Stock Bubble Warning, France Deficit Blowout Risk, Poland’s $1T Problem

0:02 Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg Daybreak Europe podcast. Good morning, It's Friday, the twenty first of August. I'm Stephen Carroll in London. Coming up today. Anthropic is is a record breaking IPO as former New York Fed chief Bill Dudley warns of an AI bubble that could burst soon. Political paralysis in France risks leaving the country without a proper budget and a bigger deficit.

0:33 Plus Poland's two point zero economy Warsaw chases a new generation of high tech investment as it tries to leave its cheap labor economic model behind. Let's start with a roundup of our top stories. Anthropic is preparing a potentially record breaking IPO as warnings grow of an artificial intelligence fueled stock market bubble. Bloomberg understands the claud developer expects to match or beat the record seventy five billion dollars raised in SpaceX is listing. Bloomberg Intelligence's global head of Tech Research, man Deep Singh, explains why this kind of.

1:07 Growth rate is phenomenal at the scale and Thropic is ad and that's where when you compare to SpaceX, which kind of pod, you know, with about eighteen to nineteen billion dollar revenue round rate growth rate much slower than Entropics, and still managed to get close to that two trillion dollar mark. So from that perspective, clearly Entropic with its growth rate, should be at least over where SpaceX traded.

1:32 Initially.

1:34 That's my deep saying from Bloomberg Intelligence. Based on its latest fundraising round, on Thropic was valued at almost one trillion dollars in May. Some investors are now owing a two trillion dollar valuation for an IPO later this year, value Onthropic at around thirty times its current annualized revenue.

1:50 For comparison, Microsoft's valuation is around ten time its revenue. When us of that potential record breaking listing comes as former New York Crowd president Bill Dudley warns, the AI investment boom is helping inflate a US stock market bubble. Now, Bloomberg opinion writer Dudley points to a stretched valuations and expects the bubble to burst before the end of twenty twenty seven.

2:13 Well, the first thing you see is just the equity market valuations are really stretched. If you look at the Schiller case ratio. It said forty one. All time high was forty four in December nineteen ninety nine. The average over the last you know, twenty five thirty years has been bround seventeen. You look at the real equity risk bring the access return you get for holding equities compared to treasure inflation protective securities one point one percent excess expected return less than half day average we've seen since twenty ten.

2:43 Dudley says the increase in AI investment will likely peak this year, with resources already becoming constrained. From our New York Fried Chiefs says, the danger is that over investment eventually hits demand, profits and stock prices.

2:57 I think everybody wants to be first because there there's a winner take all kind of game. So everyone's putting all their chips into the table. And at the end of the day, what's probably gonna happen as you're gonna en up with overcapacity, and we end up with overcapacity. You losese the ability to have a lot of control over pricing, and so your ability to charge where you want to charge and justify your investment starts to become impaired.

3:17 Look at the railroads and the Internet, telecom boom. All those things are great things for the commy. So two things can be true at the same time. The technological innovation can be really transformative, but at the same time you can have an investment boom and bus. And in fact, if you look at history, it tells you that that's usually the case.

3:35 That totally estimates the AI hyperscalers may need at least two trillion dollars in annual revenue to justify a capital base approaching five trillion dollars. US TRIX Race Secretary Scott Besston says he's prepared to ramp up buybacks of costly US government debt. That's despite the short lived impact so far on long term borrowing costs. Passant also has hinted at a new fiscal plan to address the highest treasury yields in decades once.

4:02 The market understands it we are focusing on fiscal consolidation and that we are trying to bring the market back into equilibrium in a thinly traded market, I think you know, I'm confident that bonds will continue declining.

4:19 Bestin to add, the expanded buyback could be more than the four billion dollars currently planned for next month. Thirty yields have reversed much of their move after this week's surprise announcement. Over Besson says his department has a big toolkit and that current yields don't reflect the underlying fundamentals.

4:38 US trategy secretary also says Washington plans to unveil its new economic measures targeting Iran on Monday. President Trump is called the push an economic D Day, but Josh Libsky, senior geoeconomics director at the Atlantic Council, says the plan is unclear.

4:53 There's no way you.

4:54 Can punish the Iranian economy more than it's already been punished over forty years, unless you have some kind of international coalition, which we don't have certainly with the Europeans right now, and you have Chinese banks on board, which we certainly don't have right now. And my concern about this Economic D Day rhetoric, it reminds me a little bit of President Biden's We're going to turn the ruble to rubble. If you remember that in twenty twenty two, and if you make that kind of threat and then you can't follow through on it, it can actually strengthen the Iranian regime.

5:21 Ostosh Lipsky from the Atlantic Council. Oil prices are on track for a weekly gain of around six percent. Brent trading over ninety three dollars a barrel today. The international benchmark for oil is rallied by more than fifty percent this year, as the US Iron conflict has thrown the Middle East into turmoil. According to Scott bessen To, the US now controls the Strait of Hormuz, though Iran has repeatedly claimed to retain authority over the waterway, which has seen further vessel attacks this week. New findings suggest France is at risk of a deficit blowout. That's if the country fails to adopt a budget for twenty twenty seven before holding presidential elections Bloomberg ta Bio as more.

6:01 According to the French General Inspector of Finance, failing to agree on a budget could be costly. Their latest finding show France's fiscal deficit would widen by at least zero point five percent of economic output if political divisions store the adoption of a budget till after the elections next April.

6:19 The warning adds to growing questions over public finances after the finance ministry has already said disappointing economic growth means it will be difficult to deliver the promised reduction in this year's deficit to five percent from five point one percent in twenty twenty five, but agreeing on spending plans is likely to be complicated as political groups in a fractured Parliament could be unwilling to compromise. In London to you at a Baio Bloomberg Radio.

6:45 Britain's biggest banks are urging Chancellor John Healey against raising taxes on the industry. Sky News says Trade by the UK Finance wrote to Healey warning that new levies risk making British banks less competitive than Lobbying comes after the Greens and Try Trade unions called for higher taxes on bank profits this week. And British consumers are more confident that at any point since Labor took power two years ago.

7:10 The data from GfK's Consumer Sentiment Index is ot evidence the national mood has improved since Andy Burnham took over as Prime Minister in July. Bloomberg Exchange Wilcock has more.

7:21 The GfK gauge of consumer confidence hasn't been in positive territory since twenty sixteen, so it reaching a two year high of minus fourteen in August is actually a sign of relative optimism for the UK consumer. The upswing also tracks Andy Burnham becoming Prime Minister, suggesting a boost driven by the new leader, but Neil Bellamy, the director of consumer Insights at the firm, says it's too soon to tell if the good mood will translate into a long term recovery in spending in London. James Wilcock, Bloomberg Radio, those are your top stories on the markets. The MSCIS specific index hired today by six tenths of one another booster for chip makers tricklely Samsung after our reporting of their seventy nine billion dollars share buyback plans. Looking at

8:08 the treasury markets, the ten year yield holding steady at four point seven percent, the thirty year yield also five point twenty five percent, so as to say, reversing much of the gains from the announcement of ramping up buybacks from the Treasury earlier this week. The Bloomberg Dollar Spot index is weakening another two tenths of one percent, with the Euro trading at one sixteen ninety two against the dollar.

8:27 Oil prices a little lower today, trading for Brent at ninety three dollars and twenty four cents Eurostocks fifty features are flat this morning. Well, in a moment, we'll bring you more of those warnings of a stock market bubble, plus how Poland's government is planning its next level for economic growth. But another story that we've been reading this morning on the breed of dog that just can't help making you smile. When did you last spot at dax On being hilarious? For me, it was last night in London where I witnessed one just giving up on a walk and refuse to move, which eventually led to their owner having to carry them down the street after my early alarm clock. I think I sympathized with the dog

9:06 more than the owner in that situation. But I'm not alone in being distracted by Jaxons everywhere. Our Bangkok Bui chief Randy Tantong Night, has been writing about the rising popularity of the sausage jog globally in the US are now the fifth most popular breed for the American Kennel Club, third in the UK. He writes, a few dogs are about a suited to this moment Daxon's are compact enough for urban life, distinctive for Instagram or TikTok, and packed with personality, which I think is an understatement for our stubborn They are as well, so they're easy to have in an apartment or in a city. They're popular among celebrities if that's important to you, and number welfare advocates, though are worried about some of their health problems. Around

9:45 one in four will have some degree of spinal issues, but Australian registration data suggests that Jacksons have avoided the boom and bust cycle. Yes, as even applies to dogs that have hit the likes of French bulldogs or pugs. That's where concerns of our health problems. Veterinary costs have mounted for those breeds as well. But a great read on the cool dogs moment for sausage dogs. You'll put a linked in our podcast show notes for you. So let's dig into some of the big stories on markets now.

10:12 The AI trade getting another boost from anthropics ambitions for a record breaking IPO, but the former New York FRED president Bill Dudley warning of this stock market bubble that's likely to burst.

10:21 He thinks by the end of next year.

10:24 Let's discuss all of this with Garfield Reynolds, who leads our Markets Live team in Asia. Garfield starting with what Bill Dudley is talking about. He's not alone and worrying about a stock market bubble from AI.

10:34 But what's the sort of.

10:35 Prevailing view about when that could burst?

10:41 Well, I think the difficulty precisely is that while there are a lot of people who have been worried over the past six months, at the very least that we are in an AI bubble and then it will burst at some stage, there's very little consensus about when that might happen and what might burst such a bubble. Bill Dudley talks about sometime probably next year. There is certainly a lot of concern about what's going to develop next year because we are reaching the peak for potential investment and profit growth. And once the expansion starts to slow down, that's enough. It doesn't matter that profits are still going to be much much higher than they were a couple of years ago. Once the pace starts to slow down,

11:35 that hurts the equities outlook. And as he highlights all of the virtuous circles that had helped to drive the boom ever higher now turned vicious as slow down in revenue growth, slow down profit growth brings equities down. That hurts. It also pushes companies to try and spend more to revive profit growth when they can't really afford it. So those are the issues that are at play. Twenty twenty seven is a possible time. I think we already saw some indications over the past couple of weeks where people had maybe expected the AI theme to rebound with oil prices staying still relatively contained, but the ramp up in long end yields has caused some concerns for both picks and shovels trades, for hyperscalers, for more pure AI plays

12:44 like in video.

12:46 Yeah, I mean, it's part of the broader story we've been talking about on markets all of this week, adding more pressure to this. Is there sort of a narrow window out of this though Garfield? Is there a chance that will end up with the productivity gains that AI has promised and every happy with the amount of investment that's gone in.

13:03 Well, I'd be skeptical about that because the concern is that the productivity gains might well go to a broad range of companies, and not to the companies that spent enormous amounts of money to create anthy infrastructure that then led to those profitability gains. You think of what happened with the dot com mobile, or a decent analogy with what went on with the railway boom in the US in the nineteenth century, and in many ways that's a better analogy because that involved some fairly large bond sales, and a lot of those bond sales ended up going very poorly, and that caused a big problem for the people who are invested in those bonds. The other issue that's difficult that makes it hard to see a softer

13:56 landing is it's not a lot clear that central banks and come to the rescue this time around. We've got elevated inflation making it tough to cut rate, and we've got central bank balance sheets that are still enormous. So can they pursue the sort of remedies that we saw to pursue in two thousand and nine and.

14:16 In twenty twenty and just briefly then on another factor to add into all of this, what Scott Beson's been talking about in terms of.

14:24 Treasury action on yields as well.

14:26 He said he's prepared to expand these efforts to buy back more expensive debt.

14:32 How does that factor into.

14:34 I suppose the moves that we've seen on markets and so far a bit of a lack of excitement about what happened this week.

14:41 Well, to some.

14:42 Extent, there's been a lot of excitement, but it's not necessarily a good excitement. The concern is that because the US government is trying these tactical maneuvers like the yen intervention, like these buybacks and potentially other measures, that underscores the concern that they're not going to address the fundamentals that have helped to drive yielder. That's things like tariffs and the war, driving inflation higher, and you're deficit spending. That's a major concern for bond investors, and it looks as though the government is more interested in fiddling around the edges to trim the outer branches, as it were, without taking action to seriously address the roots of the reasons for high yields.

15:41 Garfield's great to talk to you.

15:43 Thanks for joining together all of those threads for us to try and understand what has been a very interesting week on markets. Garfield journals leading our markets live team in Asia.

15:52 Stay with us.

15:53 More from Bloomberg Daybreak Europe coming up after this. Now, it's been less than a year since Poland's economy surpassed the one trillion dollar milestone. The government is now looking for the next stage of growth by attracting new investment into industries like technology and ai are Warsaw Bureau chief Zoshawana joins us now for more Socia.

16:17 Good to talk to you.

16:18 Poland's economic transformation has been driven by modernization and cheap labor. Why does the economy need to change now to keep growing?

16:26 Poland has been one of the EU's most prominent economic successes of recent years. You mentioned this one trillion dollar mark. Poland is going to G twenty meeting for the first time this year, so all these signs sort of show that Polish economy has been maturing. And this growth, as you've mentioned, it's been mostly driven. It's been driven by many factors, but mostly by things like this massive support from EU funds, but also relatively cheap, cheap and skilled labor.

17:01 And today the labor costs are growing rapidly and Poland will soon have to stop relying on EU funds. So this model is just not sustainable anymore, and that's why the Polish government is looking to shift the economy towards more sophisticated investments in industries such as technology, artificial intelligence, electric vehicles, and also the supply chains such as metals.

17:31 So how do you do that? What's the plan from the government? Yeah?

17:36 Sure, so you know, like so far, for years, foreign businesses have been looking at Poland and they saw it as this perfect place to open their back offices or basic assembly factories. And they've been mostly attracted, as I mentioned, by these things like cheap labor or tax incentives. The government is very clear that they want to attract foreign companies not by the value of their investment, but the quality of their investment. So they are looking at things like the technology transfer, the transfer of know how from foreign companies to the Polish employees and businesses. And I think these last two announcements that happened recently in Poland underpin the strategy pretty well. So the first one is Lumina.

18:34 So this is the investment that we are talking about in this piece that went out this morning. So Lumina is the Canadian silver and copper mine and they are planning to spend six point four billion dollars in Poland in the next decade. This would be Poland's larger largest investment today. So Lumina wants to build its mind in western Poland. But with that there comes the promise that this mine will sort of trigger further investments and there will be more businesses in that in industry popping up around the region. So really this one investment could also could sort of place Poland as one of the major players on the global copper market. And another announcement has come from Taiwanese firms including fox Con, so they actually

19:38 want to build a technology park in southern Poland. They want to build the sort of assembly of companies that would potentially produce automotive electronics, a server components, industrial robots, semiconductors all in one place. And this project could be worth as much as twenty billion.

20:01 Dollars.

20:02 This all speaks to a very positive picture of the trajectory for the Polish economy as well, but there are questions and issues that will potentially need to be resolved as well. How does this marry with some of the political issues far out groups gaining traction head of elections next year. There's also, of course the lingering threat from Russia as well. How does all that factor into the economic trajectory.

20:24 Yeah, of course these are all very real threats and challenges here in the region. So when it comes to the proximity to Ukraine, I think, out of the conversation that we've been having with many CEOs, I think that they've already facked priced this factor in and they sort of got used to the situation in a way, so this is not a factor that would discourage them from investing.

20:56 Sometimes to the contrary, I mean, there are some businesses that treat Poland as the market which is the closest to the war but not ed war right, So like, if the companies want to enter Ukraine or engage with Ukraine in any way, they see Poland as a very natural place to be. The other thing that you mentioned is the surge of far right groups in Poland. It's true they are gaining traction ahead of the next year general election. And again I mean, on the one hand, the history sort of shows us that the far right right wing parties in Poland they have been largely pro business, so they you know, they opt for things like the regulation for example, or like cutting taxes. On the other hand, there are obviously risks involved. One of them is the

21:52 question of the rule of law, so like what would they do with the ready area. Again, the other thing is migration. These parties they tend to curb migration and Poland is one of the countries with the biggest demographic problem in Poland, so companies that look at the Polish market they might wonder whether there would be enough hands to work if some right wing groups curb migration to the country.

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