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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and a Marie 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. Gagie chatter if
Blankcrog joins us around the table. Gargie, good Mornic, good morning. I know we want to address single names, but I do want to understand the concentration risk around some of these stories. How much of the fate of this market is in the hands of just one name, one CEO, one story.
Sure, good morning, Good to be here. So this is exactly the theme that we write about in our Fall Investment Directions that we wrote in early September, still very relevant now, and the theme that we highlight there is, you know, we all grew up in the markets hearing the old fable of don't fight the FED, Now it's don't fight the FED and don't fight the AI trade, because that is what is going to drive drive sectors and it's what's going to drive the overall performance of
the index. Yes, due to some of the names very much being a part of the broader index, but those few names, the top ten names, are also where the majority of the earnings growth is coming from. And while we read these headlines, I think we shouldn't lose sight of that fact that if you look at Yurtle dat returns seventy five percent or so have come from of
the total returns have come from earnings. And when we see these headlines and we recognize what the future of an Intel Nvidia is going to do, I think what it points to is further earnings growth.
Just driving the S and P higher.
So keep AI as a core theme in your equity portfolio. But I think more and more we're recognizing that you're going to have to do it active manner because there's certainly going to be names that are going to be losers within this AI race and winners as well.
How are you active in management given the potential for political overlays to the tech story as we've seen from the US and from China.
What I mean by how one can be active is obviously thinking about certain sectors or certain stocks themselves that can not be as much of a beneficiary. And we actually saw that around this earning season, right We saw some software names that are not able to use AI as much as one would have thought, as much as expectations were, and are absolutely losing. And then obviously you have more of the hyperscalers as well as the chip manufacturers that are very much able to participate. So that
is the active management obviously. You know, in our fall investment directions we talk about doing that through and I SHARE's active ticker BAI. But investors can also do it with you know, broad large gap ETFs. They can do it through broad large growth ETFs versus moving away from small caps, which has been our theme for the year.
Okay, that is exactly where I wanted to go, This idea of don't fight the FED and don't fight the AI same are they in conflict and this is the way that they were yesterday.
The idea that people saw this is.
An opportunity to go out of some of the high flyers and the expensive stocks and into small caps that were less highly valued. And you saw that rotation yesterday. You think that's a headfach based on what you just said, Well, I think so.
So.
I think that we obviously saw August as a great month for small caps, and then as September came around, we've seen that fading just a little bit. Historically, we've looked at periods where small gaps have outperformed the large gaps in more than three to five hundred basis points. It hasn't really been able to be very sustainable, and partly it's a growth story. In small gaps you just don't have that earnings growth. But broadly we all know
what's happening. I think Francis was talking about it earlier in terms of the economy is changing and the rules that led to our investment thesis last decade will not work. Now many companies are staying private for so much longer that companies when they finally go public.
As we can see.
The size of IPOs going from about three to five hundred million to over a billion, they are now no longer small cap companies. So the market is shifting. You have also from a macro perspective, rates are still higher than the sort of zero regime that we were in for a very long time, and you don't have the earnings growth. So I think we can see certain short term movements, and I think we've seen investors play that via options on things like ISWM. Absolutely do that, but
this is not a sustainable theme. Come back to large gap, come back to growth, come back to AI.
Stay with US. Multilemberg surveillance coming up after this, joining us now to discuss the former Kansas City Fed president as the George Es the Welcome back to the program. I love talking to you about this because you've experienced it. You've been that, you've dissented on the committee yourself personally, and you've seen dot plots with huge dispersion and a wide range of outcomes for the years ahead. Is this
different somehow from what you've seen and lived? Is this somehow different what we saw yesterday?
Well, it's different in this sense, Jonathan. You have a lot swirling around today's economic decisions that have to be made about monetary policy. They come from challenges to the institution itself. They're coming from an economy that is far from clear in terms of what the ultimate impact is and again, this is a committee that has to think about the long run even as they make today's decisions.
And so you have dramatic changes in trade policy and immigration policy, all that are hitting directly on both uncertainty about where that long run is as well as where are things landing today. So not surprising I think that you see this kind of dispersion giving the changes going on in the economy, given.
That kind of type of a backdrop, do you think Esther that we're looking at a scenario where forward guidance has no value anymore?
Well, I don't think this is a time you can make forward guidance, and really forward guidance can be fraught anytime. Because we live in a dynamic economy, things can change that make it hard for the Central Bank to fulfill commitments like that. And so again this is a time where you hear from businesses. They are still sorting out what the in game looks like here. They are still sorting out what increased costs are going to mean to
both their bottom line to their employment status. And so it's hard to put a pin that you can see a clear direction for the economy. I think you heard that coming out of the meeting yesterday. The committee had to make a decision. They made a decision. But the dispersion I think belies some of the consensus you saw esther.
Can you talk a little bit about how hard it is to persuade fellow governors to get on your side when you do when you do disagree with them, how difficult it is to make that case.
Yes, so it's a requirement of the job. I always thought in that and certainly you are trying to articulate in a very thoughtful way the factors that weigh on your judgment, how you put the weight on different variables, which everyone around that table is doing. At the end of the day, though that you are the loan dissenter, that the majority makes a decision in a different place
doesn't necessarily undermine the argument that's being made. It simply says that the weight was in another direction and there was consensus built around a different view. I think what's important is that you don't dismiss entirely when you hear dissenting voices about what it means.
As so, if you look through the forecast, a lot of people have called them highly contradictory through some odd things going on just in terms of upgrading the outlook for growth and then cutting interest rates. Some things don't make sense to some people. You know, when these things were introduced, the dot plot and forecast, it was to enhance communication. Do you think we've got to the point where it started to compromise it.
Well, that's been the case at many times since the introduction of that dot plot, and again I think it always bears reminding people this is not a committee forecast. Yes, you can draw some conclusions about tendencies and the medians where they come out for this committee, but when you see dispersion like this, it tells you that we're looking pretty short term. This idea of meeting to meeting sounds
right to me. You don't have a committee that agrees on what the long run is, and that's true either of their long run FED Funds forecast those are ranging from below two and a half percent to closer to four. That tells you that this idea about how restrictive they are has a lot of different views coming to bear at the table Astro.
I think a lot of people would agree with you most in fact, that you shouldn't draw too many conclusions from those forecasts. But there is one uncomfortable conclusion that many people have drawn, and this institution is no longer credibly pursuing the two percent inflation target. Is that an unfair criticism?
Well, the committee certainly has not said that. We have not heard the chairman say that. But I think the actions here put them at risk over the next few months, frankly, because they continue to push away from thinking that in inflation, although characterized as an upside risk, is one that they
are not going to be able to deal with. And I think the challenge there is this is a committee that has relied heavily on anchored inflation expectations, and as those move, and as the public which has experienced high inflation, I think this will become a real challenge for the committee under the forecast that they've laid out.
Stay with us. Mulblinberg, Savannah's coming up after this. Dannats of wet Bush is standing by once to jump on it. Calls the deal a huge game changer for Intel. Dan, good morning and welcome to the program. Why do you believe this is such a huge game changer?
Pop the champagne, I mean for Intel.
Now you have Nvidia, godfather of AI doubling down, and this files obviously US government investment.
I mean, what this essentially does, It brings Intel into the AI game. I think from a stock perspective, that changes the multiple.
And clearly this is also going to be viewed very positively in DC. I think that's something that could definitely help Gens and others when it comes to China.
Dan.
I do wander though about man Deep's point, this idea that this isn't Invidia going all in and developing their chips for the big semiconductors so that the big hyperscalers at the at the Intel foundry. This is simply a five billion dollar side project about PCs. How much is this essentially just an olive branch to the president and not an actual move of Nvidia to try to fortify Intel's plans to become the foundry.
You know if mandeep brings up Greade points as always, But look, this is also it's a double one down on investment in the US.
I mean, that's.
Also what it is now clearly that obviously I'll bring to Trump administration and others. But what they're also doing is when it comes to PC upgrade cycle X eighty six I mean, this does give them another potential growth lever and look in video right now, it's in Vidia's world, everyone else's pain Rint and they know that they're in a massive position of strength. But for Intel, I mean about you went, you know, you went from Qullite a
month ago. You know, some worries about you know, in terms of the CEO potentially out.
Now you get the investment from government and you have Intel.
You know, now again in Vidia, I mean, that is a Goldilock scenario for Intel.
This is coming at a time when China is trying to emphasize domestic production of their own technology and really trying to create national champions there that can rival in Vidia and other US tech giants. I just wonder whether it is possible to continue, for the likes of Nvidia trying to push into China, trying to sell more advanced tips into that country, while at the same time, you know, playing with this idea of US independence from China.
Look, it's a tight wire act.
But the reality is that there's one ship in the world viewing the Ai revolution and that's that's what by godfather of aigens in a video, and that's why in China, look they could tell Chinese big tech Embijing, don't buy in video chip that that's like telling a kid, okay, don't eat the candy that's on the table. So that's the reality because they're years ahead of when you look at Huawei and others.
But at the same time, I mean, tru administration recognizes.
They have to strengthen AI infrastructure, AI ship making. And you look at Intel, I mean they've gone obviously from a huge laggard.
I mean Intel, you.
Know all the red tape, all the sort of black eye moments, you finally have some positives at Intel.
Stay with us, multile Impex Savannas coming up off to this. Native Richardson of IDP joined us in the studio Nada.
Good morning.
It's good to say running this is a tough one to read. You help us out. Where is this lang of market right now? What's happening?
Labor market is strong, Actually it's solid, and I think there is a comment that has to be made it is weakening. But the labor market is not weak. And if you look at the stock, and that's what a lot of your audience is used to doing, looking at the stock and the flows.
If you look at the stock.
What you'll see is that the consumer is really smoothing out all the rough edges.
In the economy.
And it's true for the labor market as well. There's very little turnover in this labor market. I was really shocked by that upward surprise and Jabos claims last week, and now I know that that was just a mirage and we're back to historical lows. There's very little flow out and there's very little flow in.
But what that.
Means for the consumer is that they're not defying gravity when you see that pop in retail sales. They are well anchored by a functioning labor market where they are employed and working, and those incomes are fueling spending. And as long as that continues to happen, we can live with the uncertainty of fewer flows and hirings in and out of the labor market if the stock is healthy well.
And this raises the point that maybe this is a new normal, the sort of low higher, low fire type of churn, And I just wonder if that's true, if that's the case, or if you do see some sort of reacceleration hiring, especially if there is some sort of commensurate reacceleration in the economy heading into the end of the year.
Yeah, so that goes back to the weakening, and I do think the labor market is weakening, but not for the reasons that were explained yesterday. Not simply because of the hiring rate, but really the concentration of hiring and Lisa, you.
And I have talked about this a lot.
If you look at the BLS data, if you look at the ADP data, what you'll see is a heavily concentrated hiring market and key consumer sectors, whether it's healthcare for the BLS or leisure in hospitality and ADP, it's the consumer who's driving hiring, and the consumer's wins are really forming and shaping today's labor market.
I think that's a concern.
You want broad based hiring, you don't want it concentrated.
That's not good for the future.
So there are reasons to be concerned about this labor market, but the ones in terms of just the number of jobs that are added every single month. I think that's not the biggest problem with the labor market right now.
Going forward, we've been talking about the conflict between the real economy and this idea that there is something kind of quirky or not totally healthy about the labor market and the idea that you're seeing this boom in a select number of stocks, but it does seem to be broadening. Do you think that that also is a new normal that companies can keep doing really well but not increase their headcount considerably or invest in talent, or do you think that this is something that has to reconcile.
Markets and companies.
The truth is, if you're not growing, you're not going to be around for long. And I think that when when we look at the labor market, what I see is a tipping point. I see a labor market that is very dependent on the consumer and a consumer that is very dependent on the labor market. And I think this is an uneasy truth. It's a delicate relationship because anything could upend it. And that is the issue for
companies as well. If their demand is coming from a resilient consumer only, and that consumer is dependent and most of us are on the labor market, then you can see how these fractures could lead to something bigger for consumer companies right now, so they're very dependent on that demand outlook, and it's uncertain and there's a lot of risk around it.
So yesterday I found really messy listening to what you've got to say about things. Could these decisions get messy up? Given how difficult is to read things at the moment?
You know?
A Vice Church Jeffries gave us speech about two years ago on the difference between uncertainty and risk, and that term risk management really stood out to me because risk is something where you don't know the outcome, but you know the distribution, and therefore you can act to in a way if you're the fed to, you know, try to tilt towards an outcome that is preferred. Uncertainty, you don't know the outcome and you don't know the distribution, And I think we're there more now than we were
even two years ago. We have an uncertain distribution. So it calls into question whether a short term rate move is really going to affect these long term structural issues tied to demographics, immigration, and higher inflation than we're used to.
With that in mind, is they get closer and closer to neutral? How do they confront the situation you've just described.
Historically they've done so with data and really having a strong read of not only where the economy is now, but where it's going, and that is going to be critical because they have to work into time dimensions right now in the future. And right now, things look pretty good. The stock like I said, for the labor market is pretty good, the unemployment rate is below what we've seen historically.
But in the future, if these structural changes become live, real time constraints to the economy, then the FED has to act and act quickly. And that is the uncertainty that we're all going to be grappling with.
Just a random question for me, how long before college graduates actually get jobs?
Well, my son graduates in two years, so I'm hoping for that, so I'm not going to come back. I think for early career we're also seeing a complex relationship right because we're seeing they're entering a jobs market where AI is becoming more and more present in their skill set. And when you think about where AI shows up for these early careers, for careers in general, it's showing up, according to research done by Stanford and using ADP data,
in early career in AI exposed fields. And that's not just software developers, that's marketing, that's finance, it's anything that you use a spreadsheet or some kind of document to do so. I do think that there is a transition point. The good news is, in this very stable labor market, companies are leaning into employee engagement, employee training, employee upskilling in a way that they weren't doing before the pandemic.
So there's hope that if.
The economy stays strong, that this early career population, which is our future, will be trained into those durable jobs.
This is the Bloomberg Survendics podcast, bringing you the best in markets, economics, an gio 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 opp