00:00Let's bring into the conversation Bloomberg Markets Live Skylar Montgomery Koenig for three minutes on the market. Skylar good morning to you. So we seem to have lost risk appetite somewhere along the way. The start of the year was really good and then it just faded over the last day or so. Is it because of some of the geopolitical headlines sort of piling up on top of each other. Is it the U.S. data. Is it something in the technology space. What is it for you that sort of weighing on sentiment. Yeah I mean I think we have all of these cross currents right now so it's quite hard.
00:29I would admittedly say that I think heading into big U.S. data on Friday people are maybe more cautious. I'm less worried about geopolitics. I think what you tend to see is geopolitics is there's an immediate market reaction that tends to be risk off. Then when the worst case scenario doesn't happen you return to trading fundamentals which right now are quite positive. And so I think the reason you get that kind of reaction is because geopolitics is very very hard to price. It's a kind of low probability high impact event.
00:57So for example if you have a nuclear war that means that asset markets are essentially worthless. So how do you price that. And so the market just ignores it unless there's real policy change. And we are starting to see some of those policy changes. So I would watch that more closely than I would watch kind of headlines around Venezuela or that sort of thing.
01:14But policy is beginning. I hear what you're saying about geopolitics. But what we saw overnight was policy. Yeah.
01:22So is Trump getting in. Trump is now delivering policy changes quite big policy changes.
01:26And the market keeps getting wrong footed by them. How do I price in policy. How do I price in volatility and policy changes is a question.
01:37Absolutely. I mean I think right now what you're seeing is that volatility is relatively low.
01:41So hedges are good to look at right now especially because you don't know what exactly is coming in terms of specific policies affect specific markets relative to your headline number.
01:51The other thing I think about is that geopolitics generally feeds into the market through commodity prices.
01:56And so what we've seen in recent history is that Red Sea disruptions Russian invasion of Ukraine is oil prices and energy go higher.
02:03And that's a stipulationary stock which both bonds and equities do poorly in.
02:07So it's worth considering having commodities in your portfolio real assets more generally like gold as a hedge to that.
02:13Is AI inflationary because of all the inputs around energy and chips and data centers and supply chains or is it deflationary as the model costs come down.
02:21How are you thinking about AI tech.
02:24Yeah I mean I think it's both of those but what I think dominates is the inflationary impact.
02:28So what you've seen in previous periods of technological advancement is this is also why I'm not necessarily worried about the end of the tech trade is that we're entering this new phase where you see yes costs come down.
02:40So that allows widespread adoption but it also allows productivity to be higher growth to be higher and returns on capital to be higher.
02:46And so that environment to me where you have higher demand is pretty inflationary.
02:51It's also an environment where you have stronger equity returns in the intervening periods.
02:56And it's also very important who's driving those tech advancements.
03:00And so in those periods you tend to see U.S. equities gain or outperform other markets because the U.S. has led the tech revolutions in recent decades.
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