PPI and Market and Geopolitical Risks

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1:32This is the Bloomberg Surveillance Podcast. Catch us live weekdays at 7 a.m. Eastern on Apple CarPlay or Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts or watch us live on YouTube. Just think about some of these levels here. Ten-year treasury, up another four basis points, 488. I mean, we're on a 5 % watch on the 10-year, let's be honest. The 30-year is at 5.32%, up another three basis points. Every day, these yields are pushing higher. What's going on out there? Well, fortunately, our next guest is a professional. He can answer these questions. Greg Peters, he's the co-CIO of PGM Credit.

2:12Greg, what's going on in your treasury bond market?

2:16Greg Peters: Yeah, it's a repricing of a lot of different factors, actually. I think many observers like to point to a single factor, and I don't think it is a single factor. But a key driver, I think, on one end is the strong nominal growth. And I think that is something that market participants forgot. And if you look at just now this cheap and simple metric that has been forgotten, if you just think about the growth, nominal GDP growth versus the Treasury yield, we're in an area that suggests that maybe there's still room for yields to kind of match that nominal growth. right? It's about 160 basis points apart now.

3:09Greg Peters: You know, the kind of the minimum is, you know, decidedly negative, but the long term average is 100 basis points. So, you know, I think there's scope for continued repricing here. Do you expect 10 year yields to kind of remain elevated? I mean, are we talking is a 5 % possible? Yeah, it's definitely possible, quite plausible. In fact, But, you know, I think the question you have to ask is kind of the opposite, which is what would drive bond yields lower? And the only version that I can see driving bond yields lower would be a good old fashioned recession. And I don't think that is something that, you know, consumers and investors want.

3:55Greg Peters: So I do believe we're in this more normalized bond yield environment. I think the bias is for yields to push higher, not lower. And I think this is the regime that we're in. I think it's quite normal, actually. So is the crowd out from AI issuance in the investment-grade bond market, is that a thing? 100%, it's a thing. There is a competition for capital in ways that we haven't seen in a very long time. And I think the critical aspect of that analysis is that these are two borrower bases that are price insensitive. So on one end, you have the sovereign bond debt market, which is actually slated to see a lot more supply in the coming years.

4:47Greg Peters: So this is a lull, by the way. So this is a story that has yet to unfold. But, you know, these sovereign issuers have to come to the market, right? They have to fund themselves. And then on the other side, you have these, you know, hyperscalers, AI build that that's largely price and sense sensitive as well. So, you know, I think those factors working together really contribute to this, you know, higher yield environment. We got about about a minute before the bell. Where do you expect real GDP growth this year? About 30 seconds left. Look, I think we're in a very strong growth environment. There's a lot of own goals, a lot of things working against the environment.

5:34Greg Peters: But speaking of AI, that's a big contributor to growth. That's 1%, 1.5 % of GDP. That's also driving the wealth effect, which is contributing as well. So I, you know, I see a strong growth environment here. Greg, you're going to stick around with us. We're going to get this market open. We're going to break some of that economic PPI news as well. But you're going to come back and we'll chat with you on this bond market. That's Greg Peters, co-CIO of PGM Credit right now. The S &P down 18, the Dow down 20, and the NASDAQ down 220 points. This is Bloomberg.

6:16The August producer price index is out and it shows inflation at the wholesale level rising 0.4 % compared with being unchanged in July. Year over year, wholesale inflation rising to 5.4%. That is slightly higher than the 5.3 % expected and up from 4.7 % the month before. If we exclude volatile food and energy costs, core PPI month over month rising less than expected, up two-tenths of a percent. The street was expecting a rise of three-tenths of a percent. And that is exactly what happened the prior month when core PPI for the month rose two-tenths of one percent. Taking a look at year over year, core PPI accelerating 4.6 percent.

7:03Again, right in line with estimates and up from 4.2 percent in July. Now, this reacceleration in wholesale inflation was expected. It was driven largely by the rebound in energy prices with Brent crude breaking past$100 a barrel. This is the final wholesale metric before the Fed's policy meeting next week and, of course, ahead of tomorrow's crucial consumer price index. So, once again, headline number PPI, final demand month over month in line with expectations up four-tenths of 1%. Back over to Paul and Lisa. Alexis, outstanding report. We know all we needed to know from that report. Thank you very much.

7:36We appreciate it. Bloomberg Surveillance Today is brought to you by IBKR. For the past three years, interactive brokers, individual clients average 24.3 % annually, beating the S &P 500. Lower costs and access to 170-plus global markets matter. Visit ibkr.com slash performance. I mean, just look at the bond market here. The 10-year treasury is up four basis points, right around 488 in line with where it was prior to this print. The two year is a little bit higher here. It's up almost five basis points here, 4.47. So the bond market reacting to a little bit of this inflation data. We're joined again by Greg Peters.

8:06He's a co-CIO of PGM Credit. Greg, we just got the PPI print. We'll get CPI tomorrow. I mean, I guess the takeaway is, you know, we got some sticky inflation out there, irregardless of where a price of oil is. How do you think about inflation? Maybe how do you think the Fed thinks about inflation?

8:23Greg Peters: I mean, everywhere I look, I see inflation stuck in the system. You know, I think we're well above trend here or target. You know, this is another reading that, you know, strongly suggests that we're well away from target, even excluding the more volatile measures you're above target. And so I think the Fed has to start paying attention here. What's interesting post the Waller speech is that all eyes are focused on the CPI. And you hear investors talking about out two decimal places, right? So I think that's too cute by a half, of course. But as far as I can tell, inflation is in the system. It's not just energy driving it.

9:19Greg Peters: And I think the Fed will have to respond. Now, how will the respond? Will it have to be a hike? And then as far as tomorrow, CPI, I mean, to make a September hike the base case, what do you expect to see there? Yeah, I mean, it's an open question. The market's definitely hedging its bets, about a 60 percent probability. It is highly data dependent. This is probably the most consequential CPI print or market reading of the CPI print in quite some time. And I think if you get anything close to kind of 0.3, I think that's a signal that the Fed moves. But it's an open question. There's a lot of opacity here.

10:06Greg Peters: Of course, we're not really sure what the committee is truly thinking and who's on board. But if you just listen on balance to what's being said, you know, I think a stronger reading suggests that they will move. Greg, thanks so much. Really appreciate your time today. Greg Peters, he is the co-CIO of PGIM Credit. Stay with us. More from Bloomberg Surveillance coming up after this. If you invest or lead a business, one-sided views aren't enough. Join me, Brad Rogoff, and my team at Barclays Research as we debate what's driving markets on the Flipside podcast. Find the Flipside wherever you get your podcasts.

10:50With ChachiBT, you can do more than get answers. You can get things done. When you're running a business and looking to expand, you need a clear view of the landscape before making any decisions. ChachiBT can help you prepare. Connect your Google Drive, point to relevant files and reports, and ask chat to research competitors, industry forecasts, and market signals. It can turn the findings into a strategic deck in your team's template that you can review before presenting to your leadership team. Growing a business is ambitious, and ChatGPT can help you do it with confidence. Get started at chatgpt.com.

11:31you're listening to the bloomberg surveillance podcast catch us live weekday afternoons from 7 to 10 a.m eastern listen on apple carplay and android auto with the bloomberg business app or watch us live on youtube our next guest is one of our go-to folks on there we go tina fordham is somebody we chat with a lot when we want to get smarter about geopolitics, what's going on, how does it affect markets, and there's a lot going out there, folks, as you know, and we try to stay on top of it, and Tina helps us out here. She's also an author of a new book, Mad World, a Geostrategy Survival Guide for Leaders.

12:06Talk about perfect timing for a book talking about geopolitics. Tina, thanks so much for joining us here in our studio here. Talk to us about this book here, Mad World. What's the idea behind it? What are you trying to get across with this book. Thank you for having me. Mad World, the time for this book is now. Yes. I have been advising market participants, boards and C-suite leaders for more than 25 years about geopolitics. In fact, 9-11, when I was at Eurasia Group as head of global political risk, was really a turning point because before we were having to try to persuade investors that they needed to think about geopolitics.

12:43So that took us to the next level over the course of the last 25 years. The nature of the questions has really changed, right? So when we first started, it was very much about how to, you know, identify hotspots to avoid. Now, the questions that I'm getting are all about what's happened to the world. How can I make sense of this rather than take me through the kind of risks that I can consider in my portfolio allocation, it's much more existential. Where does all of this take us? Well, one thing I point out is something you mentioned is a geopolitical super cycle. What do you mean by that? So this is my term, obviously used in this context most often for commodities.

13:29But in astronomy, it refers to expansion. And we published this research back in 2024 because we observed through a database that we constructed and our analytical approach, a tripling of geopolitical shocks before 2025 and Trump 2 .0. I say this because based in Europe, as I am talking to a lot of non-U.S. investors, one of the things I hear most often right now is this is bad, but it'll all go away in 2028. That's not true if our geopolitics super cycle data and thesis is correct, which is that this really started to accelerate after the global financial crisis. And as the kind of buffers to absorb geopolitical shocks get dismantled, eroded, the impact will be greater.

14:22If I'm a CEO today or if I'm a board member of a public company, I probably grew up in a world post-World War II where the U.S. was kind of the leader. They took care of everybody more or less. Democracies worked generally. Communism did not work generally. Globalization became a thing. That's the world we grew up in. That's right. Is that the world today? So that's the Pax Americana in international relations terms. The average CEO is 55. I'm a little older than that. This book, you know, Mad World is also a great song from Generation X. This is a book for Generation X leaders in particular who are having, Paul, as you say, a great deal of trouble adjusting to the fact that the single biggest change is the withdrawal of the U.S.

15:10as a backstop for trade and security and what that means. And that's why it's wrong to just focus on when will the Strait of Hormuz open? You know, when will Russia and Ukraine make a deal? Because the removal of that backstop, the erosion of trust in the U.S. as a guarantor is driving all kinds of new configurations of power, cooperation. Lots of CIOs say to me, well, it's not in the data. No, it's not in the data yet, but we can map that and you can see it with your own eyes. Yeah. Well, let's take a step back. So what do you mean by geopolitical risk events? Because you mentioned a couple of different things.

15:45Is it conflict? Is it, you know, could be cyber attacks? It could be anything like that. So in our research, which is publicly available, it's on our website. We looked at five types of shocks. As I say, you know, we had to manually construct this database. It doesn't exist. And that's why running regressions and doing kind of pattern spotting on geopolitics for markets is so difficult. Climate change events, conflict, state-sponsored cyber attacks, which is a slightly different metric. Tariffs and sanctions, which increased tenfold, again, before Liberation Day. This is part of an accelerating trend.

16:23And our thesis says that an increase in drivers, which is things like, you know, trust or inequality, for example, an erosion of buffers, you know, guardrails, if you like, means more shocks. And that's why We're seeing a steady increase. It's not all about the Trump administration for those who are inclined that way. But it also means that this is a structural change in trend. And that, I think, is one of the biggest sticking points, because most market participants will say, well, geopolitics doesn't hasn't moved the needle very much. And indeed, thinking back to 9-11, I was with Secretary Clinton last night at the Columbia University ceremony talking about it.

17:04I was here in New York on the day. It was a huge disruption for us in New York City. Wasn't necessarily a huge market event, but of course it unleashed a whole series of effects. And I think this is the difficulty for markets. The signal and noise construct doesn't capture the sort of non-linearity and the trajectories for geopolitical risk. Prime Minister Carney of Canada stated recently in a speech, I think it was Adobos, I'm not sure, that countries like Canada, these mid-sized countries, they got to band together because to the extent the U.S. is abdicating its leadership, global leadership role, it's up to the rest of democratic countries to kind of band together, if you will, form trade alliances, that type of thing.

17:51Is that a substitute? Is that a workable substitute for maybe a new kind of world order where maybe the U.S. does not have as heavy a hand? So Carney is really driving this charge. And let's remember that he's not just an average politician. He's a Goldman Sachs banker. He was the head of the Bank of England. And he has really led this charge now. Can the middle powers accomplish anything together? That's about how countries can pool sovereignty. The BRICS never amounted to anything. But let's think about it differently. Other countries in the world, and not just democracies or kind of fully consolidated democracies, don't want to be rule takers from either America or China, right?

18:36And where I am in Europe, certainly Japan, Australia, India, even China to a certain extent wants to remain in the rules-based system. China just wants the rules to reflect their priorities. And that's what the competition is against because, you know, all day here on Bloomberg, you're talking about the impact of AI and we're looking at commodities outperforming. That's a geopolitics story, too. It's about power and advantage. Can the U.S. catch up? This is the reason why President Trump has rolled back so many obstacles, because we're behind in the race with China. But in the meantime, there is a whole subset of huge countries that want to continue to be in the rules-based system.

19:21And that's the contest that I think is not, you know, kind of properly in front of people as what is at play. We're in the middle of midterm elections. So what did you take from President Trump's 100 minute speech last night, this Trump dividend that he was talking about? President Trump has wanted to do something like this for a long time. I mean, my first question was, does it come with a pony and free ice cream? But my second thought and what I think bond markets will be thinking about is the cost of this. So one element of the argument is the market reaction right now. Scott Besson says he is the House, you know, daring bond markets to bet against him.

20:04But do American households kind of let that promise cut through and say, yeah, I'm not happy with a lot of these policies, but I'll take the five grand. And it worked in the Brexit campaign, don't forget. People did not focus on the warnings and the downside risks. They focused on the UK sending a lot of money to the EU that can be used on health care. And so it can work. So talking to your institutional investor clients, it seems like investors have just put Iran, they've compartmentalized Iran, Ukraine, and pushed it aside, and the markets continued to move higher. How do you think those issues play out with markets here?

20:46Because Donald Trump, President Trump, doesn't seem like he's in any hurry to clean up what's going on in Iran. He can't. Yeah. The United States is trapped in Iran of a, you know, a trap of its own making because of the unclear war aims and everything else. And, you know, the idea that geopolitics is about power is the most useful way of thinking about both Russia and Ukraine and the U.S. and Iran, which is you've got two military superpowers who assumed that these wars would be over quickly and that they would consolidate power. Now you've got the spectacle of a much weaker power in both cases able to hold the greater power at bay.

21:26That does send a big signal around the world that the U.S. can't win against a country like Iran that has absorbed a lot of damage and been under sanctions for 40 years. To me, the risk is blowback and opportunism. So we're entering seven months with the war, right? Pushing up energy prices, all this. What kind of mindset should leaders take when thinking about the war, corporate leaders? So this impacts costs, and that's the most obvious one. I mean, I was one of the few analysts from the beginning saying this war would not be over quickly, which is what the market was priced for. It would not be like June 2025, which was a week of attacks.

22:08High oil prices stayed with us. Yes, you know, as the Treasury Secretary said, alternatives to the Strait of Hormuz will be found. But that's not really the most important part. It's freedom of navigation. It's the monetization of choke points, which Iran has gained new leverage and revenue that it didn't have before, sends a signal to other powers. And so if you have a supply chain that is in any way complex and goes through, you know, choke points like the streets of Malacca, like the street of Gibraltar, Panama Canal and everything else. I mean, I spent yesterday with, you know, board strategy away day and have been here all week talking about this, trying to balance the risks of the changing global order with the benefits of AI is really crystallizes the biggest challenge for corporate leaders.

22:59Can they realize those gains without encountering these downside risks? And we're in a little bit of a feedback loop there. You're based in London. Europe, broadly defined, is more exposed to energy coming out of the Middle East. What's the view there about how maybe Europe needs to maybe diversify its energy sources here? I mean, that varies by country. where I am in the UK has extremely high electricity costs, did not kind of plan for a future like this. Spain, for its part, had invested in renewables. Germany, where we just had those controversial elections over the weekend with a strong performance by an extreme right wing party, also suffering from its choice, you know, back in the Merkel era to depend on Russian energy.

23:50a lot of voters might be saying, let's just kind of go back to the way things were when we had cheap energy and Russia wasn't, you know, engaging in hybrid warfare in our airports and cyber attacks. Europe is under attack from Russia. Make no mistake about it. But, you know, we're looking at two levels. We're looking at what the impact is on markets and the economy and then how it kind of registers with everyday people in terms of their own threat assessment. And what can politicians do? Most European leaders are in a tough place because they now have to spend more on defense. It's not popular with voters, and it's even less popular if they don't perceive the extent of risks.

24:31That's really different, though, in the Baltic states in northern Europe. I was in Sweden and in Finland the last couple of weeks in Denmark. Totally different conversation. And in Western Europe. But the decline in trust of the U.S. is probably the biggest change. And that has occurred since the Greenland developments that I've witnessed. You know, that rolls back 40 years or more of the transatlantic alliance and looking to the U.S. not just for protection, but for for partnership. Yep. All right, Tina, thank you so much for coming in here today. Tina Fordham, she's a founder of Fordham Global Insight, also the author of a new book, Mad World, a geostrategy survival guide for leaders.

25:14Talk about perfect timing for a book you're giving all we just chatted about over the last few minutes. It's not just investors. It's C-suites. It's boards. It's everybody out there trying to make sense of what is going on out there on a geopolitical basis. And Tina Fordham is one of the leading voices out there. So we appreciate getting a few minutes of her time. You know what I love, too? Her suit, for those watching on YouTube, matches the book cover. Exactly. Women to notice that. That's thinking about it. Branding. Exactly. Branding. There's a playlist in the book I would like to add. Okay.

25:42Generation X and Mad World playlist. Okay. So we'll check that out, too. Take a look at that in the book. Stay with us. More from Bloomberg Surveillance coming up after this.

25:59You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube. Heath Terry, folks, he joins us here. He is head of technology and communications research at a little bank called Citi. He's been all over Global Wall Street. He's one of the leading technology analysts on the street for decades. He's been at Goldman Sachs. He's been at Credit Suisse, where he and I worked together. He's been all over the street, one of the leading voices. We appreciate getting some of his time.

26:30He's got an MBA from some little school on the Upper West Side. But let's be honest, folks. Heath Terry peaked when he graduated from the University of Alabama. It's been downhill since then. But we appreciate getting a few minutes of his time. Heath, thanks so much for joining us here. Man, I'd love to know how you're framing out the AI investment theme for your clients these days. I guess we've all bought the chips. We've all bought the hyperscalers. Now what do we do? Look, I think the moment that we're in right now is still best defined by what Sarah Fryer at OpenAI called the vertical wall of demand that they're running into.

27:03What I would add to that is the far more horizontal line of supply that we have in data center infrastructure and capacity. And what happens when you get into these sort of immovable object, irresistible force kind of moments is something has to break. And that break has been pricing. And so inference is getting more expensive. Memory is more expensive. Power is more expensive. Everything in that supply chain is getting more expensive, which for the companies that you just referenced means higher revenues, higher margins, faster growth. And ultimately, we believe higher stock prices that go along with that.

27:37So we had this break, so to speak, over the last few months where there was concern about that overall AI trade because of the momentum that open source models, particularly those out of China, picked up relative to the U.S. models, which were kind of on a pause as the government restricted a lot of the frontier releases. that's changed within the last week. You see the most recent frontier model releases. They have now reestablished that Western dominance, which is what you need for that trade to work. And I think it's a big part of why that trade's been working this week. Heath, you mentioned data centers.

28:14Not everyone happy about building them. There have been moratoriums on construction. What kind of impact could that have? The moratoriums, the concerns that you have around this, I think, are largely going to be more of an issue sort of for future builds. You look at most of the moratoriums that have been issued, those are against new permits versus what's being built now. And I think one thing that we have to talk about more is people don't have blanket issues with all data centers. They have issues with data centers that are being built the wrong way, that are being built without consideration for the communities that they're being built in.

28:53There's a data center Paul referenced, you know, my home state of Alabama. There's a data center that Google's building in Huntsville, Alabama. It's being built on the site of a coal-powered, an old coal-powered power plant, which means it's got connectivity directly into the grid. They're using nuclear and solar, so carbon zero on that. They worked with the community ahead of time to build it. No issues. You go an hour down the road, and there's another data center company that's trying to bulldoze 800 acres of farmland use gas power generator generators on site and has the entire town leadership under nda associated with it those are the issues those are the data centers that people have issues with um and so i think what you're going to see in all of this all of this this political pressure is you're going to see companies forced to do this the right way and i don't think that's a bad thing heath one of the many many topics that i think our audience is trying to get more educated on is this concept of frontier AI models versus maybe some of the more open source competition from China.

29:54Can you frame that out for us? How should we think about that? Yeah, sure. Open source is always going to be, was always going to be a big part of AI the same way it was a big part of software. And we're seeing a lot of open source growth, not just from Chinese models, but from all of the Western models as well. Companies like Poolside with their Laguna models, companies like Coquire and Mistral that have models as well as all of the ones out of China, DeepSeek and Quen and Kimi, those are getting a lot of traction because they have been price performant and they have been able to get a lot of usage, a lot of volume usage among a certain type of enterprise and a certain type of workload.

30:39That's, we think, is starting to shift because what we've seen in the most recent frontier model releases, and it's why these models that have come out in the last couple of weeks are so important, is these models are now not only the most performant models in terms of absolutely pushing what can be done with AI, but they're also economically efficient when you look at it on a cost per task basis. We've been talking about this so much, especially as it relates to open versus frontier models, based on the number of tokens consumed or cost per token. And what we're seeing now is that these newest models are actually a lot more efficient.

31:17And so even though their cost per token is higher, they burn fewer tokens to answer the question or complete the query or the task that's been assigned to it. So the cost per task is actually lower. And I think that ultimately is what's going to matter at the enterprise. So I don't want to say that we're completely past open source being a concern, But I do think it's going to be significantly less of a concern going forward. Heath, thanks so much. Really appreciate getting a few minutes of your time. Heath Terry, folks, he is the Global Head of Technology and Communications Research at Citi, really one of the leading technology research analysts on Global Wall Street.

31:53Stay with us. More from Bloomberg Surveillance coming up after this. With Jatchy BT, you can do more than get answers. You can get things done. When you're running a business and looking to expand, you need a clear view of the landscape before making any decisions. ChatGPT can help you prepare. Connect your Google Drive, point to relevant files and reports, and ask chat to research competitors, industry forecasts, and market signals. It can turn the findings into a strategic deck in your team's template that you can review before presenting to your leadership team. Growing a business is ambitious, and ChatGPT can help you do it with confidence.

32:32Get started at ChachiPT.com.

32:35Greg Peters: The world of business is constantly evolving. Every day, new challenges, new opportunities, new ways of working. Comcast Business keeps you totally in step with secure AI-backed networking built to power the way modern business gets things done today in more than 100 countries around the world. That's some serious muscle. And get this, Comcast business powers over 90 % of the Fortune 500 and millions of small businesses. Behind it all, network engineers, cybersecurity specialists, support teams, thousands of experts answering your call at 2 a.m. like it's 2 p.m. Always on, always ready. That's a lot of coffee.

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33:32You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube. You know, last week and this week, every time of the year, we get guests to come into the studio that don't ordinarily see in the studio. and I finally figured it out why years ago. They're here for the U.S. Open. It's a tennis thing. They're here for the tennis. While we're in New York, seeing tennis, we'll go by and see the folks at Bloomberg. That's how it works. That's how it works for our next guest.

34:05And that is just fine with us, Molly Peroni. She's a partner and president of Yakman Asset Management. So you went to the Open yesterday? Yes, all about cocoa. All about cocoa. Great experience, right? It was wonderful. It was a bit of winning ugly, but it was an excellent match. Yeah, it was fun. Three sets, we'll take it. Molly, talk to us about how you guys are thinking about the markets here. We've had equity markets hitting, you know, multiple all-time highs all year. Pretty solid. But boy, we've got higher rates here. How do you think about stocks performing in a higher interest rate environment?

34:35Yeah, it's true. And actually, think about it. We're the value investors. And I think we're a bit of a lost art. You may find us one day in the Natural History Museum. And with a sign below us that says this was a value investor. The markets have been up and to the right for quite some time. We're close to all-time highs yet again. And despite what we can all look at as some pretty big risks out there, interest rates come to bear at some point, both for consumers and for companies. We look carefully at the balance sheets of the companies that we invest in. But we also recognize that the consumer could be in a tough position before we know it, just based on how many pressures there are between interest rates, housing costs, as well as the CPI that we're all watching closely.

35:22Now, before I get into your stock picks, I want to talk about your company philosophy to get with. One of the things you say is you invest like business owners. What do you mean by that? Yeah, it's a great question. We look back. I mean, we're invested in companies. we already dig back in the archives to find historical financials because we're regularly looking as far back as we can find data 20 years at a minimum to find out what are the basic business fundamentals of these companies and how do they perform in tougher environments because we want to know as business owners which any shareholder is how a company will perform and how it will withstand some tougher environments when and if they come what i like about um molly's She started her career at Dean Witter Reynolds.

36:06Yes. Awesome name from back in the day on Global Wall Street, now part of Morgan Stanley. But I did some deals with those guys back in the day. You say you're a value investor, but wait a minute. Alphabet, Microsoft, those are value stocks? Talk to us about how you view those technology names. Yeah, that's a great question. And in fact, if you check the Russell 1000, I think you'll find Micron in the mix as well. Really? Just to be fair. We invested in Microsoft back in 2003 when it really was a value stock. Steve Ballmer was running the company. Windows was left for dead. And it was a pretty challenging environment.

36:44And we've held through it in different sizes over time. But that was really our first step into the tech side of the market. We do on Microsoft and Google. And we think that what we see in these companies is they are cash flow generators. And look at their market share. Look at the positions that they hold. look at the breadth and depth of their businesses. And as business owners, we can really look at those companies and feel comfortable that we're protecting the downside for our investors, which is very much how we think about things at Yakman. Now, what about risk? I mean, what kind of risk do you see, let's say, for Microsoft?

37:17Yeah, well, everybody's shooting at the winner, right? And there are different business lines at Microsoft. I think we could call out cloud as a risk area. And of course, they have this lovely relationship with open AI. So they're in the thick of it on the AI trend. But we like to find ways that are sort of sneaky ways to invest in AI. And we won't get into it today probably, but we own companies that are very much in the AI mix, but we can own them at valuations where it covers our downside really, really, really well. Is one of those Samsung? Because you can get some of these names in Korea, although they've had a just crazy run over the past couple of years.

37:53How do you think about Samsung and fitting into that? Yeah, Samsung. I'm glad you asked. Samsung is one of our largest positions and you can own Samsung, which is one of the global leaders in technology. You can own it for call it two to three times cashflow. You can look forward, you know, two or three or four years and you've made up the entire market cap of the company. Plus you own the memory business, you own the foundry business, you own the consumer electronics, not to mention the folding phone. So you've got a lot of coverage with a global leader in technology, but because it's part of this Korean discount that is still plaguing the Korean names, you get a world-class company for extremely low valuation, which is how we like to own these companies in our portfolio.

38:35Molly's had a great, great career up and down Wall Street, but to me, what jumps out at me is she is an undergraduate from William & Mary University, which is a school right down the road from my university, Richmond, and the oldest football rivalry in the South is It's not Alabama, Auburn, or Texas, Texas A &M, or South Carolina, Clemson. It is William & Mary and the University of Richmond. 100%. Oldest football rivalry in the South. Molly Peroni, she's a partner and president of Yachman Asset Management. This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, and anywhere else you get your podcasts.

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