August 6, 2025 • 47 mins
Watch Tom and Paul LIVE every day on YouTube: http://bit.ly/3vTiACF.
Bloomberg Surveillance hosted by Tom Keene & Paul SweeneyAugust 6th, 2025
Featuring:
1) Mike Wilson, Chief US Equity Strategist at Morgan Stanley, joins for an extended discussion on the equity rally, his S&P target, and whether he expects further volatility this year. European stocks erased an advance and US equity futures posted modest gains as investors assessed US President Trump’s latest tariff threats and disappointing economic data.
2) Anastasia Amoroso, Chief Investment Strategist at Partners Group, joins for an extended discussion on private investments and how she's approaching markets and investing in her new role. Recently, Apollo CEO Marc Rowan said trading private assets has the potential to turn the industry “on its head” and that those who resist it are generally charging high fees. Rowan stated that in every industry where transparency of pricing and daily price availability has taken place, the industry has grown massively, and that Apollo's partnership with banks to trade private credit will provide real-time pricing on the asset class.
3) Steve Auth, CIO, Equities at Federated Hermes, talks the soft-hard data gap and the outlook for equities. Data Tuesday showed weakening US services amid sticky price pressures, further complicating the Federal Reserve’s policy challenges after last week’s weak jobs numbers.
4) Douglas Holtz-Eiken, President at the American Action Forum and former Director of the Congressional Budget Office, joins to discuss the dismissal of the BLS chief and the tariff impact on the US economy.
5) Lisa Mateo joins with the latest headlines in newspapers across the US, including Bloomberg's coverage of Disney's ESPN buying NFL Network and other assets and Business Insider's story on Microsoft's stricter return-to-office policy.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
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Surveillance Podcast. Catch us live weekdays at seven am Eastern
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Listen on demand wherever you get your podcasts, or watch
(00:25):
us live on YouTube.
Speaker 2 (00:27):
Michael Wilson, thank you so much for joining this morning.
You called a new bullmarket and you say you have
a higher conviction into twenty twenty six. Why, yeah, thanks Tom.
Speaker 3 (00:40):
I mean we talked about this in our midyear outlook
going back to May, which we felt like the April
lows would be a durable low for a lot of
different reasons. I'll try to go through them in no
specific order, but I mean, you know, we've had the
view coming into this year that it was going to
be a tough first half because earning provisions were coming
down pretty sharply for a lot of reasons, most notably
(01:02):
the AI CAPEC cycle was decelerating. We still had what
I would call a rolling recession in many industries that
were struggling, and the revisions were coming down. So what
tariffs did was it sort of culminated that that decline
into April, and as you know, I mean you've been
around the block like me. I mean, market's bottom on
bad news, okay, And so that I would have likened
(01:23):
the Liberation Day announcement to sort of a natural disaster
that basically, you know, capitulated, everybody capitulated. So that revision
of revision factors the main driver when I were bullish,
we think it's a bull market is the revision factors
for earnings are have shot higher. And you've seen our notes, Okay,
So like that's that is doesn't happen every year. That
(01:45):
is as extreme as we saw coming out of the
COVID lows in March of twenty twenty. Okay, it's as
extreme as we saw coming out of nine to eleven.
It looked like a recession. It walks like a recession,
a priced like a recession. So that's it.
Speaker 2 (01:59):
Okay. This is a really critical question, folks. We all
understand the Trump legislation, the Beautiful Bill and all that
as some form of stimulus forward at least out one
two years, maybe three years. It Morgan standing, Mike Wilson.
The key question is the linkage of potential rate cuts
to equity enthusiasm. I don't have a straight answer on
(02:21):
that yet, can we link Powell, our future chairman, rate
cuts into an equity lift?
Speaker 3 (02:30):
Yeah, well, I think I mean, as usual, the markets
get ahead of this, and what the markets are anticipating now,
the bond market and the equity markets that the FED
will be cutting sometime in the next you know, two
to six months. And you know, even our house call,
I mean, our house calls for no cuts this year,
but then they have seven cuts next year. I mean,
that's like wildly bullish for equities. Okay, so you know
it's you almost have the perfect setup, Tom, because what
(02:52):
you have now is lagging economic data, which is what
the FED uses to make decisions, and you have you
already had the equity market in our divisions telling you
what's going to happen. So you know, they're looking backwards
and they're going to be looking at lagging labor data,
you know, and then of course lagging inflation data, which
should come down ultimately later this year next year, and
they're going to cut into that and but the but
(03:13):
you know, there's not going to be a knock on
negative effect for earning revisions in the way that people
kind of assume when you get that sort of decline
in labor data. In fact, I would argue because it's
gradual that we're going to see revisions go up, because
you know, when companies reduce headcount, it actually accrues to margins.
Speaker 4 (03:31):
Mike, what what is screening well for you? Now? I'm
not sure if it's sectors that you guys screened by
or different factors that you screen by. How are you
looking at this market and maybe where opportunities might be right,
So we do both.
Speaker 3 (03:44):
We look at factor revisions, we look at sector industry revisions,
and we look at the stock level too. It works
in all those areas, and so we've been rightly positioned,
really since April to be overweight financials industrials. Those are
the two favorites, and also software to some degree, and
those have been the areas where the revisions have been
the strongest, and I think that probably could continue. And
(04:07):
so at the end of the day, I do think
the biggest opportunity going forward is the areas that have
not seen those revisions yet. So let's talk about the
industries where we've been sort of in this rolling recession.
Housing related, okay, commodity related, some of the consumer goods
areas which are going to feel the effects of terrors now.
So in the very short term, we actually think revision
breath could come down a bit as some of these
(04:28):
terrorts flow through to cost of good soul. But that's
just going to create the next buying opportunity, perhaps in
these areas that are lagged, even small casts, because they
will love the fact that that's cutting rates at some point.
Speaker 4 (04:39):
Mike, one of the themes today and really for the
last period of time has been concentration risk. In this marketplace,
it seems like only a handful of stocks are driving
the performance. But I think what we're kind of coming
to the conclusion of our at least rationalizing is because
that's where the earnest growth is, that's where the free
cash flow is. How do you think about that issue?
Speaker 3 (05:00):
You're exactly right. I mean, the market's not stupid. I mean,
like the first of all, what drove the market lower
in the first quarter the MAG seven You know why,
because the MAG seven range divisions were terrible. In the
first quarter, we had an AI camp BAX acceleration. We
had questions around whether it's going to generate ROI revenue
growth kind of decelerated a bit, so you know, it
happened for a reason, but has nothing to do with teriffs, okay.
(05:23):
It has everything to do which is the natural evolution
of this AI cycle that's going on. So I think,
you know, coming out of the April lows, the reason
why the MAG seven led is well, hey, they're big
and liquid, everybody loves them. But also because they were
seeing a rate of change bottom in the revision factors.
I'll give you two huge catalysts for that. The weaker dollar, okay,
(05:44):
which accrues to the large multinationals, particularly some of the
MAGS seven. And the second one was that we saw
that you know, U Vidio could no longer sell they
could sell, they could no longer sell chips to China,
and they took a big write down on inventory. But
now they can sell those chips when the inventory is
at well. So what does that tell you? Gross margins
are going to be basically manufactured for the next year.
(06:06):
So there's a lot of reasons, you know, why stocks
do what they do. But the main reason we for
our whole franchise, as you know, focuses on earnings, not
lagging economic data.
Speaker 2 (06:17):
Mike Wilson with us across your commute this morning across
the nation, I should say on YouTube as well in
the office and of course at home YouTube subscribe to
Bloomberg Podcast growing each and every day. Should I do
a shout out right now for Joe Wisenthal, Tracy Alloy
killing it number one on Apple?
Speaker 4 (06:33):
Yesterday's phenomenal had a great write up in the New
York Times, so they did double.
Speaker 2 (06:37):
Days and you know they'll be with us Jackson Hole,
So maybe I'll get you know, maybe they're entourage. You'll
let me speak to them. We'll have to see Mike
Wilson with us. With Morgan Stanley, Mike, how do you
use your analysts work? Mister Weiss covers Microsoft just as
you know, do you speak to these people or how
do you use the securities analysis of Morgan Stanley.
Speaker 3 (07:02):
Percent We're a micro macro franchise man. I started my
career in the stock business, you know, I used to
be a TMT specialist as a desk analyst, you know,
following bottoms up, and so I obviously know these folks
have been here for thirty five years. I know all
of them well, I've worked with all of them, and
so we every month we hold a call that we
basically call it the micro macro matchup, where we basically
(07:24):
kind of talk about our views from a macro standpoint.
Then we talk to the analysts and say, well, what
are you guys hearing? What are you doing? You know
how you how are your numbers may be adjusting, and
that informs us just like our analysis does from a
top down perspective. So the marring of the micro macro,
I think keeps us a step ahead of most people.
People can criticize us for various things, but they can't
criticize us for I think we have done a better
(07:46):
job of most of being in the right places within
the equity market because of that micro macro marriage.
Speaker 2 (07:51):
So so delv here now in to say, I see
MIT Sloan, I see Caltech, this whole cottage industry, including
the University of Michigan and Arburg doing AI? Learn about AI?
Morgan Stanley, what is the next three months, six months?
Zeitgeist on AI? The momentum of it? Yeah?
Speaker 3 (08:14):
Well, here again we have a pretty I have an
advantage because we have some analysts who are not only
you know, very good in this space, and they have
long tenure, like a lot of our tech analysts have
been in the seat for ten to twenty years as
we have continuity there, but the zeitgeist here is essentially
now into the adoption phase. We've written a lot about this,
which is that you know these tech cycles, you know,
there's there's basically an enabler phase where you have a
(08:36):
build out and the enablers benefit from that build out,
and then the technology gets adopted by the early adopters.
We're seeing that mainly by the hyperscalers quite frankly, because
they're very fast with the big data sets. And then
ultimately what we think is going to happen to the
application layers being built now that will then be basically
diffused out into the broader economy. And so that's where
it gets really exciting. That's sort of the you know
(08:57):
the Internet. When the Internet got exciting is when it
starts to make everyday businesses more productive. So we have screens,
we have lists, we've been publishing on this for.
Speaker 2 (09:06):
Quite a while.
Speaker 3 (09:07):
Those AI adopter stocks are massively outperforming, they have been.
The market knows this. I think we've been ahead of
that curve, and that's what we're saying, that's what we're
looking for for the next twelve months is that this
is where we're going to start to finally see some
of the productivity benefits diffused across the broader economy. It
won't be a straight line. There'll be doubts and fears
and uncertainty, but it's a very positive story for the
(09:27):
twenty twenty six earning story. And this is why stocks
are not as expensive as people think, because you know,
the market figured this out just.
Speaker 2 (09:35):
Like we did.
Speaker 3 (09:35):
I mean, you know, if we can figure it out, definitely,
the market figured it out that we're going to see
positive revisions lead to better earnings growth next year. Okay,
and I think you know the economic data is backward
looking and it just doesn't tell that.
Speaker 2 (09:45):
Stor denominator Paul comes up. Yeah, that's the whole thing. Yeah,
it's amazing, Hey, Mike.
Speaker 4 (09:51):
In your research note, you're right, since the loads in April,
the rally in stocks has been relentless.
Speaker 2 (09:56):
With no tradable pullbacks.
Speaker 4 (09:57):
What creates a pause and a bull market where you
can maybe catch up a little bit.
Speaker 3 (10:04):
Well, we try to lay that out in our note
this week.
Speaker 2 (10:06):
Right, it's just.
Speaker 3 (10:07):
Because we want to be well balanced here, but I
want to go back and you know, that comment about
the market being relentless and straight up in no pullbacks,
that are those are the characteristics of a new ball market.
That's what happens, and that's what looks like. This looks
exactly like April, May, June, July twenty twenty. In fact,
it's following a similar pattern. So I think that the
(10:27):
things that could get us a consolidation in the third quarter,
which we did start writing about, you know, a couple
of weeks ago, we said there's going to be a pullback,
it's going to be during a third quarter. We do
want to win, but we do think there's three or
four potential drivers. And at number one, revision factors could
come down as the terror start to flow through, the
cost of good soul, right, the more expensive inventory starts
to flow through, and some companies will have margin pressure
(10:48):
with that, or there'll be some demand destruction. That's one.
I think. Number two is we know there's a trendspmens
supply coming on the treasury issue inside, maybe the term
premium kind of pushes out again and we get a
backup in long rates. You know, the market now is
negatively correlated to rate at this point, So that's another
potential driver. And I think the one that is not
so obvious but has been a big driver of the
(11:08):
bull market in the New Bowl market is the dollar weakness.
So dollar weakness has not only translated to better earnings
growth for the multinationals, it's also added an incredible amount
of liquidity to the tune of about eight trillion US
dollars to global money supply. So if the dollar would
strengthen here five six seventy eight percent, that could lead
to a liquidity drain of some kind and a.
Speaker 2 (11:30):
Pullback of interesting fast I should point out mister Wilson
talks about the lift off of twenty twenty that was
precisely one hundred percent in twenty two months out to
the end of twenty twenty one. Was the first leg
of that lift. Absolutely extraordinary, Mike Wilson. I got to
go to one of the dogs. I noticed it on
the WEI screen today. Health, I mean, is it health
(11:54):
of value trap? How does Morgan Stanley consider purchase of
health equity?
Speaker 3 (12:01):
Well, it has been one of the worst performing consistently sectors.
Even when the market was somewhat defensive in the first quarter,
it didn't really do its job. And I think we
could attribute this to a couple of different things. I
would say, most notably, we have a new obviously head
of the HHS, Robert Kennedy Junior, who you know, has
been I would say quiet so far on what his
main initiatives are going to be. And I think there's
(12:22):
just sort of sort of some fear there that maybe
it's going to be draconian and in terms of like
for farmer companies and some of the some of the
device some of the device companies and even the insurance companies.
And I think, you know, it could be this simple
time is that once once RFK Junior and the HHS
roll out what they're going to do, I think they've
they've said September they're going to be done with some
of their studies, it could just be a sigh of relief.
(12:44):
Maybe that's the catalyst here, But I mean, we're not
going to probably upgrade the group until we see at
least a bottoming out of relative range breath. We're just
not seeing that, and so there's no need to go there.
There's other things to do.
Speaker 2 (12:55):
Paul, I get good news, I'll check the schedule. Duke
does not have privileged to lose to Michigan this year
in football. It's a constructive first step well for Duke
Mike Wilson, thank you so much. With Morgan Stanley.
Speaker 1 (13:15):
You're listening to the Bloomberg Surveillance podcast. Catch us live
weekday afternoons from seven to ten am Eastern Listen on
Applecarplay and Android Auto with the Bloomberg Business app, or
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Speaker 2 (13:27):
And Stishamorosa with the Snow with Partners Group David Layton
and running the charge their Partners Group of course doing
a lot, particularly more out West in Switzerland as well.
You're still based in New York, right, Yeah, Partners has
a huge international perspective.
Speaker 5 (13:46):
That's right.
Speaker 6 (13:46):
We're global private markets firm. I've been around since nineteen
ninety six. Zooke is the headquarters. Denver's the US Zuke
that's how you pronounce it, zuk, Yes, outside of Zurich
and also in Denver as well, but also a really
big price and it's in New York as very could.
Speaker 2 (14:01):
Thrilled to have you back with this level of MROs
of courage to stay in the market at different points.
Is you feel that way right now where people there's
so much geopolitical nervousness and all, and you're just saying,
fight the good fight and stay in the market.
Speaker 6 (14:17):
Well, you know, Tom, one of the probably the best
perspectives I've gotten, you know, through kind of my investment tenures,
thinking about themes and think about the megatredza really change
and shape the world figures to come. And if you
align yourself with those and if you focus on what
actually drives earnings or what drives profitability, it's focusing on
things like artificial intelligence or digital transformation, or healthcare innovation
(14:40):
or you know, new ways of living. So that's what
sort of gives you the courage to stay through the
next rate cut or rate hike or not, or through
the next inflation report if you invest in the right
kinds of companies in order to benefit from that innovation
over time.
Speaker 4 (14:56):
One of the big themes that we've i guess become
more accustoms over the last six months twelve months has
been maybe this onshoing, reassuring, this reduced sense of internationalism.
And for a company like yours that it is a
global company in Zurich and in the US and all
over the world, how do you guys think about the
fact that this may be a less global economy than
(15:19):
it was one, two, three, five years ago.
Speaker 6 (15:22):
You know, I don't know if that is a completely
right assumption to make that this is a less global economy.
I don't think the objective is really to sever all
trade ties. I think the objective is really to rethink
the trade going forward and also to sort of set
out new rules of how the trade is going to
be done. So, if that's the base case scenario, as investors,
(15:45):
we have to think about how to corporations, how to consumers,
how do we want to adjust to that? And you know,
speaking of adjustment, this is why I call this a
quarter of adjustment. This is the time where companies are
going to decide whether they're going to pass through the
tariff cost to the consumer. Where they going to do?
Speaker 2 (16:01):
What do you see there? What's your update?
Speaker 6 (16:03):
We see a combination. I think the vast majority of companies,
about seventy five percent of companies are saying that they're
going to pass through the cost of the consumer. Maybe
only twenty five percent of those say it's one hundred
percent of the pass through. Some of it will be
absorbed by the profit margin, which is near a record.
Speaker 2 (16:20):
Anna stj Morosa with this partners Group, and again thank
you for joining us on You're commute this morning across
the nation in the office at home in Zoos, Switzerland.
YouTube is the way our new distribution has subscribed to
Bloomberg Podcasts. We protect the copyright of all of our research.
They email and send us am Anastage's note no get
(16:42):
it from partners Group. I love how you say this
focus on what you can control. Describe that for equity
market investments right right now.
Speaker 6 (16:52):
Well, the first thing you can control is the kinds
of companies you invest in, and what are the profit margins,
What is the starting point for those profit margins, and
what is the endpoint what you're trying to achieve. So
one thing we can control is actually growing that profitability
and growing the profit margin. You know, it's driving operational efficiencies,
it's perhaps infusing AI, machine learning and other productivity tools
(17:14):
to grow those margins. It's building platforms rather than you know,
let's say one product business. So that's one thing you
can control. You know. The other thing you can control
is you can pivot into the sectors where you do
naturally have faster earning growth because it is not a
company that's aligned with the old economy, but it's a
company that's aligned with a new economy. So that's why
(17:35):
we do look to things like data centers. That's why
we do look to the build out of the energy
production as well. So those are the things you can control.
You can control leverage, how much do you use, and
how do you know pull that lever based on what
interest rates are. So those are some of the main.
Speaker 4 (17:52):
Things outside of tech, which is obviously driving this market.
Are there areas outside of technology that you guys find interesting?
Speaker 6 (18:02):
Yes, you know, I think one of the misnomers in
the markets right now is that just because there's not
a big focus on sustainability from the current US administration,
and this is not a theme that's going to be there.
And you know, I very much think that sustainability is
a theme that's going to is here to stay because
it's really about how can we be the most efficient
with our natural resources, minimize the damage to the environment,
(18:23):
also make sure everybody has access to basics, which basic
since today days and age means a data center, power
by some sort of electricity production. So this, let me
interrupt this morning.
Speaker 2 (18:36):
Apollo Funds comes out and says we're buying data centers
and they're buying stream data centers. Yeah, this is Joseph
Jackson and Trevor Mills that Apollo Partners, and that's exactly it.
Where private markets are coming in, that's right to finance
these this huge capital investment. Right.
Speaker 6 (18:56):
Well, it's a great point, and here's the reality. Everybody's
been talking about data center for a while, and yet
if you look at the occupancy rates for data centers,
they are near record highs and we still think that
sort of the peak occupancy of data centers is still
a few quarters away. So that means for the time
being you still need to build out additional capacity and
(19:16):
supply demand for data centers is still going to be
tied for a period of time, so that that gives
you the ability to control the price and also the
investment has to continue as well. And by the way,
just another point to add on that, you know, just
real quick, data centers are thought right now for you know,
to be used for cloud and also training AI models.
(19:38):
But you know, Tom, the next phase of this of
data center growth is really the infront stage of it
and applying those train models into another use case.
Speaker 4 (19:46):
Talk to us about valuation in this market. It's tough
here because it if you just kind of look at
the S and P of five hundred, it's expensive. But
if you make start making adjustments for some of these
technology companies, the mag seven of the world, maybe you
can make a case it's not that expensive. How do
you guys think about that.
Speaker 6 (20:04):
I mean, it's true that Max seven versus the rest
is a very different scenario. But I will say that
even the cyclical sectors. For example, I looked at industrials
the other day, and even industrials then discount to the
S and P five hundred or for a machinery that
was actually the case, the discount has narrowed. So I think,
you know, broadly speaking, valuations in public markets have got
(20:26):
a long way in a short period of time. Having
said that, in private markets, that's where we are still
finding cheaper valuations. And if I look at the s
and P five hundred EV to Ibada, we're probably close
to seventeen seventeen and a half times. If I look
at private markets, we're about twelve point two times for
US EV to Ebadi in private markets. So that's why
(20:47):
we're obviously quite focused on scapture evaluation in private mark.
Speaker 2 (20:51):
Just may be delicate. I don't want you putting in
jail and zoo Switzerland. But okay, but there's a lockup
to private markets are you seeing? I mean there's an
article in Carlisle this morning where they're jettising finally a
lot of properties in the buoyancy that we're in right now.
But do you see liquidity within private markets? It makes
(21:12):
up the liquidity penalty going from ev to ebit up.
Speaker 6 (21:17):
To down right Well, liquidity is a big concern I
think one in private markets investing, and I think one
of the things that Partners Group has done for a
long period of time is managed that liquidity for clients
in an evergreen solution. And what I mean by that,
and what I mean by that is clients have the
ability for quarterly liquidity if they need to. And the
(21:40):
reason we're able to do that is because not only
do we focus on direct control investments, but also secondary
co invests and that really you know, having managed this
for about sixteen years, it's been multiple cycles and liquidity
has been there for clients.
Speaker 2 (21:57):
Can I do it? Audible? Mentioned evergreen solution? Do you
have a real Christmas tree or a fake Christmas tree.
Speaker 6 (22:05):
I always get a real one.
Speaker 2 (22:07):
Yeah, the biggest, the right answer, the biggest argument. Me
and John farrellhead I go over to Pharaohs. He's got
the fake Christmas tree with the light things filling around
at the bottom. I'm like, John, it's an American. You
gotta have a real tree. Okay. So that's that's our
evergreen solution here, Paul continue, I got way laid there.
Speaker 4 (22:26):
Private credit it's been such a big part of the
alternative investment theme over the last certainly last fifteen years,
I guess since a financial crisis when it really got big.
How do you guys think about private credit alongside your
private equity and your other businesses.
Speaker 6 (22:39):
Sure, it's a really important part of the solutions suite.
And you know, look, if you think about a bank
share of private credit of lending, it has stepped down
from about seventy four percent back twenty some years ago
to about twenty five percent depending on the quarter. And
it's been the private credit providers that have stepped in
and provided the liquidity and plugged in that gap. So
(23:00):
now about seventy five percent of the market is actually
driven by private credit. So look from a market perspective.
You know, whether we get a rate cut or not
from the FED, I will say the excess spread that
you get from in direct lending, for example, of on
average about five hundred basis points is quite attractive, you know,
especially rates keep heading lower private credit screen as well.
Speaker 2 (23:24):
In the time left, I got to get some SPX
vision from you. How far up forward are you in
the stock market? How do you frame six end of
the year or even twelve months forward right now?
Speaker 6 (23:35):
Look, I think we're in for a consolidation quarter this quarter,
at least until September seventeenth, which is of course the
FOMC decision. And I say that because we're going to
hear a lot about the tariff impacts on net profit margins,
and maybe some of that is going to be offset
by well, the label market is weak, therefore the FED
is going to cut, So I expect choppiness. But as
I think about the fourth quarter and into twenty twenty six, Tom,
(23:59):
I think, so what doesn't get talked about enough is
that we did pass a tax built that's quite favorable
for the consumer, but it's also quite favorable for businesses
as well. So whether it's one hundred percent R and
D expensing that has now been made permanent, or one
hundred percent depreciation that has also been made.
Speaker 2 (24:15):
This is underplayed. Yeah, stimulus, the stimulus impact, you know,
the cynics would say it's clearly around Republican re election
twenty six and the president to twenty eight. But the
answer that the stimulus we're living right now is tangible.
Speaker 6 (24:30):
It is tangible into twenty twenty six. We're not going
to see much of it this year, but into twenty
twenty six. And Tom, you know how the markets work,
They look forward, So I think that'll be an important
story in the fourth quarter.
Speaker 2 (24:41):
So, but it's still not out of the triple leverage
all cash. I know how the markets work exactly one marvel.
Speaker 4 (24:46):
So, Anastasia, how's your how's your job get to change?
Do you think if at all being part of the
Partners Group now, which is such a large alternative asset
manager globally with.
Speaker 6 (24:56):
The other right, Well, it's certainly a privilege to be
a Partner group, and the role is really to help
our clients think about how does the macro how are
the macro forces impact your investment portfolio, specifically from the
standpoint of allocating to private markets. So what is this
combination of inflation to rates, to growth to tariffs mean
(25:18):
for investing in private equity? Where do we find some
of the best opportunities within directs or secondaries? What does
this mean for private credit, real estate, royalties, investment and more?
And you know, the other big conversation is that I
think a lot of clients understand and want to allocate
to private markets, but for a lot it's still a
consideration of how and how much. So helping advise clients
(25:42):
on the portfolio construct to private markets is an important
one as well as as.
Speaker 2 (25:46):
You think, is someone at your Optimism American Economic Experiments
and ross with the Partners Group.
Speaker 1 (25:53):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on Applecarpe and Android Atto
with the Bloomberg Business App. You can also listen live
on Amazon Alexa from our flagship New York station, Just
say Alexa play Bloomberg eleven thirty.
Speaker 2 (26:10):
Stephenoff joins down cio equities at Federator or Medicine. They've
got different approaches there, but all you need to know
is looking at the Federated Growth Fund. It's under the
the othean umbrella, as we call it. I mean it's
it's sort of doing okay. Three year ninety fifth percentile,
five year ninety ninth percentile. They're off the market today,
(26:33):
not too bad. And this is all the growth juggernaut,
and this is what Steve aut has acclaimed for worldwide.
I want you to explain, in this unique year, how
you approach equity investment knowing, like baseball twenty five or
twenty six or twenty eight percent of the stocks will
(26:54):
go up and the rest don't forget the what stock
to pick? How do you choose not to own a
stock in the S and P five hundred?
Speaker 5 (27:05):
Well, I think it's our time horizon. That's a little different, right.
The most traders today are focused on day to day movements.
We're too big to even think about it that way anyway,
But I think it's not really the path to success
in the investment markets. We tend to look at a
longer term horizon, and that leads us to look through
(27:28):
some of the noise. What's interesting to me. I think
one reason we're having a pretty decent year here and
we did last year is the news cycle has really
shortened up, and so the folks chasing around the news
cycle are like chickens with their heads cut off, getting
whipsawed left and right. I mean, if you were following
the news cycle in April.
Speaker 2 (27:49):
You went to cats. Is that what hedge funds do?
I don't want to speak to the.
Speaker 5 (27:55):
Hedge funds broadly, but certainly that's one of the ways
they try to make money.
Speaker 2 (28:00):
We have a lot of folks doing it.
Speaker 5 (28:01):
Some of them do a good job at it, so
I'm not knocking the hedgehuns, but we tend to look
longer term and right now. That's helped us a lot
because one reason we were more optimistic in the spring
was to us, the gap between the soft data and
the hard data was pointing to you know, we are
in a little bit of a slowdown here, but we
(28:23):
thought coming through it, things would get better. And once
we got this uncertainty behind us this summer and here
we are right on schedule, you get a kind of
bounce effect just from the uncertainty lifting. Not to mention
you know, the the incentives to further investment through the
(28:44):
tax cut, You've got the deregulation thing coming through, and
you know, fortunately the Fed is looking backward, so they're
going to be cutting.
Speaker 2 (28:54):
Well, we got to remind ourselves. One, you're trailing Nastack
up twenty eight percent, SMP five hundred and twenty percent,
now up thirteen percent. How many of our listeners and viewers,
including me, right understand looking back twelve months we got
a double digit to zero. Yep, that's amazing, exactly.
Speaker 5 (29:14):
Right, and often, by the way, that's a precursor of
a pretty decent next twelve months if.
Speaker 4 (29:20):
You look at the data, so Steve, one of the
concerns in particularly in the equity markets is a concentration
risk here. We've got it in the mag seven or
whatever you want to call it. So much of the performance,
so much of the valuation, is concentrated in a handful
of names, and people like Torston, slock Over Topollo just
kind of call out, well, we haven't seen that very
often in the past, and when we did see it
(29:42):
late nineties, it wasn't a good thing, do you guys.
Speaker 5 (29:45):
Late nineties was a completely different thing.
Speaker 2 (29:47):
Though.
Speaker 5 (29:47):
If you look at the share of the top ten
versus the share of earnings of the top ten on
market gap, it's a flip flop of the late nineties, right,
late nineties, we didn't have any earnings. These top seven
companies are terrific companies with enormous free cash flow that
we think are reasonably valued, and within them even there,
what we're calling for is, as you think, you know,
(30:09):
is a rotation into the broader market. Okay, and that's
going to help our stockbreckers, by the way, but you
know that rotation has been slowed down by concerns that
the world was going to end with all the tarret
stuff and everything else. Now that it's not ending, I
think those stocks are going to start and that's what's happening.
We're already seeing the market broadening out here that the
(30:32):
mag seven have had a good run. We like within
that even some rotation like a Google as an example stock,
we like great cash flow generator training at about seventeen
eighteen times earnings for what you're getting.
Speaker 2 (30:44):
You know, Paul, you mentioned this the federated growth and
this is the MTT platform out of Milwaukee. Forty seven
point four percent in the top ten stocks. Yep. That's
so way from the textbooks exactly studied years ago.
Speaker 4 (30:59):
So see, are there sectors that screenwall for you these days?
Speaker 2 (31:02):
Are there factors that screen wall for you these things.
That's a really important question about it. We haven't asked
that in ages. Yeah, Saunders questions exactly. Factors.
Speaker 5 (31:13):
Well, our you know, our MTT model that we use
is multi factored, and it's it's very complicated and probably
too complicated, but it really tries to imitate the way
a human brain works in a way i'd call it.
We don't call it artificial intelligence, call it machine learning.
Speaker 2 (31:31):
This is after the third or fourth beer.
Speaker 5 (31:36):
Continue, But it looks for combinations of things that you like,
and you know, we point to some combinations of things
that look pretty good here to us. I mean, if
you look at companies that are more cyclical in their
nature and their backdrop and then have good balance sheets
in valuations that are still pretty cheap, those are the
(31:57):
stocks that we kind of like here. Regional banks, some
of the out of favor technology companies, you know, some
of the industrial sectors.
Speaker 2 (32:07):
Defense defense stocks have had pretty good runs.
Speaker 5 (32:10):
So but you have to look underneath the surface to
find ones that makes sense. But yeah, it's those kind
of things now a little more of a value tilt,
perhaps even within growth like Google's a growth stock, but
with a kind of value tilt.
Speaker 4 (32:24):
To it valuation. I'm sure you get pushed back from
your clients a lot about point this market looks expensive here.
How do you respond to that? You say, hey, if
you back out these handful of aims, the market's not
that expensive.
Speaker 2 (32:36):
That's exactly how we do it.
Speaker 5 (32:37):
In fact, what we started doing about a year ago
was we started calculating what a fair value on the
S and P would be if you did the math
in two parts and then combined it. These big cash
flow generators that are near monopoly businesses that are in
growth spaces, we think you add that all up, they're
(32:58):
probably worth like a twenty five multiple.
Speaker 2 (33:02):
People.
Speaker 5 (33:02):
Heuristic on what the market is worth is based in
a world where the market average was fifty percent cyclical
industrial type companies, and now that share of the market's
probably about thirty percent. And you've got these big casual generators.
So when you put them out there at twenty five
(33:23):
and you say, okay, call the rest of the market eighteen,
you get to a fair multiple on the market of
around twenty one and a half. That's what we've been
using in all our targets that have more or less
been working for us. You know where we're closing in
on our target for this year now, which at one
time seemed crazy, but.
Speaker 2 (33:40):
You got to get this in over with a big
share we purchased today. How's use the cash going among
the anointed? Are they actually giving it back and share
purchase and dividend. We're seeing a lot.
Speaker 5 (33:51):
Of that right now, Tom, And that's another reason that
we're bullsh on the market. Companies are throwing off a
lot of cash here and we're in that part of
the cycle here. You're seeing that, and the buybacks are
supporting seasons.
Speaker 2 (34:03):
Am I right? Forty percent of free cash flows. Some
of these companies are paying out.
Speaker 5 (34:08):
In our dividend fund, We've got companies paying out sixty
five seventy percent. We like to see that in slower
growing companies and the dividend fund, but you know, we
like to see.
Speaker 2 (34:18):
Those big payoffs. Steven O, thank you so much. Thank
you federator being with us today.
Speaker 1 (34:30):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on Apple, Corplay and Android
Auto with the Bloomberg Business app. You can also watch
us live every weekday on YouTube and always on the
Bloomberg terminal.
Speaker 2 (34:44):
Douglas Holt's Eichin was a huge value add for years
and years. For some reason, over the last quarters we
have not had the expertise at Douglas Holtz econ on
the show. We're thrilled and he could join us in
the American Action Forum. His public service with Senator McCain
years ago a GOP slant, yes, but always just exceptional
(35:06):
scholarship out of Dennison in prison. Doug, it's been way
way too long. Thank you so much for joining today.
How far removed, Douglas Holtziken, it's just traditional Republican economics
and Republican labor economics. How far removed is it from
President Trump?
Speaker 7 (35:28):
This is an enormous shift in the Republican Party. I mean,
it's almost unrecognizable from twenty years ago. And the characteristic
of this area is that both parties are interested in
using the power of the government is a cudgel for
their purposes. And that's that's not a limited government personal
freedom approach, not at all.
Speaker 2 (35:49):
What is Kevin Asset doing. I mean, I understand Pennsylvania
doesn't have the quality of Princeton to the far far Norris,
but you know you and I know Kevin ass and
as a legit macro economist, how is he carrying water
for the president? How do you see that? Douglas Holt Eacon.
Speaker 7 (36:09):
Uh, you know, I think that's a question you have
to ask Kevin. I don't understand a lot of the
Trump administration messaging on their policies. I certainly don't understand
the strategy and their policies, and and if Kevin understands it,
I'd like to understand it better.
Speaker 1 (36:24):
Doug.
Speaker 4 (36:25):
We we had some fireworks at the Bureau Labor Statistics
last week when the jobs data came out here. Can
you put that in context based upon your experience?
Speaker 7 (36:35):
Well, you know, the assertion by the President was that
the commissioner rigged the data, and there's simply no evidence
of rigging the data, and there's no opportunity actually for
the commissioner to alter the data in anyway if you
look at the procedures that are followed. So it's a
baseless assertion. It's something that I think it is obviously
(36:56):
detrimental to the institution. It undermines to some extent credibility
of the government's data, and you don't like to see that.
And it was simply the White House trying to change
the subject from the substance of the data, which is
really poor jobs numbers over the past three months, to
firing an official who's a holdover from the Biden administration.
(37:16):
So it's an old playbook the White House. This White
House has used a lot. I do think it has
brought to the surface something that's really important, which is
the diminishing potential quality of the data at the BA
and the BLS. And you know, now, I think the
general public understands that response rates have fallen, that the
sampling sizes have gone down, and that initial listments are
(37:40):
as firm as they might be. So now the questions,
will anyone get behind an effort to improve those data
collecting efforts and strengthen those statistical agencies.
Speaker 4 (37:49):
That's a good point, Doug. I mean it kind of
seems almost antiquated, you know, going out and doing a
survey in a world of digital.
Speaker 2 (37:58):
Opportunities.
Speaker 7 (37:59):
Here, can I say something about that?
Speaker 2 (38:00):
Paul?
Speaker 7 (38:01):
Yeah, you know a lot of people brought this up,
you know, like you should be tapping into the ADP
or other payroll processors, but at some point you actually
have to do a census of things. So that you
understand what the weights are going to be on the
ADP data. They sends it over sample large firms. So
there is at some point the antiquated issue of going
(38:23):
figuratively door to door and finding out what's out there,
knowing what the relative composition of the labor market is.
And that's an expensive and time consuming process, but it
needs to be done, be done better.
Speaker 2 (38:35):
The hallmarkt holds he can work, folks, are single sentences
that make you stop. May I quote the non education,
non health private sector has lost forty six thousand jobs
over the past three months. Good morning, Nancy Lazar, who's
been brilliant on this. I don't think Doug that's understood
(38:56):
that private sector employment is terrible X the gifts of
health and education.
Speaker 7 (39:04):
It's dead in the water and has been. I've been
confused by this sort of positive reactions to the recent
labor market reports because you know, even before the revision,
when we got one hundred and forty seven thousand jobs
in the previous employment report, seventy odd thousand of them
were in state in local governments. Of the remaining seventy odd,
(39:25):
fifty eight thousand were in health. It's the only place
that was generating any jobs. Everything else is dead in
the water. So when I look at the labor market,
I see a labor market where no one gets fired.
That's great, but no one gets hired either. It is
at a standstill, and that's really quite wrong.
Speaker 2 (39:39):
So so how to fold that over to FED policy?
Speaker 5 (39:41):
Here?
Speaker 2 (39:41):
I mean, go to sixty thousand feet if you will.
I brought it up today for the first time. Are
we at a point now where this is so emergent
that in one week or two weeks we're going to
be talking about a fifty B cut September seventeenth.
Speaker 7 (39:56):
I don't think we do see the basis for fifty
bas points because you know, the FED has a dual
mandate and and the Trump tariffs have really put the
FED in the crossairs because the inflation pressures are there,
the labor markets, uh, you know, really at a standstill.
So the mandates are telling you to do different things,
(40:18):
and how you balance that is an incredibly hard job.
People people put different weights on, you know, inflation versus unemployment.
They do, and we don't know how quickly this is
going to work.
Speaker 2 (40:28):
So Paul I got to interrupt Doug. This is too
important Paul get one more in here, But does it
does Holts? He can look like he could be a
fed governor.
Speaker 7 (40:37):
Oh, I mean that, I promise you he does not
look like he's going to be a fed.
Speaker 4 (40:45):
So Doug, let's let's just kind of put a bow
on this with a discussion of tariffs here. I mean,
tariffs are here. They are here to stay. It looks
like and it's whether it's fifteen, eighteen twenty percent on
an average basis, how do you think that's going to
play out through this economy over there come six twelve,
eighteen months.
Speaker 7 (41:03):
So I think number one, you have the right time frame.
People have gotten too accustomed to the notion that a
pandemic or financial crisis hits the mainStreet economy, and we
see real quickly what's going on. This is going to
evolve over quarters and years, not weeks and months, and
so we really haven't seen the impact yet. It is
unmistakable that the terrorists of this size, so roughly three
(41:26):
hundred to three hundred and fifty billion dollars at annualized rate,
that's a very big tax increase. It is going to
put upward pressure on prices, no way around it. And
it's going to take purchasing power away from consumers, and
that's going to slow the economy. So at some point
over the that six to twelve month horizon, we are
going to pay the price in inflation and slower employment growth.
(41:49):
And we're starting to see that, and there's no way
out of that. The only question is how big will
it be and how fast will it happen?
Speaker 2 (41:54):
You know, as blue Tie as sort of a governor,
Blue Tie, Sure, I think it is solid. Second, thank
you so much, wonderful. It's on way too long. Doug.
We got to get you on your numerous times before.
Jackson hold Douglas oltz econ his public service. It's CBO.
He's a president of the American Action Forum.
Speaker 1 (42:12):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on Applecarplay and Android Auto
with the Bloomberg Business app. You can also listen live
on Amazon Alexa from our flagship New York station, Just
say Alexa Play Bloomberg. Eleven thirty Lisa Mateo.
Speaker 2 (42:30):
Fired up for the newspaper. She said, at three am,
what are you starting with today?
Speaker 8 (42:35):
Okay, big sports news, So let's break this down. Okay,
so the NFL is going to sell most of its
media business to Walt Disney. This is in exchange for
a ten percent steak in the ESPN Sports Networks. Okay,
So ESPN, you know, jointly owned by Disney, they have
about an eighty percent steak, and also Hirst Communications they
have a twenty percent steak.
Speaker 4 (42:53):
And what it.
Speaker 8 (42:53):
Includes, it's the NFL Red Zone that's a subscription based
highlight service, the NFL network, cable chat, and also Disney
is going to get more air, more NFL games. ESPN though,
is getting ready to launch this new streaming service that's
going to cost about thirty dollars a month. So the
timing on this is pretty good. On top of that, though,
the Wall Street Journal actually just put it on an
(43:14):
article that says Disney bought exclusive rights to manywwees high
profile events for one and a half, just one hour.
Speaker 2 (43:22):
The Sweeten cam is going nuts right now. You're over
there squirm and yeah, I mean, is this the future?
Speaker 4 (43:28):
Well, it's a great move I think by ESPN and
Disney just to cement its relationship with the NFL. With
all the competition that is likely to come in for
distribution from Amazon than all the other streamers.
Speaker 2 (43:40):
It's just kind of real journalistic independence. Yeah, I'm sure
there will be. It's fine.
Speaker 4 (43:47):
They're already tied at the hip. I mean, they're already
tied at the hip anyway. This just kind of codifies
it and again in a world where there's going to
be more and more competition to get that NFL programming,
which is the most valuable in the world. ESPN's now
got a really good position, I think.
Speaker 2 (44:01):
So we'll see.
Speaker 8 (44:02):
I think. So I look at it and I'm like, okay,
maybe I can cut the cable cord now because all
my husband watches cable furs for the sports part of it.
Speaker 5 (44:09):
In the NFL.
Speaker 8 (44:11):
Seppens it's sports.
Speaker 6 (44:13):
It's huge.
Speaker 2 (44:15):
Okay.
Speaker 8 (44:15):
So this next story I thought of you, Paul, because
I remember you said you go to resorts and at
the end of it, you get this big bill, right,
all the kids, smoothies like everything. So more people are
enjoying these all inclusive resorts so where everything is included
so you don't get the big bill at the end.
And hotels like Hyatt Marriott, they're trying to get the affluent, yes,
(44:36):
the customers. It's going to run you maybe about one
thousand dollars a night for you know, the first year.
Speaker 2 (44:43):
Yeah, I did it, and I kept very careful track
and I decided it was fair. It was worth it.
It was yeah, borderline worth it. But yeah, the weight
of not having the smoothie bill at the end, or
excuse me, the rum punch bill exactly.
Speaker 4 (44:59):
So we're all and we do it in a room
every year.
Speaker 2 (45:00):
So this is build you, this is buildings.
Speaker 8 (45:03):
So it is okay. So you have like Marriott, for example,
they just bought their first all inclusive W resort, Punta
Khana and the Dominican.
Speaker 2 (45:10):
Republic check it out.
Speaker 8 (45:12):
Last year they had their first Marriout branded in Cancun.
Even Hiatt they have about ten all inclusive brands. So
it's this is something that's really starting to build. But
they're gearing it like they're putting it on steroids. You know.
It's like, you know, a thousand.
Speaker 6 (45:25):
Dollars for two people.
Speaker 8 (45:28):
At that price, I don't. I don't know if I would.
I don't eat that much.
Speaker 4 (45:34):
Salary every day.
Speaker 2 (45:35):
Are you do you go to a resort like that?
Are you doing pilates?
Speaker 3 (45:39):
You have to?
Speaker 8 (45:40):
I go to the gym every day when I.
Speaker 2 (45:41):
Go on vacation.
Speaker 8 (45:43):
Next the people are okay, this one's going to get
you fired up to Okay. So this is Microsoft. They're
getting this more strict return to the office policy, sources
telling Business Insider employees could be coming back more often. Okay,
so right now they let employees work mostly remote as
much as fifty percent of the time. Sometimes they're a
little bit flexible. But the new policy is going to
(46:06):
require them to work in the office at least three
days a week.
Speaker 2 (46:09):
Oh boy, what Business Insiders Holly doing a great job
on this with at Yes.
Speaker 8 (46:15):
Yes they do.
Speaker 2 (46:16):
They get there's just like you know, admirable Boom in
the in the wind on Mary Poppins. There's something going
on in August this year.
Speaker 8 (46:24):
Yeah, but it could because you've seen like a lot
of especially tech companies starting to do this, like getting
the more back to the office, being a little bit
more strict.
Speaker 5 (46:31):
But hey, three days, I don't know.
Speaker 2 (46:34):
Listam tato, Thank you so much the newspapers this morning.
Speaker 1 (46:37):
This is the Bloomberg Surveillance podcast, available on Apple, Spotify
and anywhere else you get your podcasts. Listen live each
weekday seven to ten am Easter and on Bloomberg dot com,
the iHeartRadio app tune In, and the Bloomberg Business app.
You can also watch us live every weekday on YouTube
(46:57):
and always on the Bloomberg terminal
Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg
Surveillance Podcast. Catch us live weekdays at seven am Eastern
on Apple CarPlay or Android Auto with the Bloomberg Business App.
Listen on demand wherever you get your podcasts, or watch
(00:25):
us live on YouTube.
Speaker 2 (00:27):
Michael Wilson, thank you so much for joining this morning.
You called a new bullmarket and you say you have
a higher conviction into twenty twenty six. Why, yeah, thanks Tom.
Speaker 3 (00:40):
I mean we talked about this in our midyear outlook
going back to May, which we felt like the April
lows would be a durable low for a lot of
different reasons. I'll try to go through them in no
specific order, but I mean, you know, we've had the
view coming into this year that it was going to
be a tough first half because earning provisions were coming
down pretty sharply for a lot of reasons, most notably
(01:02):
the AI CAPEC cycle was decelerating. We still had what
I would call a rolling recession in many industries that
were struggling, and the revisions were coming down. So what
tariffs did was it sort of culminated that that decline
into April, and as you know, I mean you've been
around the block like me. I mean, market's bottom on
bad news, okay, And so that I would have likened
(01:23):
the Liberation Day announcement to sort of a natural disaster
that basically, you know, capitulated, everybody capitulated. So that revision
of revision factors the main driver when I were bullish,
we think it's a bull market is the revision factors
for earnings are have shot higher. And you've seen our notes, Okay,
So like that's that is doesn't happen every year. That
(01:45):
is as extreme as we saw coming out of the
COVID lows in March of twenty twenty. Okay, it's as
extreme as we saw coming out of nine to eleven.
It looked like a recession. It walks like a recession,
a priced like a recession. So that's it.
Speaker 2 (01:59):
Okay. This is a really critical question, folks. We all
understand the Trump legislation, the Beautiful Bill and all that
as some form of stimulus forward at least out one
two years, maybe three years. It Morgan standing, Mike Wilson.
The key question is the linkage of potential rate cuts
to equity enthusiasm. I don't have a straight answer on
(02:21):
that yet, can we link Powell, our future chairman, rate
cuts into an equity lift?
Speaker 3 (02:30):
Yeah, well, I think I mean, as usual, the markets
get ahead of this, and what the markets are anticipating now,
the bond market and the equity markets that the FED
will be cutting sometime in the next you know, two
to six months. And you know, even our house call,
I mean, our house calls for no cuts this year,
but then they have seven cuts next year. I mean,
that's like wildly bullish for equities. Okay, so you know
it's you almost have the perfect setup, Tom, because what
(02:52):
you have now is lagging economic data, which is what
the FED uses to make decisions, and you have you
already had the equity market in our divisions telling you
what's going to happen. So you know, they're looking backwards
and they're going to be looking at lagging labor data,
you know, and then of course lagging inflation data, which
should come down ultimately later this year next year, and
they're going to cut into that and but the but
(03:13):
you know, there's not going to be a knock on
negative effect for earning revisions in the way that people
kind of assume when you get that sort of decline
in labor data. In fact, I would argue because it's
gradual that we're going to see revisions go up, because
you know, when companies reduce headcount, it actually accrues to margins.
Speaker 4 (03:31):
Mike, what what is screening well for you? Now? I'm
not sure if it's sectors that you guys screened by
or different factors that you screen by. How are you
looking at this market and maybe where opportunities might be right,
So we do both.
Speaker 3 (03:44):
We look at factor revisions, we look at sector industry revisions,
and we look at the stock level too. It works
in all those areas, and so we've been rightly positioned,
really since April to be overweight financials industrials. Those are
the two favorites, and also software to some degree, and
those have been the areas where the revisions have been
the strongest, and I think that probably could continue. And
(04:07):
so at the end of the day, I do think
the biggest opportunity going forward is the areas that have
not seen those revisions yet. So let's talk about the
industries where we've been sort of in this rolling recession.
Housing related, okay, commodity related, some of the consumer goods
areas which are going to feel the effects of terrors now.
So in the very short term, we actually think revision
breath could come down a bit as some of these
(04:28):
terrorts flow through to cost of good soul. But that's
just going to create the next buying opportunity, perhaps in
these areas that are lagged, even small casts, because they
will love the fact that that's cutting rates at some point.
Speaker 4 (04:39):
Mike, one of the themes today and really for the
last period of time has been concentration risk. In this marketplace,
it seems like only a handful of stocks are driving
the performance. But I think what we're kind of coming
to the conclusion of our at least rationalizing is because
that's where the earnest growth is, that's where the free
cash flow is. How do you think about that issue?
Speaker 3 (05:00):
You're exactly right. I mean, the market's not stupid. I mean,
like the first of all, what drove the market lower
in the first quarter the MAG seven You know why,
because the MAG seven range divisions were terrible. In the
first quarter, we had an AI camp BAX acceleration. We
had questions around whether it's going to generate ROI revenue
growth kind of decelerated a bit, so you know, it
happened for a reason, but has nothing to do with teriffs, okay.
(05:23):
It has everything to do which is the natural evolution
of this AI cycle that's going on. So I think,
you know, coming out of the April lows, the reason
why the MAG seven led is well, hey, they're big
and liquid, everybody loves them. But also because they were
seeing a rate of change bottom in the revision factors.
I'll give you two huge catalysts for that. The weaker dollar, okay,
(05:44):
which accrues to the large multinationals, particularly some of the
MAGS seven. And the second one was that we saw
that you know, U Vidio could no longer sell they
could sell, they could no longer sell chips to China,
and they took a big write down on inventory. But
now they can sell those chips when the inventory is
at well. So what does that tell you? Gross margins
are going to be basically manufactured for the next year.
(06:06):
So there's a lot of reasons, you know, why stocks
do what they do. But the main reason we for
our whole franchise, as you know, focuses on earnings, not
lagging economic data.
Speaker 2 (06:17):
Mike Wilson with us across your commute this morning across
the nation, I should say on YouTube as well in
the office and of course at home YouTube subscribe to
Bloomberg Podcast growing each and every day. Should I do
a shout out right now for Joe Wisenthal, Tracy Alloy
killing it number one on Apple?
Speaker 4 (06:33):
Yesterday's phenomenal had a great write up in the New
York Times, so they did double.
Speaker 2 (06:37):
Days and you know they'll be with us Jackson Hole,
So maybe I'll get you know, maybe they're entourage. You'll
let me speak to them. We'll have to see Mike
Wilson with us. With Morgan Stanley, Mike, how do you
use your analysts work? Mister Weiss covers Microsoft just as
you know, do you speak to these people or how
do you use the securities analysis of Morgan Stanley.
Speaker 3 (07:02):
Percent We're a micro macro franchise man. I started my
career in the stock business, you know, I used to
be a TMT specialist as a desk analyst, you know,
following bottoms up, and so I obviously know these folks
have been here for thirty five years. I know all
of them well, I've worked with all of them, and
so we every month we hold a call that we
basically call it the micro macro matchup, where we basically
(07:24):
kind of talk about our views from a macro standpoint.
Then we talk to the analysts and say, well, what
are you guys hearing? What are you doing? You know
how you how are your numbers may be adjusting, and
that informs us just like our analysis does from a
top down perspective. So the marring of the micro macro,
I think keeps us a step ahead of most people.
People can criticize us for various things, but they can't
criticize us for I think we have done a better
(07:46):
job of most of being in the right places within
the equity market because of that micro macro marriage.
Speaker 2 (07:51):
So so delv here now in to say, I see
MIT Sloan, I see Caltech, this whole cottage industry, including
the University of Michigan and Arburg doing AI? Learn about AI?
Morgan Stanley, what is the next three months, six months?
Zeitgeist on AI? The momentum of it? Yeah?
Speaker 3 (08:14):
Well, here again we have a pretty I have an
advantage because we have some analysts who are not only
you know, very good in this space, and they have
long tenure, like a lot of our tech analysts have
been in the seat for ten to twenty years as
we have continuity there, but the zeitgeist here is essentially
now into the adoption phase. We've written a lot about this,
which is that you know these tech cycles, you know,
there's there's basically an enabler phase where you have a
(08:36):
build out and the enablers benefit from that build out,
and then the technology gets adopted by the early adopters.
We're seeing that mainly by the hyperscalers quite frankly, because
they're very fast with the big data sets. And then
ultimately what we think is going to happen to the
application layers being built now that will then be basically
diffused out into the broader economy. And so that's where
it gets really exciting. That's sort of the you know
(08:57):
the Internet. When the Internet got exciting is when it
starts to make everyday businesses more productive. So we have screens,
we have lists, we've been publishing on this for.
Speaker 2 (09:06):
Quite a while.
Speaker 3 (09:07):
Those AI adopter stocks are massively outperforming, they have been.
The market knows this. I think we've been ahead of
that curve, and that's what we're saying, that's what we're
looking for for the next twelve months is that this
is where we're going to start to finally see some
of the productivity benefits diffused across the broader economy. It
won't be a straight line. There'll be doubts and fears
and uncertainty, but it's a very positive story for the
(09:27):
twenty twenty six earning story. And this is why stocks
are not as expensive as people think, because you know,
the market figured this out just.
Speaker 2 (09:35):
Like we did.
Speaker 3 (09:35):
I mean, you know, if we can figure it out, definitely,
the market figured it out that we're going to see
positive revisions lead to better earnings growth next year. Okay,
and I think you know the economic data is backward
looking and it just doesn't tell that.
Speaker 2 (09:45):
Stor denominator Paul comes up. Yeah, that's the whole thing. Yeah,
it's amazing, Hey, Mike.
Speaker 4 (09:51):
In your research note, you're right, since the loads in April,
the rally in stocks has been relentless.
Speaker 2 (09:56):
With no tradable pullbacks.
Speaker 4 (09:57):
What creates a pause and a bull market where you
can maybe catch up a little bit.
Speaker 3 (10:04):
Well, we try to lay that out in our note
this week.
Speaker 2 (10:06):
Right, it's just.
Speaker 3 (10:07):
Because we want to be well balanced here, but I
want to go back and you know, that comment about
the market being relentless and straight up in no pullbacks,
that are those are the characteristics of a new ball market.
That's what happens, and that's what looks like. This looks
exactly like April, May, June, July twenty twenty. In fact,
it's following a similar pattern. So I think that the
(10:27):
things that could get us a consolidation in the third quarter,
which we did start writing about, you know, a couple
of weeks ago, we said there's going to be a pullback,
it's going to be during a third quarter. We do
want to win, but we do think there's three or
four potential drivers. And at number one, revision factors could
come down as the terror start to flow through, the
cost of good soul, right, the more expensive inventory starts
to flow through, and some companies will have margin pressure
(10:48):
with that, or there'll be some demand destruction. That's one.
I think. Number two is we know there's a trendspmens
supply coming on the treasury issue inside, maybe the term
premium kind of pushes out again and we get a
backup in long rates. You know, the market now is
negatively correlated to rate at this point, So that's another
potential driver. And I think the one that is not
so obvious but has been a big driver of the
(11:08):
bull market in the New Bowl market is the dollar weakness.
So dollar weakness has not only translated to better earnings
growth for the multinationals, it's also added an incredible amount
of liquidity to the tune of about eight trillion US
dollars to global money supply. So if the dollar would
strengthen here five six seventy eight percent, that could lead
to a liquidity drain of some kind and a.
Speaker 2 (11:30):
Pullback of interesting fast I should point out mister Wilson
talks about the lift off of twenty twenty that was
precisely one hundred percent in twenty two months out to
the end of twenty twenty one. Was the first leg
of that lift. Absolutely extraordinary, Mike Wilson. I got to
go to one of the dogs. I noticed it on
the WEI screen today. Health, I mean, is it health
(11:54):
of value trap? How does Morgan Stanley consider purchase of
health equity?
Speaker 3 (12:01):
Well, it has been one of the worst performing consistently sectors.
Even when the market was somewhat defensive in the first quarter,
it didn't really do its job. And I think we
could attribute this to a couple of different things. I
would say, most notably, we have a new obviously head
of the HHS, Robert Kennedy Junior, who you know, has
been I would say quiet so far on what his
main initiatives are going to be. And I think there's
(12:22):
just sort of sort of some fear there that maybe
it's going to be draconian and in terms of like
for farmer companies and some of the some of the
device some of the device companies and even the insurance companies.
And I think, you know, it could be this simple
time is that once once RFK Junior and the HHS
roll out what they're going to do, I think they've
they've said September they're going to be done with some
of their studies, it could just be a sigh of relief.
(12:44):
Maybe that's the catalyst here, But I mean, we're not
going to probably upgrade the group until we see at
least a bottoming out of relative range breath. We're just
not seeing that, and so there's no need to go there.
There's other things to do.
Speaker 2 (12:55):
Paul, I get good news, I'll check the schedule. Duke
does not have privileged to lose to Michigan this year
in football. It's a constructive first step well for Duke
Mike Wilson, thank you so much. With Morgan Stanley.
Speaker 1 (13:15):
You're listening to the Bloomberg Surveillance podcast. Catch us live
weekday afternoons from seven to ten am Eastern Listen on
Applecarplay and Android Auto with the Bloomberg Business app, or
watch US live on YouTube.
Speaker 2 (13:27):
And Stishamorosa with the Snow with Partners Group David Layton
and running the charge their Partners Group of course doing
a lot, particularly more out West in Switzerland as well.
You're still based in New York, right, Yeah, Partners has
a huge international perspective.
Speaker 5 (13:46):
That's right.
Speaker 6 (13:46):
We're global private markets firm. I've been around since nineteen
ninety six. Zooke is the headquarters. Denver's the US Zuke
that's how you pronounce it, zuk, Yes, outside of Zurich
and also in Denver as well, but also a really
big price and it's in New York as very could.
Speaker 2 (14:01):
Thrilled to have you back with this level of MROs
of courage to stay in the market at different points.
Is you feel that way right now where people there's
so much geopolitical nervousness and all, and you're just saying,
fight the good fight and stay in the market.
Speaker 6 (14:17):
Well, you know, Tom, one of the probably the best
perspectives I've gotten, you know, through kind of my investment tenures,
thinking about themes and think about the megatredza really change
and shape the world figures to come. And if you
align yourself with those and if you focus on what
actually drives earnings or what drives profitability, it's focusing on
things like artificial intelligence or digital transformation, or healthcare innovation
(14:40):
or you know, new ways of living. So that's what
sort of gives you the courage to stay through the
next rate cut or rate hike or not, or through
the next inflation report if you invest in the right
kinds of companies in order to benefit from that innovation
over time.
Speaker 4 (14:56):
One of the big themes that we've i guess become
more accustoms over the last six months twelve months has
been maybe this onshoing, reassuring, this reduced sense of internationalism.
And for a company like yours that it is a
global company in Zurich and in the US and all
over the world, how do you guys think about the
fact that this may be a less global economy than
(15:19):
it was one, two, three, five years ago.
Speaker 6 (15:22):
You know, I don't know if that is a completely
right assumption to make that this is a less global economy.
I don't think the objective is really to sever all
trade ties. I think the objective is really to rethink
the trade going forward and also to sort of set
out new rules of how the trade is going to
be done. So, if that's the base case scenario, as investors,
(15:45):
we have to think about how to corporations, how to consumers,
how do we want to adjust to that? And you know,
speaking of adjustment, this is why I call this a
quarter of adjustment. This is the time where companies are
going to decide whether they're going to pass through the
tariff cost to the consumer. Where they going to do?
Speaker 2 (16:01):
What do you see there? What's your update?
Speaker 6 (16:03):
We see a combination. I think the vast majority of companies,
about seventy five percent of companies are saying that they're
going to pass through the cost of the consumer. Maybe
only twenty five percent of those say it's one hundred
percent of the pass through. Some of it will be
absorbed by the profit margin, which is near a record.
Speaker 2 (16:20):
Anna stj Morosa with this partners Group, and again thank
you for joining us on You're commute this morning across
the nation in the office at home in Zoos, Switzerland.
YouTube is the way our new distribution has subscribed to
Bloomberg Podcasts. We protect the copyright of all of our research.
They email and send us am Anastage's note no get
(16:42):
it from partners Group. I love how you say this
focus on what you can control. Describe that for equity
market investments right right now.
Speaker 6 (16:52):
Well, the first thing you can control is the kinds
of companies you invest in, and what are the profit margins,
What is the starting point for those profit margins, and
what is the endpoint what you're trying to achieve. So
one thing we can control is actually growing that profitability
and growing the profit margin. You know, it's driving operational efficiencies,
it's perhaps infusing AI, machine learning and other productivity tools
(17:14):
to grow those margins. It's building platforms rather than you know,
let's say one product business. So that's one thing you
can control. You know. The other thing you can control
is you can pivot into the sectors where you do
naturally have faster earning growth because it is not a
company that's aligned with the old economy, but it's a
company that's aligned with a new economy. So that's why
(17:35):
we do look to things like data centers. That's why
we do look to the build out of the energy
production as well. So those are the things you can control.
You can control leverage, how much do you use, and
how do you know pull that lever based on what
interest rates are. So those are some of the main.
Speaker 4 (17:52):
Things outside of tech, which is obviously driving this market.
Are there areas outside of technology that you guys find interesting?
Speaker 6 (18:02):
Yes, you know, I think one of the misnomers in
the markets right now is that just because there's not
a big focus on sustainability from the current US administration,
and this is not a theme that's going to be there.
And you know, I very much think that sustainability is
a theme that's going to is here to stay because
it's really about how can we be the most efficient
with our natural resources, minimize the damage to the environment,
(18:23):
also make sure everybody has access to basics, which basic
since today days and age means a data center, power
by some sort of electricity production. So this, let me
interrupt this morning.
Speaker 2 (18:36):
Apollo Funds comes out and says we're buying data centers
and they're buying stream data centers. Yeah, this is Joseph
Jackson and Trevor Mills that Apollo Partners, and that's exactly it.
Where private markets are coming in, that's right to finance
these this huge capital investment. Right.
Speaker 6 (18:56):
Well, it's a great point, and here's the reality. Everybody's
been talking about data center for a while, and yet
if you look at the occupancy rates for data centers,
they are near record highs and we still think that
sort of the peak occupancy of data centers is still
a few quarters away. So that means for the time
being you still need to build out additional capacity and
(19:16):
supply demand for data centers is still going to be
tied for a period of time, so that that gives
you the ability to control the price and also the
investment has to continue as well. And by the way,
just another point to add on that, you know, just
real quick, data centers are thought right now for you know,
to be used for cloud and also training AI models.
(19:38):
But you know, Tom, the next phase of this of
data center growth is really the infront stage of it
and applying those train models into another use case.
Speaker 4 (19:46):
Talk to us about valuation in this market. It's tough
here because it if you just kind of look at
the S and P of five hundred, it's expensive. But
if you make start making adjustments for some of these
technology companies, the mag seven of the world, maybe you
can make a case it's not that expensive. How do
you guys think about that.
Speaker 6 (20:04):
I mean, it's true that Max seven versus the rest
is a very different scenario. But I will say that
even the cyclical sectors. For example, I looked at industrials
the other day, and even industrials then discount to the
S and P five hundred or for a machinery that
was actually the case, the discount has narrowed. So I think,
you know, broadly speaking, valuations in public markets have got
(20:26):
a long way in a short period of time. Having
said that, in private markets, that's where we are still
finding cheaper valuations. And if I look at the s
and P five hundred EV to Ibada, we're probably close
to seventeen seventeen and a half times. If I look
at private markets, we're about twelve point two times for
US EV to Ebadi in private markets. So that's why
(20:47):
we're obviously quite focused on scapture evaluation in private mark.
Speaker 2 (20:51):
Just may be delicate. I don't want you putting in
jail and zoo Switzerland. But okay, but there's a lockup
to private markets are you seeing? I mean there's an
article in Carlisle this morning where they're jettising finally a
lot of properties in the buoyancy that we're in right now.
But do you see liquidity within private markets? It makes
(21:12):
up the liquidity penalty going from ev to ebit up.
Speaker 6 (21:17):
To down right Well, liquidity is a big concern I
think one in private markets investing, and I think one
of the things that Partners Group has done for a
long period of time is managed that liquidity for clients
in an evergreen solution. And what I mean by that,
and what I mean by that is clients have the
ability for quarterly liquidity if they need to. And the
(21:40):
reason we're able to do that is because not only
do we focus on direct control investments, but also secondary
co invests and that really you know, having managed this
for about sixteen years, it's been multiple cycles and liquidity
has been there for clients.
Speaker 2 (21:57):
Can I do it? Audible? Mentioned evergreen solution? Do you
have a real Christmas tree or a fake Christmas tree.
Speaker 6 (22:05):
I always get a real one.
Speaker 2 (22:07):
Yeah, the biggest, the right answer, the biggest argument. Me
and John farrellhead I go over to Pharaohs. He's got
the fake Christmas tree with the light things filling around
at the bottom. I'm like, John, it's an American. You
gotta have a real tree. Okay. So that's that's our
evergreen solution here, Paul continue, I got way laid there.
Speaker 4 (22:26):
Private credit it's been such a big part of the
alternative investment theme over the last certainly last fifteen years,
I guess since a financial crisis when it really got big.
How do you guys think about private credit alongside your
private equity and your other businesses.
Speaker 6 (22:39):
Sure, it's a really important part of the solutions suite.
And you know, look, if you think about a bank
share of private credit of lending, it has stepped down
from about seventy four percent back twenty some years ago
to about twenty five percent depending on the quarter. And
it's been the private credit providers that have stepped in
and provided the liquidity and plugged in that gap. So
(23:00):
now about seventy five percent of the market is actually
driven by private credit. So look from a market perspective.
You know, whether we get a rate cut or not
from the FED, I will say the excess spread that
you get from in direct lending, for example, of on
average about five hundred basis points is quite attractive, you know,
especially rates keep heading lower private credit screen as well.
Speaker 2 (23:24):
In the time left, I got to get some SPX
vision from you. How far up forward are you in
the stock market? How do you frame six end of
the year or even twelve months forward right now?
Speaker 6 (23:35):
Look, I think we're in for a consolidation quarter this quarter,
at least until September seventeenth, which is of course the
FOMC decision. And I say that because we're going to
hear a lot about the tariff impacts on net profit margins,
and maybe some of that is going to be offset
by well, the label market is weak, therefore the FED
is going to cut, So I expect choppiness. But as
I think about the fourth quarter and into twenty twenty six, Tom,
(23:59):
I think, so what doesn't get talked about enough is
that we did pass a tax built that's quite favorable
for the consumer, but it's also quite favorable for businesses
as well. So whether it's one hundred percent R and
D expensing that has now been made permanent, or one
hundred percent depreciation that has also been made.
Speaker 2 (24:15):
This is underplayed. Yeah, stimulus, the stimulus impact, you know,
the cynics would say it's clearly around Republican re election
twenty six and the president to twenty eight. But the
answer that the stimulus we're living right now is tangible.
Speaker 6 (24:30):
It is tangible into twenty twenty six. We're not going
to see much of it this year, but into twenty
twenty six. And Tom, you know how the markets work,
They look forward, So I think that'll be an important
story in the fourth quarter.
Speaker 2 (24:41):
So, but it's still not out of the triple leverage
all cash. I know how the markets work exactly one marvel.
Speaker 4 (24:46):
So, Anastasia, how's your how's your job get to change?
Do you think if at all being part of the
Partners Group now, which is such a large alternative asset
manager globally with.
Speaker 6 (24:56):
The other right, Well, it's certainly a privilege to be
a Partner group, and the role is really to help
our clients think about how does the macro how are
the macro forces impact your investment portfolio, specifically from the
standpoint of allocating to private markets. So what is this
combination of inflation to rates, to growth to tariffs mean
(25:18):
for investing in private equity? Where do we find some
of the best opportunities within directs or secondaries? What does
this mean for private credit, real estate, royalties, investment and more?
And you know, the other big conversation is that I
think a lot of clients understand and want to allocate
to private markets, but for a lot it's still a
consideration of how and how much. So helping advise clients
(25:42):
on the portfolio construct to private markets is an important
one as well as as.
Speaker 2 (25:46):
You think, is someone at your Optimism American Economic Experiments
and ross with the Partners Group.
Speaker 1 (25:53):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on Applecarpe and Android Atto
with the Bloomberg Business App. You can also listen live
on Amazon Alexa from our flagship New York station, Just
say Alexa play Bloomberg eleven thirty.
Speaker 2 (26:10):
Stephenoff joins down cio equities at Federator or Medicine. They've
got different approaches there, but all you need to know
is looking at the Federated Growth Fund. It's under the
the othean umbrella, as we call it. I mean it's
it's sort of doing okay. Three year ninety fifth percentile,
five year ninety ninth percentile. They're off the market today,
(26:33):
not too bad. And this is all the growth juggernaut,
and this is what Steve aut has acclaimed for worldwide.
I want you to explain, in this unique year, how
you approach equity investment knowing, like baseball twenty five or
twenty six or twenty eight percent of the stocks will
(26:54):
go up and the rest don't forget the what stock
to pick? How do you choose not to own a
stock in the S and P five hundred?
Speaker 5 (27:05):
Well, I think it's our time horizon. That's a little different, right.
The most traders today are focused on day to day movements.
We're too big to even think about it that way anyway,
But I think it's not really the path to success
in the investment markets. We tend to look at a
longer term horizon, and that leads us to look through
(27:28):
some of the noise. What's interesting to me. I think
one reason we're having a pretty decent year here and
we did last year is the news cycle has really
shortened up, and so the folks chasing around the news
cycle are like chickens with their heads cut off, getting
whipsawed left and right. I mean, if you were following
the news cycle in April.
Speaker 2 (27:49):
You went to cats. Is that what hedge funds do?
I don't want to speak to the.
Speaker 5 (27:55):
Hedge funds broadly, but certainly that's one of the ways
they try to make money.
Speaker 2 (28:00):
We have a lot of folks doing it.
Speaker 5 (28:01):
Some of them do a good job at it, so
I'm not knocking the hedgehuns, but we tend to look
longer term and right now. That's helped us a lot
because one reason we were more optimistic in the spring
was to us, the gap between the soft data and
the hard data was pointing to you know, we are
in a little bit of a slowdown here, but we
(28:23):
thought coming through it, things would get better. And once
we got this uncertainty behind us this summer and here
we are right on schedule, you get a kind of
bounce effect just from the uncertainty lifting. Not to mention
you know, the the incentives to further investment through the
(28:44):
tax cut, You've got the deregulation thing coming through, and
you know, fortunately the Fed is looking backward, so they're
going to be cutting.
Speaker 2 (28:54):
Well, we got to remind ourselves. One, you're trailing Nastack
up twenty eight percent, SMP five hundred and twenty percent,
now up thirteen percent. How many of our listeners and viewers,
including me, right understand looking back twelve months we got
a double digit to zero. Yep, that's amazing, exactly.
Speaker 5 (29:14):
Right, and often, by the way, that's a precursor of
a pretty decent next twelve months if.
Speaker 4 (29:20):
You look at the data, so Steve, one of the
concerns in particularly in the equity markets is a concentration
risk here. We've got it in the mag seven or
whatever you want to call it. So much of the performance,
so much of the valuation, is concentrated in a handful
of names, and people like Torston, slock Over Topollo just
kind of call out, well, we haven't seen that very
often in the past, and when we did see it
(29:42):
late nineties, it wasn't a good thing, do you guys.
Speaker 5 (29:45):
Late nineties was a completely different thing.
Speaker 2 (29:47):
Though.
Speaker 5 (29:47):
If you look at the share of the top ten
versus the share of earnings of the top ten on
market gap, it's a flip flop of the late nineties, right,
late nineties, we didn't have any earnings. These top seven
companies are terrific companies with enormous free cash flow that
we think are reasonably valued, and within them even there,
what we're calling for is, as you think, you know,
(30:09):
is a rotation into the broader market. Okay, and that's
going to help our stockbreckers, by the way, but you
know that rotation has been slowed down by concerns that
the world was going to end with all the tarret
stuff and everything else. Now that it's not ending, I
think those stocks are going to start and that's what's happening.
We're already seeing the market broadening out here that the
(30:32):
mag seven have had a good run. We like within
that even some rotation like a Google as an example stock,
we like great cash flow generator training at about seventeen
eighteen times earnings for what you're getting.
Speaker 2 (30:44):
You know, Paul, you mentioned this the federated growth and
this is the MTT platform out of Milwaukee. Forty seven
point four percent in the top ten stocks. Yep. That's
so way from the textbooks exactly studied years ago.
Speaker 4 (30:59):
So see, are there sectors that screenwall for you these days?
Speaker 2 (31:02):
Are there factors that screen wall for you these things.
That's a really important question about it. We haven't asked
that in ages. Yeah, Saunders questions exactly. Factors.
Speaker 5 (31:13):
Well, our you know, our MTT model that we use
is multi factored, and it's it's very complicated and probably
too complicated, but it really tries to imitate the way
a human brain works in a way i'd call it.
We don't call it artificial intelligence, call it machine learning.
Speaker 2 (31:31):
This is after the third or fourth beer.
Speaker 5 (31:36):
Continue, But it looks for combinations of things that you like,
and you know, we point to some combinations of things
that look pretty good here to us. I mean, if
you look at companies that are more cyclical in their
nature and their backdrop and then have good balance sheets
in valuations that are still pretty cheap, those are the
(31:57):
stocks that we kind of like here. Regional banks, some
of the out of favor technology companies, you know, some
of the industrial sectors.
Speaker 2 (32:07):
Defense defense stocks have had pretty good runs.
Speaker 5 (32:10):
So but you have to look underneath the surface to
find ones that makes sense. But yeah, it's those kind
of things now a little more of a value tilt,
perhaps even within growth like Google's a growth stock, but
with a kind of value tilt.
Speaker 4 (32:24):
To it valuation. I'm sure you get pushed back from
your clients a lot about point this market looks expensive here.
How do you respond to that? You say, hey, if
you back out these handful of aims, the market's not
that expensive.
Speaker 2 (32:36):
That's exactly how we do it.
Speaker 5 (32:37):
In fact, what we started doing about a year ago
was we started calculating what a fair value on the
S and P would be if you did the math
in two parts and then combined it. These big cash
flow generators that are near monopoly businesses that are in
growth spaces, we think you add that all up, they're
(32:58):
probably worth like a twenty five multiple.
Speaker 2 (33:02):
People.
Speaker 5 (33:02):
Heuristic on what the market is worth is based in
a world where the market average was fifty percent cyclical
industrial type companies, and now that share of the market's
probably about thirty percent. And you've got these big casual generators.
So when you put them out there at twenty five
(33:23):
and you say, okay, call the rest of the market eighteen,
you get to a fair multiple on the market of
around twenty one and a half. That's what we've been
using in all our targets that have more or less
been working for us. You know where we're closing in
on our target for this year now, which at one
time seemed crazy, but.
Speaker 2 (33:40):
You got to get this in over with a big
share we purchased today. How's use the cash going among
the anointed? Are they actually giving it back and share
purchase and dividend. We're seeing a lot.
Speaker 5 (33:51):
Of that right now, Tom, And that's another reason that
we're bullsh on the market. Companies are throwing off a
lot of cash here and we're in that part of
the cycle here. You're seeing that, and the buybacks are
supporting seasons.
Speaker 2 (34:03):
Am I right? Forty percent of free cash flows. Some
of these companies are paying out.
Speaker 5 (34:08):
In our dividend fund, We've got companies paying out sixty
five seventy percent. We like to see that in slower
growing companies and the dividend fund, but you know, we
like to see.
Speaker 2 (34:18):
Those big payoffs. Steven O, thank you so much. Thank
you federator being with us today.
Speaker 1 (34:30):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on Apple, Corplay and Android
Auto with the Bloomberg Business app. You can also watch
us live every weekday on YouTube and always on the
Bloomberg terminal.
Speaker 2 (34:44):
Douglas Holt's Eichin was a huge value add for years
and years. For some reason, over the last quarters we
have not had the expertise at Douglas Holtz econ on
the show. We're thrilled and he could join us in
the American Action Forum. His public service with Senator McCain
years ago a GOP slant, yes, but always just exceptional
(35:06):
scholarship out of Dennison in prison. Doug, it's been way
way too long. Thank you so much for joining today.
How far removed, Douglas Holtziken, it's just traditional Republican economics
and Republican labor economics. How far removed is it from
President Trump?
Speaker 7 (35:28):
This is an enormous shift in the Republican Party. I mean,
it's almost unrecognizable from twenty years ago. And the characteristic
of this area is that both parties are interested in
using the power of the government is a cudgel for
their purposes. And that's that's not a limited government personal
freedom approach, not at all.
Speaker 2 (35:49):
What is Kevin Asset doing. I mean, I understand Pennsylvania
doesn't have the quality of Princeton to the far far Norris,
but you know you and I know Kevin ass and
as a legit macro economist, how is he carrying water
for the president? How do you see that? Douglas Holt Eacon.
Speaker 7 (36:09):
Uh, you know, I think that's a question you have
to ask Kevin. I don't understand a lot of the
Trump administration messaging on their policies. I certainly don't understand
the strategy and their policies, and and if Kevin understands it,
I'd like to understand it better.
Speaker 1 (36:24):
Doug.
Speaker 4 (36:25):
We we had some fireworks at the Bureau Labor Statistics
last week when the jobs data came out here. Can
you put that in context based upon your experience?
Speaker 7 (36:35):
Well, you know, the assertion by the President was that
the commissioner rigged the data, and there's simply no evidence
of rigging the data, and there's no opportunity actually for
the commissioner to alter the data in anyway if you
look at the procedures that are followed. So it's a
baseless assertion. It's something that I think it is obviously
(36:56):
detrimental to the institution. It undermines to some extent credibility
of the government's data, and you don't like to see that.
And it was simply the White House trying to change
the subject from the substance of the data, which is
really poor jobs numbers over the past three months, to
firing an official who's a holdover from the Biden administration.
(37:16):
So it's an old playbook the White House. This White
House has used a lot. I do think it has
brought to the surface something that's really important, which is
the diminishing potential quality of the data at the BA
and the BLS. And you know, now, I think the
general public understands that response rates have fallen, that the
sampling sizes have gone down, and that initial listments are
(37:40):
as firm as they might be. So now the questions,
will anyone get behind an effort to improve those data
collecting efforts and strengthen those statistical agencies.
Speaker 4 (37:49):
That's a good point, Doug. I mean it kind of
seems almost antiquated, you know, going out and doing a
survey in a world of digital.
Speaker 2 (37:58):
Opportunities.
Speaker 7 (37:59):
Here, can I say something about that?
Speaker 2 (38:00):
Paul?
Speaker 7 (38:01):
Yeah, you know a lot of people brought this up,
you know, like you should be tapping into the ADP
or other payroll processors, but at some point you actually
have to do a census of things. So that you
understand what the weights are going to be on the
ADP data. They sends it over sample large firms. So
there is at some point the antiquated issue of going
(38:23):
figuratively door to door and finding out what's out there,
knowing what the relative composition of the labor market is.
And that's an expensive and time consuming process, but it
needs to be done, be done better.
Speaker 2 (38:35):
The hallmarkt holds he can work, folks, are single sentences
that make you stop. May I quote the non education,
non health private sector has lost forty six thousand jobs
over the past three months. Good morning, Nancy Lazar, who's
been brilliant on this. I don't think Doug that's understood
(38:56):
that private sector employment is terrible X the gifts of
health and education.
Speaker 7 (39:04):
It's dead in the water and has been. I've been
confused by this sort of positive reactions to the recent
labor market reports because you know, even before the revision,
when we got one hundred and forty seven thousand jobs
in the previous employment report, seventy odd thousand of them
were in state in local governments. Of the remaining seventy odd,
(39:25):
fifty eight thousand were in health. It's the only place
that was generating any jobs. Everything else is dead in
the water. So when I look at the labor market,
I see a labor market where no one gets fired.
That's great, but no one gets hired either. It is
at a standstill, and that's really quite wrong.
Speaker 2 (39:39):
So so how to fold that over to FED policy?
Speaker 5 (39:41):
Here?
Speaker 2 (39:41):
I mean, go to sixty thousand feet if you will.
I brought it up today for the first time. Are
we at a point now where this is so emergent
that in one week or two weeks we're going to
be talking about a fifty B cut September seventeenth.
Speaker 7 (39:56):
I don't think we do see the basis for fifty
bas points because you know, the FED has a dual
mandate and and the Trump tariffs have really put the
FED in the crossairs because the inflation pressures are there,
the labor markets, uh, you know, really at a standstill.
So the mandates are telling you to do different things,
(40:18):
and how you balance that is an incredibly hard job.
People people put different weights on, you know, inflation versus unemployment.
They do, and we don't know how quickly this is
going to work.
Speaker 2 (40:28):
So Paul I got to interrupt Doug. This is too
important Paul get one more in here, But does it
does Holts? He can look like he could be a
fed governor.
Speaker 7 (40:37):
Oh, I mean that, I promise you he does not
look like he's going to be a fed.
Speaker 4 (40:45):
So Doug, let's let's just kind of put a bow
on this with a discussion of tariffs here. I mean,
tariffs are here. They are here to stay. It looks
like and it's whether it's fifteen, eighteen twenty percent on
an average basis, how do you think that's going to
play out through this economy over there come six twelve,
eighteen months.
Speaker 7 (41:03):
So I think number one, you have the right time frame.
People have gotten too accustomed to the notion that a
pandemic or financial crisis hits the mainStreet economy, and we
see real quickly what's going on. This is going to
evolve over quarters and years, not weeks and months, and
so we really haven't seen the impact yet. It is
unmistakable that the terrorists of this size, so roughly three
(41:26):
hundred to three hundred and fifty billion dollars at annualized rate,
that's a very big tax increase. It is going to
put upward pressure on prices, no way around it. And
it's going to take purchasing power away from consumers, and
that's going to slow the economy. So at some point
over the that six to twelve month horizon, we are
going to pay the price in inflation and slower employment growth.
(41:49):
And we're starting to see that, and there's no way
out of that. The only question is how big will
it be and how fast will it happen?
Speaker 2 (41:54):
You know, as blue Tie as sort of a governor,
Blue Tie, Sure, I think it is solid. Second, thank
you so much, wonderful. It's on way too long. Doug.
We got to get you on your numerous times before.
Jackson hold Douglas oltz econ his public service. It's CBO.
He's a president of the American Action Forum.
Speaker 1 (42:12):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on Applecarplay and Android Auto
with the Bloomberg Business app. You can also listen live
on Amazon Alexa from our flagship New York station, Just
say Alexa Play Bloomberg. Eleven thirty Lisa Mateo.
Speaker 2 (42:30):
Fired up for the newspaper. She said, at three am,
what are you starting with today?
Speaker 8 (42:35):
Okay, big sports news, So let's break this down. Okay,
so the NFL is going to sell most of its
media business to Walt Disney. This is in exchange for
a ten percent steak in the ESPN Sports Networks. Okay,
So ESPN, you know, jointly owned by Disney, they have
about an eighty percent steak, and also Hirst Communications they
have a twenty percent steak.
Speaker 4 (42:53):
And what it.
Speaker 8 (42:53):
Includes, it's the NFL Red Zone that's a subscription based
highlight service, the NFL network, cable chat, and also Disney
is going to get more air, more NFL games. ESPN though,
is getting ready to launch this new streaming service that's
going to cost about thirty dollars a month. So the
timing on this is pretty good. On top of that, though,
the Wall Street Journal actually just put it on an
(43:14):
article that says Disney bought exclusive rights to manywwees high
profile events for one and a half, just one hour.
Speaker 2 (43:22):
The Sweeten cam is going nuts right now. You're over
there squirm and yeah, I mean, is this the future?
Speaker 4 (43:28):
Well, it's a great move I think by ESPN and
Disney just to cement its relationship with the NFL. With
all the competition that is likely to come in for
distribution from Amazon than all the other streamers.
Speaker 2 (43:40):
It's just kind of real journalistic independence. Yeah, I'm sure
there will be. It's fine.
Speaker 4 (43:47):
They're already tied at the hip. I mean, they're already
tied at the hip anyway. This just kind of codifies
it and again in a world where there's going to
be more and more competition to get that NFL programming,
which is the most valuable in the world. ESPN's now
got a really good position, I think.
Speaker 2 (44:01):
So we'll see.
Speaker 8 (44:02):
I think. So I look at it and I'm like, okay,
maybe I can cut the cable cord now because all
my husband watches cable furs for the sports part of it.
Speaker 5 (44:09):
In the NFL.
Speaker 8 (44:11):
Seppens it's sports.
Speaker 6 (44:13):
It's huge.
Speaker 2 (44:15):
Okay.
Speaker 8 (44:15):
So this next story I thought of you, Paul, because
I remember you said you go to resorts and at
the end of it, you get this big bill, right,
all the kids, smoothies like everything. So more people are
enjoying these all inclusive resorts so where everything is included
so you don't get the big bill at the end.
And hotels like Hyatt Marriott, they're trying to get the affluent, yes,
(44:36):
the customers. It's going to run you maybe about one
thousand dollars a night for you know, the first year.
Speaker 2 (44:43):
Yeah, I did it, and I kept very careful track
and I decided it was fair. It was worth it.
It was yeah, borderline worth it. But yeah, the weight
of not having the smoothie bill at the end, or
excuse me, the rum punch bill exactly.
Speaker 4 (44:59):
So we're all and we do it in a room
every year.
Speaker 2 (45:00):
So this is build you, this is buildings.
Speaker 8 (45:03):
So it is okay. So you have like Marriott, for example,
they just bought their first all inclusive W resort, Punta
Khana and the Dominican.
Speaker 2 (45:10):
Republic check it out.
Speaker 8 (45:12):
Last year they had their first Marriout branded in Cancun.
Even Hiatt they have about ten all inclusive brands. So
it's this is something that's really starting to build. But
they're gearing it like they're putting it on steroids. You know.
It's like, you know, a thousand.
Speaker 6 (45:25):
Dollars for two people.
Speaker 8 (45:28):
At that price, I don't. I don't know if I would.
I don't eat that much.
Speaker 4 (45:34):
Salary every day.
Speaker 2 (45:35):
Are you do you go to a resort like that?
Are you doing pilates?
Speaker 3 (45:39):
You have to?
Speaker 8 (45:40):
I go to the gym every day when I.
Speaker 2 (45:41):
Go on vacation.
Speaker 8 (45:43):
Next the people are okay, this one's going to get
you fired up to Okay. So this is Microsoft. They're
getting this more strict return to the office policy, sources
telling Business Insider employees could be coming back more often. Okay,
so right now they let employees work mostly remote as
much as fifty percent of the time. Sometimes they're a
little bit flexible. But the new policy is going to
(46:06):
require them to work in the office at least three
days a week.
Speaker 2 (46:09):
Oh boy, what Business Insiders Holly doing a great job
on this with at Yes.
Speaker 8 (46:15):
Yes they do.
Speaker 2 (46:16):
They get there's just like you know, admirable Boom in
the in the wind on Mary Poppins. There's something going
on in August this year.
Speaker 8 (46:24):
Yeah, but it could because you've seen like a lot
of especially tech companies starting to do this, like getting
the more back to the office, being a little bit
more strict.
Speaker 5 (46:31):
But hey, three days, I don't know.
Speaker 2 (46:34):
Listam tato, Thank you so much the newspapers this morning.
Speaker 1 (46:37):
This is the Bloomberg Surveillance podcast, available on Apple, Spotify
and anywhere else you get your podcasts. Listen live each
weekday seven to ten am Easter and on Bloomberg dot com,
the iHeartRadio app tune In, and the Bloomberg Business app.
You can also watch us live every weekday on YouTube
(46:57):
and always on the Bloomberg terminal
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