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I'm cue here. Ian Lincoln publishes BM on Capitol Americans. We're double barrel, yeah, Ian Lnoln Publishing, and Dan Scully just darkened the door. Lets me get better than this. Let me quote exactly for Global Wall Street. Mister Lincoln, with this backdrop, we struggle with the notion of wanting to aggressively fade the rally. That's price up, yield down.
Don't go against that. On the other hand, is three handle tens approach the four point zero zero to four point zero two percent zone will be difficult to breach solely based on sentiment in from the holiday weekend. Ian Lincoln, there moments ago, we are so advantaged that Dan Skelly's here off of that statement from Bank of Montreal. Mister Skelley is with Morgan Stanley Wealth Management. Is it a new bond regime. I'm looking at the Bloomberg and it's
saying there's a trend in place. Do you buy it?
Good morning, Tom. It does feel like people are risk off at the moment. Obviously, you've got this on the one hand, dissonance in the fact that people want to play global reflation, small caps international, and on the other hand you're seeing just bondyields lower in terms of I think further fears of further concern around the AI trade within the US.
We're linking the AI trade dynamics over to price up, yield down.
You can't do it with the economic data, whether it be the surprise index at multi month highs, whether it be the jobs data as of the last week or two. So you can't link it that way, Dan, I.
Mean, nobody does tech research better than the Morgan Stanley complex.
You guys have been leading on that for decades. Here, what do you guys make of this fade?
Software just broadly defined, I mean, software is a story that just works for everybody all the time.
Now it's really under some risk here.
Sure, and thank you, Paul, appreciate that that kudos, so number one. I think it's one of these many examples of dissonance at the moment. On the one hand, the market is fearful over AI spending on the other hand of the market saying.
Software is going to be disrupted. So I can't.
Explain that one in terms of efficacy versus disruption. And look, I would say not all software, not to be that completely out of consensus, but not all software is created equal. When I look at the varying types of software. Some of these companies are actually.
Partnered with the AI model makers today.
You know, it's funny we were talking about software and just tech research and think Mary Meeker.
She was in the news again this weekend.
Mary Meeker, she won the AT and T Pebble Beach pro am No Way, Way.
Go Way.
What does she do hand or power I don't know, Hardoin I saw that.
Remember power Point to sit there in a bar Alexis, you'd sit at a bar in midtime Manhattan, right with the beverages of your choice, beverages. It'd be what Dan, It'd be sixty four pages. And the problem with Mary, every page had vailue.
Yep, yep, that was a problem.
You know it was sixty four was the intro?
Yes, yes, exactly. So what are we doing here?
Broady defined with equities here twenty twenty five, excellent returns in the US, even better returns outside of the US. What's the set up here for twenty twenty six?
So number one, we're saying to stick with the international trade right, So on the one hand, whereas the AI centric optimism has now seeded to concern that's obviously benefiting international number one. Number Two, you've got policy and fiscal tailwinds helping Japan, helping Latin America, helping arguably Europe in some degree with this defense spending in a revamping of the military industrial complex.
There.
Number two, we're telling folks don't abandon the large cap quality adopters in the US. I think the biggest dissonance I've observed over the last month, and we've known software is going to be disrupted for the last two years, so that's not the big surprise. It's that every other sector of the market has seemingly been taken out to the disruption. Woodshed and a lot of these, by the way, were the names that were the biggest adopters of AI previously.
That's the big dissonance.
Earnings were, you know, three quarters the way through earnings. It seems pretty.
Solid out there as earning's been solid enough for this market.
Not at the moment.
Yeah, I think the market is losing sight of We talked about the macroeconomic data earlier pretty solid and above itself, and earnings is broadening out. I think the key trend at the moment is that you're seeing Russell three thousand median earnings growth of around eleven percent, and that's up from call it, low single digits the last year or so.
I mean, I look at the Google bond deal the other day, Lisa Shell loaded the boat for Morgan Staly one hundred year British piece. But I'm sitting there this week, You're going, Okay, Microsoft's in the tank, down a couple dollars this morning as well. It's closed at four oh one,
it's trading three ninety nine. Okay, Dan Skelly fine, But can't they and others in one Bloomberg headline change the zeitgeist by saying we're going to do a ginormous bond deal off Dan Skelly's desk it Morgan Stanley, Well.
We'd welcome that, welcome the partnership, no doubt. Listen.
I think when you look at the majority of AI spend it's still being funded from cash flow. On the margin, there is leverage coming into the system. But tom, as you know, many of the Max seven balance sheets are net cash balance sheet.
They could afford to take on some leverage.
Am I right that they could do one? What do your tech people say? Can they do one? Trunch?
Two?
Trunch? Thirty billionaire, twenty billionaire? Sixteen point five?
Demand is off the charts, as you know, and so you know, we.
Think there's some nuts pot.
No, I'm with you.
We think there's some room to take on on some leverage here. But look, at the end of the day, we think the market is efficiently and probably rightfully taking a pause on MAG seven at the moment, and the SMP because we've had this massive spending ramp up, we have alternatives for the first time in a decade, We have other markets with momentum. And we all know what momentum as a factor has meant for equities over the
last several years. It has truly taken the baton from valuation and so at the moment, momentum matters.
So does that lean outside of the US versus US here? Because I mean, when you look at the Europeans markets, they've both traded at a discount to those because they don't have that tech exposure that we have.
Is that now the time for them to shine as they did last year.
Yeah, it's a fabulous point, Paul. And number one, that's true, it's the absence of a negative at the moment. Number two, it's real fundamental catalyst. So whether it be defense we talked about in a post Ukraine recovery effort, we might see a Marshall Plan type equivalent rebuilding infrastructure out there. And number three, when I look at fiscal policy, right, we've talked a lot about the US fiscal and political situation. Look at what's going on with Japan post the elections.
We now have a super majority.
I point out Microsoft there out thirty five years on their longest piece. I mean, I'm sorry, Margot Stanley needs to bring a one hundred year Microsoft Sure they get six point xx per se.
I know what they're doing over there.
So let's just squeeze one more question. And here, Dan Skelley to all the people listening across this nation watching on YouTube, do you quote unquote go to cash here?
We would not, Tom, We would say stay invested. Right, We've been telling folks to be diversified, right, and we've said this.
For over a year.
And initially a year ago I commented Max seven would go from this monolith everything up together to more of a peloton where there's more dispersion within the MAC seven. That's played out, and roughly six to nine months ago we started thinking about broadening out, whether that be value trades within the US or whether that be internationally. So we think there's enough opportunities at the moment not to go to the cat.
I thought you were talking for you and me that it was a peloton trade because we were broadening out. We get a three day weekend report from Surveillance Peloton corresponding Paul Sweeney, how many times are you on the beast this weekend?
Multiple times on the bike and the treadmill, both full service.
This is getting in the beachway right?
Oh yeah, absolutely, yeah, very good. It's just you know, we're there, We're there.
I don't know, it's it's Skelly. Thank you so much. Really important comments there from Morgan Steia had to market research and strategy Morgan Stanley Wealth Management. Stay with us. More from Bloomberg Surveillance coming up after.
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We start strawing this morning over Schmedia joins us with Wrenberg Bank Just fabulous on the Transatlantic tensions of the moment, Holgar, do you see a global disinflation? Is China messed up enough where they export price stability or price decline, which means BUN prices.
Up yields down well on its own. This is exactly what China is, of course doing.
It's dumping the results of its industrial over capacities on global markets.
But there are other forces pointing the other way.
Of course, the US tariffs are not yet fully reflected in US consumer prices.
There is some further upward pressure on US consumer prices to come. Also, many raw materials are telling a very different story, namely that global inflation pressures will stay a little elevated or could rise over time and longer term simply labor shortages on both sides of the Atlantic, and also longer term in China, labor shortages will probably mean, in the end a rebound in wage pressures, perhaps not immediately,
but say next year and thereafter. So I would not bet too much on global disinflation.
Oger.
Here in the US we have a lot of economic data. Last week we received in terms of inflation data, labor market data.
The data suggests that maybe.
The FED can sit idly by and let's say, economy hero along, what do you think this United States, for the Reserve.
Should be doing.
That's exactly what the FED should be doing. There is no reason in the US to cut rates further. Rates are already fairly low, especially against the backdrop of a very expoundary fiscal policy. The US economy is clearly still expanding above its trend rate, which in our of you is now one point five percent the trend rate. But the current pace of growth is above two percent, and well, yes, the labor market does not require further central bank help for the time being, so the FED should stay put.
Our call remains that when the new FED chair comes into an office, the committee may grant him one twenty five basis point rate cut, but thereafter probably vans it for the FED. In terms of cuts.
You're the first one to overtly mention that, I mean, this is a huge deal. Do you think, within your reading of central bank history that when a new guy shows up, what do you call it in golf? Is it like a mulligan?
Is that ye?
Preskice book chairman wors get a mulligan, Holger Schmieding, Well, that's that's possible.
By that the time he comes in, we may see that the labor market is not quite as strong as it was in the January data. You can always argue sort of about twenty five basis points yes or no. So to bet on in our view, one further rate cut to come under the new president makes sense. A boy betting on more rate cuts to come in the US, as many in the market are doing, in our view,
is overdone done. Simply, the US economy does not need a rate cut, and longer term, while the US economy will likely lose momentum next year, longer term inflationary pressure stemming from basically a lack of labor, including the immigration clampdown, should then see to it that there is no further reason for a cut.
Holger.
Almost a year ago, we in response to the tariff issues we saw European economy step up and really talk about spending more on infrastructure, spending more on defense.
Have we actually seen those funds be committed.
Well, you use the right word. We are seeing those funds being committed. That is, we've seen a major search, for instance, in German industrial orders late last year, huge search related largely to defense, similar things and to some extent to infrastructure spending.
We are seeing it in orders. We are not you're really seeing it yet in production. It takes time for companies to ramp up production, but the orders are coming in and on a much smaller scale. Even countries such as Italy, France and the UK are trying to raise their defense spending somewhat. Yes, there is a fiscal stimulus coming.
How do you frame euro holgersh meeting? I mean it gets away from your you know, I mean, I get that Beerenberg Bank's acutely aware of the euro but against the dollar. Are we in for some boldness here of euro movement?
Well, probably not much in the near term. We have serious geopolitic attendance, which tend to be a bit dollar positive. We also do not expect the FAT to deliver as much as many rate cuts as others in the market think, so that's a bit of dollar positive. Having set all that, the European economy last year surprised a little to the upside, and there is come again for the European economy this year to do a little better than last year, not
extremely well, but a little better. Also, there is this long run erosion of global trust in the US, it's institutions and its currency, as we see with this switch of some emerging market central banks out of dollar assets into gold. So longer run, I think the dollar remains on the way down.
I mean, this is if we're gonna hold her about the Swiss franc, the ft Holger right up the Swiss franc. I think that once but twice this weekend. I'm looking at the two church EuroSwiss and also dollars Swissy and the bottom line years there's some huge Swiss strength. What does that signal to our American audience.
Well, that signals a bit of a move to safe havens, and Switzerland is a safe haven seen as very safe, but it's very very small, a bit like goat. A small move into safe havens makes a huge difference to gold, makes a huge difference to the Swiss Frau, but much less of a difference. Say to the US dollar Halger.
Thank you so much. Hugers schmeeting with us with Wareenberg a brief stay with us. More from Bloomberg Surveillance coming up after this.
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Blimmy Caretrel joins US now managing director, head a public policy at Pimco. My basic take, Libby, is everything's rushed. Like in February. We're living what would be a normal may or June before an election year. Am I right out that?
That is right?
Yeah?
Good morning Tom.
Yeah, I mean you're absolutely right. This year is compressed just because of course the midterm elections. I think both the House and the Senate leaders are going to be eager for their members to go back to their districts and states to campaign in advance of November. So our expectation is in many ways this Congress probably will likely
come to kind of its end, you know, near July. Now, of course they'll be back in session in September to fund the government, hopefully fund the government once again for a fiscal year twenty twenty seven. But outside of that, we're not really expecting much legislation, you know, beyond the August or the summer recess.
Libby in one of your recent notes in your Washington Watch note you have entitled was twenty twenty five peak Trump?
What do you mean by that? Yeah?
So, in many ways, this is pretty consistent with other presidential cycles. The first year of an administration, particularly when the party in the White House controls both chambers of Congress, does see its sort of peak presidential power. Congress is usually gives a wide berth to their president to sort of do what they want to do. The courts in this case of Trump, have been sort of slow to
catch up. So in twenty twenty five, like twenty twenty one was for Biden, for President Biden, like in some ways two thousand and nine was for President Obama, we do believe that twenty twenty five was peak Trump in that it was sort of his apex of presidential power. Twenty twenty six and we've already seen some signs of this at the end of twenty twenty five, in the beginning of this year, we think the constraints of both the Congress and the courts will bind this President Mortigan.
This is less of something sort of specific to President Trump, and it's much more indicative of the general political cycle, where you know, members of Congress in particular start pivoting to their own survival and pivot to midterms, and as a result, you know, start pushing back on on their president, even when it's the president of their own party.
Is the Senate at risk? I mean, can the Democrats win the Senate?
From where you sit, Livy, You know, I think if you had asked me several months ago, I would have said absolutely not. Now I still it's still not our base case. We still think that the GOP will control the Senate. But there are some primaries that are going to be quite important. Texas in particular on March third. You know, who wins that on the Republican and Democratic side I think will be you know, we'll sort of
tell whether that state is actually in play. But as you know, Tom, right now, Republicans control the Senate by four seats. Not only would Democrats have to defend seats in Georgia and Michigan. Those are seats that they have right now that of course Trump won in those states, but they would have to win four of six, you know, pretty reddish pinkish states, including North Carolina and Maine, but also Ohio, Texas, Iowa, Alaska. You know, again, they would
have to have a perfect night. I think to take back the House they would have to have a soso night, but in order to take back the Senate, they would have to have a perfect night.
So Lebby, you mentioned the courts here, I guess we're still waiting on Supreme Courts ruling on tariffs A. Are you surprised that it's taken this long? And does that tip your the hand to maybe how they may vote here?
Yeah, I'm gonna I'm going to defer to to the sort of the court experts, which I am not one of. Ian I think, you know, according to those experts, though this timing doesn't seem you know, all that suspicious or or all that much of a tell. I do think that that Roberts is likely trying to, if you know, if this verdict does go against the White House, probably trying to get as much of a majority on that opinion as possible, so that may justify the delay or
what have your explained the delay. I think the bottom line here for markets and what we're telling our clients is that even if the even if the court does rule against the White House, and again just based on the oral arguments, it looks like at least in some form or fashion, they may But this White House still has many other tools that Congress has given them. Maybe not AIPA, which is the law that's you know in jeopardy here, but section one twenty two, section three ZHO
one sort of this number soup of provisions. They can still impose their their tariff agenda.
Let me talked to Peter Navarro last week and he was spirited to say the least be saying, mister doctor Navarro for his appearance, and I got him upset talking about how McKinley, late in his term before his tragic assassination, made what was called the buffalo pivot. Are we in a slow motion buffalo pivot right now? Is a president brings down tariffs? Yeah?
Well, I think they look. I think there's likely some sort of suggestion that you know, some folks in the White House do realize that you know, tariffs on things that the US cannot produce, you know, bananas and coffee for instance, Are you know areas where maybe some tariff relief is necessary. There's of course some reports that there is you know, some tweaking of the steel and aluminum
tariffs as well. So I mean, could we see a bit of a softening on tariffs, sure as sort of again real politique kind of sets in here in advance of the midterms. I think though, however, Tom to underestimate this president and his sincerity and conviction on tariffs is something the markets continue to do, and I think they continue to be on the wrong side of that. This is this is an ideology of course he's had for decades. The president feels a sense of urgency to administer his
trade agenda. And again, even if there is some sort of political expediency that sets in, I think our view is that the markets and the economy are still going to have to digest tariff policy and trade policy risk as long as this president's in the White House.
Libby affordability has become a big issue in this cycle of economic discussion here, and particularly one of the areas is housing, and then the lack of affordability in housing. And I know that the House is expected to pass the Housing for the twenty first Century Act. What does this act and does it have a chance to become law? And how are leaders trying to make housing more affordable?
Yeah, so it does, and it did, and the House and the Senate have now passed their own sort of respective bills. This will now go into what's called the Conference committee, which, as you guys know, is sort of the fancy way of basically saying that the House and the Senate will kind of hammer out their differences in that legislation and then we'll have to go past a unified bill. I do think this will be signed into law. This does the thing show you that both sides of
the aisle are quite worried about this issue. Just politically speaking, of course, housing affordability continues to be one of the big laments among voters on both sides of the aisle. The reality is, however, that at the federal level, they're just you know, few lovers that policymakers can really pull that have a meaningful impact on supply. One thing that we do think that the White House has done and probably will continue to do that could help is for
the GSS to continue to buy mortgages. That's what they've been doing that over the last few months. That has brought down mortgage rates at least incrementally. We continue to expect them to do more of that.
But the key thing I heard there, Libby, is from here to eternity, you don't see any more legislation coming out of the Senate or the House signed by the President.
No, and sorry, I know I do.
We do.
I think the House will.
I think that the President will sign this housing bill into law.
But outside of that.
And then again a funding bill for fiscal year twenty twenty seven, there just may not be very much. I think there's been some hope among market participants or some expectation that the Congress may pass something in advance of the midterms that could boost the economy. We don't think that is the case. We don't think there will be this another reconciliation bill, no more tariff dividends or what
have you, which Congress of course has to authorize. So yeah, I think that's going to be you know, some cats and dogs, Tom, but nothing really significant from a markets personality.
Cancill, thank you so much with Pimco. Stay with us more from Bloomberg Surveillance coming up after this.
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Newspapers, what do you have?
I want to start with Goldman Sachs because it's going to remove DEI criteria for its board members. This is an exclusive in the Wall Street Journal. So last year you'll remember, Goldman Sachs removed a requirement that companies have at least two diverse board members before advising that company ongoing public. So now this is taking it a step further. So it plans to diversify, to remove diversity equity inclusion
criteria from factors considered in identifying potential board members. It's going to be having a shareholder meeting in the spring. So it's doing this change now. And this was really at the request of the conservative activity or activist nonprofit National League and Policy Center, which I didn't realize owns a small stake in Goldman Sacks. But they're not the first ones to do this. City groups, banks. How America did it is?
It was a topic this weekend. What do you think? Was it like an era that's drifting away?
Yep?
It seems like after President Trump, does it just come right back?
Don't I don't know. I don't think so. I think the EI, for whatever reason, just this hads time in the sun.
Next, where do you go?
All right, we're gonna do a hard turn here and go to a New York Post story. Costco transforming the way you can now order your custom cakes because Tom, I know you like to get your custom cakes to Coscod. Yeah, so customers are soon going to be able to place those cake and deli tray orders directly through the company's mobile app and website. How revolutionary is that because prior to this, you had to drive to Costco, take out your pen and fill out a paper form in order
to get your custom cakes. So they're moving into the twenty first century and now you can actually make that order online.
Imagine Costco more digital, more like online savvy. Yeah sure, amazing.
I mean they should they kind of have to. They didn't even say when this is going to happen. They just said later this year, And fans are already taking to social media.
They're very excited about this. Okay, very good, let's still get the hot and I like.
This story a lot. This is something I didn't know. So you learn something new every day with newspapers. In the New York Times, a story about how a President Trump tax break is helping breathe new life into horse racing. So look, horse racing. It's been plagued by cheating scandals, worries about animal safety, but the sportive kings seeing a bit of a renaissance here. Last year, owners spent about one and a half billion on racehorses. That is up
twenty one percent from twenty twenty four. A big reason is a tax break tucked away in President Trump's One Big, Beautiful Bill. It's called a bonus depreciation. That means businesses can immediately deduct the full cost of certain assets like machinery and equipment to enhance their cash flow. So now it applies to racehorses, and it's helping turn these animals into a hot investment for wealthy people.
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