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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordernt. 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. We'll begin this out with stocks adding to losses following the NASTAG one hundred's biggest two day job since October. Liz Ane Sander's a child swap, writing, corllage, and software stocks likely tied to the nature of speculation in the AI space headlines and even a slight change in the narrative can result in fierce moves. Lizan joins us now for more Lizen, we have seen some fierce moves, welcome to the program. We've
seen them in precious metals mass de leveraging there. We looked at Bigcoin earlier on this morning. A break is seventy thousand software more recently hammered private market firms too. Is there a common thread to the deleveraging we've seen in each individual pocket of the market.
Well, I think the deleveraging piece, John is an important part of it when you look at how much leverage it built into things like the gold trade and the silver trade, and then the fact that you had the CME raised margin requirements that pushed a lot of speculators out fairly quickly. There was deleveraging there. Anytime you have margin issues, raising of margin requires margin calls. That has
feeders into other high momentum areas. I really think one of the threads too, is that rotation is the new momentum trade. So there's a lot of money positioned to find not just the shiny new object, but what's the dull new object and kind of chase that rotation. And I think we stay in that environment, probably at least in the near term.
How much confidence can we take Lasan to your point from the moves we've seen an equal white record high regional bank stocks just short of all time highs. How much weight can we put on that.
I think the broadening trade has legs because there's fundamental underpinnings to it. It's not just a rotation trade. But when you look at the direction of travel, you look at the earnings growth rates save for the cohort that is the Magnificent seven, and you compare it to the other four hundred and ninety three. The growth rate for the mag seven is still higher than the other four in ninety three, but the direction is what matters, and the direction is heading down a bit for the seven,
up a bit for the four ninety three. You're seeing it down the cap space where you've actually got not just a positive trajectory in terms of earnings growth at higher levels for an index like the Rustle two thousand, but a little bit more stability in that outlook as opposed to high estimates and then they get pulled down when you're in earning season. So I think there are fundamental underpinnings the buildout of AI adding to the benefit of the more cyclical areas, be it energy or industrials
and materials. That helps to explain the broadening out trade outside of the US, because many of those more cyclical areas is what dominate their economies as opposed to tech having been the dominant force in our economy. So I think it's a meaningful shift that probably will continue.
Given this meaningful shift that a lot of people are pricing into a number of different assets, how do you take into consideration announcement like what we got today from Challenger, Gray and Christmas with the greatest number of job cut announcements in a January going back to two thousand and nine.
Well, you know, at least you were right to point out a little bit earlier that there's a concentration there in terms of a small number of companies. But I think this is a really well, it's a potentially important data point here if it's not a one month blip because much has been discussed about the low hiring, low firing kind of backdrop. Obviously, ideally if that's going to break, it breaks by higher hiring. But if it starts to break in the other direction, I think that changes the
narrative around the employment picture. It may also change the narrative as it relates to federal reserve policy. So if you wanted to put something on the maybe the bullish for the market side of the ledger, you could point to that. I think it's too soon to tell. But you guys also pointed out earlier that in the absence of the jobs report, which of course we'll only get we'll only get a few days delayed, we put more weight. And when you look at the ADP data too, there
was meat in there. Smaller companies really under pressure. The only place where job growth is robust is in those more defensive areas like health services and education, with the biggest draw down coming in professional and businesses services. That ties into where you're seeing weakness and challenger.
This seems like a really mundied moment, and I really just want to lean into impair this idea with the leverage trades that you see unwinding and this comment that you made that I think is fantastic, which is rotation is a new moment um trade. Do you see a potential at which you start to fade some of this is broadening out in the near term, not the long term, because the momentum gets ahead of itself.
I mean, is that sort of the.
Recipe for twenty twenty six is to sort of fade the extremes as this rolling ball of cash just keeps going to different sectors.
And I think there's a healthy underpinning. When you have when you have sort of excess, get healed evaluation, excess, speculation access via a process of rotation. I think that's an easier to stomach kind of healing of those excesses
than if the bottom fell all at once. For instance, the Nasdaq at the index level has only had a four percent drawdown maximum drawdown so far this year, but the average member within the Nasdaq is down just under twenty percent, So you've had sort of this internal bear market. It just happened and through a process of time. I think probably most investors would choose that kind of twenty percent draw down versus the index coming down twenty percent
all at once. So it's painful if you're caught on the wrong side of the proverbial trade. But I think that's a healthy way to go through a process of healing some of this sexcess, particularly on the speculation side.
Stay with us more Blomberg surveillance coming up after this.
Plan.
Campex at Alphabet as much as one hundred and eighty five billion dollars this year, so for twenty six that's more than the previous three years combined. Who's a help in this morning? Chip makers and video, AMD and Broadcom looking at cash in and VideA this morning got by more than one percent. Joining us now to discuss is Chris Casso. It covers semiconductors for Wolf Research. Chris, Welcome to the program. Let's talk about where we were yesterday
before we get to we are this morning. Yesterday, I found like at one point that maybe the pain and software is beginning to bleed into hardware, into things like chips and semi's Chris, how insulted are they from developments elsewhere.
Well, you know that the pain and software bleeding into ships doesn't make a ton of sense to us, because the stocks that we cover, the semiconductor stocks, are enabling the disruption that that's happening, or you know, as potentially happens. So, you know, we've been pretty positive on this, and particularly in the part of the space which is underperformed over the last six months, which is you know, the the chip makers themselves, the in Vidia, A m D, Broadcom.
What we've seen is the suppliers to the chip makers, like memory and semiicap equipment has actually done very well, but you know, in Nvidia has underperformed, and that's kind of where we've pivoted a bit.
Now, Chris, when Alphabet comes out and says we're going to spend as much as one hundred and eighty five billion this year, who gets that money?
Who wins it?
Well, broad would be the biggest supplier to Google.
They do the chip that is Google's TPU chip, which is their custom chip for AI.
So Broadcom is the biggest beneficiary of that.
But you know, we've also saw a big spending for Meta as well last week. This is not just a Google trend, this is a this is an overall trend.
How much does this.
Really indicate that they're going to be willing I'm talking about Meta and Google and others who are the buyers of the Nvidia products, of the A M D products. How much are they willing to continue paying up? Is this a margin story that could potentially be crimping some of the dynamism in terms of the share performance?
Well, you know, I mean, first with regard to the spending, there's been concern about can the spending continue, can it grow from these levels since you know, really you know, twenty twenty three when chet GBT came out and now Google is spending you know, more than the entire industry did back at that time. So you know, that's one part of it. The where I think investors have actually been a little more comfortable, and you know, Google's had a good run.
Meta was up on that on that earnings.
Report despite the big capex is that the customers of the companies I cover are actually starting to monetize this now. So you're getting some monetization in exchange for that this.
Very high spending. Uh So, you know, I think the fact.
That the customers of the companies I cover are actually making money on this gives us more confidence that the spending will in fact continue.
How much is.
Google stealing in video's lunch, especially given the fact that the TPU is considered a more efficient way to play the AI game for a lot of different customers.
Well, TPU that that Google provides has been successful for some time, and they still buy a lot of Nvidia chips, and most of those chips go into their own cloud where enterprise customers will come to the Google Cloud and they want to use in video. And because in video as the industry stands there, Google has to do that. Where Google uses TPU more more significantly is in their own internal workloads and in that, you know, the way we look at the market is that market is considered
kind of out out of in Vidia's available market. What's changed over the last couple of months is that Google has also started inviting some customers like Anthropic for example, to come onto their cloud and use TPU, which has expanded the market some. But in general, our view is that the vast majority of this market is still in Vidia's domain because it's the most flexible, they have the software support. It's very hard for other customers to kind
of get off of in Vidia. Google is a bit of an exception, and it's a big exception, but for the most part that this is still going to be a majority market for Nvidia.
Is that going to change though in the future at some point where in Vidia's biggest competition is actually going to be Google.
Well, and the question is so who else is Google going to be able to sell TPU too? So, you know, Google is you know, significant part of the of the market, but they will they start selling it to others, and our view is that you know, preps some and Anthropic deal is one example of that, but Google is not likely to sell TPU to Amazon. They're not likely to sell it to Microsoft. If you're an enterprise customer doing work on even the Google Cloud, you still need in
VideA because in Vidia has the software support. They support all the frameworks. So I think there is a competitive threat. I think it's it's baked into the cake right now, and I don't think that competitive threat gets much more significant now. One of the other factors is that everybody else is also trying to do.
Their own ships.
Meta has their own chip, Amazon has their own chip, and right now, the size of those chips is much.
Smaller than we're in Vidia and Google is right now.
If those chips kind of have their TPU moment and get larger, then that becomes a bigger threat, but so far we haven't seen that.
Sorry about that.
So basically, if Google is ahead of Meta and all these others that are making TPUs, who do you think is the most competition when it comes to Google's who's right behind them in the race.
So you know, probably the other company that's doing their own that is probably closest would be Amazon and their trainingum ship. And so far it's been, you know, somewhat successful, but nowhere near as successful as Google. So I'd say that would probably be the next one that we'd be watching.
Stay with US multilindex, Savanna's coming up off to this at Mosa, Ryman James writes in this US eron deal making a piss active and since there but the US's demands will be a high bar for Tehran, Saclair joins us now for more, ED, welcome to the program. Let's talk about as US demands, what are they?
Well, they don't want any reactivation of the nuclear program, as Tyler highlighted, can any support for those proxy groups President Trump wants kind of essentially probably regime change, which is part of the high bar that we think that is unable to be cleared here at Raymond James, we consistently.
Get questions about this.
But one thing that we have highlighted consistently on a lot of these high geopolitical risks out there is that they have been coming fast and furious, oftentimes unprecedented, but often without a huge market impact. So from a market lens, this here kind of is important, but maybe not as important as other geopolitical events related to Iran have been over the last decade or two.
ED, what do you think the tolerance the patient has the president has right now in terms of how long he's willing to let the talks go, because we have seen the Iranians change the tenor of the talks and also the location of the talks.
It is I think he's open, but I don't think he has a huge tolerance here.
I think there's two things.
When we look back to kind of the kind of attack on Iran last summer, the President outlined kind of some clear issues. He gave a deadline, the deadline passed, and he gave the order to strike. I think we could see the same thing here, Emory. What I've seen consistently from this president though, is that he will only strike take a military action if he thinks that he can have a quick win as well as the response is not going to get him entangled into something deeper.
And so to me, that's one of the big debates here. Is there something that he can do here that he views is that quick win that he can send that message to the regime, that he can get that activity or that response that does not involve the loss of US lives.
If he has that on the table, he absolutely takes that.
If he doesn't, that's where he might pause and give a little bit more way to these talks.
Well, and what would you characterize as a quick win, because the Iranians say that if there is an attack, this could be a regional conflict, a bigger one.
Yeah.
So I think that the two examples that I would give is the kind of the assassination of Sulimany back in twenty twenty, where that was a clear, kind of concise military action. The attack on the military or on the nuclear basis last summer, You could probably kind of look to that in a pattern in terms of the way in which he was able to capture Maduro without the kind of loss of US lives. He looks at a lot of these military engagements. Is there something specific
that is significant but quick that he can do? And then we look back to what happened after Sulamani. After those nuclear strikes. Aroan did respond, but they responded in a way that was not escalatory, in a way that was almost symbolic that allowed us to move on. And I think that's actually part of the reason why the markets have not responded, is they are used to accustom to this quick win attitude that Trump takes to some
of these foreign policy engagements. As long as that stays in place, that's where the market does not necessarily react to these events just yet.
We were talking to Terry Haynes yesterday about how this is a president who can to gum and walk at the same time and deal with international and domestic at the same time. The international is just getting more and more active even as we focus on some.
Of these domestic issues.
We also had that call between Jijinping yesterday and President Trump, a number of headlines coming out of it. What did you take away from that, This trip by President Trump to China and April, then the promise that by the end of the year, Xijenping would be coming to the White House.
Yeah, so it's basically our base case. We had last year kind of the meeting between Trump and she in late October, which laid out kind of these two kind of home and away meetings. What we've heard from our contacts is that President Trump has sent a message to his administration, do not do anything that is seen by China as escalatory or punitive to them.
We look at the tariffs.
That came out on semiconductors, the tariffs that came out on critical and rare earth minerals. Those were essentially a punt in the semiconductor tarifs were a punt until April. What we expect as these two leaders get together is kind of some fan fear, some announcements that sound bigger than that they are. But there is generally a desire between both Trump and She to contain this relationship because
they don't want the fight. Because if we look back to last year as we entered the year, there was a lot of escalation and some of this was mutually a short destruction. They don't want to go back to that. They don't want to go back to the restrictions on rare earth. China doesn't want to go back to some of the restrictions we're putting on airplane parts and chemicals because both economies cannot work unless the other economy provides them with some critical components to their supply chains.
Does this mean that we can avoid new tariff headlines for at least the next four weeks.
I will never say that.
Kind of the reality is is that both Trump and She like to escalate to de escalate, and so my base case as we get closer to those April meetings over this next couple of weeks or months is we will always have a new tariff headline as a way of getting negotiating position. China's actually done this probably better
than anyone else. As we go back to those October meetings, she kind of announced a whole series of new restrictions, only to take those off during meetings, and Trump was able to say, hey, I got you know, she to take all of these things off that he didn't actually want to do. He just wanted to have something that
he could negotiate away. So I'm always telling clients at Raymond James watch for that escalation because they want the opportunity to de escalate during the meeting and not actually give up something, but sound as if they gave up something.
This is the Bloomberg Survendics podcast, bringing you the best in markets, economics, an gio politics. 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.
Mm hmm