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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie 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 trailers. Watching of the Green Bank can sustain its momentum this year after its strongest yearly advance in nearly a decade. Kid Jukes of self gen Rights. Given the recent economic and political trends, Dollar bears should hibernate over the winter. Springshoots of life in the European economy, signs of fatigue in this incredible US cycle, and clarity on the policies of President Trump may all help by summer time. Patience is required through
the winter and spring. Kit joined us now to kick off twenty five in the FX market. Happy in New Year and welcome to the programs. Sir, let's start with US exceptionalism. What is it built on and how sustainable are those pillars?
Some of it's sustainable, I mean the technological gains you've just been talking about them, that they're a huge part of it. If we believe in the AI Revolution, and we believe in mag seven, then everything that's happening, then you know, the US has cornered that. So let's not knock that. I wouldn't necessarily knock the fact that the US has run a significantly more accommodative fiscal policy since
twenty twenty. Really, you know, everybody in Europe's been struggling to try to get their budget balances back under control. The US has kept them a combodative policy and has had more growth than that helps keep the deficit a little bit more under control than elsewhere. So there's more than one piece to this.
It's been there.
But if the US does have to type in fiscal policy at some point, that may slow things down. We'll see how big the AI Revolution really is in the
next ten years or so. I am not clever enough to judge quite how much continued growth that can give, and we will see whether the US can cope with the demands on the labor force, because the economy is running at this point on wealth gains from asset price increases, a tight labor market, a fairly divided economy in terms of winners and losers, and it doesn't look to me as if it's got much potential to accelerate in growth or indeed to continue at recent growth rates for that
long unless we can get a productivity miracle from someone.
Kay, what do you think is going to drive further dollar strength if we get an or perhaps euro strength. Will it be European disappointments, European surprises to the upside, Will it be great differentials or will it be ultimately just a real question of what the neutral rate is in the United States.
I think the neutral rate is look higher in the United States than in Europe, and that's a challenge that it don't get written up about enough. Just that if my neutral rates higher than your neutral rate, my currency ought to be going up forever. I mean, it's not a stable equilibrium if we have these big divergences in neutral policy rates. So that's a major factor, But I
think it's largely in the price. What I'm most uncertain about is the politics in the sense of have we priced in too much of what people expect from President elect Trump, or have we not priced it all in at all yet? In terms of what that does for the dollar, I've read so many pieces talking about the possible negative growth effects of his tariff proposals, plans, threats,
whatever we want to call them. If he wants to get a deal that's good for the US, it has to be a deal that's good for the world and good for global trade. And if he does that, there's more upside to growth elsewhere than there is in the US from those deals if only everybody can embrace them, and that wouldn't be good for the dollars at the margin. I think the politics will be more important than the
kind of straight economics. If all we're doing is trading what's happening economically now, I think we're just going to have a very strong dollar for as far as the eye can see. The debate about whether it can get back to parity for you're a dollar or you know, a little bit stronger generally than it is now, it's
a tough debate. It's a really expensive currency that will stay expensive as long as the rest of the world is shoveling all of its savings into the United States to see how much money it can make out of the US equity market.
Just quickly.
As a spike that we've seen in natural gas prices in Europe just noise or is that something you're watching that could potentially affect the pair?
Oh?
I think we have to watch it pretty closely. I mean it's you know, we've known this was coming for long enough that you'd have thought some of it would be in the price. But with raw materials, nothing ever is right. You know, if the pipes golows down and it suddenly gets really cold, then you can have a short term spike that can have a short term impact on growth, that can have our short term impact on
the currency. That's pretty negative. That the you know, the way we got euro dollar two to ninety five back in twenty twenty two was a terms of trade shock caused by higher gas prices. So we shouldn't we shouldn't ignore it.
From pick Ay, Kit, good to see you as always, Kit jukestairs soft Gen.
Let's turn back to tech.
Dan Ives of Webbush writing we expect tech stocks to be up twenty five percent in twenty twenty five, as the street further digests a less regulatory spider web under Trump in the White House, with karn't FTC days in the rearview mirror, stronger AI initiatives within about weight on the Way, and the Goldilocks Foundation for Big Tech and Tesla looking into twenty five and beyond. Dan Ice joined us now for more Dan come on it the Happy
New year, So that's good to see you. We can talk about some of these big gains through twenty four. Palanteer up three hundred and forty percent in video up one's seventy one, Tesla up sixty two. Here's another one, Vistra by two hundred and fifty eight percent. That was the biggest win on the S and P five hundred last year. That's a utility company. What is that telling you about the state of play in AI.
It's about second third derivatives of AI. I mean, I think the big thing is it's two trillion of AI cap backs next three years, and I think, look, that's numbers that are really I believe going to be in stone. And there's a multiplier for every dollar spent on a video chip, there's an eight to ten dollars multiplier across software and across the rest of tech and infrastructure. You think about the power, the utilities, nuclear enginy, names like Aco and others. I mean, it just speaks to we're
going into a new age. It's not just about big tech. I mean to your point about small caps. I think the big sort of proven moment is the multiplier playing out. It's the rest of tech, the rest of until is the rest of the market participating in this AI trend. That's really everything about that party. The only ones let in behind the velvet ropes been then Max seven and video.
Has been sounding the picks and shovels that made a fortune. We've seen all the growth. Does Microsoft and Google in the like that have been spending all that money need to show some gold this year in a big white.
Yeah, And I think that will start this quarter. I think you're gonna see an inflection point in the hyperscalurs for Microsoft or Amazon for Google in terms of what we see with more and more of those cloud work goods now showing up. And I think it's all about use cases. That's why you look at the messy of AI pound teer. You know, in terms of what the have done. That's just the first piece. Salesforce has been another software now starts to actually participate in this AI revolution.
That's gonna be a key theme across twenty twenty five. Remember with you know, with con done at the FTC, M and A is going to massively accelery and that's another theme we're gonna be seeing it across tech.
What we saw at the end of last year was a lot of these other companies sort of the side effects of AI.
Or the actual applications.
We saw them take a pause in the applications of AI and really study exactly the use cases, study the most efficient way to do it. They stop deploying as much cash. What makes you think that they can apply some of the AI technology quickly enough to keep delivering the kinds of expansion and gains the hyperscalers to keep a twenty twenty five percent return that you're expecting in twenty twenty five.
It's a great point.
That's all the work we do, I mean, we look at when we talk to enterprise around the world and all the trial would do in Asia. It's showing that these use cases they're exploded for the enterprise. So as the ROI starts to continue to increase. That's why you're starting to see You saw a palenteer start in salesforce, you can see Mango, Snowflake and others. You can see it spread across the board on enterprise. But again, like the ships left the port. In other words, the AI
cap BAX is going to be there now. Twenty twenty five is going to be about showing it, proving it in numbers. And that's why the reason we think stocks or tech stocks are going to be up twenty five percent, it's not just about big tech. It's about the rest of tech participating, software infrastructure, and well guy haters hate the last few years, that's sort of been what we've
seen in tech. They will continue to sort of fire in a crowd theater type situations, but I think tech continues to move higher.
How predicated is this theory on the idea that there can be some sort of expansion of the H one B visas that there can be an ongoing increase in employees and top talent to the United States.
For the first time in thirty years, US is ahead of China. I mean, in my perspective from when it comes to tech, but to fuel that. In terms of AI revolution, it's talent, and I think what we've seen, we've definitely seen a lack as a supply demand. These companies more and more need to continue to fuel this
with talent. So when you look at what we're seeing with H one B and ultimately is that all plays out, it will be something very very important that plays out in Silicon Valley and cross the tech world in twenty twenty five.
Ala Musk has been at the full front of this debate, this argument over the holiday period.
Let's talk about Tesla.
Tesla an outlier in a pretty dreadful auto market, particularly for the European players.
I think we stand drunkenmit of the one cent.
You'd be surprised by how few people understand what makes the stock go up or down, what makes Testla go up or down, because it shures how it doesn't seem to be car sales will be something must make of it.
But we're gonna have deliveries probably the next few hours. Right in terms of Q four, Look, I think this is this is an autonomous AI story for the next few years. And it goes back to the bet for the ages that Musk made on Trump continue. I think is going to really play out as the autonomous future. That's what you're betting on in Tesla. You don't see that in numbers today, but I think ultimately, I think that's worth the trillion dollars were in terms of the
AI timers story. But next few out this week will be talking about deliveries and it comes down to China deliveries, which were really disaster at points in the last call twelve to eighteen months, have now started a rebound for Tesla and that's going to be very important.
What gives you the confidence that that will continue because there are some similar questions happening in the luxury space with companies like alpam is China actually bottoming out for the consumer side of things.
What gives you that confidence for twenty five.
It's what we see in terms of demand, in terms of what we see in terms of the overall China market for evs. I think Tesla, I think a lot of those price cuts in the rearview mirror, we're going to have white knuckle moments, But ultimately I think China is something that could be up twenty percent when it comes to delivery for Tesla and That's why I think right now it's one where I think where the bears
have sort of misunderstood Tesla. It's ten to fifteen percent of delivery story now it's eighty five ninety percent AI autonomous. In terms of the future from Musk and Tesla.
Sort of when you put together some of the things that you're talking about, you think, for the first time in thirty years, the US is actually ahead.
Of China when it comes to development.
At the same time, Tesla dominance and success has hinged on a.
Success in China.
So how do you see the evolution in twenty twenty five of the increasing divide, the increasing isolation between China's sort of tech stack and the United States is tech stack and how those sort of both compete but also evolve.
In parallel YEA and the scheme of high stakes poker, because the reality is is that the reason Jensen's godfather of AI and what we've seen with Nvidia where the chip's coming from coming from China, coming from Asia. So that's why we're going to see this all play out with the China tariff discussions. I believe Musk is going to be heavily involved there. Cook ten percent politician ninety percent. CEO.
Apple also plays a key role here, but I just believe that's something that ultimately it's not going to spoil the AI revolution trade. It's not going to spoil the chip trade. We will go through white knuckle moments. But my view, and it's been the playbook the last few years, you buy the winners on those opportunities, and I think that's going to me the theme this year.
Pick the winner of the year, your number one Starle pick for twenty five.
What is it, I think to me? Number one Stark pick I think continues to be in video here, and the reason is is that there's only one game in town when it comes to AI. So Godfather genend starks Ovis who sold off I think we see it here them along with Apple will be the first ones in the exclusive four trillion dollar.
Marrik cap Well.
The stock is up again this morning by one point six percent. Happy New Year, Happy year, Good to see you, buddy, Thanks for being here.
Dan, it's there a web bush.
Oh, David and Fimo joined us now for more with the year. It's lower on the session by five basis points at four fifty one, and first of all, Sir Happy New Year and welcome to the program. There's a lot to consider for the next twelve months. And there was three points that you put down tariffs, increased bon supply, and a pal showdown earl of the conversations you've had with your clients. Out of those three, what did you spend most time on.
Well, we definitely spend the most time on tariffs right now, but it's a big unknown, and we actually tell people tarifs right now is providing us with an opportunity to go longer fixed income. And the reason why that is is all to talk about tariffs and the unknowns have increased yields to these levels, to what we would deem relatively attractive levels, both on a treasury and a corporate space. So we've been using this as an opportunity to add to duration and add to credit.
So, oh, let's start with treasury and then we can move to credit. Is there a specific place on the treasury curve where you feel more comfortable to in that?
Yeah, we actually feel ten years you're adequately rewarded at around four and a half. This first quarter is going to be very telling for treasuries, and the reason why it is is typically in the first quarter, what you get is real money accounts, and I'm talking about not hedge funds. I'm talking about large insurance funds, large pension plans. Typically money accounts in the first quarter reallocate their risk
between fixed income and riskier assets. Given the price action that we saw last year, we should be seeing a significant rotation into fix income this first quarter. It's an known because of the inflation towers, as to whether that would happen, but we're putting our chips on the square
that it will. So what that means is, from these levels at four and a half in ten year yields, there's a better chance of seeing four and a quarter than four seventy five in the first quarter of twenty twenty five.
Roll How much is this driven by international accounts?
We've been talking all morning about the euro and about the divergence between rates and real rates in the US versus Europe. How much is that the real money that you expect to come back in and say, on a relative basis, I'd rather put my money in treasuries.
The interesting thing is, in the analysis I just gave you into the first quarter, I didn't even take into account international Now you add in international which does have an increasing appetite for US as that bolds well for all US assets, including fixed income. So that's that's another argument why we believe at least in the first quarter, it won't be higher for longer, but we think there's a better chance of seeing four in according four seventy five.
I'll add in one more reason as to why we're overweight duration in ten year US treasuries and tips at these levels is that we expect tax receipts to be pretty good, which means the we're funding announcement or the amount of treasuries to be issued in the first quarter in first half this year could surprise to the downside.
Normally, when you have a rally and treasuries, it's negative when it comes to risk assets. This time, though, you actually see it being positive for credit. And I'm curious about why, given the fact that typically when people pile into treasuries it's a sign that the economy is slowing.
Well, you have to break down treasuries into two things. One is inflation and inflation expectation, and the other one is real rates. Those are the two drivers of treasury yields. Why we think this could be good for both risk assets and fixed income. The reason why we rally to four to twenty five we see that we believe ten year tips, which is the real rate, which is approximately two twenty now, could easily go down to two percent
in one ninety. And the reason why we say easily is if you're an international investor looking to invest in you lass and you know you could get two hundred and twenty basis points over inflation for the balance of your holdings ten year tips, that's where you go. So we think the tip rally is going to be the driver of a lower yields, which is also beneficial for risk assets because it reduces your discount rate on your cash foles.
Oh, can we just sit on credit just for a bit longer? Inequities, we spent a lot of time over the last month talking about negative breadth, the underperformance we've seen beneath the surface of the market, what we're seeing on the small caps. Terrible month in December after a great November. Did you see any confirmation of weakness in high yield at all? Any reason for concern?
I wouldn't say confirmation weakness. We have seen high yield spreads widen and that just came off of you know, let's call it profit taking in December. But we do believe the environment, the context in which the economy is set up for in twenty twenty five under Trump presidency is beneficial for small, medium, and larger sized companies, you know, the deregulation. So what that means for us is a lower chance of probability of default in twenty twenty five.
When we see lower chance of probability of default in twenty twenty five, that makes high yield more attractive because we say we're getting you know, even though it's tight credit spreads, we're still getting rewarded, especially on all in yield, for the risk that we're taking. So we're actually looking for opportunities to increase our high yield exposure selectively with selective names. As an active manager does.
Oh, got to see you as always. Happy New year, ol Davis, there a female. This is the Bloomberg Seventans podcast asked 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.