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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. Phil Camparadi of JP Morgan saying the pace of easing will be much slower going forward. The labor market weakness from the summer was misread. As long as the Fed can continue to carefully bring raids down over the next year, our thesis of a self lending and a broadening gout of equity returns will be supported. Phil joined us now for more. Phil, good morning to see you. Haven't seen you since the election,
and last time we spoke you were super bullish. Are you even more bullish now?
Yes? So before the election we were saying it's going to be really hard to fade us exceptionalism. We just didn't know if it was going to be US exceptional exceptionalism in lowercase with a period, or US exceptionalism in like big bold letters with an exclamation point. And I think we got the exclamation point. Okay, So we're still bullsh We're still overweight by ten percent. We were ten percent overweight equity the day before the election. We're ten
percent overweight today. And the two words that I took from Chairman Powace quote yesterday, you know, the whole world focused on hurry to cut rates. Mine was strength and economy right. And that's the fundamental story, particularly with the US consumer. John, I've been on this program talking about the US consumer a lot, to the most important consumer to get right. And October gave us such a big signal.
It was the largest one month gaining consumer confidence since the reopening of twenty one, the biggest contribution to consumption in the third quarter since the beginning of twenty twenty three, and the BA found about a trillion dollar when they revise the savings rate higher, So the US consumers to US look strong. The bottom line for US fifteen percent probability of recession over the next twelve months fifteen fifteen is as low as you could possibly get. And you know,
for us, because snow sitting is zero probability. And at the end of the day, you want to make a big deal about rates, the average ten year rate this year has been four point two.
We're four point.
Four and the SMP has squeaked out twenty five percent game Okay, so it's a it's a pretty supportive environment for us still because of the fundamental signal.
That's the story. It's a beautiful story. Thank you got to talk about a price of a story. Let's talk about a price of a story. Credit sprints are ready tight for what multiple is a pretty out of vitsh We are seeing the days to come in pretty strong. But that's while price. We've taken out a lot of rate cuts already for the Federalserve. Just how well priced is this story?
Yeah, good question. So when when we were here pretty much up through the summer, we were talking about the cap weighted S ANDP we were talking about megacaptech, that's still part of the story, John, But our two latest trades have not been that one has been equal weight. Okay, So get arbitrarily, just get a little bit of every stock, but I think one of the ones that's really coming up is MidCap now. So MidCap for us makes sense
for three reasons. One valuation seventeen times versus the twenty two times that you're quoting on the S and P. We have about a thirteen percent earnings growth for next year, which looks pretty good, and you just don't need as many rate cuts. Like it's got a little bit less sensitivity than small cap. I mean, yes, we could have jumped into the deep end of the pool about small cap, but we're getting there through MidCap, So it's a broadening
out of us exceptionalism. Don't bail on the megacap, but we're diversifying that with some other with some other things. And then high yield at the end of the day, Yeah, I mean, how tight could it go. It's like the two faced high yield market. You have this like fifth percentile spread right, and then you look at it again and you're like, oh, my goodness, it's fiftieth percentile all in yield, and a lot of our clients just want
the yield, including us. We want this boring, less glamorous alpha trade of out yielding our index in a world where the fundamental story continues to support hy YO well.
Usually one trade that works pretty well is the more credit spreads titan, the better risk assets as a whole do. If there's just less room now for credit spreads to tighten, does that put any ceiling on risk overall or just the correlations all out of WAC considering how tight things have gotten.
Yeah, so that's that's a good point. I think it's a whole story, Danny of like macro volatility coming down. I can make you know, this might not get the best ratings, but I can make the case that uncertaint is actually less now, not more. You know, post election, we know who's there. We know also that if history is a guide, a lot of companies tend to put money to work no matter who they voted for after an election, which I think can support the broadening out
rally that I'm talking about. We're not expecting hy yel to titan. You know, maybe it should trade through treasuries because one of those has one hundred percent des to GDP and one of them doesn't. But that's that's not going to happen. I think at the end of the day, the high yield story is in the background. Jenny Allen said, it's like watching paint dry. That's what she wanted monetary policy to be. That's what we want the high Yeld carrier to in our portfolio.
Okay, so the rally broadens out. But does leadership change.
Yeah, I think that's that's the key. I think leadership does change. I think it changes to things that are more pro sicklic. Also, remember what I said at US exceptionalism, bold letters, exclamation point. That just doesn't mean megacap. I think it means that you have the financials and industrials taking part, and that's how that's how we're positioned for next year. I mean we have our soft landing definition is about two to two and a half percent growth,
two to two and a half percent inflation. If you just google nominal growth of five with earnings, you get a lot of leadership in that environment. I think that's that's pretty supportive. And one of the things I really don't want to see is a fifty basis point rate cut. I don't want to see that, and I don't want to see a two percent CPI rate because I think if that's happening, we're wrong on the fundamental story and the growth story.
Last week, Immybely, after that election, we began surprise to what looked like a really positive growth shock, really loud. Mohammadel Erin came on the program and he said that sound is the sucking sound of capital being tanken away from the rest of the world into the United States. You keep saying US exceptionalism. Why does it leave Europe? Where does it leave China? Why does it leave Japan? Where does it leave em.
Okay, you want to answer all those please, So I think if I were going pecking order here, I think it would go to the US. So out of our ten percent overoid, eighty percent of that is in the US. And then the other piece, John, we have a small piece in emerging markets. So you know, in twenty sixteen, if you listen to anything President Trump said on the campaign trail, you wouldn't have touched EM with a ten
foot poll. In twenty seventeen, EM was up thirty eight percent because of the coordinated global growth theme, So the fundamentals kind of went out there. I'm not saying that's going to happen this time, but you know, we do have an environment where at least China is acknowledging their property market. It's fallen flat again, but it is somewhere where we just want to be careful of being too underweight.
And then the Japan story, it just gets a little complicated with the back of Japan normalizing rates and what that does to dollar yen. I think it makes it a little bit easier if the Fed's not going as much, that the Bank of Japan can start to normalize and it won't be like that early August trade. So in terms of pecking order, I think it would go US EM Japan, and then Europe would be a funding source. At this point, they're growing at one, we're growing at three.
European Central Bank is cutting and we only have seventy five basis points of easing priced down to the end of next year. Okay, and that's kind of a weaker euro story, which isn't great for investors.
Hearing you, no, you.
Sound so bullish. What's the risk of Donald Trump putting on tariffs that are blankets sixty percent on Chinese imports and ten percent from everywhere else.
Yeah, So, Amory, I go back to twenty nineteen. President Trump lost the majority in the midterm elections of twenty eighteen, and growth that year was three and inflation was two and the FED was cutting and I just don't I just don't know if these tariffs are going to lead to the inflation. I think it's more it could be more of a growth side. But policy error, amory, probably is our biggest risk, whether it be from the administration or whether it be from the Federal Reserve. And I
think the Federal Reserve kind of got the message. They thought the Unpluyner ray was going to be four point four. At the end of this year, it's four to one. But to your point, the policy err is probably the biggest risk. It's not the left tail, it's not recession, it's policy error from the administration of the Fed.
Then what would be the catalyst for that fifteen percent recession called possibility, which I know is low, But what would be the catalyst?
It would be business caution and then kind of kind of layoff. So we're watching initial job as claims really closely. So do claims or the labor market show signs of cracking. There was like this hoodwink earlier this year that the FED fell for and Claudia sam was like, no, it's
not happening. So so I think at the end, at the end of the day, would have to come from the labor market, amory, and then the uncertainty as you said, on tariffs on growth, and then that's the business caution and it kind of goes the other way.
Not price didn't right now, clearly A turned that to be right at least South Fond Jobs claims yesterday to seventeen. Phil, it's wonderful to catch up with you. Thank you for getting up town your thoughts. Thank you, sir, Phil Camparadi
that of JP Morgan. Turning to Nvidia, Frankly of HSBC, raising his price target on the chip maker to a joint Street high at two hundred, writing, we have pondered this amazing growth trajectory, and not only do we see no signs of a slowdown, we expect further upside in twenty twenty six data center momentum, which in our view is still not fully priced in by the market. Frank joins us now for more, Frank, welcome to the program, sir.
I just want your opinion on what's behind that train and why it doesn't slow down anytime soon.
Sure, I think it's you know, every couple of months, everyone I think, goes through the same question of can Nvidia continue on this amadian growth trajectory. It is now approaching kind of untraur territory in terms of the market cap of the company. But what we continue to see is that the overall spending on hyperscular capex continues to go up. Since May, we've noticed there's been a twenty percent upward revision in the overall street consensus view for
the four major hyperscalers. If we look at that in terms of potential server capbex next year for AI, we think that's going to be more enough to cover and videos growth, at least for the going into next year.
Frank, We've got to talk about the source of that demand and how strong you believe that biggest customers are and whether those customers you think have demonstrated and done a good enough job of justifying their investment over the last few years. Do you think they're doing that?
Yeah, No, I think that's a great question. I mean the question that everyone comes back to is you know the investment that's going on, you know, what's the return, what's a moneization? It is a fair question, and it's not a question that I think has been fully answered. But I think from what we can see is that the spending continues and into twenty twenty five, there's no
sign of any slowdown. And we've also seen I think collaboration from what we're seeing on a supply chain in Asia, we've continue to see many companies out here that continue to see upward revisions from the in video supply chain. So it seems to be going hand in hand in terms of the investments we're seeing from the hyperscalers as well as we're seeing in a supply chain.
But just given that, Frank, I mean, is there not some form of concentration risk for Nvidio when Microsoft makes up nearly twenty percent of your revenue meta another ten, aren't these real risks if any of them pull back even slightly?
That's a good question. I think, you know, the risk constitution risks are still there, but it is diversifying. So as an example is if you look at the enterprise, which is a non Hyperscaler's right, they're becoming a bigger and bigger part of this market. You know, if you look about eighteen months ago, I would say hyperscalar spending
is probably eighty percent of the market. Now it's probably looking to be about sixty percent of the market, so well, it is still a very high concentration that risks is coming down. You're seeing further expansion into the corporate world in terms of spending there. So that's why you see companies like Dell, which are traditionally not leveraged to the hyperscalar growth, they're seeing very strong growth dijector in AI as well.
So, Frank, we're going to from the company in about five days time on the twentieth for their earnings, options markets pricing and something like an eight percent move either way. What sort of fireworks are expecting on the day?
Yeah, I mean, I think you know, they will have a beat on their revenues. We expect they'll beat on the current quarter as well as give a better guide relative to consensus. That being said, though, the share prices have had a very good run into the earnings, and so whether that's going to be enough to really give the market an extra boost, I think it still remains
to be seen. But I think we're taking a view that you know, it's not just the next two quarters, but if you look at all of twenty all of next year, we do feel that confident that they'll still be further upside in terms of the market expectation.
I wanted to ask you about what was going on with the DOJ they sent Sepedas to Navidia in September. For Nvidia is do you see a change of an environment with the election and potentially what policy regulation could look like for the company next year.
I think it's uh, there's going to be a lot more probably uncertainty and noise now, but I think it doesn't change the fundamentals. The fundamentals is that you know, the company's dominant position in AI is unchanged. We don't see any immediate competition. In fact, I think the hyperscolas themselves, who have every interest to try and develop their own chip to reduce their dependency on Nvidia, is not able to do that. In fact, I think you know some
of their own ships are designing. The momentum is actually slower next year, So it shows you that, you know, in terms of being the compete, we still don't see anybody naring that gap yet. So I think the fundamental is not going to be changed. There will be probably a lot more I think just headlines, but I think if you just look at the overall earnings growth and expectations, I think that remains largely entering what.
About outside the United States geopolitical concerns, especially when it comes to the fact that the chips are made in Taiwan and we have a president elect who's very hawkish and his rhetoric is very hot when it comes to China.
Yeah, so I think, you know, if you think about the China exposure for Nvidia's whole, it is coming down. You know, at its peak, you know, China was probably more than twenty percent of its revenues. It's now at a point where I think China itself is only going to account probably for somewhere around ten percent of its revenue. So it's come down in terms of that as being an end market. As far as I think where the chips are made, you know, I think that's not something
that's going to change in the near term. You know that the TSMC is building fat factories in the US, but it's going to take some time before they able to build increased production there. So I think, you know, reality is is that well, there's going to be some rhetic around it. It doesn't change the fact that the manufacturing base is going to still stay in Taiwan given the dominance of TSMC, and that's not something that's going to change in probably anytime soon.
Fank. When it comes to the politics for the Chips Act, out of one hundred and twenty three million dollars, a total of thirty three billion has ad sorry. Out of a total thirty three billion dollars for the Chips Act, only one hundred and twenty three million has been announced. As we head into the twilight of the Biden administration, what sort of pushes do you expect them to make with the Chips Act? Can anything else get done?
Yeah, there's not going to be that much time left. And I think if you think about, you know, the Chips Act, you know, there hasn't been that much money as you said, as you pointed out, actually been given out. I think we're the majority of the Chips Act associated Chips Act. That's helped companies like Intel has been the tax credit, so they've been able to get I think, you know, the the the advantages on tech credit, but
they haven't really gotten enough substitution. In fact, no one's really has, so I think if you think about I don't think it changes the tackleus of things. I think at the end day, you know, the on shoring trend is going to continue, will continue to take time, But I don't think it really changes, you know, the trajectory where you know there will be that people will be looking to change their investment cycle. I think that's I think the longer term geopolitical events is here to stay.
Uh and and I think company is going to build regardless of how much funding to get.
Frank good to catch you up, appreciate it gun into when video annings a week away, frankly that of HSBC. So here's the laces. This morning, retailer is reporting over the next week, facing down the prospect of higher tariffs and a shortened holiday shopping period. Greg Melick of Evercore airsie remaining optimistic. Election clarity is hopefully a cheap form of stimulus. Trump tariffs and tax cuts should prove neutral
to positive. Greg joins us now for more, Greg, Before we get into holiday shopping and the consumption boom we might see over the next few months, can we just talk about how these retailers might manage inventory between now and inauguration of President elect Donald Trump, whether we're going to see these massive imports come from China, whether that's already started to get ahead of those tariffs.
Yeah, I don't think there's any surge ahead of teriffs for a lot of large retailers and even smaller ones.
We went through this a few.
Years ago, so they have a playbook as to what they're going to need to do ahead of those sort of shifts.
And I guess what I would say is right now they're still.
Dealing with remembering very recently the problems we have at the ports on the West Coast a few years ago and getting that inventory in time. So I think they're still there being cautious in terms of how much inventory they bring in earlier quick ahead of some theoretical tariff change which will be very basically country and product specific.
Probably at the.
End of the day, Greg, how much more resilient other supply chains now have that diverted traffic away from China or is it going through somewhere else away from Mexico. What are the big changes that you can identify.
It's a great question, I think from if we go back to pre the tariffs, so it's back twenty seventeen, twenty eighteen, it looks like what retailers are bringing in from China is down probably twenty five to thirty percent. A lot of that hasn't moved back to the US. It's moved to Mexico, it's moved to Vietnam, it's moved to India. So there's been a broadening out of the global supply chain. And basically this will probably further accelerate that trend to go to where products can come in
with higher quality at a lower costs. And there might even be some reshoring as well, or near shoring that has been part of the trend, but not the major movement.
Greg The date I want to know about not Trump's inauguration, but January fifteenth. That's when the deadline for the Long Shortman Association expires and they need to come up with a new deal. What is the risk that we have a repeat or something worse than we did in months prior, especially with the new administration that's for all accounts, less friendly to unions.
Look, that's a great question, and factically, I'm glad you brought it up, because as we talked to retailers and vendors, we're finding that that date hopefully.
Will get sorted, but that's still a very real.
And relevant date without any theoretical tariff changes in the future. So making sure that we have the products that we need if there is a disruption and if a final deal isn't signed by then is important.
So look at there's a lot of moving pieces. And that's why I would say even the.
We think the consumers in a better spot and we'll be slightly better into next year, it's certainly not a V shaped recovery by any stretch the imagination.
Let's talk about that better spot for the short term. What do you anticipate the holiday season demand to look like.
We're looking for retail sales to settle out at this three to three and a half percent nominal growth rate. We'll get October numbers later today, which we think will be in that range, and the things we're watching. If there's certainly the categories that we think are starting to have rolling recoveries, we think home improvement is one that after fourteen quarters of negative traffic at home, deep Bone lows that that's a category that will start to term positive next year, maybe not by.
First quarter, but certainly later in the year.
Because our home improvement lead indicator has had a pretty sharp acceleration the.
Last six months.
Ahead of the holiday period, though, I'm looking at names like Target, Walmart, Amazon, when people are going to potentially go and buy some of these big ticket Christmas items, who do you think is going to fare the best? You know?
I think it's the trend that we've seen all this year continues.
The consumer is willing to spend, but they're very cautious and value focused, and they want to see newness. And what we've seen from that is Amazon, Walmart, and Costco so far have combined for seventy percent of retail dollar growth this year, So retail sales are up a little over three percent. If you x out those three retailers,
retail sales are growing one percent. So I think for a lot of the other ones, it's really catching the right trend, having the right product, having the newest, making sure you lean into value. That's how some of those other retailers can hold through this. But I think those three Amazon, Costco, and Walmart are in a very good spot.
Apparently, those five fewer holiday shopping days when it comes to this season, do you think that's going to affect the outlook.
Yes, I have the gray hair to remember when this bigger impact. I think that e commerce growth and now twenty two to twenty three percent of US retail sales has changed it. And maybe it's a little less of an act because there's more flexibility on how people shop and acquire goods for holiday.
But at the end of the day, I would say it might.
Be fifty BIPs of pressure all else equel, just because there's there's fewer days between Thanksgiving and Christmas to get stuff done.
They're trying to wedd days. Trust me, Greg, we went to bloom Mindow's day after Halloween straight away. Christmas music didn't stop?
Did they jingle bows? It was ridiculous.
Yeah, appreciate your time. Let's catch up again soon, Greg Malick. There of Evercore. This is the Bloomberg Surveillance podcast, bringing you the best in markets, economics, angio politics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business app.