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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. The Ark and Vest CEO Kathy would one of Tesla's biggest spores, the ev maker, the top holding in her flagship Arc Innovation ETF, has this to say, I do not understand why investors are voting against Elon's pay package when they and their clients would benefit enormously if he and his incredible team meet such high goals. Kathy joined us now for more. Kathy, thanks for making some time for us this morning. Good
morning to you all. Do you think, Kathy, the incentives are well alive?
Yes, we do.
I do not believe any company anywhere near this size has ever delivered a compound annual rate of growth for ebit dot, which is a bottom line number of forty one percent over ten years. No company has done that, so yes, indeed the incentives are aligned. If he and his team are able to deliver on that number, the stock is going to outperform enormously.
Kathy, if by chance this proposal is rejected, would you consider shedding some of your Tesla position.
So I'm happy that the prediction markets are at ninety to ninety five percent in terms of this is going through, so we don't have to think about that clearly. If Elon left, we think about it in two ways. One we think robotaxis. He has them at the starting gate as of June and now they're rolling out, and that AI project is well underway.
If he had left five years ago, three years ago, it probably.
Wouldn't be anywhere near where it is. What we now think though, is in order to capitalize on humanoid robots, which that's a much more difficult project. That yes, Elon's brilliance and the team he has attracted around him are going to be necessary to pull that off. Our price target twenty six hundred dollars in twenty thirty is ninety percent of that valuation is robotaxi, we have very little for humanoid robots. If humanoid robots evolve as quickly as
Elon things, now remember that's Elon time. But he already has a running start because robotaxis are robots, they're electric, they're powered by AI. Those are the three innovation platforms that will power humanoid robots as well. So he's ahead of the game on that one as well. But I do believe he's the right leader to bring that part of the story to life as well.
Kathy.
I've got to answer you this though, to follow up on Lisa's question. If you wouldn't sell, if he wasn't CEO, then why should we pay him that much to be the CEO.
What I'm saying is we would feel comfortable with robotaxi part of the model, but we would not be able to build with confidence the humanoid robot part of the model. So over time, of course, as the story would depend more and more on that leg of the story, we would be taking our position down.
You talked earlier, Kathy, in the past couple of days about this reality check that's going on in the tech sector, and I understand that Tesla is sort of in its place that you do hold them for the long term. How do you understand the reality check that's currently going on within a lot of the biggest tech stocks and the sense of skepticism about whether they can keep growing at that rate versus the long term bullish bet.
You know, I'm really happy that there is so much skepticism out there. Anyone who went through the late nineties will remember there was no skepticism, and we had valuations based on the number of eyeballs on a website maybe ten years from then. We're not seeing that right now, we are seeing Wait a minute, they're spending a lot
of money on these data centers. This is a little bit of a different story than I was investing in, certainly in terms of when I say I the average investor was investing in with the mag six, those were just cash cows and had huge cash positions. Something's changing here. It's making the typical investor a little more i'll say, skeptical. This is not just the cash register ringing anymore. This is wait, a big bet on the future. So I'm happy there's skepticism.
I think it's a good thing.
Are you buying right now? Are you seeing the skepticism as a chance to build some of your portfolio.
Oh sure, you know, And probably the most undervalued part of our portfolios is in life sciences healthcare, because we think that is going to present the most profound application of AI out there, and yet it is highly underappreciated because you know, healthcare analysts aren't comfortable with tech, and tech analysts aren't comfortable with healthcare. And you know, we've got a very siloed ecosystem in terms of the way
research is done at ARC. We're very focused on the technologies first and how they're going to scale a sectors. So our analysts are organized by technology and we think there's a huge inefficiency there.
Stay with us. More Bloomberg surveillance coming up after this of principle asset management writing where there are threats to the risk on stands, particularly amidst lofty valuations. Fundamentals continue to underpin markets. Seema joint us Now for more Seema, welcome to the program. Meta last week, Palan, AMD and now quoll Com all reporting fairly decent numbers for most of them, and this equity market has pushed back. What's the signal you take from that?
Hi, John, Thanks having on.
Yeah, it's been really interesting this earning season to see how the market is punching companies even as they're continuing to deliver, And I think that speaks to a lot of skepticism within the market, which is certainly started to really gain momentum I think within the last few weeks as well, probably around the size, you know, the kind of the size of numbers that we're seeing with regards to the A cavax, the hope that these companies are really going to continue to promise on some of the
productivity gains that they.
Have, so I think the jury is out.
What we're trying to do is look through some of the noise, some of the fears that may be around and thinking, want to look look at the earning story, look at the macro backdrop.
There are concerns, absolutely, but in terms.
Of the data that we're getting through from companies, we still have some confidence that this economy can continue to perform and companies accroad a broad spectrum can also continue to perform too.
Or say, well, let's talk about some of the good news in the last day or so, I some services a nice ubside surprise. Do you think that's a sign of things to come in our future.
I'm not sure it's necessarily a sign of things to come. And when we're we're taking a step back and we're looking at the economy, putting all the data as much of it as we have, what we see as an economy which is likely to slow down from its current pace, is probably going to come down sometime during twenty twenty six closer to a trend level. Now that is okay, it's not wonderful, but it is still an economy that is growing, and so earnings can continue to do well.
The more concerning pitch, of course, which we have to take more notice of, and of course the Fed is going to be debating, so much is really around that labor market picture. So when we're talking about our forecast, we are building in the assumption that the Fed is going to continue to deliver some rate cards in order to make sure that whatever weaknesses there is in the
labor market aren't allowed to accelerate. So a lot of it is actually resting on this assumption that there continues to be some support coming in from policymakers.
This really goes to the contradiction of the moment where you're talking about maybe a slowing in the economy. Some people are talking about a reacceleration in the economy, but not necessarily in the labor picture. In other words, reacceleration of profits from companies that are getting nimble with using AI and other efficiencies of scale, while people are not finding jobs as easily and wages are not keeping pace.
As an investor, does that make you more reluctant to invest in the United States, or frankly, does it give you confidence in the corporate dynamism story of the United States, regardless of what happens to the underlying jobs economy.
It is such an important question, Lisa, and I think that question is coming about sooner than people have been anticipating.
I mean, ultimately, we're in this environment where the structural impact of AI both on labor, on wages and then general growth and essentially the kind of the bifurcation between what's happening in the labor market and earnings growth, and it's making it really difficult to try to decipher what the new structure of the economy is, what the impact is is, and also how the FED is going to
be responding. In this backdrop, we have to go with, I think, clearly diversification, but still this focus on the US because it continues to be the most robust, you know, the companies with the strongest balance shees continue to play out in the US.
But also at the.
Same time thinking about where else can we deploy to ensure that we are maintaining some kind of diversification against the risk that things do start to turn a little bit more negative, both from a cyclical side and of course on a structural side too.
So in other words, to sell America trade is over. It might be diversify around the edges, but the US still is the place that is supposed to be the growth engine for the world.
Is that correct? That is exactly right, So we continue.
Look, we have skepticism, some concerns I think healthy skepticism around the AI story and how these companies are ultimately going to deliver, But we do believe in the narrative.
If you believe in that, then really you should still be focused on the US.
Other countries around the world, specifically Europe for example, just doesn't have the same kind of prowess now. At the same time, because of those concerns are on AI having some diversification in companies across Europe once it maybe can leverage on some of the structural benefits that could come out from AI. Still, but the other parts of the cyclical story is important. And then of course across asset classes.
So it's not just about regions, but it's about asset classes, equity, fixed income, infrastructure, some areas that you can feel some safety in this kind of environment.
See and can we finish on trade? Some key fliers on a Supreme Court sounding deeply skeptical of the president's broad sweeping trade effort. It remains now I think the consensus for you coming into Thursday that these tariffs won't last, they'll be struck down by the Supreme Court. How well priced is that story, How well understood is it.
I'm not sure it's necessarily very well understood, But I think what the market is assuming here is that even if they're struck down, the Trump administration will find alternative avenues. So we do, for example, think that trade tariffs are old when you're going to rise a little bit further from here, even in the event that they're struck off.
I think the bigger question mark is something you've been alluding to just earlier, which is what is a near to mimpat in terms of revenues from the fiscal story, and what is the impact on the bond market going to be. I think that's going to be really the focus for the market over the coming months with regards to that trade story.
Stay with us more Bloomberg surveillance coming up after this. Let's turn to the Federalist of recent dissents highlighting the lack of consensus of that institution as the Central Bank struggles with a data drought. The former Kansas City FED president as the George joins us now for more. As the way, we're just tracking that story with Mike McKay. I'm sure you were following along. Do you think's fed a reserve is attempting to address a structural problem with interest rates?
Yes?
I do, Jonathan, and I think that's what makes this so challenging for the committee.
You can't ignore the.
Story you just heard, which is there's something going on in the labor market. Things are moving in a way, and yet you can't really put your finger on is this change happening in real time? Is this going to settle out to a more stable view of what's going on with that labor market, particularly when you are looking at what I would characterize as easy financial conditions and many of the other traditional signs that would go along with this labor market data would lead you to think
something different. So it is a challenging time and those cross currents of information and data are making it a tough job for the FMC, and it's an.
Even tougher job for investors to understand how the FOMC is going to respond to that data because the reaction function doesn't seem clear. You have a lot of descent, and you've got a lot of fissures on the committee, but you also have, frankly, a question of how much they're looking at the unemployment rate versus the actual total number of jobs, and how much that's taking priority over inflation. Do you have a greater sense of what that reaction function is?
Well, I do not, Lisa, and I think you see that in the discussion at the committee level, which is to say where are we putting our weight. In September, the Committee came out very clearly and said we're putting our weight on the labor market. When we see this softening, we're inclined to bring our policy rate back to something that we are guessing is more normal than where it currently sits, and that narrative is held through to two meeting, and this meeting, of course we got the question mark,
I think of whether that narrative would continue. So the information coming in and the fact that you don't have official data to back up some of those views, it's going to make this I think difficult for individual members to really reconcile their views and come to terms with that.
Is this a FED that has a dual mandate still or does it have more mandates than that? And I wonder if it's also keeping interest rates within a reasonable level, especially with the deficit where it is, if that's an increasing factor, even if not verbalized in the back of people's heads.
Well, it is the idea that the FED needs to keep rates low to assist the federal government's debt position is certainly not one of its mandates. Notwithstanding the pressure that you see coming from various corners to try to accommodate that, it is going to become, I think an increasingly difficult issue that will intersect with monetary policy because we know that these higher debt levels without some plan in place, to bring those deficit spendings down are going
to put pressure on the Fed. It will put higher interest rates in front of them. Inflation issues will begin to become more dominant, I think. And so that intersection is a very difficult one for a monetary policy group that is assigned to judge labor markets and price stability in their mandate.
Aster we do you think will be on December tenth? I've got no idea how much dates it will have. Do you think we could settle any of these debates by the time we get to the middle of next month.
Well, it doesn't seem likely. And Jonathan, what you hope is whenever you're in a period of uncertainty and trying to weigh the risk that you don't get an unexpected shock to the economy. And again, I don't see anything out there that says we resolve this uncertain But I think that's why it makes it a difficult time for this committee to reconcile views, is because that uncertainty looks like it is going to persist for some time.
So is that another way of saying that race might remain on hold for some time, at least until say, spring of next year.
Well, they could, and you're going to have people argue for that for sure. But I also think the committee will have to wrestle with the narrative of the labor market signs of weakening, and that was the beginning of their rate cut, So the Chairman's put the markets on notice not to presume that that cut is coming. On the other hand, if the data, however informal, however pieced together it might be, does not change that narrative, they could be inclined to continue that cutting cycle.
As tu. If the Supreme Court overturns the president's use of IEPA for tariffs, and you don't have that revenue coming in, and that isn't necessarily any kind of discussion on the inflationary pressure. If that money gets refunded, do you think that gives the incentive to the frenteral reserves the FOMC to cut rates more aggressively.
Well, not necessarily, Lison.
The reason I think that is because I think this throws another log of uncertainty onto the fire. If the federal government has to do something different with those tariffs, that then raised the prospect of where do we find that happening?
Will it be sectorial.
Is it going to be in terms of lowering revenues immediately or in the long term. It is another, I think reminder of why it is so important for policy makers, not at the FED, but policymakers that are thinking about our fiscal situation to really begin to be more forward looking about what we face as a way to lay a foundation for future economic growth, because right now we're in a bit of a soup that isn't isn't providing the kind of foundation that I think we need.
Stay with us more Bloomberg surveillance coming up after this track in the White House, and the President Lisa doesn't appear that this is on top of the priority list for them this week. The major one in the last week has been the last twenty four hours at the Supreme Court.
There's been more commentary about that. Yes, we are hearing about ratcheting up the pressure and I'm looking and if you're leaving any major airport anywhere around the country, you will get to laid at some point. That's basically the takeaway here. Nonetheless, the focus really is will the primary trade objective get overturned by the top court in the United States, and what are the consequences of that.
This at the moment just background noise. Of course, that could change, but certainly at the moment, just kind of background noise. John Lieber, if you're RAIS a group is in a studio here in New York for more, johnk and Mornich, let's start with trade. How instructive was yesterday's hearing for you and the team?
I thought it was.
I mean, the justices were clearly skeptical of the government's argument. So if I'm the Trump administration, I'm not feeling great about the ability the fact that the court is going to uphold my signature project right now, and if that happens, there's a lot of uncertainty in questions that generates, such as will there be refunds generated for people who paid the tariffs already? And what's the fiscal path going forward? Because this is for trillion dollars in revenue over the
next four years. They'll be able to recreate that wall through other methods over time, but there's going to be This introduces a big dose of uncertainty into twenty twenty six on who's getting tariffs, what does it mean for the status of the deals that have been struck with Japan, with Korea, with China, with the UK, and I think the administration doesn't isn't offering answers to that right now.
They're hoping the court sides with them. But there's at least three conservative justices that looked very skeptical of their arguments yesterday, and it does look more today more like those tariffs will be struck down than it did two days ago.
How surprised were you that there was such definitive tone out of the Supreme Court justices, including those in the conservative block of the court give and that pretty much most people were expecting that they would okay this, they would essentially sign off on it, as they have other initiatives by the president.
Well, if you look at the lower court arguments, they're pretty solid. I mean, this is the terroiffs have raised a number of questions as the presidential authority. You know, there's questions about whether or not the power to regulate trade includes the power of attacks. That's something that Neil Gorsich was focused on. And then some of these tariffs I think are just clearly not related to national security
at all. You can't put tariffs on Brazil because you don't like the way they're treating your political ally and then claim that's an economic national security emergency. I think there's obviously some tariffs here that are weaker, and there are some that are potentially stronger, like the fentanyl tariffs, which you could claim is an emergency.
Is President Trump losing his clutch over the narrative? And I say this given that he really dominated the Republican Party, But now you have conservative leading justices talking about tariff's attacks, which is exactly what he is pushing back against, and talking about things that Democrats have been talking about for a while. Do you think that this is significant regarding a broader shift that you're seeing in the political mindset.
I think it was only a matter of time before we started to see some of the institutions that govern the US come back and bite. An executive who's been very active and aggressive in his first ten months in office.
This is his second term.
He came in with the plan, he came in with the people in order to execute on that plan, and he's accomplished a lot. He's particularly accomplished a lot in foreign policy. But he's going to run into the limits of his power at some point. And it's the Supreme Court that's the one that's going to be raining him back in and I think we saw some evidence of
that yesterday. I think for investors this is actually an important signal because what's this narrative of the US this year has been is one of the big questions has been is this the US that we know and love? Or is something different now? And I think the institutional constraints on President Trump is a positive sign for the investment community that he can be restrained, that executive power is not unlimited, and that the Court still does his job.
Let's extend this conversation the Supreme Court job. How far are they going to take this? Are they going to prescribe a refund process? Just how fun will they tyke this? The refund process is tough.
I mean, the court doesn't want to be The Supreme Court in particular doesn't want to be the administrator of a refund process. There's lots of different ways that this could go. They could say everybody who paid a tariff so far this year gets a refund and then they all get the money back. That seems unlikely, though. What looks more likely is that the lower courts are going to be charged with administering some kind of refund process.
We don't know what that looks like. It could be the case that individual companies have to sue and say, hey, you know there's this law, it's unconstitutional, it's illegal, we paid the tariffs, we want our money back, and then that works its way through the courts. So that's uncertainty that could go for six to twelve months or longer next year for those individual companies, even though we know at a high level that these tariffs are illegal.
If this's a guy knife Scott down in Washington day say this is going to have to figure out some new revenue, why is it going to come from?
I think?
I mean, they got plenty of other tools for raising tariffs. They're Section one twenty two, which allows I'm sure your viewers have all heard these codes by now. It's sectionally one twenty two, which allows one hundred and fifty days of fifteen percent tariffs. And then there's all these individual entry tariffs called the three oh ones. It's how they're
raising revenue on China. And of course let's not forget that some of the most powerful tools that Trump has are the sectoral National security tariffs, which are the two thirty two. So there's plenty of other tools they have, they just have to go through the process of getting there, and they haven't yet AIPA.
It was quick they allowed to give.
The president a lot of power and allows them to change his mind quickly. But these other tools allow a little more process and a little more time to put into place.
So it's really good to see you in person. And I'm just wondering, when you go back to DC, are you going to fly there.
I'm taking a train. I'm not getting on a plane right now.
I'm just wondering. I'm looking at this and I'm seeing, you know, Ronald Reagan, Washington National and seeing LaGuardia and seeing pretty much every airport in every major metropolitan area. Is this a warning shot from the government essentially saying we're going to raise the ante, We're going to make you feel this to try to push people to the negotiating table sooner.
Absolutely, And I think the real deadline here it's not today, it's not this weekend.
It's Thanksgiving.
And you've got millions of American families that are, including mine, that's looking forward to traveling on Thanksgiving on a plane, and those planes better be flying, and so that means the government has to be open by that point. Otherwise they're going to have a lot of angry Americans out there. So I think that puts a backstop on how long this shutdown can end.
That's two weeks away.
Still got some time here to negotiate, but they better solve this problem by then, or else I'm going to be down to the Capitol buility protesting.
I like that you went to the Washington airports first, because this is about inconvencing the polititizens themselves right about the rest of the account.
I mean both to be fair.
I mean, it's absolutely confise everyone, but they're trying to raise the pressure.
Is this going to work?
I guess that's my question. Is this going to work on the Republicans end? Given the fact that Democrats haven't borne the brunt of it so far in the polls?
Joldn Can we talk about data? What's just data collection? Look like, let's say it ends before Thanksgiving because no one wants to go through that. I can go with that. Let's go with that. I hope that's the case. What happens with the dates are after that?
So you know, in the past. What they've done is they've doubled up on data releases when they have the data.
So they collected the September payroll data, for example, they just didn't release it. They haven't collected the October or and if the shutdown goes in the next week, they'll probably miss the November household survey as well, and so if they don't have that data, they can't release it.
If they haven't done the surveys.
It's possible they could do the employment survey because that's electronics. So the employers fill it out, and they fill it out.
Over a long period of time.
It's one of the reasons we have such big revisions because it takes a long time to get all the employers to fill it out. But you know, there's precedent here where they've skipped data releases and then they just kind of catch up over time.
But that is one of the big questions.
And you've got a whole bunch of other data as well, CPI and other crucial data sets that are going to be skipped because no one's doing the work right now.
The question mark about the quality of that data once it is collected.
That's pre existing right. We don't know. I think the faith in that data was starting to descride anyway.
Right.
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