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Joining us now Edward YARDNNY for a two hour conversation. I got eight ways to go here. You have a young Turk in the green room with you this morning. Yeah, what's your number one advice to a twenty year twenty two year old kid? Who's my god? I'm sitting next to Edward Yard, Denny, what do you tell the young turks read my books?
I did buy them before you read that, right, You don't.
Have to buy them. They're open to the public, you know. I share the knowledge that I've gained over the years. So in twenty eighteen I wrote a book called predict in the Markets, turned out to be six hundred pages long, about what I learned in the first forty years of my career. Now I'm working in the next four.
What's the maxim that's been most true across the emotion of this bull market that won't go down?
Well, I think it's earnings. I mean, it won't go down because earnings won't go down. I think the reason earnings have been so resident is because the economy has been so resident. You know, it's it's every time we throw something at it, it just hangs in.
There. Are we getting a free launch from a set of stimuli that have goosed revenues to generate their free cash flow?
And I think there's certainly something to be said for that one and a half to two trillion dollar government deficits. Certainly are stimulative, but we've also had a very strong consumer not kind of inconsistent with the so called K economy thesis. I call it the G economy thesis. It's really about the baby boomers that are keeping spending going because they're retiring. They've got eighty nine trillion dollars of retirement as the money.
Lawrence McDonald's talked about it. I mean, it's just there. It's just a wall of money.
And then of course there's the AI capital spending boom, and there's a lot of controversy about whether that's going to pay off or whether it's not. And it's one big bubble that's going to burst. I think it's going to pay off.
So that's kind of where I want to go ed. I mean, you've seen so many cycles, so many major themes in this marketplace, whether it's the Internet or how do you think about AI here? I mean, it seems like a lot of folks are telling us this is bigger than anything we've seen.
Well, that's that's my view. And the way I put in perspective is AI is not a revolution, It's an evolution in the digital revolution. The digital revolution started in the mid nineteen sixties with the IBA mainframes, and the digital revolution is all about processing as much information data as we possibly can, as quickly as we can, as cheaply as we can. And we've made a tremendous amount of progress, growing from the IBM mainframe to be soon as laptops, the cloud, and now AIS. I kind of
I think time will like this. I view us now as having four factors of production land, labor, capital, and data and data. And we never really thought of data as a factor of production. And this ties into my buzz like your theory to infinity and beyond, there will never be a shortage.
Of data, right and Bloomberg, we are at our heart a data nice.
And you're creating more and more data and the world that was so good you get to work tomorrow.
And the analytics around all that data. This is kind of what we do here at Bloomberg.
So what are we doing here?
Ed? I mean, can we feel comfortable with this earnings environment out there to continue to support this market exploit we just came through the last couple of quarters have just been extraordinary for earnings.
Well, let me give you some some lingo on that. I'm a believer that we're better off with a bull market based on FEMO than FOMO. Fomo is fear of missing out, and if people have fear of missing out, that'll affect the pe. You'll get the valuation multiple too high, You'll get a bubble and it's bound to burst. Femo is fabulous earnings moment them, earnings have been absolutely fabulous, and I'd rather have a melt up based on earnings than one on evaluation multiples.
And that's what we have, EDJR. Denny with the Sacks, and we continue. We welcome all of you across America. So if I line up my ten most important dinners across the yark of this privilege of the Bloomberg. One of them was of the Richard Berner years ago, and it was in the vicinity of twenty twelve, fourteen years ago. This is Berner of Morgan Stanley building out that franchise with Stephen Roach and then his public service to the nation, and Dick Berner and I sat there and he was
on fire at yard Denny over the dots. The dots go back to January twenty twelve. I would suggest we had a shift tectonic. Will know in time. Were the dots efficacious? Were they of Vailue?
Well, I'm kind of biased. I'm a Fed watchers. So the more and the more noise they provide for me to try to interpret for people, the better. I like the dot plot. I think it's it's a good insight into where the committee's meeting in the statistic. Yeah, the medium is important, but I think so is the distribution.
To me, the funniest thing about the dot plot is and when you ask them for their long term estimate for the FED funds rate, and this is often called the neutral rate, and you would think that there's some science of the neutral rate at the Fed, but no science at all. They just nineteen of them, tell them, tell us what they think it is, and sometimes the spread is between three and four percent. It's like, you know that, Well, that's really helpful.
I look at where mister Worrish is taking us. Yes, that much power, I mean, chairmany have that much power to shift the dialogue, don't they.
Well, I think the dialogue stays the same, But then how much of it gets communicated to the public is what he seems to be focusing on. I mean, I think the dialogue at the FED is going to actually turn out to be more independent than it had been, you know. But he's actually come around to the old view that a FED chair needs to have a consensus. I mean, he could have been the only dissenter at that meeting, but he wasn't. He joined the committee. Email
comes in, Mike. He's on the parade roots somewhere. Mike, thank you so much for emailing in today. Can you reaffirm your roaring twenties scenario? And where is your SPI statistic right now? Well, I'm looking for the S and P five hundred to get the eight two hundred and fifty by the end of the year and.
Still at the end of this year.
Yeah, yeah, yeah, I mean seventy seven hundred. I mean we're at seventy five hundred, so we're moving the right direction. And there's still several months left. And then by the end of the decade, at the end of twenty twenty nine, I'm you're still using ten thousand, and the Roaring twenty twenties has worked out pretty well here for the first sevent you think, yeah, yeah, I think so. You know, it's getting to be more and more roaring.
Ed Jo Denny, thank you so much for joining us today in historic day with signature at Versailles, Doctor Yard Denny. Look for his spectacular note. Can't say enough about it.
Stay with us.
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Anastasia, welcome to Bloomberg Surveillance, obviously with partners seek as well. Once again, you nailed it by having the courage to stay in the market. I want you to go back and at the bottom of this war one hundred and twenty dollars a barrel, et cetera. How did you know don't go to cash?
Well, I guess it was a tough call to make, or maybe a brave call to make right because a lot of people at the peak were calling for recession probabilities to go up, and there were calls for stressed test scenarios of what if we stayed one hundred and
twenty plus a barrel of crude oil? And I think what we ultimately looked at is, you know, fortunately we went into this largest supply outage with buffers and whether it's the inventories that we had on hand, and we could cover two hundred days worth of net imports, and so that you know, allowed for a lot of cushion that in my view, would have prevented us from going into recession.
And then the other side of that.
Is, you know, we never I don't think really anybody thought that this conflict would drag on for quarters and quarters in years. We know that there's a political time clock, and you know, there's a level of market patients that was going to force a resolution at some point. So I'm glad to see that we are here and it's been a stunning turn around to the price of oil. Tom to your point, from one hundred and twenty to now, you know the forward strip pricing and seventy.
Five dollars average for the back half of the year.
That is a much much better backdrop fortunately for risk assets now.
So I guess investors are probably you know, over the last several days, trying to reset a little bit. And what do we focus on now?
Is it earnings? What do we focus at the Fed?
We heard from the Fed yesterday they're not going to give us any any love there. So what are the market's focusing on these days?
Well, I think it is that interplay between where we are with the state of the economy and where we are with a state of interest rates, and the focus should be on the strength of economic activity first of all, whether you look at the consumer and this continued momentum that we see there, whether you look at the corporations and the great earning season that we just came out of. You know, you look at the upsizing of Varning's estimates for example.
And then there's the Cappec story.
If you look at the last quarters GDP, you know, the kind of the bright object there has actually been the fixed asset investment. The capex is accelerating in the US thanks to hyperscalers, but also others. So that's the economic backdrop. That's why I think you stay in the markets. The other side is the FED. And look my take on that is the markets have interpreted this as in, you know, this is hawkage guidance where we're going to high grates. It's not guidance. As you know, there was
no forward guidance. And I think a lot is going to change in the next few months.
Nasty chamorroso whaus we will continue, whether Edward jar Danny to join, you know a moment futures of fifty five. The vix is surprising. I thought it'd be in it's in a stick seventeen point twenty seven, but it's screaming sixteen handled to me. The Bank of England just does a seven to two vote. Meghan Green, who's spent on the show many times, and Hugh Pill a full time a few Pill times over the years, but Meghan Green in Pill vote against it, looking for a rate increase.
Bank of England stay static, Pound retreats, Guilts retreat and Paul It goes to this idea of a backdrop of fighting inflation, fighting inflation time.
So, Anastasia, one of the issues for this market is AI and we're trying to figure out o've the investors how to play it other than in Vidia, and it's been an ongoing I think play for this marketplace to figure out where do we go, how do we play it?
Are you guys thinking about series?
I mean, look, there's actually so much more to do in both public and private markets beyond Nvidia. You know, first of all, you know, one thing that's happened, Paul is over the last few years, the total adressable market for semiconductors because of AI has expanded. So it's started with GPUs, but now as we know, the total addressable market for CPUs for memberships, all of that is being upside so that trade on its own has broadened out.
You know.
Then you think about the infrastructure, and you know, look, there was the first leg I would say, of the data center opportunity, and you know, there's some concern about maybe we've done too much too fast, but the reality is looking ahead, what's happening is we're transitioning from the use of chatbots, the conversational commerce to the use of
agentic AI and workflow automation. And what that does is it's likely to drive much more token consumption over the next few years and that's going to require a whole lot of compute. So the next phase of the data center build out has to support this move to agentic AI. So we're absolutely looking at data centers. We have several portfolio companies in the space, and you know, they're seeing very strong appetites for their compute capacity.
Partner Group is out of Switzerland. You've got to handle on continental Europe because you have to go over there and speak to people about American exceptionalism. Do they still want to buy American after all we've been through with the president in the war.
Yes, the answer is yes. And look, you know there's been a kind of an evolution there, but absolutely, And I was in Europe recently and look, when you think about Europe, you've got extremely depressed consumer confidence, you have sluggish consumer spending. You have the ECB that hiked rates presumably or arguably they shouldn't have. You know, you don't have the cap X momentum, you don't have the support
of corporate tax rates. And then if you flip all of that around and look at to the United States. We've checked all those boxes. So I think that's why whether in Europe, whether you're Asian Asian investor, you continue to look to the United States, not for the political backdrop that we have, but for the economic backdrop that we have.
What are we doing with emerging markets here, because that's been a play really for the last I don't know, a couple of years. Your merging markets have done very well.
Yeah, I think some parts of emerging markets are quite interesting. And you know, let's let's kind of extend the AI trade to Asia for example, and it was also recently in Asian you know, you look around and sixty or seventy percent of what we need to actually build out AI infrastructure is manufactured right there in Asia, whether it's you know, data center chips where, whether it's servers, you know, whether it's all the components. So so I like emerging
markets that are enabling that tech trade. Then selectively, you know, I wouldn't say that you just invest in all emergent markets, but if you can identify a theme. For example, we have invested in a company in Brazil which is a fintech company, because it's what scaling in fintech is not just a US story.
I don't care when you say you're in Europe, Are you really talking about lining up? And Angelina's on the root of Rivilee for that chocolate. Is that what we're really talking about?
No, I'm not lining up there, but is absolutely easy.
Do we predict that Europe's going to have a huge summer. I'd like some guests coming down, maybe the fair competition and.
Go into parts of Europe.
Parts. What does Kirby do this morning at United? His head must be spinners? Fine, All good, all good, and as as you're anam. Also, thank you so much and congratulations on an important call for the last twelve months, Scuria. Stay with us. More from Bloomberg Surveillance coming up after this.
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Julie bial has been more than patient. We extended that discussion because Sweeny was trying to get pass into the city hall areas from the Comptroller features of sixty eight Nancy Cup and now dancing in further one point six percent. Julie feel's wonderful with a very different perspective with Kane Anderson at Rodney, Julie, how do you deploy new cash this morning?
I think that right now you really have to be if you're in small and MidCap, you really have to be thinking about quality.
The low quality to high quality.
Is kind of a pretty extreme levels right now, and so I think it's a good opportunity to be able to buy nice things for cheap. Normally we don't get to have these things, these opportunities to buy things at better prices, and so that's pretty attractive for us right now.
What did you hear from our new FED chair yesterday and did that change kind of how you're thinking about asset allocation?
I think, you know, it didn't really change very much. I think that what we heard was less.
Which is an interesting dynamic for most of us, as the trend has really been towards more disclosure, more words, more.
Graphs, more charts.
And I think that this kind of austerity of words is probably a positive thing for markets, because I think a lot of that can create a lot of noise, and what really is driving most of the decision making is the data that we can all see. So I think it's an interesting posture. I think reducing the balance sheet is probably a positive thing, particularly if it gives us the opportunity if we do get into a stressful situation in the markets.
To be able to add more liquidity.
So I think I agree, and I'm the hawkish tone really shouldn't be surprising anyone. That was really the movement and direction that we were going in. So I think it's kind of in line with most people's expectations.
Where are you the stocks, bonds, commodities, alternatives, How are you thinking about allocation these days?
I think that when you are looking at a broader portfolio, the balance of it is really important. I think we continue on the equity side to struggle in part because credit looks pretty good. Parts of credit look really good. But I do think that we have to be really mindful of quality, the importance of making sure that you're exposed to businesses that have the really strong cashlows and that can withstand higher interest rates if that should happen.
I think it's pretty important, right.
I wouldn't want to be in a position where we're significantly overlevered. And when we think about the AI trade, now that we've moved past this point where everything was funded with free cash flows, so need to worry. Now there's a lot more debt, Now there's a lot more equity. I think that that creates an important movement towards thinking about fundamentals and earnings, not just growth.
What does the East Coast not get about the world of Julie Bale. I mean, you look out at the West Coast and I think for so many psychologically, it's just really different at Julia. I mean, does this the whole tech thing, Does it just to have a permanence to you? Like you're not worried about a cyclic ending of it? No?
I mean, look I was. I'm French originally, so.
I worry about literally everything that's just that's a lifestyle for me, that's like a personality trade. And I think, actually that's why I've been relatively successful. But no, I think that what I really believe is that the opportunities that we're being presented in AI to me look wonderful. They look really positive, and they look like they can be really profound in terms of the nature and quality of work. But they're complicated and they're not without their
own costs. So while I'm really enthusiastic and excited about AI for the very long term and the potential it has to unlock things in healthcare and all the stuff that they tell us is super important, what is a little bit different about this build out from a Capex standpoint is that what we're building and what we're spending a lot of money on has a depreciation and a utility that's much shorter than things like the big tech you know, the big buildous that we had in telecom,
in railroads, et cetera. That's that creates a little bit of a different dynamic in terms of the pressure to create returns in the here and now, and I think that that's something that's a little bit different than other Capex cycles we've had.
Julie, how about US versus non US? We did have a rotation I don't know, late last year early this year, but it seemed like that's reversed a little bit. How do you think about it?
I think that we saw a lot of valuation opportunities, particularly outside the US.
It had gotten pretty extreme.
How overbought the US looked, and so I think that broadly speaking, things look more in balance to me now where you don't see the depth of the value that is being that we could really find as particularly in Europe, it's not quite as compelling to me now, particularly when you think about the growth opportunities that.
Really feel like they're being unlocked in the US.
But I do think you want to have a certain amount of balance, right because if our economy is over levered to AI, and there is some vulnerability to that, right anytime you're dependent on a single theme. So I think that having a little bit of exposure internationally makes sense because it is a little bit less leverage to certain of the AI themes.
Julie, thank you so much. Julie bial so much. Are you going to be watching France a rock? I mean, is that what we're learning?
Of course? Gotta do it, Gotta do it.
I think it's on Monday. Julie Biale, thank you so much. Respecting France out there, and you can't say enough about her at work on market strategy. Stay with us. More from Bloomberg Surveillance coming up after this.
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Joining us now in an election effort. He's been doing this for a long time. The fifth fourth Controller of New York State. Tom, I want to talk about in America completely removed from politics. What was it? It's seventeen that said to you, I need to run for public office.
Well, you know, I came of age in the late sixties, early seventies, inspired by folks like Robert.
Kennedy, Sr.
And you know, it was a timeer, great division in the country, a lot of issues, social issues, Vietnam War and so on.
Eighteen year old vote just came in actually that I could vote, and.
I said, you know what, I want to be part of making this world a little bit better.
And I was very active in school issues. I went to school board meetings.
I didn't like some of the things I heard, so I said, you know, i'll take my civic pleasensis and.
I'll run for a school board.
And I had that unique experience, Tom of my very first vote was for myself and I won.
So that kind very cool a path.
Yeah, the big change, Tom DiNapoli, and you know, the people running against you and your critics and all that say there's nobody watching over allbody watching over state government. Back then there were tons of media coverage and local coverage, and that now is a dearth of local coverage. Is there scrutiny on our state processes now that you've been doing this for decades?
Well, it's an interesting point.
You know, there's no doubt when you go to the LCA area, the Legislative correspondence area in the state capitol, it's probably got about half of the folks there that they were there when I first started in the State Assembly a number of years ago.
So and you see the coverage just generally.
Shrinking for many of our you know, mainstream newspapers and radio and TV. So more press attention would be helpful. But certainly in terms of our role, our oversight role, the ordered authority overseeing state finances, the controller's tradition continues. So you know, keep in mind we don't have any enforcement power. We don't order the governor of the legislature what to do. We can only comment on state fiscal practices, on debt practices, on spending on covering wasteboard for ud
and abuse. We do that, and of course I always appreciate it when the press pays attention to what we're doing. But I think with everything going on in the world these days, unfortunately, state politics generally does not get attention that it should.
Tom, What do you believe is the key issue for voters to focus in on as they think about the controller?
Well, you know, there are a couple.
I mean, one of the obvious ones is the responsibility of overseeing the state pension fund. That is the fund that is our investment fund to provide retirement security for the one point three million New Yorkers public workers all across the state. And keeping that fund safely secure and keeping politics out of managing the fund, I think is a very important responsibility, I think in terms of audits
and reports and analyzing state spending priorities. Recognizing that we're going through a time of a change relationship between Washington and the states, so particularly a state like New York really starting to feel the effects of the Trump agenda, the significant constant, especially in healthcare, nutrition programs, education, and so on. So having a controller who could help identify what those trends are and how we need to respond
to them, I think is a very important responsibility. And of course, as always, when taxpayer money is being wasted, you want a controller who could point out ways to.
Be more efficient.
And in the worst case where people are stealing public dollars, and that happens too often, we've had a laser focus. Will our investigator unit saving taxpayers money by getting restitution from those who steal from the state. So a lot of important issues this office is involved with.
Can I ask you Bloomberg surveillance question, I think we can go down. We're here with Tom to Napoli. I look at your pension fund and we had some of the others in running for comptroller, and there you know their critic is critical of active and passive management, and that I'm looking at a three months return near ten percent, five year a little bit lower. There was a small matter of COVID, but I got a ten year annualized return three hundred beeps above nominal GDP. My statistic is
eight point nine four percent. Mister Danapoli, maybe you have a better statistic. How are you accomplishing that? How are you getting a nominal GDP plus three hundred basis point return.
We have small professional management of the fund. We have a strong belief in diversification.
As part of our asset allocation, we do a series review every five years. The biggest part of the portfolio is in public equity. Much of that is passively invested through index funds, and then we have a little less than twenty five percent in fixed income. It is in the alternatives in the private markets, you know, real estate, private equity, infrastructure, credit where not completely correlated to what's happening in the public markets.
That we try to have that.
Balance so that even with the volatility that sometimes obviously occurs in the public markets, we could still be steady. I would say one of the things Tom, we have a very conservative assumed rate of return.
So a long term assume rate of return is five point nine percent. Most public pension funds.
Are much higher than that. I think we're one of only three funds that are below six percent. So we're more conservative. So therefore we don't take as much risk to chase a higher kind of return assumption. And I think that's been our strength diversification conservative firm goal and it's worked for us.
Tom.
You mentioned the changing relationship with Washington. Get us a sense of how that's really changed with a second Trump administration from a dollars and cents perspective.
Well, I mean, just looking at the big beautiful, the big ugly, as I would prefer to call it. You know, you're talking about probably the next couple of years thirteen fourteen billion dollars in health care cuts to the meth paid program. That certainly it's a very expensive program, right
been growing part of the state budget. A lot of people depend on that program, so it certainly has an impact on our state finances, particularly because we're trying to figure out how to box stop for those that will lose health insurance coverage. You know, New York State went from oh, a few years ago, about ten percent of our population without health insurance coverage to less than five percent. Now that folks are going to be moved off of MINTIC, some of them will be able to get coverage in
the marketplace, some of them won't. Doesn't mean they're not going to get health care. We'll probably have to pay for it through the charity pools. So you know, these cuts, which you know may at one level sound like we're saving money in the long run is going to cost it so and hurt people as well.
You know.
Time one final question. You know, we talked to Governor Lamon in Connecticut every once in a while, and I would suggest that mister Lamont grew up a little different than mister Danapoli. But both of you are facing this presumed migration out of New York State to Florida, Texas and four other jurisdictions. How does New York State stop the movement to these other areas. What's the DiNapoli formula to keep New York State strong?
Well, it's an important question, and I think you need to keep in mind when we look at the taxpayer migration numbers. You're right, there isn't out migration, but it's not as severe as the critics say. Are we losing some folks at the upper end because of tax policy, Yeah, a bit. What is a bigger issue is the affordability question for people at the middle and lower end. So I think it does get back to, you know, some
big macro national issues that we don't necessarily control. But that's why it's important terms of the controller's role to make sure that we are not wasting any taxpayer money.
Number one.
Number two, many people still want to come to New York and that's where the issues of quality of life, public safety, particularly for folks in the city, access to public transit that's reliable, all of those issues I think become very very important in terms of keeping people here. But when you look at New York City, this is the place where young creative people want to be and I don't think that's changed. So we need to we need to lean into those kinds of strengths.
Time to happily, Thank you so much. Love to get you in the studio here at some point Lexington at fifty ninth Street. Mister Danapoli is the New York State Controller.
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