October 7, 2025 • 29 mins
Watch Tom and Paul LIVE every day on YouTube: http://bit.ly/3vTiACF.
Bloomberg Surveillance hosted by Tom Keene & Paul SweeneyOctober 7th, 2025
Featuring:
1) Jeffrey Rosenberg, Senior Portfolio Manager - Systematic Multi-Strategy Fund at Blackrock, talks macro shifts in fixed income and the outlook for the US economy and broader markets. While equities worldwide have surged to successive record highs, worries over the US government shutdown and the political crisis in France have driven investors toward alternative assets such as gold and Bitcoin, sending both to new peaks.
2) Libby Cantrill, Head: Public Policy at PIMCO, talks about potential shutdown off ramps and the outlook for Trump administration economic and political priorities. President Trump showed signs of cracking, sending mixed messages about the state of talks with Democrats on their biggest demand, which is related to health care subsidies.
3) Mike Reid, Senior US Economist at RBC, talks about his outlook for a recession and reigniting inflation in the US. Meanwhile, Goldman Sachs Group Inc. raised its gold forecast for December 2026 to $4,900 an ounce, up from $4,300, citing ETF inflows and central-bank buying. According to the latest data, the People’s Bank of China added to its gold holdings in September for an 11th consecutive month.
4) Dan Skelly, Head of Morgan Stanley's Wealth Management Market Research and Strategy Team, on the market's sustained push higher and defensive positions. A flurry of AI-related deals among chipmakers has propelled shares higher and fueled some concerns of a speculative bubble reminiscent of the late-1990s dot-com era.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
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):
Joining us Jeffrey Rosenberg, Senior portfolio Manager, Systematic Multi Strategy
Fund at Blackrack. So you're a temper at Carnegie mel
And a million years ago, and some fancy finance guy
goes regression to the mean when you is a bond guy,
coupon guy. Look at the equity markers. Is it going
to be one big regression to the mean over the
(00:48):
next five years?
Speaker 3 (00:51):
No?
Speaker 4 (00:51):
I think you know, when you think about fixed income
versus equities, the big difference is fixed income.
Speaker 5 (00:56):
Returns are a lot simpler. It's your coupon.
Speaker 4 (00:59):
The price appreciation over time is not really where your
source of return is.
Speaker 5 (01:04):
In equities is different.
Speaker 4 (01:05):
It goes up into the right and so it isn't
about regression to the mean, whereas interest rates, it's a
little bit more about regression to the mean and a
little bit more about income over capital appreciation.
Speaker 2 (01:16):
Blackrock, do we believe we see the productivity to drive
all this, you know, A I mean, it's not your wheelhouse.
I get it, it's off your remit, But do you
see an overlay of underestimation of productivity in America?
Speaker 4 (01:31):
So it's a great topic, Tom, and you know it
obviously reminds us of the nineties debate. Productivity is everywhere
except in the statistics, and it's a similar kind of
you know, hope that you're getting this productivity. I think
to say that the AI impact is showing up in
the productivity data, you know, in a meaningful way, maybe
(01:52):
overstating the AI contribution to it. There's certainly a productivity boost,
and there's a certainly individual areas. I mean, we're all
experiencing the productivity boost individually in terms of the specific applications,
but whether you're seeing that across the economy that's accounting
for this productivity.
Speaker 5 (02:10):
I think it's a little bit too early to say that.
Speaker 6 (02:12):
Blackrock is the top liquid AUCS manager.
Speaker 5 (02:16):
What is a liquid as to say.
Speaker 4 (02:18):
A liquid alt is basically a strategy for delivering returns
without taking on kind of your fixed income exposure or
your equity exposure. You got a lot of that exposure
in your portfolios already. So what we try to do
is give you another source of returns without adding to
fixed income or equity. In my fund, we do it
with a fixed income replacement, So we try to provide
(02:43):
a defensive bond like alternative without really relying as much
on kind of duration and that total return that I
was talking about before. We do it with alternative strategies,
which are mostly bringing to the liquid mutual fund and
ETF vehicles long short, moret neutral strategies.
Speaker 5 (03:01):
That's really what's kind of.
Speaker 4 (03:02):
Underneath the hood in those strategies. So what are the
securities that get you there? So we do it across
all kinds of different securities. We have fixed income securities,
we have equity securities as well. We take a fixed
income lens to the selection of equities. We do this
from our experience in evaluating corporate credit. We turned it
(03:23):
onto the equity side and it lends a super interesting
return profile which we call defensive alpha, which is alpha
returns without market direction that tend to be really strong
when equity markets go down. That's the kind of alternative
to fixed income.
Speaker 2 (03:37):
And this is curly, This is brilliant, folks. This is
a global Wall Street talk. Here. Rosenberg can't go duma,
so we're going fancy. Now stay with me on this, folks.
I'll try to explain it. Strategies like this need a
down market to achieve and excel and generate alpha. We
(03:59):
sort of like have an add and down market. So
you're stealed for what a five percent ticked down. Do
these strategies click in with a correction ten percent, do
they click in with a bear market eighteen percent? Or
do you need something worse?
Speaker 5 (04:16):
It's a great question.
Speaker 4 (04:17):
So first of all, it's not directional, so it's not
like put option buying where you really need the market
to go down. They're balanced and we have other strategies
inside that help to provide positive returns when markets are
going up. But on the defensive alpha side, Tom, it's
really about a quarter decline inequity markets, meaning a persistent
decline in equity market's over a quarter calendar period, So
(04:40):
it's not short term trading.
Speaker 5 (04:43):
It's a little bit more.
Speaker 4 (04:44):
Of a type of market move that is reflective of
more of a recession kind of fear. That's how we've
tuned the defensive alpha, and as you know, we've been
doing it over ten years as a thirteen out of
fourteen quarter track record of delivering that that positive alpha.
Speaker 7 (04:59):
It's like the Yank defensive alpha US versus non US.
Speaker 6 (05:04):
How do you guys allocate?
Speaker 2 (05:05):
There?
Speaker 6 (05:05):
Is that changed?
Speaker 4 (05:07):
Yeah, it's really about the opportunity set of what types
of companies give us the ability to take credit insights
into the allocation algorithm. And so what we have mostly
is a US and large global universe of companies inside there,
it's not really taking on the factor exposure of geographic exposures.
(05:32):
It's really trying to neutralize to that and get to
the idiosyncratic risk. And so we can extract that idiosyncratic
risk out of global large issuers and US large and
mid sized companies.
Speaker 2 (05:43):
Where's Jeff Rosenberg and rebalancing? I mean, Tempers had a
whole career studying this is the question of rebalancing a portfolio.
The x access the study of the when of it
or is it something else?
Speaker 5 (05:59):
So it's an interesting, you know point.
Speaker 4 (06:02):
You know, we look a lot at kind of risk
and risk rebalancing, and you know, one of the things
that you see from kind of long term studies there
is is you have this kind of countercyclical approach, and
so you want to look at countercyclical risk balancing as
opposed to pro cyclical risk balancing and pro risk. Pro
(06:22):
Cyclical risk balancing tends to be that which targets short
term measures of risk, so you end up kind of
doing the wrong thing. When risk is going down, portfolio
looks like it's less risky, you start adding notional So it's.
Speaker 5 (06:35):
About balancing in our approach.
Speaker 4 (06:37):
Balancing kind of the short term measures you can get
you into a pro cycled one with a little bit
longer term measure which helps you to avoid that and
be anti.
Speaker 2 (06:46):
Fifty seconds, do you sense a leverage in the system
of our bullmarket frenzy? Is there shadows of leverage in there?
Speaker 4 (06:56):
So you know, what's the big change here that we'd
be talking about it? And the big changes You know,
when you look at a kind of the AI frenzy,
what was different from the nineteen nineties frenzy. The big
difference was the nineteen nineties frenzy was all debt financed.
Right when you think about like the Internet bubble bursting
(07:16):
in the fixed income markets, that was the high yield
telcom media technology concentration of defaults because the back end
infrastructure was funded by debt, and it was funded predominantly
by debt. So when you think about that two default cycle,
it was sixtei verscent CMT bonds, global crossing WorldCom. You
(07:38):
look at this cycle and up until most recently, it's
all financed out a cash flow. Now the difference is
some of these debt financed transactions. And that's the piece
that we should kind of be paying attention to.
Speaker 2 (07:49):
Jeffrey Rosenberg, thank you so much with us always on
the fedish sides and giving this perspective there and some
of the emotions of the effervescence and exuberance of moment.
Speaker 5 (08:00):
Stay with us.
Speaker 2 (08:01):
More from Bloomberg Surveillance coming up after this.
Speaker 1 (08:12):
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 5 (08:24):
Here's the way it rolls.
Speaker 2 (08:25):
Some of our guests, like they all have an entourage.
One or two people got to hang out. Go to Starbucks,
you know, be sure the uber gets there, cantrell ser
she goes with five or six piece.
Speaker 6 (08:34):
Sure, why not?
Speaker 2 (08:35):
Levy, I gotta cut to the Chase. One of your
people walks in and says, talk about the Broncos. First,
is PIMCO paying for you to go to London to
Tottenham steaks? I wish to watch the Broncos.
Speaker 8 (08:48):
I wish, sadly, no, sadly no, we do. We have
a we have a recent partnership with the Boston Celtics,
but not not not at ever team sadly so not not.
We know where to get seen neither the NU gets
north the Broncos.
Speaker 2 (09:01):
Okay, the Chase send. What an exciting game against the Eagles.
Speaker 8 (09:05):
Amazing, My goodness.
Speaker 2 (09:06):
What was the observation?
Speaker 8 (09:08):
I mean, I just I you know, it felt like
it was going to be sort of a predictable end.
The Eagles were going to beat us. But wow, was
that last that last fourth, last quarter? Pretty pretty pretty competive.
Speaker 2 (09:18):
Is a shutdown going to beat America?
Speaker 3 (09:21):
There?
Speaker 7 (09:22):
Ye?
Speaker 2 (09:22):
I loved it.
Speaker 5 (09:23):
I loved it, so you know me.
Speaker 8 (09:24):
I think that the conventional wisdom, probably right, is that
a short term shutdown doesn't really matter, doesn't matter for
the economy, doesn't matter for markets. I think that the
risk to that thinking is that this very likely looks
like it could be a prolonged shutdown. And just remember
that the last and the only real full shutdown that
we've had in the last few decades was in twenty
(09:45):
thirteen that lasted for sixteen days. The catalyst there was
to to increase the debt the debt ceiling. There is
no such catalyst, and so we don't really know what
happens to the economy sort of after a sixteen day period.
I think that that our.
Speaker 5 (09:59):
Concern is that.
Speaker 8 (10:00):
There are sort of these nonlinear economic impacts should the
governments shut down for longer than in two weeks, which
looks again more likely than not at this point, given
both sides are pretty comfortable in their positions, is.
Speaker 7 (10:12):
There any I mean, what's the key issue here between
the two sides here for this shut down here?
Speaker 5 (10:20):
Is there is there one issue that's keeping well?
Speaker 8 (10:21):
I think the Democrats have sort of struggled with trying
to articulate the real issue. But what they seem to
be coalescing around is this expiration of the Obamacare expanded
subsidies that expire at the end of end of this year.
Even though republic many Republicans don't like Obamacare, they don't
like these enhanced subsidies. You do see some splintering among
(10:41):
the Republican caucus last night.
Speaker 2 (10:46):
God, folks, this is the reality. This is ru Paul,
great question and answers. Marjorie Taylor Green says, President Trump,
your nuts. Two of my family members are going to
get crushed by that. How prevalent is that?
Speaker 8 (11:00):
And also, I mean, if you look at who are
the beneficiaries of these hit hand subsidies, you know, three
quarters of the folks live in Trump and states that
voted for Trump. So this is this is a salient
political issue for the president and for you know, certain
members of the Republican Caucus. I think that's whay why
you saw, you know, Trump opened the window yesterday to
potentially negotiating over this. So I think that you know,
(11:21):
you know, our view is that there probably there has
to be a deal on this issue, whether it's after
the government reopens or before the government reopens, but this
will have to be addressed because I think politically speaking,
it's just too salient for again enough Republicans for them
not to do at least something. Now, there could be
some modifications or what have you, But again I think
that's probably going to be kind of table stakes at
(11:42):
this point.
Speaker 7 (11:43):
So Supreme Court also begins a session today. Yeah, what
do we focus on there?
Speaker 8 (11:48):
Well, So I think the two big cases obviously for
the market are going to be these AIPA tariffs, the
sort of legitimacy around those. Was this a violation of
this you know, broad statute and in which case? So
what is the ruling like do they have to pay
back the.
Speaker 2 (12:05):
Tariffs?
Speaker 8 (12:06):
And then also of course the Lisa Cook hearing, which
is going to be in January.
Speaker 2 (12:09):
It looks like, Okay, I get the Newport Beach has
that just saw ten X, So we'll say when Taylor
Swift has you're flying around in the Felcon nine hundred ALEX,
you're immune from the area lights. Our listeners in viewers
are not immune from the shutdown. I just read CNN
from twenty nineteen where ten air traffic controllers went off
(12:30):
shutdown Atlanta, et cetera, and everybody had a Bart Simpson
cow is that where we're heading? Yeah, which this is
really about TSA and air traffic.
Speaker 8 (12:38):
I think that could absolutely be the catalyst for a reopening,
right because if you look at what are the what
are the inflection points. October fifteenth, that's when missed you know,
pay from active military folks. November first, that's when the
openrollment for ACA comes out with when people will be
actually notified about that their premiums could be increasing. And
then there's just the political pain and TSA. The air
traffic control, I mean, in twenty nineteen was actually the
(13:00):
issue that ended up reopening the government, so that could
could very well be. But again, I think people are
you know, in Washington, feel very comfortable in the fact
that the House is anyven session. Yeah, I mean they're
not coming back into session anytime soon and maybe not
into even until.
Speaker 2 (13:12):
Can they be comfortable if after a cup of coffee,
Newark was delayed an hour and two hours yesterday, that's.
Speaker 8 (13:18):
Like any you know, I actually fly, I fly Middle
stat coach very often, so so I am very I'm
very familiar with the Newark you know, flight delays. And
I think again, I think a lot of folks will
just brush that off and until this really becomes a
real issue again, I think both sides are going to
sort of stay stay, stay where they are.
Speaker 7 (13:39):
Can press any Trump fire these employees, federal employees, yees.
Speaker 8 (13:43):
So I think that is a big question. I mean,
just to be very clear, there are no new authorities
that are imparted on the executive branch to fire employees
during a shutdown. I think there's a lot of confusion
about that. So it's the same laws that govern pre
shutdown versus during a shutdown. I think, you know, he's
obviously threatened to do that. Maybe he will actually you know,
go through on those threats. I think there is a
(14:05):
political issue though, I mean, once you start really firing people,
that doesn't necessarily pull particularly well. And of course, eighty
percent of federal workers are outside of the DMV area,
which is I think quite important. So outside of the
DC Maryland Virginia area are eighty percent. So this is
like not just this sort of Beltway kind of niche issue.
This does affect folks, and like this is important.
Speaker 2 (14:25):
Seven hundred and fifty thousand people. Did you say eighty
percent are outside the beltway.
Speaker 8 (14:30):
Eight percent of federal workers just in general, right, So,
I mean of those.
Speaker 5 (14:33):
Kansas cities, those for a lot amounts.
Speaker 2 (14:36):
I own money too, I've written all of them checks.
Speaker 8 (14:40):
And again, like I mean, the president has vast authorities.
He's obviously, you know, try to sort of test the
limits of those authorities. So I'm not saying that he
won't necessarily fire folks. It's just that there is some
political ramifications of doing so, given that a lot of
these folks are not necessarily in that.
Speaker 2 (14:56):
Paul and I read like over the weekend of the
Cook Political Report, that's somebody's doing well in the polls.
I'll pick on Spanberg or Virginia is doing well. How
does that play in Libby Cantrell's belt play right now?
Speaker 4 (15:06):
Yeah?
Speaker 5 (15:07):
I think.
Speaker 8 (15:07):
I mean my own view is that we kind of
over index to these off cycle elections. Obviously there's a
gubernatorial race, both in Virginia and New Jersey. I think
the Democrats look like they're pulling better. That should we
should we extrapolate too much from that? No, I don't
think so. If they lose, then maybe that is a
canary in the coal mine. But again, I think there's
(15:29):
sort of too much inc that is.
Speaker 2 (15:31):
Jere Schneider just emailed in and says I'll carry Liz's
bags that Todd him. It's a great stadium, Broncos Jets.
Libby Cantrell in London coming up in the NFL. Libby
Cantrell with Pimcot right now, stay with us. More from
Bloomberg Surveillance coming up after this.
Speaker 1 (15:55):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven eight 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.
Speaker 2 (16:10):
Mark creatures Storry right now from the Royal Bank of
Canada RBC here on the Outlook Forward. What's great about this, Mike,
is you actually did a tour duty in the dark
climbs of the Bureau of Economic Analysis. Now it's not
BLS but BA. They use the same folders, the same
roll of decks, the same desks. Is BLS. What do
(16:31):
we not capture about the good people working at BLS
right now? With the shutdown and with the inability to
create a jobs.
Speaker 3 (16:39):
Report, Well, we're just missing a lot of data that
we need. And you know, I think you can get
the general trends right now. There's a lot of alternative data.
When you think about the labor.
Speaker 2 (16:50):
Mark trusted, is it a value?
Speaker 3 (16:52):
I put more weight in the payroll report and the
employment report than I do these alternatives I think you
can still use them directionally, but the magnitude right now
is what matters. And you don't get a good reading
on magnitude from some of these alternative sets.
Speaker 2 (17:07):
You just explain magnets. It's like a fancy where you'll learn
at it. Northeastern help me out here with what magnitude
means to our viewers and listeners.
Speaker 5 (17:15):
So I'll give a good example.
Speaker 3 (17:16):
We look a lot at the ISM surveys, you know,
ISM manufacturing and ISM services, and they have these diffusion indices,
and specifically for the employment report, and it's really just
a matter of reporting whether or not your employment levels
are going up, down, or staying the same. So you
don't know if it's increasing, did you hire ten people
(17:37):
one hundred people? So again you get a direction, but
you don't get the volume there. So it does mask
the ultimate impact on what you might estimate, for say
the unemployment rate.
Speaker 7 (17:50):
So, in the absence of some real time data, how
do you think the US economy is doing these days?
Speaker 5 (17:57):
I still think it's very foggy.
Speaker 3 (17:59):
And what I mean by that is the signal we're
getting from data is unclear. And I'll give you a
good example of what's going on. We've talked a lot
about the pull forward of some activities, whether it's imports
that inventory build up. Right now, my wife and I
are pulling forward some purchases of furniture and some cabinets
(18:21):
because of the threat of tariffs. So you know, right
now I have a delivery coming to my house, and
in fact it's there right now. It's probably not a
purchase I would have made had the tariff threat been
off the table, but because they announced it, and I said,
you know, let's just go ahead and do this now,
and it'll probably sit in my garage for a couple
of months before it gets installed, but at least we'll
(18:43):
have it at a better price.
Speaker 6 (18:45):
Interesting.
Speaker 7 (18:45):
So, but we haven't necessarily seen inflation from these terrors
really at all. On one could argue, well, what's happening there,
because a lot of folks thought we'd see it.
Speaker 3 (18:57):
Yeah, I think that's the interesting story right now, and
I think that's going to show up in two ways. First,
we do suspect that it's still early days for that
to show up. In terms of consumer prices, we saw
a bit of a surge in the producer prices. When
you look at the PPI that came out two months
ago came in very hot. So ultimately we think those
(19:18):
increased prices are going to be passed through to the consumer. Alternatively,
if we don't see that full extent of the pass through,
that's going to weigh on margins, and that really puts
a risk that labor really starts to weaken beyond what
we've already seen.
Speaker 2 (19:36):
I look at where we are, and, as you say brilliantly,
the fog of it all, the overwhelming fog of the
last three quarters is we were wrong, wrong, wrong on
animal spirit, nominal, GDP eight, other issues, productivity, tech or that.
Do you see any ending to how wrong we've been
the last three quarters which leads to a successful outcome.
Speaker 3 (20:00):
I'd like to hope that as economists and forecasters, we're
going to be wrong. But I still think there's a
situation in our view where we continue down this road
of kind of a stagflationary we call it stackflation light.
So what does that mean whether growth is coming in
at one percent one and a half percent, I think
(20:23):
you're going to continue to see the consumer slow, and
I think that's really important when you think about the economy.
The consumers is really the biggest driver here in the US,
and so these whether it's higher prices or loss of income,
that means a lot of consumers are going to have
to pull back.
Speaker 2 (20:41):
Macreed, Thank you so much, senior US economist RBC here
stay with us. More from Bloomberg Surveillance coming up after this.
Speaker 1 (20:56):
This is the Bloomberg Surveillance Podcast. Listen live each week
day starting at seven am Eastern on Applecarplay 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 (21:10):
Joining us out to drive the conversation forwards. Do we
agree it's less frienic than yesterday? Yes, it's not like
yesterday was nuts. This is really timely. With Brent Shuddy
coming up later, Dan Skelley had a Morgan Stanley Take
two asprin call me in the morning. The Wealth Management
market research and strategy team. The frenzy that was there yesterday,
(21:34):
do you see it in your clients?
Speaker 9 (21:37):
So we saw tom about one hundred billion dollars in
retail buying in the equity market in the past month.
Speaker 6 (21:42):
That's a historic run.
Speaker 9 (21:44):
So the frenzy is certainly starting to foment I wouldn't
say that Foment.
Speaker 2 (21:49):
Like Fomo, you learned it from Lisa Shllett, continue.
Speaker 9 (21:53):
Foment I wouldn't say it's completely overdone, because keep in
mind there's still seven trillion dollars money market allocation sitting
out there, so people aren't fully invested. But you're starting
to see the frenzy ramp up.
Speaker 7 (22:07):
Are you concerned about this AI?
Speaker 6 (22:11):
I had a concentration to MAG seven.
Speaker 7 (22:13):
It's the consentration about this AI story seems to be
really just kind of kicking into a higher gear in
the last several weeks.
Speaker 2 (22:21):
Paul.
Speaker 9 (22:21):
It's great to see you as well, And look, it
is kicking into higher gear the more and more spending
announcements you hear, and how that spending is funded. Right,
we're starting to see leverage used in that ecosystem, which
is really a departure from the last year or two
where cash flow funded all the investing.
Speaker 5 (22:37):
So we're keeping an eye on that.
Speaker 9 (22:39):
But the second thing I would say is, though to
your point, at first, MAG seven is not only the
biggest spender but the biggest beneficiary of AI.
Speaker 5 (22:46):
Right, Max seven.
Speaker 9 (22:47):
Earnings up twenty eight percent in Q two, rest of
market up four percent in an economy that did like
seven percent nominal GDP. So I think the market is
really waiting, waiting when is the rest of the economy
in the market to monetize AI and is there a
wily coyote moment in the market before that happens.
Speaker 2 (23:05):
How do you hedge equity? How do you provide protection
and equity and a retirement plan right.
Speaker 9 (23:13):
Now for retirees or retirement planning yield?
Speaker 2 (23:16):
Right?
Speaker 5 (23:16):
Dividend yield has been out of.
Speaker 2 (23:17):
Do Barbell sixty forty.
Speaker 5 (23:19):
You could do Barbell sixty forty.
Speaker 9 (23:21):
We want to add a little bit of energy, infrastructure
and real assets in addition to fixed income. We want
to generate income in some non traditional ways given all
the deficit spending.
Speaker 2 (23:31):
In the other master limited partnership.
Speaker 9 (23:33):
Correct dividend, correct contracted contracted cash flows, but also leverage
to AI spending empowering AI. So there's idiosyncratic upside there
as well. But coming back to how do you hedge, listen,
dividends and dividend yield has been out of favor for
two plus ye years. We see that as a really
reasonable traditional hedge at the moment.
Speaker 2 (23:51):
You see dividend excuse me playing this? Is you see
dividend growth? Absolutely?
Speaker 9 (23:56):
Quarter Absolutely, I think companies are spending a lot of
bive ax.
Speaker 5 (24:00):
We're also set.
Speaker 2 (24:01):
I mean, Paul's nuts about this. Could you imagine the
tech earning calls the end of October where they go,
We're going to initiate a dividend and go halfway to
a traditional dividend. I mean, Paul would be unreal.
Speaker 7 (24:12):
An Apple computer. I keep talking Tim Cook here. When
you look at dividends, is it dividend growth? Is a
dividend payout? Is a dividend yield? How do you think
about it?
Speaker 9 (24:21):
Excellent point Paul, And look in our dividend strategy, which
I actually have managed the past sixteen years. We do
a combination of both. We do traditional yield and dividend growth,
and that helps smooth out returns over cycles. Today where
I would buyas is more towards the dividend yield factor. Right,
particularly in a world where markets are pushing up against
all time highs and everyone's been risk gone, we think
(24:43):
some of that traditional defensive exposure makes sense.
Speaker 6 (24:47):
So what are we doing here with valuation here? How
do you think about that? When you talk to your
Morgan Stanley clients.
Speaker 9 (24:54):
Listen, two and a half years ago, we said the
market looks very different than it does data in nineteen
ninety and two one thousand thou thus you need to
trough and peak.
Speaker 5 (25:02):
At higher levels of valuation.
Speaker 9 (25:04):
That has been the case this whole rally, that being
set at twenty three times forward earnings. Now with inequity
risk premium trading at like fifteen or twenty basis points,
we would say valuation looks very full to rich, and
so we want to be hedging across some of these
exposures in the news yesterday.
Speaker 2 (25:20):
I don't want you to talk about an individual stock.
I'm sure Morgan stealing compliance won't let you in the building.
But I look at Verizon, Okay, ten years total return, Paul,
they killed it four point five five percent yep, Verizon,
complete failure of a stock. Switch to CEO. Yesterday they
got the guy from PayPal in now. I got a
(25:42):
dividend of six point sixty six percent. It's trading like
a Banana Republic yield. And I got a five year
dividend growth rate of one point ninety five percent, Dan scaley,
how does our audience, our viewers are our listeners, how
do they avoid a trail like Verizon?
Speaker 9 (26:01):
Keep an eye on the dividend growth, right, so we
if we even have high dividend or above average event yield,
you need a modicum of growth as well, because that's
a signal that's happening in other care nominal GDP fair,
that's happening in other telco carriers number one, Number two.
There are other sectors where you can source decent yield
and growth banks. One of them healthcare another example. So
(26:24):
what sectors are screening well for you? What factors are
screening wealth for you?
Speaker 6 (26:27):
I'm not sure how you guys kind of do.
Speaker 9 (26:29):
That, yeah, Paul. So it's been a very momentum bias market.
As we all know, it's been a junkier market, particularly
since April expectations around fiscal spend FED cuts. What we
want to do today is favorite quality, no doubt, as
defined by high profit margins and strong balance sheets, and
we're finding that today with a catalyst. Finally is healthcare.
(26:50):
I mean, look at the action and healthcare over the
last week or two. This is a sector we've been
pitching for the last three months. We think we're finally
past the point of maximum policy fee, and we're seeing
positive revisions on the earnings line, not.
Speaker 2 (27:03):
You, but your securities. In analysis, what do they say
about the train wreck known as UNH.
Speaker 9 (27:09):
So our analysts have been positive on you and ah,
it's been a bumpy road. Look, they had eighteen quarters
in a row, going back many years of beaten raised
a Swiss watch, like many themes, and you just mentioned
earlier one a minute ago, Like many examples. This year
they had a management change, and the new management is
the old management who took them through the previous era.
(27:29):
We've seen tremendous CEO change this year, I think record change.
And you've probably noted this as well. I just think
it speaks to how dynamic and challenging the environment is UNH.
Speaker 2 (27:39):
The yield, even with a trouble marked down here with
all their challenges, two point five percent yield, thirteen percent
dividend growth rate. So it's like you polar opposite of
a Rizon.
Speaker 5 (27:50):
Yep.
Speaker 2 (27:51):
Yeah, But I want to make clear folks, I'm bringing
these names up. Mister Skelley, Good morning Ted. I'm bringing
the names up, not Dan Skelley.
Speaker 6 (27:58):
Get my little down compliance over there more and Stanley
s ANDP.
Speaker 5 (28:01):
Healthcare index.
Speaker 7 (28:02):
You know, it's up like eleven to twelve percent since
early August. So a nice little pop there, Dan, What
are we doing with earnings coming up here in a
week or so. Earnings have to be I think they
have to be pretty darning good to support this multiple here.
Speaker 9 (28:17):
Yeah, Paul, we're going to continue to see mag seven
earnings momentum. All of our digital ad checks, for example,
have checked very strong in the last week or two.
Number one, Number two consumer spending continues to power onwards,
so that should be positive. E commerce number three, cloud
acceleration in that cohort has been positive for several quarters.
Speaker 5 (28:36):
We see no end in sight. So here's the key question.
Speaker 9 (28:39):
The dollar less of a tail when this quarter versus
last quarter. And secondly, we collected more tariff revenue this
quarter versus last quarter. So those are two potential challenges
that did not exist in two Q, meaning we probably
don't have as much of a beat this quarter.
Speaker 5 (28:54):
We have somewhat of a beat.
Speaker 6 (28:56):
Interesting, Yeah, I didn't think about the dollar there be.
Speaker 9 (28:58):
Sent flat flat line exactly exactly.
Speaker 6 (29:00):
Yeah, into that big saw.
Speaker 2 (29:02):
This was brilliant, Dan Scully, don't be a stranger. I'm really,
really good on and dividend growth. Mr Skelly sells on
mortgage Stanley's Wealth Management, market research and strategy team.
Speaker 1 (29:13):
This is the Bloomberg Surveillance Podcast, available on apples, Spotify,
and anywhere else you get your podcasts. Listen live each weekday,
seven to ten am Eastern on Bloomberg dot com, the
iHeartRadio app, tune In, and the Bloomberg Business app. You
can also watch us live every weekday on YouTube and
(29:34):
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):
Joining us Jeffrey Rosenberg, Senior portfolio Manager, Systematic Multi Strategy
Fund at Blackrack. So you're a temper at Carnegie mel
And a million years ago, and some fancy finance guy
goes regression to the mean when you is a bond guy,
coupon guy. Look at the equity markers. Is it going
to be one big regression to the mean over the
(00:48):
next five years?
Speaker 3 (00:51):
No?
Speaker 4 (00:51):
I think you know, when you think about fixed income
versus equities, the big difference is fixed income.
Speaker 5 (00:56):
Returns are a lot simpler. It's your coupon.
Speaker 4 (00:59):
The price appreciation over time is not really where your
source of return is.
Speaker 5 (01:04):
In equities is different.
Speaker 4 (01:05):
It goes up into the right and so it isn't
about regression to the mean, whereas interest rates, it's a
little bit more about regression to the mean and a
little bit more about income over capital appreciation.
Speaker 2 (01:16):
Blackrock, do we believe we see the productivity to drive
all this, you know, A I mean, it's not your wheelhouse.
I get it, it's off your remit, But do you
see an overlay of underestimation of productivity in America?
Speaker 4 (01:31):
So it's a great topic, Tom, and you know it
obviously reminds us of the nineties debate. Productivity is everywhere
except in the statistics, and it's a similar kind of
you know, hope that you're getting this productivity. I think
to say that the AI impact is showing up in
the productivity data, you know, in a meaningful way, maybe
(01:52):
overstating the AI contribution to it. There's certainly a productivity boost,
and there's a certainly individual areas. I mean, we're all
experiencing the productivity boost individually in terms of the specific applications,
but whether you're seeing that across the economy that's accounting
for this productivity.
Speaker 5 (02:10):
I think it's a little bit too early to say that.
Speaker 6 (02:12):
Blackrock is the top liquid AUCS manager.
Speaker 5 (02:16):
What is a liquid as to say.
Speaker 4 (02:18):
A liquid alt is basically a strategy for delivering returns
without taking on kind of your fixed income exposure or
your equity exposure. You got a lot of that exposure
in your portfolios already. So what we try to do
is give you another source of returns without adding to
fixed income or equity. In my fund, we do it
with a fixed income replacement, So we try to provide
(02:43):
a defensive bond like alternative without really relying as much
on kind of duration and that total return that I
was talking about before. We do it with alternative strategies,
which are mostly bringing to the liquid mutual fund and
ETF vehicles long short, moret neutral strategies.
Speaker 5 (03:01):
That's really what's kind of.
Speaker 4 (03:02):
Underneath the hood in those strategies. So what are the
securities that get you there? So we do it across
all kinds of different securities. We have fixed income securities,
we have equity securities as well. We take a fixed
income lens to the selection of equities. We do this
from our experience in evaluating corporate credit. We turned it
(03:23):
onto the equity side and it lends a super interesting
return profile which we call defensive alpha, which is alpha
returns without market direction that tend to be really strong
when equity markets go down. That's the kind of alternative
to fixed income.
Speaker 2 (03:37):
And this is curly, This is brilliant, folks. This is
a global Wall Street talk. Here. Rosenberg can't go duma,
so we're going fancy. Now stay with me on this, folks.
I'll try to explain it. Strategies like this need a
down market to achieve and excel and generate alpha. We
(03:59):
sort of like have an add and down market. So
you're stealed for what a five percent ticked down. Do
these strategies click in with a correction ten percent, do
they click in with a bear market eighteen percent? Or
do you need something worse?
Speaker 5 (04:16):
It's a great question.
Speaker 4 (04:17):
So first of all, it's not directional, so it's not
like put option buying where you really need the market
to go down. They're balanced and we have other strategies
inside that help to provide positive returns when markets are
going up. But on the defensive alpha side, Tom, it's
really about a quarter decline inequity markets, meaning a persistent
decline in equity market's over a quarter calendar period, So
(04:40):
it's not short term trading.
Speaker 5 (04:43):
It's a little bit more.
Speaker 4 (04:44):
Of a type of market move that is reflective of
more of a recession kind of fear. That's how we've
tuned the defensive alpha, and as you know, we've been
doing it over ten years as a thirteen out of
fourteen quarter track record of delivering that that positive alpha.
Speaker 7 (04:59):
It's like the Yank defensive alpha US versus non US.
Speaker 6 (05:04):
How do you guys allocate?
Speaker 2 (05:05):
There?
Speaker 6 (05:05):
Is that changed?
Speaker 4 (05:07):
Yeah, it's really about the opportunity set of what types
of companies give us the ability to take credit insights
into the allocation algorithm. And so what we have mostly
is a US and large global universe of companies inside there,
it's not really taking on the factor exposure of geographic exposures.
(05:32):
It's really trying to neutralize to that and get to
the idiosyncratic risk. And so we can extract that idiosyncratic
risk out of global large issuers and US large and
mid sized companies.
Speaker 2 (05:43):
Where's Jeff Rosenberg and rebalancing? I mean, Tempers had a
whole career studying this is the question of rebalancing a portfolio.
The x access the study of the when of it
or is it something else?
Speaker 5 (05:59):
So it's an interesting, you know point.
Speaker 4 (06:02):
You know, we look a lot at kind of risk
and risk rebalancing, and you know, one of the things
that you see from kind of long term studies there
is is you have this kind of countercyclical approach, and
so you want to look at countercyclical risk balancing as
opposed to pro cyclical risk balancing and pro risk. Pro
(06:22):
Cyclical risk balancing tends to be that which targets short
term measures of risk, so you end up kind of
doing the wrong thing. When risk is going down, portfolio
looks like it's less risky, you start adding notional So it's.
Speaker 5 (06:35):
About balancing in our approach.
Speaker 4 (06:37):
Balancing kind of the short term measures you can get
you into a pro cycled one with a little bit
longer term measure which helps you to avoid that and
be anti.
Speaker 2 (06:46):
Fifty seconds, do you sense a leverage in the system
of our bullmarket frenzy? Is there shadows of leverage in there?
Speaker 4 (06:56):
So you know, what's the big change here that we'd
be talking about it? And the big changes You know,
when you look at a kind of the AI frenzy,
what was different from the nineteen nineties frenzy. The big
difference was the nineteen nineties frenzy was all debt financed.
Right when you think about like the Internet bubble bursting
(07:16):
in the fixed income markets, that was the high yield
telcom media technology concentration of defaults because the back end
infrastructure was funded by debt, and it was funded predominantly
by debt. So when you think about that two default cycle,
it was sixtei verscent CMT bonds, global crossing WorldCom. You
(07:38):
look at this cycle and up until most recently, it's
all financed out a cash flow. Now the difference is
some of these debt financed transactions. And that's the piece
that we should kind of be paying attention to.
Speaker 2 (07:49):
Jeffrey Rosenberg, thank you so much with us always on
the fedish sides and giving this perspective there and some
of the emotions of the effervescence and exuberance of moment.
Speaker 5 (08:00):
Stay with us.
Speaker 2 (08:01):
More from Bloomberg Surveillance coming up after this.
Speaker 1 (08:12):
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 5 (08:24):
Here's the way it rolls.
Speaker 2 (08:25):
Some of our guests, like they all have an entourage.
One or two people got to hang out. Go to Starbucks,
you know, be sure the uber gets there, cantrell ser
she goes with five or six piece.
Speaker 6 (08:34):
Sure, why not?
Speaker 2 (08:35):
Levy, I gotta cut to the Chase. One of your
people walks in and says, talk about the Broncos. First,
is PIMCO paying for you to go to London to
Tottenham steaks? I wish to watch the Broncos.
Speaker 8 (08:48):
I wish, sadly, no, sadly no, we do. We have
a we have a recent partnership with the Boston Celtics,
but not not not at ever team sadly so not not.
We know where to get seen neither the NU gets
north the Broncos.
Speaker 2 (09:01):
Okay, the Chase send. What an exciting game against the Eagles.
Speaker 8 (09:05):
Amazing, My goodness.
Speaker 2 (09:06):
What was the observation?
Speaker 8 (09:08):
I mean, I just I you know, it felt like
it was going to be sort of a predictable end.
The Eagles were going to beat us. But wow, was
that last that last fourth, last quarter? Pretty pretty pretty competive.
Speaker 2 (09:18):
Is a shutdown going to beat America?
Speaker 3 (09:21):
There?
Speaker 7 (09:22):
Ye?
Speaker 2 (09:22):
I loved it.
Speaker 5 (09:23):
I loved it, so you know me.
Speaker 8 (09:24):
I think that the conventional wisdom, probably right, is that
a short term shutdown doesn't really matter, doesn't matter for
the economy, doesn't matter for markets. I think that the
risk to that thinking is that this very likely looks
like it could be a prolonged shutdown. And just remember
that the last and the only real full shutdown that
we've had in the last few decades was in twenty
(09:45):
thirteen that lasted for sixteen days. The catalyst there was
to to increase the debt the debt ceiling. There is
no such catalyst, and so we don't really know what
happens to the economy sort of after a sixteen day period.
I think that that our.
Speaker 5 (09:59):
Concern is that.
Speaker 8 (10:00):
There are sort of these nonlinear economic impacts should the
governments shut down for longer than in two weeks, which
looks again more likely than not at this point, given
both sides are pretty comfortable in their positions, is.
Speaker 7 (10:12):
There any I mean, what's the key issue here between
the two sides here for this shut down here?
Speaker 5 (10:20):
Is there is there one issue that's keeping well?
Speaker 8 (10:21):
I think the Democrats have sort of struggled with trying
to articulate the real issue. But what they seem to
be coalescing around is this expiration of the Obamacare expanded
subsidies that expire at the end of end of this year.
Even though republic many Republicans don't like Obamacare, they don't
like these enhanced subsidies. You do see some splintering among
(10:41):
the Republican caucus last night.
Speaker 2 (10:46):
God, folks, this is the reality. This is ru Paul,
great question and answers. Marjorie Taylor Green says, President Trump,
your nuts. Two of my family members are going to
get crushed by that. How prevalent is that?
Speaker 8 (11:00):
And also, I mean, if you look at who are
the beneficiaries of these hit hand subsidies, you know, three
quarters of the folks live in Trump and states that
voted for Trump. So this is this is a salient
political issue for the president and for you know, certain
members of the Republican Caucus. I think that's whay why
you saw, you know, Trump opened the window yesterday to
potentially negotiating over this. So I think that you know,
(11:21):
you know, our view is that there probably there has
to be a deal on this issue, whether it's after
the government reopens or before the government reopens, but this
will have to be addressed because I think politically speaking,
it's just too salient for again enough Republicans for them
not to do at least something. Now, there could be
some modifications or what have you, But again I think
that's probably going to be kind of table stakes at
(11:42):
this point.
Speaker 7 (11:43):
So Supreme Court also begins a session today. Yeah, what
do we focus on there?
Speaker 8 (11:48):
Well, So I think the two big cases obviously for
the market are going to be these AIPA tariffs, the
sort of legitimacy around those. Was this a violation of
this you know, broad statute and in which case? So
what is the ruling like do they have to pay
back the.
Speaker 2 (12:05):
Tariffs?
Speaker 8 (12:06):
And then also of course the Lisa Cook hearing, which
is going to be in January.
Speaker 2 (12:09):
It looks like, Okay, I get the Newport Beach has
that just saw ten X, So we'll say when Taylor
Swift has you're flying around in the Felcon nine hundred ALEX,
you're immune from the area lights. Our listeners in viewers
are not immune from the shutdown. I just read CNN
from twenty nineteen where ten air traffic controllers went off
(12:30):
shutdown Atlanta, et cetera, and everybody had a Bart Simpson
cow is that where we're heading? Yeah, which this is
really about TSA and air traffic.
Speaker 8 (12:38):
I think that could absolutely be the catalyst for a reopening,
right because if you look at what are the what
are the inflection points. October fifteenth, that's when missed you know,
pay from active military folks. November first, that's when the
openrollment for ACA comes out with when people will be
actually notified about that their premiums could be increasing. And
then there's just the political pain and TSA. The air
traffic control, I mean, in twenty nineteen was actually the
(13:00):
issue that ended up reopening the government, so that could
could very well be. But again, I think people are
you know, in Washington, feel very comfortable in the fact
that the House is anyven session. Yeah, I mean they're
not coming back into session anytime soon and maybe not
into even until.
Speaker 2 (13:12):
Can they be comfortable if after a cup of coffee,
Newark was delayed an hour and two hours yesterday, that's.
Speaker 8 (13:18):
Like any you know, I actually fly, I fly Middle
stat coach very often, so so I am very I'm
very familiar with the Newark you know, flight delays. And
I think again, I think a lot of folks will
just brush that off and until this really becomes a
real issue again, I think both sides are going to
sort of stay stay, stay where they are.
Speaker 7 (13:39):
Can press any Trump fire these employees, federal employees, yees.
Speaker 8 (13:43):
So I think that is a big question. I mean,
just to be very clear, there are no new authorities
that are imparted on the executive branch to fire employees
during a shutdown. I think there's a lot of confusion
about that. So it's the same laws that govern pre
shutdown versus during a shutdown. I think, you know, he's
obviously threatened to do that. Maybe he will actually you know,
go through on those threats. I think there is a
(14:05):
political issue though, I mean, once you start really firing people,
that doesn't necessarily pull particularly well. And of course, eighty
percent of federal workers are outside of the DMV area,
which is I think quite important. So outside of the
DC Maryland Virginia area are eighty percent. So this is
like not just this sort of Beltway kind of niche issue.
This does affect folks, and like this is important.
Speaker 2 (14:25):
Seven hundred and fifty thousand people. Did you say eighty
percent are outside the beltway.
Speaker 8 (14:30):
Eight percent of federal workers just in general, right, So,
I mean of those.
Speaker 5 (14:33):
Kansas cities, those for a lot amounts.
Speaker 2 (14:36):
I own money too, I've written all of them checks.
Speaker 8 (14:40):
And again, like I mean, the president has vast authorities.
He's obviously, you know, try to sort of test the
limits of those authorities. So I'm not saying that he
won't necessarily fire folks. It's just that there is some
political ramifications of doing so, given that a lot of
these folks are not necessarily in that.
Speaker 2 (14:56):
Paul and I read like over the weekend of the
Cook Political Report, that's somebody's doing well in the polls.
I'll pick on Spanberg or Virginia is doing well. How
does that play in Libby Cantrell's belt play right now?
Speaker 4 (15:06):
Yeah?
Speaker 5 (15:07):
I think.
Speaker 8 (15:07):
I mean my own view is that we kind of
over index to these off cycle elections. Obviously there's a
gubernatorial race, both in Virginia and New Jersey. I think
the Democrats look like they're pulling better. That should we
should we extrapolate too much from that? No, I don't
think so. If they lose, then maybe that is a
canary in the coal mine. But again, I think there's
(15:29):
sort of too much inc that is.
Speaker 2 (15:31):
Jere Schneider just emailed in and says I'll carry Liz's
bags that Todd him. It's a great stadium, Broncos Jets.
Libby Cantrell in London coming up in the NFL. Libby
Cantrell with Pimcot right now, stay with us. More from
Bloomberg Surveillance coming up after this.
Speaker 1 (15:55):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven eight 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.
Speaker 2 (16:10):
Mark creatures Storry right now from the Royal Bank of
Canada RBC here on the Outlook Forward. What's great about this, Mike,
is you actually did a tour duty in the dark
climbs of the Bureau of Economic Analysis. Now it's not
BLS but BA. They use the same folders, the same
roll of decks, the same desks. Is BLS. What do
(16:31):
we not capture about the good people working at BLS
right now? With the shutdown and with the inability to
create a jobs.
Speaker 3 (16:39):
Report, Well, we're just missing a lot of data that
we need. And you know, I think you can get
the general trends right now. There's a lot of alternative data.
When you think about the labor.
Speaker 2 (16:50):
Mark trusted, is it a value?
Speaker 3 (16:52):
I put more weight in the payroll report and the
employment report than I do these alternatives I think you
can still use them directionally, but the magnitude right now
is what matters. And you don't get a good reading
on magnitude from some of these alternative sets.
Speaker 2 (17:07):
You just explain magnets. It's like a fancy where you'll learn
at it. Northeastern help me out here with what magnitude
means to our viewers and listeners.
Speaker 5 (17:15):
So I'll give a good example.
Speaker 3 (17:16):
We look a lot at the ISM surveys, you know,
ISM manufacturing and ISM services, and they have these diffusion indices,
and specifically for the employment report, and it's really just
a matter of reporting whether or not your employment levels
are going up, down, or staying the same. So you
don't know if it's increasing, did you hire ten people
(17:37):
one hundred people? So again you get a direction, but
you don't get the volume there. So it does mask
the ultimate impact on what you might estimate, for say
the unemployment rate.
Speaker 7 (17:50):
So, in the absence of some real time data, how
do you think the US economy is doing these days?
Speaker 5 (17:57):
I still think it's very foggy.
Speaker 3 (17:59):
And what I mean by that is the signal we're
getting from data is unclear. And I'll give you a
good example of what's going on. We've talked a lot
about the pull forward of some activities, whether it's imports
that inventory build up. Right now, my wife and I
are pulling forward some purchases of furniture and some cabinets
(18:21):
because of the threat of tariffs. So you know, right
now I have a delivery coming to my house, and
in fact it's there right now. It's probably not a
purchase I would have made had the tariff threat been
off the table, but because they announced it, and I said,
you know, let's just go ahead and do this now,
and it'll probably sit in my garage for a couple
of months before it gets installed, but at least we'll
(18:43):
have it at a better price.
Speaker 6 (18:45):
Interesting.
Speaker 7 (18:45):
So, but we haven't necessarily seen inflation from these terrors
really at all. On one could argue, well, what's happening there,
because a lot of folks thought we'd see it.
Speaker 3 (18:57):
Yeah, I think that's the interesting story right now, and
I think that's going to show up in two ways. First,
we do suspect that it's still early days for that
to show up. In terms of consumer prices, we saw
a bit of a surge in the producer prices. When
you look at the PPI that came out two months
ago came in very hot. So ultimately we think those
(19:18):
increased prices are going to be passed through to the consumer. Alternatively,
if we don't see that full extent of the pass through,
that's going to weigh on margins, and that really puts
a risk that labor really starts to weaken beyond what
we've already seen.
Speaker 2 (19:36):
I look at where we are, and, as you say brilliantly,
the fog of it all, the overwhelming fog of the
last three quarters is we were wrong, wrong, wrong on
animal spirit, nominal, GDP eight, other issues, productivity, tech or that.
Do you see any ending to how wrong we've been
the last three quarters which leads to a successful outcome.
Speaker 3 (20:00):
I'd like to hope that as economists and forecasters, we're
going to be wrong. But I still think there's a
situation in our view where we continue down this road
of kind of a stagflationary we call it stackflation light.
So what does that mean whether growth is coming in
at one percent one and a half percent, I think
(20:23):
you're going to continue to see the consumer slow, and
I think that's really important when you think about the economy.
The consumers is really the biggest driver here in the US,
and so these whether it's higher prices or loss of income,
that means a lot of consumers are going to have
to pull back.
Speaker 2 (20:41):
Macreed, Thank you so much, senior US economist RBC here
stay with us. More from Bloomberg Surveillance coming up after this.
Speaker 1 (20:56):
This is the Bloomberg Surveillance Podcast. Listen live each week
day starting at seven am Eastern on Applecarplay 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 (21:10):
Joining us out to drive the conversation forwards. Do we
agree it's less frienic than yesterday? Yes, it's not like
yesterday was nuts. This is really timely. With Brent Shuddy
coming up later, Dan Skelley had a Morgan Stanley Take
two asprin call me in the morning. The Wealth Management
market research and strategy team. The frenzy that was there yesterday,
(21:34):
do you see it in your clients?
Speaker 9 (21:37):
So we saw tom about one hundred billion dollars in
retail buying in the equity market in the past month.
Speaker 6 (21:42):
That's a historic run.
Speaker 9 (21:44):
So the frenzy is certainly starting to foment I wouldn't
say that Foment.
Speaker 2 (21:49):
Like Fomo, you learned it from Lisa Shllett, continue.
Speaker 9 (21:53):
Foment I wouldn't say it's completely overdone, because keep in
mind there's still seven trillion dollars money market allocation sitting
out there, so people aren't fully invested. But you're starting
to see the frenzy ramp up.
Speaker 7 (22:07):
Are you concerned about this AI?
Speaker 6 (22:11):
I had a concentration to MAG seven.
Speaker 7 (22:13):
It's the consentration about this AI story seems to be
really just kind of kicking into a higher gear in
the last several weeks.
Speaker 2 (22:21):
Paul.
Speaker 9 (22:21):
It's great to see you as well, And look, it
is kicking into higher gear the more and more spending
announcements you hear, and how that spending is funded. Right,
we're starting to see leverage used in that ecosystem, which
is really a departure from the last year or two
where cash flow funded all the investing.
Speaker 5 (22:37):
So we're keeping an eye on that.
Speaker 9 (22:39):
But the second thing I would say is, though to
your point, at first, MAG seven is not only the
biggest spender but the biggest beneficiary of AI.
Speaker 5 (22:46):
Right, Max seven.
Speaker 9 (22:47):
Earnings up twenty eight percent in Q two, rest of
market up four percent in an economy that did like
seven percent nominal GDP. So I think the market is
really waiting, waiting when is the rest of the economy
in the market to monetize AI and is there a
wily coyote moment in the market before that happens.
Speaker 2 (23:05):
How do you hedge equity? How do you provide protection
and equity and a retirement plan right.
Speaker 9 (23:13):
Now for retirees or retirement planning yield?
Speaker 2 (23:16):
Right?
Speaker 5 (23:16):
Dividend yield has been out of.
Speaker 2 (23:17):
Do Barbell sixty forty.
Speaker 5 (23:19):
You could do Barbell sixty forty.
Speaker 9 (23:21):
We want to add a little bit of energy, infrastructure
and real assets in addition to fixed income. We want
to generate income in some non traditional ways given all
the deficit spending.
Speaker 2 (23:31):
In the other master limited partnership.
Speaker 9 (23:33):
Correct dividend, correct contracted contracted cash flows, but also leverage
to AI spending empowering AI. So there's idiosyncratic upside there
as well. But coming back to how do you hedge, listen,
dividends and dividend yield has been out of favor for
two plus ye years. We see that as a really
reasonable traditional hedge at the moment.
Speaker 2 (23:51):
You see dividend excuse me playing this? Is you see
dividend growth? Absolutely?
Speaker 9 (23:56):
Quarter Absolutely, I think companies are spending a lot of
bive ax.
Speaker 5 (24:00):
We're also set.
Speaker 2 (24:01):
I mean, Paul's nuts about this. Could you imagine the
tech earning calls the end of October where they go,
We're going to initiate a dividend and go halfway to
a traditional dividend. I mean, Paul would be unreal.
Speaker 7 (24:12):
An Apple computer. I keep talking Tim Cook here. When
you look at dividends, is it dividend growth? Is a
dividend payout? Is a dividend yield? How do you think
about it?
Speaker 9 (24:21):
Excellent point Paul, And look in our dividend strategy, which
I actually have managed the past sixteen years. We do
a combination of both. We do traditional yield and dividend growth,
and that helps smooth out returns over cycles. Today where
I would buyas is more towards the dividend yield factor. Right,
particularly in a world where markets are pushing up against
all time highs and everyone's been risk gone, we think
(24:43):
some of that traditional defensive exposure makes sense.
Speaker 6 (24:47):
So what are we doing here with valuation here? How
do you think about that? When you talk to your
Morgan Stanley clients.
Speaker 9 (24:54):
Listen, two and a half years ago, we said the
market looks very different than it does data in nineteen
ninety and two one thousand thou thus you need to
trough and peak.
Speaker 5 (25:02):
At higher levels of valuation.
Speaker 9 (25:04):
That has been the case this whole rally, that being
set at twenty three times forward earnings. Now with inequity
risk premium trading at like fifteen or twenty basis points,
we would say valuation looks very full to rich, and
so we want to be hedging across some of these
exposures in the news yesterday.
Speaker 2 (25:20):
I don't want you to talk about an individual stock.
I'm sure Morgan stealing compliance won't let you in the building.
But I look at Verizon, Okay, ten years total return, Paul,
they killed it four point five five percent yep, Verizon,
complete failure of a stock. Switch to CEO. Yesterday they
got the guy from PayPal in now. I got a
(25:42):
dividend of six point sixty six percent. It's trading like
a Banana Republic yield. And I got a five year
dividend growth rate of one point ninety five percent, Dan scaley,
how does our audience, our viewers are our listeners, how
do they avoid a trail like Verizon?
Speaker 9 (26:01):
Keep an eye on the dividend growth, right, so we
if we even have high dividend or above average event yield,
you need a modicum of growth as well, because that's
a signal that's happening in other care nominal GDP fair,
that's happening in other telco carriers number one, Number two.
There are other sectors where you can source decent yield
and growth banks. One of them healthcare another example. So
(26:24):
what sectors are screening well for you? What factors are
screening wealth for you?
Speaker 6 (26:27):
I'm not sure how you guys kind of do.
Speaker 9 (26:29):
That, yeah, Paul. So it's been a very momentum bias market.
As we all know, it's been a junkier market, particularly
since April expectations around fiscal spend FED cuts. What we
want to do today is favorite quality, no doubt, as
defined by high profit margins and strong balance sheets, and
we're finding that today with a catalyst. Finally is healthcare.
(26:50):
I mean, look at the action and healthcare over the
last week or two. This is a sector we've been
pitching for the last three months. We think we're finally
past the point of maximum policy fee, and we're seeing
positive revisions on the earnings line, not.
Speaker 2 (27:03):
You, but your securities. In analysis, what do they say
about the train wreck known as UNH.
Speaker 9 (27:09):
So our analysts have been positive on you and ah,
it's been a bumpy road. Look, they had eighteen quarters
in a row, going back many years of beaten raised
a Swiss watch, like many themes, and you just mentioned
earlier one a minute ago, Like many examples. This year
they had a management change, and the new management is
the old management who took them through the previous era.
(27:29):
We've seen tremendous CEO change this year, I think record change.
And you've probably noted this as well. I just think
it speaks to how dynamic and challenging the environment is UNH.
Speaker 2 (27:39):
The yield, even with a trouble marked down here with
all their challenges, two point five percent yield, thirteen percent
dividend growth rate. So it's like you polar opposite of
a Rizon.
Speaker 5 (27:50):
Yep.
Speaker 2 (27:51):
Yeah, But I want to make clear folks, I'm bringing
these names up. Mister Skelley, Good morning Ted. I'm bringing
the names up, not Dan Skelley.
Speaker 6 (27:58):
Get my little down compliance over there more and Stanley
s ANDP.
Speaker 5 (28:01):
Healthcare index.
Speaker 7 (28:02):
You know, it's up like eleven to twelve percent since
early August. So a nice little pop there, Dan, What
are we doing with earnings coming up here in a
week or so. Earnings have to be I think they
have to be pretty darning good to support this multiple here.
Speaker 9 (28:17):
Yeah, Paul, we're going to continue to see mag seven
earnings momentum. All of our digital ad checks, for example,
have checked very strong in the last week or two.
Number one, Number two consumer spending continues to power onwards,
so that should be positive. E commerce number three, cloud
acceleration in that cohort has been positive for several quarters.
Speaker 5 (28:36):
We see no end in sight. So here's the key question.
Speaker 9 (28:39):
The dollar less of a tail when this quarter versus
last quarter. And secondly, we collected more tariff revenue this
quarter versus last quarter. So those are two potential challenges
that did not exist in two Q, meaning we probably
don't have as much of a beat this quarter.
Speaker 5 (28:54):
We have somewhat of a beat.
Speaker 6 (28:56):
Interesting, Yeah, I didn't think about the dollar there be.
Speaker 9 (28:58):
Sent flat flat line exactly exactly.
Speaker 6 (29:00):
Yeah, into that big saw.
Speaker 2 (29:02):
This was brilliant, Dan Scully, don't be a stranger. I'm really,
really good on and dividend growth. Mr Skelly sells on
mortgage Stanley's Wealth Management, market research and strategy team.
Speaker 1 (29:13):
This is the Bloomberg Surveillance Podcast, available on apples, Spotify,
and anywhere else you get your podcasts. Listen live each weekday,
seven to ten am Eastern on Bloomberg dot com, the
iHeartRadio app, tune In, and the Bloomberg Business app. You
can also watch us live every weekday on YouTube and
(29:34):
always on the Bloomberg terminal
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