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- [00:00]
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- [00:16]
IBM Representative
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- [00:44]
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- [01:25]
CBOE Advertiser
Bloomberg
- [01:26]
Chase/JPMorgan Advertiser
Audio Studios Podcasts Radio News.
- [01:34]
John Authers
This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferro along with Lisa Abramowicz and Annmarie Horden. Join us each day for insight from the best in markets, economics and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from 6 to 9am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always on the Bloomberg Terminal and the Bloomberg Business App. Stuart Kaiser City Writing There hasn't been much market breadth lately on both selloffs and rallies. The market has been mixed as people rotate instead of broad changes in risk. Stuart joins us now for more. Stu, good morning.
- [02:11]
Stuart Kaiser
Good morning. How are you?
- [02:11]
John Authers
I know you can't talk much about this IPO, specifically the amount of IPOs that are coming to the market at the moment. Do you see them as a red flag for the bull market or a green flag to deploy more capital?
- [02:20]
Stuart Kaiser
I mean ultimate to see how they perform. And I think it's not just IPOs, right? You have secondary offerings from Meadow, from Google, from Amazon. You have tremendous AM convertible bond issuance, hygiene bond issuance. So this is a sort of broad based demand for capital and I think a lot of investors are Looking at this as one of the largest construction and industrial production cycles the world has ever seen. Right. And that needs to be financed. And what we're seeing, I think the last couple of weeks is a little bit of a friction in the market as people digest just the enormous amount of capital that's going to need to be raised.
- [02:49]
John Authers
Pushbacks do that. We've talked about matter. Oracle maybe spending too much, thinking about raising more capital. Stock markets push back. Are all companies going to be treated the same? Will be just isolating the weak point.
- [03:00]
Stuart Kaiser
I mean, I don't think all companies will be, will be treated the same. You know, the winners are the winners in the big free cash flow. Companies like we see from the Mag 7 the last couple of years are going to be able to raise that capital. And companies that are maybe the tier 2 or the tier below that are going to see credit spreads rise and going to see some more pressure. I think what's gotten people's attention recently is last year was all about debt financing, right? This year it's been about equity financing. So that's gotten equity investors attention. Like, wait, this applies to us as well. This doesn't seem very fair. And much like Lisa, I was forced to watch Star Trek against my will. So, you know, I have some scar tissue that I'm working through as well related to this.
- [03:35]
Lisa Abramowicz
We talk about that later. You know, this is actually something I think a lot of people on Wall street probably are working through this morning. There is a sense though, and you talked about this, John was talking about the rotating pool of capital and how it's going from different names and different pockets. And the breadth has been really bad. How much are people selling some of the previous winners to get in on the new hot and shiny thing?
- [03:54]
Stuart Kaiser
You know, it's a tough situation right now because the winners is still where people want to be. And this year has been really defined by estimate revisions, earnings going higher and that's driving stock returns. And frankly, that's been in a relatively narrow part of the market. So as much as people might want to rotate, when you say, okay, when you rotate, you have to sell this guy and buy that guy. The guy they have to buy is not something they want to own. Right. So in some sense it's like you're, you're being forced to rotate against your will a little bit. And, and it's been a little bit tricky. So I think, look, some of this stuff is up so much. If you look at Nasdaq, earnings are up 10% since the end of March semiconductors earnings have been revised up 17% since the end of. So you kind of fade that at your own risk, right? Is that done? And I think a lot of investors do not think those revisions are done. They still want access to those positive earnings revisions. So I think people are playing a little bit of hopscotch amongst the winners. Oh, this looks a little overdone. Let me move here. But it's not, you know, I want to move down, you know, the quality spectrum or be really too far away from that trade something.
- [04:54]
Lisa Abramowicz
You mentioned that the debt markets have gotten used to being tapped again and again to build out the industrial revolution and they certainly have been over the past two years. Now it's equity markets turn at the same time. Is this being driven by the fact that equities look like a better risk reward proposition at a time of earnings growth like the kind we've seen given that inflation is going to be higher, that yes, bond yields are higher than they have been historically, but in some ways aren't necessarily even going to keep pace with inflation over the next couple of years.
- [05:21]
Stuart Kaiser
And you also have the situation where the credit markets are going to start to look a lot more like the equity markets. Right, because large cap tech and the Mag 7 are issuing debt, all that desk to go into the credit indices. So this sort of sector concentration you have with it, equity actually is going to exist within credit. So you're not, you're sort of, you're not getting all the upside reward but you're actually getting a lot of the risk in the concentration. So you know, we'll see ultimately how that, how that plays out. I mean I'm an equity guy, I'm going to tell you on equities, not bond.
- [05:48]
Lisa Abramowicz
Bond, usually bond allocated money going into the equity space because of exactly this
- [05:53]
Stuart Kaiser
dynamic, you know, I mean money's been coming into the equity space, you know, kind of from all directions. The beauty of the bond market though is you're, you know, you're constantly recycling couples pound payments and stuff like that. I mean the bond market's healthy. Look where credit spreads are. You know, there's not like an issue on the credit side. But to your point, you're making a decision there of, you know, do you want your fixed payout or do you want access to that sort of upside earnings revision. And the revisions have just like goofy powerful this year. So it's, it's kind of hard to step away from that I think for most people.
- [06:20]
John Authers
So you're describing the changing characteristics of the US Credit Market. Can we talk about the changing characteristics of the index, the Nasdaq, what that's going to look like as we introduce some loss making companies with massive market caps and we do so really quickly. How's the character of the NASDAQ going to change?
- [06:36]
Stuart Kaiser
Well, I think what's interesting is the size of some of these IPOs is just so big historically because they didn't they IPO late I guess would be a way to look at that. The other interesting thing with the indices is a lot of these things are going to be a NASDAQ pretty quick and not in the S and P for a while. So you kind of get a little bit of a divergence, you know, between that, between how the two things look. You know, for NASDAQ specifically, we'll have to see how it all plays out. But it's not unusual to have sort of higher volatility, you know, stocks with
- [07:01]
John Authers
a lot of question does that just, that just amplify the existing difference that already exists between the two indexes?
- [07:07]
Stuart Kaiser
You know, look, the concentration in S and P has gotten pretty high as well. But yes, it will. I mean, you could be in a situation later this year where there are two or three, you know, new IPOs that people really want access to that are in one index or the not and not the other. And you will get a divergence there. And yeah, I will. I mean, but just by definition, I think it'll kind of widen out the gap between the two.
- [07:24]
Lisa Abramowicz
Do you buy the argument that with increased supply, the dynamics of the equity market are changing enough to dilute some of the demand that just the technicals alone should take away some of the heat that's been underpinning the equity markets,
- [07:36]
Stuart Kaiser
be just too much supply, not enough demand. You know, that's what we've seen, I think the last couple of weeks, right. Is people are, you know, looking at it a little more critically in terms of how much equity supply am I going to need to absorb over the next six to nine months and what does that mean for performance? From my perspective, as you know, I'm a good news is good news guy. And if, if those earnings numbers are getting revised up in the way they are, there's only so long you can keep yourself away from that, right? I mean, you Revised up NASDAQ earnings 1% in the last week. I mean that's just like a stunning rate of, rate of change. So yeah, yes, perhaps, you know, where there's a little bit of indigestion going on right now and it's almost perspective indigestion because people are looking at the next six to nine months and what is the total amount that gets issued? If you're jamming earnings as high as they are, there's only so long you get ignored.
- [08:25]
John Authers
Another Wednesday down the technicals you've had buybacks like up here, sky high, really reducing the amount of float, the amount of stock that's available for people to buy. The shrinkage that everybody's been talking about as the spread starts to close, and I know it's still wide, but it starts to close, does that dynamic matter? That's really what Lisa's asking.
- [08:40]
Stuart Kaiser
Yeah, I mean it can matter. I mean there was some discussion that some of this capex spending was going to eat into into buybacks and stuff like that. And now you're actually getting equity issuance. So to your point, you're kind of going other way. What's interesting too is a lot of these companies started issuing dividend less than 18 months ago and are now, now, now kind of committed to that. So yeah, look there is, there is a little bit of a supply demand dynamic going on. But to your point, this has been a multi decade issue of, you know, shrinking number of publicly traded companies, etc. So it's not something you're going to fix or reverse in six months. Right? It would take longer than that, I think.
- [09:14]
John Authers
Stay with us. More Bloomberg surveillance coming up after this.
- [09:22]
CBOE Advertiser
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- [09:52]
IBM Representative
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- [10:21]
Public Advertiser
IBM support for the show comes from public. Public is an investing platform that offers access to stocks, options, bonds and crypto. And they've also integrated AI with tools that can assist investors in building customized portfolios. One of these tools is called generated assets. It allows you to turn your ideas into investable indexes. So let's say you're interested in something specific like biotech companies with high R and D spend small cap stocks with improving operating margins or the S&P 500 minus high debt companies. Chances are there isn't an ETF that fits your exact criteria. But on public, you just type in a prompt and their AI screens thousands of stocks and builds a one of a kind index. You can even backtest it against the S&P 500. Then you can invest in a few clicks, go to public.com market and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com market ad paid for by Public Holdings Brokerage Services by public investing member FINRA SIPC advisory services by public advisors SEC registered advisor crypto services by ZeroHash sample prompts are for illustrative purposes only, not investment advice. All investing involves risk of loss. See complete disclosures@public.com Disclosures.
- [11:39]
John Authers
The former Deputy National Security Adviser Victoria Coats writes the following President Trump has demonstrated that he can bomb what he wants when he wants in Iran, and there's little or nothing the regime can do about it. Victoria joins us now for more. Victoria, welcome back to the program. The US has demonstrated repeatedly that it has military superiority over Iran, both in the skies and intelligence and so on and so forth. How do they ensure the US that they translate that superiority into a superior deal that benefits the U.S. well, good morning, John.
- [12:10]
Victoria Coats
Yeah, I think we've actually seen that play out in real time over the last couple of days. And I admit I am a little nervous that Tyler is going to pop back up with another, another changing headline in this current news cycle. A lot of things are shifting, so take all this with a grain of salt. But it looks like what happened to my eye is that, you know, everybody thought the president was done with kinetic action. He wasn't going to go back in. The Iranians were, as he said, tap, tap, tapping the Americans along. And he decided, you know what, we can go back in. We can go and bomb a bunch of these sites. And I've heard them described as blinding targets. So you're getting rid of their radars, their ability to see things, their ability to launch missiles, did it for two nights and then threatened Kharg Island. And I think the Iranians thought, wow, maybe this isn't what we've been dealing with for the last 45 years. And that we need to make a deal or else we're going to sustain damage that we can't recover from. So I do think that military superiority is a fact. We are the ones who are stopping ships in the strait right now. They are threatening ships but we're shooting down their drones. We're the ones who are actually disabling the tankers. So that's the reality the Iranians face hoping hopefully it means they're going to start making some better decisions.
- [13:23]
Lisa Abramowicz
Victoria, with all due respect, I'm looking at what the market reaction was yesterday and that was not the interpretation of the, of the market. When the initial headlines came out in the truth social post from President Trump, the reaction in markets was we don't believe you. You've talked about a potential escalation before. Why should this be any different? And essentially if you take a look at what Maris is reporting, the semi official news agency out of Iran, it's, it's a 16 point deal or 14 point deal that includes some that are still very controversial and similar to what they were a couple of months ago. What gives you confidence that anything was accomplished?
- [13:56]
Victoria Coats
Well, I mean I don't actually get my news from there. They haven't proven terribly reliable in the past. What they tend to be is a messaging device actually to the Iranian people from the regime. They're trying to signal to the Iranians what they want to have in this deal. And so this is, and to my eye, a lot of wishful thinking out of the Iranian regime. I'm going to wait and see what's actually in the deal before, before I just make up my mind about it. But you know, obviously Lisa, we're dealing with the Iranians. They have been obstreperous before. That is their, that's, that's their brand, if you will. They're going to try to continue the sort of stalemate we're in as long as we can. But I think the fact that the president has both been willing to do hugely more than any other American president to degrade that regime, to degrade their nuclear program, to demand his red lines and then was willing this week, you know, when in a situation where there is significant political pressure on him to, you know, wrap this up, get to a deal, any deal, but he hasn't been doing that. He's been sticking to his red lines. So you know, as I said, I'm going to wait and see what's actually in the deal rather than believe me. And you know, as for market reaction, I mean the stock market went up a thousand points yesterday. That's that's not a bad thing.
- [15:13]
Lisa Abramowicz
Well, Victoria, what gives you confidence that this time something has changed in the negotiating position from Iran?
- [15:19]
Victoria Coats
Well, it does look, it looks to me like they are shifting, that they are realizing that the situation for them is one of diminishing returns. And so, you know, they can demand to have control over the strait going forward. But the fact of the matter is that the rest of the region that they've so completely alienated is busily building infrastructure to make that completely irrelevant. So you have the Saudi petrol line pipeline that we've discussed. We've got UAE building the Fujira pipeline around the strait, and talk of a natural gas pipeline that Qatar would have access to across the Arabian Peninsula Peninsula. So the Iranians are in a position where they have fewer and fewer cards, even if they are if they are obstinate at the negotiating table and eventually, you know, they're just not going to have that much regional leverage.
- [16:13]
John Authers
Stay with us. More Bloomberg surveillance coming up after this.
- [16:22]
Chase/JPMorgan Advertiser
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- [16:38]
Public Advertiser
for the show comes from Public. Public is an investing platform that offers access to stocks, options, bonds and crypto, and they've also integrated AI with tools that can assist investors in building customized portfolios. One of these tools is called Generated Assets. It allows you to turn your ideas into investable indexes. So let's say you're interested in something specific, like biotech companies with high R and D spend, small cap stocks with improving operating margins, or the S&P 500 minus high debt companies. Chances are there isn't an ETF that fits your exact criteria. But on Public you just type in a prompt and their AI screens thousands of stocks and builds a one of a kind index. You can even backtest it against the S&P 500. Then you can invest in a few clicks, go to public.com market and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com market ad paid for by Public Holdings Brokerage Services by Public Investing member Finra SIPC Advisory Services by Public Advisors SEC Registered Advisor crypto services by
- [17:41]
CBOE Advertiser
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- [17:43]
Public Advertiser
only, not investment advice. All investing involves risk of loss. See complete disclosures@public.com disclosures Ryan Reynolds here
- [17:51]
IBM Representative
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- [18:12]
Chase/JPMorgan Advertiser
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- [18:25]
John Authers
Some on Wall street expecting Space X to tap the debt market shortly after a record breaking ipo. Sources telling us here at Bloomberg the company has lined up investment grade ratings from three major bond graders. Zach Griffiths of Credit Science Writing, I don't think there's any precedent to draw for a company like Space X to understand what that rating should be. Zach joins us now for more. Zach, welcome. You heard the the words of our previous guest, it's clearly an AIG rated company. Do you see it differently?
- [18:54]
Zach Griffiths
No, we don't. And in terms of what drives that IG rating, John, you have the new or relatively recent Google and anthropic deals. Those aren't captured in the LTM metrics. And when you think about the loan to value consideration that I think you were just highlighting from Bruce richards there, it's 1 to 2% of the overall enterprise value. And so there's obviously a ton of equity valuation ahead of that credit. And so while that's not something that the ratings agencies tend to look at, we do think it plays a factor here. And so we are expecting an IG rating on Space X when they come to the market and we think that'll be relatively quickly after the IPO today,
- [19:33]
Lisa Abramowicz
it's incredibly difficult to value a company like this. We've heard a lot of different opinions so far this morning and to evaluate whether it's investment grade or high yield. But does the bulk of equity being raised give you as a bond analyst comfort that the equity markets are sharing in some of this and are actually sharing the first loss piece and give you confidence that they can raise more debt at a better value?
- [19:55]
Zach Griffiths
Yeah, a lot of comfort, Lisa. When you think about what we were just going through and if you think about the metrics from the last 12 months, EBITDA perspective looking at around five times leverage and so that's more historically consistent with a high yield rating. Again, that doesn't and capture some of the recent deals. And of course having all of that equity ahead of the credit makes us very comfortable with that IG rating. And when you think about how much debt they're likely to come to market with in the near term, call it around 20 billion. That kind of pales in comparison in terms of what the market has been digesting with ease so far this year with the big five hyperscalers coming with almost 175 billion split across US dollar and various other currencies. So we do think there is going to be demand for or that debt out there without much of an issue even after this huge equity raise that
- [20:45]
Lisa Abramowicz
says how much does it concern you? The just absolute consolidation of all risk in one bet right now, whether it's on the debt side or on the equity side.
- [20:55]
Zach Griffiths
Yeah, I think concentration risk is a fair concern to have. And I think the circular financing consideration that you were just discussing with the prior guest is something we're concerned about when we think about where the rubber meets the road from that perspective and where there might really be risk in terms of some of these big players coming to market with IPOs, open air seems to be the one that really needs the funding. And so if for some reason markets become less risk taking over the next couple of months when anthropic and OpenAI need to come to market, that's a time frame that we think there could be a little bit more consternation. For now we're certainly comfortable with the environment we're in. And when we talk to our clients from a fixed income perspective, they're very happy with all in yield levels despite tight credit spreads really across the credit
- [21:43]
John Authers
markets just finish up on Space X. So I understand they've got this massive ability right now to tap into the equity market and raise equity capital quite easily. And we've seen that. But how much should that should be a factor in in your credit rating when the company is losing money and they're going to spend that money really quickly too. You mentioned some of the hyperscalers and debt issuance elsewhere. Let's take Alphabet. Alphabet made profit bit more than $100 billion last year. Zach, this company loses money. Why should that company have an IG rating?
- [22:12]
Zach Griffiths
Well again it comes down to companies rating or the ratings companies rating through the cycle. When you think about some of the deals recently inked, that certainly improves the position and the net cash position after the IPO certainly looks very attractive. Now we're expecting cash burn to be around 20 to 30 billion per year as they lean in to that infrastructure business. And so there's a lot of value metrics to consider, John, but we do think with the recent deals and projecting forward through the cycle and considering some of the the upside scenario that an IG rating will be justified. And that's kind of what we're hearing out there as well.
- [22:51]
John Authers
This is the Bloomberg Surveillance Podcast bringing you the best in markets, economics and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from 6am to 9am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always, on the Bloomberg Terminal and the Bloomberg Business app.
- [23:14]
IBM Representative
Ryan Reynolds here from Mint Mobile with a message for everyone paying Big Wireless Way Too much. Please, for the love of everything good in this world, stop with Mint. You can get premium wireless for just $15 a month. Of course, if you enjoy overpaying. No judgments. But that's weird. Okay, one judgment anyway. Give it a try@mintmobile.com Switch upfront payment
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Chase/JPMorgan Advertiser
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Stuart Kaiser
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Zach Griffiths
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Stuart Kaiser
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John Authers
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Stuart Kaiser
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