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- [00:00]
Carol Massar
Bloomberg Businessweek is brought to you by Evolving Money, a podcast that explores how cryptocurrency is the next logical evolution of the financial system. Follow the podcast, which is sponsored by Coinbase, wherever you get your audio programs.
- [00:14]
Tim Stanweck
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Tim Stanweck
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Tim Stanweck
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- [00:44]
Carol Massar
Chase Inc. Business Premier card is a painful card with flexibility made for business owners who make things happen. Earn a total of 2.5% cash back on every purchase of $5,000 or more, plus earn unlimited 2% cash back on every other purchase, giving you unlimited earned potential to invest cash back into your business. Inc. Business Premier of A suite of credit cards from Chase for Business designed to meet your needs every step along the way. Learn more@chase.com business card chase for Business make more of what's yours Accounts subject to credit approval restrictions and limitations apply. Cards are issued by JPMorgan Chase Bank NA member FDIC Bloomberg Audio Studios Podcasts Radio News this is Bloomberg businessweek Daily reporting from the magazine that helps global leaders stay ahead with insight on the people, companies 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 Judge dismisses cases against former FBI Director James Comey and New York Attorney General Letitia James after finding that the prosecutor was illegally appointed. You've got that going on. You've got President Trump and President Xi of China talking today, Ukraine and allies warning the United States against rushing to end Russia's war. So Tim, we knew we needed to kind of head back to D.C. and do a little bit of a roundup here.
- [02:19]
Host/Interviewer
Well, there we find Bloomberg News Senior Editor for Technology and Strategic Industries Mike Shepard. He's in Our Bloomberg Washington, D.C. bureau. Mike first up, the judge dismissing the cases against former FBI Director James Comey and New York Attorney General Letitia James, after finding that the prosecutor was illegally appointed, certainly feels like a big setback. We spoke to June Grosso a little earlier. Is it the end, in your view of legal woes for these two?
- [02:45]
Tim Stanweck
Maybe not entirely, because the Trump administration may try to find a way to revive these in some fashion. But the judge was firm in the dismissal of those two proceedings. And it, it would certainly appear that there is no avenue open through that. That does not mean, though, that they cannot try to restart something yet again. We are only in year one of the current administration, and the president has made clear that he would like Pam Bondi to use the authorities of her office at the Justice Department to pursue the people who have been crossed Trump in some fashion in the past, but particularly James Comey, who made an enemy of the president many years ago, even before his first administration.
- [03:34]
Carol Massar
All right, but nothing from the White House or the president so far on this?
- [03:38]
Tim Stanweck
So far, no. We haven't seen a truth social post and the president has not yet appeared in public yet. So we'll be waiting to see. But we do get a sense from the Justice Department that they are disgruntled and unhappy about this finding. And yet the prosecution was riddled with missteps from the start, especially in the case of James Comey in the question of how what the grand jury saw and whether they saw the finished indictment. It was really a mess every step of the way procedurally. And, you know, the question is whether the president will push his appointee Pam Bondi to try to resurrect a case in some fashion.
- [04:17]
Carol Massar
All right, so maybe no social from the president of the White House on that. But we did get some. Not yet the day. The day is still young. But we did get some social from President Trump talking about China, mentioning we got some reports initially from the Chinese Foreign Ministry about a conversation, if you will, between President Trump and President Xi. But President Trump on truth social coming out and saying our relationship with China is extremely strong. This call was a follow up to our highly successful meeting in South Korea three weeks ago. President Xi invited me to visit Beijing in April, which I accepted and I reciprocated, where he will be my guest for a state visit in the United States later on this year. What's going on right now between the two countries? Where are we? I can't even keep track between trade and tariffs and security issues and chips and so on and so forth. Where are we?
- [05:09]
Tim Stanweck
Well, it's a good question, Carol, because this call was not really on anybody's Bingo card, really, at this moment. The two sides had just held that highly anticipated and highly orchestrated meeting at the end of last month where they forged this trade truce. And it seemed a little early to actually have the two leaders do a check in call. And the message between the president's readout of his conversation with his Chinese counterpart, Xi Jinping, and the official Chinese news agency's version was pretty stark. Donald Trump really stressed that the call was very good. He talked about his plans for a visit to Beijing and his invitation for Xi to come visit the US later next year. He also talked about some of the key trade points that had come up and had been agreed to during this trade truce, namely increased purchases of soybeans by China, efforts to curb fentanyl trafficking, and so forth. And yet the version that we got from China was a very different tone. It really stressed the conversation on Taiwan. And we have to remember that there is a spat brewing between Japan, a major US Ally and trading partner, and China over the island. And that is because the new Japanese Prime Minister, Sanaya Takayachi, had expressed that Japan might leap to Taiwan's defense in the event of a hypothetical invasion by China of the island. China views Taiwan as its territory and has said that if necessary down the road, it would weigh whether to take it by force. Now, the US has maintained strategic ambiguity over this, and the comments by Japan raise questions about whether the US Would side with Japan on this matter. The president was artful in not bringing up Taiwan in his Truth Social post, but the Chinese were very direct, and it does seem that they were trying to enlist the US or at least warn the US to back off a little bit in this confrontation with Tokyo.
- [07:17]
Host/Interviewer
Okay, well, we said we'd go around the world with you, and we're going to do that. Mike, I want to talk Ukraine. Because Ukraine and its European allies signaled that the key sticking points remain in US Brokered peace talks, even as senior officials held progress in winning more favorable terms for Kiev from a proposal backed by by President Trump. Where does this leave the peace process between Russia and Ukraine?
- [07:38]
Tim Stanweck
It is still ongoing, and it is probably not moving nearly as quickly as President Donald Trump and his advisers would like. They had given authorities in Kiev, including President Volodymyr Zelensky, until Thursday of this to accept the proposal that they had presented last week. But that version really contained a lot of the demands and desires of the Russian government. It was forged in conversations between Moscow and officials from Moscow and Washington and presented without much consultation at all with officials in Kiev and in European capitals, and they have since met with the US Side to express their reservations and concerns. And those specifically center on questions of territorial concessions that Kiev might be expected to make in any peace agreement and also the security guarantees that might be baked into any final accord. The European allies of Ukraine and Ukraine have expressed concern that those provisions were not nearly strong enough and they needed to be discussed. Now the proposal presented last week has now been whittled down to 19 points from the 28 that were framed originally last week, and the conversation is ongoing. And we heard Frederick Mears, the German chancellor, express some optimism, guarded optimism about progress having been made. But he did see that things were a long way off. So we'll have to see where this actually goes and if it does bear fruit ultimately. And in a further conversation about how to end the war there.
- [09:16]
Carol Massar
Yeah. And where are we like in our third year, I believe at this point? Are we in our third year? We're approaching four, right? Four in February.
- [09:25]
Tim Stanweck
It will be for four years in February.
- [09:28]
Carol Massar
Amazing. All right, Mike, thank you so much. Around the world of Washington we went Bloomberg News Senior editor for technology and Strategic industries, Mike Shepard. Thanks to him we did that. He is there, of course, in the Bloomberg News Washington, D.C. bureau.
- [09:42]
Host/Interviewer
Stay with us. More from Bloomberg Businessweek Daily Coming up after this.
- [09:49]
Carol Massar
Bloomberg Businessweek is brought to you by Evolving Money, a podcast that explores how cryptocurrency is the next logical evolution of the financial system. The program investigates how traditional finance firms are integrating crypto into their operations now that Washington has begun to pass much needed regulations. Follow the podcast, which is sponsored by Coinbase wherever you get your audio programs.
- [10:13]
Ad Voice/Announcer
Support for the show comes from public.com you're thoughtful about where your money goes. You've got your core holdings, some recurring crypto buys, maybe even a few strategic option plays on the side.
- [10:23]
Tim Stanweck
The point is you're engaged with your.
- [10:25]
Ad Voice/Announcer
Investments and Public gets that. That's why they built an investing platform for those who take it seriously. On Public you can put together a multi asset portfolio for the long haul. Stocks, bonds, options, crypto, it's all there plus an industry leading 3.6% APY high yield cash account. Switch to the platform built for those who take investing seriously. Go to public.com market and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com market paid for by Public Investing.
- [10:56]
Producer/Announcer
All investing involves the risk of loss.
- [10:57]
Ad Voice/Announcer
Including loss of principal. Brokerage services for U.S. listed registered securities, options and bonds and a self directed account are offered by Public Investing Inc.
- [11:04]
Tim Stanweck
Member FINRA and SIPC crypto trading provided.
- [11:07]
Ad Voice/Announcer
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- [11:13]
Producer/Announcer
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- [12:12]
Carol Massar
Youm'Re listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube as we get.
- [12:27]
Host/Interviewer
Ready for a US government read on retail sales for the month of September. The data that's coming out tomorrow that may give the US Bond market some direction, Carol, it's on track for a small gain in November after rising in eight of the prior 10 months. Even as the market is mired below October's price highs and yields. They're rangebound.
- [12:43]
Carol Massar
They are indeed. Let's get to it. Let's continue on the U.S. economy and U.S. treasuries. Back with us is Jennifer Lee. She's senior economist and managing director of economics over at BMO Capital Markets. They've got just over $1 trillion in assets. That was as of the end of the second quarter. Jennifer joining us once again from Toronto. Jennifer, great to have you here. We Talk last on September 10th. It was just before the longest US government shutdown began. It's now over. The data desert is no more. What's your read on the US Economy as we start to get some data points?
- [13:17]
Jennifer Lee
Well, first of all, good afternoon. Thank you for very much for having me on. And by the way, my head is spinning thinking about all the politics that's going on and all this productivity stuff. And now we've got all the data so there's going to be a lot of more spinning going around. And I mean so far we haven't had a very clear read on the economy from some of the data that we've seen. So Far, I mean I guess I could say that it's been pretty still steady, resilient if you will. But you know, the data are kind of old, right. And I sort of have to wonder, you know, how much we're going to see in terms of revisions in the coming months as well. Just given that the shutdown seems like it just ended and you know, everyone was like hustle back to work and let's start getting those surveys and, and all the data points out. So I think we had to take everything with a grain of salt. Plus all of this data is coming before the shutdown, before that 43 day long shutdown. So we're going to see highs, we're probably going to see some lows. So we're going to have to probably go into work towards the new year before we start seeing some cleaner data. Cleaner data because the shutdown will be over unless it starts again on January 30th. And of course we see some revisions. So so far I will say long winded way of answering your question so far seems like it's okay.
- [14:24]
Host/Interviewer
Not ready to start talking about another government shutdown at this point, Jennifer, before we get there, we'll get some other data soon. Even during the shutdown we did get some alternative data and it seemed to indicate, and also commentary coming from companies that, that the labor market in the US Is weakening. And I wonder which part of the wonder from you, which part of the Fed's dual mandate the Fed should be more focused on right now, Is it stable prices or is it maximum employment?
- [14:47]
Jennifer Lee
I think right now the focus is on the job market. If you had asked me this like a month ago or so, I would have said inflation and I would have been very lonely, I think saying that because at that point I was still quite concerned about inflation and I was saying that it's still too early, even though we were like in October and all that. But just the fact that we are seeing some deals being made, we're seeing tariffs being lowered, you know, I think it was like this morning or over the weekend, you know, with some tariffs of 40% being brought down from Brazil, for example. So that will help food price, food prices come down a little bit in the US So that gives me some comfort that we are seeing inflation, you know, we should be seeing inflation moderate in the months ahead. So because of that now I'm thinking that the Fed is probably rightfully focusing on the jobs front and we'll have to see how that happens. I think, I think, you know, we are, it's basically a toy cost, a coin toss at this point with the December meeting between inflation and all that. But I think they're going to err on the side of caution and focus on jobs and probably go for another 25 basis point cut on December 10th.
- [15:49]
Carol Massar
Do you have any clarity when it comes to 2026?
- [15:53]
Jennifer Lee
We are still seeing, and again, this is all hopefully like a lot of this, these tariffs and all these deals will be settled by earlier in the year and we'll have hopefully see inflation, you know, moderating further. And because we'll see some clarity on the front, we should hopefully see some of the job market indicators leveling off as well, being a little more steady because I think a lot of the worker or employers earlier in the year did not, you know, do not know what was going on on the trade front. So they were holding off on hiring and firing or laying off workers, but they held off for a long time and now we're starting to see some of those layoffs come into play. We saw like a big increase in the number of permanent layoffs, for example, in that September jobs report. So hopefully with some clarity on that front, some clarity the fiscal front. And then now we're going to be focusing on the usmca, we're going to be focusing on the midterms, which is not until November. But you know, time just goes by just like that. Right. So with some clarity again on the trade front, tariffs coming down, I think that will hopefully be a little bit better for jobs. But in the meantime we still look for after a December rate cut, we still look for about three more rate cuts to come from the Fed. Just kind of spaced out on a quarterly basis.
- [17:03]
Carol Massar
All right, just want to mention 10 year note at 4.03% to your note, shorter end of the yield curve, 3.50 gen. Jennifer Lee, she's senior economist, Managing Director of Economics over at BMO Capital Markets.
- [17:15]
Producer/Announcer
This is the Bloomberg Business Week daily podcast. Listen live each weekday starting at 2pm Eastern on Apple CarPlay and Android Auto.
- [17:23]
Host/Interviewer
With the Bloomberg Business app. You can also listen live on Amazon.
- [17:27]
Tim Stanweck
Alexa from our flagship New York station.
- [17:29]
Producer/Announcer
Just say Alexa play Bloomberg 11:30.
- [17:33]
Host/Interviewer
We're trying to make sense of the AI trade and how companies companies are funding their AI investments because in the last few weeks there have been some observers who argue that the important company to look at is Oracle. Sure, shares of Oracle are up 20% so far this year, but they're down close to 40% since that all time high reached back in September. And then there Are the credit default swaps. The cost of protecting Oracle's debt against default reached a fresh multi year high on Monday amid investor scrutiny of the debt spree to finance AI investments. We've got Robert Shiffman with us. He's Bloomberg Intelligence Senior tech credit analyst. He joins us here in the Bloomberg Interactive Brokers studio. Okay, so we'll go, I'm going to go over some numbers here but then I'm going to ask you a really basic question about this. So the price of five year credit default swaps on the company's debt rose to the highest since October of 2022. It amounts to around $119,000 for every $10 million of principal protected. So those are the numbers for people who don't know. Why do we care so much about the price of credit default swaps and how can they give us some insight into the health of a company?
- [18:34]
Ad Voice/Announcer
Well this must actually be the top of the market. There has to be a bubble because you've got the tech credit guy sitting.
- [18:41]
Host/Interviewer
In the room signal.
- [18:42]
Ad Voice/Announcer
Even though tech credit spreads are near their all time tight.
- [18:45]
Carol Massar
We have brought some people from the.
- [18:47]
Ad Voice/Announcer
Gfc obviously some, some panic he called it. I'm going to answer an Oracle but let me start off just quickly by saying it's okay, don't panic. Yeah, the markets are holding up reasonably well. There is a little bit of weakness and there are some yellow flags out there and there is some company specific information that's concerning. That being said, this whole AI trade, it's not a one month, two month, three year trade. This is a 10 year trade. And right now we're in a building phase, spending a lot of money without a lot of revenues coming in. So it takes time. I can't disprove a negative. I can't disprove that money is not going to come into Oracle or Amazon or Alphabet or Meta. But I think it is. Now that being said, why is something like Oracle CDS concerning people? Well it's because single name cds, particularly for investment grade names generally don't trade. They do trade. In the triple B universe, Oracle has been a name that hasn't traded. And the reason why is that there hasn't been a reason to hedge in the past. All of a sudden there's a reason to hedge. Oracle issued $18 billion of bonds. On top of that they're in the process of syndicating 38 billion of private credit. That what I think is really driving this move. And what is that? Why was CDS originally created? It was for banks to Hedge their loans. It became a trading vehicle for a long time. And when we hear CDS nowadays, we think about the financial crisis, we think there's a name that's wider, we're blowing up, AAA's are going to are defaulting. And I just think we couldn't be that far from the truth. There's a combination of fundamental but I think more technical reasons why this is happening. So you have banks that have tremendous amount of exposure to data centers. Not just Oracle, but a lot of these data centers that are non investment grade like Core Weave, a lot of other data center builds that they don't have the ability to properly hedge because there's not active cds. So how do you hedge your positions? Well, what you do is you hedge via the higher rated credits where you can potentially buy cds that cost next to nothing. 20, 30, 50 basis points, even 120 basis points is not very much because that's how you can hedge your data center risk and you can do it really cheaply. Then on top of that, what happens is hedge funds join in. You have a momentum trade here that goes on where somebody sees, whoa, wait, whoa. Bloomberg wrote a report on Oracle CDS. We haven't seen CDS in the headlines in 10 years. What's going on? First thing for a hedge fund manager to do is to say I'm going to buy cds. I'll get the answers later. On the back of that, what ends up happening is where do you find the natural sellers of cds? Where do you find somebody that says, oh, you know What, Oracle at 60 over, 70 over, I'll sell you protection because what's my upside to doing that? And I think what's happened now is that you've got fundamentals that are not great in the near term. Oracle's free cash flow is going to be massively negative for the next few years. They're going to have to fund that with even more debt which is going to have to be hedged both in the public and private markets. So you get this cycle of people coming to try to buy cds. There's not a lot of sellers. It pushes it wider. That being said, Oracle is sort of standing a little bit alone. You really need to go down the curve to more liquid names like Core Weave where you're seeing big moves like this. When you look at the names like what I call the Mount Rushmore of credits, the Microsoft's apples, Amazons, alphabets, we're seeing a little bit of spread widening. You're seeing people starting to try to buy some protection, particularly for Meta. And why on Meta? It's not that Meta has underperformed from both a credit and an equity perspective, but it's because Meta did a $27 billion private data center deal. And that's the way that the banks are able to hedge that. Now there are some large asset managers that bought that deal, but there's still a lot of banks that are involved with that that are hedging their position. So it's a little bit of fundamentals and a little bit of technicals.
- [23:05]
Carol Massar
So don't be worried.
- [23:06]
Ad Voice/Announcer
Well, as bond people, I mean, what.
- [23:08]
Carol Massar
Would you have to see to say, okay, we've got some problems here.
- [23:11]
Ad Voice/Announcer
So the reason why I'm a little bit less worried, first of all, the big names that I mentioned, mentioned, we barely see any sort of spread movement. And quite frankly when, I mean you mentioned Oracle stock, Oracle stock is still up 20%. All these other names other than Metta are up significantly this year as well. So it's also from a starting point.
- [23:28]
Host/Interviewer
Right, still down 40. Oracle's down 40% from, I mean Carol and I were sitting on the beach in September at an event and Oracle was just surging higher. I mean this was like there's, there's more equity after the company reported earnings that day.
- [23:40]
Ad Voice/Announcer
Yeah, research doesn't get to go to the beach, you know. But that being said, we see that, but you got to remember we're coming off of all time highs. So equity valuations, listen, stocks could be down 50%. I still don't think that would mean there'd be any fundamental change in what expectations are. So I just think when you look at credit markets again, credit spreads for the investment grade tech sector year to date are 15 wider or about 5 wider. On the entire high grade sector we've primarily underperformed because of a couple names like Oracle and there's been a lot of bond issuance that have pushed spreads a little wider because there's more bonds that are trading. But there is no panic in our market. There's a worry that a name like Oracle, as they continue to fund could in theory go to non investment grade. What would Happen? They have 100 plus billion dollars of public debt outstanding. It's non economic. You can't run a high yield business like that. So one is, I think the rating.
- [24:42]
Carol Massar
Agencies just got about 20, 25 seconds here.
- [24:43]
Ad Voice/Announcer
The rating agencies are going to give them room, I think they're going to give them time. Even though there's negative outlooks at S and P and Moody's, I do not see Oracle going to junk. I also think there's a huge backing in the capital markets as well as the US Government. If Oracle were to need capital and if Larry Ellison needed some sort of favors, it would happen.
- [25:01]
Carol Massar
I know, but that doesn't necessarily make me comfortable.
- [25:03]
Ad Voice/Announcer
It should make you comfortable.
- [25:05]
Carol Massar
All right. All right. Robert Shif, so good. Thank you so much. Bloomberg Intelligence Senior Technology Credit Analyst will be reaching out to him. I know.
- [25:13]
Host/Interviewer
Again, stay with us. More from Bloomberg Businessweek Daily coming up after this.
- [25:21]
Tim Stanweck
Support for the show comes from public.com.
- [25:24]
Ad Voice/Announcer
You'Re thoughtful about where your money goes. You've got your core holdings, some recurring crypto buys, maybe even a few strategic option plays on the side.
- [25:32]
Tim Stanweck
The point is you're engaged with your.
- [25:34]
Ad Voice/Announcer
Investments and Public gets the that's why they built an investing platform for those who take it seriously. On Public, you can put together a multi asset portfolio for the long haul. Stocks, bonds, options, crypto. It's all there. Plus an industry leading 3.6% APY high yield cash account. Switch to the platform built for those who take investing seriously. Go to public.com market and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com paid for by Public Investing.
- [26:04]
Producer/Announcer
All investing involves the risk of loss.
- [26:05]
Ad Voice/Announcer
Including loss of principal. Brokerage services for U.S. listed registered securities options and bonds in a self directed account are offered by Public Investing Inc.
- [26:13]
Tim Stanweck
Member FINRA and SIPC.
- [26:14]
Ad Voice/Announcer
Crypto trading provided by ZeroHash complete disclosures.
- [26:17]
Producer/Announcer
Available at public.com disclosures from providing extra support during busy seasons to replacing vacant roles, you need Express employment professionals on your team. Express can handle everything from contract placements to finding the right full time team member. Solve your workforce challenges when you let Express deal with the workers compensation, payroll, benefits and more so you can concentrate on what really matters growing your business. Go to expresspros.com if you've never used a staffing company, here's how Express has helped businesses like yours to balance their workforce to meet production demands, reduce stress and burnout, which reduces turnover, access a local talent pool ready to work for all types of jobs and a variety of reasons. Choosing Express employment professionals is the move to make this year with more than 870 locations. Find the one near you at expresspros.com that's expresspros.com if a Lenovo gaming computer is on your holiday list, don't shop around, just go directly to the source.
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Tim Stanweck
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Tim Stanweck
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Tim Stanweck
That's Lenovo.com Lenovo.
- [27:48]
Producer/Announcer
Lenovo. I've been driving all night, my hands wet on the wheel.
- [27:54]
Host/Interviewer
Come on, let's take a drive.
- [27:55]
Ad Voice/Announcer
A drive?
- [27:56]
Carol Massar
Yeah, a drive.
- [27:59]
Host/Interviewer
Can you just focus on driving? Focus on the road.
- [28:04]
Producer/Announcer
Why would I drive fast?
- [28:05]
Jennifer Lee
Because I'm asking you to take your.
- [28:07]
Ad Voice/Announcer
Place in the drive.
- [28:09]
Host/Interviewer
Just drive, baby.
- [28:12]
Carol Massar
This is the drive to the clothes.
- [28:13]
Ad Voice/Announcer
But we're going.
- [28:14]
Carol Massar
We don't need roads on Bloomberg Radio. All right, tick tock, everybody. About 18:19 minutes to go until we wrap up the trade on this Monday, November 24th. Carol Masserton, Statvik live in our Bloomberg Interactive Broker studio. And as you just heard from Bill and Amy, we are kind of hovering near our best levels of the session. Feels like another leg up here for the NASDAQ 100 up 2.6%. A rally underway, S&P 500 again of about 1 1/2% here as we are getting closer to the closing bell. But Tim, still kind of almost an even split. A little bit of a more risk on trade. If I look in the s and P283 names to the upside, 218 to the downside to unchanged.
- [28:55]
Host/Interviewer
Yeah, that's pretty wild to me given the magnitude of the rally that we're seeing. But it speaks to the fact that it's the big stocks that are making the big moves, at least to the upside. I want to bring in Leo Kelly of Verdance Capital Advisors. He's founder and CEO. The firm has more than $4 billion in assets under management. Leo is back with us from Hunt Valley, Maryland. Leo, if we were having this conversation last week, I mean, we're, we're not quite back to where we were at all time highs. But we're, that's the direction we've been moving in on Friday. And then today we kind of thought, I think a lot of people thought something was happening with the equity market. There was weakness starting to be exposed. There were concerns about the labor market. There was concerns about the finances of the way that these companies are spending on and investing in AI. How do you see it?
- [29:37]
Producer/Announcer
Well, you have to break that question down in a couple of pieces. The first is, I know there was a lot of conversation around the bubble bursting. And I think you guys may recall we've been talking about elevated valuations and being very disciplined in Your asset allocation to burst a real bubble. And with the valuations we're seeing today and the extent that these stocks have run done, that's a process. That's not an event. It takes time to break down the enthusiasm and optimism of investors and you hit a bottom when you've extracted all of that enthusiasm out and everybody is in panic. And we're a long way from that. So I think there's still going to be rallies along the way. I think we're going to see a lot of volatility in the first and second quarter of next year. I would say remember in 2000 we saw these 8, 10% movements in 99 and people were getting concerned. In March we went into a full bear market and then it rallied all the way back by July of 2000 before we actually had the real bear market, which lasted two years. So we have a long way to go. We're going to see a lot of rallies here in terms of investing overall. I do think the government shutdown has ended. So now we're going to. That'll cost us a little bit of GDP this quarter quarter. But outside of that, jobs have been weak, but they're still fine. The consumer has slowed but is still fine. I think, I think as we go into 2026, we're going to find, we're going to find some strength again going into the early part of next year.
- [31:09]
Carol Massar
The notes you shared with us, Leo, you know, you talk about the implications of an AI bubble lasting for decades. From an investment standpoint, investors will learn valuable lessons about overalllocating to hot stocks and to listening to stories as absolute truth versus considering evaluation. From an economic standpoint, excess capital turns into rapid infrastructure development. That's the good side of a bubble. Is it just timing here? I mean is. Do you buy that this is going to be and is already starting to be transformative and it's going to impact every industry and it's going to change just everything. But maybe the timing and all of this and maybe that's why we feel so uncomfortable about the massive spend right now. We might have to wait a little bit for the payoff and the disruption and the innovation happening.
- [32:02]
Producer/Announcer
Yeah, yeah. As the old saying goes, I have good timing. So the timing is going to be obviously difficult. Now what happens historically with generational changes like this, whether it's the Internet or it's mobile social or railroads or cars or you name it, the infrastructure development side of this, the build out is where all the enthusiasm is present and you get massive capital infusions. And this is what I mean by some bubbles are good. The investment side will teach valuable lessons, but it brings capital to the needed infrastructure development point. Now the real money making comes in the application of the infrastructure and we're not there yet. To your point Carol, that's when we get over the hump, is when the applications start to hit. So think of it this way. Way. Cisco was the Nvidia of the Internet. They were at the center of everything and they were very powerful. Didn't stop them from going down 80% in the bubble crash, but still great company. And everything they said about Cisco came true. It's a great company even today. But really what drove the Internet was applications. Google, Amazon, etc. They weren't there during the crash or when they were in their nascent phase. When you think about mobile, you think about Uber. Great example. It was AT&T and it was Apple that built the infrastructure. But really it was the Ubers of the world that created what is today the productive side of mobile. Same thing with AI. We think quite frankly where the AI application is going to come from doesn't even exist today. I think it's going to happen today in the venture capital world. The companies that are going to build the applications to put on the infrastructure, just like Uber didn't exist when the, when the mobile phone came out, the application companies are coming.
- [33:59]
Host/Interviewer
So Leo, is that, is that a nod to alternatives in a portfolio? Alternatives that invest in venture capital? I mean, how do you, how do you, your clients get exposure to this?
- [34:08]
Producer/Announcer
Yes, absolutely. Well, first of all, we're big private equity users across a very diversified portfolio. First things first. No, investors just go off and try to chase one private equity discipline. That's no different than just going out and buying one stock. But that said, Tim, to answer your question directly, yes, we are invested in venture, we're invested in cyber, cyber defense, and we're invested in AI application companies that are developing the apps that will create the productivity that's in front of us. Again, historically these infrastructure companies try to create applications, but that's not their expertise. The expertise comes from the companies that will be developed soon.
- [34:50]
Host/Interviewer
You know, if you, if you look at the landscape right now and you know you're thinking about this like the Uber corollary you mentioned with smartphones. What's the type of company that would exist in this post AI world? Just give us some examples.
- [35:03]
Producer/Announcer
Yeah, I, I think, I think it's anything that creates productivity. So anything that for example, starts to create agency for users that allows them to go all off and then create processes that make everybody more productive. And frankly, and this is one of the great dichotomies of progress is it's the applications that take jobs away that will be the most successful. Now this is where we all gasp and say Leo said for it to work, everybody's going to lose their jobs.
- [35:34]
Carol Massar
Right?
- [35:34]
Producer/Announcer
But funny.
- [35:35]
Carol Massar
Not funny.
- [35:37]
Producer/Announcer
Right? Funny. Not funny. But. But what happens is the new jobs come and we start to see jobs in areas that we don't even know exist. For example, how many computer scientists work at Google today that didn't exist pre Internet? And so you start to transition the economy and yes, that's always a challenge, but on the other side, the productivity is substantially higher and that usually helps us catapult to another level of economic benefits benefit.
- [36:07]
Carol Massar
Well, it's a timely chat because it's kind of tying all these things that we've been talking about I feel like the last few weeks in a big way. Leo, so great, great to get some time with you on this Monday. Hey, have a great Thanksgiving. Leo Kelly, founder and CEO of Verdicts Capital Advisors, joining us from Hunt Valley, Maryland. This is the Bloomberg businessweek daily podcast available on Apple, Spotify and anywhere else you get your podcast. Listen live weekday afternoons from 2 to 5pm 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. If a Lenovo gaming computer is on.
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Producer/Announcer
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Carol Massar
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Carol Massar
Amazon Five Star Theater presents real customer reviews performed by a real serious improv podcast. Tonight's review, Spatula for the Stars.
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Producer/Announcer
When I'm dead and civilization eventually collapses.
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Carol Massar
This spatula will remain. It will be the only rune uncovered by some unknown species of the future upon which they base their assumptions of our existence. Eggs they reposit. These extinct people like to eat their eggs, and this was their primary tool for cooking them. Let us teleport and put this device in the Milky Way exhibit 5 stars Zachary, find your perfect gift this holiday on Amazon.
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Producer/Announcer
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