Welcome back to Trader Talk here at

Yahoo Finance. I am Kenny Pulcari, your

host. And today we're talking to Kevin

Man who's a CIO at Henyan and Walsh and

we're talking to Willie Lee who is a

principal at Neoellar

>> Capital which has been renamed from Suro

Capitals. Gentlemen, thank you very much

for the conversation. There is a lot to

talk about. The world has changed in the

in the last in the first six months.

It's going to change again over the next

six months. There's a lot going on in

terms of earning season and and the Fed

and now we have renewed geopolitical

tensions. But let's start with uh Kevin

Walsh and the Fed. Let's talk about kind

of where he's at because he's just

announced this uh this these five new

committees to kind of do some

introspection in the Fed, kind of how it

operates, why it operates the way it

does. So talk about what you think that

means not only for the Fed, but then

what what's it mean for the investor?

>> Sure. Uh, I keep going back and forth,

Kenny. Whether he's a hawk in doves

clothing or a dove in hawks clothing, I

can't figure it out. What I do know is

he's a reformer and he's going to change

the way

>> actually is not such a bad thing.

>> It's going to be great for the market.

He's going to change the way that they

communicate. He's going to change the

way that they operate and he's going to

change the way that they collect data.

Hopefully getting more accurate data to

make their decisions based upon. So, I'm

holding out hope that this is going to

be good in the long run. you know, for

you and I, and this is nothing against

you, [laughter] but we were around

during the Allen Greenspan. Same world,

>> right? We're in the same world. So, we

were around during the Allen Greenspan

Fed. And so, for me, it's kind of like a

takeback to what it was like. I mean,

because look, when the great financial

crisis happened, I get it. It was all

this anxiety and nervousness around the

world legitimately. And so, the Fed

needed to change kind of the way they

they spoke to the crowd, right?

>> Yep.

>> But I don't think they need to do that

anymore.

>> Transparency isn't a bad thing. Too much

transparency is a bad thing.

>> Yeah. It creates chaos and volatility

for no for no reason, right? For correct

unnecessary anyway.

>> And specifically now of all times, I

think right now there's just so many

things going on almost true transparency

where things are changing moment to

moment can be I think difficult for the

markets to digest in any given any given

minute. But I think the other thing is

that he's going to pull back on on how

many of the members, you know, do the

circuit. Yes. And go out there and talk

about their own views, which I think

creates lots of volatility and caps in

the markets.

>> Yeah, without a doubt. I mean, I think

if you just take away the other voting

members ability to speak, and I don't

mean that in an overly

>> No, right.

>> punitive measure, but it creates

confusion in the markets. If they only

put out the dot plot chart, and I know

everyone's against the dot plot chart,

but at least we'd see where their views

on interest rates are. When they add

commentary, it confuses them.

>> Wait, but aren't they getting rid of the

dot plot chart?

>> He didn't say that was a definite just

yet. The task forces are looking at it.

>> Yeah, but you know, but the dot plot,

remember, that's literally you take a

number two pencil and you draw part a

dot on a graph on a piece of graph

paper.

>> That's what it is. When we talk about

the dot plot, it's really a dot plot.

And boy does the media run with those.

Right. Right. And they interpret it and

everybody like, you know, when he'd have

the press conferences, you know, he'd

sit there'd be 50 journalists in the

room and he'd say the sky is blue and

everybody heard something different,

>> right? They never heard the same thing.

And so therefore, it was always open to

this interpretation and this is what he

meant. That's not what he meant.

>> Even his first meeting, they came out

from that meeting saying he was more

hawkish because nine voted for 125 basis

point he hike. They forgot to mention

that eight voted for nothing and one

voted for

>> because it didn't fit the narrative that

they were trying to sell which look I

get it but I think that the I think less

is more in this case.

>> I agree. Yeah. Absolutely 100% agree.

>> Right. I think it's going to be I think

less is more not only for kind of the

Fed in terms of boxing themselves into a

corner but I also think it's better for

the market. Yes.

>> Right. Because remember when Alan

Greenspin used to come out Yes. and he'd

make the announcement he stepped out

behind the door he opened his folder. He

said the Fed did this. He shut it and he

walked away. Yes.

>> He didn't sit there and hold your hand

and

>> take questions.

>> Nothing. Zero. And the market had to

figure it out.

>> Yes. If Kevin War starts carrying around

a briefcase though, I'm going to give

you a little bit nervous. [laughter]

>> I don't think we're going there.

>> No, I don't think we're going there. But

one way the other, which now leads us

to, okay, where are we? Where are we?

Because the market is now at least it's

on the table that they're pricing in a

potential rate hike. I think rate cuts

are still on the table, but no one's

really talking about them at the moment,

right? I don't think we're going to get

a hike, but I don't think we're gonna

get a cut either. I think we we hold

steady through the end of the year.

>> Yeah, I'm in the same camp as you,

Kenny. I don't think there's any

movement with interest rates for the

balance of the year unless the straight

of Hormuz closes for an extended period

of time. Barring that, we're kind of in

a Goldilock state of the economy right

now. But we don't need any interest rate

activity. We don't need to look to the

Federal Reserve for help. Do

>> you agree?

>> Yeah, I think it's going to hold it's

going to hold flat for the rest of the

year. I mean, you can see the dual

mandate that they're trying to balance

and they're pulling in two different

directions. It just makes sense that you

would hold it until you get more data

that tells you otherwise.

>> Well, it's interesting and I don't know

who it is, Morgan Stanley or Bank of

America. Somebody's calling for three

rate cuts this year. And I think to

myself, what are they smoking? Because I

want some of it because I don't see one,

never mind three.

>> Yeah.

>> Right. I mean, if you look at, again,

these are their own forecasts, and

perhaps the forecasts go away, but they

still believe the economy is going to

grow at 2% or more this year. They think

the unemployment rate is going to stay

relatively where it is right now, 4.2 to

4.3%. Yes, historically stays elevated,

but they think it's going to come down.

>> So, they don't need to cut interest

rates, and they certainly don't need to

raise interest rates right now.

>> No, they don't. But I think the idea

that the the the rate hike is on the

table is actually I think that's a good

thing, right? To leave it out there that

it is a reality that you know rates

aren't just going to keep going down

down that there is a reality. Which

leads me to one more thing because then

I want to move on to the next to the

next topic. But

can Walsh force a rate cut? And if he

does, how does the market take it?

>> That's a good question. I mean Kenny, I

think I don't know if he can force a

rate cut. He can certainly push for it

>> but I think the markets especially for

where Neostellar invests especially in

private markets along AI infrastructure

spending in that area is not slowed

down. People see ROI despite the

volatility and cost of capital people

are still deploying you know tens

hundreds of billions of dollars against

what they see as very high ROI

opportunities. And so I don't think, you

know, whether it's a rate cut, flat

hike, you know, people are still

operating on on the status quo of what's

going on,

>> right? And I would agree with you. And

so therefore, I don't think I think he

holds them steady. I think he leaves I

think he leaves it out there,

>> but I think he holds them steady.

>> I mean, the last I checked, he's only

one vote on the committee. There's 18

other votes. Does he have influence?

Perhaps. Is he leaning more dovish?

Perhaps. But right now, he's seeming

pretty diplomatic and open-minded.

>> Yeah. You know, is he leaning more

dovish? Because yeah, he may want to cut

on the short end, but then he wants to

he wants to

>> shrink the balance sheet.

>> Shrink the balance sheet.

>> You're right.

>> Right. So So that's not that's not

dovish. That's actually trying to

maintain. Yeah. So you can say the front

end is lower, but he's shrinking the

balance sheet as well.

>> And if he shrinks the balance sheet,

that's means he sells longerdated bonds

and that pushes up those yields. And

that's not exactly what President Trump

would want. So [laughter]

>> which brings us to a whole another

conversation, right? But let's not go

there. Look, next up is earnings.

They're on the table. They start this

week in full force, right? We're going

to get the banks. Okay. But really, I

think what everyone's listening and

waiting for, they want to know the

hypers scales. They want to know the

memory chip. They want to know the

software stocks, the chip makers, the

memory stocks. That's what they want to

know because that's where, you know,

kind of the focus is, right? It's all

about this tech thing and are we in a

bubble? We're not in a bubble. I don't

think we're in a bubble. Do I think

there are parts of the market that are

stretched 100%. Do I think we'll start

to see them sell off a little bit? We've

already seen it, right? This rotation

over the last month has come out. So

talk to me from your perspective where

you think the AI trade is in terms of

bubble no bubble.

>> Look, I think what we say on our end is

just absolute demand for compute that is

far outstripping the supply that any

company can provide. I mean there's like

I said tens hundreds of billions of

dollars going in there. And I think what

you saw in the beginning times with

Nvidia when this started to ramp up is

everybody taking a very close eye on

Nvidia, seeing if their earnings were

going to be good or bad or if they were

going to miss. I I think what you're

seeing is now like when people look at

Nvidia, they kind of already know what's

going to be said that they blew it out

of the water. Demand outstrips supply

and you're going to continue to probably

see that into this earnings. Where I

think people are starting to take a

finer tooth comb is if you look at some

of the mega spenders of like Amazon,

Google, Meta, any of these guys, I think

you're starting to see deviations in the

performance. Like Google for example, 12

months has been great. But if you look

at Microsoft, not as great. So I think

you know people are starting to take

nuance to what AI spend looks like and

ROI looks like. Do you think Microsoft

is down from 520 or something worth

trading at 390 385 something like that?

>> I think that's a screaming buy in it's

Microsoft.

>> Do you think Microsoft's going out of

business?

>> I don't think Microsoft's going out of

business anytime at all.

>> And do you think co-pilot will

eventually cure some of its ills and be

a widely accepted AI productivity tool?

>> Well, I think it will be one of a

handful of very

>> quality productivity tools. I mean, I

think so. I don't think Microsoft is

going down without a fight and I don't

think it's going down

>> and they have so much more money to

spend.

>> Right. But so let's talk speaking of

just that kind of theory. Let's talk

about this open AI trade because now

they've put that they've put that

listing off I think until the new year

and at first it was you know

>> you're kind of scratching your head but

then this headline came out about this

whole Apple Yes.

>> Uh this whole Apple uh uh

>> accusation. Yes. So tell me what you

think now about what does does it dampen

does it dampen the whole AI thing or

does it dampen the open AI?

>> I think it dampens the possibility of an

open AI IPO this year.

>> Right.

>> I think it may dampen the possibility

for an anthropic IPO this year.

>> Ah

>> we also saw SpaceX

>> we saw SKHENX have these tremendous IPOs

valuation right

>> and overs subscribed and now we're out

of their stocks. Yeah,

>> I still think both of those companies

are good investments, right? More so

with SKH Highix, but I think both of

those two companies we just mentioned

looked at that and said, "Well, maybe

we'll wait. We'll take a wait and see

approach and Open AI right now is

tangling with Apple and we'll see where

that lawsuit

>> and so I have that that news just

dropped out, right?" And so it's this

accusation that they've stolen all this

intellectual property from Apple. Is

that about the headline?

>> Yeah. Yeah. I think look if you look at

the headline and I can't speak to you

know how how valid or not valid the

accusation is but I think it speaks to

where Apple feels a little bit

threatened right where if you look at

Apple they've been very successful over

the last 12 months believe over 50% up

in over the last 12 months and they've

you know missed this first leg of the AI

trade in a lot of ways where they didn't

invest a lot in compute they don't have

their own large language model they, you

know, on self-driving they're they're

missing on wearables, on AI wearables,

they're they're missing a little bit,

too. And so, they've they sort of missed

this first wave. And if you look at

OpenAI, I mean, they and Google are

probably the two that can really chip

away at what Apple has really built as

this huge barrier to entry to the

consumer. But if you look at OpenAI, I

mean, almost a billion or at a billion

active users. I mean, they have the

distribution to touch the consumers. is

they have Johnny Ives who came from

Apple, right? So I mean if I'm Apple and

I'm seeing where I might feel threatened

in the next 3 to 5 years, it it would be

open AI.

>> Okay. But if Open AI in fact stole

intellectual property, that is an issue.

>> Sure. Yeah.

>> Right.

Right. That that's an issue. And so

therefore that whole idea that I think I

think that that IPO is I think it's been

based just on the headlines that it'll

be it'll be a 2027 event. It's going to

be interesting to see if how if there's

if it loses interest, right? If people

lose interest in that particular model

because I don't think they're losing

interest in the other ones at all. I

>> agree.

>> Right. I mean, it's clear because to

your point, SpaceX and SKHX were so

overs subscribed,

>> right? And we'll continue now. They just

added SpaceX to the NASDAQ 100 after,

you know, after a month of trading.

Yeah. Right. If if even a month of

trading and but I think that was part of

the deal, right, when they went to

NASDAQ, that was part of the deal.

>> Yeah. just and and I believe in the

space trade, the returns are going to be

out of this world, right? Pun intended.

But if you look at SpaceX, I mean, they

had an operating loss of $4 billion as

recently as last year. And then you look

at other spaceoriented companies,

Redwire, you have Helmet Aerospace, G

Aerospace, Solid Balance sheets,

profits, right?

>> If you want to invest in space, there

are companies that do it. You don't need

to throw money at SpaceX now. Wait till

they develop their business plan. But I

said the same thing with Tesla and look

what happened with Tesla.

>> Yeah. But you know what? It's a it is

exciting and it's Elon Musk, right?

You're really betting on Elon.

>> You're betting on Elon Musk,

>> right?

>> So, let's talk now about this earning

season because like I said, we're going

to start with the banks this week. It's

expected I think topline's expected to

grow about 20 or 23%. Revenue is going

to grow 11%. Or at least that's the

estimation, right? Um and so I think the

market is and it's a high bar this this

quarter, right? And I think the market

is priced to perfection. And so I

wouldn't be surprised at all if you're

going to kind of see this sell the sell

the news type of event.

>> Yeah.

>> Even if even if they come out with great

news, look what they did in Samsung.

Crushed it and they sold it. MU crushed

it and they sold it, right? Not because

it's a bad story, but because you had

all these trader types saying, "Let me

lock in some profits." Still,

>> you didn't see I didn't see long-term

investors blowing out, but you saw a lot

of algorithmic and trading action.

>> Yeah. I mean, look, I think you see a

lot of investors who've made a lot of

money on some of these names. And so,

you know, if unless there's something

that's even above and beyond what the

expectation is. I think it makes sense

that some people are taking some profits

at this point.

>> Take some. I wouldn't take them all.

It's okay to take some off the table. I

think the last thing people should do is

blow out of it completely. I think

that's a mistake.

>> Yeah. I mean, sometimes in life, Kenny,

our best isn't good enough. I think

that's going to be the tail of this

earning season.

>> And that's I think you're right.

>> More records and you're still going to

get the sell offs and PMs like us are

going to sit there and wait for it to

come back to attractive levels and buy

it.

>> That's right. And I I think that's going

to be it's because it's going to be very

interesting. I'm I'm very anxious and I

think I don't think necessarily it's

going to happen like with the banks.

It's going to it's going to be in the

tech space. Any one of them, you know,

software, the chip makers, the memory

makers, the hyperscalers, right? I think

that's where you're going to see that

action because actually you've already

over the last month you've kind of seen

this rotation out, right? And I keep

saying this in my note. I talk about

rotation versus liquidation because if

it was liquidation, they'd be selling

everything and the kitchen sink. They

throw it all out the window. They're not

doing that, right? They're taking money

out of one sector, but they're putting

it into financials, healthcare, basic

materials, industrials.

>> But if they start to question the

infrastructure buildout, I think they're

going to miss out on some tremendous

opportunities. the MCORes, the ACOMs of

the world, the the data centers

themselves, the REITs like a digital

realy, the cooling solutions, the

verdives, the mod manufacturing because

the money is still being spent, right?

They're getting an ROI today whereas the

hyperskalers won't get an ROI for years

to come. So, if investors start to poke

at that AI bubble and now look at the

infrastructure side,

>> all right, so

>> I think they could be missing out,

>> right? Okay, so here's the next question

just to get it off the table.

>> Is it a bubble? No, absolutely not.

>> I agree with you. I'm just asking the

question.

>> I think I think what is happening and

why you see these elevated prices for

some of these assets where they're

trading, you know, on future revenue is

because everybody is trying to get a

piece of the AI ROI, which is happening

a lot in the private markets, which is

what we're seeing. We're seeing

companies effectively doubling, you

know, ARR monthtomonth, right? So, if

you're looking as an investor to say,

hey, there's all this AI spend. Where is

the revenue coming? And you don't seeing

that in the public markets. You know, a

lot of it is happening in the private

markets with some of these companies

that are trying to fill in the gaps of

where the LLMs are are not taking

profits there. So,

>> what's interesting though, you can get

that exposure with almost any company

now.

>> Sure.

>> Yeah.

>> The banks, healthcare names, you can get

that that exposure. You kind of get it

in a, you know, it's it's it it's kind

of like a different derivative, but

you're still getting that exposure.

>> You can get that exposure, but you can't

get the growth,

>> right?

>> And so, I think that's what everyone is

craving. I think and that's why I think

Google has done extremely well compared

to a lot of the other the other folks. I

think when you look at Google and their

opportunity and they can you can argue

whether or not they're the third best

LLM or not, but they're clearly showing

some signs where they can be a

competitive LLM in the space and people

see that as an opportunity to

potentially get exposure to AI revenue

or LLM revenue compared to, you know, a

lot of other stocks out there. To your

point though, Kelly, take a sector like

the utility sector, big old boring

utility stocks, right? And then I think

about a company like American Electric

Power stocks up over 20% year to date.

They got a yield of 2 and a.5%.

>> They supply electricity to 5 million

customers in 11 different states. And

one of the states is Virginia, the data

center capital of the world. So they've

become a backdoor play into the AF

revolution without the volatility.

>> Yeah. Right. Right. And it kind of in

this big boring name, right? It's a

utility

>> utility stocks. No, I want to be in the

AI trade. Well, guess what? The

utilities are now part of the AI trade.

That's the same group. I mean, every

sector can be part of the AI trade. Just

depends on which derivative, right? To

your point, you know, some sectors give

you more of direct access. Other sectors

kind of give you that, you know, that

back door entry like you know like uh

through the utility play. Um, okay. So

let's talk about uh the the rising

geopolitical issues now that once again

have come to the surface because you

know then Iran's not playing nice in the

sandbox uh and now wants to force his

trade. I think a lot of it you know look

the midterms are now four months away.

Uh clearly they understand that uh they

understand elevated gas prices is not

going to be good for Trump. Yep.

>> Um and so that's a potential issue.

>> Yeah. I mean, look, I think there's a

lot of geopolitical risk that's

happening and it creates a lot of

uncertainty, but I I just go back to

what I was saying before of, you know, I

think people are still investing as if

it's status quo, right? And I think

especially on the AI piece, people

continue to invest their massive sums of

money despite volatility and cost of

capital because people see so much ROI

in that opportunity,

>> right? Yeah. I I I well I think they're

going to see ROI

long-term ROI like you and I right are

in that long-term game correct as wealth

managers right um I think you're right

and when you see that pullback right if

you see this kind of sell the news type

of reaction in the market yes you know I

I think for guys like us

>> that's like a gift

>> yeah and I think that investors maybe

aren't even looking at the geopolitical

situation I ran right now a status quo

but it's over it may not be over today

but it's going to be over so we don't

want to be distracted by that. And I

hate to use the term, but maybe the

inflation that resulted from higher oil

prices is transitory and that will be

behind us. So, let's get back to

focusing on earnings on the AI

infrastructure buildout where all the

money is being

>> Well, look, I I hate to use the two, but

I do think that the rise in oil prices

is transitory. I mean, because it's

directly tied to what's happening,

right? We saw what happened two weeks

ago. Oil was trading back at 67

>> and now it's back to 80 today,

>> right? Is it back to 80?

>> 80. Hit 80. Brent crude hit 80 before

Brent crude WTI 75 75 right but but I

think that's a once again I still think

that's temporary but the problem is the

longer the temporary goes on then the

more unsettling

>> that should be the headline for this

segment [laughter] it just becomes more

unsettling right um which is okay so

before we before we uh tie this up

because we're running out of time I just

need to talk to you about the second

half of the year just tell me uh just

tell me where you think the second half

of the takes us in terms of do you have

a target for the S&P? I know like Tommy

Lee at Fund Strat I think has an 8,000

target on the S&P which I think is a

little bit rich. I'm in the 757600 which

is right where we are. So that means as

far as I'm concerned we're going to do

this sideways action.

>> Yeah. I mean if we do get to 8,000

what's that 6% from here. A little over

6%. That doesn't seem entirely

unrealistic.

>> But we're already up the S&P is already

up 9 and a half% right. So that would be

15% for the year.

>> Correct. Not out not out of line,

>> not unrealistic, but I think we're going

to see a lot more choppiness first and

foremost. But I think if you continue to

follow the money into where the billions

of dollars are being spent, Kenny,

that's AI infrastructure, that's

aerospace and defense, that's power, and

now it's become healthcare through

biotech.

>> That's right.

>> $236 billion of announced M&A activity

in the healthcare space. First half of

this year, 90% increase over last year,

the most since 2021. Start a year.

>> There's other opportunities out there.

But and you've seen that in the market

over the last couple of weeks because

you've seen that rotation and where the

money has gone.

>> That's right. No, I agree. The 7576 is

probably right on the money there. No.

[laughter]

>> I am so impressed that you and I are on

the same page. I love that. Come

>> back to that.

>> Exactly. I think you're going to see

some of this risk off people rotating.

Exactly what you were saying is there's

a lot of rotation going on in the market

where you just have these huge gains in

AI infrastructure or now you're starting

to see it in other areas. People are

going to take some profits. I think

during the year and then they're going

to rotate in areas where they feel like

it's underappreciated like you're saying

power energy some of these areas that

maybe aren't as sexy of an industry and

they might not see that explosive growth

but they're becoming extremely essential

>> right and they and they offer stability

right they do offer because utilities

are it's a boring group I get it

consumer stables is a boring group but

you know they're underperforming and if

people start to get nervous you'll see

that shift right you'll see money come

out and and and uh and uh move into

those sectors

>> there's midterm elections coming up that

might add some black. I don't know.

>> Well, okay. So, which is, you know, now

brings us to uh there's a lot going on,

right, with the death of Lindsey Graham

now creates more kind of anxiety in

terms of the midterm elections and

what's going to happen there. But look,

I think the midterms um I'm in the camp

that that it's going to the House is

going to flip, but the Senate's going to

remain. So, therefore, we'll have this

gridlock, which the market likes to

gridlock, right? That's what the market

prefers. Um, uh, Joe, are you in that

same page?

>> I'm in the same page.

>> Yeah, I'm in the same page. I think, and

like you said, I think the markets just

wants the stability. I think there's a

lot of volatility and uncertainty going

on. And I think that will bring a lot of

calm to the markets where

>> it's not, right? Because the market

wants as much certainty as it can get,

right? The thing that creates all the is

when it's completely uncertain. Yes. Is

that people don't know what to do and

the algorithms don't know what to do and

so you get even that increased

volatility. That's right. But when you

know, you can have bad news or you can

have rates at 4 and a.5%. But if the

market knows those are the rates then it

adjusts right

>> and when we have that uncertainty and if

there is a divided congress

>> right

>> that's good for the markets and perhaps

we rally from November through the end

of the year

>> through the end of the year

>> and if we pull back enough we get back

to 7500

>> right which is the camp I'm think we're

going to pull back to like this 73ish

hundred area and then rally back yeah

right 100% you would be a buyer right uh

I think at that point because I don't

unless unless again something happens

that none of us are none of us are are

factoring in right and I'm not really

sure what else could happen other than

the M East blows up completely which I

don't think it's going to do

>> because I don't think all those other

countries I think they're on our side

right they're done with the with with

>> unless there's another geopolitical

um

>> I I really appreciate you guys coming

here this is a great conversation

because we're going to run out of time

now it's been a half an hour already but

um I'd like to I'd like to you know I'm

going to back to Jess. We're going to

recircle around and you know maybe at

the end of the year have this

conversation and kind of see where it's

all turned out, right? Who was right?

Who was right and who was wrong.

[laughter]

>> In any event, until the next time, take

good care.