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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amerie Hordern. 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. Going into the FED decision with a quarter point cut expected, the path forward is much much murkier, Lisa Shalladan Morgan Stanley saying, the implication of twenty twenty five is that it will be tough for more cuts and disinflationary growth acceleration to both play out. We believe that growth will likely disappoint first, and further FED action will be constrained. Lisa joins us, now for more. Lisa, It's good to see you.
Great to see you, Jonathan.
Let's build on that. Why will further FAT action be constrained in twenty twenty five?
So our perspective is we're already seeing inflationary pressures built. You know again, I know that the traditional economists among us like to you know, take apart the data to fit the narrative that you know that they've assumed. But when we just look at the top line data, we've had four months of accelerating core CPI data, flat flat out. And that's with the advantage and the tailwind of a
twenty percent drop in oil prices year over year. If in fact, oil prices have bottomed out because global growth has bottomed out, and that if we assume that some of the cuts that have been put put into the global system start to take effect in twenty twenty six, if we get a little bit of stimulus out of China, if oil starts coming back, and we look at some of the dynamics and inflation, we could have very sticky inflation.
Last year.
I mean this last print, you had goods prices up, and food and grocery prices led the way.
Bigger not hatsa was a thing for twenty twenty four. Yes, you've referenced that in your note. Yes, why do you think that changes? What underpins that change going into next year? Bigger and hatsa.
Yeah.
So you know, our senses that animal spirits are real clearly, you know, there's an enthusiasm and an expectation.
You know that folks should be investing.
But at the same time our senses that demand can out strip supply. Here we continue to have this have and have not economy where you know, the the largest corporations, the richest households are somewhat you know, interest rate insensitive, and they've been powering consumption in this economy really for two and a half to three years now. And the sentiment among those two cohorts is pretty strong right now.
So when you start to talk about this idea that we could see downside to growth and that we could see more weakness than people expect with ongoing stickiness to inflation, I mean that kind of sounds like dreaded stagflation. Is that kind of where you're going with us?
It is, and it's one of the things you know that we've kind of said a sequencing will matter.
You know, we expect that that we're.
Going to get a barrage literally a machine gun of policy proposals, right you guys, you know, as journalists are accustomed to the ten headlines a day and he tries to figure out, okay, which four stick of the ten, and then he goes with those four in another six the next day.
Our best guess is that that barrage.
Is going to create a level of noise that does undermine some of that animal spirits and creates uncertainty for the other sixty percent of the economy, the low end consumer, the smaller cap companies, because they can't figure it out. And so I think it's that that we're going to
see early in year. There's an unbelievable, you know sense that, hey, consumers are going to get tax cuts now, they're not not in twenty twenty five, where it's going to be on a on a on a derivative basis, on you know, the first and second derivative or the rates of change.
Right, your taxes are going to be exactly the same.
In twenty twenty five. Right, there's no talwind. Right, that's all coming in twenty twenty six.
And this is the reason why in some ways you're advocating to unwind some of the Trump trades that.
People have put on.
Can you talk about.
Which you think are most vulnerable to the reality check of sequencing to the reality check of the delay of how long it will take to implement.
So look, I think that you know, some of these Trump trades have been so staggering it's almost obvious.
Uh So, uh, you know, the the.
Cryptocurrency trades, you know, up fifty percent in fifty trading days, extraordinary.
Uh.
You know, we have you know, Taesla similar type of move.
Uh.
You know, I think some of the small cap move has begun to fade.
Uh.
You know, in the last ten days.
Our best gas is that that will that's the fading of that small cap trade is what reflects this potential stagflation that hey, wait a minute, everything's great, but maybe it's not great for us, you know, because we're still you know, broadly a set of unprofitable companies that have you know, struggled to deliver upside surprise and earnings.
So do you still like gold?
We still do like gold here and and and the for us, the gold story really is about inflation and dollar debasement. It's it's a lot about this debt and deficit story. Again, the bond market it has sniffed out this joke and on various days, you see, you know, you know, uh, some folks trying to express a desire for term premium in the long end to the curve. Our best guess is, as these debates get underway, the debt and deficit storyline is going to have to So do you think get higher probra.
The peak dollar right now?
I don't know if we're probably close to peak dollar, but look, I think a lot of things are at play here, and one of the things that I think is a profound risk. Again, this is not a market that's pricing many risks, but we have an extraordinarily bifurcated currency market around the world where the dollar is strong versus virtually every other currency.
If in fact, you know, we come out, you know.
On day one after the inauguration and are extraordinarily aggressive with China. I think that there's a non zero risk that China could come back and say, okay, we're devaluating.
A devaluation of.
The room and bee would be hugely destabilizing across the global trade. And you know, those types of risks are just not being priced right here. So, you know, is the dollar at peak at peak strength? I'm not sure, but I think we're getting close and we're just at this very fragile and unstable place.
If someone were to hear everything that you put together, they would say, wow, what a raging bear. Oh my god, you must be predicting forty two hundred for next year.
You're out at all.
Okay, So let's talk about why not, because basically you're talking about debasement of the dollar and the end of the Trump trade and sagflationd.
So give us where you really are with this.
So look, I think that there are risks out there that we want to see priced. At the same time, there is value because this is an extraordinarily bifurcated market. So we're saying that this is going to be an environment where there are winners and losers. So we do see some winners, right, So we see financials, we see domestic industrials, We see portions of consumer services that again are domestically based as big winners here. We recently upgraded
mid cap growth companies as areas. We're you know, we've built some diversification. We're owning, you know, Japan, we're owning some parts of emerging markets. So we think that there are things to do out there. We think that this is a index that next year can chug along at at the index level, maybe give you five to seven percent.
But at the same time, what we're saying is, if you're getting five to seven percent in a stock market that is extraordinarily richly priced on extraordinarily ambitious expectations, why not own a better risk adjusted return and an investment grade bond and clip the coup and just you know, make it to the end of the year.
You mentioned them what you like in the m which you.
So so so we've we've been long bulls on India.
We know India has stalled out.
We think Mexico is way over sold, and that by the end of the year, you know, we're going to a better footing there and some of the tensions.
With the US will be mitigated.
You know.
Brazil obviously, you know now significantly tightening. We believe that that's going to get priced and that there's going to be opportunities, you know, to buy some value in Brazil.
I've got the foreign exchange screen in front of me. Yees today, imagine markets. It's amazing. The peso in Mexico. You have sixteen percent in Brazil, the currency down by more than twenty Likewise, in Argentina go up to Russia down thirteen percent, in Hungary down eleven, Colombia down eleven, double digit moves in foreign exchange in AM.
You have to wonder at what point you hit sort of a bottom.
Given the fact that you have a lot of.
Potential trade wars being priced in.
Yeah, Lisa Schanott, it's going to see it as We appreciate your time. Thank you, Thank you, Lisa Shanott. There of Morgan Stanley, we began at this hour, which stocks hire ahead of the final FED decision of the year. Victoria fanatis a cross mark, saying the problem is that both sides of the dual mandate are hating up. The question comes down to is the Fed still restrictive? And according to Powell, the answer is yes. Victoria joins us now for more. What's the answer, recording.
To you, I don't think we're as restrictive as the FED wants us to believe.
I mean, you look at growth.
You've got Atlanta Fed GDP.
Now what three point three percent? You've got inflation?
We had CPI and PPI reports come out, big revisions there, inflation being sticky, and you have really high centiment right now.
Look at NFIB small business three year high on cinniment.
You've got bull bear ratios very strong on the bulls. Now, that can be a contrarian signal. I get that, but you still have really strong sentiment that.
Is out there.
With these elements, I don't know how you can say this economy feels restrictive. I say, yes, there are underlying elements right under the surface that I think will start bubbling up that I don't think it will be until early next year.
Isn't that disconnect just super boolished So long as the Federal Reserve chair thinks they're restrictive and keeps kind of interest rights, isn't that just the green light just to keep on buying?
It is for now, and I think that's why you're seeing the market.
Continue to move up.
Yes, the past few days we've had a little bit more volatility in play, but the market is going and you've got.
The seasonality along with it. You've got earnings.
Expectations that people think, I think a little optimistic, but double digit growth.
Again next year in earnings.
You're not having the labor market completely fall apart. So I do think there's elements that are tail winds to this economy, and you add Powell in which I know you said you think it'll be boring Amory, but I do think he's going to come out and say the same we're data dependent, recalibration, blah blah blah, and everyone's just going to look to the dot plot. Regardless of what Jim Bullard said earlier. They're going to look to that dot plot and go, what are you really thinking.
I don't think it's going to be boring. I think it's going to be fascinating.
And I cannot wait for the meeting and the dot plot and the press conference afterwards.
In particular because.
As you're saying that this is a tailwind essentially the idea of a FED cutting.
There is a question of for what assets.
Is it a.
Tailwind for stocks, is it a tailwind for bonds at a time or you have a real discussion longer term about whether this actually increases the chance of stickier inflation over twenty twenty five and twenty twenty six. What do you expect to be the reaction in the bond market, particularly the longer end.
Should this be a FED that does lean more.
Duvish than say, what the market is expecting Yeah.
If you get a more duvish feel to the press conference, I do think you'll have equity markets rally a little bit and bond yields will probably come down, at least in the near term. I think they come down a little bit with the expectation that the Fed will continue to cut. However, bond vigilanes are not going to be happy with that, so let's give it a little bit of time. I think they'll come in, they'll start singing, and we'll see yields move up intermediate term from there.
But the initial reaction if the Fed is devish, I think you'll see yields come down a little bit.
That raises this question about whether the market does not believe inflation to actually be a real threat.
I mean, which is it.
It seems like there are different messages from different asset classes. In the bond market, it seems like there isn't a great deal of concern, but it's definitely a sense that things are stickier. And then the stock market, they're just saying, we don't care. If it's mildly inflationary, that's great, let's go right.
And there's other elements that could cause inflation to go high. It's why it's such a difficult story right now. I mean, we don't know what tariffs are going to do exactly. We don't know what kind of corporate tax cuts or individual tax cuts are coming in, and is that going to be inflationary. I think the key to a lot of this, though, is productivity. That can really be the element that comes in and buffers inflation and helps growth
move higher. So if the expectation is that you're going to get some productivity coming in, maybe that's one reason why the markets are not as concerned right now with what inflation is saying.
Well, J.
Powell won't assume what Trump two point zero will look like, but the market certainly is what sectors do you think will do well next year?
A lot of it depends on the policies that we see come through, but I think you can imagine we'll probably have capex.
Stronger going forward.
If you have federal spending come down, that helps on capex, It helps corporations in regards to margin. So I think you'll see industrials do well. I've liked financials all year. It's been a story we've had. I think you'll continue to see financials do well. They've had a little bit of consolidation, but you have that deregulation story coming in. You have a positive yield curve lone growth should grow M and A should grow. So that gives you some
bumps there. On financials as well. We don't invest in crypto, so I'm not going to say that, but it's been going a little crazy.
You like indust Fill's because potentially the tax rate story right, tax rate in Capex, I think we continue to see growing onshoring.
Well, what about tariffs, Yeah, I mean I think we.
Have to separate the tariff story out, and you probably know better than I do when we look at the history of this. I think when you're talking about tariffs as it relates to China, that's one story. I think we can assume that that's going to be pretty quickly after January twentieth, we're going to see some movement there.
When you're looking at tariffs for the rest of the world.
I know there's been a lot of talks in the conversations with Canada and the conversations with Mexico, but I think that's a different story and I wouldn't anticipate we're going to see those come to fruition as quickly or maybe as high a level of tariff is what we're hearing right now.
Let's talk about breath, bad breath.
We've been seeing a lot of bad breath over the past twelve days, throughout the entire month of December, and it raises a question, is this a taste of what's to come next year or if this basically is just a breather of the Trump trade and it will reassert itself come twenty twenty five.
Where do you fall on that.
I think we do have to be a little bit concerned here. I know we're having a little revival here and tech names are doing well, yes, and videos pulling back, but Broadcom's stepping in, so we're seeing those go. But then you look at how much concentration there is in these names. I mean top ten names are thirty seven thirty eight percent of the weight of the S and
P five hundred, so you don't have that diversification. You're seeing a little bit more breadth down cap But I think we have to be concerned when we hit next year and you have the debt sealing crisis come in and we start to see tariffs go into play. I think we have a little more volatility next year. I don't think this is just a small pause and then we're going to go full on bowl market from here. I do think there are some concerns that we have to be leary about.
What's the hedge at a time where there's equal risks of both some sort of acceleration and inflation or a downturn.
For us and for our clients, it's really being diversified. So not just in your stock picks that you have, but yes, we want to be in the market. You've got tail when's going right now. I mean path of least resistance is higher for now, So you don't want to ignore that you want to be.
In that market.
But we like those areas we talked about put some names in financials, look at some of the industrial's longer term play. You know, I'm a fixed income person, so I think you still lock in some of these rates. We maybe go up to a four seventy five or so on the tenure. I think you can lock that in because with global rates as low as they are, I mean you look at Germany like two and a half, right, we look and see what's happening in China.
I think you can capture some of that as well and have some.
Exposure to SMB talking about how negative rates do work. Do you like anything when you're looking at diversifying outside of the United States, It's tough right now.
I would have said a few months ago, Yes, put your toe into Europe. I think that they're going to start to see things with the ECB cutting rate.
But the issues that we're.
Seeing out of France, the issues that we're seeing out of Germany, the poor manufacturing there. I mean, we have it here, but it's even worse there. We're seeing a two hundred and thirty basis point differential between UK and German ten years.
I think you have to be concerned.
I need to see a little bit more positive movement coming out of Europe before I think you go there and Asia. I think you know there's some concerns there. In China as well, domestic demand is really slow. We saw it in retail sales. They had the highest month of outflow, its like forty six billion last month, So I think there's some concern there.
I think you got to stick with you for now.
Disinflation redflation rey traps are difficult to get out of. Japan lift it went through it for a while. We've seen that start to take place in China. Is that what that shot of Chinese government bond yot is all about? Somebody says, I think that's part of it.
But I also think when they're looking at tariffs that could be coming, you see some flight out for that reason too.
There's some concern you have China.
Saying that they're going to be more proactive in regards to the stimulus that they put forward.
They OpEd their federal deficit.
They're saying it's going to be four percent now next year instead of three percent. Not a huge move, but they're trying to do some things. There is somewhat of a trap there. You have to be Laria.
Bond market doesn't believe them, looking at that shop doesn't believe them.
Untill and neither do a lot of other people.
I mean that there is sort of a sugar high the equity markets perhaps, but realistically, are they going to be able to juice growth at a time or consumers are reluctant to spend that ultimately is the question.
Victoria good to say to catch out. Thanks for being here, Victory Ferinandez, there a Crossmark Global. Anna Nikolaevsky is the founder and CIO of long short firm Axle Capital Management and has been bending on the name since twenty twenty three and place to say that Ana's with us now and a good morning.
Good morning, how are you? Thanks for having me to you.
It's been a great year for sun chip makers, but not all true. It depends what you're exposed to PC, smartphone data centers. When we talk about Micron, what kind of exposure are we talking about.
I think at the moment, people are expecting the quarter to have up asps in the five percent range. I think the XP's are going forward may actually be flat to down and you're probably not going to see your recovery until the back half of twenty twenty five because there are going to be a little bit of a push out for smartphones and PCs at the moment.
What is it about the back end of twenty five where you start to get a better tail went for those kind of businesses.
There's going to be a replacement cycle across smartphones.
Across smartphones and PC.
I think at the moment you are not seeing one hundred percent adoption by the consumer of AI PCs I think Best Buy has hired several thousands of people to help train consumers on the aipcs. But there's no major major uptake right now for the Christmas season as far as I'm hearing, So there may be an uptick later on next year when there's a natural upgrade cycle for enterprise and consumer.
What's fascinating to me is that people have been trying to pick the next Nvidia, the next big winner from the whole chip cycle, and the fact that we've seen some real massive winners. Broadcom seems to be the latest superstar. We've just seen this moonshot in the shares with them falling right behind Tesla as sort of the Magnificent eight, and people are playing around with what the name could be.
What gives you confidence that Micron's growth has that type of moonshot at a time where people are trying to imagine what the sort of evolution of AI adoption looks like.
I think when I think of Micron, I think of DRAM. I think of a global commodity that is actually going to be benefiting.
From some of the US chip stimulus.
But I think long term, you're going to see more and more DRAM across the board and everything.
Memory is extremely important.
So I think about Micron in terms of that long term cycle that right now probably is going to decline a little bit, but will come back up again later, although last year Micron was telling us that twenty twenty five will be the peak. So it's a function of what overall tech adoption will be like in terms of hardware.
When you talk about your investments, you're investing on the tech side with Micron, but you're also very low tech with respect.
To just what people buy every day.
Maybe some of the nature Valley bars that some people like and hogandize that some people like and enjoy. Its thankful, Actually in our household it is a staple.
And we got a lot of suce across the amount of snice for America, and that's okay, that's what they want to hear.
Some people grow up with lucky charms and turn out just fine.
But I will just say, how much are you.
Really going towards some of these staples and why now.
We've taken a very conservative approach to investing right now where we have large holdings in BJ in Costco, in Walmart across the board. One of the reasons for that is, we're trying to go to where the puck is going, and at the moment we're seeing a slowdown in AI adoption. I think we're seeing the opposite of the FOMO that we saw in the beginning of last year, where managements
were virtually throwing money at GPUs. It was all about speed and scale, and this year I think we've seen a significant transition in terms of how are you going to monetize this AI?
What is really what is it.
Going to cost, what is the must have app and what is it going to cost on a long run basis to operate the AI once you get past the training part.
These names Cosco, Walmart, Target, it's where you can find good deals precisely.
Do you see you slow down in the consumer?
I think we're seeing a slow down to the consumer already. I went to buy some coffee the other day and a pack of twenty Starbucks CA cups cost me forty dollars, So I think that everyone's kind of migrating towards cost saving. But I'm literally thinking about what's going to happen to the S and P If there is a slow down in tech, where will that money migrate and to me, that's going the money is going to migrate towards more conservative,
stable cash flow generating areas of the market. That being said, I think that Trump is one hundred percent pro the market, and he's surrounded by extremely, extremely smart people. I think very highly of Scott Bessont. I think Elon Musk is one of the greatest innovators just beyond this generation obviously, maybe of all time. So I'm very impressed by the team that he's assembled. But that being said, I think that technology is on a cycle of its own, and
we're seeing changes in terms of focus ROI. We're looking at intellectual property and security issues to consider, and also in terms of AI data governance also needs to be addressed.
You've been super gracious with your time already this morning, but this is not the reason you're with us. You're with us because you're passive supplying the robin hood. Stop picking contest whereby I have to pick one long one shot and see who wins out of six months, we can put the later board up on the screen. Can you share with us your longer shot and what's behind each one of those pegs?
So my long is BJ just primarily generates a lot of cash flow, and I think that if GDP does slow down, I think the stock will be pretty resilient. My short is in technology. As I said, I think you're going to see a slow down. I think right now, when you're looking at prices of GPU rentals, they've come down pretty considerably because there's a lot of server optimization, and once you've stopped trying to train your AI, you may have excess GPUs that now you're starting to re
rent to other people. So now it looks like there's a lot more competition on the GPU rental front. It's a longer term that's extremely positive because it's going to lower the barriers to entry for new companies to come to train and create new business models.
But in the short term.
That may create some pressure for data centers and the chip manufacturers.
That is fascinating to me. How much do you think that that is underappreciated right now? I mean that sort of speaks to the short position. Why do you think that's overlooked?
I think the CEO of Microsoft mentioned it last week when he said there's no longer a chip shortage. I think we were chip constraint for eighteen months. But I think that started to resolve itself probably in the middle of this year, and now I think volumes are coming to the market and you're seeing a large reseller market in supply. Come on to eBay and Ali Baba of entire GPU clusters, which is going to depress pricing.
And it's all for a worthy cause.
So it's good to see you and thank you for Shane so much.
Thank you very much. That was Anna Nikola Yeskivi of Axel Capital Management. This is the Bloomberg Surveillance podcast, bringing you the best in markets, economics, and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from six am 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.