July 21, 2025 • 43 mins
Watch Tom and Paul LIVE every day on YouTube: http://bit.ly/3vTiACF.
Bloomberg Surveillance hosted by Tom Keene & Paul SweeneyJuly 21st, 2025
Featuring:
1) Lori Calvasina, Head of US Equity Strategy at RBC Capital Markets, discusses her S&P 500 target and whether equity markets will continue to push through policy and Fed uncertainty. It also comes amid European Union envoys getting ready to meet to formulate a plan for measures to respond to a possible no-deal scenario with US President Trump. The US is now seen to want a near-universal tariff on EU goods higher than 10%, with limited exemptions, according to people familiar with the matter.
2) Bob Michele, CIO: Fixed Income at JPMorgan Asset Management, talks about whether the Fed's right to keep monetary policy unchanged and what the full impact of tariffs will be on US companies. Meanwhile, a new theory from Wall Street is zeroing in on a possible dismissal of Fed Chair Jay Powell. The theory behind this "macro trade" is that a new Fed chair would be more likely to fall in line with Trump's lobbying for lower interest rates, pushing down short-term yields and driving yields on long-term debt higher.
3) Frank Lee, Global Head of Tech Hardware and Semiconductor Research, talks about AI investment, the outlook for semiconductors, and the sustainability of CapEx growth for AI hyperscalers.
4) Jordan Rochester, Head: FICC Macro Strategy EMEA, joins to discuss the dollar-yen trade after the Japanese Prime Minister's election setback this weekend. Japanese Prime Minister Shigeru Ishiba says he must fulfill his responsibility to the nation and its people as the biggest party in parliament. Ishiba raised the US trade talks, inflation, and security environment as pressing issues that must not be left to stagnate due to political instability.
5) Lisa Mateo joins with the latest headlines in newspapers across the US, including WSJ's story on Amazon quietly raised prices on low-cost products since President Trump's tariff announcement, as well as Business Insider's story on the 'Gen Z stare.'
See omnystudio.com/listener for privacy information.
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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):
This is a really exquisite hour for Global Wall Street
on Monday. Dive into some conversations. Matt Hornbach from Morgan
Stanley will be listen critically as tenure in Japan for
Morgan Stanley years ago. Helene ray you may not know
the name. Helene ray Ry is exquisite on European macro economics,
(00:51):
and again we'll look at the transatlantic picture there. But
what Paul and I wanted to do was give you
just a tone of the equity market. There's no one
better to do that. With a lengthy conversation with Lori
Kelvisena of RBC Capital Markets, Laurie I said this at
seven o one this morning. I was thunderstruck by the
repetitive not gloom, but timidity, intentiveness, tentativeness this weekend in
(01:19):
equity pundits. I mean, everybody's rationalizing a nervous market. All
this history, this history that are you that nervous?
Speaker 3 (01:31):
Hi? So thanks for having me Tom. Look, I would
say that I feel pretty neutral on the back half
of the year. And I know that everybody hates it
when equity strategists are neutral, because we're supposed to have
high conviction and come in and pound tables and those
sorts of things. But I do have some things that
are concerning me. I sat down with myself, you know,
sort of around the July fourth holiday when we were
(01:52):
sort of resetting the second half outlook, and said, you know,
how much downside do I think those things are worth
to me? And to be honest, I didn't feel like
we were doing for another growth scare or retest of
the April lows that you know, I do see some
things that I think can challenge us a little bit
in the short term, but they feel to me like
garden variety type pullbacks, which are in the five to
ten percent range and never fun, but something that you
(02:12):
can recover from.
Speaker 2 (02:13):
Well, but that's normal. We've forgotten. Paul helped me sure
corrections are normal. Yes, am I right?
Speaker 4 (02:19):
Absolutely, and I balloom this.
Speaker 2 (02:22):
Weekend was comical. We're in this, I mean, come on, Paul,
we're up annualize it. We're fourteen percent on a twelve
months solbrid basis.
Speaker 5 (02:31):
Yep.
Speaker 4 (02:31):
And look where we came from from Off that line.
Speaker 2 (02:33):
I just said, I'm lost.
Speaker 4 (02:35):
So, Laurie, I guess maybe one of the key issues
for investors these days over the next coming weeks will
be earnings. And we're very, very early into this earning cycle.
Is there any takeaways plus or minus or are we
just kind of plugging along here?
Speaker 3 (02:47):
Yeah? And look, I think it kind of circles back to,
you know, some of the comments Tom just made. Right,
So we've come off week one. There was sort of
a drizzle of early reporters that came in prior to
last week, and I think, you know, maybe this contributed
to some of that timidity or a little bit of caution.
But what I heard last week from the financial companies
in particular, was everything is fine, the consumer is resilient,
(03:10):
we're managing through we're talking to all our customers. This
is what we're hearing. But at the same time, I
was seeing words like guarded and there was definitely some
conservatism that was still going into the outlooks. And remember,
these companies are not on the forefront of tariffs for
the most part that we heard last week, but they
were still referring a lot to the uncertainty and the
policy backdropped there. So was there maybe a little bit
(03:30):
of scarring that's keeping them a little bit you know,
vigilant and on guard going forward. Absolutely, And that to
me was the biggest takeaway dumb question.
Speaker 2 (03:40):
Are FED rate cuts good for the stock market?
Speaker 3 (03:45):
I think that the market had gotten maybe a little
too optimistic in the short term about thinking the rate
cuts were coming soon. If you look at our rate
strategy team, Blake Gwenn actually pushed his call recently from
September for the first cut back into December. And as
I was talking to investors back in June time, you know,
and you know, sort running all around the country and
(04:06):
talking to people, and part of the bull thesis was
getting those rate cuts sooner rather than later. So I
think as we dial down some of the short term
implications or short term expectations for FED cuts, I think
that could cause a little bit of angst in the
market in the short term. But I do think, you know,
going back to Blake's call, he's pushed those cuts into
next year. So it does feel like they're coming. I
think if you were to take them completely off the table,
(04:28):
that would do you know, some damage. I think that
pushing back the rate cuts because of a resilient economy
and to kind of wait and see on inflation, I
think the market, you know, can absorb that without a
ton of damage, but it may create some short term
hiccuffs for a market that's come so far, so fast
in a short amount of time.
Speaker 4 (04:47):
So, Laurie, what August first is going to be another
date on this whole tariff discussion. It just feels like
the market maybe has gotten complacent about tariffs and the
risk they may present in terms of e narmer growth
or inflation. Maybe that's we're going to get refocused come
this August first deadline. How are you thinking about that?
Speaker 3 (05:06):
I think that's a great question. I'll tell you my
macro colleagues and I at RBC, you know, when we
compare notes on the tariff discussion, you know, we we're
sort of like, is anybody bringing up the deadline in
your meetings? And it's like, basically, no, is what we're
hearing across different asset classes. And I think there has
been a view, you know, when I've proactively brought it
up with investors that you know, we're seeing a lot
(05:27):
of you know, I don't want to use the word theater, right,
but I think there is an expectation that there there is,
you know, sort of an image that's going on, and
things are going to be pushed back and things are
not going to end up being that dire. You know,
where I shake out Paul as I do think that
we're going to have more tariffs than what we had
to start of the year, and I think that there
are inflationary impacts. So where I'm concerned about complacency is
(05:48):
when I have investors coming into me and saying, hey,
we got this soft CPI print, see tariffs aren't inflationary,
and I just don't think that's realistic. I think companies
have been working through a lot of inventory, and they've
been put plans into place, and you're starting to see
those gears of price increases turning. They're just turning very slowly.
But to be honest, this isn't that different from what
happened back in twenty eighteen. And if you look at
(06:10):
twenty nineteen earnings, they were flat with twenty eighteen for
the S and P so I worry that investors are
kind of saying, hey, we're not getting anything and we're
just going to get stuff later, and it's going to
actually impair the outlook for next year a bit.
Speaker 2 (06:22):
We say good morning to all of you and you
across America. Good morning on Serious Exem Channel one twenty one,
ninety nine and one FM. Nathan Ager Radio in Washington
ninety two nine FM. Huge response for Arnold's out in
East Orleans today. I just so much. It's a killer.
It's like it's like my childhood. You know, I'm looking
(06:42):
Paul August one is like this big date. I'm not
focused because I'm looking at WWE SummerSlam, the two day
combo ticket out at MetLife Stadium. The seats I deserve
are nine hundred and thirty dollars.
Speaker 4 (06:56):
Sure, that's for WLF.
Speaker 2 (06:58):
Summer Slam met Light. And you know, with Lauren Calvasina,
I'm looking at this fixation here and it's just an
excuse to get in cash. Is there any value to
cash right now? Or does Lauren Calvasina say forget about
the WWE SummerSlam, you got to be in the market.
Speaker 3 (07:18):
Well, look, I'm an equity strategist. Right, So I'm always
going to want you to be investing in stocks. You know,
that's just sort of the nature of the beast. And
we did, you know, sort of take the approach, you know,
when we've had conversations, especially I would say with newer,
younger investors this year of it's always impossible, you know,
just sort of in real time call turns in the market. So,
you know, I think clients have been sort of doubting
(07:39):
their own ability to sort of forecast some of the
noise coming out of DC and some of you know,
the drama and the headlines and say, you know, I
have sort of a reasonable expectations of where things are
going to be next year, let me just kind of
ignore the short term and position for the long term.
And I don't you know, I think it is a
little early to be looking at twenty twenty six. But
I sympathize with the impulse.
Speaker 4 (08:00):
I do small cap mid cap relative to what I
think I hear most often, which is large cap growth.
So how do you think about different market cap plays here?
Speaker 3 (08:11):
So it's a great question. I mean, if you look
at the hedge funds, they like to place small caps
on dialing up and dialing down FED expectations, and I
think we're in the moment of kind of dialing down
short term FED expectations. And these folks tend to be
short term in nature. They're not making twenty twenty six
bets yet, and so if I'm, you know, sort of
in the process of taking small caps, I think that,
you know, it's hard for me to see the short
(08:33):
term out performance pop from that perspective. I also think
that smaller cap companies have a harder time managing around
issues like tariffs. I've been reading some nine SMP transcripts
recently and I've absolutely seen that in some of the
prints that I've looked at, And I think you want
economic tailwinds back, and that's like two and a half
percent GDP and FP ramping ism, manufacturing moving up. I think,
(08:54):
you know, if I look across the street, the expectations
are for a sluggish economic growth backdrop for quite some time.
So people are trying to get bullish on small caps.
I'm really kind of scratching my head on Laurie.
Speaker 2 (09:05):
Thank you. That was brilliant. And the issue here, Lori Calvicina,
is we've been trying to get bullish in small caps
for what ten for fifteen years? I mean, it's ridiculous
on the large cap question, and you're going to say, well,
it's not something I really look at, But come on,
everybody listening is wedded to ten twenty thirty stocks. What's
(09:27):
that vision out three years?
Speaker 3 (09:30):
So look, and you know we do do work on that,
you know, we just we put our horizons a bit
broader as well. And look, I would say, if I'm
thinking very very short term, we do often see the
megacap growth stocks sort of seed their earnings leadership and
seed their performance leadership during reporting season. So what do
I mean by that, Well, you tend to see outside
(09:52):
of reporting season, the rate of upward divisions are earning
sentiment is really really strong for the top ten companies
relative to the rest of the SMP, and that tends
to down during reporting season as people actually start to
think about the other companies and then you see a
little bit more relative excitement there. So we may be
heading into something like that. Now, if I'm thinking out
you know, the next few years, I'll tell you what
(10:12):
I've been hearing on the road from investors is maybe
a more rational view of where AI is headed and
it's you know, kind of moved from instant gratification and
instant you know, sort of injecting optimism into earnings, at
least outside of those you know, top megacap names. It's
not going to be the thing that fixes you know,
things for everybody right now. But I think companies are
(10:34):
investors are realizing that companies is just going to take
them more time to get this technology right and additive
to earnings. And if you look out longer term earnings
growth forecasts are still stronger for the mag seven than
the rest of the market. They're just slowing down.
Speaker 2 (10:46):
A little, kay, But you don't do an individual stock.
There's a small company Redmond, Washington. We won't mention it,
and the bottom line is it's got a thirty eight multiple.
But the answer is out three years a Lori kelvisine
is showing out three years. You just assume they earn
their way into a denominator which makes a thirty eight multiple,
(11:08):
right now? Rational?
Speaker 3 (11:10):
Right, Well, what I'll tell you I'm seeing in my
Decktom and Tom, you and I have known each other
a long time. I am sort of like anti theme,
anti fad, like I am never you know, sort of
drinking the kool aid on the next hot thing. But
I've been calmed down a little bit on this AI
theme because when I look at the top ten megacap
names in the S and P five hundred, which are
largely AI plays, and I do a median PE of
(11:32):
those companies, and I compare it to the long term
growth expectations, and I take those two things right, and
I look at MAG seven versus rest of the S
and P. The relative PE line is the same line
as the relative long term earnings growth line, so they're
getting different multiples, but it's based on the differing perceptions
of what the long term earnings growth rates are. And
(11:53):
that's been very similar to what we tend to see
over time. I think there was a breakdown in that
relationship around the GFC briefly, but this is even how
stocks behaved back in the nineties and early two thousands.
So I think you've really got to tackle those long
term earnings growth expectations. And you've either got to just
like bang down the MAG seven trade and say their
numbers are way too optimistic, or you've got to look
(12:14):
at the rest of the market and say it's way
too pessimistic and move those up and we're just not
seeing any change in that relative gap, so they're kind
of each getting the relative pe they deserve.
Speaker 2 (12:24):
That's the key issue, Paul, is we haven't seen a
change in the zeitgeist. Everybody's publishing and all that opinions
in that, but it's still the way it is. Paul,
get one more in here with.
Speaker 4 (12:34):
LORI evaluation here, Laurie, how do you kind of break
that down for your clients here? Just of the market
in general?
Speaker 3 (12:41):
So look small caps, you know, had hit recession lows
on April eighth, and they're now back to average, so
they're fine, but they're not super cheap the way they
were S and P. If I look at a market
cap weighted multiple, never got cheap, did work its way
down from peak, and no, it's right back up to peak.
If I look at rest of S and P and
just do an equal weighted multiple over there, think we're
trade around eighteen times. It had been down around sixteen. Again,
(13:03):
never got to average, but it's not quite back to peak.
So I feel like in the short term there's a
little bit of a catch up tray that the rest
of the market needs to do relative to the mag
seven you can watch that Russell pe really closely, because
what it did this past time was peak out around
the twenty sixteen through twenty eighteen highs. We're way far
off from that yet, so maybe that's an uber bowl argument.
But I see different valuations in different parts of the market,
(13:25):
and the capwaight at SMP is getting worrisome again.
Speaker 2 (13:27):
Laurie, thank you so much. Lori kelviseen a terrific brief there,
RBC Capital Markets. What we'd like to do on a Monday,
Folks's iniquities, Bond's currencies and commodities.
Speaker 1 (13:42):
You're listening to the Bloomberg Surveillance Podcast. Catch us live
weekday afternoons from seven to ten am Eastern. Listen on
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Speaker 2 (13:55):
Just one of the things you're doing here mid July
into a July thirty FED meeting or any is coming
out stillantis can? I isn't stillantis Chrysler, Yes, but it's
a combo like yeah, I think Fiat Renault Poojit like
I don't know what's in there.
Speaker 6 (14:11):
I don't know.
Speaker 2 (14:12):
Bob Michael's looking at me like Tom you're butchering the pronunciations.
We started with Troy Guyski in Deborah Cunningham and now
Bob Michael with JP Morgan here, and my great theme
is over the weekend, just lots of be careful, lot
of worry and caution and all that. I looked at
a famous blended bond market fun not JP Morgan, and
(14:34):
I think year to date, if I make it an
annualized statistic, is a six and a half percent return
in the bond market. Things aren't that bad, are they.
Speaker 6 (14:44):
They're not.
Speaker 7 (14:45):
There's a phenomenal resilience to both the US economy and
US markets or bond markets globally. To be honest, if
you look at some of the things that have gone
on this year, none of them are good for the
bond market. You've got tariffs that means higher prices, higher inflation.
You've got the one big beautiful Bill Act that means
(15:06):
a lot more spending, which supports higher prices. Each of
those two are north of three trillion dollars. Then you
have the sell American noise out there constantly that should
be putting pressure on US bonds. And then there's talk
of global issuance in bonds going through the roof. You're
seeing some of that that should put pressure on bond
(15:28):
But through all of that, here we are with the
ten year treasury flat to the Fed funds rate where
it's been for most of the year. You're grabbing the coupon,
you're getting the coupon, and as long as there's no
recession on the horizon, you're buying credit and picking up
the incremental yield.
Speaker 4 (15:47):
Where do you see value in credit these days? Because
again it looks to me, I'm just looking at the
end go function, the Bloomberg terminal. The best performance has
been US corporate high yield.
Speaker 7 (15:58):
It has been and we've always said, in any backup
in high yield, you buy it unless you think you're
going into recession. Then by definition that's when you worry.
That's when you get out because there will be de risking,
that's when corporate profitability drops. And everyone's worried about the
(16:18):
false rising. But the reality is there's a ton of
money on the sidelines looking to get into the bond market.
Both institutional and retail investors feel under allocated to fixed income.
Speaker 2 (16:32):
Can I ask a rude question? First? One a Monday
Room question at JP market. How much is a ton
of money? Like if somebody shows up, is it like
one hundred million? Ah? You know what's the measurement of
a ton of money?
Speaker 7 (16:46):
Bigger than a couple bushels?
Speaker 4 (16:49):
So why are they underinvested market? Because for the first
time in fifteen years we can actually get total coupon
return here.
Speaker 3 (16:57):
Why are they under.
Speaker 7 (16:58):
Yeah, that's as you just said it, the first time
in fifteen years. It was the fifteen years before that
the zero and negative interest rate policy. People looked at
bonds and said, eh, not going to do it, and
either left money in cash or went into alternatives. Now
they feel overallocated to alternatives, under allocated to bonds and.
Speaker 2 (17:18):
Our global Wall Street question of the day adding in
your intern slash junior analysts whatever they're calling them, a
JP Morgan summer analysts, summer analysts. How many people are
under Bob Michael just twenty thousand, four hundred, four hundred,
four hundred is how many of those people have never
(17:39):
really seen a coupon market? How many of this is
all new? Out of four hundred? Seriously, is this all new?
Speaker 7 (17:47):
Now? You're you're right, the majority of people in our
business have been in the industry post Great Financial Crisis,
so central bank intervention di stortion of bond markets looks normal.
Whereas we as a franchise the broader JP Morgan Chase Field,
we are going back to a world that existed pre
(18:10):
financial crisis.
Speaker 2 (18:11):
When Russia blew up. I went back and read the
history of JP. Morgan in Russia in nineteen oh seven.
Speaker 4 (18:17):
That's how far back we go, exactly right, what a history?
So our Federal Reserve? How are you parsing through the
noise and so on about leadership at the FED as
and then getting down to where policy may shake out
for the FED?
Speaker 7 (18:32):
Well, I do believe that the FED members the FOMC
do come in every day, look at data and try
to make the best possible decisions. So they understand the
importance of their role. They understand the judgment that history
will make. They get all of that. They're in a
(18:56):
difficult position because they know prices will go up once
the full strength of tariffs hits, and maybe even this
quarter there will be more passed through from corporate America.
They also feel that it could slow down growth, that
if there are higher prices, businesses and households will probably
(19:16):
spend a bit less, So why not just hold rates
where they are for now and see some of these
impacts in the real data. I think that's the right
thing to do. And as we start out with, markets
are doing great, the economy is doing it fine.
Speaker 2 (19:32):
And pomportant to zeitgeist this weekend, mister Bessan, sitting on
the couch in the Oval office, Yes, suggested to the
president slow things down.
Speaker 4 (19:39):
Yep, exactly. I'm looking through your notes here, Bob. One
of the things that jumped out of me is local
emerging market.
Speaker 6 (19:44):
That tell us about that.
Speaker 4 (19:45):
How do you think about emerging markets today?
Speaker 6 (19:48):
Local?
Speaker 7 (19:49):
Well, Emerging markets in general have been overlooked for the
last seven or eight years, and when we look at
flows into different assets classes, they've gone into equity, some
have trickled into different parts of the bond market, but
with shocking consistency, there have been outflows from emerging market
(20:11):
equities and emerging market debts. So they've been orphaned, yet
they've done well. And this tells you that there's greater
support in emerging market debt than crossover buyers. Investors like
me who run global aggregate funds and look at emerging
markets as an ow to benchmark bet When we look
(20:31):
at the emerging markets, they have very high real yields
to them. They've got central banks who are as efficient
as any central bank in managing policy for growth and inflation,
and they also have the benefit of very strong domestic support.
Speaker 6 (20:50):
There are wealth.
Speaker 7 (20:50):
Management platforms, pension funds, and insurance companies that go in
and support the local markets. We can get higher real yields.
I can put together a portfolio of South America and
Europe and parts of Asia that will yield close to
eight percent.
Speaker 2 (21:07):
All eight percent, phenomenal. Yeah, And what's the real yield
off that get out over three percent?
Speaker 7 (21:12):
Oh yeah, it's going to be close to four percent.
Speaker 2 (21:15):
What's what's a tension point on the ten year US
real yield? One point ninety three one point ninety four
this morning, by my measurement, is that like not four
percent obviously, but like two point five percent? Our world changes.
Speaker 7 (21:29):
Yeah, it's amazing the amount of disinflation and deflation we
had pre COVID, the amount of inflation we had during COVID.
Speaker 2 (21:41):
And now we're going the other way.
Speaker 7 (21:42):
Yeah, And how break evens somehow always hovered between two
and two and a half percent above two and a
half percent would weary men.
Speaker 2 (21:50):
The late Great Stanley Fisher told me the day Paul
Samuelson threw the chalk in the room and almost bounced
it off his head. When you're lecturing the cherubs at
JP Morgan on the real yield, have you ever thrown
the chuck when they say it doesn't matter?
Speaker 6 (22:07):
You know?
Speaker 2 (22:07):
Have you ever gotten upset in a lecture on the
inflation ajusting yield is a residual?
Speaker 7 (22:14):
You know. I hear a lot of things that make
me upset, but I've been in the markets for a
long time. You just absorb it and move on.
Speaker 2 (22:23):
I can't say enough, folks at Wisdom, they're nominal GDP
and real GDP dynamics in nominal yield, the current yield,
the one we all know is in the real yield
is the residual after you take out inflation and those dynamics.
You have to tattoo to your brain and massage every
(22:44):
single day of your career to keep up with people
like Bob Michael.
Speaker 6 (22:49):
Not Michael.
Speaker 2 (22:49):
Thank you so much for JP Morgan.
Speaker 1 (22:51):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 2 (23:08):
There's a point in Hong Kong, and it's confusing. There's
two mandarins. There's the old bandarin and there used to
be an mbire and something new with it, and there's
a new mandarin if you go over by the old mandarin.
Across from the charming little trolley car is the fortress
of the Hong Kong Shanghai Bank in Corporation. And as
(23:29):
you can imagine, HSBC, Yes, out of London, but so
much out of Hong Kong is absolutely definitive on all
the stuff that makes it go. Driving that in our
guest in studio here in New York today is one
of the most important voices in semiconductor out of Wharton
Frankly joined us with HSBC. This morning. You're given a
(23:53):
lecture in America on the Pacific rim semiconductor market. What's
the first thing you talk about.
Speaker 6 (24:02):
I think when you think about semiconductors, it's that the
dominance of where Asia is, especially where Taiwan is in
terms of how dominant TESMC is. I think people often
now are starting to recognize how important that supply chain
is right now.
Speaker 2 (24:16):
I mean, I look at tay I learned this Taiwan
is seventy percent of Taiwan is seventy percent owned by
the foreign you know people that INTERSBC represents in that
Would that change at all within the geopolitics? Do we
just still see a dominance of international investment in Pacific
RIM semiconductor and technology.
Speaker 6 (24:37):
Yeah, I mean, I mean TSMC is seventy five percent
owned by foreigners, foreign investors. But also I think this
past year does a lot of changes because they're now
spending more money and production in the US. So they've
talked about thirty percent of their most advanced two nanometer
production will be in the US over the next few years.
(24:57):
So I think this investment process is been surprising, frankly
to most of us in terms of how quickly it's
moving in the pace.
Speaker 4 (25:04):
So how do you and your clients think about global
trade tensions? Uh, teriffs, just the instability it seems like
in global trade because your business is semiconductor business, that
the technology business is truly a global business. Global supply
change everywhere. How do you guys account for that?
Speaker 6 (25:24):
I think like most industries, you know, everyone's dealing with
the uncertainty around tariffs. But I think what's different is
the the importance of semiconductors right now in the global economy,
especially with AI, right it is is such an important
engine of all the AI and infrastructure investment. So I
think there is going to be you know, there there
will be ongoing uncertainty when it comes to tarifs, but
(25:46):
I think the market has started to shrug this off,
right And I think you know, especially you know, if
you talk about AI infrastructure, you know a lot of
it is you know, it's been driven by enterprise. So
this the tariff impact is not going to be as
significant because I think if you talked about consumer, they
will become a bigger impact because you're going to consumer
is going to feel that immediate impact of terrorists.
Speaker 2 (26:06):
On a thermodynamic basis, where does the energy come from
out five years, ten years to just appease your industry?
I mean, where do you have a worry, like a
lot of other people that the electricity just won't show
up to make all this stuff go.
Speaker 6 (26:24):
I think it is an issue that people talk about,
but we haven't really seen that really materialize yet. I
do think the infrastructure build will continue. I think everybody
recognizes the importance of AI right now and why it's
so important to invest it in. You know, for example,
if you look at Sovereign AI right now in the
announcements earlier in the year about you know, Saudi Arabia
(26:46):
going to invest this huge amount of deness. But there's
also the question are they ready yet because they need
to build the infrastructure in terms of the energy. But
I think it will eventually. I think it'll go hand
in hand.
Speaker 2 (26:55):
A year ago, my book of the year two years
trailing was Chris Miller's Chip War to me is an
ignorant one was just fabulous and Morris Chang was front
and center through that, the eminence of Taiwan's semiconductor. Who's
the next Morris Chain? Did they just BCC's on the
Pacific rim?
Speaker 6 (27:14):
I think you're going to start to see some sort
of right now in China. What you're starting to see
is that they are basically creating their own infrastructure, their
own ecosystem, right So you're basically developing almost two sets
of two sets of systems one for China and one
for outside of China. Now in China, right now, I
(27:34):
think if you look at the foundry business, this SMC
is probably going to be the national champion in China,
but there will be a lag in terms.
Speaker 2 (27:43):
Of will they have the sophistication of nanos or are
they more like a micron just crank out the chips.
Speaker 6 (27:49):
They are doing foundry, which is similar to tastem see,
but there will be many generations behind. But what I
think the Chinese industry has managed to do is to
become to manage to be much more effective in terms
of producing without having to spend as much money. They
will not quite be at the equal footing, but they
can make some inroads.
Speaker 2 (28:08):
We said good evening to all of you across a
specific RAM and good morning on your commute across America.
Frank Lee does he's with HSBC on chips, Paul, Frank,
where are we?
Speaker 4 (28:19):
I mean a lot of folks like myself this AI
think we're trying to get our heads around AI. A
lot of folks are telling us, hey, man, think in
the scale of the Internet. Think in this is the
scale of like electricity. Where are we in that evolution
of AI. Where do you think we are in that
game here? How earlier, how late?
Speaker 6 (28:39):
I think no one really knows the answer to that.
But we do know that these companies, these massive hyperscalers,
the way they're investing is unprecedent, and it's the first
two years of the AI story was really just these hyperscalers,
this four or five companies investing. There was always this
question about, well, can they actually make money? Can he
monetize that question? And it's still being somewhat unanswered today.
(29:03):
But it's clear that the spending needs to continue. But
it's not just these hyperscalers. Now it's cleared out the enterprise,
you know, and and even sovereigns are now looking at this.
Speaker 4 (29:13):
You know, we think about we were talking about China,
and it's become more and more apparent. I think over
the last three, four, five, six years that there's this
tech cold war between China and maybe the rest of
the world. A is that is that accurate? And B
is that problematic? I mean for just tech development. I mean,
(29:34):
if you can't sell into China or your limited way
you can sell into China, if that maybe we don't
get some of the China tech coming out of China.
How do you think about that?
Speaker 6 (29:42):
Yeah, it's a very complex one because you do see,
you know, the latest change for the end video chip.
They were banned earlier in the year and now they're
actually allowed to sell in. So it shows you I
think there's a lot of there's still a lot of unknowns,
and I think both signs are still working in terms
of trying to figure out what's the right balance. And
(30:03):
then if you look at what China has done really
well is the EV I mean the EV industry they
have and they pulled their own semic counter industry with
it because a lot of the chips that go in
through the Chinese evs are now being produced by Chinese companies.
Speaker 2 (30:16):
But those are basic chips, right.
Speaker 6 (30:18):
They're not as advanced, right, They're not as advanced as
you know, the Nvidio chipper goes into AI me.
Speaker 2 (30:25):
I know, Nicholas cout callos and covers Apple for you.
I don't want you to give me a bihold cell
an Apple. But do you just assume that the technology,
the nanowness of Apple and others like Apple just continues
that we continue to see technological innovation down to minimum nanos.
Speaker 6 (30:44):
Well, I think if you attend to the minus nuts,
oh oh bullieve yeah. I think if you look at
particularly economy like Apple, right, one of the challenges that
you see they are facing is their AI angle is
not very right now because it's very much driven by
consumer and iPhone right. So this is ultimately the problem
(31:05):
today is that the AI investment is on infrastruture.
Speaker 2 (31:09):
Okay, I got to get you in trouble here so
you can't go home. We're you gonna stay here and
be with us once a week. Frankly, Apple's just got
to do an agreement with somebody who's very AI. Right,
Why do they have to do their own AI?
Speaker 6 (31:21):
Well? I think right now they made it push for AI.
They basically talked about Apple Intelligence last year, but it
didn't stick because it hasn't resulted in selling more iPhones.
But what's very interesting is this morning there's you know,
just talk about a foldable iPhone coming perhaps next year.
So will that be the start? Because I think a
year and a half ago, two years ago, everybody thought
ultimately we're gonna have aipcs, we're gonna have AI smartphones,
(31:43):
but it hasn't really materialized. Like people are saying, well,
do I need to change my SHND?
Speaker 2 (31:47):
So who's gonna cut to the chase? No one's listening.
Compliance isn't listening, Frankly, who's gonna win?
Speaker 6 (31:53):
Who's gonna win? What the AI race right now? It's
the people that do the picks and shovels, It's Nvidia,
It's it's all the chip guys because they're making money
and they don't. There's no angle of monization. So keebo spending.
Speaker 2 (32:06):
We got to do one stock with Frankly, just to
get them in trouble. EMC is not EMC of Boston,
Good morning, ninety two nine Elite MC two two three
eight t T or whatever. Who is this tiny company
in Taiwan? I don't know.
Speaker 6 (32:20):
It's interesting this company is they make what they calls
very upstream material as the CCL lamin in and it
goes into all the high end chips. Right So what
nvideo is doing right now, this is one of the
very upstream components that sells into it. So again it's
a very niche area, but it's an important part.
Speaker 2 (32:37):
Did I do? Okay? I talk like it's just it's
just amazing how dumb I could be.
Speaker 6 (32:43):
No, I mean, it's very impressive. You know this company
is a very extreme company.
Speaker 2 (32:47):
Well, you know that's the way we rock and roll here.
I think we need to be an on Kong. I
got twenty I got thirty seconds. We're hearing Hong Kong
is beginning to amend adjust to the politics of the region.
Is you're a changed in new Hong Kong now.
Speaker 6 (33:04):
I think there's been a renewed confidence in Hong Kong
and in China in general since the beginning of the year.
I think the last two years they've been the last
couple of years, it's been a very tough time, but
it feels like they're turning the corner right. And so
you see there's a lot especially after Deep Seek, I
gave a lot of people in China confidence because they
(33:25):
now feel like, look, we have an AI solution. Right.
It may not be the best solution as us, but
it's a solution that works for us. Right.
Speaker 2 (33:32):
Shrill to have you with listeners, studios, Frankly, thank you
so much, Thank you.
Speaker 1 (33:41):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on Apple Coarclay, 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 (33:55):
So I cheated. I looked at Jordan Rochester's research. Okay,
out of Miszoo. Cheated a second time, I looked at LinkedIn.
We're at a glorious update out of LinkedIn. Okay, thank
you Miszoo for letting mister Rochester do that over the weekend.
LDP in power for seven decades, sort of out the
(34:18):
door within a goofy parliamentary system. Here to explain strong
yen in ever stronger? Yeah, I think that means week dollar.
Jordan Rochester at Missuo frame out the yen move in
a year from now, Jordan, where can the en be?
Speaker 5 (34:35):
Good morning, everybody.
Speaker 8 (34:36):
Well, look, I think Doddian's gonna be on a one
thirty five to one thirty eight handle in a year's time.
Speaker 5 (34:41):
That's sort of where we'll be trading.
Speaker 8 (34:43):
And that's predicated Tom on the Bank Japan raising rates
and that's still on track.
Speaker 2 (34:49):
Does that destabilize Japan in particularly the inflation that caused
the anger of the voters, particularly on the course staple.
Speaker 8 (34:58):
Rice should bring down goods inflation, so it should be
benefiting the Japanese consumer. In that way, it'll be dragging
on the Japanese exporter, so all harm profits. But the
difficulty for the Bank of Japan tom has been as
you've kind of mentioned there, rice inflation. Food inflation has
been one of those things that I've made the boj
wrong footed.
Speaker 5 (35:17):
For most of this year. We've had CPI prints.
Speaker 8 (35:20):
We've had about seven of them now this year, but
for four of them they've come in stronger than expected,
and that's thanks to the food inflation, sushi, rice prices
and the correlation between a stronger yen usually leads to
lower inflation for Japan.
Speaker 5 (35:33):
We haven't had that in the past six or seven months.
Speaker 4 (35:36):
So Jordan, is that the reason. I mean, I think
a lot of folks hearing that the Bank of Japan
is raising rates seems kind of out of step with
the rest of the world, where many of the central
banks are cutting rates, including potentially here the Federal Reserve
a couple of times here in the US this year.
Speaker 8 (35:52):
Yeah, Japan has completely decorated it south from the global
monetary cycle. It's quite rare, actually, It's usually all center
banks go up and down in rates in line with
whatever the Fed does.
Speaker 5 (36:02):
But Japan's had a.
Speaker 8 (36:03):
Very structural, big shift in its labor market that we
had a lot of FX depreciation in previous years that
essentially released the genie from the bottle.
Speaker 5 (36:13):
So inflation is out there.
Speaker 8 (36:14):
Inflation expectations amongst firms and households are higher than what
they are. And what Japan's long term story has been,
it's been about demographic decline and a shrinking labor force.
But what we're seeing now is demand for Japanese labor
going up. We're seeing record exports of semiconductors in Japan,
for example, But the labor force has been shrinking, and
(36:34):
so combine that together you've got stronger wage growth.
Speaker 5 (36:37):
And that's the genie that has been released from the bottle.
Speaker 2 (36:39):
What is the significance? Jordan is a student of this.
I think a Robbie Feldman over at Morgan Stanley as well. Jordan,
you are a huge student of this. What's the so
what for the United States? If we get strong yen
LDP in the parliamentary system destabilizes, what's the so what
for someone living in des Moines?
Speaker 5 (37:01):
What a great record?
Speaker 8 (37:02):
So what is one of the ones I've actually bothered
to learn in terms of what it means for Japan, Tom, what.
Speaker 2 (37:09):
Does it mean from America? From America? Stop des Moines
is in Iowa? Okay, it's not in order to showgun Okay.
What's it mean for Iowa?
Speaker 8 (37:22):
Well, it means that Japanese exports are going to become
less competitive if you have a stronger end, and it
means that the US car industry will have something of
a bit of a boon to it. You've also got
throw on top of the tariffs. Domestic production of US
cars should go up, so it should you combined, it's
it's it's what Trump wants.
Speaker 4 (37:41):
Well Jordan, for years, when nobody's talked about Japan until
just recently, isn't a little inflation or even a modern
amount of inflation isn't that good for the Japanese economy
in general?
Speaker 8 (37:53):
If you asked Governor you Wade at the Bank Japan,
he would probably say yes. But if you ask the
consumer on the street who's finding that.
Speaker 5 (38:00):
Real wages a weeker, they would disagree. So it depends
who you ask.
Speaker 8 (38:04):
But from an economic point of view, this is the
moment we've been waiting for. It's why I start climb
meetings off by saying how excited I am about Japan.
There is a structural shift hire and rates. There are
trades to do, there's money to be made, but there
are people who are struggling to put money together to
buy the groceries.
Speaker 5 (38:21):
So you have to think about who you're asking.
Speaker 2 (38:23):
Hugely valuable, Jordan Rochester, thank you so much and really
appreciate your effort on LinkedIn. Hugely informative how to fick
a macro strategy from Missuo Jordan Rochester in London and Japan.
Speaker 1 (38:36):
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 There.
Speaker 2 (38:53):
People emailed me yesterday and they said, she's got like
fourteen minutes worth of newspaper. Should we get right to it?
Speaker 6 (38:59):
Right to it?
Speaker 2 (39:00):
I think we should Lisa Manteo for the Monday newspapers.
Speaker 9 (39:02):
Okay, this is something I noticed, but I wasn't sure
if it was just me because I'm cheap or.
Speaker 2 (39:06):
Thrifty thrifty fifty fifty.
Speaker 9 (39:08):
As I like to say, Amazon is apparently quietly raising
its prices. Back in April, it said it would keep
a lid on them. So the Wall Street Journal they
looked into some e commerce data. They found that prices
rose on about twelve hundred of the cheapest household goods,
even those that are made domestically saw some increases, a
lot of them Melissa as everyday essentials few examples. So
(39:30):
this is price changes from January twentieth to about July first.
The highest price rise was one hundred and thirty six percent.
It was for this ear rinse for dogs and cats.
I don't know what that's about, but but it's a
big price increase. Using eye drops up about seventy three percent.
Even some say isn't so protein shakes twenty five percent?
(39:52):
And what small is at Walmart lowered their prices on
the same items by nearly two percent.
Speaker 2 (39:57):
So why is it tariffs? Is it they just wan
to make you know, they're trying to make more money, Like.
Speaker 9 (40:02):
The company is saying the products weren't representative of their
prices overall, so they're kind of addressing it that way.
But that's what this and that's pretty broad big.
Speaker 4 (40:15):
I mean, that's the question. I mean, to the extense
the turfs impact prices. I mean, are companies going to
take it in their margin? Are they going to pass
on to consumers? To date, it seems like they've been
taking in their margin. I guess the question for a
lot of folks is how long will that last?
Speaker 2 (40:30):
Okay? Is it quickly? There's never enough time? But Lisa,
is Amazon a cardboard box company doing other stuff? Or
is there a fancy cloud company moving boxes?
Speaker 4 (40:41):
If you're a consumer, it's the retail. If you're an investor,
it's the cloud next.
Speaker 9 (40:46):
Okay, have you heard of the gen z stare?
Speaker 2 (40:50):
This is driving me?
Speaker 3 (40:51):
Okay, let me give you an example.
Speaker 9 (40:55):
Coffee counter right, and you ask for it and they
sit there. If you're watching on YouTube and they go
and they just stare at you, it's this blank stare.
Sometimes there's long.
Speaker 2 (41:05):
House.
Speaker 9 (41:05):
It does not, but I notice it when I go
out and I see the kids behind the counter. They
say it's all the talk on social media, but they
say they talk to experts at them at about it,
and they say sometimes silence is the best way to handle.
But they say the real big thing is that these
kids grow up on screens. You know, gen Z is
what thirteen to twenty eight, So they grew up on screens.
They're used to just staring, So that could be the
(41:29):
issue behind it. But gen Z says they don't even
notice they're doing it. They're saying it's overblown, We're not
doing it, even though their parents are telling them that
they are doing it.
Speaker 2 (41:37):
I go to Jeffrey Sachs with a great book fifteen
years ago, and we're fifteen years on from his iconic
statement on kids fallen behind, and it's just been sped
up with those technology. I read an entire I read
ae hundred and fifty page book yesterday. Tiny book, not
a big deal. How many kids are reading a book
over a weekend like zero? We used to live on them.
Speaker 9 (41:59):
Yeah, My daughters has her summer reading Project Life.
Speaker 2 (42:04):
Until Brian gotta be there.
Speaker 6 (42:08):
She came home and said, Bruce, who.
Speaker 9 (42:11):
Okay, last time quickly because we touched upon it earlier.
The cancelation of the late show it's talking about with
Stephen Colbert is at the end to late night TV,
so screen time. Bloomberg Lucas's Shaw newsletter said a couple
of things. First, fewer people are watching. It's the most
watch of the three major talk shows, but it attracts
less advertising. And then he gets into the numbers. The
(42:33):
show costs about one hundred million a year to produce.
It's on pace to lose more than forty million this
year an additional fifty million next year. And the reasons
they say why people are falling off is because a
lot more people are watching the clips on YouTube or
Instagram or TikTok. They don't want to watch the whole show,
you know, short term attentions. Man, They just want the
(42:56):
nuts and bolts of it. And then trying to get
a host is hard because comedians can actually earn more
money doing those you know, those stand up shows that
they do it.
Speaker 2 (43:05):
James Kimmel's out in the Hamptons with his kids, right,
You're like, you know, we're waiting for the infie. Yeah, exactly,
Howard start, you know, hang it out. Lisa Poteo, thank
you so much for the newspaper. Did your daughter get
home from the concert? She did.
Speaker 9 (43:17):
I picked her up in the lot, the mom and
dad lot.
Speaker 2 (43:22):
Lisa Poteo, thank you so much.
Speaker 1 (43:25):
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
(43:45):
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):
This is a really exquisite hour for Global Wall Street
on Monday. Dive into some conversations. Matt Hornbach from Morgan
Stanley will be listen critically as tenure in Japan for
Morgan Stanley years ago. Helene ray you may not know
the name. Helene ray Ry is exquisite on European macro economics,
(00:51):
and again we'll look at the transatlantic picture there. But
what Paul and I wanted to do was give you
just a tone of the equity market. There's no one
better to do that. With a lengthy conversation with Lori
Kelvisena of RBC Capital Markets, Laurie I said this at
seven o one this morning. I was thunderstruck by the
repetitive not gloom, but timidity, intentiveness, tentativeness this weekend in
(01:19):
equity pundits. I mean, everybody's rationalizing a nervous market. All
this history, this history that are you that nervous?
Speaker 3 (01:31):
Hi? So thanks for having me Tom. Look, I would
say that I feel pretty neutral on the back half
of the year. And I know that everybody hates it
when equity strategists are neutral, because we're supposed to have
high conviction and come in and pound tables and those
sorts of things. But I do have some things that
are concerning me. I sat down with myself, you know,
sort of around the July fourth holiday when we were
(01:52):
sort of resetting the second half outlook, and said, you know,
how much downside do I think those things are worth
to me? And to be honest, I didn't feel like
we were doing for another growth scare or retest of
the April lows that you know, I do see some
things that I think can challenge us a little bit
in the short term, but they feel to me like
garden variety type pullbacks, which are in the five to
ten percent range and never fun, but something that you
(02:12):
can recover from.
Speaker 2 (02:13):
Well, but that's normal. We've forgotten. Paul helped me sure
corrections are normal. Yes, am I right?
Speaker 4 (02:19):
Absolutely, and I balloom this.
Speaker 2 (02:22):
Weekend was comical. We're in this, I mean, come on, Paul,
we're up annualize it. We're fourteen percent on a twelve
months solbrid basis.
Speaker 5 (02:31):
Yep.
Speaker 4 (02:31):
And look where we came from from Off that line.
Speaker 2 (02:33):
I just said, I'm lost.
Speaker 4 (02:35):
So, Laurie, I guess maybe one of the key issues
for investors these days over the next coming weeks will
be earnings. And we're very, very early into this earning cycle.
Is there any takeaways plus or minus or are we
just kind of plugging along here?
Speaker 3 (02:47):
Yeah? And look, I think it kind of circles back to,
you know, some of the comments Tom just made. Right,
So we've come off week one. There was sort of
a drizzle of early reporters that came in prior to
last week, and I think, you know, maybe this contributed
to some of that timidity or a little bit of caution.
But what I heard last week from the financial companies
in particular, was everything is fine, the consumer is resilient,
(03:10):
we're managing through we're talking to all our customers. This
is what we're hearing. But at the same time, I
was seeing words like guarded and there was definitely some
conservatism that was still going into the outlooks. And remember,
these companies are not on the forefront of tariffs for
the most part that we heard last week, but they
were still referring a lot to the uncertainty and the
policy backdropped there. So was there maybe a little bit
(03:30):
of scarring that's keeping them a little bit you know,
vigilant and on guard going forward. Absolutely, And that to
me was the biggest takeaway dumb question.
Speaker 2 (03:40):
Are FED rate cuts good for the stock market?
Speaker 3 (03:45):
I think that the market had gotten maybe a little
too optimistic in the short term about thinking the rate
cuts were coming soon. If you look at our rate
strategy team, Blake Gwenn actually pushed his call recently from
September for the first cut back into December. And as
I was talking to investors back in June time, you know,
and you know, sort running all around the country and
(04:06):
talking to people, and part of the bull thesis was
getting those rate cuts sooner rather than later. So I
think as we dial down some of the short term
implications or short term expectations for FED cuts, I think
that could cause a little bit of angst in the
market in the short term. But I do think, you know,
going back to Blake's call, he's pushed those cuts into
next year. So it does feel like they're coming. I
think if you were to take them completely off the table,
(04:28):
that would do you know, some damage. I think that
pushing back the rate cuts because of a resilient economy
and to kind of wait and see on inflation, I
think the market, you know, can absorb that without a
ton of damage, but it may create some short term
hiccuffs for a market that's come so far, so fast
in a short amount of time.
Speaker 4 (04:47):
So, Laurie, what August first is going to be another
date on this whole tariff discussion. It just feels like
the market maybe has gotten complacent about tariffs and the
risk they may present in terms of e narmer growth
or inflation. Maybe that's we're going to get refocused come
this August first deadline. How are you thinking about that?
Speaker 3 (05:06):
I think that's a great question. I'll tell you my
macro colleagues and I at RBC, you know, when we
compare notes on the tariff discussion, you know, we we're
sort of like, is anybody bringing up the deadline in
your meetings? And it's like, basically, no, is what we're
hearing across different asset classes. And I think there has
been a view, you know, when I've proactively brought it
up with investors that you know, we're seeing a lot
(05:27):
of you know, I don't want to use the word theater, right,
but I think there is an expectation that there there is,
you know, sort of an image that's going on, and
things are going to be pushed back and things are
not going to end up being that dire. You know,
where I shake out Paul as I do think that
we're going to have more tariffs than what we had
to start of the year, and I think that there
are inflationary impacts. So where I'm concerned about complacency is
(05:48):
when I have investors coming into me and saying, hey,
we got this soft CPI print, see tariffs aren't inflationary,
and I just don't think that's realistic. I think companies
have been working through a lot of inventory, and they've
been put plans into place, and you're starting to see
those gears of price increases turning. They're just turning very slowly.
But to be honest, this isn't that different from what
happened back in twenty eighteen. And if you look at
(06:10):
twenty nineteen earnings, they were flat with twenty eighteen for
the S and P so I worry that investors are
kind of saying, hey, we're not getting anything and we're
just going to get stuff later, and it's going to
actually impair the outlook for next year a bit.
Speaker 2 (06:22):
We say good morning to all of you and you
across America. Good morning on Serious Exem Channel one twenty one,
ninety nine and one FM. Nathan Ager Radio in Washington
ninety two nine FM. Huge response for Arnold's out in
East Orleans today. I just so much. It's a killer.
It's like it's like my childhood. You know, I'm looking
(06:42):
Paul August one is like this big date. I'm not
focused because I'm looking at WWE SummerSlam, the two day
combo ticket out at MetLife Stadium. The seats I deserve
are nine hundred and thirty dollars.
Speaker 4 (06:56):
Sure, that's for WLF.
Speaker 2 (06:58):
Summer Slam met Light. And you know, with Lauren Calvasina,
I'm looking at this fixation here and it's just an
excuse to get in cash. Is there any value to
cash right now? Or does Lauren Calvasina say forget about
the WWE SummerSlam, you got to be in the market.
Speaker 3 (07:18):
Well, look, I'm an equity strategist. Right, So I'm always
going to want you to be investing in stocks. You know,
that's just sort of the nature of the beast. And
we did, you know, sort of take the approach, you know,
when we've had conversations, especially I would say with newer,
younger investors this year of it's always impossible, you know,
just sort of in real time call turns in the market. So,
you know, I think clients have been sort of doubting
(07:39):
their own ability to sort of forecast some of the
noise coming out of DC and some of you know,
the drama and the headlines and say, you know, I
have sort of a reasonable expectations of where things are
going to be next year, let me just kind of
ignore the short term and position for the long term.
And I don't you know, I think it is a
little early to be looking at twenty twenty six. But
I sympathize with the impulse.
Speaker 4 (08:00):
I do small cap mid cap relative to what I
think I hear most often, which is large cap growth.
So how do you think about different market cap plays here?
Speaker 3 (08:11):
So it's a great question. I mean, if you look
at the hedge funds, they like to place small caps
on dialing up and dialing down FED expectations, and I
think we're in the moment of kind of dialing down
short term FED expectations. And these folks tend to be
short term in nature. They're not making twenty twenty six
bets yet, and so if I'm, you know, sort of
in the process of taking small caps, I think that,
you know, it's hard for me to see the short
(08:33):
term out performance pop from that perspective. I also think
that smaller cap companies have a harder time managing around
issues like tariffs. I've been reading some nine SMP transcripts
recently and I've absolutely seen that in some of the
prints that I've looked at, And I think you want
economic tailwinds back, and that's like two and a half
percent GDP and FP ramping ism, manufacturing moving up. I think,
(08:54):
you know, if I look across the street, the expectations
are for a sluggish economic growth backdrop for quite some time.
So people are trying to get bullish on small caps.
I'm really kind of scratching my head on Laurie.
Speaker 2 (09:05):
Thank you. That was brilliant. And the issue here, Lori Calvicina,
is we've been trying to get bullish in small caps
for what ten for fifteen years? I mean, it's ridiculous
on the large cap question, and you're going to say, well,
it's not something I really look at, But come on,
everybody listening is wedded to ten twenty thirty stocks. What's
(09:27):
that vision out three years?
Speaker 3 (09:30):
So look, and you know we do do work on that,
you know, we just we put our horizons a bit
broader as well. And look, I would say, if I'm
thinking very very short term, we do often see the
megacap growth stocks sort of seed their earnings leadership and
seed their performance leadership during reporting season. So what do
I mean by that, Well, you tend to see outside
(09:52):
of reporting season, the rate of upward divisions are earning
sentiment is really really strong for the top ten companies
relative to the rest of the SMP, and that tends
to down during reporting season as people actually start to
think about the other companies and then you see a
little bit more relative excitement there. So we may be
heading into something like that. Now, if I'm thinking out
you know, the next few years, I'll tell you what
(10:12):
I've been hearing on the road from investors is maybe
a more rational view of where AI is headed and
it's you know, kind of moved from instant gratification and
instant you know, sort of injecting optimism into earnings, at
least outside of those you know, top megacap names. It's
not going to be the thing that fixes you know,
things for everybody right now. But I think companies are
(10:34):
investors are realizing that companies is just going to take
them more time to get this technology right and additive
to earnings. And if you look out longer term earnings
growth forecasts are still stronger for the mag seven than
the rest of the market. They're just slowing down.
Speaker 2 (10:46):
A little, kay, But you don't do an individual stock.
There's a small company Redmond, Washington. We won't mention it,
and the bottom line is it's got a thirty eight multiple.
But the answer is out three years a Lori kelvisine
is showing out three years. You just assume they earn
their way into a denominator which makes a thirty eight multiple,
(11:08):
right now? Rational?
Speaker 3 (11:10):
Right, Well, what I'll tell you I'm seeing in my
Decktom and Tom, you and I have known each other
a long time. I am sort of like anti theme,
anti fad, like I am never you know, sort of
drinking the kool aid on the next hot thing. But
I've been calmed down a little bit on this AI
theme because when I look at the top ten megacap
names in the S and P five hundred, which are
largely AI plays, and I do a median PE of
(11:32):
those companies, and I compare it to the long term
growth expectations, and I take those two things right, and
I look at MAG seven versus rest of the S
and P. The relative PE line is the same line
as the relative long term earnings growth line, so they're
getting different multiples, but it's based on the differing perceptions
of what the long term earnings growth rates are. And
(11:53):
that's been very similar to what we tend to see
over time. I think there was a breakdown in that
relationship around the GFC briefly, but this is even how
stocks behaved back in the nineties and early two thousands.
So I think you've really got to tackle those long
term earnings growth expectations. And you've either got to just
like bang down the MAG seven trade and say their
numbers are way too optimistic, or you've got to look
(12:14):
at the rest of the market and say it's way
too pessimistic and move those up and we're just not
seeing any change in that relative gap, so they're kind
of each getting the relative pe they deserve.
Speaker 2 (12:24):
That's the key issue, Paul, is we haven't seen a
change in the zeitgeist. Everybody's publishing and all that opinions
in that, but it's still the way it is. Paul,
get one more in here with.
Speaker 4 (12:34):
LORI evaluation here, Laurie, how do you kind of break
that down for your clients here? Just of the market
in general?
Speaker 3 (12:41):
So look small caps, you know, had hit recession lows
on April eighth, and they're now back to average, so
they're fine, but they're not super cheap the way they
were S and P. If I look at a market
cap weighted multiple, never got cheap, did work its way
down from peak, and no, it's right back up to peak.
If I look at rest of S and P and
just do an equal weighted multiple over there, think we're
trade around eighteen times. It had been down around sixteen. Again,
(13:03):
never got to average, but it's not quite back to peak.
So I feel like in the short term there's a
little bit of a catch up tray that the rest
of the market needs to do relative to the mag
seven you can watch that Russell pe really closely, because
what it did this past time was peak out around
the twenty sixteen through twenty eighteen highs. We're way far
off from that yet, so maybe that's an uber bowl argument.
But I see different valuations in different parts of the market,
(13:25):
and the capwaight at SMP is getting worrisome again.
Speaker 2 (13:27):
Laurie, thank you so much. Lori kelviseen a terrific brief there,
RBC Capital Markets. What we'd like to do on a Monday,
Folks's iniquities, Bond's currencies and commodities.
Speaker 1 (13:42):
You're listening to the Bloomberg Surveillance Podcast. Catch us live
weekday afternoons from seven to ten am Eastern. Listen on
Apple Karplay and Android Auto with the Bloomberg Business app,
or watch us live on YouTube.
Speaker 2 (13:55):
Just one of the things you're doing here mid July
into a July thirty FED meeting or any is coming
out stillantis can? I isn't stillantis Chrysler, Yes, but it's
a combo like yeah, I think Fiat Renault Poojit like
I don't know what's in there.
Speaker 6 (14:11):
I don't know.
Speaker 2 (14:12):
Bob Michael's looking at me like Tom you're butchering the pronunciations.
We started with Troy Guyski in Deborah Cunningham and now
Bob Michael with JP Morgan here, and my great theme
is over the weekend, just lots of be careful, lot
of worry and caution and all that. I looked at
a famous blended bond market fun not JP Morgan, and
(14:34):
I think year to date, if I make it an
annualized statistic, is a six and a half percent return
in the bond market. Things aren't that bad, are they.
Speaker 6 (14:44):
They're not.
Speaker 7 (14:45):
There's a phenomenal resilience to both the US economy and
US markets or bond markets globally. To be honest, if
you look at some of the things that have gone
on this year, none of them are good for the
bond market. You've got tariffs that means higher prices, higher inflation.
You've got the one big beautiful Bill Act that means
(15:06):
a lot more spending, which supports higher prices. Each of
those two are north of three trillion dollars. Then you
have the sell American noise out there constantly that should
be putting pressure on US bonds. And then there's talk
of global issuance in bonds going through the roof. You're
seeing some of that that should put pressure on bond
(15:28):
But through all of that, here we are with the
ten year treasury flat to the Fed funds rate where
it's been for most of the year. You're grabbing the coupon,
you're getting the coupon, and as long as there's no
recession on the horizon, you're buying credit and picking up
the incremental yield.
Speaker 4 (15:47):
Where do you see value in credit these days? Because
again it looks to me, I'm just looking at the
end go function, the Bloomberg terminal. The best performance has
been US corporate high yield.
Speaker 7 (15:58):
It has been and we've always said, in any backup
in high yield, you buy it unless you think you're
going into recession. Then by definition that's when you worry.
That's when you get out because there will be de risking,
that's when corporate profitability drops. And everyone's worried about the
(16:18):
false rising. But the reality is there's a ton of
money on the sidelines looking to get into the bond market.
Both institutional and retail investors feel under allocated to fixed income.
Speaker 2 (16:32):
Can I ask a rude question? First? One a Monday
Room question at JP market. How much is a ton
of money? Like if somebody shows up, is it like
one hundred million? Ah? You know what's the measurement of
a ton of money?
Speaker 7 (16:46):
Bigger than a couple bushels?
Speaker 4 (16:49):
So why are they underinvested market? Because for the first
time in fifteen years we can actually get total coupon
return here.
Speaker 3 (16:57):
Why are they under.
Speaker 7 (16:58):
Yeah, that's as you just said it, the first time
in fifteen years. It was the fifteen years before that
the zero and negative interest rate policy. People looked at
bonds and said, eh, not going to do it, and
either left money in cash or went into alternatives. Now
they feel overallocated to alternatives, under allocated to bonds and.
Speaker 2 (17:18):
Our global Wall Street question of the day adding in
your intern slash junior analysts whatever they're calling them, a
JP Morgan summer analysts, summer analysts. How many people are
under Bob Michael just twenty thousand, four hundred, four hundred,
four hundred is how many of those people have never
(17:39):
really seen a coupon market? How many of this is
all new? Out of four hundred? Seriously, is this all new?
Speaker 7 (17:47):
Now? You're you're right, the majority of people in our
business have been in the industry post Great Financial Crisis,
so central bank intervention di stortion of bond markets looks normal.
Whereas we as a franchise the broader JP Morgan Chase Field,
we are going back to a world that existed pre
(18:10):
financial crisis.
Speaker 2 (18:11):
When Russia blew up. I went back and read the
history of JP. Morgan in Russia in nineteen oh seven.
Speaker 4 (18:17):
That's how far back we go, exactly right, what a history?
So our Federal Reserve? How are you parsing through the
noise and so on about leadership at the FED as
and then getting down to where policy may shake out
for the FED?
Speaker 7 (18:32):
Well, I do believe that the FED members the FOMC
do come in every day, look at data and try
to make the best possible decisions. So they understand the
importance of their role. They understand the judgment that history
will make. They get all of that. They're in a
(18:56):
difficult position because they know prices will go up once
the full strength of tariffs hits, and maybe even this
quarter there will be more passed through from corporate America.
They also feel that it could slow down growth, that
if there are higher prices, businesses and households will probably
(19:16):
spend a bit less, So why not just hold rates
where they are for now and see some of these
impacts in the real data. I think that's the right
thing to do. And as we start out with, markets
are doing great, the economy is doing it fine.
Speaker 2 (19:32):
And pomportant to zeitgeist this weekend, mister Bessan, sitting on
the couch in the Oval office, Yes, suggested to the
president slow things down.
Speaker 4 (19:39):
Yep, exactly. I'm looking through your notes here, Bob. One
of the things that jumped out of me is local
emerging market.
Speaker 6 (19:44):
That tell us about that.
Speaker 4 (19:45):
How do you think about emerging markets today?
Speaker 6 (19:48):
Local?
Speaker 7 (19:49):
Well, Emerging markets in general have been overlooked for the
last seven or eight years, and when we look at
flows into different assets classes, they've gone into equity, some
have trickled into different parts of the bond market, but
with shocking consistency, there have been outflows from emerging market
(20:11):
equities and emerging market debts. So they've been orphaned, yet
they've done well. And this tells you that there's greater
support in emerging market debt than crossover buyers. Investors like
me who run global aggregate funds and look at emerging
markets as an ow to benchmark bet When we look
(20:31):
at the emerging markets, they have very high real yields
to them. They've got central banks who are as efficient
as any central bank in managing policy for growth and inflation,
and they also have the benefit of very strong domestic support.
Speaker 6 (20:50):
There are wealth.
Speaker 7 (20:50):
Management platforms, pension funds, and insurance companies that go in
and support the local markets. We can get higher real yields.
I can put together a portfolio of South America and
Europe and parts of Asia that will yield close to
eight percent.
Speaker 2 (21:07):
All eight percent, phenomenal. Yeah, And what's the real yield
off that get out over three percent?
Speaker 7 (21:12):
Oh yeah, it's going to be close to four percent.
Speaker 2 (21:15):
What's what's a tension point on the ten year US
real yield? One point ninety three one point ninety four
this morning, by my measurement, is that like not four
percent obviously, but like two point five percent? Our world changes.
Speaker 7 (21:29):
Yeah, it's amazing the amount of disinflation and deflation we
had pre COVID, the amount of inflation we had during COVID.
Speaker 2 (21:41):
And now we're going the other way.
Speaker 7 (21:42):
Yeah, And how break evens somehow always hovered between two
and two and a half percent above two and a
half percent would weary men.
Speaker 2 (21:50):
The late Great Stanley Fisher told me the day Paul
Samuelson threw the chalk in the room and almost bounced
it off his head. When you're lecturing the cherubs at
JP Morgan on the real yield, have you ever thrown
the chuck when they say it doesn't matter?
Speaker 6 (22:07):
You know?
Speaker 2 (22:07):
Have you ever gotten upset in a lecture on the
inflation ajusting yield is a residual?
Speaker 7 (22:14):
You know. I hear a lot of things that make
me upset, but I've been in the markets for a
long time. You just absorb it and move on.
Speaker 2 (22:23):
I can't say enough, folks at Wisdom, they're nominal GDP
and real GDP dynamics in nominal yield, the current yield,
the one we all know is in the real yield
is the residual after you take out inflation and those dynamics.
You have to tattoo to your brain and massage every
(22:44):
single day of your career to keep up with people
like Bob Michael.
Speaker 6 (22:49):
Not Michael.
Speaker 2 (22:49):
Thank you so much for JP Morgan.
Speaker 1 (22:51):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on Apple Coarclay 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.
Speaker 2 (23:08):
There's a point in Hong Kong, and it's confusing. There's
two mandarins. There's the old bandarin and there used to
be an mbire and something new with it, and there's
a new mandarin if you go over by the old mandarin.
Across from the charming little trolley car is the fortress
of the Hong Kong Shanghai Bank in Corporation. And as
(23:29):
you can imagine, HSBC, Yes, out of London, but so
much out of Hong Kong is absolutely definitive on all
the stuff that makes it go. Driving that in our
guest in studio here in New York today is one
of the most important voices in semiconductor out of Wharton
Frankly joined us with HSBC. This morning. You're given a
(23:53):
lecture in America on the Pacific rim semiconductor market. What's
the first thing you talk about.
Speaker 6 (24:02):
I think when you think about semiconductors, it's that the
dominance of where Asia is, especially where Taiwan is in
terms of how dominant TESMC is. I think people often
now are starting to recognize how important that supply chain
is right now.
Speaker 2 (24:16):
I mean, I look at tay I learned this Taiwan
is seventy percent of Taiwan is seventy percent owned by
the foreign you know people that INTERSBC represents in that
Would that change at all within the geopolitics? Do we
just still see a dominance of international investment in Pacific
RIM semiconductor and technology.
Speaker 6 (24:37):
Yeah, I mean, I mean TSMC is seventy five percent
owned by foreigners, foreign investors. But also I think this
past year does a lot of changes because they're now
spending more money and production in the US. So they've
talked about thirty percent of their most advanced two nanometer
production will be in the US over the next few years.
(24:57):
So I think this investment process is been surprising, frankly
to most of us in terms of how quickly it's
moving in the pace.
Speaker 4 (25:04):
So how do you and your clients think about global
trade tensions? Uh, teriffs, just the instability it seems like
in global trade because your business is semiconductor business, that
the technology business is truly a global business. Global supply
change everywhere. How do you guys account for that?
Speaker 6 (25:24):
I think like most industries, you know, everyone's dealing with
the uncertainty around tariffs. But I think what's different is
the the importance of semiconductors right now in the global economy,
especially with AI, right it is is such an important
engine of all the AI and infrastructure investment. So I
think there is going to be you know, there there
will be ongoing uncertainty when it comes to tarifs, but
(25:46):
I think the market has started to shrug this off,
right And I think you know, especially you know, if
you talk about AI infrastructure, you know a lot of
it is you know, it's been driven by enterprise. So
this the tariff impact is not going to be as
significant because I think if you talked about consumer, they
will become a bigger impact because you're going to consumer
is going to feel that immediate impact of terrorists.
Speaker 2 (26:06):
On a thermodynamic basis, where does the energy come from
out five years, ten years to just appease your industry?
I mean, where do you have a worry, like a
lot of other people that the electricity just won't show
up to make all this stuff go.
Speaker 6 (26:24):
I think it is an issue that people talk about,
but we haven't really seen that really materialize yet. I
do think the infrastructure build will continue. I think everybody
recognizes the importance of AI right now and why it's
so important to invest it in. You know, for example,
if you look at Sovereign AI right now in the
announcements earlier in the year about you know, Saudi Arabia
(26:46):
going to invest this huge amount of deness. But there's
also the question are they ready yet because they need
to build the infrastructure in terms of the energy. But
I think it will eventually. I think it'll go hand
in hand.
Speaker 2 (26:55):
A year ago, my book of the year two years
trailing was Chris Miller's Chip War to me is an
ignorant one was just fabulous and Morris Chang was front
and center through that, the eminence of Taiwan's semiconductor. Who's
the next Morris Chain? Did they just BCC's on the
Pacific rim?
Speaker 6 (27:14):
I think you're going to start to see some sort
of right now in China. What you're starting to see
is that they are basically creating their own infrastructure, their
own ecosystem, right So you're basically developing almost two sets
of two sets of systems one for China and one
for outside of China. Now in China, right now, I
(27:34):
think if you look at the foundry business, this SMC
is probably going to be the national champion in China,
but there will be a lag in terms.
Speaker 2 (27:43):
Of will they have the sophistication of nanos or are
they more like a micron just crank out the chips.
Speaker 6 (27:49):
They are doing foundry, which is similar to tastem see,
but there will be many generations behind. But what I
think the Chinese industry has managed to do is to
become to manage to be much more effective in terms
of producing without having to spend as much money. They
will not quite be at the equal footing, but they
can make some inroads.
Speaker 2 (28:08):
We said good evening to all of you across a
specific RAM and good morning on your commute across America.
Frank Lee does he's with HSBC on chips, Paul, Frank,
where are we?
Speaker 4 (28:19):
I mean a lot of folks like myself this AI
think we're trying to get our heads around AI. A
lot of folks are telling us, hey, man, think in
the scale of the Internet. Think in this is the
scale of like electricity. Where are we in that evolution
of AI. Where do you think we are in that
game here? How earlier, how late?
Speaker 6 (28:39):
I think no one really knows the answer to that.
But we do know that these companies, these massive hyperscalers,
the way they're investing is unprecedent, and it's the first
two years of the AI story was really just these hyperscalers,
this four or five companies investing. There was always this
question about, well, can they actually make money? Can he
monetize that question? And it's still being somewhat unanswered today.
(29:03):
But it's clear that the spending needs to continue. But
it's not just these hyperscalers. Now it's cleared out the enterprise,
you know, and and even sovereigns are now looking at this.
Speaker 4 (29:13):
You know, we think about we were talking about China,
and it's become more and more apparent. I think over
the last three, four, five, six years that there's this
tech cold war between China and maybe the rest of
the world. A is that is that accurate? And B
is that problematic? I mean for just tech development. I mean,
(29:34):
if you can't sell into China or your limited way
you can sell into China, if that maybe we don't
get some of the China tech coming out of China.
How do you think about that?
Speaker 6 (29:42):
Yeah, it's a very complex one because you do see,
you know, the latest change for the end video chip.
They were banned earlier in the year and now they're
actually allowed to sell in. So it shows you I
think there's a lot of there's still a lot of unknowns,
and I think both signs are still working in terms
of trying to figure out what's the right balance. And
(30:03):
then if you look at what China has done really
well is the EV I mean the EV industry they
have and they pulled their own semic counter industry with
it because a lot of the chips that go in
through the Chinese evs are now being produced by Chinese companies.
Speaker 2 (30:16):
But those are basic chips, right.
Speaker 6 (30:18):
They're not as advanced, right, They're not as advanced as
you know, the Nvidio chipper goes into AI me.
Speaker 2 (30:25):
I know, Nicholas cout callos and covers Apple for you.
I don't want you to give me a bihold cell
an Apple. But do you just assume that the technology,
the nanowness of Apple and others like Apple just continues
that we continue to see technological innovation down to minimum nanos.
Speaker 6 (30:44):
Well, I think if you attend to the minus nuts,
oh oh bullieve yeah. I think if you look at
particularly economy like Apple, right, one of the challenges that
you see they are facing is their AI angle is
not very right now because it's very much driven by
consumer and iPhone right. So this is ultimately the problem
(31:05):
today is that the AI investment is on infrastruture.
Speaker 2 (31:09):
Okay, I got to get you in trouble here so
you can't go home. We're you gonna stay here and
be with us once a week. Frankly, Apple's just got
to do an agreement with somebody who's very AI. Right,
Why do they have to do their own AI?
Speaker 6 (31:21):
Well? I think right now they made it push for AI.
They basically talked about Apple Intelligence last year, but it
didn't stick because it hasn't resulted in selling more iPhones.
But what's very interesting is this morning there's you know,
just talk about a foldable iPhone coming perhaps next year.
So will that be the start? Because I think a
year and a half ago, two years ago, everybody thought
ultimately we're gonna have aipcs, we're gonna have AI smartphones,
(31:43):
but it hasn't really materialized. Like people are saying, well,
do I need to change my SHND?
Speaker 2 (31:47):
So who's gonna cut to the chase? No one's listening.
Compliance isn't listening, Frankly, who's gonna win?
Speaker 6 (31:53):
Who's gonna win? What the AI race right now? It's
the people that do the picks and shovels, It's Nvidia,
It's it's all the chip guys because they're making money
and they don't. There's no angle of monization. So keebo spending.
Speaker 2 (32:06):
We got to do one stock with Frankly, just to
get them in trouble. EMC is not EMC of Boston,
Good morning, ninety two nine Elite MC two two three
eight t T or whatever. Who is this tiny company
in Taiwan? I don't know.
Speaker 6 (32:20):
It's interesting this company is they make what they calls
very upstream material as the CCL lamin in and it
goes into all the high end chips. Right So what
nvideo is doing right now, this is one of the
very upstream components that sells into it. So again it's
a very niche area, but it's an important part.
Speaker 2 (32:37):
Did I do? Okay? I talk like it's just it's
just amazing how dumb I could be.
Speaker 6 (32:43):
No, I mean, it's very impressive. You know this company
is a very extreme company.
Speaker 2 (32:47):
Well, you know that's the way we rock and roll here.
I think we need to be an on Kong. I
got twenty I got thirty seconds. We're hearing Hong Kong
is beginning to amend adjust to the politics of the region.
Is you're a changed in new Hong Kong now.
Speaker 6 (33:04):
I think there's been a renewed confidence in Hong Kong
and in China in general since the beginning of the year.
I think the last two years they've been the last
couple of years, it's been a very tough time, but
it feels like they're turning the corner right. And so
you see there's a lot especially after Deep Seek, I
gave a lot of people in China confidence because they
(33:25):
now feel like, look, we have an AI solution. Right.
It may not be the best solution as us, but
it's a solution that works for us. Right.
Speaker 2 (33:32):
Shrill to have you with listeners, studios, Frankly, thank you
so much, Thank you.
Speaker 1 (33:41):
This is the Bloomberg Surveillance Podcast. Listen live each weekday
starting at seven am Eastern on Apple Coarclay, 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 (33:55):
So I cheated. I looked at Jordan Rochester's research. Okay,
out of Miszoo. Cheated a second time, I looked at LinkedIn.
We're at a glorious update out of LinkedIn. Okay, thank
you Miszoo for letting mister Rochester do that over the weekend.
LDP in power for seven decades, sort of out the
(34:18):
door within a goofy parliamentary system. Here to explain strong
yen in ever stronger? Yeah, I think that means week dollar.
Jordan Rochester at Missuo frame out the yen move in
a year from now, Jordan, where can the en be?
Speaker 5 (34:35):
Good morning, everybody.
Speaker 8 (34:36):
Well, look, I think Doddian's gonna be on a one
thirty five to one thirty eight handle in a year's time.
Speaker 5 (34:41):
That's sort of where we'll be trading.
Speaker 8 (34:43):
And that's predicated Tom on the Bank Japan raising rates
and that's still on track.
Speaker 2 (34:49):
Does that destabilize Japan in particularly the inflation that caused
the anger of the voters, particularly on the course staple.
Speaker 8 (34:58):
Rice should bring down goods inflation, so it should be
benefiting the Japanese consumer. In that way, it'll be dragging
on the Japanese exporter, so all harm profits. But the
difficulty for the Bank of Japan tom has been as
you've kind of mentioned there, rice inflation. Food inflation has
been one of those things that I've made the boj
wrong footed.
Speaker 5 (35:17):
For most of this year. We've had CPI prints.
Speaker 8 (35:20):
We've had about seven of them now this year, but
for four of them they've come in stronger than expected,
and that's thanks to the food inflation, sushi, rice prices
and the correlation between a stronger yen usually leads to
lower inflation for Japan.
Speaker 5 (35:33):
We haven't had that in the past six or seven months.
Speaker 4 (35:36):
So Jordan, is that the reason. I mean, I think
a lot of folks hearing that the Bank of Japan
is raising rates seems kind of out of step with
the rest of the world, where many of the central
banks are cutting rates, including potentially here the Federal Reserve
a couple of times here in the US this year.
Speaker 8 (35:52):
Yeah, Japan has completely decorated it south from the global
monetary cycle. It's quite rare, actually, It's usually all center
banks go up and down in rates in line with
whatever the Fed does.
Speaker 5 (36:02):
But Japan's had a.
Speaker 8 (36:03):
Very structural, big shift in its labor market that we
had a lot of FX depreciation in previous years that
essentially released the genie from the bottle.
Speaker 5 (36:13):
So inflation is out there.
Speaker 8 (36:14):
Inflation expectations amongst firms and households are higher than what
they are. And what Japan's long term story has been,
it's been about demographic decline and a shrinking labor force.
But what we're seeing now is demand for Japanese labor
going up. We're seeing record exports of semiconductors in Japan,
for example, But the labor force has been shrinking, and
(36:34):
so combine that together you've got stronger wage growth.
Speaker 5 (36:37):
And that's the genie that has been released from the bottle.
Speaker 2 (36:39):
What is the significance? Jordan is a student of this.
I think a Robbie Feldman over at Morgan Stanley as well. Jordan,
you are a huge student of this. What's the so
what for the United States? If we get strong yen
LDP in the parliamentary system destabilizes, what's the so what
for someone living in des Moines?
Speaker 5 (37:01):
What a great record?
Speaker 8 (37:02):
So what is one of the ones I've actually bothered
to learn in terms of what it means for Japan, Tom, what.
Speaker 2 (37:09):
Does it mean from America? From America? Stop des Moines
is in Iowa? Okay, it's not in order to showgun Okay.
What's it mean for Iowa?
Speaker 8 (37:22):
Well, it means that Japanese exports are going to become
less competitive if you have a stronger end, and it
means that the US car industry will have something of
a bit of a boon to it. You've also got
throw on top of the tariffs. Domestic production of US
cars should go up, so it should you combined, it's
it's it's what Trump wants.
Speaker 4 (37:41):
Well Jordan, for years, when nobody's talked about Japan until
just recently, isn't a little inflation or even a modern
amount of inflation isn't that good for the Japanese economy
in general?
Speaker 8 (37:53):
If you asked Governor you Wade at the Bank Japan,
he would probably say yes. But if you ask the
consumer on the street who's finding that.
Speaker 5 (38:00):
Real wages a weeker, they would disagree. So it depends
who you ask.
Speaker 8 (38:04):
But from an economic point of view, this is the
moment we've been waiting for. It's why I start climb
meetings off by saying how excited I am about Japan.
There is a structural shift hire and rates. There are
trades to do, there's money to be made, but there
are people who are struggling to put money together to
buy the groceries.
Speaker 5 (38:21):
So you have to think about who you're asking.
Speaker 2 (38:23):
Hugely valuable, Jordan Rochester, thank you so much and really
appreciate your effort on LinkedIn. Hugely informative how to fick
a macro strategy from Missuo Jordan Rochester in London and Japan.
Speaker 1 (38:36):
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 There.
Speaker 2 (38:53):
People emailed me yesterday and they said, she's got like
fourteen minutes worth of newspaper. Should we get right to it?
Speaker 6 (38:59):
Right to it?
Speaker 2 (39:00):
I think we should Lisa Manteo for the Monday newspapers.
Speaker 9 (39:02):
Okay, this is something I noticed, but I wasn't sure
if it was just me because I'm cheap or.
Speaker 2 (39:06):
Thrifty thrifty fifty fifty.
Speaker 9 (39:08):
As I like to say, Amazon is apparently quietly raising
its prices. Back in April, it said it would keep
a lid on them. So the Wall Street Journal they
looked into some e commerce data. They found that prices
rose on about twelve hundred of the cheapest household goods,
even those that are made domestically saw some increases, a
lot of them Melissa as everyday essentials few examples. So
(39:30):
this is price changes from January twentieth to about July first.
The highest price rise was one hundred and thirty six percent.
It was for this ear rinse for dogs and cats.
I don't know what that's about, but but it's a
big price increase. Using eye drops up about seventy three percent.
Even some say isn't so protein shakes twenty five percent?
(39:52):
And what small is at Walmart lowered their prices on
the same items by nearly two percent.
Speaker 2 (39:57):
So why is it tariffs? Is it they just wan
to make you know, they're trying to make more money, Like.
Speaker 9 (40:02):
The company is saying the products weren't representative of their
prices overall, so they're kind of addressing it that way.
But that's what this and that's pretty broad big.
Speaker 4 (40:15):
I mean, that's the question. I mean, to the extense
the turfs impact prices. I mean, are companies going to
take it in their margin? Are they going to pass
on to consumers? To date, it seems like they've been
taking in their margin. I guess the question for a
lot of folks is how long will that last?
Speaker 2 (40:30):
Okay? Is it quickly? There's never enough time? But Lisa,
is Amazon a cardboard box company doing other stuff? Or
is there a fancy cloud company moving boxes?
Speaker 4 (40:41):
If you're a consumer, it's the retail. If you're an investor,
it's the cloud next.
Speaker 9 (40:46):
Okay, have you heard of the gen z stare?
Speaker 2 (40:50):
This is driving me?
Speaker 3 (40:51):
Okay, let me give you an example.
Speaker 9 (40:55):
Coffee counter right, and you ask for it and they
sit there. If you're watching on YouTube and they go
and they just stare at you, it's this blank stare.
Sometimes there's long.
Speaker 2 (41:05):
House.
Speaker 9 (41:05):
It does not, but I notice it when I go
out and I see the kids behind the counter. They
say it's all the talk on social media, but they
say they talk to experts at them at about it,
and they say sometimes silence is the best way to handle.
But they say the real big thing is that these
kids grow up on screens. You know, gen Z is
what thirteen to twenty eight, So they grew up on screens.
They're used to just staring, So that could be the
(41:29):
issue behind it. But gen Z says they don't even
notice they're doing it. They're saying it's overblown, We're not
doing it, even though their parents are telling them that
they are doing it.
Speaker 2 (41:37):
I go to Jeffrey Sachs with a great book fifteen
years ago, and we're fifteen years on from his iconic
statement on kids fallen behind, and it's just been sped
up with those technology. I read an entire I read
ae hundred and fifty page book yesterday. Tiny book, not
a big deal. How many kids are reading a book
over a weekend like zero? We used to live on them.
Speaker 9 (41:59):
Yeah, My daughters has her summer reading Project Life.
Speaker 2 (42:04):
Until Brian gotta be there.
Speaker 6 (42:08):
She came home and said, Bruce, who.
Speaker 9 (42:11):
Okay, last time quickly because we touched upon it earlier.
The cancelation of the late show it's talking about with
Stephen Colbert is at the end to late night TV,
so screen time. Bloomberg Lucas's Shaw newsletter said a couple
of things. First, fewer people are watching. It's the most
watch of the three major talk shows, but it attracts
less advertising. And then he gets into the numbers. The
(42:33):
show costs about one hundred million a year to produce.
It's on pace to lose more than forty million this
year an additional fifty million next year. And the reasons
they say why people are falling off is because a
lot more people are watching the clips on YouTube or
Instagram or TikTok. They don't want to watch the whole show,
you know, short term attentions. Man, They just want the
(42:56):
nuts and bolts of it. And then trying to get
a host is hard because comedians can actually earn more
money doing those you know, those stand up shows that
they do it.
Speaker 2 (43:05):
James Kimmel's out in the Hamptons with his kids, right,
You're like, you know, we're waiting for the infie. Yeah, exactly,
Howard start, you know, hang it out. Lisa Poteo, thank
you so much for the newspaper. Did your daughter get
home from the concert? She did.
Speaker 9 (43:17):
I picked her up in the lot, the mom and
dad lot.
Speaker 2 (43:22):
Lisa Poteo, thank you so much.
Speaker 1 (43:25):
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
(43:45):
and always on the Bloomberg terminal
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