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When patients have a disease and the cause is known, it usually ends up needing a specific solution. On the podcast targeting the toughest diseases, we explore the innovative tools, methods and unique philosophy Vertex Pharmaceuticals is using to search for treatments for some of humanity's most challenging diseases. Subscribe today wherever you listen to podcasts.
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Bloomberg Audio Studios Podcasts Radio News this.
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Is Bloomberg Business Week Daily reporting from.
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The magazine that helps global leaders stay ahead with insight on the people, companies.
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A
And trends shaping today's complex economy. Plus global business, finance and tech news as it happens. The Bloomberg businessweek Daily Podcast with Carol Massar and Tim Stanweck on Bloomberg Radio.
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E
Let's broaden out a little bit and let's get into maybe investors. Have they been reacting since we got that Fed decision and what we are seeing with investment flows and what's going on in terms of activity.
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A
For that we turn to Stephanie Gill, Chief Investment Officer over at Robinhood Markets. She joins us here in the Bloomberg businessweek studio. Stephanie, I wanted to start with what's happening on the Robinhood platform because you certainly have a certain segment of the investing population. What are you seeing on Robinhood? Right now?
- [03:13]
F
We're seeing still net buying, but it's, it's been more muted, I'd say than it was before and it's been been in some of the things that have been going down or had like Netflix for example. You've also seen where there's been sales, it's been more in the AI oriented names. So I've kind of shared this before, but our customers tend to hold core positions and trade around them, meaning they buy when they go down and sell when they go up. But we're seeing a little bit differently where there seem to be like being more subjective about what they're investing in. And that's why I say like it was kind of interesting to see Nvidia being sold and you know, things that are kind of under pressure.
- [03:51]
E
So selling as rather than selling as they have gone up a lot and taking some profits. They're selling as they're going down.
- [03:58]
F
Yeah, but they probably have embedded profits because they all year. So I think that's like kind of giving up a little bit on the trade for now.
- [04:05]
E
Well, look, I totally get it. Like you know, Tim and I were talking about Oracle. Like it is still up almost 14% year to date. But we've seen a more than 40% decline from some of the when it hit a record back in November, in September. Excuse. So I mean how did, how much can you dig deeper into the data in terms of what you're seeing? Is it mag 7 names that people are getting out of? Is it all tech? Is it just AI related? Like what are you.
- [04:30]
F
It's just the AI related that I've seen. And, and then some of the like core we, you know those kind of names are Neo Cloud. Exactly. You've also seen some buying in just broad based ETFs and some T bill oriented ones that like kind of make me feel like diversification, you know, kind of parking things rather than trying to pick.
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A
So less playing the market and more like long term diversified index funds.
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F
I think for now. Like for now usually we see that activity when there's a big dip. Like they go into ETFs first and then they play the differences in names.
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A
How are they playing this? I don't want to call it a crypto winter yet, but we're down another 3% on Bitcoin, hovering around $90,000 per Bitcoin right now. How's that played out over the last.
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F
Couple of weeks in the stocks? I've seen actually some buying in like the microstrategy names, but on the crypt side of actually seen more selling than buying.
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A
Interesting.
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F
Yeah.
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A
So. So instead of actually holding the patterns that you're seeing, instead of actually holding the cryptocurrency, people are instead putting money into the proxies or the hoarders.
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F
Yeah. I mean if you can make that relationship. I kind of look at two different dashboards. Crypto versus But I did think it was interesting to see buying into the. The equity related.
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D
Yeah.
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A
Because certainly strategies had its own set of challenges. Okay, so let's back out a little bit. Macro picture right now. We haven't had a chance to speak to you in a few weeks and given what we heard from Jay Powell, we just heard from Mike McKee about different views of the economy coming from different people. Where do you said.
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F
I think the economy is okay actually Like I think when you're. This is totally anecdotal but my feeling is that like New York City is busy, travel is a lot. Like I actually think the consumer is generally okay. That being said, the lower end consumer is still not doing well and I don't think they've been doing well for a while. So I actually, and I, I do think things got overvalued market wise. So I do. And I also think that the Fed is caught between a rock and a hard place because you do have this explosive growth, growth in the trade, growth in credit markets. And so they have to kind of worry about that being overblown and that creating increased inflation. Obviously we don't know what's going to happen with tariffs, but that's creating an issue for them too. Then you do have the lower end consumer that is still struggling. So it makes me think of like Europe post 2008 when they had to worry about like Spain versus Germany. And so I, that's why I think there's so much of a debate within the Fed. And you know, Powell did say like don't even look at the data that's going to come out next week.
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A
Do you agree with him? He doesn't.
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F
Yeah, I, Yes, I like and I don't. I worry about the quality of it too like in general.
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E
So I want to ask you about. I'm looking, you know, we're almost at the end of the year. So we can look at the s and P500, the major industry groups and see what really did well or didn't do. I mean, communication services names 31% higher, information tech 23%. So even though, I mean the max seven, even if we start to see, you know, pullbacks on some of these names or the trade still outperforming, industrials up almost 20%, financials up 13%, I'm looking at the S and P Composite Pharmaceuticals index. It's up almost 21% now. Yeah, yeah, finally. Exactly. So I'm just curious, what else can you. You dig deeper in a year where we've talked so much about AI, we've talked about rare earths, we have seen some, you know, M and A activity going on. What is it that you have also seen that are interesting and you can get an idea of what investors are interested in and what they are not interested in?
- [08:10]
F
Kind of. I've been bottom fishing. Like we've been, you know, sort of sort. I sorted like the Russell 1000 into, you know, top and bottom players. And it just felt like there was a rotation that started on October 29th, which was when we had that like 6% pullback. And a lot of those names, like of the top 100, the ones that are up the most, 100 most this year, 41 of them are in a negative return since October 29th. So I've been, we've been kind of looking around being like, where is there still growth? And I actually think like the other thing we've been doing this year is investing with, in alignment to fiscal policy because we do think like what the Trump administration is doing is important to understand and I think the consumer is going to be more important for them this year or coming into next year, I should say. And so we've been looking more in like the retail space.
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E
Yeah.
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F
Of players that are interesting and so.
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E
So retailers which have been reported and.
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F
Brand names in retail, like on holding Lululemon, like they're down, you know, they're down double digits this year or maybe not, maybe not on after Lulu is yes, There is down 50%. It's up 10% or so today. And so we, we just think like there, there is value to be found there while we wait to see what happens in the tech world.
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A
But on a Lulu, for example, there seems. Doesn't a lot of that depend on who the next CEO of the company is and they don't even know who that's going to be.
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F
There is execution risk. There now for the with obviously the change in the CEO, but I think it also it lost some shine on its brand and I think they have done a lot to try to turn that around. And you've seen that in Gap this year, which is also like I think they're further into that journey, but I think it actually creates an opportunity.
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A
Well, I've been doing really well of late.
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E
Yeah, it's now up about 11% year to date. But your point is, right, that if the consumer feels better and is out there spending, if we get more juice in terms of the way of stimulus, you know, whether you believe it's the right strategy or not, if there's more money in the pocket of consumers, try.
- [10:14]
F
Not to invest in my heart.
- [10:15]
E
I know, I know, I know, I know it's going to go somewhere and so there are names that will certainly benefit. Great stuff. Love digging deep into your platform. Stephanie Gill, she's Chief Investment Officer at Robinhood Markets, joining us right here on Bloomberg businessweek Daily.
- [10:33]
A
Stay with us. More from Bloomberg Business Week Daily Coming up after this, When patients have a disease and the cause is known, it usually ends up needing a specific solution. On the podcast targeting the toughest diseases, we explore the innovative tools, methods and unique philosophy Vertex Pharmaceuticals is using to search for treatments for some of humanity's most challenging diseases. Subscribe today. Wherever you listen to podcasts.
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A
You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5pm Eastern.
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Listen on Apple CarPlay and Android Auto.
- [14:00]
A
With the Bloomberg Business app or watch us live on YouTube.
- [14:05]
E
All right, let's get to a stock we've been talking about. We're talking about Lululemon stock is the number one gainer in both the S&P 500, NASDAQ 100 up just shy of 12%. Even so, the stock is still down 45% year to date. We did see the stock rally after the company boosted its full year outlook and announced him that its CEO would step down.
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A
The company searching for a replacement for Calvin McDonald, who will depart the top post at the end of January. Poonam Go is Bloomberg Intelligence Senior Analyst for E Commerce and Athleisure. She joins us from New Jersey. So first of all, were you surprised by the market as the market was by this move?
- [14:41]
G
You know, I kind of expected a move similar to this because Lululemon has just not been performing well, right? So when you have instances in retail where there's just no point of understanding how they're going to turn this business around. When it takes a longer time, there is usually some sort of management change. So this in my mind, a little overdue. And it'll be interesting to see on who fills these shoes because I think that's key to the turnaround and the vision that they put forward.
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A
So on that, who do you think, like what are some names that are being banded about the analyst community right now?
- [15:17]
G
You know, names I don't know about, but we do know that we want a product led. I would like to see a product led leader because at the end of the day, retail is about product and Lululemon needs to bring its product back in play ahead of competition. And really where consumers feel like they're getting something that they can't get anywhere else.
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E
You know, it's interesting. First of all, you go to the des page of Lululemon and under management there's no, no names there right now, which I don't know, is there something wrong with my screen or. I don't know.
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A
But to your point, how often is it that we see a CEO exited without a plan for a new one?
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E
Yeah, exactly.
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A
That was a big deal yesterday.
- [15:56]
E
So that's a good point. Put him, you say it's long overdue and so like why isn't it that they internally or the board didn't say this ain't working. Cuz he's been there for a few years now. So why, why did it take them so long or did they not give him enough time to figure it out? Calvin McDonald we're talking about.
- [16:16]
G
Well, he's been with Lululemon for seven years, I think since 2018.
- [16:21]
E
Right.
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G
So he's had a fair amount of time there. When he came on board, the excitement was, you know, all about the personal care. I remember us talking about it. Where will enter this business that has 70, 80% margins and it would be so great. And I'd say during the pandemic things were working great. Right? For not just them, for anyone who had activewear, that is how people dressed. That was the movement. It was to be healthy, it was to be out, it was to work out and really lounge at home while you're working. So what happened post pandemic? And that's really where we kind of think about what did the leadership do to stay ahead of trends. And I think as we exited the pandemic, we didn't see as much innovation as we would have liked because you saw competitors like Aloe, like Viori and others really come in with competitive product Sometimes at similar price points and took mind share and wallet share of the shopper. So that just brought us to question, do we need vision from a leader that has the product background to really drive a product led recovery? And keep in mind over the last few years Lululemon has had several leaders leave the company. So there has been turnover.
- [17:36]
E
You know it's interesting you go back to. Yeah, I forgot about that when he came in. His background, I mean he had been president CEO of Sephora USA for five years. Right. So the expectation was years, I think before that and Sears before that. But the Sephora thing I find interesting because people kind of love that model. I mean was the hope, right that they was. He was going to bring actual products. Right. Like whether and use and which do have incredibly high margins. Whether it's. I don't know, was it skin care? Like what was it that he. They thought he was going to bring in?
- [18:07]
G
So do you remember like the dry powder? You know, we all go work out and your hair is kind of sweaty and you're like, I'd love to just shake some powder and go. So they added dry powder, they tried a deodorant. The thing is with Sephora, yeah. You're not looking for performance in all your product. When you move to an active airline, you need to solve for performance and that's not easily done. In fact, I don't even know if there's a product today out there that actually works to solve real performance issues. I think it's still a hole in the market.
- [18:37]
E
It's called taking a shower. Take a shower.
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G
Yeah.
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E
I mean to be honest, like, yeah, there's no, I don't go work out and then like go out to dinner.
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A
Yeah. And like, you know, maybe something for shoes.
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C
I don't know.
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E
I don't know. Well, I don't know if you're doing yoga, you're in bare feet.
- [18:51]
A
Yeah, that's a good point.
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E
You know, can I just say, like I was thinking about the pair of yoga pants I wear all the time. It's Outdoor Voices. I bought them.
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A
That company's had its own share of different iterations. Yes.
- [19:00]
E
Years ago though. And it was because my daughter wanted something and I'm like, these are really cool. But it was innovative because they had these side pockets and I use them for traveling. I can throw my cell phone in and so on and so forth. So it's not been Lulu that I have picked up something.
- [19:14]
A
Well, Poonam, come on in on the idea of brand value here because Chip Wilson is a name we haven't mentioned in a few minutes. He's the founder of Lululemon. He's outspoken. Everybody remembers what happened when he was CEO of the company. He's out with a statement. He's got like a PR agency. He says, quote, the erosion of premium brand value in the company's core markets demonstrates that the board does not understand its target customers anymore or what will drive shareholder value at Lululemon over the long term. He blasted them in this statement earlier this morning. Is that view widely held by analysts?
- [19:51]
G
I think you can blame anyone right about now because Lululemon hasn't been able to perform as it did historically. But that said, you have to remember that the landscape has very quickly changed because everyone has access to consumers, everyone has access to intelligence and data and technology and you're leveling the playing field. Lululemon's brand still has great brand equity. Don't get me wrong, it still a very well known and preferred brand and its sales are very strong internationally, especially China, where many can't even get in and get it right. So I do give them credit for their international growth. I give them credit for men, I give them credit for digital. It's just when it comes to women, they just haven't had the innovation. I really think it's a product misstep. They need more innovation. They need a constant flow of new products that excite and delight the customer and they haven't been able to do that.
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E
Well, I agree with you. I've walked in and out of there and I really do like the quality of their. Their stuff. I think there is something to be said for that. But I agree with you. Put him. I walk in and I'm like kind of seen it all before or I've got it already at home and so I need something else. Chip Wilson, just real quickly, 30 seconds. Does he have much sway? I was just looking at the HDC function on the Bloomberg. Does he still own.
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A
He calls himself the top independent, active shareholder. He called himself that today.
- [21:14]
G
I don't have the numbers in front of me, but he definitely is among the top. And I would say he does have, have, you know, some push, especially when a company isn't doing well. Right. So you have to think about the dynamics at play here. Lululemon isn't performing well. Their results domestically are not anywhere where we would like to see them and they're not going to meet their 2026 targets based on our analysis. So at this point, I think when you have a founder who really established this company. Right. Who really brought he does have a say.
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E
All right, Poonam, thank you. Thank you. Have a great weekend. Putam Goyal, she's Bloomberg Intelligence senior analyst for E Commerce and Athleisure. Been following this company, as you can tell, knows it inside and out for many years.
- [21:55]
A
This is the Bloomberg Businessweek Daily Podcast.
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Listen live each weekday starting at 2pm Eastern on Apple CarPlay and Android Auto.
- [22:04]
A
With the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg 11:30. Well, a defense system that could defend the US from the nuclear missile arsenals of Russia, China and North Korea. It's the so called Golden Dome announced just days into President Trump's second administration. The president has said the project will cost about $175 billion and it'll be completed by the end of his term in 2029. But defense experts say those targets are unrealistic. A Bloomberg analysis found the final price tag could reach many multiples of that. And Carol, the tech not even confirmed that could actually work.
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E
You know, I think what I find fascinating reminds me of like President Reagan and his Star wars we talked about.
- [22:51]
A
In like grade school. Yes, not working right.
- [22:54]
E
Exactly. Although you kind of understood where he's going. But this certainly feels like and is more of a reality.
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A
Well, it's a Bloomberg big take and just a fantastic read. Joining us now is Santa Pashinker, Bloomberg News space reporter. Also, Wayne Sanders joins us, Bloomberg News Bloomberg Intelligence senior defense analyst. Santa joins us from Washington, D.C. wayne joins us from Maryland. First, Santa, I want to start with you. Carol said the whole concept reminds her of Star wars during the Reagan administration. But explain exactly how the golden dome would work, the satellites, the missiles, what would happen.
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H
Yeah, totally. So the Golden Dome is intended to be a multilayered defense defense missile defense shield. So the way it would work is like in the case of an attack from an adversary like Russia, North Korea or China, nuclear missile would first encounter a space based layer of defense, which would include space based missile interceptors. And that technology doesn't yet exist, but those are intended, those which were outlined in President Trump's executive order as a requirement of the golden dome would attempt to counter the missile at the very first stage, which is in space. And then if they make it past that space based layer of defense, there would be other layers of defense, including the high atmosphere and even on the ground, like using Patriot and Thaad batteries to intercept different types of missiles that could be launched from adversaries. So it's really like.
- [24:27]
A
Go ahead. Sorry, I interrupted you.
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H
Oh, I was just gonna say it's really like there's a net on every single level that is hoping to engage those missile and destroy them. Okay, we're going to land.
- [24:38]
E
Cool.
- [24:38]
A
We're going to get to the astronomical price tag in just a minute with this and also the how realistic a solution such as this is. But first I want to bring in Wayne Sanders. He's Bloomberg Intelligence senior defense analyst. He joins us from Maryland. Wayne, as Santa and the team write in the piece, up to now, the strategy to prevent annihilation of the United States has really depended on, on deterrence, this idea of mutually assured destruction and nuclear deterrence. Why, why do we need to make a change there?
- [25:13]
D
Well, I think, I think the first really important piece is there is a lot that actually goes on within, within missile defense, ballistic missile defense within the United States that we already have in one of the biggest, you know, precursors to Golden Dome was really looking at and saying we have a lot of capability that is not interoperable. We have capabilities like Lockheed's Aegis defense for the Navy. We've got ballistic missile defensive Guam and we have the THAAD batteries that Sauna brings up as well, as well as Patriot and PAC3 interceptors. We have a lot of capability, but what we don't have is the ability to see all of those to include the sensor layer that she brings up as well. We have tracking layers from ground as well as in the air as well as in space. And so long range determine discrimination radars, next generation overhead, persistent, you know, all these different things. But what they don't do is all talk to the senior military leaders at the same time and say, I can see a launch coming from country X. It's going to take X amount of time to get to, to get to the US or to one of our allies. You know, you can shoot a hypersonic missile from mainland China and reach South Korea and Japan in six to 11 minutes. You can reach Australia in 15 minutes. That is a very quick turnaround in terms of trying to make a decision. And if you're only picking it up based off of one commander who happens to be in a submarine or a surface vessel that sees this, they've got to get that to the national military command authority to make those decisions a lot faster.
- [26:44]
E
Yeah, I think about, Wayne, all of the layers of this. And yes, there's missiles and I go back to my college days and we were talking about ICBMs and, you know, deterrence and you know, how that kind of changed warfare. But what, I guess what I'm curious about, you know, throwing drones into this and this is a whole other kind of lower level. I just think about what's needed to protect ourselves against that. The cost, the implications. How does that even just kind of complicate or add to the cost of all of this?
- [27:18]
D
Well, absolutely, you know, the layer of defense that SANA brings up. Absolutely. 100% you have exo atmospheric, you think about those ICBM threats, you think about things that can go into space and come back down. We have to be able to reach those. But you also then have the drone swarm fight that is also out there. Right. So part of The Pentagon's Replicator 1.0 and Replicator 2.0 initiative is being able to counter drones and then be able to add to our own arsenal. So when you look at a billion plus dollars for drone development and counter UAs for the 2026 NDAA, a lot of that in the golden dome piece is really looking at high powered microwaves. It's looking at high energy laser technologies and you know, companies that are out there right now building these things so they can counter that threat. So that the strategic level capabilities, the expensive PAC threes, right. Four to six million dollars for to fire those Patriot and the Pack 3 Interceptors, you don't want to do that against the $30,000 drone. So so being able to put all these pieces together and make sure that you can identify the capability and shoot it down with the. Right.
- [28:24]
E
Okay. So to come back in on this, all I can think about is the price tag. You know, I've been to, I've been to countries like Costa Rica where I think they spend nothing on military and what they can do in terms of education and health care and just different things. Yeah, it's just. So talk to us about the cost because I think what was it back in October?
- [28:41]
A
175 billion is, is what the President said the project would cost.
- [28:45]
E
Right?
- [28:46]
A
Go ahead.
- [28:46]
E
No, but what I was going to say is that we already have a budget deficit that's topping and logging a one point trillion dollar mark. What would something like, like Tim, put out a number what the President thinks, what did you guys find out? And can we afford to do. Sound like my husband. Can we afford to do this?
- [29:05]
H
Yeah, totally. So when we kind of estimated how much it would cost to defend against an all out attack from the combined nuclear arsenals of Russia, China and North Korea. So think worst case scenario, the defense systems that we would need to really successfully counter that would cost about 1.1 trillion dol, way more than what Trump is claiming as 175 billion if you're adhering to the requirements that he's outlining in the executive order, which is that, you know, this golden dome will protect against any foreign aerial attack. And then, but you know, a golden dome that protects a little bit less could be built more cheaply, even though that's not maybe exactly what he said in the executive order. So we also calculated the cost of one, that a golden dome that could protect against an all out attack from just one adversary like Russia. And we found that, that even that was still $844 billion. And you know, a lot of these costs are just from procuring the systems and a lot of them don't even exist yet. Like I mentioned, space based interceptors is something that President Trump specifically states in the executive order needs to be part of this golden dome. And that technology doesn't even exist yet. So you would need a lot of, you know, research and development money as well. And we didn't even include that in our analysis. So, you know, it's, I think it's pretty well known that that's a, that's a potentially underestimate of what this would actually cost. If it is built to what he's stating in the executive order.
- [30:35]
A
Then how do you get that number sana, up to $1.1 trillion, this maximum risk scenario estimate, what does that calculate?
- [30:42]
H
Yeah, so, so what we did is we kind of so the nuclear arsenal of Russia, North Korea and China, those, those numbers of what missiles they have have been published by the Defense Intelligence Agency. So what we did was we did analysis to kind of find out how many defense systems we would need to really protect against all of these missiles coming at the United States at once. And you know, we did that using a combination of Pentagon documents, prototype contracts, think tank estimates. And so we kind of compiled all these costs of all the defense systems as well as the quantity of the defense systems needed to come up with this final number of 1.1 trillion.
- [31:21]
E
All right, so Wayne, we live in a world where we talk a lot about AI and you know, tech spend and you know, you got to do upgrades on things like this isn't a case of we build this dome and set it and forget it. Right. Or help me out here. Are we going to constantly having to be doing kind of upgrades, improvements and so on?
- [31:40]
D
No, they're definitely going to require that. I think a lot of the integrators that you're, you're already seeing. Right. Even with one of the Golden Dome pieces early on was palantir with SpaceX and saying hey, we want to be able to play in this space as well. During the bidding portion for Golden Dome, you're going to end up having to do that. So a lot of this also includes like cybersecurity, making sure that you have the open system architecture necessary to be able to provide the upgrades. But like Sana said too is you also have to build the scalability. You're still going to come down to industrials. You have to build the satellites capable of doing this. You have to build the radars and the sensors to be able to meet that. And then you have to get to the interceptors point to be able to do that. Right. You and I, we've had this conversation before. If you even take just the PAC 3 interceptors, right, that they're using the Patriot system. Lockheed, Lockheed, you know they were at 550 per year that they build and then you're, they're up to 750 that they're hoping for 20, 26, 27, they're adding additional lines. So they're doing a great job of actually being able to, to reach some of the demand. But those are for ground based Patriot systems.
- [32:48]
A
Okay.
- [32:49]
D
If you're now all of a sudden trying to add in, I need to create an interceptor capability, space based interceptor that's going to be in orbit, that's going to go on these satellites. You've got to build to that capacity as well and then add on to all of that piece. Right. Is that AI integration? Every time that there is something new that China or Russia does, we have to be able to make sure that we can defend that in the cybersecurity arena.
- [33:13]
A
Right.
- [33:13]
D
For the satellite platform itself, Wayne, we got to run.
- [33:15]
A
But just yes or no, does this happen by the end of President Trump's term?
- [33:20]
D
No. Phase one can happen where interoperability stuff can happen. Space based.
- [33:24]
A
No. All right.
- [33:25]
E
I think if the ballroom was going to get done.
- [33:28]
A
No, that's easier. That's not in space.
- [33:32]
E
Sana Pashankar and of course our Wayne Sanders. Thank you so much. Incredible, incredible story.
- [33:38]
A
Stay with us. More from Bloomberg Businessweek Daily coming up after this.
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D
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You're listening to the Bloomberg Businessweek Daily Podcast. Catch us live weekday afternoons from 2 to 5pm Eastern.
- [37:03]
C
Listen on Apple CarPlay and Android Auto.
- [37:05]
A
With the Bloomberg business app or watch us live on YouTube. You know today's an IPO day.
- [37:13]
E
Is it?
- [37:14]
A
Yeah. Wealthfront started trading. It's the. The Robot Advisor fintech company.
- [37:18]
E
Yeah.
- [37:18]
A
I think UBS was supposed to buy it a few years ago. It's now trading just up about 3.3% value, though, at $2.1 billion.
- [37:28]
D
Wow.
- [37:29]
A
And its debut today.
- [37:30]
E
I didn't see that, did it? What's it doing?
- [37:31]
A
It's up 3, 3.2%.
- [37:34]
E
Oh, interesting.
- [37:34]
A
Yeah, you could. It's not too late to add to one of your gainers. Maybe do an honorable mention.
- [37:37]
E
I am so overwhelmed with gainers today, courtesy of you.
- [37:42]
A
Well, he's. He's not a robo advisor. He's a real person. We're talking about Andrew Kreis, Chief investment officer at Crescent Grove Advisors. The firm has about $5 billion in assets under management. Andrew joins us from Milwaukee this afternoon. Andrew, good to have you on the program. Last time you were here with us in the studio, a lot has happened since then and, you know, a lot of questions. I think too, as we just heard from Jordan and from Charlie about where we are or are not when it comes to I spent and an AI bubble. How are you looking at that in the context of the trade?
- [38:16]
C
Yeah. Everybody wants to know where this AI theme is going. And also great to be with you. So I think from our perspective, the risk going forward is that so much is in the price at this point.
- [38:29]
A
Right.
- [38:30]
C
You've got such a sort of perfect outlook that's being priced into these companies at this point. And in particular, take a company like Oracle, where you're seeing more debt funding come into play, as opposed to some of the other MAG7 members that are largely funding their spending out of free cash flow. You introduce a unique element to that specific stock. But ultimately people are saying, can they deliver on the promise, the productivity gains, ultimately the earnings, the return on invested capital, all this money that's being sunk into this theme. Can we see that produce something of value? And. And if not, then I think these valuations are probably a little bit hard to justify. So it's data Point by data point, sort of case by case as you look at it. But that's certainly top of mind as you move into 2026.
- [39:22]
E
When clients come to you. And I know it's long term and it's about, I mean, they say I.
- [39:28]
A
Want to go back in time, I want to want you to put all my money in Nvidia 10 years ago.
- [39:32]
E
No, no, no, no, no, no. Yeah, yeah, exactly right. Or buy Bitcoin 10 years ago ago. Where do they want to put money? And I understand everybody's got their own individual goals and a lot of it's about maintaining the wealth, not only growing it, but so I'm just curious, what is it that they ask you most about when it comes to different trends, narratives, investment plays?
- [39:53]
C
I think right now what we've heard a lot from clients is just this uncomfortable sense about this rally since Liberation Day kind of off the, the April lows, that it just feels uncomfortable for some reason. You get a lot of talk about all time highs and do we pull back with our equity allocations. And certainly we're not opposed to taking some chips off the table. And in particular thinking about where do we rotate to find relative value across markets. And I think one of the big themes as we look out into next year and talk about within equities in particular that have done so well, sort of the growthy side of equities, these mega cap tech names, names taking chips off the table there, which would be the first order effects of AI. And the theme that we're talking about here with this outsized performance that we've seen from the Mag 7 and related names, think about what's the next play, what's the second order, the third order effect here? I was just going to say from that perspective, we think it's the diffusion of AI through the economy into more of these legacy kind of old economy type names. So that's something that we're positing to clients is okay, we appreciate the fact that there's this sort of momentum play in markets and you're a little bit skittish about levels here in valuations. Let's think about areas where we can rotate into things that offer better value right now in markets while maintaining some of your exposure in aggregate.
- [41:12]
E
Like health care or what?
- [41:16]
C
Yeah, I think health care industrials, sort of these manufacturing segments of the economy, again just these old lines areas of the economy, even business services, more traditional businesses like that. And we look at it not only from the public market side of things, but the private market side of things. So we spent a lot of time looking at private equity or certainly venture capital, growth equity. But if you think about private equity in the way that they can touch these traditional businesses, small medium sized businesses, apply some AI in a thoughtful, novel way and drive real productivity gains and if you can find a manager that can do that in a really systematic fashion, action and has some sort of edge in terms of the way that they're deploying that throughout their portfolio, we think that's a really interesting complement to what you're seeing on the public market side as well.
- [41:59]
A
Well, let's go back to public markets and just think about geographies for a second. Where, where do you think this happens in terms of spilling out into the non AI companies over the next couple of years? Does it happen the US or do investors, would investors be good to look.
- [42:15]
C
Outside of the U.S. yeah, I think it happens globally. And this weaves into another theme that we're seeing and expecting to continue to play out, which is really deglobalization. But re regionalization I suppose is the way we would frame that in the sense that Europe gets more Europe centric in the way that it thinks about maybe even its own AI technologies and sort of the sovereignty around its AI capabilities. But we think AI will be a universal technology that gets deployed across the world in different capacities. And then that really ties back into this relative value theme as well, where you're looking at markets ex US that are trading at much more reasonable valuation starting points but continue to have a pretty good catalyst in terms of fiscal spending. Picking up defense spending certainly within Europe is a sort of poster child there. You've got loose fiscal policy in Japan, you've got China which looks like set to continue to be providing stimulus to its market. So you've seen this positive revision in earnings expectations. If you look at the ifa, if you look at emerging markets indices, we think that then is kind of the relative value rotation theme for us where you come out of some of these mega cap tech names that have done so well, look at other areas of the market that are poised to sort of accelerate their earnings growth into 2026.
- [43:35]
E
Biggest risk in the new year. Just quickly, just got about 30 seconds.
- [43:40]
C
Yeah, it's inflation to us, it's, it's if inflation stays stubbornly high and we're already seeing, you know, the 10 year today is ticking back up towards 4.2%. But if you see inflation expectations really rerating to the upside, you see that 10 year move back towards 5%. We think that's that's the big concern, then all of the knock on effects that come alongside sort of longer duration securities repricing as a function of elevated inflation expectations. So that's what we're watching really, really closely in the next year.
- [44:09]
A
Andrew Kry, thanks so much for joining us. Chief Investment Officer at Crescent Grove Advisors. Hopefully next time we see you back here in New York. This is the Bloomberg Business Week Daily Podcast available on Apple, Spotify and anywhere else you get. Your podcasts listen live weekday afternoons from 2 to 5pm Eastern on Bloomberg.com, the iHeartRadio app, TuneIn and the Bloomberg Business app.
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