August 8, 2025 • 27 mins
- Savita Subramanian, Head: US Equity & Quantitative Strategy at Bank of America
- Bruce Hirsh, former Chief International Trade Counsel at the US Senate Finance Committee
- John Vinh, Equity Research Analyst at Keybanc
- Collin Martin, Fixed Income Strategist at Charles Schwab
Savita Subramanian, Head: US Equity & Quantitative Strategy at Bank of America, discusses the equity bull case and her S&P 500 target. Bruce Hirsh, former Chief International Trade Counsel at the US Senate Finance Committee, discusses the Trump administration's tariff strategy and outlook for US trade. John Vinh, Equity Research Analyst at Keybanc, talks about Intel after President Trump called on their CEO to resign. Collin Martin, Fixed Income Strategist at Charles Schwab, discusses how the bond market is pricing in recent economic data.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:11):
This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
with Lisa Bromwitz and Amrie Hordern. Join us each day
for insight from the best in markets, economics, and geopolitics
from our global headquarters in New York City. We are
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(00:34):
Terminal and the Bloomberg Business App.
Speaker 3 (00:36):
We'll begin this hour with SMP five hundred set for
a weekly gain. Savita Supermanian, a Bank of America writing
sentiment is far from uphork. The consensus Wall Street broker
is recommending an average at location of just fifty six percent.
To US docs, this is not euphoria, Siviita joins us. Now,
thank you so much, good morning, Thanks thanks for joining us.
So it's not euphoria. What are we in right now?
Speaker 4 (00:58):
What is this world? Yeah, the world.
Speaker 5 (01:00):
Feels weird, but I think we're in that sort of
wall of worry stage where there are certain themes that
are getting a lot of credence and credibility like AI.
Other themes are kind of falling out of bed like
GLP one, and then you've got this potential broadening of
the market that we've all been waiting for with baited breath,
(01:20):
that I think is at a moment where it's it's
actually in the work. So if you read the transcripts,
and I love Lori's quote, but I think that when
you read the transcripts, companies are worried, but they're also
talking about the fact that they've delayed a lot of projects.
They haven't canceled them, they've delayed them. That means there's
(01:41):
a lot of pent up activity, business activity in the
pipes that is likely to be unfurled over the next
couple of quarters. And I think what really stemied that
pickup in broadening and you know kind of other companies
actually moving from you know they're very low low multiples
and low low levels, is the idea that we're past
(02:03):
a lot of the tariff uncertainty. I mean, granted, there
are curveballs that are thrown at us every day, but
we do know what's going on with Europe. You know,
we've got a better handle on how companies can actually
plan and do business. We're also starting to see I
think the beginnings of this m and A cycle, even
cross border MNA, so I think those are other animal spirits.
(02:23):
I could on LESHA a broader pickup in economic activity.
And then when we look at things like you know,
companies reporting, I think what's really noteworthy is that at
this point about eighty percent of companies have beat on revenue.
Speaker 4 (02:39):
That's new.
Speaker 5 (02:40):
We haven't seen this revenue surprise in a while.
Speaker 4 (02:43):
So what that means is that.
Speaker 5 (02:45):
Analysts mark down expectations very low for sales and demand,
and they're beating those lowered expectations. So I think this
all bodes well for a broader market.
Speaker 4 (02:55):
I would stick with.
Speaker 5 (02:56):
Large cap value stocks, companies that are you know, really
in the penalty box but could actually start to work
in an environment where you know, we do see earnings
broaden in a bigger pickup.
Speaker 6 (03:07):
What happens if you add in rate cuts to all
of that, is that just jet fuel for the broadening
out and even maybe for some of the smaller companies.
Speaker 5 (03:14):
I think it's jet fuel for small caps. I don't
know if large caps need a rate cut. I mean,
the thing that I like about the S and P
five hundred is it's kind of immune to the FED
because a lot of these stocks really move more on
long rates rather than short rates. So I think that,
you know, the refinancing risk is really firmly in the
Rustle two thousand rather than the S and P five hundred.
Speaker 4 (03:36):
But I do think that a FED cutting.
Speaker 5 (03:38):
Rates from these levels would be sort of a driver
for more positive sentiment on stocks, a shift out of
cash into stocks if inflation remains high.
Speaker 4 (03:48):
I think there's one.
Speaker 5 (03:49):
Pocket that the bulk of individual investors have to go to.
So think about individual investors that are mostly retirees. They're
sitting in big tech stocks and cash. If cash shields
are coming down but inflation is still relatively.
Speaker 4 (04:04):
High, what are you going to do for real yield?
Speaker 5 (04:06):
This is where I think that dividends, cash return, etc.
Speaker 4 (04:10):
Come in. What worries me a little bit.
Speaker 5 (04:13):
About the big ballast of the S and P five
hundred the AI spenders is that these guys are becoming
more capital intensive and that might not be great for
multiples for.
Speaker 4 (04:26):
Cash return, et cetera.
Speaker 5 (04:27):
In fact, we wrote a note this morning highlighting that
the magnificent six if you take out Tesla is growing
much more capital intensive and less R and D focused,
and I think that's something to watch because we're sort
of in the middle innings. I think of an AI
spend cycle, and if that continues, the asset lightness of
(04:50):
these megacap tech stocks is potentially compromised.
Speaker 4 (04:54):
Your note you have.
Speaker 3 (04:54):
We are moving from quote everyone spending on tech to
tech spending on everything data.
Speaker 4 (05:00):
This has been a story of the entire quarter.
Speaker 6 (05:01):
Yeah, it has been the story, and it's been a
lot of the reason why it's hard to be bearished.
But I do think this idea of the business model
changing is so interesting Cevita, because part of the thing
that people bought tech for was because they were capital
lights and you could get those really high valuations.
Speaker 5 (05:17):
And great growth and yeah, great growth and free cash level.
Speaker 6 (05:20):
So is there now a ceiling or will there start
to be a ceiling on multiples on valuations if it's
a different business model and.
Speaker 4 (05:27):
All of a sudden they're capital intensive.
Speaker 5 (05:28):
Well, I think you need to see the revenue beats
for these companies, because if you don't see top line
really accelerate along with capex, you're cutting into that earnings.
Speaker 4 (05:38):
You're cutting into that free cash flow.
Speaker 5 (05:40):
We've already seen the total shareholder return for the Magnificent
six drop since twenty fifteen. We've seen capex to sales
pick up, We've seen R and D to sales decline.
It's all happening. The question is when will it get
priced in? Because these stocks are trading near their all
time highs in terms of multiples. I think what we
(06:00):
start to see is a tradeoff where old economy stocks
are getting all these new tools to get more efficient
asset light, labor light, et cetera, whereas tech companies are
starting to get more asset intensive. It's a very sort
of slow burn shift or handing off of you know,
(06:21):
multiple expansion to multiple contraction.
Speaker 4 (06:23):
But I think it's something to keep an eye on.
Speaker 3 (06:24):
When it comes to policy. We have the one big,
beautiful bill. There is a little bit more of an understanding.
What's going on with terras? Yeah, what are you waiting
for out of Washington? What's the next shoot to drop?
Speaker 5 (06:34):
You know, I think right now there's there are not
a lot of catalysts, and maybe you know the FED obviously,
but I think that you know, we're in an environment
where our near turn out look.
Speaker 4 (06:44):
On equities isn't great.
Speaker 5 (06:45):
I mean, we think a lot of the good news
is priced into the market. If you look at reactions
to beats, they were pretty good, but reactions to missues
were terrible. In fact, the worst downdraft to earnings missues
and sales missus in the history of our data since
reg FD back in two thousand and one. So this
means the good news is probably more than priced in
(07:06):
in the near term. I do think if we see
this broadening of earnings growth and we see a pickup
in some of the economic indicators, maybe the FED cut
is compromised or a continued cutting cycle is compromised, but
I think that's the driver for better earnings.
Speaker 4 (07:20):
And you still think we're going to be at sixty
three hundred year end.
Speaker 5 (07:22):
So sixty three one hundred is our year end forecast.
I think it's tricky because we've also got the mid
term elections coming up, So our twelve month forecast, which
is probably more important or relevant, is really for more
like five percent gains from here. I think what's interesting, though,
is that the years where you've seen the biggest earnings
(07:43):
recoveries haven't necessarily seen the strongest market returns. So that's
kind of what we're operating on, is the idea.
Speaker 4 (07:49):
That earnings are coming back.
Speaker 5 (07:51):
We're exiting a manufacturing recession, but market returns aren't necessariarily
going to be blockbuster.
Speaker 4 (07:57):
Tavita, thank you so much for your time this morning.
Thank you, fantastics.
Speaker 3 (08:00):
Vita Supermanian of a Bank of America. We're joined by
former Chief International Trade Counsel for the Senate Finance Committee,
Bruce Hirsch, and he writes, our trading partners have had
to adjust to the idea that these deals need to
(08:22):
include offers to purchase specific US goods or commit to
invest in the United States. The bigger the number, the better. Bruce,
thank you so much for joining us. This is exactly
what Danny and Oliver were just getting at. The issue
I have with this premise for Switzerland is that they
are top five foreign direct investor already into the United States.
Speaker 1 (08:43):
Well, they certainly are, and we have a close trading
relationship with them, but we also have a trade deficit
with them, and a large part of that deficit is
on pharmaceuticals, and pharmaceuticals is one of the areas of
great concern that President Trump he wants to onshore that manufacturing.
So he's going to look at that deal perhaps a
little bit differently, and he looks at some of the
others also. He's really been counting on our trading partners
(09:05):
to reduce their terrorists the close to zero and that's
difficult politically for a country like Switzerland are doing agricultural products.
Speaker 3 (09:12):
So what do you think Switzerland can offer at this point,
given the fact that Oliver just outlined how difficult these
negotiations have become.
Speaker 1 (09:20):
Well, I mean, there's the possibility that they'll make some
very tough decisions on agricultural terriffs. Beyond that, you know,
if there have any other investments in the bank to
put on the table here, that probably is going to
be critical. I mean, I suspect that President Trump is
looking for some sort of investments in domestic manufacturing here
(09:42):
of pharmaceuticals, because that, again is what he cares about.
But it's hard to say, and they really are between
a rock and hard place.
Speaker 6 (09:49):
Bruce Amory's have done really great reporting on this that
it did look like the Swiss and the US had
a deal before all of this unraveled. It's a less
traditional type of negotiation that you need to satisfy the
President himself rather than a coalition of stakeholders or the
Senate itself. You've been in the room under more traditional
trade frameworks. How does it change the negotiation when you're
(10:11):
really trying to favor a party of one instead of
more stakeholders.
Speaker 1 (10:16):
Well, it's going to lead to a bit of confusion
on both sides at the table because I mean, as
you mentioned at one point, the question was, how do
you satisfy Congress? They're the ones who have to approve
the deal. With the end of the day, the groundwork
will have been done with Congress, with stakeholders to develop
a US position. Consultations will continue, your good sense of
what you need to do. Now you're trying to satisfy
(10:36):
a party of one. And because President Trump has a
number of objectives and they can shift whether it's revenue
or industrial policy, or leverage for trade or non trade objectives,
you just don't know. So both sides are at the
table and they're trying to figure out what will satisfy
President Trump, and they're not really quite sure.
Speaker 6 (10:53):
Well to that point, we're in this environment where it
has been figured out the top line of the deal
first and then the details later bruce to what grief,
does that actually give the US more leverage as things progress.
The fact that we don't have these details, and it
is something that Washington can push back on because you
don't have the details in the fine print yet, well.
Speaker 1 (11:13):
Well, you know, it certainly gives the opportunity for leverage.
It also gives the opportunity to disrupt the deals that
you've just cut. We've already seen in some of the
deals both with the EU and Japan. You know, they're
concerned about when certain parts of the deal with regard
to Section two thirty two National Security Secral tariffs, when
they're going to be implemented. They were expecting them to
(11:33):
be implemented right away and that hasn't happened. So, yes,
it gives leverage, but you know, the question is at
what cost and will it blow up the deal? So
it's a great challenge. It also sort of undermines a
lot of what these countries are looking for and what
the markets you're looking for, which is stability, because to
the extent that there are things like that, there are
(11:56):
these opportunities to disrupt the deals by continuing to push
after the top line has been agreed to. You know,
that can undermine that sense of stability that everybody's seeking.
Speaker 3 (12:05):
Mody is looking for stability right now, Bruce. What's going
on with India and that trade negotiation.
Speaker 1 (12:12):
Well, again, this really highlights the fact that the deals
are made at the top. And you know, we had
a situation in which the negotiators are right up to
the cabinet level thought they had a deal with India.
It was presented to President Trump and he looked at
it eventually and decided not enough. Again, a lot of
countries are going to zero. India wasn't willing to go
to zero on their agricultural goods, and so he just
(12:35):
said no. And this is going to create a real
challenge for a number of reasons. You know, we have
to India is going to have to make some tough choices.
Potentially they may have themselves kind of check of some sort.
But politically it's very difficult for Prime Minister Moti because
he presents himself as a strong leader and having to
appear to cave to pressure is really going to be
(12:57):
very difficult for him, either on these tariffs or on
the relationship with Russia. So it's going to be a challenge.
Speaker 3 (13:03):
On that one, and he's even go out with the
rhetoric saying this is going to be challenging, but I'm
going to have to do it. He doesn't want to
cave at this moment. We're gonna be watching those trade
negotiations very carefully. Former Chief International Trade Council for the
Senate Finance.
Speaker 4 (13:17):
Committee, Bruce Hirsh, thank you so much for joining us.
Speaker 3 (13:30):
Don Vin of Key Bank has a sector weight rating
on Intel's shares.
Speaker 4 (13:33):
John joins us now.
Speaker 3 (13:35):
John Mandeep is really outlining here that it's not just
the President of the United States. He might be the
final nail in the coffin, but actually there is the
board that's pushing back on the CEO strategy right now
when it comes to Intel.
Speaker 4 (13:47):
Do you think he can stay in the top position?
Speaker 7 (13:53):
I think he can, right. I think if you kind
of take a step back, there's only a handful of
executive is out there that are capable of leading Intel.
And clearly during the search he was their top pick,
right he was on the board of Intel's deeply familiar
with the challenges that they had. He's had a lot
(14:14):
of success historically, He's been successfully run Cadence. So I
think he's you know, I think there's a lot of
noise going on right now. But you know, taking a
step back, he's the right person to kind of run
Intel at this point.
Speaker 4 (14:29):
He's the right person John.
Speaker 6 (14:31):
But what happens if it's a White House that is
unsatisfied if he stays on as CEO, Just how painful
could they make things for Intel?
Speaker 7 (14:40):
Yeah, I think he's got to learn to kind of
manage up, if you will, to the White House. Obviously,
this is an uncharted territory for public company CEOs if
you are singled out by the President of the United States.
But yes, this would be extremely difficult if he doesn't
figure out how to kind of manage up to the
(15:02):
White House. You know, a big beneficiary Intel is of
the of the Chips Act, Right, They're going to get
a significant amount of funding from the US government to
support their manufacturing initiatives. And if he's not willing to
play nice and manage manage up, you know, a lot
of that funding could be at the at risk.
Speaker 6 (15:23):
Well, he wrote a note made it public as well,
basically saying that they're trying to work with the White
House to alleviate any concerns John, what would it look
like to manage up how would Intel get out of
the situation in the ire of the president that they
have right now.
Speaker 7 (15:38):
Yeah, I think at this point, I think the tension
between the administration and Lipu right now is how much
they're willing to commit to manufacturing the US. I think
if you look at Lipwui's predecessor, Pat he kind of
maybe was a little bit too aggressive in terms of
building out capacity to manufacture in the US is of
(16:01):
the mindset of if we build out this capacity, they
will come. Lippoo, as we've seen, has taken a much
more discipline approach at spending. He's come out and he said,
you know, we are very excited about our next process
Note fourteen A, but we are going to be much
more disciplined about it. Right if fourteen A doesn't pan
(16:21):
out as we'd like, I'm not ready at this point
to fully commit to fourteen A, which is leading manufacturing
in the US. So I think he's got to carefully
choose his words and commit communicate to the White House
that he's fully committed to US manufacturing, but he's got
to be very careful about committing the full amount there
(16:46):
and just be very careful about how he selects his words.
Speaker 3 (16:49):
John, How can he be explicit to the President of
the United States when the Wall Street Journal this morning
is saying that he and some Intel directors have disagreed
about simple questions as whether or not the company should
stay in the manufacturing business or exit entirely.
Speaker 4 (17:03):
Doesn't he need to shore.
Speaker 3 (17:04):
Up his own company, the directors the board before he
starts making matter of fact statements to the President of
the United States.
Speaker 7 (17:14):
Yes, I do agree that he's got to kind of
figure out also how to manage the board. But it's
not a surprise that they're having differences. But I think
this is why they needed to bring them in, you know,
I'll pat the previous YEO had the full support of
the board, and obviously that strategy wasn't working, so they
(17:35):
had to bring somebody in to kind of change up
the strategy. And I think that's that's what the board
and Laboo are going through it now. They're going through
some of those growing pains.
Speaker 6 (17:45):
John, I would love to get your read on the
wider chip sector now that we've had some of their
earnings under our belt.
Speaker 4 (17:50):
It was an.
Speaker 6 (17:50):
AMD that was punished for voicing uncertainty when it comes
to whether or not they'll be able to sell some
of their key technology in China. You had the lights
of NXP for exams Semple saying they were uncertain of
how much of a pull forward they had in terms
of orders. Just how much clarity do you have on
the sector as a whole for where we move from
here with some of these tensions still very front and center.
Speaker 7 (18:12):
Yeah, there are clearly a lot of cross currents right now.
I think the trend that we are seeing Last night
we had Marketship, which was a great print. Stocks down
eight percent pre market today. I think what we're seeing
right now is it doesn't matter how good your print
is and how good your results and guidance is, everything's
getting sold in this market. I think people are very
(18:33):
nervous that a lot of the strong results that we're
getting in this environment is a function of pull forward
demand related to tariffs. I think there's a lot of
concerns that this could result in a weaker second half.
There's a lot of concerns that this could undermine kind
of the cyclical recovery that we're seeing in the broader
chip sector. And then on top of that, right, you've
(18:54):
got these geopolitical uncertainty that is layering on top of that. Right,
just the other day in the middle of the earning period,
you know, you have the Trumpet administration levy one hundred
percent check tariff on companies that aren't willing to commit
to building in the US.
Speaker 4 (19:12):
Right, and then potentially export controls.
Speaker 3 (19:14):
And do they actually mean that they're going to be
licenses that are going to be taken back or will
they just be you turned like we saw at the
age twenty, John, thank you so much for your time
this morning, John Vin of key Bank Capital Markets, Colin Marker,
(19:37):
Charles Schwab writing the need for new FED chair to
cut rates.
Speaker 4 (19:41):
Could be a point.
Speaker 3 (19:42):
By the time FED chair pals term is up next year,
the FED may have cut three or four times.
Speaker 4 (19:48):
Colin joins us now for more. Is this the irony
of all this?
Speaker 3 (19:51):
The President is really job boning the FED and wants
to talk about maybe regime change at the FED by
time to get some of these appointments.
Speaker 4 (19:57):
They were dumb what he wants.
Speaker 8 (19:58):
I think Sid, I don't think it's going to matter
because what we saw with obviously the headline about the
weakening labor market. Now, there was already some support for
RAID cuts. It seems like there's even more support for
RAID cuts based on comments from various FED officials, and
the data basically says that if we do get that
weakening labor market, and if we look forward to say April,
May June of next year, the markets are pricing in
(20:19):
three or four RAID cuts. So even without the headlines
of a new FED chair, who's it going to be,
how dubbish are they going to be, we might see
a FED funds rate one hundred basis points lower than where.
Speaker 4 (20:30):
We are right now.
Speaker 8 (20:31):
That doesn't mean that the jaw boning might end. It
doesn't mean that we might not get a new FED
chair who is as dubbish as the administration wants. But
we have to remember that it's a committee, and I
think most committee members, whether it's a governor or a
district bank president, they look at their dual mandate and
they I think they're more methodical about how they're going.
Speaker 4 (20:52):
To go about it.
Speaker 8 (20:52):
So even the headlines might not stop, but I think
cooler heads will prevail.
Speaker 6 (20:56):
Some people have made the point, though, and Paul Donovan
at UBS included that Waller's actually the most dubbish pick
you could have for a FED chair because he has
credibility with the rest of the committee and could sway
them to more dubbish.
Speaker 4 (21:08):
Outlook is that, right would a Waller be.
Speaker 6 (21:11):
The most dubbish pick over the Kevins, over anyone else based.
Speaker 4 (21:15):
On what we've seen.
Speaker 8 (21:16):
I don't know if he'd be the most dubbish pick,
but he's clearly dubbish. We could argue he's the most
dubbish member of the committee right now governors and district
bank presidents. But he's not out there talking about the
need for a three percentage point raidcut or something like that.
If the data were to change, maybe his tune or
tone would change, but right now we're not seeing that.
(21:37):
So it seems like he could be in line to
be the next FED chair. There's a lot going on,
you know. We have the temporary announcement for Myron because
we don't really know what Powell's going to do. So
if Powell stays on and Waller's already in there, he
could be a logical choice without making too many headlines,
without having to worry about the confirmation process.
Speaker 6 (21:58):
Well, so, when Stephen I was announced, the market reaction
was slight, but there was one there, a little bit
of curve steepening. If you get someone like a Myron
or again one of the Kevins, a less traditional sort
of appointment to the FED chair, would.
Speaker 4 (22:11):
You put on steepeners? Does that trade make sense?
Speaker 8 (22:14):
We think steepeners make sense regardless, because we think short
term rates are likely coming down based on the data
we're seeing. But at the same time, we have fiscal
concerns that likely aren't going away anytime soon, and the
idea that inflation might stay elevated. We're not expecting a reacceleration,
but the idea that with the tariffs in place right
now at relatively high levels, we can see it stay
(22:34):
higher than we would have expected if we talked.
Speaker 7 (22:37):
About this, say six months ago.
Speaker 8 (22:38):
So we think maybe long term rates stay where they are,
maybe come down a little bit, but likely not as
much as short term rates. So I think whoever is
in charge of the Fed over the next six to
twelve months, we think the curve should continue to.
Speaker 3 (22:49):
Steep In talking to Neil Dudda yesterday and he joined
the program this morning. He was talking with the fact
that Powell basically holds the cards if it is someone
that seems overtly political that the top administry wants to
put as a FED chair.
Speaker 4 (23:01):
Do you think he stays on.
Speaker 8 (23:03):
I don't know, and I say that because because it's
anybody's guess right now, and I think he's in a
really difficult position. On the one hand, he doesn't want
to or I think he does a really good job
of not politicizing it because he basically doesn't say much.
Anytime someone asks him a question or someone brings it
up at the press conference, he just defers and says,
we're looking at the data now. If there's a push
(23:25):
for someone who is, you know, very partisan, very political,
and is very loud about the need to cut rates sharply,
which the data right now doesn't support, maybe he stays
on because his term as governor doesn't end for another
few years.
Speaker 4 (23:41):
But I think he's in a.
Speaker 8 (23:42):
Really difficult position because that makes it seem like he's
politicizing it, when at the end of the day, I
think he's just trying to uphold the integrity of the committee,
because I really think he's trying to do the best
he can.
Speaker 3 (23:54):
So you think he's trying to protect the institution, But
he in the end, if he were to do that,
he would end up become almost a shadow fed chair.
How can the market deal with that?
Speaker 8 (24:04):
That's a great question. I think we just have to
understand that. Again, there's a lot of committee members, so
whether he's I wouldn't say he'd be a shadow fed chair.
He would just be one other voting member. I think
he has the respect of a lot of his colleagues
out there.
Speaker 3 (24:17):
We're a senator saying that they're going to run for Congress,
for the House.
Speaker 4 (24:22):
I think if he was there to do that, you know, he'd.
Speaker 8 (24:25):
Be a voter, and he would vote based on what
the mandate suggests and what the data suggests. We have
a lot of time before next May. I think it's
going to be a really exciting couple of months.
Speaker 6 (24:36):
Well, we have a lot of time, but we have
so much information to digest before that time. And this
week we had both a ten and a thirty year auction,
and both of them were pretty weak, or at least
just lackluster. Let's say, do you look at that and say, Okay,
this is real concerns about a bloting deficit and fed
independence or is it just yields have been lower.
Speaker 4 (24:54):
Since the payrolls data, there was less demand.
Speaker 8 (24:57):
I'd say all he above, you know, when we look
at the fifth concerns which are clearly there, and there
doesn't seem to be anyone on either side that wants
to fix this right now from in the grand scheme
of things. And if we have this you know, rising deficits,
rising debt, you know, we need to find more buyers there.
So I think that's one of the reasons why we
think yields could stay elevated for a little bit. We're
not worried that they're going to shoot significantly higher to
(25:18):
say six percent levels, seven percent levels, But if there
are concerns and weak auctions like we got this week
week at the margin, nothing crazy, but it shows that
maybe there is a slight pullback in demand. That's another
reason why yields can stay elevated and we see a
sleeper yield curve.
Speaker 6 (25:33):
Okay, So to that point, bringing the whole conversation around,
if you have an appointment to the Fed, that in
practice doesn't matter because it's already going dubvish, but gives
that appearance, especially to foreigners, to seem to be one
that kind of chips away at the FED independence. Does
that then matter because it makes foreigners less willing to
fund the twin deficits of the US.
Speaker 8 (25:53):
I think it would matter, and this is something we
talk about a lot about the idea of FED independence.
We're not worried right now now that they're going to
lose that. I mean, there's a lot of headlines about it,
but we've talked to d Nausey in this morning about it.
It's a committee, but that would be a concern for us.
You know, if there was a lack of independence, we
think we'd likely see a week er dollar. We think
we'd likely see long term meals rise because of that
(26:17):
loss of confidence in the markets. And when we look
at what we've seen in the TICK data, basically from
Liberation Day, initially the first month, we actually saw foreign
private investors sell a lot of a lot of their
treasury holdings that then reversed in May. So we kind
of have a cloudy picture right now. We're not really
sure what the long term trend will be. But what
(26:38):
that shows us is maybe more volatility, and that in
and of itself would result in kind of that higher
term premium colin.
Speaker 3 (26:44):
As we close out the week, what are you looking
for next week. Is everything just gonna be dominated by CPI?
Speaker 8 (26:48):
I think so. I think we'll have to look under
the surface. I mean, the headline gets a lot of
or gets a lot of headlines, but we'll have to
see what the difference is between goods and services. And
we'll have to see how much passed through we're seeing
in terms of goods, the imported goods, but are we
seeing a slowdown in services? Because I think that's the
big dichotomy right now.
Speaker 3 (27:08):
Colin, thanks so much for your time this morning, Colin
Martin of Charles Schwabe.
Speaker 2 (27:11):
This is the Bloomberg Surveillance podcast, bringing you the best
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Speaker 2 (00:11):
This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
with Lisa Bromwitz and Amrie Hordern. Join us each day
for insight from the best in markets, economics, and geopolitics
from our global headquarters in New York City. We are
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(00:34):
Terminal and the Bloomberg Business App.
Speaker 3 (00:36):
We'll begin this hour with SMP five hundred set for
a weekly gain. Savita Supermanian, a Bank of America writing
sentiment is far from uphork. The consensus Wall Street broker
is recommending an average at location of just fifty six percent.
To US docs, this is not euphoria, Siviita joins us. Now,
thank you so much, good morning, Thanks thanks for joining us.
So it's not euphoria. What are we in right now?
Speaker 4 (00:58):
What is this world? Yeah, the world.
Speaker 5 (01:00):
Feels weird, but I think we're in that sort of
wall of worry stage where there are certain themes that
are getting a lot of credence and credibility like AI.
Other themes are kind of falling out of bed like
GLP one, and then you've got this potential broadening of
the market that we've all been waiting for with baited breath,
(01:20):
that I think is at a moment where it's it's
actually in the work. So if you read the transcripts,
and I love Lori's quote, but I think that when
you read the transcripts, companies are worried, but they're also
talking about the fact that they've delayed a lot of projects.
They haven't canceled them, they've delayed them. That means there's
(01:41):
a lot of pent up activity, business activity in the
pipes that is likely to be unfurled over the next
couple of quarters. And I think what really stemied that
pickup in broadening and you know kind of other companies
actually moving from you know they're very low low multiples
and low low levels, is the idea that we're past
(02:03):
a lot of the tariff uncertainty. I mean, granted, there
are curveballs that are thrown at us every day, but
we do know what's going on with Europe. You know,
we've got a better handle on how companies can actually
plan and do business. We're also starting to see I
think the beginnings of this m and A cycle, even
cross border MNA, so I think those are other animal spirits.
(02:23):
I could on LESHA a broader pickup in economic activity.
And then when we look at things like you know,
companies reporting, I think what's really noteworthy is that at
this point about eighty percent of companies have beat on revenue.
Speaker 4 (02:39):
That's new.
Speaker 5 (02:40):
We haven't seen this revenue surprise in a while.
Speaker 4 (02:43):
So what that means is that.
Speaker 5 (02:45):
Analysts mark down expectations very low for sales and demand,
and they're beating those lowered expectations. So I think this
all bodes well for a broader market.
Speaker 4 (02:55):
I would stick with.
Speaker 5 (02:56):
Large cap value stocks, companies that are you know, really
in the penalty box but could actually start to work
in an environment where you know, we do see earnings
broaden in a bigger pickup.
Speaker 6 (03:07):
What happens if you add in rate cuts to all
of that, is that just jet fuel for the broadening
out and even maybe for some of the smaller companies.
Speaker 5 (03:14):
I think it's jet fuel for small caps. I don't
know if large caps need a rate cut. I mean,
the thing that I like about the S and P
five hundred is it's kind of immune to the FED
because a lot of these stocks really move more on
long rates rather than short rates. So I think that,
you know, the refinancing risk is really firmly in the
Rustle two thousand rather than the S and P five hundred.
Speaker 4 (03:36):
But I do think that a FED cutting.
Speaker 5 (03:38):
Rates from these levels would be sort of a driver
for more positive sentiment on stocks, a shift out of
cash into stocks if inflation remains high.
Speaker 4 (03:48):
I think there's one.
Speaker 5 (03:49):
Pocket that the bulk of individual investors have to go to.
So think about individual investors that are mostly retirees. They're
sitting in big tech stocks and cash. If cash shields
are coming down but inflation is still relatively.
Speaker 4 (04:04):
High, what are you going to do for real yield?
Speaker 5 (04:06):
This is where I think that dividends, cash return, etc.
Speaker 4 (04:10):
Come in. What worries me a little bit.
Speaker 5 (04:13):
About the big ballast of the S and P five
hundred the AI spenders is that these guys are becoming
more capital intensive and that might not be great for
multiples for.
Speaker 4 (04:26):
Cash return, et cetera.
Speaker 5 (04:27):
In fact, we wrote a note this morning highlighting that
the magnificent six if you take out Tesla is growing
much more capital intensive and less R and D focused,
and I think that's something to watch because we're sort
of in the middle innings. I think of an AI
spend cycle, and if that continues, the asset lightness of
(04:50):
these megacap tech stocks is potentially compromised.
Speaker 4 (04:54):
Your note you have.
Speaker 3 (04:54):
We are moving from quote everyone spending on tech to
tech spending on everything data.
Speaker 4 (05:00):
This has been a story of the entire quarter.
Speaker 6 (05:01):
Yeah, it has been the story, and it's been a
lot of the reason why it's hard to be bearished.
But I do think this idea of the business model
changing is so interesting Cevita, because part of the thing
that people bought tech for was because they were capital
lights and you could get those really high valuations.
Speaker 5 (05:17):
And great growth and yeah, great growth and free cash level.
Speaker 6 (05:20):
So is there now a ceiling or will there start
to be a ceiling on multiples on valuations if it's
a different business model and.
Speaker 4 (05:27):
All of a sudden they're capital intensive.
Speaker 5 (05:28):
Well, I think you need to see the revenue beats
for these companies, because if you don't see top line
really accelerate along with capex, you're cutting into that earnings.
Speaker 4 (05:38):
You're cutting into that free cash flow.
Speaker 5 (05:40):
We've already seen the total shareholder return for the Magnificent
six drop since twenty fifteen. We've seen capex to sales
pick up, We've seen R and D to sales decline.
It's all happening. The question is when will it get
priced in? Because these stocks are trading near their all
time highs in terms of multiples. I think what we
(06:00):
start to see is a tradeoff where old economy stocks
are getting all these new tools to get more efficient
asset light, labor light, et cetera, whereas tech companies are
starting to get more asset intensive. It's a very sort
of slow burn shift or handing off of you know,
(06:21):
multiple expansion to multiple contraction.
Speaker 4 (06:23):
But I think it's something to keep an eye on.
Speaker 3 (06:24):
When it comes to policy. We have the one big,
beautiful bill. There is a little bit more of an understanding.
What's going on with terras? Yeah, what are you waiting
for out of Washington? What's the next shoot to drop?
Speaker 5 (06:34):
You know, I think right now there's there are not
a lot of catalysts, and maybe you know the FED obviously,
but I think that you know, we're in an environment
where our near turn out look.
Speaker 4 (06:44):
On equities isn't great.
Speaker 5 (06:45):
I mean, we think a lot of the good news
is priced into the market. If you look at reactions
to beats, they were pretty good, but reactions to missues
were terrible. In fact, the worst downdraft to earnings missues
and sales missus in the history of our data since
reg FD back in two thousand and one. So this
means the good news is probably more than priced in
(07:06):
in the near term. I do think if we see
this broadening of earnings growth and we see a pickup
in some of the economic indicators, maybe the FED cut
is compromised or a continued cutting cycle is compromised, but
I think that's the driver for better earnings.
Speaker 4 (07:20):
And you still think we're going to be at sixty
three hundred year end.
Speaker 5 (07:22):
So sixty three one hundred is our year end forecast.
I think it's tricky because we've also got the mid
term elections coming up, So our twelve month forecast, which
is probably more important or relevant, is really for more
like five percent gains from here. I think what's interesting, though,
is that the years where you've seen the biggest earnings
(07:43):
recoveries haven't necessarily seen the strongest market returns. So that's
kind of what we're operating on, is the idea.
Speaker 4 (07:49):
That earnings are coming back.
Speaker 5 (07:51):
We're exiting a manufacturing recession, but market returns aren't necessariarily
going to be blockbuster.
Speaker 4 (07:57):
Tavita, thank you so much for your time this morning.
Thank you, fantastics.
Speaker 3 (08:00):
Vita Supermanian of a Bank of America. We're joined by
former Chief International Trade Counsel for the Senate Finance Committee,
Bruce Hirsch, and he writes, our trading partners have had
to adjust to the idea that these deals need to
(08:22):
include offers to purchase specific US goods or commit to
invest in the United States. The bigger the number, the better. Bruce,
thank you so much for joining us. This is exactly
what Danny and Oliver were just getting at. The issue
I have with this premise for Switzerland is that they
are top five foreign direct investor already into the United States.
Speaker 1 (08:43):
Well, they certainly are, and we have a close trading
relationship with them, but we also have a trade deficit
with them, and a large part of that deficit is
on pharmaceuticals, and pharmaceuticals is one of the areas of
great concern that President Trump he wants to onshore that manufacturing.
So he's going to look at that deal perhaps a
little bit differently, and he looks at some of the
others also. He's really been counting on our trading partners
(09:05):
to reduce their terrorists the close to zero and that's
difficult politically for a country like Switzerland are doing agricultural products.
Speaker 3 (09:12):
So what do you think Switzerland can offer at this point,
given the fact that Oliver just outlined how difficult these
negotiations have become.
Speaker 1 (09:20):
Well, I mean, there's the possibility that they'll make some
very tough decisions on agricultural terriffs. Beyond that, you know,
if there have any other investments in the bank to
put on the table here, that probably is going to
be critical. I mean, I suspect that President Trump is
looking for some sort of investments in domestic manufacturing here
(09:42):
of pharmaceuticals, because that, again is what he cares about.
But it's hard to say, and they really are between
a rock and hard place.
Speaker 6 (09:49):
Bruce Amory's have done really great reporting on this that
it did look like the Swiss and the US had
a deal before all of this unraveled. It's a less
traditional type of negotiation that you need to satisfy the
President himself rather than a coalition of stakeholders or the
Senate itself. You've been in the room under more traditional
trade frameworks. How does it change the negotiation when you're
(10:11):
really trying to favor a party of one instead of
more stakeholders.
Speaker 1 (10:16):
Well, it's going to lead to a bit of confusion
on both sides at the table because I mean, as
you mentioned at one point, the question was, how do
you satisfy Congress? They're the ones who have to approve
the deal. With the end of the day, the groundwork
will have been done with Congress, with stakeholders to develop
a US position. Consultations will continue, your good sense of
what you need to do. Now you're trying to satisfy
(10:36):
a party of one. And because President Trump has a
number of objectives and they can shift whether it's revenue
or industrial policy, or leverage for trade or non trade objectives,
you just don't know. So both sides are at the
table and they're trying to figure out what will satisfy
President Trump, and they're not really quite sure.
Speaker 6 (10:53):
Well to that point, we're in this environment where it
has been figured out the top line of the deal
first and then the details later bruce to what grief,
does that actually give the US more leverage as things progress.
The fact that we don't have these details, and it
is something that Washington can push back on because you
don't have the details in the fine print yet, well.
Speaker 1 (11:13):
Well, you know, it certainly gives the opportunity for leverage.
It also gives the opportunity to disrupt the deals that
you've just cut. We've already seen in some of the
deals both with the EU and Japan. You know, they're
concerned about when certain parts of the deal with regard
to Section two thirty two National Security Secral tariffs, when
they're going to be implemented. They were expecting them to
(11:33):
be implemented right away and that hasn't happened. So, yes,
it gives leverage, but you know, the question is at
what cost and will it blow up the deal? So
it's a great challenge. It also sort of undermines a
lot of what these countries are looking for and what
the markets you're looking for, which is stability, because to
the extent that there are things like that, there are
(11:56):
these opportunities to disrupt the deals by continuing to push
after the top line has been agreed to. You know,
that can undermine that sense of stability that everybody's seeking.
Speaker 3 (12:05):
Mody is looking for stability right now, Bruce. What's going
on with India and that trade negotiation.
Speaker 1 (12:12):
Well, again, this really highlights the fact that the deals
are made at the top. And you know, we had
a situation in which the negotiators are right up to
the cabinet level thought they had a deal with India.
It was presented to President Trump and he looked at
it eventually and decided not enough. Again, a lot of
countries are going to zero. India wasn't willing to go
to zero on their agricultural goods, and so he just
(12:35):
said no. And this is going to create a real
challenge for a number of reasons. You know, we have
to India is going to have to make some tough choices.
Potentially they may have themselves kind of check of some sort.
But politically it's very difficult for Prime Minister Moti because
he presents himself as a strong leader and having to
appear to cave to pressure is really going to be
(12:57):
very difficult for him, either on these tariffs or on
the relationship with Russia. So it's going to be a challenge.
Speaker 3 (13:03):
On that one, and he's even go out with the
rhetoric saying this is going to be challenging, but I'm
going to have to do it. He doesn't want to
cave at this moment. We're gonna be watching those trade
negotiations very carefully. Former Chief International Trade Council for the
Senate Finance.
Speaker 4 (13:17):
Committee, Bruce Hirsh, thank you so much for joining us.
Speaker 3 (13:30):
Don Vin of Key Bank has a sector weight rating
on Intel's shares.
Speaker 4 (13:33):
John joins us now.
Speaker 3 (13:35):
John Mandeep is really outlining here that it's not just
the President of the United States. He might be the
final nail in the coffin, but actually there is the
board that's pushing back on the CEO strategy right now
when it comes to Intel.
Speaker 4 (13:47):
Do you think he can stay in the top position?
Speaker 7 (13:53):
I think he can, right. I think if you kind
of take a step back, there's only a handful of
executive is out there that are capable of leading Intel.
And clearly during the search he was their top pick,
right he was on the board of Intel's deeply familiar
with the challenges that they had. He's had a lot
(14:14):
of success historically, He's been successfully run Cadence. So I
think he's you know, I think there's a lot of
noise going on right now. But you know, taking a
step back, he's the right person to kind of run
Intel at this point.
Speaker 4 (14:29):
He's the right person John.
Speaker 6 (14:31):
But what happens if it's a White House that is
unsatisfied if he stays on as CEO, Just how painful
could they make things for Intel?
Speaker 7 (14:40):
Yeah, I think he's got to learn to kind of
manage up, if you will, to the White House. Obviously,
this is an uncharted territory for public company CEOs if
you are singled out by the President of the United States.
But yes, this would be extremely difficult if he doesn't
figure out how to kind of manage up to the
(15:02):
White House. You know, a big beneficiary Intel is of
the of the Chips Act, Right, They're going to get
a significant amount of funding from the US government to
support their manufacturing initiatives. And if he's not willing to
play nice and manage manage up, you know, a lot
of that funding could be at the at risk.
Speaker 6 (15:23):
Well, he wrote a note made it public as well,
basically saying that they're trying to work with the White
House to alleviate any concerns John, what would it look
like to manage up how would Intel get out of
the situation in the ire of the president that they
have right now.
Speaker 7 (15:38):
Yeah, I think at this point, I think the tension
between the administration and Lipu right now is how much
they're willing to commit to manufacturing the US. I think
if you look at Lipwui's predecessor, Pat he kind of
maybe was a little bit too aggressive in terms of
building out capacity to manufacture in the US is of
(16:01):
the mindset of if we build out this capacity, they
will come. Lippoo, as we've seen, has taken a much
more discipline approach at spending. He's come out and he said,
you know, we are very excited about our next process
Note fourteen A, but we are going to be much
more disciplined about it. Right if fourteen A doesn't pan
(16:21):
out as we'd like, I'm not ready at this point
to fully commit to fourteen A, which is leading manufacturing
in the US. So I think he's got to carefully
choose his words and commit communicate to the White House
that he's fully committed to US manufacturing, but he's got
to be very careful about committing the full amount there
(16:46):
and just be very careful about how he selects his words.
Speaker 3 (16:49):
John, How can he be explicit to the President of
the United States when the Wall Street Journal this morning
is saying that he and some Intel directors have disagreed
about simple questions as whether or not the company should
stay in the manufacturing business or exit entirely.
Speaker 4 (17:03):
Doesn't he need to shore.
Speaker 3 (17:04):
Up his own company, the directors the board before he
starts making matter of fact statements to the President of
the United States.
Speaker 7 (17:14):
Yes, I do agree that he's got to kind of
figure out also how to manage the board. But it's
not a surprise that they're having differences. But I think
this is why they needed to bring them in, you know,
I'll pat the previous YEO had the full support of
the board, and obviously that strategy wasn't working, so they
(17:35):
had to bring somebody in to kind of change up
the strategy. And I think that's that's what the board
and Laboo are going through it now. They're going through
some of those growing pains.
Speaker 6 (17:45):
John, I would love to get your read on the
wider chip sector now that we've had some of their
earnings under our belt.
Speaker 4 (17:50):
It was an.
Speaker 6 (17:50):
AMD that was punished for voicing uncertainty when it comes
to whether or not they'll be able to sell some
of their key technology in China. You had the lights
of NXP for exams Semple saying they were uncertain of
how much of a pull forward they had in terms
of orders. Just how much clarity do you have on
the sector as a whole for where we move from
here with some of these tensions still very front and center.
Speaker 7 (18:12):
Yeah, there are clearly a lot of cross currents right now.
I think the trend that we are seeing Last night
we had Marketship, which was a great print. Stocks down
eight percent pre market today. I think what we're seeing
right now is it doesn't matter how good your print
is and how good your results and guidance is, everything's
getting sold in this market. I think people are very
(18:33):
nervous that a lot of the strong results that we're
getting in this environment is a function of pull forward
demand related to tariffs. I think there's a lot of
concerns that this could result in a weaker second half.
There's a lot of concerns that this could undermine kind
of the cyclical recovery that we're seeing in the broader
chip sector. And then on top of that, right, you've
(18:54):
got these geopolitical uncertainty that is layering on top of that. Right,
just the other day in the middle of the earning period,
you know, you have the Trumpet administration levy one hundred
percent check tariff on companies that aren't willing to commit
to building in the US.
Speaker 4 (19:12):
Right, and then potentially export controls.
Speaker 3 (19:14):
And do they actually mean that they're going to be
licenses that are going to be taken back or will
they just be you turned like we saw at the
age twenty, John, thank you so much for your time
this morning, John Vin of key Bank Capital Markets, Colin Marker,
(19:37):
Charles Schwab writing the need for new FED chair to
cut rates.
Speaker 4 (19:41):
Could be a point.
Speaker 3 (19:42):
By the time FED chair pals term is up next year,
the FED may have cut three or four times.
Speaker 4 (19:48):
Colin joins us now for more. Is this the irony
of all this?
Speaker 3 (19:51):
The President is really job boning the FED and wants
to talk about maybe regime change at the FED by
time to get some of these appointments.
Speaker 4 (19:57):
They were dumb what he wants.
Speaker 8 (19:58):
I think Sid, I don't think it's going to matter
because what we saw with obviously the headline about the
weakening labor market. Now, there was already some support for
RAID cuts. It seems like there's even more support for
RAID cuts based on comments from various FED officials, and
the data basically says that if we do get that
weakening labor market, and if we look forward to say April,
May June of next year, the markets are pricing in
(20:19):
three or four RAID cuts. So even without the headlines
of a new FED chair, who's it going to be,
how dubbish are they going to be, we might see
a FED funds rate one hundred basis points lower than where.
Speaker 4 (20:30):
We are right now.
Speaker 8 (20:31):
That doesn't mean that the jaw boning might end. It
doesn't mean that we might not get a new FED
chair who is as dubbish as the administration wants. But
we have to remember that it's a committee, and I
think most committee members, whether it's a governor or a
district bank president, they look at their dual mandate and
they I think they're more methodical about how they're going.
Speaker 4 (20:52):
To go about it.
Speaker 8 (20:52):
So even the headlines might not stop, but I think
cooler heads will prevail.
Speaker 6 (20:56):
Some people have made the point, though, and Paul Donovan
at UBS included that Waller's actually the most dubbish pick
you could have for a FED chair because he has
credibility with the rest of the committee and could sway
them to more dubbish.
Speaker 4 (21:08):
Outlook is that, right would a Waller be.
Speaker 6 (21:11):
The most dubbish pick over the Kevins, over anyone else based.
Speaker 4 (21:15):
On what we've seen.
Speaker 8 (21:16):
I don't know if he'd be the most dubbish pick,
but he's clearly dubbish. We could argue he's the most
dubbish member of the committee right now governors and district
bank presidents. But he's not out there talking about the
need for a three percentage point raidcut or something like that.
If the data were to change, maybe his tune or
tone would change, but right now we're not seeing that.
(21:37):
So it seems like he could be in line to
be the next FED chair. There's a lot going on,
you know. We have the temporary announcement for Myron because
we don't really know what Powell's going to do. So
if Powell stays on and Waller's already in there, he
could be a logical choice without making too many headlines,
without having to worry about the confirmation process.
Speaker 6 (21:58):
Well, so, when Stephen I was announced, the market reaction
was slight, but there was one there, a little bit
of curve steepening. If you get someone like a Myron
or again one of the Kevins, a less traditional sort
of appointment to the FED chair, would.
Speaker 4 (22:11):
You put on steepeners? Does that trade make sense?
Speaker 8 (22:14):
We think steepeners make sense regardless, because we think short
term rates are likely coming down based on the data
we're seeing. But at the same time, we have fiscal
concerns that likely aren't going away anytime soon, and the
idea that inflation might stay elevated. We're not expecting a reacceleration,
but the idea that with the tariffs in place right
now at relatively high levels, we can see it stay
(22:34):
higher than we would have expected if we talked.
Speaker 7 (22:37):
About this, say six months ago.
Speaker 8 (22:38):
So we think maybe long term rates stay where they are,
maybe come down a little bit, but likely not as
much as short term rates. So I think whoever is
in charge of the Fed over the next six to
twelve months, we think the curve should continue to.
Speaker 3 (22:49):
Steep In talking to Neil Dudda yesterday and he joined
the program this morning. He was talking with the fact
that Powell basically holds the cards if it is someone
that seems overtly political that the top administry wants to
put as a FED chair.
Speaker 4 (23:01):
Do you think he stays on.
Speaker 8 (23:03):
I don't know, and I say that because because it's
anybody's guess right now, and I think he's in a
really difficult position. On the one hand, he doesn't want
to or I think he does a really good job
of not politicizing it because he basically doesn't say much.
Anytime someone asks him a question or someone brings it
up at the press conference, he just defers and says,
we're looking at the data now. If there's a push
(23:25):
for someone who is, you know, very partisan, very political,
and is very loud about the need to cut rates sharply,
which the data right now doesn't support, maybe he stays
on because his term as governor doesn't end for another
few years.
Speaker 4 (23:41):
But I think he's in a.
Speaker 8 (23:42):
Really difficult position because that makes it seem like he's
politicizing it, when at the end of the day, I
think he's just trying to uphold the integrity of the committee,
because I really think he's trying to do the best
he can.
Speaker 3 (23:54):
So you think he's trying to protect the institution, But
he in the end, if he were to do that,
he would end up become almost a shadow fed chair.
How can the market deal with that?
Speaker 8 (24:04):
That's a great question. I think we just have to
understand that. Again, there's a lot of committee members, so
whether he's I wouldn't say he'd be a shadow fed chair.
He would just be one other voting member. I think
he has the respect of a lot of his colleagues
out there.
Speaker 3 (24:17):
We're a senator saying that they're going to run for Congress,
for the House.
Speaker 4 (24:22):
I think if he was there to do that, you know, he'd.
Speaker 8 (24:25):
Be a voter, and he would vote based on what
the mandate suggests and what the data suggests. We have
a lot of time before next May. I think it's
going to be a really exciting couple of months.
Speaker 6 (24:36):
Well, we have a lot of time, but we have
so much information to digest before that time. And this
week we had both a ten and a thirty year auction,
and both of them were pretty weak, or at least
just lackluster. Let's say, do you look at that and say, Okay,
this is real concerns about a bloting deficit and fed
independence or is it just yields have been lower.
Speaker 4 (24:54):
Since the payrolls data, there was less demand.
Speaker 8 (24:57):
I'd say all he above, you know, when we look
at the fifth concerns which are clearly there, and there
doesn't seem to be anyone on either side that wants
to fix this right now from in the grand scheme
of things. And if we have this you know, rising deficits,
rising debt, you know, we need to find more buyers there.
So I think that's one of the reasons why we
think yields could stay elevated for a little bit. We're
not worried that they're going to shoot significantly higher to
(25:18):
say six percent levels, seven percent levels, But if there
are concerns and weak auctions like we got this week
week at the margin, nothing crazy, but it shows that
maybe there is a slight pullback in demand. That's another
reason why yields can stay elevated and we see a
sleeper yield curve.
Speaker 6 (25:33):
Okay, So to that point, bringing the whole conversation around,
if you have an appointment to the Fed, that in
practice doesn't matter because it's already going dubvish, but gives
that appearance, especially to foreigners, to seem to be one
that kind of chips away at the FED independence. Does
that then matter because it makes foreigners less willing to
fund the twin deficits of the US.
Speaker 8 (25:53):
I think it would matter, and this is something we
talk about a lot about the idea of FED independence.
We're not worried right now now that they're going to
lose that. I mean, there's a lot of headlines about it,
but we've talked to d Nausey in this morning about it.
It's a committee, but that would be a concern for us.
You know, if there was a lack of independence, we
think we'd likely see a week er dollar. We think
we'd likely see long term meals rise because of that
(26:17):
loss of confidence in the markets. And when we look
at what we've seen in the TICK data, basically from
Liberation Day, initially the first month, we actually saw foreign
private investors sell a lot of a lot of their
treasury holdings that then reversed in May. So we kind
of have a cloudy picture right now. We're not really
sure what the long term trend will be. But what
(26:38):
that shows us is maybe more volatility, and that in
and of itself would result in kind of that higher
term premium colin.
Speaker 3 (26:44):
As we close out the week, what are you looking
for next week. Is everything just gonna be dominated by CPI?
Speaker 8 (26:48):
I think so. I think we'll have to look under
the surface. I mean, the headline gets a lot of
or gets a lot of headlines, but we'll have to
see what the difference is between goods and services. And
we'll have to see how much passed through we're seeing
in terms of goods, the imported goods, but are we
seeing a slowdown in services? Because I think that's the
big dichotomy right now.
Speaker 3 (27:08):
Colin, thanks so much for your time this morning, Colin
Martin of Charles Schwabe.
Speaker 2 (27:11):
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