Bloomberg Surveillance hosted by Tom Keene and Paul SweeneyJune 24th, 2024
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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 ow Lori Calvasina, RBC Capital Markets, Laura. There's a brutal draw down in the standard and ports five hundred half a percent over the weekend, lots of gloom OMG. Big tech is done? Is big Tech done stuff?
And I think, I you know, I do think ultimately this market will rotate, But I also understand why it's having trouble doing so. And I think part of the reason why it's having trouble doing so is all the economic excitement that we were seeing, you know, I think we saw a lot of it in February where we saw GDP forecasts for twenty twenty four just ratcheted up really really fast, in a hurry, in a big way. We're just not getting that. If I look at the twenty twenty five GDP forecast on the on the ECFS, I think it's ECFC on Bloomberg is the function you can track what the cell side economists are saying every week, and that's and stuff from one point seven to one point eight percent, and that's still a below trend level. If you look at some of the quarterly numbers, we're headed into kind of a softer patch of below trend type GDP that is just not the kind of macro backdrop that typically sees cyclical small caps and value be large caps and growth. So I think there's this itch that this growth trade is over valued. It's crowded, you know, it's sort of the earnings expectations are decelerating. On the one hand, that all suggests you should be moving out, But on the other hand, you really need these economic tailwinds and they're just not there. So you've just got these cross currents that are fighting with each other right now.
Laurie, are you surprised that in a world where we came into this twenty twenty four and the mark was discounting six FED rate cuts and now we're down to something like one or two despite that trend in you know FED out look the S and P five hundred sup fifteen percent. Does that surprise you?
So I think that it makes sense to me, again in the context of that ratcheting up of economic expectations that we saw for twenty twenty four earlier. If you go back and look at the GDP forecast for twenty four last summer, it was tracking at point six percent. Zero to two percent is a lousy environment for the equity market. You typically see stocks go down when you're an economic purgatory like that. But two to four percent and now twenty twenty four is tracking around two point four that's typically a very solid environment for the stock market. The average changes, I think you're like twelve thirteen percent somewhere in there. So we transitioned from that idea that we're stuck in economic purgatory to it's actually going to be a pretty good year economically, and I think that really overcame the you know, the kind of ratcheting down of FED hopes and dreams because it was happening for good reasons.
So in a world where it seems higher for longer in terms of rates, here what sectors screen well for you guys.
I don't think that it's you know, it's any one sector that you can point to because of that. I think you've got to look at a lot of different factors, and I think sector choices are very very difficult these days. I do think that if we can sort of get the economic tailwinds back on track, then a sector like financials makes a lot of sense. It's very positively correlated with consumer confidence trends tends to outperform when consumer confidence is rising. These companies don't have a lot of just sort of innate growth anymore, but they tend to really be kind of viewed as the plumbing of the economy. So I think that's one area you can look at, and valuations are still very favorable. I think other than that, if you think about sort of higher for longer, you have to go to the root causes of that, And I do think inflation ultimately is a little bit higher than what we've been used to, which would point you to I think things like energy materials, you know, some of the commodity sectors.
Well, that's where I want to go. Bank of America. Laurie just published Nea Coda over in Europe, and you know qu she says, buy the French dip. You know it's a B fund and what special sauce and all that, but she's going to buy the French dip with all that politics, Laurie in the American markets, Now, where is your French dip? Where is the opportunity of something that's pulled back and you say, well, finally I can buy.
So you know, if we look at valuations, I do again go back to energy, I go back to financials. Those are still screening very very well on our valuation framework, and energy, while it got off to a great start of the year in terms of relative performance, has really faded recently. So that's one that we're keeping an eye on that. You know, I think that people keep looking at small caps. I'm sort of sticking on the sidelines with those for now. But you know, we have noticed that if you look at the funds flow data, you're starting to see passive money come back into the small caps space recently. If you look at the latest CPF our Data. So I think that's an area to watch. But frankly, I'm just not convinced that it's going to really be able to take off in a sustainable way until the economic tail winds are back and until you get the cuts in sight.
G Lori Kelvisina ce Michelle, Principal asset Management, and she's got a wonderful, wonderful global perspective tied into what do you do domestically as well? Is the rest of the world in love with us big caps? Do they love does the city? Does the city love Nvidia as much as we do?
Yes?
I think they have to look at the numbers and it's undeniable the strength. And I think the thing that you continue to see is frustration, maybe that people hadn't increased their exposure before so.
It was only ras. So this is important. You started this, you know, as like third week or whatever. Finance. Do you believe in window dressing against June whatever? Twenty five, Paul June thirty. I know if I don't want enough Apple, I look like an idiot, exactly right.
So I mean you get Nvidio bigger than Apple, bigger in some of these other names. I mean it kind of came out of nowhere. But how do you think about those big tech names these days? To do we chase them or do we try to find some other opportunities.
So we think that you if you don't already have exposure, it's probably not the best time to be adding exposure. But you also don't want to be reducing your exposure.
At this point.
We do think there's other opportunities in the market. We are expecting a broadening out in the rating, but again, this is not going to be anything which is like what you've seen for the big cap space. It's not going to be such a significant move in the broader market. But given the valuations where they are today, and given you still got a fairly strong backdrop. Okay, the macromatrup is slowing, but it's fairly strong. So you do want to have exposure to other parts of the market. And I think you know, if you look at financials, if you look at industrials, I think there are pockets which can do well, but not only just in the US. I think you can look outside the US, Latin America, parts of Asia. They also look pretty attractive.
How do we think about valuation here just broadly defined. I mean I would argue that it seems like the US market would be fully valued to be generous, and then I need to be looking at Europe or Asia. I mean when you talk to your global clients and is that what they're talking about?
Yeah, I mean it's always been a situation that they look across as the global map and they say, Wow, the US is so expensive. Why is there nobody nowhere else that you can increase exposure to? And I think certainly for this year there has been opportunities Europe. You mentioned it is relatively cheap, but actually at this point in time, somewhat concerned about where that is going, and actually preferences said Latin America, pockets of Asia which has still got their exposure to the tech cycle, which we think can continue to do well.
One of the things I look at here is over the weekend, a lot of people again desperately wanting to trade or market time the big tech, the big stocks. I saw a lot of research this weekend. Now's the time to get out, Now's the time to lighten up in that. What's your study at LLC of market timing not so much buy and hold, but just extending your belief I own somebody listening right now owns Microsoft. They got lucky, somebody gave it to them. Whatever, How do you extend your timeline and not market time?
Well, first, I think I think it's a fool's game almost to try and think that you're going to have perfect timing in this kind of market. And I think what's more difficult about the big tech is that I think that the microagnostic, so you almost have to look away from the microphone.
What do you mean by the macroagnostics? Y, I lost it in the accent.
You know, macro agnostic. It doesn't matter what the growth outlokas, it doesn't almost matter what the fed outlooka is. Those companies are almost creating their own demand now with the advent of AI. So actually, what we're doing almost is becoming an individual stockpicker and having to understand the dynamics of those specific companies, and to us, it's very Difficult's cool, but I think that party's going to keep going on for it.
So this goes to Michael Mobison and capital allocation in the standard discounted cash flow analysis. Mobison would say, and I agree with them. I think you have to put more weight on the individual quarter, the individual years, and less weight on fancy plug in math plugin chuck math and the terminal value. I think there's too much analysis on what's Microsoft going to be doing seven years and not enough weight or what are they going to be doing in the next ninety days.
And I think that's even more important for technology because you're seeing that people are trying to understand on a month, my month, call to my quarter basis of where things are moving. And the thing is, with tech, it's moving so quickly. The progress that you've already seen is advancing really quickly. That actually, yes, that shorter timescale becomes more important.
All right, Let's think about fixed income here, because a lot of folks are saying they can go to a US Treasury two year get close to five percent.
Is that enough or do I.
Try to take some credit risk here and get a little bit more creative?
So I think at this point, with Treasury especially, duration is not particularly attractive at these levels. I think, even though you're likely to see FED cuts this year, with a continuation with it, actually with a shadow cutting cycle most likely for twenty twenty five, plus, concerns around term premium, the discussions around fiscal deficit that actually yields and not going to come much lower from here for credit, though there is certainly interesting parts. IG is one error that we are sunny. We do have an overweight to but we're looking sunny at the quality space.
You've lit up the live shared on YouTube worldwide. People are listening to you and they're saying wait. Seem as Sure is saying ignore macro. Let's be careful about this. Do you think this bull market of twelve stocks, twenty stocks, whatever is removed from FED analysis where it's just about their individual stories.
I do. I don't think the FED has an impact on these companies. I don't think if the FED is going to cut in Septener vers December, this is a.
Huge deal, because I'm halfway there. I think it's way overrated. At least Brama, when I go on this all the time, she's like following the FED thing up down. So I'm like, no, it doesn't matter. But you've gone full boat. You've just said you don't care what chairman Paula says.
I think that it matters for the other four hundred and ninety three stocks, But I think for those seven or haven't. Maybe you want to call it now the magnificent ones. The FED is not relevant inter that analysis, But for that broadening in the raalley, the FED doesn't matter.
Yep, Hey Shiman, How do you think about alternative investments, private equity, private credit, hedge funds, things like that. Where do you think that those belong in that portfolio today?
I mean they absolutely need some kind of allocation, okay, the returns to get the returns that people are looking for over the next five to ten year period. If you don't have exposure to big tech and then are going to keep delivering at the same pace that they've had, you need to look outside your traditional errors. So we are looking at the alternative space. I mean even within the alternatives, a lot of focus on real asets because of inflation mitigation, but certainly in the private space, I think there has to be allocation in private credit in.
The time we've got left. You are of Aldrich and London school of economics. How do you play the election in the United Kingdom? Is it a foot sea opportunity? Is it a guilt opportunity? I get all the consensus and then forget about the gaming of the election, But is there an opportunity there for investors looking for three years?
So it depends what the I'm assume the Labor is going to win, if the Labor Party is really going to think about what is going to make the UK attractive investor to investors again, whether that's thinking about the EU trade relationship, whether it's thinking about capital gainst tax. That has the potential to really improve the attractiveness of the UK. But we're still waiting to hear it because they haven't said much about it in the manifesto.
Have the pro Brexit people have they admitted that maybe that it hasn't worked, it's not the right decision, or is it still so partisan?
It is still quite partisan, but you are seeing more and more people becoming fairly quiet about the subject, which I think is an admission that it didn't work out so well.
And is that kind of what the data is showing you that in fact it has not worked.
The data is showing that all the promises that were made in the event and the event of breaksit have not come to fruition and as a result, the economy has not benefited.
You guys can't fix that overnight.
Can you see her. She could be on ITV or Sky. She worked with Treasury, so you know, oh boy, she could be a pundit.
I need to go to the London School of Economics then.
Oh it's great schools. To great school. Thank you, mister Robbins. Darren Door from the rest share of Principal Asset Management with Fordam Global Insight. A three hour conversation is in order. Tina Fordham joins us this morning. Tina, it's a quiet summer in Europe. My word, Tina, let me get to the July thirty French election. I guess it's impact on all of us. There are two does a pro like you just ignore it and move right on to July seventh.
Oh I wish we could ignore it, but no.
In fact, the first round is this coming Sunday, and the second round is July seventh, so we've got the two rounds, the first one in just a few days. Macraln gave himself the least time possible really to call these snap elections, and it's thrown the whole French political spectrum into disarray and woken up those of us who haven't spent a lot of time focusing on French politics. I mean really since Macron took office in two thousand and seven with his Central Party.
My basic take looking at all of the sun including the US debate, and that is that if Macron is defeated, it's some form of conservative right wing coalition. Is that feasible or the polarity so fractious even that's not going to happen.
Well, first of all, the French political landscape is highly charged and highly fractious, and lots of the political party's names start with R, so they sound the same for outside observers. It's going to be confusing or renaissance, rassmn, re conquet, this.
Sort of thing.
Macron Party is center right, so you know that's worth restating. It's the populist right under Marine la Penn that has been working hard over the years to normalize and kind of mainstream itself that looks like.
It stands to benefit.
But the mathematics on this two round race and the five hundred and something mini elections that take place make the calculations really difficult. And so first of all, just coming up with scenarios, which is what you would normally do in this situation, is difficult.
Paul's looking for dissage tickets down the sen River at the Olympics. Paul, what do you have.
Let's go to the UK here, tell us what we should be thinking about here, Tina. With the UK elections.
Well, the UK elections are on the fourth of July, so right between two rounds.
I have been saying for some time.
I mean, first of all, the UK elections were due this year, they had to be called. They could have been called by January at the latest. Still the timing is, you know, a bit of a head scratcher. It's not usual to try to make people come to the polls in the height of summer and mess up everyone's summer vacations.
Sunak, you know, is widely.
Rumored here in the UK to be you know, be looking to get back to California and join Nick Clegg somewhere like Meta in the Silicon Valley. But he insists he wants to remain in his Yorkshire constituency as an MP. That's something that's unusual about the British system that politicians stick around the reason May has stayed on as a as an MP. But in this case, the UK is bucking the trend for the rest of Europe, which is moving far right in fact, and looks likely to vote in a late government by a landslide.
And that's kind of where I wanted to get to. How do we, you know, for our audience here in the United States, how do we think about you know, some of these European countries really moving to the right, and you mentioned we were talking about France earlier and the UK going more to the left. What does that tell us? How do we think about that?
Well, so the UK is an outlier in the wider European trend. With that in mind, but we've had fourteen years of a Conservative Party government. Fourteen years that is a very long stretch. So first of all, it's an anti incumbent move. Secondly, eight years ago yesterday and I can't believe it was this long ago, we had the Brexit result. And Brexit has been the elephant in the room during this campaign because nobody wants to.
Tell voters they voted for something that.
You know, went the wrong direction and then they possibly misjudged the outcome. But it has undoubtedly made people in Britain poorer, and they do understand that it breaks it is the main cause of what ails them.
It just hasn't featured in the campaign, which is odd.
Tina. One final question, I'll drag you back to the United States of America. What will you look for in the Thursday debate?
Well, signs of life.
Will all be looking for sentience and signs of life.
One of my clients in private equity in the US described the races between demented and dementia. I don't know if you know use these kinds of technical terms on Bloomberg Radio, but I think a.
Lot of Americans see it that way.
And you're going to have the two of them side by side. You know, people like me will be getting the popcorn out as well as covering it. Arguably, the bar is higher for Joe Biden because there has been this relentless kind of narrative about him being a daughtering you know, old fool, and Trump comes out guns blazing with you know what is really also a meandering way of expressing himself. But the other side of it will be how does this work without a studio audience. Someone like Donald Trump really, I think needs the energy of the crowd.
But this was a condition.
That reportedly President Biden required. So the debates rarely move the needle on poles. But it will generate headlines and perhaps it will mean a bit more in a race like this where so many Americans really don't like either candidate.
Tina, thank you so much, Tina Fordham. With this Fordham Global ands, I should say for Global Insight in London. I'm looking for a man in finance.
Trust fun six five they eyes.
I'm looking for a man in finance, just fine, six five blue eyes, sharpish brain bud, sharp jaw line.
Okay, that's enough to foolery. Sweety's got the jaw line. I don't have the jaw. This thing won't go away. That's sad Alex. Sad Alex. Oh yeah, I'm getting it at home. I come out of the pool with my float. He's out and the brat after thought goes, yeah, you look like a man in finance with the newspapers because this won't go away this summer. The babe in finance, Lisa Mateo.
There's so many in the minut The Girl on the Couch did the song. She struck a deal with Universal Music Group. It's on Spotify. I mean, it's going crazy, but what it's also done. It sparked this trend because in the dating scene, finance bros Are becoming the latest hot commodity. Okay, women want the finance bros. There was one woman I remember on social media. She held up the cardboard sign and she said she was looking for the man in finance.
The article says it's actually a national thing.
It is.
It's growing.
I mean, the thing back in the eighties.
Let me just see Okay, okay, so maybe it's coming around.
Deep in the song when sad Alex does this deep in the song, there's a beauty. I can't paraphrase it even but she says, basically, you're working so many hours a week, just give me the keys to the place in the Hampton's. Does anybody understand these animals where it's sixty five sixty five hours, this is slow week.
Yeah, that's what one woman who said they actually interviewed this in the Wall Street Journal. They said she said she dated man of finance. She's like, listen, you're never going to see him.
Put us straight out there, just letting you know.
The wonderful girl at Penn State nailed where she invented this madness. Maybe will go away by August next By.
The way I put I put a little man in finance tribute out to you dude on Twitter.
Tom, So you gotta take that out.
That people.
Okay, here we go. This is gonna spark something with you, Tom. The high end pet care business, it's the king, this booming market. But here's the thing, it's forcing a lot of people into debt. There was one woman she said she had this MRI scan for her dog two thousand dollars. Now she's paying thirty percent interest. The dog has no regrets. But a lot of people maxing out credit cards, they're tapping into retirement accounts, taking out loans for some of these expenses for their pets.
I mean, they love them. People are more attached to them nowadays.
I would be careful here because you know, I've been chastised people really care about this. Yes, yeah, I'm in the camp like the old days were a dog's a dog, move on a cat whatever. You know, we love them all on that. But you're right, people go mental. I mean, you know, Chris Whalen, you know I go to the Horus Man that Maary Clinic. I just write a tuition. Check out the Horus fan for the doctor. Chris Whaling goes to the preferred dividend that Mary Clinic gets. It's in midtown somewhere where the only way you pay is a JP. Morgan prefer dividend shares. I mean, the bills get that high, that's how they do it.
But these guys, are you pet people?
I'm not.
I'm not a pet person. I don't.
I don't.
I had one growing up.
But I just got that bill's teeth done. Are you ready?
Wait?
What the thing now is to avoid major issues when they're eight or older? Okay? Is you get like we get our teeth cleaned, except you get your teeth cleaned and it's like, you know, a rounding error thirteen hundred for one in Kennel Fee, who's like got the IQ of a Kardashian. Kennel Fee wants Whiting as well to writer and it's out of control. It connects.
Okay, I want to talk about Netflix. This was really good.
You mentioned Lucas Shaw writing from Paris for his latest newsletter. Okay, he was talking about Netflix, one of the biggest players, but when it comes to advertising, he says not so much. He says the setup for success was there Netflix. They built this advertising business with the help from Microsoft they added that advertising supported.
Tier for subscribers. But in the US they're advertising tier. It's just a fraction of the size of.
Peacock, Hulu, Disney, Amazon Prime. They didn't deliver as many impressions. The relationship with Microsoft is now strained, and it lets go of its head of advertising.
Amazon.
No, no, they're not, and it's okay. They don't have to be. But they will get it because advertisers will come to them, even if they don't even ask. Advertisers will come to them because that's where the eyeballs are. So they'll get there act together. I'm not too sure they will be a.
Lucas Lucas alluded to that well, but well, I think my amateur take is Amazon sort of on a rule right now.
Amazon's is awesome. I mean they I mean, you know, the big concern was there's only a duopoly here, you know, kind of Google and Facebook. Now you have a viable third digital advertising alternative, and that's Amazon.
There's a guy out on YouTube blood chat. He sends his dog, it's one of those yep yep dogs, ways like eight pounds to the Marie Antoinette veterinary clik.
There you go.
You can yeah, I can't imagine what the shampoo of the milk.
Cut got next, and then laugh one.
It is just a little look this from Fortune magazine into remember how Walmart came out with this new managerial pay boost. You know, they wanted to boost morale and help reduce turnover, so they raise their manager's salary. So there's one manager he was straight out and he talked about his salary. He's forty five his base salary of one hundred and sixty eight thousand. He's a Walmart store manager after that increase, but he said with bonuses at stock grants, Walmart says he can make up a five hundred and twenty four thousand dollars a year as a store manager. This is a guy who's a Kurdish immigrant. He turns the retailer nineteen ninety nine. Started as a part time worker making eight dollars an hour, and he just kept moving up the ranks, no college degree, just kept moving up, moving up.
Moving up.
I mean some of these Walmart stores they employed hundreds of people, and I mean it's a it's a company in and of itself, these individual stores. It's a it's a meaningful small business.
And like we look at ups and one hundred and seventy thousand or this wonderful story. What enthuses me is in that store, there's probably twenty other people on the same track, and they're not getting the headline five hundred thousand income. But you got people starting, like you say it, eight bucks an hour, twelve bucks an hour.
They stick with it.
They're popping one fifty one seventy two hundred. That's really cool, it is? That was strong. Let's do finance, bro every day?
This yeah, exactly.
This is a 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 New York City. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen, and always on Bloomberg Radio, the Bloomberg Terminal, and the Bloomberg Business app.