Bloomberg Audio Studios, Podcasts, radio News.
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.
Jeff You of bn Y and writing investors are navigating a market that feels both familiar and fundamentally different. Growth is uneven, but still has room to run. Jeff joins us now for more. Jeff, good morning, Happy new year.
Wonderful to see you.
I want to start with something that you said in your latest report, which is sometimes it's better to ask good questions than to have answers. Right now, what are the key questions looking at heading into this year.
I think from client's point of view, the questions are, you know, sustainability. As you've have said, we've had three good years of double digit returns. You it, can we extend that to a fourth and overall, it's if I am concerned about valuations and the like and there is going to be a bit more of a volatile path, what are some of the defensive positions, how do I diversify? I think those are one of the questions As a responsible investor, you stay the course. You know, if it
ain't break, don't fix it. But you need to know where some of the pitfalls are, look at them in advance, and identify the insurance someplays. I think that comprehensive of that comprehensive approach is going to be the key question as we ask allocate you're heading into twenty twenty six.
Yeah, one of the key questions about diversification is what are you diversifying against? Is it inflation risk or is it the risk of recession? Because the potential diversifiers are completely different depending on that answer.
I totally agree with you, and I think it's different diversifiers for different markets and also different regions. If I look at the run of European data that we've had this morning, I'm afraid it's looking a bit more stagflationary. So if we're going to worry about inflation and worry about stagflation environment. I probably worry more about Europe than
the US for this year. If I look at APAC for example, you know, Asian bourses are doing quite well, so there's a bit of a tech run too, So you can that actually take place, but not at the expense of my tech positioning in the US and elsewhere. And how do I defend against, you know, further trade volatility up ahead. So I think all of these aspects are important, but look at it on an individual market basis, rather than you think that there's one insurance play that
can defend against everything. I don't think that works anymore.
What about the broadening out, Jeff, that we've heard so much about.
There's been a lot of head fakes. You know.
We finished the year with all of the high bandwidth d ram makers winning the S and P five hundred, Western Digital, sand Disc, Seagate all the biggest winners in terms of the individual stocks, and then Robin Hood, New mine Land Research, Palanteer. Those are exactly the same stocks that are up today in the pre market.
Are we going to see it broadening out or.
Is it just going to be the same top twenty stocks pushing this rally into twenty six.
I think that goes into a broader question about the broader economy. So can that K shape and growth that we're seeing not just in the US, and but I think other economies can sympathize as well. Can that actually narrow a bit so that K sort of converges the two arms of the K into more balanced to growth. And here's where we get a multiplier effector into the
broader economy. So can main street benefit as well? If I look at our underlying positioning data, yes, tech has done well, but consumer related segments have really softened, and that points to a margin story. You know that that points to the demand story as well. So can we have that nurse the so called trickle down effect into
main street? If that can happen, then we can see a broadening out from the tech stocks which are overheld of course you're heading into twenty twenty six, but into some of the consumer oriented stocks as well in the US and also in EM. I think that is a consensus view for the years allocation into EM into EM tech, but for China, you know, for Japan and for the rest, can we see EM consumer stocks do well? Are we going to see a fiscal push benefit consumer. So globally
it really is about main street. If main Street can pick up, then we'll see that broadening out. But I think on the fiscal side, markets are waiting to be convinced you're.
Here in the US.
Of course, everybody in markets wants to see or everybody, I guess long stocks wants to see FED cuts. Is that going to continue and will that help main Street?
Jeff?
Is that going to be able to bring down mortgage rates and auto lawn rates which so far haven't responded very well to one hundred and seventy five basis points of cuts.
So I think the question is as the FED cuts rates, and I think that that is going to be a consensus view. Of course, your cash flow improves on the liability side. What main street wants to see not just in the US but around the world. Can real incomes grow and if it can grow, can expectations pick up. You look at the UK for example, as Governor Bailey has highlighted, wage growth is very strong, but you're seeing
savings rates go up as well. It looks like the UK is going to run a double digit savings rate on a sustained basis, which is unheard of, right, So what is it that's holding back the consumer in the US and the UK and elsewhere and also in APAC there're sitting on high savings where they're not spending, they're not pushing it into the broader economy. So I think that requires more stability in terms of their expectations. Yes, wage growth is firm right now, can that be maintained?
And the US economy there's no far, no higher economy. Let's move into a more hiring economy. I think that's what's needed to get mainStreet going and to lift the consumer segment.
Right now, the consensus is that the dollar will weaken even if you do have stronger growth, and say in Europe, and it's because of the rate cuts that are expected. What do you think is going to be the main driver for the currency the actual growth rate or the expected rate cuts by the Federal Reserve With the rest of the central banks around the world largely sitting on their hands, so.
I think it is going to be policy different at the end of the day. So as long as we go through this so called hawkish cuts approach with the Fed, I think, you know, dollar downside is going to be a bit more limited. Yes, there will be hedging, and the costom of hedging will factor into that, you know, as a rate differentials shift around. But if I look at APAC right now, APAC FX is where we see the most capacity for strength against the dollar.
It's not going to be in Europe.
I've been wrong on europe dollar last year, so this year I still think Euro's looking a bit stagflation rea. So I think Euro's strength is going to be the dollar weakness against the lights of the rim and b against the lights of the end. That is the consensus view, but I'd be a bit more cautious there too. Yes, APAC currencies will rally in real terms, but in nominal terms,
I'd be a bit more careful. If China, for example, can shift PPI from negative two point two percent two point five percent, that's the expect the values right now towards positive to positive three that kind of real effective exchange rate appreciation is something that they would probably be more happy with. So position for your dollar very very carefully. If there's going to be dollar weakness, I'll probably see it more against APAC rather than European currencies.
Speaking, of China and US versus China dynamics, jjimping over in China had this New Year's message that he gave in an address. China has become one of the world's fastest rising economies in terms of innovative capacity, giving a nodge that the war in terms of AI prowess between US and China, Do you have a sense of who is going to come out ahead at the end of twenty twenty six?
So I think the direction for innovation and AI, if we look at the application for example, is a bit divergent. So I think both can lead in terms of one as consumer facing and the US side on the industrial side.
That's what's China's focusing on. But what investors, what the positioning is looking at is can we see AI proess in China and also beyond translate into higher margins, in higher earnings growth and that can lift the consumer that seems to be in the missing link and as allocation right now, that having said that, a lot of savings are being pushed into AI stocks and APAK. We've seen the IPOs are the reaction over the last twenty four
hours of trading war. So hence that theme is going to play out in their different fields of course, but again, can that translate into growth into mainStreet earnings and wages and lift Chinese consumer spending as well. That will require not just on the corporate side, but on the fiscal side. I think that's going to be one of the big pushes for em growth this year, and we'll have positive benefits of for the rest of the world as well. If you look at Europe, for example, it wants to
see stronger Chinese demand. Bat trade deficit certainly needs houring.
Stay with us more Blomberg surveillance coming up after this.
Data.
Peterson of the Conference Board, writing twenty twenty five is ending on a confusing note for markets, economists and central bankers alike. So we should not completely ignore the data, joins us now, happy new year. Thank you so much for being with us data. Let's start with the data that we have gotten. Why is it so noisy? How should people look at it? Considering that people do view it as somewhat noisy, but also.
They can't ignore it exactly, you can't ignore these data. We did have data for the third quarter. Certainly the GDP came in a lot stronger than expected, and certainly consumption was a lot stronger even though we did have data. It shows that the Fed, I mean the federal resert Sorry, it shows that the federal government probably had more data in between releases and certainly after the shutdown. But I think the key thing is that inventories and trade were
very confusing. And indeed, when you add up the inventories, well, when you add up the imports plus the consumption, the inventory's numbers just don't make sense. So we really need to get data next week on inventories as well as international trade, business sense, and then and also employment. I think we really need to see more data to get a handle on what happened in the third quarter and also what happened in the fourth quarter.
Data.
We are going to get some data come next week that is going to be important, including the non farm payils as well as some of the manufacturing aspects that you're talking about. Nonetheless, we have a host of other information out there that people keep pointing to. Whether it's ADP, whether it's earnings, whether it's the rudderic coming out of a lot of companies, or whether it's retail sales. I mean, is there some sort of conclusion that you can take even amid the noise.
Well, I think, you know, certainly the stock market does not reflect the real economy, so we can't look to that. And also people who most people don't own stocks, so they're not really benefiting from that. We do have lots of sentiment data. Of course, our consumer sentiment data has shown that consumers are less sanguine about the current conditions as well as having some concerns about the future. You know, retail sales at all we have really is the end
of the third quarter, and they were weaker. So I think that we just need more information, and you can't look at these things and try to estimate what the government data is going to tell us.
I'm looking at the Conference Board Consumer Confidence Index and it hasn't been this low since the pandemic.
So what does that tell us.
About you know, inflation, growth, spending.
Well, I think the inflation bit has yet to hit us. Remember, the tariffs that were implemented were delayed twice and also they were raised and lowered several times. So many businesses are still waiting to see if there's any certainty with respect to tariffs. Yes, we've had a number of deals established, but there's still a lot that's unknown. And so with businesses uncertain, it doesn't mean that it just means that we're not going to see much hiring. We're not seeing layoffs.
Which is good.
Most people still are working, but those who do get laid off are finding it very difficult to find jobs. And even though most consumers are working and they actually are spending, the type of spending that they're engaged with
is very different. They're buying things that they need, and when it comes to especially with goods and services, and when it does come to things that are entertaining, they're buying cheap things right, cheap thrills like streaming instead of going to the movies and paying, you know, over one
hundred dollars for a family of four. And so I think we need to really get beyond the first quarter of this year to really see what's happening, because I think that's when we're going to see the bigger effects of tariffs on inflation and consumers really pull back.
Dana.
I've been trying to pin down how workers' wages have kept up with inflation, as I've been saying, you know, Torsten Slot put out a six year average showing that wages are doing better than inflation. But Mark Chandler, whom we just spoke with from Vandenbrooks, says in his household that certainly isn't the case, and he doesn't think that it looks like a great picture for consumers.
How do you see it?
Well, Yes, wage growth and compensation have been slowing from the peaks that we saw during the pandemic, certainly the later portion of the pandemic when we were trying to get everybody back into the labor market and you need to entice them and also keep workers with compensation. But still, I mean, I would say that wages are still growing at a pace that's above where we were between the
Great Financial Crisis and the pandemic. But I would look at the last GDP data where we saw real disposable income grow at zero point zero percentage points annualized in the third quarter. That's not a good sign. And so we definitely do see slowing in wages, and for some people it may be faster than others.
Stay with US multile Impax. Savannah's coming up off to.
This under surveillance this morning, Locked and loaded, President Trump saying the US is ready to rescue Iranian protesters if they are attacked by authorities, protests escalating over the countries, deepening economic crisis. And Andrew Bishop of Signal Global Joys is now for more. Andrew, what do you make of this locked and loaded comment? Do you think that there actually are plans in place to intervene by the US in Iran?
So I don't think the plan is to intervene. I think this should be read mainly as attempting to give the protesters a chance right, so to essentially tell the regime there should be a red line not to cross,
and that is quote unquote violently killed. I think it is interesting and a been gruesome interesting the way that the president choses words that essentially supposes that if they are killed, but perhaps not shot out during protest, but instead arrested and you know, disappeared, that would be a little less sort of crossing the president's red lines. Also potentially out shot at with rubber bullets. We know that in previous protests the regime used that to blind protesters.
These are gruesome details, but I think that they actually should be read in the context of the present's choice of words.
So, what would we do with people if we save them there. Does that mean we'd bring them here as refugees?
No, no, no.
I think what would happen if the present were to intervene in the conflict is that the US would essentially target the security apparatus. So we would essentially launch I mean's put very simply at Tomahawk missiles on ira GC domestic facilities, especially besiege sort of the more hardcore security forces meant to keep control of the situation. We would essentially attack those and hope that the protesters can can then have a chance at overwhelming the regime security apparatus.
I thought it was interesting that, you know, we've been chasing this oil tanker below, one which came out of Iran, went to Venezuela and is now.
Headed I guess to Russia.
The Russians have claimed this tanker, and it looks like maybe we'll give them a little leeway because it's Russia. At the same time we're sanctioning Chinese and Hong Kong based tankers. Are we giving Russia a little bit more leeway because we want to get a truce or an end to this conflict in Ukraine?
Yes, But I would say the bigger difference between Russia and China is the fact that the US, you know, really doesn't have the ability to put any pressure on China at all. So, you know, we we sort of are in the kabuki dance phase with China where we pretend to both sanctions, but they don't actually bite. So I think that's that's the biggest difference.
So what will we do?
I mean, President Trump started this trade war with China in his first term. President Biden actually carried it on in a sense, But now it looks like the Chinese have realized that their access and refining capabilities of their earth minerals gives them a massive advantage.
Is there anything we can do? Not in the short term.
I think in the short term, the US and this administration have come to realize that there really is nothing that the US can do to minimize China's overwhelming leverage over the US. And that's why we're seeing the President
take such a soft, dubbish approach to China. Yes, he's a deal maker, but some of the deals that he's struck over the past a few months with China are borderline humiliating, I think from an a political standpoint, right, this famous sort of high end chips in exchange for soybeans. It's pretty much from a bipartisan perspective, I think it's fair to say that's not a great deal for the US, and that's just a recognition of the US's weaker hand in the short term.
How much is this the reason why China is doing these drills around Taiwan right now?
So it isn't.
It isn't China would probably be conducting these drills. It's conducted drills like these every year, sometimes twice a year, for the past several years. So in that sense, it's not particularly surprising. I don't think it's necessarily a result of the president's sort of soft approach to China. What's interesting, or what's maybe more political, is China's takeaways from the
President's reaction to the drills. Right I think the State Department's press release yesterday that sort of condemned the drills and took a harsher tone was an attempt to not send the wrong message to China. But the president's decision to essentially say, you know, President season being hasn't talked
to me about this, it's not a big deal. That is the kind of thing that she notes down writes down and potentially, let's be very clear about it, potentially factors into his decision to attack Taiwan for good at some point.
So there's sort of a panoply of potential risks geopolitically that people are looking at for next year. On one hand, you've got the China Taiwan issue. On the other hand, you've got rushed to Ukraine. You of course also have Iran, as we were just talking about. Then you have Venezuela that has also been increasingly ground zero for a proxy between the US and China, with China getting increasingly influential
in South America. Which of those do you think is going to be the most significant heading into this year.
So on the question of likelihood, it's Venezuela, because there is a real chance for the US to essentially ensure that Maduro is no longer in power, whether that's you know, kinetic actions, CiU, covid ops, etc. When can debate or even striking a deal with him. But let's put it like this, I think the odds of Maduro being out of power at the end of the year are well
above fifty percent. And that's not something that can be said about the Iran situation, or about an end of the war in Ukraine and so on and so forth, just because those situations are far more complicated. Right, So in Iran, for example, these process have legs. But to really go from this to actually toppling the regime, it requires a lot of steps. The security forces have to defect, they then have to take over the hardliners and win and so on and so forth. That's much harder than
just essentially taking out Maduro. So from a likelihood perspective, I would say Maduro. From an impact perspective, it would definitely be Iran. I mean Iran, you know, turning into a different regime would have massive regional implications.
Stay with us, multiple impex Savanans coming up off to.
This wood Bush out with its top AI stocks for twenty twenty six. Dannives writing heading into twenty twenty six, investors are both excited and nervous about the Ai revolution. Twenty twenty six is an inflection point here, Dan joins us now with his colorful self, Happy new year, wonderful to see you as So let's talk about that.
Why is it an inflection point? What do you mean by that? It's really about to me. It's about the second, third, fourth derivatives playing out across AI. Look, it's Moniziesian you talk about Tessa. It's the next phase in terms of autonomous robotics, consumer AI socially when it comes to Apple and I think what we're gonna say. Look, I think it's a proven year, but that actually makes me more bullish because I think now we go into the next
fees of AI. I think tech stocks are up twenty twenty five percent in twenty twenty six, but it's not just big tech. It's about second, third, fourth derivatives planing out. I will be fascinated to see.
I don't think anything is officially expected, but you're going to SEEES, right, which is not only the biggest tech conference in the world, but it has become the most important carmaker conference as well. It'll be fascinating to see if Tesla comes out with any other products there, or if we see a lot more robotics and automization products.
And to your p it all starts with the godfather of AI, Jensen, who'll be there with the black leather jacket. Because when his speech to me is just so important on Monday, because it really starts off strategically what AI is going to look like. He's going to talk about physical aims are autonomous robotics, and the two best physical AI plays in the world today it's in Nvidia and it's Tesla, And I think that speaks to you about Tesla.
What everyone's focused on this is autonomous chapter now coming to Tesla. I think you see Musk right now, Wartime CEO. That's the focus when it comes to AI. But also it's demonization. Remember only three percent of US companies have gone down the AI path so far.
Are these robots expected to be like B to B robots, so building things in factories or like a room. But for consumers, what kind of products do you expect them to monetize?
Yeah, especially to see humanoid robotics is going to be front and center. Autonomous. You're seeing flying cars, a lot of the look the presence you talk about a lot of the tensions between US and China, the presence of Chinese companies is going to be It's going to be a monster in terms of what we see there. And I think doubling you over the last few years, but I think it's really going to be about humanoid robotics.
It's going to be about autonomous but it's going to this is al's going to be about more embedded AI devices that consumers are going to see. See. Yes, we're not just talking about flying drones and refrigerators that talk to you. Now, these are much more short in front and center in terms of it to who's who. Every big tech player is going to be there, even if they're not unofficially there. They're there to look for acquisitions.
I love the idea of opening the refrigerator and having a site.
Do you really want that?
And I can just imagine the future for you know, move over ozempic. So there's this question here also about what some of the moves in late twenty twenty five mean.
And I'd love your take on.
This because we saw some acquisitions made by the likes of Meta and Nvidia, and I just wonder whether there's more cost consciousness and more of a competitive advantage that they're looking to solidify at a time where suddenly companies are saying, hold on, what are we paying for this and what are we actually getting?
Look, I think you hear a great point because the reality is this isn't it's an arms race. That's what's going on with big tech. And right now at the top of that mount is big tech. And when you look at like Google's win versus doj Anti Trust, I mean this is sort of good time for big tech. And I think you're going to see more and more acquisitions.
And we've talked about not just on enterprise, on energy, and I think really across the board, and it speaks to really what we're seeing right here is that it's not just about big tech getting bigger and bigger do an acquisition spending. You have six hundred billion in cap backs and big tech, but it's also you going to see other players being like, don't forget about me. Look at AMD. You know you're going to see like look
at CISCOO other look at IBM. I mean, there's gonna be a lot of other players saying like, hey, we want to get into that AI party. We don't want to look through the windows, you know, like a lot of the bears are.
We were talking about vyd triumphed over Tesla to become the world's biggest electric vehicle manufacturer.
We also have seen a big.
Tech in China outperform on an equity market perspective, in twenty two twenty five, do you expect that to continue and for China to really solidify more of its neck and neck position with the US or even superseded.
Look, I think the reality is for the first time in thirty years, US is ahead of China when it comes to tech, and I think that's very important, obviously led by Nvidia, Microsoft, Poundteer in others, but in China. Look, we're bullish on China tech. We talk about Ali Baba. You look at Tens and you look at Allow the
other names there. I think what you're seeing is it's a narrowing, but it's something where you're seeing robotics really play front and center, autonomous evs byd and others in China. But when you think about how to play it, you have to play US tech and then there are Chinese tech players to go after. But in terms of AI revolution, you've said it's third inning, one out relative to this AI game. And I think the Bears, like I said, like in hibernation mood, they can see AI in the spreadsheets.
And I think twenty twenty six is going to be a year that's going to be another bull market year for you know, for attacking for AI.
I had really the same question as Lisa again, because we've seen so many stories this morning about by Doo's chip unit filing for an IPO, another chip design. I think Brianner with a very successful i PO today another maybe another mini deep seek moment right with a cheaper artificial intelligence, all among the most read stories on the Bloomberg Terminals. Clients are paying attention to what's going on in China with AI.
How do you bet on that? I mean, do you buy the individual stocks? Is there an ETF that you like? Do you have some of these stocks in your ETF? Sure? So, obviously, you know for the IVS, e TF. I mean what we really focus on is the AI thirty. You know, it was like who are the thirty winners? We have a few of the Chinese players in there. I think, by do you know you look at Huawei in terms of the success they're having. Look right now, in Vidia's four to five years ahead of any other chip player,
and I think that's well known. That's why even a third rate h two hundred restricted China Big tax is going to line up despite where the politics in Beijing. But this is an armseries. It's the narrowing of the gap. You want to play some of those Chinese tech players, but the reality is in the US. From Nvidia AMD, we took our top five pound tier crowdsheing and cybersecurity Tesla. I think it's going to be the most important year
ever for them. Microsoft, I think on hyperscale right now, Microsoft, Oracle, those are names, I think you know table pounders in my opinion in terms of what we see. And then Apple finally they come to the AI party instead of being on the treadmill two point zero speed, and now they actually start to get in terms of the consumer AI revolution seventy five hundred dollars per share.
There's only one company that you didn't mention that's on your list, and that's Microsoft. Where is Microsoft in terms of winning out versus Google?
Who is its main competitor? Look in terms of Redmond, what they're the enterprise, this is their backyard. When you think about companies that are moving to AI. The first phone call goes from the della and I think you're seeing Google, You're seeing Amazon, what Jasu's doing. They're narrow in the gap and they're gonna be success. But when I look at when I look at Microsoft, you have twenty five thirty billion incremental monization. I don't even think
factor industry numbers. That's right in the stock ultimately as a six in front of it. And I think this is gonna be We're gonna go into January into earning season. I think that's gonna be kind of the show me stories showing like, look, this is not stopping. We said AI party starting nine PM's down ten thirty, ten forty five pm. Mean that's that party. But the party goes to four am, and and that's where we are.
This is the bloomberg S Events podcast, bringing you the best in markets, economics, ancient politics. You can watch the show live on bloombag 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 Bloomboo tem Minole and the Bloomberg Bars this out
M hmm