Bloomberg Audio Studios, Podcasts, radio News. This is the Bloomberg Surveillance Podcast. I'm Tom Keene along with Paul Sweeney. Join us each day for insight from the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten am
Eastern from our global headquarters in New York City. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen and always I'm Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business App. Joining us now for three hour conversation. Tina Fordham with Fordham Global Insights. Last time she's on, It's a blur, Folks. She was like, absolutely outstanding, Tana. I don't even know where to begin this morning, but
let's begin. And I had the honor of talking to Ethan Browner this morning, and I know David Gerro Folks is working on a big take. Tina Fordham on the state of Israel. I go back to the assassination of Izak Rabin to look at a new more angry Israel. How angry is Israel? This morning with these two assassination murders, deaths.
The assassinations of the Hamas official, the political leader of Hamas in Tehran where he was attending the inauguration of the new Iranian president, was a very bold step and signal for Israel to take. And then was it yesterday or it's just as you said, a blur another assassination in Beirut. Does Israel want to expand the war or as some have suggested, is Israel is Nata Naho taking these bold steps so that he can claim victory and end the war. I am not an optimist on this though, Tom all.
Right, Tina, So that kind of brings you to I think one of the questions today, certainly from a lot of viewers, is I thought we were maybe on a path to some type of peace negotiations and then out of the blue, it seems these two high profile assassinations. Where do you think the Israeli government is these really people are? In terms of next steps.
I think we've got to look at this and the Venezuela developments in Ukraine for that matter, in the context of our elections coming up in November. Last week, Natagna, who had what fore standing ovations. In his address to Congress, he visited Trump and mar A Lago. The Harris juggernaut is continuing. Could it be the Netza Yahu feels that he's got a window, very narrow window to accomplish some goals and take out more of the Hamas leadership, or does he want to drag the United States into war.
I'm more inclined to the former that he the idea of having a narrow window to accomplish some big strategic objectives.
All right, so Tina, let's go down to Venezuela here. Can you put into context what's happening down there and what do you think will eventually kind of fall out from all of this.
So, after many many efforts in the past, it had looked like the opposition in Venezuela was ready to, you know, to take power in an election. They were pulling with a huge lead, something like plus thirty points, you know, such a margin that it would be difficult they thought to have these election results falsified. What's happened Maduro, who's been in power for thirteen years since the death of Hugo Chavez, who was popularly elected for his part, has
falsified the results. Either that or he's just taking a long time to count them. Because it's been three days. About a dozen protesters have been killed, huge crowds in the streets, and the Organization of American States has said that Maduro's response bears all the hallmarks of a falsified election. So it's not too you know, it's not too late for a democratic transition, but it might get worse before it gets better.
Let's stay on this. I just don't want to jump there's so much news, Latina. I had a spin in here on a you know, almost into August summer morning on Venezuela Tina. Do you detect in the American Latin American foreign policy? Does Washington have a Latin policy?
Well, we haven't heard from the Biden administration, and you know, I return you to that idea of a of a narrow window. And I think I said on the last program, one of my you know, Fordham geopolitical raisers, that governments
can only concentrate on one thing at a time. I think eventually we'll hear something from from the State Department and the Biden administration, but so far we've heard from you know, from from Lula in Brazil being cautious from from Borwich in Chule, but Russia and Iran and the United States are also linked on this one. The last thing the Kremlin wants or Tehran wants to see is a successful popular democratic transition.
So, Tina, as Tom's mentioned, there's a million ways to go here, and I apologize for jumping all around. But while we have you, what's the latest coming out of Ukraine and it seems like a little bit momentum going back to Russia.
Any updated thoughts to how this plays out?
Yeah, this is the danger zone summer. I think yesterday Russia launched its sort of biggest drone attack on Ukraine for some months. It's also the height of the summer fighting season, and I'm arguing that the period between now and November and maybe until Inauguration Day in January next year is going to see an uptick in geopolitical risk. And that matters for your listeners because they're all watching the FED. Conflicts are inflationary and this is the time you know to go for it.
Hugely valuable, Tina Fordham, thank you so much for Global advisors. Really can't say forda global insight. Emily Rowland saying why am I here? She's a Johnnie a Cock and a major victory lab for Hancock, who have said quality big, stay with it. So I see the hysteria over Microsoft yesterday. I'm looking at the four accounting statements. I don't have every answer, but Jesus looked at pretty goods up sixteen percent, right.
Absolutely, and the guidance was really strong too. Heading into twenty twenty five. And you look at earnings for tech companies this quarter, they're tracking to me up about eighteen percent.
You're o rear, I'll take it.
Meanwhile, you look at this massive rotation into small cap stocks, those.
Earnings are down eighteen percent. Well get it.
Paul's got any questions because he's got a triple as in video holding. But let me get one more in here, Emily. What I see is we're trying to figure out our new discounted cash flow. And the answer is with Microsoft, nobody's looking out seven years. What are they doing now? And as Nodella nailed yesterday, what are we doing next year? Maybe what we're doing twenty six is the perspective.
Yeah, that's right. I mean, it's show me the money kind of period right now. For tech companies, and again the earnings are there. Yes, it's a multi year process to fully monetize the investment that many of these companies are making an AI, but we're going to get there. A lot was in the price, the valuations were extended. It doesn't surprise me that there's a little bit of profit taking in tech right now. But we remain overweight and we think it's a healthy little mini correction here. Again,
as there was a lot in the price. It's an overowned part of the market.
And we'll be Okay, what do you make of this?
I guess what is really a rotation into some of these small cap sectors, just maybe some sectors that were maybe underloved here, what do you make of this rotation.
Plut It's been really interesting.
Small caps, as measured by the S and P six hundred are now up about ten percent on the month YEAP, while the S and P five hundred is flat, and if you look under the hood, it's all been driven from multiple expansion. The entire ten percent is p E expansion. And so I have like a little checklist for small caps what are some of the things that could be kind of supporting them?
And I think about inflation.
Well, we've seen two consecutive months of low inflation reading, so that doesn't make sense.
Maybe some changes in earnings trends we just.
Talked about that that's not happening. Maybe a shift in the macro backdrop. Nope, we're still in a late cycle environment. Maybe the bond market still pricing in two cuts. So nothing's really changed except maybe one thing, which is the odds of a Trump presidency have increased over the course of the month. So I think there's a sentiment driven rally that's politically driven around potential outcomes regarding the election that's causing sentiment to soar.
We would fade it.
Wells Thomas just mentioned the news flow is so heavy, we're barely touched on the fact that we've got a FED meeting today and we're going to hear from Chairman j Pal.
Again.
You mentioned the market's pricing in a couple of cuts this year. Is that enough for this market or how do you view the FED and what do you want to hear today?
Yeah, it's whether or not Power is going to commit or whether he's going to keep playing the field if you will, So, is he going to commit to the September cut or is he going to wait until there's even more evidence?
So, like the red Sox with the trading deadline.
You knew you were going to go to the red sox at the Fed. Yeah, so it's real. That's what it's about right now.
It's like, is Powell going to tell us with more certainty that he's confident that inflation is decelerating, that are more cracks in the labor mark market? September is a done deal? We think it should be. You know, the Fed funds rates at five and a half percent, core pcees at two point six percent. You're seeing again more and more evidence that deflation is presenting itself. But you know how how hawkish or dubbish is that message going to come across.
The backdrop of this? And Paul and I have been waiting for the Sweeney's nailed. This is the two years coming in to four decimal points, the nominal ten years breaking down four point one two nine seven. I'm going to sell that as a four to twelve handle and the real yield elegantly comes in now a one eighty seven handle. What does that yield breakdown and fixed in come mean for the stock market.
Yeah, it's interesting.
You know, markets are still reacting and fairly positive way to lower bondylds. So there's still a kind of bad news for the economy is good news for market scenario, and there markets are still kind of sunning themselves on
soft landing island right now. You know, you talk about vacation time, that's what it feels like because we have this kind of slow down in the economy that's not super slow, and there's nothing sinister that looks like is happening right now, So the Fed can do this kind of like I kind of think of it as like
a nice guy cut starting in September, just because they can. Now, if you think that the Fed we can have this soft landing, that's fine, but you're kind of betting against the odds in a way because there's really only ever been one example of these kind of preemptive cuts, which was in the mid nineteen nineties. So we want to think about any backup in bond yield is an opportunity to lean in and lock in this elevated yield because we don't think bonds are priced for an economic contraction.
So there's a nice opportunity there to get paid income.
While you wait.
Yeah, absolutely, so how much I mean again, on the two year treasury four point three five percent? Do I sit there and be quite comfortable or do I take some credit risk here?
Yeah, we're underweight credit within fixed income just because there's really no risk being priced in. High yield bond spreads are at three hundred and six basis.
Points this morning.
That is well below the twenty year average of five hundred basis points, so there's not much being priced in. We looked at some data when we've been at spreads this tight. The forward looking returns are about flat on a twelve month basis. There's just not a lot to say about the return opportunity based on the fundamentals there.
Why did the red Sox not pick up ges Chisholm and you're wired in it old and new, John Hancock.
So the biggest mistake I made coming in here today, I studied everything from the Fed to the BOJ to the earnings.
I have my number one.
I forgot to study baseball, and that was the biggest mistake that I made.
This regard to this is the trade deadlines over its exciting and the Yankees won four in a row. Against Philadelphia our conversation of the day on this tech frenzy. Aniragrana joins us from Chicago. Microsoft down seven percent now down three point four at percent. I found anerog the hysteria out on Twitter yesterday over a little bit of a miss and Azure, and then I see I think from amy hood that on Microsoft eight percent of capax
is AI type. Does the public understand all of their capax is not going into artificial intelligence?
It may not be directly tied to it, but at the end of the day, they have to increase cloud capacity for those workloads, even if it's not directly tied. Think about it this way. You have to digitize your processes. You have to upgrade to the cloud because without that you won't be able to run some of those workloads or analytics on top of it.
So anurrag what's the street?
Give us a sense of what the street's really thinking about Microsoft and the cloud and AI and Microsoft's position. Is the street generally confident that Microsoft is in a good position, maybe or maybe faces some risks.
Yeah, I think from an analyst community point of view, we have a very good understanding of what's happening at Microsoft. Sometimes what happens is you have momentum investors who get in and they want an nvideo like wa are coming out of Microsoft. Now, that's not going to happen because for Microsoft it's a long journey. It's not going to be certainly somebody is going to buy so many chips and your revenue gets a boost. They have to build capacity.
Then people are going to build workloads on it. And that's exactly what Microsoft explained yesterday that they will increase their capax and the second half of their fiscal year you will see an improvement in the cloud growth rate, and I think that pacified a lot of investors. Stock was down seven eight nine percent, but it's only down two and a half three percent at this point.
What else are you looking for when when you see a Microsoft number cross the tape Aside from kind of this AI angle, I.
Think this so far the biggest contribution for AI has been coming from open AI relationship and the workloads that are going on it. We really want to see how AI gets infused in other products across the Microsoft portfolio. We already know, you know a product like gethub copilot or office copilot, but we really need to see stronger adoption numbers from there, because down the road that's going to be the key bread and butter for Microsoft, and perhaps not so much directly coming from Open AI.
Can we go to Meta? I mean, I guess metas we're not really on your watch, Enterog, but lump it any here with the knowledge you want to receive from Meta this afternoon.
I think it's going to be a combination of capital expenditures and what they are doing for their AI and large language models as well as their ad revenue. I think this you can extend this discussion to not just Meta, but also on Amazon on Thursday, because even they will come out and say they are increasing the capital expenditures. But I think everybody really needs to recognize this thing.
The capex expansion is happening now and the revenue will follow, and there is going to be a lag and mismatch between the two. You know, you could say capital outlays.
So that kind of goes to the issue.
I mean, part of the weakness that we've seen in Magnifson seven over the past month or so on AAQ has been that question you just raised about Okay, we get all the spending for AI but what's the ROI on that. How do you answer that question from investors?
I think a lot of I said long term value investors would understand that you have to build the capacity to recognize that revenue growth. In addition to what you said about CAPEX, I think there is another factor that people are looking at a possible interest rate cut and what the impact of that would have on the small cap universe. We recently did a study where we saw the gap between the large cap valuation of technology and software companies is so much wider than the small caps.
And the problem with the small caps is because of the economic slowdown, they have not seen that big AI bump that the big guys have.
Rana, thank you so much for joining us. The news flow today just incredible. Right now, we're gonna get a brief from the best in Washington. Nancy Cook joins us to say she's our District of Columbia reporter. Doesn't give her due credit for following the election. Grand Nancy, when you saw the Bloomberg Morning consult pole, you know there's forty other polls coming out. What's different about this poll than the others? Now and in the future.
Well, thank you so much for having me. I think what is different and new is that this is one of the first polls that we have seen from swing states since Vice President Kamala Harris became the presumptive Democratic nominee. And it's just really crucial because it shows that she has really closed the gap with former President Donald Trump in these swing states. It shows us that she is getting a lot of enthusiasm from Sorburban, women, young people, black people.
Go ahead.
Well, the criticism of the poll was it, when you go out and you poll people, you know, you get who you get. And typically polls I believe are more Democrats than Republicans and then they adjust for that. Do you have confidence in the polls, and I mean not only the Bloomberg Morning Consult poll but the whole racket of forty five sixty polls that we have in America.
Well, I think polls have been really tricky, and you know, you raise a great point. I mean, they were certainly you know, have been wrong in the past. I think that what you can look at is that, you know, the New York Times in Siana College also did a poll last week showing, you know, Vice President Harris gaining gownd on Trump. And so while I wouldn't put stock in any individual poll, I think that you know that you can draw some trend lines based on the totality
of what you were seeing. I think that we saw former President Donald Trump be super dominant the first half of this year, and I think that what we're seeing now, based on our poll but also other polls that have come out recently, is that Harris is going to give him, I think, much more of a run for his money than Biden did.
Is any sense to is there any ability to get a sense of whether this is just kind of the honeymoon peria euphoria driving these numbers, or whether there's something deeper there.
Well, I think that we won't know that until after the Democratic National Convention, which is in a few weeks. You know, there's certainly a honeymoon period. I think Democrats are wildly enthusiastic about her candidacy, but you know, she hasn't been under a ton of scrutiny yet, she hasn't picked a running mate. You know, she has started to do some campaign events, but she's not on the campaign trail day in and day out, or being asked questions.
So I feel like you know how that plays in September is really an open question.
So what is I guess that who is really supporting this strength in Harris? Do we have demographics that really stand out to you?
Sure?
So.
A bunch of the demographics that have stood out to me from our poll is that she is picking up a lot of support with young voters who were very turned off by you know, Biden's handling what was happening in Israel and Gaza. She is turning out or a lot of people who are suburban women are expressing enthusiasm
for her. The Trump people have had a very hard time winning those folks over, and then the True team was really hoping to make inroads with young black men in particular, and what we're seeing as black voters are very abused by her candidacy, and so those are all ways in which she could sort of rebuild the Democratic coalition.
I saw Nancy that she amended something to do with oil production. I can't remember in the last couple of days because she's got to win Wisconsin or you know, oil in Pennsylvania. The details don't matter. But what matters here is does a pro like you suggest she will be a venn diagram with Biden policy, not of one hundred percent, but will she be like eighty percent Biden policy? Can you quantify that?
So it's still that's a great question, Tom. I think it's still really early to tell. What I have been told from her advisors is that she's not, for instance, going to come out with like a whole new economic agenda or a whole new economic policy. So in that sense, it's going to be like, you know, sort of keeping and talking about a lot of the Biden policies. But I think she is going to emphasize different things.
Hey, Nancy, is there a feeling in DC about what role, if any President Biden will play in VP Harris's campaign.
I think he's playing very little role. I mean, he's at the White House, you know, he's still president, obviously serving out his time, and I think he and his people are intensely focused on his legacy and getting through the next six months. But I don't think he's going to play a huge role.
Any early feel as too.
I guess the next big move for the Harris ticket is the vice president role. Here is there any feeling as to when and who it might be?
So we had a published his story on Saturday that said that her short list had really been pared down to you know, a few people, Senator Mark Kelly of Arizona, Governor Tim Walls of Minnesota, and Governor Josh Shapiro Pennsylvania. I think those are the people that her team is most focused on, and I think that we'll have a pick by Tuesday of next week. She's going to do a big swing through a bunch of the battleground states like Pennsylvania and Nevada, and she's going to have her
running mete with her. So it's going to come in the next few days.
Nancy, we got to do some economic data. Thank you, Thank you, Nancy Cook for leadership in our coverage of this election. It gets more interesting by the day that This is the Bloomberg Surveillance podcast, bringing you the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten am Eastern from our global headquarters in
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