Welcome to What Goes Up, a weekly markets podcast. I'm Moldana Hirich, a market reporter at Bloomberg.

Welcome to What Goes Up, a weekly markets podcast. I'm Moldana Hirich, a market reporter at Bloomberg.

And I'm Emily Graffeo across asset reporter at Bloomberg. Mike Reagan is out this week.

And I'm Emily Graffeo across asset reporter at Bloomberg. Mike Reagan is out this week.

And this week on the show, our stock's in a new bull market or not? There's a raging debate on Wall Street as both the S and P five hundred and the NAZAQ one hundred continued to search. We'll get into it with the chief global strategist for a major asset manager. But first, Emily, welcome back to the show. We're so happy to have you, Thank you, thank you for having me Mike Reagan. On last week's show, Katie filled in and she told us one of her deepest dark secrets, which is what she's very, very deathly afraid of the dark. The dark, So that can't be your answer to.

And this week on the show, our stock's in a new bull market or not? There's a raging debate on Wall Street as both the S and P five hundred and the NAZAQ one hundred continued to search. We'll get into it with the chief global strategist for a major asset manager. But first, Emily, welcome back to the show. We're so happy to have you, Thank you, thank you for having me Mike Reagan. On last week's show, Katie filled in and she told us one of her deepest dark secrets, which is what she's very, very deathly afraid of the dark. The dark, So that can't be your answer to.

This isn't really a secret. But I'm very afraid of birds, flying, birds, out of control birds, How do you live life? So it's when I went to a conference a few months ago in Miami for ETFs. I was having a business lunch with a source and I was trying to be really serious and professional, and there was a bird and it kept flying towards us and I was being really fantastic and freaking out. But the source was very kind about it and he would show it off.

This isn't really a secret. But I'm very afraid of birds, flying, birds, out of control birds, How do you live life? So it's when I went to a conference a few months ago in Miami for ETFs. I was having a business lunch with a source and I was trying to be really serious and professional, and there was a bird and it kept flying towards us and I was being really fantastic and freaking out. But the source was very kind about it and he would show it off.

But I don't beget it though, because there's so many birds everywhere.

But I don't beget it though, because there's so many birds everywhere.

The New York City pigeons are different, harmless, they mind their own business. It's it's other birds.

The New York City pigeons are different, harmless, they mind their own business. It's it's other birds.

I see you. I don't see our guest this week is laughing, so I do want to bring her in. It's Sema Sha, chief global strategist for Principal Asset Management. Sima, I'm so happy to have you back.

I see you. I don't see our guest this week is laughing, so I do want to bring her in. It's Sema Sha, chief global strategist for Principal Asset Management. Sima, I'm so happy to have you back.

On the show. Oh, it's great to be here. Thank you.

On the show. Oh, it's great to be here. Thank you.

Yeah, we have you here in person, which is really great.

Yeah, we have you here in person, which is really great.

Yeay, it's fun to be hit. Although just twenty four hours.

Yeay, it's fun to be hit. Although just twenty four hours.

Maybe let's just start with some of your views on what you're expecting from the economy and from markets. You said that a recession is not imminent, but you're still forecasting one, so maybe just tell us about your projections.

Maybe let's just start with some of your views on what you're expecting from the economy and from markets. You said that a recession is not imminent, but you're still forecasting one, so maybe just tell us about your projections.

Yeah, so we are still expecting a recession, maybe increasingly in the minority and actually expecting a full recession to come through, but we are expecting it start in Q four. I know a lot of people out there who are expecting recesion expected to come in Q three. I look at the labor market the strength of it, and I say that that's almost impossible. But Q four we would expect fairly mild negative growth, and then in Q one a deeper downturn, but then by Q two this is back to recovery. So this is historically a very short recession and historically very very mild recession.

Yeah, so we are still expecting a recession, maybe increasingly in the minority and actually expecting a full recession to come through, but we are expecting it start in Q four. I know a lot of people out there who are expecting recesion expected to come in Q three. I look at the labor market the strength of it, and I say that that's almost impossible. But Q four we would expect fairly mild negative growth, and then in Q one a deeper downturn, but then by Q two this is back to recovery. So this is historically a very short recession and historically very very mild recession.

So unlike some strategists on the street that have been pushing out their expectations for when this recession is finally going to get here, it seems like for a while you have been thinking that it's not going to come. It's not going to be an imminent recession. How is your view though, shifted from the beginning of the year to now.

So unlike some strategists on the street that have been pushing out their expectations for when this recession is finally going to get here, it seems like for a while you have been thinking that it's not going to come. It's not going to be an imminent recession. How is your view though, shifted from the beginning of the year to now.

Yeah, So we have had this expectation for recession in the second half of twenty twenty three, since the early part of twenty twenty two. So this is a long held view for recession. I'm really based on this idea of the long and variable aggs all based around fad policy is going to trigger a recession. But since the beginning of this year, I should actually, even in the last two or three months, with this continued outperformance strength of the labor market. The one thing that we have changed is that we have reduced the duration of recession from three quarters to two quarters. I almost wonder if this is even going to feel like a recession. You know, if you look around, are you going to say, Wow, the usism recession probably not beca It's that mild. So I think maybe the more important part of this, at least from an ass allocation perspective, is what the impact on earnings is going to be. And you can already see that downward trend. You get into recession, earnings will continue to come down, and that's really what's going to weigh on asset prices if you don't get a labor market. And what we're expecting, I mean, we're you're projecting unemployment to rise to four point one percent by year end. That is still essentially full employment. So it's not I don't think going to be a very very tough recession for the population.

Yeah, So we have had this expectation for recession in the second half of twenty twenty three, since the early part of twenty twenty two. So this is a long held view for recession. I'm really based on this idea of the long and variable aggs all based around fad policy is going to trigger a recession. But since the beginning of this year, I should actually, even in the last two or three months, with this continued outperformance strength of the labor market. The one thing that we have changed is that we have reduced the duration of recession from three quarters to two quarters. I almost wonder if this is even going to feel like a recession. You know, if you look around, are you going to say, Wow, the usism recession probably not beca It's that mild. So I think maybe the more important part of this, at least from an ass allocation perspective, is what the impact on earnings is going to be. And you can already see that downward trend. You get into recession, earnings will continue to come down, and that's really what's going to weigh on asset prices if you don't get a labor market. And what we're expecting, I mean, we're you're projecting unemployment to rise to four point one percent by year end. That is still essentially full employment. So it's not I don't think going to be a very very tough recession for the population.

Okay, but that's super interesting. The thing you said about is it going to feel like a recession? So what will it feel like for the everyday American?

Okay, but that's super interesting. The thing you said about is it going to feel like a recession? So what will it feel like for the everyday American?

I wonder if it's going to feel any different to when you know, almost over the last year, with living costs being quite oppressive, maybe you find out more and more people around you are losing their jobs. But then that will be a very much of a rolling recession. I mean, I do buy into this idea that some sectors will continue to be very strong, other sectors will be really feeling the pain and almost a continuation of what you've seen since actually since last year when housing was struggling. Now it's manufacturing, energy struggling at least in the earning side, and you're probably going to see rolling sectors which are struggling, but maybe just a few more of them are feeling the effects by year end.

I wonder if it's going to feel any different to when you know, almost over the last year, with living costs being quite oppressive, maybe you find out more and more people around you are losing their jobs. But then that will be a very much of a rolling recession. I mean, I do buy into this idea that some sectors will continue to be very strong, other sectors will be really feeling the pain and almost a continuation of what you've seen since actually since last year when housing was struggling. Now it's manufacturing, energy struggling at least in the earning side, and you're probably going to see rolling sectors which are struggling, but maybe just a few more of them are feeling the effects by year end.

What does that mean for what it's going to feel like for investors?

What does that mean for what it's going to feel like for investors?

Equity investors, Well, as we've seen already, I mean very equally investors, it's confusing. Now it's probably going to become even more confusing, and it becomes a very very important case if you have to pick your sector very wisely. You have to think about your styles very carefully as well, and just having a blanket view of the broad equity market is simply not going to be enough I want to make the plug for active management. I mean, this is really the environment that active management should start to thrive when you have specific sectors which are struggling.

Equity investors, Well, as we've seen already, I mean very equally investors, it's confusing. Now it's probably going to become even more confusing, and it becomes a very very important case if you have to pick your sector very wisely. You have to think about your styles very carefully as well, and just having a blanket view of the broad equity market is simply not going to be enough I want to make the plug for active management. I mean, this is really the environment that active management should start to thrive when you have specific sectors which are struggling.

And can you say more about what's behind your calculation for your projections. Is it that you're just thinking about how strong the labor marketers or are there other factors at play?

And can you say more about what's behind your calculation for your projections. Is it that you're just thinking about how strong the labor marketers or are there other factors at play?

Two?

Two?

Yeah, so there's a couple of things at place.

Yeah, so there's a couple of things at place.

I mean.

I mean.

One of the reasons that we expect this to be fairly mild and actually not coming through in fact till you know, towards the end of this year is back to that consumer back to that excess saving story. I think we are all very familiar with that story. But I think at some point last year there was an expectation that at least for some of the household's low income households, excess savings have been completely exhausted already. But if you look at the data now, and we've just done a kind of a rejuvenation of those numbers, and it looks like they're still half a trillion to go, and that should sustain households at least until your end, potentially even longer if they start to change their behavior a little bit, so that is what really continues to support the broader economy. The thing is with the labor market is it is very tight today, but it is typically the most lagging indicator of any recession. So it stays strong. It's stays strong, and then suddenly it drops and then it spirals fairly quickly. So although it looks good today, it doesn't mean it's going to stay like this forever, which I think a lot of people making that mistake. So we are anticipating. Q four is when you start to see job losses and it does spiral. You've also seen actually the interest rates sensitivity of the US economy is considerably lower than it was previously, partly because actually debt levels for consumers, households, businesses is lower than in previous times. So those are the kind of the key factors which are driving this not imminent recession but also mild recession.

One of the reasons that we expect this to be fairly mild and actually not coming through in fact till you know, towards the end of this year is back to that consumer back to that excess saving story. I think we are all very familiar with that story. But I think at some point last year there was an expectation that at least for some of the household's low income households, excess savings have been completely exhausted already. But if you look at the data now, and we've just done a kind of a rejuvenation of those numbers, and it looks like they're still half a trillion to go, and that should sustain households at least until your end, potentially even longer if they start to change their behavior a little bit, so that is what really continues to support the broader economy. The thing is with the labor market is it is very tight today, but it is typically the most lagging indicator of any recession. So it stays strong. It's stays strong, and then suddenly it drops and then it spirals fairly quickly. So although it looks good today, it doesn't mean it's going to stay like this forever, which I think a lot of people making that mistake. So we are anticipating. Q four is when you start to see job losses and it does spiral. You've also seen actually the interest rates sensitivity of the US economy is considerably lower than it was previously, partly because actually debt levels for consumers, households, businesses is lower than in previous times. So those are the kind of the key factors which are driving this not imminent recession but also mild recession.

What is really interesting in your note about the interest rates sensitivity, could you talk a little bit more about why in this current cycle we're a little bit less sensitive to higher interest rates than prior downturns.

What is really interesting in your note about the interest rates sensitivity, could you talk a little bit more about why in this current cycle we're a little bit less sensitive to higher interest rates than prior downturns.

Yeah. So one of the interesting things, and I say this coming from the UK, where actually interest rates sensitivity there is a lot higher than the US, and one of the reasons is is back to the housing mark and back to mortgages. So for example, the United Kingdom, you have a majority of mortgages are on the variable right side, right, so it's rates have gone up. People have really started to see that mortgage costs are fullibility fall, whereas in the US there's a greater percentage of fixed rate mortgages. So the implication is is that people just simply don't feel that pain of these FED rate hikes which have been incredibly aggressive. But if you're not feeling it, then actually it almost doesn't exist. So that's one thing. And then once you start to look at the corporate debt imbalances, they are lower than what you see certainly during the GFC, but also during previous recession. So as interest rates rise, that debt servicing cost is not as oppressive as maybe it had been in previous times. So that is really the key reason, and I think that has actually been a process of I guess, of understanding for a lot of economists out there. That history. Of course, we look to it as a guide, but it cannot be the rule. For as we look forward.

Yeah. So one of the interesting things, and I say this coming from the UK, where actually interest rates sensitivity there is a lot higher than the US, and one of the reasons is is back to the housing mark and back to mortgages. So for example, the United Kingdom, you have a majority of mortgages are on the variable right side, right, so it's rates have gone up. People have really started to see that mortgage costs are fullibility fall, whereas in the US there's a greater percentage of fixed rate mortgages. So the implication is is that people just simply don't feel that pain of these FED rate hikes which have been incredibly aggressive. But if you're not feeling it, then actually it almost doesn't exist. So that's one thing. And then once you start to look at the corporate debt imbalances, they are lower than what you see certainly during the GFC, but also during previous recession. So as interest rates rise, that debt servicing cost is not as oppressive as maybe it had been in previous times. So that is really the key reason, and I think that has actually been a process of I guess, of understanding for a lot of economists out there. That history. Of course, we look to it as a guide, but it cannot be the rule. For as we look forward.

So what does that mean for the FMC meeting next week if we get another rate hike, does it even matter that much?

So what does that mean for the FMC meeting next week if we get another rate hike, does it even matter that much?

It's a very good point, I would say, Look, once you're getting into just additional twenty five BIPs, no, No, I don't think it's it's a thing that's It's not like it's it's going to suddenly push the economy over. I think the interesting part of that twenty five basis point hike is the implication to the market expectations, and that's really where you're seeing liquidity conditions, or so I should say, financial conditions have been very easy, actually have eased in fact over the last couple of months, because markets have been so certain that the FAD is going to stop hiking, that there's going to be rate cuts. But once you start to introduce another rate hike, well potentially that could reverse a lot of this easy and financial conditions. And alongside that increase in rate hike, potentially in June, potentially in July, alongside that you should see a continued pricing out of rate cuts. And if I think about the broad equity market, one of the reasons I think why there is some optimism still is just this idea that the food will come to the rescue. So the more and more they intervene, then I think the less that becomes the truth.

It's a very good point, I would say, Look, once you're getting into just additional twenty five BIPs, no, No, I don't think it's it's a thing that's It's not like it's it's going to suddenly push the economy over. I think the interesting part of that twenty five basis point hike is the implication to the market expectations, and that's really where you're seeing liquidity conditions, or so I should say, financial conditions have been very easy, actually have eased in fact over the last couple of months, because markets have been so certain that the FAD is going to stop hiking, that there's going to be rate cuts. But once you start to introduce another rate hike, well potentially that could reverse a lot of this easy and financial conditions. And alongside that increase in rate hike, potentially in June, potentially in July, alongside that you should see a continued pricing out of rate cuts. And if I think about the broad equity market, one of the reasons I think why there is some optimism still is just this idea that the food will come to the rescue. So the more and more they intervene, then I think the less that becomes the truth.

Okay, before we talk more about what you're expecting down the line, what do you think we do get from the Fed? Because the market is anticipating in the pause in June potentially hike in July. What are you foresee happening?

Okay, before we talk more about what you're expecting down the line, what do you think we do get from the Fed? Because the market is anticipating in the pause in June potentially hike in July. What are you foresee happening?

So we have had a forecast, I think since last October when Powell I'd come out with a fairly hawkish commentary that the third will peak at five twenty five to five fifty, right, So that for us means that there is one more rate hike, I would have said June suddenly, looking at the labor market data from from April, suddenly there is another rate hike to come. But just going by the commentary, the kind of words that are coming out from so many the FMC members, they are very reluctant, and quite rightly so, in wanting to look for the evidence of economic slowdown. You know we talk about those long and veriable lags. Well, that means that they need to take the time to see how the economy is responding to the hikes so far, so I think from that perspective, it's more likely that they stop in June and then they start again in July. The one thing that concerns me, though, to be honest, is this is now becoming another consensus forecast for one more rate hike. When this a consensus, there's always a little bit of a concern around it, because if you do get a continuation of hikes, maybe another one in September, that is where you start to see some negative surprises. And when you've got a market which is doing so well, that is where the rest really come from.

So we have had a forecast, I think since last October when Powell I'd come out with a fairly hawkish commentary that the third will peak at five twenty five to five fifty, right, So that for us means that there is one more rate hike, I would have said June suddenly, looking at the labor market data from from April, suddenly there is another rate hike to come. But just going by the commentary, the kind of words that are coming out from so many the FMC members, they are very reluctant, and quite rightly so, in wanting to look for the evidence of economic slowdown. You know we talk about those long and veriable lags. Well, that means that they need to take the time to see how the economy is responding to the hikes so far, so I think from that perspective, it's more likely that they stop in June and then they start again in July. The one thing that concerns me, though, to be honest, is this is now becoming another consensus forecast for one more rate hike. When this a consensus, there's always a little bit of a concern around it, because if you do get a continuation of hikes, maybe another one in September, that is where you start to see some negative surprises. And when you've got a market which is doing so well, that is where the rest really come from.

What is behind the June pause? Is it also some of the banking sector turmoil that we've seen that they are really needing to still figure out and think about.

What is behind the June pause? Is it also some of the banking sector turmoil that we've seen that they are really needing to still figure out and think about.

Yeah, absolutely so, as well as as you said, you know, as well as just looking at the broader economy, how is the unemployment rate and how is of course, how is inflation behaving. One of the key things that we've heard the FMC talk about repeatedly over the last couple of months is what the impact of the banking crisis is going to be, and the difficulty of the banking crisis is is actually a lot of it is down to behavioral behavioral economics almost how do people respond, how do businesses respond, and how to banks respond. It's one of those things that's very very difficult to model for us, but also for the FAT too, So they are having to track the data and see how lending behavior is continuing. Up till this point actually has been fairly healthy, so that shouldn't really stand in their way. But I think they are looking for as much evidence as they can gather before they do a hike, which you know, could really unsettle financial markets.

Yeah, absolutely so, as well as as you said, you know, as well as just looking at the broader economy, how is the unemployment rate and how is of course, how is inflation behaving. One of the key things that we've heard the FMC talk about repeatedly over the last couple of months is what the impact of the banking crisis is going to be, and the difficulty of the banking crisis is is actually a lot of it is down to behavioral behavioral economics almost how do people respond, how do businesses respond, and how to banks respond. It's one of those things that's very very difficult to model for us, but also for the FAT too, So they are having to track the data and see how lending behavior is continuing. Up till this point actually has been fairly healthy, so that shouldn't really stand in their way. But I think they are looking for as much evidence as they can gather before they do a hike, which you know, could really unsettle financial markets.

What about inflation. There's a lot of people that doubt we can get to the two percent for quite some time. Do you think the Fed would ever redefine the two percent target?

What about inflation. There's a lot of people that doubt we can get to the two percent for quite some time. Do you think the Fed would ever redefine the two percent target?

Well, first thing is they cannot redefine a two percent target until they've hit two percent, because otherwise they lose complete credibility. So would they do it this year. Absolutely not, because I am studying the camp that they cannot hit two percent in twenty twenty three. If you get a recession, well that's probably going to be your process which brings it down to two percent, And then maybe at that point they can say right, looking at the broader set of features, looking at the next ten years, or the various structural secular inflationary forces. Maybe we want to shift it maybe a little bit more flexible two and a half to three percent, but study until they've hit two percent. I think that they really risk losing credibility.

Well, first thing is they cannot redefine a two percent target until they've hit two percent, because otherwise they lose complete credibility. So would they do it this year. Absolutely not, because I am studying the camp that they cannot hit two percent in twenty twenty three. If you get a recession, well that's probably going to be your process which brings it down to two percent, And then maybe at that point they can say right, looking at the broader set of features, looking at the next ten years, or the various structural secular inflationary forces. Maybe we want to shift it maybe a little bit more flexible two and a half to three percent, but study until they've hit two percent. I think that they really risk losing credibility.

We've had a slew of strategists come out in the last couple of weeks and they've been upping their SMP targets. Obviously, the market's been rallying quite a bit tax talks and the broader market as well. But what are your first see. It sounds like you would first see a very charpy path for stocks through the end of the year.

We've had a slew of strategists come out in the last couple of weeks and they've been upping their SMP targets. Obviously, the market's been rallying quite a bit tax talks and the broader market as well. But what are your first see. It sounds like you would first see a very charpy path for stocks through the end of the year.

Well, so this is where they think the picture becomes extremely confusing because this recession forecast, and even if you don't expect recession, but you just anticipate slow down, that should suggest that the S and P five hundred is going to be under downward pressure. Right, the broad equity market is underd downward pressure. That makes sense, But then you throw in the tech side and actually everything goes completely out the window because a math just doesn't add up. So if you believe in the strength of AI and sudden, maybe there's a bit of froth in the market. But if you believe that AI can continue to push tech companies forward, it's actually very difficult to see how you get the S and B five hundred back below four thousand, and certainly down to the previous September of tow belows. So I think that has been one of the reasons why you have seen so many strategies upping their S and B five hundred forecasts just because of the text that the math just doesn't add up cerny. For us, we are believers in the text. Last year we were in the underweight because of the FED hiking cycle. February this year we raised our exposure, mainly for cyclical reasons timely, very timely. I can't pretend to have known that in video would do what it's doing, but said we had a cyclical view on it in terms of there's a slowdown coming, the FED is nearing the end of its hiking path, and the broader global economy is going to do better than the US, and typically large cap has a greater international revenue exposure than the middle small caps. So that was the reason why we went overweight in February. But now you've got, of course, this amazing secular discussion around around AI and the potential profits for the sector. I have to say, I think it's very difficult to see this completely collapse back to what it was last year.

Well, so this is where they think the picture becomes extremely confusing because this recession forecast, and even if you don't expect recession, but you just anticipate slow down, that should suggest that the S and P five hundred is going to be under downward pressure. Right, the broad equity market is underd downward pressure. That makes sense, But then you throw in the tech side and actually everything goes completely out the window because a math just doesn't add up. So if you believe in the strength of AI and sudden, maybe there's a bit of froth in the market. But if you believe that AI can continue to push tech companies forward, it's actually very difficult to see how you get the S and B five hundred back below four thousand, and certainly down to the previous September of tow belows. So I think that has been one of the reasons why you have seen so many strategies upping their S and B five hundred forecasts just because of the text that the math just doesn't add up cerny. For us, we are believers in the text. Last year we were in the underweight because of the FED hiking cycle. February this year we raised our exposure, mainly for cyclical reasons timely, very timely. I can't pretend to have known that in video would do what it's doing, but said we had a cyclical view on it in terms of there's a slowdown coming, the FED is nearing the end of its hiking path, and the broader global economy is going to do better than the US, and typically large cap has a greater international revenue exposure than the middle small caps. So that was the reason why we went overweight in February. But now you've got, of course, this amazing secular discussion around around AI and the potential profits for the sector. I have to say, I think it's very difficult to see this completely collapse back to what it was last year.

What is the ballcase on AI? Is it that companies have a bunch of cash and they're balance sheets and they're going to be spending it towards AI development? Or is it and I've seen this slightly gloomier review, which is that people are thinking about AI as replace seeing a lot of jobs. So they're jumping into the market because they want to at least take advantage of the market upside, and they want to be part of the rally, even if it means that AI is, you know, potentially displacing tons of jobs.

What is the ballcase on AI? Is it that companies have a bunch of cash and they're balance sheets and they're going to be spending it towards AI development? Or is it and I've seen this slightly gloomier review, which is that people are thinking about AI as replace seeing a lot of jobs. So they're jumping into the market because they want to at least take advantage of the market upside, and they want to be part of the rally, even if it means that AI is, you know, potentially displacing tons of jobs.

Yeah, AI could be the emotional hedge. So I think it's a little bit of both, right. I think the rationale for having that special to companies which are investing in AI is, you know, I think it's it's not just like you having the dot com boom. I think it's almost a fundamental change in and I guess that the way people live their lives do business is that AI is probably something which is here to stay. It's not like the metaverse, right, this is something which is a lot more meaningful. And these companies have the cash and the balanceches and I have the same kind of leverage. They have the brand. I mean, there's so many reasons to have a positive view for AI, but I also I mean one of my lingering concerns for the broader market is, you know, one of the consensus views is that the next ten years is going to be a lot more inflationary than the past ten years, and that people point to deglobalization, aging, the shift to green energy. But what about AI? I mean AI and the potential job loss. And we've already heard from places like IBM in the United Kingdom. We heard from British Telecom, which is saying that they could I think come almost like a third of their workforce within the next few years. That is deflationary and that could potentially turn that whole discussion of the next ten years and how you really want an investment as a strategic perspective upside down. But at least for the near term, I think AI technology you need to have some kind of exposure to that in new portfolios.

Yeah, AI could be the emotional hedge. So I think it's a little bit of both, right. I think the rationale for having that special to companies which are investing in AI is, you know, I think it's it's not just like you having the dot com boom. I think it's almost a fundamental change in and I guess that the way people live their lives do business is that AI is probably something which is here to stay. It's not like the metaverse, right, this is something which is a lot more meaningful. And these companies have the cash and the balanceches and I have the same kind of leverage. They have the brand. I mean, there's so many reasons to have a positive view for AI, but I also I mean one of my lingering concerns for the broader market is, you know, one of the consensus views is that the next ten years is going to be a lot more inflationary than the past ten years, and that people point to deglobalization, aging, the shift to green energy. But what about AI? I mean AI and the potential job loss. And we've already heard from places like IBM in the United Kingdom. We heard from British Telecom, which is saying that they could I think come almost like a third of their workforce within the next few years. That is deflationary and that could potentially turn that whole discussion of the next ten years and how you really want an investment as a strategic perspective upside down. But at least for the near term, I think AI technology you need to have some kind of exposure to that in new portfolios.

How resilient are these AI linked stocks for the next six months from an impending recession and earnings downturn.

How resilient are these AI linked stocks for the next six months from an impending recession and earnings downturn.

I think they are fairly resilient to the broader economic story, simply because they are typically the companies that should thrive when things get a little more challenging. It's not like they're going to completely avoid the downflow that you see for the border economy, but I would expect them to outperform. The reason I'm hesitating is because there is clearly a little froth in the market. You know, valuations have just gone to extreme levels. We would anticipate that there's going to be a bit of a pullback. Once you get their pullback, increase your exposure because I think this is a long term trade. But I do think that maybe the next six months could be very, very choppy for a lot of things in the market. The other thing is is that if you don't see a pullback in the market, at least pull back in the AI side, does it drag the rest of the market up with it? Do you get this kind of melt up, this momentum, this improved investor sentiment, And I think that would be dangerous because all that happens then is that you get the liquidity financial conditions continuing to ease, you get a new reburst of inflation, kind of like what you saw in the nineteen seventies. You got new FED hikes to come, and then you essentially get a deeper downturn. So from a recession standpoint, you want to get out this way sooner the later it comes, the deeper it's going to be.

I think they are fairly resilient to the broader economic story, simply because they are typically the companies that should thrive when things get a little more challenging. It's not like they're going to completely avoid the downflow that you see for the border economy, but I would expect them to outperform. The reason I'm hesitating is because there is clearly a little froth in the market. You know, valuations have just gone to extreme levels. We would anticipate that there's going to be a bit of a pullback. Once you get their pullback, increase your exposure because I think this is a long term trade. But I do think that maybe the next six months could be very, very choppy for a lot of things in the market. The other thing is is that if you don't see a pullback in the market, at least pull back in the AI side, does it drag the rest of the market up with it? Do you get this kind of melt up, this momentum, this improved investor sentiment, And I think that would be dangerous because all that happens then is that you get the liquidity financial conditions continuing to ease, you get a new reburst of inflation, kind of like what you saw in the nineteen seventies. You got new FED hikes to come, and then you essentially get a deeper downturn. So from a recession standpoint, you want to get out this way sooner the later it comes, the deeper it's going to be.

I'm really interested in your super long term view, which is you're expecting lower returns and higher volatility. I think over the next decade. Maybe we can say, like, can you talk about that very long term view.

I'm really interested in your super long term view, which is you're expecting lower returns and higher volatility. I think over the next decade. Maybe we can say, like, can you talk about that very long term view.

So if we think about the last ten years, you've had an environment of very low volatility and higher rates. And one of the key reasons for that was because there was a low rate environment, you had low inflation, you had central banks not just a FED, but around the world keeping equidity conditions extremely easy. And as a result, if you're an investor, it wasn't too hard to make a positive for ten your portfolio. But now if you look at the next ten years, and for the reasons of the globalization, aging society shifted to green energy, you're probably looking at a time where inflation is going to be I mean not meaningfully higher than what you've had over the last ten years. But maybe if you think that for the US, inflation has averaged about one point two percent over the last ten year period, maybe it goes up to about two and a half to three percent over the next ten years. That is an environment where you are moving away from quantitactive easing. So you haven't got zero rate environment anymore. And as long as you have that, and it's actually more expensive for companies, well then you need to make harder decisions. You need to have better analysis. But ultimately that is an environment where you have lower returns and higher volatility. You need to be a little bit more exotic. I think in terms of how you're thinking about investing, can you just stick to the traditionalist classes or do you need to start thinking a little bit outside of the box. So I think that the next ten years is going to be harder, but potentially more interesting as well.

So if we think about the last ten years, you've had an environment of very low volatility and higher rates. And one of the key reasons for that was because there was a low rate environment, you had low inflation, you had central banks not just a FED, but around the world keeping equidity conditions extremely easy. And as a result, if you're an investor, it wasn't too hard to make a positive for ten your portfolio. But now if you look at the next ten years, and for the reasons of the globalization, aging society shifted to green energy, you're probably looking at a time where inflation is going to be I mean not meaningfully higher than what you've had over the last ten years. But maybe if you think that for the US, inflation has averaged about one point two percent over the last ten year period, maybe it goes up to about two and a half to three percent over the next ten years. That is an environment where you are moving away from quantitactive easing. So you haven't got zero rate environment anymore. And as long as you have that, and it's actually more expensive for companies, well then you need to make harder decisions. You need to have better analysis. But ultimately that is an environment where you have lower returns and higher volatility. You need to be a little bit more exotic. I think in terms of how you're thinking about investing, can you just stick to the traditionalist classes or do you need to start thinking a little bit outside of the box. So I think that the next ten years is going to be harder, but potentially more interesting as well.

I like that word exotic. What's your highest conviction exotic for the long term?

I like that word exotic. What's your highest conviction exotic for the long term?

Yeah, okay, now this is not going to sound exotic at all.

Yeah, okay, now this is not going to sound exotic at all.

But treasury, Yeah, treasure cash.

But treasury, Yeah, treasure cash.

You know, if you want to get any kind of strong returns in your portfolio, beyond beyond I think study what you can make on any kind of traditional equities, public equities, public fixed income. Then you have to start considering about considering privates. And ideally you want to combine two things together, that's emerging markets and privates. And I think there is a lot of potential there. But you have to look beyond the next year or so because there will I think be a lot of cyclical concerns as maybe the public weakness catches up with the private catch up for the private market. But then, if you're taking a ten year perspective, don't you want to have a position in some new found companies which are going to be benefiting from a growing middle class, a catch up economy, and ideally based something on technology.

You know, if you want to get any kind of strong returns in your portfolio, beyond beyond I think study what you can make on any kind of traditional equities, public equities, public fixed income. Then you have to start considering about considering privates. And ideally you want to combine two things together, that's emerging markets and privates. And I think there is a lot of potential there. But you have to look beyond the next year or so because there will I think be a lot of cyclical concerns as maybe the public weakness catches up with the private catch up for the private market. But then, if you're taking a ten year perspective, don't you want to have a position in some new found companies which are going to be benefiting from a growing middle class, a catch up economy, and ideally based something on technology.

Well, I was going to ask you to give us your overview what you are seeing internationally as well, and maybe what areas you're concerned about or what you are currently liking.

Well, I was going to ask you to give us your overview what you are seeing internationally as well, and maybe what areas you're concerned about or what you are currently liking.

So at the moment, we have had I think generally constructive view on China. We are disappointed, of course by the economic story in the last couple of months has really has been quite disappointing. And yet if you look out over a longer term, perspective. So again, maybe the next six months are tough, but if you're looking out maybe over two to three and obviously a longer term horizon, I actually think the China story is quite a constructive one again, and the reason is is that what we've learned from the Chinese government over I think the last five years but it's kind of gone a little bit behind the scenes because of COVID and the various lockdowns, is that they are aiming for a more stable economy. They don't want to have the boom bus cycle. They don't want to have an economy which is addicted to leverage, and as a result, their stimulus policies are not going to be driving incredible growth rates and then sharp drops, So we are not anticipating very significant stimnus in the second half of this year. This is a government which is aiming for fairly stable and I guess a little bit boring growth. But the benefit for an invest over the next over a year, longer term horizon is that this is a more stable economy which avoids a lot of the pitfalls and I think investors have fallen into previous years, so we do, like China, guess from a longer term perspective.

So at the moment, we have had I think generally constructive view on China. We are disappointed, of course by the economic story in the last couple of months has really has been quite disappointing. And yet if you look out over a longer term, perspective. So again, maybe the next six months are tough, but if you're looking out maybe over two to three and obviously a longer term horizon, I actually think the China story is quite a constructive one again, and the reason is is that what we've learned from the Chinese government over I think the last five years but it's kind of gone a little bit behind the scenes because of COVID and the various lockdowns, is that they are aiming for a more stable economy. They don't want to have the boom bus cycle. They don't want to have an economy which is addicted to leverage, and as a result, their stimulus policies are not going to be driving incredible growth rates and then sharp drops, So we are not anticipating very significant stimnus in the second half of this year. This is a government which is aiming for fairly stable and I guess a little bit boring growth. But the benefit for an invest over the next over a year, longer term horizon is that this is a more stable economy which avoids a lot of the pitfalls and I think investors have fallen into previous years, so we do, like China, guess from a longer term perspective.

Well, Sima Shaw, chief Global Strategists for Principal Asset Management. We want to thank you for coming in, but you're not free to go yet. I call this the taking our guests for hostage part of the show, because we're going to be playing some games.

Well, Sima Shaw, chief Global Strategists for Principal Asset Management. We want to thank you for coming in, but you're not free to go yet. I call this the taking our guests for hostage part of the show, because we're going to be playing some games.

I think games.

I think games.

Yeah, I have a game for PROTECTI yes. But first, I think both of you have come very well prepared for craziest things we saw in market. So Emily, I'll have you go first.

Yeah, I have a game for PROTECTI yes. But first, I think both of you have come very well prepared for craziest things we saw in market. So Emily, I'll have you go first.

Okay, So the relatively new Amazon CEO Andy Jasse is cutting a number of projects side projects that Amazon during the Jeff Bezos era came up with. Bloomberg had an article last week about thirty seven of the projects that they have over the last few years. The craziest one I saw was Amazon Books. It was a physical bookstore by Amazon.

Okay, So the relatively new Amazon CEO Andy Jasse is cutting a number of projects side projects that Amazon during the Jeff Bezos era came up with. Bloomberg had an article last week about thirty seven of the projects that they have over the last few years. The craziest one I saw was Amazon Books. It was a physical bookstore by Amazon.

Oh, I think I remember this.

Oh, I think I remember this.

So they closed this last year, so I'm a little late to it, but I didn't see it until the article last week. But how ironic is that that Amazon?

So they closed this last year, so I'm a little late to it, but I didn't see it until the article last week. But how ironic is that that Amazon?

Are there any actual physical bookstores or they were just planning?

Are there any actual physical bookstores or they were just planning?

They had twenty four physical bookstores and then close them down.

They had twenty four physical bookstores and then close them down.

Were any of them in New York.

Were any of them in New York.

I'm not sure about that. I know one was in Seattle, I believe. I think that was the first one.

I'm not sure about that. I know one was in Seattle, I believe. I think that was the first one.

I've still never been to one of those stores where you just grab stuff and leave.

I've still never been to one of those stores where you just grab stuff and leave.

You just steal it.

You just steal it.

Yeah, you just steal? Is that what you do?

Yeah, you just steal? Is that what you do?

Just bring a big bag? And I don't think I've ever been in one of those either.

Just bring a big bag? And I don't think I've ever been in one of those either.

There's one across the street from us, actually from the office, and I've never been. We should go, Sima, what about you?

There's one across the street from us, actually from the office, and I've never been. We should go, Sima, what about you?

Okay, So this one is maybe it's a little bit concerning, I think. So we know that Europe is ahead, I think with regards to the ESG discussion, maybe taken a bit of a backfoot in the US. But so recently and I saw this on the Bloomberg terminal, it was I did a bit of a double take when I saw this and ended up clicking on it. And it turns out that one of the German states, as one of the richest states, has decided that under its new ESG legislation, they are putting US treasuries on the investing blacklist. Oh because of America's failure to ratify a number of treaties anything like women's rights, controversial weapons, and probably down to the ESG perspective.

Okay, So this one is maybe it's a little bit concerning, I think. So we know that Europe is ahead, I think with regards to the ESG discussion, maybe taken a bit of a backfoot in the US. But so recently and I saw this on the Bloomberg terminal, it was I did a bit of a double take when I saw this and ended up clicking on it. And it turns out that one of the German states, as one of the richest states, has decided that under its new ESG legislation, they are putting US treasuries on the investing blacklist. Oh because of America's failure to ratify a number of treaties anything like women's rights, controversial weapons, and probably down to the ESG perspective.

Which state was it?

Which state was it?

I wish I could pronounce it. Now you're putting me on the spot.

I wish I could pronounce it. Now you're putting me on the spot.

This is why I did.

This is why I did.

Yeah, but Wittemberg with an English accent.

Yeah, but Wittemberg with an English accent.

That's really interesting. I think see Must is better than yours.

That's really interesting. I think see Must is better than yours.

Sorry, I liked mine.

Sorry, I liked mine.

It was an ironic business. You know, business is coming from simple mm hmm.

It was an ironic business. You know, business is coming from simple mm hmm.

Okay, it's time to play The Price is Precise, which I have such a hard time pronouncing. The rules are exactly the same as a little game called the Price is Right, but we can't call it that, so we call it the Price is Precise. Okay, we all know Taylor Swift has been on tour for a couple months now. I didn't get tickets, super hard to get.

Okay, it's time to play The Price is Precise, which I have such a hard time pronouncing. The rules are exactly the same as a little game called the Price is Right, but we can't call it that, so we call it the Price is Precise. Okay, we all know Taylor Swift has been on tour for a couple months now. I didn't get tickets, super hard to get.

Did you get tickets?

Did you get tickets?

You're not a big Tailor Swift fan.

You're not a big Tailor Swift fan.

But I want to play.

But I want to play.

I want to ask both of you to guess how much she the concert is expected to gross, and then how much she of that gross amount actually gets to keep. Emily, you go.

I want to ask both of you to guess how much she the concert is expected to gross, and then how much she of that gross amount actually gets to keep. Emily, you go.

First, Oh my gosh, I have no idea the whole like the whole tour or one single concert, the whole tour crickets, I don't know five hundred million, and then how much she.

First, Oh my gosh, I have no idea the whole like the whole tour or one single concert, the whole tour crickets, I don't know five hundred million, and then how much she.

Makes how much she keeps?

Makes how much she keeps?

Fifty million? Seema, So I should do what I used to do with my brother, Just go like one dollar higher?

Fifty million? Seema, So I should do what I used to do with my brother, Just go like one dollar higher?

Yeah or no? If you go over then you lose, you lose. Supposed to go one dollar lower, I think? But what if it's more like unless you're super sure?

Yeah or no? If you go over then you lose, you lose. Supposed to go one dollar lower, I think? But what if it's more like unless you're super sure?

Ah, now you've made it more complicated restrategizing everything with my brother over they is. Okay, I'm going to go with four hundred and fifty million, and I reckon she makes more of it because didn't Tanna Swift take back control over all of her records. So I'm going to say she made like fifty aggressive maybe thirty percent.

Ah, now you've made it more complicated restrategizing everything with my brother over they is. Okay, I'm going to go with four hundred and fifty million, and I reckon she makes more of it because didn't Tanna Swift take back control over all of her records. So I'm going to say she made like fifty aggressive maybe thirty percent.

Is she a big deal in the UK?

Is she a big deal in the UK?

Oh? Yes, yeah, absolutely, Yeah. Okay, alexa Is is very much accustomed to playing test.

Oh? Yes, yeah, absolutely, Yeah. Okay, alexa Is is very much accustomed to playing test.

Oh that's nice for you. Hope she gets a lot.

Oh that's nice for you. Hope she gets a lot.

For you, right, yea for my daughter.

For you, right, yea for my daughter.

Okay, you were both actually very close. It's expected to grow six hundred and twenty million dollars. I tricked you a little.

Okay, you were both actually very close. It's expected to grow six hundred and twenty million dollars. I tricked you a little.

You did. Sorry, I had to.

You did. Sorry, I had to.

I had to spice it up a little.

I had to spice it up a little.

You helped me a lot.

You helped me a lot.

However, she's keeping five hundred million of it. Oh wow, good for her, But you guess ten billion at.

However, she's keeping five hundred million of it. Oh wow, good for her, But you guess ten billion at.

First, it's early in the morning.

First, it's early in the morning.

Ten billion.

Ten billion.

Well, I know some people have been paying a lot for the tickets.

Well, I know some people have been paying a lot for the tickets.

Ten billion.

Ten billion.

Katie last week.

Katie last week.

Was saying the ice cream was going to cost like five hundred thousand dollars first.

Was saying the ice cream was going to cost like five hundred thousand dollars first.

Oh my god. Okay, Sima, thank you so much for coming in. It's been great to have you. Thank having back on and actually see you in person too.

Oh my god. Okay, Sima, thank you so much for coming in. It's been great to have you. Thank having back on and actually see you in person too.

Thank you very much.

Thank you very much.

What Goes Up will be back next week and so then you can find us on the Bloomberg Terminal, website and app or wherever you get your podcasts.

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We'd love it if you took the time to rate and review the show on Apple Podcasts. Some more listeners can find us, and you can find us on Twitter. Follow me at Reaganonymous, Wildna Hiric is at Fildona Hirich.

We'd love it if you took the time to rate and review the show on Apple Podcasts. Some more listeners can find us, and you can find us on Twitter. Follow me at Reaganonymous, Wildna Hiric is at Fildona Hirich.

You can also follow Bloomberg Podcasts at Podcasts.

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What Goes Up is produced by Stacey Wong. Thanks for listening, See you next time.

What Goes Up is produced by Stacey Wong. Thanks for listening, See you next time.