Market Rally and Warnings

Summary

Bloomberg Surveillance – "Market Rally and Warnings"

Date: August 5, 2026
Hosts: Tom Keene, Paul Sweeney, Barry Ritholtz
Guests: Alicia Levine (BNY), Ben Cook (Hennessy Energy Transition Fund), Nisha Patel (Parametric), Dan Ives (Wedbush Securities)

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Episode Overview

This episode dives deep into the current state of the financial markets amid a robust rally, analyzing its sustainability, the perils of market timing, sector-specific trends (notably technology, industrials, and energy), and the economic undercurrents driving both equities and fixed income markets. The team brings in expert voices to dissect AI’s capital expenditures, energy infrastructure in the age of data centers, municipal bonds’ unique dynamics, and the tech sector’s earnings—especially focusing on Microsoft's role in the ongoing AI revolution.

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Key Discussions & Insights

1. Market Timing vs. Staying Invested

Main Message: The dangers of trying to time the market, with firm encouragement to remain invested to capture the upside.

• Market Timing’s Costs – Missing out on the best months can irreparably damage long-term returns.
  • Alicia Levine: "The best month of the year always follows the worst month of the year...If you missed the best month, you’d underperform by 500 basis points over 30 years." [02:35]
• Permanent vs. Recoverable Damage – Losses from being out during rallies are hard to recoup.
  • Alicia Levine: “It's not permanent, but you can't make up what you've lost...trying to time it is fruitless. It's from a different era when you actually had recessions every five to seven years.” [03:33]
• Recession Watch – No indicators yet of an imminent recession; strong banking sector signals economic health.
  • Alicia Levine: "The most important thing is, is there a recession looming?...the banks are doing terrific. When banks do great, you're not going into recession." [04:50]

2. AI & Tech Capex: Is the Spending Paying Off?

Main Message: Robust investment in AI, especially from hyperscalers, is validated by strong returns and positive earnings.

• Return on Investment (ROI) for AI – The biggest market question was whether tech’s spending on AI would monetize.
  • Alicia Levine: "Even if free cash flow is going negative in the short term...they’re re-accelerating the core business, which is cloud. And so it's working...the whole complex can rally." [05:33]
• Timeline to Cash Flow Positivity – Models suggest tech will return to cash flow positive in 18-24 months, with explosive upside after.
  • Alicia Levine: "They return to cash flow positive in about 18 to 24 months...Then it explodes, then they become the bond." [08:29]
  • Barry Ritholtz: “So you’re looking at about flat 28 to 29. And then it explodes by 2030.” [09:00]
• Valuations are Reasonable – Tech is trading at its lowest relative value in 15 years; non-tech is comparatively more expensive.
  • Alicia Levine: “Tech sector was trading at 20 times forward earnings...That's the lowest relative value in 15 years.” [09:32]
• Industrial Beneficiaries of AI Boom – $1 trillion in projected capex for data centers benefiting industrials.
  • Alicia Levine: “Projections for next year is $1 trillion in spending that is going directly into the P and L of 20% of the S&P.” [07:08]

3. Energy Infrastructure: Powering the AI Revolution & Data Center Boom

Main Message: AI and data center demand is transforming energy markets, with natural gas, nuclear, and midstream infrastructure taking center stage.

• Texas Grid & Energy Demand – Behind-the-meter projects are booming as Texas companies ensure constant power for data centers.
  • Ben Cook: “The industry is solving its power needs by pursuing these power projects on a co-located basis.” [14:46]
• AI as Energy Bottleneck – The limiting factor for AI expansion is electricity generation, not compute or models.
  • Ben Cook: “The bottleneck as many see it today really is the ability to produce the electrons.” [15:31]
• Nuclear’s Resurgence – Modular reactors and large projects are in development; widespread impact still a decade out.
  • Ben Cook: “Small scale modular reactors...We'll start to see some contribution...in five to six years...it takes significant capital and 10+ years.” [16:24]
• Midstream as Investment Opportunity – Pipelines and infrastructure needed to connect natural gas sources to new data centers.
  • Ben Cook: “Midstream is the connection of the source of supply to the end users—gathering, storage, transportation, ultimately liquefaction.” [17:23]
• Best Energy Buys – Exxon is well-positioned given its flexibility and shareholder return focus.
  • Ben Cook: “We like Exxon. The integrated business model affords flexibility...They are returning cash to investors in spades.” [18:44]

4. Municipal Bonds: Opportunity Amid Supply Surge

Main Message: Record muni issuance meets robust demand, presenting attractive tax-adjusted yields despite headwinds from Treasury volatility.

• Record Issuance, But Demand Matching – About $600B expected this year; demand is robust, helping absorb new supply.
  • Nisha Patel: "This is almost the third year we’re on pace to actually break last year’s record...demand has actually been fairly robust this year." [20:48]
• Attractive Yields – Tax-equivalent yields in high-tax states are very competitive.
  • Nisha Patel: “10-year bond, New Jersey, let’s say roughly 3.5% yield, high tax state, you’re looking at kind of 6.5%, 7% all in.” [22:19]
• Account Customization & Tax Loss Harvesting – Parametric specializes in separately managed accounts with targeted laddering and tax optimization.
  • Nisha Patel: “We manage roughly 90,000 different accounts...customizing these accounts for our clients...[and] overlaying this with a component of tax loss harvesting.” [23:28]
• Credit Quality is Stable – Despite pockets of concern (education, healthcare), general investment-grade muni risk remains low.
  • Nisha Patel: “Credit quality is fairly stable...think about the economy, tax collections are strong.” [24:53]

5. Microsoft, AI, and the Tech Growth Thesis

Main Message: Microsoft’s recent earnings mark a pivotal moment in AI monetization. The broader tech sector is still in early innings of AI-driven growth.

• Microsoft’s Inflection Point – Market now appreciating Microsoft’s AI monetization; Azure and enterprise adoption are key.
  • Dan Ives: “What Microsoft showed in that quarter...that's an inflection point for all of tech...it shows what's happening in monetization, the hyperscalers.” [27:10]
• Capex to Monetization Transition – Street awaits evidence that massive AI spending translates into sustained financial returns.
  • Dan Ives: “The hyperscalers have basically doubled down in Capex...the monetization you now see...Enterprises are accelerating.” [30:04]
  • Dan Ives: “You want to now see...the baton handed from Capex to monetization.” [33:02]
• AI Innovation Is Self-Reinforcing – The buildout for AI feeds secondary and tertiary business opportunities, from chips to industrials.
  • Dan Ives: “Not about the models...it's about the data, derivatives, data center buildout, Capex, what that's going to do to energy...for the first time in 30 years the US is ahead of China.” [31:40]
  • “For every dollar in Capex there’s a five to six dollar multiplier across the rest of tech.” [32:17]

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Notable Quotes & Memorable Moments

On Market Timing:

• “There's this whole modern disease of market timing where if you’re not in the game, you don’t get to win.”
  — Barry Ritholtz [01:57]

• “Trying to time it is fruitless...the market since 2010 is up 14% annualized. That includes the 25% sell off in 2022.”
  — Alicia Levine [03:33]

On AI’s Financial Impact:

• “Even if free cash flow is going negative...they’re re-accelerating the core business which is cloud. And so it’s working.”
  — Alicia Levine [05:33]

• “They return to cash flow positive in about 18 to 24 months. And then it explodes...”
  — Alicia Levine [08:29]

On Energy & AI:

• “If you think about the demand trend associated with AI compute, we’re going to need a tremendous amount of electricity...the bottleneck...is the ability to produce the electrons.”
  — Ben Cook [15:31]

On Munis:

• “Absolute yields on a tax-adjusted basis are really attractive for a lot of people. High tax states...6.5%, 7% all in.”
  — Tom Keene & Nisha Patel [22:06]

On Microsoft’s AI Transformation:

• “This is going to be a monumental sort of turning point.”
  — Dan Ives [27:10]

• “For every dollar in Capex there’s a five to six dollar multiplier across the rest of tech.”
  — Dan Ives [32:17]

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Timestamps of Key Segments

• The Pitfalls of Market Timing & Staying Invested – [01:57]–[05:24]
• AI Capital Expenditure & Industrial Opportunities – [05:24]–[10:19]
• Energy Transition: Powering AI with New Infrastructure – [11:57]–[19:28]
• Municipal Bonds: Record Issuance, Demand, and Customization – [20:31]–[25:53]
• Microsoft, AI Monetization, & the Tech Earnings Cycle – [26:57]–[34:24]

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Summary for New Listeners

If you missed the episode, you’ll get a sweeping, sophisticated look at how staying invested—especially in the face of market volatility—remains crucial. The AI revolution is reshaping both the tech and energy sectors, with massive capital expenditures already driving results for both hyperscalers and industrials. Meanwhile, the “boring” but lucrative world of municipal bonds offers high yields for discerning investors. Microsoft is credited as hitting a major milestone in proving AI monetization potential, and the earnings ripple effects are just beginning. The episode wraps with lively banter, but at its core, it’s a real-time snapshot of how artificial intelligence, capital flows, and energy realities are rewriting the playbook for investors in 2026.

Transcript

[Tom Keene]

Salary bonus 401k stock options investment accounts At a certain wealth level, your financial life is anything but simple. If your wealth manager only sees one piece of the puzzle, who's connecting the rest? Creative Planning's integrated team looks at the whole picture. They coordinate your investments, tax strategy and estate plan to form a complete view of your financial life so everything fits together. Creative Planning where wealth works together. Learn [e-mail] BSP Amazon Health AI presents

[Barry Ritholtz]

painful thoughts why did I search the

[Alicia Levine]

Internet for answers to my cold sore problem? Now I'm stuck down a rabbit hole filled with images of alarmingly graphic sores in various stages of ooze. I can clear my search history, but I can never unsee that.

[Barry Ritholtz]

Don't go down the rabbit hole. Amazon Health AI gets you the right care fast. Healthcare just got less painful.

[Carol Massar]

Gain insight on the innovators, disruptors and tech driven trends shaping today's complex economy. I'm Carol Massar.

[Tom Keene]

And I'm Tim Stanovec.

[Barry Ritholtz]

Wrap up your workday with the Bloomberg businessweek Daily Podcast.

[Carol Massar]

We bring you deeper dives into the stories shaping your world, from the evolution of AI to the shifting priorities of

[Tom Keene]

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[Carol Massar]

Catch up on the conversations you miss.

[Barry Ritholtz]

Subscribe to the Bloomberg businessweek Daily Podcast

[Tom Keene]

on Apple, Spotify or anywhere you listen.

[Carol Massar]

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 on YouTube.

[Barry Ritholtz]

Alicia Levine is far too young to remember this. Your mother would throw at you a book called the Intelligent Investor. And one of the great themes of the Intelligent Investor is if you're not in the game, you don't get to win. And there's this whole modern disease of market timing where that if you're not in the game, you don't get to win. She's a bny. Can we just say Paul Jeffrey, you Alicia Levine, Solid team. It's like the mathematics involved here, folks. Too much is prodigious. Alicia, what's the damage to people who aren't enjoying this bull market? Like permanent?

[Alicia Levine]

It's not permanent, but you can't make up what you've lost. One of the most important statistics is that the best month of the year always follows the worst month of the year. And so we show our clients in various ways, like we try to time the market. You're likely to miss that massive rally like we had yesterday because you were so fearful of what was going on from June and July. The favorites were underperforming.

[Barry Ritholtz]

People have done studies.

[Alicia Levine]

The tech was over. I mean, essentially, if you go back 30 years and you missed the best month of the year, you're underperformed by 500 basis points.

[Barry Ritholtz]

I'll go to Capital Group out in Los Angeles, who've done great studies on this. You gotta be in the market, we all know that. But you were weaned at Chicago, the land of fama and French, where you have to play. Discuss that, discuss.

[Alicia Levine]

As my three male children would tell me, you miss all the shots you don't take. And I think there is, there, as you say, it's a disease of trying to time the market. I'll say this. People can be pretty good at selling more or less near like, you know, local peaks, right? You can see deterioration. You can see a percent of S& P advanced economies. You can kind of see you could be headed into a nice little sell off or consolidation phase, whatever you want to call it, and then you never get back in. And that's the issue because the lows are ugly. You know, if you think about last Thursday, it just looked like the apocalypse actually turned out to be a clearing event. And you know, Citadel did great on that, but I'm sure a lot of people were selling right into it. And it's just, it's too emotional. Doesn't matter how many years you've been doing this, but people fall for it at the same time. You're not going to save yourself anything. You're going to damage your forward returns. The only time you really want to think about next 12 months possibly being lower is if you think a recession's coming. We haven't had a proper recession since 2008. The one in 2020 was Man Made. It was man made, okay, that's stunning. The market, the market since 2010 is up 14% annualized. Okay? That includes the 25% sell off in 2022. That includes the down 6% in 2018. So trying to time it is, it's fruitless. It's from a different era when you actually had recessions every five to seven years. And coming out of the market perhaps saved you some losses. So, you know, the most important thing is, is there a recession looming? This market, this economy, there's no recession. And by the way, the banks are doing terrific. When banks do great, you're not going into recession.

[Tom Keene]

They're the forward leading indicator, technology AI focusing on returns on AI, capex how do you guys think about that theme right now?

[Alicia Levine]

So I think that's the most important theme in the market. And that of course was the clearing was the earnings that we had from some of the hyperscalers. You know, even where the market was disappointed in some of the others, the revenue was going much higher on the cloud business. And what we saw was the one question, there are two questions. Can equities rally with a 4.5% bogey on the 10 year being breached? Right. And the answer was like yeah, actually it was kind of fine. It was fine. Okay, so that question was answered. So look, yields probably could get to 5% here simply because between the inflation numbers and from the questioning of the Fed's reaction function and the uncertainty in Iran. So that's number one. But equities are fine. The second big question is the ROI on spending and that could have killed the entire market. You would have wound up with health care, utilities and staples working. And the answer is actually the business model is working. Even if free cash flow is going negative in the short term, even if they have to sell debt to fund it, they're re accelerating the core business which is cloud. And so it's working. And once you answer that question, you're off to the races. The whole complex can rally.

[Barry Ritholtz]

Alicia Levine with us. Bny thrilled with us today across America, around the world, futures up 28. Paul, ask a question because I got to go nerd here in a moment. Paul Sweeney with Alicia Levine.

[Tom Keene]

Alicia, you say industrials attractive entry point and we had great numbers out of Caterpillar yesterday, so boy that's a great timing.

[Alicia Levine]

So you have like it's a perfect storm. You have the capex incentives from the one big beautiful bill which are rolling through the economy and are definitely helping hard assets. That's industrials as well as the funding from the hyperscalers. So if you think about what you need to build a data center or what you need to kind of to build out the AI on the hard asset side, the projections for next year is $1 trillion in spending that is going directly into the P and L of 20% of the S and P. So that's why we like it. I mean industrial reels have been actually the best, the best sector of the year. We so we think that continues.

[Barry Ritholtz]

Give us your targets here quickly.

[Alicia Levine]

Okay, 8,000 with risk. Yeah, but risk to the upside here, right?

[Barry Ritholtz]

Okay.

[Alicia Levine]

Forward earnings are growing at 30%.

[Barry Ritholtz]

Okay. Geez.

[Alicia Levine]

The multiple is lower than it was June 2nd when the market peaked before.

[Barry Ritholtz]

If I look at two sets of difference equations on the x axis. And I look at all this CapEx, all these tech companies are spending and matched against that is the same timeline of their huge cash flows and profitability. I say they've only got to go out 1/4, 2/4, 3/4, 4/4. After that capex expense to be made whole.

[Alicia Levine]

Yes.

[Barry Ritholtz]

Is that in the zeitgeist now? I don't think so.

[Alicia Levine]

So we've been running models on it and it looks like they return to cash flow positive in about 18 to 24 months.

[Barry Ritholtz]

Okay, so that's six quarters.

[Alicia Levine]

And then. Then it explodes again. Then it explodes, then they become the bond.

[Barry Ritholtz]

Wait, whoa, whoa. Positively it explodes.

[Alicia Levine]

The cash flow becomes positive and then it explodes to the upside. So what is it monetizing the investment?

[Barry Ritholtz]

This is. You're the first one who's done this. Thank you. What's the fan distribution of outcomes? 24 quarters. Whatever.

[Alicia Levine]

Okay, let's call it. Let's call it in 2026. Let's call it 2029. So you're looking at about flat 28 to 29. And then it explodes by 2030. Okay, because you're monetizing it because cloud is necessary to build this out.

[Barry Ritholtz]

I mean, this is. This is like nascent, I would say it's sort of like the China dominance in AI. We don't really know. Give one more.

[Tom Keene]

Yeah, exactly. So what are you thinking about valuation here? I mean, the earnings are coming through so strong for the past several quarters. Valuation. We're okay here?

[Alicia Levine]

I think we're okay. You know, Sunday night, it's after Friday's close. The tech sector was trading at 20 times forward earnings. So it's trading exactly where the market is. That's the lowest relative value in 15 years. So I think valuations are fine. Actually, non tech is trading at higher valuations than tech because people were hiding in other areas feeling it was a concentrated market. Like, hello, folks, there's one trade. The entire market is AI. It's about 50% of the market. Very hard to. To hide anywhere here. Again, the fear will be expressed in, you know, staples, which have been moribund because the economy is good enough and growing and the labor market is stable. So that's where you go to hide everywhere else. It's an AI trip.

[Barry Ritholtz]

Do you hold meetings in the Hamptons during the week? Do you just drive out to the Hamptons to hang out with people?

[Alicia Levine]

We do not. We go. We go to our offices in midtown.

[Barry Ritholtz]

Office.

[Alicia Levine]

We work from office.

[Barry Ritholtz]

Very good.

[Alicia Levine]

We have meetings in office.

[Barry Ritholtz]

We do we do think people know where I stand on this. Alicia Levine, thank you. Back to your office. CIO Bi Wealth Stay with us. More from Bloomberg Surveillance coming up after this.

[Tom Keene]

Salary bonus, 401k stock options, investment accounts. If your wealth manager only sees one piece of the puzzle, who's connecting the rest? Creative Planning's integrated team of specialists coordinates all of it so everything fits together. Creative Planning where wealth works together creativeplanning.com BSP hi, I'm Barry Ritholtz inviting you to join me for the Masters in Business podcast. Every week we bring you conversations with the people who shape markets, investing and business. I speak with CEOs, Nobel laureates, market innovators and legendary investors. Whether you own stocks, bonds, real estate, commodities, even crypto, these are discussions you absolutely need to hear. Subscribe to the Masters in Business podcast on Apple, Spotify or anywhere you listen.

[Carol Massar]

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.

[Barry Ritholtz]

Ben Cook with us with Hennessy. He's got just a brilliant acuity here on a American oil in our oil independence. But I got to digress here. I just did a thing on Ned Johnson and Justin Bier's wonderful book on fidelity. One of my heroes was a guy named William H. Miller the third who came out of Washington Lee and Johns Hopkins and did better than good at Leg Mason. And you darken the door at Johns Hopkins where he just committed a ginormous amount of money to physics and astronomy. It's amazing what Bill Miller's done for the school. Explain why we need $50 million to go to physics and astronomy to non science America.

[Ben Cook]

I'll tell you, Johns Hopkins is a great institution, Tom, and obviously a great history. But I think, you know, going forward we need to be competitive as an economy and that's where we're building the next generation of experts to compete on a global scale.

[Barry Ritholtz]

Am I, am I right that physics is what made American oil independ in that we took physical, mathematics and technology and brought it over? Paul, help me Landman season to help me here. It brought it over to fracking. And all that all came from stuff like what Bill Miller's funding at Johns Hopkins?

[Ben Cook]

That's absolutely right, Tom. You know, we're seeing increased, improved technology, increasing the output, the efficiency of the industry. Industry is able to do more with less. That's in turn translating to good financial results for many of the companies that we invest in and we expect that to continue as AI becomes a bigger part of the drilling and completion process.

[Tom Keene]

How do you guys think about AI as an overlay to all your energy investments? Because it just seems like to me, at least as I think about and hear all these people talk about data centers here, data centers there, we're going to need so much power. Power is a gating issue. It just feels like we're going to need every source of energy going forward, whether it's fossil fuels, renewables. How do you guys think about it?

[Ben Cook]

Yeah, you know, as part of our repeatable investment process in managing the Hennessy Energy Transition Fund, we're looking at natural G really as a primary beneficiary and really the bridge fuel to nuclear as being a major contributor to the baseload power that's required to fuel these data centers on a 24 hour basis. So from an investor standpoint, the opportunity to invest in many of these names across the hydrocarbon value chain is attractive to us today because of the demand drivers for that power going forward. And we'll see a lot of opportunity emerge as the need for energy continues to grow.

[Tom Keene]

So talk to us about Texas. You're in Dallas, you guys have your own grid. I mean Texas is unto itself. We know that. You guys are like, you do your own thing. How is that grid set up? Because every day I hear about a new company relocating to Texas. Do you guys have the grid to deal with all that?

[Ben Cook]

You know, we do. You know, as a byproduct of the major winter storm Yuri several years ago, ERCOT did a lot to shore up additional capacity to ensure that we didn't have future outages. And we're benefiting from that today. You know, the air race as many are calling it today, you know, is requiring a build out of power gen faster than the utility sector can provide. So we're seeing a ton of behind the meter power generation projects. So the industry is solving its power needs by pursuing these power projects on a co located basis.

[Barry Ritholtz]

I saw this just. I'm so sorry folks, I don't have it here in front of me to cite, but somebody said we're getting AI wrong and that mostly it's an energy bottleneck. Discuss that.

[Ben Cook]

Yeah, you know, if you think about the demand trend associated with AI compute, we're going to need a tremendous amount of electricity and to generate those electrons, we're going to need a lot of natural gas and other fuel sources to generate that power. So the bottleneck as many see it today really is the Ability to produce the electrons. I was out in West Texas, just recently drove out through Abilene and ultimately Amarillo and up towards Colorado. A number of major projects being developed alongside renewable power sources. Wind farms that were generating electricity for the grid are going to be dedicated to generating power for data centers. It's an amazing trend.

[Tom Keene]

Talk about nuclear. I hear a lot more about that. I'm old enough to remember Three Mile Island. They sent us home from school then. How does nuclear play a role here going forward? Because it's been so out of the picture for so long.

[Ben Cook]

It has been, you know, it's been a year since the Trump administration issued an executive order to mandate the acceleration of developing additional nuclear resources in this country. You know, we have, you know, a proof proven concept in AP1000 by Westinghouse that'll, that'll be the primary model for large scale nuclear development. There's a lot of science projects underway with small scale modular reactors. We'll start to see some contribution from those, those models here over the next five to six years. But on a larger scale it's going to take time. It takes a significant amount of capital and 10 plus years.

[Barry Ritholtz]

So there's upstre downstream drilling, old school downstream refineries, distillates and all that in this thing. I really don't understand midstream. Where's the investable future among those three categories of oil?

[Ben Cook]

Yeah, you know, the, in terms of the, the value chain really, we see a lot of potential in all of the areas. I think midstream is, is a natural bench.

[Barry Ritholtz]

What is midstream?

[Ben Cook]

Midstream is the, really the connection of the source of supply to the end users.

[Barry Ritholtz]

Oh, so it's the Wawa.

[Tom Keene]

No, it's pipes. I think it's like the pipelines.

[Barry Ritholtz]

It is the pipeline

[Tom Keene]

on Route 36. Okay.

[Ben Cook]

Gathering, storage, transportation, ultimately liquefaction. The, the operators of the industry.

[Barry Ritholtz]

So you've got a data center in the middle of nowhere, west to Abilene. Sounds like, you know, sleep at the Wheel song.

[Nisha Patel]

Sure.

[Barry Ritholtz]

So you got a data center out west of Abilene. As Dallas grows up to Oklahoma, they need nat gas. It's just pipelines, right?

[Ben Cook]

Just pipelines. Absolutely. And you know, the West Texas region of the Permian basin is a logical source of supply of that energy. In a lot of cases, natural gas is still being flared as a byproduct.

[Barry Ritholtz]

But what about a data center outside Washington D.C. 12 miles, you know, not 12, 20 miles. There's west of Dulles.

[Ben Cook]

Yeah, there's an ocean of Gas in Appalachia that's awaiting for end use markets including what about not in my backyard? You know, you know, there are some issues, pushback on data centers and communities. The reality is scarce resources like land and water are an issue for see,

[Tom Keene]

we need local policymakers, pipelines to get to New England. Tom, because you got up in New England, you can't get your gas up there.

[Barry Ritholtz]

Quebec saves us like, you know, every,

[Tom Keene]

I mean, every three years, ship that stuff in.

[Barry Ritholtz]

I, I mean, just what's your single best buy? Is it Exxon?

[Ben Cook]

We like Exxon. The integrated business model affords flexibility in a commodity environment that's volatile. You've got a refining asset footprint, print on a global scale.

[Barry Ritholtz]

Do they have a new attitude about distributing cash to shareholders unlike the old days?

[Ben Cook]

They do. This is a group that is returning cash to investors in spades. And it will continue as the commodity price environment continues to be buoyant in our view.

[Tom Keene]

I'm going down to West Texas time. I'm going to bring a drill. I'm going down there. I'll make money. I mean, because these oil companies, they won't drill. They have discipline now. They want to return cash to shareholders. I'm going down and be a wildcatter. How you do it?

[Barry Ritholtz]

You, I just don't even know where to go. You just want to go meet Angela Norris?

[Tom Keene]

Yes, you're darn right. Absolutely.

[Barry Ritholtz]

I have no idea who Angela Norris is. Paul does Ben Cook with Hennessy Energy Transition Funds in from Dallas. We thank him. Stay with us. More from Bloomberg Surveillance coming up after this.

[Tom Keene]

Get essential news on the people and companies pushing the tech sector to new frontiers. Hi, I'm Ed Ludlow. Join me for Bloomberg Tech, a daily podcast focused exclusively on technology, innovation and the future of business. Every weekday we bring you the latest insights on Silicon Valley's top companies and conversations with tech's biggest decision makers. Listen to Bloomberg Tech on your commute home and stay ahead of the news cycle. Subscribe today on Apple, Spotify or anywhere you listen.

[Carol Massar]

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]

Nisha Patel. She knows what I'm talking about. SMA Portfolio Manager, Parametric. Talk to us about the muni spaceshirt because one of the things that seems like a headwind for the Munich space is there's a ton of issuance out there. I mean, 24 was a record year. 25 was a record year. House 26 looking for new issuance in municipal bond market.

[Nisha Patel]

Yes, that's, that's completely right, Paul. So we've seen a surge of issuance this year too. So this is almost the third year we're on pace to actually break last year's record. So we almost are looking at about 300 billion in the first half. If you annualize that, you know, kind of street estimates are close to 600 billion. So that has been a major headwind. But I think the difference this year, now keep in mind, we just gave back a good amount of performance in July. Right. So the kind of the broad Muni index was down, you know, about 1, 1.8%. We're slightly positive now for the year. So we gave a lot of it back. A lot of that had to do though with the treasury rate volatility right in the movement there. So this was not a credit issue. And then again, treasury volatility coupled with supply, that's what's really kind of created this, this negative overlay for munis. But again, I think when you look at the technicals, it's about supply, but it's about can that be absorbed. So then it's also demand. So demand has actually been fairly robust this year. So if we see that trend continue, that can help absorb some of this supply, which is very different than what we saw last year where demand wasn't keeping up with the amount of supply the market saw.

[Tom Keene]

But all that being said though, absolute yields are on a tax adjusted basis are really attractive for a lot of people. Right? Like people take high tax jurisdictions like New Jersey.

[Nisha Patel]

Yes, that's exactly right. So we were seeing that already before this recent repricing. Now where we see, you know, I would say the curve remains very steep, right. Especially relative to the treasury market. So you're getting paid to take on duration. The belly of the curve though particularly has sold off the most so far this year. So think about that as a 10 year part of the curve. A lot of the issuance has been in that part of the curve. So that part of the curve is sold off even more than the long end. So now before you had to maybe go out 15, 20 years to get, you know, I think getting, I don't want to say get paid for a duration, but to really find that relative value, you don't have to go out that far. So your 10 year bond, New Jersey, let's say roughly 3.5% yield, high tax state, you're looking at kind of 6.5%, 7% all in which is extremely attractive. So as we talk about this equity melt up, Tom, 7% locked in high quality bonds. That looks very attractive on a risk reward basis in my view.

[Barry Ritholtz]

How is Parametric different from the big houses in muni bonds? What are you people doing exactly?

[Nisha Patel]

So two things we manage separately manage separately manage accounts. So what that means is each of our accounts are customized. We manage roughly 90,000 different accounts. So Tom, you give us an account. Paul, you give us an account, you give us a parameters around what you want us to invest in. So be New Jersey for you.

[Barry Ritholtz]

You go out and find bonds.

[Nisha Patel]

Correct? Now we do ladders. You talked about laddering. It's a great way to take beta exposure.

[Barry Ritholtz]

But we also do, they were a great band exposure. They play Devo like nobody. What if God's name is beta exposure?

[Nisha Patel]

Well, that means, look, you can't match the index perfectly in munis, right? It is very tough to recreate a muni index. But by saying, hey, I would like a, let's say 1 to 10 year ladder, New Jersey specific, we can create that market exposure to munis. Now we can also manage the total return component. But bottom line, Tom, the number one thing that we are doing is customizing these accounts for our clients. Number two, munis are already inherently tax efficient. We are overlaying this with a component of tax loss harvesting. So parametric manages over 750 billion across equities and fixed income tax loss harvesting is another element of tax efficiency that we can create for our clients at Parametric.

[Tom Keene]

How's credit quality out there in the municipal bond world? I don't hear any stories like a, I don't know, Chicago or Puerto Rico blowing up and causing all kinds of problems. How's credit quality out there?

[Nisha Patel]

Credit quality is fairly stable. And look, I would say boring is okay. Right. So, but, but I think you have pockets in certain areas, in certain sectors that you do see a little bit more credit bifurcation. So private education, I would say healthcare in the lower quality space. Obviously you want that credit oversight, right? Making sure you're getting paid for that, for that additional yield. But think about the economy, right? I mean the economy's been fairly strong, tax collections are strong. So you're looking at a fairly robust profile generally across the board in the investment grade space. Now you may start to see headline risk. Now I would say you're seeing that with some states, with some cities, dare I say New York City, given the budget gaps. Right. That are projected. Some of the one time measures, they're considering but we remind our clients that fundamentally the credit remains strong. Headline risk is very different than the ability to repay debt and this still remains a high quality issue in our view.

[Barry Ritholtz]

Nisha, thank you. Thank you so much. Nisha Patel with this parametric this morning on taking advantage of tax free bonds. She lifts the equity market niche, is known to do that. Stay with us. More from Bloomberg Surveillance coming up and after this.

[Carol Massar]

Hi, I'm Carol Massar with a helpful tip to keep you plugged in throughout the market day. Subscribe to the Stock Movers Report from Bloomberg. These are short audio episodes, five minutes or less, delivered right to your podcast feed. Stock Movers fills you in on the day's winners and losers on Wall street and tells you about the news and data that's driving those gains and losses. Why spend all day watching tickers scroll across your screen? Subscribe to Stock Movers today on Apple, Spotify or anywhere else you listen. 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.

[Barry Ritholtz]

Dan Ives joins us right now. Dan, I really want to focus on Mike Microsoft, the amount of inertial force to get that jump condition in Microsoft, where did that inertial force come from?

[Dan Ives]

I mean, I think first of all the market was painting it wrong relative to where they were on the AI revolution, the monetization piece. And like I've said, I mean I believe what Microsoft showed in that quarter, I think that's an inflection point for all of tax because it shows what's happening in monetization, the hyperscalers. It's not just so important for Microsoft, I think important for the overall sector. We're going to look back and this is going to be a monumental sort of turning point.

[Tom Keene]

Hey Dan, it's we had SpaceX last night. I'd love for you to frame out what the SpaceX story is now versus maybe what it was at the IPO, because obviously there's been a lot of volatility in the stock. It's obviously a very long term story and it's obviously a big, big play on Elon Musk himself. What did you take away from the earnings release and the call last night?

[Dan Ives]

Look, I think part of it is that there's a longer term vision that's ultimately investors that bought in on the ipo. That's the view in terms of the broader AI space story and what Musk is going to do over the coming years when it comes to quarters, look, there's no number that they're going to show then you could say neighborhood calm, nerves. Right. Given the lock up and just given some of the nervousness you're seeing.

[Barry Ritholtz]

Right.

[Dan Ives]

But for them it's the balance because Capex is how they're going to narrow the gap versus open air and anthropic and that continues to be the tug of war.

[Barry Ritholtz]

Did Bill Ackman get this going? Because I had the clearest memory in Q1 he stepped in with you know, for Bill Ackman and odd lot, you know, I mean it was a piece of change. 5.7 million shares, 2.1 billion. That's an odd lot for Bill Ackman.

[Tom Keene]

That's a big one.

[Barry Ritholtz]

Did he get it started? Dan Ice it was like om Ackman's long stodgy Microsoft.

[Dan Ives]

Oh I think, I mean Ackman saw around the corner because investors were massively discounting what the monetization story was going to be with Azure and I think ultimately counting out Nadella because some of the open air stuff and sort of the narrative and I think it just speaks to and we've talked about it obviously so much with you guys in the show. This is, we're going to have white knuckle moments whether it's Microsoft, whether it's tap. But the reality is this earnings season shows you you're in the third inning, I can maybe even say bottom of the second. You almost go back to where this is all playing out relative to monetization, especially on the hyperscalers, up 38% from

[Barry Ritholtz]

the end of March.

[Tom Keene]

Yeah, just extraordinary. Hey Dan, so where are we broadly defined on this AI conversation in the marketplace? What is the narrative in the marketplace? Because we had you know, big tech earnings last week and a couple company stock reacted really positively and Microsoft being one of them, Amazon, some others did not. What's the street thinking about AI these days?

[Dan Ives]

So I'd say let's put it like a Jenga puzzle. Okay. So the hyperscalers have basically doubled down in Capex. The monetization you now see whether it's alpha at Amazon, Microsoft, the software piece I think Palantir front and center is showing you the enterprise use cases are accelerating. Even when you look at amd, despite what you saw, it just shows chips we've said Demand the supply 12 to 1, 13 to 1 obviously Nvidia front and center. When you piece it all together, enterprises are accelerating. The hyperscalers see it. That ultimately is a key catalyst for chip Stocks. And I think what you're essentially seeing now is that the second, third, fourth derivatives of this AI revolution, cybersecurity, among others, now it's starting to spread. This is real, right? And you can't even deny it.

[Barry Ritholtz]

Okay, Dan, the reality is you're in the Hamptons because he's living large. We all know that. We're in Barron's and you know, it's like a thing. Dan, you need to go up the coast to Maine, to Roque Bluff. Rogue Bluff.

[Tom Keene]

Yep.

[Barry Ritholtz]

It's almost like where FDR Summer place was on the border with Canada. Like they're more Montreal Canadian fans up there.

[Tom Keene]

I know.

[Barry Ritholtz]

Than they are Boston Bruin fans. And Dan, we got a question here that's absolutely brilliant from, from Rogue Bluffs, Maine. I hope I'm pronouncing that right. Does the innovation of AI, does it, is it circuitous? Does it feed on itself into secondary and tertiary uses?

[Dan Ives]

That's our whole first of it's a great question and that's our whole thesis is that what essentially happens is not about the models open air and anthropic, it's about the data, the derivatives, the data center build out, the Capex, what that's going to do to energy and it goes back to like for the first time in 30 years the US is ahead of China.

[Barry Ritholtz]

Okay, industrial guy, how does it, I mean Caterpillar just blew out numbers. You're going to tell me its data centers. What's Dan Ives X axis for all these tertiary companies advantage by your AI world?

[Dan Ives]

Well I think that's where when you look at Caterpillar you look on the energy side like bloom energy quanta. I'm just giving examples of companies that are playing into the build out to the data centers, the Capex build out. So this is remember for every dollar in Capex there's a five to six dollar multiplier across the rest of tech. And I think that just continues to be our theater. And I think this earnings season earnings now caught up maybe just where some stocks were.

[Tom Keene]

So what's the, what's the next thing that you think the street's looking for over the next 2, 3, 4 quarters? Dan, is it more ROI evidence? Is it a scaling back in Capex? What do you think the street's looking for?

[Dan Ives]

Monetization. You want to now see like it came with the X axis. You want to now see go the baton handed from Capex to monetization. And I also think there is just a laser focus what's going on in cupertino because the consumer AI revolution runs through Tina. What they do on the consumer side by memory chips and everything else that is so important to their strategy.

[Barry Ritholtz]

Dan, is a $22 ultimate breakfast burrito at the Golden Pear Cafe. Is that a little rich for you? I mean, just a breakfast burrito, $22.

[Tom Keene]

Oh, wow.

[Dan Ives]

It. I look, I do think Golden Pear, I'd say are you maybe some of the best coffee in the United States. But I will say that that burrito, you know, I think it's priced high, but I think well worth it. You know, for those that have never

[Barry Ritholtz]

tried it, I mean, the chicken panini is just unbelievable. Lunch, they charge more for that.

[Tom Keene]

Okay.

[Barry Ritholtz]

You can't even get in the door there half the time, right, Dan?

[Dan Ives]

It is crap. But I mean, Keen, he would. You'd have VIP access. But for others. Yeah, but for others, the regular people, the non keen, they have to wait online.

[Barry Ritholtz]

God, can you see me out there? I don't think so.

[Dan Ives]

I can picture it. The bow tie going into golden pair. I see the scene.

[Barry Ritholtz]

Bill Nye the science guy busted my chops on that a while back. He remembers like the nerd patrol.

[Tom Keene]

Yep, there you go.

[Barry Ritholtz]

And I go in the Hamptons. Thank you so much for the perspective, particularly on Microsoft.

[Carol Massar]

This is the Bloomberg Surveillance podcast available on Apple, Spotify, and anywhere else you get. Your podcasts 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.

[Dan Ives]

Have you ever wondered how Jesse Cole took the Savannah Bananas from this? We had a $6 million failure last year.

[Ben Cook]

We're going to have bigger ones as

[Dan Ives]

we go to this. We've got shareholders, investors that reach out to us regularly.

[Ben Cook]

And the answer is always no.

[Dan Ives]

Or why El Duncan would say this

[Tom Keene]

about a Netflix sports broadcast.

[Nisha Patel]

Sometimes we're going to take really big swings and we're going to fricking whiff.

[Tom Keene]

Then the deal is the show for you.

[Dan Ives]

It's a Bloomberg podcast hosted by me,

[Tom Keene]

Alex Rodriguez, and me, Jason Kelly.

[Dan Ives]

We talk to the biggest names in

[Tom Keene]

the world of sports and business, including

[Dan Ives]

NBA hall of famer Tracy McGrady on one of his biggest blunders.

[Barry Ritholtz]

I think I've created something magical.

[Dan Ives]

Well, I struck out and you'll even get some of my baseball hot tips takes.

[Tom Keene]

I've had owners tell me it doesn't matter. The game has to be fixed.

[Nisha Patel]

It's broken.

[Tom Keene]

If we have to lock out the whole year. We will. New episodes air every Thursday.

[Dan Ives]

Don't miss out.