July 21, 2025 • 22 mins
- Chris Harvey, Head: Equity Strategy at Wells Fargo
- Angelo Zino, Head: Technology at CFRA
- Charles Myers, Chairman and founder at Signum Global Advisors
- Claudia Sahm, Chief Economist at New Century Advisors
Chris Harvey, Head: Equity Strategy at Wells Fargo, talks about market bullishness and whether his S&P target could change should the president fire Fed Chair Jay Powell. Angelo Zino, Head: Technology at CFRA, joins to discuss Big Tech's AI investment and talent poaching as well as the outlook for the broader tech sector. Charles Myers, Chairman and founder at Signum Global Advisors, discusses Fed independence and how a less independent Fed could reshape markets. Claudia Sahm, Chief Economist at New Century Advisors, on US labor and inflation as well as Jay Powell's future as Fed Chair.
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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
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anywhere else you listen, and as always on the Bloomberg
(00:34):
Terminal and the Bloomberg Business App. Chris Harvey of Wells Fargo,
the most bullish man on Wall Street s and P
five hundred price target of seven thousand and seven, and
he joins us now for more.
Speaker 3 (00:45):
Good morning, Chris, Good, good morning.
Speaker 2 (00:46):
You're uncomfortable with that. I want to give you some
credit before we start. Credit to you for not changing
this call in the tariff storm of early April. So
let's start there.
Speaker 4 (00:56):
Why did you stick with it so nine months in
the financial market. That's an eternity. The other thing we
had seen Trump one point zero. We know his style.
It's to go out to the end degree and then
to come back in Furthermore, the underlying fundamentals were still fine,
and our EPs and our price target wasn't predicated on
a strong economy. What we're seeing is the winners continue
(01:18):
to win. The ubercap companies have the higher margins, are
gaining more market share. There is a real secular trade
in AI that will continue. I was here during the nineties.
This is not a fair comparison. It is much stronger
and the fundamentals are much better than today than they
were back then.
Speaker 2 (01:34):
Seven K is not tariff dependent, It is not August
one dependent.
Speaker 4 (01:38):
No, So people ask, well, what's the fear.
Speaker 5 (01:41):
The fear is.
Speaker 4 (01:42):
There's a couple of fears. One is do taras start
to flare back up? And that's possible, right, we just
can't can't predict that. The other fear, which is much
more real fear, is what's happening with the Fed? Do
we worry about the Fed and confidence in the Fed?
Because the back and forth between the Fed and White House,
that's not healthy, right, and that can cause problems in
the bond market, and that can cause problems with competence.
(02:04):
But overall, we're starting to see M and A activity
kick up. We think that M and A will continue
to be very, very healthy up and down the capitalization.
We do think the FEDS are going to cut. Fundamentals
are fine, the consumers okay, And we're not seeing the
kind of price increases that people are talking about. We're
seeing people say surgical when they're talking about price increases
and selectively.
Speaker 1 (02:25):
So there's a lot to unpack there. And we'll get
to the FED independence in just a second. And what
point yields have to rise to before that really triggers
some sort of response and equity markets, what about valuations,
the idea that you're talking about an eleven percent gain
from where we are right now, and the S and
P five hundred, after already reaching record highs amid a
wall of orion, frankly growth that is expected to slow.
Speaker 4 (02:47):
So we talk about this all the time because people say, oh,
look at twenty years ago, look at twenty five years ago.
The SMP is not the same as it was twenty
five years ago. The constittioning the S and P five
hundred is much more growthy, it's much more techy, The
multiples are much higher, the productivity is much better. The
people running the companies are much more uh attuned and
(03:08):
and the acumen is much higher, and so the valuation,
yes it's high, but it's justified in our minds. And again,
we don't need to see a whole lot of multiple
expansion to get to that level. We're not very far
from that level at this point in time.
Speaker 1 (03:22):
So valuation concerns don't really uh spend You don't spend
a lot of time on those. I do want to
go to the FED independent side, though, there is a
question of what point yields have to rise to before
it triggers true concern in stock markets because we've asked
that questions many times. People give us a level and
then we pass that level and stock markets struggled off
and say healthy, healthy, good. Yeah.
Speaker 4 (03:42):
I I it's hard for me to really answer that question.
The I think what's happening right now is you had
Trump come out and say I'm not going to fire powers, right,
and I think he needs to go out and say
that right. There's a lot of talk and uh rumors
and situations in the marketplace. At the end of the day,
we need the FED. We need the FED to be independent,
(04:02):
We need to be the FED to be apolitical because
it is a very important part of our marketplace, and
as long as we can do that, that's great. I
don't know if raids really have a play in this.
I think it's just cooler heads and need to prevail.
Speaker 6 (04:15):
You read Trump correctly when it comes to tariffs. He
put out a truth over the weekend about what best
potentially laid out to him. When it comes to the
market impact of firing Besset, people don't explain to me.
I explained to them, says the President of the United States.
Did you take that as him basically acknowledging he understands
the negative impacts that could have on financial markets.
Speaker 4 (04:34):
I think his team understands. I think he understands. I
think if you go back and one of them, when
we were on the show a while ago, we were
talking about will the feedback loop close? Right? Will the
administration see what's happening that capital markets and react to that?
And they did so. I do think they understand. But
I also think that he feels like he's playing with
a very stronghand, and to a certain degree he is.
(04:57):
And one of the things we are beginning to worry
about it is he's looking at tariff's as a revenue generator. Right,
We have what we have with the deficit and saying, hey,
this could be a good way to reduce the deficit.
We haven't seen the real impact to the economy. What's
the big deal?
Speaker 6 (05:12):
In that same truth, he said, if it weren't for him,
the market wouldn't be at record highs right now. But
if it weren't for him, would potentially ready be at
your seven double host seven mark.
Speaker 4 (05:23):
Yeah, there's a lot of speculation on speculation there. I
think we could have done this. Talking my book, one
of the things I said, one of the things I
believe is you could have put a ten percent tariffon
and then just walked away.
Speaker 7 (05:36):
Right.
Speaker 4 (05:36):
We talked about how there was a seller's tariff and
how people whether it's through Airbnb or Amazon, they understand
that you had Congress put that ten percent tariffon, walk
away and we can do something more productive. But we
chose this path and it's okay, it's a little bit bumpy,
but we're getting there.
Speaker 2 (05:55):
Mike and bumpy. A pityshev accountemy. Without the markets pressuring
the administration, why would they pull back going it's the
next month?
Speaker 1 (06:02):
Well, this to me is the key question. How much
is this administration playing chicken on tariffs with the market.
If the market's looking past something that hasn't happened yet,
does that push them to potentially go even harder because
they could extract more that could off set the deficit
concerns from the one big, beautiful bill.
Speaker 6 (06:18):
And there we go, and you see these countries lining
up to really want to do deals and getting a
little bit nervous when you have Howard Latnach, the Commerce Secretary,
coming on a Sunday show saying August first is hard
to stop deal. Also, he's already telling us what to
expect next year. He said, of course, we're going to
renegotiate USMCA, so we could prepare for more headwinds in
terms of Canada, Mexico and United.
Speaker 2 (06:38):
It's gonna keep coming. It's gonna keep coming. Chris, just
to wrap it up, the US versus the rest of
the world, what if you mighte to that debate over
the YSIFA.
Speaker 4 (06:45):
So we thought that was possible, We thought that was
probable early in the year. It happened. Now we're just
walking away, which you just don't. We're done, We're good.
You had that repricing. Now let's go back to fundamentals.
And the fundamentals are telling you back to the US,
back to back to growth.
Speaker 2 (07:01):
Chris Halveylstfagapre Siedaser. Let's continue the conversation. Claudia Sama of
New Century Advisors joins us. Now for more. Claudia, welcome
back to the show. It's good to see you, as always.
Want to pick up on that space from Governor Waller
(07:22):
what he said before our conversation with him, looking across
the soft and hard data, I get a picture of
a labor market on the edge. Do you get a
picture of a labor market on the edge.
Speaker 7 (07:34):
That's what I would characterize the labor market.
Speaker 5 (07:36):
But I think demon and Waller lays out a very
reasonable argument for reading the data right there.
Speaker 7 (07:42):
Labor market has had some crap, has some weaknesses to it.
Speaker 5 (07:45):
I mean, I think they were maybe more apparent last
year's you know, the unemployment rate has been rising.
Speaker 7 (07:50):
But he pays a picture and he ties it to data. Again,
I think it's.
Speaker 5 (07:55):
Really unfortunate that it becomes wrapped in this conversation of
it as a politicized view.
Speaker 7 (07:59):
Of his I don't see it that way, but just
to have that.
Speaker 5 (08:03):
Kind of injective of the conversation does tend to undermine
what he's saying.
Speaker 1 (08:07):
Claudia, do you think, from your perspective, in your years
of experience studying the labor market and how that affects
FED policy, do you think that right now weakening in
the labor market really is a greater concern than a prolonged,
protracted inflationary push from the tariffs and from strength that
we have seen ongoing in corporate America.
Speaker 5 (08:27):
So I would agree that there are several threats on
the growth side to policies have been put in place.
I mean, kars have an aspect of weakening growth throughout
the higher prices we've seen, immigration policy. I mean, there's
a whole set of reasons why you look out at
this year. We've seen growth slow this year, and that
will eventually show up in the labor markets. You definitely
can see those risks. And if one, as Christopher Waller
(08:48):
laid out, looks at the potential inflation risks and says
these are tempered, we can look through these, then I
think you would be right back.
Speaker 7 (08:54):
To where we were.
Speaker 5 (08:55):
You know in twenty nineteen, where does thateral reserve base
with care? They tu preamptively, which is we're not in
an environment where inflation is subdued. It's actually been above
target for more than four years. There are real rists there.
We still don't know what the terear policy actually is.
It could be going higher, it could not, like, so
there's just a lot of uncertainy. I think with the
way that the kind of majority of.
Speaker 7 (09:15):
The FED is lining up their arguments makes a lot
of sense.
Speaker 5 (09:18):
But there is a real perspective, and I would agree
that the diversity of thought on the ped and making
those arguments carefully with data like that's a good thing.
It's just is extremely unfortunate the environment. By having the
White House and the President very directly say what they
want to.
Speaker 7 (09:33):
See in terms of rapes, it's kind of created this.
Speaker 5 (09:35):
You know, It's made it really difficult for the fend
to have this kind of discipline data conversation.
Speaker 1 (09:41):
And it's even more difficult by the fact that the
data is really confusing and it can paint a different
story depending on how you read it. I mean, we
keep kind of wondering what the labor market is showing us,
whether it does show some sort of more dramatic weakening,
or whether the housing market is kind of ringing a
five alarm fire alarm, saying, hey, we're clearly as a problem.
I mean, at what point do you think that keeping
(10:02):
rates at this level would really create a weakness that
currently hasn't manifested itself in the economy.
Speaker 5 (10:12):
We're likely pointed in that direction. I mean, the economy
has proven quite resilience. I mean this is not just
talking about this year, but in recent years. The higher
interest rates, and there are probably a lot of different
reasons for that, but eventually, you know, and we do
see an interest rates that sensitive sectors like how do
we do see these.
Speaker 7 (10:30):
Rates weighing down the question?
Speaker 5 (10:31):
The reason that the federal funds rate is elevated is
because it is trying to push down on inflation.
Speaker 7 (10:37):
Once the inflation issue is taken.
Speaker 5 (10:39):
Care of, well, then there's no reason to have the
rates as high as they are, and you should see
them coming down, and that then tells us that the
direction they're pointed in, they're just not ready to take
that move.
Speaker 7 (10:48):
But you know, there are.
Speaker 5 (10:50):
Costs, There are costs in the economy to the said
having interest rates as high.
Speaker 7 (10:54):
As they are, and we will see those costs build
as interest.
Speaker 5 (10:58):
Rates, say higher, So well, We're not looking at some
dramatic falling off a cliff. We're looking at more of
a slow grind and it does impact certain parts of
the economy, certain consumers, people trying to buy homes. Like
that is where the effect is. But the goal is
to get you know, inflation down. Unfortunately, you know, we've
got data that moving in the wrong directions. That may
be temporary, but like there's a reason the rates are
(11:20):
where they are.
Speaker 7 (11:20):
It's not.
Speaker 5 (11:24):
Government but that there are costs.
Speaker 6 (11:26):
Governor Waller though, is looking at these cracks in the
labor market. Even individuals like Mary Daily is talking about
it's reasonable to expect two cuts this year, Claudia, when
do you expect the FED to first move?
Speaker 5 (11:39):
So it will absolutely depend on the data as they
go forward, but there is certainly a case, and I think,
you know, keep an eye on the inflation data that's
not connected to TARRAF. I mean, I think that's actually
been part of the encouraging cases that we've seen some
weakness in you know, some discretionary spending areas.
Speaker 7 (11:55):
That housing has.
Speaker 5 (11:56):
Certainly shown some cooling off.
Speaker 7 (11:57):
So I think they're building the data, are building the case.
Speaker 5 (12:01):
As long as you know, the terrorists don't really like
move much higher. You know, things really go dramatically sideways.
I think they're on track for September or October. You know,
as the data come in and Governor Walla could absolutely
be correct, and we see some employment numbers that are
not as positive as recent ones, and that that doesn't
move them much more quickly to the cut. But I
(12:21):
think this is the data thus far have supported their
let's wait and see, and I think that's where they're
going to come down as a group next week. But
of course, you know, you can look at the data
differently and they are pointed in the direction of cuts.
I mean some aren't even looking for this year. But
I mean that's you know, they have a lot.
Speaker 7 (12:38):
Of coherence in what they're thinking. It's just timing is hard.
Speaker 5 (12:42):
It's it's really hard to figure out because timing is
hard in the economy.
Speaker 2 (12:46):
Cloda, I appreciate itsime. Clodia sound that new century of
signed chasms a signical the ISSUS has this to say.
Our vice case has been and remains. The US President
Donald Trump will not dismiss Fedchad to run PAL at
(13:07):
the very least until after the September FMC meeting chance
John to snap for Moss, so challengeing given us the
best case two months. What happens after that if they
haven't reduced interest rights?
Speaker 3 (13:17):
Yeah, if the FED doesn't cut at the September meeting,
I think the President moves forward with a shadow chair
nominee announcement and continues to build the case to dismiss
Pale for cause, hoping that Powell will resign. I don't
think Powell will resign, but I think that case will
continue to be built. What the President really wants is
(13:38):
for the FED chair to resign, and you know Pal's
not going to do that most likely. And the other
part of this process is the President really trying to
socialize with the markets, this idea of replacing the FED chair.
The only guardrail working in the United States today in
terms of a check on executive power is the bond market,
and I think that's what they're most worried about. The
(14:00):
September FOMC meeting is critical and we'll see what the
FED does. Otherwise we have a shadow FED chair.
Speaker 6 (14:05):
Well, wouldn't it be even harder though, for the collective
body of the FOMC to cut if he was to
get rid of the FED chair or say he was
going to fire him after the September meeting.
Speaker 3 (14:15):
Absolutely, I think you know, everyone in the markets understands
that it's a twelve member FOMC vote. It's not just
the FED chair. But the President sees Palell as the obstacle,
and he really wants a FED chair in, whether it's
shadow or if Palell resigns. Even if Palell resigns, by
the way, the FOMC picks the FED chair, So I
(14:36):
think what the President's really doing is using Palell as
the punching bag for higher rates. He's also worried. I
think that even though the administration doesn't believe the terris
will be inflationary, that if inflation does pick up over
the next several months, you can blame the FED, blame Pale.
But ultimately I think this shadow FED chair idea, which
even three or four months ago sounded really far out
(14:58):
there or deeply concerning for markets, is now being socialized
and probably happens after September.
Speaker 6 (15:03):
Well, the Treasury Secretary talked about the fact that there
could be confusion with a shadow FED chair if j.
Powell doesn't step down after his chairmanship is over, but
he still has a governor seat until twenty twenty eight.
Do you have any indication that he would stay the
course until twenty twenty eight?
Speaker 3 (15:20):
Absolutely? I think Chair Powell will stay on the board
after his chair term ends, and he stays on the
board until the end of.
Speaker 6 (15:28):
His term in twenty twenty eight, wouldn't that look very political,
Trembles Charles, That would look incredibly political. Most chairs step down.
Speaker 3 (15:37):
Absolutely, but I think it would be a really strong
statement by Chair Powell, encouraged by some of the other
members of the FOMC, perhaps as a statement of very
strong independence. And that's why I think he stays on Charles.
Speaker 1 (15:49):
There's the question of what happens if, let's say Chair
Powell is fired and for cause, let's get get smired
in all sorts of legal disputes. There's this issue of
does Congress confirm whoever President Trump nominates to replace him?
How much unity is there right now among Republican Congress members.
Speaker 3 (16:08):
Well, I think you know, whoever is nominated has to
be confirmed in the Senate. The Senate, including the Republican
Caucus and the Republican leadership, do take fed independence very seriously.
So whoever is nominated will be a very respectable and
acceptable and very positive person for the markets. It'll be
one of the folks that are auditioning very publicly for it.
(16:30):
You know, But in the end, I don't think that's
going to be the issue that person will get confirmed.
The issue is, you know, will they try to sway
the FMC to be more dubbish.
Speaker 2 (16:40):
Charles Moss a second of glove that fives as Chiles.
Thank you, Seth Angela. So you know I CFIRA has
a buy rising on chance of alphabbat at two ten
Friest talk and Angela, welcome to the program. That ad
(17:00):
model at alphabet How insulated is it right now?
Speaker 8 (17:05):
Yes, thanks for having me John. As far as kind
of the ad model is concerned, I mean, listen, I
think they're doing a lot of great things as far
as what's going on across search as well as YouTube
integrating AI across the ecosystem. You've got AI mode ramping
here on search AI overviews. So overall, I think the
(17:26):
monetization potential looks pretty good as far as their AD
based businesses and AI integrating across that ecosystem. You know,
clearly there is a risk as we kind of go
on here over the next couple of years, eventually open
ai and others out there will probably have some sort
of ad supported models, and that is you know, clearly
(17:47):
a risk here for alphabet So sitting here today, I mean,
we do think their ads. Google's ad supported businesses probably
grow around in line with the broader digital ad market,
let's call it high single digit growth. But you know, ultimately,
as we kind of go into some of these forward
looking years twenty twenty six, twenty twenty seven, we're looking
at the growth pace of you know, something like search
(18:07):
to grow at about half the pace of the digital
ad market, just because you're going to have some you know,
increasing competitive pressures out there.
Speaker 1 (18:14):
Angela, are we underestimating the speed of the adoption of
open ai, of chatchpt and some of these algorithmic models
that some people find superior to the classic search model.
I mean, I was listening to John and man deep talking,
and I'm thinking to myself, I've known so many people
over the past six months that have utterly transformed their
workflow because of chat GPT. Is the timeframe a little
(18:37):
bit faster potentially than what we're talking about.
Speaker 8 (18:41):
I mean potentially, I mean, well, I guess we'll see here.
I mean, ultimately, people are doing search and you know,
in a different way than they have historically. But when
we think about just overall, what app Alphabet has, you know,
across their ecosystem as well, I don't think it should
be underestimated. I think Gemini is an enormously powerful tool.
(19:03):
I mean, I'm personally a power user of Gemini. I
do love the fact that it's across their entire eco
system out there. There is an advantage out there to that.
I think that Alphabet is getting extremely smart with Gemini,
So you know, I don't think you can completely dismiss
Alphabet specifically and what they're doing across the AI ecosystem,
(19:23):
not to mention their infrastructure I think is better than
just about anyone else's out there. But again that being said,
I mean maybe to your point, with what open ai
is doing with chet, GPT and and others out there
as well, there are going to be more options out
there in the market, and that is something that I think,
you know, as an analyst, you can't underestimate and you
do have to factor that into your future assumptions. But
(19:45):
we do expect, you know, ultimately, their ad supported businesses
to continue to grow. It's just not going to be
at the pace that you know, maybe you're seeing from
you know, the market here over time because of the
broadening out and greater competitive pressures.
Speaker 1 (19:57):
A couple of months ago, there was a skepticis them
on Wall Street about the amount of money that hyperscalers
were spending on R and D on CAPEX, and there
was this question of are they overspending? Meta had said
we can't spend enough. Do you think this season you're
going to see a rewarding by investors of companies they
increase their CAPEX spend dramatically or do you think that
that's going to be treated with the same skepticisms a
(20:19):
couple of months ago.
Speaker 8 (20:21):
Well, I think what you're actually going to see this
earning season. I think you're going to see CAPEX spending
plan plans sustained and not increased. We actually saw Beta
increase it last earning season. As far as their twenty
twenty five CAPEX guidance, I think, you know, Microsoft has
actually done a pretty good job here over the last
couple of quarters, essentially kind of flatlining the CAPEX number,
leveling it out. This is their year end, so we'll
(20:43):
kind of see what type of guidance and outlook they
decided to provide here for investors here over the next year.
But I actually think for the most part, you're going
to actually see more favorable return ROI metrics across kind
of some of these cloud providers because of how they're
spending on the cappet side of things, they are shifting
(21:03):
more towards the server side of things here over the
next couple of borders and years, and and you know,
clearly the growth piece is you know, starting starting to
kind of decelerate and level out a little bit here.
So I think kind of the return on investments are
going to see considerable improvement here, not only over the
next you know, a couple of months, but you know,
over the next couple of years, and I think investors
(21:24):
will reward that. Maybe to your point, I think the
other important point here or item to look out for
here this earning season is something along the lines or
you know, looking at the op X side of things,
something that these companies have really been you know, holding
kind of leveling out here over the last couple of years. Actually,
if you look at employee headcount, whether it be from Google, Microsoft,
(21:46):
announcing recently some of their head count reductions essentially down
over the last kind of two to three years, flat
to down, And I think it'll be interesting to kind
of see how these all these companies comment relative to
what we've seen here from Zuckerberg over the last couple
of weeks and months. I think that's going to be
really an important storyliner.
Speaker 2 (22:05):
As well, Angelo, I appreciate it. Angela's in O there
as CFRA. This is the Bloomberg Surveillance podcast, bringing you
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(22:26):
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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
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anywhere else you listen, and as always on the Bloomberg
(00:34):
Terminal and the Bloomberg Business App. Chris Harvey of Wells Fargo,
the most bullish man on Wall Street s and P
five hundred price target of seven thousand and seven, and
he joins us now for more.
Speaker 3 (00:45):
Good morning, Chris, Good, good morning.
Speaker 2 (00:46):
You're uncomfortable with that. I want to give you some
credit before we start. Credit to you for not changing
this call in the tariff storm of early April. So
let's start there.
Speaker 4 (00:56):
Why did you stick with it so nine months in
the financial market. That's an eternity. The other thing we
had seen Trump one point zero. We know his style.
It's to go out to the end degree and then
to come back in Furthermore, the underlying fundamentals were still fine,
and our EPs and our price target wasn't predicated on
a strong economy. What we're seeing is the winners continue
(01:18):
to win. The ubercap companies have the higher margins, are
gaining more market share. There is a real secular trade
in AI that will continue. I was here during the nineties.
This is not a fair comparison. It is much stronger
and the fundamentals are much better than today than they
were back then.
Speaker 2 (01:34):
Seven K is not tariff dependent, It is not August
one dependent.
Speaker 4 (01:38):
No, So people ask, well, what's the fear.
Speaker 5 (01:41):
The fear is.
Speaker 4 (01:42):
There's a couple of fears. One is do taras start
to flare back up? And that's possible, right, we just
can't can't predict that. The other fear, which is much
more real fear, is what's happening with the Fed? Do
we worry about the Fed and confidence in the Fed?
Because the back and forth between the Fed and White House,
that's not healthy, right, and that can cause problems in
the bond market, and that can cause problems with competence.
(02:04):
But overall, we're starting to see M and A activity
kick up. We think that M and A will continue
to be very, very healthy up and down the capitalization.
We do think the FEDS are going to cut. Fundamentals
are fine, the consumers okay, And we're not seeing the
kind of price increases that people are talking about. We're
seeing people say surgical when they're talking about price increases
and selectively.
Speaker 1 (02:25):
So there's a lot to unpack there. And we'll get
to the FED independence in just a second. And what
point yields have to rise to before that really triggers
some sort of response and equity markets, what about valuations,
the idea that you're talking about an eleven percent gain
from where we are right now, and the S and
P five hundred, after already reaching record highs amid a
wall of orion, frankly growth that is expected to slow.
Speaker 4 (02:47):
So we talk about this all the time because people say, oh,
look at twenty years ago, look at twenty five years ago.
The SMP is not the same as it was twenty
five years ago. The constittioning the S and P five
hundred is much more growthy, it's much more techy, The
multiples are much higher, the productivity is much better. The
people running the companies are much more uh attuned and
(03:08):
and the acumen is much higher, and so the valuation,
yes it's high, but it's justified in our minds. And again,
we don't need to see a whole lot of multiple
expansion to get to that level. We're not very far
from that level at this point in time.
Speaker 1 (03:22):
So valuation concerns don't really uh spend You don't spend
a lot of time on those. I do want to
go to the FED independent side, though, there is a
question of what point yields have to rise to before
it triggers true concern in stock markets because we've asked
that questions many times. People give us a level and
then we pass that level and stock markets struggled off
and say healthy, healthy, good. Yeah.
Speaker 4 (03:42):
I I it's hard for me to really answer that question.
The I think what's happening right now is you had
Trump come out and say I'm not going to fire powers, right,
and I think he needs to go out and say
that right. There's a lot of talk and uh rumors
and situations in the marketplace. At the end of the day,
we need the FED. We need the FED to be independent,
(04:02):
We need to be the FED to be apolitical because
it is a very important part of our marketplace, and
as long as we can do that, that's great. I
don't know if raids really have a play in this.
I think it's just cooler heads and need to prevail.
Speaker 6 (04:15):
You read Trump correctly when it comes to tariffs. He
put out a truth over the weekend about what best
potentially laid out to him. When it comes to the
market impact of firing Besset, people don't explain to me.
I explained to them, says the President of the United States.
Did you take that as him basically acknowledging he understands
the negative impacts that could have on financial markets.
Speaker 4 (04:34):
I think his team understands. I think he understands. I
think if you go back and one of them, when
we were on the show a while ago, we were
talking about will the feedback loop close? Right? Will the
administration see what's happening that capital markets and react to that?
And they did so. I do think they understand. But
I also think that he feels like he's playing with
a very stronghand, and to a certain degree he is.
(04:57):
And one of the things we are beginning to worry
about it is he's looking at tariff's as a revenue generator. Right,
We have what we have with the deficit and saying, hey,
this could be a good way to reduce the deficit.
We haven't seen the real impact to the economy. What's
the big deal?
Speaker 6 (05:12):
In that same truth, he said, if it weren't for him,
the market wouldn't be at record highs right now. But
if it weren't for him, would potentially ready be at
your seven double host seven mark.
Speaker 4 (05:23):
Yeah, there's a lot of speculation on speculation there. I
think we could have done this. Talking my book, one
of the things I said, one of the things I
believe is you could have put a ten percent tariffon
and then just walked away.
Speaker 7 (05:36):
Right.
Speaker 4 (05:36):
We talked about how there was a seller's tariff and
how people whether it's through Airbnb or Amazon, they understand
that you had Congress put that ten percent tariffon, walk
away and we can do something more productive. But we
chose this path and it's okay, it's a little bit bumpy,
but we're getting there.
Speaker 2 (05:55):
Mike and bumpy. A pityshev accountemy. Without the markets pressuring
the administration, why would they pull back going it's the
next month?
Speaker 1 (06:02):
Well, this to me is the key question. How much
is this administration playing chicken on tariffs with the market.
If the market's looking past something that hasn't happened yet,
does that push them to potentially go even harder because
they could extract more that could off set the deficit
concerns from the one big, beautiful bill.
Speaker 6 (06:18):
And there we go, and you see these countries lining
up to really want to do deals and getting a
little bit nervous when you have Howard Latnach, the Commerce Secretary,
coming on a Sunday show saying August first is hard
to stop deal. Also, he's already telling us what to
expect next year. He said, of course, we're going to
renegotiate USMCA, so we could prepare for more headwinds in
terms of Canada, Mexico and United.
Speaker 2 (06:38):
It's gonna keep coming. It's gonna keep coming. Chris, just
to wrap it up, the US versus the rest of
the world, what if you mighte to that debate over
the YSIFA.
Speaker 4 (06:45):
So we thought that was possible, We thought that was
probable early in the year. It happened. Now we're just
walking away, which you just don't. We're done, We're good.
You had that repricing. Now let's go back to fundamentals.
And the fundamentals are telling you back to the US,
back to back to growth.
Speaker 2 (07:01):
Chris Halveylstfagapre Siedaser. Let's continue the conversation. Claudia Sama of
New Century Advisors joins us. Now for more. Claudia, welcome
back to the show. It's good to see you, as always.
Want to pick up on that space from Governor Waller
(07:22):
what he said before our conversation with him, looking across
the soft and hard data, I get a picture of
a labor market on the edge. Do you get a
picture of a labor market on the edge.
Speaker 7 (07:34):
That's what I would characterize the labor market.
Speaker 5 (07:36):
But I think demon and Waller lays out a very
reasonable argument for reading the data right there.
Speaker 7 (07:42):
Labor market has had some crap, has some weaknesses to it.
Speaker 5 (07:45):
I mean, I think they were maybe more apparent last
year's you know, the unemployment rate has been rising.
Speaker 7 (07:50):
But he pays a picture and he ties it to data. Again,
I think it's.
Speaker 5 (07:55):
Really unfortunate that it becomes wrapped in this conversation of
it as a politicized view.
Speaker 7 (07:59):
Of his I don't see it that way, but just
to have that.
Speaker 5 (08:03):
Kind of injective of the conversation does tend to undermine
what he's saying.
Speaker 1 (08:07):
Claudia, do you think, from your perspective, in your years
of experience studying the labor market and how that affects
FED policy, do you think that right now weakening in
the labor market really is a greater concern than a prolonged,
protracted inflationary push from the tariffs and from strength that
we have seen ongoing in corporate America.
Speaker 5 (08:27):
So I would agree that there are several threats on
the growth side to policies have been put in place.
I mean, kars have an aspect of weakening growth throughout
the higher prices we've seen, immigration policy. I mean, there's
a whole set of reasons why you look out at
this year. We've seen growth slow this year, and that
will eventually show up in the labor markets. You definitely
can see those risks. And if one, as Christopher Waller
(08:48):
laid out, looks at the potential inflation risks and says
these are tempered, we can look through these, then I
think you would be right back.
Speaker 7 (08:54):
To where we were.
Speaker 5 (08:55):
You know in twenty nineteen, where does thateral reserve base
with care? They tu preamptively, which is we're not in
an environment where inflation is subdued. It's actually been above
target for more than four years. There are real rists there.
We still don't know what the terear policy actually is.
It could be going higher, it could not, like, so
there's just a lot of uncertainy. I think with the
way that the kind of majority of.
Speaker 7 (09:15):
The FED is lining up their arguments makes a lot
of sense.
Speaker 5 (09:18):
But there is a real perspective, and I would agree
that the diversity of thought on the ped and making
those arguments carefully with data like that's a good thing.
It's just is extremely unfortunate the environment. By having the
White House and the President very directly say what they
want to.
Speaker 7 (09:33):
See in terms of rapes, it's kind of created this.
Speaker 5 (09:35):
You know, It's made it really difficult for the fend
to have this kind of discipline data conversation.
Speaker 1 (09:41):
And it's even more difficult by the fact that the
data is really confusing and it can paint a different
story depending on how you read it. I mean, we
keep kind of wondering what the labor market is showing us,
whether it does show some sort of more dramatic weakening,
or whether the housing market is kind of ringing a
five alarm fire alarm, saying, hey, we're clearly as a problem.
I mean, at what point do you think that keeping
(10:02):
rates at this level would really create a weakness that
currently hasn't manifested itself in the economy.
Speaker 5 (10:12):
We're likely pointed in that direction. I mean, the economy
has proven quite resilience. I mean this is not just
talking about this year, but in recent years. The higher
interest rates, and there are probably a lot of different
reasons for that, but eventually, you know, and we do
see an interest rates that sensitive sectors like how do
we do see these.
Speaker 7 (10:30):
Rates weighing down the question?
Speaker 5 (10:31):
The reason that the federal funds rate is elevated is
because it is trying to push down on inflation.
Speaker 7 (10:37):
Once the inflation issue is taken.
Speaker 5 (10:39):
Care of, well, then there's no reason to have the
rates as high as they are, and you should see
them coming down, and that then tells us that the
direction they're pointed in, they're just not ready to take
that move.
Speaker 7 (10:48):
But you know, there are.
Speaker 5 (10:50):
Costs, There are costs in the economy to the said
having interest rates as high.
Speaker 7 (10:54):
As they are, and we will see those costs build
as interest.
Speaker 5 (10:58):
Rates, say higher, So well, We're not looking at some
dramatic falling off a cliff. We're looking at more of
a slow grind and it does impact certain parts of
the economy, certain consumers, people trying to buy homes. Like
that is where the effect is. But the goal is
to get you know, inflation down. Unfortunately, you know, we've
got data that moving in the wrong directions. That may
be temporary, but like there's a reason the rates are
(11:20):
where they are.
Speaker 7 (11:20):
It's not.
Speaker 5 (11:24):
Government but that there are costs.
Speaker 6 (11:26):
Governor Waller though, is looking at these cracks in the
labor market. Even individuals like Mary Daily is talking about
it's reasonable to expect two cuts this year, Claudia, when
do you expect the FED to first move?
Speaker 5 (11:39):
So it will absolutely depend on the data as they
go forward, but there is certainly a case, and I think,
you know, keep an eye on the inflation data that's
not connected to TARRAF. I mean, I think that's actually
been part of the encouraging cases that we've seen some
weakness in you know, some discretionary spending areas.
Speaker 7 (11:55):
That housing has.
Speaker 5 (11:56):
Certainly shown some cooling off.
Speaker 7 (11:57):
So I think they're building the data, are building the case.
Speaker 5 (12:01):
As long as you know, the terrorists don't really like
move much higher. You know, things really go dramatically sideways.
I think they're on track for September or October. You know,
as the data come in and Governor Walla could absolutely
be correct, and we see some employment numbers that are
not as positive as recent ones, and that that doesn't
move them much more quickly to the cut. But I
(12:21):
think this is the data thus far have supported their
let's wait and see, and I think that's where they're
going to come down as a group next week. But
of course, you know, you can look at the data
differently and they are pointed in the direction of cuts.
I mean some aren't even looking for this year. But
I mean that's you know, they have a lot.
Speaker 7 (12:38):
Of coherence in what they're thinking. It's just timing is hard.
Speaker 5 (12:42):
It's it's really hard to figure out because timing is
hard in the economy.
Speaker 2 (12:46):
Cloda, I appreciate itsime. Clodia sound that new century of
signed chasms a signical the ISSUS has this to say.
Our vice case has been and remains. The US President
Donald Trump will not dismiss Fedchad to run PAL at
(13:07):
the very least until after the September FMC meeting chance
John to snap for Moss, so challengeing given us the
best case two months. What happens after that if they
haven't reduced interest rights?
Speaker 3 (13:17):
Yeah, if the FED doesn't cut at the September meeting,
I think the President moves forward with a shadow chair
nominee announcement and continues to build the case to dismiss
Pale for cause, hoping that Powell will resign. I don't
think Powell will resign, but I think that case will
continue to be built. What the President really wants is
(13:38):
for the FED chair to resign, and you know Pal's
not going to do that most likely. And the other
part of this process is the President really trying to
socialize with the markets, this idea of replacing the FED chair.
The only guardrail working in the United States today in
terms of a check on executive power is the bond market,
and I think that's what they're most worried about. The
(14:00):
September FOMC meeting is critical and we'll see what the
FED does. Otherwise we have a shadow FED chair.
Speaker 6 (14:05):
Well, wouldn't it be even harder though, for the collective
body of the FOMC to cut if he was to
get rid of the FED chair or say he was
going to fire him after the September meeting.
Speaker 3 (14:15):
Absolutely, I think you know, everyone in the markets understands
that it's a twelve member FOMC vote. It's not just
the FED chair. But the President sees Palell as the obstacle,
and he really wants a FED chair in, whether it's
shadow or if Palell resigns. Even if Palell resigns, by
the way, the FOMC picks the FED chair, So I
(14:36):
think what the President's really doing is using Palell as
the punching bag for higher rates. He's also worried. I
think that even though the administration doesn't believe the terris
will be inflationary, that if inflation does pick up over
the next several months, you can blame the FED, blame Pale.
But ultimately I think this shadow FED chair idea, which
even three or four months ago sounded really far out
(14:58):
there or deeply concerning for markets, is now being socialized
and probably happens after September.
Speaker 6 (15:03):
Well, the Treasury Secretary talked about the fact that there
could be confusion with a shadow FED chair if j.
Powell doesn't step down after his chairmanship is over, but
he still has a governor seat until twenty twenty eight.
Do you have any indication that he would stay the
course until twenty twenty eight?
Speaker 3 (15:20):
Absolutely? I think Chair Powell will stay on the board
after his chair term ends, and he stays on the
board until the end of.
Speaker 6 (15:28):
His term in twenty twenty eight, wouldn't that look very political,
Trembles Charles, That would look incredibly political. Most chairs step down.
Speaker 3 (15:37):
Absolutely, but I think it would be a really strong
statement by Chair Powell, encouraged by some of the other
members of the FOMC, perhaps as a statement of very
strong independence. And that's why I think he stays on Charles.
Speaker 1 (15:49):
There's the question of what happens if, let's say Chair
Powell is fired and for cause, let's get get smired
in all sorts of legal disputes. There's this issue of
does Congress confirm whoever President Trump nominates to replace him?
How much unity is there right now among Republican Congress members.
Speaker 3 (16:08):
Well, I think you know, whoever is nominated has to
be confirmed in the Senate. The Senate, including the Republican
Caucus and the Republican leadership, do take fed independence very seriously.
So whoever is nominated will be a very respectable and
acceptable and very positive person for the markets. It'll be
one of the folks that are auditioning very publicly for it.
(16:30):
You know, But in the end, I don't think that's
going to be the issue that person will get confirmed.
The issue is, you know, will they try to sway
the FMC to be more dubbish.
Speaker 2 (16:40):
Charles Moss a second of glove that fives as Chiles.
Thank you, Seth Angela. So you know I CFIRA has
a buy rising on chance of alphabbat at two ten
Friest talk and Angela, welcome to the program. That ad
(17:00):
model at alphabet How insulated is it right now?
Speaker 8 (17:05):
Yes, thanks for having me John. As far as kind
of the ad model is concerned, I mean, listen, I
think they're doing a lot of great things as far
as what's going on across search as well as YouTube
integrating AI across the ecosystem. You've got AI mode ramping
here on search AI overviews. So overall, I think the
(17:26):
monetization potential looks pretty good as far as their AD
based businesses and AI integrating across that ecosystem. You know,
clearly there is a risk as we kind of go
on here over the next couple of years, eventually open
ai and others out there will probably have some sort
of ad supported models, and that is you know, clearly
(17:47):
a risk here for alphabet So sitting here today, I mean,
we do think their ads. Google's ad supported businesses probably
grow around in line with the broader digital ad market,
let's call it high single digit growth. But you know, ultimately,
as we kind of go into some of these forward
looking years twenty twenty six, twenty twenty seven, we're looking
at the growth pace of you know, something like search
(18:07):
to grow at about half the pace of the digital
ad market, just because you're going to have some you know,
increasing competitive pressures out there.
Speaker 1 (18:14):
Angela, are we underestimating the speed of the adoption of
open ai, of chatchpt and some of these algorithmic models
that some people find superior to the classic search model.
I mean, I was listening to John and man deep talking,
and I'm thinking to myself, I've known so many people
over the past six months that have utterly transformed their
workflow because of chat GPT. Is the timeframe a little
(18:37):
bit faster potentially than what we're talking about.
Speaker 8 (18:41):
I mean potentially, I mean, well, I guess we'll see here.
I mean, ultimately, people are doing search and you know,
in a different way than they have historically. But when
we think about just overall, what app Alphabet has, you know,
across their ecosystem as well, I don't think it should
be underestimated. I think Gemini is an enormously powerful tool.
(19:03):
I mean, I'm personally a power user of Gemini. I
do love the fact that it's across their entire eco
system out there. There is an advantage out there to that.
I think that Alphabet is getting extremely smart with Gemini,
So you know, I don't think you can completely dismiss
Alphabet specifically and what they're doing across the AI ecosystem,
(19:23):
not to mention their infrastructure I think is better than
just about anyone else's out there. But again that being said,
I mean maybe to your point, with what open ai
is doing with chet, GPT and and others out there
as well, there are going to be more options out
there in the market, and that is something that I think,
you know, as an analyst, you can't underestimate and you
do have to factor that into your future assumptions. But
(19:45):
we do expect, you know, ultimately, their ad supported businesses
to continue to grow. It's just not going to be
at the pace that you know, maybe you're seeing from
you know, the market here over time because of the
broadening out and greater competitive pressures.
Speaker 1 (19:57):
A couple of months ago, there was a skepticis them
on Wall Street about the amount of money that hyperscalers
were spending on R and D on CAPEX, and there
was this question of are they overspending? Meta had said
we can't spend enough. Do you think this season you're
going to see a rewarding by investors of companies they
increase their CAPEX spend dramatically or do you think that
that's going to be treated with the same skepticisms a
(20:19):
couple of months ago.
Speaker 8 (20:21):
Well, I think what you're actually going to see this
earning season. I think you're going to see CAPEX spending
plan plans sustained and not increased. We actually saw Beta
increase it last earning season. As far as their twenty
twenty five CAPEX guidance, I think, you know, Microsoft has
actually done a pretty good job here over the last
couple of quarters, essentially kind of flatlining the CAPEX number,
leveling it out. This is their year end, so we'll
(20:43):
kind of see what type of guidance and outlook they
decided to provide here for investors here over the next year.
But I actually think for the most part, you're going
to actually see more favorable return ROI metrics across kind
of some of these cloud providers because of how they're
spending on the cappet side of things, they are shifting
(21:03):
more towards the server side of things here over the
next couple of borders and years, and and you know,
clearly the growth piece is you know, starting starting to
kind of decelerate and level out a little bit here.
So I think kind of the return on investments are
going to see considerable improvement here, not only over the
next you know, a couple of months, but you know,
over the next couple of years, and I think investors
(21:24):
will reward that. Maybe to your point, I think the
other important point here or item to look out for
here this earning season is something along the lines or
you know, looking at the op X side of things,
something that these companies have really been you know, holding
kind of leveling out here over the last couple of years. Actually,
if you look at employee headcount, whether it be from Google, Microsoft,
(21:46):
announcing recently some of their head count reductions essentially down
over the last kind of two to three years, flat
to down, And I think it'll be interesting to kind
of see how these all these companies comment relative to
what we've seen here from Zuckerberg over the last couple
of weeks and months. I think that's going to be
really an important storyliner.
Speaker 2 (22:05):
As well, Angelo, I appreciate it. Angela's in O there
as CFRA. This is the Bloomberg Surveillance podcast, bringing you
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(22:26):
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