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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. Sam Stovell of CFRRO
has this to say. The lofty initial expectations for second quarter runnings growth have caused some megacap high flyers to fail to clear this elevated bar, causing investors to wonder if other megacap disappointments should be anticipated. Sam joins us now for more. So, Sam, let's get to the calendar. Let's go through next week, Microsoft, Amazon, Meta, Apple. Do you think we're set up for some disappointment here?
Hey, Jonathan, Well, certainly, next week, forty percent of the cap weighting of the S and P five hundred tech sector will be reporting earnings even though expectations are that we've seen a better movement in earnings for the technology sector now at about seventeen percent, up from sixteen percent and change. I think yeah, investors will definitely be paying a lot of attention to what is said and implied
with these upcoming earnings. The chip companies typically do have some challenges when it comes to third quarter areas, and our feeling is that, you know, while there could be some stumbling, we are maintaining our overweight recommendation on tech, mainly because companies will soon be looking at twenty twenty six estimates and pretty much ignoring what they are hearing right now in twenty twenty four.
Some let's take the earnings so far this week, Let's pick out one name, Let's talk about the likes of our and we can think about how the way the market responded to what Alphabet had to say. Based on that, what our investor is in the mood to reward and
what I invest is in the mood to punish. And I think that's something really interesting that we've got to try an answer an anticipation of the NINGX next week, because it felt like investors were in the mood to punish excess investment out of Alphabet, whatever you would call excess. I want to understand how that might set us up for next week, Sam, How do you think about that? Well?
I think what that implies is that they're really investors are really only looking short term, because the investment that Alphabet was making is obviously for twenty twenty five, twenty twenty six, which is the cause for our optimism longer term.
But in the near term, investors are basically saying that recently we had tech selling at a seventy eight percent premium to its average twenty year PE ratio, the market itself at a thirty eight percent premium, and the relative strength between the cap weighted tech and equal weighted tech sectors back to where we were during the dot com bubble. So I think that investors are saying, if there's any hint of disappointment, I'd rather sell first and ask questions later.
Sam.
I guess another way of putting this together is how low is the bar right now heading into next week for some of these earnings. After the sell off, we've seen a true correction down about thirteen percent since the July tenth record highs that we saw in the magnificent seven stocks.
How much do you anticipate that.
Any additional disappointment or even just not superlative type of results will provoke some pretty significant selling in addition to what we've already seen.
Well, I'm looking at history. I would tend to say that we are due for a double digit decline in the order of ten to thirteen percent, primarily because of the advance that we experience in the first quarter as well as for the first half. And as I had mentioned in terms of the valuation, however, I do think it'll be contained to a correction, not the beginning of a new bear market, and would probably end up representing a good buying opportunity as we approach the fourth quarter
of this election year. Let me also mention that when it comes to elections, there's the possibility of a red wave. And whenever we have had waves in the past, We've had three Republican waves since World War two, seven democratic waves since World War two. That has added a percentage and a half to the average return in the first year of a new administration.
So let me get this right, Stam.
A lot of people are saying that a red wave or a blue wave but in this case, a red wave would actually cause inflation to go up and could become a problem for the bond market. You see it as the opposite that actually any kind of dominance in Congress would actually lead to greater returns in equity markets.
Is that correct?
That's what has historically happened. But obviously it's going to depend on what the new administration puts forth. If we do see in a sense very high walls in terms of tariffs and whatnot across the globe, then yes, that will end up being very restrictive, would be a hurt to our exports, would certainly smell or have the sniff test of the Smoot Hawley tariff back in the early
nineteen thirties, which restricted global trade. So I don't think that would be a very good thing, and I believe that those who end up being in power would be very much aware of that.
Sam. Just taking a step back, it seems like you're still pretty constructive on the overall backdrop for the US economy. It doesn't seem like you're sort of expecting my major fall off the cliff type of moment. What would you have to see to change that view? For some of the growth worries to become a true growth scare for you.
Well, as I had mentioned, the valuations were stretched, in my opinion seventy eight percent premium for tech. Now it's down to about sixty four percent. So some more slight downward rotation for tech I think would be encouraging. I think if we get a software than expected PCE reading this morning, that could also help talk the market off
the ledge. And because we've been seeing an improvement in the rotation beneath the surface, our lowry Technical Analysis ARM has been showing an encouraging amount of supply demand indicators that they monitor to say that while a short term pullback could certainly be in order, that they are looking at that as a good buying opportunity.
Let's say what we get in twenty minutes? Hi Sam, Thank you, sir Sam.
Stuff with a CF all right, it's.
A licens this morning. Donald Trump's campaign refusing to commit so I to pay with Vice President and Kamala Harris until she officially becomes the Democratic nominee, a campaign spokesperson saying it would be quote inappropriate to schedule things because Democrats very well could still change their minds. Harris responding on social media saying, quote, what happened to any time, any place? Tober Marcus of Wolf Research joins us now
for more, Tay, a bit of news this morning. Already the elusive endorsement gets delivered by the Obamas to Kamala Harris. There's a bit of a honeymoon period over the last couple of days, Tobin. I'm just wondering, from your perspective, how much longer that honeymoon period lasts.
Well.
I think that depends in large part on how Vice President Harris continues to perform on the campaign trail. Part of the reason why Democrats have been so energized and unified is just the relief at being out from under this Biden catastrophe that they've been living through for the course of the past month. But another part of it
is that she's looked pretty good on the trail. You know, the early paid medias look good, a couple good adds up so far, and a string of you know, solid performances from her, so you know, she keeps delivering good performances. I think Democrats are like very ready to remain enthusiastic. I think there's a sort of helpable eagerness to have something to root for. But you know, obviously her her twenty twenty campaign did not go flawlessly to say the least.
It's totally possible that we see things start to go a little bit, you know, less uniformly positively. And if so, then I think we'll start to see cracks on the Democratic.
Side, Tobin.
I thought that the New York Times Siena poll that just came out yesterday was fascinating, not because it showed that there was more of a tie between Kamala Harris and Donald Trump than we've seen for months with the former with President Biden, but this part is said that nearly ninety percent of voters said they approved of mister
Biden's decision to exit the race. When have you ever, Tobin, see ninety percent of voters agree on something so pivotal as the sitting president stepping down from a race.
Yeah, that's about as high a number as you can get in polls, As someone who has run a lot of polls in my life, you can it's really hard to come up with something that gets you a higher number than the ninety. So look, I mean, I think it just goes to show again how much palpable relief there is at being out front of this. There were differences of opinion, obviously on the Democratic side about how to handle this, how much pressure to put on Biden.
There were certainly some people, including you know, for example, the congressional Blackhawks, who were standing with Biden through much of that pressure campaign to try and get him out. But now that he has left, I think there's very
very little second testing of that. And you know, again there are some people who were hoping to have another candidate come out somehow, find some way to run a mini primary, you know, figure out if you can get one of these promising Democratic governors at the top of the ticket instead of in the runner up slot where they're being considered right now. But that was never really
an option. And with all those people immediately bowing out, I think people are now backing the horse that is available to.
Cheer for Tobin. There are a lot of people who are scratching their heads at the JD. Vans pick by former President Trump as the vice presidential pick, fact that he is very closely to Trump when it comes to some of his policies. Within the Democratic Party, how much momentum is there for picking a vice presidential candidate that really is more centrist even than perhaps Kamala Harris.
Yeah, I think that's what's going to happen. There's questions about which one of the various different vice presidential hopefuls she will end up going with, but you know, I think common sense and the reporting about who is being vetted all point in the same direction, which is that she's looking for somebody who has some you know, moderate record and some outside the Beltway sort of vibes to them.
In terms of people to round out the ticket again, could be governors, could be Senatra Kelly in Arizona, who, like I think, reads a little bit less Washington than a Senator usually would by virtue of his experience as an astronaut rather than a career politician. But one way or another, I think he, you know, is looking in the obvious place for the kind of person she'd want to fill out the ticket at Hobe.
It's been interested to see the media and Democrats in the last couple of days or so almost remodel trying to remodel perceptions of Kamala Harris's role in this administration, to separate her from the border by pointing out repeatedly we might have called her the border Sar, but she was never the border Sara. This was about root causes, tope. And I just wonder whether you can pick and choose whether as the vice president, you can say I was involved in this, I had nothing to do with that.
Can you really do that? How much distance will there be between her and the Biden legacy?
So you know, obviously she's going to face attacks for everything that happened under the Biden administration.
You know, both things in.
Which she had some level of direct role, like again the sort of disputed portfolio about what exactly was her responsibility in terms of addressing the root causes of immigration, but even more broadly, I mean things that happened that she had nothing to do with, as she will continue to vice criticism for I have no reason to think that the Trump administration, for example, is going to stop criticizing the doll from after NS YEA and kind opinion
not on her as a member of the Biden Harris administration, even though nobody believed that she was the decision maker on that. You know, that being said, it does seem to be the case in some of the early kind of pulling from Democratic pollsters that there is less baggage with her than there was with Biden on inflation, for example, which obviously had been one of the persistent vulnerabilities for
President Biden in addition to his age. Looks to be the case that there's like a little bit less association of the retrospective bitterness in the run up and price levels just sting from the current run rate of immigration
for Harris other than Biden, you know. And again, a lot of it comes down to her, like how effectively can she pivot away from some of these attacks both on the Biden record and on her past positions where obviously Republicans are already you know, kind of criticizing her for all the position taking that she did in twenty nineteen and twenty twenty around banning fracking, around decriminalizing border crossings, these various different things that she kind of signed on
to during that primary when a lot of Democrats were racing to see who could get far this left, you know. But again, flip flopping is a thing that happens in politics. If she can give a compelling account at where she stands now and what she wants to do going forward, I think it does mitigate some of the vulnerability from the things she said in the past.
They are the ultimate shape shifters. I expect no different from me the side, Tybin. Thank you, sir Tobin Marcus there of wolf free search a stick with sports. Acey Milan meeting English Premier League club Manchester City in a pre season friendly at Yankee Stadium tomorrow afternoon. It's the latest push in the United States by the Italian football jats, a market they've seen significant growth in since being bored by New York private equity firm Redbird Capital back in
twenty twenty two. Pleased to say that joining us now to discuss is the AC Milan CEO Georgio Ferlani. Georgie, Joe, let's talk about this move. We've seen these friendlies before, AC Milan on tour playing other teams from the Premier League and elsewhere. It feels like we're getting closer to playing a regular season game in the United States of America. Georgia, Is that true? How close are we to an event like that taking place?
Good morning, Thanks for having me. You're right. We do these tours in the summer regularly to play friendlies against other top teams. Look, there's regulatory challenges in moving abroad and into a different market domestic league games, but we certainly think if you really want to develop a fan base and you really want to expand your business in the US, this would be a critical part. So we will be working with cityr Our League and the other regulatory bodies to allow us.
You've mentioned the bodies you need to work with. Can you just build on that the obstacles for something like that to take place. Have you had a meeting with study out the regulatory bodies about this already? Have you taken steps to kind of push this forward? How close are we to something like this?
We certainly have discussed it then needs to be discussed also with WAIFA and with FIFA and the authorities here.
In the US.
There have been attempts in then also distant past to play games. La Liga tried to but it didn't work out.
So we'll keep on important.
Just in the same way that American leagues have expanded globally by the regular season games not just friendly outside of America, we need to do the same the other way around.
Georgia, I gotta say we just saw basically a mini world Cup.
We saw the Euros.
We saw also Copa America taking place at the same time. Pretty much everyone who I knew on the weekends was watching some of the games as they really got into it. The enthusiasm, though, in the United States for games that were held here was surprisingly not very strong. We didn't
hear that much about games that were happening nearby. Have you been disappointed by how some of these games have rolled out at a time when there certainly is more interest, but maybe not in the way that there isn't in many of the other markets around the world.
Look, I think the Ugmate Test will be the World Club, and you know that is really the top top content, well together with top games of European continental leagues.
And Georgia, I think that we're having some trouble with the sound. Let's just try to re establish that and then we get you back real quick so that we can make sure that we understand everything.
Georgia, let's come back to you. I'm happy to say that you are just Johnny and we are still with the acy Milan CEO, Georgio Frelani, Georgio, I know there was a little bit of a technical connection, but I want to come back to some of the comments we were having around the table. It feels like ac Milan has become more American in the last year or so and maybe less Italian. The very fact that there wasn't a single ac Milan on the Italian roster of the
Euros this summer. Is that a financial decision or a sporting decision?
Very good question. We've definitely become more American. We're owned by an American firm, which is Redbert Capital Partner, which is a leading investor in sports media and entertainment, and we work very closely with them. We've also become more American on the field, so we have I think you were saying two American players. Our decisions on who to field are entirely sporting.
Uh.
There is in a decision on the base of, you know, what, what passport a player has, but it's about how good the player is. Obviously, UH, some players just by nature of being American. In our case, we have two players, including Christian Polovik, have a certain commercial appeal in the US, which is certainly helpful. But we don't drive sporting decisions by passport looks.
We were talking Georgio about how the United States is a really expensive market that there's a lot of money here, and so that's one reason why a lot of people want to come here, is because they're dollars and a lot of eyeballs to come. They are also a lot of dollars coming from the Middle East, and you're going to be focused off facing off with Man City, Georgio. How open are you to tapping seemingly endless appetite in the Middle East to own clubs in Europe.
So we have at least in a different way, which is on the commercial side. So we've opened an office in Dubai, were the first European football club to open an office in Dubai. We've had a long standing fifteen plus year relationship with Emirates the airline. We have other commercial partners in the region, including the Kursner Group, and so the way we've gone about it is not sort of via let's say, equity injections, but rather via commercial partnerships.
I just want to squeeze in one final question and I'll ask this as said as an ac Milan fan, a lifelong fan like yourself. We both remember the ac Milan of Capello and Saki of Barrazi and Maldini. We've both been disappointed with the performance of the team over the last twenty years and the trajectory that we've been on. I remember when the club became a sealing club, and I identify that summer when we've sold Ebra and we
sold Tiago silver to Paris Sanja Man. It felt like that was a moment where AC Milan became a club they needed to sell players and couldn't buy that talent anymore. This summer we've got two big players, the left back Theo Hernandez and we've got the goalkeeper Mike Manyan. I want to understand whether that's two talents that you need to monetize to fund the rest of the project or whether AC Milan is back in a position where it can keep world class talent. Just what is the state of play?
Yeah, so this morning side, our ambition is to fight for the title in Italy every year and to be competitive and the champions. Now we do this while on the lets the other side running a business that is sustainable. So to give you some facts, we two years ago was a first year in which a Cimlan was profitable. First year in seventeen years, and last year was the second year, and I don't think it's ever happened to
a Simlan to be profitable in two consecutive years. What that translated into is we're not forced to sell players because of capital shortage or cash flow issues. So you know, I picking one word is that we don't need to sell anyone. So as a fan, I'm telling you you shouldn't be worried about that.
Well's the fan. It's good to hear. Georgia. Good luck tomorrow and hopefully we can catch up soon. Georgia Falani, the ac Milan CEO. This is the Bloomberg Seventans podcast, bringing you the best in markets, economics, antient 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