>> good thursday morning from the bloomberg radio studio paul

sweeney joined by kaylee l einz and we are simulcasting yields are little bit higher. crude oil is slower and gold us a little bit lower as well. bitcoin a little bit lower at 42,600 per token we will chat with bloomberg news editorial on america's top stock picker. we have economic data coming out on the housing market pending home sales was flat they were hoping for a gain of 0.9% which is better than last month at -1.25.

let's break that down a little bit with simone foxman in our studio the housing market, no one is selling their homes. i'm not sure what is happening out there. why get out of a 3% mortgage rate was something with the six and. simone: that is why homebuilders have done so well near record levels. you look at the data coming out this morning, pending home sales are seen as two months ahead of existing home sales. it is surprising that we are not seeing an increase in our month on month pending home sales with mortgage rate hitting a high and back down under 7%, 6.67% was the freddie mac 30 year mortgage

rate. as you mentioned, it has been an inventory issue. that is why we have seen new home sales decline and what is clear that is still the case when you look at pending home sales. there are not enough homes that people can sell or buy. kailey: how much a visit that mortgage rates are lower than they were a month or two ago but if they're going to be cutting rates we know it will go lower so wide by now? why not wait six months? simone: ny if you own an existing home, by would you not wait for the fed to continue cutting? you will see higher prices if that's the case. that's the overall theme here but that is why people are buying these new homes and we could see a run-up in new home sales sooner than existing home

sales because d.r. horton and lennar are offering new home sales. they are both up 65-70% this year. even toll brothers are up 100% and multigroup over 100% trading new records. paul: i don't know about the other folks and baby boomer groups. i sold all of my homes plural over the past few years. i did my part. even in my neighborhood today, if something goes on the market it is snatched up immediately. assuming it is reasonably priced. there are homes that have been on the market over a year and you are like, what are you thinking? if you price it reasonably for this market it will move but

again, if you need a mortgage to get into your next home. there's not as much incentive. simone: i've been looking through the data and there is a distinct variation. when you look at a regional level. for example, the south, the index level that they are citing is a lot higher at 80 when you look at the west and you see it at a level of 54. as an indicator of the pending home sales and number of contracts being signed. when you look at activity in the south dropping here but the west is seeing some recovery in these other regions even though they are weaker markets. kailey: simone foxman, thank you for joining us. a lot of what happens of the

housing market is dependent on what the federal reserve does next year so let's get more on that outlook. joining us now is cap the entwistle managing director for stanley morgan. -- morgan stanley. in anticipation of the fed cutting next year, do you think the market is ahead of itself or is it right on? kathy: there are just a few trading hours left in the calendar year and if you have not cleaned up your portfolio it's not too late i want clients to optimize their portfolio going into 24 and that includes mitigating any taxes with tax

harvesting. from that standpoint, take care of your portfolio for 2023, clean up your house and then you'll be able to move on to 2024. paul: i feel like this market is set up for a good 2024. it seems like we had that 2024 performance in the last few months of the year. how do you position this market and the opportunities for 2024 given the big fourth quarter we had in 2023? kathy: i've heard a lot of talk about asset classes and cache and i want to say with cash, there is a lot of cash on the sidelines. they are part did not 5% saving rate and if they see them cutting rates those rates go down as well. the quickest thing to look at is cash. if it is long-term money start thinking about locking in longer

fixed income rates. don't forget, you need your emergency fund. that's a lot of thing a lot of people didn't have years ago but we have had so many things come up in this world we need cash on the side. just the cash you need for emergency leave in the short term investments and you will not get higher rates for the long term but you have the cash they are to give you confidence of something goes wrong. in terms of the rest of the market, the magnificent seven did great last year and propelled the market up that there are 493 other stocks that are valued the where in terms of valuations in those companies. we are looking for companies with strong balance sheets, healthy balance sheets and companies in midsized, small sized international markets.

you will want equities, cash, fixed income. i work with individual investors so we have a long-term view and we want to remember that even though we wake up to headline news that is new but also big. we have to focus on fundamentals and stay the course to keep our portfolio working for us. kailey: when we think about those fundamentals in the economy, you want more defensive and you don't expect tech will be able to outperform. what type of landing are you assuming we have when you are making these allocation decisions? kathy: in the short term i don't want to forget that january is typically a good month in an election year. we also have headwinds, and is an election year, we have regulatory issues in a big fed

balance sheet. there can be discussions on tax rates. we want to think about with high net worth clients we want municipal bonds. that tax rate income is going to be more valuable if tax rate goes up. we like corporate's and retirement accounts and i heard a little bit about high yields and i like to avoid high yields in difficult economic environments because typically, companies with the highest rates on their bonds are the ones with the most trouble. most likely to default so i like to stay away from high yields. paul: in the fixed income space, 2022 was a disaster for everybody. there was no place to hide and it called into question these 60/40 portfolio but bonds of bounced back with single digit returns.

how much risk do i take in my bond portfolio in 2024? you mentioned high yield but that was by far the best performing fixed income asset in 2023. kathy: high yield is the best performing asset class but if they get into trouble they can be the one to default. having of background in fixed income i'm cognizant of the fact that high yields get into trouble in challenging economic times. with higher interest rates even if they are coming down, depending on when companies are rolling over their debt they may be into pay a little higher than they were used to with rates coming down and that could cause trouble in their balance sheets and overall health outlook. kailey: when we think about if rates are going to come down how much of what we have seen goes against the idea that we have seen a massive rally.

the nasdaq is up 25%, the best year since 1999. financial conditions are looser than what they were and i wonder if this market becomes self-defeating because it keeps conditions too easy then the fed needs to complete his job? kathy: when we think about the markets we think about perception and expectation. a lot of times you have to get ahead of the expectation because that's when the market moves really happen. this big market move we had in this past quarter has been attributed to the fed coming out and thinking about fed rate cuts and that would draw the market higher. i think a lot of that is big in but a lot of the companies that have done well are a limited amount of companies. there are still opportunities but you have to be more thoughtful and big deeper and have a longer term view.

paul: if one of your client calls up and they want exposure to crypto what do you tell them? kathy: that one is tricky when you look at where those prices were a few months ago and where they are today. for now, that is like your play money and if you want to think about that separately i'm not managing crypto for clients i am managing assets that are long-term quality, translucent and being able to see what's behind it. paul: kathy entwistle from morgan stanley managing directors joining us from lovely ridgewood, new jersey. i'm a big fan of ridgewood. i think it is a valid concern. do we take some of the return opportunity and pull it forward into this fourth quarter? kailey: we know the market is a

forward looking mechanism so it has anticipated these rate cuts to come. what happens when we actually get those rate cuts? paul: buy the rumor sell the news? kathy, not most interested crypto. with cathie wood from ark investment we will have conversation on crypto. they have made some changes to how they invest and exposure to the crypto space. s&p 500 is up .1%. we will take it. this is bloomberg. ♪ ♪ ♪ be ready for any market with a liquid etf.

get in and out with dia.

kailey: welcome back to bloomberg markets live from our headquarters here in new york city i am kailey leinz aside paul sweeney we are simulcasting

for this holiday week. we were discussing crypto, if you're a portfolio manager you want necessarily be buying bitcoin or crypto but there are some who are. one of the main ones is cathie wood but we reported that there has been a shakeup with etf and crypto related holdings. the ark etf sold all of its sales and bought new crypto etf's. >> we are as optimistic about bitcoin as we have always been but there are a few regulatory and tax uncertainties and we had been waiting for the discount between gbtc and nav to narrow.

it was as high as 50% last year when there was uncertainty around the turmoil in credit though. -- cryto. there are other products we can use for exposure to crypto in this moment. it is just a moment of uncertainty between now and january, january 8-10. out of an abundance of caution we did not want to take any risk. >> let's get specific care because we are talking about the ark next generation in this is ark w and you sold down your remaining stake of the grayscale bitcoin and bought into

the bitcoin future etf. >> they are already approved and there's no regulatory uncertainty so we chose to maintain our exposure through biddo for the time being. there are tax and regulatory uncertainties as part of this process. we don't know exactly who is going to be approved and whether they have met all of the criteria that the sec has put before us. we know that we have but we don't know if others including gptc have. out of an abundance of caution and gptc discount was 50%

relative to nav. we have enjoyed the run and crypto but we have that nice closing of the discount. it was double good news. kailey: you talked about january 10, do you see the first spot etf getting approval? >> the sec has been highly engaged compared to what was happening before. before they were just denying approval. we just cap filing again and trying, trying, trying. we are first in line and that's why there is this january 10 deadline but we like the idea that the sec has been so engaged. it's not just us we think a

number of funds could be approved at the same time. they have been asking not only one set of questions about follow-up questions which is a good sign. the last few questions have been very technical and you would expect them to be asking this questions as we head towards an approval. it is not 100% certain. we never know what will happen along the way. paul: that was cathie wood speaking with bloomberg earlier today. they are making some moves in the crypto space, still long, still bullish but making changes and what they own and how they get exposure. she continues to be bullish on the disruptive technologies including bitcoin.

let's check in with matt winkler, the founder of bloomberg news way back in the day and he is editor-in-chief emeritus speaking about adam benjamin. thank you for joining us in the studio. tell us about adam benjamin at fidelity. matt: he has been following semiconductors all the way back to the beginning of the century. when you think about that that's two decades of experience and because of that experience and also, he truly has an affection for semiconductors of what they do. we are talking about what he calls the brain's of just about everything you used today

whether it's electric vehicles. whether it's artificial intelligence. all of the things that are literally in the news are derived from what semiconductors do. what he has done this year like you did in 2021 is actually panic the best portfolio of semiconductor companies by quite a considerable margin. he beat number two by five percentage points. here is again and he is quite optimistic about semiconductors. one of the surprises about his recent performance as there is a common perception that semiconductors can't possibly retain their value. once they are out, they depreciate like used cars. that is not really true. they actually become more valuable because of everything

we do today is a semiconductor connection. kailey: you talked about how he beat the number two fund by five percentage points. this is one of 391-based mutual trading funds investing 5 billion over five years and he produced 80% return in 2023. how much of that is to one chipmaker, nvidia? matthew: it has a lot to do with one company but it speaks to and often ignored reality which is active management is still very much alive and well. in this age where everyone goes to their favorite exchange traded fund or mutual fund that is an index driven product. what adam benjamin does, but all active managers, is try to pick

on a percentage basis and waiting which companies will do the best. we can see from data compiled by bloomberg it is an inexpensive stock right now. he would've done better than 80% if he could hold more than what is the required amount of 25%. that has been a favorite and will continue to be a favorite. paul: what i find interesting is his actively managed mutual fund be the fair next semiconductor etf by five basis points. that goes to the active rather than passive discussion. matthew: when you get to see what is going on in the world day-to-day in his world is the world of semiconductors.

you have the flexibility is an active manager to increase weigh tings and my colleague who does the mathematical work on this column, we can see exactly what he has been doing all through the year. kailey: it's a fascinating column you can find it on the bloomberg terminal. the country's top stock picker sees the beauty and chips. we will take a wider view beyond chips to the broader macroeconomy. veronica clark is joining us in just a few minutes. this is bloomberg. ♪

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paul: one of the amazing stories for me and 2023 but it has been going on for many years, is the growth of private credit. if i were to come back on wall street as a newly minted mba i would consider private credit. we had the opportunity to speak to micro when and he told us where to find alpha on its asset class. >> we have had a seachange over the past 15 years so many of our public markets are correlated,

hundred percent of our returns are from 10 stocks that constitute 35% of the s&p. how many of us common looking to buy 50 pe stocks. public markets are so correlated and indexed that if you want alpha outperformance you need to step away from public markets. that is happening because we are revisiting the notion of the public being safe and private being risky. private meant venture capital, hedge funds, private equity. and now it just means less liquid. jonathan: is that inherently less risky? >> if your retirement planner you know liquidity requirements for the next 10 years. if you can get get paid for

illiquidity why not get paid? we are seeing that in the performance data. if you look at active management, it has failed to beat the index 85% of the time and it will get harder, not easier to beat the index is more and more of the market is index very little money is left to make up what needs to be done in active management. tom: what's the distinction between the micro idea you can give us of been versus now? >> financial institutions die from one of two causes heart attacks or cancer. heart attack is funding risk and cancers the slow addition of poor quality assets which undermine the system.

you look at all of those firms and they had an element of heart attacks and cancer. we are borrowed: and let mom, everything is matched, everything in a fun. there is no liquid money at apollo. we are ideally situated to take advantage of less liquid assets and you look at the top reality of what we do, equity is a risk business. equities go up and down every day. in the credit business, the vast majority of what we do is private investment grade. tom: when i look at the risks out there and all the work you did and quach, what are the tail risks you see now for private equity? are you hedged perfectly or are there actual tail risks involved? marc: i don't think there are

tail risk activities and private equity but each of the companies is idiosyncratic onto itself and over time private equity has proven to be a good asset class recognizing in certain markets you will lose money. kailey: that was micro in a conversation with our very own tom keene and jonathan ferro talking about tail risks and we have to think about risks that could lie ahead for the economy in 2024. earlier on we were talking about the odds of a recession. and now increasingly the conversation is one around a soft landing. we want to bring in veronica clark and economist over at citigroup. it feels like everyone is feeling optimistic right now. the landing will be soft because inflation is doing what it needs to do. is there too much optimism here?

veronica: i think the dovishness we've heard from the fed has a lot to do with that but i would caution that a soft landing does not look like the most likely scenario. they could delay a recession may be those risks are going down. a soft landing needs to have a 2% inflation element and may have had a stretch of inflation data that's favorable but it doesn't look like it will stay that way. paul: that's where i want to go with the inflation discussion. i never knew where the 2% number came from. what's wrong with 3%? with the world go crazy if we stayed at 3, 3 .5%? as you mentioned it is coming down significantly. veronica: i think the fed would be ok with 2.5% that they can't

say that right now. they have to stick to the 2% guidance. when we look at the underlying details we have had in easing in goods prices, but if we look at services, sheltered and not sheltered services that's where inflation looks stock at three, 4%. kailey: you mention how you see goods prices easing, it's more of his services issue. is there risk that because inflation could come back when you look at what's happening in the red sea and disruption to supply chains? veronica: we are watching those renewed supply disruption issues again. transportation costs going up with that. that has been a lot of source of disinflation which is supply chains normalizing and slower

goods prices. but at that point it's mostly over and they should not expect too much disinflation there. paul: talk to us about the labor market. it is been surprising to a lot of folks how resilient the labor market has been we saw unemployment takedown to 3.7%. what is your view of the labor market today? veronica: they've been trying to poke holes of the labor market but as overwhelmingly strong. jobless claims numbers are still very low. we have seen cracks forming especially in continuing jobless claims numbers. even with people remaining on a plate for longer. there are definitely signs that

hiring his slow down but is favorable that we are not seeing widespread layoffs. if we were in a recession you would look back and look at this data and think maybe those were the early signs that hiring is slow down. kailey: the resilient labor market has been one of the things supporting consumers which have continued to spend, defying expectation. we went over the childcare cliffs and student loan repayments and we have not seen it hit the consumer yet. will we see a material slow down and the engine of the economy because it seems that nothing faces us? veronica: we will get holiday spending in a couple weeks and those november sales numbers were robust it seems consumption

is robust for q4. until something breaks the labor market, consumption seems supported. that's why we're watching the labor market data so closely as the early signs of cracks would be a good indicator. paul: the most idiosyncratic elevator system at greenwich street, the home of citigroup. i always got off on the wrong floor. it is to be and you can navigate the elevator so is there a citigroup house call on recession in 2024? veronica: our base case we could still see a recession. the issues of hiring has slowed down, those early cracks starting to form. credit car and auto delinquencies were picking up.

the fed was worried about recession risks in 2024. it could be that they were too late to this dovish pivot to avoid a recession so we could expect that midyear. it may well be that we delay a recession, the fed may have been dovish enough to early enough to prevent it. kailey: why would the fed cut rates because if it is indeed a recession and that's why they decide to ease policy in a material way more than cutting rates and allowing conditions to become looser. how would you expect markets to react to that? it seems that this market inc.'s cutting is good news and good news only. veronica: right now it kind of is because were not seeing the clear growth risks yet. the fed is hiding behind softer

inflation data which allows them to have this dovish shift in rhetoric and consider cuts. i don't know if it's the inflation data leading them to cut but seeing signs of weakness. maybe we do avoid a recession for this year but if we don't, that's a much worse scenario for markets. paul: how concerned are you when you think of the u.s. economy, how concerned are you with the rest of the world, europe, asia, they have a slower recovery than people would've expected. how concerned are you about other parts of the world impacting the u.s.? veronica: usually the effects of the other way around. u.s. activity has a bigger impact on the rest of the world

rather than the world impacting the u.s.. but if the fed is more dovish thus probably having spillover benefits for the rest of the world coming out of this weaker episode. kailey: i had a few were writing in here, a viewer/listener. wondering how you feel about productivity in the figures that we are seeing? veronica: productivity is a difficult thing to measure. we had this period where productivity was weak and now we have had productivity growth and we are back on the pre-pandemic trend. you look at productivity as how much is produced and there has not been a big shift in overall trends in productivity. that means productivity growth is running around 1% annualized.

it is important when we think about predicting what that means for wages and translating to inflation. wage growth is stuck around four, 5%. paul: thank you so much, we really appreciate it. veronica clark, an economist over there at citigroup and giving economic thoughts. they still have a recession in 2024. as we flipped the calendar to next year, an election year. kailey: don't i know it. paul: you were going to be all over it, you will be in iowa. we will check in with a managing partner of economic policy and get her thoughts on politics in 2024. if he did not have enough crosscurrents to navigate for this market, now you have politics.

kailey: you have presidential politics with the race that looks like a rematch between trump and by addendum but is that mean for markets? you also have to pay attention the congress. it's not just iowa is also a deadline to avoid a government shutdown. they haven't proven very good on compromising on fiscal matters. paul: yeah, that will be a challenge starting in the house with a lot of work that needs to be done. when are good friends of washington get back to work. s&p up .2%. this is bloomberg. ♪

that first time you take a step back. i made that. with your very own online store. i sold that. and you can manage it all in one place. i built this. and it was easy, with a partner that puts you first. godaddy. kailey: welcome back to bloomberg markets i am kailey leinz aside paul sweeney and we are simulcasting on bloomberg tv and radio live in new york city.

i'm lucky to be with paul today but this is not where i usually am. usually, i'm down to washington where it has been a crazy 2023 but nothing compared to 2024. we have a presidential contest, a primary fight at the iowa caucuses and congress will return to washington to try to sort out fiscal matters. we want to get more on all of this with henrietta treys she is managing partner and director of policy. let's begin with congress first, how high are the odds of a government shutdown on january 19 or february 2 or both? henrietta: we have staved off a shut down because shutting down is worse than taking the votes to keep things functioning. i think january 19 and february 2 will roll into march and april, june, july.

probably 2, 6 times for the first half of 2024. the most important date for investors are -- the run-up to be first. particularly in the defense base. i don't think they will avoid the sequester early and i don't think they will come up with some sort of grand bipartisan deal. there is no bipartisanship around anything other than not shutting down. as we get into mid april, investors and the defense space that are looking at a 1% cut will see a lot of headline risk. keep may 1 on your radar and april 15 are headline risk. paul: is there any line drawn in the sand where something

permanent has to happen or cam this can be kicked down the road? henrietta: i don't think there's any scenario outside of the chance where joe biden is president and republicans control the house or senate that you get a long-term deal. in 2025 we have to have a tax bill because 2017 tax cuts expire and keeping them at the status quo is 2.3 trillion. you will have an organic situation where we have a massive bill that has to pass and i could see a world with the republican house and democratic president, the deficit commission or the grand bargain can come up with something more holistic and a nervous

conversation about tax hikes being extended. in 2024, in an election cycle you will not get long-term anything. kailey: before we can get to 2025, people need to last through 2024 which brings me to the mike johnson question. the relatively newly minted speaker of the house who passed a continuing resolution which got kevin mccarthy kicked out of in the first place. i'm wondering how much longer he's got if he needs to fund the government and kick the can and house conservatives don't like it? henrietta: you have already seen them say the deal negotiated last may with kevin mccarthy he's not even a speaker or a congressman and how long will johnson be speaker? if you go to meetings with staff

they say six months or six years? the jury is out. i think the honeymoon phase is over. i would be anxious to see how members react when they get back into town. it's impossible for a-20 members to agree that any spending level. the difference between the far right and the moderates in the senate which has overwhelmingly passed all 12 appropriation bills is 25 billion in we are talking about 1.5 trillion. between 25 billion a 1.5 trillion they just don't have the votes for anything. they will always be voting no which will for speaker johnson to negotiate with democrats. but the far right is forcing

that reality on speaker johnson. i hope we make it through to april. we have seen how long a series of votes could go on the potential for another speaker. nobody wants to do that. maybe they forgotten how uncomfortable that was. paul: when congress comes back they have to make a decision on foreign aid, ukraine, israel. what's the latest there? henrietta: i think what we're going to see is this effort to get one big lump son that covers all of fiscal year 2024. the one to watch is majority leader mitch mcconnell who sway has decreased. you hear from staff across the room and in republican circles, he has pivoted to away from the supreme court and trump era

crises to ukraine. but he does not have the votes from trump or the far right in the senate republican congress is growing their progressive wing. their populist wing. to answer your question instead of giving 106, 110 billion i think what you see january 19, february 2, these little baskets. 3 billion here or there. 10-15,000,000,000 for israel and the initial package but is something in the 5, 8 billion range makes more sense to me. kailey: you mention former president trump of the supreme court and we have some news in that regard.

the colorado republican party has asked the supreme court to reinstate donald trump on colorado's primary ballot after they ruled on the grounds of the 14th amendment that he was ineligible to serve as president because of his actions on january 6 saying he engaged in an insurrection. the prevailing taking is that the supreme court will overturn colorado. does this legal challenge actually make a material difference with the odds of him becoming the republican nominee? henrietta: it's important to look at how helpful polling data is versus where it will be at three different points this year. there are 11 months before the election and what you know from

historical data about 30% of the undecided which is mostly independence and 14% of democrats, people who don't want any of the candidates. those voters which decide the election, 30% make them in march and the rest in october. if you think about gas prices have come down. in my neck of the woods it's 2.68. on the trial front, every time you have a primary election which is going to be good for trump, you have negative data points of the new york civil trial in the georgia trial along with the economic data. when you are at 3.7

unemployment, gas prices coming down. whose side do you want to be on? biden is at the floor of his approval and trump at the ceiling, right now he has the benefit of fighting against the never weres on the republican side so he has winter momentum. biden is running against no one and when he starts to run against trump this conversation will be different. paul: wow, you are plugged in. thank you so much for joining us. i am blown away every time i talk to her. coming up, andrew brenner head of international fixed income will talk about the next income markets. a good, strong finish for 2023,

how about next year? this is bloomberg. ♪ deeper with thinkorswim: our award-wining trading platforms. unlock support from the schwab trade desk, our team of passionate traders who live and breathe trading. and sharpen your skills with an immersive online education crafted just for traders. all so you can trade brilliantly. ♪ ♪ ♪ be ready for any market with a liquid etf. get in and out with dia.

it's an amazing thing when you show generosity of spirit to someone. and you want people to be saved and to have a better life, then you don't stop. the idea that we have saved five million people's lives, it's overwhelming. it's everything. paul: welcome back to bloomberg markets. kailey leinz and paul sweeney.

we are here live, simulcasting on bloomberg radio and television. looking at this market, our second to last trading day of the year, a little bit of green on the screen. why not? it has been that kind of quarter. the russell, kind of off just a little bit. we had seen some widening out there over the last four or five -- last two or three months. wti, pretty steady too, just under $74 per barrel. bitcoin pulling back about 2.2%. i will cook that for tom keene. let's check in with our bloomberg equities reported. she has a lot of great stuff out. she writes. radio and tv is just a side also. you and that team put out a lot of good stuff about what is happening in the markets. what you looking forward toward next year? >> if you look at the s&p 500

right now, it is about .1% away from that record high at last reached almost a year ago. the magic number being 4796 foot .56 -- 4796.56. with these key themes being not surprisingly the federal reserve and the trajectory of the rate cycle. and when potential cuts could come. of course, being attacked. we have seen this huge rebound, and especially when you look at the nasdaq and hundred. of course you have u.s. elections next year. that is another key theme when any traders followed the presidential election cycle. then of course different risks when you are looking over at asia. whether it is the bank of japan still has that negative interest rate policy, what it could mean, because you have economists betting they could potentially have their first hike in a long time in april, and you also have

different risks going on with europe. especially those cyclical stocks that have exposure to asia. kailey: i want to talk about your first point. it seems like so much of this enthusiasm in equities is driven by the expectation the fed is going to be cutting rates next year. that is next year. maybe into first quarter, may be in the second quarter. time will tell. maybe the market is more aggressive in the federal reserve is suggesting. if we have baked that in what is going to power equities higher? or the actual cuts going to be enough? jess: part of it is that. when you look at the market expectations, and especially swap traders are looking at the central bank. if you are looking at the federal reserve cutting rates by 150 basis points, they could come as soon as spring. officials have pushed back on that and they are trying to signal to traders that will not be into the second half of next year. but a big thing is also earning expectations, because of the big

ai theme with nvidia this year, and especially when you think about what was happening with the ai frenzy in may. a lot of support for technology stocks came ahead of that because we did see that big bounce in january this year. a lot of that had to do with the margin and cost-cutting controls. especially when you think of stocks like meta, which started with job cuts last year. it was a big margin story and what that means for productivity boost as well as ai. when you look at the magnificent seven stocks here, if you look at the bloomberg intelligence data, which i know paul is a big fan of, if you look at their dashboard, this is something our team is looking at. if you look at the magnificent seven, expected to post 22% earnings growth next year. there is going to be a lot of scrutiny when you are looking at some of these technology names and what that means. if they can back that up with those valuations. paul: we talk to abigail

doolittle alive. she will talk about the breadth of the market. it improved there in the fourth quarter. i'm looking at the s&p, people waited index. -- people weighted index. it has outperformed in this quarter. i think that is what the market observers would say is a good thing. jess: and also small caps. if you look at the russell 2000, up 20% since its low in october. does begin to take off historically in mid-december because of some of the tax loss harvesting. but we have seen them pretty gangbusters the last two months, as well as bank stocks. especially when you think about what happened in the spring with regional banks dresses. -- bank stresses. kailey: i want to return to -- because my brain noise does because i am in washington -- this idea about political risk. we are heading into 2024.

obviously a presidential election year, not to mention congressional activity and the like. how are equity markets and equity traders thinking about that at this point? when does that political risk actually hit? is it october 2024? is it sooner than that? jess: the big thing, a lot of times people will think it matters who is going to take president. what matters more for the stock market is gridlock in congress. if there is gridlock that means it is going to be harder for certain policies, whether you are looking at technology register -- technology legislation or health care, if you have gridlock it is harder for those policies to be passed. so then usually stock traders are going to like that versus whether or not who is going to be in a position of power. you look historically in the election year with seasonality in the presidential election

cycle matters if a sitting president is running for reelection. typically one that does happen the s&p 500 actually averages a gain of about 13%. you don't have a sitting president running it is actually the opposite. the s&p 500 has averaged a loss of 1.5%. when you look historically, it technically bodes well for stocks next year, but we know things don't quite happen with what history says. but that does look like a bullish set up for anyone following the seasonality cycle next year. paul: we have a sitting president, we have a congress who cannot agree on anything. jess: there you go what the different policies and what that means. typically when you have an incumbent president, basically in an open field averaging 1.5% loss, but when you have a president they typically pass policies to try to boost morale going into next year. he will be interesting to see how things shake up next year.

kailey: of course we have to finish 2023 first. [laughter] we are almost there. it looks like for equities it is going to be a strong finish. you have us on record high watch. adjustment 10, our equities reporter, who often graces radio and television with her presence. thank you so much. if you look at the points contributors in the s&p 500, which could power us to within inches of a record or perhaps to an apple, microsoft, meta, those are the big contributors on the day. you know they have been big contributors on the year. want to give more insight into the technology space. joining us is mark bergen. we have a lot of specific stories to discuss with you when it comes to apple and a high, broadly looking at tech for 2024, did these names need to this kind of optimism around them going? mark: 2023 was the year of

generative ai explosion. in research, in money going into startups and large companies. maybe apple stands outside that, but everyone else. 2024 will be, can this be a commercial business? can companies like openai and its competitors, and google, turning these ai services into something that is a lot of enterprises' and big banks', and governments' want to use and pay for? that will not only influence how much the nvidias and intels continue to rise. paul: you mentioned chatgpt and microsoft. as we start to develop use cases, use cases for ai, is copyright. the new york times was in the news yesterday. i think with something as

relates to chatgpt. what is going on there? mark: a fairly significant move. the new york times sued both microsoft and openai. microsoft is openai's biggest financial pack -- financial backer. the lawsuit from the new york times basically says, accuses them of stealing millions of articles, investigative stories, how to, everything on the new york times website to train chatgpt and other ai services. this is something that is not a new criticism. openai has cut some licensing deals with other publishers. they were in talks with the new york times, according to the lawsuit, as early as april. sounds like they did not come to a resolution and the times has hit them with a surprise holiday lawsuit. kailey: really fascinating. that is not the only lawsuit that has been making news around the holidays, because on christmas day it was the deadline for this patent dispute

over the blood oxygen technology in the apple watch. this idea that they violated a patent, therefore had to be banned. yesterday we got the news that an appeals court has essentially put that on all. i believe apple watches are coming back into stores after they have been pulled off the shelves for a few days. how does all of this move forward? what happens next in this patent battle? mark: next my understanding is that january 10 it goes back to the u.s. trade make a decision. when something is really unique and there is a great story in the terminal today on bloomberglaw.com tim cook could find a in his cushions to settle with this company, and he hasn't. that is being interpreted by legal experts as apple is drawing a line in the sand here and saying, you're going to come after us on patent infringement,

we are not going to stand out. we have enough lawyers and money to fight this, then it has certainly been inconvenient for them. these are two models of the watch. so, this is still a small part of apple's overall business. but it comes at the tail end of the year award has not been great for apple. they are in the crosshairs. a lot of the troubles around china and the increasing trade war there. their sales around devices have started to plateau. they are seeing some growth in the services business, but that story they're looking for, what comes next after the iphone, one of those big devices and markets was around health care. so now that this is sort of a limitation, cannot going to health care because they are going to be restricted on a patent for this idea companies will keep coming after them. paul: i'm surprised just having observed apple over the years that they have not settled or

engineered a workaround. is there any consensus how this might play out? mark: so, from my reporting -- and it seems like they are doing a dual path here. one is to continue to fight this in the courts and the others to work on a software fix that will appease the regulators to prove this is a distinct enough technology from whatever mossimo , the medical device company. then they can proceed and ignore the case. i think we can sort of interpret the fact that they have not settled yet and it has been this pain, and who knows how much it has at the bottom line, but certainly around the holiday season it is pretty strong for the apple watch sales. it is an indication that this is a legal strategy, a political strategy in some ways that they are going to demonstrate they are willing to fight these cases. paul: a lot of issues, as there always are in big tech. mark bergen is all over it. i would encourage people to go

to the terminal to check out his article today, his reporting on the new york times suing microsoft. who sues microsoft? this is just going to be massive for years to come. we saw a little bit in hollywood with some of the writers strike in particular, and to a lesser extent the actors strike, getting protections on their content, on their names, image, and likeness in the world of ai. coming up, andrew brenner, head of international fixed income, is going to join us and give us thoughts on where we go in the world of fixed income in 2024. that is coming up. this is bloomberg. ♪

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kailey: welcome back to bloomberg markets. kailey leinz here across from paul sweeney in new york. we are simulcast today on television and radio.

we are in the final days from 2023, looking ahead to 2024. if you look at the bond market and the volatility we have seen, right now on the 10 year treasury yield we are at 381. we are very close to being not very much changed on the year. yet we have seen some pretty high highs of around 5% on the 10 year treasury, with lows around 3.3%. what is 24 -- what is 2024 going to bring? andrew brenner is joining us. he is here with us in our radio studio. andrew, what are we in for in 2024? andrew: the base case is going to be a lot more volatility. we predicted that people were just not long enough in the bond market. too much money in cash, too much apathy, whatever. we have gone from 5.02 all the way to 3.78% yesterday.

we have had a lot of movement. these two months have been the strongest number in bloomberg ag ever. in corporate's it was even more. i think we are in for a lot more volatility. i think a lot of it in the last week or so, or lot of month has been windowdressing. once powell made the determination that they are going to pivot and a easing next year, the market took it upon themselves to build in six cuts for 2024. while i think that is correct, i do believe the market is going to go back a little bit, and i would not be buying it here. the numbers i like are 4.02 percent, which is the 200 day moving average, and may a little beyond that. next week you are going to have $50 billion of corporate issuance. you are going to have the unemployment number on friday, which is going to be strong. you have the cpi number the following week. and we expect fed governors to

push back on all of these rate cuts. there is still a lot of people out there that believe the fed will only do three. we look at what the fed says and ignore it, but nonetheless there was an article today saying central banks do not know how to predict. and that is certainly true. you still think it is six, but i would not be buying it just now. i would wait until we get the next fed meeting around january 31. paul: irving trust? nice. that is old school. andrew: it was nice to be at 1 wall st, but you were going back a long time ago. beautiful building, i will say that. paul: that is going old-school for andrew. i look at my in function, bloomberg index browser, and the good news is it is all green for fixed income in 20 23 versus a terrible 2022. andrew: understand that up until

about 2.5 months ago it was still red. paul: that is my point. i'm surprised to see corporate high-yield up. everyone has been talking about a recession for 18 months. what do you think is driving that market? andrew: first of all, i was one of the first to consistently say no recession. i believe that when bloomberg ran something toward the end of last year, everyone predicted a recession in 2023. i didn't see it being close and i still don't. the economy is strong. what has happened? high-yield is very different than high-yield of the past. it is more of a double-b type entity. what of these companies are stronger. it has come back very strongly. the economy again, it is all about the economy. the economy is strong enough that these companies are still doing well. even though there is a big wall of refinancing going into 2025,

i think refinancing is still ok. i would not be buying ig with cdx at 56. i think those are too tight of levels. that i would look to enter those markets after a backup. kailey: it is interesting to hear you talk about how you have not seen a recession for some time, you still did not see a recession, yet you think the fed could be cutting six times next year. i feel like this is a prevailing view now. the idea that we are going to get aggressive cuts as the economy holds in there. why do you need to cut so much of the landing is soft? andrew: i tell you why. i love this question. because inflation has come down dramatically. there was no reason for the fed to be at 5.5%. fed funds, when you have pce running at 2% or one point 9% over the last 10 months. the real rates are too high. powell started to talk about it and there have been others.

when you look at real rates there is no reason the fed funds rate cannot be 4% today and still be restrictive. the fed has gone way too far, way too fast, and they are lucky that there was only a break back in march, and nothing has broken since then. i think the fed should get ahead of the curve while they can and bring rates down to 4%. we are not trying to stall the economy. unemployment still continues to be at historically-strong -- employment seems to be at strong levels. unemployment at very low levels. i think the economy is fine, which is why i don't see a recession. inflation has come down dramatically, and they have won that battle. paul: i'm looking at the mortgage market. kailey is looking at the mortgage market. what is -- what does a declining rate environment, how do mortgage-backed securities perform in that market? andrew: you have had mortgage rates go from a point 8%, to

6.75%. paul: nice. we were living back in the day off the spreads. andrew: mortgage spreads have come down dramatically. i think they have been following corporate spirit we still like mortgages for 2024, but mortgages had gotten way -- at very low dollar prices. when you are buying a mortgage at a $75 prize or something along those lines, i think they make good sense. the spreads are still there, they are aaa products. the housing market has not collapsed. the housing market has been strong. if you are out there looking at homes, just what the implication is from what you said, then you are going to find prices are very steep and strong. how mortgage rates coming down, that part has not factored in. i think today's housing numbers were weak, and it is all a lagging thing, but housing will continue to do ok. there is a lot of new houses

being built throughout the country, so it has picked up because of the over mortgage rates, and i think that will continue. kailey: jerry -- the jury is still out as to whether i'm going to be able to buy a house in the immediate and/or short-term future. what are you buying right now? you like 4.02% on treasuries. where are you finding good value in fixed income? andrew: the only thing that makes sense right now our three-year bills. i would rather take the duration risk and wait for a better entry point. you know, granted there is 6.1 trillion in money markets, and that will be forced into the market sometime this year. we are predicting 10 years to get to 3.30%. that is what the lows are. that is what we have targeted. so you have another 50 basis points to get to. i just feel it is going to back up. it has moved too far too fast and there is too much belief now

that the fed is going to ease in march, may, and in every meeting throughout the rest of the year. i just think they're going to push back on that. it eventually will happen, but i think there will be better entry points. paul: the municipal bond market, my favorite. [laughter] andrew: that is not my expertise. the municipal bond market is interesting. it has been very quiet. you have had very little issuance of new municipals toward the end of the year, so municipal's are a little bit tight. according to my desk they expect an uptick in issuance. but you know what really bothers me? the fact that citi, chai think is one of the best banks in the world. i get all of their commentary. i advise you to read the citi stuff. i cannot believe they are getting out of the muni market. they were the stars. paul: distressed debt as well.

andrew brenner is the international fixed income head. a great voice on these markets with the fixed-income space. some positive returns in fixed income in 2023, and after 2022, which was historically bad for fixed income. coming up, ilana weinstein on the idw group on how hedge funds performed in 2023 and what to look for from our hedge fund buddies in 2024. the s&p 500, i'm calling it hunched on the day. the nasdaq is up .1%. eight so, a quote -- so, a quiet day. ♪

paul: hedge funds, you know them, you love them. how was performance in 2023? ilana weinstein joins us. she is the founder and ceo of the idw group. sonali basak joins us. let's talk some hedge funds. sonali: i have been waiting to have this conversation, because what a weird year. alana is so click into this universe. it is stunning is you have seen this massive melt up in markets, and hedge funds across the energy have not kept up. bloomberg's paul-hedge index is only up 1.8% in the

multi-straps, which are supposed to be the kings of the castle, are up less than 3% on the year. what is going on? ilana: let me unpack those numbers. first off, the hedge fund index is a blend of everything, so we need to go strategy by strategy to pull out what the themes are. long-short equities, which had a tough 2021 and 2021 and 2022 finally had performance. i am pleased to say something positive, which i have not been able to do for the last couple of years. those funds, which are a big percentage of the hedge fund universe, directional tiger cubs and similar, are up as much as 20%, 30%, even 40%. the issue of air which is, even though they are up that much, they still have for the most part an enormous high watermark to have to get out of. let's just say it is a fund that is up 85% this year. ok? and they were down about 50%

between 2021 and 2022. you may think you are up 35%, they can get out of that remaining 50% or 20% next year and it is smooth sailing. but the reality is their aum is 6.5 billion now. that is on a much smaller base of capital and it is actually as a result, so there were much fewer dollars made then it would have been had they made that money back up before they had the losses, and as a result there is another 65% to go. that is a huge headwind for that strategy. sonali: how much more excitement is they around the industry? especially because many of them have not met the market performance? even if they are up they have two issues. a high watermark and you could just invest in the s&p or the nasdaq? how does that set them up into

appetite, investor appetite for new hedge fund applications next year? ilana: it is true that blended, it is not a great result, but unpacking that there is a lot of dispersion in that result. if you look at the more established multi-managers that have been around a while and have built a mouse trap that is difficult to compete with, funds like citadel leading the pack, up 15%, which is a very different number than what you cited, or millennium, up double digits, and then the rest are struggling. that has a lot to do -- to answer your question, the reality is the reason the other multi-managers grew so quickly is because the more established players were either closed or very deliberate about how they grew. and if you can't allocate to the more established guys, or not at the level you would like, and

you end up pouring money into all of these other funds that grew in the last two years hand over fist. when i say quickly, i mean between three and eightx -- eight times. it is difficult to deploy that kind of capital growth and hire a winning team. talent is difficult to hire and attract. no one knows that better than myself and my team. and so, you can't get from $1 billion to $8 billion, higher 150 pms, and expect a great result. there is a lot more that goes into this. sonali: let's talk about talent. pandemic-era what we are talking about was compensation wars, who can offer the best starting salaries and biggest bonuses. it has been a more difficult year in terms of people getting paid, and we are probably finding that out at the tail end

of the year. what is your view on compensation and how these firms are making themselves attractive? ilana: i think compensation kinda falls into one of two buckets. it is either formulaic, and for example if you are at a multi-manager with pastor you know what you are getting paid. there is no mystery there. or you are at a fund which is a single manager, where if you are a senior person you have points in the fund, and then there is a jump ball with respect to being able to reward you on top of that. it is a fund that has a high watermark. there has not been a performance fee, for example the long-short equity managers, there was not one in 2022, and even though they put up this incredible performance in 2023 they don't have a performance fee with which to pay those people. so, to answer your question, i think there is going to be a lot more frustration this year than

there even has been the last couple of years. those people are going to get paid more because the manager is going to feel he or she needs to reach more deeply into the management fee to pay them. but when you are someone who has put up hundreds of millions of dollars, even billions of dollars, the dispersion between what you are going to get paid this year and what you have produced is going to be very frustrating versus in previous years where there was not performance for the fund, i did not put up performance as an individual, so whatever i get paid i am ok with. now i have put up tremendous performance and my founder is not really paying me something that feels in any way proportionate to what i should get paid. and i want to also highlight, as much as some of these funds lost a significant amount of a um, we are still talking about falls of -- falls from grace of $30 billion. but think about the management

fee on $55 billion. that is still $1 billion of fees. these teams are relatively lean. particularly at senior levels. and everyone knows that. so, it is early, still, but what we are hearing, even though the numbers better is an increased level of frustration. i think there is going to be more vulnerability at these funds as a result. paul: when i left the street i studied whether to transition to the hedge fund business. what i concluded then was that long-short equity, no alpha left. the game had been played out. so i came to bloomberg. [laughter] kailey: how lucky we are, paul. paul: i was correct in the numbers bear that out. if i were a trader, bonds, at goldman sachs, and the day i could leave and go raise a couple billion dollars and that was my path. does that still exist or does a lot of new money coming into

hedge fund going to the citadels? ilana: some of those established managers are closed or very carefully accepting new capital. believe me, there is a line around the block to allocate to those. two things. one, the days of leaving the sell side, i think you would have to be nuts to do that. good job getting a job at a hedge fund because you have spent this time on the sell side. back then you could take risk. if you are still sitting on the sell side, the reality is you are in or of a managerial role than a risk-taking role. i think it has candidly become more difficult to even launch coming from most head from -- most hedge funds. coming from a top-flight hedge fund which has a great, established track record and is doing well today, that is exciting to lps. but that group of funds has become fewer and fewer.

coming out of a fund like a citadel set you up to be able to launch successfully, think about coming out of some of the tiger cubs or related now that are still well below their high watermark. that is not an exciting value proposition to say, i'm going to be different, and sort of don't worry about 2021 or 2022. we are doing better now and my approach to risk management and managing volatility is better than what you have experienced. sonali: also embedded in paul's question is that the long-short equation has been doing better, but macro has been such an exciting prospect. currency, fixed income. when you are looking at the types of managers, how much is the macro story part of 2024, and what does that mean for the talent story? ilana: that is a good question. every year i feel like it is a different story in macro.

2022 was great. 2023 has not been great. we will see what 2024 holds. it is a strategy which embodies a lot of volatility. i think it is tbd in terms of how they will perform. no, talent follows where there is an ecosystem which will -- which can navigate that volatility best. paul: we are now in an environment that we have not been in a long time. rates have been up. now they are coming down. is there a feeling in the hedge fund community that strategies are going to work better in 2024 than the past couple of years? ilana: the reality is, you know, the bar has gone up in terms of not just the market environment, but also what lps expect for what they are paying. in the focus is on alpha and

running in a way which neutralizes a lot of the market risk inherent, that has whipsawed a lot of the return for funds. factor rotations really has obscured great fundamental stockpicking. so, being somewhere which can isolate what is value growth, momentum, macro crosscurrents and hedge those things out so that great idiosyncratic stockpicking can shine through, that is the most important thing. because then it does not matter what the market is doing. sonali: i want to comment on something you talked about earlier. you were talking about the success of citadel, but it is also worth talking about the undertone of the other side of that story. you had mentioned that some firms grew so quickly, and the poster child of that this year was sheinfeld.

millions of dollars was pulled from the firm. they had to look to raise capital to fill that hole. he considered merging with another large multi-strategy firm. is there other struggles we are seeing in firms and how does that play out into next year? ilana: all of these funds that grew so quickly, whether -- i mean, just to talk about who has grown hand over fist, these funds are multiples, a um-wise, even where there were two years ago. lmr, duration. you have to be far more deliberate with respect to thinking about, what is the end state checkup how many pms do i want to i can minimize crowding risk, and then execute against that checkup and to only grow as you have been able to attract talent. i don't mean bodies, i mean talent.

talent always has options, right? if you are that good, the reality is, as one of those multi-managers that grew very quickly, you are up against the citadels of this world, the millenniums, competing with people. what you offer it and that is a differentiated value proposition? when i hear of a fund that grew 8x in that period and now has 150 pms with no real team underneath any of those pms, and the pms they attracted are really science experiments, don't know how to run the risk in a market-neutral model, and there is no real resources to make them better, that is a recipe for disaster. what we have learned is, in a successful multi-manager is not as simple as capital, a pass-through, and pms. it is far more nuanced. kailey: really great to have you join us. think you so much.

we really appreciate it. ilana weinstein from the idw group. it is holiday week, guys. we are almost at the end of the year. thank you very much. talent always has options. take takeaway line. really great to see her. thank you so much. we are going to turn away from the world of wall street, actually head over to what is happening in the red sea, talk about geopolitical risk as we are seeing disruptions to shipping there, and of course ongoing questions about how much wider this conflict potentially could get, and what they could mean for the economy. we are going to have more on that next. stick with us on bloomberg tv and radio. this is bloomberg. ♪ start an easy to build, powerful website for free with a partner that always puts you first. start for free at godaddy.com

(sfx: stone wheel crafting) ♪

the biggest ideas inspire new ones. 30 years ago, state street created an etf that inspired the world to invest differently. it still does. what can you do with spy? ♪ -my stylist curates unique personal looks that are just for me. kind of nice. i like that. give them your size, your style, your budget. i keep what i like and send back the rest. -what can i say? my stylist gets me. they get me. and they'll get you too. kailey: welcome back to bloomberg markets on bloomberg television and radio. i'm kailey leinz, alongside paul sweeney. we have gone through two hours

of this program without talking about what is happening in the red sea, was so much of our attention has been the last several weeks. the suez canal, a vital waterway for maritime trade. about 12% of global maritime trade runs through there, and it has been disrupted because of the tax from who the rebels. there is a task force that the u.s. has gotten together allies to make sure defensively merchant vessels are ok to use the waterway, but we know not all of them are feeling safe enough. he wanted to get more insight into what economic impact to this is going to have or has had. gerard to paper is joining us. he is bloomberg economics senior geoeconomics analyst. making you one of the perfect people to talk to about this. how much already has global trade been disrupted, and realistically how much worse could it get? >> flex port, the global logistics firm, estimates about 290 nine vessels representing

18% of global container ship capacity have been diverted. there are major companies representing 80% of market share. they are trying to avoid the red sea. i think in terms of how worse can it get, it is sort of already there. we are already seeing dwindling interest from the carriers trying to avoid it. the hope was that the operation, prosperity guardian, a u.s.-led task force, would encourage some to come back. major shipping company has suggested they are looking into it. the problem as far as i can tell is it is not clear what the offramp is. the who sees -- houthis can keep up insurance premiums. paul: that is kind of where i wanted to go here. the navy has a carrier group in the region. i would be intimidated if our trying to do some arm there. what is the expectation for what

they can do in terms of deterrence? gerard: i think there is a political problem and military problem. the political problem is there are something like 20 countries who have unofficially joined the task force, but a lot of them have not confirmed their participation. in part because they don't want to be involved or be perceived as being involved with israel, and also they do not want to face any blowback from the ho uthis. if the u.s. were to take offense of action those other countries may be implicated. it was also the more direct military question which is, the eisenhower battle group is off the coast of yemen, there are other ships in the area, but it is not clear to me whether comprehensive strikes would actually stop these attacks. the houthis were getting bombed by the saudi's and they are pretty dug in. i do not see how this ends, and what they are trying on the houthis side is an asymmetric strategy where they can throw up

things that are comparatively cheap, and the naval task force, which is overwhelmingly the u.s., have to shoot out much more expensive -- shoot up much more expensive missiles. over time it gets expensive and the navy is not reporting its inventories, but there is a question of how long this can last. kailey: it is such a good point. i had a conversation about the costs of these defensive managers -- defenses measures with congressman john garamendi. he serves on the armed services committee. he also brought up kind of what you were alluding to. this idea that the saudi's tried for years to go direct -- to go directly after the houthis, and i was unsuccessful. he was unconvinced the u.s. would be any more successful. i wonder if we are looking at an elongated period of tension, if not outright conflict in this region, and if it is going to be there for a longer-term rerouting of how trade moves around the world.

gerard: our baseline assumption is this is going to last weeks, if not several months. i don't know how many munitions the houthis have. in general all they have to do is set up an attack every 2, 3 days, or whatever. i don't think they have attacked since tuesday, but that is enough to spook the maritime insurers, right? they don't even have to get direct hits. the military mission to us -- to protect ships could be successful but still spook markets. i would bet on this being prolonged. paul: is that what we are hearing from the shepherds? at the end of the day it is the shepherds and maybe even insurance companies which are kind of calling the shots here about whether to transit the red sea and the suez canal or not. what are we hearing from them? gerard: the insurance rates have quadrupled over the past few weeks. overall shipping costs are much lower now than a year or two

ago, which is really the economic relief and why this is not as bad as it would have been in 2021. but i think they are mostly in wait and see mode. even if the navy is intercepting all of these cruise missiles or drones, it only takes one to get through and hit a ship for the insurers to have to pay out. kailey: obviously we think about that in terms of costs for these companies, how that feeds through to their anticonsumer, how much of that gets passed on, what the inflationary impact is. when we look at what specific economies would be most impacted by that, how are you mapping this out across the world? gerard: we looked at data that showed ships that transit the suez canal are primarily going to egypt, but also europe. that would include romania, greece, and others. those would be directly affected, but there are also rerouting costs. the inflation impact would be muted because of shipping costs are so much lower now than there

were two years ago. shipping costs do not account for a large amount of cpi in europe. the question is how much does it affect consumer goods? companies were not planning on this happening, so what might have been a 10 day journey is a 15 day journey, and it makes it harder to plan for that stuff. over time markets will adjust. i am more worried on the military side. paul: what are we hearing from the administration about how from -- how far from a military point the u.s. is prepared to go? have we heard any updated policy? gerard: they have certainly explored options. i think part of the issue is that countries, other countries do not want this to happen. in particular saudi arabia, which has a tentative truth -- truth with the houthis. if the american forces were to attack the houthis, the obvious counter play would be to attack

saudi infrastructure. so it is a very delicate situation. kailey: which gets to the idea of energy and energy flows being disrupted. saudi arabia is a massive producer of crude oil, and that would have ramifications globally. how do you think about the saudi's and other arab allies in this? at the end of the day this is not a decision the u.s. makes in isolation. gerard: the middle east is always complicated. it is extremely complicated at the moment. supposedly the iraqis -- emera tis are more supportive of strikes. have not seen an indication in markets, so i think it is ok. this is not something the markets are ignoring. they are certainly focused on it, but the worry is if the houthis were to attack, or there could be disruptions in the persian gulf, which would compound issues for your markets, that is the real

downside risk. paul: gerard dipippo, thank you so much. covering the trade aspect of what is happening in the middle east here, as again, the red sea, a lot of shepherds are avoiding that area and choosing to go all the way down the coast and go around the southern tip of africa. and that is saying something. 10 to 12 days of extra transit time. kailey: it is extra fuel, extra cost, more delays, and we are conditioned by the experience of the last several years during the pandemic in the way supply chains were disrupted and how long it took for retailers to normalize their inventories, for all of those things to get ironed out. we are just now seeing that pressure being released in terms of good prices, even though services inflation is still partially a problem. but because we are also conditioned by that, that is why we are keyed in on this. even as gerard is not expected to be as inflationary. paul: we grew up with just in

time inventory, and i think the pandemic and the resulting supply chain disruption changed people's opinion on that somewhat, maybe just in case inventory. just ensuring you have greater security of your supply chain. here is another example of a vulnerability. we are up about six points here, for 7.8 -- 4787. some of the highs are closing record high. the intraday record for the s&p 500 was 4818. we are getting close to the closing high and intraday highs here on the s&p 500. we will keep an eye on that today. it is a little bit of fun to close out the year. kailey: one trading day to go. paul: maybe we get it done on the last day of trading. get back to that intraday high. we are going to have more coming up.

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>> welcome back to bloomberg markets. hour number three.

that means that caroline hyde joins us. we are simulcasting on radio and tv. welcome back for another day. caroline: it is a joy to be with you. another day of petty heights, talking all things ai and red sea. it seems this week between the festivities is one of a narrative that builds. paul: it is a lot of news heavy, not necessarily market moving heavy, but we will stay on top of that. caroline: we do manage to inch our way higher throughout in this third hour of you helming. it is at a new record high. we keep an eye on the s&p 500, ever so close to its own record. we are only of 5.6. the seven-your auction on deck at 7:00 p.m. new york time. a little bit of weakness in the

bond market after what has been stellar demand for the two's and the fives that were auctioned earlier this week. the japanese yen, could we, the the first time since 2007, see some kind of rate hike baked into the spring? that is what the boj seems to be guiding us. fascinating when we look across some of the corporate news. as you say. for one, we do that with abigail doolittle. what are you keeping an eye on in terms of driving the gains? abigail: let's look at a story stock on a relatively quiet day/week between christmas and new year. that is boeing shares are down one and a quarter percent. the story is not so comforting. i have been trying to figure out where i would like to go on holiday over the next couple of months. well, loose components were found on the rudder of the 737 max, the plane that tragically a few years ago was involved in i believe two crashes.

i know it was more than one and i don't believe it was three, so i think it was two, but feel free to correct me if i'm wrong. boeing says that has been fixed but are suggesting recommending to operators that they inspect and report any loose hardware. they say the planes can fly safely and deliveries can continue, but it's not comforting. if it were a real issue for boeing, i think you would see the stock tanking. paul: you would see the faa in more aggressively. abigail: yes. paul: i feel the safest on the 737 max. it has been the most inspected plane of all time at this point. and there are 5 billion of them in the air. i've flown on them 1000 times since. the big thing for boeing is to get china. abigail: there were indications a couple of weeks ago that was going to happen, that china would receive their first deliveries of believe the boeing narrowbody 787.

who knows whether or not this blows into the 737 calculations at some point, but at this point it seems to be in the past. i will take comfort from your analysis. when i do take to the skies. caroline: he is a glass half-full kind of guy. we have some analyst moves coming in on tesla, what are some other companies to keep in mind? abigail: tesla is up for a third day in a row. actually, it is now down. it had been up about 1%. now it is down about 1%. you have to kind of keep an eye on it, move by move, second by second. i will say, what a difference a year makes. last year the stock was down more than 60% on the year, everyone hated elon musk and tesla. here we are a year later the stock is up more than 100% on the year. relative to the day we do have the stock higher, despite the fact that china's xiomi is

revealing their first ev and they plan to be one of the top five. there is also an india factory that had the stock higher now. microsoft -- i was going to say permabull, but i'm not sure if that is fair. dan ives. paul: he has been bullish? abigail: correct. he has had a few moments when the markets have obviously gone down. 2022 was a difficult time. over the long run, he has raised his price target. he maintains his outperform. if we characterize it from a permabull he says the copilot monetization is game changing and 60% will be using the ai functionality. he says it is their iphone moment. that is big for someone who makes big calls. i am someone who has my default browser set to msn for better or

for worse. some silly stories, interesting stories before i do whatever work i'm doing. using the ai functionality? unless i have to. i guess i would be in the 40%. pain entertainment -- pen entertainment, it is up 7% after hd capital management unveiled an 11% stake. they have met with management and believe the casino is deeply undervalued. down 50% this year -- 15% this year. you can make the case, deeply undervalued. paul: abigail doolittle covers the markets for us at bloomberg. i want to pivot to a professor of finance at duke university, my alma mater. i took a couple of classes from professor harvey. i am proud to say i survived. i cannot claim more success than

survival, but good stuff. the 10 year treasury, i am not a bond guy, but the 10 year treasury was at 5% and now at 3.8%. what is going on out there? >> overall, it is very good news that the rate has gone down. i think investors and consumers have revised their expectations of inflation and this is good news. it means that the fed has stopped and is now talking about decreasing rates. pressure on the long-term rates seems to have abated. paul: the markets priced in multiple rate cuts for 2024. do think the markets might be a little over its skis or is that something that the fed should be considering? cam: well, i was making the case that the cuts should have begun in 2023.

so, the fed overshot by pushing the short rate cycle so high. the sooner that they take down some of these cuts the better, because it does cause a lot of stress in our economy. that stress is unnecessary given that inflation, according to my calculations, is running well below 2%. caroline: let's dig into those calculations because they are fascinating. i love reading your work, cross-linked in or more broadly. for you, it is housing where the misinterpretation is coming in? cam: housing is operating with a lag. it is not current rents or current housing prices. we changed the way inflation was calculated in 1982. before it was real time inflation in housing. now, it operates with a lag. the housing inflation that is

reported in the cpi, the inflation happened a year ago. that component of inflation is 35% of the overall inflation. the reason inflation has been high is the shelter component has been running at 7%. that is what goes into the cpi. we know that's not the case. if you look at real-time, rental inflation or house price inflation, it is near 0% or 1%. if you recalculate the cpi with real-time shelter costs, then what you see is a real time inflation rate below 2%. this has been very frustrating, because this shelter component caused the fed to make a mistake early on in declaring that housing was no big deal and inflation was transitory.

it caused them not to move and keep rates so low for so long. the same mistake was made in 2023. it was obvious that the only reason inflation was high was because of the shelter inflation that happened in the past. policy needs to be executed based upon real-time data. not data that happened a year ago. caroline: what i cover more, ai, we say, garbage in, garbage out. having conversations as a professor at duke, are you trying to get this message across? is it falling on deaf ears or is there a willing to listen to the data that should be taken into account? cam: this has been more than a year-long campaign for me. i am very pleased that the fed has change the conversation. the sooner that they move, the

better. there is still a lot of risk out there. i know people are patting the fed on the back, congratulations, mission accomplished. no. it is way, way too early. my inverted yield curve indicator, eight out of eight in predicting recessions since the 1960's, we are at the average lead time to a recession. if you look at the last four recessions, the yield curve inverted, on average, 13 months before a recession. we are at month 13 now. we are at the average. it is too early. there are significant headwinds. the fed can help things by reducing the fed funds rate as soon as possible. paul: i know that you do a lot of work on blockchain, crypto, fintech. you teach innovation and cryptoventures.

what is the theme for 2024 in this space? cam: it is interesting. we have two simultaneous disruptions. one is in decentralized finance. to change our payment system and allow for functionality that we have never had before. and we have ai at the same time. i look at this and the big picture. the big picture, the thing that worries me a lot, is the size of the u.s. debt. the service on that debt is $700 billion a year. that service will increase in 2024 to be the second largest spending category for the government. the way to get out of this problem is -- well, there are three different ways. one way is to increase taxes and that kills growth.

nobody wants increased taxes. the second is to print money and inflate our way out. you print the money to pay off the debt. that is like a tax also. no one really wants that. no one wants to go back to that inflation. third is with growth. if we increase our growth rate it naturally increases the tax revenue and allows us to pay down some of that debt. we are at a cusp, a pivot point in my opinion, in the economy, with these two disruptions going on, and they potentially allow us to get on a different growth path. it is really important that we do not fumble these opportunities by over regulating either decentralized finance or ai. we need to embrace these disruptions and look at the benefits not just the costs.

i'm not saying that this is without risks. there is risk, but the key thing is to get on a higher growth path. i don't think it's unreasonable. paul: great stuff, as always. campbell harvey, professor of finance at duke university. great place, highly recommended. looking at the markets, we still have a little bit of green on the screen. 4788 on the s&p 500. on the 4796 watch would be the closing high for the s&p. we will keep an ion that. oil, $78.68. that is down. this is bloomberg. ♪

caroline: caroline hyde, paul sweeney, we dig into the geopolitical news of the week, month. the narrative continues to build about the red sea.

the who the rebels -- the houthi rebels attacking vessels and nearly half of container ship fleets are avoiding the route according to new industry data that overall is one that we can probably cooperate with our next guest -- corroborate with our next guest. you are about professionals from an industry basis helping you sort out dry cargo issues. when you are looking at such a difficult supply chain management conundrum, what do you advise? >> at this point, it is a lot of wait and see in what is happening with the international coalition. our partners on the container side, right now it is a lot of handholding with our client base on the commodity sector to guide them through what is happening

in the markets at this point. we are seeing, of course, increased insurance, a lot of uncertainty, and mixed signals from ship owners, container lines, and governments on what is happening to basically mitigate the risk and threats out there for these groups. caroline: talk about the mitigation of the risk. the u.s. navy is leaving the military partnership. did they take this as some kind of easing of concern? or are they wanting to hold back? anton: we are seeing some easing of concern. ship operators on the container side, like cgm, are starting to signal a return to the red sea and suez canal. some ship operators on the container side are still holding back and not even announcing any kind of return to that market on

the dry bulk side, which is a huge part of our business, dry bulk commodities. ship owners now, it is naturally a time of year when things have slowed down, so we are seeing ship owners on the dry bulk side diverting ships that were already in route and new cargoes for january and february timing is more of a let's see what happens after two years and let's see what is happening on the side, on the news to mitigate what is happening with the military response. of course, we have seen the navy move the u.s. eisenhower off the yemeni coast. this 20 nation coalition that the states announced is seemingly coming together, but there has been some hesitancy from some of the u.s. allies.

some nations have been reluctant to attach their name. definitely, still some concerns. paul: who ultimately decides if a ship traverses the red sea or the suez? is it the insurance, the captain himself? who makes the decision? anton: yes, yes, yes. it is a combined situation. ultimately, the captain of the ship has the ultimate say, but they are taking instructions from the ship owner. in this situation, all situations involving commercial and merchant shipping, there are many layers. you have the ultimate shipowner, the company that owns the ship, you have the master with responsibility of the ship, then you have the ship operator, the company time chartering the vessel and has some say over it. it is a combined decision.

even if the ship owner wants to order the ship to transit through the suez canal and the red sea, if the master is not comfortable the master can say that we are not taking her through. paul: i learned through other discussions that while, yes, having the airstrike carrier in the area represents a tremendous show of force come at the end of the day, what can it do against a bunch of terrorists? what is the belief about what it can achieve? anton: right now, without having the international will to do something, and the geopolitics going on over being seen to align -- for some of our nato allies in this case -- to see themselves to align with the united states on the mission to deal with this, it has been walking a tight rope. we are not even seeing strong rhetoric from some nations on the issue, let alone deploying

actual military assets, naval assets, to the situation. some has been written about the coalition that's coming together. some nato allies have, instead of deploying a destroyer or frigate or hard-core military assets, they are deploying one staff officer to the team. what signal is that sending to you many armed groups -- to you -- to yemeni armed groups? caroline: it is amazing how interconnected the shipping world is. talking about one vessel, like dutch operated, japanese owned. to that and, how does geopolitics in and of itself affect the business of shipping? are people having to decide whether or not they work alongside certain alliances that they have usually done so?

how is that playing out in the world in which you work? anton: absolutely, caroline. we are seeing situations, hard-core examples of shipowners , the dry cargo market comes to mind, a dry cargo ship captain that is working on a voyage on the dry commodity is actually asking a large international trading firm, their counterparty on that, if there is any is really involvement in -- any israeli involvement in the trade. not where it is going to, put that aside, just if there is involvement in the actual trade of the commodity. this is really far-reaching. as i was researching and getting ready today, interestingly, we are seeing ships transiting the

red sea that are using their ais system that is usually used to transmit data on the ship's position and load port and discharge port the eta. they are using that. instead of showing a discharge report of, say, greece, they have replace that with information that says armed security aboard. or no israeli involvement in the ship. in the slot where you would put the destination port, so that it transmits through to the yemeni armed groups, that they can see that information as they are tracking the ship in addition to what is allegedly an iranian spy vessel that has been lingering, too. paul: is there any realistic solution other than the cessation of hostilities in the region? anton: i think the other

solution is potentially very unsavory. a military solution to dealing with what is going on on the ground with human. -- with yemen. i am no military expert on how to deal with that, so i wouldn't venture that, but you can imagine that if we are dealing with the situation where the united states and nato allies are not even willing to send more than a staff officer to a joint naval task force, where is the will to deal with this situation on the ground where the attacks are originating from? caroline: you know a bit more than we do in the radio studio. we appreciate your time for your on the ground feel of the negotiations. the ceo of mercury resources. from one area of tension and

concern, we turn to perhaps a future area of concern. certainly one more in the realm of technology. this is more ai. the future of trying to regulate it ultimately. think of the key new york times news that they are suing openai and microsoft. this will be a key copyright headache going into 2024. paul: we saw it come to the forefront in hollywood with the writer strike. they want protection from potential ai strikes. caroline: the future of artificial intelligence, the pros, the cons, the regulation thereof, and what the outlook is. stick with us for that conversation. this is bloomberg. ♪

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then you don't stop. the idea that we have saved five million people's lives, it's overwhelming. it's everything. paul: welcome back to "bloomberg markets." we are simulcasting on both bloomberg radio and bloomberg television on the second to last day of trading in 2023. a little bit of green on the screen. the s&p, dow, nasdaq, up about .1%. yield holding pretty steady with a 10 year treasury up about three basis points. 3.82. crude, off about 1.5%, just below $73 per barrel. bitcoin is off 1.8%. 42,000 on the cryptocurrency. the sec is stepping up its

oversight of ai. wall street is preparing for the regulatory agency to finalize a number of rules i april, including a rule to assess if the use of predictive data analytics proposes conflicts of interest. alex, they're so much that we don't understand about ai other than, you better have exposure to ai. a lot of people are saying, let's slow down. there might need to be some regulation. what does the sec think about this? alex: taking a step back, the sec is rushing to safeguard some rules in case of future changes in congress. two dozen rules, related to climate disclosure and how private funds including hedge funds, how they disclose information, their fee structure, any potential short sales.

another key role is related to artificial intelligence. that is one of the stands out -- stand out. the sec has been ramping up scrutiny of ai, understandably so. we had the initial euphoria this year and now they are taking a closer look at what the implications actually are. specifically in the investment space. in july, they proposed rule that required broker-dealers and investment advisors to assess if their use of predictive data analytics poses any conflicts of interest. if they do, they have to eliminate those. they are trying to protect that rule in case there is a republican administration. caroline: if the ai recommends to a certain client that they do a certain type of trade that happens to be beneficial to the bank or the broker, that bias has been a key concern within financial access. what i'm interested in also is ultimately where the data is being sucked from.

the models are being built on a trove of information. some of it clearly true, some of it at times not. where are we seeing some of the tension build from a regulatory perspective is in the area of copyright. ultimately, what these foundational models, like the large language model of openai, on the new york times. this seems to be a significant challenge? alexandra: it is. the new york times is the first media giant to sue ai companies over their practices. we have had authors suing them but never a media giant. it underscores the contentious relationship between media and technology. the new york times file a lawsuit against openai at microsoft for copyright infringement saying they have been using the publications content to train chatbots and ai features. basically, they are saying that they are using millions of copyrighted articles for openai's chatgpt and other

technologies. the lawsuit alleges that this has caused billions of dollars in statutory and actual damages, though they don't specify any monetary demands in this lawsuit. again, this isn't new. there have been some lawsuits against these ai companies, but never from a media giant like the new york times. it is significant to see how that will play out. caroline: thank you for spending some time with us breaking it down. we want to get some expertise in this area, where the risks and opportunities are to be investing in this type of technology. we are pleased to welcome the general partner at emergence capital. jake, the retort from the likes of openai and foundational models has been fair use. ultimately also the fact that they have been trying to get ahead of this by striking deals with the key publisher in germany where they licensed some of their particular use of publications and writings.

what will the new york times case mean for the training of these models? can you put the genie back in? can you take out the new york times' articles from the training of the openai model? jake: great question, and it's great to be here. this is going to create a lot of movement towards exploring open source models. so, openai is the champion of the closed source model ecosystem, which means that the data they are training on and code they generate is not publicly available. there are lots of questions around transparency. what data are they using, what can we use as a business if they are going to use openai models? there is increased interest of those who use models to explore open source models where the data used is clearer and u.s. the user have the ability to manipulate the model yourselves -- and you as the user have the

ability to many believe the model yourselves. there is considering open source models more seriously. paul: i think i'm getting more comfortable with what ai is, and that's a big leap for me because it took me most of the year. i just need some help on what you think in 2024 might be some of the use cases that may help the general public it a better feel for what generative ai is and what it can mean? jake: i think that the good news is, in 2024 we will move from prototyping land into production. a lot of the applications will get launched and will have real impacts for consumers. as you know, we focus on software investing and emergence and we think that there will be exciting applications of ai in 2024. one example, we work with a company, linkedin for doctors. they provide a suite of tools for doctors. they help doctors serve patients.

one thing they are using ai to do is to help doctors draft letters to insurance companies get approval for treatments. that has massive implications for not just the doctors but consumers in getting more efficient -- that was not possible you're going to his increasingly possible today. you will see those things come to fruition. ironclad is in the legal contracting space and they help companies draft contracts using ai more effectively which allows people to process contracts more quickly and see they are correct. you will see it seep into applications across the business ecosystem. paul: a new phrase for me, and there are a lot that i'm learning when it relates to ai, copilot to make sure humans stay engaged. explain that concept and what are some issues with that tech? jake: imagine that you are, you are on your computer searching for some piece of information. the idea is historically you

would go to google, look externally, scour internal documents. a copilot will pop up and give you not just a link but an answer. we work with a company called guru that does this. instead of searching across all of your applications come the information is serviced to you directly. the concept of copilot is as you are doing your job you have an assistant that's next to you that helps coach you on the right direction to go. critically, there is a difference between a copilot and autopilot. autopilot is dangerous. that is when the human shuts off their brain and the plane flies itself, and that could be better good. -- to be bad or good. as you're building these coaches you need to make sure the human stays engaged and is importing their thoughts, creativity, and double checking the software. we know that ai isn't perfect. errors are committed all the time. that is alright in consumer

applications. if you are chatting with a dead celebrity using ai, it's all right if it's wrong. if i'm drafting an important legal contract or communicating with an insurance company, i need to be sure that it's bulletproof. a core way to do that today is to ensure that the human is engaged with the copilot and not only clicking except on whatever it suggests. caroline: when you're looking at the valuations in the b2b space, more broadly when we are talking about the latest 100 billion dollar valuation of openai, anthropic reaching a revenue run rate of 150 million dollars and being valued at more than $18 billion, are those valuations realistic if open source is going to become more of the valued foundational model direction of choice? or, do you think that these valuations are going to be the right source amount? jake: a really great question. there are lots of great closed source companies, like the ones that you named. as open source becomes more

viable in 2024 and beyond, we will help companies actually use open source models more effectively. there will be pressure on open source models. the key thing to check is you are evaluating investment in a closed source or any opportunity is retention. these things are getting incredible initial adoption. people are experimenting and prototyping, etc. the core thing that will matter in 2024 in ai is retention. are people who start using the product keep using it? in the foundational models, it is easiest to start with a close source model because it's packaged and you can get it up and running quickly. if open source models become more preferred, either because they are more easily manipulable or because of the new york times-driven concerns around where is your data coming from, there will be downward pressure on the close source models that

could put pressure on the tension, which could put pressure on the valuations. caroline: how are you trying to analyze the regulatory outlook for 2024 as you make investment decisions? it feels like crypto all over again. everyone is trying to get ahead of the sec or more broadly and executive order in the u.s. this will come down to global regulation. we have seen the eu with the ai act. how do you front run that? jake: transparency is important. understanding where you get your data from is important. you don't want to use copyrighted data to train your models. it's obvious, but i think people will pay more attention to where the data comes from. trust will become more important, not just where your data comes from, but is the data believable? bad data going into a good model is going to create a bad output. i work with the ceo of guru who calls this truth washing. i'm using data that comes in,

the model spits out an answer that sounds confident but is wrong. i think, going forward there will be a greater impetus on how do you valuate the data when training the model is not only legal to use but also accurate, so that the output that comes out of the model can be trusted. as we think about evaluating investment opportunities, we are thinking about it from a first principle perspective which is a belief that regulators will move in the direction, thank you, apple, for the use of the thumbs up, that this technology could move in a direction where regulators are concerned of, are you allowed to use the data you are using and is the output coming out of the models trustworthy so the good things can come from it? paul: if i bring a cool ai idea and i bring money -- can i raise money? jake: sand hill road is the past. the future is san francisco. paul: nice. i like that. jake: to answer your question,

can you raise money, first i would look at your background. i think you are an incredible interviewer. i don't know how technically savvy you are. the reality is -- come to me with a media company and i will write a check all day long. there will be more scrutiny of ai investments going forward. the key thing people will look for is the retention point. in 20 23, so many applications were getting so much tire kicking and people were using the product for two or three weeks and then get bored and try the next hot thing, etc.. what investors will be looking for in 2024 is you have a lot of people who start using this thing, but are people using the thing indefinitely and getting value out of it? paul: thank you for joining us. appreciate getting your insight. founder and general partner at emergence capital, getting the latest rundown on what is

happening in the world of ai. just burst onto the scene in 2023. caroline: this time last year, november, december of 2022 started to play with it. 2023 took the narrative and ran. paul: to me the moment was when nvidia put out the revenue guide early in 2023 that blew everyone away and i think the company away. the adoption of this technology is extraordinary. we will stay on top of that. a lot of smart voices will help us get a little smarter. the market is still a little high, up about .2% on the s&p 500. we will get the latest on the housing market. that is coming up. this is bloomberg. ♪

>> from the world of politics to the world of business. news, insight, and analysis live from bloomberg's washington headquarters. get the latest from and about politics' biggest power players at the end of every trading day. "balance of power" every weekday at 5:00 p.m. eastern only on bloomberg. context changes everything. caroline: we welcome you back to "bloomberg markets" across tv and radio where there is a sprinkling of economic data. not much. jobless claims came in slightly higher than expected.

we want to go to pending home sales, which perhaps were more lackluster than thought. simone foxman, to break it down. tell us what happened for the month of november and why it did not live up to the hype. simone: strategists expected the measure of existing homes from the national real estate association would go higher. the rationale was that mortgage rates have come down pretty substantially since hitting a high in late october. we just got the news from freddie mac that we are seeing the lowest mortgage rates since may at 6.61%. the idea was, this is going to drive people out and they are going to start buying homes and we are going to see that in the data. we didn't get that. pending home sales were flat on a month on month basis. they are still down quite a bit. about 5% on a year on year basis. what this signals to us is the

activity in the home market may be coming, but it's not here yet. paul: i did my effort for the housing market. in march i bought a sprawling estate on the jersey shore paying a 6% mortgage and i felt like a knucklehead. everyone else, matt miller is at 3%. alix steel is below 3%. i'm paying 6%. then it went up to 8% and i felt smart. now, with rates coming down, i wonder what the level is that will entice someone sitting in a home to say i will take the higher mortgage risk and sell and get some of the existing homes selling. caroline: it will be painful. simone: the consensus is 5%, 5.5% feels ok. it is not as good as if you were able to lock in a three-something percent rate. i think they have this great

story on the terminal online talking about to a bunch of homebuilders and real estate brokers who are all saying looking ahead at what is hopefully rate cuts next year, saying they are excited, they are seeing interest on websites and fielding a lot of calls already, in the spring of 2024 it will start being a different story for them. paul: simone foxman covers the equity markets for us bringing us an update on what we are seeing in some of the data for the housing market. caroline: i want to know more about the sprawling jersey shore house. paul: maybe at some point in the summer we will have you down. homebuilder stocks are on a tear this year, on pace for the biggest annual advance in over a decade. you know, the research coming off of wall street on the housing stocks is so much better today than 25 years ago when the has-beens had to go into management.

we are joined by one of those good analysts who covers those housing companies. what is the outlook for 2024 for the housing stocks, the homebuilders after such a rip year in 2023? drew: where we sit now heading into 2024, we look at the large, well-capitalized public traded homebuilders as sitting at the top of the housing food chain. we think that the broader new-home market is positioned to take further share for resales. we think within that context the publics are the leaders of the pack. more broadly, the new home market should continue to benefit from a lack of listings in the resale market, as has been well discussed. the builders have done well to attract buyers through financing incentives, offering lower rates. as it relates to the homebuilders, we think that some of the smaller private builders will have continued difficulty

getting access to growth capital, because a lot of it comes from smaller regional banks who may be facing difficulty should the economy slow. we think the large public builders will be in a good position right now. caroline: to that point of where the banks are being hit, is that because they have so much exposure to residential or is it commercial? drew: i think it is a lack of willingness to extend financing to the homebuilding space under the guise that the economy might start to slow. everyone remembers what happened last time when the builders were overextended. i think it is broad economic uncertainty that is causing a pullback from some of the smaller regional banks. paul: talk about valuation. you have to be pushing the limits, don't you? or are there earnings keeping pace with the stocks? drew: the stocks are up 70% year-to-date. the index level are up 50% to 130% depending on the name you

are looking at. right now, the group is trading at 1.7 times 2024 book value, which is higher than the 1.5 times, which is the historical norm. that said, it is not uncommon to see the group trade above two times, particularly in an environment where rates are starting to help once again. i think, what you need to see from the stocks in the spring selling season is the pullback in rates we are talking about actually having attention so -- having a tangential impact on growth and margins. i think you need to see that translate into actual results. bigger picture, there has been increasing discussion about the potential for the builders to garner a higher valuation over the longer term because their business models are so much stronger and more resilient, as we saw going through covid and an 8% mortgage rate environment. debt and balance sheets are

historically low, generating a ton of cash they are buying back stock with, and there is a shift among the group led by larger names to an asset-lead business model, where they are controlling land through options rather than owning it outright. it is more capital efficient way to grow the business. caroline: when i look at your notes, previously have been saying how they have been sacrificing margin to drive stronger sales. at some point, they can stop using that as the shock buffer? drew: we think we will continue to see financing incentives into 2024. you guys asked the question, what is the rate where buyers start come into the market more forcefully? i think you hit the nail on the head at the 5% 5.5% level. builders will probably buy down rates. the benefit with rates coming down to 6.5%, the cost to getting the buyer to 5.5% from 6.5% is lower than in october

when the rates were 8%. we think that they will use that margin as a shock absorber, it just won't cost as much as it would have a couple of months ago. paul: how about the cost of building a house, like lumber? when the pandemic started, people started renovating and lumber went through the roof. where are we now? drew: lumber has come back to a more manageable level for the builder. it has been one of the key drivers of mortgages, helping to offset some of the financing incentives. broadly speaking, the builder supply chains are in much better position than they were six months to 12 months ago. cycle times, the length of time that it takes from the time that you take a contract in until you deliver the house, are starting to normalize. on the cost front, it is not that costs have come down. they have in some cases, like lumber, but it is more of a situation where costs are not rising us much so there is more

visibility for the builders in terms of the cost structure. caroline: absolutely fascinating time. the conundrums of supply and demand. we want to thank you for all of your analysis when it comes to bloomberg intelligences across the board when it comes to big elders. -- big builders. i was almost taken aghast when you think of how much house builders have rallied. i thought the ai -- but no, it has been homebuilders and ozempic makers. paul: people are not selling houses, so there is no supply. if you want to move into a house you have to go into a newly constructed one. they are putting them up everywhere they can find land. it is amazing. with interest rates coming down, even more so. caroline: people are still creating families and they still need to move into slightly larger properties. we are up .2% on the s&p 500. i might add volume is pretty

lousy. we are off by about 40%. paul: literally about five points away from the closing record high of 4796. caroline: can we creep up on these thin volumes? the dow, this is a bit of an everything rally apart from bonds, may be seeing weakening as we got more supply with the seven-year auction that is about to happen at 1:00. we are up about two to four basis points across the curve. paul: on the commodity space, keeping an eye on global energy, wti crude oil, $72.72. maybe some of the tension easing in the middle east. we will have to see. we have spoken to a number of experts and traffic is still being rerouted. we will see how this plays out over the coming days and weeks. more coming up.

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caroline: we welcome you. paul sweeney and caroline hyde

on a day ever higher on the benchmarks up just .2%. volumes are light. the number in front of you is currently 4791 are the s&p 500. 4796 is the record high. the record high we have already hit on the nasdaq 100. we are seeing weakness across the bond market as we anticipate what is happening now with the seven-year auction. we have had a flood of supply under the last week. the russell 2000 off .3%. bitcoin a little lower. it has been the idea this week to see how far we have come. the travel we have made particularly in the last two months on the bond market. the best months on record. paul: the 10 year treasury was just at 5%. now we are down to three point

82 -- 3.821 to 10 year. caroline: record performance for global debt as well. we will discuss that with robert peter of civil unrest asset management. along with the one and only just meant and -- jess minton. you can become numb quoting these numbers but it is extraordinary how we have had and everything rally. julia: --jess: last year it was about 19% lost in 2022. that had been the worst annual loss since the 2008 financial crisis. this year, you look at the big bounce back and the nasdaq 100, what powered this year's rally is thinking about magnificent seven stocks and other growth stocks and other discretionary corners of the market. munication services and growth names housed in those sectors.

don't forget small caps. when you look at the russell 2000 year to date it is up about 16%-17% year to date. a lot of those gains came in the last two months. you see the low from october. they have been hit hard particularly with small caps. over the last two months all caps up over 20 percent. the russell 2000 relative to the s&p 500 is on pace for its worst three year stretch relative to large caps since the height of the dot-com bubble in the late 1990's. you have a lot of people especially timely at fun stroke making a big call at small caps. the russell 2000 and 50% gain could mean particularly. big call there from tom lee. paul: tom has been a solid bull. maybe he is adjusting the call to say let's look at the small caps. robert peter.

the performance we have had in equities and the bond market since the end of october feels, to some, maybe me, that the market has gotten a little ahead of itself here. maybe pulling some 2024 performance into the last quarter of 23. what do you think? robert: we are on the edge of having come too far. we have pulled a lot of next year's potential performance gains into this year. when you look over the last two years, just regaining close to the highs on the s&p. not a lot has changed. we still have rights higher than what they were previously. from a multiple perspective and an earnings perspective we have not made a lot of progress over those two you -- years but rates are a bit higher. the path ahead looks solid in inflation continuing to come down, rights coming down. there could be more room to go. i think we will have a lighter year next year on the basis of how quickly we moved the past two months. that has been on the basis of the fed changing their talk,

they're fed speak giving folks more optimism over the rate path for next year. i think that is well-founded. but with the compressed against of the past two months it sets the stage for lighter gains next year. caroline: with your $31.2 billion of assets under management at silvercrest, wire -- where do you allocate from a bonds for against -- versus equity perspective? 60/40 work? have you been changing that? robert: we have been steady overweight equities against the 60/40 benchmark. we have continued looking ahead. i think the earnings backdrop for next year looks ok. research shows when you are around 2% gdp growth it tends to correlate with 6% earnings gains. the street is at 10%-11 percent for next year. i think we are closer to 6%-7%. that's a decent gain on the earning side. i think it will take the full year, but there is still

valuation recovery to be had for equities and more for small caps. simone: the nasdaq 100 up close to 55% year to date. how are you advising clients to position looking at equities? what are you telling them to buy and sell? robert: looking into next year we are looking to be very diversified. i am not in the camp that the magnificent seven will fall apart. from a fundamental perspective, they have earned their way to the spot they are in contributing large earnings gains, having solid earnings growth. those multiples look ok to me. the market will continue to broaden next year. the gains in small-cap outperforming of it will continue next year. it seems to me it is an environment where it is ok to be a little overweight equities and one where you want to be diversified across equities. paul: i'm concerned about valuation. maybe with rates coming down i should not be as concerned.

i have seen the s&p move 16%, 17%, 18% in the past couple months but i don't recall earnings going up much over that timeframe. what you think about earnings next year and valuation? robert: that's a great observation. it's been fascinating this move occurred outside earnings season. it makes it abundantly clear the move has been on a valuation basis. it's been mostly justified with rates coming down 120 basis points in the past two months from five to 3, 8 or so. next year, the question is, will we get more recovery? more rate reduction, more valuation recovery? i think a little bit. it's hard to make a case we will see another 120 basis point decline in the 10 year in the months ahead. from a valuation standpoint we are close to fair value. you need to look to earnings for gains going forward. caroline: silvercrest. how u.s. focused is it? is it time to look abroad as well? robert: there is always an

argument for looking abroad for valuations. that gap has not changed in some time. we do invest globally. i think valuations in the u.s. and the earnings growth rates have been very compelling, we have seen with the magnificent seven a lot of companies based in the u.s.. we invest globally but we aren't overweight in international equities. it is a struggle to see the catalyst for those valuation gaps were covering. at some point i am sure they will. we are happy to find great openings abroad but there is a lot of opportunity in the u.s. as well. simone: when it comes to the technicals, how much are you using in your strategy? what is that telling us? robert: most of the time we look at the technicals. the most important technical of the past two months has been the speed of recovery with rates down and equities roaring higher very quickly. it's been interesting to look at factors that have outperformed. you noted earlier the recent acceleration in small-cap performance is interesting and

it tells a lot of the story that might, next year, continued rod and end of the market, more stocks participating in the advance. that is based on solid fundamental reasons. as much as there is a valuation argument to be made, the financial stress associated with higher rates hit hard in the small-cap space. as that reverses, and ease -- payments ease, that puts more tail went behind the small-cap space going forward. >> it's an election year. how does that factor into your calculus? robert: two metrics we use in our valuation model are domestic policy and geopolitics. the geopolitical site has settled a little bit in the past few weeks. i think the election year cycle will cause more volatility than normal. two things for volatility next year. one, the election cycle in terms of the rhetoric around the cycle and what policies might be tossed about. second, the fed.

the fed has made a lot of commentary that has been relatively dovish. they have been giving people confidence we are past the peak. there are a lot of open questions on timing and pace of potential rate cuts for next year. there will be a lot of interpretation of fed speak. interpreting the politics and the fed speak is likely to lead to more volatility next year. the vix is sitting at a low level. that is likely to change in 2024. caroline: jess you have a great story, the five things to look out for in u.s. stocks for the year. you go mobile. it's a day when the u.s. dollar is under significant pressure vis-a-vis the japanese yen, for example, anticipating a rate move to the higher side from japan. talk about risks abroad. jess: more specifically looking at asia the bank of japan is the

last major central bank that still has negative rates. that could change potentially next spring. economists have been polled by bloomberg. close to two thirds of them think this could be the first rate hike for the bank of japan coming may april. that's a risk especially because a lot of the companies, especially more on the electronic side of things got a big boost. the nikkei this year at a three decade high. that has been on the back of the loser policy thinking about the bank of japan. obviously, also china's stimulus measures we had that was a big trade. when you think back to a year ago, the reopening. some of that stalled when you look at travel stocks and what is happening with europe thinking about the global central banks over there. it is a different story talking about the ecb, the euro, versus britain and in the inflation rate. at a particular point most of this year the u.k. had the highest inflation rate of g-7 nations. when you are looking at the

latest cpi report that came out about a week ago, inflation rates more on par with the u.k. and france. it will be harder for the bank of england to begin to think rates sooner than the federal reserve and the ecb. tricky dynamics globally. japan and the nikkei have had a ganged buster year and also in india a strong year as far as winners globally in the stock market, caroline. paul: the s&p 500 it looks like analysts are looking for 12% or so earnings growth next year. how much risk is in that number from your perspective? robert: that number seems a little high based on where economic growth is presently. when you look at the new york fed or atlanta fed models we are just above 2% economic growth presently. when you had to next year, my expectation is around for 2% earnings growth. historically that leads to 6% on the earnings side frame the past 30 years there has been 11

instances of gdp growth between 1.5% and 2.5% read nine of the 11 years we had a positive earnings gains on average about 6%. next year i am looking for that 6% range. analysts tended to start on the high side. i don't see a lot of earnings risk, but a little bit in terms of the 11%, 12% number coming down more in the mid single digits. caroline: thank you robert tutor. and thank you jess menton for taking us around the world with all-encompassing reporting. meanwhile, plenty more to be digesting when it comes to alternative assets. cathie wood was on surveillance earlier with carol massar and manus cranny, katie greifeld. she seems to be going into bitcoin futures etf thinking that date is coming those are. they put out a -- arc has its

own bid for an etf. but she does not seem to be going along the grayscale element. paul: still keeping long exposure to bitcoin, but, mixing up a little bit some investments on the board here. itching to see where he is going here because again, the arc family of funds is all about disruption around the economy, including, financial technology. caroline: we have more coming from cathie wood. you don't want to miss that. we are simulcasting across tv and radio for you today on december 28. this is bloomberg. stick with us. stick with us. uff i feel good in. i keep what works, and send back the rest. stitch fix.

caroline: welcome to bloomberg tv and radio, our audiences worldwide too. paul sweeney and caroline hyde digesting the second to last day of trading where we still managed to call a little farther

across the markets. in the world of etf's, the active management side of the equation. we will be hearing from cathie wood. they have really performed, in particular, the innovation etf is up last time i checked. 73% on the year. compared to 2020 when it roared 150 percent higher, it is still off. what is noted is great b.i. analysis and i know you love bloomberg intelligence. even though we are seeing more active management funds gaining share among the theme of etf's and more being launched than it closed, it seems like money is coming out of the funds in terms of fund flows. paul: the top five holdings in cathie wood's flagship etf are. representing over 40% of the funds. when we talk about concentration risk, that is what you get among other attributes with cathie wood's etf's.

in up to argan ovation india fund, -- arc innovation etf fund over the last five years it peaked in february of 2021 at $156. here we are today at $54. it lost tremendous value. it is up year to date nicely. it is amazing with the volatility you have seen. that is what you sign up for. that is the risk you sign up for. risk and return is highly concentrated bets. lots and lots of winners for her. caroline: interesting. she dialed about from nvidia in particular when the rest of the market was plowing in. she was in nvidia before nvidia was cool. there is too much of an obvious holding. that is why she likes the ai themes. cathie wood was on the show a little earlier. take a listen. cathie: bitcoin, as we ever have been.

there are a few regulatory tax uncertainties. we had been waiting for the discount between gptc and nav to narrow. last year there was uncertainty around crypto generally. now it is single-digit. there are now other products out there that we can use to gain exposure to bitcoin in this moment. it is just a moment of uncertainty between now, we think, and january, january 8-10, perhaps. but, out of an abundance of caution we did not want to take any risk. katie: we are talking about the ark next generation internet etf with the ticker ark w.

you completely sell down your remaining state of the grayscale bitcoin trust instead on the same day and it brought -- bought the proshares bitcoin strategy etf that tracks bitcoin futures. it does not hold physical bitcoin. can you explain that shuffle? what was the thinking there? cathie: a couple things. first, proshares is already approved. there is no regulatory uncertainty having to do with it. so, we chose to maintain our exposure through bito for the time being. as i mentioned, there are some tax and regulatory uncertainty still as part of the process. we do not know exactly who will be approved. and, whether they have met all of the criteria that the sec has put before us. we know we have. but, we do not know if others, including gptc have.

we just do not know. out of an abundance of caution, the gbt discount was as much as 50% relative to nav, so not only this year have we enjoyed a run in bitcoin itself, we have had a nice closing of that is corn -- of the discount, double good news. carol: you talked about january 10. is that possible whether it is you or someone else in terms of the first to spot bitcoin etf getting approval? cathie: we think the probabilities have gone up because the sec has been highly engaged compared to what was happening before. before it was just a denying approval. we kept putting our filing in, again. try, try, try. determined. so, here we are. we think we are first in line

and that is why there is this january 10 deadline. but, we like the idea that the sec has been so engaged, not just with us, others as well. we think a number of funds would be approved, at the same time. they have been asking not only one set of questions, but follow-up questions. that's a very good sign. the last few questions have been very technical. so, more dear rigor. you would expect them to ask these questions as we head towards and approval. it's not 100% certain then we want to make that clear as well. this is the sec. we never know what might happen along the way. carol: regulators can be tricky, for sure. you mentioned engagement. let's talk about engagement with your funds overall and especially the ark innovation fund up 72% year to date easily

outperforming some major market benchmarks, still down 65% from the high of february 2021. for you, a lot of critics. when we bring up your name and ark you have a lot of fans and a lot of critics. there's a lot of discussion. does this feel like a victory lap this year? cathie: well, we are very happy a couple things have happened. that the idea that interest rates were going to continue moving higher has been proven incorrect. i think even the fed, while, there with the small possibility, even the fed is now starting to talk about the other side of the interest-rate move. i believe all have seen so far is a reaction to that macro phenomenon, or judgment call. we went through our flagship strategy and dollar strategies, a very difficult time from february 2021 through december

2022 as interest rates were presumed to move up, or forecasted to move up and when they did move up, it was almost like a double discounting. we have seen the first installment of the correction to the upside for our funds with this notion. and again, the forecast that interest rates will come down. we presume that if they do come down, for the reasons we think they will come down, the most important being deflation, then, our funds will be in good shape because we are -- our companies thrive on deflation, technologically enabled innovation is deflationary. manus: we will move to a deflationary environment. we will come back to the macro call in a moment. squared away before i talk about flows in funds.

how much interest rate cuts do you presume, are you forecasting , leaving the forecasts of everybody else aside, what do you presume will happen next year? cathie: we put up a chart in the nose, youtube video i do every month, employment friday. in that chart you will find a ratio. metals to gold. metals price to gold price. there has been an extremely tight correlation between that ratio and long-term interest rates. in october we published it, or early november. what you will see is there was a very wide gap that had developed. the metals to gold ratio was near its low for the past 12-15 years. interest rates were at their highs. 5%. the correlation, if you just

eyeballed that chart, the correlation suggested rates should go to 2%. maybe they will not go all the way to 2%. but, we think long-term interest rates are way above where they will end up because of deflation. paul: that was cathie wood speaking to bloomberg television earlier today talking about the crypto space. they are still exposed, still long crypto. but they have changed some of their holdings in this space. it's good to get an update. the s&p 500 is up .2%. we will have more coming up. this is bloomberg.

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paul: bloomberg markets caroline hyde and paul sweeney simulcasting live from the bloomberg radio studio in new york city. s&p 500 up. the s&p 4780 eight. 47 96 the record close. we are getting close to that. you'll discover the 10 year treasury up about six basis points, 3.85%. oil is rolling off about 2.4% towards the low of the day, $72 35 cents. bitcoin, which we will get to during this block, off about 1.9%, 42,600 for bitcoin there, caroline.

caroline: maybe that is why we are seeing right platforms on the downside today and marathon digital on the downside. maybe they are proxies of the world of bitcoin. let's talk about bitcoin and altcoins with david penn from bloomberg news. it's been a rally across bonds and stocks and got into the year for bitcoin as well, it feels like. so much of that is around the etf or are there more fundamental drivers than that? david: recently we have seen a decline in bit prices. a lot of traders regard it as healthy pullback from the earlier surge. so, the etf news has been around for quite a while. a lot of people are wondering if the news has been priced into the token prices. we are seeing a lot of leveraged long positions recently. the pullback could be a result of traders hedging against leveraged long positions.

they build up earlier. that is one of the latest trends we are seeing in trading. paul: how much of it is retail versus institution? david: we have seen a significant shift from retail to institutional investors recently. in the early days of bitcoin and ethereum we saw mostly prices driven by retail traders. now, we are seeing an influx of institutional investors like hedge funds and asset managers coming in. right now we are seeing more of a search among institutional investors. caroline: david pan, thank you so much. let's keep digging into this particular area. we are pleased to welcome from k-3 three research a crypto

market analyst. really thinking at this moment about institutional flows. i feel like since 2020 we have been talking about institutions getting into crypto. is the spot bitcoin etf what brings that to its head? does regulation need to become more clear before we see institutions adopt this asset class? >> it it depends on what you mean by institutions. even in 2020, after covid, we saw an influx in trading activity from typical regulated markets. for instance, cme. but if you segue to differentiate the traders we saw an actual institutional launch, 2023 and 2020 it's night and day. we are professional traders 2020 and the last year has seen more or less all financial institutions lend to bitcoin in some way either by launching

bitcoin etf filings or launching crypto custody or through other means. there has been a run-up in institutional activity throughout the year. it is night and day compared to 2020 and 21 to one -- 2021. regulations are becoming more clear. particularly in europe. enforcement is different across jurisdictions. approval in the u.s. would likely offset a lot of regulatory on clarity. paul: how much crypto trading or ownership broadly defined, where is it geographically around the world? where is it more developed, europe, the u.s.? >> it is more developed in the u.s. and asia than europe. both markets are bigger for

bitcoin. a lot of the most influential holders originate from asia. the u.s. more or less took over the relation after 2020 with all the activity developing there. you can see it in the rates where a majority of bitcoin mining power is in the u.s. and you can see it on exchange balances and now even in the futures market where cme, despite all its limitations in terms of who can access it is the biggest bitcoin market. it has been a rotation towards making u.s. markets the most influential market for crypto as a whole. paul: i am old school with stocks, bonds, exchanges, currencies. when i think about exchanges and problems we had with ftx, binance, things like that, how

do market participants like yourself view that? isn't that a growing pain for a new asset class? does it show underlying problems with this asset? >> all of the above. it's definitely a growing pain. crypto in particular in 2020 and 2021 was viewed as an exuberant source of wealth. risk was not something a majority of the market cared about. it allowed nefarious businesses like ftx transparent loans to develop. it was unable by crypto being peer-to-peer, allowing people to send money wherever they want. it is a natural effect of that powerful, important attribute of crypto. and it's to do to regulations

not having been completely clear at the time. caroline: they still aren't. velte: they aren't by any means. but we have clarity regarding a pass onwards, in particular in the eu and singapore. there are developments and a lot of discussions happening elsewhere. it has also been like 2022 was showing everyone involved in crypto that it is costly to put trust in someone else, exposing the frauds of ftx and the dangers associated with these platforms. we can only hope that the market in addition to regulations and consequences of these actions have improved and traders have learned. caroline: has this driven innovation off u.s. shores? have we seen crypto startups deciding they want to be based

elsewhere because of the pendulum swinging towards regulation that they feel might stifle growth? velte: we are seeing some signs of it, at least, some businesses heading out of the middle east. but it's not that present. i think it is more exaggerated. it is clear that the majority of influence from capital markets will remain in the u.s. and it is the u.s. where these pockets are based and where the major opportunities are in terms of penetration of the user base. so, while it has somewhat moved on to other areas, the u.s. remains very relevant. paul: can you explain to me what having is? velte: do you want me to just

explain it? paul: 30 seconds so in case somebody asks me at a cocktail party. velte: each day approximately 900,000 bitcoins are produced. in four months the amount of daily issuance will be reduced by 450 bitcoin. meaning only 450 bitcoin will be produced every day. each and every four years, this number is halfed. and ultimately bitcoin's ultimate supply will be 21 million. paul: very good. i learned something new there. thank you for joining us, senior analyst covering all things crypto for us. we appreciate getting some of his time now. staying with our technology

take, wedbush securities senior equity analyst dan ives thinks apple could reach a $4 trillion market cap by the end of next year and it does not see the potential apple watchban having a major impact on company growth. he spoke on bloomberg surveillance. dan: we are talking 1% disruption from apple watch in the actual quarter. there will be patent issues like this on health care. there is a renaissance of growth on iphone units, services, double digits. that is why i think a lot of the bears now are deep in their caves in hibernation mode. i think one year from now we have a $4 trillion market cap on apple. >> you say the bears had a great fictional story. dan: a netflix fictional story. >> >> i have to hand it to you, this church screams for confidence, full of vigor. look at the china story. how do you get to $4 trillion when you still have the

government pushing back against apple products? it was a headline just in december. is that myth or headwind? dan: i think it is a headwind. my view of china is i am not saying it's champagne in beijing with apple, but we are seeing growth out of asia checks even over the last week. you have 100 million iphones in china. and they have an upgrade opportunity. as those upgrade for huawei it's a good phone but realistically, it's an iphone 12. from an actual functionality perspective. it's a headwind they have to contend with but it is the hearts and lungs of the apple store. that is why a lot of the bears at 500 billion, one trillion, 1.5 trillion. it is all about china now. going to 4 trillion. it is always about the big bad wolf of the china story. china has actually been fueling the engine.

katie: let's talk about what the bears are saying now. they are saying apple has not had a hit since airpods in 2016. you talk about the new growth. from the product lineup where will that come from? dan: it's the best install base in the world. from an install base perspective you have 250 million iphones. that is why i zone 15 so far, christmas was a strong holiday season. but for 2024, i believe you will have not just new phones from the iphone 16, but we believe you will have the iphone app store that will be an ai app store focused on ai apps that will be incremental for services and i think it is very important. when you combine that with vision pro we have more and more products coming out and you can flex those muscles. katie: i want to talk about ev demand.

this has been a story that has emerged. it feels like all the automakers miscalculated how much demand there would be for ev's and now you are seeing production targets cut. how does that factor into how you think about tesla? is it a bear case for tesla or does tesla command more of a shrinking pie? dan: right now it is tesla's world and everyone else is paying rent when it comes to electric vehicles and they are doubling down. in detroit gm, ford peeling back from electric vehicles, some foreign automakers. demand has softened. price wars have come through. a lot of those storms have now passed. for tesla specifically, unit volume looks strong in china. i think it will be a record quarter for china in terms of q4. next year i think demand actually starts to exhilarate a bit relative to where people thought. i think for the overall industry

it is still a massive transformation, but now you are starting to may be back a bit in terms of this is not going to 40% penetration, maybe 25, 30. caroline: the one and only flamboyantly dressed dan ives. radio listeners did not see the joyous shirt he was wearing this morning. once again raising price targets on microsoft, joining bloomberg yesterday. meanwhile, we have more to discuss across markets. stick with us. of bloomberg and radio simulcasting with paul sweeney and caroline hyde.

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they get me. and they'll get you too. paul: short-term funding markets. caroline hyde and paul sweeney are here simulcasting from the bloomberg radio studio, a fun thing to do. alex harris joins us from

bloomberg news. it seemed like five years ago we were talking to almost every day. explain why and why maybe this time is similar? alex: the conditions are sort of similar in the sense you have the fed still removing liquidity from the market via quantitative tightening read the same thing was happening five years ago. that was when jerome powell made the comment at the december fomc that cutie was on -- qt was on autopilot and equity markets and all the markets swooned and backpedaled in january. it was notable at that point it was one of the first signs for the funding markets in general. we are talking the plumbing of the financial system. to say, hey, wait a minute, nothing is -- something's not right here. we are looking a little off. the banks balance sheets, they had to pull back more than expected. it sent rates at the time work to point to 5%-two point 5% for

an overnight rate covering the end of the year. they went to 6% and i remember people being like, i cannot believe this happened. while we are not seeing that significant of a move yet we are seeing more volatility at the end of the year. it is making people a little nervous here. because, you are starting to think about those things. about 2018. trying to understand, what is the situation, really, with the fed quantitative tightening program? our reserves actually more scarce than people are thinking? does the fed have to stop qt sooner rather than later? these are questions people will ask in 2024. caroline: what would be the catalyst that gets your attention if suddenly you are like, ok, here we are. we are back. this is how it felt in 2018. alex: if you see more intraday moves in some other short-term rates. everybody talks about the fed funds rate because obviously it is the fed target rate. that was moving quite a bit in

2018 and 2019 for think the fed to come in and make adjustments to what it called their administrative rates or what we called their tools to try to maintain control. what worries me more is the secured overnight financing rate. or sofr. paul: that's a new one. alex: it was the heir apparent to libor. spfr --sofr is tied to the repo market and a lot of transactions are underlined that rate. as things get more scarce that rate becomes more volatile because the markets are all basically government securities back. it is all secured funding now. i am looking for volatility in the sofr race. today we matched an all-time high and i expect when the print comes up tomorrow morning we will be at another all-time high. paul: i have the graft for that

rate for the last year. it's the stair steps. alex: that reflects rate hikes. it moved in tandem. now it's not. it's more volatile intraday. it is a combination of a lot more treasuries in the market. those are a lot more treasuries that need to be financed. that pushes funding cost higher. that's another concern here. there is a lot of supply and a lot of people buying treasuries now that needed to finance those positions. things are getting expensive. that is also pushing on the market here. this rally comes -- you know, there is a cost to this rally in treasuries. if you are trying to finance securities, if you are trying to go out and borrow securities, that comes at a cost that is higher funding rates. that is something everybody will have to grapple with if you continue to price in more fed rate cuts, more recession. these are all things that need to be considered when we are looking at the markets.

caroline: is the fed starting to talk about this? are we back to financial instability discussions? alex: the minutes have not touched on it much we jerome powell made some comments in press conferences. i think the hope from market participants is comments will go farther, or questions would go farther and be a little more probing. caroline: come on, journalists. alex: i would like to see what the minutes start to say and what the minutes show. i think these things do matter. there was a bit of disruption at the end of november and beginning of december before the last fed meeting. i would like to maybe see some reflection on that and what they think is actually going on here and maybe more discussion on reserves and they are in quantitative tightening. i think policymakers are starting to come around to the idea of that if they start cutting rates they cannot do quantitative tightening at the same time. i think communication will be too difficult. paul: you were making a comment before that when you pull

trading desks on the street some senior folks are in. alex: they are. paul: typically they would not be. what is the concern? alex: one i see that they are all here, obviously, it is their job and what they do, but they usually leave it to the junior guys to handle. at least, that has been my previous experience at the end of the year. they are all here like they are expecting volatility. they need to be able to manage this confidently. i woke up this morning and checked in. for just to get financing from december 29-january 2 the rate was like 5.7%. paul: or had it been a month ago? alex: people two weeks ago were getting financed for the turn of the year at 5.56 and they are like, i might is money but at least i am protected. at least i know i have got my funding. paul: or do i get the funding?

alex: you have to call the repo. caroline: to that point, you are going home to your family after this. how do you explain to them around the table what this has a real impact on them at home? how will we feel the volatility and tightening from a layman's perspective? alex: you know, if i tell my 3.5 euros, she's very -- 3.5 year old she is very excited about the rate going higher. she is just rooting for chaos. but when i talk to my husband, i will talk more about treasury yields and i will talk about flows. talk about deposits. those are a lot of discussions we were having. he would be like, why is my account at this bank not paying me anything? i would explain to him and then explained the knock on effects and how it -- how i look at things. that is how i talk about it with him.

in terms of deposit rates, cash flows, money market funds versus deposits. bank deposit accounts versus cds. things like that. paul: it is still safe to say for the layman person like myself, who has no idea about that part of the market, the short-term money markets, repo markets, they are working fine these days? alex: they are, they are just more volatile. that is just something for people to pay attention to. it is one of these things. think back to september 2019. we were looking at 10% on an overnight repo rate. it is a little bit then all at once. i think that is what makes people nervous. then you start to see the volatility. people watch these things closely because if there is any friction in the financial system , there is a lot tied to it. the business trade that we have talked about a lot this year is tied to the repo market. paul: in 10 seconds, what is the

basis trade? alex: taking one position in the futures market and positioning against that and a cash market. you have, if you are short futures, you are long cash treasuries and that gets financed in the repo market. that trade is continuing to grow. friction in the repo market becomes a costly trade for hedge funds. now you are looking at market moves that effect where repo rates are trading. paul: al iteris is a go to source on short-term government markets. money markets, repose, all that stuff i do not pay attention to during that class in business school. i was like, i will be an equity guide. sell stocks, ipo's. maybe a high-yield deal every once in a while. caroline: who knew at cocktail parties you would need to know about the repo market? paul: i still quote libor because that was all the loans we did read libor plus a nice spread. 4788 is at the s&p 500 level, 10 points below the record.

caroline: still a couple more hours. paul: and we have one more trading day. caroline: can we eclipse it? very thin volumes, down about 40% on volumes for the s&p and similar for the nasdaq. good old nasdaq 100 still managing to plow into new record highs. paul: wti crude pulling back off concern we had earlier in the week, late last week from the red sea off about 2.9% on wti crude oil just under $72 per barrel. caroline: inventory built up in the u.s.. paul: exactly. i could never be an oil trader. that thing whips around all over the place. i have no idea how that works. caroline: stick to equity. paul: i just tell a story and it all works. we have more coming up. this is bloomberg. ♪

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>> for tv and radio worldwide, welcome. i'm sonali basak alongside vonnie quinn and we have a day on our hands. quite exciting when you look at

a lot of the indices. we are looking at or near record highs. >> it is fair to say that collapse many were calling for did not happen. we have the rest of today and tomorrow but we are seeing indices inched towards those records, some of them making records. to look at the s&p, never short a down market. we are up another eight points, 4789, not quite at the record. we have about seven points to go. will we make it today or tomorrow or will have to be 2024? i don't know but i think we will get there. there's profit-taking in treasuries today. a little concern in repo markets, and that's a very well reflected in today's action. we had a seven year option that was disappointing also playing into today's action. crude oil we got inventories and they were more than expected but not in cushing. that is playing in the mix dynamic we have in the oil markets.

certainly wti coming out the highs of two days of declines, 72.07. the fed will not be displeased. that helps the disinflation narrative. bitcoin is also giving back some of yesterday's gains, down 2%. plenty of bitcoin used today. sonali: certainly not green everywhere on the screen. want to talk more about those indices that have already hit records today. the stocks semiconductor index hit a fresh record today. the nasdaq 100 as well. let's see where. the nasdaq composite up .1%. and i bet you, i think, peppermint coffee that the s&p 500 will not match -- will not have any record by the end of the week. vonnie: i am thinking tuesday. something for the new year. you say a peppermint hot chocolate? sonali: i will bet you that, maybe something stronger if it

gets to it, but that would be the end of the santa claus rally into next week. let's talk about when our next guest thinks that we will hit the new record, victoria. the question about the s&p hitting a fresh record is does it maintain that record or lead to a fresh selloff? victoria: and i think that is the key question. we have had a tremendous amount of momentum that's led this market to its new high, whether this week or next. it will probably hit that new high. small caps and mid-caps have done better, actually outperformed the large caps over the last couple weeks. sentiment is strong. so you have this momentum play going and i think it will continue in the near term. what concerns me is once we get into the first quarter of next year, a lot of those momentum elements are going to start to fade away. you will have the consumer start to pull back a little bit.

i think you will have some concerns around earnings. earnings start around the second week of january in earnest. the few companies that have reported already for fourth-quarter have missed on revenues, a majority of them, so i think there will be some concern around earnings. and i think there will have to be some kind of meeting in the middle between the fed and the market on what rate cuts are going to look like. that will probably happen during the first quarter as well and i think the market will have to reprice, so i would expect some volatility and maybe a pullback in the first quarter or half of the year. sonali: i made a mistake by promising vonnie a peppermint latte. something about the s&p's record i wonder about, the fact we have seen these other indices already reach records today. do you think many investors are starting to discount the breadth of the markets here and the opportunities outside what we

see in the magnificent seven and other kind of classic stocks we have been talking about all year? victoria: i think for a while, investors have been looking outside of that magnificent seven, looking at where else they can put money to work because there had been such a strong run, and we saw those names pullback over the last quarter relative to the rest of the markets, so people have been looking for other places, small caps and mid-caps, but you could also look inspectors -- look in sectors that have been beaten down. we are looking for high-quality companies that have solid balance sheets, good cash flows that have been pulled down by the markets. there are names in the financial and health care sectors. and people are starting to their portfolios, especially here at year end. we had, what, $6 trillion in money market? and over the last few weeks we have seen quite a bit about

flows out of money markets and into etf's, so i think people are trying to get into the market before the end of the year as they into zepeda this rally to continue. vonnie: i hear what you are saying about the u.s. consumer. it has become a little bit consensus that the consumer is starting to fade. neil. a is not buying it. he says real incomes are climbing. are we underestimating the resilience of the u.s. consumer? victoria: vonnie, i always say when talking to my clients, never underestimate the u.s. consumer. so i don't want to say they are going to completely pullback, but i think they will start to slow down, not just because they are coming out of the holiday season, not just because prices are higher -- i mean, i understand we have the disinflation component, but if you look compared to two years ago, food costs are 32% higher. insurance is 34% higher. they are paying more. if you take mortgage interest out of the equation, the interest component for the

average consumer is 50% higher than it was a year ago, so they are getting hit and we are seeing delinquencies go higher on credit cards, on auto loans, student loan payments coming back into play, so i think there's quite a few elements that will cause the consumer to take pause, and the one other element that i think we need to look at is that we believe that as pricing power diminishes for these corporations through next year because inflation is coming down but wages are staying higher, that will cause corporations to cut costs and we know that leads to layoffs. we have already seen quite a few companies announcing layoffs. that will hurt the consumer as a whole, especially those in the lower income brackets. vonnie: i know you like some of the financials -- visa and mastercard among them -- and some of the insurance companies, but is it too early to be getting in? victoria: i think if you look where those names have come over the last year, they are down

significantly, so you can go ahead and start adding a little bit. i would never do a full position all at once and jump in with both feet. take baby steps into a little bit. you can dollar cost average into some of these names but i would go ahead and maybe wait for a down day and add to your portfolio. we say trim on the green day's and out on the red days so that is how i would start to go into some of these names and look at it over the next quarter or so and be opportunistic with them. sonali: how do you think about the relationship to interest rates? we have seen a tremendous drop off and yields this week alone, but -- in yields this week alone, but house in -- but how sensitive is the market to a rise in the level of yields we're seeing? victoria: obviously there are certain parts of the market that are more sensitive than others and we see that as we see the

volatility in the fixed income market but i think we actually will see yields move higher in the first part of next year. i mentioned i think the market will be re-pricing the market -- repricing. the market is pricing in six rate cuts so i think we will see yields go higher. and so i think there will be a little bit of a reaction to that. do i think we are going back to 5%? no. so i don't think we will see the same type of reaction we saw, but i think it means there will be continued volatility. i would add to in your fixed income portfolios, because over the course of next year, i think yields will probably end up lower, but it's going to be not a straight line down. we will go up a little bit and come back down as the fed and market come to terms. sonali: speaking of the market coming to terms, soon after we end the santa claus rally, it's only a couple weeks away from another busy set of earnings. we are already preparing for them.

you are talking about the consumer and the uncertainty there. how much do you think that will feed through into what we are seeing in corporate margins? victoria: yeah. i think we have already started to see a little bit of it. if you look at what the expectations are, they have come down about 6% from the beginning of this quarter from where they were previously, so we are already starting to lower the bar a little bit for this earnings season, and i think we will continue to do that. as i have mentioned, some of the early reporters were not as strong as expected. we have already heard about layoffs that are coming and i think we will continue to hear about margin pressure, about pricing power. i think these are elements that will continue to be part of the story in earnings. and, look, the new york fed, their global supply chain pressure index is actually moving higher, so it could be that costs on the supply chains are going to start increasing again. that is the exact opposite of what the markets expected --

what the market is expecting or even what the fed is expecting. and goods prices are going to settle a little bit. so these are all elements that i think our risks for earnings and i certainly don't think we will hit that 11% to 12% target in eps growth that people are expecting. vonnie: victoria, does disinflation continue throughout next year or is there a chance -- what is the chance -- that inflation rears its head again? victoria: so, vonnie, i would say that overall, yes, we will continue to see some disinflation. do we get to the 2% target? no. i think we settle around a 3% level, may be little below 3%, but i also don't think it will be a steady decline. there's a lot of elements that are adding to this inflation pressure. it is not just shelter costs people are focusing on or gasoline on the headline number. health-care costs, insurance costs.

i talked about the supply chain costs going higher. look at the original fed surveys that came out this last month. new orders were down tremendously and prices were up. and that is usually a precursor to inflation, so i think there is some pressure that is there that maybe we don't, every month, continue to come down. it could be rocky but over the course of the year we will see the disinflation component continue, just not down to that 2% level. vonnie: you mentioned some of the financials, insurance companies. can you give us more areas where there might be opportunities? victoria: i think you have to be extremely cautious here, vonnie, and i would say there's not one sector in particular that i would say go all in on. i think do your homework, look at those companies that i mentioned earlier that have strong balance sheets, good business plans. they have the cash flow that's their. those are the things that we are looking at. i also think you need to add to

your fixed income allocation. i would use some options in your portfolio in order to generate extra income. people will look for cash flow to buffer volatility. and a long-short portfolio, that's an opportunistic way to play some of the volatility we will see in the market as well. vonnie: victoria, thank you for joining us. that is victoria fernandez of crossmark global investments. some wise decision-making there commission ali -- there, should ali. you can see pockets of activity. sonali: someone told me you are discounting how many people are at home watching bloomberg television daytrading. vonnie: that too. sonali: but selling out to your point is a less attractive proposition when you think about the tax implications. the 2024 set up, we cannot confuse what we are seeing today for what we will see next year.

vonnie: we will speak with the lead senior portfolio manager at morgan stanley investment management. we will ask about this rally and whether it will continue. he says yes and others might disagree so we will have that debate on whether the bulls or the bears will win out at -- in 2024. we are also on record s&p lunch, up 25% this year for the s&p 500. could please many. this is bloomberg. ♪

fresh, warm hot dogs! when i'm not selling hot dogs, i invest in a fund that advances innovations like robotics. fresh, warm hot dogs, straight out of my torso! one for you, one for you. oh, you're a messy one. cool, right? so cool. anyone can become an agent of innovation with invesco qqq, a fund that gives you access to nasdaq-100 innovations. hot dogs! fresh, warm hot dogs! before investing carefully read and consider fund investment objectives, risks, charges, expenses and more in prospectus at invesco.com. vonnie: this is bloomberg markets. i am vonnie quinn with sonali basak. for all her listeners worldwide. joining us is andrew slimmon, portfolio manager at morgan stanley investment management. do we make it to a record high on the s&p today, tomorrow or

next year? andrew: it's incredible, right? the peak, 4790 six, was january 2 two years ago and here we are a day or two within two years. i think we might break it tomorrow. i think the market might push five. i don't see a lot of selling resistance. look, my view is you cannot ignore the breadth statistics. you have 90% of the largest 50 stocks trading above their 50 day. that's incredibly bullish. to stay bearish is i think ignoring history, ignoring statistics. i think the market pushes higher. vonnie: so, andrew, that was the fun question, but investors who have missed this rally will have a difficult time choosing what to do and you point out emotionally it is difficult. do you get to something that is already at a record or she was a

laggard here? because nearly half of the s&p 500 has lagged. andrew: since the low, the s&p equal weighted has outperformed the cap weighted. that makes sense to me because as people slowly capitulate into the market, they are looking for things they can feel comfortable buying because they don't like to buy the all-time high list. and i think, vonnie, what's important to understand here is that, unfortunately, investors sell for the first year off a bear market low. they always do. it happened in 2020. flows did not turn positive until year later. likewise, we had a lull in the bear market in 2022. flows only turned positive in november of this year. so when the flows turn positive, people look around for things to buy, and, voila, it's a lot of

those stocks that are equal weighted that have lagged. so i think when that happens, it tends to continue, and i do think the equal weighted will outperform the cap weighted next year, but i am intrigued, have to tell you, that that's a consensus trade and i hear few people saying some of these stocks might continue to power higher, so i am intrigued by that because they have lagged recently. sonali: how do you think about price to at this point? because you look at how expensive, for example, the nasdaq 100 is relative to history and you wonder how you recalibrate valuation in yet another interest rate paradigm potentially to next year. andrew: it's a great question, sonali. two things. number one is an psychology --

one is i am a huge believer in the psychology of investing. predicting gdp, interest rates, predicting earnings, look at the errors the supposed experts made this year. what has that to do with your question? the reality is that if you look at the earnings estimates for those very large-cap stocks at the beginning of the year, you would have assumed they were expensive, but that is because the e that was predicted by wall street was very, very wrong. these companies ended up producing much better earnings than what was expected, so always be very wary of a stock is cheap or expensive based on a e because sometimes it is wrong. whose estimate is that? how good are they at predicting earnings? and for these mega-cap stocks,

their estimates have been wronged by over 10% this year. so i'm wary of, gee, these stocks are expensive or cheap. i am more interested in earnings trends. i understand there's a lot of equal weighted stocks, financials, industrials, they have good revisions and have lagged. i'm intrigued by that but purely looking at valuation as a methodology to investing, it's faulty. it would have put you in europe over the u.s. years ago and we know how that has worked out. sonali: speaking of the e in the picture, is just weeks after the new year -- picture, just weeks after the new year, you get earnings season again. do you think you get more upside or downside at this point? andrew: my sense from listening to third quarter calls and since that juncture is that companies probably will not come out into

their fourth-quarter earnings estimates and downplay the full year. as we said now, 242 to 240 five is on the table and i don't expect that to materially weaken. and that is all we really need at this juncture because that's a 12% earnings growth for next year. but the real question is the market looks forward. so the market is already pricing in that 245 next year. let me remind you now that the estimate for 2025 is 275, and that, if you fast-forward to the end of the year, that is how you get more upside in the market, if that number happens. so all through this year, i was focused on the likelihood we are going to end 2023 with 240 two dollars to 245 -- with 242 to

245 year. now, how likely is 275? you can tell me i'm crazy. many people told me this year that there's no way to hundred 42 was on the table but -- weight 242 was on the table but there you go. that's a key metric by will be paying attention to as we move into next year. vonnie: so, andrew, you also point out that, every year that it's a presidential election year that the incumbent is running again, we have seen the stock market go higher, 16 times now since 1940. how much will next year's election roiled the stock market before it hits the record, as you expect? andrew: it's an amazing statistic. the last time a president ran for reelection -- did not necessarily win, just ran -- and the market was not up was 1940,

and that was just as world war ii was breaking. every year afterwards that the president has run for reelection, the market has been up. it's an average return of 16%. why is that? because presidents want the economy humming into an election year and i think joe biden has enough mandate for fiscal spending, whether an infrastructure act, inflation reduction act or the chips act that have already been approved by congress, he can pull those levers, and i think that is why markets tend to go up in election years. sonali: there is so much conversation about the upside and excitement at all the green we are seeing on the screen but what throws off this rally? talking about how far things could turn. andrew: absolutely. here's the downside. the downside is, historically, when the fed cuts rates, the

market gets anxious, and the market has a pullback, because, even if jerome powell gets out there and says we are cutting rates, inflation is over, there will be enough people that will say, they know something we do not. there's -- they are worried about. and it creates concern in the market and you tend to get corrections at that juncture even if there is no economic concern. the first reaction by the market as a pullback. so i suspect, when that happens, and i don't think it will happen as soon as the markets think, but when that happens, i think we will get a pullback in the market because it will create some anxiety that maybe there's a danger lurking out there. i do not think there is but it will create that. sonali: thanks to andrew slimmon of morgan stanley.

appreciate your time and happy new year to you. still ahead, we will be joined by a guest for insights on holiday spending next. it's an interesting part of the market because we know retail is complicated. we will talk about how that's hope but people believe will remain eight strong economy even in a soft landing. this is bloomberg. ♪ that first time you take a step back. i made that. with your very own online store. i sold that. and you can manage it all in one place. i built this. and it was easy, with a partner that puts you first.

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sonali: this is bloomberg markets. i'm sonali basak outside that alongside vonnie quinn -- sonali basak alongside vonnie quinn. vonnie: we will be keeping an eye on it. we do not care about records today. sonali: we do. we have money on the line. vonnie: if it makes a fresh eye or ins off the high, it -- fresh hi or ends off the high, it is not a big deal. we are seeing the 10-year yield at 3.85%, below where we started the year. a little bit of giveback for bitcoin, above $42,500.

we are seeing more punch come out of the oil market with crude trading about $71 a barrel. sonali: interesting to see that move downward in crude and bitcoin. the s&p is where the excitement is but also the other indices that have hit records are not trading at session highs but we are watching the stock still slightly green on the day. the nasdaq 100 at its highest level since the dot-com bubble, which invokes a significant feeling about that particular record high reached today. the nasdaq composite still up almost .2% on the day. the dow jones also hitting a record today, up almost .3% on the day. we will switch gears and talk about cathie wood. one of her funds executed a massive shakeup to its bitcoin-related holdings, selling off its holdings in grayscale about can certainty over whether it will

be able to convert into an etf. still, cathie wood joined bloomberg tv today to say she's still bullish about the cryptocurrency. take a listen. >> we are as optimistic about bitcoin as we ever have been, but there were -- there are a few regulatory and tax uncertainties, and we had been waiting for the discount between gptc and nav to narrow. it was as high as 50% at one point last year when there was uncertainty around all of the turmoil in crypto generally and now it is single digits. and there are now other products out there that we can use to gain exposure to bitcoin. in this moment, it's just a moment of uncertainty between now, we think, and january 8 to 10, perhaps, to take any risk.

sonali: pacific because we are talking about the that let's get specific because we are talking about the -- let's get specific because we are talking about that etf. you sold your remaining stake of the grayscale trust the same day you bought into the share of the bitcoin strategy etf that tracks bitcoin futures and does not hold physical bitcoin. can you explain that shovel? what was the thinking there? >> a couple of things. first, the proshares is already approved. there's no regulatory uncertainty having to do with it, so we chose to maintain our exposure through that for the time being, and, as i mentioned before, there are some tax and regulatory uncertainties still as part of this process.

we don't know exactly who will be approved and whether they've met all the criteria that the sec has put before us. we know we have, but we don't know if others, including gptc, have. we just don't know, so, again, out of an abundance of caution. gpt's discount was as much as 50% relative to nav, so not only have we enjoyed this year, the run in bitcoin itself, but we had the nice closing of that discount, so it's been double good news for us. sonali: that was cathie wood. we are going to switch gears and take a look at the luxury e-commerce market with michael -- with michael kliger, ceo of mytheresa, who joins us now. you have had a long history when you think about the retail market more generally.

michael, how does your market, the higher end of consumer here, compare with what we are seeing across the broader american economy? michael: thanks for having me. the luxury market and consumer shows higher resilience to significant geopolitical news or economic news and therefore we have seen good development in luxury spending online. there is clearly a two-to your market. there are these consumers, which we call aspirational luxury consumers. they have held back on spending and that trend has taken place over the last 12 months. then there are these big, wardrobe-building spenders, and they continue to spend. they continue to invest in pieces. price points are not really an issue for them.

and so with this tale of two customer segments, the higher end is spending and continues to spend. sonali: how much does that start to hold up? at what point do you see the higher end of the consumer start to break more? what would it take? michael: well, i mean, obviously, the wells of these consumers are tied to the stock market, to commodity prices, real estate markets, and so, even though, in some of these sectors we have seen uncertainty, overall, just looking at the indices today, these numbers are pretty good and therefore the wealth for consumers and those consumers is in good shape, and so if something were to happen there, then of course they may also be impacted, but unemployment rates, inflation rates, are far less of a concern to these big spenders than the overall

consumer population. vonnie: michael, what stopped working with online retailers? we had far-fetched selling to south korea's coupon. it was a darling just a few years ago. other companies not doing well. essence laying off staff, list, even the realreal. what's wrong with this segment? michael: excellent question. it goes back to the two consumer segments i alluded to. there are luxury spenders. we call them aspirational consumers that are key to buy one or two pieces, the iconic bag, the iconic pair of sneakers, but they tend to spend once or twice a year, particularly around the holiday season. then there are the big spenders, the continuous spenders. they lead a luxury lifestyle and they continue to spend. and our focus has always meant to serve these big spenders. so in our last quarter, which is our first quarter in fiscal

year, july to september, we grew net sales in the u.s. 28%. we grew our top customer base by 56%. so quite in contrast to the general luxury online pattern, and that's only due to a different customer segment that we focus on. vonnie: but then why are you guiding to the low end of expectations and everything? why is this business not more profitable and why is the stock down so much this year? michael: to the first part of your question, we are guiding for growth this year, our fiscal year. we are guiding for profitability. a very unusual profile to anyone of those companies you mentioned, so we have clearly outperformed the sector. the sector is under stress on the aspirational consumer side and that has led to intense promotional activities of players that found themselves with too much stock in the market, merchandise stock, but

again, we are grinding for growth, profitability for the fiscal year -- we are guiding for growth, profitability for the fiscal year, so we are see -- so we see ourselves as the winner in the market. for shareprice, yes, it has not reflected our performance. we do see that investors are trying to figure out what is happening in the luxury sector. it's not as resilient as expected and of course trying to understand the difference between players that focused on this aspirational consumer versus players that, like us, but also like some of the big luxury brands, are focused on the big spenders. sonali: you mentioned promotional activity. it seems like the age of inflation has impacted everybody across the board. how much longer do you think that the promotional activity will stay strong and how steep are the markdowns on average?

michael: the promotional activities are clearly linked to the fact that too much stock is in the market and the specifics of luxury is that there are tremendous leadtimes, so we are currently at the end of fall-winter 2023 season. this is merchandise that was bought last year, in november, october, december, so this was bought and there is still no understanding how weak the market on the aspirational side would be. with spring-summer 2024, the next season, which has already started but the people be in march-april, we will have much less stock on the market because this was bought in march -april-may of this year. it was a two year view on the slow down and there was less stock on the market. we expect a far more disciplined approach to markdowns and

reduced promotional intensity. vonnie: we are concerned with the chinese consumer right now as well, because obviously china can be a very interesting leading indicator for the u.s. and economic activity. what insights can you give us on the chinese consumer? michael: well, the chinese consumer spending has followed a completely different pattern from western europe. remember, the pandemic really did not impact asia, particularly mainland china, until autumn of last year. only autumn of last year, when the official policy towards corona changed, towards covid, there were massive infection rates and massive lockdowns, and the chinese consumer, coming out of this phase in january and february of this year, there was an expectation of a quick rebound, a sharp rebound, and that has not happened on a broad scale of consumer spending.

it had happened on hospitality. it has happened on travel. the numbers are up so the sector is improving, but the sharp rebound back to levels before the pandemic hit last autumn has -- did not happen, and it's a slow return of the moment. vonnie: fascinating. michael, thank you for your insights. coming to us from munich, germany, that is michael kliger, ceo of mytheresa. a l'oreal eras has become the first woman to reach a fortune of 100 billion dollars. her wealth jumped after shares of the beauty product company hit a record. i find it fascinating that it is french beauty companies that see the biggest and wealthiest people in the world, for the most part. i mean, she is eclipsed by the owner of all of the great brands, including chanel and so on, lvmh, but this is a serious

milestone for a woman. she's a recluse, 70, now a $100 billion >> -- $100 billion-aire. sonali: the family behind it has had intense competition. she is still far behind that. however, to your point, a massive move. we are seeing more women across the world become billionaires days not only on family enterprises but focusing on a market that -- and l'oreal alone is expected by consumer edge to rise another 12% over the next year with resilience of its products across different geographies across the world,'s not or the u.s. opportunity there even if she is lagging behind and a new milestone. vonnie: i love when we do these stories were a woman hits a milestone. it hits taylor swift one day. it might be less than this, $1 million, but a french woman now hitting this milestone, owning

35% of the company. it started as a hair dye company. sonali: i did not know that. i'm going to start that myself soon. vonnie: you do not need to. she plays the piano for hours a day. she keeps to herself. sonali: fascinating.

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as they would put it about changes to be made. when i was practicing law, as you did, we talked about going to the same position. what are the same positions of the trustees, the president, administration, faculty and owners? what should those positions be? >> to start with donors, i think they are free to give to whatever organization they want or not and withhold for any reason they choose, but they are not shareholders, so i don't think they should have a particularly loud voice. there is a governance system that's been in place for centuries or decades and that involves trustees, the administration and faculty. they are focused on the financial viability of the organization. they did the budget, reviewed the audit of the financials,

invested the endowment, made sure that it would be valuable -- be viable for a long-term. the president and administration run the business of the university day-to-day, and along with the faculty, run the academic affairs, and it's been rare in my experience, almost two decades on the board of university, where the trustees get at all involved in academics, so they need to be careful about how much they reach into that area, and i know faculty are concerned that they not reached too far into that area. >> you mentioned academics on the one hand, finances on the other. you are a prime example of somebody who is knowledgeable in finance. it would make sense to have you on a board and chair a board. there is a third area, which i would call reputational risk. existential risk for the institution that may be both academics and finances. who should be responsible for that and what sort of people do you need at the table making those decisions? scott: clearly, if it's an existential threat, everybody

needs to be involved. i don't think trustees can seize control or let the faculty take charge either. everyone needs to be involved in something like that but i don't think trustees should overreact in this situation of what could be a short-term crisis and take too much control. it still needs to be a collaborative effort because that is the peculiar nature of governance in these institutions. they are not public companies and are not run like public companies historically. david: there's another player that has gotten involved and that is the united states congress. they were called before congress. what if anything is the proper role of the government try to influence the way this is handled on college campuses -- government trying to influence the way this is handled on college campuses? scott: it has a bigger role in public universities and smaller in private universities but the government gets involved in any institution in american life so

you need to be prepared for government inquiries when they come and they do provide financial support to even the most private universities in the sense of research funding and things like that so they will have legitimate questions from time to time and those need to be answered, but fundamentally, the institutions we are talking about are private and they are run by the trustees, the administration of the university and the faculty, and that has worked for a long time. it's important to remember, elite universities in america are the envy of the world. people all over the world go to great lengths to get to these places. you don't see a lot of people from new york city trying to go to a foreign country to get their degree. you see a lot of people from europe, asia, latin america and elsewhere to go to america together degree. david: corporations as well as colleges, i ask myself, is it a substantive problem or communications? often it is both.

when you look back at what's happened at harvard and m.i.t., how much of this is a substantive underlying question of values as opposed to the rules not being clear enough and what they should be? scott: scott bok it scott bok -- scott: it's probably a fairly substantive issue. and i think the biggest factor, the biggest challenge, really, has been that we have not had any sort of crisis or controversy in quite a long time. you referred to the 1960's. that's a long time ago, well before you or i went to school, but there was a lot of unrest on campuses back then and since then it has been quiet. there have not been many controversies or moments where trustees have been asked what their role should be. there have not been many moments where faculty have felt threatened by trustees and what role donors might like to play, so when something suddenly comes along, you know, everybody does not room number their role

anymore because they have not thought about that in a while. david: in the 1960's and into the 1970's, we saw what was going on on college campuses as a reflection more broadly of what was going on in society. now, there is more polarization. people are more outspoken. if that's right, what can campuses do, what can colleges do, maybe, to help us deal with some of these issues? scott: i think that's a major factor here. we are in a more divided society and the divisions tend to be deep and people see things in a black or white way and the voices you hear are on the extreme, the extreme right and left. i do think it's important, and i have tried to convey and some of the comets i have made, that what you see on social media, what you see may be in the newspaper or on television, is a very small part of what actually happens on campus.

as with anything else in life, the noisiest people get the most attention, so it's a small fraction of 1% of the people at these elite schools that are really actively involved in a way that anybody would find troubling. 99% of those students are going about their business, trying to get a degree, trying to get into law school or med school or get a job at goldman sachs and they are not that involved, but you can get a sense from the outside, particularly looking at instagram or facebook or reading the tabloids or something, you will get a different view about what's happening on these campuses. david: you have thought through these issues a lot. you have been on the inside looking at them. you have a lot of reasonable sounding thoughts about what should or should not be done. why did you step down? you could still contribute. scott: i could. i felt our board got particularly divided at one point and i thought there's clearly a debate about the role

of trustees, faculty and administration. i think that's an important debate and frankly i felt i could contribute more to that from the outside than the inside. if you are the chair of an institution that has almost 50 trustees, you have to speak for the whole group. your speaking for the whole entity. if you are on the outside, you can speak more freely. i think i have contributed and hopefully these comments here will help people understand there's not a huge crisis. it's a small percent, very small percent, of students that are doing things that would be troubling for most people. there are things you can do about that but we should not fundamentally tear up a governance model that's worked for a long time and made our universities the envy of the world because of a short-term crisis. sonali: that was scott bok, chairman at greenhill, and david westin. you can watch wall street week

fridays at 6 p.m. eastern. in the next hour, we will talk with lisa lippmann about her insight on the market for manhattan real estate. it certainly been an interesting market for luxury real estate. vonnie: we will get some great statistics on what sold in new york city because obviously, when you talk about real estate, you have to talk about manhattan real estate. we saw pending home sales at the lowest on record. is that good or bad? good for the fed at inflation or is it a sign of weakness? sonali: we have a lot of people waiting for a bottom in this market. we will talk about those other markets. we will see what we have got. that's next. this is bloomberg. ♪ t and your store was alsoted thrst time you realized... well, we can do anything. cheesecake cookies? the chookie!

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vonnie: for our audiences worldwide, welcome to bloomberg markets. i'm vonnie quinn along which nelly bostic. we are checking the markets.

we are seeing the s&p 500 do its duty and run up .2%, fractional, but about 25% of volume out there, may be a little more. it's picking up into the afternoon. we need another eight points. we will get there at some point. profit taking as i have been saying in the treasury market. disappointing seven year option after the earlier auctions this week were better received. an oil trading above $72 a barrel. everything seems to be going right for the fed, including some of this housing data. we did hit some records. sonali: i found it exciting. the nasdaq 100 at its highest level since the dot-com bubble. you saw them hit a record. you do not see the same thing for the composite. you are seeing much activity in the semiconductor index. throughout the week, a lot of love there. a fresh record was hit but we are now flat on the deck, which

pecks the question, for all these indices, how much is too much? and at what point do you see a correction? vonnie: depends on if you are a buyer or a seller. if you said at the beginning of the year that we would hit a record on the nasdaq 100, you may not have been believed in the sense that we had to go up 54% for that to happen. sonali: the dow jones industrial average hitting a record, still at more than .2%. vonnie: let's focus on the housing market. the latest data show u.s. existing home sales held at a record low in november, the market getting hit by a lack of inventory and high prices. higher interest rates not helping. joining us isn't just menton -- is jess menton. pending home sales unchanged. this does not necessarily bode badly for shelter inflation, does it? jess: david: not necessarily -- jess: not necessarily.

pending home sales are sales and contracts that have been signed but not closed yet, so there's different ways to slice the housing data, because we are seeing some improvement with some existing home sales, particularly in the south, even though it was weaker than expected, but if you look at the weekly mortgage data that came out, and if you look at the 30 year falling below 7% but, when you look at borrowing costs over the last two years, still very pricey, but coming off the high of 7.8% for the 30 year mortgage, so what you're seeing in the stock market reaction is homebuilder stocks. they took off at the beginning of this year given that if you look at that group, it lost about a quarter of its value last year, but once the fed raised rates in july even of they in june, you saw pressure in that corner of the market, but now looking at some of these indications from the fed, if you look at from late october now, those home building stocks up

40% and 80% this year, so when you look at horton, lennar, those have been on a tear this year, double-digit gains. sonali: some prominent buyers in each of those. the thing you said about rates is important, we are still at elevated levels. we heard from a number of guests that 5% level is a sweet spot in spurring demand, but how long of a road is it to get there? jess: that is the million-dollar question. especially for people who locked in such cheap mortgage rates, especially since the height of what was going on with the pandemic and issues with inventory, because that was not even just a pandemic issue. that got exacerbated by the pandemic and already an issue with low inventory coming out of the great financial crisis. because of that and whenever i'm speaking with managers, a lot of them still want to buy home building stocks just because they feel like if you were may be an elder american or may be millennial or gen x during covid

on some of the mortgage rates, you are likely not going to end up selling that home that gives demand for homebuilders to continue as far as what's going on with the inventory and a low inventory continue to build there so there's a lot of that. there's a ceo that was talking to me about how he is still pretty optimistic about homebuilder stocks as far as buying them for his portfolio but he's obviously managing money for the longer-term of the trajectory for particularly the housing market next year, when looking at the housing data, if the fed indeed is going to in that -- it's been pausing for a while but if rate cuts come or cuts that are not associated with a recession but just decelerating growth in the economy, it seems like the consumer is still in a strong spot looking at the data. vonnie: it does we also saw that reflected in jobless claims -- does and we also saw that reflected in jobless claims. that is jess menton joining us.

for more insight on the real estate market, let's bring in richard hill. give us who brought outlook for 2024 on the real estate market and particularly with mortgage rates at this level. richard: sure. let me start talking about the real estate investment trusts, the most liquid part of commercial real estate. we think they are a leading indicator in downturns and recoveries. i think that's important because reits have had a tough two years. they are down around 17% on a total return basis from their peaks. prices are down more than 20%. believe it or not, they were down even more in october. they were down more than 30%. what that means is the past two months have been strong for reits. they are up more than 25% from the trough we saw two months ago. what is driving that? it is easy to talk about the kalus being falling interest rates and that has helped,

but we have long held that the best interest rates for reits occur in the aftermath of the fed hiking interest rates and recessions. we are seeing that play out in real time now. lower interest rates are catalysts but growth is on strong footing and balance sheets are strong. so we think the market should be looking at reits more because they are laggards. vonnie: as you say, just 3% of those listed reits, what makes up the other 97% and how closely should we be watching the subsectors? richard: it's a great question. listed reits are one of the few sectors of the s&p 500 where active management actually works. why is that the case? you mentioned that cre is viewed as a broad sector but there are all these different subsectors behind at. there's 18 different subsectors. so what has done well this year and what have we favored? things like data centers that are up more than 30% now. believe it or not, we like

select regional malls. they are up. single-family rentals have done well. we like senior housing. so there is a way to always find value in the listed reit market. sonali: speaking of, how do you think about valuation? you said data centers. the ai boom has been real. you have seen a lot of dealmaking activity based on the ai boom. but how much of a run-up is left in that part of the market and how can you capitalize the value opportunities that still exist? richard: first i can talk about how listed reits are trading relative to the private market. we think that private valuations are only down around 50% relative to where they will go. what does that mean? private property valuations are down 10% to 15% now. we don't think they will trough until they are down 20% to 30% and that probably wont occur until late 2024 turley

2025, but you made a really important point about valuations, and how did they run over the past two months? we are getting questions about valuations but there's an important point i don't think a lot of people spend time with. the public markets forced a lot of discipline on listed reits. they forced them to sell assets when private valuations are high and gave them an attractive cost of capital. listed reits have actually been net sellers in the past since 2015. believe it or not, coming out of the late 1990's and after the great financial crisis, valuations did trade at a premium. and listed reits were starting to begin to acquire assets again. so we think that is what's starting to happen again. yes, valuations maybe don't look cheap relative to themselves, but we think that is because the public markets are giving listed reits the green signal to begin acquiring private assets as they are declining, so a really

important question that deserves some excellent nation. -- already been felt in that sector. we are not quite there yet. we have limited exposure to office reits. we do have any exposure to coastal office reits so we think

there is more time, but maybe one of the things that keeps us on the sidelines with the okta sector -- the office sector are balance sheets. they are not quite as strong. but apartments have not really done that well. they are down almost 30% from peak to trough. so there are some sectors that the market is telling you there may be some bumpy spots coming. there have been other sectors as well, like apartments. vonnie: how do you plan for investing next year when the fed says it's looking at three rate cuts at some point during the year and the market says it will probably be more like six or seven? richard: sure. it is the absolute right question to be asking. we think the listed reit market is pricing in a soft landing where real rates may be go to 1% and credit spreads are stable and growth decelerates a little bit, but where we think the market is not considering them as we think they can do well in

a hard landing environment, so maybe the worst case scenario for listed reits is the higher for longer environment, but as i'm thinking about this and speaking to investors, we think there is still room to the upside because they can do well in a soft landing environment and on a relative basis in the hard landing environment, but if i win in two out of three scenarios, feel good about that. sonali: if you think about what you said about the office and apartment market, for example, i think apartment are interesting because of what you have seen with rents, which vex the question, how far that which begs the question -- which begs the question, how far down do you think that has to go given that we have not seen the worst in terms of rental softness given what we have seen this year? richard: i think you have seen a fair amount of rental softness at least in new listed rents. they are flat to negative this year. what's actually happening is the

shelter inflation rating you were talking about is lagging, so we think one of the reasons that inflation will be more under control and some people expect is because what we are seeing happening in real time which shelter inflation, its rollover and is decelerating. it's flat and maybe in some sectors has gone negative. what the apartment market is dealing with now is less about that side and more about the supply coming to the market, new supply of properties. there's been a lot of new supply that's come about over the past 18 months and will continue over the next 12 months. so the supply-demand technical is just a little bit more imbalanced than previously. we think will get through it. apartments are a great sector long-term. they are just facing some supply versus demand technicals. sonali: richard hill, thank you for your time. certainly a complicated market. you cannot treat everything equally, especially in a higher interest rate environment. vonnie: in the next segment, we

will be talking about the residential side of things. there's a measure before the state council that would suggest people won't be able to buy under the cloak of secrecy anymore and is that good for criminals, celebrities? sonali: i had no idea any of that was the case. we will talk about the next. we will stick with our conversation with brown harris stevens next. this is bloomberg. (adventurous music) ♪ ♪ ♪ be ready for any market with a liquid etf. get in and out with dia.

sonali: this is bloomberg markets. i'm sonali basak alongside vonnie quinn. we will focus on the luxury apartment market in manhattan because according to a report, as of mid december, two hundred 40 contracts were signed for

homes priced at $10 million or more compared to fewer last year. seven of the most expensive sales were on billionaires row, a stretch of 57th street below central park. nine of the top 10 sales were condos. joining us now is lisa lipman, real estate broker at brown harris stevens, the number one agent in the firm for the past seven said consecutive -- seven consecutive years. it's interesting because a year ago everyone was talking about how manhattan was hard to live in, but billionaire's row is showing you otherwise. what's going on what is going on -- what is going on? lisa: david: i think there was a narrative -- lisa: i think there was a narrative for a while that people were leaving, but like everything else, people end up moving to where they want to live and it's not all about taxes. for some people it is, but most

people -- people choose to spend money where they want to live. even in the 1970's, people were choosing to live in and invest in new york. we got through covid better than a lot of other places. people were masked more, got vaccinated more. our economy came back very quickly. and if you walk around new york city now, it's packed with people. we had a lot of people in for the holidays, still there for the holidays, and, you know, tourist attractions, and just local people. really hard to get reservations. private and public schools are full. the streets and subways are full. sonali: what about the way people are buying? you see co-ops out of fashion relative to condos. you see people kind of quietly marketing in these markets now.

what are the preferences and how is the job getting done? lisa: so, you know, things have definitely changed because of the complete transparency. when i started in this business 25 years ago, if you wanted to buy a property, you had to hire a broker to tell you what listings rather. now, you have something called street ez in new york city, our de facto mls, and anyone who wants to buy can see what's available. not only that, they can see how long things have been on the market and they can see where things have traded, both property they are looking for, if it's traded in the last 15 years, or other things that are comparable, so we had this transparency that has made buyers feel more empowered in new york, something they did not used to feel, and it has changed a lot of things. one thing, we are seeing more things being marketed quietly

because there are some sellers who do not want their property to sit on the market, have the days add up on street easy. you see that often with sellers who are not overly motivated to sell. they are only motivated to sell if they get the right price. these are often unique trophy properties, where we will have a buyer for the, and that buyer may be willing to pay basically almost any price, but the seller does not want to sit on the market for two or three years and then sell, so it's marketed quietly. there's more of an allure to it and sometimes a match is made that way. that is the sort of quietly marketing thing. that is why that is done. there's also been a really big change in co-ops and condos. years ago, when i first went into the business, it was about 80% co-op inventory and 20% condos. every building that's been built since 1989 and every building that's been converted from

rental to ownership from about 1989 to a later date has been converted as a condo, so now we are at 60% co-op, 40% condos. if you are going to compare an apple to an apple, more people want a condo. why is that? you can finance as much as you want, you can rent it out generally, there's not the same kind of financial disclosure, a board cannot really turn you down. you are buying real property. co-ops are somewhat unique to new york city. we see some of them in chicago, but they are more restrictive. vonnie: what is happening with the foreign buyers? is the chinese buyer back? has the russian buyer disappeared? lisa: we don't really have russian buyers. we have not for a long time. we do have asian buyers. we have a lot of asian buyers coming from places like korea, singapore, thailand. i sold a very large, expensive

apartment a couple years ago, since covid, to a very wealthy person from korea. we see a lot of money coming from places like singapore. we also see a lot of money coming from places like south america. stable as the u.s. and new york and they spend a lot of money. sonali: lisa lippmann, thank you for your time. certainly a bit of a rebound when you think a manhattan luxury. we move from the empire state to the lone star state because three of the biggest banks on wall street have started new campuses in dallas. that expansion has texas leapfrogging chicago and los angeles in the number of that kind of worker. we talk to shelley hagan. how much interest now is there in new homes and movement into the dallas area given you have seen some big manx -- big banks move over? shelley: there's a lot of population growth in the dallas metro area.

it's one of the fastest-growing metros. it has been for the past few years. of course, texas overall is a fast-growing state and the pandemic has quite started all this growth from the pandemic, more businesses moving here. people can do the same job they did in california and new york and can do it in texas, so the quality of life in texas is high. in dallas, it's easy to live here. businesses can grow here. there's obviously a large talent pool, lower cost-of-living. there's zero income tax. so the fact a lot of people are moving here and businesses are expanding here creates this virtuous job cycle. sonali: what about worker rights? we saw this begin with nashville. it became the hot place for a while and now i guess it's -- is it the same for workers rights in a state like texas as it is in states like new york and

others? shelly: so, i mean, in texas, it has been growing very rapidly. people want to live here. there is businesses expanding here. businesses want to take advantage of the low cost talent pool. like you said, in the sun belt states, in texas, in florida, it's a lower cost-of-living, so businesses don't have to pay their workers as much as they do in new york and california to get the same kind of talent. sonali: i'm curious about the type of talent moving over. i think about goldman in particular. there's a huge campus built, but one of the main executives that moved there was in charge of this big consumer operation that did not work out so well. is there kind of a massive push in terms of bringing more executives across different business lines that can show you kind of where the true direction of travel is going? shelly: well, it's a very

different makeup of workers here in dallas than it is in new york city and wall street. there are a lot of backup -- a lot more engineering operations type of employment here. john waldron was here in dallas for the groundbreaking ceremony for a goldman sachs campus in october. he mentioned that of goldman's 4000 employees in the dallas metro area, 1000 of those are in engineering, so there's a lot of engineering, back-office, not as many investment bankers in dallas, but there's a push to bring more executives here to the dallas metro area, and we have seen some big ceos of companies move here. we have seen the fortress investment co-ceos move here. we have seen jp morgan has more than doubled the number of investment bankers it has in the dallas metro, but it's definitely slow and nowhere near the type of talent in new york city. vonnie: shelly hagan, fantastic

story today. our thanks to you for giving us that time. would you move to texas? sonali: i would not move out of new york city. you cannot even get me to go back to jersey. vonnie: i would have a hard time. maybe nashville but i don't know. sonali: places to visit. vonnie: it's a quicker plane. coming up, we will be speaking to jay hatfield, founder and ceo of infrastructure capital management. he joins us on radio and television this thursday. this is bloomberg. ♪

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vonnie: this is "bloomberg markets. we are after more than four points on the s&p 500. stocks making 52-week highs including goldman sachs and jp morgan. the dow is up 0.25% we have money coming out of treasuries, the 10-year yield at 3.8 369 we

had a seven year auction earlier that disappointed. crude oil settling just below 72 dollars a barrel. in bitcoin giving up yesterday's gains still trading at the 42,000 $500 coin mark. sonali: and another set of indices have done pretty well this year and today though we are seeing the steam being lost in the market. most indices except the dow jones industrial average are flat the dow jones is up almost 0.3% on the day. but again, we are still half an hour away from the market close. this market has seen the direction of travel mostly move higher and some of these indices, particularly the nasdaq 100 all hit records earlier in the day. vonnie: the anticipation is killing us. let's turn to the red sea. the u.s. is sanctioning entities it says have transferred millions of dollars to the

houthi on behalf of iran. the militant group's attacks on ships in the red sea have obstructed the trade route. half of the normal sleet is no avoiding the route. joining us is the senior geo-economics analyst for bloomberg economics will this do anything to deter these rebels? guest: i will say probably not. they are probably looking for targets to respond but i don't think financing is a issue here. the houthi have demands pertaining to gaza and the iranians are concerned about both gaza and hezbollah. it's not about money. it's more about strategic posture. scarlet: how do you think about the risk moving forward as the situation unfolds mark guest: from a shipping perspective, we are close to as bad as it is going to be. it is possible they will keep up the attacks. the problem is the risks will be compounded in terms of what it does to supply chains. what i am most worried about geopolitical is that some point in the not-too-distant future, if the u.s. navy have to expend a lot of organized to protect commercial shipping, there might be pressure to undertake offensive operations against the houthis.

the houthis might retaliate including by attacking saudi arabia with, whom they have a pretty tenuous truce. scarlet: to that end, as we look into 2024 and the choppiness in the middle east, the geopolitical tensions that have been brewing, where listings go from here and what is the respective get much worse? guest: it is a list complicated, but most of what is happening now including with the red sea is ultimately linked to what is happening with israel and hamas. there are no indications coming out of israel that those operations are close to wrapping up there, they will probably continue a while. so i expect the combat in gaza will persist. the israeli government has been threatening the labor needs to deal with the hezbollah problem. the biggest risk would be direct confrontation between israel and iran itself which has mostly

happened through proxies. the israelis might have killed a major commander of the iranians in syria, but haven't fort directly. vonnie: looks like some of the shipping companies might start shipping address through the red sea after the joint naval operations task force was announced, but they are backtracking on the premises now. perhaps rightfully so. will trade be disrupted for some time to come even if there is more than to combat these houthi rebels? guest: mersk is the major company that said they were considering reentering. they have not done so yet. i expect things to remain like this for weeks, maybe several months. the question is how much munitions and drones and missiles to the movies have -- do the houthi have? you likely in this position for months. maybe that's the best we can hope for. the worst case escalation that

would involve expansion to tehran or saudi arabia. vonnie: thank you, gerard did people of bloomberg economics. we are fewer than 30 minutes away from the close. let's speak more about the market. joining us is the founder and ceo of infrastructure capital management. you have raised your target on the s&p 500 to 5500. when and how do we get there? jay: we used the same methodologies for our 4500 target for this year. we used earnings. the bloomberg consensus is $270. we have a 20.5x multiple which are dependent on the tenure being 3.5. so we actually see more risk to the upside, believe it or not,

than the downside to the 5500 target. vonnie: others are coming out of bullish forecasts for the art of next year. what gets us there? the magnificent 7? or the laggards? jay: we think it will be the laggards, on a risk-adjusted basis, we are focused on financials, that includes preferred stocks. our flagship fund is the preferred stock fund which has done well and we think will continue to dwell. but financials, particularly the big investment banks like morgan stanley and goldman sacs. we think rates will continue to drop mostly driven by europe, the recession in europe. that will be bullish for the sector. nvidia has a twice risk of market. about 15%, that could be up 30. so on a risk-adjusted basis, i think financials will do better. but i am not saying that you should sell all of your tech

stocksm do you start to certain positions at this point? jay: i think the tech stocks have gotten their full defensive being. now we are really reliant on actual demand coming from it i. but it is there, particularly for the large-cap companies that have cloud businesses, because even if you don't have application, you still have demand to build the models. we think nvidia and old cloud providers will continue to outperform, but more on fundamentals and less on the safe haven trade. sonali: it seemed conservative to say the tenure will be at 3.5 we. have seen a little recalibration in the markets. what is behind your view of rates coming out low again and what are the risks to that view when you are thinking about the broader ramifications of the rest of your investment thesis? jay: we were bold this year. we called it the year of the pause, and tear will be the year of the cut. when you analyze inflation

correctly, correct for shelter not being calculated properly, really inflation started to be contained about 1.5 years ago, that was when it rolled over. we have our own index. so we continue to be bullish about inflation. but if you look at the real-time data, europe is heading into recession. the ecb doesn't even realize this yet, they are forecasting 0.8% next year which we think is wildly optimistic. it's ok to be pessimistic about u.s. fed rate cuts because our economy is fine. so what is there rush, particularly after their huge mistake, the transitory mistake? but the ecb will be forced, particularly germany. it's an unmitigated disaster. that are important to the eurozone. . that is going to force the ecb to cut rates, we think, in the second quarter. in the fed will not be the one leading the entire world. vonnie: iesco i think the markets have about 150 basis

points priced in for the u.s. and i think about 100 80 basis points priced in for the eurozone. we will see who is right. how vulnerable are these markets to negative economic news? jay: no doubt we have been correctly bullish for a couple of years because 11 out of the last 12 sessions have been driven by a housing decline when the fed inverts the yield curve. if housing comes off, you have layoffs and the consumer spends less because of layoffs. so i would want to that as an indicator. having said that, everything so far, seems good. the case-shiller is still rising. but in europe, prices in germany have plunged by 10% and that is driving their recession. so i would want to that. if we are wrong, it will be about housing. vonnie: what are the conversations you are hearing and having about overnight rates rising, it seems there is quite

a lot of trepidation out there about that at the moment. jay: about the transition, vonnie: -- no, about the rate hikes. jay: it is definitely elevated. it is perfectly reasonable to be concerned about that because we have only had one in that didn't lead to a recession, or was driven by housing. so this is unique because you have the pandemic which illuminated housing construction. so it is perfectly reasonable to be concerned about it. but we have been correctly bullish. because when he really look at the housing dynamics, the chances of us having a big drop-off are very low. sonali: speaking of the drop-off, there is question about how much of a fed put still is in existence and how quickly the fed steps in when the market looks shaky'we think this fed is most fundamentally flawed unlike the greenspan fed because they have this arbitrary 2% target. they only look at pce core, they don't look at all inflation.

so we are pessimistic that there is really a fed put. we are fortunate that we have the best economy in the world because of our technology, because of our housing dynamics, super lou energy prices -- talking about natural gas is very low. so the u.s. is just ideally positioned in the market. that is when we are bullish about rates coming down. for the rest of the world, it's not true, it's in serious trouble, as you would expect. actually we have been saying for a full year that we would not be having a recession, the rest of the world would take the pain. sonali: that is the recession risk but also very inflation risk you mentioned housing prices. another of his people talk about a lot is wage inflation. how much does that change the story next year? jay: we have the opposite view of the fed which has been correct, i would have to note, which is that goods prices drive wages. in other words, we saw that if rents are up 20%, you have to

pay your employees more. but if they are coming down, -- gasoline has crashed, down 15% and that is still feeding into inflation. so the two leading indicators are shelter and energy. energy is way down. we don't think wages are critical, they are in lagging indicator, in fact, in the 1970's and real wages went down by 6%. oil is up 1200%, which almost no one knows, because we actually limited production in the u.s. which was a horrible crisis in production. so we had a horrible energy policy but wages did not keep up with that. so that evidence -- again, the fed is driven by the phillips curve. that the data just doesn't support it. goods prices drive wages. vonnie: your forecast also includes the 10 year going between 3% to 3.5%.

jay: looks like we could get to 3.25% to 3.5%. every 25 basis runs of 10 year treasury move is an smp multiple. so there is another two multiples of upside because we based our target at 350. that was done 50 basis points ago. vonnie: yesterday. [laughter] jay: yes, it is crashing so fast. you could go up as high as 3000. that unusual. if you look back to other tech booms, typically it was an overvaluation. it drugs every other sector. . that is why the u.s. beats every other economy in the technology race. their harvests to the upside and we have noted that about hour 4500 target which is about target, only because it was not high enough. sonali: jay hatfield, founder and ceo of infrastructure

capital management. thank you so much for your time. still bullish for the year ahead. we will talk more about the trends in the market, only 15 minutes or so away from that closing the. we have a bed on whether we will hit smp tomorrow or tuesday, -- hit a record on the s&p tomorrow or tuesday. we will talk to the cto. vonnie: very close. sonali: we are a day apart. we'll talk more about that next. this is bloomberg. ♪ the first time you made a sale online with godaddy was also the first time you heard of a town named dinosaur, colorado. we just got an order from dinosaur, colorado. start an easy to build, powerful website for free with a partner that always puts you first. start for free at godaddy.com -my stylist curates unique personal looks that are just for me. kind of nice. i like that. give them your size, your style, your budget. i keep what i like and send back the rest. -what can i say? my stylist gets me.

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sonali: this is "bloomberg markets gerko i am sonali basak alongside vonnie wayne. it i have been the talk of 2023 and many businesses are looking to rate it. but instead of teaching itself

to the ai bandwagon, this company is cautioning that ai may be overshadowing other important issues, according to the latest reports. the lloyd's's chief technology officer bill briggs joins us now on the. i have to say, with how much we have been talking about. i this year, i am so happy to talk about something else. where is ai overshadowing what is really returned? bill: they is absolutely an important factor so we are beyond bullish on the business implication of ai in all of its forms -- generative ai, machine learning. rh, there has never been a point in time were any one given technology is the only thing that matters. in this case, we see the convergence of a lot of different trends that with ai are what business and government are driving their next wave of

investments around. so it's less about dismissing a, we are absolutely bullish. it's about we have a complete picture of all the things happening right now. sonali: but even in ai there is a question about whether the advances are overblown. of course generative ai has been the difference maker this year, but how much is it starting to feed into productivity? bill: what we saw this last year was incredible excitement, which is fantastic, a lot of early experimentation, and we are being leaders move into deployment in scale, which you have to get out of the -- let's do a proof of concept and a demo which are easy, but typically don't translate to real productivity and new products. we are at this place where the potential has sparked the interest of not just technology leaders, but the broader executive suite on the board on why it is fantastic.

how do you take that and get confidence and clarity on where to invest, how to invest, and do it so it can go to scale operations and business process, will be embedded in product and business models? that is where in 2024 we expecta tipping point in seeing those examples from early experimentation to real at-scale deployment. vonnie: explain it to me, because you are deloitte's cto. businesses come to you and say how do i x? how do i use this ai? what do you tell them? bill: in every industry around the globe, we have examples of real immediate use cases, things you can deploy against with sector, sub-specter areas. that helps. we have published research of real examples of what you can do

right now. and then also, our job is to say, let's make sure we balance the hyperbole and the potential with what is an appropriate investment to make now and how to do that. some of the other trips we highlight don't get as much attention. but how do we put in place because and policies for trust? in everything that we do, especially in ai? how do we make the right investments we have to make in our legacy core systems that likely have been in place for decades and aren't ready to take full advantage of something like advanced ai? and one of my favorite ones is, a trend about more and more organizations making investments in their engineering capability. the discipline of how do we have the tech jobs to be able to go with things that are happening in this year that

are important. development of experience. it is a real investment or that it is not just for high-tech companies that have been doing that for a long time. we are seeing it across industry now. vonnie: can you give us a percentage, even a guesstimate on your part, what kind of percentage are companies, small to medium-sized, dedicating to the development of ai in their business? and are they trying to offset it by job cuts elsewhere? bill: it's interesting, one of the things we are really trying to help temper is the immediate response to any technology advance is efficiency. . it is cost-take out. how do we get efficiency in the business process? and for sure, that is real and there is potential. but the bigger question is how do we use the technology to unlock creativity? how to use it to think about

different problems we have never faced before? the danger sometimes becomes that we limit our thinking to the way and have always -- the way work has always been done, the room have thought about our product in the market. and we use that breakthrough technology in a way that ends up being incremental because it is bounded by yesterday. so how do we incent, how do we unlock the creativity of -- and this is the extended employee base, everyone, how do we do what we do differently to take advantage, and not just be limited to what we have always thought about? sonali: right, no promise of an extended employee base, how do you make sure ai is an additive to workforce and not decimating one. bill: yes, if you look back at all the work we have done with ai over it now 15 years of tech

trends and beyond, it is one that has an underpinning of hope and expectation that if done correctly, it is going to lead to more opportunity, more jobs. and the challenge right now is that we are at a moment where, how do we make that clear and how do we make that real? but there breakthrough in technology is important. but it is also evolutionary. sonali: hope is not a strategy for the job market, right? how do you incentivize ceos to think about that jobs rather than the short-term productivity it can add? bill: the biggest thing to say is that your technology investment should be one of the best returns on capital you can have. period. we look at if there is waste in the wisdom work is done, then for sure, that is to be addressed. but the bigger issue is what can it unlock?

a lot of our clients are spending more on their overall technology investment than they ever have in the past because they are seeing that cap side. now, too much of it gets deployed against the legacy and aging pieces of the technology stack that frankly don't drive new job creation or new working product in business so that is a piece of this for -- if you saw in the report -- of saying how do we go from thinking of things in technical debt terms which is the way our executives and clients think about it, into, what is the wellness of our existing technology stack and what do we need to do to make it ready to participate in the innovation front of us? vonnie: and there you get into the question of security. we. saw a lot more problems with security this year than we have in previous years black meeting of constant needs, ransomware attacks and so on. bill: we put all of it under the

banner of trust and say security and privacy, it is a huge dimension of that. there is also the regulatory compliance that gets bundled that and then there is the broader ethics and morality around. because we can, should we? how do we make that embedded in the strategy from the outset. not just a compliance-based activities after the fact. we have been checking boxes to make sure that we are doing things according to policy. how does that actually feed strategy? we are seeing more and more organizations have a proactive approach to this broader trust. as a piece of their brand premise, of the way they are investing in protecting their customer and employee information. so that is a very different approach than just a few years ago and almost always it was a box-checking exercise too late in the process. vonnie: bill, so much to talk about. thank you for your time today.

that is the deloitte chief technology officer, bill briggs, joining us from kansas. i have been lucky this year to not have any security breaches, but it is a serious concern for many corporations because hackers are getting betterm absolutely, the more things move in the word of technology, think about how much critical infrastructure, how much technology even disrupts the market. but ai has still been a boon to this market. vonnie: it certainly has this year, we will see if it lasts into next year. again, some of those ai-driven companies are making 52-week highs today. we will continue to speak about this as we approach the market close. s&p 500 barely in the green now. we will speak with michael binger, president of gradient investments, next. this is bloomberg. ♪

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when you show generosity of spirit to someone. and you want people to be saved and to have a better life, then you don't stop. the idea that we have saved five million people's lives, it's overwhelming. it's everything. sonali: welcome back to "bloomberg markets." the closing bell is running on wall street. what a date has been. the nasdaq ending in the land. surprising day. the nasdaq 100 earlier hitting a record. most indices almost flat on the day. s&p 500 up less than 0.1%, only

up 0.4% if you can believe it. the dow jones industrial average, having the biggest gain, more than 1/10 of 1%. higher on the day. vonnie: those who don't want to be in the market tomorrow taking some profit today. around the end of the session we had two points higher. it was not that dramatic a session. [laughs] you aren't anywhere really near the record for the s&p 500 but we might get there tomorrow, we will see. if you look at the s&p 500, it is interesting. a lot of reversals. footwear index, all nike. we know they have had a tough time lately. dip buying perhaps there. tesla reversing the gains we saw in previous sessions for tesla, the automobile manufacturing index. both sides of the s&p 500.

if you look as well internally, some of the other factors were things like the gold index, down 1.5%. you saw gold, just a little bit per ounce. it's not that far away from a record, $100 of a record. so it doesn't tell you too much if you look at the snapshot of things today similarly with oil, the benchmarks, brent crude is down 1.5%. wti is down 3.5 percent basically because of supply. so you had u.s. oil down more than you had european oil. that was really the story today. it's been a great two months for bonds, though. sonali: it has. we had a little bit of a lift in yield, three basis point rise in the 2-year yield. remember, this is an area we had an 11 basis point drop off yesterday. a fun fact for you, there is only a handful times in history that the 10 year in particular

has seen at least 11 basis point drop off, which is what we saw yesterday. we are at three .84, a4 basis point increase today on the 20-year. 30-year seeing three basis point rise in yields. so a bit in the cooling -- a bit of cooling in the bond market story today. for more we are joined by the president at gradient investments, michael binger. let's talk about the equity side here, a bit of a cooling in the santa claus rally has been interesting. when do you think the s&p finally hits a record? i am selfishly asking. michael: i actually thought we were going to hit it today. we were literally five or six points away from hitting the record high in the s&p. you look at the dow and the nasdaq, they hit their record highs along time ago. i think we will hit a new high in the s&p sometime in the first

quarter. there is just too much momentum in the market right now. sonali: so what will continue that momentum? in so many parts of the market, there is a question about what happens when you start to hit the new highs. michael: i say we were not toppy. we recovered from where we were about two years ago. i think things will normalize more in 2024. let's not overcomplicate this, let's look at the economy and let's look at corporate profits and let's look at valuations. all those things are starting to point towards a strong 2024 also. the economy i think is very resilient and jobs are driving that. corporate profits are supposed to grow 10% or 11% next year. valuations aren't cheap, but they aren't super expensive either in the markets. vonnie: you aren't the only one saying that, we have had quite a few guests today say the same thing. it does look like we might be in

for a nice rally again next year. what's to stop us from taking a vacation for the year? michael: i don't think we should do that. we have to be diligent next year. i know a lot of people say that, but stock selection is important. we need to look where value is in the market right now. i would say value is probably not in the technology sector in the magnificent 7, but more other sectors like health care and consumer discretionary, areas that have not participated as much in technology, especially the magnificent 7 stocks. at gradient, we will really look for value here and try to gravitate towards those types of stocks. vonnie: why? i'd get the idea that if there are laggards, perhaps now is the time because you have seen such a run-up, but as you say, we are

only back to where we were so why not stay with the strategy that has been working for so long? why is now the time for value stocks? michael: we are not back to where we were on the magnificent 7 or technology sector, it has performed really well and has hit record highs. but let's take health care, for example, if you want a company that was involved in glp obesity stocks, you got left behind. there is a lot of companies there. in the insurance sector, cigna and unitedhealth are great companies that haven't participated. we think they will in 2024. medical device companies, people will still get medical procedures done. they will still have heart problems. we like medtronic. rtx and l3 harris. in this world, they will hold up better than other sectors in the economy. sonali: i love the value versus growth conversation. it's not a one-way street, it

can get choppy. and to see the recent performance starting to catch up. it doesn't go the other way next year just given the love that there has been for these kind of more exuberant stocks? michael: you know, i am a big believer overtime in mean reversion. and i think some of these high-quality names that have not participated and i didn't have the artificial intelligence boost, i think. i think some of these lofty names like microsoft and amazon and meta, they are great companies but they have had terrific runs. i think there will be a bit of mean reversion. they may not collapse, but others will pick up and that will drive the market a little bit into 2024. sonali: do you rotate at that level? do you start to point cash elsewhere? michael: i think you do. and we have started to do that already here at gradient. you can always be true early,

but it is hard to be too late. we are taking some of our high-tech tech names that have really helped us perform this year and taking a shot and taking a chance that value and some of these other 493 stocks in the s&p 500 start to work a little bit rather than the magnificent 7. vonnie: what causes that? does the money start to move in january, or we will see a massive rotation? michael: let's think about it a little bit. think back in the beginning of 2023. we had just come off 2022 were all of these tech stocks had gotten clobbered in 2022. they were left for dead. everyone said the next year, that is not the area you want to be in. you want to be in the dividend and value. what everyone -- when everyone tends to agree on something, something else generally happens. so i think we will have another one of those years in >>24, where people start to look at these magnificent 7, earnings

growth will pick up for these value stocks and they will show some strength, and i think people will rotate. you can call it rotation or rebalancing, but i think there will be some mean reversion going on in 2024 and i think it starts sooner rather than later. vonnie: we have higher rates for sometime now and we know that monetary lags are at work in the economy. how much will higher interest rates, even if ron paul has now potentially pivoted at some point, how much will the impact things like demand and the labor market and so on for these companies you're talking about, the value plays? michael: i really don't think they are. you think about our economy, it is completely consumer driven. inflation hits consumers. but people forget that when inflation was seeking at the 6%, 7%, 9% levels, wage growth was

offsetting that. wage growth was higher than that for some time. even today when inflation has collapsed 3%, which -- wages are growing 5% and that is keeping the consumer resilient. if a lot of consumers are working and making more money, we know what they will do, they will spend and that will drive our economy and help the prophets of the companies we invest in. sonali: the last couple of years have definitely been challenging on a lot of levels, they have brought a lot of risk that investors could never have anticipated. next year there is so much bullishness. how much risk is there of being caught off sides, and how do you prepare for it? michael: there is always that risk. but a couple of things, the folks who are bearish these days are generally pointing to two things, they are pointing to the leading indicators.

they are pointing to a recession. the second thing is we say, we have had this inverted yield curve for quite some time. but my thoughts are that if you look back at history, the following year after a big year of 20% plus, the average returns are 90%. so you have history on your side. number two, i believe we are in kind of a structural change in the job market, and i don't think we will get layoffs that will take us above 5% or even 4% in the labor market. i think that will keep things strong and that is why i still like 2024. but if you want to be defensive, i got no problem with that, but myself, i believe that if you rotate of the magnificent 7 stocks and go into more value -based stocks, that is good move in and of itself. vonnie: how concerned are we to be about growth out of china or some of the other macro issues out there including the

geopolitical issues of war? ? michael: i have been in this business for 35 years -- 30-plus years and i can think of a single year where there wasn't some international conflict going on. right now we have a couple of big ones, we have the ukraine conflict and the israeli hamas conflict. i think the market has really learned to accept international conflicts and actually i think it's a human tragedy, but there is an economic boom -- not a boom, but economic stimulant. that is why we like defense companies. so, yes, we will have problems at their and there will be issues. but in general i feel really strong about things as we are coming in. vonnie: if you and other guests today are to be believed, it will be a fantastic 2024 for

equity investors. that is michael binger of gradient investments. i guess it's not just as easy as deciding ok, we are going up next year, take the year off, you do have to be careful about where you actually invest your money. sonali: it is interesting. even today the rotations have been interesting. the idea that the s&p didn't hit its record, it was between gains and losses. but the dow jones hit that record. vonnie: and the stoxx 50 as well. sonali: what's interesting is the level of risk in this market, the higher things get, you also have to think about the higher the clearest pr jumping off. vonnie: speaking of the emerging trades, you just reminded me of the fantastic hindsight capital trades put out. long bitcoin. short palladium. it would have netted do 75% this year. if you had done long the bloomberg money system seven and short the csi 300 chinese

stocks, you would have made 148%. as you are saying divergence, the u.s. and china totally parted ways this year. it's a great piece from john authers, if you're looking to get some reading. coming up, we will continue to speak about the war with democratic congresswoman of michigan, haley stevens. we will talk about the congressional plans for aid to ukraine and israel and mark, about supplemental funding and how that gets done in the new year, coming up on bloomberg television and bloomberg radio. this is bloomberg. ♪ manage all your sales from one place with a partner that always puts you first. (we did it) start today at godaddy.com

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they get me. and they'll get you too. (adventurous music) ♪ ♪ ♪ be ready for any market with a liquid etf. get in and out with dia. vonnie: this is "bloomberg markets." it's looking like a busy january on capitol hill when congress returned from holiday break. on top is supplemental funding for ukraine, the border, israel

and taiwan. joining us is congresswoman haley stevens of michigan. you weren't called back. but have the democratic colleagues been in touch with each other, what happens on supplemental funding for ukraine, israel and other supplemental funding issues that need to be resolved? rep. stevens: it will be how it was left, intense. it will be a very intense january and while negotiations have gone somewhat pencils down, members of congress have absolutely been in touch with one another and not forgetting what needs to occur -- a hearing to the president's request for supplemental funding for ukraine which is a war that russia has started in ukraine, it is not costing american lives. we want to push back on putin. we want to make sure he is not successful.

certainly this is incredibly dangerous for our allies and nato. over in europe. and as a result, we also have a war in the middle east and there has been request for supplemental funding for israel which were also want to get done. vonnie: so what is the plan, representative stevens? rep. stevens: this will all tie into broader budget spanked because we have not finished our federal budget. we have seen the senate passed a mini bus. we have seen several appropriations bills. we have two deadlines, one in mid-january and one for february for different pieces of the government. i actually think the deal will twist around two funding packages and we might see the supplement to request take a different shape and manifest within broader appropriation,

what we call on the best package spending that will get done hopefully the first month of the year. that is what i would certainly like to get done. sonali: you mentioned concerns about russia. i should mention that today, the fifth anniversary of the tension in russia for one of your constituents, paul whelan. how are you thinking about this issue and the path forward to getting him back? rep. stevens: as i have told countless ukrainian americans, particularly here in michigan, i have been battling putin since i got to congress. paul whelan was taken captive wrongly by the russian government, he was set up, had a sham trial. he is an incredible person. he was working for a local automotive supplier. he was in russia for a wedding and had nothing to do with work.

we have been in regular touch with paul as the u.s. government alongside his family, and today marks five years since he has been detained. he needs to come home. russia needs to acquiesce, they need to release paul as they did trevor reed and brittney griner. we have done the trades and two is wrong. he is lawless and frankly this was a canary in the coal mine, in my opinion, for other international lawlessness mr. putin engaged in. sonali: can you bring us behind the process and what it would take to get him back smoke rep. stevens: mr. putin actually said in the last couple of weeks that he is still open to getting mr. whelan home, basically admitting that he wrongfully detained him. it's unclear what he is actively looking for from the united states government. in classified settings, we

certainly get briefed to the extent we are able to. paul whelan was able to give an interview recently. but he can't throw russia and other bus, he can't speak the truth because he will get through into solitary confinement. so he then chastises the government. fall has been detained under two presidential administrations. we did not see him calling out from not because of his personal sentiments, but because i think the russians have a vested interest in seeing joe biden news in november, another piece of this as well. so it's going to be a trade, it will continue to keep the pressure up. i have made sure that paul's name stays at the front of people's minds, that he is not forgotten. . neighbors have called on his release. we remember paul.

his parents live here in michigan. it's just time for him to come back. vonnie: absolutely, and as always, we would like to mention the wall street journal reporter as well, evan gershkovich, also in detention for more than 270 days now. it's difficult doing these deals, but you have been having some town halls and meeting with various groups in michigan. michigan is a very diverse place. what are the various groups asking for when it comes to things like more on hamas but israel, for example, and the issues you have been speaking of in terms of ukraine? rep. stevens: it's a very upsetting time. our ukraine american population is absolutely concerned about their home country and the viciousness of the war and making sure that we see that putin is stopped. as you mentioned, israel and

hamas has been absolutely devastating. we just learned that another hostage was taken, in terms of their life today. i am still getting a full report on that, but it has been released in the news. there is still countless hostages, over 100 that hamas has taken on october 7. those hostages need to come home . hamas needs to surrender. meantime, the realities of war are certainly sinking in. it is devastating to see hamas using people as -- innocent people as human shields, doing nothing to make sure that their population gets access to aid. guards that is being decimated and yet israel needs to be safe. that is what we are working towards. vonnie: congresswoman, i have to ask you about the potential of a

government shutdown. it's an election year next year. i am just curious as to your thoughts on what mike johnson might bring to the table caucus- wise that kevin mccarthy didn't and how that might play out? rep. stevens: it's been absolutely disastrous. this has been the lowest- performing congress in recent memory in terms of legislation passed. we need to be cutting deals. at the beginning of this interview, you asked how the supplemental is going to get done. one of the concerns of the senators that we heard at the end of the year is that, yes, this is intense, but also, there are people who just don't want to get things done. they don't want to govern. there is a few very conservative members of congress who celebrate the fact that we are not passing laws and doing our job. shutting down the government, particularly in the midst of these international crises, is wholly irresponsible and reckless. we hear a lot about our airline

industry and-hour flight watchers and people who are being pushed to the brink of their workload because they are short staffed this is about safety, right, our airports need to be safe, our railways need to be. let's fund the government. sonali: sonali: there is a lot of things on the agenda. our 2024 poll far, from bloomberg shows that is embedded is trailing donald trump in michigan. what does pres. biden: need to do to improve his standing among michigan residents? rep. stevens: i am certainly very eager for president biden to communicate his message and track record of delivery for michiganders. if it is passing the chips and science fact which is funding the semiconductor industry and meeting the needs of our

autoworkers, if it is standing beside our autoworkers as they negotiated record contracts for the record profits that the auto industry has received over the last few years. it is joe biden who stood by them. and then also, a message for the future. that is what joe biden represents. lowering the cost of higher education. paid family leave. the child tax credit. banning assault weapons. standing by a woman's right to choose. sonali: we will have to leave it there. down to the clock but we hope to have you back soon. up to the markets next. stick with us here on bloomberg. ♪

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>> welcome back and radio audiences. this is bloomberg markets. >> we have some markets doing some very interesting things. the two year yield has gotten some relief in the buying streak it had yesterday. it was up about three basis points on the day and you have some interesting moves in cross asset markets. the dollar index raking about four days of losses to end about .3% higher, gold spot exactly the opposite, down about .5%. also breaking a four day winning streak, bitcoin down 1.8%. we will talk about that later in this hour because there's a lot

of excitement, among other things. >> let's talk about it right now, because the difference in today's session, excitement around the hopes of a bitcoin etf approval helping drive the asset up 157% this year and some of the air coming out of that bubble a little bit today. we spoke with ceo cathie wood about where she sees opportunity now in the space. >> we are as optimistic about bitcoin as we ever have been. but there are a few regulatory tax uncertainties and we had been waiting for the discount between gpt see and nav to narrow. it was as high as 50% last year

when there was great uncertainty around all the turmoil, now it is single-digit. there are now other products out there that we can use to gain exposure to bitcoin in this moment, and is just a moment of uncertainty between now and january, january 8-10, somewhere in that range. it out of an abundance of caution we don't want to take any risk. >> let's get a little bit pacific because were talking about -- a little bit specific. what caught a lot of people's attention is that you completely sold down your remaining stake of the grayscale bitcoin trust, instead on the same day you bought into the proshares, bitcoin strategy etf. that track bitcoin futures and doesn't hold a physical bitcoin. can you explain that shuffle? >> a couple of things.

first of all, proshares is already approved, there's no regulatory uncertainty having to do with it. so we chose to maintain her exposure for the time being. as i mentioned before, there are some tax and regulatory uncertainty still as part of this process, we don't know exactly who is going to be approved and whether they've met all of the criteria that the sec has put before us. we know we have, but we don't know if others including gptc have. we just don't know. so again, out of an abundance of caution, and the gptc discount was as much as 50% relative to nav. not only have we enjoyed the running bitcoin itself, but we've had the nice closing of that discount.

it has been double good news for us. >> is it possible, whether it is you or someone else, in terms of this -- first spot bitcoin etf actually getting approval? >> we think the probabilities have gone up because the sec has been highly engaged compared to what was happening before. before, it was just denying approval, and we just kept putting our filing in again, try, try, try. so here we are, we think we are first in line and that's why there is this january 10 deadline. but we like the idea that the sec has been so engaged, and not just with us, with others as well. we think a number of funds could be approved at the same time. they have been asking not only one set of questions, but follow-up questions.

again, that's a very good sign. the last few questions have been very technical, and so you would expect them to be asking these questions as we head toward an approval. it's not 100% certain, so we want to make that clear as well. this is the sec, and we never know what might happen along the way. >> cathie wood speaking with bloomberg earlier. from bitcoin to bonds, the world's debt market is on track to post the biggest two month gain on record as traders ramp-up expectations that suit ranks everywhere will/interest rates next year and you do see that bid in the treasury market, but you see a global bond market rallying on a lot of levels. you are seeing high-yield, higher all since the beginning of november.

>> a very nice time to be in leveraged loans. the best two months for bonds going back to 1990. >> you have to wonder how this pans out next year. so much is predicated on the expectation for rate cuts. and so much of that love and risk markets, what happens with defaults? >> hedge fund managers may be in a distressed base that may be looking forward to those moments. there are others who may not be pleased. >> a credit head fund is -- hedge fund is at 10% on the year. equity hedge funds are only up 5%. even if you seen the equity market perform better than the modern markets are far, you're still seeing the active managers in the space do better in credit.

>> maybe apollo and all these funds are seeing private debt turn into private equity when things go wrong. europe is going to be a fun space to watch next year. rejoined by earl davis, poke holes into what we just said. does anything jump out at you, or anything to highlight? >> one of the things to highlight is the importance of active management, whether it be hedge funds or even an -- active management like us. even though we had extended moment -- movements over the past two months, we believe there is room to extend further before retracing. you want to be selective and where you are on the duration curve and what credit you are. you also want to take advantage to move up the capital structure, so to speak.

specifically focus on certain names, we think that is the key to outperform in 2024. >> do you want to be in the higher quality names, or wait until we see the opposite? >> you don't really want to wait. the coupon, the carry, you don't get that equivalent unless you are preferred shares in equity. you want to be in specific names now. but you do want to be selective. for example, this month we have reduced our holdings in financials. even though we like financials, the reason why we reduced our holdings is because there's a lot of issuance coming next year we think we can get a better spread than where we are today. >> let's talk about financials a little bit, because you do see

some of the most hard-hit stocks also seeing their bonds trading at a discount. that has been a big discourage in terms of ideas. do you think there's too much risk among regional banks to get in at these levels, or is it time to pick up safer parts of the capital structure? >> we have been selectively adding to regional banks. we feel the financial system is solid, obviously there were measures that came in that solidify the financial system. so we are not worried about any potholes in the financial system, which is why we like it there. why we are being more selective is we are coming toward the end of the business sought -- business cycle. by definition, some country -- some companies will have a harder time at rolling over their debt.

2023 was a quiet year, but we feel there's a lot of money still in cash. especially the retail money, will be put to work in january and february once people see their statements and see that bonds were up on the year and equities were up and not down. you usually get that last big wave of buying. so we expect to see that in january and february, but you have to be selective and take advantage of the opportunity and reduce exposures where you think the credit spread is a bit thin right now. >> let's talk about high-yield. you have consumer discretionary, health care and industrials leading the pack terms of the scope of bankruptcies you are starting to see. how are you thinking about sectors and is there more pain to be had, particularly sectors facing more bankruptcy than others? >> just moving up the capital

curve, why there is more pain expected there is you have to think about the capital structure. the reason these companies are high-yield is because have a significant amount of debt versus revenue. unless you expect in the late cycles of the economy the revenue and earnings to be able to support the debt rollover in the coupon payments, you want to move out of there. you want to move higher up the curve. having said that, our outlook for the economy in 2024 will remain resilient. part of the reason why is a significant amount of stimulus coming out fiscally. now that the fed -- let's say they are on hold for right now. we are seeing what is going on with financial conditions. people will invest in bonds, but they will be more selective this year. >> we saw episodes the beginning

of december when silver jumped and is getting a little elevated again. >> our base case on a macro perspective is that rates will stay in the range of 2023, and that is a good thing macro. that's why is more about the credit selection. even our base case is we are easing in 2024, we have gone without hikes, and that is important to know. if you get the resiliency of the numbers continuing, the strength in the economy picks up because financial conditions are lower right now. it's a very small door for people to run out of especially after this two month old run. that's where volatility will pick up. we think that will be an

opportunity if we see that volatility in the market to go longer risk assets. >> we only have 30 seconds left, but why haven't you ruled out hikes in this market? >> if you look in the 70's, you peaked three times, 6%, 9%, and 14% over an eight year period. there's a lot of excess demand in the society. we still may have supply chain issues with the red seas and panama canal. i've been in the market since 19 94, and individuals focus on one thing at a time. not all the conditions going on in the market, there's a lot of things out there that point to the possibility of higher rates. we are not out of the water, but the market is not focused on that right now. i don't expect them to focus on

that until q2 of this year. >> if we start to see that come back, we will definitely have you back on the show. earl davis, thank you for your time. i'm next we will look at a year in crypto. we will talk about the excitement around the bitcoin etf. stick with us on bloomberg television and radio. ♪

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>> this is bloomberg markets. the u.s. securities and exchange commission faces january 10 deadline to decide whether to approve a spot bitcoin application. joining us about the 2024 crypto

outlook is the coin share chief strategy officer. i got to ask you something, what is the risk here, with the run up in bitcoin in anticipation of this move? gary gensler has not been known to be a friend to the crypto industry. what is the risk of the industry being wrong? >> there is always a risk, that is the reality. but if we look at some indicators, one great indicator, the grayscale bitcoin investment trusts has been trading at a discount historically. that discount has really started to converge in the last few weeks and close. that is one important indicator. addiction markets are people pricing, we've seen 90% certainty on approval, and the last piece is the sec, a government agency, they have to share what they are doing.

in the last few weeks there's been a lot of meetings with some of the proposed issuers including blackrock and others, to discuss specifics of these applications that have been filed. on all counts it looks like all the small technical issues that have emerged in the last few months are starting to be discussed and resolved. all those things are leading to a lot of optimism. >> we've got a lot of notes from people about other areas in crypto and what will be the drivers of gains in things like ethereum. how? ? do you feel about it >> we look at the crypto asset class as a whole and there is a lot happening. the story isn't just bitcoin. there's a lot of different ways to play bitcoin. you've got publicly listed exchange traded products.

michael saylor cannot stop buying bitcoin. microstrategy now owns 1% of bitcoin circulation. we look at bitcoin miners who are now starting to also delve into the broader space. those have been on a crazy tear in q4. solano started the year at around seven dollars after the i.t. of bankruptcy. solano today trading at $110. so if you are holding solano, it's a great year, there's a tremendous amount of activity in the ecosystem. i'm going to go back to bitcoin, bitcoin is bringing smart contracts, ethereum has not seen a lot of price activity this

year, and coincidentally not a lot of inflows either. in theory him still with a lot of activity and development in terms of scaling, bringing down most transaction fees which do get quite high at times. so overall it has been exciting q4. a lot of people were not expecting this rally. that's why we call it the most hated rally. >> any idea what went on in the digital currency group, the parent of grayscale? >> i have no idea what is happening behind the scenes. but i do think grayscale, obviously they have 35 billion dollars in assets under management, the largest holder of bitcoin in the etp space today. there's a lot of questions right now around the future for the

gptc product at grayscale. there's discussion of converting the trust in etf structure that will allow for reductions. historically the reason the product has traded at such a high premium and then such a high discount is because of the fact that there is creation disruption. this morning cathie wood on this channel was discussing some of her concerns on the tax implications of the potential conversion. so to me the indication is they are gearing up to start to shift into etf mode. looking at the tea leaves, it's always difficult to know what is going on behind the scenes. i'm always surprised, you cannot make this up. chatgtp could not write the timelines we have in this industry. >> is it similar to what happened in china when it banned miners, is that what people

think is going to happen and that is why we are seeing this run-up? >> the run-up is driven by two things. number one, there's been a tremendous inflow of capital and bitcoin miners so no longer just mining bitcoin exclusively. folks are getting into a language models for ai. they're building data centers and at the end of the day bitcoin is not the only system, there are chips that require data centers. there has been wide availability of capital because of the run-up in bitcoin. the second big thing, we are hitting all-time highs, there's a lot of activity on top of bitcoin. we've got bitcoin in fts,

there's been a ton of activity on bitcoin. and fees, for the first time in the history of bitcoin, transaction fees are exceeding the reward for bitcoin miners which is hugely promising in terms of future revenue streams. >> i'm curious about how the bitcoin network is evolving. how do you think about what is possible on the back of bitcoin moving forward, especially because you saw the story of starting to advance certain forms of payment >> earlier. >>the bitcoin story continues to evolve. i am not a bitcoin maximalist but bitcoin is the first cult i joint and so i still love it very much. the interesting story is, its digital goal, it doesn't need to

ever change, is perfect as it is, and so on and so forth. at the end of the day it's all this computing power directed at bitcoin that it has so often been criticized far. i think it's an ideal settlement network for global transactions. the other aspect that is exciting to me is with all of these ai agents out there, we need a digital currency that can work for agent to agent payments , that can work in a world what we have more autonomous ai agents. i think bitcoin is an optimal medium, but there is slower transaction time, there is great opportunity right now, a lot of innovation in trying to build on

top of the security of bitcoin. >> thank you so much for joining us. the coin share chief strategy officer. in other crypto news, india is clamping down on overseas crypto exchange is. the country's financial intelligence unit is moving to block local access to the websites. you see this from time to time we have countries deciding this is getting away from us a little too much. >> you saw a lot of venture capital money flowing to singapore and india in particular, when you think about crypto in the developing ecosystem. a lot of these payment infrastructures are more needed outside of places like the united states. with that said, the u.s. at this moment looks like a pretty friendly place for crypto today. >> it's true the crypto people

do find it easy to move around. >> you could not even get me to move to dallas. [laughter] >> that's about it for today's bloomberg markets. we will be here on watch to see what happens and have all of your market coverage. it could be a big day friday. sometimes there is a dump on friday, but we will be on alert to see everything that happens. for our bloomberg radio and tv audiences, thanks for joining. this has been bloomberg. ♪ the first time you made a sale online wi was also the first time you heard of a town named dinosaur, colorado. we just got an order from dinosaur, colorado.

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