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For those of you out there, this is the most important conversation of the day on the hysteria of the moment. I want to do a major shout out to the coalescing that Zero Hedge does, including publishing Bloomberg, Simon White in London and publishing Michael Ball, who's with us often here. Amy wu Silverman joins us here for the key conversation for Global Wall Street. I'm short gloom Oops, I'm wrong. There's a short squeeze, and I think people get that
that you're wrong. You cover the short and the market goes up, and then it shifts to option animals like you, and you're going to go I want to go long and the firm you're dealing with must buy the stock. Are firms now forced to buy the stock because of a gamma bid? And that's why we're going up.
I think we're actually tom starting to anticipate it. But right now, what we're seeing happening is the beginning of the chase, and oftentimes when we get that beginning of the chase, that is a secondary effect of it. I think we're actually even earlier in terms of the positioning. So it's been this spot up volatility up market, right, you know, which is kind of the opposite of what
we would expect, really big bid to call options. And then I think even down the line, we might get the mechanics of the gamma squeeze, not the short squeeze, which is why I think there is still some continuation to this momentum.
Amy.
All I really know about your business at derivatives is hedge when you can not when you have to what are your clients doing today? Are they buying risk? Are they buying protection? What are they doing?
Yeah, you know, I wouldn't be a proper derivative strategist if I didn't say that old tagline, because you know, a few weeks ago, when everyone was complaining to us about how expensive protection was, here's your sale right here. We're in the bargain basement now for those put options. But certainly that's the issue when the FOMO kind of meets investor base. They don't want to hear that, but the reality is your cost of protection has really come down.
You are starting to see folks deploy it a little bit longer term because there's still things we just don't know. We don't know how these these ceasefire talks are going to go. We don't know how the inflation mechanism is going to work its way through the system with an energy shock. And so look, if I could say one thing, it's that hedges on the downside are a lot less. And so if you were complaining to me a few weeks ago, then maybe look at the pricing.
So I mean, the simple way I measure volatility in the equity market is the VIX, and boy it's spiked up to like north of thirty, but here we are below twenty. I mean, what does that tell you?
You know, it's funny. A few weeks ago, I was on the road with my pal Laurie Calvsina and we're nastee so she's a joke, she's my work wife, and you know, we were out seeing a lot of clients. And if you remember a few weeks ago, like things were gloomy, that's when the VIX was spiking, and I have to tell you a lot of ministers were back then really constructive even with everything going on. And I do think there's been this kind of we've learned to
look through geopolitics. We've just learned. We've looked at the twenty twenty two playbook, we've looked at all the other playbooks for geopolitics, and we just say we're going to look through it. And that's what the VIX is kind of telling you. You know that the VIX is saying, we're just looking through this and we're moving on.
I want you to talk to our listeners and viewers who have ETFs. They're in four to oh one k's, they have not reallocated their four oh one k since Nixon was president. They're a completely different market from Amy wou Silverman. How big is your market? Trsten Slock has hedges on eight percent of treasuries this morning and its Apollo note. How big are the CTA is? How big are the hedge funds? How big is Dan Low or mister Ackman.
You know, I think it's important if you're sitting there in most of what you do is very long term and an ETF. The reality is You're probably fine, but it's important to know the mechanics of what these things are doing. They are pushing things around short term and then in some cases you know, if you will, the retail crowd is the one who's doing the pushing, whether that is an options or starting to be in prediction markets.
Robin Hood is pushing this line.
One hundred percent. And I can guarantee you ever since kind of the meme craze, there's been reason to do it. You get they know about the Gama squeeze. This isn't kind of the feel of just institutional investors anymore. And that's one of the most fascinating things that's happened in our market in the last five years.
Looking at your notes, Amen, and you say that on your desk, you've seen a dynamic called spot up vol up. So as the market rises, volatility is rising too. I thought it was supposed to be the opposite.
It is one hundred percent supposed to be the opposite. But now it's happened so much that I don't even know if I can say that. I'd say one thing to keep in mind as it relates back to your question on the VIX is because spot can go up while VOLA is going up. Sometimes you might actually get a higher VIX number, but it's while the market is rallying, and so that's a little odd. And we have to remember a lot of times that goes back to this demand from call options.
Futures up twenty eight now futures of four zero forty. The headline here this from Axius Mike Allen and the team over to Axius us ORN talks expected in Islamabad, Pakistan, likely on Sunday. It's definitely none of the market, no question about it. Okay, can I do an audible? Yeah, let it go. Okay. Janet Lauren out with a great look at endowments across all the different schools, and I'm sorry, Princeton basically came in last place here, the last like
single digit return. What would you do? How would you use derivative strategies in a boring college endowment?
Well, you know, it's funny. As a proud Princetonian, we've actually we've actually heard this on the finance side. My understanding is a lot of endowments actually had some money on the private side, and it's a little kind of you know, less transparent and I'd say the public equities, and that shift has been what has been making the dowments that happen to stop it.
It's fancy people playing d one field hockey who said we're not going to own Microsoft, Amy Wu Silverman right now, help Princeton and everyone else. Do you buy the mag seven here?
I actually think you do, And then I think QQQ the vaultity looks relatively inexpensive too, And I think, especially as you get these IPOs down the line, your anthropics, your SpaceX's is going to be really interesting from how much fomo and momentum that creates, which again gets us into that favorite spot up vola.
Have you ever heard of this Polish chan?
Sure?
Calvaccina's not this Polish exactly, Amy.
So on the RBC Capital Market's Derivatives desk, what's a typical plan for you guys? Is it a hedge fund or is it a long lonely thing. Who's typical?
Yeah, I would say it depends on the region. And but it's an institutional client, so it's a good mix. It's hedge funds, it's asset managers, it's pensions. And what I really enjoy about that is we get a good look at how these people who you know, they're either moving at a glacial speed or at very quick speed,
how they're all thinking about the market. And then you know, back so I had mentioned earlier with Lori, we saw a good mix a few weeks ago and the amount of constructive, very optimistic outlook was was very shocking to be back then.
Amy Silberan, thank you so much for joining us. Love what you're doing. The Royal Bank, I'm sorry, Royal Bank of Canada. Do you have Canadians tickets? They're opening in Tampa? Can you get me Jermys tom RBC is on the jersey of the Montreal Canadians. Can you get me tickets for Les Abidean?
You know, after us, I'll talk to my compliance officers.
Really do clients on that? From New York City, Bloomberg Surveillance Stay with us. More from Bloomberg Surveillance coming up after this.
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We should get some Transatlantic perspective Yeah, the stereotype in America right now is Europeans don't want to come to America and Americans are looking at energy prices in tickets to France or UK and saying we're not going to do it in this war is a transatlantic dialogue? Busted?
It's a good question. I think Europe still matters. Europe still matters to the US and two other major economies, and it is very important to include it in the dialogue. And also when you look at the resilience of supply chain, when you look at not just a tourism destination.
I want to get this in before Paul's got really better questions. Yell, how can this? Yell? And I don't want to get you in trouble at KPMG. The President on a daily basis is going after the Prime Minister. Can you explain to our American audience how the King and Queen can visit America if the president's trashing on the Prime minister on a daily basis.
Okay, Well, I am an economists. I'm going to try and do it from an economist perspective. Yeah, I'd say you need to look at things from a long term perspective. What are the fundamentals, the structural themes, rather than the cycle, the economic cycle. Yeah, and ultimately the relationships that you have between the US and the UK in terms of not just the business community, but also we share language, we share history, we share very strong business connections, and
we share very strong security connections as well. So I think that probably goes beyond any short term vulnerabilities or volatilities, if you like, in the political relationship between different heads of states.
So, yeah, talk to us about the impact across Europe from this war in Iran. The energy shock is impacting different parts of the world in different ways. Talk to us about how it's impacting broadly across Europe.
So for Europe, but the first impact is essentially an energy price shock, and as well as some of the commodities, which is actually quite similar in some ways to the twenty twenty two shocks that we had when Russia invaded Ukraine. So you have higher energy costs, you also have higher costs of certain food items and fertilizers and certain commodities. And what it means is that we've already seen inflation. We've got the March prints that's already higher. We're expecting
more of that to come. On the one hand, the other hand, we're seeing much tighter financial conditions, with markets going ahead of the central banks and expecting central banks to high CRIDs potentially by more than what they would actually do, causing very tight financial conditions.
Do you, and this is your work at LSE, I think we can use currency a litmus paper. Do you see a general constraint to the economy and strong euro like if it pops off one twenty or dare I say stronger euro than that? Does that gum up the economic works of the system over there?
I mean, I'm less worried about the strength of the Europe to some degree. I mean, especially if that means that the Euro becomes more of an international currency in that sense that it is used more. I think that some advantages. There's other economies, like for example, Switzerland, where we've seen the Swiss frank going up significantly. We're a sually more damage in the short and medium term.
Yeah.
Here in the US, we've had a very resilient consumer propping up this economy time and time again. Talk to us about how the consumer is doing across across Europe these days.
Sure, I mean Europe as you know, is a medical of different economies, and there's a different a different mobile in Germany. But I'd say if you compare it to thes generally it is weaker. We had some strong spots, especially in Italy and Spain for some time, driven by a stronger.
Labor market.
But overall, the other thing that we've seen in Europe is higher saving and the more i'd say almost permanent new tern of higher propensity to save, an that is putting download pressure on consumer spending above the confidence issue that we encounter everyone.
YEA, thank you so much for your perspective today. Love to get you into our studios next time you're in York in New York, please please come in. Yell Selfrom with his vice chair Chief Economist KPMG the United Kingdom. Stay with us. More from Bloomberg Surveillance coming up after this.
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You need to look ahead into the tech earning season, look ahead into the late spring, and of course across all of this twenty twenty six, no one better to do that. And Darryl current president Wills Fargo Investment Institute, he survives V. Body at Boston. You were you in class with Professor Body? I was, well, he was one of my first supporters. He called me up and said, you know where'd you get the act and all that tell us about finance was V. Body.
Phenomenal mind right and believed in the quantitative way to approach the topic day in and day out. So's he's the He's the right person to fundamentally learn the trade from.
Then you're a kid and you think you know all the answers and boys wed Wells Farga, you apply this each and every day. I'm going to go audible here. I got eighteen questions, Paul's got twelve, and we don't have a time. But my number one question now is a sophomoric idea that big tech bond issue INCE is somehow a negative thing. You and I studied Merton and Medigliani, yous V. Body, and the answer is one portion of that bond issue Ince is a huge plus plus plus to the company.
Right absolutely, I mean in the capital stack, being able to go up in quality, right, and and look, those balance sheets in the tech world are right, plenty of cash on them. Credit quality is good. They just keep charging ahead and they're using that cash wisely. I think if you look at what we call shareholder yield, which is dividends plus share buybox together, tech leads at about five and a half percent right there with its financials.
My book of the summer book of the year ages ago. You just heard it from Darryl Krok William Priest shareholder yield. I'll get it out on Twitter and linked today. It is the Bible and it's short. Paul, you could pop it off of that. You know, you could do the vest but of the coffee shop and pop that off in three moments.
When train ride home talk to us about earnings, Darrey mentioned, we're just kind of getting into the teeth of it right now. What do we need to see? What does this market need to see in this earning cycle? Because it's a lot of companies could probably fall back and say, listen, there's a war out there. We don't know what's going on with our business. What do you think the companies what we need to see?
Well, you absolutely need to see. To be candid and direct.
They don't care that much about this quarter and what's actually reported. We know it's going to be good, right. The quarter is going to be up thirteen percent on Q one. Forward twelve month earnings are going to be up seventeen to eighteen percent, which is unheard of. This is the sixth straight quarter in a row we've had double digit earnings growth, right, So it's all about forward guidance. It's all about what they say out into Q two
and Q three. That's what's going to separate the winners from the losers here as we go.
And remember we.
Got big banks and financials. Between financials and tech, they're forty six percent of the market cap of the SMP so.
They matter, right.
What they do is going to drive where we go.
Down Towards the end of last year, we had a rotation out of some of those tech names, higher growth, higher value rotation, maybe a little bit of a broadening out looking for some value, maybe smaller mid cap stocks. But boy, we've seen the tech stocks come ripping back here this month. How do you think about that allocation?
So we actually got a little lucky here to be Candidabaul so we downgraded Tech on October thirtieth last year. We just upgraded it again two weeks ago on April sixth. From that October thirty ath through April six it basically effectively traded sideways to your point, right, in the last two weeks, it's up eleven percent, right, And we funded it with energy because at the moment when we did that trade on April six oil was still at one hundred and five hundred and ten dollars a barrel. Energy
socks were clear up. So energy is down about six percent since that time. So from a pairs trade, boy, you know, positive tech minus energy has just been really accreative to the portfolio.
To what extent are you concerned about maybe some impacts on the economic growth inflation stemming from what might be higher for longer energy prices.
Yeah, I think that's I mean, look, the equity market to me is a reaction function right now, and it's a reaction function to oil prices.
Right.
We see it every day up down or to Tom's earlier point, and then and then where interest rates go. I think interestrates are the most underappreciated thing here. The tenure at four point thirty, like at four point thirty needs to be higher. Right, Remember the old rule of thumb that the ten year should equal nominal GDP, Right, I mean the years if you go back years ago, well, nominal GDPs easily got a five in front of it.
Right.
I think the ten year and the long side of the old curve, because of inflation premiums because of growth, dams has to go higher. When it does, it causes them indigestion.
So I want to call that the pos and Rzegg theory. They suggest it was simplifying that the way we will drive price down yield up is a surprising productivity and wage growth does wells Fargo. Can you be optimistic given our inflation, that we're going to see a genuine positive real wage growth and a nominal wage growth that affects yields like that? Yes?
I mean simple answer is we saw it already. Even the Iran you know Israel US conflict hasn't dented that. You know, we were going to run this economy hot coming into the beginning of March, and part of that was getting getting by wage growth.
Deal. Crocker this wells far I can't say enough about his underlying academics and trying to get a belief construct going on ownership of equity markets and particularly those of you that are not participating, how to get courage. Okay, so let's go back to v You've got, you know, dividend discount model. You've got the Gordon growth model as well, and never, never, never talked about is the oddity of big tech residual income model. They don't have a dividend,
there's nothing to count. Maybe there's some teensweens dividend growth, so you have to summ in all their cash flows and the oddities of it. That's right, how do you account Let's take Microsoft just as the talking point, it's an earnings juggernaut. Correct, Do we price that in at a twenty one multiple or is it just way way more valuable than what we're saying right now.
The latter, it's way more valuable than what we see now, right. I mean, obviously Microsoft's got indented with the software SaaS apocalypse thing.
But when you look at.
Them, yes, you're right, You've got to value them on that free cash flow generation and they're just a machine along with a lot of the other tech companies. The reality is, to me, tech is a free lunch. And you don't get this in Wall Street very often. But if I'm paying a market multiple twenty to twenty one times, which is exactly for tech today, which is exactly where the market is, the SMP's at twenty one times, but I'm getting double the earnings growth. I'm getting thirty five
percent earnings growth versus seventeen percent earnings growth. I'll take that all day long. Like that's a free lunch, right, It's a free option basically on that. So the valuations I don't think are even remotely stretched here at twenty twenty one times on tech, that's what I'm paying for the market.
Paul, one more quickly, bond market.
What are we doing here in the bond market? Are we taking credit risk here?
No, you stay up on credit quality. I don't think you're getting compensated on spreads wide enough. On high yield. It doesn't make sense here. I mean, if the economy runs hot, you'll be okay down the credit stack in hyold, But it's not going to be any big trade that's.
Going to make you a lot of money. Dividend growth model. This is a toothpaste company. Will leave the name out of it. To two point five percent yield, The dividend five year growth rate is three point four percent puny single digit yield, and the ten year total return per year is a whopping four point two four percent. You go, that's what you get looking at statics. Statics.
That's why you got to look at the shareholder yield, right, which is the total capital return to sholders through buybacks, through dividends, everything.
I'll get Bill Priest out here, so well, maybe I'll find his v Bode textbook as well. This has been brilliant, Daryl Krack, thank you so much with wells and stay with us. More from Bloomberg Surveillance coming up after this.
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Another view in the equity markets, we're setting up for Friday and the look ahead into April and May. Mark las Sheena joins us, Jenny Montgomery, Scott Mark. What do you do with double digit earnings growth in a war? Interesting?
Just the position, but you stay long because, as we know, typically Marcus discount well in advance at the end of the war, typically fairly early on in the guns going off, And so as a consequence, I think we've already seen what appears to be that the bottom here, and investors are looking forward and through the end of the escalation.
Not so much that we've necessarily seen a complete precision of the risk associated with a renewed flare up in the Iranian crisis, but at the same time, I think we've seen peak escalation.
So talk to us about the rotation markers. We had a rotation out of tech late last year, but now now it seems like the rotations are going back into tech and tech adjacent companies here. How do you guys think about that?
Yeah, it's actually pretty remarkable how quickly this rally up eleven percent plus from the bottom that we had here just a few weeks ago has not only been somewhat impetuous in terms of its strength, which is remarkable, you know, usurping the previous high that we had put in at in late January, But the fact is you've seen this massive rotation out of those late cycle industrials, materials, even the defensive sectors like utilities, real estate and back into
those tech and tech adjacent companies, and they've renewed their leadership status, which I think is justified given the fact that the selloff that we had had was really felt most bruntly by some of those big cap tech and tech adjacent companies, And as a consequence of that, and really without significant diminution in terms of their earnings expectations, they've actually become relatively cheap. When you look at tech on a peg ratio basis, it's the cheapest of the
eleven gig sector. So I think investors basically rewhetted their appetites for some of these tech stocks that were beaten down and offered pretty good upside potential, particularly in the semi space, even though at the same time we're seeing a counter trend rally developed in earnest in some of the software names that have been actually slayed.
So, what's screening well for you guys right now? Mark to the extent you can look past this war, assuming it's going to be shorter rather than longer. Here, what's screening well for you guys?
Well, A couple of things.
One, you know, with the economy itself continues to motor along at a pretty heavy pace. I mean, in spite of the fact that we're still waiting for data that may accumulate showing some evidence of some deterioration and growth as a consequence of elevated energy prices. Still the resilience in the economy primarily primed by the consumer, of course,
but even some of the manufacturing and services industries. The regional FED surveys all suggest the continuation of pretty good economic growth, and therefore we're still long some of those against cyclical value sectors like industrials. Certainly, defense stocks continue to look well, especially given the tailwind obviously from the potential budget expansion of some fifty percent to be spent
on tech. In addition, material stocks look attractive in here, and of course some of the semiconductors, which again we think the AI ecosystem is far from it being fully developed at this juncture, and therefore even the copious amounts of spending that's being dedicated to this space, we expect to continue.
Mark two questions there quickly. Awesome the arc of Jenny Montgomery Scott in Philadelphia out to your Pittsburgh. What's your economy look like? Is there a buoyancy that we underestimate within the fancy climbs of Manhattan. Well, you know, it's interesting, Tom.
You know, obviously you can be a little myopic and say, well it looks good here and try to extrapolate from that on a national basis. But at the same time, in fact, it does look fairly healthy. You know, when you move around, whether you're driving or attending you know, some you know, entertainment function or going out to restaurants,
or just general activity. Even in downtown Pittsburgh, relative to people coming into work, you can see really a pretty steady flow of activity that showed real no signs of any kind of deterioration that would you know, be associated with either some you know, cautiousness with regard to driving behavior and or that we're seeing any kind of crimping up spending by households.
Mark, I don't care. The reason we had you on is I will tune in to Pittsburgh Penguins, Philadelphia Flyers hockey, the playoff coming up, folks. This is the best for those of you worldwide. This is the eastern and western end of Pennsylvania and the hatred is off the chart. You guys have been doing this for years now. How are you who are you going to root for? You're gonna go with Sydney Crosby and the Penguins, or do you got to look at these upstart Flyers.
Well, indeed, it is probably one of the most you know, hatred rivalries that exists, certainly in hockey, if not even.
In all of sports. To some extent, of course, I'm going to.
Root for the Penguins and Sidney Crosby is going to get us through the Flyers and go on to the next step in the playoffs.
Is he healthy?
By all accounts, he is. He sat up the last couple of games of the season. But I think nonetheless it's a set up for him and obviously the big three of Ginny Belkin as well as Crystal Tang and others who have been mailed to contributors to Guy off run that was highly unexpected.
Lucini could come out again. Let's get him going here. If he knows who Crystal Tang is awesome. He's like eighty years old and he's still skating like his twenty three years old Mark. Thank you, thank you so much. For those of you that don't know hockey. From the moment they dropped the Puck Pittsburgh, Philadelphia. I could care less. I will watch just because of the tension and that rivalry. Mark Lashini with Jenny Montgomery Scott.
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