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This is the money Conversation of the day. Tell me your shows up with Wealth Consulting Group. But it's got a note, a research note with twelve items. Wow, it's Bloomberg Surveillance. Tell we don't have time for twelve items. Of the twelve items that you mentioned, sentiment, policy, fundamentals, which is the one that gloom crew most gets wrong.
I think it's got to be earnings front and center, and I think they're probably more important here Tom than they have been given what was a public data out. And I have to say technology is leading the charge here with the best revenue growth, some of the best margins in the market, and the best earnings growth. And that's why we're willing to pay a higher multiple for these companies.
Well, we were paying to hire multiple for these companies, and that's got a lot of people concerned. Do you believe the underlying cash flow and earnings are there to support these valuations.
One hundred percent. And so I think investors, while this hopes and dreams are well placed for those very reasons. It's all about the quality. And we've talked about this before, Tom. I don't think this is an environment where the Bodie Marcus Kine text is really going to help you. This is the Charles Kindelberger text that you've got to.
Do stuff to explain to Charles kindelbergers.
So the late famous economists who penned the book Mania's Panics and Crashes. And I think that this, if we're right, is the Mania development stage. That's the part of the framework.
But the fear crew Paul in the research notes structural fear, and that crew of legitimate people are worried about the back end of the Charles Kindelberger book, which I'm.
Just googling right now, like the rest of the audience out there. Yeah, talk to us about those earnings again, and what was your takeaway from this earning sego. We're just kind of finishing up here.
So I mean it depends on what provider you look at. We look at all them, fact said is probably top top of mind and not here.
Not at Bloomberg.
Of course I shouldn't say those things, but we also look at Bloomberg as well. We're loyal followers and they're coming in better than expected. And I think that speaks to the analyst bar which is still structurally too low. And so that's why I like to say it's really the fundamental tech dominance that is supporting this market here.
How about this Federal Reserve here?
We had a FED cutting interest rates in the September meeting, but then kind of interjected a little bit of uncertainty to December. Do you care about timing when these rates pets? Are you happy just to say I know my FED is cutting rates? Are that Timing's not as important to me.
It's a good point.
So I am more of a directional guy than a false precisionist, and so I think that's right to expect probably another cut this year.
Of the sixty five.
Percent that are in that camp, I would be among them. And I think what's supporting another cut before we close twenty five is the notion that the labor market is weakening.
Here.
That's part of the margin story guys powering earnings, but also the bond market is telling us the message here fed you got to cut.
How about are there sectors here that screen well for you guys, because a lot of stuff's expensive, a lot of stuff is lagged.
You know.
You look at the four hundred and ninety three names the SMP happened.
There's a lot of laggards there.
Yeah.
So generally we have strategically been of the mind that we'd be shopping the sales in the pro cyclical economy sense of areas of the market, and that's the game plan we're sticking to it. Tech is still at the top of our list, but we also like old economy industrials, materials I think are showing some promise, probably more A twenty twenty sixth story at the stage.
Tell you as you're with us here with Wealth Consulting Group, with just a brilliant note pushing back against the gloom crew. There's beginning a partition. I felt it this weekend, and some of it is the politics of New York City and frankly the nation.
There's people in stock market prospering and everyone else. Do you sense that dichotomy in your practice Wealth Consulting Group?
Absolutely so.
I think it's important Tom to your point to parse through the consumer sentiment data, and once you do that, trend reveals itself and it's really the asset owners, and those are the people we do business with, our clients that have actually been benefiting from this powerful wealth effect and the surge in the stock market. And so I think the best strategy here is to participate in these markets. Even at these levels. We're at the midpoint between our
baseline and uber bolish case of seven thousand. I don't think we're going to stay down here for that much longer. We're probably going to in the year.
In a high note, alternatives alts as the kids call them, hedge funds, private equity, private credit.
How did they fit in with your discussions with your clients.
So we do have liquid alternative strategy that serves as a kind of non correlated bucket to some of the traditional asset classes like stocks and bonds, and they've done their job very well this year, and they include things
like bitcoin and gold and listed infrastructure. We've got an absolute return tracker in there as well, and really powered through the break in the market back in April and have been holding their own And I think it just generally tells the story that diversification is really the only relaunch.
Guys.
All right, Tally, So, I guess the real question here is anything keep you up at night?
Or is this just cracking along here?
Well, it was the government shutdown. But guys, I got to say, these Bloomberg appearances are the lucky charm for markets because here it looks like we're staring at a reopening of the government, and I think we rally into your end.
They just told me I can't take off any more days to the end of the year. We just keep going up. Yep. We protect the copyright of all of our guests. Tally Legieri. I can't say enough about his research note. Look for that from Wealth Consulting Group or he has chief market strategist. 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 Blackrock Amanda Line and gets to start at on a Monday in a really.
Important week as well. I don't read your note. I did a word search, okay, issuers, issuings and all that. I mean, you're so experienced in this before black Rock and at black Rock. Are we going to get a tsunami of billions of dollars of debt being issued?
Good morning, Thank you for having me, I would say, Tom, it's a great question.
It's kind of already in process.
Twenty twenty five is on pace to set the most active year since the pandemic era boom of twenty twenty, which was just off the charts almost two trillion of USIG issuance. I think what's more notable to us outside of the robust headline figure has been the sector composition. We've seen sectors that historically have contributed a lot of issues like healthcare kind of pair back a bit, and tech has been off the charts in terms of jenating a new record, and that's something that's been notable.
We don't talk about it, folks, but it's prodigious Villanova accounting abilities, price, Waterhouse whatever. I don't know what vintage they were. Then you know it's like Ernst and winning the old Nets I go, and then Golden Sex and now with Blackrock. I mean, you're incredibly steeped in this, can you, under Merton Mdigliani, can big tech substitute equity issue ins and equity excitement by putting out debt? How do you treat their debt?
So I think there are two things to consider.
One is a lot of these companies are still in a net cash position, which is important. So they're adding debt to their capital structure, but their leverage is still incredibly low because they have all of this cash on their baland yet the question is why that's left over from the pre twenty seventeen era when cash was generated overseas and then it needed to be taxed to be repatriated back to the US. So there's still some cash
over there, is the point. The second point is that there's a bit of an upper bound to how big these capital structures can get. So in our note, which you know we outline, we estimate that if you look at just like the mag seven X Tesla, so removing autos, there's probably an incremental four hundred billion plus of incremental debt capacity if you just increase the gross leverage by half a turn, really modest, that's a really large number.
But we don't expect that to be utilized because these capital structures we think cannot get that large, and also that deck capacity will just be used gradually over time for strategic opportunities.
This is what surveillance is about, folks. What you just heard. There is a window and do a two pm meeting at Blackrock with fourteen animals in the room and Amanda begins to discuss and everybody takes notes. It's about their ability and this is a Richard Berning word from Morgan Stanley years ago. It's the fact that they can leverage that's on the income statement. They can leverage to greater profits.
There's right plenty of balance sheet capacity, even in some cases within the construct of the current debt rating, which is at the very high end of investment grade, to add debt to the capital structure. Our view is that this reminds me actually a lot of when I covered pharma in two thousand and nine. There was a wave of m and A as pharma combined with biotech and CFOs and treasurers made the conscious decision to take a
couple of notches of downgrade to their debt rating. They stayed comfortably within investment grade, but they added some debt to the capital structure.
It reminds me very much of that.
But what's happening in AI and tech is obviously on a much bigger scale.
Is your market comfortable with the amount of or the use of proceeds here the fund AI?
Because a lot of it's kind of we're not really sure what all this.
Proceeds.
I would say the short answer is yes. You can see that very much in the order books. They're well over subscribed relative to the debt deals. The second point kind of goes back to the pharma biotech experience I was sharing. In some cases, this is a bet on the management team and pharma. It's not unusual to have a thirty or forty year bond sures well after the patent expires. In some cases, companies are betting on drug
discovery that hasn't materialized yet. So in many cases it's a bet on the management team in the industry to figure it out. I think there's still a lot of open questions about who will benefit most, what's the ultimate spending, what's the timeline. But it's very clear that there's a shortage of computing power and there's a lot.
Of needs for this absent to tech names that tech sector how's a credit quality just in the investment grade area these days?
Sure, so half of the IG market is triple B, right, so still really solid credit metrics. Actually, we were talking about kind of all all of the newsflow and what's changed over.
The past few months.
One thing that stayed the same is actually moving selectively down in credit quality has been the right outcome double b's So the high end of high yield have been outperforming the low end of investment grade.
Okay.
Part of that is driven by we think we're past peak tariff uncertainty, we see scope for growth to reaccelerate.
At the end of the day, this is.
Just a growth sensitive assea class, and we also are past the peak head wins on rates, and so we're still pret comfortable with that view.
I want to go back to big tech. Okay, let's pick it. Let's pick a small company like Microsoft. They have tons of ability to issue debt. You see no threat to their build of cash or the fortress balance sheet that they have.
So leaving single names aside, I think there are a couple There are a couple of There are a couple of tail ones at play. One is a bunch of these companies just want to get to a net cash neutral position versus their debt.
Catch it up with Apple Lot.
So that's been in.
Place for a couple of years for some of these big names, and so I would say over time we should expect those cash balances to decline slightly, but they'll still hold larger cash balances I think relative to most sectors.
Just the cash generation warrants it.
The second is is that there is some scope probably for ratings to drift lower, but we're starting from an exceptionally high level double a territory for most of these companies, and so really their cost of capital is not that much more onerous if they took a couple of not just down grades.
Again, I want to emphasize we don't expect that.
Capacity to be used in the near term, selectively and gradually for strategic opportunities for premier mortals out.
There who don't understand leverage and all the other fancy jargon you're giving us. Is next year a year to clip coupons or for total return.
I think it's still to clip the coupons because tom spreads at high yield, for example, still really tight below three hundred basis points. So if we start twenty twenty six. Anywhere in the vicinity where we are now, there's just not a lot of room for spreads to move materially lower, and we don't expect rates to move.
Materially lower either. So it will be about a yield and income story.
From do the beasts like you at black Rock? Do you talk to the full faith and credit people or do you just hate each other across the right?
No, of course, I think the information flow in an environment like this that's so dynamic. I would add our equity colleagues to that afore next day.
I think we we.
I think sharing information is the way to actually have a competitive ad mission.
She nailed That means still it's great. I'm gone them. That was amazing brief, folks. Seriously, folks, an amazing brief there on the MAGS seven debt time build out. Stay with us. More from Bloomberg Surveillance coming up after this.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Apple Coarplay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station Just say, Alexa play Bloomberg eleven thirty joining us.
Now Liverpool corresponding Greg battle with BMP Perry. But let's do this first. Are you kidding me? Man City has been flat out dead and they whooped him three nothing this weekend. What happened?
It was turbulence. We've seen some turbulence in the market and I would consider this pocket of turbulence and not something to read too much into.
What is it like being a Liverpool fan knowing that they like the Red Sox or the Pittsburgh Penguins more than they like Liverpool? Do you feel like this American ownership is like too far away?
It is a little bit of an issue. It is a little bit of an issue. Obviously, we get the World Cup here in next summer, so maybe that will help the americanization of the game and increase the atally.
Ask a question for nine to two nine FM up in Boston. Good morning to Fenway Sports Group. Let's get to a Greg Bottle where us the VMP parabout with an absolutely spectacular note and basically your notes through all your derivative expertise says go along.
Why Well, essentially, what we've seen is this kind of pocket of turbulence the last couple of weeks. Government shut down has been a part of it. Part of it, we think is kind of positioning led that the market got a bit of ahead of itself in September with this kind of real reach for upside, this exuberant rally.
But what we've seen over the last say three or four weeks is a pullback inequities, pick up in volatility at a time when the news flow that we have had, the bottom up news blow has actually.
Been very strong.
Earnings.
We've just been through kind of the vast majority of earnings. Were they good enough for this market? With a good enough for you and your call on this market?
Yeah, I think they were a really good earning season. And you can start with the large cap tech and I think one of the best ways to look at the lens of earnings and distill the information is what did all the analysts do that cover the stocks with next year's numbers? And they took all of those numbers higher. So they digested that news from the calls, from the releases, and they increased their forecast.
Is it too early to do jargon alert? No jargon alert with Greg Bodle BMP Perry bout what in God's name is cleaner positioning? Cleaner positioning?
So we track equity positioning the different various buyers and sellers, and some of those are pretty predictable, particularly some of the systematics strategies. So you have things like CTA is essentially trend following systematics. You have things like Volatility Target portfolios. They target the volatility of a portfolio, and these flows are quite predictable. And what we saw three weeks or so ago is that they were as extended as they have been as long US equities as they have been
in the last five years. So it wasn't necessarily surprising that we saw some selling flows from that pocket get when the market corrected.
Overall, we're in neutral territory.
So our positioning indicator peaked at eighty three three weeks ago. That was a year to date high. It's come back just below fifty. That's neutral territory.
How do you measure short squeeze when there's so much gloom out there? Oops are going the wrong way, they repair the trays and up, up we go with convexity. Can you measure a short squeeze at B and B pair about Yeah.
So we have a particular strand of our indicator that is directed to do specifically that it looks at both the absolute level of short interest in stocks, but also looks at the relative performance the most shorted stocks. And what we saw was that those names massively performed in that squeeze in September. That's been a really what I consider again healthy correction in those names last couple weeks.
Arguably a valuable concern about this market is the concentration risk. And we've been talking about it for two years I would say maybe even longer it does. It seem to necessarily be a problem for SAE at the index level. But how do you guys think about that? Do you try to hedge it a little bit? Do you just let it ride?
I think fundamentally we could be in a cycle where with full to take concentration risk, if you have avoided those relative winners in the early parts of the cycle, it would have been obviously very problematic. So as this kind of structural bull story around AI continues, there is undoubted to be going to be concentration within that industry, and that's invariably going to translate into the market. So I think it's something that we have to learn to live with rather than avoid.
Other than those big tech names that again have performed so well. Are there other sectors that you guys like at this time or is there a factor out there that screams wall.
I guess there's two things that we would look at. One is probably a little bit more medium term. That's looking at the industrials. We think we saw some pretty good earnings from the cyclical sectors this past Q three. We think there is a CAPEC story as we go into next year. If you want something more tactical over the next six weeks, we think the retail sector is one that's interesting to look at.
The lot of headwinds for retail.
There's concerns over the CA shaped economy and what's going on with the consumer. But it's a sector that's underperformed a lot has been quite bombed out and has a lot of catalysts coming up over the next six weeks.
A good bottle with you as Secuity Drive strategy we continue. He's at BMP PERRYBA. This morning, Good morning across the nation. The way you listen to us to get your day your weeks started. Good morning on serious XM Channel one twenty one and a particular good morning to YouTube. Paul and I blown away, the whole team, just blown away by the commitment to YouTube listeners and viewers. It's subscribed to Bloomberg podcasts. It's the best way to do that, Paul,
There you go. Nasdaq down six point three seven percent is a drawdown from the peak the day before Halloween, and we've bounced back. This morning we're up three point twenty seven percent. We haven't made it halfway back, but we're getting.
We're getting there. We're getting there. Derivdi of strategy.
What's the conversation you're having with your clients these days about derivatives? Are they Are they to accentuate risk in the market, to hedge out the risk?
How rest of work are they using derivaives?
I mean people are using them for both those things.
I mean.
Certainly, one of the things which raised a warning flak to us towards the end of September was the fact that we saw this big reach for upside i e. People buying call options as a way to kind of accinuate risks, take more risk. So you certainly saw that in large cap tech where things became very extreme. If you look at a chart of just the trading volumes of call options in the US, it exploded going into
that short term market peak. So that was a sign of a little bit too much for off on exuberance.
And how is it different these days? If at all?
So, I mean the thing which is different is there is a broader range of users, there's more use of derivative products, there are more expiries, more shortter dated options, so there's a ton of volume and risk taken. So it's incredibly important to track that to understand the market.
The people listen to this, particularly people with gray hair, are like, Okay, nineteen eighty seven, we didn't see this coming. Nineteen ninety eight, we didn't see this coming. What's that we didn't see this coming? Right now? What's the Greg Boutel phantom shadowy thing out there? Is it private credit? What is it? Yeah? I think ultimately we don't know.
But I think the obvious elephant in the room is large cap tech and these huge CAPEX numbers. So I think the question that we try and ask a little bit more is where are we in that cycle and what are the right ways start?
Because the mandal linement Blackrock was appallingly optimistic. Now do you feel like the solid and the bond issuance and the equity performance is normative.
I think it points the bond issuance points to us moving to the next stage of that cycle. But to me, if I had to look back in history and look anywhere, I just I see some similarities to nineteen ninety eight where we got a series of FED rate cuts when earnings grown it was pretty strong, we didn't necessarily need it, and that drew an incredibly volatile move higher.
How far out are we? What was a Paul helping march of a one oh yeah, was that when we went off.
A cliff March of two thousand, March.
Of two thousand. How close are your wise one to a march of two thousand? I do want to Liverpool.
So when we look at the risks at the moment, we think the largest risk at the moment is being underinvested. If we do have those kind of bubble type tendency start to emerge. The lessons from the late nineties is that if you were right and you felt there was too much exuberance and there was a crash coming, but you were too early in calling that that was actually worse than worse than not realizing we were in a bubble.
Good Bob, thank you so much for the BNP paragraph. Stay with us. More from Bloomberg Surveillance coming up after this.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on Applecarplay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg eleven thirty.
Maybe she has some diversions, some distractions for us.
Then I tried my very best's okay, we want to talk about the Disney blackout on YouTube TV because yes, Monday Night football has been effected.
Dancing with the Stars.
People want to see these things is okay, and they can't on YouTube TV now because of this. So what they're doing is they're coming up with these clever hacks so that they can still get to watch it. The Wall Street Journal has this breakdown. It says one guy he used an unwound paper clip stuck it in his TV's coaxial port to get a signal. Others are going to target the Best Buy they're going to purchase antennas, they're hooking them up. They're going over school. They really
want to see this programming. Paul, up Comcast Charter and get a cable bill, or you can do that, yes, or you can do that. And then actually, Business Insider are saying that YouTube TV is offering customers a twenty dollars free fund, a credit that they're going to put to the next bill to kind of help out with all this going on.
Can I ask a dumb question Paul reaches back to where we were thirty years ago. Well, they're paying for two million channels, yep, but we're only watching three exactly exactly.
And yet this time though, you can just you can cancel very easily. Just look at your y Yeah, just look at your billy, look at your phone and actually see what I'm subscribing to and just hit disconnect this.
Yeah, but it just goes to show like how frustrated people are.
There's no.
I don't know.
I mean, if your YouTube, your Google, you have no incentive. I mean, you got plenty of cash to wait this thing out.
True? True? You know.
Next, Okay, this one was in the Wall Street Journal. It says you could be seeing less Italian pasta on US store shelves. I know, hold on, hold on, here we go. So Italy's biggest pasta exporters, they say import anti dumping duties. They are totally one hundred and seven percent on their pasta brands. So coming to the US is going to be a little bit too expensive for them, So you might have to deal with, you know, the American brands that you kind of see out there. They
spoke to the CEO at La Moi Sana. His name is Giuseppe Farrow, okay, oh boy, and he said he makes those dozens you know, pasta made from flour from the company's own mill. Like it's it's good quality pasta and it could be missing out on it. Anti dumping probe is actually into Italian pasta makers. It's actually not new. A lot of importers were flooding the US with cheaper pasta,
but the penalties were usually small. But now those penalties are higher, so getting them here is going to cost them a lot more money.
I see at firsthand in my own house with Joe's Deli and spring like NUTRITIONA can't get the chickpeas you had a chickpea problem.
There for a while. No, shit be too expensive for them. Yeah, but they're back, they're back. You fixed it. But it was touching though there for a while.
Yeah, it gets expensive for them with all the tariffs. Okay, and this one is kind of a shift. Okay. So luxury has this new competition from affordable French brands. Okay, I hope I'm pronouncing this right, Sison. Okay, it's become the global go to for these preppy you know, French girls style. They have higher prices and thet's say like Azara,
but lower than those high priced luxury brands. So they cater customers who are willing to pay, like, you know, over three hundred dollars for bag or maybe one hundred and twenty dollars for jeans instead of like three thousand dollars for a designer bag. Luxury, Yes, accessible luxury, that's what it's about, because they're just tyves spending all this money, like ten thousand dollars on a Chanel bag when they
can get more for their money. I know it's taken this long to get to that point, but there's other like brands that are doing it. So there's like Ami Paris, there's Polene, there's Lulu des Sasson. I'm trying my very best, so I'm killing it. But yeah, smart luxury, that's what they're getting to where they're paying for, like the quality clues, not the fashion.
I gotta go to what is dumb luxury luxuries? Hey?
Ten thousand dollars from a bag?
That okay, it's good to know smart luxury in that. Do you have one more quick twenty seconds? I don't. That's nice. There's too much. I'm killing well. Thin gets a week started as well newspapers and Lisa Manteo.
We thank her for the This is the Bloomberg Surveillance podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, seven to ten am Easter and on Bloomberg dot Com, the iHeartRadio app, tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal