With us now, we've got Jonathan Golub. He's managing director and chief equity strategist at Seaport

Research Partners. Alright. We were talking before we came on. This is... You said the the

Fed's gonna do its job. You think that the markets are correct? Well, it's about fifty

fifty right now. Markets are betting whether or they're gonna hike, but you're you're foreseeing a

hike after this jobs report.

Yeah. And first of all, I I think the the jobs report was even better than

we're stating just with the payroll numbers. I mean, you brought in a whole bunch of

new workers. You you adjusted up the prior period numbers. I mean, this was a gangbuster

report, and it it reaffirmed what we already know is that the economy is really quite

quite robust. And so the market is correctly assuming that the Fed is going to raise

rates. Walsh told us that if things look strong, that he's inclined to raise rates. And

and I think that that's what the market's, expecting. And so you ask what kind... What

would the market do if it... That comes to, you know, fruition? Nothing because it only

responds when it's surprised, and it won't be surprised.

So the the president feels very strongly about this issue. Right? And he he made the

case yesterday that this was basically a sign of a strong economy and a

strong social.

Yeah. Exactly. And it's... And he's true social as he normally does and and made a

case for for why the Fed should actually cut interest rates. And the vice president did

the same thing the day before. And he has obviously put in Walsh as the new

Fed chair, but the pressure is on. Will that have any impact, do you think?

Well, you know, when you when you study markets, it's it's a lot about incentives. So

does the president have an incentive for lower interest rates as we move into the midterms?

Sure. Does have an incentive to be sensitive to rising economic demands. Have. Also... Yes. And

so, yeah, so I I understand why the president is is pushing back, and it's not

irrational, and it's not unexpected. And, therefore, it'll it'll keep you guys busy with with news

headlines and conversation, but but we could save the time. It... The... They're likely to move

when the president will yell, and it won't matter.

The other thing I found interesting about this job report was the revision from last month.

It basically erased the loss from next month and revised it to... From last month, excuse

me, and revised it to a gain. Is that... I've covered these quite a bit. I

don't remember seeing one of those recently. Does that concern you at all that the numbers

were that off last month, or it's just... I know August is kind of a hard

month in general for these numbers.

Well, yeah, I mean, first of all, there's there's all kinds of wacky seasonality things Right.

With, you know, with people getting jobs over the summer.

And Also World Cup by a spike in hospitality sector.

And teachers go go, you know, in and out, and there's all kinds of things like

that. But, no, these numbers get revised. Probably the best way to look at them is,

you know, look at them, like, on a three month rolling average. If you look on

your Bloomberg terminal on what these numbers look like, they look quite jumpy. But if you

if you smooth them out, you do see a trend. And the trend is... I mean,

the most important thing is we're not creating an enormous number of jobs over that, you

know, less than last three months. That's because there's not a lot of new people entering

the labor force, and we're probably absorbing everybody who wants a job.

Is there anything concerning in the report to you or to economists?

You know, there... There's there there are things that I'm concerned about. I mean, first of

I'm pretty I'm pretty optimistic. But there are things that I... You know, I'm always concerned

about, and this jobs report wasn't one of them.

Fair enough. We're also... And we... Nearing the end of earnings season. You said you had

a lot to say about that. It was a it was a gangbusters earning season, but

maybe not so much. Talk us through what you're what you're saying.

Well... So first of all, earnings grew year over year by about 55%. Just to put

perspective, a typical earning season grows year over year by about 9%. So this was... The

only time we've ever seen anything like this as far back as we have data is

when you're leaving a recession and you're comparing this v shaped bounce when the economy is

improving against a really lousy quarter a year ago because we're in the middle of a

recession.

So do we know what accounted for that this time around?

Well, so a number of things. It was an accounting change, which basically forces these big

tech companies to realize the gains on their passive positions in Anthropic or or, you know,

or some of these other companies. And as a result, first, that alone was 50... That

55% goes into the low thirties. Oh, wow. That that that was, like, two and a

half earning seasons worth of earnings just on this. And by the way, it's not like...

You know, it wasn't the profitability of these companies. It was just the mark to market

on what the... Right. Okay. That was one. We have tariff refunds. And, you know, it's

it's really hard to know exactly how much that that plays through, but I'm guessing 3%

of the number. Now 3% of 55 doesn't sound like a lot, but if a typical

earning season is 9%, that's like a third of an earning season you're getting Yeah. From

tariff refunds. There's another issue. Let's say that, Jeff, you're you're you're NVIDIA and and and,

Christine, you're you're Meta, and you sell Christine a chip. You realize the revenue on that

immediately. But Christina doesn't quite realize the expense because she has to wait until her data

center is built, and then they depreciate it over five years. So there's this revenue recognition

against expense recognition that normally is kind of a shoulder shrug, but right now is a

huge big deal. And then there's more.

Did I get the better deal on that? Or

Well, temporarily. I mean, this is, like, girl

math only.

You got the money. You got the money. You're just you're just not seeing the other

side of it. But there's another other things. You normally think that higher oil prices are

gonna be a bad thing, but The US is an oil exporter. Yeah. And the energy

sector, I think, grew earnings at, like, a 140%. And they're like... They they may only

be four ish percent of the S and P, but a 140% is such a big

number that adds. And then there's even more. The bank... No. I mean, like, everything couldn't

go, you know, couldn't go better. The banks are doing this enormous amount of lending and

and IPOs and all stuff, and they're making gobs of money. And for some reason, the

estimates were that that wasn't gonna hap... Like, it wasn't in the numbers. And I couldn't

understand why the estimates weren't higher, and then they put up great numbers. So everything worked

in favor of these numbers.

Okay. But doesn't any of that worry you? Like, are we... It just seems like a

lot of numbers. We say in Washington a lot, if you if you tortures the numbers

enough, they will confess.

Oh, you don't have to torture these. I mean, you know

But were talking about circular credit. We're talking about private credit crunches. We're talking about, you

know, these valuations and how real they are and whether they can really put up profitability

to justify what they're going out as an IPO. You don't worry that this is coming

for a crash down or a letdown next season or in the future.

So I just... I wanna take on two of the things you said. One I think

you're underestimating one way and the other you're underestimating the other. The the valuations are really

low, and you can't go... I mean, if if a stock goes up from 10 to

20, its valuation doesn't go up. Its price went up. If the if the earnings went

up fourfold, the valuation went down. The the valuation on tech companies is below the long

term average now. If there's anything expensive, it's nontech stuff because the earnings aren't, you know,

aren't, you know, coming through. There is a... An issue, and you kind of hit upon

it. We have to raise an enormous amount of capital Yeah. To feed the beast. And

it would be one thing if we're just raising capital for data centers and AI companies

and all this type of stuff. But we're... On one hand, record level of capital raises,

and some of that is direct bank financing and revolving lines of credit. There's a million

different buckets, but it's all financing this up. But then we're also seeing the largest increase

in government sector borrowing because we have deficit problems, and they're competing with each other. You

have to add those together, and it really does mean that there's... You know, we're likely

to see higher ten year bond yields because of this competition for capital. So you asked

me, am I concerned about the Fed? 25 basis points on overnight paper, which that... That's

that's... That doesn't matter. But the fact that you could see the long end of the

curve move up meaningfully, that I think is something to really be concerned on. One of

the things that's obviously driving earnings for a lot of companies is AI. This week, NVIDIA

acquired the AI startup Hugging Face for nearly $13,000,000,000. What does a move of this size

signal about the AI trade going forward?

So so the first thing is I... Well, I think they paid 80 times revenues, or

I don't even... Yeah. I don't... I'm... So I'm not

in Seems like a lot.

Right. So... But I... If you if... I think you have to strip it back. And

as a strategist, I'm less focused on what does this specifically mean for the IPO of,

you know, the company or something else. But but what, you know, what's the big story

here? Number one is these companies are generating gobs of cash flow, and they have to

put it to use. So they could return it to shareholders, or they can make investments

in other things that support their role in

the ecosystem. Jensen Huang trying to find a smart place to park some of this money.

What what would you do? I mean, by the way

This is not a problem I have had is where to park gobs of money. This

is not a concern that generally plagues me

on the daily basis. It's one month of NVIDIA's cash flow. It...

It's One month.

One month of mini cash flow. Imagine that. It's... So so it doesn't... And and there's

and there's benefits to their role in the ecosystem, the information they get from it. So

I'm not evaluating whether this was a good or bad transaction, but I think you have

to put it in the broader context. And by the way, if you listen to all

of the other players in the space, they're all investing in a variety of these things,

and they're viewing it as a... An ecosystem in a basket that they wanna expose themselves

to. We should note that

that deal includes $1,000,000,000 as a retention plan to keep employees at Hugging Face.

We should not know that. I don't need to

know that. I mean, I've... I felt better before I knew that too.

So Alright. We got about thirty seconds. Anthropic is upping its credit line to $15,000,000,000. Bloomberg

is reporting, and we're now hearing that that IPO may not happen till October. Is that

a sign of anything,

or is that just timing? I'm I'm not sure. Mean, first of all, it's not it's

not crazy that you see investment bankers as they're posturing for an IPO to provide lines

of of of credit. But I I think it's I think it's a sign of the

exact story that we're talking about, which is there's a lot of financing need in all

of this CapEx activity, and this is just part of it. And some of it is

on balance sheet or... And some of it is through lines of credit or obligations or

other things like that.

Alright. Well, if anyone you know needs to park a couple million, I'm happy to hold

on to that

for billion if it's just a month

or Really, I'm I'm here for any of the zeros. Alright. Jonathan Golub, senior Seaport research

managing director and chief equity strategist. Thank you so much for making us a little smarter

on all of those things.