June PPI and the US Eco Outlook

Summary

Bloomberg Surveillance Podcast

Episode: June PPI and the US Eco Outlook

Date: July 15, 2026
Hosts: Tom Keene, with guest analysts and industry experts
Main Theme:
A comprehensive analysis of the latest US economic data, including June’s PPI, bank earnings, fixed income dynamics, tech sector developments, global inflation risks, and the transformative role of AI in finance.

---

Episode Overview

This episode dives deep into the current state and outlook for the US economy, examining the latest Producer Price Index (PPI) print, bank earnings, and implications for stocks and bonds. Experts discuss structural challenges for European markets, dynamics in semiconductor and defense sectors, persistent inflationary pressures, and the real-world integration of AI in financial analysis and decision-making.

---

Key Discussion Points & Insights

1. Bond Market Outlook and Asset Allocation

Guest: Stephen Chevreau, Federated Hermes

• 30-Year Bond Yields:
  • Chevreau asserts current long-dated bond yields are “not high enough” to draw capital away from stocks, given explosive earnings growth and rising margins ([02:48]).
  • Quote: “Bonds have a stock problem. I think in order to compete for capital...with earnings growing what could be 22 to 25% this quarter...bonds ultimately have to offer a higher yield to compete for capital.” – Stephen Chevreau ([02:48])
• Earnings Season Dynamics:
  • Wall Street banks are reporting strong earnings, driven especially by investment banking and trading (e.g., SpaceX deal for Goldman Sachs, [03:49]).
  • Margins are expanding at “the fastest rate in our lifetime” (Chevreau, [03:49]).
• Staying in Equities:
  • Chevreau recommends overweighting US large growth and value, staying diversified, and not shying away from small caps or emerging markets.
  • Underweight Europe: “Europe missed Mag7 and they’re going to miss AI...You can’t regulate your way out of these mega trends.” ([05:51], [06:09])

2. European Market Struggles

• Structural Tech Misses:

  • Europe continually lags in tech-driven growth. “There is no technology, by and large, in Europe. And now...they’re going to miss AI as well.” – Tom Keene ([06:16])
  • Regulatory approaches have failed to compensate for lack of tech creation ([06:27]).

• Cultural Tech Deficit:

  • Chevreau: “You have to build it and then regulate it. You can’t regulate it out of existence.” ([06:27])

3. Banking Sector Reflections

• Discussion of leadership transition at Federated Hermes and the lasting mentorship culture that shapes investment decision-making ([06:54]–[08:17]).

4. Tech Sector, Semiconductors, and Defense

Guest: Ted Mortensen, Baird

• Enterprise Capex and Cost Pressures:

  • “Enterprise Capex is only up 4% year over year and component costs are up 25%.” ([10:04])
  • Rising hardware costs are squeezing IT budgets and software renewal decisions ([10:04], [11:01]).

• Semiconductor Supply Constraints:

  • Memory market will likely remain “out of balance until 2029 or 2030” due to historic underinvestment and surging AI demand ([12:04], [12:21]).
  • Huge long-term visibility for fab equipment makers (ASML, AMAT, LAM), with three years of 30% growth expected ([12:22]).

• Investment Picks:

  • Semiconductor-defense crossovers: TSM, ADI, MTSI, Monolithic Power (MPWR), and optical leaders (Lumentum, Coherent) are key secular winners ([13:11]–[14:27]).
  • “The voltage in all these data centers is going straight up...fueled by Nvidia’s architecture of Rubin and Blackwell...Monolithic Power is positioned in that secular change.” – Ted Mortensen ([14:07])

• Military Aviation Realities:

  • Mortensen, a Navy veteran, emphasizes the immense risk and operational strain on US military aviators amid current conflicts ([15:20]–[16:43]).
  • “It’s chaos...It changes by the second and minute.” – Ted Mortensen ([16:05])

5. US Economic Momentum & Inflation

Guest: Quinton, Bank of Nassau Chief Economist

• GDP Watch:

  • The Atlanta Fed’s GDPNow showing Q2 growth of 1.3% is viewed as volatile but signals loss of momentum ([18:23]–[18:48]).

• Labor Market & Fed Outlook:

  • Declining NFP trends and softer ADP numbers hint at slowing, but not worrisome, growth ([18:48]).
  • Underlying inflation measures decelerating, but persistent energy shocks complicate the Fed’s path ([19:10]–[20:01]).
  • “Just some yellow flags. I think the US Economy is still doing okay, but just some things to keep an eye on.” ([21:24])

• Yield Curve Risks:

  • Real yields (10-year) climbing to 2.34%, creating “yellow flags” for economy and equity markets as rate hikes impact housing and credit ([20:24]–[21:24]).
  • Market pricing in roughly one more rate hike this year; Quinton doubts this will materialize unless conditions worsen ([21:30]).

6. AI in the Investment Industry

Guest: Jan Salihu, Co-founder Reflexivity

• Academic Humility on AI Predictions:
  • “Often there’s a discussion about what do you think is going to happen... and I’m thinking even six months out.” – Jan Salihu ([24:04])
• Current State of AI in Finance:
  • Large language models are at the stage where they function like “a junior quant or analyst” – automating rote tasks, data gathering, and calculations ([24:27]–[25:09]).
  • AI integration remains experimental for most funds; higher-stakes decision-making still limited due to trust/accuracy concerns ([26:20]).
• Role of Auditability and Transparency:
  • Salihu emphasizes that auditability and transparency are key for wider AI adoption in actual investment processes ([27:14]).
• Competitive Edge:
  • Reflexivity specializes in time series analytics and complements, rather than replaces, tools like Bloomberg Terminal ([29:50]).
  • “It’s very, very good. And it’s the worst it will ever be because it only gets better each time.” – Jan Salihu ([29:27])

---

Notable Quotes & Timestamps

• “Bonds have a stock problem. I think in order to compete for capital...bonds ultimately have to offer a higher yield to compete for capital.”
  — Stephen Chevreau ([02:48])

• “Margins are expanding at probably the fastest rate in any of our careers, gray hair, black hair, brown hair, whatever color hair you want.”
  — Stephen Chevreau ([02:48])

• “Europe missed Mag7 and they’re going to miss AI...You can’t regulate your way out of these mega trends.”
  — Stephen Chevreau ([06:09])

• “Enterprise Capex is only up 4% year over year and component costs are up 25%...IT managers are getting creamed.”
  — Ted Mortensen ([10:04])

• “Memory is not going to be in balance until 29 or 30. The amount that SK Hynix, Micron, and Samsung have to spend is...historic.”
  — Ted Mortensen ([12:21])

• “There is immense amounts of risk for...our air force and navy aviators every single night because they are putting...It’s chaos.”
  — Ted Mortensen ([15:20], [16:05])

• "There are some signs that the economy may be slowing in Q2, but nothing worrisome. But I think enough to prevent the Fed from hiking anytime soon.”
  — Quinton ([18:48])

• “Auditability and accuracy...you will not start using this for higher-stakes investment decisions unless you can rely on it and check the results easily.”
  — Jan Salihu ([27:14])

• “It’s very, very good. And it’s the worst it will ever be because it only gets better each time.”
  — Jan Salihu ([29:27])

---

Important Segment Timestamps

• Bond Perspective & Asset Allocation: [02:25] – [06:36]
• Semiconductors, Defense, and Data Centers: [09:30] – [14:27]
• Military Aviation Risk Commentary: [14:39] – [16:43]
• US Economic Outlook & Yields: [18:23] – [21:57]
• AI and Data in Investment Management: [23:12] – [30:13]

---

Memorable Moments

• Tom Keene's banter about European investment quirks and the missed opportunity in tech and AI.
• Ted Mortensen’s frank discussion on the real-world risks of military sorties was both sobering and evocative, highlighting risks beyond the data ([15:20]–[16:43]).
• The candid, humility-filled conversation about the uncertainty in predicting anything six months out in AI, and the role of “auditability” in building trust for new tech in finance ([24:04], [27:14]).

---

Conclusion

This episode of Bloomberg Surveillance offers listeners expert perspectives on why investors should recalibrate their expectations for bonds versus equities, how technological shifts are restructuring the global investment landscape, and the existential pressures of inflation, supply chains, and AI. Contributors bring an honest, data-driven lens to today’s headline risks and emerging opportunities, making the discussion essential listening for investors, technologists, and market-watchers alike.

Transcript

[Stephen Chevreau]

So there's a lot of noise about AI, but time's too tight for more promises. So let's talk about results. At IBM, we work with our employees to integrate technology right into the systems they need. Now a global workforce of 300,000 can use AI to fill their HR questions, resolving 94% of common questions, not noise. Proof of how we can help companies get smarter by putting AI where it actually pays off, deep in the work that moves the business. Lets create smarter business IBM when you're

[Tom Keene]

running a business, the best days are the ones where priorities stay on track. For midsize and large companies, that isn't always easy. Risk can touch multiple parts of an organization at the same time, often in ways that aren't immediately obvious. It might involve property liability or cyber. It could stem from regulatory requirements or challenges tied to a specific industry or the scale of an operation. At that level, managing risk becomes an ongoing discipline, not a one time decision. the Hartford, the focus is on helping businesses manage risk before it turns into something more disruptive. That means working with companies to identify where they're exposed, decide what matters most, and put practical standards in place so risk is managed as part of day to day operations. And when losses do happen, the Hartford can pair that risk control work with insurance coverage grounded in underwriting, risk engineering and claims experience developed over time. Learn [e-mail] RiskMitigation wise is the smart

[Jan Salihu]

way to manage the currencies you need around the globe. When you send money abroad using your bank, you could get hit with hidden fees and exchange rate markups. There's a better way. Try Wise. Wise uses the exchange rate you'd usually find on Google with no unwelcome surprises. Plus, most transfers happen in under 20 seconds, which means your money arrives in less time than you've been listening to me. It's simple and free to sign up when you download the Wise App. Be Smart, get wise T's and C's.

[Tom Keene]

Apply

[Bloomberg Announcer]

Bloomberg Audio Studios Podcasts Radio News. This is the Bloomberg Surveillance Podcast. Catch us live weekdays at 7am Eastern on Apple CarPlay or Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live live on YouTube.

[Tom Keene]

Stephen Chevron with us right now. Federator Measures thrilled that he could join us this morning. He is exquisite in asset allocation. I'm going to be exquisite. I got a 5001130 year bond. Most people don't look at the 30 year bond because they have no gray hair. You have no gray hair. The 30 year bond matters. What does a 51130 year bond signal to you?

[Stephen Chevreau]

I don't think it's high enough. I know that sounds kind of crazy. I mean, I think what you're seeing, you know, it's you. It's interesting that conventional wisdom is that stocks might end up having a bond yield problem. I think bonds have a stock problem. I think in order to compete for capital, with earnings growing what could be 22 to 25% this quarter, with margins expanding at probably the fastest rate in any of our careers, gray hair, black hair, brown hair, whatever color hair you want. I think bonds ultimately have to offer a higher yield to compete for capital. And so I don't think we're on the verge of a kind of Fed hike cycle here. But I do think the yield curve needs to steepen. I think longer yields probably need to drift higher. And I think it's okay. I think it's a reflection of higher growth.

[Tom Keene]

So what have you seen? We're going to get some Morgan Stanley numbers today. We got a ton of bank earnings yesterday. They seem pretty solid across the board. What did you take away from yesterday's numbers?

[Stephen Chevreau]

Yeah, Wall Street's doing well, right? Trading investment banking. You know, obviously you see some of the deal making that's coming through. You know, the SpaceX deal was kind of huge boon for Goldman. But look, I think it's indicative of what you're going to see this earnings season. To put this into perspective, we came into this year expecting margins to grow at a kind of 5% clip. That's been the average since COVID That was too low. Then we said, well, maybe it's the 6% that we've seen that we saw during the entirety of the dot com boom that's proven to be too low. We're growing at something like 9% on a year over year basis. That is the fastest in our lifetime. And I think this earnings season is going to be a kind of poster child for that. This is a big growth quarter.

[Tom Keene]

How do responsible adults intelligently stay in stocks? What's the best asset allocation? Do you buy more funds? Are you more diversified? Are you more focused? What's the Chevron way to say, okay, I want to participate, but I know it's a bull market and it's getting frothy.

[Stephen Chevreau]

So I don't know that it's frothy yet, Tom, I really don't. I think what you've seen is that while the multiple has moved up, right, and we're trading at 20, 21 times multiples on a long term average, the earnings have supported it. And so from our perspective, you start with are you in a secular bull market? We just wrote a piece about this. Are you in a scenario where you're in a structural uptrend in earnings and multiples? We think the answer to that is yes. And that means you're going to want to buy dips. So what does that mean? I think growth and value are less of a meaningful distinction than they used to be, particularly after some of this reconstitution business from the likes of the index providers. I think you want to be diversified but overweight the US you want to have large growth, you want to have large value. You should not shy away from small caps. And I think em also represents some opportunities. We'd be underweight Europe, they are just struggling on everything.

[Tom Keene]

Is anybody overweight Europe?

[Quinton]

No.

[Tom Keene]

We had it for a cup of coffee back last year when the tariffs kicked in. People were saying, let's buy some Europe.

[Stephen Chevreau]

No, but it's interesting. Even though no one's overweight, I would say for eight of the last 10 years you've had a lot of the Wall street types saying this is the year for Europe. This is the year for Europe. I think they've thrown in the towel on it. And I think the reason why, and I think what's, what's really crystallizing here is they missed Mag7 in Europe and they're going to miss AI.

[Tom Keene]

Sure.

[Stephen Chevreau]

And you can't, you can't miss these mega trends. You can't regulate your way out of them.

[Tom Keene]

Yep.

[Stephen Chevreau]

And I think that's what they're doing.

[Ted Mortensen]

Yeah.

[Tom Keene]

I just think it's such a shame for you Think about Europe just missed technology over the last 50 years. There is no technology by and large in Europe. And now I, I fear, I think they're going to miss AI as well.

[Stephen Chevreau]

They're just not regulating something that they're not building. You have to build it and then regulate it. You can't regulate it out of existence.

[Tom Keene]

Shocked that they would allow it to happen a second time.

What is it like if the blue light, the Detroit Lions blue light. What is it like it federated to have to work where Steve Aust is taking. He's like, you know, like the, like, he's like Verlander. Right. He's on a retirement.

Sure. Yeah.

Across our talk.

Tell us about Steve Off.

What did you learn from Steve off as he retires here into the year?

[Stephen Chevreau]

So, so the greatest opportunity of my career was to learn at the side of Steve Aust for the last 20 years. He's so much more than a boss. Over the last year, as we're transitioning and he's moving towards retirement, and it's probably the greatest honor of my career to succeed him. We often refer to the garden scene of the Godfather, where we're playing through scenarios of the future and how they may play out. We're reviewing the lessons that we've learned together. I started on the day of the market peak in 2007 with him. So our first experience was trying to navigate the great financial crisis.

[Tom Keene]

That was fun.

[Stephen Chevreau]

I got 10 years of education in about a year and a. Yeah. And so. And then on a personal level, you know, what I would just say, Tom, is I've worked with him every day for 20 years. And so professionally, I think, you know, we think alike at this point, I think people come to expect a lot of the similar things from us. I'm just going to miss the man on a personal level because he's been, you know, he's been. We jokingly, sometimes we'll call him dad, you know, around the office, but I don't think that's an overstatement. He's been. He's been like a father.

[Tom Keene]

Very nice. I don't think he's gonna. He's gonna be out on LinkedIn, right.

[Stephen Chevreau]

I know I will find him and I know, you know, I'll be on the media and I'll get a text, you know, with a little bit of comment.

[Tom Keene]

Steve Chevron, thank you so much. Great comments there, Mr. Federated. Airmen's can't say enough about their ability to have courage to be in the market. Stay with us. More from Bloomberg Surveillance coming up after this.

Get the news you need in just 15 minutes.

[Stephen Chevreau]

Start your day with Bloomberg Daybreak, the

[Jan Salihu]

podcast with a global view on the stories that matter. I'm Nathan Hager.

[Tom Keene]

And I'm Karen Moscow. Join us each morning for curated stories on current events, politics, business and foreign

[Jan Salihu]

relations, plus one conversation on the day's biggest developments, all in just 15 minutes.

[Tom Keene]

Subscribe to Bloomberg Daybreak for a precise, thoughtful take on the stories that matter.

[Jan Salihu]

Listen to Bloomberg Daybreak each morning on Apple Sports, Spotify, or anywhere you listen.

[Bloomberg Announcer]

You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10am Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.

[Tom Keene]

Brilliant power holds on the court on Microsoft at Baird. What a joy he has to work with Ted Mortensen is just absolutely encyclopedic we get a huge response when Ted Morris is on. Yes, we'll talk about the Navy here in a bit. Link your work like on asml into what Bill Power is doing on Microsoft.

[Ted Mortensen]

So I see all of tech, some of our analysts unfortunately have to stay in their silo. I see all tech. So I've got a little bit of advantage of seeing where Capex and where prices are going.

[Tom Keene]

So if you were sitting with Nadella right now, what would you tell them?

[Ted Mortensen]

The enterprise Capex is only up 4% year over year and component costs are up 25. So you have a mismatch on dollars being spent. I mean a lot of these IT managers are getting creamed on what they're spending on. And this is one of the problems with IBM. They didn't see it coming yesterday and that's why the stock was off 25%. So as you look into the end of the year, the big debate is how much do the global 2000 have to spe spend and this headwind of 25% component price increases. Something has to give. And the feeling is at the tail end of the year we have to really watch software renewals, you know, seat counts. I think everybody's looking at their expenses very, very closely because if you look at any semiconductor, whether it be memory or advanced logic, prices are through the roof.

[Tom Keene]

How did we get to this point? Was it simply the surge in demand for AI that the ASMLs, whatever the other chip fab guys are out there

[Ted Mortensen]

didn't see coming is a breakthrough essentially from anthropic, essentially on next generation quad and the adoption of inference. So when you have inference you have to have a ton of memory. And I think it caught everybody offsides.

[Tom Keene]

I mean just take IBM. I mean you're an old man, you've been in this business a long time. My friend, unfortunately is you've never seen it, you've never seen me. Exactly. I mean we've never seen what happened to IBM yesterday put that into context for us.

[Ted Mortensen]

I think IBM is a kind of a steady Eddie, both on consulting and on the software side on Red Hat. And if they're seeing it, I guarantee you everybody else is seeing it. And you're right, I've been doing this for 30 plus years. That was a big surprise.

[Tom Keene]

Yep.

[Ted Mortensen]

For a lot of people.

[Tom Keene]

Is the fix here to wait two or three years so there's more fabs out there, Is that it?

[Ted Mortensen]

Yeah, we had a call yesterday with our head of semiconductors Tristan Guerra and Samsung on memory and I thought it was one of the best webcasts that we've done in a long time. And the gist of the comment is memory is not going to be in balance until 29 or 30.

[Tom Keene]

Wow.

[Ted Mortensen]

And the amount that SK Hynix and Micron and Samsung has to spend is and I underline the adjective historic. So you look at ASML's report this morning and AMAT and CLACK and LAM, they have three years of 30% visibility. I mean that is we have never seen that.

[Tom Keene]

Are they going to build fabs?

[Ted Mortensen]

Yeah.

[Tom Keene]

Where do they build them?

[Ted Mortensen]

Well, the memory there's June 29th the South Korean government came out and basically signaled that they're going to along with Samsung and SK Hynix spend 590 billion. Billion. So right.

[Tom Keene]

You have a single Best Buy within it. Don't tell me it's IBM. No, Templeton would say shares are on sale today. Do you have a single Best Buy?

[Ted Mortensen]

I, I'm looking at two areas. One and it's under one of the, one of the areas is under everybody's nose is the, the whole semiconductor defense spend names like tsm, adi, mtsi, Monolithic power. If you look at what the Trump administration is doing in the Gulf, we're going to have weapons essentially builds for multiple years. And what I'm looking at is all those names on the semiconductors that play into the defense area. We're expending a fair amount of munitions. So names like Avav, Kratos and that whole semi food chain I think is interesting. And then as you look at these changes from a secular standpoint in the data center, one of the big ones is 800 volts. The voltage in all these data centers is going straight up and you need power management.

[Tom Keene]

You mean the physical voltage?

[Ted Mortensen]

The physical voltage and that's being fueled by Nvidia's architecture of Rubin and Blackwell. And when you put that amount of voltage, you need new power management. And one of the best companies I think there is position in that secular change is monolithic power mpwr.

[Tom Keene]

Interesting.

[Ted Mortensen]

And then the last one would be optical. We're going through the whole optical the five names of Lamentum, Coherent, those, those two leaders. We're going through secular change.

[Tom Keene]

When you're on we get a huge response to your tangible experience serving the nation and the Navy. So we're at war for the last two days, I guess. And I think it's incredibly unfortunate where we show pictures and the president tweets in that that we don't talk about super Hornets or Growlers or advanced Hawkeyes like actual stuff going up in the air. How it risk our men and women in these attacks if we have 20, 30, 40 jets in the air in any given moment, it's not a free technological. Technological lunch, is it? There's real risk.

[Ted Mortensen]

There is immense amounts of risk for and I say a prayer for all of our air force and navy aviators every single night because they are putting

[Tom Keene]

if you were on an aircraft area deck, I mean still to you as a kid, that plane going off the deck is a miracle.

[Ted Mortensen]

It's a miracle. And there is mortality. Okay. This is very, very high risk operations. And if you don't think they're the naval aviat heart rates are at the max. They are. And there's huge sacrifices that the American public does not understand.

[Tom Keene]

Here I'm sitting on the couch at 4am Reading the headlines, social media, sanitized photos. What's the reality of 40 or 50 jets up in the air in real time?

[Ted Mortensen]

It's chaos. So and you're directed to a target almost instantaneous now with the weapon systems we have. So it's not like you have a direct thought process of how your mission is going to go that day. It changes by the second and minute.

[Tom Keene]

This is not Gregory Peck in Britain in 12 o' clock high.

[Ted Mortensen]

It puts a lot of pressure on your brain and when you're deployed for six months it takes a real big toll. Your brain can only do this every day and you really got to psych yourself up on every single sorting that you're doing that you don't make a mistake.

[Tom Keene]

Thank you for your discussion on technology hugely valuable and of course this with our men and women truly in harm's way. Just can't say enough. We do this with Becca Wasser with Ted Mortenson and others about maybe what's really going on beneath the headline data on the military. Stay with us. More from Bloomberg Surveillance coming up after this.

[Stephen Chevreau]

Introducing B of A Rewards a new loyalty program with rewards for every ambition. From cash back deals on brands you know and love to a credit card rewards bonus. From fueling up to rewards that fuel your goals. It all starts with a Bank of

[Tom Keene]

America checking account and grows from there.

[Stephen Chevreau]

What would you like the power to do? Bank of America open or enroll your [e-mail] B of A rewards bank of America Corporation. All rights reserve.

[Bloomberg Announcer]

The Bloomberg Sustainable Business Summit returns to Singapore on July 22. Our 5th annual Asia Pacific Summit will explore how business and finance leaders are shaping the next phase of globalization by strengthening resilience and driving a multi speed energy transition across Asia's diverse markets. Join us for solutions driven discussions and networking opportunities. Thank you to our Summit advisor, Bangkok Bank. Learn more at BloombergLive.com SBS-Singapore. You're listening to the Bloomberg Surveillance Podcast podcast. Catch us live weekday afternoons from 7 to 10am Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.

[Tom Keene]

Quinton with his chief economist bank of NASA Right now you get one single sentence in here that's like hello, Atlanta fed GDP now Q2 1.3%. Really? Do you believe that number?

[Quinton]

Well you know there's several Fed models. New York Fed also has a now cast. The Atlanta Fed GDP now happens to be a lot more volatile as each input comes and they kind of recalculate.

[Tom Keene]

But they'd never do that at Columbia.

[Quinton]

It's something to keep an eye on. Tom and I think there's some signs that the economies may be losing momentum. We look at the ADP weekly numbers. NFP has slowed three months in a row. So there's some signs that the economy may be slowing in Q2, but nothing worrisome. But I think enough to prevent the, I believe enough to prevent the Fed from hiking anytime soon.

[Tom Keene]

We're going to get some PPI numbers here today at 8:30. We got CPI yesterday, a little salter than expected, but impacted presumably by the swings in energy prices. What's your view of underlying inflation out there?

[Quinton]

Yeah, if you look at all the core underlying measures, they all decelerate also. So I think that the Fed is breathing a sigh of relief. But you all, I'm sure heard Chair Wash his testimony. He said look, I'm not saying mission accomplished. I'm still concerned. So he's talking very hawkish. I expect more of that today.

[Tom Keene]

So I mean as we think about the underlying inflation here, is this something that is, I mean it's been characterized as just sticky and maybe it's permanently sticky. If we're going to have a reduced supply of labor out there, if we're going to have onshoring and reshoring, maybe that 2% number isn't really shouldn't be the target. Maybe it's something higher.

[Quinton]

Yeah, Paul's a very good point. There's so many moving parts.

[Stephen Chevreau]

Right.

[Quinton]

So many possibly structural changes in the economy. I would say it doesn't help that we have another wave of energy price shock, you know, sort of coming at us. You know, the Fed was hoping to look through that for that first spike up to, you know, in oil up to 120 now, now we're heading up to 90 plus. It just complicates things again, I think it supports the Fed's reason to say let's stay on hold, let's see how this works out.

[Tom Keene]

You did this for years linking in strong dollar into the yield space and then into our economics. Dr. Thin I'm looking at the low in the 10 year real yield end of February, early March and it has been an elegant climb higher to 2.34% this morning. We're one standard deviation above trend log trend I should say. Do you have a concern about the trend and the peakness that we're seeing in real yields climbing?

[Quinton]

Yeah, absolutely. And I'm surprised the equity markets aren't paying more attention to both nominal and real yields. So you know the 10 and 30 year nominal yields approaching those highs from, from maybe and that's what's really what's pushing the real yields higher. We've got the inflation coming down a little bit but again in higher rates, that's another reason that I think we're concerned about the US Economy. These higher rates, they're obviously killing the already sort of dead housing market. They're killing it further. Consumer credit is going to get more expensive, et cetera, et cetera. So again just some yellow flags. I think the US Economy is still doing okay but just some things to

[Tom Keene]

keep an eye on and the market's pricing in about one rate hike this year. Does that seem reasonable?

[Quinton]

Yeah. So I think if your wonderful WIRP a page I think has an October hike almost, almost priced in fully which I'm going to push back again I think. Now look we look what we happened over ECB in June. They hiked right as the sort of the oil prices turn, you know the Fed's well where they're trying to look through the oil price look the core, core readings and for now the core readings are in June were well behaved but just again so many things to watch out for in the summer.

[Tom Keene]

If you're with the bank of Nassau, do you get to wear Bermuda shorts?

[Quinton]

Well, to be honest, I think I'm more not to go down down there too long during the heart of the summer. It's just, it's really hot.

[Tom Keene]

I can see you with the shorts and the knee socks. Thank you so much. Greatly appreciate it with bank of NASA. Really sharp note. Stay with us. More from Bloomberg Surveillance coming up after this.

[Jan Salihu]

Hi, I'm David Westin. Join me every week for the Wall Street Week podcast To hear stories of capitalism from around the world, from geopolitical tensions and central bank decisions to artificial intelligence, energy and infrastructure. We sit down with the CEOs, economists, policymakers and thought leaders whose decisions are shaping markets everywhere we find them. Subscribe to the Wall Street Week podcast on Apple, Spotify or anywhere you listen.

[Bloomberg Announcer]

You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10am Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.

[Tom Keene]

John Sliggy is with reflexivity, and what you need to know is he's a wonder child of economics, has gone off into the world of AI. You were at Harvard with Rogoff, who's been a supporter of the show. John Campbell's been on. Andre Schlief has been on a couple of times. What was it like in your dissertation, your oral dissertation, sitting there with Rogoff, Campbell, Cypher? Were you shaking?

[Jan Salihu]

It's a good question. I hadn't thought about that in a while, but yes, at the time I definitely felt a little bit of anxiety. Although again, I worked very closely with all three of them in the lead up to that. So by the time you're sitting in a room, it was easier than you would think.

[Tom Keene]

All different. But the number one thing I see there is academic humility. What's the humility you have right now about all the certitude of AI?

[Jan Salihu]

Oh, tremendous. In fact, you know, often there's a discussion about what do you think is going to happen over the next three years, five years? And I'm thinking even six months out.

[Tom Keene]

Exactly. That's what I predict from the adults, Paul. That's what I hear. They can't get out six months?

Nope. All right, so AI in the investment industry talk to us about analytical reasoning. What is that?

[Jan Salihu]

So what I think we're now seeing the capability of these large language model has reached a level where you really can treat them and use them as you might, let's say a junior quant, an analyst, somebody who is very good at calculating things. This is how we see reflexivity, but can also benefit from a degree of guidance and experience because ultimately the output you get is very much dependent on the quality of questions you're asking.

[Tom Keene]

That's what I've heard from the young kids that are trying to explain AI to me. So how does that work in, I think about my first two or three years as an investment banker? Junior investment banker. I think it all can be done by AI. When I think back upon it but how do you guys think about it?

[Jan Salihu]

We're really seeing currently as taking off your hands things that you probably never enjoy doing, which is looking for and downloading data from a variety of different data sources, putting macros into an Excel spreadsheet and so on. I don't think anybody genuinely enjoy doing that part. What I think is interesting when you're doing investing is the investigation part, right? You have a hypothesis, you have an idea. You want to see if you're right or wrong. If you're able to act more as a lead investigator and have somebody else calculate and do all of the sensitivity analysis, I actually think the process becomes a lot more fun. And that's what we see people with reflexivity experiencing.

[Tom Keene]

So where is AI in the investment industry these days? How's it being used? I mean, I could see the young. I'm thinking about being a young analyst myself coming out of college or business school. I'm all over this stuff. Cutting edge for me back then was the macros in Excel. That's how I added value to my managing director who didn't know what a spreadsheet was. Now I would think a similar type of iteration is these young kids are probably coming in with tons of ideas. I would think so.

[Jan Salihu]

Here's what has been really interesting, I think one, and you won't be surprised by this, there's a wide range of advanced state, I'd say that we see across funds. There are some that obviously have made this an integral part of the process, have sometimes outsourced everything to AI. But there are others, and I'd say that's the majority who are still in what I would say experimental phase or kind of wait and see mode and are using a lot of AI for only very low stakes processes because they worry about accuracy, they worry about hallucination and so on.

[Tom Keene]

There's a constraint like I think of it, Fidelity Will Danoff's retiring and you've got Jason Weiner and Asher Analytic. Okay, fine, those guys are senior, they've got experience. But under them are four or five acolytes from fancy schools with fancy maths, real bright. They're using it to bring in data, but that's it. Right.

[Jan Salihu]

And so I think the key thing that we are changing and make one of the pillars of reflexivity is that you have complete transparency, auditability and accuracy. Right? Because I don't think that you will start using this for higher stakes investment decisions unless you can rely on it and also have the ability to check all of the results really easily.

[Tom Keene]

What's your time date on that?

[Jan Salihu]

Well, I mean this is currently happening now. This isn't sort of like a future thing. That's the core feature of reflexivity.

[Tom Keene]

Do you think that long only buy side in arbitrage hedge funds, Long, short, whatever, they're using AI right now up the food chain of making key decisions?

[Jan Salihu]

Well, I think at the moment for a lot of them, they're using it what I would say or describe as like amplified Google search. Right. You'll use to kind of say like, hey, summarize this market for me, tell me what I should pay attention to and so on. Okay, the next level, and this is what Reflect Civil was specifically designed to do is much more to say, okay, I actually have a scenario in mind. I think that the Fed isn't going to hike rates by 26. I'm just giving a hypothetical, give me a quick calculation as to in my portfolio, what is vulnerable, what will do? Well, what are things in the vast asset universe that I should be looking at for that?

[Tom Keene]

Didn't Peter lynch do that a few years ago at Magellan? He just didn't need an LLM.

[Jan Salihu]

Yes. And so I think this is what I think LLMs should be able to do, is that they can close the gap in experience. Right. For somebody like him, you are relying on this vast reservoir of previous market experiences and you're able to do a lot of it intuitively. Not everybody can do this. And so what you really want a system and AI to help you with is to ultimately close the gap by performing the calculation and say, I understand how these assets relate to each other, I understand how macro environment changing will impact them. Here are most likely implications of that scenario.

[Tom Keene]

So how good is reflexivity in whatever product you're selling to your clients? How good is it today?

[Jan Salihu]

Let me put it this way. It's very, very good. And it's the worst it will ever be because it only gets better each time. When we get more iterations of Claude and ChatGPT and so on, the reasoning layer gets better and that makes the knowledge graph that we had built shine brighter and it also makes the speed with which you get the answers faster.

[Tom Keene]

Who do you compete against

[Jan Salihu]

really? At the moment, there isn't as much focus on some of the time series data that we particularly specialize in because we had all come from the hedge fund world. So to us that's bread and butter. So I don't think that there's a clear competitor. But I think it's also exciting because I think we act as a we can complement very well what people get from Bloomberg Terminal and so on. So you have the data, we have the analytics.

[Tom Keene]

Jan, thank you so much. Jan Salihu with an update there. Co Founder Reflexivity this is the Bloomberg

[Bloomberg Announcer]

Surveillance Podcast available on Apple, Spotify and anywhere else you get your podcasts. You listen live each weekday 7 to 10am 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.