¶ Intro / Opening
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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amerie 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
¶ Market Dynamics: Capital, Earnings, And Indices
Terminal and the Bloomberg Business App. Stuart Kaiser City writing, there hasn't been much market breath lately on both sealovs and rallies. The market has been mixed as people rotate instead of broad changes in risk. Stuart joins us now for more Stupid Morning. I know you can't talk much about this IPO specifically, but the amount of IPOs that are coming to the market at the moment, do you see them as a red flag for the ball market or a green flag to deploy more capital.
I mean, UTIM worth to see how they perform, and I think it's not just pos right. You have secondary offerings from Meta from Google, from Amazon, you have tremendous amount of convertible bond issue, its HIGHG bond issue, and so this is a sort of broad based demand for capital, and I think a lot of investors are looking at this is one of the largest construction and industrial production cycles the world has ever seen, right, and that needs
to be financed. And what we're seeing I think the last couple of weeks is a little bit of a friction in the market as people digest just the enormous amount of capital that's going to need to.
Be raised to get those push backs too that we've talked about Meta Auricle maybe spending too much thinking about raising more capital stock markets pushback. A ural company is going to be treated the same, maybe just isolating the weak points.
I mean, I don't think all all companies will be treated the same. You know, the winners are going to the winners, and the big free cash flow companies like we see from the Max seven the last couple of years, are going to be able to raise that capital. And companies that are maybe the Tier two or the tier below that are going to see credit spreads rise and going to see some more pressure. I think what's gotten people's attention recently is last year was all about definancing, right,
this year it's been about equity finance. So that's got in equity investors attention. I wait, this applies to us as well, Like this doesn't seem very fair, and much like Lisa, I was forced to watch Star Trek against my will, so you know, I have some scar tissue that I'm working through as well related to this. We talked about that later.
You know, this is actually something I think a lot of people on Wall Street probably are working through this morning. There is a sense though, and you talked about this. John was talking about the rotating pool of capital and how it's going from different names and different pockets, and the breath has been really bad. How much of people selling some of the previous winners to get in on the new, hot and shiny thing.
You know, it's a tough situation right now because the winners is still where people want to be. And this year has been really defined by estimate revisions. Earning's going higher and that's driving stock returns, and frankly, that's been in a relatively narrow part of the market. So as much as people might want to rotate, when you say okay, when you rotate, you have to sell this guy and
buy that guy. The guy they have to buy is not something they want to own, right, So in some sense, it's like you're being forced to rotate against your will a little bit. And it's been a little bit tricky. Look, some of the stuff is up so much. If we look at NASDAK earnings are up ten percent since the end of March. Semiconductor's earnings have been revised up seventeen percent since the end of March, So you kind of
fade that at your own risk. Is that done? And I think a lot of investors do not think those revisions are done. They still want access to those positive earnings revisions. So I think people are planning a little bit of hopscotch amongst the AI winners. Oh this looks a little overdone. Let me move here, but it's not, you know, I want to move down the quality spectrum would be really too far away from that AI trade.
Something you mentioned that the dept marks have gotten used to being tapped again and again to build out the industrial Revolution, and they certainly have been over the past
two years. Now it's equity markets turn at the same time as it's being driven by the fact that equities look like a better risk reward proposition at a time of earnings growth like the kind we've seen, given that inflation is going to be higher that yes, bond yields are higher than they have been historically, but in some ways aren't necessarily even going to keep pace with inflation over the.
Next couple of years. And you also have this situation where the credit marks are going to start to look a lot more like the equity markets, right because large cap tech and the mag seven are issuing debt, all that desk going to go into the credit indsease. So this sort of sector concentration you have with in equity actually is going to exist within credit. So you're not you're sort of you're not getting all the upside reward, but you're actually getting a lot of the risk and
the concentration. So you know what we'll see ultimately how that health that plays out. I mean, I'm an equity guy. I'm going to tell you what equities, not the.
Bond usually bond allocated money going into the equity space because of exactly this dynamic.
You know, I mean, money's been coming into the equity space, you know, kind of from all directions. The beauty of the bomb market though, is your you know, you're constantly recycling coupon payments and stuff like that. I mean, the bond market's healthy. Look where credit spreads are, you know,
there's not like an issue on the credit side. But to your point, you're you're making a decision there of you know, do you want your fixed payout or do you want access to that sort of upside earnings revision and the revisions are just like goofy powerful this year, so it's kind of hard to step away from that, I think for most people.
So you're described the changing characteristics of they US credit market. Can we talk about the changing characteristics of the index the Nasdaq? What that's going to look like is we introduce some loss making companies with massive market caps and we do so really quickly.
How's the character of the NASTAK going to change? Well? I think what's interesting is the size of some of these i pos is just so big historically because they didn't they IPILD late. I guess would be a way to way to look at that. And the other interesting thing with the indices is a lot of these things are going to be a Nasdaq pretty quick and not in the S and P for a while, so you kind of get a little bit of a divergence, you know,
between between how the two things look. You know, for Nastak specifically, we have to see how it all plays out, but it's not unusual to have sort of higher volatility, you know, stocks with a lot of argy.
Question, does just that just amplify the existing difference that already exists between the two indexes?
You know, look, the concentration in SMP has gotten pretty high as well. But yes, it will. I mean, you could be in a situation later this year where there are two or three you know, new IPOs that people will really want access to that are in one index or the not and not the other, and you will get a divergence there, And yeah, it will, I mean just by definition, and I think it'll kind of widen out the gap between the two.
Do you buy the argument that with increased supply, the dynamics of the equity market are changing enough to dilute some of the demand that just the technical is alone should take away some of the heat that's been underpinning the equity markets.
I mean, just like too much supply not enough demand. You know, that's what we've seen. I think the last couple of weeks, right is people are you know, looking at it a little more critically in terms of how much equity supply am I going to need to absorb over the next six to nine months? And what does
that mean for performance? From my perspective is you know, I'm a good news is good news guy, and if those earnings numbers are getting revised up in the way they are, there's only so long you can keep yourself away from that, right. I mean, you revised up Nasdaq earnings one percent in the last week. I mean that's
just like a stunning, you know, rate of change. So yeah, I guess perhaps you know where there's a little bit indigestion going on right now, and it's almost perspective indigestion because people are looking at the next six to nine months and what is the total amount that gets issued? If your jamming earnings that's high they are, there's always something you get ignored.
Let's get another waes down. The technical is if i'd buy banks like up here sky high, really reducing the amount of flow, the amount of stock that's available for people to buy, the shrinkage that everybody's been talking about. As the spread starts to close, and I know it's still wide because it starts to close. Does that dynamic matter, That's really what Lisa's asking.
Yeah, I mean it can matter. I mean, there was some discussion that some of this capex vending was going to eat into into buybacks and stuff like that, and now you're actually getting equity issuance. So to your point, you're kind of going the other way. What's interesting too, is a lot of these companies started issue with dividends less than eighteen months ago and are now kind of committed to that. So yeah, look, there is there is a little bit of a supplied demand dynamic, you know,
going on. But to your point, this has been a multi decade issue of you know, shrinking number of publicly traded companies, et cetera. So it's not something you're going to fix or reverse in six months, right, it would take longer than that, I think.
Stay with us. More Bloomberg surveillance coming up after this.
¶ US-Iran Relations And Geopolitics
The former deputy National Security Advisor Victoria Coats writes the following President Trump has demonstrated that he can bomb what he wants when he wants in Iran and there's little or nothing the regime can do about it.
Victoria joins us.
Now for more, Victoria, welcome back to the program. The US has demonstrated repeatedly that it has military superiority over Iran, both in the skies and intelligence and so on and so forth. How do they ensure the US that they translate that superiority into a superior deal that benefits the US.
Well, good morning, John. Yeah, I think we've actually seen that play out in real time over the last couple of days. And I admit I am a little nervous that Tyler's going to pop back up with another changing headline. In this current news cycle, a lot of things are shifting. So take all this with a grain of salt, But it looks like what happened to my eye is that
everybody thought the president was done with kinetic action. He wasn't going to go back in the Iranians, whereas he says, tap tap tapping the Americans along, and he decided, you know what, we can go back in. We can go and bomb a bunch of these sites. And I've heard them described as blinding targets. So you're getting rid of their radars, their ability to see things, their ability to
launch missiles. Did it for two nights and then threatened carg Island, and I think the Iranians thought, wow, maybe this isn't what we've been dealing with for the last forty five years, and that we need to make a deal or else we're going to sustain damage that we can't recover from. So I do think that military superiority is a fact. We are the ones who are stopping ships in the street right now. They are threatening ships, but we're shooting down their drones. We're the ones who
are actually disabling the tankers. So that's the reality the Iranians face. Hopefully it means they're going to start making some better decisions Victoria.
With all due respect, I'm looking at what the market reaction was yesterday, and that was not the interpretation of the market. When the initial headlines came out and the t social posts from President Trump, the reaction of markets was don't believe you. You've talked about a potential escalation before,
why should this be any different. And essentially, if you take a look at what Marius is reporting, the semi official news agency out of Iran, it's a sixteen point deal, a fourteen point deal that includes some that are still very controversial and similar to what they were a couple of months ago. What gives you confidence that anything was accomplished?
Well, I mean, I don't actually get my news from They haven't proven terribly reliable in the past. What they tend to be is a messaging device actually to the Iranian people from the regime. They're trying to signal to the Iranians what they want to have in this deal. And so this is maya a lot of wishful thinking out of the Iranian regime. I'm going to wait and see what's actually in the deal before I just make up my mind about it. But obviously, Lisa, we're dealing
with the Iranians. They have been obstreperous before. That is theirs that's their brand, if you will. They're going to try to continue the sort of stale we're in as
long as we can. But I think the fact that the president has both been willing to do hugely more than any other American president to degrade that regime, to degrade their nuclear program, to demand his red lines, and then was willing this week, you know when in the situation where there is significant political pressure on him to you know, wrap this up, get to a deal, any deal, But he hasn't been doing that. He's been sticking to
his red lines. So you know, as I said, I'm going to wait and see what's actually in the deal rather than believe Mahre. And you know, as for market reaction, I mean, the stock market went up a thousand points yesterday.
That's that's not a bad thing. Well, Victoria, what.
Gives you confidence at this time something has changed in the negotiating position from Ran.
Well, it doesn't look. It looks to me like they are shifting. That they are realizing that the situation for them is one of diminishing returns, and so you know, they can demand to have control over the straight going forward. But the fact of the matter is that the rest of the re that they've so completely alienated is busily
building infrastructure to make that completely irrelevant. So you have the Saudi petrolne pipeline that we've discussed, We've got UAE building the Fujira pipeline around the street, and talk of a natural gas pipeline that Katar would have access to across the Arabian Peninsula. So the Iranians are in a position where they have fewer and fewer cards even if they are if they are obstinate at the negotiating table, and eventually they're just not going to have that much regional leverage.
Stay with us more Bloomberg surveillance coming up after this.
¶ SpaceX Debt, AI Funding, And Credit
Some on Wall Street expecting SpaceX that tap the debt market shortly after a record breaking IPO, sources telling us here at Bloomberg the company has lined up investment great ratings from three major bond graders. Zach Griff, it's a credit size, writing, I don't think there's any precedent to draw for a company like SpaceX to understand what they're rating should be. Zach joined just now for more, Zach, welcome. You heard the words of our previous guest. It's clearly
an ig rated company. Do you see it differently?
No, we don't. And in terms of what drives that ig rating, John, you have the new or relatively recent Google and anthropic deals, those aren't captured in the LTM metrics. And when you think about the loan to value consideration that I think you were just highlighting from Bruce Richards there it's one to two percent of the overall enterprise value, and so there's obviously a ton of equity valuation ahead
of that credit. And so while that's not something that the ratings agencies tend to look at, we do think it plays a factor here, and so we are expecting an IG rating on SpaceX when they come to the market, and we think that'll be relatively quickly after the IPO.
Today, it's incredibly difficult to value a company like this. We've heard a lot of different opinions so far this morning, and to evaluate whether it's investment rate or high yield. But does the bulk of equity being raised give you, as a bond analyst comfort that the equity markets are sharing in some of this and are actually sharing the first lost piece and give you confidence that they can raise more debt at a better value.
Yeah, a lot of comfort, Lisa, when you think about what we were just going through, and if you think about the metrics from the last twelve months, ibadah perspective looking at around five times leverage and so that's more
historically consistent with a high yield rating. Again, that doesn't capture some of the recent deals, and of course having all of that equity ahead of the credit makes us very comfortable with that IG rating, And when you think about how much debt they're likely to come to market with in the near term, call it around twenty billion, that kind of pales in comparison in terms of what the market has been digesting with ease so far this year,
with the big five hyperscalers coming with almost one hundred and seventy five billion split across US dollar and various other currencies. So we do think there is going to be demand for that debt out there without much of an issue, even after this huge equity raise.
That says Zech, how.
Much is it concern you the just absolute consolidation of all risk in one bet right now, whether it's on the dead side or on the equity side.
Yeah, I think concentration risk is a fair concern to have, and I think the circular financing consideration that you were just discussing with the prior guest is something we're concerned about when we think about where the rubber meets the road from that perspective and where there might really be risk. In terms of some of these big players coming to market with the IPOs open AI seems to be the
one that really needs the funding. And so if for some reason markets become less risk taking over the next couple of months when Anthropic and open AI need to come to market, that's a timeframe that we think there could be a little bit more consternation. For now, we're certainly comfortable with the environment in and when we talk to our clients from a fixed income perspective, they're very happy with all in nield levels despite tight credit spreads really across the credit market.
Just finish up on SpaceX. So I understand they've got this massive ability right now to tap into the equity market and raise equity capital quite easily, and we've seen that. But how much should that should be a factor in your credit rating when the company is losing money and they're going to spend that money really quickly too. You mentioned some of the hyperscalus and debt issue in sound Swell. Let's take Calphabet. Alphabet made profit more than one hundred
billion dollars last year. Zach, this company loses money, why should that company have an IG rating?
Well, again, it comes down to companies rating or the ratings companies raiding through the cycle. When you think about some of the deals recently inc That certainly improves the position, and the net cash position after the IPO certainly looks very attractive. Now we're expecting cash burn to be around twenty to thirty billion per year as they lean in
to their AI infrastructure business. So there's a lot of metrics to consider, John, but we do think with the recent deals and projecting forward through the cycle and considering some of the upside scenario that an IG rating will be justified. And that's kind of what we're hearing out there as well.
This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, angiopolitics. 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.