Bloomberg Surveillance: Tech Earnings and the Middle East

This is the Bloomberg Surveillance Podcast. I'm Tom Keene along with Paul Sweeney. Join us each day for insight from the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten am Eastern from our global

Oh?

No, I had the very best helping me get it up. So I'm very excited. So some consulting, it's all all legit.

Now it's beautiful. So it's simple, beautiful and it really puts forward her intellectual input. This triple pandemic stimulus. I'm going to put it in three waves. Are we through it? And is it going? Like you and Shapiro wrote about years ago, into our paychecks? Is a stimulus why we're having a roaring twenties throughout this cycle.

I have been a fierce advocate for the stimulus checks, particularly with the Rescue plan, and that came from research the paper you cited. This is pure reviewed, well cited. Looking at does it matter how we get money to people stimulus checks or like what Obama did, little dribs and drabs and text credits. You know, both makes sense. But when we really want to get it cranking, give people money, give it in a good slug, let them get spending this, get the jobs back. And for a

Yeah, we saw a GDP print that just kind of came in a week or so ago, well above expectations at three point three percent.

Here.

If I'm the Fed, I mean, that's an argument you made that inflation is tamed, economy's doing okay. If I mean, I see in one of your recent notes you say the FED is afraid.

What do you mean by that, Well, the Fed's always afraid. They don't want to make a mistake. We're kind of hard on them if they do. Now to me, and the argument has been made, Chris Waller bost It that, oh, we have the luxury of time. The economy is really strong. We can wait and see what happens with inflation. And Frank I absolutely firmly disagree. They do not have the luxury of time. They have a dual mandate. And once we are headed towards it, and we definitely are headed

You know, there's.

Exactly there's your stock report.

That's your stock report for the day. Better Marcus strategist Claudius.

Yeah, sorry, I got to get really lucky here, So.

Claudia, I mean, you know, I'm looking at the w I RP function here is kind of the world interest rate probability still looking forward five or six cuts this year.

How do you how do you view that?

I hope they're right. There's a lot of daylight between what I think the FED should do, and that's they should start cutting right away, and what I think the FED will likely do, and that's starting at the earliest in May and that and obviously when you start is going to make a big difference on how many cuts you do for the year. So I think what's most likely is something closer to four cuts, take a percentage

The Bloomberg financial conditions and exposed the word is I'm using the judiciously massively accommodative at the show where they are Claudia and the debt and the deficit issue, and it's an ax of all of our listeners on CarPlay, Apple car Play and all of you watching on YouTube Bloomberg podcasts. Claudia Sam is just as simple as this, Joe Stiglitz says, you can do all this fancy debt and deficit, but you got to have an underlying growth

Piece recently for Bloomberg Opinion about this question of the deficit the debt. Should we be worried. I come down in the place of no, we should not be. On a lot of like, we're in a good place financing the dead things are, and as you said, we're in a good growth position. I mean, I ever want to say we're going to grow our way out of the debt. I think that's too optimistic. And yet what I say

That is the economic insight today, Paul, how doctor somem there went to such a narrow incremental growth. People think you got to have a ginormous growth. Even just a little bit of a growth gets it done over ten.

Years, Claudy, the conversation when we had the FED pivot late last year seemed to really migrate from you know, is there a recession in the scenario to I guess the consensus was very much a soft landing.

Is that where you are?

You think that this FED is just about done its job here and negoti shading a soft landing.

I've been calling us soft landing this entire time.

YEP.

That inflation was in fact, dare I say the word transitory. We don't need to argue about that one today. But inflation went up, there was a lot of COVID disruptions, and Putin showed up. He caused a lot of disruptions, and we got many things under control, and inflation has come down. I don't give the FED a whole bunch of credit for that. They're in the mix and they needed to be in terms of, you know, going after the inflation that surged in twenty twenty two, and yet

How X post is the fed right now? X Post, folks is after the fact x antes where it's what the media wants, if financial media wants them to get out front. Yeah, right, there's no history that they do that. But I mean, what's the level of X posts here? Is it like Claudia? Is it like Richie Timberlake and the Georgia school, which is they're going to wait and wait and wait and wait. You mentioned Arthur Burns earlier and the political soup he had to live in. What's their level of X post right now?

They are going to wait as long as humanly possible, and that actually might hit them pretty soon. I mean the three month changes in inflation, the six months, I mean they're at two of course, so like they really got to get going. We can still have some turbulence, we have some bumps in the road, and yet the stories they're telling about why they're not so sure about it OCA.

It's like we got to run, but I just can you tell me what your own Paul does with Dow Jones Industrial average round number forty thousand. I mean that alone has to change his strategy, right A boom like that.

No, it's all about the due mandate. I mean, frankly, the wealth effects aren't that big in terms of going into the FED is on the real economy.

And it's good.

It's great because when she disagrees with me, we can just hang up on her.

Claud Us up.

Thank you so much, just Treasury claud Us with all our work at the Federal Reserve and of course out of the University of Michigan joining us now. James Stravetis with a blistering essay in Bloomberg Opinion, made more blistering by his public service to the nation with the United States Navy. Of course, his effort is Supreme Commander of NATO. Were thrilled that Edmundstervetus could join us this morning, Jim, I want to go to your wonderful book, the Leader's bookshelf, folks.

I'm worried.

Let's be honest, because what we're doing is not working. And we see in the world of business the concerns we have about who these attacking shipping in the Red Sea, driving prices of oil and goods. We see terrorist attacks against Israel. We see most recently tom As you allude to the attack that killed three brave American servicemen and

Paul wants to get into that, But Jim, you've been so so so far out front on a game theory basis. In folks, a cliche is expect the unexpected, But you have stated that in our complexity of military force, technology and politics, that it's the unexpected, like mixing up drones coming in or out of a base in Jordan. It's the unexpected that will kill us, that will harm us, that will put us at risk. How do we defend against the next unexpected?

For Starters, Tom, we look back at history and identify those moments, those hinge moments. In the case we're discussing of military operations, the Battle of Agincourt where English long bowmens slaughter French knights in their supposedly impervious armor of Pearl Harbor, where we are stunned by a Japanese surprise attack. We look at those hinge moments when airplanes radar came on the scene and changed everything. We are in that

So Connecticut, Yankee and King.

Arthur's Court is a book about innovation and leading through these kind of pivot moments. We are definitely in one where technology and security are coming together.

Adamiral, I want to go right to your Bloomberg opinion piece yesterday because it had such an impact that I'm sure it had quite the impact in Washington at Depentagon, at the White House. But basically the summary is from your opinion piece, a deadly drone attack that cost American lives requires a swift, precise, and meaningful military response. Could you summarize what type of response you think this attack warrants.

It's kind of the Goldilocks phenomena, Paul. In other words, we've been trying to retain this by pinprick attacks, by tit for tat small beer. At the other end of that spectrum is whistling jets overhead Tehran. I don't think we're there yet. We need to be in the middle that Goldilocks place. And here's what it includes. Cyber attacks, better intelligence collection, going after Iranian assets, but not inside

Have killed our American soldiers.

We need to go after Iran directly, but not yet inside Iran.

That's the essence of the article.

And Admiral I know you said even suggesting perhaps eight five to eight day concerted campaign.

What would that can pain entail in your estimation.

I think we'd bring a second US aircraft carrier back into the region. Recall we had two there right after October seventh, we pulled one out. Iranian bad behavior continues, So maritime assets. We have a lot of air power in the Gulf, in Guitar and the base near Doha Aludid.

Let's hope we don't get to that point.

I think the Iranians would back down in the face of a truly strong US respond James Savetis.

I want to go to Brett Krazer, a captain in your magnificent book, Folks, I can't say enough about to risk it all nine conflicts in the crucible of our leadership in the Navy. Yes, it has admirals in it, but as Travitas does, there's a Lieutenant Commander in there as well in a cook third class. I love that. Let's go to Brett Krozer and this is the reality of his career ended with COVID in the Uproar and

Brett Krozer a fighter pilot, also a superb targeteer. He worked for me as a captain selecting the targets we struck in Libya. So a consummate combat pilot and operator, also a terrific leader. He, unfortunately and with bad luck, became the captain of an aircraft carrier at the very beginning of COVID. He sacrificed his career to protect his crew.

Are we too extended? Ian Bremer and Eurasia Group Admiral had a spectacular chart on the dispersion, including reservists from Georgia across all of the Middle East. It's almost as if the Bremer worry in his top risk can do. Are we too naive in our unprotected dispersion across a broader Eastern Mediterranean?

Now, I think this brings us back to where we started this conversation, Tom, which is to say, if we've recognized the technology of the moment and are aware of it, we can do a better job defending ourselves.

Point one.

Point two A lot of this can be done from the sea. Our carriers are invulnerable essentially. And point three we can fuse together to work with our allies, partners and friends in the region, so we're not alone and afraid out there. We are with allies, partners and friends. We need to leverage that in a better fashion.

Admiral, Again, I'm just going to reference your opinion piece from yesterday, and again you can read it on the Bloomberg terminal, certainly, and you can go to Bloomberg Opinion dot com slash opinion Bloomberg dot com slash opinion to find it on the website. Do you believe, Admiral that some of the steps and policies you laid out in your opinion piece, does that have a welcome reception with this administration.

With Congress, I.

Think it will.

And as usual with any issue in today's America, there'll be plenty of folks who are advocating very radical go downtown Tayron tonight strike. I think that's premature. We might get there, let's writ not. On the other side, there will be those who say, just pull out of the Middle East, let all of that just fall apart. I think what I've laid out is something in the middle that makes sense, that will avoid a wide regional war, but will cause Iran to back down.

Okay, you know we're going to run out of time here in a bit. I want you to sell right now to this nation, and everybody's listening. The one guy in Congress that actually probably can talk about this and calm down, let's bomb Tehran Crewe And that's a senator from Rhode Island, Jack Reid. How important is Jack Reid in this debate?

Well?

I love Jack Reid because, first of all, he's a man of normal height about five feet five inches called my height number two. He's a military guy, he's a veteran, he went to West Point. I'll forgive him that. He is at the top of the list. Tommy, You're absolutely correct in his strategic vision, his understanding of the balance we need to strike here. And I think the more we listen to the jack reads of the Congress, the better our chances are of steering through these rough waters where.

We are now as a nation. Does it have elements that you and Elliott Ackerman wrote about in two thousand and thirty four my book of the Summer Paul A couple summers ago. What's so frightening folks about the book two thousand and thirty four to zero three four is the unexpected? Are we getting elements of that right now?

Ed must vetus one hundred percent, tom And we've talked a lot about drones, unmanned new uses for unmanned surface vehicles on the sea.

All of that is happening.

I would argue the next step is going to be the addition of artificial intelligence to how those unmanned systems are used. That's what we need to be looking ahead toward and think how can we reverse it and hear it and stop it.

James Travitas, thank you so much, folks. I'll put it out on Twitter LinkedIn the Leader's bookshel he's upset. I'm selling this because he's got fourteen other books after this. But the Leader's bookshelf shelf absolutely iconic as well. Amstervitis, thank you for that briefing. It's great about Natia Level and all of her you know, efforts with us. Is is she really nailed the market? So she's looking at the Hinckley picnic boat, the thirty seven s nice you know,

Yes, I mean that's the name of the.

Boat, Nadia. And you have absolutely killed you gotta be in the market. Why are you still in the market after the October run we've had.

It's the economy and the earnings potential that is there. I mean you saw that the economy continues to define expectations. I mean we had strong GDP last week, and sort of this question is can that continue? And is this immaculate disinflation for real? I mean, we'll get more data, you know, when we get CPI on February thirteen, and of course the seasonal adjustment, but.

We think that it is.

I mean, we do think the economy will slow, but we think that it returns more to trend line about two percent GDP growth for this year, and that's a positive for the markets.

Top of the income statement, what does nominal GDP do? How does that fold into revenues? If I've got to give an organic revenue growth of six percent, what's the new organic revenue growth look like at one year, two years?

I mean, for us we're looking for in terms of EPs growth, we're looking for nine percent for this year, and we think that twenty twenty five I can also produce a similar sort of EPs.

Growth for the markets.

Again, a lot of this is going to be contingent on the consumer. I mean, if the consumer continues to hold in there, so will this economy, and so will the equity markets. The consumer still has a fair amount of excess savings, Tommy mean, nearly a trillion dollars, and if you sort of do the math behind that fifty

So Nottty, a lot of folks are suggesting here as we think about maybe broadening out the performance and participation of this market beyond kind of the miracle seven, if you will, And maybe twenty twenty four is a year for small mid cap stocks. Is that something you're talking to your clients about.

It is, and it doesn't necessarily mean that the tech portion of things get left behind. It just means, as you said, just a bit of a broaden out, and we think that there's a place in the portfolio for a small cap when you think about the favorable macro environment that's there. Remember, the FED is on course to cut this year and last year twenty twenty three, it was a year where people were concerned about the balance sheet for small cap companies given that they do have a nearly fifty percent.

Or so of their debt and floating rate.

And so as you know, rates come down this year that should help small cap and then we also are

Yeah, you kind of you mentioned evaluation. I kind of wanted to go. They're just generally speaking, because we had that such a big, big move higher in the market to close out twenty twenty three, and we've continued a little bit here in January. I'm not sure if seed earnings go up a commensurate amount here, so multiple expansion here is this market getting a little long in the tooth in terms of valuation?

Well, I think it depends on you know whose earnings you're talking about, right, Yes, broadly twenty twenty four essemates have come down slightly, but not anything to alarm. And I think what you have been seeing you know, the momentum and the stay in power on the tech side. So from valuation standpoint, we think that even when you strip out sort of the magnificent seven m evaluation is

How do you treat I don't want you to talk about individual securities. I understand the rules of the road here, but Nadia on a broader magnificent six and you know, I get the story you're going to tell me. There was multiple ex expansion land yeer blah blah blah. Microsoft's en joined a thirty six pe forward if they deliver the goods today, How do you put a thirty six multiple into a retirement plan.

Well, let's talk about how tech has performed over the last decade.

Us I mean exactly.

I mean most of the market returns is coming from that sector, and so that's why it is important to have that sort of exposure. Despite the fact that you might have questions around valuations in the portfolios for a timement plant, because that's where the growth ultimately is coming from.

Not yet aside from tech, what are some of the other sectors that you're talking to your clients about that might be good performers in twenty twenty four.

I mean this year we're really focused a lot on quality, not necessarily specifically sectors, I mean sectors sective wise. And we still have some exposure to energy, which has seen a lot of volatility recently just given what all prices are in all prises, not even responding to the high and geopolitical tension because there's concerns about oversupplying the market this year, we still think that there will be a

But beyond sectors.

I mean, like I said, quality is key because quality transcends all sectors, and we want to how.

To find quality.

Nadia, Oh, that's a great question.

And so when never say that to me, you only say Nadia, You'll only say it's a great question. To Paul, I get no love.

But when you think about quality, no, it's used very broadly and sometimes loosely. But we're focused on free cassual profitability when we think about quality and return on invested capital, and you can find quality companies that cost many different sectors.

One final question, what's the analog? I don't think there is one, but the tech boom now to the tech boom of two thousand and two thousand and one when it collapsed. Does that give you any angst?

It doesn't, because I think, what's a big difference here? You have possible companies that are invest in and expected to monetize AI onlike. So we don't think that this is a bubble. I mean, in fact, a lot of tech analysts, including our tech analysts in Asia, has put pen to paper and recently raised its expectations.

For AI revenues globally.

I mean, at over for four billion dollars by the time we get you four hundred billion dollars by the time we get to twenty twenty seven.

And so I think that's the key difference. You're not you have it. You're seeing profitability.

Already, and you know revenues are ready around AI onlike doing the tech bubble where everything's just sort of wind up despite the fact that you might not have been a profitable Now.

Do you thank you?

Nat?

Your level is with UBS Wealth Management, their senior US equity strategies, and it is the front page headlines. She's going to go to the San Diego troop in this morning, back to way, what do you got, Lisa?

I got the Wall Street Journal as we're starting. You guys have been talking about this.

A lot this morning. General Motors feeling pressure from dealerships to.

Make hybrid, so it just back and forth between electric and hybrid. So the company topped expectations. We heard about that, but they're telling the journal that the dealers they serve on these advisory committees for GM, and they're worried about losing customers like Paul who are not ready to make that full switch over. But GM they're they're listening to their concerns, but they haven't made any future hybrid commitments. I mean, would you have gone hybrid?

It's definitely an option. And Matt Miller, who is our car guru, he said he would do a hybrid. He thinks that's the best way to go at this point toil get more built out charging system out there, I.

Said with the Detroit International Auto Show with Ken Pruitt, I'll say twelve thirteen years ago, in the head of Mercedes, said the major engineer guy. He was like the CEO, a real auto guy, said Tom hybrids. They were way out front on this. And then it's a major, major call. And you know, I guess with Marie Barre at ten am, you know, I'll learn about this. So what's next?

All right?

New York Times is President Biden's aide.

They're drafting up this wish list for potential endorsements, and it includes Taylor Swift.

Has to she already come out and said something or no.

She Well, here's the thing, she endorsed Biden in twenty twenty.

Okay, okay, last year she had a single Instagram post of hers led to thirty five thousand new voter registrations.

That was just from a single post. So you see the influender two hundred million songs.

About guys that are losers.

You know, But do you think about it?

She gets the younger vote too, I mean not that young, like the young kids.

But but she also gets the moms who are a fan of Swift.

I guess turnout I'll give her in others like her. I guess maybe they can boost turnout. But do you think that they decide someone's vote.

I can't imagine.

I mean, but I mean that's but they've been doing endorsement since the beginning of time. I mean, does a matter of for a newspaper endors to somebody. And back in the day that was important, but I less today, Well.

Maybe we'll see President Biden and one of the world tours coming.

Look for a full cover. If Joe Matthew will weigh on, weigh in on this today with kayly Lines, no question about it. What's next?

All right?

This is a big one.

Chiefs forty nine ers tickets at an all time high for the Super.

Bowl nine thousand, eight hundred dollars.

Do we know what a minute cast?

You?

I don't know.

No, it's gonna be.

You know that's a go to check what the ads are? Several million dollars for a TV ad?

Yeah, for like a thirty second.

Yeah.

Can I just say, you know, within the madness of all this, if you want just to fall back into laughter, go to YouTube and they'll have like the ten funniest commercials from super Bowl twenty eighteen ever, and there are some just jewels of comedy in those important ads. I mean that's amazing.

I mean it's a lot of folks are still I mean, you know, it's that's their advertising buy for the entire year.

They put everything into it, and it's.

Not owned by Morgan Stanley. I mean I said to miss Skene, I said that you just reducs a it's a ad with chimpanzees or whatever in a garage and they come up with, think, we spent two million dollars on this ad. And then they said, you know, what are you doing with your money or whatever? But what would they spend now?

Paul seven million dollars sixty seconds. Yes, absolutely, I don't.

Know, what do you think, Lisa, I'm.

Blown away by these the price of these tickets though.

I mean when you said you went to their Super Bowl.

I did, yeah, I mean back way back in the day.

But I mean this is just it's the perfect storm I think for the NFL, as I said before, to take you know, the biggest show to the biggest entertainment market being Vegas. You know, it's just a perfect for a combination. And I'll tell you the folks at CBS are just thrill because they have the broadcast this year just by sheer luck they do a rotation between the broadcasters and CBS folks are just because they can just bring all their clients.

There doing I mean, just the greatest marketing eventable.

And then you have California, who is not far from Vegas.

So you have a baking flux of people who are coming for that short trip from California too.

So then you just go.

You know, even if you don't go to the game, you just go.

Then you gotta peel like a thousand dollars a night for a hotel there.

I think it's Sley South there. We'll get a my suite at the Bellagio.

Listen to Thank You So Much on the newspapers. This is a Bloomberg Surveillance podcast, bringing you the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten am