บทถอดความฉบับเต็มของ Stocks, Bonds Fall as CPI Data Fuel Fed-Hike Bets

of everything else, you know. 00:05:37 Speaker 4: So. 00:05:38 Speaker 3: I don't think the FOMC is going to pay heat to him saying we can go 50. 00:05:41 Speaker 4: Okay, but the heart of the matter to everyone listening, both Global Wall Street, the clients of Phil Newhart, and even Damien Sassauer, is this phrase of Thatcher, expect the unexpected. Are you and Barclay's research quoted worldwide on this, and particularly the hyperscaler debt issuance, are you expecting the unexpected, or are we living with a predictable, guessable milieu right now? 00:06:08 Speaker 3: I think for monetary policy, we are living with something predictable. There are entire client conversations, 45-minute long meetings, where I don't mention the words Kevin Walsh once. And the reason is because what happens with the AI CapEx cycle, which is where the unexpected comes in, matters enormously more than traditional macro. So it depends on what you ask. 00:06:29 Speaker 2: Well, Phil, let me pivot to you here because I go back to that SoftBank $ 11. 1 billion high-yield bond raise just a few months back. And now I'm seeing this wasn't them writing down data centers like actual collateral. They were writing down $ 3. 7 billion in non-refundable advanced payments. for data set. I mean, that's almost like they just burnt money, right? I mean, talk to us about what this means for the AI trade. 00:06:56 Speaker 4: Yes. 00:06:56 Speaker 5: If we look at fixed income, first, the point of higher yields, we see an opportunity in terms of balanced portfolios. We are reminding clients that fixed income is a viable asset class. You have an aggregate bond yielding this morning at 5.2%. So there's opportunity. Sector-specific, when you look at our fixed income strategies, We've really avoided the hyperscalers. We're just not comfortable there. We are emphasizing sectors like energy and financial. So we're fully invested, investment-grade credit. We do not play in high yield. But we've been pretty cautious around the hyperscalers, to your point, Damian. 00:07:28 Speaker 2: Well, look, I mean, do you see, I mean, look, I mean, Ajay, let me shift to you here. We've just seen an emerging market sovereigns, right? We've seen a lot of high yield issuance hit the market, Pakistan, Egypt, Turkey, Colombia. You know, do you see the risk rising of crowding out into other areas of the U.S. dollar pay fixed income market? 00:07:44 Speaker 6: Yeah, there's no question. So just to put some numbers out there, Damian. 00:07:48 Speaker 3: In 10-year equivalence in duration, the US private sector will have to absorb about $ 1. 6 to $ 1. 7 trillion in treasuries and IG, including the hyperscalers this year. Next year, that number goes up to about $ 1. 9 trillion. The problem is the amount of treasury duration that the market has to absorb goes down because the buybacks kick in full scale next year. So the amount of hyperscaler issuance is exploding. It's going up by a factor of at least one and a half next year. 00:08:17 Speaker 4: We say good morning to all of you across America, particularly to Global Wall Street. We've got some great conversations coming up. Phil North, thank you so much for joining us for First Citizens today. A busy, busy morning, the Texas Press Conference, and then futures coming down a little bit. NASDAQ off 1.1% right now. In the yield market, AJ Rajadaksh has aged here with a higher 12 basis point two-year yield as well. I want you to discuss... away from your full faith and credit analysis, what it means for the off-balance sheet hyperscaler shenanigans. I've got Barclays. I've got Amanda over at Goldman Sachs, Morganson, and others. You guys are thinking as hard as you can about this. What is the risk of to our viewers and listeners of this off-balance sheet, this is my own word, Damien, shenanigans. What's the risk? 00:09:15 Speaker 3: The risk is, and I don't think, Tom, this is a risk for 2027, but the risk eventually is of massive overbuilding. on the compute side, because each individual hyperscaler thinks they're making rational decisions, but because so much of it starts to go off balance sheet, they're not aware of what the others are doing. And eventually, I don't think this is 27, but you end up with, you know, an oversupply of compute, you know, that overwhelms demand. And then problems start. I mean, big problems. Again, Satya is out there. You've seen that, right? Satya is out there talking to everyone, saying, we're not going to repeat 1873 because we are watching the history of that. 00:09:55 Speaker 4: These off balance sheet things make me. So blend your fixed income world into a quant world. What are the dynamics you see right now? Almost the quantitative drift day to day of all this fancy paper. Is there something unique that you see in the Greek letters here that signal what could come? 00:10:15 Speaker 3: I think what we see most is that despite all the noise and hand-wringing about the extent of fiscal profiles worsening across the West, the vast majority of the reason why bond yields are higher this year is simply because the economy was stronger than expected. Boom economy. 00:10:34 Speaker 4: Boom economy. 00:10:35 Speaker 3: And the inflation was stickier than expected. But term premia associated with you and I worrying about U.S. fiscal solvability is not remotely reflected in the 10-year right now. 00:10:50 Speaker 8: Stay with us. More from Bloomberg Surveillance coming up after this. 00:11:01 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube. 00:11:14 Speaker 4: Right now, we're going to get back to where your inflation is. We start strong with Tiffany Wilding. Obviously, economists at PIMCO driving all of their perspective. If I just go on to Google or whatever, Tiffany, and I look at this joke that we're

modeling a 2% target for whatever inflation is, you know, depending on how I look at it, I'm back five and a half years. When do we throw in the towel and get away from a 2%, 2.0% ridiculousness? 00:11:52 Speaker 7: Yeah, well, clearly the Fed has missed their inflation target for, I think, a more prolonged period than they're clearly comfortable with right now. You know, and ultimately, I think that's why you're seeing Chris Waller come out before the CPI report, you know, basically warning that if it's strong, that, you know, 50 basis point hike in December is on the table for discussion. You know, and when we look at the underlying details of this report, It does look like we are seeing a broadening out of inflation. Now, we think that it's related to passing through of higher energy costs, diesel, shipping costs, and things like that. If you look across core goods prices, they were just unanimously strong. But also on the services side, public transportation outside of airfares, you're seeing broadening out of increases there to offset higher energy costs there. But then more generally, services, ex-shelter, recreation services and things like that, they're also accelerating. So, you know, this is one of those prints that, you know, is incredibly disappointing for a central bank that wants to make sure that, you know, what should be price level adjustments are not broadening out into more inflationary pressures. 00:13:03 Speaker 4: Damien Sessar, what Tiffany Wilding just described is how I feel at home. 00:13:09 Speaker 8: That's symbolic. 00:13:11 Speaker 2: Well, look, I mean, Tiffany, you know, look, you rightly did point out Chris Waller's comments earlier this morning, but this is just the tip of the iceberg this week. Now, I mean, we see a lot of Fed speak coming through. Can any Fed governor outgov what Waller just said this morning? 00:13:27 Speaker 7: Well, I think what we're looking for now is that you have some consistency across the language of other Federal Reserve officials. So it does seem like as you've had Chair Warsh that has stepped back from any kind of guidance, whether it be framework or forward or what have you, that Christopher Waller has sort of stepped in and provided a bit of a guiding light on what the central bank may do. And it does seem like after he speaks, there is more of a thematic effort from others to sort of echo and emphasize, you know, what he has said. So I think what we're going to be looking for is other central bank officials and how they're viewing this report. You know, clearly 50 basis points is on the table. You know, now what I would say here as well is, you know, when we look across the inflation data and the broader economy, we don't think the Federal Reserve is sort of behind the curve like what it looked like in 2022. Now, of course, you know, that early on, you know, did appear to have more transitory factors, you know, clearly than inflation broadened out. You know, but if we look now at, you know, the Fed's own Taylor rules, for example, you know, they're not that far away from what monetary policy rules would suggest they should be. You know, whereas in, you know, in 2022, you know, those simple Taylor rules were suggesting that the Fed was, you know, much lower than they should have been. 00:14:55 Speaker 9: So we still think. 00:14:57 Speaker 7: This looks like an adjustment. But nevertheless, it's concerning that inflation does look like it's broadening out a bit here. 00:15:03 Speaker 4: I want to get back to first principles, folks. Codified by Greenspan, they used to do eighth of a point. Codified by Greenspan was a quarter of a point. 0.25 or 25 basis points and all of a sudden today we're talking tiffany wilding even said the 50 basis point phrase therefore i mean damien it's just too. 00:15:24 Speaker 2: Much well tiffany i'd really love to get your opinion on the true state of the u.s consumer here and more to the point you know what is your belief like what is the impact of equity market valuations and of course housing affordability on the u.s consumer do you see it sentiment deteriorating at all here. 00:15:42 Speaker 7: Yeah, I mean, I think higher prices are certainly weighing on the consumer, at least certain consumers. We've been talking about the so-called K-shaped economy for quite some time, where you have higher income that's doing quite well because they are enjoying the equity market gains that they've received over the last number of years, several years. And I think that's still the case. But I think what we're seeing is just that demand in the U.S. economy is you know, is incredibly strong. And that is, you know, despite the various shocks and headwinds that we've seen this year, the energy shock, you know, tariffs and otherwise, we've seen consumption and also, obviously, investment, which is related to the AI build-out that's been incredibly strong. Now, we think some of it cools from the kind of breakneck pace that we saw in the third quarter. And you get some of cooling that is happening in the fourth quarter, the first quarter of next year. But nevertheless, I think what the Federal Reserve is concerned about is that you have an economy that looks incredibly strong from a demand perspective, final domestic demand, and you have inflation that looks stickier than they would like here. And so they, you know, they want to make sure that they keep financial conditions, you know, broadly tight and from, you know, easing anything here to reduce the risk that, you know, these inflationary pressures broaden out. 00:17:06 Speaker 4: Tiffany, 50 basis point welding. Thank you for joining us this morning. She's with Pacific Investment Management Company, PIMCO. Stay with us. 00:17:16 Speaker 8: More from Bloomberg Surveillance coming up after this. 00:17:27 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. 00:17:33 Speaker 7: Eastern.

00:17:33 Speaker 1: Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube. 00:17:40 Speaker 4: Cameron Dawson gets us started strong at a new edge wealth and she knows I'm going to rip up the script. I mean, you know, I got to go there. My essay of the year is Rob Arnott and Cam Harvey and Company. Talking about below revenue is gross profit. That's what they look at. All the other noise is there. I've got a technology industry we're addicted to where Microsoft has a gross profit of some ginormous number here. I'm bringing it up right now. Gross profit, 66 cents on the dollar. 00:18:13 Speaker 7: Yep. 00:18:13 Speaker 4: Generous Mills, just out where they reorg, is half that, 33 cents on the dollar. Why should we invest in a less profitable everything else out there in the market? 00:18:24 Speaker 10: Well, you know what has a gross profit that's even higher than that? It's Micron at 86 cents on the dollar. And that's an incredibly impressive stat because we've been in this world where demand for semiconductors has been absolutely powerful. That has led to huge gross margin expansion for a name like that. But we know that those gross margins are not sustainable, at least on historical standards. But what's fascinating is the market expects them to keep on continuing higher, expanding further, staying at these very, very heady levels. But history would show that once you start seeing gross margins start to roll over for a cyclical company like a Micron, they typically don't fall a little. They fall a lot. 00:19:08 Speaker 8: Oh, it's my turn, huh? Oh, great. 00:19:09 Speaker 6: Thank you. 00:19:11 Speaker 4: First time anchor. 00:19:15 Speaker 2: Cam, the Anthropic IPO, right? I mean, about a month ago, we were looking at a $ 2 trillion market cap. Now we're looking at $ 1. 1 trillion. We know that Amazon, Alphabet, a lot of these Mag7 companies own large stakes of Anthropic. My question for you is, I mean, we saw Amazon back in June, you know, 200 billion, you know, stake in the company. How much of that has been smoothing out their earnings in recent quarters? And as you do the sum of the parts, as walk the motor in, you know, valuation of these companies on a forward basis, how much of that factors into your analysis? 00:19:44 Speaker 10: Remember in the first half of this year, we saw massive contribution from below the line gains unfavorably. non-marketable securities, which is just a way to say that Anthropic and SpaceX gains were massive drivers of earnings upside in 1Q and 2Q of 2026. And the reason why those gains happened is because the companies were raising capital in those quarters. If you look at the last time that Anthropic raised capital, it was at about a $ 985 billion valuation. So when Anthropic goes public, let's say it comes out at $ 1. 1 trillion, that will be an uplift to somebody like Google in their overall earnings. But the challenge you have is that that's not nearly as much as what we saw in the prior funding raises and the increases in the valuation that we saw. I would look very closely at 1Q and 2Q 2027 estimates. Important to note that the street currently has headline earnings growing above the 2026 estimates, which means that the operating earnings are expected to make up for those gains and then some, even when they don't repeat. 00:20:48 Speaker 2: Cam, there's clearly a positioning dynamic in play. You've mentioned it in your notes. You know, I look at the low vol factor, the style factor in equities. I mean, we've seen an 18, 19 full percentage point round trip. I think it was down 9% only a few months back. Now we're up 9% on the year. So sentiment is shifting. Talk to us a little bit about the industry that you're watching most here as a sort of gauge of litmus paper, so to speak, Tom, of investor sentiment. 00:21:12 Speaker 6: Is it the banks? 00:21:13 Speaker 10: Yeah, we've been thinking that you need to watch the banks very, very closely because the banks will effectively tell you whether or not they see this issue happening with some of the questions around AI funding and the sustainability of that trade, whether or not it becomes a bigger economic issue. If the banks hold in, mostly the regional banks, some of the large-cap banks are skewed by investment banking, year-over-year comps being very tough. But watch the regional banks. If those remain in uptrends, if those continue to hold support, it's effectively the market saying, look, we're not so worried that this becomes a broader growth scare. 00:21:48 Speaker 4: It's more contained. Right. I want to go two ways here. One is off the banks there. And to me, the whole thing hedges on the banks doing well given a sustained nominal GDP. I think it's been a dearth of quiet since the election. Are you modeling out at New Edge a continued buoyant nominal GDP that keeps the gravy train going? 00:22:07 Speaker 10: Well, remember, we have two components of nominal GDP, real GDP, which we don't see signs is going to slow materially. But then you have the inflation part of nominal GDP. And that's where we continue to expect inflation to run hot in the near term. But start to ebb off when we get into 2027 simply because of your comparisons with energy prices. 00:22:29 Speaker 4: Yeah, OK, I get that. Energy prices. Brent crude, $ 90 a barrel. West Texas Intermediate. 00:22:34 Speaker 7: $ 85 a barrel. 00:22:34 Speaker 4: Are you modeling out? a nominal GDP that just ebbs back so the gain keeps going? Or is it something more dramatic? 00:22:44 Speaker 10: Yeah, look, we don't see a big fall-off in underlying real GDP demand. If that was the case, if we were thinking that we needed to cut forecasts for 26 or 2027 real GDP, then it certainly would augur a more risk-off kind of environment. But we continue to come back to the fascinating point that household consumption forecasts are now higher today than they were prior to the war starting, which just

means that forecasters are not seeing overall the energy shock causing households to pull back in a meaningful way because there's been offsets and other things like OBBB and the wealth effect. 00:23:23 Speaker 4: Cam, the U.S. 00:23:23 Speaker 2: Treasury 10-year yield's off, what, something like 43 basis points off its October 5th peak now. It's come down quite considerably. Back then, BlackRock was saying, you can easily build a diversified fixed income portfolio with an A- rating, a 7% yield, and a duration of three years. 00:23:38 Speaker 4: Has that changed? 00:23:39 Speaker 10: Well, you're not getting nearly as much yield as you did at those peak sell-off points. I would note that we're finding support at the 100-day moving average for both 10s, 2s, and 30s. We have some hawkish comments coming out of Waller this morning, which is giving a little buoyancy to those two-year yields. So could we find ourselves in an environment where yields start to march back up? The thing I'd be watching closely is economic surprises. Typically, we see a strong relationship between the 10-year and economic surprises that's broken down in the last month because the 10-year has rallied on equity market weakness. 00:24:16 Speaker 4: But the reality is. 00:24:18 Speaker 10: If economic surprises continue to push higher, that puts upward pressure on 10-year yields. 00:24:22 Speaker 4: Kim Dawson, thank you so much for New Edge Wealth this morning there on the banking sector. 00:24:29 Speaker 8: Stay with us. More from Bloomberg Surveillance coming up after this. 00:24:40 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube. 00:24:54 Speaker 4: To last, keep in track with us, the Yardeni Research this morning, and they've got a blistering note out post-election. To be clear here, you're still in the equity market. You're still long the Yardeni roaring 20s, even after this election. 00:25:07 Speaker 6: We absolutely are. Yes, sir. 00:25:10 Speaker 9: We think there has been a sell-off on Wednesday following the elections. We think investors have been a bit quick to price in that there is going to be this roadblock to the AI investment boom. Look, we think there are going to be constraints. We split them up into three main constraints to the build-out, financial constraints, political constraints, and physical constraints. But we think there are going to be speed bumps on the path of the AI investment boom and not roadblocks. So we are quite optimistic. 00:25:40 Speaker 2: Are we undergoing, you know, I know it's a shift in sentiment, but is it a beta regime shift where we're witnessing here? I mean, I'm seeing the low vol style in equities, you know, rallying here. I'm seeing bonds coming off. I mean, I'm seeing oil prices come up. I mean, talk to us about the beta regime. How does that factor into your, you know, asset allocation view? 00:25:56 Speaker 7: Mm-hmm. 00:25:57 Speaker 9: Something Ed Yardeni is very good at is really separating signal from noise. That's something I've learned from him. And despite all of the volatility that we're currently seeing, we're sticking to our 7900 target for the S & P 500 by year end, 8400 by mid next year. That continues to be our anticipation. 00:26:17 Speaker 2: Well, I mean, look, but earnings yields are still, even though we've seen this, you know, the sell-off in rates, I mean, you know, earnings yields are still so, so low. So, on a valuation perspective, on a quality perspective, you know, talk to us about that. Is it going to be tech? Is it leaning into tech here? Is it leaning into growth? Is that how we get to those numbers? 00:26:33 Speaker 6: Yeah, absolutely. Great question. 00:26:34 Speaker 9: So, we think what we have seen throughout this year, essentially, is this tug-of-war. between FIMO and FOMO. We have seen fabulous earnings momentum surge, but the fear of missing out, so the PE multiple has contracted quite a bit. We think you may actually see a reversal of that throughout the rest of the year, because when you look at current analysts' earnings expectations, they're assuming 2028 EPS at $ 495. Our 2028 EPS is only $ 450. So there's a $ 45 delta there. So we do think there is some irrational exuberance in earnings that is expected to come in a little bit. But maybe that then allows the multiple to lift as investors feel more comfortable about the earnings. 00:27:15 Speaker 4: The hallmark of your Denny research is Yale economics into the stock market as well. The underpinning of a street earnings number, which I can't frame it's such a big number, or Ed Yardeni and Elias Grippentag's more responsible number, is a continued boom economy. That's the core Yardeni thesis. Is any of that subdued or broken? 00:27:39 Speaker 9: No, we don't think so. So we split this economic resilience in three pillars. You have a very strong consumer because of a labor market that is resilient because of the wealth effect. When you look at second quarter net worth... It's surged by a record amount. Then you look at business spending that is also still very resilient. We think the AI investment boom will continue, albeit at a slower pace. And then you have the government with a 6% fiscal deficit during an economic expansion. So the government is printing money, is injecting money into the economy during an economic expansion. And that is also adding to the fuel that we're seeing in this economy. 00:28:17 Speaker 2: I know Ed and the team are bullish on equities, but what if you wanted to be defensive? I mean, I'm a big baby. I don't believe in this whole tech thing, let's just say. And what sectors, where do you go if you want to hide out in the current environment? We know the Japanese and the Swiss franc haven't kind of behaved as they normally would, historically speaking. I mean, where do you go? Do you go to utilities? Where do you go? 00:28:35 Speaker 9: Diversification is a beautiful thing. So what we have seen throughout this year, a pretty strong correlation between oil prices and the 10-year. It turns out that the biggest driver of the 10-year probably is the AI trade. So very strong correlation between the 10-year and the NASDAQ. So we think if you expect the AI investment boom to slow, which is likely then going to suppress economic activity, bond yields are the place to be. 00:28:59 Speaker 6: The 10-year is the place to be. 00:29:02 Speaker 2: So we just saw, obviously, the rally in U.S. Treasuries, you know, yields are down. You know, what side of the dollar smile was really causing that? I mean, do you see it being, you know, this flight to quality, the safe haven bid that was driving the bulk of that move? Or was it perhaps the echoes of U.S. exceptionalism again, this resilient U.S. economy that you, Ed, and the team discussed? kind of talk about. 00:29:22 Speaker 6: Do you mean the midterm reaction? 00:29:24 Speaker 2: Well, I'm talking about the last month, month and a half, really, where you've seen the U.S. 10-year treasury yield come off something on the order of 43 basis points. 00:29:31 Speaker 6: I mean, what was the big driver of that move? 00:29:33 Speaker 9: Yeah, look, we think the 10-year reached a level, it turns out, that starts to take some heat out of this hot and GDP, right? We started to see financial constraints on the AI build-out intensify, and the 10-year started to come in. 00:29:47 Speaker 4: I got to get this in. It's too important what we're talking about, folks. So price down, yield up. And that breaks the economy. Does that assist the Fed in a tightening cycle, a la Waller's comments today? 00:30:03 Speaker 6: Great question. And Christopher Waller talked about this. 00:30:06 Speaker 9: Fed Chairman Kevin Walsh talked about this, right, during the October FOMC meeting. Financial conditions tightened somewhat. That allows the Fed to be slightly more patient here. Look, we think the number one job of the Federal Reserve right now is to get rates back to neutral. We think the neutral interest rate is between four and a quarter and four and a half percent. I think that is where the Fed needs to get back to. And that's 50 more basis points of hikes here. 00:30:30 Speaker 4: Elias, thank you so much. Elias Grubentag with us with your Denny Research. 00:30:33 Speaker 1: This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 7 to 10 a.m. Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.