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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 begin this out with stocks hovering near fresh records on the S and P five hundred. COO Group CEO David Balin joined us now for more. David Goodmonic, Murriy, pleasure to be congratulations on the new seat and we can talk about what the company is going to be doing in the not too distant future. But I want to take the temperature of this market with you. What are your thoughts about where we are, where we have been, and where we go it.
Yeah, I mean it's pretty obvious that you've got a humanmentum bond situation. You've got out an earning growth situation. Earning a broadening situation. I think there are areas of the market where you're seeing even more of that internationally. You know, seventy percent of international markets last year outperformed in the US. US investors virtually exposed to those markets, right, lack of diversification in their portfolio. So I like the
momentum of the market. I like where it's going, but I think there are lots of areas where people need to go, whether it's in pharmaceuticals, whether it's in energy, whether it's at MLPs where there's simply no real action on the part of investors. It's all about tech, all about big deals all the time. And I think, you know, I think the good news is we believe that will continue, but we also think that it indicates growing risk in portfolios.
We let's go to the international story. So I'm with you, and we've seen that spreads away from a bigger way to start the year. Is it just a different flavor of the same story though, just tech tech elsewhere?
In part that's true, but remember that it's really an earning story, right. It's where you're going to see you know, lower valuations at higher growth rates internationally, right, And you can see that in Japan, you could see that in India, right, and you can see it even in pockets of Europe and in Germany right as a result of the changes of the geopolitics. So you could play all of those things.
But if you're an investor, you want to own that growth at a price if you can, and you can't find it at a cheap price in America anymore at all.
Just to take what you're saying a step further, are you saying that anyone who invests completely in the US or more heavily in the US is exposed to a concentration risk that is historic and potentially really problematic.
That is the number one thing that we're talking with clients about today is the fact that if a client has multiple advisors, right, and they're all besting on the same thing, and they don't rebalance portfolios, And that is the number one observation that we've seen in our data this past year, is that everyone is letting these trades ride.
So you have one of the riskiest stock sectors, right, semiconductors, large compan right in Vidiot right leading the company leading the stock market, I mean, and it is in a highly volatile marketplace, and so we don't think there's a problem this year, fair enough. But the question is if a person's got you know, that type of concentration, where should they move that money and win? Right? And that is a twenty twenty six movement as far as we're concerned.
So you think it's international, is it international equities? Is it in the commodity space? I mean, where exactly do you see actual diversification against something that's really global?
So you can actually do that through dividend shares in Europe and specific sectors. Right, you can do it in pharmaceuticals here in the US and internationally, you could do it in tech in Asia in certain areas right in terms of what is where AIS can to influence consumer markets and consumer brands. So there's lots of places where you get the growth story, but you also get diversification
as the industry. Everything that we're doing is focused on where earnings are going in those places, so it's lower evaluations, higher earnings growth rates non US. We're now about twenty percent non US in terms of our portfolios, which we can do because we're not limited to where we were when I was working a large bank.
You also say treat cash as an asset class. Yes, how much should people be allocating?
So two facts that I don't think people know. The average family right has more than nine percent of their portfolio and cash and has had it there for basically five to ten years, saying they'll be opportunistic, and they never are. The average cash yield to that family is two point seven percent. They could be earning four percent of treasuries. They could be earning five percent if they
have a blended portfolio. And one of the reasons why that's true is that they have their cash in fifteen different accounts, none of it's aggregated, and it's not managed. So why is that the case. It's largely because it's a little bit everywhere, and so that's an enormous opportunity. If you have nine percent of your portfolio and you can make an extra one hundred and fifty basis points
at it, right, you should be doing that. And these are the observations that we're now able to see because when you look across all of the accounts that the family as, you can actually just see how it is that they are really undermanaging certain assets. And that's why we call cashes an asset class, because it's a large portion of the portfolio and it's largely undermanaged.
You'll land the foundations for broad a conversation about what you're doing now, how much extra insight do you have now versus what you had previously, And would you go as far as saying that this industry is letting some of those families down.
I would actually go far as to say that I really didn't think that a year ago, right. But it's not only it's a structural issue, because if they can't see the assets, theoretically they can't comment on them. But what's really interesting to me is that the industry is charging an enormous amount in fees for the advice that
they get. So the average family is probably paying one point four percent if you add up the cost of the funds they own and the cost of their advice, right, which in a fifteen percent a year is nine percent of what they actually made right, And yet they're basically index oriented. They're getting all of this exposure without getting diversification, and they're getting not very good yields on their cash.
So I would just say that they're not getting the implementation of the advice that they should about you're following the basic rules of finance, which is diversification and meaning it. And that's what I would say, Yes.
That's true at a time when there's so much focus on wealth management at big banks. Why do you think this is? Is it just groupthink or is it that there are certain incentives to be invested in certain areas.
I just simply think that the industry is going under an amount of consolidation right now. You know RAA roll ups banks basically buying other wealth management institutions, consolidation and asset management. It's an extremely profitable time for the industry, right, so there's no real reason to take a look at the very nature of its fee structure given all of that, right, if you think about it right, clients can get I'll
give you an example. If you take in our asset allocation and you actually look at the cost of the funds that we use, it's eighteen basis points to actually buy all of the atfs in the United States that we like, with extraordinary specificity as to what individual sectors
you want to get exposure to. If you want to get exposure to ETFs in MLPs right now, which we're doing, or in pharma right, or in biotechnology you can literally buy those at very inexpensive things, so you can assemble a portfolio that way, or you can pay for active management at sixty or seventy basis points and not get any benefit from it.
Right.
Well, the industry is largely stuck on the way that it's done it. It has no incentive to change.
Just before you go, it's a wealth bracket in particular that you think is vulnerable to some of the issues you just explained.
Yes, it's a very wide bracket. But if a family has ten to five hundred million dollars, they're using multiple and they're using multiple advisors, which is a huge amount of wealth and extraordinary.
Right.
But if they've got ten to five hundred million dollars, right, and they're using multiple advisors, the probability that they're beating the market so that they actually have their money adequately and diversified and investor is extremely low.
What happens five hundred and now they tend.
To get more advice by having an individual inside the family who is actually coordinating the professional activities. And interesting is they actually have goals and an ips that they're following and are being checked on. It's when they don't have that and they're relying on multiple providers that they end up not having a sense of direction.
Stay with us. Mult Bloomberg Surveillance coming up after this. John Builton of JP Morgan Asset Management, writing, given our expectation of a moderate pickup in the pace of growth in twenty six, we see potential for positive equity returns. John joined us now for Mott, JUHNK and Monich. Morning, it's going to see you. We've been flattered, We've been blessed by some really really decent double digit gains on the S and P five hundred. Is there more to come?
Well, I think if you believe that the economy is in a decent place, you believe we're going to get fiscal stimulus coming through this year. We see unemployment behaving itself per your earlier comments just now. If we see the impact which is always delayed, of the FED cuts coming through and actually supporting the economy, which we think they will, then if you look back through history, nine times out of ten in a year with no recession, and we're not calling for a recession, we think the
odds are pretty low. Then the SMP delivers positive total returns. So sure, if you want to bet against stocks, go crazy, but the odds are not your way.
Skater, where the puck is going? Where do I want to be now? Already to take advantage to some of this, well, we think that what.
We're going to be seeing this year is, you know a little bit more in terms of the continuation from some of the themes last year, things like that gradual weakening of the dollar, which is going to flatter some of the international markets. Of course, if we look at what happened with Europe with the US, you know, the indices in terms of their returns in local currency, we're not too dissimilar. But you've got a big boost as a US dollar investor if you were beginning to be
a bit more adventurous and look outside. We've obviously got that Ai trade which continues. We think it's important in the US, but remember it's a concentrated piece of the market. People want to be able to find a different way to invest. Asia looks pretty good there, you know, some of the impact in terms of the investments that have been made in the last few years start to bear fruit.
Does it broaden out across the economy. I think that's the sort of themes that folks are looking for this year, trying to put a few more eggs in a few different baskets.
I was going to ask, how adventurous do you want to get Vamsung or Venezuela bonds?
I think we.
Okay, there's a few things there, aren't there. I mean, one of the other things which I think is supportive of the economy generally is is this emphasis on oil prices coming down. Right, So anything which is freeing up supply potentially being a bit of a sort of downward pressure on oil prices ultimately good for the consumer.
That's ultimately good in the US. It's supportive globally as well, of course, but that's going to be something which matters a great deal, you know, just having another year of the economy being a global a going concern globally, I think that's really important for confidence, which in the US,
if we look at consumer confidence, it's been hit pretty hard. Actually, if you look at where the stock market is versus where consumer sentiment is, you know, there's a big dichotomy there, and it's even worse in Europe.
It's really a difficult narrative to get my head around. Pretty much the entirety of this year is going to be difficult thing to get my head around. But I am wondering. People say the commodity costs are going down because oil prices are going down, and then we look in copper, that we look at lithium, then we look at some of the other inputs at all time highs continuing to skyrocket at golden et cetera. So some of the other inputs that we're going to be using increasingly
electricity costs. So how do you square this idea of the disinflation from oil prices and frankly the inflation from the rest of the commodity sector, which a lot of people are betting will continue.
Well, I think you put it into the chain. It works in that the push up in commodities prices is a symptom of the investment that's being made. And the investments that are being made at the moment are in building productive capacity. It's in electrification, which will ultimately bring down costs. It's also in data centers, which is a huge part of the AI sort of infrastructure build out.
We're going through a massive building phase at the moment, a phase where we're building productive capacity, and we know that the biggest driver of total factor productivity over the long run is the investment made in those productive assets. That's what we're seeing today. Yes, of course there's going to be tightless in places. I mean, the swing demand today for copper is not China as it always was
for many, many years. It's much more what's going on in terms of electric vehicles, it's what's going on in terms of data center. So it's a symptom I believe of a bigger theme, which is this big investment phase that we're seeing right now.
You say that you're becoming more constructive on Europe, specifically Germany. This made in Germany. How that possible when China has been decimating their industrial base.
Well, I think we've got a few things. I mean, this is not new news. Chinese competition in Europe has been a big deal for the European Union for some time. There's been a lot of talk about concerns over product dumping, that sort of thing, But what's been happening beneath the surface is that you've gone through a couple of years of German industrial production really being on its knees, very
little inward investment, very little infrastructure investment. And really what we saw last year was the opening up with the fiscal taps very rapidly followed by opening up of capex taps. Now European savings rates for households currently see it at fifteen point three percent. That's the highest level outside of the pandemic. You've got the biggest consumer block in the world not spending this year, We've got incomes now rising above the pace of inflation. Start to turn that back on.
And I'm not.
Suggesting European consumers suddenly become US consumer like, but just at the margin that can give a big boost. And although the pmis earlier this week were a little bit softer than expected, they're still coming in in line with a one point six percent GDP growth rate, which is half as much again as the growth rate in the first half of last year.
Do you think the German fiscal impulse translates to the rest of continental Europe.
Not necessarily, because this is the issue with Europe. But what holds it back in many regards is not everyone has the same fiscal space. But make no mistake, I mean the Germany still remained the biggest block within Eurozone, and it really is the heartland of industrial production within the Eurozone. So really sort of getting that piece right to sit alongside some of the strength we've seen in Spain other parts of the periphery and offset some of
the concerns in France. That's a big deal in terms of taking it from a continent that many folks had forgotten, that still managed to do in dollar terms thirty percent on its equity index last year, and all of a sudden it can come out and surprise people.
John, Can we finish on a simple but I think highly consequential question, which is what are the indicators I should track this year and what should ignore? We've got ADP in about six minutes time, we got payrolls on Friday. If I tracked those and just said, you know what, based on that data point, I'm going to be long or short this equity market, I'd've got things very wrong in the last twelve months. What should ignore? What should I pay attention to?
Well, I think you know, if only there was one indicator we could all watch, I mean, you know, then frankly I'd be out of a job.
So can to help you more?
What I think matters most of all is the fundamentals. It's what a company's doing. Are they able to translate this massive investment flow into earnings. Remember, with the labor market, we've gone through seismic change last year. We've gone from a huge oversupply, a lot of excess capacity coming into the labor market that's now gone. So we've gone through that sort of right sizing, if you like. In the labor market. It's a much lower level of payrolls needed
to keep track with trend GDP growth. It's in the fifty to sixty thousand range, not in the two hundred thousand ranges it was. She's talking smaller numbers. But at the end of the day, America's superpower is its corporate sector. If its corporate sector is building profits and it's creating a positive return on the massive investment that's coming through, then that's a reason to be constructive.
Stay with us. More Bloomberg surveillance coming up after this. So here's the latest this morning. President Donald Trump pushing House Republicans to own the healthcare issue ahead of the midterms as voters show they are more concerned with affordability than foreign affairs. Jonathan samri If Bloomberg Government joins us now from Washington for more, Jonathan, that's at the top
of the agenda for Americans in this country. How are they going to speak to that, What are they going to do in the year ahead.
That's the really big question. One of the challenges for Looks is that they haven't laid out a clear affordability agenda. You know, the President is talking about trying to lower gas prices. He's made this kind of targeted pitch on healthcare, but these days are going to be really hard to make to happen quickly. Right now, there are millions of Americans who are paying higher premiums through the Affordable Care Act because some subsidies expired under Republicans watch this past year,
and so it's a major challenge. And they have a very narrow majority in the House, so it's going to be hard to get any major legislation passed this year.
Jonathan. We talked about the pitch that's going to come from Republicans. It's going to be the tax refunds and hopefully the economy picks up coming into the middle of the year. What's the pitch from the Democrats. What are they offering up gun into midterms, so.
They yet to lay out their own affirmative agenda, which is a big challenge for them. It's something they've really struggled with during the Trump years. Right now, they're basically saying Trump promised you that he was going to lower prices, lower inflation, and that his focus has been elsewhere, that his focus has been on Venezuela, on immigration, on all these other things, and not on not on lowering prices
the way he promised. As far as an affirmative democratic agenda, we're still honestly waiting for that outside of the healthcare space.
Jonathan, Samawick, Downe and Washington. Jonathan, thank you. I appreciate you making some time for us this morning to build on this conversation. Henrita Trice A Vita Pounce joined usnapamore, Henriette, So happy new year and a welcome to the program, A warm welcome. What's it a company agenda? Do you think for Republicans what's achievable in the months ahead?
Well, with a one seat majority, you have almost nothing that's achievable. And that's the state of play for Speaker Johnson right now. So, when President Trump spoke to the Conference yesterday. He laid out a whole host of things that Republicans would like to see, But the bottom line is this is where an understanding and being a legislative wonk is really helpful. You just don't have the votes,
so talking about reorganizing healthcare is not an option. The best that they could do is extend the ACA subsidies that expired at the end of the last year. Twenty four million people, some people paying one thousand dollars more at ACU subsidies. That's going to be the bulk of it. And the real news from that event yesterday was around
the High Amendment, which is related to abortion. We're on the same old issues we've been focused on for sixteen years, so expecting radical change on the healthcare front is just unrealistic.
Henry.
Is their appetite within the Republican Conference to expand those healthcare subsidies.
I think there's appetite to extend, definitely, not to expand. So they put wage requirements on their duration requirements on there wouldn't be open ended. The duration is anywhere between six months to three years. There's even a five year bill, but expansion is not on the table, and so that's that's one of the best that they can help for going into this.
So does this mean we will not have a government shut down at the end of the month.
I don't think we're going to shut it down. I think Democrats feel like they proved their point. They got the narrative in the United States around the voting demographics to focus on affordability, and as y'all were just pointing out, they don't need a proactive agenda in their view, they just have to keep the conversation on affordability and housing in particular. And so that's where Schumer and Hakeem Jeffrey are going to focus the narrative as they go out
into the campaign trail. And you know, obviously the President is very concerned as he has been throughout all of last year with maintaining control of the House, but now even the Senate is slightly at play for the Democratic conference, and that issue of affordability is paramount. As you were just pointing out.
Well, the President yesterday said this quote, I wish you could explain to me what the hell's going on with the mind of the public, Henrietta when it comes to the president and has pitched the American people when it comes to affordability. He has gotten gas prices lower, but grocery prices are higher. He has stopped the inflow of immigration at the border, something he pitched the American people. But at the same time, right now he's taking a
very aggressive foreign policy posture. Is this something Americans want to sign up for when it comes to the midterm elections?
Such an exceptional statement to seize on the president's commentary shows that there is, you know, honestly kind of gas lighting going on within the White House. And I would start with the tariffs. The tariffs are widely understood by the American public. Everybody watched the news on Liberation Day, and every small business that's importing anything, whether it's a children's toy or refrigerator, is focused on what happens next, what happens at the Supreme Court? Do I need to
pay this harmonized tiff schedule number? What's my tire freate? Every single person in the United States is concerned about tariffs, and they do not like them. This is a rare example where Trump is out of sixty forty sometimes even seventy thirty deficit with the American public. He likes the tariffs. America does not. And so when he says, you know what's going on, it's the tariffs. The foreign policy thing is actually very consistent with what we've seen from Americans
for generations now. They just do not care. Four percent of Americans think that the drug trade in Latin America is worth prioritizing. They just don't care. Bring the prices down, nothing else matters.
Henriya, What does that mean in terms of if the Supreme Court does strike down tariffs and the AEPA Act, whether the President will be willing to go forward on a cocktail of additional tariffs and put them on given that they are so unpopular.
There's a disparate view in DC. If you are a trade policy person, you are looking at the tariff laws and the code and say, what can I do? Can I migrate to a balance of payments authority and collect fifteen percent tires for the next one hundred and fifty days. Sure you can totally do that. That is reasonable to physically do, But think about it from the perspective of the manufacturing base or any importer or business or American voter. You now have to go through liberation day all over again.
You have to figure out what tariff schedule you're exposed to, what the rate's going to be, how long it's going to be there for, whether it will come back if they use three three eight that's never been used before in history. We're going to go through this whole rigmarole where it goes to the Court of International Trade, the Court of Appeals, and the Supreme Court all over again. So it's that uncertainty, which was the buzzword of all
a twenty twenty five, that will come rushing back. And my view is the president has to take that to consideration, especially now that we're eleven months away from a midterm election cycle where Republicans are about to get slacked with a D plus four generic ballot situation.
Henrysy did we just finish on one thing? Just take a step back. Why is everyone in Washington so bad at handling this issue. We torched the Biden administration quite rightly when they were talking about prices. Inflation was heading towards double digits, and they were like, there's nothing to see here. Everything's fine, it's a great economy. It certainly wasn't for many people. Unfortunately for the president. He now
owns the issue. He's the president of the United States, and the Republicans control Congress, they own the issue too. Why are we seeing successive governments perform so poorly on such a key issue for the American public.
I think the inflation memory bank is really strong. We're still in the mindset of the post pandemic era. Is that sort of what the data suggests. I would point out the idea that you can't follow the University of Michigan consumer pricing and our consumer sentiment index anymore. It's because now all of your views of the economy are shaped by your power. So if you like Trump, you think the economy is great. If you don't like Trump,
you don't like the economy. And now we have this mix up between understanding your own personal finances, the state of US economy, and whether you like the person in charge. It's just a polarized United States economy and it's seeped into everything.
This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, angio 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.