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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordert. 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'll begin this out
with stock sliding as the tech sell off deepens. Judian and Manual I've ever core remains constructive writing. We'll remain steadfastly bullish, led by a I names and themes. Stocks remain on course for seventy seven point fifty, and the nine K ballcase is still operational. Julian joins us now for more. Julian, good morning, Good Mornings. That's somewhat contrarian after the few days we've had.
Well, first I want to say is, given the sports intra, we should start talking about MESSI again, which we were doing prior to the time.
It makes some SI for that a little bit like fine, fine.
So I liken this to the beginning of the year when you started to have the accumulated worries around software and the initial concerns around debt, which obviously the debt pile has gotten much larger, which earnings are supporting, and you got this intense negativity around technology stocks, and we felt like we were contrarians coming into the beginning of twenty twenty six sticking with the call, and frankly, you know, we saw the progression into the most hedged position we
had ever seen in thirty years at the lows in March, and the market isn't hedged to that degree, to be sure, but.
The skepticism is there.
And frankly, when you think about it, you're just sort of transitioning this wall of worry away from the maligne of of high oil and into the potential concerns around supply and less transparent monetary.
So you say, the bill case is operational. Yet we started the program by pointing out a couple of names, the likes of Microsoft and Meta deep into baar markets. Now, can you have nine K on the S and P operational so to speak? Without those names participating in any way, shape or form.
Mathematically you can't, okay, And when you look at it, the chip names, you know, have done a great deal of the heavy lifting. You will need a refreshed attitude towards the mag seven and we think that that comes in time. And if you look at it, over the course of this bull market, now almost three years old, there have been certain periods of time where essentially earnings and price have you know, caught up to each other.
And we think that's one of these periods in these larger aimes, and that you will have price start to advance once more.
What will it take for people to have a refreshed attitude about the hyperscalers.
It will likely be a little bit more churn, a little bit more volatility, a little bit more negativity, and then ultimately.
The proof of the pudding.
That was the proof of the pudding that caused this furious rally to begin with. In April and May, earnings you're going to see good earnings.
Are we starting to see the beginnings of pushback from the adults in the room, the bond investors, saying hold on a second, and we're talking about this particularly with SpaceX, not necessarily leading off the entire selloff, but not helping exactly this company that just ipo'd coming back to mark of twenty billion dollars, it's investment grade even though it's been burning cash and has a prospect of getting to the moon literally and beyond how much is this the
beginning of something that's important to watch.
Well, again, this is the point where we will figure out how supply and demand interact, because clearly the message is, well you iPod and maybe you should have waited at least till you got included in the Nasdaq one hundred before marketing debt. But here we are, and to us again, when you look at the market action, it's just a much more significant, volatile churn. And again with that name
in particular, you're still comfortably above the IPO price. So I mean, you know, they may send people to the moon and to Mars, but stocks don't go to the moon and Mars indefinitely.
For now, at least we've done another four percent in the pre market headline, I'll be talked about small caps record highs. What's going on there? The small caps move, which is where the air performance has been so fine y today.
So during the course of the entirety of this bull market, small caps have been the default short for active managers, and that really kind of faded as the year started again, partly is a function of the concern around technology that started the year, but more preciently about this fact that we may be having agitation about where the short end of the interest rate curve is going to go.
But guess what, the long end is.
Incredibly well anchored around four point fifty and oh, by the way, the labor market is it's suggesting, and all of those are positives for small caps, as is the price of oil. And then last point here is that again this tends to be around the Russell rebalance, the time where you get your maximum small cap out performance. We wouldn't be surprised by a little bit of reversion as the third.
Quarter starts IBM and the pre mar ket by four percent. We have a new whale in the tech sector and it's the US goverment. How are you thinking about that?
Well, look again, there's the concept of picking stocks and getting national champions, and you've seen it with a number of names, you know, very old line US technology names.
You know.
In the bigger picture, anointing winners and losers has its own issues in terms of the government level. But frankly, the fact that the government is, as you know, forcefully behind the Ai revolution as it is is a positive in our mind for investors broadly.
Well, we see this administration do it with Intel and a number of rare earth mineral companies. Do you just have a list of potentially the next company the US government might take a stake in, and then it's the stock.
Is off to the moon.
We did that a number of months ago. I would say it was very well received and certainly work. But again I think we're far enough along. And again this is also part of the investment problem in general, that when you look at the major sectors, it's now fifty eight percent of the S and P five hundred, the top ten stocks forty percent of the S and P five hundred. That there is a little bit of psychological crowding out in trying to find companies with smaller market caps.
The heavy hand of the US government. Does it distort the market?
Classical economics would tell you that it does, okay, But again I go back to this idea that the bigger picture in terms of you know, making sure that the US is front foot versus the rest of its global competitors in technology is a positive.
There's also a sense that there's a rolling ball of money that is racing to the next corner, the next big thing that could potentially take off as this build out and tech continues, and that people aren't sure what the ultimate goal is with the ultimate form of AI is going to take in terms of the way its displayed throughout economies. At the same time, it's just racing to get there. Whether we see it in eske Heinex and Samsung or whether we see it in the semiconductors
in the United States. How does that destabilize markets? I mean, how much is that something that you're watching?
Well, it just shows you that volatility works both to the upside and the downside. And actually for us, this is very interesting And the reason we don't think we're in a bubble right now is because for the last six weeks, clients have been asking how do we hedge AI? How do we deal with the fact that the AI trade is everything and now dominates emerging markets. It's changed
the relationship of gold is a hedge. It's changed the relationship of bonds as a hedge versus stocks, And our answer is, actually, this is a very interesting time.
On a day to.
Day basis, there's a larger universe of stocks in the S and P five hundred that are moving inversely to the S and P day in and day out. We call them negative beta names that really act as a portfolio diversifier.
People are looking.
For reasons to hedge yet stay invested.
Are stocks the best hedge to stocks versus bonds being a good hedge to stocks in.
This environment, well, in an environment where we're concerned about higher inflation broadly on a sustained basis, history tells you that stocks are the best.
Can you disrupt those stocks? Where do we find those stocks?
They are across you know, an entirety of industries. Energy obviously, in the narrative of this entire year has basically been energy moving inversely to the S and P five hundred. But you see it in consumer names, you see it in utilities, and of all the strange places you actually see it and select financials. In our mind, that is definitely different behavior.
Yeah, what do you make of that?
The bank's troid because thin were meant to be the big beneficiaries of all of this technology.
I think again what it is is sort of a preference. I remember years ago at a different shop, our oil analyst said to me, in the midst of a massive rally in oil, when are my stocks going to start rallying? And I said, they're going to start rallying when they start selling technology. Okay, And so when I think of financials, that's likely going to be the outcome when we take some chip. If you look at yesterday, financials traded very well in a negative tech tape, and that's kind of the narrative.
Stay with us multiple index surveilance coming up after this. Let's talk about a different asset, clous Let's talk about crew. The President announcing funds from lifted and rounding and sanctions will be put in scrow to be used exclusively to buy us goods.
If the sanctions go out, money is going to be put into this country. All that money's coming back and the former purchases of food which they desperately needed. Can you assure that you're radios won't use profits from oil sales to rebuild the new Sargy.
Well, they're not supposed to be doing that.
So I will say, but they're supposed to use money to buy food for their people.
Roun now has sixty days to sound oil on the international market. Crewed this morning seventy seven on Brent, seventy three on WTI. Joining us now to discuss the former White House senior advisor and partner at TWT Group, Amos Hawkstein. Amus will start Broadway. We can get into details. What's your reaction been to how this has played out over the last week.
Well, quite remarkable because the MoU in itself is little more than really I mean, it's almost like a surrender. I mean, if you think about where we started a few months ago, and what policy has been for the last several decades, and where we are today, we have basically said, for sixty days, we are removing massive amounts of sanctions off oil, gas and petrochemicals and refined products. You can sell it anywhere in dollars, which haven't done
that in many, many years. They can also get some access to unfrozen their own unfrozen assets, you know, six to twelve billion dollars depending on which report you here. They get other benefits, and all they have to do was to open the straits and agree to talk. So we haven't actually agreed to anything on the nuclear but we have agreed that missile ballistic missile program and support for proxy terrorist groups in the region are not on
the table and not part of the negotiations. And we've given them the huge political win of now being the decision makers in Lebanon, which is quite astonishing. So this is what we've done. We've given them all. This whole document is incentives and agreements to give an things with the hope that we'll get something out of it at some point during the sixty days. And the clip that you showed a little bit earlier with the president talking about buying food and medicine, I think he's confusing two
different types of revenues. The food and medicine is really I think what they're trying to do with the unfrozen assets in cutter the six to twelve billion dollars the oil revenues. They can sell and do with that revenue whatever they want.
When it comes to that oil revenue, almost where do you think your run and crude will be going? Is this just legitimize the Chinese buyers or will they actually find new customers?
I assume that.
At first it will just be the Chinese customers with legitimacy, and probably Indian consumers as well, and then the rest of the market will wait and see and to see how long this lasts. Because the worst thing is you unsanction something, the Americans and the Iranians get into some tiff, you know, some a few a week from now, three weeks from now, five week from now, and suddenly what
you bought that was unsanctioned is suddenly sanctioned again. So I think people will take some time to figure that out, except of course, some trading houses that will buy a whole bunch of Iranian crude and blend it and then.
They'll be able to sell wherever they want.
So I think you're going to see sort of a broadening, but it'll be a gradual broadening.
I know they're not a monolith, but do you have an understanding of where the GCC is on this, given the fact that it is pretty remarkable, as you said, to see this U turn from this administration to allow Irani and oil to legally hit the market. We haven't seen this in four decades.
Yeah, this is again. I think that you're right, the golf is not a monolith. Clearly the political winner in the Golf is Cutter, where they are setting, to some degree, setting American policy. They're in charge of American Middle East
policy right now in quite an extraordinary way. They are quite gifted at this, and I think that there are others in the Gulf who are looking at this and saying, wait a minute, we didn't like, we don't really like Cutter foreign policy, and now it's running American foreign policy. Iran was a threat to us, the United States convinced us to join them in conflict. Now they're emerging stronger politically at home, right I mean, you can't imagine anybody
going out and demonstrating against the regime right now. Help is definitely not on the way, and so they're left with a neighbor next door that is angry and vengeful and is going to be very well funded. And if they are very well funded, you're talking about it. If you talk about their sales on oil sales alone and petrochemicals, you're probably talking about revenues of about a billion a week.
So those countries in the Gulf are are looking at this with great concern, and they're going to have to invest in their own defense in the long term, thinking that the United States has become extremely short term thinking. You know, that's kind of how they view us at the moment.
So we're looking at oil prices because that's what the market is looking at, and there are somewhat agnostic, as John has mentioned many times about exactly how oil is getting from one place to another and the potential geopolitical implications, at least in the short term, saying, look, at least barrels of oil are going through the strait of removes. Do you think that this is an accurate reflection of
the potential risk of an additional closure? Because if there is true control buy orn over the strait of removes, should there be a higher premium to potentially offset against the risk of something like this happening?
Again, Look, I think if we were talking about five years ago, ten years ago, yes you would talk about risk premiums and so on.
But the market at the moment is.
Basically saying, I have a lot of news that I want to look at on the tech side, how much CAPEX is coming in on AI and data centers and blockbuster IPOs and space. That's what I want to focus on. So energy really is judge.
Us do I have?
Is this something that's going to drag me down or not? If it's not going to drag me down, I don't want to talk about it. Everything is fine. I don't want to hear people tell me about risk premiums. And so that's where we are reality wise in the market. Do we have a risk in of course, because the one thing that's come out of this conflict is Iran.
As I said on your show a few weeks ago before this agreement, No matter how this war ends, no matter what agreement we reach, Iran sees it as they control the Straits, and control of the straits does not necessarily mean a toll. It could just as well mean I decide that tankers need to give me forty eight hours notice. I can decide that I don't like a certain company. Your tankers are not going through those kinds
of things. So yes, there's a risk, but I don't think the market is there to look at it.
The second piece of that.
Is, while oil prices are coming down, there's still you know, Brent's still at seventy seven, WTI at seventy three in December of this you know, this past year of December January, before the winds of war started blowing, we were at fifty six to sixty dollars.
So we're still.
Trading at a significant premium to where we were before the wins of war in December. So I think if the prices start coming down further, which I think they will, at some point you'll start saying, okay, can they really go back to where they were in December? And that's where we'll see probably a five to ten dollars risk premium that will be that will be put into the market.
Even Amos managed to get the.
Tech tried in the you know well, I mean, I think that there's a bit of frustration at least when people look at the geopolitics saying this actually matters tremendously, but they can't get anyone to care because everyone's saying, ooh.
Space almost I'd love to find a word with you on that. There was some discussion that the rebuilt effort would be so costly, so expensive for nations across the Gulf, that they'd be distracted from spending all this money on tech on AI. When there has been some excitement, particularly over the last year about softign A on the amount investment that would come from that particular part of the world. What should we be tracking now, where's the money going? Where isn't it going?
So I never agreed with that.
With that notion, I think countries like you e And Saudi and others are really looking at tech as a long term diversification away from oil in their national economy and budgets that has become more acute, not less. They're going to be spending money one on diversification of their energy sector away from the Strait of Hormuz, so building out infrastructure, which sounds expensive but really isn't. It's a few billion dollars here and there to build out this infrastructure.
And the second piece is to double down on their investments in tech, and most of that is going to be in the United States, because where else are you going to invest? There's a ceiling for them in how much they can invest.
In China.
They're continuing to invest there, but there's a ceiling.
Europe is non existent.
Or there's a little bit of play here and there, but it's really small amounts of dollars, and so the bulk of it will have to come to the United States. And I got to say I've been to UA in Saudi. The buildout that's happening there is going to continue to expand the question will be not how much they want to spend. What will companies, American companies, European companies want to build data centers in the golf or will they
be more hesitant as a result of this. But I think you're going to see more money coming in to invest in this sector, and I think it's going to be mostly in the tech sector, some of it in healthcare, and other in sports and other entertainment sectors around the world, but mostly again, I think in the United States.
Stay with us.
More Bloomberg surveillance coming up after this. Let's move on to talk about tech SpaceX the ill and muscled companies shedding roughly four hundred billion dollars in Monday session alone, the second largest single session drop in market value on record. Matt Wiheiler of Wellington Management writing, it's unique in that it's one of the few companies that can talk about a future that doesn't exist and get credit for it in their price. This is exactly how test the stock behaves.
Joined to snaff and walmac and wanting good to see it good morning.
Thanks for having me. Does that make it difficult to bet against the al Musk?
It definitely makes it difficult to bet against Elon Musk. When I think about the companies out there that can go public and be trading at a two trillion dollars plus market cap, there are very few that could do it with the current financial stats that SpaceX is delivered.
You check in the story how close are we to the reusable technology the advancements that we need to justify this market cap.
You know, I'm not a huge SpaceX expert, but what I think they have delivered is reusable rockets at scale, and I think they've proven a lot of that, which is in fulfillment of the vision, with the next step being vision of having orbital data centers.
And when you look at the analyst reports and you.
Look at how SpaceX is trading, obviously a lot of embedded value in that orbital data center story.
Massiosha, son of SoftBank, came out overnight and was talking about how he doesn't see data centers in space as the likely path of traveling said, it's really about the next couple of years and who wins the data center build out on Earth as an investor in anthropic someone who has been a participant in this whole space, in this race for AI.
Do you agree with him?
I do think there is a question around the long term viability of orbital data centers. And I am not an expert when it comes to the physics, the math and the numbers of getting these things up in the sky. But I think that the Softbaing point is right, which is today we are in a compute constrained environment for inference.
There is more demand for this inference, compute for AI analysis and AI workloads, and there is supply of that, and that ultimately is what's driven a lot of the performance in the market today, as we've seen the chip maker's rally, as we've seen companies in the AI space in the public market like Nvidia, like Microsoft.
Like Facebook.
Yeah, but is there's starting to be some pushback in terms of the cost of that buildout of capacity. Torsenk I was mentioning him earlier of Apollo talked about AI as a risk and says, what happens if companies start limiting their token budgets meaningfully because they're only seeing weak return on investment, and this is something that people are pointing to the idea that tokens are getting restricted. How much is this a risk factor for you as an investor in some of these top names.
I mean, it's definitely something we think about, but ultimately, I think you have to look at two things. The first thing you have to look at is what the companies purchasing and spending this capital are saying, and whether it's SpaceX with their recent bond issue and their IPO or Google with their recent equity rays, these companies are saying that there is ROI here. It is sufficient for me to raise additional funds to go do these buildouts.
And that's not because they are necessarily fueling others. It's also they see internal demand for this. So I think that's one thing you have to look at. And I think the second thing you have to think about is is perhaps they're over spending in tokens today, almost certainly. But does that mean that AI does not deliver ROI across a wide.
Variety of use cases.
I definitely don't think so, and I think that the proof will be in the years that play out. Does Anthropic end up going from I don't know, two thousand percent year over year growth like they've been tracking today, you know, five hundred or seven hundred percent.
But Microsoft has recently tap deep seek Chinese models.
To try to offset some of the cost.
Why is that not the path of travel for a lot of these companies.
I think that when you think about how the economics will flow in the model builders themselves, I think it's our opinion, or certainly my opinion, that the frontier model is the open AI, the anthropics, the leading models out there will capture a lot of the revenue. But does that mean that everything needs to run at the frontier model level? Absolutely not. Is there a role for deep seek? Is there a role for open source? Absolutely? And I
think that's how the market will bifurcate. Is there'll be a lot of value in the large language models at the leading edge, and they'll also be valued accrude to the open source and Chinese models.
When we look at SpaceX. So who's really the competitor right now? Is it the anthropics or is it the blue origins.
I think it's probably more the blue origins. And if you actually look at the economics of the business today and you look at how much capital the company is bringing in a lot of their competition is actually the core we even hyperscalers of the world. If you look at their economic agreements with Anthropic and with Google that accounts for almost twenty four billion dollars of annualized revenue that is coming from just leasing out their data center.
Compute might just find me.
You're an investor in Anthropic, can make a your reaction to how you'd characterize the messaging coming from leadership Anthropic, which some people say is AI doomerism and it is not helpful to the whole landscape right now, what's your take on it?
My take on that is that it may be perceived as numerism, But if you look at how this administration is acting, and if you look at some of the reports that came out yesterday, perhaps the dumerism isn't as extreme as people had thought. I think there was reporting yesterday that perhaps the latest Anthropic model was able to breach some classified systems, and that is what resulted in the administration putting a lockdown on the fable release that Anthropic had.
Now I mentioned when this goes pumplic, you'll be sun of the stock. Right.
It's that fat to say you hold Anthropic now when the stock goes public, we hold anthropic still.
We as a firm, as.
A one point three trillion dollar asset manager, have lots of different pockets of capital, some of which may be selling anthropics, some of which may be bokay.
So complicated, complicated.
I'm trying to understand how you think about this in the future, because clearly now in private markets, it's got a great valuation. It's come in public, there's a lot of stories that are the hype around it. And what helps the hype sometimes are these kind of declarations that it's going to wipe out thirty percent of white collar work. You don't have to deal with the regulatory response just now because they've created so much value in private markets.
You've been a part of that value creation. How are you thinking about the prospect of regulation down the road. Is that a story you want to navigate with that company or something you want to take your hands away and say you're on your own now.
Thanks all to right.
Well, I think it's definitely a complicated piece of the mosaic across all the AI landscape, and I think the trade off ultimately comes down to how much regulatory flex does the government want to have in this space versus how much free market and leadership position we want to take.
And I think that's the tension we're seeing today. And if you look back a week ago, I think there was some reporting that perhaps the US government may start taking positions in some of these companies like they did at Intel, and I think that potentially could be a route, although I don't know.
Do political realities in your mind dictate one or the other. Is it easier to say in China we're going to be market leaders and focus on that, and in the US you just have to face the political reality that you need to control this thing because the people they are voting are the people losing their jobs.
Well, I think that if you can trust the China approach versus the US approach, I think you can mandate that we're going to be a leader and that we are going to win there, but that doesn't mean that you deliver on being the winner in leading there. And I think that's what makes the US development of AI quite unique is that we have multiple free market economy participants trying to build the best models, and so far that have resulted in US having.
A lead in the models.
This is the Bloomberg Survandans 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 hmm