Markets and Fed Uncertainty

Summary

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Bloomberg Surveillance Podcast Summary

Episode: Markets and Fed Uncertainty
Date: June 29, 2026
Hosts: Tom Keene, Paul Sweeney
Guests: Aditya Bhave (Bank of America), Alicia Levine (BNY Wealth), Jim Caron (Morgan Stanley IM), Chad Beynon (Macquarie)

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Overview

This episode dives into mounting uncertainty around Federal Reserve policy, inflation, and the evolving investment landscape. It features deep-dive interviews with leading strategists and economists on potential Fed rate hikes, the resilience of the consumer, the impact of AI in markets, and the shift of global investment trends—plus a spotlight on sports betting and prediction markets around the World Cup.

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Key Discussion Points & Insights

1. Federal Reserve Outlook and Market Reaction

Guest: Aditya Bhave, Bank of America
Segment: [01:46]–[08:00]

• Rate Hike Forecast: Bhave is an outlier, forecasting three Fed rate hikes in 2026, arguing, "They'll take back the cuts that they did last year," as risks around labor dissipate ([02:19]).
• Hawkish Tone Shift: Despite a dovish expectation for the FOMC, Bhave points out the latest dot plot reveals, "Nine people expect to hike even though no one has the unemployment rate falling this year. So that for us is a hawkish shift" ([02:54]).
• Inflation & Policy: Inflation remains sticky but not as severe as in 2022. Current policy is "75 basis points easier than last year," with less urgent pressure to go back to notably high rates ([02:19]–[03:35]).
• Consumer Strength: Citing near real-time Bank of America card data, Bhave notes robust consumer spending, stating, "The consumer is in good shape. There's no clear sign that the risks to activity are to the downside" ([04:07]).
• Political Pressures: Bhave addresses whether political considerations affect Fed decisions: "That's a bit outside my wheelhouse...but Chair Warsh’s incentives right now—he has a brief window where he can hike rates and not necessarily take the blame" ([05:17]).
• Structural Inflation via De-globalization: Persistent supply shocks due to nearshoring lift inflation structurally. Bhave: "If you're looking at 5, 10 years of supply-driven inflation…you have to put more downward pressure on demand or accept you'll always miss your target by 50, 70 basis points" ([06:07]).
• Equity Response: Markets have weathered rate expectations shifting from cuts to hikes without collapse: "My sense is it'll be fine…could that be the straw that breaks the camel's back? Maybe, but I don't think that's a slam dunk" ([06:55]).
• AI and Labor: "AI will replace tasks more than jobs…ultimately there’s going to be a creation of new jobs we can't conceive of right now" ([07:23]).

Notable Quote

"The consumer is in good shape...there's no clear sign that the risks to activity are to the downside." — Aditya Bhave ([04:07])

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2. Tech Concentration, Portfolio Construction & Fixed Income

Guest: Alicia Levine, CIO, BNY Wealth
Segment: [10:48]–[16:39]

• Tech Market Dynamics: Levine is optimistic about “Mag 7” tech stocks despite negative headlines: "The collapse in multiple on the Mag 7 gives you an entry point here because…spending on AI is coming from these hyperscalers" ([11:16]).
• AI Beneficiaries: She highlights a divide—AI beneficiaries (roughly 20% of S&P market cap) projected to grow earnings 70% YoY, compared to 15% for the rest ([11:48]).
• Portfolio Concentration Risks: Cautions that AI’s dominance in the S&P, EM, and even sector indices means diversification is harder: "Now it's AI. So you're not actually buying different factors, you're buying the same factor" ([13:26]).
• Market Drawdown Feels Worse: Even with only an 8% Nasdaq drawdown, concentrated holdings magnify investor discomfort: "If you look at the Russell 1000 Growth Index, I think it's down for the year or maybe flat…So you're having these weird conversations" ([14:25]).
• Fixed Income Strategy: BNY expects "at least one hike" from the Fed; prefers income "without duration" due to debt and policy risk. "Clients want income without duration...you've got to be a magician here" ([15:14]).
• Inflation Nuance: Core inflation remains sticky due to long-term supply-side and hardware price issues, not just top-line moves ([15:49]).

Notable Quote

"Now it's AI. So you're not actually buying different factors, you're buying the same factor." — Alicia Levine ([13:26])

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3. Nominal GDP, Bonds, Credit, and AI Capex

Guest: Jim Caron, CIO, Morgan Stanley Investment Management
Segment: [19:38]–[26:57]

• New Nominal GDP Regime: In a world of 6+% nominal GDP growth, "that puts upward pressure on interest rates," with inflation expected to remain above target and Fed under pressure to hike further ([20:05]).
• Bond Market Positioning: Advises underweighting duration and overweighting high-quality credit/high-yield: "So what we're saying in bonds is that you want to be a little bit underweight duration and have some overweight towards higher quality credit" ([21:24]).
• AI Megatrend & Corporate Debt: Despite tech giants’ aggressive bond issuance to fund AI, Caron argues: "As a percentage relative to their balance sheet…many of these technology companies are underleveraged at this point" ([22:24]). However, he does warn of potential risks if issuance accelerates ([23:44]).
• AI Bubble? Draws historical comparison, "In the bear case, AI is a bubble and will follow the path of railroads…capex will be a boon for the economy, but the directly exposed companies will go bust" ([24:29]). Morgan Stanley sits in the bull camp, expecting more winners than losers.
• Sectoral Winners: Sees health care and consumer as likely AI beneficiaries, citing expected productivity gains and cost efficiencies ([24:45]).
• Bond ETFs: Prefers actively managed ETFs over passive index-following ones ([26:20]).

Notable Quote

"In a higher nominal GDP world…that puts upward pressure on interest rates because…inflation is likely going to stay above target for an extended period of time." — Jim Caron ([20:05])

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4. Global Sports Betting, Prediction Markets & Stock Implications

Guest: Chad Beynon, Macquarie
Segment: [30:16]–[36:10]

• World Cup Betting Booms: $500M projected to be wagered on each top match; betting engagement and viewership are both at record highs ([30:57]).
• US versus Europe/Asia Betting Markets: "Globally it's a country by country business, and in the US it's state by state" ([31:59]). Mature European markets (UK, Italy, Spain, France) have led global development.
• Operator Profits vs. Bettor Outcomes: Operators thrive, especially on upsets: "Customers usually side with the favorites…books need draws/upsets to regain winnings" ([32:54]).
• Stock Underperformance: High-profile sports betting companies like DraftKings and Flutter have underperformed: "Prediction markets entered…permits customers to engage in event contracts" ([33:37]).
• Best Pick: Beynon highlights Flutter as undervalued due to global presence: "Company is worth less than what FanDuel was acquired for…hold podium positions around the world" ([34:17]).
• Prediction vs. Sports Betting: Prediction markets allow bets on Fed policy, CPI, etc., and are now permitted due to CFTC regulation ([34:40]).
• In-play Betting: Fast-growing segment—"in play" is up to 70% of wagers outside US, rising domestically too ([35:49]).

Notable Quote

"In-play betting is about 70% wagering outside of the US and now we're at about 40%." — Chad Beynon ([35:49])

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Memorable Moments & Quotes (with Timestamps)

• "You say the one less traveled is three rate hikes?" — Tom Keene, teasing out Bhave’s viewpoint ([01:46])
• "Underlying inflation isn't 3 1/2 percent. It's probably closer to 2.8." — Aditya Bhave on inflation misperceptions ([03:35])
• "It's hard for me to believe that these managements are just going to take it lying down and go quietly into that dark night." — Alicia Levine on tech giants’ resilience ([11:48])
• "If you think about the EM index, it's also about 50%. So you've got AI dominating the emerging markets index. You've got AI dominating the US index" — Alicia Levine ([13:26])
• "If you look at the Russell 1000 Growth Index, I think it's down for the year or maybe flat. Meanwhile, you've got stocks up 100% this year." — Alicia Levine ([14:25])
• "What we're saying in bonds is that you want to be a little bit underweight duration and have some overweight towards higher quality credit..." — Jim Caron ([21:24])
• "Many of these technology companies are under-leveraged at this point." — Jim Caron on tech debt ([22:24])
• "Operator profits rely on upsets and draws, not favorites winning every game." — Chad Beynon ([32:54])

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Timestamps for Important Segments

• [01:46]–[08:00] – Fed, markets, inflation, and consumer health (Aditya Bhave)
• [10:48]–[16:39] – AI, tech stocks, portfolio risk, fixed income (Alicia Levine)
• [19:38]–[26:57] – Nominal GDP, credit markets, AI capex, bond ETFs (Jim Caron)
• [30:16]–[36:10] – Global sports betting, prediction markets, stock calls (Chad Beynon)

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Conclusion

This episode of Bloomberg Surveillance offers in-depth analysis for investors navigating a world of persistent inflation, structural market shifts, and the unstoppable force of AI disruption. Money managers remain cautious on duration and optimistic on credit, while also grappling with concentrated tech risk, and a global betting frenzy surrounding sports and macro events.

As Alicia Levine notes, "Now it's AI…you're not actually buying different factors, you're buying the same factor," capturing the core challenge facing investors in 2026.

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Transcript

[Jim Carrey]

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[Tom Keene]

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[Bloomberg Host]

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.

[Tom Keene]

How do you start the week with your interview of the week, including the Fed here on what Mr. Wash is going to do. Aditya Bobby has a wonderful pedigree, including out of Amherst, which I expect in fact Chairman Wash is going to quote Robert Frost here at the press conference somewhere ages and ages and I, Chairman Marsh will find two roads diverged in a road or diverged in a wood. And I took the one less traveled. You say the one less traveled is three rate hikes?

[Aditya Bobby]

Yeah.

[Tom Keene]

Really you are an outlier. How do you get the three rate hikes?

[Aditya Bobby]

Okay, so the way we get there is pretty simple. Let's talk about the data first. It's the data and the reaction function data. The unemployment rate is unchanged from a year ago. Core PC inflation is about 60 basis points above where it was a year ago and only some of that is one off. So despite all this, policy is 75 basis points easier than last year. To us they're clearly offside. So our forecast is just that they'll take back the cuts that they did last year. They were risk management cuts. Those risks around labor have dissipated at this point. And then in terms of the reaction function, we thought going into June that this was fundamentally a dovish fomc that would find reasons to not hike rates. But the sep it's not just about the dot plot, it's the fact that nine people expect to hike even though no one has the unemployment rate falling this year. So that for us is a hawkish shift in the reaction function.

[Tom Keene]

The guy from South Africa was offside by a toll.

Saw that.

That was just absolutely ridiculous.

[Aditya Bobby]

But you don't need replay for this.

[Tom Keene]

You don't need a far. Kevin Worst doesn't get a far. What he does get is a nonlinear function. One rate rise a second, a third. Wildly nonlinear, correct?

[Aditya Bobby]

I don't think it's wildly nonlinear. 75 basis points is very normal for a mini cycle for the Fed. So to be clear, we don't think they have as much of an inflation problem as they did back in 2022. Underlying inflation isn't 3 1/2 percent. It's prob probably closer to 28 or something like that. Which is why they don't need to go back to 5%. Right? At 3.5% core PCE, the Taylor Rule would tell you you need to be at 5%. That's not what we're calling for.

[Tom Keene]

So how's the consumer doing out there? I mean better than we think. How's the consumer doing?

[Aditya Bobby]

The consumer is doing great and we actually have data to back this up. So the bank of America data credit and debit card spending we report this almost in real time. We've already published reports through 20 June and what we're seeing is an acceleration in spending x of gas as gas prices come down even though you didn't really see a deceleration ex of gas as gas prices went up. So the consumer is in good shape now some of this could be a boost from the World cup that rolls off but there's no clear sign again that the risks to activity are to the downside and just going back to Robert Frost for a second Tom, he has promises to keep, shows promises to keep.

[Tom Keene]

This was a Colby Smith article today

Amherst they're still the Lord Jeffs to me. I'm not going to the whole mammoth thing.

[Aditya Bobby]

No comment, no comment.

[Tom Keene]

Talk to us about so presumably the Fed and this chairman has some political pressure to lower rates. Boy, if he tries to do three rate hikes this year, the social media posts are going to be fast and furious. Does that figure into your calculus at all?

[Aditya Bobby]

That's a bit outside my wheelhouse. But what I would say, just as a statement of fact, is that the President noted during the press conference that he would be okay with the Fed hiking rates. And honestly, if you think about Chair Warsh's incentives right now, he has a brief window where he can hike rates and not necessarily take the blame in the sense that the inflation happened under the previous regime. If he doesn't hike now and inflation doesn't get better over the next year, and there's a lot of pressure from the committee to hike next year, he'll have to own that.

[Tom Keene]

Longer term, in terms of inflation, to the extent that this decline of globalization, I'm not sure if you guys subscribe to that, but this decline of globalization, this America first, the near shoring friends, shoring. Doesn't that structurally lift inflation?

[Aditya Bobby]

It does, it does. And we're seeing some of that in the inflation data as well. If you look at the underlying drivers of inflation for sure, we don't have a disastrous problem around demand again, which is why policy doesn't need to go to 5, 6%. But supply drivers are really, really sticky. And that's not going away. Right. It's just wave after wave of supply shock. And that's something the Fed will have to contend with. If you're looking at 5, 10 years of supply driven inflation just being elevated, then you have to put more downward pressure on demand or you have to accept that you're always going to miss your target by 50, 70 basis points.

[Tom Keene]

When you talk to your equity people, which are really competent, like a huge Excel spreadshee, quantitative strength. If you get above a 3 rate increases, what does the stock market do?

[Aditya Bobby]

My sense is it'll be fine. I mean, look at the fact that we've gone from two cuts priced for this year to a hike and a half and equities have navigated that just fine. So another hike and a half, could that be the straw that breaks the camel's back? Maybe, but I don't think that's a slam dunk either.

[Tom Keene]

So for labor, what is the B of a kind of AI call as it relates to the labor market? Kind of intermediate to longer term, I guess.

Right.

[Aditya Bobby]

So the longer term view is that AI will replace tasks more than it will replace jobs. So ultimately there's going to be creation of a whole bunch of new jobs that we just can't conceive of right now. So I like this statistic. Something like 60% of jobs that exist today did not exist back in 1940. Right. So I think there's going to be something like that happening down the line.

[Tom Keene]

Now.

[Aditya Bobby]

That said, there is a transition period. There are going to be winners and losers and the speed of that transition is going to matter a lot in the near term for Fed policy.

[Tom Keene]

Thank you so much. With bank of America here, really quite a call folks. We'll have a mix of calls here as we go to the Fed meeting and beyond the jobs report of this last week of the second quarter. Dr. Bobby is with bank of America. Stay with us. More from Bloomberg Surveillance coming up after this.

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[Tom Keene]

IBM support for the show comes from public.com if you're actively involved in your portfolio, you probably catch yourself repeating the same actions. Buying the dip, manually sweeping idle cash, putting on a hedge on Public you can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English like if the Vix hits 25, buy a put option on the S&P 500 or if my cash balance goes above $20,000, move the excess into my direct index. You approve the workflow and your agent handles the risk, monitoring the market, watching for your conditions and executing your strategies exactly as defined. An investing platform driven by your intent and not just your clicks. You can also get full read and write access to your account via the public API. Go to public.com market and fund your account in five minutes or less. That's public.com market paid for by Public Investing Brokerage Services by Open to the Public Investing Inc.

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[Bloomberg Host]

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]

What a joy in studio Alicia Levine of being why I'm just going to cut to the choice and you could see it in Barron's this weekend. This cacophony of omg, we've got a fabulous Microsoft World's coming to an end article out today. And in your research note, you've got some optimism on tech. What's your visibility here? When you say buy Mag 7, own Mag 7. Are you out six days, six weeks or six years?

[Alicia Levine]

So I think it's hard to be six years. But I think that the collapse in multiple here on the Mag 7 gives you an entry point here because essentially what's happened over the last few weeks is and don't forget this really started November 1st of last year. The funding and the spending on AI is coming from these hyperscalers, you know, hundreds of billions of dollars, estimates $800 billion this year. And it's going to fund other companies, right? The products of other companies. It's hardware, right? It's build out, it's industrial, it's energy and it's hardware tech companies and essentially the market said you follow the money. I don't want to buy the spenders, I want to buy the AI beneficiaries. And so that's what we've seen. And so this year in 2026, AI beneficiaries and we did a study on this, about 20% of market cap of the S and P, they're going to grow earnings at 70% year over year. The rest of the market's growing 15%. That's actually quite good. But you get to a world where you're like why am I going to invest in the companies that are spending? Maybe I should be buying where the money is going and the cash is going to. That leaves a situation where they're unloved, they're sitting on support. And it's hard for me to believe that these managements are just going to take it lying down and go quietly into that dark night. So I think there's an opportunity here from some sort of reversion trade. There are parabolas all over the place on the tech hardware space and I think you get a summer of reversion and I think it's a better on the index level, but complicated. It's complicated.

[Tom Keene]

So buying the index today, I mean, we were talking about our kids investing. They're probably buying s and P ETFs, all that kind of what they're buying is tech and AI. It's become such a concentrated market. Is that a concern to you?

[Alicia Levine]

So it's a concern in that that the correlations across asset classes have become very high. You know, I come to Bloomberg, it's awesome. And we're talking about SK Hynix and Samsung and we've got the price of SK Hynix and Samsung on the on board here. Like when did we ever do that?

[Chad Biden]

Right?

[Alicia Levine]

So now you have. You think about Taiwan, Taiwan semi. And you think about Korea. What percent of the China index is that? Wow, it's about 52%. If you think about the EM index, it's also about 50%. So you've got AI dominating the emerging markets index. You've got AI dominating the US index, not in developed international because Korea is an EM for some strange reason. But as a result, when you build out diversified portfolios, you're in a place where actually what you think is you're hedging some risk in different ways. Typically, EM has been about energy and materials and financials. Now it's AI. So you're not actually buying different factors, you're buying the same factor. And so that becomes complicated in the short term and maybe even the long term of how you build out a portfolio.

[Tom Keene]

I would suggest most people don't know that the NASDAQ on a weekly chart has a drawdown of 8ish percent or so. It feels a lot worse.

[Alicia Levine]

It feels worse. Everybody owns the names, right? I mean, if you think about, you know, 7% of the S&P, 8% of the S and P, we flash the names up there. Those are the names that have either been flat or have gone negative for the year. And so the on the index level, it's actually quite painful. If you look at the Russell 1000 Growth Index, I think it's down for the year or maybe flat. Meanwhile, you've got stocks up 100% this year. And so you're asking yourself, wait, that's hardware. Stock is up 100%. But you know, the Russell Growth index is flat for the year. And what's happening in the 401k? So you're having these weird conversations. You're like, the market's terrible. Actually it's pretty good. Spending is going and it's concentrated and that's where investors have gone. So nimble investors have just followed where

[Tom Keene]

the cash flow is Going as the CIO BNY wealth. What's the fixed income call these days?

[Alicia Levine]

So the fixed income call is that we see, we see at least one hike for this year. We've been in the belly of the curve for a long time because we think there's risk on the longer duration side simply because of the massive amounts of debt. And to be honest, our clients, our clients want income without duration. Right. You've got to be a magician here. So I think the repricing actually because of the Fed and the war Fed I actually think is a great opportunity to do this. And the other thing is the market has been pricing in about two hikes for this year in the sense that previous Feds have never gone just once. It's always like a cycle, right? You either cut one, you don't cut once, you cut twice, at least. You don't hike once, you hike twice at least. That's sort of the mental math. I think the war spread could be different. I think that we will bring price stability is really clear what that is very clear. That oil dropping like a stone 20% since the MoU is not changing the core inflation outlook because the war went on too long. The price hikes went on too long. And separately from that, hardware is now expensive, so it's going into consumer goods. So now you've got higher inflation expectations in the core. In the core. And that's the Fed's problem. It's not the top line. It's the core problem.

[Tom Keene]

Alicia Levine, thank you so much. Dny.

[Alicia Levine]

Great to see you guys this morning.

[Tom Keene]

I got eight more questions for But Now Time. Stay with us. More from Bloomberg Surveillance coming up after this.

Support for the show comes from public.com if you're actively involved in your portfolio, you probably catch yourself repeating the same actions. Buying the dip, manually sweeping idle cash, putting on a hedge on public. You can now create AI agents that handle all these tasks on your behalf. Just describe what you want to do in plain English like if the Vix hits 25, buy a put option on the S&P 500. Or if my cash balance goes above $20,000, move the excess into my direct index. You approve the workflow and your agent handles the risk. Monitoring the market, watching for your conditions and executing your strategies exactly as defined. An investing platform driven by your intent, not just your clicks. You can also get full read and write access to your account via the public API. Go to public.com market and fund your account in five minutes or less. That's public.com market paid for by Public Investing Brokerage Services by Open to the Public Investing Inc. Member FINRA and SIPC Advisory services by Public Advisors, LLC, SEC registered advisors.

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[Bloomberg Host]

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]

Jim Carrey with us right now and when you read through his Morgan Stanley research note as CIO Cross asset Paul it's about a two hour interview. Yeah, let's see what we can do here. The single sentence Jim I see there. You know I'm in the camp with you on this. It's a new nominal GDP regime. You say equities will win. What will bills, notes and bonds do, public or private? If we get a more sustained lift in nominal gdp?

[IBM Representative]

Yes.

[Jim Carrey]

Well thanks and good morning and thanks for having me on your show. So in a higher nominal GDP world, so, so let's, let's put a number on this. So we just had some upward revisions on GDP growth you last week for the first quarter. GDP year over year is growing at about 6.1%. That's a pretty healthy high number. What that does is it puts upward pressure on interest rates because remember nominal GDP is a combination of real plus inflation. In order to get nominal GDP so high it just means that inflation is likely going to stay above target for an extended period of time. That puts a lot of pressure on the Fed to potentially hike rates. And this is the debate that we're having today. Whenever you have that debate that's going to put upward pressure on bond yields, it doesn't mean that yields are going to just trend higher immediately. What it means though is that they probably don't go down materially and stay down materially unless you have a deeper correction in the market like a recession or something like that. So it does put pressure on the duration component, the interest rate sensitivity of bonds, but on the credit component of bonds, it's actually kind of positive. Right, because the same thing that's powering equities higher in nominal growth, which is is higher earnings, is higher cash flows. It means that companies are earning more cash flow to pay back their debt. So the risk of default is actually a bit lower, which default rates going down means that credit spreads should stay relatively tight and narrow. It's actually more of a positive for credit. So what we're saying in bonds is that you want to be a little bit underweight duration and you want to have some overweight towards higher quality credit and even some good quality double B bonds in the high yield sector to get some extra yield and even a little bit of emerging markets. So that way you get the yield, you get the income, but you don't have as much of the interest rate sensitivity in your bond portfolio. And if you balance that with equities, well, you can generate a lot of alpha.

[Tom Keene]

Jim, we've had a number of equity strategists in here this morning and they say, you know, the number one question they get from their clients is AI and is it a boom or is this revolutionary? And with all the investment grade bond issuance by these AI related names, that's a story for you guys as well. How are you thinking about it?

[Jim Carrey]

So it's a really good question. What we have to recognize is that many of these technology companies have only recently started to tap the markets, right? This is something that's happened over the last year or two. The balance sheets, if you look at the balance sheets, if you look at the debt equity mix and the cash flow and the strength of their balance sheets, and you see the amount of debt that they're offering or issuing out into the market. And yes, these are big companies and the numbers can be high, but as a percentage relative to their balance sheet and the strength of their balance sheet, it's actually very reasonable. In fact, I would argue that many of these technology companies are under leveraged at this point. And that's something that we just have to understand because what we're seeing in the credit indices like investment grade and high yield is at the index level, the spreads are still relatively tight.

[Tom Keene]

Okay, I agree with all that. But nevertheless, in this historic moment, if they continue to issue 10 billion here, 20 billion here, a Jim Carrey and 30 billion there. Jim, if they do that, how does that change the calculation of a traditional equity analysis like the terminal value or the dividend discount? You know, basic stuff. Yeah, it's, it's, it's the magnitude of the debt that gives our listeners pause.

[Jim Carrey]

Yeah, so that's a great question, Tom. So look, so what's happening is that we're putting a lot of bond supply into the markets that's going to inevitably push interest rates higher. And now when you think about your debt equity mix and your dividend discount model in your terminal values, that's going to start to impact the equity valuation of many of these companies. So I'm not saying that a lot of debt's okay, I'm not saying that at all, that's not the case. But there's a right sized amount. I don't think we've crossed the thread threshold where it's mattering at this moment. But of course, if it continues, then yeah, sure, of course it will.

[Tom Keene]

Microsoft, Paul, 4.4% debt. Oracle 20.4%.

Yep. I like in your notes here, Jim, in the bear case, AI is a bubble and will follow the path of railroads. That is capex will be a boon for the economy, but the directly exposed companies will go bust. Ouch. How do you think about that as a risk potentially?

[Jim Carrey]

Yeah, so, so there are bull and bear cases to AI. We fall in the bull camp. So ultimately, yes, there is a lot of capex spending out there and there are going to be winners and losers for sure. We think that, that there is going to be more net winners in this scenario and the reason is, is that the capex spend that's taking place for some of the companies that are creating operating leverage, meaning that they're using technology to generate earnings, not just cut costs, is actually going to really favor that segment. So I would argue things like health care, one of the most inefficient segments of the economy, could benefit quite a bit. And there's a lot of cost efficiencies and there's a lot of earnings efficiencies that can come out of that sector. The consumer I think can win in this as well because you get higher productivity, you get lower unemployment rate and you get higher wages, but you don't necessarily get the inflationary impulse. So there are certain segments of the markets that are really well valued, meaning that they have a low valuation that stand to benefit quite a bit. So when we mix this all together, we're in the camp that the early adopters who were smartly applying technology to generate earnings, not just cut costs, but generate earnings using AI. That's the key. Then I think those companies are the winners. It's going to be very uneven, but it's a great environment to diversify portfolio

[Tom Keene]

and invest in Jim Karen on ETFs how are Bond ETFs doing? Are they tracking all the core indices you look at?

[Jim Carrey]

Yeah, I mean, so, so the thing with ETFs in bonds, right, it depends on which ETF. If you're talking about just a passive ETF that's matching an index or something like that, I kind of find that somewhat uninteresting. And the reason is, is that if you just want pure bond exposure and say, yeah, okay, that's fine, it's completely, it's completely fine. I tend to like the more actively managed ETFs where the managers trying to manage some duration and credit risk and things like that to me makes more sense. But the standard index following ETFs, it's something that I'm underweight in my portfolios.

[Tom Keene]

Jim Karen, thank you so much. Just wonderful note, particularly his ideas on nominal GDP have found interesting. Mr. Karen is with Morgan Stanley Investment Management. Stay with us. More from Bloomberg. Bloomberg's Surveillance coming up after this.

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[Tom Keene]

Member FINRA and SIPC Advisory services by Public Advisors, LLC. SEC registered advisor complete disclosures [e-mail] disclosures

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[Bloomberg Host]

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]

People do research and as you know, I say we protect the copyright of all of our guests. You need to go to Macquarie of Australia of New York Macquarie, Chad Biden B Y and O N the definitive report on World cup betting. It is jaw dropping the excellence of this report. Chad, thank you so much. Now today is a magical day. Even someone like me who doesn't care cares. Brazil, Japan, Germany, Paraguay, Netherlands, Morocco and you say $500 million will be bet on each of those games?

[Chad Biden]

Absolutely. Thanks for that introduction, Tom. Look, what we've seen so far in the knockout round has been very positive in terms of viewership, in terms of engagement and in terms of storytelling. So we think it's a very good setup for the knockout round here. Three big games today and that continues for several weeks here and we do think we will see recent record engagement and betting for the game today. Paul.

[Tom Keene]

FIFA World cup four years ago, 35 billion. We don't know what it's going to be now. Super Bowl 26 estimate 1.8 billion.

Yep.

I mean it's ginormous.

Crazy. Hey Chad, just give us a sense here. I mean this World cup is a totally global phenomena here and I guess we have a better understanding of what betting is like here in the US Everybody's got it on their phone and draftkings and all that kind of stuff. Talk to us about how betting is kind of developed in Europe, broadly defined, in Asia broadly defined.

[Chad Biden]

Sure. Globally it's a country by country business. And here in the United States it's actually a state by state business, which is why you can bet in some states and can't bet in others. But you look at mature markets in Europe, England is the United Kingdom is the largest market. Italy, Spain, France, these are other large markets. And then on the other side of the world, Australia. England has been around for decades and we think the engagement in their games, actually the England Ghana draw would have been pretty negative for the books if England would have pulled that out. But that's why it's exciting. But yeah, there's definitely some mature markets on the other side of the pulse.

[Tom Keene]

Does, does anybody make money at this? Does anybody bet? I mean if Alexis Christophers, you should see what she made on the Knicks. I mean it was just unbelievable. Is anybody making money at this?

[Chad Biden]

The operators certainly make money in terms of customers. What we've seen is, you know, customers usually side with the favorites. So there was a nice string of favorites winning and then you would see a draw or an upset and that's kind of what the books need here. They don't want the favorites to win every game. Particularly a game a day like today where there's three matches, you would like to see a draw or an upset for the operators to take back some of those winnings.

[Tom Keene]

I'm looking at the stocks of like a DraftKings flutter. I mean, DraftKings is down 25% year to date. Flutter down 50%. What's the market call on these stocks? Why are they underperforming?

[Chad Biden]

Prediction markets has been the buzzword since I'd say August or September of last year. It was your standard J curve, positive J curve in terms of inflecting the business. Two years ago companies were generating free cash flow in 25. Things looked great for 26 and beyond. And then the prediction markets entered. So that permits customers to engage in an event contract on sites like Kalshee, Polymarket and others. And now Flutter and DraftKings have actually gotten into that business where sports betting is illegal in the US do you

[Tom Keene]

have a single Best Buy at these levels?

[Chad Biden]

We are big fans of Flutter Ticker Flut. The company is worth less than what fanduel was acquired for. I mean, this company has really dropped off precipitously and they hold podium positions around the world in sports betting and iGaming.

[Tom Keene]

So talk to us about this. Prediction markets, how does that shake out vis a vis sports betting?

[Chad Biden]

Where are we today in the current administration? Since it's governed by the CFTC and not sports betting boards, it is permitted and permissible and event contracts need to be approved by the cftc. So right now you could wager on the number of Fed cuts, the number or what the CPI report is going to be, or you could also engage in sports betting. So we don't think the product in the engagement is as strong as what you're seeing on sports betting. But where the valuations have been on the private rounds with Cauchy and Polymarket are pretty impressive.

[Tom Keene]

Here, let's help you out. I mean, Macquarie's got a rewrite. You're coming off the new rule, the 32. Let's go to where I step in and bet.

[Jim Carrey]

Halfback passes to the center, back to the wing, back to the center. Center holds it, holds it, holds it.

[Chad Biden]

Half back passes to center.

[Tom Keene]

That defines the first half of every game. Am I allowed to step in and bet? Like when they go to 90 minutes and there's five more minutes of time, can you put a bet in at that time?

[Chad Biden]

Time, absolutely. That's the big improvement in wagering here. In play, betting is about 70% wagering outside of the US and now we're at about 40%. So these water breaks are helping, obviously stoppage time and in the NFL and it gives people time to go to the refrigerator and also re engage in their wagers.

[Tom Keene]

Don't be a stranger. Chad Biden, thank you so much. Macquarie can't say enough about his report. Hugely informative. Look to Macquarie for that wonderful research work.

[Bloomberg Host]

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 week, weekday on YouTube and always on the Bloomberg terminal.

[Tom Keene]

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