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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amerie Hortenn. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business App.
Peter Sheer of Academy Security is writing, now we can watch the data and let the countdown to the Santa Rally begin, and you put a little smiley emoji and there is a real question here. Is this ultimately a market that wants to go up and is going to go up because there is a garth of other information to really prevent it from doing otherwise.
Yeah, and I think you're seeing it. The Russell two thousands doing very well. I think there's still questions around and you know the big tech, the AI story, but you're seeing the equal weight S and P five hundred do better. Russell two thousand. I think it's helpful that the FED is buying some T bills up to forty
billion dollars a month, so you're seeing all that. I think, you know, the Oracle earnings yesterday kind of spook the market a little bit, and I think that's maybe the one susceptibility is there's a lot more questions around the AI data center. But it rates are coming down. I think we're going to get rate cuts faster than markets pricing. That should be really good for small caps and the broad economy.
How much better are you feeling about big tech given the fact that you've seen such a lack of enthusiasm following some of these earnings, you know.
I think there's still questions about valuations there. The one thing that's I think coming up in every conversation we have is more and more questions about the electricity bottleneck. How are we going to run some of these things if we can't produce the electricity?
So I think again we're.
Going to see a lot of investment into electricity next year.
That's going to be a story.
I still think that come the next election, electricity and electricity costs are going to be an election issue.
Peter, how much do you look at a company like Broadcom or Oracle as a proxy for this nascent industry as a whole.
There's kind of that collection looking at what they're doing. You're also trying to figure out how, you know, again the Disney announcement yesterday, how are starks reacting to this? And you know, it feels that we've kind of gone through this period. If you raise your hand say anything AI, your stock shoots higher.
Now there's a lot of questions.
People are trying to figure out where's this going to work, how's it actually going to work? And you know, again, you know going to be somewhat facetious. If you spend fifty million dollars and you hire ten fewer people, how much are you paying those people?
Maybe you shouldn't have done that.
So I think the AI story is growing and we're seeing the use, but now it's kind of there's a little bit more question are you spending it, are you getting value?
How do you want to use it going forward?
At LISTA mentioned the high expectations that we've had for a lot of these companies. Is this a moment to recalibrate or rethink what those expectations are. So I look at a company like WORKLID, look at a company like Broadcom. There's been a lot of happy talk. It has performed very well quarter after quarter after quarter. Now we're a point where maybe we just can't reach those expectations that have been in place for so long.
Right, it gets much more difficult. So again, one of the trades we've liked is you are either underweight QQQ or you know, the Nasdaq one hundred, and you overweight either the S and P five hundred equal weight or
the Rustle two thousand. I think that's the performance is going to come as we realize all these other companies who are benefiting from AI, they should trade maybe at better multiples the businesses here, And you're starting to see rates come down again, which helps a lot of those companies much more than it helps I think the big companies.
We're kind of walking in tyrope. Though.
I remember just a couple of months ago people saying that if the AI trade doesn't work, it's going to bring down everything, because ultimately the entire market and economy has been propped up by AI hopes and dreams. Why has that changed in terms of a narrative, so substantially well.
I think we're still seeing the investing going on in that part, so the spend is still there. So I think if that spend really drops, that's where you start really getting the trouble. Then we start questioning, Okay, where's this economy had? And I'm definitely not quite saying green about the economy. I think there are some risks there. I think the jobs data, I think a lot of companies are actually going to budget less spending next year.
I think it's going to start flowing through the economy where you slowly see the upticking tears, right, is this terar for revenue keeps coming in slowly but surely two and forty two hundred and fifty three hundred billion. That's when you start feeling the impact on that. I think the job market's a little bit sketchy. What I did of all the day I saw this week. I still look at the jolts quit very very closely. To me, that's the closest we get to crowdsourcing. We're back to
levels in the quits rate. I think it was one point eight or something. It goes back to twenty fifteen. People aren't comfortable leaving their jobs. That tells you everyone knows the job market's a little bit sketchy than maybe.
The data shows. I'm so glad you went there.
Next week we get the November jobs report, which of course is delayed, and a lot of people in very in particular, was really annoyed that we didn't get it before the FED meeting, and we seem to get indication from fedcher J.
Powell that there is.
This weakness in the labor market that you're talking about. How pivotal is that report to highlight that things aren't falling off a cliff. Yes, if that's going to cut rates, but that the economy is actually still hanging in there.
Well, I hope it's pivotal and shows that we're not falling off the cliff. I think there is a risk that this data comes in much weaker than we're expecting, and it's kind of this wake up call. Okay, we've all been talking about this jobless recovery, and yeah, the data center spend's been driving a lot of the economy. Where are the jobs, who's getting the jobs? Where they come? And again, everything I talked to and probably near and
dear to my heart your kids graduating college. The job market looks very bleak right there, from compared to what it's been a few years ago. So I think we might be starting to get the data that really starts confirming whoa something's not quite working, and I think everything's been a little bit tall, and let's see how these things play out.
Let's see how the trade deals play out.
Let's see now we're at that proof is in the pudding, and I'm a little bit nervous that the job's data is going to show this is not working the way.
We hoped it would be.
How are you thinking about FED timing and insurance? I think Claire Jones are the fts to question a lot of us had going into that meeting, which is, why do this cut now?
Why not wait till January?
We would have the data that we're talking around because we haven't had. Why not wait into Jai or did he give you a satisfactory answer to that in that press conference?
You know?
I think the ultimate reason is they are concerned about jobs, and there's just enough out there, I think on the jobs data and not just official data. I think it's anecdotally right. There's no one I'm hearing talk about, oh, there's some great underlying strength, and you.
Know, it was kind of weird.
They did raise the GDP forecast, but again they didn't seem to know a company that with a big job growth, So I think that's why they did it. And honestly, I think you're going to see a lot of pressure. I think the market is going to get to three percent on FED funds way faster. I think we get there by the summer, and market it's not pricing in two cuts next year until September.
I think power will have to cave. I think we're going to have to move.
And this is going to be an aggressive cycle where we've been maybe a little bit tight too long, too dependent on allowing that AI spend to maybe cloud or cover up that there's an underlying weekly economy going on.
Curious if you noticed something that I did during that press conference was the Fed cheer very willing to engage with AI in a way that he hadn't been able to before. So there were a number of colloquies with Howard Schneider and Neil Erwin Steve Leisman. They asked about AI, how much he's thinking about it, and he was pretty optimistic. You know, he talked about the prospects of AI spend continuing here at a moment when we are candidly kind
of wondering about how long that's likely to persist. What did you make of that His kind of recognition of the fact that this is going to be rather seismic going forward.
I think it's good. I think it all makes sense.
Again, we are going to continue to use AI, people are going to refine how they use AI.
They're going to admit it. He uses it, which I thought was interesting.
I think, you know, I've used it multiple different ways.
You know.
If I'm on Twitter, I didend to use GROCK.
If I'm on my desktop, I tend to use chat GTT or something like that. So I think it's important part. But again, I think we also see some of the limitations. And I'm still at this concern that we're basically paying twenty thirty prices for twenty twenty five technology, and so it's not quite where we want it to be, and people are going to be a little bit more thoughtful on their spend. And I keep coming back to whether
it's the dats of the digital acid treasury companies. You know, when there was this you raise your hand, use raise free money. It's going to continue as soon as you start really questioning are we getting the value and what are the limitations? Again, I keep thinking that it's going to be electricity and power generation is the limitation.
People are going to have to think twice. That's where it's going to stall out a little bit.
David, I'm so glad that Peter talked about this, the idea of are we getting the value? I think about chat EBT, I look up medical problems with GROCK. I say, is this real? And that's what everybody does is real.
It's real there.
So it's sort of a certain point you can either go to the mark manual or you could actually just not have digital manufacturing of concepts, and then all of a sudden you clarify those two issues. Are we actually solving some of the issues that people think will create the product boom that's being priced into the market.
I've heard skeptics say you can take out a calculator and do two plus two is four. If you do it through chet GPT, it's going to take I don't know how much more energy to do that. Then it will be my little solar powered calculator.
But this is a real issue.
I think people are kind of I think it's emblematic the fact that we're trying to fumble through this figuring out.
Sort of what the best use case is.
We're doing that individually, you with your medical interests or whatever, and you know, but just why broadst Then there's this whole enterprise facet of this as well, which is I think companies are still embracing this largely, but in a kind of blind way, not knowing how it's going to be applicable to what they're doing.
Yeah, and you know, I again have to jokingly say, I think in some cases if they just ask their employees have been there three or four years what they should do, they'd probably get a really good answer. Maybe we should go back to empowering our employees too. Like people know the situation and some of this feels a little bit like a crutch. And again, there's going to be useful parts of it. I think the limitation is how much data you have, How useful is your data?
You got to plug it into there so people are using it. I think it's you know, makes people slightly more productive. I don't think it's kind of this be on end all that ultimately it should get to right. It's going to do more and more, it's going to get better and better. I just don't see the technology quite at that level. And when I try and use it, it's great until you realize, oh it hallucinated a ticker symbol, and now I'm like, now what else do I have
to check? What else do I really need to go? And also it's how do you learn if you kind of rely on it for too much?
Stay with us multpleinpeg. Savannah's coming up off to this.
Here's the latest shoppers gearing up for what is expected to be a record breaking holiday season, despite consumer confidence tumbling to its lowest levels going back to April. Joining us now is Elena shall get Cheva of the conference board. Lena, could you give us some color around the retail sales data that we're going to be getting next week as well as this holiday shopping season?
Is it wonderful?
Is is people looking for deals and being picky and just sort of back ending some of their purchases to try to get the best bang for their buck.
I think so. I think the latest earnings results are telling us that consumers are shifting towards value and essentials, and you know, clubs and value retailers doing great means that consumers are really concerned about what is going on in terms of prices, and they are really shifting towards those savings. So I think we are looking at a
healthy holiday season, but not necessarily the best one. So I think, you know, probably the results of the Thanksgiving holiday was we're a little bit overstating the health of the consumer.
Jih and great to see you, And I'd love for you to put in the context for us where we are in the capacity the companies have their willingness to absorb costs because of these tariffs. I might posit that maybe this holiday Christmas season is kind of the last gas for them to do this before maybe in the new year we begin to see some of that trickling down to consumers in anticipating that might be the case, or what's the status of that sort their willingness to do that.
Yeah, thanks, thanks for the question. I think you're right. I think holidays is probably going to be okay. But our modeling and the conference board shows that the bulk of the tariffs impact will be evident in the beginning of twenty twenty six, so Q one, Q two, and that is where we see the biggest softening in consumer demand. Actually, so I think despite the fact that you know, the new cycle kind of moved away from tariffs a little bit in recent months, consumers are still feeling the burden.
They still failing, prices are elevated, and they are shifting their spending patterns. Actually, at the Conference Board, we survey consumers by different types of income, so the whole spectrum of income groups that we reach out to, and what I see in our consumer confidence data is a broad based decline in income expectations. I see a broad based decline in consumer confidence over the course of twenty twenty five. This is the time to kind of like look back
at the year and assess what's called what happened? And there was a twenty four point decline in consumer confidence over the course of twenty twenty five. Consumers earning making more than one hundred and twenty five thousand dollars a year, the decline in their confidence was also sizable, something like minus seventeen points.
I'm still having a hard time kind of squaring the sentiment data with the hard data. What we're seeing in terms of people, yes out there spending money. I kind of imagine Santa Claus filling is sack with gritted teeth. He's doing it, but maybe he's not feeling good about the crisis that he's paying. Is that reflective of what we're seeing here? And what do you make of that seeming disconnect between again the hard data and the sentiment data that you watch so closely.
I think it's the timing issue, and you know, to a certain degree, we did see some softening in consumer spending. The actual data in September already, right, So look at the personal income and spending reports for that month. Obviously it's very stale, but that shows that, you know, there was some softening in spending on non durable butos for example, right, and as things are getting more and more expensive. I think we do see that. We'll get another piece of
evidence next week when retail sales data comes out. I think it's not a collapse, it's somewhat softer growth in consumer spending. But obviously a big risk is the labor market. So what happens to the labor market going into Twined twenty six will matter the most for the pace of consumer spending.
Elena, good to see you. So the labor differential which you're highlighting, I think is key here where people if you have a job, you're okay because they also are not picking up. But do you think housing affordability is another reason why consumer sentiment is that week? Because I'm trying to see do the two hundred and one seventy five basis points of rate cuts do they help housing affordability?
Do you think these rate cuts can actually improve consumer sentiment or we continue to see this disconnect and sort of wait for that timing to play out.
I apre Yeah, I think that you know, you're referring to the level of interest rates, and even if interest rates continue to edge lower in terms of mortgage rates, that could improve affordability. But the big part of the affordability calculation is prices, and prices are still elevated. Well maybe they're growing at a slower pace, but they're still growing.
So you have that one million dollar house and it's now a million and five thousand, so it's still it's still very unaffordable to a lot of people out there.
Maybe at the margin it could help, but I think we just need continued growth in real wages going forward, as Chair Powell mentioned earlier this week, to kind of outgrow from you know, the economy needs to grow into that kind of state where consumers will be able to afford a little bit more and you know, be happy again about how they are faring.
Stay with us Mobilemberg Surveillance Coming up after this.
Sticking with AI and the application of it is inking a billion dollar steak in open AI and licensing more than two hundred of its characters to the startup. Jason Mazine of City Writing, we suspect Disney views the use of its IP as a free form of marketing. The use of these characters should help sustain and potentially build long term brand value. Jason has a buy rating on shares of Disney with one hundred and forty five dollars price ticket. These shares are up four tens percent in
pre market trading. Jason joins us now, Jason.
Thank you so much for being with us.
I thought this was a fascinating move and the part of Disney, it kind of goes to the heart of the anxiety for content creators. Is AI going to be a partner? Is it going to be accounibal? Is it going to make you obsolete. What do you take from this approach from Disney?
Well, there's part of this deal we like, Lisa, in part that we don't. The part that we like is we'd rather see a commercial deal than litigation, and so we like the idea that they've inked something. We think Disney is going to get some cash for the use of its IP and we like the idea that the use case has been ring fenced these animated characters short form video that makes a ton of sense. The part I don't like is the billion dollar investment.
And explain why. I have another question. Let me taste that out of here a little bit. Why are you sitt down on this investment, which I think some could argue is sort of them you know, a solidifying a stake here in a company that has had more than buzz over the last couple of years, and a lot of people are thinking it's kind of the future of tech.
More broadly, well, Disney has.
First of all, I've never had an investor tell me that they invest in Disney because they haven't a stud venture capital arm. It's just not what investors care about that are Disney shareholders. The reason I think that is is Disney tends to have a propensity to invest it's capital. It's sort of the peak of the mania. And so I could go back to, you know, the Info Seek investments that they made in the nineties. They never went anywhere a bunch of video game developers. When video games
are growing very quickly, they shut all those down. A couple of years ago, they invested in Epic Games. I think it was a billion and a half dollar investment. We'll see where that goes. But that was at the height of the metaverse. And now we have the height of AI and we see a billion dollar equity investment. So you know, maybe this works out really well for Disney. But call me a bit skeptical, poor.
One out for infras Seke. Haven't thought of that company in a long time.
But let's get back to the use case here, Jason, because I am very curious about this. It strikes me maybe we're closer to Ann, Marie and John being out and Micky, you'll be sitting at the table with Lesa or Steamboat WILLI or Donald Duck. But I want to ask about Sora, because my sense of Sora, this product that Open Ai has made is that it hasn't gotten
a lot of widespread adoption or interest. There's that kind of flash at the beginning when my Twitter feed was just filled with these kind of insane ten second videos that people were making, I think just to showcase or show off the technology that OpenEye had made. But I don't get the sense it has a lot of cultural
currency now. And I'm curious to sort of when you think about the way in which open ai is going to use this, do you have a sort of satisfactory answer from the company, a sense of sort of how much this is going to be you know, used for PR or marketing employees, you say, or just use more generally.
I don't know, it's all very much TBD. I would say that I had a number of investors paying me yesterday and say that they believe that open ai is sort of de emphasizing SOA and I would agree with you it doesn't have a huge amount of cultural currency. I think we're still in the early days of sort of consumer adoption and embracing of all of these tools. So TBD, But I can't I don't think it's going to.
Be a bad thing.
And you know, we've had a number of other companies in our coverage universe that have licensed their IP and receive checks that are you know, on the magnitude of fifty million dollars a year. That's a that's a mix of sort of a fixed payment and a usage based payment.
Jason, if I were an actor in Hollywood, would I be excited about the steal or worried about the steal?
Well, I would say that you are, I guess excited at one level, and that the you know, there's nothing in here that sort of allows open AI to use
the likeness of actors or actresses. But in another level, it doesn't answer the threshold question because this is an easier deal for Disney to do because it has so many animated characters, the two hundred or so that you referred to, And so I think there's still an outstanding question of how these AI tools are going to be used for the bulk of the IP that exists in Hollywood.
Stay with us mulblindpeg Savannah's coming up off to this.
Global stocks pushing into record territory after the Federal Reserve's latest interest rate cut. Lezanne Sounders of Charles Schwab remaining cautious into twenty twenty six, saying we believe the macro environment will continue to be unstable, but stocks can likely churn higher given a firmer earnings backdrop. Lizanne joins us now in Lizan, this is what a lot of people are saying. Just watch the earnings, show me the money, and the companies can do that, and then you'll start
to see gains. Just how do you think it's going to play out in terms of a tale of two halves, a tail of rotation, et cetera.
Well, you know, we've been talking a lot and writing a lot about the case shape nature of this cycle. It's become a bit ubiquitous. But I think one place where you're actually already starting to see convergence is in the earnings growth rates of the tech AI, megacap tech.
You know, different cohorts their earnings progress. So if you look at any of those cohorts a year and a half ago, you were running at earnings to your earnings growth rates of about fifty percent, But those have been decelerating, maybe into the twenty percent rain, where the other part of the market is actually seeing accelerating rate of earnings growth. So I'm a big believer in the old adage about you know better or worse can often matter more than
good or bad. And I think it's the trajectory of earnings that is one of the reasons why we've seen some dislocations within these prior leadership areas, only two of the mag seven outperforming the S and P and opportunities that are being found outside of those prior leadership names.
Well, Zam, we've been having a lot of attention to sentiment data, in part because we just haven't had the hard data as a result of this government shut down. But you and Kevin Gordon I have coined a new word here. It's the vibe pression. You're warning about a vibe pression, and I wonder if you kind of spell out how much of a what it is first of all, and then how much of a warrior it is for you?
Is we move ahead here to twenty.
Twenty six, I think you know it used to be talked about just in the context of soft economic data versus hard economic data. So soft data would be the survey based data, and that's where you're still showing incredibly
dour outlooks. You look at New Michigan's consumer sentiment kind of plumbing its cycle lows here at the same time, as part of the Conference Board's index, their consumer confidence Index, and they have different cohorts that represent the survey respond It's Conference Board tends to skew a little bit wealthier. But Conference Sport has a question about expectations for stock prices, that's absolutely through the roof. You mish has a question
about expectations for the unemployment. That's through the roof. That is one of the ultimate disconnects. That maybe is a reference to this session vib pression or the way we used to think of it as much weaker soft data relative to hard data. You probably see a little bit of convergence in twenty twenty six, and by convergence probably moves in both directions.
I'm curious when you think about dispersion, where you see things kind of moving here in twenty twenty six. So if we're not going to be wagging our chins about the magnificent seven and the hyperscalers in twenty twenty six to the three which we have in twenty twenty five, where do you see that conversation moving in the year ahead.
So I think as it relates to AI. The story is certainly not in the review mirror, but I think there's maybe an increasing focus even beyond data centers, which was the more recent surge area relative to the hyperscalers and the original picks and shovels companies, I think the shift is more toward the adopters, the effective adopters, not just in a very general set, but actually starting to get meat put on the bones in terms of impact on productivity, what it means for labor costs, can it
help improve profit margins? So I think that may be one of the newer themes that develops within AI is that adopter theme. But you're also seeing broader participation in other segments of the market, healthcare having some of the best breath right now.
Now.
We would also caution against simplistic, monolithic sector based investing because there's a lot of dispersion within sectors, and that's where we think you want to apply that factor based analysis, at least as an add on to sector based analysis. And the factors that we're focused on right now, to use an old school acronym, are very garp like. So you don't want to sacrifice growth just for value. You want to look for value, but you want to have those growth characteristics as well.
Lazan is bad news good news for stocks, I mean ahead of next week, Meaning if you get weak economic data, well then the Fed's going to cut a lot more. Maybe do really qy and so equities can look through it or you think either the rotation trade or actually equy evaluations are at risk if the uneployment rate keeps rising.
Maybe marginally bad is okay from a FED reaction function perspective, but really bad news, especially in the labor market, regardless of what that means for the trajectory of monetary policy, I think is bad news, particularly given that the support for this economy, consumer spending resilience that has largely been a function of not just health in the labor market,
but confidence about the labor market. You start to see weaker than expected numbers to a significant degree that feeds not just back into the consumption channels, but very quickly back into the confidence channels.
So, Lezana, are you buying the idea of a jobless recovery? Can we see that in twenty twenty six fueling the rotation or is that kind of implausible given what you just said.
Well, if you look at the ADP data of the job growth has been concentrated recently in larger companies, companies with five hundred employees or more. Anything below that is really where you're seeing the compression. You see that divide in terms of corporate profits to very strong SMP profits
thirteen fourteen percent. Yet NIPPA based version of profits National Income and Product accounts, which is millions of companies, public companies, private companies first half of the year and we don't have the third quarter data yet was actually in slight negative territory and that's being reflected in the labor market as well. So that's where I do think the bifurcations persist.
I think the net is it looks just sluggish, but I think you have to find tooth comment in terms of size of company in particular.
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Mm hmm