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We get lucky. Jay Hatfield joins us to get us the PPI here in a moment. I mean you're making a moment to moment in your note. You have an optimistic tone on the opening of the Gulf of our MOUs. You're beholden to whatever the headlines are. Like everyone else.
What We've had a non consensus view that the Iranians would not come to the table, just using common sense. I didn't study Iranian studies at Wharton.
But they've been.
Warring with the US for forty seven years, So why all of a sudden, after we killed the top leaders that they go into capitulate. So we actually view this more aggressive move as bullish. We think the Strait's going to have to be reopened by force and it's going to require boots on the ground.
Wow, okay, maybe we're moving there today. You've also got a nine thousand target on the SMP five hundred. That's non consents. How do you get there?
Well, this is not an Internet style. You know aol time warners worth two thousand dollars. All we did is just mark our original forecast to market. So we're in an earnings bubble. And in fact, you have to be on SPX EEO Go Index Go every day because the twenty seven earnings are going up every day, so they're up twelve percent since we started very eight thousand tarks, so we're using twenty three times twenty seven to get to twenty three. You need lower rates, you need the war to end.
And the interpolation that posts of the Dow, which I just did is now sixty one thousand, which is not in anybody's framework. When you say earnings bubble to find what the bubble is, is it not legitimate that the earnings will be there in eighteen months.
No, it's just rising so fast you can't keep tracking it.
It's a bubble that it's just moving, but it could be moving constructively with free caps development.
Absolutely, and we're one hundred percent earnings given. So that's why we're bullish on the market.
I got a time this to get to the PPI. But this is critical, Jay, with your wonderful foundational economics. The heart and soul of this is, for whatever reason, a buoyant nominal GDP which starts with okay revenues at least.
Right, absolutely, although it's important to note that you don't need super strong GDP to get earnings growth. Earnings growth comes from retained earnings and strong return on investment capital. So most analysts are too negative bet earning because they say, oh, well, GDP's only one percent, so it doesn't really require a really reor best economy.
I can't spell it, but Paul Sweeny pression here to say least we were talking about, like, is this the inflation top four point two percent? Select people, including Mic read RBC say no, And there's PPI final demand year over year six point zero, the next month survey six point four and it came into an enjoyable six point five percent. You know, I'm sorry, that's an inflation. It maybe only for one months, but there it is.
How do you view inflation? Here? Is it?
You know, to use a word that people don't like any more, transitory is or something more fundamental out there?
Do you think, well, there's two critical leading indicators of inflation the money supply, which is negative, so we have a very very tight fed and oil prices which are horrendously higher. So not surprisingly it's bleeding through already the PPI that has not fled through to PC core yet, only in airline fares, which is the most obvious, but usually it bleeds through to everything. But surprisingly the pc core was really team because you are seeing some pandemic
inflation come out like insurance. So we're still bullis we're going to get three cuts that as soon as the war ends, PCE should go close to target. And if also we have a competent FED chair now and he does adjust. He doesn't use our numbers. I guess he's not aware of him, but he does trim mean into other adjustments, because if you really look under the hood, PCE is a horrible, horrible measure. They don't use market rates, They impute a lot of rates. Shelter is just ridiculous.
It should not exist. It's six months delayed on purpose, terrible measure of inflation.
Jay's laughing. You can't see the folks on radio and YouTube. You can see that Alanis Moris set irony in his voice there. I mean, come on, Cleveland, the University of Michigan in Kansas City revolutionized how we measure inflation. And there's a select group out there stuck in a time long ago and far away. That's all there is to it.
Absolutely complete, a horrible thing that caused our fed to completely miss the inflation of twenty one.
I mean, Paul, I can't tell you the revolution. It was called Cleveland CPI, and there's gone to many other improvements. A guy named Matt Shapiro at Michigan O the Claudiusum studied, Yeah, among others.
What do you make of a seventy five billion dollar IPL.
Think, Well, we'll see.
Did you get your allocation?
We didn't indicate because we don't pay a lot of commissions, So we get a lot when the deal does poorly and get nine when it does well.
So you got to play the commission, folks. That's the single smartest thing work continue.
But so I think there's three people in the world who know we all work in equity capital markets at Golden Sacks. But our guests is there's more than seventy five billion a musk acolytes and if you look at Tesla, it's about three hundred percent overvalued in our models, and this is only about fifty percent overvalued, so it could double triple and I'll have that Musk premium out there.
Unfortunately, Jay, I have to go to break. We got to get you back in here. S just to talk about what you two know far better than me, which is the body language of a transaction. In Paul, it's about future business, isn't it.
Yeah?
Oh yeah, and it's pain.
You know.
Jay doesn't pay commissions. He's not getting a love he He's.
The loveless Jay Hatfield makes a smarter off inflation. Stay with us. More from Bloomberg Surveillance coming up after this.
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Ian stally sure that he could join us here international had fixed income. Thank you so much for joining us. This is this morning. The newsflow is just nuts. I was actually almost shaking yesterday coming out of the the studio. How do you how do you do a mid year review? Given this madness with difficulty.
Look, there's this huge amounts going on, and actually I think the market's very well behaved.
Yep.
So if you look at everything that it's been thrown at it, whether it's the oil price moves, whether it's now the expectation of central banks possibly hiking rates. Obviously ECB is going to start that process.
Today.
Market's very well behaved. And you know, even though we've seen yields move significantly higher on kind of core fixed income, you're talking thirty five basis points. Also on the ten year treasury. I look at a US agg today, it's flat. Yeah, And that benefit of having that yield that carry you know, steep yeeld curves or upward sloping year curves, maybe not
that steep. It's all beneficial. So actually, the actual overall impact that the market hasn't been as dramatic as maybe was feared come and a first of March when it's all kicked off.
How much credit risk are you taking at there in the marketplace? And well, you can sit there in a US treasure you can get hit a very nice coupon these days, you can do.
But you can get an even nicer coopon Okay, in credit and I think what we've learned over the sort of you know, Q one is that corporates are in pretty good health. You know, corporate fundamentals look great. Everything that when I talk to all of our credit analysts I hear is the corporate America and actually corporates around
the world are in a pretty good spot. So yes, I fully understand that spreads are tight and everyone's looking at that, but I don't see a real risk of a big widening there unless you're talking recession, and again that feels a long way off, even with oil doing what what oil has been doing.
The Federal Reserve, we're going to hear from them next week. I mean, presumably this our US Federal Reserve chair has some pressure to cut rates, but the data is just not there, is it.
No, definitely not. So I think, you know, you saw the move start at the last meeting. They're going to have more of a neutral bias. I think, you know, the labor market is obviously in a better position. I go back and look at where we were in February. The three month run rate for non farm jobs was actually marginally negative. We're now one hundred and eighty eight thousand, and again if you look at them sort of the mosaic of labor data and not everything's pointing, you know, flashing,
flashing green. If you look at the unemployment rate, obviously that's stable. If you look at wage growth, that's not reaccelerating. Some of the small business surveys, tensions to hire aren't looking great. But there's there's no question that we've seen a bit of a looks like we've seen a bit of a pickup. So for me, you know, from a credibility standpoint, I think we've got to be neutral.
Instantly with this international I have a fixed income at JP Morgan this morning, you go into endless meetings. Is there an appetite for bonds with all this issue and the tech thing and you know SpaceX and all that, But is there is there just still in a wall of international money looking for a warm spot and bills, notes and bonds.
I think there is.
You just need to look at the huge amounts of supply that we've had in the US corporate mark.
Exactly this year. It's all been very well observed.
Kelsey Bureau has aged ke never ages no, but you just look at it and we see it from our client base. Everyone wants to own the fixed income market with yields where they are. Everyone's sitting on too much cash at the moment, and we're seeing that flow come in. And I think the market as a whole when I look at the demand for the issuance within the corporate space, the concessions are small, the demand the over subscriptions are elevated. There's phenomenal demand of bonds out there.
This to me is just a huge deal. Is you know, Scarlett Truez talking eight trillion in money market funds and the question to me is like, Okay, do they go to a cash equivalent And the answer is no, they're looking at the Sweeney out there.
Yeah, two percent? You have four point one two percent Europe. What's the fixed income call in Europe these days?
So we've had a big shift in market expectations in Europe. The US is actually is catching up a little bit now. But obviously that the sort of the highlight of where the problem was was Europe UK massive repricing in the front ends very early on in the conflict. I think there's some value to be had there. I think ECV obviously they're going to hike rates today. I'm not sure they're going to be able to hike rates three times
over the next year or so. And I think talks to the Bank of England, they're not that keen on hiking hiking rates.
They see this more.
You know, Yes, it's a near term inflation shop, but it's a tax and an economies that aren't particularly strong at the moment. They haven't got all the good stuff you've got over here when AI tech what's really driving driving the economy? So for me, yes, the market's repriced, but I think there's a bit of an opportunity there.
Harry McGuire, are you kid me? Did he just lose out on the England team because of his age? Is it just that simple?
I think he should be there.
Should he's done enough? Absolutely disgusted?
Is that right?
Religion over there? Right?
I don't.
I mean a lot of people were left off the team. I mean there's a real shock in England, isn't there?
There has been.
I think ultimately you've got a manager that wants the team as a whole to do well rather than individual players. So let's see if that works out.
So what is the expectation in England for your team this year?
I think it's difficult to look away from France in all honesty, but you guys, look, we've got a very good team, you know, on that day, I think they can probably be anyone so pretty excited about it.
I don't even know what the feeling is for the US team, Like, are we what we're getting there? What are the expectations?
We're doing three teams a day. Christmas we'll be talking. It's turned to do are you really just like you over here just to see the World Cup? Is that you know? Did you just bring a deal here with Mary or nose or something here.
To I'm flying home this evening. Unfortunately in our first game is not still next week, so that's not the case.
Get one more in here.
So what are we doing here outside of the US, outside of Europe?
Talk to us about Asia?
What's the call there from your perspective, because I mean, we've hear a lot of concern about energy for that part of the world, given what's going on.
With Yeah, and I think if you think maybe maybe Europe's in the spotlight, Asia is probably even more so in the spotlight from from an energy standpoint, And actually what you had there was very very low yields to start with. Now the central banks have tried to sort of maybe avoid having to move and they're now playing a bit of catch up if you look at what's happened in sort of Indonesia, although there's there's other kind of political ramifications that are going on there, So I
do think that's a more challenging environment for us. Though when I look across other parts of emerging markets, if I look at sort of latter and the Brazils and New Mexico's, well that's where that's where we see the opportunity to get much more attractive nominal yields, much more attractive real yields than you can get over in Asia.
Within the politics of the United Kingdom, I haven't talked to France in like quite a week so and not at the speed on this, but we have a headline here across the Bloomberg out of Queen Victoria's Street in London. The Secretary Heally has resigned from the Starmar government, the Defense Secretary here. I don't want you to do the International Relations Act, that's not appropriate with compliance, but what
is a state of guilt? Does JP Morgan look at the trauma of UK politics in say UK Full Faith and Credit paper is an opportunity here.
I think there is an opportunity with in the guilt market. Ultimately, there is definitely political questions coming up. We're obviously got the by election and ultimately that's probably going to lead to, you know, a possible shift in leadership, and the market's very focused on what that would mean for the guilt market. Ultimately, we're you know, an economy at the moment that has a lot of debt and how will the fiscal rules
be adhered adhere to? But I think what we've heard is that there's not much wiggle room, you know, the UK government is going to have to sort of, you know, all in line with what the markets is is after your guilts do look attractive relative to other core fixed income markets around the world, but there's going to be some volatility as we go through these political headlines.
Your first three games are Croatia, Ghana and Panama.
That's not easy.
Who made the schedule of the king.
Croatia could be a tough game.
Yeah, an interesting opener, YEP.
I agree, I'm watching it.
I think it's gonna be good here. I think are faking this, like.
Still no idea. The level of dumbness here, Yeah, I'd be Christy. I'm a I'm a Tots fan. That's dumb, Dumbiami and Steely, thank you so much for Chicken 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 bloombergs us up, or watch us live on YouTube.
This is my conversation of the day. No question about a Bailey Lipschaltz with this. Senior reporter of Bloomberg News barely describes his competency on the IPO dynamics going on right now. In your wonderful story this morning, there's a single sentence and on the back of it you link open Ai and anthropic in the Wall Street Journal bombshell on pricing of tokens, and you bring that over to rocket ships and Elon Musk. How in God's name do you.
Do that working hard in a lot of coffee, I guess, but I mean, Tom, this is something we've been waiting for. Everyone's been waiting for any of these companies to go public. Anthropics obviously much younger than SpaceX, which is more than two decades old. But this is the moment we've been waiting for, and we're going to see how this actually shakes out today, tomorrow, and through the next few weeks.
The common theme is nobody's making megda desiah Ls's keyword profit where on the xxs.
Is profit for the companies for all of them. Well, so, SpaceX before it merged with Xai elon Musk kind of x Twitter rock component, the company was quite profitable. They dominate launch. They essentially have a space monopoly. Now, analysts aren't expecting free cash flow positivity for a number of years. Anthropic on their latest run rate Bloomberg reported that they
actually are a profitable on a monthly basis. What does that mean for an annual basis TBD And I think open Ai, depending who you talk to, is a much more long term thesis for that company to really turn profitable.
SpaceX we have a fixed price for the IPO. It was one hundred and thirty five. What's the thought here? Are we going to price at that number below it above it?
Our expectation is this price is sticking to it, size is sticking to it. Elon Musk and the team at SpaceX came out and treated it kind of like a private fundraising ground and said we're raising money.
We're raising seventy five billion, Are you in?
Are you out?
One point seven to seven trillion? Show us what you want and that's the expectation. So it's going to be an interesting dynamic how they allocate the shares later today and then what we see with trading tomorrow.
Do we think we're going to have any surprising investors, whether it's a technology company, a list private equity firm, or is it just going to be a run of the middle institutional IPO with some retail component.
I think there's a lot of interest if there is a strategic component, just given the announcements we've seen between the company and anthropic companies, a Google.
For example, might to step in and buy something.
Here at the IPO. Yeah.
Yeah, we saw that with core Weave.
Core Weave's IPO really only happened because Nvidia showed up in huge size and was able to get that deal done because there's such a close partner. So that's just another dynamic track.
Now you've got to report out here today.
From reporting, SpaceX tells investors it has lined up a blue chip credit ratings. Are they going to come to the botmarket after this?
You?
That is the expectation.
One of the things we've been hearing is that there's a view from SpaceX that this is the only equity financing they will do. Everything from now on will be kay. So the expectation in these meetings is we've got ig rating from the three firms.
We're going to tap the debt markets.
We can do that no one else can from an AI perspective. When you look at some of the cell side expectations, hundreds of billions of dollars have to come from somewhere, so seemingly the debt market.
What does the selling start? Like Toby Nangel and the Ft and Isabelle Leave for Bloomberg talked a lot about all the index dynamics and all that like restricted stock and other things. Maybe I understand in July, August, September, are there people out there ready to sell who are insiders?
So they have an interesting lock up structure.
After their second quarter earnings, which realistically could come anytime in July, they'll have a chunk of shares available for
sale from early investors. If the stock meets certain thresholds, that number gets even higher as the time rolls on over that sixty eighty ninety day period, they're going to continue to kind of increase that float incrementally to try to make it so some of these dynamics with the Nasdaq one hundred inclusion, are less rocky, just because we know money will be flowing in fifteen trading days from tomorrow from the Nasdaq one hundred trying to match the buying and selling.
Does Elon have a locked up I can't imagine him every see.
It's locked up for over a year.
But if you buy into the notion that SpaceX and Tesla are going to merge, he is super voting right, So there would be no incentive for Elon Musk if that's the vision to sell.
It totally unfair and then there's no one listening. So it's okay, Bailey, what's going to happen when it trades tomorrow? What's your single guess understanding? You could well be wrong, but what's the Bailey Lipshal's guess on what the stock does?
It goes up?
Wall Street needs this deal to work because of the companies that they want to and need to take public later this year. Wall Street needs this steal to work because the company needs to raise a heck of a lot of money to build out space infrastructure, to build out AI infrastructure. This is a deal that people need to make money on. People need to have trade well day one. The interesting dynamic is this is a deal that was pitched globally. It's going to open. Call it
one or two o'clock on a Friday. If you got allocated in Australia or Japan, you're not pretending unless you're pulling on all nier. This doesn't really impact your until Monday, so who knows what the weekend?
That's right, I have.
Jim Chainos tomorrow and Bloomberg money. I think of Georgia and Noble working with Peter Lynch at FIDELDI. They are to be polite, scathing. How would mister Musk respond to experienced intelligent people going you gotta be kidnaping?
They would He would probably point at Tesla and say, look what I've done with Tesla.
Look to the chart yesterday. The vector on Tesla's up.
This is a company.
Tesla is a company that has been valued at north of one and a half trillion dollars on the expectation that robotaxis and robots are something we all live with in the next five years.
It's not a car company came out.
Carver published yesterday that fifty nine robotaxis are in three cities. That's it.
Fundamentals don't align with this company, and it hasn't with Tesla.
We'll lend it right. There're the smartest thing I've heard of the entire thing. Stay with us. More from Bloomberg Surveillance coming up after this.
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Julia Wilson joins US now principal consumer retail Strategy and why in God's name is the four of The biggest thing going part of your consumer act is beauty. We were talking to Alexis helping here and I said, at the Dinagram table, says Clarence still a big deal and nobody knew what Clarence was. Your world of beauty the money of lotion. It's nuts, right.
It's definitely nuts. It speaks to the summer of experience. And you can never underestimate the American consumer when it comes to spending.
So and skincare fifty six bottles, tip a toad on the sink in the bathroom. How did we get there?
Well, you know, it's interesting who's buying it and who's actually building up that volume. It's not just the teenage younger Alpha generation females are buying it, but you're seeing it expand across all segments and demographics.
So so you mean guys are buying it, dies are buying.
If you look at their their medicine cabinet, it's not the same soap for your hair anymore.
Fragrances, I'm sorry to well, I have sons too, and I know, I.
Know, yeah, we like when my sons were living in home, the axe was all over the place.
Remember acts, Oh they move beyond acts now, I know what are they? What are people doing the summer?
Are people traveling the summer? I'm going to got gas at four dollars and thirty cents. I don't know. I get airline fares going higher? Are traveling this summer.
You know, the US consumer is very similar to the Knicks, and they're very resilient. So there's there's definitely that disconnect that you see with some of the signals. There's a little bit softness in the belly, so to speak, of the US economy, but the consumer is still out there spending.
The way that I think about.
It is we're about to host a really big party.
That's right, and so far what you see.
One of the things that I took away from.
The jobs report yesterday earlier this week was.
That seventy thousand of those jobs are actually related to the you know, the the act of hotel tourism, et cetera. And so people have jobs, they are spending on things that go along with hosting a party, which is putting on makeup, getting closed. You think about the summer spending spree that we had, an apparel was also pretty strong.
So I mean, overall the consumer, How do you see the k shaped economy from your work in terms of how people spend money? How do you guys keep him? How do you guys think about it?
Yeah, so the luxury consumer, you know, if you think about what is luxury but someplace to hold your dream, so to speak. I would see someone yesterday and they use that expression, so, you know, thinking about who do I want to be, and the luxury beauty in particular
is a form of self expression. They're still spending really big on that, and they're spending in areas that you would see it more in the wellness so wellnification of all the different categ wellnification, it's hard to it doesn't come across here to be able.
To come up with these names.
I know that actually came from when I was at the Beauty Independent. That was one of the terms that they came up with. But the US consumer, the luxury in particular, is doing well and they're being really they're still being choiceful about, you know, where do I want to spend, whether it's on neurotoxins or some of these
really big ticket items that are almost experienced based. But then on the case shape there are people where you know, you mentioned the gas crisis, so the average consumer on average was spending about two hundred dollars on gas and they're spending about two hundred and thirty, so it is a much bigger portion of their budget, so to speak,
and they are making those choices. You know, private labels always an area that if you have faith and conviction in that product and you believe in it, you're willing to trade down more easily. But it happens across the demographic segments. So as you think about I might go for a more luxury lip gloss, but then I feel perfectly comfortable with the mass haircare. So you're making those choices in and out of consumer segment.
Julie Wilson with this principle and consumer retail strategy all the beauty stuff out there KPMG. So with KPMG, you go out and talk to companies, what makes them lean forward, What part of your act is where they really lean in and listen.
For us, we're seeing companies really focus or continuing to focus on the three things that they've been focused on over the past two years, which is really portfolio simplification, so as fewer things, fewer things, and really focusing on what they do well. I see ORG design really related to AI. So translated, so if you think about AI is supposed to give companies this whole next level view
of productivity. The way that you actually get that out is by redesigning your workforce it doesn't always mean fewer bodies.
It could mean reshaping, upskilling, et cetera. So thinking about what is the org that's really going to take me into the future so I don't fall behind as the second area and then the last area that we're really seeing is still that cost because of gas prices in particular, and some of the other areas that are either direct inputs or indirect inputs into their supply chain, we're still seeing people cut those AI.
So for your clients, I think we're all and I think I speak for a lot of us, we're all just learning day by day what AI is, what it can do, how we should interact with it. Where do you think your companies are that you talk to at the board level, the c suite level, where are they kind of that whole AI?
I would say it's still a bell shaped curse. So there's some that are leading the pack. There's still a whole bunch that are figuring things out and trying to understand where it could be most impactful, and there's some that are laggards. You know, KPMG, we had some of our leaders talking about the partnership that we did with Anthropic and you just see every next generation that we have is so much smarter. When I started using it, I thought you are a very hard working, but not
the brightest analyst in you know, my team. When I think about what I was using even six months ago, when you start to see what you're doing now, the capability is amazing and you really think about that, the shape, the size and scope and shape of your organizations are totally different.
Yeah.
One final question here. I saw that Mike Ashley is going to buy the rest of Hugo Boss. Are we going to see a big industry roll up? I mean, as the bottom line is after COVID, the luxury trauma blah blah blah, that we're just going to see one ginormous roll up.
Well, I think boards are pushing companies to think bigger. So we're seeing that across the board, but in particular in apparel. When you think about brands and what can I do to give those brands the operational leverage to be you know, affordable in the market, sometimes bigger is better. So you're going to see, you know, where the brand needs to lean in and have their own direct supply chain, where they need to tell their stories slightly differently, they're
going to keep that separate. But when you're going to think about what is it that I could you know, band together, you know, paperboard, some of that secondary in tertiary packaging, those types of areas, you're going to see companies come together to get that scared.
Julie thank is Julie Wilson with a KPMS. You just love heaven or get a huge turnout here to some of the things that we're pouring money into each in every day.
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