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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.
There is still data creeping out before the Christmas holiday.
Initial job list claims.
Scarlett coming in at two hundred and fourteen thousand, right, and.
That is lower than expected. The estimate was for two hundred and twenty four thousand, and on a four week basis, the four week moving average, it's about two hundred and sixteen thousand, which is slightly lower than the previous four week period. On a continuing claims basis, we're looking at one point nine in terms of the claims for overall, and that's compared with one point nine.
To ZHO as the consensus.
So these are you know, it's a high frequency data point. It's something that we look at more carefully because the jobs numbers have been messed up by the government shutdown. We haven't gotten a lot of clarity on it, and we probably won't get a lot of clarity on those jobs numbers for a couple of months to come, especially if there's another shutdown potentially in January.
Absolutely, the distortion from the jobs up from the shutdown longest in history.
What's interesting, though.
Is the continuing claims that is ticking higher, even though we do have the initial claims.
A little bit softer.
But to Scarlett's point, these data points really do matter, given the fact that we are dealing with potentially this distorted data right now. Financial markets though not seeing really any action, low volume today. It is Christmas, so potentially some individuals not really paying attention to their ecoscreen.
Joining us now though, discuss more.
Stephanie Roth of Wolf Research and Bloomberg's Michael Ball, thank you both for joining us being in studio. Merry Christmas to both of you. Let's just get your reaction, Stephanie. From the initial claims.
Number, it's the data looks solid. It's telling us the labor market remains fairly, fairly well contained. The layoffs are pretty minimal. There was a bounce back in continuing claims. We have to remember that there was volatility around the Thanksgiving holiday. The trend seems like in Continuing claims is it's actually starting to take down over the past couple
of weeks, which is a positive sign. Continuing claims are important to watch to gauge to what extent people who are currently unemployed are finding jobs the job finding rate.
When you look at this data and compare it to what we saw in the latest job support with the inflicate, with the unemployment rate actually taking higher, though, what do you make of all of it? Or is it just too noisy?
I wouldn't read into the unapployment rate ticking up in the last most recent print. I think there was an amount of the government shutdown that filtered into the data. BLS said that there was an impact from the government shutdown. They can't con necessarily quantify exactly how much. I firmly believe that in the next December print we will see that unployment rate taking down to potentially four to four, if not at least four or five.
Michael, what do you make of this.
Yeah, the timing was different too, right, So the re entries from sort of the college kids coming home had a factor. There's this sort of weirder feel to it that made it very questionable, again with every other data set we've seen from sort of the shutdown. So again traders are looking through it, waiting for January to get the December data with the hope it's cleaner. But to what you just said, uncertain if we will get that
if there is a shutdown. The lots lots of questions, not a lot of answers.
We've borne there before.
So, Michael, given all of this, the fact that the labor data is going to be not corrupted but incomplete for a while, do you then look at the market focusing more on things like the weekly joblest claims, which didn't really get as affected by the garment shutdown because these are state compile numbers.
Yeah, I think the continuing claims interesting. You did see some of that picked up in other survey data. And also what I'm looking at a lot is now is beagebook.
The trending there has been much weaker. You have obviously three points growth inflation and the labor market there where you can kind of extract a trend, and all of it's been sort of negative, including the inflation, which is seemed to be stabilized, moved sort of from the forefront of the summer now to something secondary and instead now guys are talking about lower sales, lower activity, lower investment, and we saw some of that a little bit in
the third quarter GDP, where the investment side was much kind of flatter than you would expect. Now there was an inventory drag clearly, and most of the power came from consumption. But my worry is if we moved past the AI pulse, the investment cap X story is much weaker and some of the pmis are reflecting that now.
So for those who don't know, the base will compiles anecdotal evidence of what different FED regency taking place in their district. Is that based on activity or is it based on sentiment? Because we know the soft surveys tend to show consumers feeling worried, but in the end they end up spending anyway one hundred.
Percent and sentiment based for sure. They obviously are you talking about real activity? And the FED presidents and some of the governors like to say they talked to contacts in their districts or contacts out there, and this is what they're referring to in a lot of ways. But to your point to shut down weight on sentiment, we obviously have seen consumer confidence hasn't really bounded yet. Business
sentiment has been moddeling through. If you look at some of the regional Fed pmis, it can be quite funny when you look at the comments and how frustrated are with tariffs and with shutdowns, and.
Of course it's not there just the jobs data that is left kind of incomplete Stuffhan we also see inflation, and the latest inflation report was a good example of that where we're not getting the full picture, and it looks like we're not going to get the full picture for a while.
No, what we're going to see is the inflation data is likely to tick higher in the next couple months and up until April when we get the bounce back in terms of rent inflation, given some assumptions that BLS made. So what we'll probably see is an environment where inflation is picking higher. And I would actually take the other side on the growth from a growth perspective, and our expectation is that growth is going to start picking up. It's ready. It seems to be inflecting to some extent.
The Q three GDP data, we're actually pretty decent, and my expectation is in Q one the narrative around the economy will be somewhat the opposite of what we've seen in the past couple months, where it's inflation is a little bit elevated and growth is also picking up.
When it comes to growth, we have the GDP report for the third quarter rear view mirror, but more than four percent absolutely stellar. Know, the Commerce Secretary thinks that means we're all getting a four point.
Three percent raise. If it were, that wouldn't be great. You know, our management.
If you're watching the Commerce Secretary says, says, that's what it is. But when you see that kind of growth, do you think that's sustainable into twenty twenty six.
No, And first of all, four point three percent real GDP growth does not mean nominal wages. That's a different concept. But putting that aside, you get up.
With the Commerce Secretary Stephanie.
Putting that aside. Is it sustainable?
No?
Because some of it was linked to net trade, which is which added one point six percentage points. What we're seeing is an economy that's running between two or two and a half percent. Our expectation as will be running around that trajectory for twenty twenty six. A four percent pace absolutely not sustainable, nor is that really the underlying trend anyway.
And it got the attention of the President. He said, the financial news today was great. GDP is at more than four percent as opposed to a predicted but the modern market we have good news. The market stays evenor goes down because Wall Street's heads are wired differently. He says, no one that agrees with him cannot become the FED chair. What does the FED do with this kind of mixed match you're really describing.
I think they're going to be on hold for a lot of next year, at least until we get the new chair. This is probably this was probably Powell's last cut. It's an environment where inflation is taking higher, like I said, employment's likely to start improving, so on point right, like we talked about earlier, taking down, and then the trend in perils is likely to be a bit better, in which case it's a tough environment for them to be cutting.
So the President may very well not like what he's seeing in the first part of the year because the Fed's unlikely to be havel to these policy.
Launch unless the data shows that the labor market is deteriorating so quickly bad headline numbers leading to a good market outcome. The President has made clear he doesn't like that. But will you just take it.
In the end?
Yeah, I mean, we'd have to have quite a print in January for the December data to make it just right so that they would move. And to your point, then it's no longer risk management cuts. The market takes it totally different. You're cutting now into weakness, and that's a totally different vibe to talk about. Lisa likes to talk about with the vibes. I knows she's not here today, right.
That changes the whole vibe, right. The rotation, the reacceleration, And I understand what you're saying that basically there is this hope that the budget bill and that basically the coming up passing of the uncertainty from the shutdown from the tariffs will all have a better sort of pulse
into the first half of next year. And that's why we see this rotation trade small cap cycle close even pockets of value have outperformed, but overall, again the worry is that now the FED further easing is not based on sort of that good vibe, It's just based on warriors and weakness, and then people have to change the sentiment.
Sophie, what is your biggest concern? What is the most high impact but low probability event that could happen.
In twenty twenty six? I would say, if we're wrong on the land market right, and we see the unemployment rate notably taking higher, that would of course be a sort of negative batchup. Granted, the FED in that environment, in theory, would be able to ease unless we get
inflations starting to take higher, none of you. But if we have an environment where you see both sides of the FEDS made, they come into challenge and the inflation side is starting to really pick up, which is very possible in Q one in particular because Q one tends to have seasonal problems, that would be kind of the worst environment.
Of course for both of you. Is there potential for recession in twenty twenty six, I.
Don't think the odds are particularly high. I don't think they're particularly higher than the normal recessionary on somewhere between fifteen and twenty percent. Of course, the odds are never zero, but I don't think it's abnormally high at this factor.
I guess the question I have, just you know, percolating the back of my mind is what does it mean if the AI trade.
Is real and we actually see mass layoffs, that's.
Not necessarily a recessionary back of course, it depends on how it all plays out. If we see an environment where the unemployt rate is just steadily moving slightly higher because you have AI, then you have strong growth, productivity, low inflation, that's not necessarily the worst backdop. If it's mass layoffs, then they come quite quickly. Of course that's
a very different environment. But I think I think the way it might play out if it's really AI related is a more gradual upward pressure on the unemployment rate, which is not recessionary.
Michael, Yeah, I think you did a shock, something unforseeable in a lot of ways to get us there, given the momentum is still strong. Again what I was saying earlier, I'm worried about this capex pulse. Outside of AI. The no higher no fire seems to be holding and as we're seeing now, although December look to have cool, the consumer has been resilient. Clearly it was in third quarter. We'll see what happens in the fourth. And that's all driving us into the new year with some good momentum.
But to the point you know, there is still a veil concern with price levels, not necessarily the acceleration of prices, but the actual level still weighing on real disposable income and hurting the K economy, creating the K economy and hurting the lower half.
The dollar is projected to be lower in twenty twenty six as well, and of course we see central banks around the rest of the world, in the UK, Europe cutting interest rates.
Talk a little bit about how the dollar factors into all of this.
Yeah, the dollar is the big debate, and I think it's interesting because you can spin a number of ways. If we do reaccelerate and they are less fed cuts for good reasons, one would think that just rate differentials
alone would support the dollar broadly. Now, of course, there's all these idiosyncratic stories with the euro, with the yen and even elsewhere on the other g tens that make it hard to really look at the basket and say, Okay, we're going to have one move in the basket, but overall, I think it's just going to be more of an alpha from individual crosses and on the end Live team.
We've been having this debate.
Quite vigorously lately, Stephanie.
It's the day before Christmas, It's Christmas Eve, so of course there's going to be a lot of people out there doing some last minute shopping. Consumer spending, retail sales will continue to hold up for December.
Yeah, I think it should be pretty decent. If you look at the real time data, they look fairly steady. It seems that the consumer just continues to be fairly resilient. And then in twenty twenty six, at the beginning of the years, when you're going to start to get the impact from one big beautiful bill which then benefits from the lower end consumers from no tax on text, no tax in overtime via tax refunds that come.
In, and potentially two thousand dollars checks presents voting tariff dividend checks.
Let's see know about that.
Let's see what Congress has to say about.
Stephanie Roth of Wolf Research and my Bloomberg's Michael Ball, thank you both for coming and joining us in studio, spending your Christmas Eve morning with us.
Stay with us, Multlmberg Savillah's coming up after this.
Cameron Dawson of New Edge welth saying equities are undeniably expensive and there are signs of complacency, but this market can chop to new highs.
Cameron joins us.
Now, Cameron, give us a sense of what new highs, and merry Christmas to you what new highs we can have when it comes to equity markets next year.
Wecome morning and Merry Christmas.
I think it's time to dust off the old a dodge, which is respect the trend, but don't ignore the risks as we go into twenty twenty six.
Respecting the trend appreciates the fact that.
We're still very much in an uptrend in this market, and it's also being led by pro cyclical areas. You mentioned industrial commodities earlier. You also have leadership in things like banks as well as transport starting to turn higher. So there's a pro cyclical message coming out of this market. And you also have a very important uptrend in earning sestiments.
And GDP estimates.
And this has been the key fundamental underpinning as to why we keep being able to press new highs. As long as you're revising estimates higher, that's usually a good environment for risk taking. So the second half of that is don't ignore the risks, and that's where we look
at things like valuations. We look at signs of things like complacency within markets, look at the vix turning ever lower each and every day, and so it could be in an environment where we're still able to carve out new highs because of those earning sestiments, but there could be some volatility and chop along the way simply because you have a high bar with valuations and a high bar with expectations as well.
But you still think positioning is not yet stretched.
What would get us to our point.
Our favorite measure is looking at the Deutsche Bank consolidated equity positioning, and this is really measuring institutional positioning.
And what's fascinating there.
Is that we're in the sixty second percent hime, which is just about slightly overweight. But if you look at discretionary investors, there's still just neutral, and so we think that there's still room for more people to get dragged into this market. But if we're talking about positioning, we also have to mention households as well, and that's where you cannot make the argument that people are underweight equities.
You can look at the AAII survey that looks at equity positioning that's at the highest level it's been since peaks like twenty eighteen and twenty twenty two. We've talked a lot about how margin loans have grown extraordinarily over the last six months at about a forty percent clip. So there are certainly signs that households are very fully invested, but.
Some institutional investors have still.
Sat on the sidelines, which just is likely why over the last six months or so every dip has gotten bought so rather quickly.
Yeah, talk a little bit more about that money that's sitting on the sidelines, so a dry powder, if you will. We've talked a lot in the past about money market funds and how there's more than seven trillion dollars of money just sitting there waiting to be deployed. Maybe retail investors are fully invested, but that doesn't take away from the fact that there's always that possibility they could put more into the market.
How are you thinking.
About what would what it would take to get that money to be put to work.
Yeah, we've never considered the money market funds as exactly fungible funds that could go into equities, meaning that these were savings and cash balances. They were typically held in cash savings accounts versus just things that were anxious and waiting to go into equities. So maybe at the margin, as you see those money market funds start to fall, it does incentivize people to look for other investments, but it's not necessarily a direct line straight into the equity market.
So certainly money market rates falling could push investors into looking into other areas instead of just sitting on the sidelines and clipping coupons, but not necessarily seven trillion dollars of a wall of money that will go into equities.
So the centrally that we have right now, how much of it is driven by technical factors like positioning versus true fundamentals, earnings growth, and the earnings outlook for twenty twenty six.
Yeah, this time of year, we try not to read too much into the price action given volumes being so very light, and we do know that there tends to be some kind of window dress in dressing and positioning chases into year end. And what's really fascinating is that we saw the rotation and leadership start a little early this year. Typically we see leadership rotations where you have your classic dogs of the Dow or the last Shelby First trade that kicks off in January as people start
to rebalance portfolios in a new tax year. But it seemed to start in November this year, where we saw value for example, outperform growth by five percent since November first, So maybe people are trying to get a little bit ahead of that. But at the end of the day, we try not to read too much into very end of year kind of race action simply because it doesn't reflect anything more than likely just positioning chasing.
Kemer when it comes to the commodity space, if you look at what happened this year across the entire spectrum gold, silver, platinum, copper, do you look at that and you think you have to maintain part of this into twenty twenty six or do you think individuals should make sure that commodities are part of their portfolio.
Yeah, we see commodities as a way to have an inflation hedge within portfolios, and they work really well when they work well, and they don't work so well a good portion of the time. So certainly we've been in an environment where that has been a very powerful uptrend for a lot of these commodities.
I think the question is how much can it continue?
Jeff to graph of renaissance Macro put out a great piece effectively saying, hey, when you've doubled your return in less than two years, the probability of you doing it again is extraordinarily low. So it gets back to this kind of overall notion of respect uptrends and not ignoring risks. Gold isn't a very powerful uptrend. We've been calling it the Chuck Norris of commodities. Nothing seems to be able to keep it down. It doesn't even touch its fifty
day moving average. But if you look at longer term charts, it is extraordinarily overbought. So it wouldn't be surprising to see some kind of consolidation. But we do know that there still remains very powerful drivers, for example, central bank buying of gold, but also appreciate it has become somewhat memified,
meaning that it has become effectively a momentum stock. You're seeing a lot of training and retail investors as well as investors overseas, So it could get a little bit over its skis and consolidate, but the uptrend is still very much there.
Stay with us. Mulblomberg Savannah's coming.
Up after this.
Here's the latest a federal drug rule.
The Trump administration can move forward with one hundred thousand dollars feet on new H one visa applications. Joining US now is Terry Hayes of Pangea Policy. Terry, I got to ask you, what do you make of this? Because tech CEOs have been going to the White House, and I imagine this has been part of the discussion as well. They want to make sure that they could still get the best in the brightest workers into the United States.
Oh sure, Marry, Christmas mean Marie, and to you and de Scarlett first and most importantly, Yeah, they go to their White House and they talk about these things. But you know, the tech CEOs have a long list and we all know what they are. And the question is whether or not H one b's are at the very top of that list, And the answer is almost certainly they're not compared to AI and anti trust and competition
and a variety of other things. So yeah, they are very important, but you know what you played with the lun there on the bumper has been very consistently the administration's policy that what it wants to do is not just, you know, not just keep those jobs here, but to train people up in the United States so that there's greater reliance on a United States workforce and frankly greater greater ability of that workforce to deal with the twenty
first century tech challenges in AI and elsewhere. So this is not just a matter of the administration flexing its own power.
It's got a policy point by.
The President in twenty twenty four was on the All In podcast and he said that what he wants to do is that if you graduate from a college, I think you should get automatically as part of your diploma, a green card be able to stay in this country. That includes junior colleges too. What happened to that idea, I.
Think it probably got I think they want an idea like that, But I think what ends up happening here is that it becomes less important when against the broader push on H one B's terry.
Is this issue resolved?
I mean, I know the US Chamber of Commerce was the one that initiated the lawsuit in October, and we know that following this ruling, the Chamber of Commerce can certainly appeal the ruling. But in their mind, is this something that's pretty much a done deal? And you know the organizations they represent can kind of move forward.
Oh, I imagine they'll appeal at Scarlett. You know, there's.
The thing that markets need to understand is that there are six hundred and seventy seven United States District Court judges. You know, there's always a district court judge making a ruling on something.
There are two appeal levels above that.
I have every confidence the Chamber of Commerce will continue to appeal. You know that said the arguments the Chamber and a lot of other folks may including the state of California and trying to overturn this policy, are telling all by itself. California, for example, said that, you know, one of the two of the reasons that was pushing back against the administration was because of the negative implications
it would have for education and healthcare. Now, if you think brought more broadly about the kind of immigration policies that say Gavin Newsom is interested in. You know that the politicization of that becomes obvious.
Well, speaking of decisions that were awaiting, of course, a Supreme Court is scheduled at some point in the New York to come out with its ruling on Trump's tariffs, those reciprocal tariffs. What's priced in right now? What is kind of the base case here? It seems as if, given the arguments that have been heard and the responses we've gotten from justices, it is that the Supreme Court will roll with those back.
The base case is that is that the tariffs go away. I'm very much nonconsensus on this, as you might know. The for two reasons. One is that the court does not dispute the fundamental seriousness of the economic emergency. In other words, the court's not trying to evaluate whether or not there is an economic emergency or not. That actually wasn't even know there wasn't among the questions presented, wasn't discussed anything. Secondly, there are plenty of other tiff authorities
that the president can use should this one be turned back. Thirdly, I think the court probably gives if there's an infirmity in the statute, the court probably gives.
The Congress an opportunity.
To correct it, and the Congress in fact will have that opportunity in what's now being called Big Beautiful Bill two dot oh Reconciliation Bill that I think comes up probably in the first quarter of calendar twenty six.
So all this together means.
That the wishing and hoping that there's going to be some massive tariff rollback and people are going to get a windfall is completely off base.
Terry.
When it comes to the GDP data yesterday, a lot of this is AI investment. Kevin Hassett, speaking to some reporters talking about the boom in AI, Trump in November says he loves AI, is not worried about it. How do you see this debate playing out in Washington, though, when you have individuals like Steve Bannon talking about constantly that AI might need layoffs by more Americans.
The administration has made the decision that AI is the tail that wags the dog. I think that AI is the key to everything right or wrong. I think that's what they do. They talk The National Security strategy is very plain about that. The so called Genesis Mission or Genesis project that Trump announced is very plain about that.
Even the.
Defense Department's draft report on the Chinese military threat that came out earlier this week is very plain on that. So I think that's beyond debate, frankly within the administration, and I think that every policy that, every policy economic or otherwise that gets discussed, gets discussed and decided through the AI prism.
I wonder what you make of the gallop pulling we had this week about Trump's approval rating, especially when it comes to the economy. Even among independents, his support has a low of twenty five percent. Americans are just not feeling everything the administration is touting. Do you think potentially going to the midterm election, they will make the same mistake the Biden administration.
Made two points. One is that one is more obvious than the other. I think one is that the midterms are almost a year away, and in a situation where you've got ten percent or more of the House, which is really what's in play here, the tiny House majority, ten percent or more of the House seats are not only open, but we're not sure entirely who's going to be running for them. I think it's awfully premature to
assume that the Democrats will sweep those. Secondly, I do not think the administration is going to make the same mistake that it did that the Biden administration did on assuming everybody understands.
What they think and we'll conform to it.
Finally, you know, I think people need to understand that the president is the most popular politician in America. By carry no water for Trump, by saying that, I will say that Trump's favorable unfavorable last week was minus nine compared to minus fourteen for Republicans, minus twenty three for Democrats overall, and that right track, wrong track since the twentieth of January has improved roughly by half. Last week it was sixteen and a half roughly, and January twentieth
it was thirty two. They will attack the affordability problem strongly. They don't care about ideology. They'll attack it any way they can. That makes sense, and they've got a lot of time to do it.
Stay with us. Mault Blomberg Surveillan's coming up after this.
Stocks Little chains as a Santa Claus rally lift stocks to new all time highs. Michael o'rourk of Jones Trading, writing quote, we doubt most investors realize how expensive the S and P five hundred really is.
There's no doubt in our mind. It is a bubble.
There is strong fundamental business demand, but what matters is the price an investor pays for it. Michael joins us. Now, Michael, thank you so much for joining us. So you're bursting the bubble a little bit this morning. How should we think about going into next year?
Now?
I think, as we saw that GDP report, the economy is doing very well. Obviously AI is driving a lot of spending, but we have asset prices are very very much inflated. And you know that quote has to do with the top twenty marketcap names in the S and P five hundred are trading about forty times trailing earnings. And that's if you take out Tesla and twenty eight times forward earnings, so that you know, those are historically high valuations, historically high multiples. And it's funny you're just
talking about the economy. I would say, you know, we talked about the K shaped economy. Uh, where the you know, the rich team to get richer and everyone else is left behind.
It's the same thing in the stock market.
You have these top twenty names driving the you know, the overall market, or obviously even that the maggate will drive the overall market. But a lot of stocks are being left behind on an evaluation basis. So there are many attractive names out there, but that's not where we are in the index level.
But do you still want to remain that exposure to some of those high flyers, those twenty odd names.
Now, I think, I think what's what we've seen in this market is a the crowding into those megacap names has led to crowding out of many other high quality.
Blue chip names.
So for example, in the pharmaceutical sector, with everybody chasing Lily because the zep bound, you know, and GLP drugs, a lot of large CAF former names have seen their multiples depressed pe multiples to single digits, and they're you know, they're paying somewhere between the three to you know, six seven percent dividend yield. So there are attractive areas in
this market. I would rotate out of those dagger names and look, you know, down to the lower market caps, but still blue chip names out there in this market.
Down to the lower market caps, would you go so far as to start bidding up the small caps? Every single time they look like they're gaining some momentum, they kind of lose steam and we start to see everyone rotate back into the big cap names because they can't get away from them.
Well, so tho small caps are interesting because they're really, for the most part, an interest rate play or a FED rate cup play. So most of them momentum we see go into the Russell two thousand or the S and P six hundred has to do with, oh, we got a bad piece of economic out of the Fed's gonna lower rates or you know, inflation's coming in. I
don't see they are more attractively valued. Of the six hundred, and the S and P fourgs are more attractively valued than it is in B five hundred on an index level.
But you are in.
A lot of cases just bouncing around with FED funds expectations, Whereas, like I said, there's a lot of blue chip companies out there, even in the consumer staples space where you're seeing the multiples come in, and they're names that I think you're getting out a discount that you can put await for a long time. Because everyone's crowding into the megicaps and chasing this AI trade.
Yeah, you're talking about the bad news is good news dynamic, especially as it.
Plays out for small caps.
Michael, What do you worry about the most in twenty twenty six in terms of potential land minds? What is the single biggest risk out there?
I think this AI trade. I do think of the bubble. I think there's massive speculation space. I think you're going to see some of these deals start to unwind or not come to fruition as far as funding rounds and things like that, and I think that's going to spook people.
And you know, while the technology is phenomenal.
I think what kind of got was lost by a lot of investors is the disruption is pretty easy, and we got our first go first.
We shore cases that would deep seek early at the beginning of this year, but.
Then last month when Google came out with Gemini three, people realized, oh wow, someone could do this better and they could do with cheaper chips. So I think that's a real risk to the you know, so much money chasing the AI trades start going to this new year, Michael.
When you look at the third quarter GDP report AI investment and household consumption by obviously the higher income Americans. That's seventy percent of the growth. Those two components together what we saw on the third quarter of GDP. Obviously it's a rear view mirror, but that's where the money was spending.
AI investment.
So if you think that this is overdone, is it not just an issue for the stock market? Is this also a huge issue for the US economy, the real economy?
Well, I would think it is because that's where the growth is, right, you know, like you said, we talked about this case shaped economy, and we have people.
Worried about jobs.
That labor market obviously has been under pressure since the summer, So if that slows down, it is an issue. I mean, I was looking at the contributions you know, to technologies and you know investment over the course of this year, and I think it totaled or equaled you know, the past several years.
So it's been strong throughout the year, and the question is.
Can you continue at the same pace and can it continue to do push this economy forward. Now that said, the present has announced a lot of initiatives to increase investment in this country, and so you know that appears to be coming through. So I do think we have to see that how it plays out in Q one Q two of next year, because right now it doesn't seem like the monum stopping. But again, even a slowdown
will be you know a problem for stocks. Like what a lot of people forget is back in two thousand, when the Internet bubble pop you still had companies like Cisco Systems growing their revenues at fifty and sixty percent, you know, nine to twelve months after their stock peak. So there's still going to be fundamental growth out there. It's just at decelerations what's going to spook investors?
Well speaking spooky investors, there were some concerns about the credit market. You had first brands Trinklor earlier this quarter, and of course the AI bubble feares are starting to show up as well. I look at Oracle bonds and Oracle credit default swaps. Do you see those bubble fears that you mentioned earlier showing up first in credit markets? And if that's the case, are we starting to see it already?
Well?
It is interesting, as you brought up. You know, we've seen that in the auto sector. So you've seen some weakness there. I mean, the tricky part of the credit space, the private credit space for the most part, is you really, you really don't know where the valuation, the true valuation is. We've seen some private credit funds list and they wind up listening at or in private real estate funds listing at seventy five percent of NAV or twenty five percent discount.
So you know, there's more underlying weakness out there, but again it takes time to show up, you know, without real pricing, without transparent pricing and market pricing, it's hard to tell. But again, if if you know, if you have a private credit managers, you get a little more cautious out there and not writing the loans for these projects, or you're you know, or demanding tougher terms. Again, that becomes another potential headwind for the market or in the economy.
Right right, I think about this sell size strategists and they're forecast for the market overall, and they are almost uniformly bullish. Michael about eleven percent gain for the S and P five hundred following three straight years of double digit growth. It feels like everyone's already priced in everything, which then leaves room for external shocks really damaging sentiment and therefore market pricing.
Yeah, I mean when you look at when you look at the environment we're in, we have equity valuations are extremely rich, you know, whether you compare it to you know, the Russell two three thousands, two hundred and forty percent of GDP. If you take public and private stocks, I think they're about three hundred and twenty five or three hundred and thirty percent of GDP.
These are record levels, right, you know.
Bloomberd Intelligence came with the statistic that the largest two hundred private private companies are so their valuations increased by two trillion dollars. And then you have the entire crypto space out there, which is another three trillion dollars.
So you have a lot of a lot of rich.
Asset prices out there, and that will just make you more vulnerable, vulnerable to shocks should a bad piece of news come along.
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