Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg Surveillance Podcast. Catch us live weekdays at seven am Eastern on Apple CarPlay or Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Ren Mac or Renaissance Macro does as good a job as anybody worldwide. It blending the two in the back and forth daily grind of following markets and executing market economics. Jeffrey DeGraf is chairman Neil Dudda ahead of economic research, and to have both of them in our studio, Wow, is it real? Treat? How has Renaissance Macro invented? That famous picture of Lehman falling apart? Was Renmac invented right there? It was not. Tom.
I had actually left Lehman Brothers buddy year prior to the demise of Lehman, and I went over to ed Heiman Shops sorry at Isi, because he was creating this kind of Macro juggernaut, and I said I want to be a part of that, and so I was there for four years. He started building it out into more fundamental research and just wasn't something that.
Really appealed to me.
So we pulled the ripcord and started Redmack and had the good fortune of picking up my friend over here, Neil Dutta.
I mean Neil Dunda with all of his work as well full disclosure a couple of years ago, my Economist of the year. We're not going to do like what's a FED going to do? Here? I want to talk for Global Wall Street about the synthesis of research. Jeff, let me start with you, because Dunna is putting out three charts an hour. You and I are technical animals. I mean it goes back to John Maggie and aw Cohen and that what is a trend of the market right now? That overlays on Neil Dutta economics.
Well, I'd say the trend of the market's clearly positive. And I think a lot of that has to do with Neil's call on the FED right which is expecting that the Fed's going to come to the rescue and certainly start to ease. And I think the market's seeing that, and you're seeing that in cyclicality versus a defensive still, which I think is important. The real call for us is going to be in this fourth quarter is do we lose that cyclicality for defensives. If that's the case,
then I think the FED is behind, way behind. And I think that's that's the issue. So far, that's not happening, and we're keeping a bullish posture. But that's certainly on the top of the radio. That is entourage to send me a notes, ask Neil a question. Put a cork into Graph's mouth.
Okay, let's go there.
Right now. You're a big one. You were a mister optimist, and about twelve months ago, eighteen months ago, you said, wait a minute, I'm looking at the tea leaves and I'm cautious into Q four into twenty twenty six, which way do you tilt with optimism or caution?
Caution?
I mean, for me, I think right now we have sort of a housing centered view of the world out and I think what's interesting is, you know, interest rates have been coming down, but you haven't really seen housing demand improve in any meaningful way. And to me, that's that's sort of a yellow flag on the outlook. You know, builders seem to have sort of hit their pivot point on margins, and I think that's going to mean less construction activity. And I think that's going to bleed into employment.
I do. And if you.
Start seeing construction workers, let go in an environment where you're not really creating much jobs growth to begin with, I think that's sort of another potential source of upward pressure on the unemployment rate. So I would, I do think the FED is a little bit behind here. You know, the fact that they're kind of taking a meeting by meeting approach as opposed to just giving guidance into the first half of next year, I think is a little
you know, it's a bit of a mistake. But yeah, I would just say that the housing market is softening, that's going to bleed into the labor markets. That's going to mean weaker real income growth, which kind of challenges consumer spending.
So should the FED be more aggressive than maybe the market's pricing in right now? Should they maybe be a little bit more front end loaded?
I think so.
I mean, I think they, I mean they will go more than the markets expect, I believe. I mean, that's ultimately the whole point, right is like, what do you think what is the market pricing in? That's what our business is, right, what is the market pricing in? And what do you think the likely outcome is going to be right, and you know, the market I think is probably on side for what's going to happen this year.
But if you look at twenty twenty six, it looks like the markets are barely priced for two cuts on sides.
It's the word that data uses year to date, NaSTA comp not the one hunderd eighteen percent. It's going to be a tough year. We're single digit de Graphs pulling his hair out, saying no, get on board. I mean that's what we saw. Continue.
So Jeff, again, as Tom says, there's a lot of crosswinds out there. Let's call it crosswinds, geopolitical issues. We've got domestic issues with tariff policies, and just on and on and on. If the markets are ripping other than the dollar, she's still kind of cautious. What do you make of just as you step back and look at the markets.
Well, you hit a really important point which gets underappreciated, which is there's a global bull market happening. Right, So all the concern about tariffs and I get it, I mean, you know we all know it that just is not is not resonating with markets which are saying there's something else here that's happening, right, and this isn't this isn't just the G seven or even the G twenty.
Look at the frontier markets, they.
Look fabulous, right, right, So I think, you know, to put the narrative on it, we try not to do. We're trying to be purest and how we look at things in the world. Now, I'm a little concerned about gold. We entered bubble territory, but the rest of it looks pretty good to us. So look, I'm in the camp that we get a consolidation. But if Neil's world ends up developing, I think that's extraordinarily bullish for equities because we have not seen, you know, the markets fall apart
when we've got yields coming in. And I think that's one thing when people are talking about bubbles, they miss the idea that, yeah, look, housing bubble yields were going up for a year, dot com yields were going up for nine months. Twenty twenty one yields were going up. Right here, we're actually on the cusp of the potential of yields coming down in what is i'd say a bit of a specuative market, But not nearly anything what we've seen before.
Special treat for Bloomberg surveyans across the nation, around the world on YouTube. Subscribe to Bloomberg Podcast. Jeffrey de Graph, Neil Dudda of Renaissance Macro together in our studios with their remits of economics and following the market. So I'm interviewing Chris Waller in a speech accounts ont foreign relations. I'm going to switch this here. I'm gonna go to you on economics, Jeff ok to create some wonderful tension. There's a single sentence which is Marty's YG one oh one,
don't fight the Fed. I mean, we're really right back to that with a modeled four or five rate cuts from Governor Waller. Yeah, I one hundred percent agree.
And I think you can distill that down to how does discretionary act on a relative basis? And right now, while it's not a lock, discretionary is still in an up trend on a relative basis, and I think that's good news, which.
It says continue to say.
It just says to us that the FED is still playing this game, that they're not behind yet to the point that it's affecting those consumer names.
We go to financial analyst Neil Duttar right now and on the markets here come on nominal GDP, pops right over to it. Somebody at a bartchchart and the zeitgeist in the last two days of the complete misjudge on what GDP and nominal GDP have done. Does that continue to spur revenues and down the income statement?
Well, I don't think nominal GDP is really growing as rapidly as the GDP tracking numbers are are kind of telling us. I mean, I think one rule in business economics is, you know, when there's a big disconnect between GDP and employment, you tend to go at the employment data. Obviously, the fact that you know, total hours worked are barely positive over the last three months, I mean they may
in fact be negative. That would suggest that, you know, GDP growth is probably overstated, and so you know, I tend to put more weight on employment. So but I do think that's an important question for the market, right I mean, obviously the bond market is pricing in a much different nominal growth outlook than equities, and you know, how that reconciles I think will be an important question for next year. And you know, I mean basically, what square is the circle? I think is a productivity boom.
That's really what what?
What?
You know?
What kind of resolves all these tensions I think in the market, because you know, if if let's say the ten year yield is whatever below four percent, if that's the nominal growth outlook, how do you justify the earnings expectations that are embedded in current market pricing? Only productivity makes that happen. And if productivity doesn't show up, then you know, there may be there's some risk equities.
It's all AI. Maybe that's doing it for us. Jeff, what do you make of the dollar here?
We've had it stabilized, but equities that bounce back to all time highs, yields are coming in. The dollars just kind of hanging down here. What does that tell you? Yeah, it doesn't tell us a lot, honestly.
You know, I think there's there's flow data with tariffs and the leverage points that as we still negotiate our ways through this, I think it's important to realize that gold got into a parabolic state, you know, over the last called six weeks as the dollar actually strengthened and certainly firmed right, So you know, there's more to the gold story than it's just the week dollar story. And frankly, one of the things that I like about Gold, I do think that it's going to take a pretty significant
pause here. But I think one of the things that's interesting is that there hasn't been a single narrative. Usually when you get into these bubbles, it's everybody knows what the single narrative is, right, and you can ask the question and I think there's three or four probably correct answers, but it's not the market hasn't decided on one, and that's where you get into trouble usually. So I'm actually still optimistic about that.
Okay, can we go on Narro O'Neil? Is it okay? If I go like nuts to graph right now? You're talking, I mean the micro analysis of his note get us note from Renaissance macrofolks. And you mentioned Gilead silent science. I mean the healthcare I mean healthcare has been an absolute train wreck sector. Yes, How does someone like you, combining fundamentals and particularly technical dynamics, know when to pull the trigger and go long healthcare? How do you do that?
Well, it's a process and so The first thing that we start with, Tom is we look at what we call our SERM standardized excess return, and that's really just a fancy way to say a longer term alpha generation model.
Right now, that word.
We're looking at how much ALPH has been generated for the sector, in this case healthcare over the last three to five years, and if we compare that to the sector since the nineteen sixties, we've got singularly the worst alpha generation we've ever seen, right, and that's I mean, that's capital markets. It's going to result in bankruptcy, is
is going to result in M and A everything else. Okay, So that's the contrarian that unless you believe that these things are going to zero or as a sector which doesn't happen, that's not going to happen. That we wait for momentum. We wait for we wait for trends, we wait for momentum to confirm that. And that's where we lead into it. We did it with China about a year ago. We're doing it with health care now. I mean, this is so important, folks. This goes back to Adheim
and this goes back to John Murphy. The melding of this of Neil Dudda's economics. Jeff deographs, I'm going to call it technical bias, and then over to fundamental analysis.
Is the religion here? Okay, so you're there, but value investing is basically cratered and only does well given down markets. We haven't had a down market, are you? Is you tone at the shop growthiness or is it a value search? No, no, it is.
We will take what the market gives us. I mean we will go with the cart giving you. Right now, the market is giving you growth. It's giving you it's not giving you it's not giving you value. It's giving you beta. But we think beta's actually stretched, and we we actually believe that the market is going to transition from at any price and transition that into momentum. And that'll be an interesting play because it's usually what happened, and that's where you get into the final stages of
a ball market. And we're not there yet.
Neil, you've been talking a lot this morning about labor. How does the change in immigration policy affect kind of the the analysis of the labor market here, because that was a lot of folks coming into this country taking a lot of jobs, and they're not coming in anymore.
I mean, I personally think that's more of a red herring. Honestly.
I mean, to me, it's interesting because we're talking about how break even rates unemployment have come down, meaning what do you need to keep the unemployment rate flat precisely at the time where the unemployment rate has been actually rising a little bit more rapidly than it hasn't, you know, over the last year or so. It's basically you know, had the September data been released, it probably would have been up three months in a row by a ten.
So yeah, I mean, the break even rate has come down, but it hasn't come down enough to keep the unemployment rate from going up in the first place. And you know, that to me is what's important. And if you look at you know, these areas of the economy that are sensitive to immigration, you don't really see upward wage pressure in construction employment and sort of you know, sanitation, these sort of sectors where there's a lot of no scaled work. So I don't know, I mean, I think it's to me,
it's a bit of a red herring. And of course, look at what people are saying about like job finding rates. They're telling you it's getting more difficult to find work. And when when consumers tell you labor markets are getting worse, I think it pays to believe them.
I mean here it is from listeners and viewers as well. So Neil dot I ss At Waller, let me ask of you. Are we so polarized in our John Edwards two Americas that we literally have to operate with a study of to our starts that have and they have nots. Are we that separate now where aggregation of data doesn't work?
Well?
I don't believe so.
I mean I think ultimately, you know, all of these things will kind of net out over time, you know, I mean what you're talking about basically is this sort of K shaped economy, right, like this idea that the upper income I mean, and that's and that's a that's a huge source of pushback that I get in our own client meetings.
Right, throw a tape dispenser, Adam says, shaped. We usually mud wrestle for the shape. Remember V shaped. We got a real treat and it's too short of visit Jeff to graph with this and Neil douta of Renmack. I'm going to go to you, Jeff quickly neel you quickly because Paul wants to get one in before the market opening. Jeff to graph, what's the biggest mistake people make it, particularly the young kid's day trading with technical analysis.
I think they have an illusion of control, selling high, buying low, selling high buying low versus writing the trends.
Well, it's a technical riding the trend trends. What's a technical stochastic failure of all this computer garbage today?
Well, again, it's that illusion of control that you think that you can predict what's going to happen, versus just riding the wave of earnings and everything else.
It's the biggest mistake in our nation's economic analysis right now.
Is that you assume that relationships are stable from one cycle to the next.
One cycle to the next boom. I like that a lot. That's true too, Jeff.
A lot of people have been talking about AI and it's created a bubble in the market, and I don't even know what a bubble is anymore. How do you define a bubble? How do you try to identify a bubble in whatever market you're looking at.
Yeah, it's a great question. It's a very hard thing to quantify. One of the things that we've come up with. It's very simple and it's been very very effective. And I'll leave it for you and you can put it in your back pocket. If an asset doubles in two years, you're in bubble territory. That doesn't mean it's done, but it means that you have to start talking about it as a bubble.
YouTube love here, tom Key, please do a little more often like this with the graph and Dutta, they're loving it.
I got tears to my eyes, they're loving it. A question to Neil Dutta exactly so Nea wanted that they. I think that our federal Reserve is looking at is inflation? Obviously we haven't really seen it.
Are we missing something here?
Or are corporations bearing the brunt of whatever inflation?
The hawks are missing it? Okay, the hawks are missing it.
I mean ultimately, I think, what's you know, we're talking about big budget deficits, tariffs, policy, risk premium, and yet the ten year yield is below four percent? Yeah, so I think that to me, it just basically demonstrates that, you know, a lot of that bad stuff was in
the price. What's not And I mean, what the what the bond market probably has yet to have, you know, meaningfully contend with is some kind of material slow down in the economy, because remember the consensus has been revising up their GDP estimates for the last like five or six months. So you know, to me, that's what's interesting.
I'm not concerned about inflation. I mean, ultimately, I think nominal growth is sluggish, and if you put tariffs on it'll just you know, I mean, force people to go pay more for one thing and then they'll have to cut back on something else to get in before.
The market open. And with Jeff de Graph, that's a great proofot to have him in the studio today. Retail right fear missing out to shut up and buy, and institutions with all their sophistication maybe falling behind. How big is that gap right now between retail success and CTA and hedge funds. OMG, we're not getting it done well.
I think you hear the You hear the the successes of the retail crowd, right, you don't hear the numerous failure. So I think that's really important. Look, we are now and with the help of AI, we are now distinguishing between retail sentiment and the Reddit crowd and the ex crowd and.
What the institutions are saying. Right, So that is a.
Part of our analysis now that we are using is what's happening to the crowd sourcing versus what's happening to the institutions. And that's that's important because that's got that army is a you know, is is real. They've got bayonets and pitchforks, and it's important.
To get twenty seconds. It's too important question. A listener emails in Jeff to graph. Can AI replace Neil Dotta? No, no is a cervict wines. Cervict is unreplaceable. I think I like a tweet that was out there today that said AI will replace bad science and will probably replace bad economics. Neil Dutta. You know I'm snarky there. But AI is it a productivity plus? And are we underestimating America's productivity as we folded into business efficiency?
I don't think so.
I mean, I think right now, AI is probably a productivity suck because because you're spending so much time trying to figure out how to actually integrate it properly into your workflow, and that process is time consuming and keeps you maybe from doing more productive things.
You know, i'd really right right now.
So you know, typically in a productivity boom, you don't tend to see productivity rising alongside the adoption of said technology.
It usually happens after.
So if you think about like the desktop computer that was probably making its way in corporate America sometime in the early nineties, it wasn't really until the late nineties that productivity really took off. So, you know, I think it's not you know, it's I don't think it's actually driving productivity right now.
My first earnings models of pain Webber nineteen eighty six were on pencil and page.
Did you use a slide roll paper? You want to change your estimates? You had to do it?
Think long.
I am my father's koufl and Escer slide roll in my desk at home nineteen forty seven's that's when men were men. That's where men men.
Do you still have your original HP twelve set? I have an Hue twelve C with an Aimer CFA institute. Stick around you too, I have the original one. We're back tonight. I'll be with the CFA. It's such a nerd patrol here. Everyone in your uses in twelve. I'm sorry, sorry, this is never gonna happen again. This level get one more in.
Your from a technical perspective, is anything jumping out of you right now as a screaming buy or maybe a screaming short.
Well, we talked a little bit about healthcare, so I think that's making a turn, right, So you still have to be selective and looking at that without question. And look, we talked about doubling in two years. Gold has done that, right, So I think you have to be very very careful with gold.
You know.
The reason that that's important is you have to you have to start selling into strength. That's not something we tend to do. So we sell into Strengthen we're in a quote unquote gold environment or bubble environment, and that's where we are.
Dennis Garman a note to me two days ago on is golden yen called he is sliding out of gold. He made real clear that enough is enough. Final question to mister data, Neil Dutta, who's the next FED chairman?
This is a loaded one. Well, I don't think it's any of the people that are being discussed right now. And the reason is is because if it was going to be one of those people. They would have already named them by now, so you know, I mean, I think the longer it goes on, the more likely it is, frankly that Secretary Besson. I mean, what do we know
about Treasury Secretary Besson? We know that number one, which is the most important, he has the confidence of the President of the United States, and number two he has the confidence of the financial markets, and those are two pretty good. And number three he probably is interviewing all these people in this thinking to himself like, I'm better than all these guys, you know, I think, I mean, to me, that's sort of my dark horse pick.
Has this been okay? If you guys had fun, it's great? Absolutely? Can we do it again? Yeah? You tell us what twenty seven Concumber, Neil Data, Jeff de Graf. They are Renaissance Macro again. We protect the copyright of all of our guests. You've got to go to rinmac to get the picks. He does the Jeff de graph and the detail of Neil data. Stay with us. More from Bloomberg Surveillance coming up after this.
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Paulstrinian time King time now to get out to a view from sixty thousand feet. David Lebowitz joins us. He is with JP Morgan and just to some wonderful work summarizing what the team does on equities, on alternatives, on fixed income, but also almost what the zeitgeist is right now. And what I love about your note goes this goes back to Williams College, you know, undergraduate. There they handle productivity. Williams Amherson three great rivalry. It is, I mean three ratios.
They are of capital dynam labor dynamics, and this strange thing total factor productivity, which is the innovation that's out there right now. I look at your note. It is basically trying to figure out where the productivity matrix is right now. When you summarize Casmin Frowley, Libovitz, David Kelly, Gabriela Santos, all of JP Morgan people together, what's a consensus somewhere productivity is.
So when we look at what's going on, we recognize that there are some headwinds to growth from the labor side of the equation, but we do think that the response of corporations will be to invest more and boost
that productivity. And so one of the things that we've done over the past couple of years in our long term capital market assumptions is increase that TFP, that total factor productivity estimate to reflect that investment in technology, that adoption in technology that numbers up thirty basis points over the past.
This is really critical, folks. That's what I wanted to get out of the one about being rude and asking point blank. But this is a huge over of what we're all going. Lisa Mateo's going, what is going on? Tom Keen is going what is going on? And the answer is technology, almost in a nineteenth century sense, away from AI. Do you see productivity driving investment exactly?
And so you know, there are a couple of things that I would focus on. One, it's not just about the AI itself, It's about how you apply the AI, and I think that's where some of the headwinds are. I think a lot of industries are still figuring out how to use this technology, but it is going to
change the game. It is going to support growth over the longer term, and importantly, it opens up this channel for more investment, and it allows investors to benefit not only in the big tech names they're doing a lot of the creation of this technology, but also over time, this should broaden out. It should support financials, it should support materials, it should support utilities. This is going to be a rising tide that lifts all ships.
So does this improved productivity outweigh any kind of economic drag or inflationary pressures that might come from tariffs and at just a tighter or lack of a geopolitical smoothness out there.
So I think that there are two kind of counteracting forces, one being economic nationalism, so focusing more on your own backyard. The other being fiscal activism, so having more active government spending. The government spending bit may support inflation, but if you direct that spending in the right way, it could subsequently boost productivity and actually help inflation come down over time.
For us, the big risk is what's going on with respect to migration and the potential growth in the labor force. That's where we think we'll see some inflationary pressure come from. That's where we think we'll see some drag on growth, but hopefully we get enough productivity to effectively offset that.
All right, so let's get right to it.
Where As a global market strategist at the biggest global financial services company in the world, where do you guys see the best opportunity these days?
So we continue to like the US tech story. We think that although the pace of earnings growth is decelerating, we're still looking at absolute numbers that are very attractive, particularly compared to what you can get the rest of the market. We're also thinking more about the rest of the world. You know, something that happened during the pandemic was we went from this environment of almost global austerity in the aftermath of the GFC to an environment where
governments are spending much more aggressively, much more proactively. That's going to help places like Europe. That's going to help the emerging markets. And so we see opportunity in em today, particularly given the strength of the US consumer and the prospect for the FED to ease going forward.
David le moved to this global market strategy. JP Morgan. Now we're sort of taking a high road here in some of the theory wrapped around a many year a multi year bull market as well. Okay, I love what you say about all this, but the bottom line is some of us older remember late ninety four ninety five, this thing called the Internet showed up and everybody figured out network effect in the investment that JP Morgan sees
in technology and in America. Is the network effect still in place for technology companies versus conventional scale economics And the answer is, I think people are way underplaying the network benefits of AI.
I would very much agree. I mean, when I think about the power of this tool, and you know, I've been in this industry for fifteen years, and so when I started, I used to go to the Bureau of Economic Analysis website, download the spreadsheet, type the numbers in, update the charts, update the model, so on, so forth. You can now sit down with a large language model and say, build me something to model distance to default in accel. It'll spit it back in forty five seconds.
That's something that could take hours, and so it freeze up time.
Didn't trip over a value line laying on the floor eight inches thick, and you would wait for Thursday when the next chapter of value line came out. They had they had a logarythmic chart.
That's exactly so, David, you say diversification isn't optional, it's essential.
What's the cfcation for you guys?
So for us, diversification comes in a lot of different ways. I think the biggest thing we've tried to impress upon investors going forward is that diversification doesn't just mean balancing your portfolio between stocks and bonds. It means looking more broadly at things like real assets, things like infrastructure, things like private credit, which can provide uncorrelated income streams relative
to what the sixty forty portfolio has historically provided. And I think if we go back to twenty twenty two, which I know nobody likes one talks about, it's a terrible year for both stocks and bonds. The reason why is that inflation was a problem in our long term capital market assumptions. We're looking for higher inflation volatility. You need assets in your portfolio that can diversify that positive stock bond correlation. And that's going to be alternately.
Backs to Orzach on this Brookings then and always and now Atlizard and Peter and his team said, look, the supply lines are fractured within the pandemic. Don't you put a big asterisk around twenty twenty one and say twenty and just say we can't analyze it because it was a health event.
Well, I mean I think that, yes, pandemics are are in theory very unique and idiosyncratic events. But the follow through from the pandemic, right, those things I talked about earlier, of economic nationalism and physical activism, that is going to drive more inflation volatility over time. And so even if CPI doesn't go to nine, if CPI's gyrating between two and four, that's still going to be more challenging than the world we were in in the aftermath of the GFC.
That's not why you're here. I mean, David Kelly thinks you're here because of JP Morgan. Blah blah blah. Did you study with James McGregor Burns at Williams College?
I a leadership I studied with Professor McAllister, who was one of his disciples, his disciples.
Yeah, well, I had a great relationship with Burns up at Williams, and I've actually had the honor of attending his gravesite. But tell us about the leadership structure of politics and philosophy at Williams. It's absolutely best in class the side of the Atlanta.
So when I think about what's going on from a philosophical and a political science angle and try to overlay leadership, you know, we always talked about kind of transformational leaders people who rose to the occasion. They stepped up to the plate and dealt with with what they were being presented, rather than trying to shape the future based on their own agenda. And I think what we need to see frankly is going back to the former rather than the latter.
I think politics, regardless of where you look around the world, is all about very narrow agendas that people are trying to push forward. We need to take a look around at the world, look at the investment, look at the potential for productivity growth, and say how do we maximize this? Because if we can have the rising tide lift all boats at the end of the day, that makes everybody better off. And that's the whole point of leadership. When all of a sudden does.
I can't do better than that? No. David Leader rights with this Williams College and of course JP Morgan investment Management in a new building. He's in the new building.
Yes, he is.
My word is the food as good as they say, A pretty awesome.
It's it's kind of like Hotel California.
You know you can do you go home?
No, you don't have to. It's great.
You can just bring your kids. It gives to work.
They're coming for Halloween next week.
So yeah, they all dresses James Diamond.
Yeah, we're not not this year. My older one is going to be free to CALLO and my younger one is going to be ursuless.
Jacky Mary. That would work. It's free to callos.
She came on her own.
That is so Williams College, Are you please? Who are the girls going? As in the Lisa Mantalehouse el viral.
This is that the teen years they get those like little two skimpy students has.
Been a heart attack. Yeah, that's how they were. David do get a life, Taylor Swift, It goes David Liba. Bit's with JP Morgan. Stay with us. More from Bloomberg Surveillance coming up after this.
You're listening to the Bloomberg Surveillance podcast. Catch us live weekday afternoons from seven to ten am Eastern Listen on Applecarplay and Android Otto with the Bloomberg Business app or watch US Live on YouTube.
Joining us down Cameron Dawson of New Edge here. She has been brilliant on participating in the equity market. You say earnings the season we're into now and into next week's tech extravaganza is the catalyst to break out of a range. So many disagree with that.
Yeah, well, earnings have been the key reason why this market has been so very resilient. If you're revising up earnings estimates, it does something really powerful because not only are you increasing your estimates for profits, but you're also providing the environment to be able to expand multiples. Multiples go up when you are revising estimates higher.
They tend to go down when you're.
Cutting estimates, which just means that as long as we're in a world where people still need to ratchet up their numbers, it means that you can be in this world where valuation can levitate at high levels.
Oh, Walmart, it's gone from forty to forty two. It's a multiple expand multiple expandi mark exactly forty two. So, Cameron, what do you make of this earning season so far? It seems like the numbers once again, just like the second quarter coming in well above expectation.
Yeah, we've seen eighty six percent of companies beat earnings expectations. That's pretty much in line with average.
That's very normal.
You have a lowered bar going into earning season, and then you jump over that lowered bar. But we see very strong results across the board, and that's not something that surprises us. What is very interesting is some of the reactions to strong results, which just means that you're not necessarily seeing big upside moves even though you're seeing beats and raises, which just suggests that maybe some of those multiples did get to a point where they can't push much higher.
Very good.
I mean, I'm looking at the bond market here.
We've got ten year treasury yields below four percent? Here, what is the bond market.
Telling us here?
This is very pecure because given all of the strong narratives that we have about US economic growth, look at Lanta fed GDP now being at three point nine percent. You have talked about all this AI capex and great earnings, and yet and yet the tenure is below four percent. So the big question we have is the tenure sending as a signal that we should be more concerned about equitying credit the tenure pricing and maybe a more dire
economic scenario. Or is the tenure falling because of things that could actually be beneficial to equitying credits, such as expectations for quantitative easing or expectations of inflation remaining contained big question?
This is really brilliant. This is the word I use, folks, ambiguity, where it can cut this way or that way. John Writing is brilliant about this over at Brain in terms of the economics. Explain the ten year yield ambiguity or almost mystery and what it means for someone looking at their four oh one case saying should I go further?
Cameron Dawson long Well, I believe it is a Bloomberg tagline that says context changes everything.
I think you're back here.
I think that the context of why the tenure is falling is so very important. If you have a tenure falling because you're pricing in a bad economic scenario, that implies lower earnings, lower valuations within risk assets, which implies
a risk off move. But if the tenure is falling because you have a very aggressive FED, that's going to be buying up a lot of bonds on the long end, or you have this ability where the Treasury is not having to issue as much, then that can actually be an environment where lower yields is still good for risk asset tursts.
And slack moments ago. It's like you wrote it for you. Thank you listening for listening to Cameron Dawson towardston over at Apollo. The US is truly anigue thirty percent of the global stock market, almost fifty percent nownball yep. And it's just amazing, And that kind of goes to where I want to go. Concentration risk.
It's been something we've been talking about for more than a year now, it seems like, but it doesn't seem to be a problem for the market per se. But we've been all raised and all educated that we need to have a broadening breath at the market.
Well, if we go back in history, the two past peaks of concentration were during the nifty to fifty time at the end of the sixties as well as at the peak of the tech bubble in the late nineties. And what happened after both of those periods were effectively lost decades of returns for equities and last decades do happen. However, the challenge you have is it's the timing, because if you try to bet against concentration, being early is the equivalent of being wrong.
So what we think we need to have is a catalyst as to.
Why that concentration unwinds, and for us, that catalyst is Earning's growth of the MAC seven.
I'm going to go back middle of pandemic use of cash. I've seen two surprises for me because I'm not informed. I was shocked at the GM General Motors share buyback, and I saw a chart of the American Express AXP share buyback. Are we underplaying now? With all our worries in the geopolitical copity, are we underplaying just simple dividend growth and share buyback.
Share buybacks are at a record this year in twenty twenty five, despite all of the uncertainty of believe, they're up about sixteen percent on a year over year basis. Companies are still having plenty of capital to put to work. I think the one incremental change is that what happened with these tech names is that they used to just buy back their stock. Now they're investing a lot in very heavy infrastructure.
One quick more question here. You're all over the country talking to investors, retail and institutional. What's the mood out there? Is there a Dawson exuberance? I mean, your people out of control.
I just got back from Boston at an academic slash institutional investor conference, and the takeaway from that is that everybody seems to agree that the world is changing, but nobody knows what to do about it.
Me and that camp, I mean, the answer is they're going to adjust. I'm sorry You've been consistent about that time. Even right on that one.
The smart guys at MIT our companals suggest companies and consumers adjust.
You know, we have to work from home.
Okay?
Does Zaslov have a job? January first? He's got a big payday, no matter what happens. That's the battle of mine. That's the smartest thing I've hearded this morning is we'll talk about media here in a big Kim Dawson, thank you so much, greatly, appreciate it. A new edge this morning. Stay with us. More from Bloomberg Surveillance coming up after this.
You're listening to the Bloomberg Surveillance podcast. Catch us Live weekday afternoons from seven to ten am Eastern Listen on Applecarplay and Android Auto with the Bloomberg Business app, or watch us live on YouTube.
Let's get right to it. Every second counts. The newspapers would.
List all right, let's start with this one. This was in the Bloomberg terminal. Wall Street bonuses expected to hit a high this year. Okay, we all know, right, big banks, they've been pulling in the profits, storing stocks more deal,
how much are we talking. Well, you have this annual report from New York State Control and Thomas and Napoli, and it showed that profits at one hundred and thirty firms that belong to the New York Soak Exchange will they reached thirty point four billion dollars in the first half of the year. It's going to hit the highest level on record if that same pace continues, which means
higher bonuses. So you have compensation expenses. They increased by almost ten percent in the first half of twenty twenty five from the prior year.
And the tax take, Paul is extraordinary. Oh yeah, I mean it really changes the fiscal.
Of the city, of the entire city, I mean global on the Wall Street and particularly here in New York City, such a big contributor to the tax.
Base of the city. So good news there, all right, What else we got here?
Okay, so this is up here rally herereet, we got Warner Brothers Discovery, right, all right, They're already mixed off three offers from Paramount's Guide Dance, including one that its chief executive David Zaslav, had a role in running the combined company.
So this is in the.
Wall Street Journal. They say they actually gave them the opportunit to serve with David Ellison as co chairman co CEO of the combined companies. They turned it down again, so that they turn it down three times already. They tried to keep increasing the price has not worked yet, Warner Brothers Discovery said they've gotten offer.
I think money, Tom, I think you're right in my opinion. I think it's simply a bad share price. I don't think David Zaslov really cares for whether he has a role or not in the new company. But this is to value these assets. It's it's not gonna start with it too, let's put it that way.
Well, okay, but is the value that cop like I think they have I Love Lucy? Is the value the rights to I Love Lucy? Or is it value to make the next Warner Brothers movie, which they've been on a tearn.
It's all the above, plus it's cost synergies. The cost synergies are going to be real or yes, it's gonna be real. Unfortunately, it's gonna be jobs in Hollywood. But that's one of the big reasons why Paramount could pay a higher price.
Arguably, you say, is gonna get paid no matter what, He's gonna get paid.
Just the romance that they want the studios. I mean, you know, you know, this is survival mode. This is survival mode.
Tom. If you're Paramount, you probably cannot survive, much less thrive in this new world if you don't get bigger.
It has to do a deal. I remember the d I remember the day Warner Brothers was taken out.
I mean, this is this asset's changed hands starting with me back in two thousand when we advised AOL to buy Time Warner. That assets changed hands, you know, half a dozen times in the last twenty five years.
Next, okay, this next one. I don't know if you've ever seen those scams. Sometimes you might get them on your text. Sometimes you get them on your.
Email, and they seem to come more and more.
Right, Yeah, my mom called the other She's like, I got a text that just says hello, don't respond, Like I get those all the time. Shut you don't know the number. So it's really become a thing. Americans have lost billions of dollars city scams. So the New York Times really has a good look into how this all happens. Say they're led by groups in Southeast Asia. They really dove into it. They say a lot of the scam centers rely on forced labor, and they do a couple
things so they target victims. They basically win their trust over on social media on places like let's say, Facebook, WhatsApp, Telegram, so they start kind of winning them over. Sometimes they pose as a financial advisor and then they ask people
to invest in this fake crypto you know fund. Or they use romance scams and they target divorce sees and widows, or maybe they they call people on the phone and saying that their bank representatives and they ask for their account or a pin number, social security mind.
It's crazy.
I am shocked whenever I'm out in public and I hear somebody answer their cell phone by saying hello. Have you ever answered your cell phone unless you don't know who's calling you? I mean, I don't even acknowledge any I don't know.
I miss a lot of calls. And to be perfectly honest, when they need me at Bloomberg, they have to call missus King. Yeah, I don't. That's why God made voicemail.
I don't pick up my So you're not just ignoring me.
About it, but be aware of that. We'll come back to this. This is not going away, Lisa Manteo, the newspapers.
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