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Pawn and I've been looking this morning for moments to stop and do more traditional prosaic discussions of economics, finance, investment, of international invation relations. We can do that with Sarah Wolf at Morgan Stanley Thematic macro investing as well. Sarah, what's your theme into the rest of twenty twenty six.
The biggest thing that we're looking at is around multipolar world, and I actually think that the SPACEXIPO fits right into this, where we really are entering a new frontier of this globally fragmented economy where we're seeing intense reshoring, diversification of supply chains, and now we're entering new frontiers such as space where we're competing with the rest of the world on technological innovation and dominating the space atmosphere with satellites.
So, Sarah, in the context of a broader discussion of a of inflation, how does AI fit into that is AI inflationary at this point?
Well, what we're seeing is that amid all this AI driven demand, we're seeing increasing supply shocks at the same time, and so there's these very fragile choke points that are causing prices to rise for things like GPUs, semiconductors, write, everything that's going into building out empowering AI. The reality is, though, all these things that go into these into these AI models are also a lot of the same things that
go into consumer products. So over the last four or five months, we've been seeing this AI story push up producer prices and start to bleed into consumer prices as well. So at a time when the FED is looking at the tariff effects hoping that they're going to be abating soon that oil prices are not going to bleed into core inflation, we also need to be watching the AI effects.
On consumer prices.
And you know, this AI build out story, eight hundred billion dollars of capex this year over trillion next year, that's likely to be inflation area.
Okay, So when you and Ellen Zanner sit down over tea on this and I'm looking, I'm featuring at twelve dollion today the Citadel essay fos Frank Flight that I thought was really a nice sum of this the price theory Sarah wolf of this is basically falling apart. How do you envision the microeconomics, the price discovery, the scarcity dynamic. How will that work out over the next eighteen months.
Over the long run, AI is likely to be deflationary, differ inflation.
We can all agree on that.
Right.
Once we get these productivity benefits, it's going to lower the cost of goods and services, increase welfare for people. But our thesis is that AI adoption and real productivity gains are really hard, especially when you look at the micro level and a company by company basis. There's a lot of work and what we call intangible capex that needs to be done at the enterprise level to actually
see meaningful adoption and see that disinflation area effect. And I still think we're quite a bit away from that, and over the next eighteen month it's really going to be inflation driven by the AI infrastructure capex story before we get those productivity gains at the company level.
Sarah.
We're going to get a Federal Reserve meeting next week and we have a new FED reserve share. I know it just popped up on my screen. So what are you going to be looking for from the new fedchair.
Wash, Well, we know from the new fedchair that he favors a little bit less communication and there's a lot of concern for markets that it's going to cause more uncertainty and volatility. My view is that it's not necessarily the communication from Kevin Walsh that's going to cause more uncertainty of volatility, but it's really what's happening on the broader FMC. We're seeing a lack of consensus, more dissents on what the future policy paths should be, and that
is going to cause more uncertainty. For the Fed meeting itself. We're going to get a summary of economic projections. The last one we got was in March. A lot has
changed in the last few months. Growth is coming and stronger, but at the same time, inslation is higher, and what we're seeing among economists and the FMCA is more of a consensus that neutral is higher and so that cut for this year is going to be taken out of the projections, likely a cut or two for next year as well, and we're going to be entering this world
of higher for longer. The last thing I'll say is that we do think that that Chair Warsh is going to be focused more on these trimmed inflation mean measure Interesting, so we know core core PCE is above three percent, but if you look at the Dallas trim mean, it's closer to two percent. So that's that's a little bit more favorable for it your easier policy.
Okay, I want to get.
You in trouble. There's a huge you know, how many people they have working under Ellen Zenner is Sarah's Wolf, It's like forty two people or whatever. In your meeting Sarah Wolf. How disparate is trim mean Cleveland and all the rest from pc E. What's that research paper look like for Monday?
Well, when if you look at the trim mean, they're basically trying to pull out outliers that are causing one off pushes in inflation.
Right, so you have the oil shock, tear shock rate.
These are not seen as inflationary pressures but price shocks, and so these trim means are trying to are trying to push out and clean the data for this more these more volatile categories of inflation Sarah, okay, well.
Last please, all right, no please, I'll.
Add that for the for the for the f OMC, and for the FED. Here we saw this over the last six years where they like to look at measures of inflation that help reinforce their views. So this could go out of fashion in the next six month if we see the trim mean rise above regular core brilliant.
Sarah, Well, thank you, thank you so much for the brief, Paul, thanks for bringing up to FED how quaint on a Friday before the FED meeting. Ms Wolf is with Morgan Stanley. Stay with us. More from Bloomberg Surveillance coming up after this.
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We are advantaged here. There's a side story going on today, which is the gamble over what a barrel of oil can do. Ed Hers, Senior, Fellow, University of Houston. Here in our studios in New York, I see the sharts and the graphs that say we're really, really low in our storage of oil to find. What that means is that like Cushing, Oklahoma, the barrels are almost empty. What does it actually mean?
They're getting really worried and Cushing, we're down to about twenty five million barrels in storage. For contrast, when it was seventy million barrels in storage and over the price went to zero. So twenty twenty five is kind of at the bottom of the operating range. We're well past the five year averages on the downside and or outside
that band, if you will, and the twenty million. We're moving barrels here there, and we're about to get to a point where it's difficult to mix or match the supplies to the refineries we need.
Do you agree with many quotes mid July, first week of July, lest week of July. At some point out there, boom we get higher oil prices.
Absolutely. I can't argue with the CEOs of Exon and Chevron. That's a losing game. They don't ever come out and make public announcements like this. You know, it's the physical market. And we've already seen jet fuel at two hundred dollars a barrel in northern Europe. We've seen diesel at one hundred and fifty dollars a barrel. Here in the US, we're really fortunate. We've we've got plenty. We produce about fourteen million barrels a day. We export about four and
a half on average. We imported six point two last year at four plus from Canada and that's not going anywhere. You know, from the Straight and Foremos we were only getting about four hundred and ninety thousand barrels a day. You know, we can buy it, but what we're doing is we're selling it. I mean, anyone with a commercial inventory sold it. In the second week, Exxon chartered tankers and started sending gasoline to Asia.
Magic day for US in Hydrocarbon's Anne Marie Horden, Paul, It's the Bloomberg Energy Security Executive briefing in Houston in Edharst, Houston. Michael Wurst, Mike Worth, engineer from Colorado, Chevron's CEO, will be with Annry Horden.
Look for that eleven o'clock.
It peace breaks up today, How long will it take to really get oil flowing? It seems like there's ships on both sides of this straight here. How does that play out logistically?
It's not just the ships, but it does take time. The US Navy has said it'll take three months to make sure the Strait is clear of minds, and probably with the way the US has attacked the Iranian mind layers,
Iran doesn't know where the mines are. And you know, the intel sources in Washington are saying that Iran has now let the genie out of the bottle, or the US has left the gen out of the bottle and shown that Iran has controlled the straight, the one hundreds of miles along the strait, and they've got drones that you know, we could buy a target at Walmart that they put some explosives on, can fly into the bridge of a ship. There's no way to defend against that.
And it's Iran has been stating that they're going to maintain the straight, put a toll on it. That's that's going to be a cost going forward. So at least three months to clear the strait to get back to what may be normal throughput. But Kuwait's got to put its wells back online. Saudi Arabia has had a bunch
of well shut in. Remember Cutter has lost its LNG market for now, part of it won't be back for at least three to five years as they rebuild, and that's a big hit on the diesel market because a lot of nations are using diesel in place of the LNG. So the market to get back to pre war types of levels maybe eight months at best. Don't think it's going to get below seventy dollars a barrow.
What are the US producers doing? I mean, I feel like I want to run down the Houston and put a hole in the ground and start filling oil. I can make money at ninety dollars a barrel. I watched Landman. I don't know how to do this stuff.
How's this going?
Landman?
Is?
The real world is just so much worse than Landman?
Okay, really absolutely? Now I'm sitting up interesting discuss. Let's stop the show right here.
What does Landman's greed and voracious drama get wrong?
You know, go back to the television show Dallas. I mean that was much more like it. The Shenanigans, the double dealing, the things behind the curtain that no one in the real world ever sees. Right now, we're seeing a lot of the smaller independence and especially the royalty funds running for the exits as fast as they can because they played Lucy Goosey with all of their back
room data stuff. You know, don't trust a the AI overlays that people are putting on royalty payments, payments to owners. Those aren't lining up, and the accounting companies, the auditors can't catch it. They aren't going back to the paper trails.
Is this like lunches at the grove? Like are you at the grove three times a week in Houston?
Oh?
Gosh no, no, guess I was thinking of the Avalon Diner. That's that's where people go. And you know, so so a lot of the companies, and we saw this with Exon. Exon just dismissed its trader, you know, did what can only be called a bonehead swap at say, seventy dollars a barrel, and so missed out on all the upside. You know, everybody who teaches options trading says, never give away the volatility, and for some reason Exon did that. And the irony is, you know, Lee Raymond just passed away.
In a forest cover story, his last cover story before he stepped down, he said, I don't do trading. We don't trade, and hedge at Exon. Why would I need to be an oil company? Would I would just have a couple of traders for the volume, the financial I wouldn't need geologist, I wouldn't need engineers. I wouldn't need finance guys. And so it's really astonishing to see Exon take this huge hit crazy because it's the price has gone up to ninety and one hundred dollars a barrel.
Exon hasn't been able to participate in that. Oh, they're still collecting seventy dollars a barrel.
You know, Paul, you can go Nuaves's Ranchero's at the Avalon Diner, or you can get the chicken.
Fried steak, which I mean, a guy, I love that.
This is good, Ess, this is editors recommended.
Yeah, it's quite good. It's quite good.
We're gonna do a remote forget about Anne Marie Horden in Houston. We're doing surveillance at the Avalon Diner. Professor Hurst, thank you so much for joining us with serious wisdom here on a gallon of gasoline aparrell of oil.
Stay with the US.
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Chimpbell Harvey joins us from Duke University. Right now, Cam, congratulations on this work with Rob. Are not you shake to your foundations the core value growth paradigm.
If that doesn't work anymore, what does work well?
I think we need to look at it differently. And traditionally,
what's not a value stock is a growth stock. And indeed, if you look at, for example, the Russell one thousand value and the Russell one thousand growth, and you put a portfolio of those two together, then you get the Russell one thousand, And that means that if the stock is not in the value portfolio, it's in the growth portfolio, which means and this is kind of in a way shocking, that people will be holding expensive and expensive I mean
like highpe ratio low growth stocks, and that doesn't make any sense whatsoever. So there's a good reason potentially to hold in like an expensive high growth stock. It's expensive because growth is by but to hold an expensive low growth stock that's baffling. So our paper kind of sketches a new approach where expensive low growth is excluded from any portfolio.
What's in storting on one more question than this, because Paul's looking at me, going we got to talk to Kim about SpaceX. But you know, I look Professor Hervey at this and it seems to be a complete shift towards the joke of Stephen Colbert.
Growthiness is value dead, No, not at all. So what's dead is investing in expensive low growth stocks in my opinion. But those stocks are losers historically and they should not be in your portfolio. So growth should be measured by growth metrics, sales growth, profitability, growth, R and D growth. Not the stock is expensive, that's not good enough. We need to look at fundamental and that's why our paper is called Fundamental Growth.
This is great pity. Just subscribe SpaceX exactly.
So Kim, we do have a pretty notable IPO that's going to begin trading today. SpaceX ipo valuation, I think the also tell me is ninety five times revenue. Talk to us about what this kind of deal means to you, and at one of the key issues is what is go to need in the various stock indices out there.
Yeah, so this is a stock that is high growth and it will be expensive, and you mentioned one metric. It's expensive, and that often means that the expected return going forward is going to be modest. And indeed, if you look historically at IPOs of large firms and you look at the performance over the next three years, it
is essentially flat compared to the market. So the IPO, by the time it gets to IPO, these stocks are often fully priced and all of the action, the explosive growth happened before the IPO when those are so called accredited investors and insiders were transacting in the stock. So what I'm saying is the big upside has already happened.
So those that bought the stock for ten dollars or one hundred dollars, they got the explosive growth, and the retail or the average investor is left with the residual, the dregs. They could not buy the stock earlier on because they are not accredited or qualified.
Yep.
Bloomberg had some reporting yesterday at CAM that the demand from retail investors in the pre market trading exceeded one hundred billion dollars for seventy five billion dollar offering. Here, it sounds like retail nonetheless is going to participate in a big way.
So again there's a good reason for that demand. This will be likely the number seven largest stock in the US by total market capitalization. It is reasonable for retail investors to diversify their portfolio, so they want some of the stock. I understand that. So the problem is that they're getting in at a very high price. So SpaceX I'm looking at the drivatives market is one seventy seven already, so and you're not getting in necessarily at the allocation
price of one thirty five. You're getting in at the close.
I just want to point this out. He has a derivative pricing at Duke. They don't have that at Chapel Hill. They don't have the pricing right now.
Event hey, Cam.
Another part of this deal, which is really interesting, I think, is just if you're buying stock today in this company, you've bought off on a vision of Elon Musk, of maybe even the cult of Elon Musk, how does that typically play out over time?
So it's difficult to draw historical comparisons because this is such a big IPO. Many don't realize that this company is not a new company. It's been around for twenty four years, so it's got of a long track record. People know the company, it's in the news, and it is large. So this IPO is larger than the sum of all the IPOs in twenty twenty five. So it's really hard, given that it's so extraordinary in terms of the size to draw historical comparisons. Many IPOs are small.
This is giant. And also there is the possibility that SpaceX will be merged by Tesla to become like a colossal company. So again to draw historical comparisons is difficult. Vision is important, and you are correct that a lot of people are buying the vision. They're buying this vision of extreme growth potential.
Yep.
And that's ninety five times revenue. Hum, I'm sure you're getting your application this morning.
I'm looking for my Okay, it's just not there. Pharaoh God is eight thousand shares as always, Professor Harvey, just for all of us of the Safe Institute, Congratulations to you and your team on this research report.
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The privileges that you to work for Alan Span and far more than that with wonderful academics. Jake Schneider with Atlas Analytics carried on with Chairman green Span the Earth Resource satellite, which was an act of God coming out of Apollo, mostly coming out of the Dakotas. It was a part of my family heritage and we're thrilled to have Jake in here today. We're still using satellites to look at stuff, right.
We absolutely are. Well.
First, let me say I'm delighted to be here, thank you for having me. My name is Jake Schneider. I am the founder of Atlas Analytics, where we use satellite imagery to predict GDP in real time. So, as you know, and as probably our viewers know, satellite imagery can be the I'm sorry, macroeconomic data comes out with a lag. It was medieval where it's Renaissance.
What's to say about our farm farmers flat on their back this summer.
Well, let me look into that for you, Tom, I want to come back next time. For now and I'd like to say is that we are forecasting GDP for Q two. That number won't be out for first release until the end of July and final number until the end of September. At about two point five percent. It's doing quite strong. We have our own taxonomy where we use the expenditure approach to GDP to break it into three components, private inventories and net exports and core GDP.
Core GDP is looking strong the Federal Reserve.
A lot of folks are critical of the Fed, including Cam Harvey from Duke University who we just spoke to this morning. That defend uses I guess real backward looking data as opposed to real time data, which is something that you guys play in. Talk to us about how you think about that real time data versus some of the stuff the government relies on.
Yeah, So this is the core crux of the issue with macroeconomic forecasting with macroeconomic data today. When Simon Kusen has created the GDP National Income and Product Accounts in nineteen three four and presented to Congress in nineteen thirty seven.
It was a great leap forward. We like to believe that.
We have also created a leapboard by using real time imagery from satellites that orbit Earth every ninety minutes and have revisit on same location of five days. We're able to ingest these satellite imageries for the last fifty years, take that data and extract a signal that we use in combination with machine learning, computer vision, and AI to make a forecast a gdpicial time.
It sounds really spacey. Give us one example of what you do with that, like where I eighty crosses whatever the eye is out in western Nebraska. Give us one concrete example of how you do that.
Well, I loved the idea that you're using concrete and you said concrete as an example. That is what we're looking at. We are looking at four things, the expansion of a built environment, land use, vegetation, and port activity. And it turns out that you can use these real time signals and extra data from it using AI and machine learning to make inference about what's happening in real time.
How is your data different from kind of what we do see out of the government.
Are your GDP numbers in.
Line with what the government ultimately reports. Are they are they different?
How does that you're asking about accuracy?
So we benchmark against the actual data that comes out GDP, as we know as a quarterly stist that comes out four times a year. I'm going to see your question and raise you a question, which is do you remember what GDP was for Q one first release?
No, it was two point zero percent.
Okay, we predicted on our YouTube atless Analytics dot info, our YouTube, our substack, and our website two percent two weeks before and it's live time stamped on our YouTube, so you can see that it was obviously revised down to one point six, but I think the story still stands. We are accurate, and we are timely, and we can give you a real time forecast. So what's happening in economic activities so that traders and policy makers can have actual insights ahead of the competition.
What's what's the most predictive I guess flows or information that you guys track, What's what's best for you guys?
What works best?
Is it just ships and ports and doing that kind of thing.
So that actually is a great one.
We do you our second algorithm, Jack joint algorithm.
For containerized knowledge. You don't know.
Jack actually uses satellite imagery is trained with satellites over the ports and we're looking at TEUs twenty foot equivalent units coming in and off of the tankers to measure and map onto what is happening with real time trade floats.
So what's the what's.
Your data telling you today? Because it feels like the economy is doing pretty darn well, what's what's your data telling it?
That's exactly what we're seeing.
So we see core GDP, which in the expenditure approach of GDP is consumption, government expenditure and fixed investment core GDP. The core of the economy is at about three percent. We're subtracting about zero point six percentage points for net exports and adding another zero point three So between two point five and two point seven headline is what we're seeing. You might say to me, Tom and go ahead, Well, I'm.
Gonna have to leave it there. We got breaking news happening right now, Jake, Thank you so much. Jack Scheider with us. So that was Atalytics today on Satellite at Technology.
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