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13:57
PDT

93% chance of Fed rate hike tomorrow.

Kevin Warsh Fed U.S. economic data retail sales business inventories NBA mortgage applications NAHP's Housing Market Index Bloomberg NBA NAHP Housing Market Index Whether Kevin Warsh FEDFUNDS PRIVATE

– Key economic data to be released includes retail sales and business inventories.

– Kevin Warsh will explain the Fed's decision.

– Market reaction expected post-Fed announcement.

– Consumer spending may be affected by rising rates.

Fed policyconsumer spendingeconomic data

▸ Full transcript

When folks here in the U.S. wake up, they're going to get a smattering of U.S. economic data, including that August retail sales number where we are expected to get a rebound in those retail sales from that awful downsized surprise that we had in July. We're also going to get an update on business inventories, NBA mortgage applications, as well as the NAHP's Housing Market Index. But of course, the star of the show tomorrow will be Kevin Warsh. Our coverage starts at 1:30 p.m. Washington time tomorrow. At 2 p.m., the Fed will release its statement and at 2:30, Kevin Warsh will have to walk up to that podium and explain why the Fed decided the way it wanted to. And he's got a lot of pressure right now as we speak. The swaps market is pricing in a 93% chance that we'll get a Fed rate hike tomorrow. Whether Kevin Warsh heats that call remains to be seen. We hope that you tune in to RFEd special tomorrow for that decision and we hope you tune in to the close tomorrow for all of the market reaction to it. In the meantime, all your political coverage is coming up at the top of the hour with balance of power right here on Bloomberg. Building longevity, it's always a moving target to maximize the human experience.

Analysis

The Fed is under pressure as the swaps market indicates a 93% chance of a rate hike tomorrow, with Kevin Warsh set to explain the decision. Economic data, including retail sales and business inventories, will also be released, but the Fed's stance will dominate market focus.

Smart money should note that the anticipated rate hike could impact consumer spending, particularly in sectors sensitive to interest rates. The upcoming economic data may provide insights into the resilience of consumer demand amidst these pressures.

13:55
PDT

Dutch Bros achieved close to 6% comp sales growth in Q2.

Dutch Bros Christine Barone Q2

– Transaction growth was healthy, with both ticket size and number of transactions increasing.

– Customers are increasingly asking for food options to complement their beverage purchases.

– The company maintains a strong service reputation, which supports its growth strategy.

– Consumer spending remains cautious, but Dutch Bros is adapting to meet evolving demands.

consumer behaviorquick-service restaurants

▸ Full transcript

Is there not pressure that you feel that maybe the trends right now are moving back to more of a sit-down in-store experience? You know, I think most beverage is consumed on the go, and so most customers out there actually want something rather quick. I think what we do very differently is we have the best service in the industry, and so we are able to provide incredible service very quickly, and I think that's the magic of Dutch Bros. We know that the consumer has been under pressure, and I was looking at your most recent results. The comp sales growth was great, close to 6%. But then when you actually look at the transactions, that increase was only up by less than 2%. So obviously there's this idea that maybe you're getting more sales in terms of people into the store, but are they just buying less or spending less per visit? Is that the story right now? No, so we're actually both, for Q2, we grew both our ticket and we grew our number of transactions. So really healthy in this market as you look at what's going on there. And I think as you think each year to grow your transactions, we have very healthy transaction growth in Q2. Are people willing to spend more on, you know, items meaning, you know, those add-ons and other things before they walk out the door? Or are they keeping it simple with, you know, the basic drinks? Yeah. So one of the things we saw with food, and that really is an add-on item, is that our customers, it was one of the number one things they were asking for. They said, I love your beverages the most, but sometimes I'll go somewhere else to grab my food in the morning.

Analysis

Dutch Bros reported healthy transaction growth in Q2, with both ticket size and number of transactions increasing, despite broader consumer spending pressures. The company is responding to customer demand for food options, indicating a potential shift in consumer behavior towards convenience and quick service.

13:53
PDT

Dutch Bros targets 2,029 shops by 2029.

Dutch Bros Christine Barone MoneyGram Barclays Investment Bank Federal Reserve

– Average unit volume is approximately $2 million.

– Shop level margin goal is set at 30%.

– Strong operator pipeline with over 500 experienced individuals.

– Emphasis on employee culture enhances customer interaction.

restaurant expansionconsumer spendingemployee engagement

▸ Full transcript

Ahead at our locations, we do a really nice job of driving returns. Our average unit volume in our drive-through shops is about two million. As we look at that average unit volume, we also have very high shop level margins. Our shop level margin goal is about 30%. Our build-out costs really range depending on if we do a build-out where our developers help us build it out or if we're actually developing all that land ourselves. Our cash on cash returns are among some of the highest in the industry. Obviously, this idea that your workers, the way that they greet people, the way they interact with people, is a big part of it. You drive up to the window and they say something witty to you and you have a good moment there. How does that translate across the country though? Because you have to find the right type of employee, the right type of personality to elicit that. We have a really deep operator pipeline that I mentioned, with over 500 folks in our operator pipeline. They have on average seven to eight years of tenure with Dutch Bros. They really know and love the Dutch Bros brand. We oftentimes will move some of the leadership team out as well, such as the shop manager. Understanding what our culture is where we start. We hire great people and find great people all over the country. We provide a great environment within our shop and that great environment with each other.

Analysis

Dutch Bros is experiencing significant growth, aiming to reach 2,029 shops by 2029, with a current average unit volume of about $2 million and a shop level margin goal of 30%. The company emphasizes the importance of its employee culture and customer interaction, which are critical for maintaining brand loyalty and operational success across its expanding locations.

Smart money should note that Dutch Bros' robust operator pipeline, with over 500 experienced individuals, positions the company well for sustainable growth. Additionally, the focus on employee engagement and customer experience could provide a competitive edge in a challenging consumer environment, especially as restaurant stocks face pressure from economic concerns.

13:51
PDT

The Fed's decision is highly anticipated, focusing on whether current policies are sufficiently restrictive.

Fed Dutch Bros Christine Barone Bloomberg CEO Trust Bloomberg The Fed FEDFUNDS PRIVATE

– Dutch Bros aims to expand significantly, targeting 2,029 shops by 2029, with 185 new shops planned for this year.

– Consumer spending pressures are impacting restaurant stocks, indicating potential challenges in the sector.

– The growth strategy of Dutch Bros relies heavily on internal talent development.

– Market sentiment is cautious as inflation concerns persist.

Fed policyconsumer spendingrestaurant sector

▸ Full transcript

Tomorrow, the Fed decides. The central question for this committee is whether we are sufficiently restrictive. It is a uniquely complicated moment. The market is a discounting mechanism. Hawks at the Fed are worried about service sector inflation. Trust Bloomberg to bring you the fastest coverage and exclusive analysis. The economy is getting stronger. The data is incredibly important. He is insistent that he cares about and should tune in to Bloomberg's surveillance. The Fed decides, starting at 1:30 p.m. Eastern. A broad sell-off among restaurant stocks occurred today due to concerns about how much money consumers actually have left in their pockets. Dutch Bros is down about 5% on the day as those price concerns continue to weigh. I had a chance to catch up with the CEO, Christine Barone, about those cost pressures and the company's expansion plans and newest food offerings. We have a goal to get to 2,029 shops in 2029. We'll add at least 185 shops this year, so at a really rapid growth. That growth is all predicated on our team and our people being ready. So we grow from within, and we have over 500 operators, which is our first level above shop, ready to move to new states and open those Dutch Bros. Well, give me a sense here. We talk about 2029 by 2029. That's a lot. I mean, I was looking at the numbers that you had already.

Analysis

The Fed is set to make a crucial decision regarding interest rates, with concerns about service sector inflation influencing hawkish sentiments. Meanwhile, restaurant stocks are experiencing a broad sell-off, particularly Dutch Bros, which is down about 5% due to consumer spending concerns.

13:49
PDT

Investment decisions are increasingly data-driven.

MoneyGram Colombia Dutch Bros Barclays Investment Bank

– Research and analysis are key to identifying profitable opportunities.

– The approach is accessible to a wider audience, not just the wealthy.

– Future investments should be based on thorough data aggregation.

– Smart money is shifting towards analytical decision-making.

data-driven investmentretail investor participation

▸ Full transcript

What's the coolest thing you can grow with money? What do you actually do? Is this just for rich people? How do you know what to choose? We get a lot of smart people together. We're analyzing all of the data. We're doing research. And we're pulling all that together to think about what would be the best investment today that will make money in the future. Invest like the future's watching.

Analysis

The discussion highlights the importance of data analysis in identifying future investment opportunities, emphasizing that smart investment decisions are based on thorough research and data aggregation. This approach suggests that even those without significant wealth can benefit from strategic investment insights.

Investors should note that the focus on data-driven investment strategies indicates a shift towards more analytical and informed decision-making in the market. This trend could democratize access to investment opportunities, potentially leading to increased participation from a broader range of investors.

13:45
PDT

Robbeted sees significant user growth linked to major sporting events.

Robbeted JB McKenzie CFTC NFL Chicago Bears Colombia FX US KYC AML DXY

– Prediction markets are gaining traction beyond sports, including elections and economics.

– Regulatory clarity is crucial for the future of prediction markets.

– The introduction of stable-backed cards aims to enhance consumer trust and usability.

– Adoption of new products is still in early stages, with potential for rapid scaling.

prediction marketsregulatory claritystablecoin adoptionconsumer trust

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Many times when consumers are receiving their funds, they're either not ready to spend or they want to hold it in a stable currency. This allows them to do that in their currency, and then they can hold it in a fluctuating FX environment, for instance. They can hold it in the US in a stable dollar balance; when they're ready to spend, they can convert it to their local fiat. I understand the beauty of this, but I also think, why do we need a middle person in all of this? I would say very much yes. The reason is what we sell is not just to send and receive; we actually sell the promise of trust. You always need the coordination between the two parties, where someone needs to coordinate the sender and the receiver. Certainly, there are going to be two kids or two college kids who can write an app that says you send an app from one place to the other. But there is regulation to make sure that those sends are going in safely. And also, there's a lot around KYC and AML that we have built up huge infrastructure to support. So give me a sense here. What kind of adoption have you seen so far with the product? As you start to roll this out and prepare to roll this out to other nations, how fast do you think this scales up? Well, it's really new. We just actually announced it early last week. So, it's too early to tell in terms of adoption, but we're excited about the experience because we think that...

Analysis

Robbeted is experiencing double-digit growth in new users, driven by major events like the World Cup and NFL season, which are engaging both new and returning customers. The company believes that prediction markets extend beyond sports, encompassing elections and financial contracts, which could attract more investors despite regulatory uncertainties.

13:43
PDT

Launch of a stable-backed card in Colombia.

Genius Act Colombia central banks stablecoin crypto Latin American

– Immediate fund access for consumers upon receipt.

– Regulatory clarity is welcomed by the company.

– Potential expansion into other Latin American markets.

– Focus on building deeper consumer relationships.

stablecoin adoptionregulatory clarityconsumer finance

▸ Full transcript

Not having this clarity might limit some of the things we might want to do on the consumer side as it relates to rewards. But I would say when you think about all the other offerings and the benefits of stablecoin and crypto, those are pretty clear. Especially as we think about our back office and how stablecoin can actually help us run our back office. Well, I think the Genius Act helped a lot there as well. We'll talk a little bit about the new product because this kind of sits squarely at this question here. I mean you're introducing something that for right now obviously is not illegal, but there is obviously this question as to whether Congress may come back and take a look at some of these products and decide if not that they should be banned, that maybe they should be regulated in a different way. Well, we always welcome regulation actually because what it does is it does try to provide clarity, no pun intended. Like you said, the product we just launched has launched in Colombia, and we have always worked with the central banks in all the countries we operate in. A key thing about this card that we're launching is it allows us to first build a deeper relationship with their consumer. But when you think about the customer, the big benefit for them is that we think that we've created the first stable-backed card that's the easiest to use. The reason is consumers can actually access their funds at the moment they receive it in Colombia, and we're going to open it up in other Latin American markets, obviously working with the central government there. Well, give me a sense of how is that working.

Analysis

The introduction of a stable-backed card in Colombia aims to deepen consumer relationships and enhance access to funds immediately upon receipt. This move highlights the potential for stablecoins to streamline operations and improve back-office efficiency, despite ongoing regulatory uncertainties surrounding crypto products.

Smart money should note that the proactive approach to regulation could provide clarity and legitimacy to the market, potentially attracting more users to stablecoin solutions. The focus on immediate fund access may also position the product favorably in emerging markets, where traditional banking services are less accessible.

13:37
PDT

S&P 500 down 0.5% ahead of Fed decision.

S&P 500 10-year yield Fed JB McKenzie Robinhood Nvidia AMD Dubai CPI PPI CFTC JB FEDFUNDS S&P 500 NVDA PRIVATE

– 10-year yield reaches 5%, a significant level not seen since 2007.

– Increased interest in prediction markets linked to Fed decisions and geopolitical events.

– Investors are diversifying into other asset classes post-trade.

– Crude oil prices are volatile, impacting trading activity.

Fed policyprediction marketsgeopolitical riskinterest rates

▸ Full transcript

Assets in a traditional way. No, actually what we see is it actually engages them into doing other things. So we see them shortly after they place one of those trades moving into other asset classes. So if anything, what it's doing is bringing investors back into the market and finding opportunities for them to do it in other asset classes, which to be honest, makes a better investor. Did you see the Chicago Bears this weekend? I did, that was a heck of a showing, huh? All right, yeah. I'm not going to look ahead to the next few weeks, but I'll enjoy it while it lasts. JB, always great to have you. JB McKenzie, general manager of futures prediction markets over at Robinhood. Let's do a quick check here on where markets ended the day. The setup into that big Fed decision tomorrow. The S&P 500 on the back foot down about a half a percent on the day. A modest bid coming into some of the big tech stocks like Nvidia and AMD. But the story of the day is your 10-year yield of 5% closed, first time since 2007. This is Bloomberg. Building longevity, it's always a moving target to maximize the human experience. If there's anywhere in the world I'm going to do this, it's going to be in Dubai. We are designing the architecture for human health. We've been able to test new technology and launch them here. Dubai has shaped my transformation because you're in a city that's growing, inspiring, and fearlessly expanding.

Analysis

The S&P 500 closed down about half a percent ahead of the Fed's rate decision, with the 10-year yield hitting 5% for the first time since 2007. Increased trading activity around prediction markets, particularly related to the Fed's decision and geopolitical events, indicates a growing engagement from investors in diverse asset classes.

13:35
PDT

85% chance of a 25 basis point Fed rate hike according to prediction markets.

Robinhood CFTC World Cup NFL college football Ninth Circuit Supreme Court FEDFUNDS

– Significant user engagement in prediction markets driven by current events.

– Double-digit growth in new users on Robinhood's platform.

– Regulatory clarity is needed for prediction markets to thrive.

– Integration of sports and economic contracts is enhancing user retention.

prediction marketsregulatory landscapeuser engagementeconomic contracts

▸ Full transcript

The platform that we've created at Robinhood is engaging with our customers, and they want access to these markets and these products. To your point, really what we see is a super cycle coming through here with a combination of sports, economic, and financial contracts as well as the election. When you have an event like the singular event like a World Cup, how many new customers does that bring to the platform, and how sticky is that? Yeah, so we see a combination. We see both net new users to the platform that are double digits in growth. But at the same time, we also see people who maybe hadn't traded it for a while that are engaged by this product or this event that really starts to keep them back in, bringing us back into the Robinhood ecosystem. More importantly, the vast majority of these people are back here trading with the NFL season, college football, and other items because these are topics that are on top of their mind, and now they have a different way for them to trade them. I do have to ask you just about some of the regulatory and legal issues surrounding prediction markets right now. Obviously, still sort of a state-by-state fight despite what the federal government, at least for right now, has said. Is there any concern that your business could be upended based on whatever rulings come out, particularly with the Ninth Circuit going to the Supreme Court? Well, I think hopefully we'll get some clarity. I also think that the CFTC has some rulemaking that's coming out. Our belief is that these are swaps products that live and are governed by the CFTC, but I also think that it's important to realize that we see that prediction markets are more than just sports. It's about elections, economics, and financial contracts that are out there that are gaining traction amongst investors.

Analysis

Robinhood's prediction markets are experiencing significant growth, particularly around the upcoming Fed rate decision, with an 85% chance of a 25 basis point hike. This surge in interest reflects a broader trend where users are increasingly engaging with economic and financial contracts, driven by current events and market volatility.

The integration of sports and economic contracts is attracting new users to Robinhood, indicating a shift in trading behavior. Additionally, the ongoing regulatory landscape poses potential risks, but the belief that prediction markets can expand beyond sports into broader economic and financial areas suggests a long-term growth opportunity.

13:33
PDT

Prediction markets show an 85% chance of a 25 basis point Fed rate hike.

Fed Middle East Robin Hood crude oil CPI PPI FEDFUNDS CL=F

– Increased retail investor engagement in trading contracts related to economic events.

– Crude oil prices are experiencing volatility, impacting trading activity.

– Midterm elections are a significant focus for market participants.

– New trading capabilities are being rolled out to assist investors.

Fed policygeopolitical riskelection impact

▸ Full transcript

I think you have hardcore people who have really looked at the various components of, I'll say CPI data, PPI data, etc. that comes in there, but you also have people that are in layman who now understand that there's an impact on this interest rate and they're watching to see what happens. It's the first sort of significant decision that you have for the new Fed chair and people are talking about it. So when it's top of news, it's usually top of mind for people and I think that's why you're seeing a bit more interest come into it because people are saying to themselves, is it going to be a 25 basis point increase or will they maintain, and what are the impacts of us longer term? And that's all over the news cycle right now. Also in the news cycle, we have a midterm election coming up, there's a lot going on in the Middle East and a lot of geopolitical issues. Are you seeing a lot of activity on your platform centered around some of those events as well? Yeah, so I think on the what we see from the Middle East is a lot of information, a lot of trading associated with crude oil and energy prices and seeing them go above again cracked over $106 today that caused a lot of questions and concerns and so people are starting to trade a lot of the price volatility contracts associated with crude oil. I think from an election standpoint, let's be honest, that's the big question that's coming into the marketplace is what's going to happen? Will the house change? Will the Senate change? What does this mean for the agenda going forward? So a lot of people are very interested in that. And what we've been doing is rolling out new capabilities for our customers so that if they want to trade these contracts, they have information such as polling data. They have information down to the actual districts where these races are occurring. And that becomes a very powerful tool because what we saw back in the presidential election...

Analysis

The upcoming Fed rate decision is generating significant interest, with prediction markets indicating an 85% chance of a 25 basis point hike. This heightened attention is driven by broader economic concerns, including inflation and geopolitical events, particularly in the Middle East, affecting crude oil prices.

Smart money should note the increasing sophistication of retail investors as they engage with prediction markets, particularly around significant events like elections and interest rate changes. The integration of polling data and district-level insights into trading platforms enhances decision-making capabilities for investors navigating this volatile landscape.

13:31
PDT

85% chance of a 25 basis point Fed rate hike indicated by prediction markets.

J.B. McKenzie Robin Hood Fed Wall Street Week Bloomberg Deal Bloomberg This Weekend Bloomberg Television FEDFUNDS PRIVATE

– Increased trading activity around Fed decisions compared to previous years.

– Investors are more engaged with prediction markets due to inflation concerns.

– Understanding of interest rate contracts has improved among market participants.

– The current environment is fostering a shift in investor behavior.

Fed policyprediction marketsinflation impact

▸ Full transcript

This is Wall Street Week. Welcome to Balance of Power. You're watching Bloomberg Deal. Welcome to Bloomberg This Weekend. This is Bloomberg Television. All right, well, we are less than 24 hours away from the Fed's rate decision with prediction markets like Robin Hood putting an almost 85% chance on a 25 basis point hike tomorrow. It comes as the industry continues to see huge growth in trading activity around events contracts. Joining us right now is J.B. McKenzie. He's the vice president and general manager of futures and prediction markets at Robin Hood. Popular guy and busy guy I would assume these days. Well, let's start off with the obvious one. This is kind of the no-brainer or maybe it won't be. But give me a sense here as the activity that you've seen around this particular Fed decision, particularly compared to Fed decisions of the past which maybe didn't garner as much interest. It was almost a year ago when we started to see the first interest in these types of interest rate contracts from a prediction market standpoint. And it was relatively muted. I think people were just kind of getting used to how the contracts worked. What do they mean? How accurate were they? Now what we're seeing is this is one of the most popular contracts traded on Robinhood because I think you see it so much in the news and it's impacting people. This inflationary question is impacting their pocketbooks, where they're putting their money. And I think when you look at something.

Analysis

The prediction markets are indicating an 85% chance of a 25 basis point rate hike by the Fed, reflecting heightened trading activity around this decision. This surge in interest contrasts sharply with previous Fed decisions, highlighting the growing impact of inflation concerns on investor behavior.

Smart money should note the shift in investor engagement with prediction markets, as the current environment has led to a significant increase in the popularity of interest rate contracts. This trend suggests that market participants are becoming more attuned to macroeconomic indicators and their implications for personal finances and investment strategies.

13:27
PDT

The convergence of public and private markets is creating new financing opportunities for high-quality private companies.

Lehman Brothers Laura Kirk Wellington Bloomberg Robin Hood JB McKenzie RA JB PRIVATE

– Advisors are increasingly focused on educating clients about the risks and benefits of investment vehicles.

– Capital raising is becoming more challenging as allocators demand deeper insights into business fundamentals.

– The institutionalization of the wealth market is changing how advisors communicate with clients.

– Private credit is viewed as a complementary asset class to public credit, not a competitor.

advisor educationcapital raising challengeswealth market institutionalization

▸ Full transcript

But do you think that we learned enough lessons from that and there are enough safeguards in place to make sure that we don't end up in a similar situation? Yeah, you know, it's interesting that you brought that up. I actually started my career at Lehman Brothers, so it's interesting. I was trying to find a delicate way to bring it up. Yeah, I mean, I think that the industry has evolved just so much in like the 20 plus years. You know, it's, I think we're learning about the asset-liability mismatch. And I think that the vehicles now are designed with more of that in mind. But it ultimately depends on the education that advisors and ultimately asset managers are responsible for ensuring that clients really know what they're buying. And you think, and just sorry, just on the education point, and you think that the RA's advisors, they are getting up to speed and being able to communicate to clients what not just the benefits are but the risks are? I think so. I mean, I think we're seeing sort of an institutionalization of the wealth market, which is really exciting. The onus is on us and also on them, but I do think that it's changing. All right, Laura, really appreciate it. Really insightful. Laura Kirk over at Wellington. Up ahead here, we're going to go from private markets to prediction markets. A conversation up ahead with JB McKenzie over at Robin Hood. Stick with us. This is Bloomberg.

Analysis

The financial industry has evolved significantly over the past two decades, with a focus on addressing asset-liability mismatches in investment vehicles. Education for advisors and clients is crucial to ensure understanding of both the benefits and risks associated with these investments.

The institutionalization of the wealth market is gaining momentum, indicating that advisors are becoming more adept at communicating complex investment strategies. This shift presents an opportunity for firms that can effectively educate their clients and navigate the evolving landscape of public and private markets.

13:25
PDT

Raising capital is becoming harder due to increased scrutiny from allocators.

Evergreen vehicles LPs allocators

– Allocators are focusing on business fundamentals, including client diversification and liquidity.

– Education on Evergreen vehicles is crucial for advisors and clients.

– Firms with expertise across investment, client, and operations may outperform competitors.

– Generational transition concerns are becoming a key topic in capital raising discussions.

capital formationinvestor education

▸ Full transcript

What's really important is education, and that's something that we've been prioritizing. Evergreen vehicles are not all the same; they're actually not liquid instruments, and they shouldn't be used that way. It's really important that advisors understand what they're buying on behalf of their clients, and that clients understand it as well. So we've been spending a lot of time thinking about education. It's fundamentally a different skill set to run an Evergreen portfolio than it is to run a drawdown vehicle. We think you have to have expertise across both the investment side, the client side, and the operation side. There are very few firms that can actually do all three things really well. So give me a sense here though too. I just want to kind of switch more to the allocator side because it is just raising money, capital formation overall. Is it harder to do in this environment right now given all this transpired? Or have you not really seen a material change? It's definitely harder. I think that, you know, and listen, I think LPs and allocators are getting smarter. They are not just asking about where you're finding the best investment opportunities, but I think they're asking increasingly about the business itself. What does the client base look like? How diversified are the underlying clients that you have in a given strategy? What does that mean in terms of liquidity and things like that? They're also just asking questions about generational transition and all those other things. So I think that it is definitely getting harder to raise capital, but we think that we have a big advantage just based on the nature of our client base. I was looking at some of the numbers. So I was trying to go through, I mean, overall private capital fundraising.

Analysis

The current fundraising environment for private capital is becoming increasingly challenging as allocators demand deeper insights into the business models and client bases of investment firms. This shift indicates a growing sophistication among limited partners, who are now focusing on liquidity and generational transitions in addition to investment opportunities.

The emphasis on education regarding Evergreen vehicles highlights a critical gap in understanding among advisors and clients alike. Firms that can effectively bridge the knowledge divide and demonstrate expertise across investment, client, and operational aspects may gain a competitive edge in capital formation.

13:22
PDT

Portfolios are being de-risked by increasing quality and diversifying investments.

Oak Tree Brookfield Blackstone Van Gar AI Hyal Bonds DNA

– Competition in the credit market has lessened due to recent credit issues faced by some managers.

– Innovative product development is emerging from the convergence of public and private markets.

– Investing in software is seen as an opportunity at the right price, especially when others are exiting.

– The integration of public and private credit could lead to unique investment opportunities.

credit market dynamicsportfolio diversificationsoftware investment opportunitiespublic-private convergence

▸ Full transcript

Dry powder is key. Having some cash to invest into potential volatility, staying conservative, things that are true to Oak Tree and Brookfield's DNA. Are you doing things with your portfolio now that maybe you weren't doing back in, say, March or February when the picture seemed to look a little bit different? We've spent the year de-risking the portfolio, but doing it kind of under the hood. So going up in quality in certain segments of the market, taking some equity beta down in the portfolio. So we actually have the benefit of investing not only in corporate credit, but incorporating things like asset-backed finance and real estate, convertibles. We're just finding opportunities to diversify and limit some of the equity beta in our portfolio. So we feel pretty good today from a balanced positioning perspective. Well, give me a sense in, because I mean, you guys are kind of across the whole stack for lack of a better phrase when it comes to the credit and the fixed income space. So I would assume, and forgive me if I'm wrong, that you would probably have maybe a little bit better look at price discovery or a little bit more transparency into what things are truly, how they should truly be valued. Is there a disconnect or a gap that you're seeing between where things are being priced in one part of the private credit markets relative to other parts of the private credit markets or relative to what we're seeing in public debt markets? Yeah, well, being able to invest across public and private is great, right? Because you do get that price discovery. I mean what we're seeing is that overall in the market for the liquid market and Hyal Bonds, the amount of money that's gone into AI stocks versus everything else. We have a tremendous tailwind with AI, but we need to be mindful of what's that's done to kind of prop everything else up. Well, first of all, thank you for watching. I am curious about, would you actually sort of buy into a software issue? Not a new issue, but maybe something that's, if not distressed, certainly on the backfoot. Given what we know or maybe don't know about software right now, is that something that would appeal to you at the right price? Absolutely. I mean, when everyone is exiting a sector, that's usually the time to enter it in a disciplined way. So we're absolutely investing in underwriting software. But part of that is because we took the time over the past year to trim some of our software exposure. So we're entering into this with a lower allocation, which makes us feel like we can add at these more opportunistic levels. When we talk about taking advantage of those opportunities, there's also this idea that there's a lot of competition in this space now. I feel like so many managers are fighting over the same issues, the same companies here. Does that hurt maybe the premium that you can maybe make off that, or is that just not the issue right now? I mean, there has been a lot of competition, but in some ways I feel like over the last few months, some people have been dealing with credit problems in their portfolios, redemptions, they've been more constrained in their ability to take advantage of these wider spreads. And so competition is a little less. We're also seeing banks pulling convergence between public and private markets and it's happening across a number of different vectors. The first is really thinking about it through the lens of the company. So private companies as they approach becoming public companies are really afforded a wide range of financing opportunities, particularly those who are the fastest growing, highest quality, most innovative. And we think that's really exciting and we have a unique lens into those companies at that point in their growth. The second way we've really been looking about this in this kind of convergence is really through the lens of the client so both institutional and wealth clients are starting to think about their portfolios more holistically across public and private markets decisions for clients. But with that convergence, though, is public credit the optionality for public credit versus private credit? Is that sort of in competition with each other or is it complementary? No, I think we see it as complementary. You know, across our investment landscape, you know, we have hundreds of analysts who are looking across all different parts of the credit market, both on the public side and the private side. And you know, I think there's an opportunity to kind of look beneath the layer. Oftentimes, people are talking about private credit as if it's a monolithic asset class and what we really see is underneath the hood. It really represents a lot of different sub asset classes that behave very differently. Well, there are, because it's convergence. I mean, one sort of nitpick that some people have had that some of the benefits of this convergence are more slanted towards the issuers rather than the investors themselves. I mean, when you're talking to clients and sort of walking them through what maybe they get out of this long term here, are you confident that that tilt is gonna still be in their favor? Yeah, I think so. And I think what we're seeing is actually some really interesting product development that reflects this convergence. So when we think about bringing public and private together in a portfolio, that's something that's really innovative and hasn't actually been done at scale before. And so we're really excited about some of the opportunities that come as a result of that. Well, I mean, you, Van Gar, Blackstone, all teamed up for to kind of put private markets into this single fund that an advisor could buy. Just kind of give me a sense, I guess, why now? I think I know a thing on sort of that, but more importantly, what do you think the uptake is gonna be? Yeah, well, we're really excited about this opportunity to bring these three firms together.

Analysis

The discussion highlights a strategic shift towards de-risking portfolios by increasing quality and diversifying investments across public and private credit markets. There is a notable convergence between these markets, presenting innovative opportunities for investors despite competition and potential issuer advantages.

Smart money should recognize that while competition in the credit space has intensified, recent credit issues faced by some managers may have reduced this competition, allowing for more favorable entry points. The development of products that integrate public and private markets could reshape investment strategies and enhance portfolio performance.

13:21
PDT

Convergence between public and private markets is accelerating.

Oak Tree Brookfield NVIDIA

– High-quality private companies are gaining diverse financing options.

– Institutional clients are adopting a holistic portfolio view.

– Competition in credit markets has decreased, creating opportunities.

– Investors are focusing on disciplined entry points in distressed sectors.

private equitycredit market dynamicsinvestment strategy

▸ Full transcript

Convergence between public and private markets is happening across a number of different vectors. The first is really thinking about it through the lens of the company. Private companies, as they approach becoming public companies, are really afforded a wide range of financing opportunities, particularly those who are the fastest growing, highest quality, and most innovative. We think that's really exciting, and we have a unique lens into those companies at that point in their growth. The second way we've really been looking at this kind of convergence is through the lens of the client, so both institutional and wealth clients are starting to think about their portfolios more holistically across public and private markets.

Analysis

The convergence between public and private markets is becoming increasingly evident, particularly for high-quality, innovative private companies approaching public status. Institutional and wealth clients are beginning to view their portfolios more holistically, integrating both public and private market opportunities.

Smart money should note that the current market dynamics allow for unique investment opportunities in private companies, especially as competition in the credit space has lessened due to recent portfolio constraints faced by some managers. This presents a favorable environment for disciplined investors to capitalize on wider spreads and emerging growth sectors.

13:17
PDT

AI stocks are benefiting from increased investment.

AI software banks

– Software sector presents buying opportunities at lower valuations.

– Competition in software investing has decreased recently.

– Investors are cautious about credit problems affecting portfolios.

– Market dynamics are shifting, creating potential entry points.

AI investmentsoftware sector opportunitiescredit market dynamics

▸ Full transcript

The amount of money that's gone into AI stocks versus everything else is significant. We have a tremendous tailwind with AI, but we need to be mindful of what that's done to prop everything else up. Thank you for watching. I am curious about whether you would actually sort of buy into a software issue. Not a new issue, but maybe something that's, if not distressed, certainly on the back foot. Given what we know or maybe don't know about software right now, is that something that would appeal to you at the right price? Absolutely. I mean, when everyone is exiting a sector, that's usually the time to enter it in a disciplined way. So we're absolutely investing in underwriting software. But part of that is because we took the time over the past year to trim some of our software exposure. So we're entering into this with a lower allocation, which makes us feel like we can add at these more opportunistic levels. When we talk about taking advantage of those opportunities, there's also this idea that there's a lot of competition in this space now. I feel like so many managers are fighting over the same issues, the same companies here. Does that hurt maybe the premium that you can make off that, or is that just not the issue right now? I mean, there has been a lot of competition, but in some ways I feel like over the last few months, some people have been dealing with credit problems in their portfolios, redemptions, and they've been more constrained in their ability to take advantage of these wider spreads. And so competition is a little less. We're also seeing banks pulling back.

Analysis

AI stocks are experiencing a significant influx of investment, creating a tailwind for the sector, but this has implications for other areas of the market. The current environment presents an opportunity to invest in software companies that may be undervalued due to recent market exits, especially as competition in the space has lessened due to credit issues faced by some managers.

13:15
PDT

Kava's 9% drop linked to gas price concerns.

Kava Brinker JP Morgan Oak Tree Brookfield Federal Reserve DNA

– Banks showing resilience despite market caution.

– Bond market stress evident in lower-quality credit.

– Higher-quality junk yields remain stable.

– Investors are being compensated for taking risks.

credit market dynamicsinvestment strategyrisk management

▸ Full transcript

Analysis

The market is experiencing a mixed response, with a significant sell-off in restaurant stocks like Kava, which dropped 9%, attributed to rising gas prices affecting consumer spending. Meanwhile, banks are seeing some bids despite cautionary statements, and the bond market is showing signs of stress, particularly in lower-quality credit, while higher-quality junk remains stable.

13:13
PDT

Fed's rate decision tomorrow is highly anticipated.

Fed Danielle Pauley Oak Tree triple C lower income consumers FEDFUNDS

– Focus on forward guidance may be more critical than the rate hike itself.

– Lower-income consumers are at risk from potential rate increases.

– Credit market shows distress in lower quality segments despite tight overall spreads.

– Volatility is expected due to macroeconomic factors.

Fed policycredit market distressconsumer spending

▸ Full transcript

Right, you let the winners take care of themselves, or if you have the discipline and expertise to actually roll up your sleeves and invest in some of those situations, you can get pretty nice returns on the distress side. You know, I went looking back; you were on this network a few months ago, and you kind of talked about this idea of how you were anticipating some big price moves. And I think spreads were a lot narrower than that's right on triple C. So we've seen that come out. Was that what you had predicted? And if so, did it sort of play out in the way that you had anticipated? Well, there's just so much going on in the macro environment, right, with the continuing war and a Fed decision tomorrow. I think there's bound to be volatility, or at least pockets of volatility. So things are playing out from that perspective. We'll see what happens tomorrow. I think it's less about the decision and more about the forward guidance and what this rate environment looks like going forward because that's going to have wide-sweeping consequences. Do you think we're going to get forward guidance, at least in sort of the realm of what we were used to getting out of past Fed chairs? It's hard to say. I mean, I think it's a balancing act for tomorrow, right? Because we have persistent inflation and the uncertainty of the war. It justifies having more restrictive policy. But taking policy up even higher puts real pressure on that lower-income consumer. They're going to feel this rate increase the most. If we don't for some reason get a rate hike tomorrow, would that surprise you?

Analysis

The market is bracing for potential volatility ahead of the Fed's rate decision, with a focus on forward guidance rather than just the rate hike itself. The ongoing war and persistent inflation complicate the Fed's balancing act, particularly affecting lower-income consumers who will feel the impact of any rate increases the most.

Smart money should note that while overall spreads are tight, the credit market is showing signs of distress, particularly in the lower quality segments. This divergence suggests that opportunities may exist for those willing to navigate the complexities of the current macro environment.

13:11
PDT

Market offers attractive risk-adjusted returns.

Danielle Pauley Oak Tree triple C credit market interest rates Global Credit Strategy

– Tight spreads may mask underlying credit issues.

– Rising interest rates are stressing lower-rated borrowers.

– Dispersion in credit markets indicates varying levels of risk.

– Triple C yields are at elevated levels, signaling potential opportunities.

credit riskinterest rate environment

▸ Full transcript

Are these tight headline spreads evidence of genuine resilience, or are the indices hiding a credit problem that has already begun at the bottom of the market? Danielle Pauley is managing director and co-portfolio manager of Oak Tree's Global Credit Strategy, which means she's got a nice view across public bonds, loans, structured credit, and everything in between. Great to see you, Danielle. Great to have you. Let's talk about what's happening right now because I could see opportunity. I could see risk. From where you sit and the job you sit in, is it more opportunity than risk right now? Well, I think you're being paid to take risk, finally. The market is offering attractive risk-adjusted returns. Overall spreads are pretty tight, but the yield has increased with the rise in treasuries that we've seen. So, I like investing today. You're incrementally getting paid more. It's unusually uncertain in the backdrop, but why not invest in credit, steady income, good alternative to equities? About this idea of dispersion. I know Oak Tree has banged this drum as well, and we've heard from a lot of credit investors that have actually talked about how that is creating a lot more of the opportunity, and that is good. You're still seeing that dispersion? Yeah, we are still seeing that dispersion. If you think about the credit market kind of as an ocean, things look calm on the surface, but if you go down, you are starting to see some credit problems, and that's the result of the shift in the interest rate environment. Rates are higher right now, and that's creating stress on borrowers, and we're seeing that triple C cohort, as you mentioned, trading at yield.

Analysis

Danielle Pauley from Oak Tree's Global Credit Strategy highlights that the current market offers attractive risk-adjusted returns despite tight overall spreads. However, beneath the surface, there are emerging credit problems due to the rising interest rate environment, particularly affecting lower-rated borrowers.

Smart investors should note the dispersion in the credit market, which indicates that while some segments appear stable, there are underlying stresses that could present both risks and opportunities. The triple C cohort is particularly noteworthy, as it is trading at elevated yields, suggesting a potential mispricing that could be exploited.

13:08
PDT

Kava down 9% due to consumer spending concerns.

Brinker Kava Circle Clarity Act Senate Treasuries 10-year Triple C Double B High Yield R

– Banks received a bid despite caution in the market.

– Home builders mixed ahead of earnings in a rising rate context.

– Treasury yields at multi-year highs impacting corporate credit risk.

– Triple C risk premiums near three-year highs.

consumer spendingrising ratesbond market volatility

▸ Full transcript

This means for the broader picture. We saw a huge sell-off earlier in the day in a lot of the restaurant stocks like Brinker as well as Kava. Kava down 9 percent and this is directly tied to the gas price situation and the idea here that consumers just have a little bit less money in their pocket to spend on discretionary items. Meanwhile, some of the banks got a bid despite some of the well precautionary statements coming out of that conference over the last couple of days. Keep an eye on the home builders; a mixed bag there with an R set to report tomorrow after the bell, reporting right into the backdrop of what is expected to be a rising rate environment and Circle taking it hard down about 11 percent. We'll talk about that just a little bit later as the Clarity Act appears to have stalled out in the Senate. And that does bring us to our top story for the hour. It is the mixed signals coming from the bond market. The two and a half months sell-off in treasuries has reset that benchmark 10-year to the highest since '07 and reset the price benchmark to it to the most in a year and a half. But that work pricing has not been uniform. The additional compensation that investors receive for taking corporate credit risk is concentrated much further down that quality stack with triple C risk premiums near three-year highs at 900 basis points. But among higher quality junk, double B yields are touting spreads that remain less than 10 basis points above a nearly two-decade low of 146. And broad high yield spreads are still below 280 points, even as treasury yields have surged to those multi-year highs. Now to put it differently, investors are basically being paid.

Analysis

Restaurant stocks like Brinker and Kava experienced significant sell-offs, with Kava down 9%, reflecting consumer spending pressures due to rising gas prices. Meanwhile, banks saw some buying interest despite cautious statements from recent conferences, while home builders faced mixed results ahead of earnings reports in a rising rate environment.

13:02
PDT

Energy stocks rose over 2% with WTI crude up 4%.

Microsoft Amazon Alphabet Broadcom Apple Nvidia AMD Meta WTI crude Kevin Warsh Rockefeller Global Family Office WTI MSFT AMZN GOOGL AAPL NVDA

– Major tech stocks like Microsoft and Amazon declined significantly.

– 10-year Treasury yields approached 5% but closed just below.

– Consumer discretionary and utilities lagged behind other sectors.

– Market sentiment is cautious ahead of potential rate hikes.

energy sector performanceinterest rate impactconsumer behaviortech sector weakness

▸ Full transcript

Energy stocks ended the day up more than 2%. Obviously, that's going to be the case when you're talking about WTI crude up more than 4% right now, trading right around $106 a barrel. We also saw a bit of a tick higher for materials, while the big laggards included consumer discretionary, utilities, consumer staples, and communication services. The big question again is what is the state of the U.S. consumer and where are we going if we are going to see rates move higher? I just want to quickly stay in this other equity space for one second because we talk about the biggest decline on the day, not just on a percentage basis, but more so in terms of its point contribution. In this case, subtraction: Microsoft, Amazon, Alphabet, Broadcom, Apple, and Alphabet were all lower on the day, a big part of the reason why you see all that red on the pie chart on your screen. Nvidia did manage to post a gain on the day, but only of about six-tenths of a percent, AMD was up about two percent on the day, and Meta, which had a decent little rally early in the session, closed up by seven-tenths of one percent. But the story of the day was, of course, yields once again, as to whether we would actually officially close at that 5% mark for the 10-year benchmark. It looks like we're going to come in just shy of that, at four spot 9-9. Imagine riding the rap; you're like sitting here just hoping. Yeah, this is like when the ball is at the lip of the cup on the putting green, and you just sort of wait for something to tip it in there. But it looks, you know, we don't want to be too glib about this, but we've seen the trajectory, and the trajectory right now is higher, at 466.

Analysis

Energy stocks ended the day up more than 2%, driven by WTI crude prices rising over 4% to around $106 a barrel. Major tech stocks like Microsoft, Amazon, and Alphabet saw significant declines, contributing to the overall market downturn, while yields on the 10-year benchmark approached the 5% mark but closed just shy of it.

The market's focus on rising interest rates and their impact on consumer behavior is critical, especially as tech giants struggle amidst these conditions. Smart money should note the divergence in sector performance, with energy and materials gaining traction while consumer discretionary and tech lag, indicating a potential shift in investment strategies as rates rise.

13:00
PDT

Market expects a 25 basis point rate hike from the Fed.

Angela Moanza Rockefeller Global Family Office Kevin Warsh S&P 500 Skyworks Qualcomm DWS America US Treasury Federal Reserve FEDFUNDS S&P 500

– Communication from Kevin Warsh is critical post-decision.

– S&P 500 shows weakness with most stocks in the red.

– Potential for two more rate hikes by year-end is priced in.

– Bond market reactions will be closely watched.

Fed policymarket volatilityinterest ratesequity market

▸ Full transcript

We've been underweight duration versus the benchmark. We've been extending a little bit, taking into account that there is that kind of risk factor. We could see the rotation of equities. And so we want to be positioned in a way that we can take advantage of any nuances that are happening within the bond market. All right, Angela, always great to have you. Angela Moanza, managing director, private advisor at Rockefeller Global Family Office, counting us down to the closing bells here on this Tuesday afternoon, a Tuesday afternoon that is a little bit of a holding pattern, Bailey, as we await, of course, the big Fed decision at 2 p.m. tomorrow, but more importantly, it's less about the decision and more importantly about the communication that Kevin Warsh has when he steps to that podium to explain the decision and more importantly, I know he doesn't want to provide forward guidance, but maybe try to sort of give a nod to this market as to what comes next. Because you really have to start expecting and embracing the fact that people are going to read the tea leaves. They are already, again, we can say this, ad nauseum pricing in two hikes by the end of this year, a third one in March. What does that ultimately mean, again, for the bond market and for the equity market? You're running as someone who spends most of their day watching the S&P 500. We're down half 1%, not a big move to the downside, but the question still is what is delivered tomorrow and how do both the treasuries and stocks react to that? Yeah, the majority of the stocks in the S&P are deep in the red on the day. A few bright spots out there like Skyworks, Qualcomm, and a few other smattering of names in the energy space, but the vast majority of the heavy weights remain in the red for yet another day.

Analysis

The market is anticipating a 25 basis point rate hike from the Fed, with a 93% probability priced in. However, the focus is shifting to how Kevin Warsh will communicate the decision and its implications for both the bond and equity markets.

Despite the S&P 500 being down about half a percent, the majority of stocks are in the red, indicating a cautious sentiment as investors await the Fed's guidance. The potential for two additional hikes by year-end is already being factored into market expectations, which could lead to volatility in both equities and treasuries.

12:58
PDT

93% probability of a 25 basis point Fed rate hike.

Kevin Warsh DWS America Rockefeller Global Family Office US Treasury Federal Reserve

– Concerns about market confidence if the Fed does not hike.

– Cyclical stocks may benefit if inflation is managed.

– December typically sees increased consumer spending.

– Energy prices and interest rates are key market drivers.

Fed policycyclical stocksconsumer spendinginflation management

▸ Full transcript

Capital gains taxes are not nothing, and our clients are mostly all of the highest tax bracket. It's nice that we're getting to the end of the year because that's the time where a lot of our clients are fulfilling their philanthropic intent, and so we can actually balance out those gains off the table while also being prudent about the overall impact on our clients' portfolios. We're just curious though about this idea of getting deeper into some of those cyclical names here. I assume you have to have some confidence in the economic conditions right now, that they are not only good but will remain good for some time? Well, if you look at the jobs data, the August payroll data, the 162,000 jobs came online. The problem that Kevin Warsh has is that he's looking at the numbers and he's saying, 'I actually have a good problem here, except for that inflation thing.' So if we hike rates now, if we get inflation under control, we're actually looking at a decent set of circumstances. I could actually see the cyclicals really playing into things, especially since we also have elections coming up at the end of the year. I doubt there's going to be any knee-jerk reactions. I think that Kevin Warsh needs to be very tempered because of those. I think we'll see a nice December effect where we typically see a lot of spending. We are a consumer-driven economy, so that should give us some additional tailwinds with regards to allocation though and specifically in the fixed income space.

Analysis

The market is anticipating a 25 basis point rate hike from the Fed, with a 93% probability now priced in. Concerns linger about the implications of this hike on market confidence and communication, especially in the context of rising interest rates and energy prices.

Smart money should note the potential for cyclical stocks to perform well if inflation is controlled, alongside the upcoming consumer spending boost typically seen in December. The interplay between energy prices and interest rates will be crucial in determining market direction, especially as the economy remains consumer-driven.

12:56
PDT

Market anticipates a 25 basis point rate hike.

Romain Angela Moanzo Rockefeller Global Family Office US Treasury CPI AI CL=F

– Rising energy prices could impact profit margins.

– Investors are weighing equity risk against fixed income returns.

– Broadening returns suggest opportunities beyond mega-cap stocks.

– AI investments may influence market dynamics.

interest ratesenergy pricesAI investmentsmarket volatility

▸ Full transcript

Within the equity market, if I can get 7% with a relatively low risk, why would I take on the equity risk? So we could see some interesting movements in the markets because of that. Six, seven percent feels real though to you, or does that seem like a doomsday scenario? That's when we talk about a true market correction where people are panicking, for lack of a better term. I would say it's in the realm of possibility. It's not something that we're actually thinking. It's not near our base case. I think we're going to continue floating around this 5%. I think we're going to see our 25 basis points. Markets will settle around that. Obviously, you're talking, Romain, a little bit about energy and energy prices eking up. That also can erode margins. And so we're playing this game between who's going to hurt me more? Is it going to be energy or is it going to be interest rates? And we kind of have to wait and see, depending on what happens with this whole AI movement and all of the investment that's going there. But where are you putting money to work? If we are talking about sustained triple-digit oil, and we are talking about a 10-year sitting at 5%, what actually wins, what works in the market? Because to your point earlier, the hyperscalers have to do something if they're going to meet these CapEx expectations. Yeah, well, what I love looking underneath the surface of what's going on, you see that actually there's a broadening out of returns, so on the surface, it looks like mega-cap names and all of the AI names that you would expect, but ultimately what's really out before.

Analysis

The equity market is facing pressure as investors weigh the potential for a 25 basis point rate hike against rising energy prices, which could erode margins. The discussion highlights a critical juncture where sustained high oil prices and a 10-year Treasury yield at 5% could shift investment strategies significantly.

Smart money should note the broadening out of returns beyond mega-cap names, indicating potential opportunities in less obvious sectors. The interplay between energy costs and interest rates will be pivotal in determining market direction, especially as AI investments continue to evolve.

12:54
PDT

Market expects a 25 basis point rate hike tomorrow.

Angela Moanzo Rockefeller Global Family Office CPI US Treasury Federal Reserve US PRIVATE

– CPI data has shifted rate hike probabilities dramatically.

– Concerns about the sustainability of rising rates persist.

– 10-year Treasury yield nearing 5% raises alarms.

– Future rate decisions will be data dependent.

Fed policyinterest ratesmarket volatility

▸ Full transcript

As we move closer to the closing bell, stocks are on the back foot, with heavy positioning in the options market ahead of tomorrow's rate decision. Angela Moanzo joins us around the desk here in studio as managing director and private advisor at Rockefeller Global Family Office. Let's get the easy question out of the way: Will they or won't they tomorrow? It's such a nail biter. It's a tough one. I think we're looking at 25 basis points, like everyone is saying; it would be a surprise otherwise. But then again, I have been surprised because about a week and a half ago, I was saying we were looking at a cut, and then came that CPI print, which kind of got us rethinking things. So, 25 basis points makes sense and is very likely, with another 25 basis points in December, but that's going to be data dependent, and we will wait and see. You weren't the only one; I mean, if you look at pricing on the Bloomberg terminal just three and a half weeks ago, we were down to like a 35-36% chance of a rate hike tomorrow. Now, that we're over 90%, it gets to this idea, though, as to exactly what the market is most concerned about here. I mean, it's not just the aggregate level of rates; there's a lot more going on underneath the surface, the rise and, of course, whatever is feeding into this rate rise, which I think is still kind of up for debate. Yeah, I mean, the 5% touching that level on the 10-year Treasury is disconcerting. It's not surprising given the level of US debt and all of the kind of so much debt has been.

Analysis

The equity market is positioned cautiously ahead of tomorrow's anticipated rate decision, with a strong consensus leaning towards a 25 basis point hike. The recent CPI print has shifted market expectations significantly, with the probability of a rate hike now exceeding 90% compared to just a few weeks ago.

Smart money should note the underlying concerns regarding the sustainability of rising rates, particularly as the 10-year Treasury yield approaches 5%. This situation reflects broader anxieties about US debt levels and the potential implications for future monetary policy adjustments.

12:51
PDT

93% probability of a Fed rate hike tomorrow.

Federal Reserve S&P 500 US 10-year yield George Gantramon DWS America DWS US Minute News Haslinda Amin Bloomberg Bros FEDFUNDS S&P PRIVATE

– Concerns about market reaction if the hike does not occur.

– S&P 500 down about 0.5%.

– Focus on US 10-year yield performance.

– Communication strategy post-hike is critical.

Fed policybond market volatility

▸ Full transcript

Delivering energy the world needs. On television. Bringing you Up to the Minute News, whenever and wherever it happens. I'm Haslinda Amin in Mumbai. This is Bloomberg. The market has all but priced in a rate hike, like you've said. I'm actually worried about what happens if they don't hike. You're going to see a parabolic move on the long end because it will turn into a confidence and communication problem. So a hike is happening; the market is all but begging for it at this point, but what comes afterwards is what's staying in my mind: how will he communicate and what will he say? Because it's a bond market that can get taken away with itself pretty quickly. George Gantramon over at DWS America is kicking us off to the globe, saying the quiet part out loud, or I guess it's really not the quiet part anymore. Everyone basically expects the Fed to hike rates tomorrow. Yeah, we're looking at that; I think Kevin does, and we're at a 93% chance, so the odds point in that favor. And when we're looking at market action, do you think he pays attention to the Bloomberg Bros? Maybe. I don't know if Besson would approve though. No, I don't think so. It's above my pay grade. S&P down about a half a percent though. Keeping an eye on the US 10-year yield: is it going to end the day above five? Romain right now? Money says no with nine.

Analysis

The market is anticipating a Federal Reserve rate hike, with a 93% probability priced in. Concerns arise about the potential fallout if the Fed does not follow through, which could lead to volatility in the bond market.

Smart money should note that while the hike seems certain, the communication strategy post-hike will be crucial in maintaining market confidence. The current S&P decline and the focus on the US 10-year yield suggest that traders are bracing for potential shifts in sentiment.

12:50
PDT

Cybersecurity is becoming a critical component of digital independence.

Gisec Global AI quantum technology Middle East

– Sovereign AI and genetic AI are reshaping decision-making processes.

– Quantum technology is unlocking new possibilities in various sectors.

– Events like Gisec Global are pivotal for shaping future policies.

– Investors should focus on companies leading in AI and cybersecurity.

cybersecurityAI integrationquantum advancements

▸ Full transcript

A new digital order isn't defined by technology alone. As sovereign AI reshapes digital independence, as genetic AI transforms decisions, as quantum unlocks new possibilities, every breakthrough demands a cyber-first mindset. That's why the future meets at Gisec Global, the Middle East and Africa's largest cyber-security event. We shape policy, we power innovation, we protect the digital order.

Analysis

The emergence of a new digital order is being shaped not just by technology, but by the integration of sovereign AI, genetic AI, and quantum advancements, necessitating a cyber-first mindset. This shift highlights the importance of cybersecurity as a foundational element in policy-making and innovation, particularly at events like Gisec Global, which focuses on protecting the digital landscape.

Smart money should recognize that the intersection of AI and cybersecurity is not merely a trend but a fundamental shift in how digital independence and decision-making will evolve. The ongoing developments in these areas could lead to significant investment opportunities, particularly in companies that are at the forefront of these technologies.

12:46
PDT

Tokenization of stocks is being debated, particularly by AMC and Robinhood.

AMC Entertainment Robinhood Bailey Norm Melinda Barclays Investment Bank ETF AMC

– AMC benefits from share sales, while Robinhood questions the regulatory concerns around tokenization.

– The ETF universe is being compared to potential blockchain solutions for stocks.

– There is a growing complexity in how stocks are perceived with the rise of blockchain.

– Regulatory scrutiny may increase as companies explore tokenization.

blockchain technologystock market dynamicsregulatory scrutiny

▸ Full transcript

You know, whoever's buying that, as long as it's fully disclosed, they know what they're getting. I mean, you know, I'm not taking a side here; I'm just saying that that's a good point. When you think about tokens, of course, there are some that are actually backed by the actual shares, but then there are also those that are just tracking the share price, so it can get a bit more complicated. What you are seeing is, as you described, the half the ETF universe. That's exactly what Robinhood is saying; they're saying, 'Hey, we've already got ETFs, we've already got options, there's not been a problem with this. Why can we not do the same?' When we think about blockchain, what's the difference here? They're like, 'What's the big deal here? I don't understand why we're so upset.' You're seeing this back and forth. I mean, you know, AMC, a meme stock, you've been covering this for years, Bailey. It's just a really interesting thing as to whether or not this section is going to open the door for other companies to be upset with something like this. Well, meme stock, but these are two completely different companies. Absolutely. It's two, let's just be honest about it, with probably two different degrees of leverage when it comes to what goes on in the world. Yeah, if you think about it too, AMC, again, benefits from you buying the shares because then they can turn around and sell shares. They don't necessarily care about what benefits Robinhood. Did you actually see the Odyssey? I did see the Odyssey. Did you not like it? I thought it was good. I haven't seen it. I like that movie. We've got to get over there. All right. Boomer, Marcus, Correspondent, Norm Melinda, when we come back after the break, our movie review of the Odyssey. When every second counts, we're powering clarity with data-driven insights from our global and local experts to help you unlock strategic advantage. Barclays Investment Bank.

Analysis

The discussion highlights the ongoing debate around tokenization of stocks, particularly focusing on AMC and Robinhood, with both companies presenting differing views on the implications of blockchain technology. The conversation reveals a potential shift in how stocks could be perceived and traded, raising questions about the future of equity markets.

Smart money should note the underlying tension between traditional stock structures and emerging blockchain solutions, as this could lead to regulatory scrutiny and impact market dynamics. The differing leverage and business models of AMC and Robinhood may create unique opportunities or risks for investors as the landscape evolves.

12:44
PDT

AMC and Robinhood CEOs debate stock tokenization.

AMC Entertainment Robinhood Vlad Tenev Adam Aaron Bloomberg Gisec Global AI AMC Middle East Trading Day Guy Johnson Anna Edwards PRIVATE

– Discussion raises fundamental questions about ownership.

– Tokenization could redefine liquidity in markets.

– Potential for new investor classes with digital assets.

– Traditional equities may face competition from blockchain innovations.

digital assetsstock tokenizationmarket liquidity

▸ Full transcript

A new digital order isn't defined by technology alone. As sovereign AI reshapes digital independence, as agentic AI transforms decisions, as quantum unlocks new possibilities, every breakthrough demands a cyber-first mindset. That's why the future meets at Gisec Global, the Middle East and Africa's largest cyber-security event. We shape policy, we power innovation, we protect the digital order. Trading Day is about to start. And you're already looking for that edge. The opening trade brings you everything you need to know as markets open across Europe. I'm Guy Johnson. I'm Anna Edwards. And I'm Tom McKenzie. This is your Opening Trade. Only on Blingbeck. Our stocks of the hour are AMC Entertainment and Robinhood, the CEOs' trading barbs on X around the idea of tokenizing their company's stocks. Joining us live is Bloomberg's Nora Melinda. Nora, what's going on? We've got Vlad Tenev versus Adam Aaron. What even is a stock? Is it all matter? Is it on the token? Is it the blockchain? Remains of the Blockchain guy? Let's just start with the fundamentals, right?

Analysis

AMC Entertainment and Robinhood are in focus as their CEOs engage in a public debate about the tokenization of their stocks, raising fundamental questions about the nature of ownership and trading. This discussion highlights the evolving landscape of digital assets and the potential implications for traditional stock markets.

Smart money should note that the intersection of tokenization and traditional equities could redefine liquidity and ownership structures, potentially attracting a new class of investors. As companies explore blockchain technology, the competitive landscape may shift, creating both opportunities and risks for existing market players.

12:42
PDT

AI inference is becoming the dominant focus over training.

FAA NTSB FDA Visora Silicon Valley TSMC Intel France Europe

– Investment in AI startups remains robust despite market saturation concerns.

– European nations are prioritizing sovereign chip manufacturing capabilities.

– Supply chain resilience is improving with diversified manufacturing.

– Not all startups will succeed, but the long-term trajectory for AI investment is positive.

AI deploymentchip manufacturingsupply chain resilienceinvestment strategy

▸ Full transcript

Wenn du die Möglichkeiten hast, das ist für alle, die aus kleinen Einsätzen einen großen Unterschied machen. Das ist für die Kraft der Finanz und die Zukunft. Investiere wie die Zukunft, die sie sehen.

Analysis

The discussion highlights the growing importance of AI inference over training, indicating a shift in investment focus towards deployment and practical applications of AI technology. Additionally, the emphasis on sovereign capabilities in Europe suggests a strategic move towards self-reliance in technology, particularly in chip manufacturing, which could reshape competitive dynamics in the tech sector.

Smart money should note the potential for increased capital deployment in AI startups, driven by a demand for innovative solutions and the need for regulatory frameworks that foster technological acceptance. The ongoing evolution of supply chains and the diversification of manufacturing locations may mitigate geopolitical risks, presenting opportunities for investors in companies that prioritize resilience and local production.

12:40
PDT

Semiconductor index up 58% YTD, outperforming major indices.

Sandra Rivera Vizora Intel TSMC COVID AMC Robinhood TSM US AI

– Strong demand for AI workloads continues without signs of slowdown.

– Supply chain resiliency is critical, with investments spreading globally.

– European chip sovereignty is gaining traction, impacting market choices.

– Not all startups in the AI space will succeed, indicating potential market consolidation.

supply chain riskAI demand growthEuropean chip sovereignty

▸ Full transcript

Is because I mean with the chip you're building, I mean basically you're relying on the TSM architecture or packaging I should say as are most chip makers, and it gets to this idea that where is the sovereignty if all roads eventually lead back to Taiwan in one way or the other? Yeah, well, you know, you also see Romain that there is resiliency in the supply chains where you see more and more manufacturing happening not just in one part of the world but in all parts of the world and of course I've been in semis for decades and spent a lot of years at Intel where we have resiliency in terms of geopolitical supply chains and just ensuring that the products are both manufactured and packaged in all parts of the world. And you see that happening even with TSMC, where they're making investments in the US and making investments in Europe. So I think that COVID taught us a lot about the resiliency of supply chains and the need to not have everything just point back to any one geographic location in the world. And all these companies, very, very smart people that are investing globally for capability. We have to leave it there. And I'm sure we'll have a lot to talk about on the chip front. Thank you so much to Sandra Rivera, former executive vice president of Intel's data center and AI group, now chair of French deep tech company, Vizora. Well, coming up next, a two for one stock of the hour as two meme stock magnets do get out over tokenization. We'll discuss what's in store for AMC and Robinhood and what really is a stock? This.

Analysis

The semiconductor index has surged 58% year-to-date, significantly outperforming the NASDAQ 100 and S&P 500, highlighting strong demand for AI workloads and applications. Sandra Rivera from Vizora emphasized the importance of supply chain resiliency and the need for diverse manufacturing locations to mitigate geopolitical risks, particularly in light of Taiwan's central role in chip production.

Smart money should note that while demand for AI infrastructure is robust, the market may face a sorting out phase as not all startups will succeed. The emphasis on European chip sovereignty indicates a growing trend towards localized production, which could reshape competitive dynamics in the semiconductor industry.

12:38
PDT

Semiconductor index up 58% YTD.

JP Morgan Vizora Equinix Intel NVIDIA FAA NTSB FDA France Europe AI

– Strong demand for AI workloads and applications persists.

– European nations are focusing on developing local chip manufacturing capabilities.

– Investment in AI infrastructure is critical for future growth.

– Not all startups will succeed, leading to a sorting out in the market.

AI infrastructuresemiconductor demanddata sovereignty

▸ Full transcript

Here the enterprise leaders are talking about where they have measured their success in terms of 20 or 30x returns, but not all of the use cases and all the applications and all the proof of concepts are that way. So there will be a sorting out as there always is. But I think the long-term trajectory still is up into the right. Can I ask you a little bit more about Vizora and obviously this idea? Well, first of all, obviously with the chip that you're trying to get scaled to production, but also the idea of this being a European company, a French company, and with all the talk here about AI sovereignty, how important is it for nations or regions to have their own homegrown chip makers, service suppliers, etc.? Well, we see a very big tailwind for that sovereign capability in Europe and in France and the fact that we can develop at the source such a complex logic device that can give you 40% lower cost for the same level of throughput and efficiency at a much lower power envelope. I think that there's just a demand for more choices in the market and as we know heterogeneous architectures CPUs, GPUs, AI inference accelerators, memory chips, networking chips. There's so much opportunity for companies that have great ideas and frankly that focus on the customer and on execution. And this tailwind around data sovereignty and sovereign capability.

Analysis

The semiconductor index has surged 58% year-to-date, significantly outperforming the NASDAQ 100 and S&P 500, indicating strong demand in the sector. The conversation highlights the importance of AI infrastructure and the need for homegrown chip makers in Europe, particularly in light of increasing calls for data sovereignty.

12:36
PDT

AI is the primary focus for capital deployment in technology.

Vizora Silicon Valley venture capital AI

– Startups must articulate differentiated value propositions to attract investors.

– There is a risk of oversaturation in the startup market.

– Not all companies in the venture capital space will succeed.

– Historical trends indicate a high failure rate among startups.

AI investment trendsstartup ecosystemventure capital dynamics

▸ Full transcript

AI is really the number one place where the capital is being deployed and the number one destination, if you will. So it isn't difficult to get an audience with the investment community. What our objective is to ensure that we're articulating a differentiated value proposition for Vizora, just as other startups are doing the same in terms of the power efficiency, the low latency, the level of determinism, the cost per token, the throughput, and all of the expectations that the investors have for return on that capital. So there's still a lot of capital out there. There's so much innovation and so many new startups, and I'm here in Silicon Valley where every week there's a new great idea that is looking for funding. And there's just still a lot of audience, a lot of capital on the sidelines waiting to go in and to fund these great ideas. But what's the risk that maybe we're oversaturated or there are too many ideas? Just thinking through some of the conversations I have with folks out in Silicon Valley is everyone's chasing the next hot idea and the expectation is don't worry at some point the valuation will make sense and this won't be a concern. What about the bear case? Well, the fact is that not all of the companies are going to make it. I mean this is the history of venture capital and investing and you don't need all of them to be successful or all of them to have.

Analysis

AI continues to attract significant capital investment, with startups like Vizora emphasizing their unique value propositions to secure funding. However, the venture capital landscape may face oversaturation, as not all companies will succeed despite the current enthusiasm for new ideas.

Investors should be cautious of the potential for a bubble in the startup ecosystem, as the expectation that valuations will eventually align may not hold true for all ventures. The historical trend in venture capital suggests that while innovation is abundant, only a fraction of these startups will achieve lasting success.

12:34
PDT

Regulatory measures in AI could enhance public trust and innovation.

FAA NTSB FDA Vazora AI NVIDIA Intel Equinix

– The transition from training to inference workloads is nearing a tipping point.

– Frontier models remain complex and costly, limiting widespread adoption.

– Demand for AI applications is expected to grow significantly.

– Enterprises are increasingly focused on deploying AI solutions.

AI regulationinference workloadstechnology adoption

▸ Full transcript

The FAA, the NTSB, the FDA—all of these types of safety mechanisms and organizations, structure, and regulation really led to more innovation because it led to more acceptance of technology. While I think that some of the calls for pacing and ensuring that there are guardrails and security measures in the latest and greatest AI models, frontier models, these are good things, and having some level of regulation will allow citizens and communities to feel less anxious about AI, which is something that will be a headwind if we don't get after it. Well, let's talk about Vazora. You used the magic word there: inference, and we've heard this come up time and time again from executives here on this network. I mean, when does the inference kind of overtake training as the dominant AI workload, or has it already happened? Well, yes, we really are on the cusp of that crossover point where more of the investment and more of the deployment really is happening on that inference side. We still see a handful, and I'll say it's a handful of companies that are at the forefront of frontier models. It's just an extraordinarily expensive and complex endeavor to create those frontier models. But the masses, in terms of enterprises, organizations, individuals, and the use cases for AI, will really multiply as we continue to move forward with the deployment phase, which of course is all about inference and the context of any organization.

Analysis

The discussion highlighted the importance of regulatory frameworks in fostering innovation within AI technologies, suggesting that proper guardrails could alleviate public anxiety and support broader acceptance. The conversation also pointed to a significant shift towards inference workloads in AI, indicating that investment and deployment are increasingly focused on this area rather than on training models.

12:32
PDT

Semiconductor index up 58% year-to-date.

Sandra Vizora Equinix Intel NASDAQ S&P 500 IPO US AI Sarah Bross NASDAQ 100 S&P 500

– Strong demand for AI workloads persists.

– Concerns exist about infrastructure matching demand.

– Investment in AI reflects a trend towards operational efficiency.

– Safety concerns around AI technology are being raised.

semiconductor growthAI demandinfrastructure investment

▸ Full transcript

And it fits very much on theme we're talking about, again, a semiconductor index that is up 58% year-to-date, grossly outpacing the NASDAQ 100 and the S&P 500, and really the best performing large IPO here in the US. Sarah Bross, a chip maker. So what fits with the theme again? Big question though, is this a deal that we see early next year? Absolutely. Well, our next guest has spent more than three decades at the intersection of semiconductors, data centers, artificial intelligence. She previously ran the data center and AI group over at Intel. She's now the chair of French deep tech company, Vizora, and she sits on the board of Equinix, which of course puts her on both sides of the central question right now, confronting the AI trade, can demand and revenue grow fast enough to keep up with the enormous amount of spending on physical infrastructure? Sandra, great to have you here. Before we get to a little bit about Vizora, I do kind of want to get to two big topics that have come up this week. One about some of the safety concerns being raised around AI, but more importantly about the pace of the AI build out and whether you think it's commensurate with the demand that will be there when all the stuff gets built. Well, I think you use the operative word, which is demand, because we do not see any slowdown in terms of customer demand and price demand for more AI workloads, applications, capabilities to improve the efficiency, the effectiveness, the innovation in any organization. So the demand side is definitely there. But I think both things can be true Romain, which is that we should continue to stay on the forefront of technology, continue to build new.

Analysis

The semiconductor index has surged 58% year-to-date, significantly outperforming the NASDAQ 100 and S&P 500, indicating strong market momentum in this sector. Demand for AI workloads and applications remains robust, suggesting that revenue growth may keep pace with infrastructure spending despite safety concerns around AI technology.

Smart money should note that while demand is high, the challenge lies in ensuring that infrastructure development can match this demand. The ongoing investment in AI capabilities reflects a broader trend of innovation that could reshape operational efficiencies across various sectors.

12:25
PDT

Lennar's guidance may disappoint due to rising mortgage rates.

Lennar Jay McCandless Citizens NAR Alright Jay Jay Mc Managing Director Equity Research

– Builders are prioritizing gross margins over volume.

– Demand exists if builders can solve for payment issues.

– Traffic concerns from competitors may influence expectations.

– The housing market shows resilience despite economic pressures.

housing market dynamicsbuilder strategymortgage rates

▸ Full transcript

The other builders say that as well. If that's something we hear from the NAR, that they want to try and slow it down, get a little more gross margin, and not be settling for volume over margin, as they've said. A few conference calls in the past, I think that could help the group, because again, it would be in line with what we're hearing from the other builders, that they just want to slow things down and try and let the consumers' income, as well as hopefully rates come down and make the affordability picture a little easier for them to conquer. Just to be clear, Jay, I mean are you expecting this company to actually have guidance tomorrow to put out any sort of guidance tomorrow? Historically they have, you know I would say again I think people may be a little disappointed just given some of the rate backdrop, some of the things we've heard from traffic from some of their other competitors, but that's yeah, we are I don't see any reason why they wouldn't they typically do provide some guidance so it's not something we'd called out that we didn't think it was going to be in there. Alright Jay, always great to talk to you. Jay McCandless, Managing Director at Equity Research over at Citizens, a closer look at Lennar as we sort of await their earnings just roughly about 24 hours from now. Those shares up fractionally on the day and Bailey we take a look at the broader equity market which has been on the back foot all day long largely because of that continued and persistent elevation in Treasury yields and of course that resurgence, resurgence that we're seeing in energy prices. When you're just looking at the correlation between those two assets, it's just kind of on.

Analysis

Lennar is expected to provide guidance in its upcoming earnings report, but analysts anticipate potential disappointment due to rising mortgage rates and traffic concerns from competitors. Builders are focusing on improving gross margins rather than volume, which may signal a shift in strategy to enhance affordability for consumers.

The housing market's resilience amidst economic pressures is noteworthy, as demand remains if builders can address payment concerns. This could indicate a broader trend where builders prioritize profitability over volume, potentially impacting future housing supply dynamics.

12:24
PDT

Lenard's order numbers may come in below expectations due to rising mortgage rates.

Lenard Jay McCandless Citizens Federal Reserve And Jay FEDFUNDS

– Builders are addressing payment concerns to maintain demand.

– Higher rates could lead to margin sacrifices for builders.

– Inflationary pressures are impacting consumer behavior in housing.

– Market sentiment may shift based on Lenard's guidance.

housing market resiliencemortgage rate impactbuilder margins

▸ Full transcript

of traffic, both web traffic and foot traffic, now that we've breached 7% with the 30-year mortgage rate. Yeah, and I mean based on the expectations for Fed rates, it looks like that mortgage rate could go higher. Are you actually surprised, Jay, that the housing market, relatively speaking, has held up given all of the not only price pressures in terms of mortgage rates but also just some of the economic pressures with energy prices, etc.? Sure, I'd say a pleasant surprise. The share of orders has generally beaten our expectations, and what we've heard is that if the builders can solve for the payment, the demand is there. I think that's what we're going to hear from Lenard tomorrow, but again, with these higher rates, it may be a little more expensive, a little giving up some gross margin to get that sale across the door. And Jay, you called on one of your notes that Lenard is one of the few builders that you guys cover that provides actually quarterly order guidance when we look forward and what we can hear from management. How are you thinking through what the street, what the whisper number actually is for that guidance? You know, it wouldn't surprise me if people's expectations going into this, if Lenard's actual numbers come in a little bit below expectations. Just again, you know, given what's happened with the mortgage rates, also, as you called out, a lot of inflationary pressures from other sectors on the consumer. So I would say we think probably that there's more downside risk than upside risk when it comes to Ford S.

Analysis

The housing market is showing resilience despite rising mortgage rates, with builders like Lenard managing to meet demand by addressing payment concerns. However, expectations for Lenard's upcoming guidance may be tempered by inflationary pressures and higher borrowing costs, suggesting potential downside risk in their order numbers.

Smart money should note that while demand exists, builders may need to sacrifice margins to close sales, indicating a shift in pricing power. The market's reaction to Lenard's guidance will be critical, as it could signal broader trends in the housing sector amidst economic pressures.

12:22
PDT

Eli Lilly upgraded to 'buy' with a $1,400 price target.

Eli Lilly Varenburg Northrop Grumman Guggenheim Alta Wells Fargo Lenard Jay McCandless Citizens Jay Mc

– Northrop Grumman initiated with a 'buy' and $612 price target.

– Alta upgraded to equal weight, price target raised to $525.

– Eli Lilly shares down despite upgrade; market skepticism persists.

– Northrop Grumman shares rising for the fourth consecutive day.

analyst upgradesdefense sector outlookbiotech market sentiment

▸ Full transcript

Time now for our top calls to look at some of the big movers on the back of analyst recommendations, and we start off with Eli Lilly. Varenburg upgraded the stock to buy, saying the pharma giant deserves its premium valuation given the growth profile and drug pipeline; the price target goes to $1,400, with the analyst seeing upside to Lilly's full-year guidance given its lead in the obesity market. Nevertheless, the shares are down fractionally on the day as they still hover around those year-to-date lows. Next up, Northrop Grumman, Guggenheim initiating coverage on the defense contractor with a buy. Despite recent pressure on aerospace and defense stocks, the firm is citing a $612 price target, saying sell-off fears are a bit overblown. Those shares are rising for a fourth straight day, up 8 cents a percent here heading into the close. Finally, Alta, Wells Fargo, upgrading the cosmetic company to equal weight, citing stronger than expected management of competitive pressures. The analysts boost the price target to $525, saying the new executive team is 'driving strategic improvements.' Investors, though, are driving the shares lower, down about nine-tenths of a percent. Those are some of our top calls as we pivot now to Lenard, one of the largest U.S. home builders, set to report earnings after the bell tomorrow amid a backdrop of persistently rising rates. Jay McCandless, managing director and equity research analyst at Citizens, joins us now to talk a little bit more about this. Jay, what is the primary story?

Analysis

Eli Lilly received an upgrade to 'buy' from Varenburg, with a price target raised to $1,400, reflecting confidence in its growth profile and drug pipeline, particularly in the obesity market. However, shares are down slightly, indicating market skepticism despite the positive outlook.

Northrop Grumman was initiated with a 'buy' rating by Guggenheim, citing an overblown sell-off in aerospace and defense stocks, with a price target of $612. This suggests that smart money might find value in defense stocks amidst current pressures, as the sector could rebound.

12:17
PDT

Upwork's MCP technology allows AI agents to hire human workers.

Upwork Hayden Brown McKinsey AI MCP LLM

– There is a growing demand for hybrid work involving both humans and AI.

– Freelance work is increasing as companies seek flexible talent.

– Customer expectations for instantaneous human and AI intelligence are rising.

– AI agents are becoming a significant part of the hiring process.

AI integrationfreelance economy

▸ Full transcript

AI agents are actually coming to Upwork, trying to execute tasks on behalf of their human clients, and that includes hiring humans. So, these agents are actually trying to hire humans to finish work. This is what spurred us to launch some new technology, our MCP, that really lets agents interoperate with Upwork and both hire humans as well as, on the talent side of our marketplace, deploy agents and LLM tools on behalf of these workers. The work is actually expanding. So, there's human-only work, there's agent work, and there's this vast messy middle of work that needs both humans and AI working together, and that is really where we see the future going. Technologies like our MCP are really enabling that partnership. I do have to ask you about your business specifically at Upwork because if that is the future, are people coming in the front door through Upwork or are they coming in the front door through ChatGPT, Claude, or whatever their favorite LLM chatbot is? If so, does that sort of undercut your business? So, they're coming in through both; that is absolutely clear. Actually, there's no undercut because we can monetize and serve those customers regardless of which channel they come in through. It actually doesn't matter. What we're actually seeing is this expansion of demand and new ways that customers can use our site and access human talent, which is great because this is a moment where customer expectations are increasing. They want instantaneous, not just artificial intelligence but human intelligence. That's where we can offer them. So, I mean, what do you think? I'm going to put you on the spot here. But what percentage of the jobs do you think are going to actually be placed on your site by AI agents rather than humans?

Analysis

The launch of Upwork's new MCP technology enables AI agents to hire human workers, indicating a shift towards a hybrid workforce model. This evolution suggests that businesses are increasingly integrating AI into their operations, creating a demand for both human and AI collaboration in the labor market.

Smart money should note that the rise of AI agents in hiring processes could redefine labor dynamics, leading to a significant increase in freelance work as companies seek flexible talent solutions. The growing acceptance of AI in the workforce may also spur investment in platforms that facilitate this integration, such as Upwork.

12:15
PDT

Rising demand for AI-generated video content.

Hayden Brown McKinsey AI

– Increased need for skilled workers in AI implementation.

– Shift towards freelance work as companies seek flexibility.

– Freelance workforce has grown from 28% to 38% in one year.

– Businesses are redesigning workflows around AI technologies.

AI integrationFreelance economyLabor market dynamics

▸ Full transcript

More experts in categories like AI video generation are coming in to create the value that businesses are looking for from this powerful technology. As this technology has become more available, more and more businesses realize they can benefit from it, and maybe they were doing simple, text-based ads in the past and thought video was out of reach. Now with AI, they can do more. This is expanding demand in the ecosystem, which means not just broader adoption of the technology, but importantly, a broader need for humans who have the skills to do this critical work. The story that's not being told and not well understood is that there's actually rising demand for these AI-skilled workers. But how does that pay off for the bottom line for the company? Is it cheaper to have someone that's not on your payroll who doesn't need benefits and can use these AI tools? Sometimes, one of the benefits we actually see is the flexibility. Businesses are saying, look, now that I've redesigned a workflow around AI, there is still human work needed, but it may not be a full-time job or may not look like full-time employment. Instead, they're moving into the freelance economy to find these workers. That's one reason we see in our data that the freelance industry has grown 10 points just in one year alone, from 28% to 38% of the U.S. workforce. More and more businesses are saying we need this flexible talent, and more talent is opting into a different way of work.

Analysis

The demand for AI-generated video content is rising as businesses recognize its potential to enhance advertising efforts, leading to a greater need for skilled workers in this area. This shift is driving a transition towards a more flexible workforce, with an increase in freelance opportunities as companies adapt their workflows around AI technologies.

Smart money should note that the freelance economy is expanding significantly, now comprising 38% of the U.S. workforce, as businesses seek flexible talent to implement AI solutions. This trend indicates a structural change in labor dynamics, suggesting potential investment opportunities in platforms that facilitate freelance work and AI integration.

12:13
PDT

Steady demand for AI-related jobs despite changing roles.

Upward Hayden Brown McKinsey AI CEO In New York

– Businesses are seeking experts to implement AI technologies.

– Employee productivity improvements are not translating to expected financial returns.

– C-suite executives report lower productivity gains than employees.

– Potential challenges in AI adoption may impact investment strategies.

AI labor market impactproductivity challengesinvestment strategy reevaluation

▸ Full transcript

Still can't actually point to a bottom line return from AI, but what about its sweeping impact on the labor force? Upward CEO Hayden Brown joins us here in studio too. In New York, great to see you, Hayden. Thanks for having me. So let's talk about the state of AI because depending on who you listen to, it's either killing all our jobs or maybe not. I assume there's some nuance here that we're missing, so kind of give us a layer of the land you've put out a lot of reports in this, including a new one earlier today. Absolutely, we just released our August hiring report. And what that showed is there's actually very steady demand for many types of work in the ecosystem. But under the hood, jobs themselves are changing. They're changing day in and day out. And we're seeing a huge rise in demand for people who are actually able to implement AI technologies because businesses are looking at this technology to the McKinsey report from yesterday. You know, they're wondering where is the value, and they're bringing in experts who can actually unlock that value for them by redesigning systems and implementing AI in new ways inside their companies. Just to put a finer point on that study that we had from McKinsey, I mean basically they said that the employees at the companies they surveyed, 80% of them basically said they had seen an improvement in their own productivity. Yet their managers, basically the C-suite executives, are saying that the productivity returns as well as financial returns really only amount to maybe about 30-something percent of those in response. Totally. This is a problem across the ecosystem. We talk to business owners every day who are struggling with this because they're not seeing the benefits that they thought they'd get from this technology. And what they're doing in response to that is going to be a lot of work.

Analysis

The demand for jobs in the AI ecosystem remains steady, with a notable shift towards roles focused on implementing AI technologies. However, businesses are struggling to realize the productivity and financial returns expected from these technologies, leading to a disconnect between employee productivity and managerial expectations.

Smart money should note that while AI is reshaping job roles, the anticipated benefits are not materializing as quickly as hoped, indicating potential challenges in the broader adoption of AI solutions. This could lead to a reevaluation of investment strategies in tech sectors reliant on AI advancements.

12:11
PDT

Bond market anticipates over 90% chance of Fed rate hike tomorrow.

Kevin Warsh DWS Group Darrell Cronk George Kentrebone AI U.S. Senate Bitcoin Hayden Brown Sandra Vera Visora Dutch pros

– Expectations include 95 basis points of hikes over the next year.

– Consumer sentiment indicators show signs of strain amid rate hikes.

– Credit spreads are tightening, indicating restrictive financing conditions.

– Market is vulnerable to unexpected Fed decisions.

Fed policyconsumer sentimentcredit markets

▸ Full transcript

That's it for the craft of finance. What's the coolest thing you can grow with money? What do you actually do? Is this just for rich people? How do you know how to choose? We get a lot of smart people together. We're analyzing all of the data. We're doing research. And we're pulling all that together to think about what would be the best investment today that will make money in the future. Invest like the future is watching.

Analysis

The bond market is signaling a strong expectation for a Fed rate hike, with over a 90% chance priced in for tomorrow's meeting. This shift reflects a significant change in market sentiment, with the potential for a dovish hike creating vulnerabilities in the current market environment.

Smart money should note that while the bond market is pricing in multiple rate hikes, the underlying consumer sentiment indicators suggest a potential break in consumer spending, which could complicate the Fed's inflation fight. The divergence in credit spreads, particularly between triple C and double B levels, highlights the tightening financing conditions that could impact corporate refinancing and consumer behavior.

12:09
PDT

U.S. Senate blocks the Clarity Act, impacting the crypto industry.

U.S. Senate Bitcoin George Gantramon DWS Group Hayden Brown Visora Christine Barrow Dutch pros DWS CEO AI Bloomberg Terminal PRIVATE FEDFUNDS

– Bitcoin experiences a modest decline following the news.

– Focus shifts to job demand in the AI sector and its implications.

– Regulatory challenges may deter institutional investment in crypto.

– Labor market dynamics are evolving with AI advancements.

regulatory challengeslabor market dynamics

▸ Full transcript

Opportunities, as you all know, with $800 billion in cap this year, a trillion next year and beyond, will continue to be there. Where are you going to be at 2 p.m. tomorrow? I'll collude to Bloomberg. George Gantramon, head of fixed income for the Americas over at DWS Group, was speaking of redhead crossing the Bloomberg Terminal, this involving the Clarity Act that was trying to work its way through Congress. Now learning that the U.S. Senate has actually blocked that landmark crypto bill, of course, a bill that the industry had been advocating for. That said, the president of the United States is a modest lay down right now for Bitcoin on the back of that headline. We'll get to some more details on that. But when we come back here on the close, we continue our coverage of the Fed's dual mandate and we take a look at the other side of the mandate, the labor market. We're going to catch up with Upward CEO Hayden Brown. They've got a new report out about job demand in the AI era and the implications for business. Plus, from software signals to data center catalysts from an executive deeply embedded in the space, former Intel data center executive Sandra Vera, now the chair of French deep tech company Visora, will join us live. And we're going to go from that very complicated topic to coffee. Something simple, a coffee talk with Christine Barrow and the CEO of Dutch pros on the evolution of consumer beverages and what's next for the company's expansion. All that and more coming up in a bit, right here on the close, right here on Bloomberg.

Analysis

The U.S. Senate has blocked the landmark Clarity Act, a significant setback for the crypto industry, leading to a modest decline in Bitcoin's value. This development highlights the ongoing regulatory challenges facing cryptocurrencies, which could impact investor sentiment and market dynamics.

Smart money should note the implications of this regulatory environment on future crypto investments, as the blockage may deter institutional interest and innovation in the sector. Additionally, the focus on job demand in the AI era suggests a shift in labor market dynamics that could influence economic growth and investment strategies.

12:07
PDT

10-year yield reaches 5%, 30-year at 5.36%.

NVIDIA Dario Elon Kevin Warsh Darrell Cronk George Kentrebone DWS Group Bloomberg U.S.Iran CTA

– 90% chance of Fed rate hike tomorrow.

– Investors encouraged to extend duration due to cheap yields.

– Credit space shows significant dispersion between ratings.

– U.S. needs to refinance a third of its debt in the coming year.

interest ratescredit market dynamicsconsumer spendingrefinancing risks

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Family fight again, I think that's sort of half to at this point in time for just seems like too many right now. All right, well, I mean you've got to be positioning around this in one way or another. So when you look at four six on a two-year yield, a 10-year yield at five, and of course we've been wringing our hands over that five three six on a 30-year yield, where is the opportunity right now? Are you still primarily camped out on the short end? Spreads are really tight, but on a historical 10-year basis, treasury yields are in the hundred percentile of cheapness, so some really good opportunities to go out there and start to extend duration. If you liked yields before, you're going to love them right now. I wouldn't obviously push all in, because a lot of momentum in CTA trading and one-dimensional trading is pushing this kind of higher. Maybe it goes beyond 5%, but I think that there's eventually fatigue that will settle through there, and it's a great time to go out. And also down in quite a little bit, you're seeing much more dispersion in the triple C area and decompression there. There's some really great companies with some really great yields around, call it single B double B area. Why is there such a gap though when you mentioned that dispersion in the credit space, but why are we seeing such dispersion or a gap between what we're seeing, say, at the triple C level versus even at the double B level? Financing costs. I mean, I think this was so interesting about where we are right now and what the shape of the curve, it's really flattened via the front end. We've moved over 100 basis points this year from where we started in front end yields. So this has really created a much restrictive backdrop for both the consumer and for the companies. And by the way, for the U.S., we have to refinance a third of our debt over the next year. That is our very unwelcome meals to do so. But wait.

Analysis

The bond market is reacting to rising yields, with the 10-year yield hitting 5% and the 30-year at 5.36%, the highest since 2007. This shift is driven by expectations of Fed rate hikes, with a 90% chance of a hike tomorrow and further hikes anticipated by December.

Investors are advised to consider extending duration in their portfolios as treasury yields are historically cheap. The current market dynamics indicate a restrictive backdrop for consumers and companies, with significant refinancing needs looming for U.S. debt.

12:05
PDT

Bond market anticipates 95 basis points of hikes over the next year.

Kevin Warsh AI Iran Democrats Republicans

– Consumer sentiment indicators are showing weakness.

– Democrats are gaining an advantage on economic issues.

– Private investment in AI is driving economic activity.

– Rate hikes may disproportionately impact consumer spending.

interest rate hikesconsumer sentimentpolitical landscapeAI investment

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That can go from 3% to 2%. But what gets lost in getting there? That last mile is always the hardest. So we're going to have to tell the bond market that they're committed to the inflation fight, which is what the bond market wants to hear. We should also be clear that the bond market is also pricing in 95 basis points of hikes over the next year. That to me feels like a bridge too far without one soft data print priced in. Well, that's what I'm looking at. So we have just on work right now, fully priced in two hikes by the end by the start of December. A third, as you mentioned, by mid-March. What are we expecting if this is the start of a rate hiking cycle where we do see a steady stream of hikes? What's mispriced? Where are those opportunities? What kind of breaks at that point? Well, I think the consumer breaks. That's exactly what you're seeing, new Mish sentiment indicators. That's exactly what you're seeing in ag. That's exactly what you're seeing in housing. It's exactly what you're seeing at the polls. It's the first time in nearly two decades that the Democrats are taking the advantage on the economy from the Republicans. I think that's the problem. While the economy may be AI and while maybe 20% is doing 60% of the spending, it's the totality, I think, of what gets broken with these interest rate hikes, and that's a large, really a large part of the consumer. It's not consumption that's driving us, it's private investment from AI. And that goes back to what are they really trying to solve? Right, you're not given supply shock of what's going on in Iran, rate hikes are not gonna ultimately help with. And then there's another side of the equation as well from AI demand that arguably that neutral rate is much higher from here. I've seen a lot of stories you've done. I mean, you tell me where neutral is for hyperscalar to stop issuing, and I would say that's the rest in place, that's what you're trying to stop. But with that in mind, so.

Analysis

The bond market is pricing in 95 basis points of rate hikes over the next year, which may be excessive without softer economic data. The current sentiment indicators suggest that consumer confidence is faltering, potentially leading to a slowdown in spending despite private investment in AI driving some economic activity.

Smart money should note that while the economy appears robust due to AI, the consumer sector is showing signs of strain, which could be exacerbated by aggressive rate hikes. The political landscape is shifting, with Democrats gaining an edge on economic issues, indicating potential volatility in market sentiment as consumer sentiment declines.

12:02
PDT

Bond market pricing indicates a 90% chance of a Fed rate hike tomorrow.

Kevin Warsh DWS Group Darrell Cronk George Kentrebone Fed U.S.DWS Bloomberg Television FEDFUNDS PRIVATE

– 10-year yields have reached 5%, marking a significant increase.

– Market vulnerability exists to unexpected Fed decisions.

– Short end of the yield curve is critical for market sentiment.

– Expectations for further hikes by December are also high.

Fed policybond market dynamics

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At the close today, the rate of change is even more notable: 40 basis points higher in less than a month, 70 basis points since late June, with almost all of that rise driven by higher expectations for the Fed's fund rate. The term premium is virtually unchanged. Roughly 24 hours from now, Kevin Warsh will have to walk to that podium and explain to the world the Fed's decision and the risk it sets that decision conflicts with the one that the bond market has already made. A month ago, pricing indicated a 50% chance of a hike; now we're seeing more than a 90% chance for a hike tomorrow and a 70% chance for another hike by the December 9th meeting. This means that you have a market right now that is vulnerable to not only an unexpected hold but also a dovish hike. The bond market is not subtle; it punches you in the jaw and tells you where it believes rates should be. I think the short side of the curve matters as much or more than that 10-year at 5% or the long-term side of the yield curve. Darrell Cronk joined Bloomberg Television earlier today, with George Kentrebone joining us right here and now. Head of fixed income for the Americas at DWS Group, Ken, kicking us off to the close. George, great to see you here. You as well, man. Are you going to be laughing and smiling tomorrow? Because I am curious as to exactly what this market has priced in almost a near certainty for a Fed rate hike. I mean, I don't know if you listened to some of the commentary that we've gotten out of Warsh lately; I'm not so sure.

Analysis

The bond market is reacting strongly to heightened expectations for a Fed rate hike, with a 90% chance priced in for tomorrow's meeting. This shift reflects a significant increase in rates, with the 10-year yield reaching 5% and the market showing vulnerability to potential dovish signals from the Fed.

Smart money should note that the bond market's aggressive stance indicates a disconnect with the Fed's potential decision, which could lead to volatility. The short end of the yield curve is particularly crucial, as it may influence broader market sentiment and risk appetite moving forward.

12:00
PDT

S&P 500 down 0.5% amid rising crude prices.

S&P 500 crude oil 10-year yields Federal Reserve Bloomberg CEO Yonvanic Ek Vanic Buns Future Proof Huntington Beach Watch Bloomberg Real Yield Market Day PRIVATE B 500 FEDFUNDS DXY

– Crude oil trading above $105 per barrel.

– 10-year yields at 5%, highest since 2007.

– Investors are reducing risk ahead of inflation data.

– Market sentiment is cautious as economic indicators shift.

bond market dynamicsinflation pressuresenergy prices impact

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The air is slowly coming out of the I trade. That's my one indicator. Good place to end it. Yonvanic Ek, CEO of Vanic Buns. Thank you. Thank you. Great way to wrap up our first hour here at Future Proof in Huntington Beach. Do not get your fixed income fix. Watch Bloomberg Real Yield every Thursday at 5 p.m. London time right here on Bloomberg. Context changes everything. The countdown is on everything you need to get the edge at the end of the Market Day. This is the close. To misquote the great Andre 3000, the bond market got something to say. Live from Studio Two here at Bloomberg headquarters in New York. I'm Romain Bostic and I'm Bailey Lipschold. We're kicking you off to the closing bells here in the U.S. Right on the screen, that's the S&P 500 down half a percent. The big driver obviously is crude, north of $105 a barrel right now, basically trading at the highest level since mid-May. And a big driver in the knock-on effects. 10-year yields right around 5%; they did pop to the highest level since 2007, and keeping an eye on that 30-year right now at 5.36%, also the highest level since 2007. Romain, 19 years ago is the these are the moves that we're seeing really across assets as we head into the close. Absolutely here in the now though, investors are reducing risk and we saw that risk reduce heading into last week's hot inflation print and that was really in prep for two major tests this week. The Fed raised.

Analysis

The bond market is reacting to rising crude oil prices, with the S&P 500 down half a percent as crude trades above $105 a barrel, the highest since mid-May. Ten-year yields have reached 5%, the highest level since 2007, indicating a significant shift in investor sentiment and risk appetite.

Investors are reducing risk ahead of critical inflation data and the Federal Reserve's decisions, suggesting a cautious approach in the current market environment. The interplay between rising energy prices and bond yields could signal a tightening economic landscape, impacting consumer spending and overall market stability.

11:58
PDT

SMAH ETF up 50% year-to-date.

SMAH NVIDIA Dario Elon Musk China US AI ETF CEO IPO Middle East SMAH NVDA USDCNH

– Concerns about AI's risks are prevalent but being addressed by industry leaders.

– National security is a key driver for AI development.

– Investors remain overweight in semiconductor assets.

– Healthy industry dialogue on AI compliance is emerging.

AI developmentsemiconductor investmentnational security

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At this conference, what do you think of where we are in that AI cycle specifically? I want to talk a little bit more about that. You guys sponsored the SMAH; it's the biggest semiconductor ETF. It's up 50% year to date. Two comments. First of all, as an asset manager, I don't know what people think we do, but that 26-year-old ruined my weekend. I had so many talks and reading blogs and everything going on social media. Like, is AI going to kill the world? Because we have a lot of assets in SMAH. I'm a big Nvidia shareholder, obviously. So, you know, what's the truth there? At the end of the day, I think that kind of fear-mongering is wrong and dangerous. Why is it wrong? I think, look, it's really weird, like what Dario said, right, the CEO of Enthralment. It was very responsible in his blog, and they're basically saying for national security reasons we can't hold back AI. There are wars going on in the Middle East, and neither China nor the US are going to hold back AI development. So it's almost silly to start, but any responsible company needs to have protections in place. And so visibility, third-party monitors. Elon said, well, why don't we have our competitors act as a kind of compliance check, which I think is the industry is having a healthy dialogue. And what Darya said is very responsible. I don't think it interferes with their IPO. So we're still overweight. So just talk and not action ultimately? I think the tumor is...

Analysis

The semiconductor ETF SMAH has surged 50% year-to-date, reflecting strong investor sentiment towards AI and tech assets. Concerns about AI's potential risks are being countered by industry leaders advocating for responsible development and national security considerations.

Smart money should note that while fear around AI persists, the dialogue among industry leaders suggests a commitment to balancing innovation with safety. This could lead to sustained investment in AI and semiconductor sectors, as companies navigate regulatory landscapes while pushing technological boundaries.

11:56
PDT

Expect higher taxes and lower government spending in the next five years.

Vanex BlackRock Bitcoin HODL U.S. Government Social Security ETF

– Social security is projected to run out of money by 2032.

– Long-term bullish sentiment on Bitcoin is emerging despite recent market challenges.

– Institutional interest in Bitcoin is increasing, with major firms like BlackRock involved.

– The crypto market has shifted focus, with many investors moving towards data centers.

fiscal policyBitcoin investmentsocial security funding

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Going to add to the deficit. Can we just be? Of course it is. Of course it is. And look, I think at the end of the day, Americans know this when I speak to people at conferences. Welcome to high in the next five years. We're getting the higher taxes and lower government spending. We just can't. We can't. It's not sustainable any other ways. That's not what you're saying. Social security alone, right? It's going to run out of money in 2032. So I'm already paying higher taxes. Yeah, I'm just saying you're not the only one. Yeah, I know I listen by the way if you share it with everybody payments today is September 15th just to remind everybody thanks everybody thanks it's also my anniversary I'm gonna think about that do you want to talk about the hat I want to talk about the hat HODL is what the hat says you're hodling yeah listen Vanex long-term macro view the number one we think the thing we think about is investors in alignment with investors and so in our quarterly outlooks we're very straightforward we can be bullish or bearish I was bearish Bitcoin coming into this year because of the four-year happening cycle. I said time to buy in Q2 and that's why I think you know we're in my head again. HODL is our Bitcoin ETF. We were the first company to file for Bitcoin ETF in 2017. Long term bullish and you know even BlackRock is putting it into portfolio. So I don't think it's as crazy. It's a forgotten asset a little bit now. Right. Because the crypto world has changed so much. We don't talk about it as much. A lot of crypto bros moved on. What did they move on to? Data centers. No, sorry. Yeah, well, no the PMs like at Danek.

Analysis

The discussion highlights concerns about the unsustainable nature of current fiscal policies, with expectations of higher taxes and lower government spending in the future. Additionally, there is a notable shift in investor sentiment towards Bitcoin, with a long-term bullish outlook despite recent bearish trends in the crypto market.

Smart money should recognize the potential for Bitcoin to regain traction as institutional interest grows, particularly with firms like BlackRock incorporating it into their portfolios. Furthermore, the looming budget deficit and the implications for social security funding could drive shifts in investor behavior and asset allocation strategies.

11:54
PDT

Bonds are gaining appeal as yields rise, potentially competing with equities.

Franklin Templeton U.S.Asia Bitcoin gold Himalayan Mountains GC=F

– Gold is expected to consolidate before a long-term upward trend.

– Global growth, particularly in Asia, is a key driver for gold demand.

– Geopolitical tensions are negatively impacting Asian economic growth.

– Investors are cautious about equities amid rising yields and energy prices.

bond market dynamicsgold demandgeopolitical risks

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At 5%, 5.5%, 6% at some point. And when people are so negative about bonds, the contrarian in me makes me want to go buy bonds. So I'm a little bit more neutral. And I think, listen, at these yields, people were talking about muni yields on the long end of duration of high single digits. That's going to compete against equities in other parts of the portfolio. So probably long term, listen, long term bearish long-term bull on gold, right? Ten years out it's the new global currency, but short term I kind of react against all the bearishness. Where do you think gold's then headed? We saw a couple of good strong years the last two years; I think it was up more than 50% last year. Yeah, this year it's a little bit not as, you know, investors seem so eager to move into gold, but where do you see it going? Well, Bitcoin and gold had all-time highs last year, and I think they have effectively bottomed and are heading towards all-time highs again. Now it may be a slow move because there's a lot of consolidation. If you look at a five-year chart of gold, it looks like it just went up, you know, the Himalayan Mountains. So it's got to reset, even though I think it's got that long-term bid. So even if it takes another year of going sideways, the other thing is I tell people, gold is not driven by U.S. inflation. We're not a U.S. ... it doesn't dominate the world anymore. We're a global world, and global growth in Asia drives a lot of demand for gold. This war is really bad for Asian growth.

Analysis

Bonds are becoming more attractive as yields rise, with discussions around the competition between municipal bonds and equities. Gold is expected to have a long-term bullish outlook despite short-term consolidation, driven by global demand rather than U.S. inflation.

Smart money should note that while gold and Bitcoin reached all-time highs last year, their current trajectory suggests a potential reset phase. The ongoing geopolitical tensions are negatively impacting Asian growth, which could influence gold demand significantly.

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