
So do you remember like the dry powder? You know, we all go work out and your hair is kind of sweaty, and you're like, I'd love to gift shape them powder and go with. So they added dry powder. They try to deoder. And the thing is with Sephora, you're not looking for performance in all your product. When you moved to an active airline, you need to solve for performance, and that's not easily done. In fact, I don't even know if there's a product today out there
that actually works to solve real performance issues. I think it's still a hole in the market.
It's called anyone take a shower? I mean to be honest, like, yeah, there's no I don't go work out and then like go out to dinner.
Yeah, and like, you know something for shoes. I don't know.
I don't know.
Well, I don't know if you're doing yoga you're in bare feet.
Yeah, that's a good point, you know.
Can I just say, like I was thinking about the pair of yoga pants I wear all the time.
It's Outdoor Voices.
I bought them. Has that company has had its own share of iterations.
Years ago though, And it was because my daughter wanted something and I'm like, these.
Are really cool.
But it was innovative because they had these side pockets and I use them for traveling. I can throw my cell phone in and so and so. So it's not been Lulu that I have picked up something.
Well put them Come on in on the idea of brand value here, because Chip Wilson is a name we haven't mentioned in a few minutes he's the founder of Lululemon. He's outspoken. Everybody remembers what happened when he was CEO of the company. He's out with a state. He's got
like a pr agency. He says, quote, the erosion of premium brand value in the company's core markets demonstrates that the board does not understand its target customers anymore or what will drive shareholder value at Lululemon over the long term. He blasted them in this statement earlier this morning. Is that view widely held by analysts.
I think you can blame anyone right about now because lul Lemon hasn't been able to perform as it did historically. But that said, you have to remember that the landscape has very quickly changed because everyone has access to consumers, everyone has access to intelligence and data and technology, and you're leveling the playing field. Lulu Lemon's brand still has
great brand equity. Don't get me wrong. It's still a very well known and preferred brand, and its sales are very strong internationally, especially China where many can't even get in and get it right. So I do give them credit for their international growth. I give them credit for men, I give them credit for digital. It's just when it comes to women, they just haven't had the innovation. I really think it's a product missed up. They need more innovation.
They need a constant flow of new products that excite and delight the customer, and they haven't been able to do that. Well. I agree with you.
I've walked it in out of there, and I really do like the quality of their their stuff. I think there is something to be said for that. But I agree with you, Punam. I walk in and I'm like, kind of seen it all before, or I've got it already at home, and so I need something else. Chip Wilson just real quickly thirty seconds. Does he have much sway? I was just looking at the HDS function on the Bloomberg.
Does he still only.
Calls himself the top independent active shareholder?
He calls himself that today.
I don't have the numbers in front of me, but he definitely is among the top, and I would say he does have, you know, some push, especially when a company isn't doing well right, so you have to think about the dynamics that play here. Little Lemon isn't performing while their results domestically are not anywhere where we would like to see them and they're not going to meet
their twenty twenty six targets based on our analysis. So at this point, I think when you have a founder who really established this company, right, who really brought into it through, he does.
Have a say all right, Punham, thank you, thank you, have a great weekend, Punam Goyle. She's Bloomberg Intelligence Senior analyst for e Commerce and eth Leisure. Been following this company, as you can tell, knows it inside and out for many years.
This is the Bloomberg Business Week Daily podcast. Listen live each weekday starting at two pm Eastern on applecar Play and the Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa played Bloomberg eleven thirty.
Well a defense system that could defend the US from the nuclear missile arsenals of Russia, China, and North Korea. It's the so called Golden Dome and iunce just days into President Trump's second administration. The president has said the project will cost about one hundred and seventy five billion dollars and it'll be completed by the end of his term. In twenty twenty nine, but defense experts say those targets
are unrealistic. Bloomberg analysis on the final price tag could reach many multiples of that, And Carol, the tech not even confirmed that could actually work.
You know, I think what I find fascinating reminds me of like President Reagan and is Star Wars.
We talked about in like grade school as not working.
Right exactly, although you kind of understood where he's going, but this certainly feels like and is more of a reality.
Well, it's a Bloomberg big take and just a fantastic read. Joining us now is Santa Paschenker, Bloomberg News space reporter. Also, Wayne Sanders joins us. He's Bloomberg News Bloomberg Intelligence Senior Defense chanalyst. Santa joins us from Washington, DC. Wayne joins us from Maryland. First, Sana, I want to start with you, Carol said, the whole concept reminds her of Star Wars
during the Reagan administration. But explain exactly how the Golden Dome would work, the satellites, the missiles, what would happen?
Yeah, totally.
So the Golden Dome is intended to be a multi
layered defense missile defense shield. So the way it would work is like, in the case of an attack from an adversary like Russia, North Korea, or China, a nuclear missile would first encounter a space based layer of defense, which would include space space missile interceptors, and that technology doesn't yet exist, but those are intended, those which were outlined in President Trump's executive Order as a requirement of the Golden Dome would attempt to counter the missile at
the very first stage, which is in space, and then if they make it past that space based layer of defense, there would be other layers of defense, including the high atmosphere and even on the ground like using Patriot and bad batteries to intercept different types of missiles that could be launched from adversaries.
So it's really like, go ahead, Sorry I interrupted you.
Oh, I was just gonna say. It's really like there's a net on every single level that is hoping to engage those missiles and destroy them.
Okay, we're going to cool.
We're gonna get to the astronomical price tag in just a minute with this, and also the how realistic a solution such as this is. But first I want to bring in Wayne Sanders. He's Bloomberg Intelligence senior defense analyst. He joins us from Maryland, Wayne as Santa and the team right in the piece. Up to now, the strategy to prevent annihilation of the United States has really depended on deterrence, this idea of mutually assured destruction and nuclear deterrence.
Why why do we need to make a change there?
Well, I think the first really important piece is there is a lot that actually goes on within within missile defense, ballistic missile defense within the United States that we already have. And one of the biggest you know, precursors to Gold and Dome was really looking out and saying we have a lot of capability that is not interoperable. We have
capabilities like Lockheed's AG's defense for the Navy. We've got ballistic missile defense of Guam, and we have the FAD batteries that that Saana brings up as well as well as Patriot and Factory interceptors. We have a lot of capability, but what we don't have is the ability to see all of those, to include the sensor layer that she
brings up as well. We have tracking layers from ground as well as in the air as well as in space and so long range determined discrimination radars, next generation overhead persistent you know.
All these different things.
But what they don't do is all talk to the senior military leaders at the same time and say, I can see a launch coming from country X, it's going to take x amount of time to get to get to the US or to one of our allies. You know, you can shoot a hypersonic missile from mainland China and reach South Korea and Japan in six to eleven minutes. You can reach Australia in fifteen minutes. That's that is a very very quick turnaround in terms of trying to
make a decision. And if you're only picking it up based off of one commander who has happens to be in a submarine or a surface vessel that sees this, they've got to get that to the National Command, the National Military command authority to make those decisions a lot faster.
Yeah, I think about, you know, weighing all of the layers of this, and yes, there's missiles, and you know, I go back to my college days and we were talking about ICBMs and you know, deterrence, and you know
how that kind of changed warfare. But but what I guess what I'm curious about, you know, throwing drones into this and this is a whole other kind of lower level I just think about what's needed to protect ourselves against that, The cost, the implications, how does that even just kind of complicate or add to the cost of all of this.
Well, absolutely, you know the layered defense that Sona brings up absolutely hundred percent. You have exo atmospheric you think about those ICBM threats, You think about things that are going to go into space and come back down.
We have to be able to reach those.
But you also then have the drone swarm fight that is also out there right So part of the Pentagons Replicator one point zero and Replicator two point zero initiative is being able to counter drones and then be able to add to our own arsenal. So when you look at a billion plus dollars for drone development and counter uas for the twenty twenty six NDAA, a lot of that in the Golden Dome piece is really looking at
high powered microwaves. It's looking at high energy laser technologies and companies that are out there right now building these things. So they can counter that threat, so that the strategic level capabilities, the expensive pack freeze right, four to six million dollars to fire those patriot at the PAC three interceptors. You don't want to do that against the thirty thousand
dollars drone. So being able to put all these pieces together and make sure that you can identify the capability and shoot it down with the right thing.
So how to come back in on this? All I can think about is the price tag.
You know, I've been I've been to countries like Costa Rica where I think they spend nothing on military and what they can do in terms of education and healthcare and just different things. Yeah, it's just so talk to us about the cost because I think what was it back in October.
Seventy five billion? Is is what the President said the project would cost?
Right, go ahead, No, But what I was going to say is that we already have a budget deficit that's topping and logging a one point eight trillion dollar mark. What would something like like Tim put out a number? What the president thinks? What did you guys find out? And can we afford to do this?
Sound like my husband? Can we afford to do this?
Yeah, totally. So when we kind of estimated how much it would cost to defend against an all out attack from the combined nuclear arsenals of Russia, China, and North Korea.
So think worst case scenario, the defense systems that we would need to really successfully counter that would cost about one point one trillion dollars, so way more than what Trump is claiming as one hundred and seventy five billion, if you're adhering to the requirements that he's outlining in the Executive Order, which is that you know, this golden
dome will protect against any foreign aerial attack. And then but you know, a golden dome that protects a little bit less could be built more cheaply, even though that's not maybe exactly what he said in the Executive Order. So we also calculated the cost of one that a golden dome that could protect against an all out attack from just one adversary like Russia, and we found that that even that was still eight hundred and forty four billion dollars.
And you know a.
Lot of these costs are just from procuring the systems, and a lot of them don't even exist yet. Like I mentioned, space based interceptors, is something that President Trump specifically states in the Executive Order needs to be part of this Golden Dome, and that technology doesn't even exist yet, so you would need a lot of you know, research and development money as well, and we didn't even include
that in our analysis. So you know, it's I think it's pretty well known that that that's a potentially underestimate of what this would actually cost if it is built to what he's stating in the Executive Order.
Then how do you get that number, SAWNA up to one point one trillion dollars this maximum risk scenario estimate? What does that calculate?
Yeah, So what we did is we kind of so the nuclear arsenal of Russia, North Korean and China, those numbers of what missiles they have have been published by the Defense Intelligence Agency. So what we did was we did analysis to kind of find out how many defense systems we would need to really protect against all of
these missiles coming at the United States at once. And you know, we did that using a combination of Pentagon documents, prototype contracts, think tank estimates, and so we kind of compiled all these costs of all the defense systems as well as the quantity of the defense systems needed to come up with this final number of one point one trillion.
All right, So, Wayne, we live in a world where we talk a lot about AI and you know tech spend, and you know you've got to do upgrades on things like this. Isn't a case of we build this dome and set it and forget it right or help me out here.
Are we going to.
Constantly having to be doing kind of upgrades, improvements and so on.
No, they're definitely going to require that.
I think a lot of the AI integrators that you're already seeing right even with one of the Golden Dome pieces early on was Palentteer with SpaceX and saying, hey, we want to be able to play in this space as well. During the bidding portion for Golden Dome, you're going to end up having to do that. So a lot of this also includes, like cybersecurity, making sure that you have the open system architecture necessary to be able to provide the upgrades. But like Saana said too, is
you also have to build the scalability. You're still going to come down to industrials. You have to build the satellites capable of doing this. You have to build the radars and the sensors to be able to meet that, and then you have to get to the interceptor's point to be able to do that. Right, you and I we've had this conversation before. If you even take just the pack three interceptors, right, they're using the Patriot system locked.
You know, they were at five hundred and fifty per year that they build and then you're they're up to seven fifty that they're hoping for twenty twenty six, twenty seven. They're adding additional lines, so they're doing a great job of actually being able to reach some of the demand.
But those are for ground based Patriot systems.
If you're now all of a sudden trying to add in, I need to create an interceptor capability space based interceptor that's going to be in orbit, that's going to go on these satellites. You've got to build to that capacity as well, and then add on to all of that piece, Right, is that AI integration.
Every time that there is something new that.
China RuSHA does, we have to be able to make sure that we can defend that in the cybersecurity arena for the satellite platform.
Themselves, Wayne, we got to run, but just yes or no? Does this happen by the end of President Trump's term?
No?
Phase one can happen where interoperability all their stuff can happen space based noe.
All right, if the ballroom was going to get done, No, that's an easier it's not in space.
Saana Pashankar and of course our Wayne Sanders, thank you so much.
Incredible story.
Stay with us more from Bloomberg Business Week Daily coming up after this.
You're listening to the Bloomberg Business Weekdaily podcast. Catch us live weekday afternoons from two to five pm Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app, or watch us live on YouTube.
You know today's an IPO day, is it? Yeah?
Wealth Front started trading. That's the robo advisor fintech company.
Yeah.
I think UBS was supposed to buy it a few years ago. It's now trading just up about three point three percent value though, at a two point one billion dollars.
Wow, how can its debut today?
I didn't see that, did it.
What's it doing?
It's up three point two percent? Oh interesting, Yeah you could.
It's not too late to add to one of your Gainers maybe do an honorable mention it.
I am so overwhelmed with Gainers today.
Christy.
You well, he's not a robo advisor. He's a real person we're talking about. Andrew Cries, chief investment officer at Crescent Grove Advisors. The firm has about five billion dollars in assets under management. Andrew joins us from Milwaukee this afternoon. Andrew, good to have you on the program. Last time you
were here with us in the studio. A lot has happened since then, and I'm you know, a lot of questions I think too, as we just heard from Jordan and from Charlie about where we are or are not when it comes to AI spend and an AI bubble.
How are you looking at that in the context of the trade.
Yeah, everybody wants to know where this AI theme is going. And also great to be with you. So I think from our perspective, the risk going forward is that the so much is in the price at this point, right, You've got such a sort of perfect outlook that's being priced into these companies at this point. In a particular, take a company like Oracle, where you're seeing more debt funding come into play as opposed to you know, some of the other MAG seven members that are largely funding,
they're spending out of free cash flow. You know, you introduce sort of a unique element to that specific stock. But ultimately, you know, people are saying, can they deliver on the promise the productivity gains, the you know, the ultimately the earnings, the return on invested capital, all this money that's being sunk into this theme, can we see that produce something of value? And if not, then I think these valuations are probably a little bit hard to justify.
So it's it's data point by data points, sort of case by case is you as you look at it. But that's certainly top of mind as you move into twenty twenty six.
When clients come to you and I know it's long term, and they it's about you know.
They say, I want to go back in time when I want you to put all my money in Vidia ten years ago?
No no, no, no, no, no, yeah, yeah, exactly right, or by Bitcoin ten years ago?
Where do they want to put money?
And I understand everybody's got their own individual goals and a lot of it's about you.
Know, maintaining wealth, not only growing it.
But so I'm just curious, what is it that they ask you most about when it comes to different trends, narratives, investment plays.
I think right now, what we've heard a lot from clients is just this uncomfortable sense about this rally. You know, since libration day kind of off the April lows that it just feels uncomfortable for some reason. You get a lot of talk about all time highs and do we pull back with our equity allocations, and certainly we're not opposed to taking some chips off the table and in particular thinking about where do we rotate to find relative
value across markets? And you know, I think one of the big themes is we look out in the next year and talk about with inequities in particular that have done so well so the growthy side of equities, these megacap tech names, you know, taking chips off the table there, which would be the first order effects of AI and the theme that we're talking about here with you know, the this outsized performance that we've seen from the mag seven and related names. Think about what's the next play,
what's the second order the third order effect here? Yeah, I was just gonna say from that perspective. We think it's the diffusion of AI through the economy into more of these legacy kind of old economy type names. So you know, that's something that we're positing to clients. Is okay, we appreciate the fact that there's this sort of momentum play in markets, and you're a little bit skittish about
levels here in valuations. Let's think about, you know, areas where we can rotate into things that offer better value right now in markets while maintaining some of your exposure.
In aggregate like healthcare or what yeah.
I think healthcare industrials, you know, sort of these manufacturing segments of the economy. Again, just this these old line areas of the economy, even business services, more traditional businesses like that. And we look at it only from the public market side of things, but the private market side of things. So we spend a lot of time looking at you know, private equity or certainly venture capital growth equity.
But if you think about private equity in the way that they can touch these traditional businesses, small medium sized businesses apply some AI in a thoughtful, novel way and drive real productivity gains. And if you can find a manager that can do that in a really systematic fashion and has some sort of edge in terms of the way that they're deploying that throughout their portfolio. We think that's a really interesting compliment to what you're seeing on the public market side as well.
Well, let's go back to public markets and just think about geographies for a second. Where do you think this happens in terms of AI spilling out into the non AI companies over the next couple of years. Does it happen in the US or do investors would investors be good to look outside of the US?
Yeah, I think it happens globally.
And this weaves into another theme that we're seeing and expecting to continue to play out, which is really deglobalization, but reregionalization, I suppose, is the way we would frame that in the sense that Europe gets more europe centric in the way that it thinks about maybe even its own AI technology, you know, and sort of the sovereignty
around its AI capabilities. But we think AI will be a universal technology that gets deployed across the world in different capacities, and then that really ties back into this relative value theme as well. Right where you're looking at markets xus that are trading at much more reasonable valuation starting points, but continue to have a pretty good catalyst in terms of you know, fiscal spending picking up defense spending, certainly within Europe as a sort of poster child there.
You've got loose fiscal policy in Japan.
You've got China which looks set to continue to be providing stimulus to its markets. So you've seen this positive revision in earnings expectations if you look at the EFA, if you look at emerging markets indices. We think that then is kind of the relative value rotation theme for us where you come out of you know, some of these megacap tech names that have done so well, look at other areas of the market that are poised to sort of accelerate their earnings growth into twenty twenty six.
Biggest risk the new year just quickly just got about thirty seconds.
Yeah, it's inflation to us.
If inflation stays stubbornly high, and we're already seeing you know, the ten year today's taking back up towards four point two percent. But if you see inflation expectations really rerating to the upside, you see that ten year move back towards five percent. We think that's that's the big concern. Then all of the knock on effects that come alongside sort of longer duration securities repricing as a function of
elevated inflation expectations. So that's what we're watching really really closely in the next year.
Andrew cry thanks so much for joining us chief investment officer at Crescent Grove Advisors. Hopefully next time we see you back here in New York.
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