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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 hour with stocks edgin Kaya as investors digest the latest earnings from Nvidia and the IPO pipeline is heating up as SpaceX and open Ai make moves to go public. Peter Cheerb Academy Securities joins us around the table for more. Good morning, Goo to see you.
Hey, good morning.
You saw that opening exchange that we just had around these IPOs. The tech investment story has changed. We've gone from buybacks to lots of capex. We're moving away from shrinkage towards maybe tons of supply. What does that mean for the investor in this space?
You know? Right now I think it's all hands on deck.
Everyone's growing, everyone's spending the money to do it, and you're asking the question, you.
Know, what's the disconnect?
I think right now, there's so much money to be made in the AI space that whether it's four percent, six percent, eight percent on interest rates is a trivial same sort of thing. I think we've been talking about this for the last little while. Electricity prices, right, you and I are being affected, but the AI data centers they could care less, right, It's such a trivial input relative to what they're making. So I think this tailor to economers. You've got the AI data center growth, it's booming,
everyone's trying to get into it. Everyone's rushing headlong. You're seeing more and more companies get into it. Just also why I think in Vidia's earnings aren't as important because there were so many tells what's going on. But the rest of the economy is kind of languishing. It feels like the jobs aren't there, and the degree of uncertainty I think is hitting spending.
We'll spend some time of that in just a moment. Let's just talk about potential constraints. At least it gave a not to them. You mentioned energy that's been want to discussed. Lisa mentioned capital. What are the prospects of capital constraints given how much money is being demanded right now, both in fixed income inequity in the coming year.
So one thing I think we're seeing is a little bit of a shift where people are much more comfortable owning corporate credit than treasuries, and I think treasuries become a very generic asset. I think that's one reason you see some pressure on treasuries. As far as I can tell, when we're talking to our large asset managers, they're all in on credit.
They love credit, it's cheap.
You're getting the higher yields from the treasuries, and you've got a compelling story there. And you're even seeing some of this play out in the super sovereign space, and you know, kind of walk you to even talk about some of the super sovereigns, but they are trading at their closest spreads ever to US treasuries, So you have I think this kind of not a version of US treasurees, but it's just a generic asset. Right. If you're in Germany,
now buy buns. If you're in Japan by jgbs. So, I think treasuries don't have as much interests, but people are piling into credit and they're looking at these opportunities saying, well, maybe I want to own xyz S bonds.
I'm getting extra.
Fifty sixty eighty one hundred BIPs and I think the risk is better and I want And for credit people, it's the only way to play some of these AI stories.
And it seems like right now the bigger risk is inflation rather than any kind of hit to growth. Nobody is pricing in recession. No one's pricing in some sort of serious downturn. Do you agree that credit and equity are better hedges for the inflation risk and that is where people should be looking.
So I like credit on that perspective. I think it's kind of an interesting place to be. Again, we're not seeing recession, though there is this tale of two economies.
Again.
I feel like what you're seeing is in the rates market. If you went back three months ago and I thought before the war started, we could cut, and if we cut, even if it was an aggressive cut, we could control.
The long end of the bond market.
Right now, I don't think we can cut without controlling the long end of the bond market. I think if we cut rates right now, we would lose control over the long end.
Of the bond market. So I think we're higher for longer. And that's here. It's across the globe.
Defense spending's ramping up everywhere, so I think you've got some pleasure there. But again, I still think we're in that three to five percent inflation period. You know, there is a lot of excitement. I think the bond market has one more leg to higher yields because the one thing people keep arguing to me is, well, we're going to get all this benefit from AI, and we're going
to get kind of deflationary pressure from AI. That may be true, but I think the next year to two years it's all about the cost of out rather than the benefits of AI.
You talk about the tail of two economies and this idea that we could get significantly higher rates as a result of this push higher. I just wonder at what points the story start to come together. It seems like either there's a bubble in human capital or there's a bubble in the costs that companies are paying for tokens and access to some of these AI models. They are justifying the increased cost by increased productivity and then laying
off staff in order to free up the cash. At what point does that become an unsustainable equation.
Well, I think over the.
Next six months to a year, people will actually, for the first time really be able to say, here's what I spent on tokens, here's what I kind of could have spent on employees and make that decision because until fairly recently, right it was all kind of who knows what we're spending you'll.
Get these kind of deals.
So I think this will actually let people to take a closer look, and it will be scary if AI turns out being much cheaper than people. The problem is you know someone's cost as someone else's like customer, and I don't know where all that heads. I had to write about UBI Universal Basic in Come two weeks ago because it felt like this is a topic that's.
Going to come up.
Really kind of hate the concept, but you can clearly see a path where if we are doing these layoffs, and unlike dot com or I think everyone was excited.
There is so much angst around this.
From a personal level, I don't think we've ever seen anything like this, and we're heading into an election season and the country is already very divided on many things AI electricity generation.
These just seem to be massive political risks.
We just skipped to the final chapter of the book. But since we're there, let's flick a few pages over. What's the policy response going to be to all of that? If that is indeed the end destination?
You know, I think you're going to get politicians who are going to fight electricity, who are going to fight data centers because it's populous. You're going to get some who decided to embrace it. And I think you're going to see I think you're going to see a shift in where people are moving this country. I think this is part of our overall as we reindustrialize. I think you're going to see the heartland of America do very well.
I think you're going to see between the Appellations and the Rockies continue to do wow.
Last year I think was the.
First time in thirty or forty years that that part of the country beat the rest of the country in population growth and GDP growth. I think you're seeing some of the low per capita red states in particular embrace these things.
They're like, hey, we want the jobs.
We're comfortable, we will deal with the pollution, we will deal with the after effects of some of these. And I think that you're going to see an opportunity to reshape where people live and the demographics in this country. And if anything, on the real estate side of things, I'm very bullish on the Great Lakes region, on the heartlands, the traditional manufacturing, because they have the fresh water, the weather's actually conducive to this, they've got the engineering schools.
I think that could be one of the shifts that we see over the next five years, is this kind of flood to the coasts and deep south changes a little bit as people realize, hey, there are places to do this, and if we're going to do industry, we need electricity and we need fresh water, and that's an abundance in some of these regions that people have to.
Get it down the rabbit hole. What are you bearish on you alluded to it. What would you be short in that kind of world?
You know?
Right now, I'm very cautious about anything that requires a deep spend. From a personal standpoint, I think even the people with jobs are looking carefully at their spending. So I think construction homes affordability is so real, and again that kind of drives me. I think some of the really expensive places that you grew up very quickly, especially with the COVID sort of experience, I think I would avoid those areas. I think there's a chance that people
decided this was too expensive. I made bad decisions where I live. I actually live more in the swamp than on the ocean, and you have some potential for that to ship first. Sorry about that, but I think that's I want to be a little bit buriash there. I think some of the growth set areas done, and I just I get really uncomfortable with where the spending is going to come from.
And once again I'm.
Going to spend this weekend doing something completely boring, but looking through the jobs data because so many people are now asking why is the disconnect? Why do we see nothing but doom and gloom on jobs? But the last two headline reports from NFP have been really, really strong.
What shouldn't tell you that?
I think is once again very overstated.
I think we're you know, to me, one of the biggest mistakes that the BLS does is this birth death model, which tries to to make jobs created by new companies. They continue to look at EIN or Employment Identification Number applications to judge that, and I think we live in a world where EI kind of like law school applications go up when.
People are worried about their jobs.
If all of a sudden you're like, well, maybe I'll drive uber on the side or do something.
There's whole companies.
Now. I can't remember someone just telling me one of the big FinTechs they have a whole setup. You go click the asset, sets you up in an LLC, It gets you in EIN, you can do all your taxes and get all that. So I think we're once again making this mistake and seeing, oh, people are creating new businesses. I think it's much more people are so nervous they're joining the gig economy to supplement their income.
This was a depressing stant at the program post. Thank you sir, now, thank you pretty chip. I do like Spade here. It's a lot to think about their promo on this technology revolution. Stay with us. More Bloomberg surveillance coming up after this Tearan reportedly assessing the latest US proposal to reopen the strata from Sam Marie joined US Now from Washington for more a Marie that breaking news months ago turned around this market equities lower, crew turning
a little bit high. What do you make of that report from.
Reutter's Yeah, crude turning higher, Jonathan, because the Israelis have made it very clear in order for them to view that this war is over, the highly enriched uranium that iron has needs to be gone or be taken out of the country and put into a third party, or
the United States needs to deal with it. So I'm guessing the market is just viewing this as a negative towards any time soon that we can get a deal between Tehran and Washington and we can bring in a RITA send now of energy aspects for a little more insight on this, and Rita's Jonathan said, the market turned around on this report from Reuters that the Supreme leaders issued a directive that the country's near weapons grade uranium
should not be sent abroad. Does the market now start to view that potentially the President's going to have to go back to strikes.
I think the market isn't pricing that fully and yet right it's not full escalation. But what I would say is that, look, we've been very skeptical each time there are these headlines from Pakistan from the US administration or we're near. We've been talking about being near to a deal for several weeks even months.
Now.
The market tends to sell off faster, partly because Brent positioning is still long. But in reality, neither side is willing to make any significant concession. And I think this is exactly proof of that what Iran Supreme Leader has said, and it does suggest, at least from the interpretation the markets will probably come up with, is that no, the a deal isn't near anytime soon, which is what you know, which is why prices came off last evening.
So it's basically living in, as one guest told us yesterday, continuous purgatory. Why then our price is still capped at this level around one hundred for WTI and one ten for Brent.
Look, that's a great question and something we do a lot of analysis on internally as well, because you would think, given the scale of the supply losses, we should be potentially even double right, what we are seeing is record levels of the stocking. We did some analysis on this we did start the conflict with about close to four hundred million barrels of excess inventory, and so we've run
down call it almost like half of it. But then we've also been drawing down spr at record levels, right, so what we are seeing is that the market's in a massive deficit. We really haven't gone into outright shortages yet. We calculate that's about a month and a half away, so it gives us till end June. But what I worry about is that everyone, right, and I've been on the road for a couple of weeks now, everyone's hopeful that okay, the Straits are going to reopen end of June.
First it was end of May, then it's now end of June, and we are really living hand to mouth right now running down those infantries. End June comes close to that. Refiners around the world. I'm in Asia right now extremely underbought. Then when they do come to the market, I think the pickup in prices will be material, and that's when we can get the overshooting to the upside, because there is this sense complacency is the wrong world.
But hope that things start to pick up a little bit and we can just get by just running down infantries and then restopping is a problem for the future.
So really you're saying, by the end of June, we're going to hit tank bottoms, so we're going to see a risk higher for crude.
How much higher?
I don't think we'll hit tank bottoms globally, to be clear, but I think there are definitely parts of the world. I mean, look, China's got stocks for months and months, right, China's not going to have problems, But there are definitely other parts of the world, be it Asia for crude. If you look at product stocks in the US, we are very quickly racing towards tank bottoms and parts of the US as well. So yes, there will be pockets where we hit tank bottoms. But when that happens, then
physical markets, not financial markets. Again, that's a separate story. It's a little bit broken right now. Liquidity is really thin, and again all the tweets coming out doesn't give markets a lot of confidence to put on positions. But the physical market, you're likely to see prices go up to previous size. We've seen crew trade at one sixty one seventy, potentially even higher if you are genuinely stocking out in parts of the world.
Stay with us. More Bloomberg surveillance coming up after this. Let's turn the page and stay on the financials. America's oldest bank and the first listing on the New York Stock Exchange getting a little bit of a revamp today. The Bank of New York is said to begin training under its new ticker b n Y. Joining us now is b nycfo McDonough Dermot. Good to see us, so welcome to the program.
Good moran, thanks for having you.
Guys have had a fantastic run, whether it's under BNY or b K. And I don't think this story has talked about enough. Alongside Robin, the best performing large bank in this country over his tenure. Now, at the very beginning of life at BNY, you were the architects of the treasury market, one of the early movers in this whole financial space. How different is this institution now compared to banklen.
So look, first of all, thanks for having me. America's oldest bank, seventeen eighty four storage institution founded by Alexander Hamilton, who became the first Treasury secretary, first loan to the US government, And so we're very proud of our place in the financial market ecosystem, and that's evolved over the last two hundred and forty two years. When tickers first became a thing in nineteen sixty nine, B and Y wasn't available, so we went with BK for America's oldest bank.
And now we have the opportunity to sync up how we present ourselves to clients and shareholders with the Tickers, So it's a great day for us.
Hamilton was an incredibly intelligent man. I have my dads whether he would have imagined the position that we're all in right now, staring down the technology that is just on the horizon. How different a thing is going to be for your institution. And when you think about AI, imagine not thinking in the terms of low value human capital. Can you tell us in the way you are thinking about the income and technology we have.
A very very different strategy on AI. Jonathan, I think you've been down to our headquarters. You'll have seen the ledgers from that time. You'll have seen our C Talk Center, which is quite a modern where we manage the markets. Twenty percent of the world's investable assets flowing through our pipes every day, so you know You've talked earlier about a lot of uncertainty in the world. The only thing that's constant in today's world is uncertainty, and so we've
embraced at B and YAI as a superpower. It's part of our strategy, it's part of our transformation, and I think we've done a pretty good job at demystifying AI for our people. We say inside the walls of AI is for everyone, for everywhere, for everything, And we have two strands to it, Individual AI and enterprise AI, where we focus on how can you use AI as an
individual to become more productive and to upscale yourself? And then as a firm, how do we use AI as a strategic superpower to make clients have better services, better goods. How do we serve how do we grow More importantly, how do we create capacity within the firm to grow?
That's the word that interests me. Capacity. So when we talk about AI, and when I hear the C suite discuss it, they'll talk a lot about efficiency. We'll have a conversation about job losses. Maybe they'll spend some time on an improved product offering for customers. Well, spend a bit of time on there capacity is the interesting component of this. Does it create capacity and allow you to do things that maybe you might not have been able
to do several years ago. And when you think about the spaces that opens up for sake, B and Y, what does it mean for you?
I would say, in a word, AI for us means growth and opportunity and things that we thought we couldn't do before were now able to do and do at a faster pace. If you kind of go back to what I said in tree, undred and twenty percent of the world and ale assets flowing through our pipes, we set in ninety five percent of the US treasury market
every day. That gives us a lot of data, and we'll be able to with AI to unlock that data, provide greater insights and greater information, be able to develop greater data products for our clients in the whole world of digital assets as well. I think we can power that with AI. So actually, AI for us we were quite optimistic in terms of our ability to grow and transform, as you've seen in our results over the last couple of years.
What's the main note of growth? Given the fact that people used to think of B and Y as being sort of where money markets funds go and get parked, and it's the collateral bast And you talk about twenty percent of the world's assets. How do you grow profitability given the low margin aspect to those transactions.
So I think in many ways, B and Y is a unique institution. We have several businesses, and we have strong competition in each of those business but when you add them together as a combined, we're pretty unique in what we can offer our clients as active So what we've done over the last couple of years to a good success is our ability to sell multi line of business to single clients and unlock the firm and de silo the firm and deliver a more holistic brand to
our clients. And you've seen that in record sales revenue in Q one of this year, record revenues this year, and the tripling of the stock price over the last three years. So clients are noticing the transformation, our shareholders are noticing the transformation, and more importantly, our employees are feel empowered and energized by what we're doing at the institution.
The total number of employees of B and Y peaked out in twenty twenty three close to fifty three thousand, and they've fallen considerably since then. It's been a pretty contractionary headcount story, even amid some of the growth in profitability. Do you expect it to continue shrinking because of some of the capabilities and efficiencies that you're putting out there.
So I think the rational over the last couple of years we've largely dealt with through attrition in terms of each firm has a steady amount of attrition each year, so it's not been.
Large scale workforce layoffs.
It's like we've kind of figured out how to manage the workforce in a more strategic way, and it's been kind of taking back control of our expense bend and reducing duplicity in the firm, implementing our platforms operating models so we can deliver a more holistic set of products to our clients. And that's taken excess capacity out of the firm in a more strategic way, which I think our employees are very pleased to see.
Well, we're seeing the performance strongest sales quarter I think in the firm's history. More recently, can we talk a big picture about financial markets and more broadly capitalism. We heard over the weekend, people get booed whenever they mentioned AI. I think that a lot of these institutions have totally
lost control of the narrative right now. And I mentioned Standard Chanted and I'm sorry to keep beating up on that bank, but the language that it's used to describe this technology and the people that worked at the instanttion was deeply derogatory and for a lot of people at work in capital markets right now, they themselves might be losing faith in the future of this industry. How do we make sure that people stay engaged with capital markets?
I know that you're engaged also with the Trump accounts as well. Is that a feature in this effort to keep this country engaged in capital markets at the time of deep skepticism over the future of capitalism and of technology.
So look, we're very, very privileged as an institution to partner with the administration on Trump Accounts. We believe it's a very important public policy initiative. It's giving the kids of today a future in the stake of America tomorrow.
And you know, it's a real privilege.
We are a jesub We're a key part of the financial marketer ecosystem. We serve the government every single day, and we're very proud to be one of the first institutions to match the Trump Administration's initiative by doing it for our own employees. So financial literous, financial education, giving people a stake in the economy of tomorrow is really important and we're very proud to play our part in it.
What other things can we do.
We're very focused as well on home ownership. We launched an initiative this year where everybody who earns less than one hundred thousand dollars a year who wants to get their step on the property ladder, we give them assistance to do that. We do a lot of digital education about how to save and how to build for the future. And I think we're also very focused on wellness and health benefits to make sure we're a leader in that.
So when people join B and Y, they not only join for a career, they join to be part of a family.
This is the Bloombergs Events podcast, bringing you the best in markets, economics, angiet 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 Amp