The Rally Continues amid Uncertainty Across Markets
44:35 Share

This is an iHeart Podcast.

As a global leader in alternatives today, PGM is capturing the potential of tomorrow. So as you look to diversify your portfolio, PGM offers expertise in seeding, developing and managing a broad range of liquid and illiquid strategies. With over $320 billion in alts across public and private markets, we are helping clients achieve their long-term goals. PGM. Our investments shape tomorrow, today.

Every business starts with an idea. How can you go from daydreamer to industry leader? Amazon Business accelerates your journey. With smart business buying, get everything you need to grow in one familiar place, from office supplies to IT essentials and maintenance tools. Amazon Business takes the buying experience you know and love from Amazon, plus tools that help you save costs and make insights-based decisions. Ready to bring your visions to life? Learn how at amazonbusiness.com.

Bloomberg Audio Studios. Podcasts. Radio. News. This is the Bloomberg Surveillance Podcast. Catch us live weekdays at 7 a.m. Eastern on Apple CarPlay or Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. This is a joy. We spent weeks trying to get her in here. She's with the BNP Paribas in Paris. Travels.

like crazy. Isabel Mateos-Hilago with us, who is absolutely brilliant on the larger view of what's out there. She's an extinguished career at BlackRock and now over at BNP Paribas, and we welcome her, I should say, as an advisor to Christine Lagarde as well. Here's what a wonderful to have you here. Thank you so much. Good morning. Thanks for having me. Can we do this in English, please? I'll try my best.

As simple as I can make it, Americans have absolutely no clue at the moonshot, which is the German stock market, the DEX. I call it the roulette wheel of Europe, the KOSPI. The Korean market is a roulette wheel of Asia.

off the what we call the ed yardeni and campora october low it's up 20 something percent per year off of the pandemic it's a double digit solid why why is there such a gloom about europe if the stock market is a moonshot i'm not sure that

not sure there is such a gloom about Europe. And in fact, you know, I've been meeting with clients coming through Paris in record numbers from the US, from Asia. Wait, wait, do you have table four or table five at Tour d'Argent? No, no, not just that, not just that, but actually asking about Europe because they realize there's something really interesting starting to happen. And you're absolutely right to single out Germany because this is

where the big pivot in sentiment around Europe started. And that was the announcement by Chancellor Merz, who wasn't even chancellor at the time, that Germany was going to invest over a trillion euros in infrastructure and in defense over the next 10 years. And that then opened the door to the European Commission announcing a plan to rearm Europe to the tune of another 800 billion euros.

And that led to an acceleration of all the structural reform agenda that had been outlined in the Draga report last year, but frankly wasn't going anywhere in a hurry. And all of a sudden, you see people going through Brussels and saying, this is a different atmosphere than I've known my entire life. There is a wind of change. There is a desire to listen to corporates and to do things to actually boost growth as a priority. And so, you know, Europe's economy was

not growing very fast last year or the previous year compared to the US. But now you're seeing this inversion of trajectories with US economy slowing down and in several dimensions, underperforming expectations. And on the other hand, Europe's economy growing faster than most people expected. 0.6% Q on Q in Q1 GDP. That's just like...

It's much higher than anybody expected. And Matteo Silago is measuring it the way the Europeans measure it. All we know is after Alan Greenspan, it's a big number. That's my sophisticated analysis. Germany can certainly fund that type of investment. How about the rest of Europe? I think a lot of the market's less sure about other parts of Europe being able to make similar types of commitments.

Well, one thing that's been really interesting is what's been happening to spreads in the Eurozone. You could have thought, well, German yields go up, not massively, but they go up. This is bad news for the rest of Europe, which has much higher debt loads. France, Italy, Spain and the likes, their spreads should go up. And actually, the opposite has happened. Or in the case of Italy or the other spreads have stayed low.

the same. And why is that? I think it's because the market is correctly anticipating that this German spending is going to increase the growth trajectory and the whole of the Eurozone is going to benefit from that.

And that's why, now bear in mind, none of these other countries, the high debt countries, are planning to increase their deficits. They're going to rejig between defense and other things. But the fact that the fiscally austere countries like Germany and others are prepared to do more and

and the others are not going wild and retaining the somewhat orthodox plans that they had, that's good news, and that's why the spreads haven't moved. So this is the markets essentially validating the fiscal plans. The rhetoric, particularly out of the Trump administration, is, I'm going to call it just flat-out anti-Europe. Maybe there's a nuance to that that I'm...

I'm missing. Is Europe the secret here into the equity performance and the investment? Are we finally seeing companies and even cultures in governments more of an Anglo-American capitalist mindset?

Our stereotype of Americans is, well, okay, Denmark's socialist and everything else is sort of almost, that's the stereotype. But are we getting more towards a rampant capitalism at the margin in Europe? Yeah, that's a tough one. I mean, I think if you're talking about social models, social protections, there's no desire to move away from that.

There is, however, more of a Keynesian turn. Perhaps you could say that, not for the sake of turning Keynesian, but in the case of Germany, because they realize they've underinvested in public infrastructure, they've underinvested in defense. So as a matter of fact, you're going to see a lot more public spending in Germany and places that we're not doing enough of it. And where Europe may be also turning more,

Anglo-Saxon is in the effort to simplify the regulatory burden. Now, interestingly, they've got this kind of cute semantic obsession with not talking about deregulation. Exactly. The word is simplification. But nevertheless, this is something Europe needed. And I think it's quite interesting.

plausible that the U.S. was an inspiration for going in that direction. And now it's happening. Starting strong today for you across the nation, Isabel Mateos-Hilago with us, Group Chief Economist BNP Paribas. But far more than that, one of the great watchers of the transatlantic dialogue, her service with Christine Lagarde and, of course, at BlackRock.

for years with some Cambridge and Sciences Po economic. Let me get one more 60,000 foot question here before Paul grills you. The arch question then, given everything you've said in the new Europe is from Trichet, which is the diffusement of productivity. Is that the shock to come that we finally see a greater productivity in Europe as Trichet predicted?

Well, that's what we need. And that was the main call of the Draghi report, if you recall. He said, look, Europe has a problem. Its population is aging. It's going to lose 2 million workers per year through the end of the decade. Either we accept we're going to get poorer or we need a massive acceleration in productivity growth. And here's a whole shopping list of things Europe needs to do to make it happen. This is now all underway. And there's every reason to expect that the push on infrastructure and

and on defense is going to support that acceleration in productivity growth. Now, should we expect miracles? Probably not. But we do think that by the end of the decade, the Eurozone trend growth could be 1% to 1.5% higher. I need a miracle. Can you give me a hotel room somewhere in the vicinity of Notre Dame? I mean, can BNP work on that? That doesn't cost $2,000 a night. Help.

Isabel, talk to us about the view from Europe, broadly defined, of the tariff discussions that have been dominating these markets really for the better part of the last five to six months. What's the view from your companies, governments? What are you hearing from your clients? So look, Europe has a... Europe, when by then I mean the European Commission, are true believers in the benefits of free trade. And so they embarked in this...

these trade discussions or this trade war, so to speak, with the U.S. with a view to saying, oh, this is going to be great. We're going to offer to lower our tariffs and the U.S. is going to lower their tariffs and we're going to end up with more trade. This is going to be awesome. And it seems they've realized in the course of the last few weeks that actually this is not really what the U.S. wants.

And so now the discussion has got very much more concrete to trying to do damage limitation. Maybe that's one way to put it and accept that tariffs from the US are probably going to be higher, but let's see what we can do to minimize the cost. But I think what's...

What's interesting is Europe has decided to double down on global trade with other partners than the US. We've seen the beginning of amending of the relationships with the UK with the first improvement on the Brexit trade deal. There are very advanced talks with India. There's consideration to even joining the CPTPP. So Europe is doubling down on

on global trade and is going to try to do damage limitation with the US as best it can. But it's trying to portray itself to the rest of the world as a place that is open for trade, open for business. And I think back to Tom's point, that's also going to help boost productivity going forward. How unified is the European Union in terms of trade negotiations?

Well, as on every issue, different countries have different interests. An economy that France, that is primarily services-oriented, is going to be far less sensitive than, say, Germany, which exports 3% of its GDP worth to the US. But the important thing is it's the European Commission that negotiates. So obviously it needs to get a mandate from the member states.

by construction, it is fully unified because only the European Commission has the mandate to negotiate. And that helps a lot, I think. There's something about standing in Shanghai in the old quarter, in the French quarter, and understanding all that BNP Paribas was in China

literally before anyone else. I mean, I don't think there's been any discussion of this in America going back to 1860. Isabel Mateo Cilago on China and America right now. How's this mess going to end up?

That's the number one question, I think, for the rest of the world. I think what we've seen, and to the point that Lisa was mentioning earlier about several confidence indicators improving, and we've seen also inflation expectations improving, I think both sides...

have realized that actually they are in a codependent relationship. And the trade embargo that we got to briefly was going to do serious damage. I don't mean to interrupt. This is too important before you leave. You just mentioned codependency. I associate it with Catherine Mann.

now at the Bank of England. Does the Trump administration understand we have a linkage and codependency in our many trade relationships with China? Well, I think it very much does. And that's why there are talks happening right now as we speak in London, interestingly enough, not focused on tariffs, but focused on reopening the flow of rare earths, without which

A lot of supply chains in America are going to come to a standstill if these materials don't start flowing again. And so that's the essence of codependency. And I think that probably came as a surprise. So we're scheduling a remote the second week of April next year at Café Saint-Régis behind Notre Dame. Right out front there, you know, a little bit of early morning. Anil Saint-Louis, can you...

Like, start us off there. Let's work on that. Let's work on that. Thank you. Isabel Mateo-Solago, thank you so much for joining us today with BMP Paribas of Paris.

If this government spending in defense goes towards things like R&D that have dual-use civilian purposes, you could get spillovers that actually end up enhancing productivity in Europe and so have a more long-lasting impact on growth.

To learn more about the intersection of national security and global trade, subscribe to PGM's The Outthinking Investor in your favorite podcast app.

How can you grow your business from idea to industry leader? Bring your vision to life with smart business buying tools and technology from Amazon Business. From fast, free shipping to in-depth buying insights and automated purchase approvals, they deliver everything you need to achieve your goals. It's not easy to stand out from the crowd. Simplify how you stock up to get ahead. Go to AmazonBusiness.com for support.

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. Now out of Madrid.

Absolutely definitive in the broader commodity complex, Francisco Blanch, who to a great extent at Bank of America, has invented what I'm almost going to call a cross-asset study of commodities. Wonderful to have you here. I'm going to just cut to the chase. Let's get gold out of the way. Does gold have legs? Does gold move higher? Is it a distinctive and different commodity? Mm-hmm.

I think it really is, Tom. We're seeing just a little bit like we've seen with crypto and just like we're seeing, I think, with

non-dollar assets, real assets, we are seeing a rotation into gold. I would say there's been a couple of defining moments in gold. Obviously, 2008 with the financial crisis was a big defining moment where central banks suddenly went from net sellers to net buyers. And then 2022 with the Russian invasion of Ukraine that suddenly led to the freezing of Russian central bank assets and a huge emergence in central bank gold sales. So, purchase, sorry. Interesting. I mean, one of the other areas I want to talk about is just

Oil here. I'm just not sure. We've got oil. I've got OPEC increasing supply. I've had a little bit of a lift in the price here of oil. Is it supply or demand that's driving oil these days? Well, look, seasonally we're heading towards the peak of the demand window, which is July 4. And that, I think, was probably in support. But OPEC will be adding barrels. They've committed to doing so and will keep doing so. And we still have a very uncertain macro environment second half of the year.

But then I've got my good friends down in Texas and Oklahoma and Louisiana and in Pennsylvania with the shale. They're still cranking the oil out into the market here. So there's no shortage of supply, is there? There's no shortage of supply for now, but I think the lower prices are already having an effect. If you look at the rate count, rate count has gone pretty substantially in the last three or four weeks, not only because prices are lower, but also because tariffs are making –

producing oil more expensive. Remember, oil is steel in the ground and margins are getting thinner. That's why the rig count and drilling activity is falling now. So from your perspective, looking at global macro,

How do you factor in all this tariff-ness and the uncertainty of the tariffs and the back and forth and are they 100% or are they 50% or are they 10% across the board? How does that impact your world? Look, I mean, I keep saying commodities are at the center of tariffs because remember, what you tariff are the commodities. Steel, aluminum, steel.

Lots of concern about tariffs on copper. That's the reason why LME stocks keep falling and stocks of copper in the U.S. keep rising. People are stockpiling in anticipation of tariffs. There's big movements in prices here. I frame the Francisco Blanche with his folks, the Bank of America here, and come on, as we don't do this enough. And, you know, with the crew of Edward Morrison and Rishir Sharma at Morgan Stanley years ago, now at Rockefeller, this is what it's about in terms of a global economy.

Discussion. You and Rishir Sharma on the high ground.

on trying to assume a great commodity bull market, like from the middle 80s out to 2009, 2010. Down we came, collapse. Are we in a reaffirmation of a trending commodity bull market or do you just need to see more evidence? I think you need to see a little more evidence, but remember, we've actually seen generally commodity prices falling cyclically, driven by oil.

The big question is when shale is going to essentially stop growing. And when it does, then we will be in a commodity bull market. Isn't the big question China and their insatiable desire for stuff?

There is some of that, but remember, China's also seen peak population growth, and now it's other emerging markets, right? I mean, commodity intensity is growing in places like India, other parts of Southeast Asia, and then, of course, Africa. So, I mean, I do think there's a China story behind this, but that's been the story of the last 25 years. It really is down to the rest of the emerging markets going forward, and frankly, to our ability to keep pulling commodities out of the ground.

red headline crossing the bloomberg terminal blackstone plans to invest 500 billion dollars in europe over the next decade that goes to our conversations of earlier today here how do you see that's a that's a couple that's a couple cul-de-sac real estate developments in dublin exactly right so francisco as you think about just the commodity space

When you travel around the world talking to your institutional investor clients, how do you start your presentation? Bull market, bear market, let's be careful out there. How do you start it? I mean, I think tariffs are just generally a big negative for the commodity complex, particularly for cyclical commodities, because they will slow down the global economy and they will impact, of course,

industrial activity. But we also look at stimulus and it's a very different environment to 2018-19. We have a massive budget deficit in the US about potentially to get bigger. We have Germany stimulating and of course the Chinese are better prepared than last time and they're also stimulating.

On the one hand, we are a little cautious second half of the year, particularly after peak driving season in the US. But we look into 2026 and think, oh my God, there is so much stimulus coming through. And maybe there are some trade deals. And maybe there is a pickup in global economic activity on the back of those. So we have a very different world in 2026. Back to Tom's point, maybe commodities do turn the corner sometime in the second half of 2025.

And now folks, inorganic chemistry on a Tuesday with Francisco Blanch. 2 SM plus 6 H2O put together in an inert gas sphere of argon

and you end up with 2 SMOH3 plus 3 H2. It's rare earth metal samarium. Bank of America on these. I didn't study these in school. My daughter, afterthought, has a periodic table on the wall in her bedroom because she's a nerd. Samarium? What do we need to know from you about rare earth metals?

Well, look, I mean, we saw what happened on the Earth. So China expanded production dramatically, prices collapsed, and many people shut their minds around the world. And China became the sole supplier of this thing. It's a classic Chinese playbook across many industries, I have to say.

And now they're using that as leverage. It's not that the U.S. doesn't have rare earths. There's plenty of rare earths here. There's plenty of rare earths in many parts of the world. We just don't want to drill it because we don't want the environmental and the labor. Is it that simple? Well, there is that. And there is also that setting up mines can take 7, 8, 10 years. I mean...

setting up mines is not fracking a gas well which takes a few weeks so god so gato just died the iconic photographer of third world mining we don't want to put 20 years ago third world labor and environmental mining in america that's all this comes down to right well there's there's some of that for sure um there's some of that but i i do think um i mean i do think that that uh

Ultimately, it does take time to build up these capabilities, right? And it's not always very profitable. At the end of the day, remember, we live in a capitalist society where you have to get a return on capital that is reasonable, Tom. The Chinese do not have the same kind of pressures. I mean, a lot of Chinese companies don't make any money. You have 100 car companies competing for market space in China and around the world right now. To Paul's question, where's oil in 12 months?

So I think it'll probably be higher. I see downward pressure initially in the second half of the year. But I think eventually, as you get more OPEC oil in the market and lower prices encourage demand, you will see somewhat higher prices. The EM demand comes on and we're off to the races again. And remember, oil is kind of cheap in the 60s. That's what it was 10 years ago. And we've had so much inflation, right?

So I do think the big question mark on the macro front is, are we going to go from a regime of high inflation, low growth to a regime of high inflation, high growth or low inflation, low growth? And, you know, I'm probably more in the high inflation, high growth camp with all the stimulus we're seeing through right now. But you write a big, beautiful bill. This has been wonderful. Francisco Blanche, thank you so much. Driving all of commodity and derivative work at the Bank of America. This is the Bloomberg Surveillance Podcast.

Listen live each weekday starting at 7 a.m. Eastern on Apple CarPlay 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 1130. David Dole joins us now with Macquarie. Of course, this is Terry Weissman and others. They're out of Australia, but they're really eclectic.

geographic and academic mix. And Karari David Doyle comes to us from Parchment out of British Columbia. And of course, all his work in Toronto is well, I want to get to the Canadian-U.S. nexus in a moment. But where is your, I have no clue where real GDP is now heading in America. I got Atlanta GDP giving me nirvana and I got others gloomy. Which is it?

Yeah, so I think you have to look beneath the surface with the GDP data. I think the first quarter overstated the weakness in the economy, and the second quarter is overstating the strength. You mean a two-ish? Around two, I think, beneath the surface. And it looks to us like you might be slowing in the second half of the year, but I don't think overly severely. Paul, that's the way we've come. We've come from two decimal points out to two-ish. Yeah, exactly. So, David, give us a sense of how you guys at Macquarie are thinking about just overall the tariffs,

the implementation, the changes in the tariff discussion, and the uncertainty that's creating in the economy. How have you guys factored that into your numbers? Yeah, so certainly there's a lot of uncertainty. And I think I said at an event last night that Macquarie was having that that's the word of the year right now, the word of 2025.

I think that's going to weigh on activity in the second half of the year. You can already see it in some of the indicators. But at the same time, the economy is proving to be relatively resilient. And I think there's good reason for that. It feels to me like it comes down to the consumer. The consumer still seems to be out there pretty active. I guess if they feel like if you've got a job and the income's coming in, you're spending it. Is the consumer holding this economy up?

The consumer looks to be, again, that word resilient comes to mind. It's holding up. It's holding up a lot better than a lot of folks would have anticipated. I think the challenge that the consumer may confront later this year is that you could see a pickup in some of the inflation measures as the tariffs are passed on. But you might not see the commensurate rise in nominal wage growth. So, of course, real wage growth may slow slightly. So that's why we think there could be some slowing in the economy. But again, we're not expecting that to be overly severe.

When you look at Canadian dollar as a litmus paper of the system, I don't want you to make an FX bet here, but just the general tariff debate, is it going to end up pro-Canada? Or are the dynamics so much that they really harm the Canadian economy and Canadian dollar almost unhinges?

I think Canada is well positioned to benefit from the trade uncertainty. Why? Well, just because the history of the relationship with the U.S., the willingness of Carney to be pragmatic in his approach to the United States. We've seen that this week with the increase in defense spending that was announced. This

This is a liberal increasing defense. Yes. And it's not something that they signaled in the campaign, but it's something now that they are signaling that it's going to happen quite rapidly. On top of that, you had a border security bill that was proposed last week. So I think those sorts of things are going to go a long ways towards moderating the trade rhetoric out of the Trump administration. Let's talk about the dynamic right now. I was up there with Bloomberg LP here a number of months ago. It was pretty gloomy. And

I'll suggest, and particularly with the King's speech to Parliament, when Mr. Carney, President, was really, you know, it was pageantry and all that, and I'm not sure how it affected the Canadian people. We should clarify that Mr. Carney was chairman of Bloomberg Philanthropies here

uh before he chose to public service in in canada is it a sea change in canada now that macquarie sees is it is it a dramatically new template for canada or is it a day-to-day grind

So, yeah, I think it's probably somewhere in between. The sea change may be overstating it at this point. I think there's a lot of optimism, though, that, you know, effectively the way that I've described it to folks, and, you know, no offense to anyone that's a Justin Trudeau supporter, but Canada, the Canadian economy was mismanaged for close to a decade. And now you have someone in who is pragmatic, who's highly competent, who's starting to make signals about doing the right things to improve the growth trajectory.

A personal question with your focus on British Columbia, your heritage of British Columbia. Are they getting the drug issue fixed out in Western Canada? I think this federal bill that was tabled last week is a giant first step towards that outcome. I think there's a lot of work to be done there, but the fact that the federal government is now taking it seriously, if you go back five, six months ago, they were dismissing the concerns and

And now they're starting to take it seriously. I think that's a very positive sign. We've seen central banks around the world maintain relatively easing policies. How about the US Federal Reserve? Where do you think that's going to go? Where do you think this Fed's going to go? I think the Fed will be in a bit of a pickle later this year, right? I think you could see slowing growth, maybe a little bit of a rise in unemployment, but

But inflationary pressures are still going to be there. So we think it might take a little bit longer for them to cut than currently what's priced in the market. So you might be looking at maybe early 2026 or very, very late this year. But I still think the next move is a cut. Nobody cares. Can Edmonton stop Brad Marchand? More important question.

Based on last night, I'm not optimistic about that. But let me tell you, most years, it's interesting, most years Canadians will cheer against the other teams in Canada. Like there's sort of this sibling rivalry element to it. But this year, I think because of what the Trump administration has done, Canadians are broadly getting behind the Edmonton Oilers. We look forward to visiting Toronto. The Macquarie tickets at Maple Leaf Gardens or something. David Doyle of Toronto Macquarie, thank you so much.

If this government spending in defense goes towards things like R&D that have dual-use civilian purposes, you could get spillovers that actually end up enhancing productivity in Europe and so have a more long-lasting impact on growth.

To learn more about the intersection of national security and global trade, subscribe to PGM's The Outthinking Investor in your favorite podcast app.

How can you grow your business from idea to industry leader? Bring your vision to life with smart business buying tools and technology from Amazon Business. From fast, free shipping to in-depth buying insights and automated purchase approvals, they deliver everything you need to achieve your goals. It's not easy to stand out from the crowd. Simplify how you stock up to get ahead. Go to AmazonBusiness.com for support. ♪

This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at 7 a.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business App. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal. Without question, our important equity conversation of the day, Jeffrey DeGraff joins us.

legendary at Lehman years ago, and of course out at Ren Mac, a guy named Dutta, I think does economics there as well. Jeff, I want to go right away into the factor analysis for global Wall Street, in that we were wicked gloomy, then we had this massive April, massive May, if you will, and there's the now what? And are you suggesting in your writings that the now what is truly back to momentum?

Yeah. In fact, I don't think it's been nearly...

as exploited as you'd expect to see, frankly, at this point. So, you know, the beta trade worked off the bottom. That's not, you know, that's not unusual. That's in fact about the one consistent thing that you get off of meaningful market lows. And, you know, what we've been telling clients for the last two or three weeks now is let's move away from the beta trade and focus more specifically on momentum. And the reason I say that is because

you know, the momentum names today contain within them the seeds of the narrative of tomorrow. And so what we're looking for are the names that are leading because most likely that might not be apparent today, but most likely as we get out in the next three or six months, it's going to become very apparent as to why they're leading and

and they'll be more popular than ever at that point. I should point out that Jeff DeGraff's academics are exceptional, not only with the CFA, but the technical analysis of the CMT organization as well. Okay, Jeff, if I got momentum, one of my great criticisms of Wall Street is a confusion over inertial force. This is a physics concept, folks, which involves a little bit of math and a little bit of misunderstanding as well. Does MAG-7...

on the income statement have an inertial force that generates that next leg of momentum.

That's a great question. I think from a fundamental standpoint, they likely do. From a price standpoint, it's a mixed bag. And I would give Nod to, say, Nvidia as an example. I'd give Nod to Netflix as an example. I would be more skeptical on something like Apple. I think Google is to be determined. I think Microsoft is okay.

And I say that because the momentum hasn't really been as strong and pervasive with those names as we would expect. In other words, the volatility swelled, the returns went down. And so with that, it suppressed our momentum scores. And so I'm really most interested in things that are making new relative strength high here. And not all of those are our MAG-7 names for sure.

Jeff, what does it tell you when we see the S&P 500 have that big sell-off earlier in the year over tariff uncertainty and then come roaring right back and retrace almost all of the sell-off? What does that tell you when you look at that chart? Well, it's the characteristics of that move that count for us. So the whatever, up 20% or down 20%, that's really kind of a sideshow in our work. What really was important for us is

this was about a month ago now, that we saw the 20-day highs expand above our threshold level. And when we see that, what it says, exactly your point around MAG7, is it's not just about a select cadre of names driving the market. It really is more of a wholesale move. And it means that money is coming into the market. And when that happens,

It's really, really unusual for us not to have positive forward returns as we look out three, six and particularly 12 months. There's a very good track record along that. Jeff DeGraff with us, folks, on your morning commute. In the office, subscribe to Bloomberg Podcasts on YouTube. YouTube in the office, YouTube at home as well. Jeff DeGraff, you mentioned relative strength. And of course, you and I years ago were weaned on this, I think of Dorsey Wright and others. Relative to what?

Take Apple, take Microsoft and the others. Is that a conventional relative strength analysis versus the standard and poor's 500? Or is there a different DeGraff formula?

Well, we use momentum and then we adjust it for volatility. And the reason that we do that is because we really want to know how much return we're getting per unit of risk. It's that simple. And so, you know, if you get into some momentum name, they might just be beta. If you're going to get into a semiconductor and you're in an uptrend or in a bull market, you're just going to end up owning beta. So by normalizing it through volatility, you're really able to

to tease out, if you will, where you're getting the exceptional returns per unit of risk. So we do adjust our momentum by that. And that's essentially our relative strength formula as we look at it historically. The nice thing about that is we also will standardize that. And so it can give us some indications as to where we might be out kicking our coverage, if you will. In other words, the returns have been far better than we would ever expect them to be in terms of a sustainable type of path.

And that gives us an opportunity to say, hey, look, this is gone too far. And we want to be really careful about mean reversion here because the likelihood of these trees growing to the sky is very, very low.

Jeff, do you guys, do you care about who's buying and selling stocks? Because what I found interesting this year was during this sell-off, A, we were told it wasn't panic selling, but B, we were told now with some hindsight that it was retail buying into that sell-off. And boy, they look pretty smart these days, but do you care if it's institutions or retail when the stocks are trading?

Not so much. We've looked at that data historically. I mean, what I will tell you is whether it's institutions or retail investors, people tend to chase returns. It's not vice versa. So I don't really look at it and say, ah, these people are buying, therefore good things are going to happen. That does happen in the futures market. We do see in some instances, in fact, right now it's a pretty good example where commercial hedgers

are net long, the NDX futures, and that tends to have a pretty good track record for forward returns. So the smart money, the hedgers, if you will, are actually loaded up to the gills in NDX futures, and that implies good returns. But historically, it's a hit or miss. In some instances, the small traders actually end up being very, very prescient in terms of calling bottoms. I would say the one...

behavioral flaw that we've seen is that the retail investor tends to be pretty good at a bottom, but they tend to bail too quickly. They make 5% or 10%, and they pull the cord and think they're geniuses, and then they miss the big move. So that's one of the behavioral characteristics that we have noticed. It's not so much that the retail investor is buying and that's bad. It's that they're buying, and then they sell too prematurely, and that's what ends up costing them. Jeff, are there any

I don't know, sectors or factors that are screening well for you guys these days?

Well, again, we think momentum has a long way to go. That's good news. So I think the summer is going to be really a summer of momentum names. So again, following on that relative performance. It's interesting because when we look at the sectors broadly, it's a mixed bag. I mean, I can show you as many good names and industrials as I can poor names and the same thing for discretionary. So it's really a tale of two cities really.

regardless of the sector. I would say within tech, semiconductors, again, with the exception of, call it Broadcom and NVIDIA, don't really look that interesting. Software looks really interesting to us. So it's really down to the industry group, not even the sector level that I think you have to distill this. Tell me about volume. Full disclosure, folks, I'm not a great fan of a lot of volume analysis, but Jeff DeGraff is there...

Is there a value to looking, no pun intended, is there a value to looking at volume dynamics? Look, you know, 35 years ago, I read Edwards and McGee, and it was all hopped up on volume. And I read other books that were, you know, tomes about that. And the good news is, is over the course of my career, computing power has gotten a lot cheaper and a lot more powerful. And so we can test these things.

I can't tell you that a breakout with volume is any more legitimate than a breakout without volume. It just, I have not been able to make volume work. Maybe somebody can, but it's just not something that we use in our analysis. I'm sorry, folks. I'm like living the religion here with Jeff Negraff. Jeff, do you have a first edition Miggy, 1948? Do you have that on your shelf?

I do not. If you find me one, let me know, please. I read it cover to cover years ago. I lost it along the way. Oh, no. Okay. These seminal textbooks. This whole technical analysis thing, folks, I think in the media it gets a really bad rap. Let's go there quickly, Jeff. Paul's got a bunch of questions.

Technical analysis, what's the biggest myth of Wall Street is they look at the efficacy of using a timeline on the x-axis or point and figure charts.

Well, look, I think the-- and we say this all the time, it's actually part of our disclosure, this is a probability, not a prediction business. And I think where the flaw is, is in almost anything, people trying to expect that they can predict the future using a lot of the data, and that includes fundamentals in many cases.

We're simply trend followers. We're momentum players. Now, we understand that there are points behaviorally where that can be an Achilles heel. And so we certainly try to adjust for that. But really, the whole idea is momentum and trends persist. And I think it's as easy as just looking at, you know, 95% of the corporations that are out there. Usually, if things are going well this quarter, they're probably going to go well the next quarter, right? And so you tend to have this autocorrelation, this momentum that continues. And

The world is not necessarily this random walk that I know gets a lot of talk. And we just simply follow those trends. And by doing that, what's amazing is how often it looks like you're predicting the future. And so that's really the foundation of how we think about the world.

Absolutely brilliant, except it doesn't apply to the Red Sox. Paul, what's important here to me on technical analysis is it doesn't tell you how to make money. It avoids debacle. Technical analysis on a log normal basis

helps you avoid getting crushed. That's my major. One more question here, Jeff. Hey, Jeff, how do external factors, and I'm talking really external factors like tariffs and the uncertainty created by tariffs and the constant noise associated with tariff policy and trade policy, how does that impact your work?

Well, obviously, volatility is impactful. The way that we think about it is there are really three reaction functions that you have, and that's regardless of the infinite number of

of scenarios that present themselves. And so, you know, we hear it a lot. Hey, we've never experienced tariffs like this before. OK, that's fine. But, you know, at the same time, we had never experienced COVID before either. Right. And so the way that we think about it is there's there's really three things you can do. You can buy, you can sell, you can hold. And when people react in a

herd-like mentality and start to become what we call very one-dimensional. In other words, that's all people are focused on. And you can use Google Trends, there's a lot of things you can use. When people become one-dimensional, we start to think multi-dimensionally and we start to think against the crowd. And so, you know, if it's a 50-50 probability, but everybody's thinking it's a, you know, 80-20, we'll take 50-50 because the odds are just in our favor, even if it might not be, you know, the bulk of the curve. So that's how we think about it.

a lot less about why and what and about what the reaction function is and are people reacting similarly to other crises. - Jeff DeGraff, thank you so much. Greatly appreciate it. We'll be right back.

This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at 7 a.m. Eastern on Apple CarPlay 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 1130. All right, Tom Keene, Lisa Mateo. We're doing some newspapers here today with Lisa Mateo.

Is she using Gemini AI? That's a great question. That's a great question. Gemini may be like a godsend for Lisa Mateo. Cut her work hours like in half. Make her more productive. She can sleep in a little bit. Paul, maybe it's going to put us all out of a job. What's the continue, Lisa? What do you got?

Let's rest it there. You know what? Let's go there. Okay, so we've been talking about AI and all that. So this article is from Business Insider. It says how Evercore analyst Mark Mahaney, he said that he used ChatGDP and Gemini to assess what could happen next in the DOJ's big case against Google's search business. Yeah, analysts, they're not just turning to lawyers. They're looking to analysts.

AI now. So here's an example of what he did. So him and his team, they gave ChatGPT and Gemini transcripts from the last day of court proceedings. That's more than eight hours of closing documents. Asked the chatbot two questions. What were the main takeaways? And what remedies would the judge most likely impose? And within 17 seconds of going through those eight hours of data...

He said the models actually generated this concise summary and they actually went back to their legal experts that are consulted by Evercore and they said, yeah, that's kind of on par with what we would say.

Unbelievable. Mark Mahaney, in my mind, the top internet analyst on Wall Street, in my opinion. That's pretty cool, just using the technology in his research. Yeah, but I mean, to see actually the output of the article, you have to read the article to find out. It goes into what the output was. You want us to read an article? No, no, not at all. Ask Gemini to do their summary for you.

Okay, so this article, it's in the Wall Street Journal. It's after my own heart, after my daughter's heart. They spoke with a few women who were just looking to get a better handle on their expenses, right? Because they say, we have good jobs, we have a roommate, we have an affordable car. Why am I broke? Like, why am I living paycheck to paycheck? So what they did is they tallied up their beauty expenses. And they were...

And they were surprised at the results. Yes. $200 every three months for cut and color, haircut, 115 for eyelash extensions, eyebrow threadings. You have manicures, pedicures, 500 a year of makeup. And then you have facial. You have to invest in your face. I know. That's what Alex Steele tells us. But then you get into the nitty gritty, like the facials and the spray tans and all that kind of stuff. So it made them sit back and say, do I really need all of this?

stuff what can I start to chip away with so in the margin it alter our Sephora or the historic counter at Bloomingdale's in the first floor right across the street from us yes just behind me folks is Bloomingdale's the margins are unreal yeah it

it's it's adequate it's like you feel like you need everything i go in my daughter's room i open the drawer and there's 50 million products everywhere yeah if girls go to college do they take all the bottles with them or does it no throw them out yes they'll probably yes they'll probably get new restock restock yeah you have to restock when you go to college killing me next all right we're going to travel european vacations right up your alley right okay so

Some Americans are like stop hitting the brakes, right? They don't want to do these big, expensive European vacations this summer. But there's another group who is picking up the slack, and that is Chinese travelers. So actually, there was a study from European Travel Commission that said 72% of Chinese respondents said they plan to travel to Europe this summer. And that's like up from 10% from 2024. And...

The only thing is that they tend to spend less money, but they still said they're going to be a big part of revenue for Europe. I was sitting on the main glorious street in Helsinki, Putin, Trump, with a cigar in my hand, and I realized everybody around me was Chinese. They come over the North Pole. It's a short plane flight. It's not like on the other side of the world. It's not expensive, and it's quick. People don't understand. They come over...

Good pull. All right.

Who knew? That's how they do it. Lisa Mateo, thank you so much. The newspapers with Lisa Mateo. 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.

In business, plans change fast and your brand has to keep up. That's why teams rely on 4imprint for promotional products that deliver. 4imprint offers thousands of options including apparel, drinkware, tech, and trade show gear. Many available with 24-hour turnaround, helping you move quickly and never compromise in quality. You'll enjoy free samples, expert support, and every order back by their 360-degree guarantee. So it arrives right and on time. Explore more at 4imprint.com. 4imprint.

Every business starts with an idea. How can you go from daydreamer to industry leader? Amazon Business accelerates your journey. With smart business buying, get everything you need to grow in one familiar place. From office supplies to IT essentials and maintenance tools. Amazon Business takes the buying experience you know and love from Amazon, plus tools that help you save costs and make insights-based decisions.

Ready to bring your visions to life? Learn how at AmazonBusiness.com. This is an iHeart Podcast.