Speaker 1: This is the Bloomberg Surveillance Podcast.
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Speaker 2: Right now, and this is important. You need to reset
Speaker 2: for the weekend. You need to reset for the second
Speaker 2: half of twenty twenty three, and particularly if you've not
Speaker 2: participated in the seven tech stocks. Mike Wilson will brief
Speaker 2: on the caution that is out there. He is at
Speaker 2: Morgan Stanley. They're us equity strategists and has been. I'm
Speaker 2: going to suggest cautious through thick and thin of this
Speaker 2: pandemic and forward. Mike, what are you writing this weekend
Speaker 2: to recalibrate a cautious call.
Speaker 3: Yeah, good to see you guys. I mean, our call
Speaker 3: really hasn't changed. You know, we're very disciplined on price
Speaker 3: and as you know, we got tactically bullish last fall
Speaker 3: at thirty five hundred because that was a good price
Speaker 3: and now or of course back to the high end
Speaker 3: of the range, and that's not a good price, and
Speaker 3: that's at the SMP level. That's not really what's been
Speaker 3: interesting over the last six or seven months. As you know,
Speaker 3: what's been interesting is what's going on under the surface.
Speaker 3: I would say in the fourth quarter that was a
Speaker 3: very hated rally because it was led by kind of
Speaker 3: the old economy financials, industrials and energy materials. It was
Speaker 3: all based on, you know, the China reopening story, which
Speaker 3: was legitimate, and technology stocks obviously disappointed and they did
Speaker 3: not trade well in the fourth quarter, So there was
Speaker 3: a hated rally because that's what people own.
Speaker 4: Now.
Speaker 3: Of course, the SMP is training at the same price
Speaker 3: it was in early December, we got cautious again and
Speaker 3: tech is obviously going to the moon. And now this
Speaker 3: rally is loved because these you know, this is what
Speaker 3: people want to buy, is what people want to own.
Speaker 3: Its a lot more in interesting and you know, kind
Speaker 3: of exciting to own AI and technological revolution, and it
Speaker 3: is to hold some those old economy stock that's you.
Speaker 4: Know, well why do I want to own this long term?
Speaker 3: So it's just an interesting development we would characterize this
Speaker 3: as the bear market is continuing.
Speaker 4: Okay, this is what bear markets do.
Speaker 3: They they're designed to fool you, confuse you, make you
Speaker 3: do things you don't want to do, chase things at
Speaker 3: the wrong time, probably sell them at the wrong time.
Speaker 3: And the overriding we think the overwriting driver. Okay, if
Speaker 3: this year's rally has been increased liquidity. Liquidity has improved
Speaker 3: dramatically both on a global scale, and the weaker dollar
Speaker 3: is helped, that's going the wrong way now again. And
Speaker 3: then of course, ironically, the banking failures that happened in
Speaker 3: March led to an injection of liquidity from the FDIC
Speaker 3: and the FED, and we think those things have really
Speaker 3: conspired to drive the market. I mean, nobody talks about
Speaker 3: the fathtic crypto is up sixty percent this year, okay.
Speaker 3: And then the next one, of course, is the is
Speaker 3: a tech world, So this is what's going on. We
Speaker 3: think that the fundament cases not support you know, where
Speaker 3: stocks are treating today, whether it's at the index level
Speaker 3: or at the single stock level, and the second half
Speaker 3: is going to be a bit choppier and probably downward
Speaker 3: in the index.
Speaker 5: Let's just talk about the index a little bit more
Speaker 5: and great to have you with us as all ways,
Speaker 5: particularly going into the long weekend. Mike, you really started
Speaker 5: the debate this week on this program, and we reflected
Speaker 5: on your note from over the weekend into Monday when
Speaker 5: you said the following that there are many technical signals
Speaker 5: that conflict with the idea that this is the beginning
Speaker 5: of a new cycnical ball market. There was a short
Speaker 5: list after that of those signals, and one was extreme narrowness,
Speaker 5: poor breath. We presented that severe supermanium a peer of
Speaker 5: yours over at Bank for America, and she said, narrow
Speaker 5: breadth is not a precursor for doom and gloom. Michael,
Speaker 5: just wanted to give you the opportunity to respond to that.
Speaker 5: What is it about narrow breadth that you think signals
Speaker 5: something at the index level?
Speaker 4: Well, I think there's you could debate this one way
Speaker 4: or the other.
Speaker 3: Meaning, when you make a market low, you typically do
Speaker 3: have you know, severely negative breadth. That is a good sign.
Speaker 3: However the index is usually down with it. So we
Speaker 3: think where we are is the index is telling you
Speaker 3: things are rosy, things are fine, and the breath is
Speaker 3: telling you otherwise. And then when we put our fundamental
Speaker 3: overlay on top of that, which is, you know, we're
Speaker 3: way out of consensus now on the earnings front. Then
Speaker 3: we can make the conclusion that the internals right, the
Speaker 3: breath is being one of those, but the internals and
Speaker 3: the leadership is telling you that growth is going to
Speaker 3: be a problem in the second half of this year.
Speaker 3: Whether that's an economic recession or not, doesn't it We
Speaker 3: think it's going to be an earnings recession that's way
Speaker 3: worse than what people are currently modeling. And like, I
Speaker 3: want to go back to the beginning of the year.
Speaker 3: You know, you guys are good readers of our reports.
Speaker 3: You remember in the beginning of the year, I was
Speaker 3: somewhat nervous that everyone was in the same camp.
Speaker 4: At that point. We were our view is very consensus.
Speaker 3: On the fire and ice, you know, the tightening and
Speaker 3: then the slow down, and so we were trying to
Speaker 3: figure out, well, how could everybody be right? That doesn't work.
Speaker 3: And so what we've done now is we've worked off
Speaker 3: that oversoul condition.
Speaker 4: And more importantly, now.
Speaker 3: I would say the consensus is actually optimistic on earnings again,
Speaker 3: and that's just where we completely disagree.
Speaker 5: So Mike can we just build on the challenge to
Speaker 5: the index level retesting the loads of last year, given
Speaker 5: the muscle of five or so names doing just ridiculous
Speaker 5: things of one hundred percent plus METSA and video, et cetera.
Speaker 5: Is that a big enough challenge to the view that
Speaker 5: we can retest the lows of last year.
Speaker 4: Well, not necessarily note at all.
Speaker 3: In fact, it kind of sets us up where it's
Speaker 3: probably inevitable now because what's happening is you're you're basically
Speaker 3: forcing people into these stocks at bad prices. Now. I mean,
Speaker 3: you know, the evaluations last fall on these stocks in particular
Speaker 3: was extremely attractive. And if you look at the performance
Speaker 3: of all of these names, with the exception perhaps of
Speaker 3: the one this week, which you know earnings are going up,
Speaker 3: the earnings are not driving these stocks. It was one
Speaker 3: hundred percent multiple expansion, which goes back to our gritty questions. So, look,
Speaker 3: the price is wrong in our view because the earnings
Speaker 3: are probably going to be wrong for most of these stocks,
Speaker 3: not all of them, but most of them.
Speaker 4: And so from here we think it is still a
Speaker 4: stock picking game.
Speaker 3: And of those six seven eight stocks, my guess is
Speaker 3: two of them will probably be okay, and the other
Speaker 3: ones will not because there's they are the economy.
Speaker 4: Okay, they can't avoid the economic.
Speaker 3: Slowdown and the top line slowdown that we see in
Speaker 3: the second half of this year.
Speaker 2: Mike, maybe a bit off your remit, but I got
Speaker 2: to go here. Just percolating in the zeitgeist into June
Speaker 2: is the once again debate of active versus index usage
Speaker 2: in the equity market. Give us your update on the
Speaker 2: value of active versus the value of index investing.
Speaker 3: Really interesting confluence right now, because you know, you could
Speaker 3: argue both are working at the moment, right I mean,
Speaker 3: you know, having the right stocks in your portfolio has
Speaker 3: been really the only way to make money this year.
Speaker 3: The problem is is that those stocks are such a
Speaker 3: big part of the index. The passive person could say, look,
Speaker 3: my passive strategy is working as well, you know, and
Speaker 3: so we still think active will have a comeback here
Speaker 3: as we go through the next couple of years. It
Speaker 3: already is to some degree. But boy, it's you know,
Speaker 3: it's the market once again. The market is doing a
Speaker 3: very good job of kind of fooling us into whatever
Speaker 3: we want to believe. We think active will be the
Speaker 3: place to be for the next two or three years.
Speaker 3: It's going to be a comeback there.
Speaker 2: Mike, uh, dovetail this with Ellen Zettner. Take the recession
Speaker 2: call of Morgan Stanley and dovetail into your caution on equities.
Speaker 3: Yeah, so Ellen and team, I mean, they're not looking
Speaker 3: for a hard landing, but they are looking for, though,
Speaker 3: is a very sluggish economy. So there's sort of zero
Speaker 3: percent P growth right now that you know, that's fine
Speaker 3: if you still got price. Our view is that zero
Speaker 3: percent GDP growth will lead to bad price, and we're
Speaker 3: already seeing that in the good sector. And then we've
Speaker 3: done some consumer work recently, which is we're starting to
Speaker 3: see signs that even the high end is starting to
Speaker 3: pull back on spending intentions on services.
Speaker 4: So you know, services is seventy percent of the economy.
Speaker 3: It's you know, goods are seventy percent of the S
Speaker 3: and P five hundred earnings. So in other words, the
Speaker 3: economy can stay kind of at zero, but that's not
Speaker 3: going to be a good outcome for SMP ear needs.
Speaker 6: And our view, Mike Debasi Lobster.
Speaker 3: Well, we can't afford it because we're parish. You know,
Speaker 3: I'm cheap anyway, So you know.
Speaker 5: Mike, we'll try and hook you up with one. Thanks
Speaker 5: for repairing this morning. We appreciate it, Mike Wilson that most.
Speaker 2: Cares about economics, fans investment or that, as you know,
Speaker 2: over the years I've made clear, the Bank of England
Speaker 2: simply does it better. Maybe it's because it's a surprisingly
Speaker 2: new public institution versus the FED and all the codified
Speaker 2: history of the Fed. But what they do, more than
Speaker 2: anything is they take in people with different views. I
Speaker 2: think of Adam Posen now at the Peterson Institute. Excuse me,
Speaker 2: the Internet, I I f I'll get it right, International Economics,
Speaker 2: Peterson International Economics in Washington. I think of David blanche
Speaker 2: Flower at Dartmouth and now they go brilliant and the
Speaker 2: number of months by bringing in somebody really original in
Speaker 2: economic analysis and policy discussion, Meghan Green of the Croal
Speaker 2: Institute and of course at Brown University. She will join
Speaker 2: the Bank of England. And obviously with those constraints she
Speaker 2: cannot speak about the Bank of England. She cannot speak
Speaker 2: about the United Kingdom. We checked where they're entourage, she
Speaker 2: cannot speak about the future of Tottenham's Spurs, and she
Speaker 2: can definitely not speak about the politics between Cambridge and
Speaker 2: Oxford is just too deep and too dangerous to go
Speaker 2: to this morning. Megan, congratulations on this hugely important appointment.
Speaker 2: I wanted just to talk today about the American economy
Speaker 2: and the certitude we have of guessing vectors of inflation.
Speaker 2: You're expert at the history of the study of that.
Speaker 2: Can we actually gain a vector of inflation?
Speaker 3: Yeah?
Speaker 7: Look, the inflation data was always going to be bumpy
Speaker 7: coming down, and that's what we're seeing. But I think
Speaker 7: what we can gauge is sort of underlying trends and
Speaker 7: look for signs of persistence of inflation. In the US,
Speaker 7: the core capital goods data that just came out surprised.
Speaker 7: On the upside, that's about seventy percent of fixed investment,
Speaker 7: So that suggests that demands pretty strong in the UK economy,
Speaker 7: and core PCEE was stronger than many had hoped. So,
Speaker 7: you know, I wouldn't read too much into one data point,
Speaker 7: but it does suggest that the FED isn't done. So
Speaker 7: even if the FED does end up pausing, I don't
Speaker 7: think it's finished here. We've seen that corporate earnings have
Speaker 7: been pretty strong. That means that there's a lot of
Speaker 7: labor hoarding that may well continue keeping the labor market strong.
Speaker 7: That again keeps demand strong and keeps upper pressure on inflation.
Speaker 7: So I think that the Fed's got more work ahead
Speaker 7: of it.
Speaker 2: One of the Meghan Green realities is plain language. You
Speaker 2: actually speak in English, Thank you for that'll help you
Speaker 2: with the Bank of England. You speak of the is
Speaker 2: a weird time in history. Define that phrase.
Speaker 7: So it's a weird time in history. Just given the
Speaker 7: success of shocks that we've had on the economy between
Speaker 7: a pandemic a war, a lot of the indicators aren't
Speaker 7: really responding, particularly to tightening of monetary policy, as one
Speaker 7: might expect. And the labor market here is a great example.
Speaker 7: The labor market is holding up freakishly well given how
Speaker 7: much aggressive tightening there's been in the US, and as
Speaker 7: I just said, you know, that keeps demand really strong,
Speaker 7: and so the Fed's trying to sort of kill off
Speaker 7: demand to bring it back in line with supply. So
Speaker 7: we can see price stability, but it's just not transmitting
Speaker 7: monetary policies, just not transmitting into the real economy as
Speaker 7: we expected it might.
Speaker 2: Donnie Constanin was on earlier with Miszouo, also out of Oxford,
Speaker 2: and he made very clear as there is a partition
Speaker 2: between demand driven inflation and supply side inflation. Obviously that's
Speaker 2: a pandemic inflation. Are we still living the pandemic in
Speaker 2: the wall of data scene in America this morning? Are
Speaker 2: we still living the pandemic in our funny savings ratios
Speaker 2: and what that means for income and spending?
Speaker 8: I think we are.
Speaker 7: It's a bit too early to say how long that
Speaker 7: will actually last, but we're seeing it in consumption patterns.
Speaker 7: We're seeing it in people's decisions to leave jobs to move,
Speaker 7: We're seeing in the real estate market. So the pandemic
Speaker 7: is very much still with us, and I think some
Speaker 7: things will structurally change going forward as a result of
Speaker 7: the pandemic. We're just not sure exactly what it is.
Speaker 7: If you look at the labor force participation for different demographics, overall,
Speaker 7: it's recovered.
Speaker 6: In the US.
Speaker 7: It took a really long time, but there are differences,
Speaker 7: particularly among older workers, and I think that will be
Speaker 7: with us for a while. That said, we really struggled
Speaker 7: with supply constraints, not just in the labor market, but
Speaker 7: also of course with global supply chains during the pandemic
Speaker 7: and an immediate aftermath of the pandemic, and if you
Speaker 7: look at a bunch of gauges for global supply, chain
Speaker 7: tightness actually eased quite a lot. So I think that
Speaker 7: piece has eased, and yet inflation remains stronger than what
Speaker 7: we'd hope.
Speaker 2: Okay, inflation is stronger than we hope, but there's a
Speaker 2: belief there of getting back now. I don't want to
Speaker 2: get in trouble with Bank of England here, but the
Speaker 2: former Vice chair of the of the FED, Richard Clarita,
Speaker 2: and others are debating a two percent idea. Would you
Speaker 2: suggest the greater theory of our macro policy forward is
Speaker 2: going to be an adjustment of any given central banks
Speaker 2: band or target that they're getting back to.
Speaker 7: So we may we're certainly beginning a debate about that,
Speaker 7: I think among the intelligentsia, but I don't think we've
Speaker 7: made much progress on that. Some are calling for a
Speaker 7: higher inflation target in the US, in particular, you know,
Speaker 7: somewhere around three percent. The FED and most other major
Speaker 7: central banks have defined price stability as is the metric
Speaker 7: target around two percent. What the academic literature shows is
Speaker 7: that actually until inflation gets above four percent, most people
Speaker 7: don't really notice it. Yeah, so I'm not sure they
Speaker 7: don't notice inflation at least in terms of you know,
Speaker 7: they hit to their actual standards of living. So whether
Speaker 7: it's two percent or three percent, that may be more
Speaker 7: of an academic debate.
Speaker 1: You absolutely nailed this.
Speaker 2: I got one minute left back, and I'm sorry, but
Speaker 2: this is research out of VCU that Olivia Blanchard is
Speaker 2: calling sentient inflation. Are we anywhere near sentient inflation where
Speaker 2: we're just comfortable with our inflation rate?
Speaker 7: So no, I don't think we are near an inflation
Speaker 7: rate that we as the public or that the Fed's
Speaker 7: willing to tolerate. In the US, I think I think
Speaker 7: it will need to come down closer to the two
Speaker 7: percent target before the Fed's really ready to hang up
Speaker 7: its boots and be done with it. So, as I said,
Speaker 7: we might get a pause in June, but I wouldn't
Speaker 7: take a pause to mean that the FED is done.
Speaker 7: I think there's more work to be done.
Speaker 2: Megan very quickly here, and I'm really trying to stay
Speaker 2: away from the Bank of England police here, and I
Speaker 2: think I'm safe going here as well. One of the
Speaker 2: great things about Fenway Park, Meghan Green. And it's not
Speaker 2: Narrogance at Lagger Beer, it's the Yankee Lobster Company. Can
Speaker 2: you give us a rating on the lobster roll from
Speaker 2: the Yankee Lobster Company at Fenway Park?
Speaker 7: I can't tell me because why would anyone ever get
Speaker 7: anything but a Fenway Frank at Fenway Parks? So I've
Speaker 7: never had it. I stick with Fenway Franks.
Speaker 1: Bottle that and you will see that.
Speaker 2: As she enters the August doors of the Bank of England,
Speaker 2: Meghan Green, congratulations from the Crawl Institute. Joining us now
Speaker 2: Janette Lowe, Managing Director Policy Research at Strtigas it is
Speaker 2: a Baird company.
Speaker 1: Jeannette, what is a distinction for you? What will you
Speaker 1: listen for this weekend?
Speaker 9: So first, thanks for having me. So we do have
Speaker 9: a deal coming together, which is good news. There are
Speaker 9: still a lot of details that need to be worked out.
Speaker 9: As you continue to hear that they've made progress and
Speaker 9: they are limiting the number of issues that still need
Speaker 9: to be taken into account and finalized among the negotiators.
Speaker 9: So it does seem like we are getting closer. We're
Speaker 9: definitely going to be looking at how this deal is structured.
Speaker 9: This is definitely smaller than what the Republicans initially proposed.
Speaker 9: They were looking at ten years of discretionary spending PAPS.
Speaker 8: We might be more at two years.
Speaker 9: So that how that's going to be structured is going
Speaker 9: to be important, I think for the markets, because there
Speaker 9: is this anticipation that we're going to get some austerity
Speaker 9: out of this deal. But even if we don't get
Speaker 9: austerity out of this deal, we still think there's more
Speaker 9: for school austerity in the years ahead.
Speaker 2: For the United States, this is really really important right
Speaker 2: where I want to go, and this is literally the
Speaker 2: history learned.
Speaker 1: At Richmond and BEU.
Speaker 2: What's the difference between our austerity and what's say the
Speaker 2: United Kingdom is living. They seem to be drowning in
Speaker 2: an austere psychology. I don't see that. In the last
Speaker 2: eight or ten years in Washington, I see you know,
Speaker 2: if it moves, spend, it spend every dollar.
Speaker 1: What's changed.
Speaker 9: So what we've seen is that, you know, obviously the pandemic,
Speaker 9: you've had extraordinary fiscal stimulus come into and that the
Speaker 9: government provided, and then obviously we've had inflation come on
Speaker 9: top of that. What's really been the key change now
Speaker 9: because to your point, we have been able to just
Speaker 9: spend and cut taxes quite freely for the past number
Speaker 9: of years, but now that we've had to interest rates
Speaker 9: prise so much that is now increasing the cost of
Speaker 9: the US debt, and so net interest costs for the
Speaker 9: US are now increasing. We have seen historically that once
Speaker 9: those rates hit fourteen percent of tax revenues, financial markets
Speaker 9: begin to impose austerity on policy makers. We are currently
Speaker 9: at twelve point seven percent, and we anticipate that we
Speaker 9: will get to fourteen percent by the end of the year,
Speaker 9: and so that is where we're really looking. That's going
Speaker 9: to start to squeeze the federal budget. So even if
Speaker 9: this deal is not particularly austere, which given the current
Speaker 9: contours it doesn't seem like it will be, we are
Speaker 9: still looking at the fact that over the next couple
Speaker 9: of years, the policymakers still have a number of other
Speaker 9: times that they're going to have to come into play
Speaker 9: to think about how do they bring the US fiscal
Speaker 9: budget into a better alignment to kind of handle some
Speaker 9: of these costs that they're dealing with.
Speaker 5: Jenna, can we just finish on the X date, the
Speaker 5: so called X state the Treasury doesn't have a precise
Speaker 5: idea of when that force. We're all guessing KIA they
Speaker 5: have some information about tax receipts. It can be very
Speaker 5: lumpy sometimes. How are you reading the tea leaves of
Speaker 5: that situation.
Speaker 2: Right?
Speaker 9: So, I mean, I think all the negotiators want to
Speaker 9: operate off the fact that we have June first as
Speaker 9: the X state. Now there always is a little bit
Speaker 9: of flexibility with that. Treasury wants to have a little
Speaker 9: bit of a buffer so that if we were to
Speaker 9: cross over the X state, you would still have maybe
Speaker 9: some cash to still continue to make payments before the
Speaker 9: Treasury Department actually run out of cash. Maybe they might
Speaker 9: be able to make it to g third, maybe not.
Speaker 9: They did put out an auction this morning that does
Speaker 9: make it seem like they might have a little bit
Speaker 9: more cash at the X state. But I think the
Speaker 9: more important thing is is that their negotiators are focused
Speaker 9: on the X state, and if we were to cross it,
Speaker 9: we do think that would be quite a market jolt.
Speaker 9: It would actually help with get a deal if we
Speaker 9: still hadn't gotten one at the same time, but I
Speaker 9: think that the actual loss of cash is less important
Speaker 9: than that X state right now, just for policy makers
Speaker 9: to be able to control their.
Speaker 5: Focus Jenna, just to finish on that point when they
Speaker 5: start to think about prioritizing spending. I think there can
Speaker 5: be some confusion between going through the X state and
Speaker 5: defaulting on debt obligations.
Speaker 6: There can be two different things.
Speaker 5: How do you think the treasury will start to prioritize
Speaker 5: spending as we if we go through that date?
Speaker 4: Exactly.
Speaker 9: It's a great point because the big thing that we
Speaker 9: have been trying to focus on is the fact that
Speaker 9: this would naturally not be a default if we crossed
Speaker 9: over the X state. Treasury we believe would prioritize making
Speaker 9: interest and principal payments on treasuries to be more about
Speaker 9: prioritizing spending and payments to bills that need to go out.
Speaker 9: At some point. We still think that the treasury would
Speaker 9: prioritize things like Social Security, Medicare, defense, but then it's
Speaker 9: about whether or not you pay some other federal contractors
Speaker 9: on time.
Speaker 8: So it seems more like a you.
Speaker 9: Know what we would see when we have a government
Speaker 9: shut down with trying to move payments around, but it's
Speaker 9: not an actual default on US treasuries.
Speaker 5: Thank Claire and that abulary shed it. Thanks pretty and
Speaker 5: Jeanette love that that's tatigue.
Speaker 2: This is what matters, folks, because you're living the tech
Speaker 2: dream like we are, and mister Ives is leading away
Speaker 2: with optimism on their profitability. They're enduring profitability is at
Speaker 2: Webbush Securities in Kooper Tino yesterday they saw what you saw.
Speaker 2: What does the NVIDIA four point four standard deviation leap
Speaker 2: mean for alphabet and particularly what's it mean for Apple?
Speaker 10: Look, I mean this in my opinion, it's eight hundred
Speaker 10: billion of income and I'll spend now over the next
Speaker 10: decade for big tech. When you look specifically at the
Speaker 10: read through for Apple, I mean there's no better read
Speaker 10: through what I believe. And we'll see more of the
Speaker 10: developer conference in terms of overall demand and this AI revolution,
Speaker 10: it's opening up a total addressable market for these big
Speaker 10: tech players that wasn't there six months ago.
Speaker 1: Is it profitable?
Speaker 2: Ad that's at the top of the income statement, that's
Speaker 2: cap bax off cash flow, But will it be profitable?
Speaker 10: It is a gold mine in terms of profitability from
Speaker 10: a margin perspective, because that's right now. N Della and Redman,
Speaker 10: I mean they're popping the champagne because for every dollar
Speaker 10: that you're gonna see a AI spend, that's margin incremental
Speaker 10: fifteen percent incremental margin. So I think what's starting to
Speaker 10: happen with the stocks is that Street's starting to look
Speaker 10: through the trajectory. You're looking at higher margin business growth
Speaker 10: that's really gonna be You could really count in two
Speaker 10: hands the amount of players that are gonna benefit in
Speaker 10: the first second derivative, And when you saw it from
Speaker 10: the video, it shows this is a gold rush that's real,
Speaker 10: not hype theme maybe like Metaverse, you know, and Crypto
Speaker 10: and some of the others.
Speaker 5: So we've got into the long weakend, and there's going
Speaker 5: to be a bunch of family members of people who
Speaker 5: follow this stuff, maybe even by it, who are going
Speaker 5: to hear of this company for the first time. It's
Speaker 5: been performing really well for a long time. But for
Speaker 5: a lot of other people, they might not be familiar
Speaker 5: with this name. It's not exactly a household name outside.
Speaker 6: Of Wall Street. Can you run people through what they
Speaker 6: actually do and what they're leveraging here.
Speaker 10: So when you think Navidia, in my opinion, I viewed
Speaker 10: as the hearts and lungs the app percenter of Really
Speaker 10: from a chip perspective of AI and what i'll call
Speaker 10: big data technology, nothing works without the video chips, Microsoft, Google, Amazon.
Speaker 10: It's all feeding off the VIDIA. And that's why I
Speaker 10: kind of view as the foundation. The best derivative in
Speaker 10: terms of what you see as a forecast, what's coming
Speaker 10: down the pike three six, nine months from now is
Speaker 10: what you saw from Jensen with the four billion dollar
Speaker 10: guidance raids, because that now is going to feed into Microsoft,
Speaker 10: It's going to feed into big tech, and I think
Speaker 10: you know, in my opinion, it's not just about the guidance.
Speaker 10: This is a historic day that shows the AI revolution.
Speaker 10: I believe it's probably the biggest transformational tech trend I've
Speaker 10: seen since covering tech in the late nineties.
Speaker 5: That's a lot of hyperbolic language, So let's strip some
Speaker 5: of that down and talk about valuations. When it comes
Speaker 5: to momentum in names like this, how relevant are valuation
Speaker 5: metrics given the story that you're describing in this big
Speaker 5: future that you're expecting.
Speaker 10: I think when you become laser focused on valuation over
Speaker 10: the next year, you would have missed basically every transformational
Speaker 10: tech stock the last fifteen years. So in my opinion,
Speaker 10: to look at that, it's looking at the leaves instead
Speaker 10: of forest through the trees. But I look at it
Speaker 10: like you could look at an incremental five to ten
Speaker 10: dollars per share of earnings power when you start to
Speaker 10: rejector it out, you know, as Tom and I have
Speaker 10: talked you on Apple, I mean I view Apple right
Speaker 10: now in some of the parts, I could argue that
Speaker 10: AI adds another They're thirty to forty dollars per share
Speaker 10: to the Apple Story app.
Speaker 6: We're doing with AI? What's that about?
Speaker 10: Well, I think we're going to see the developer conference
Speaker 10: because ultimately they're going to really right now the billions
Speaker 10: even spend on an AI, it's going to be another
Speaker 10: use case that you're going to be able to deploy
Speaker 10: within their install base within those two billion iPhones.
Speaker 5: But when we be talking about sirion steroids, what are
Speaker 5: you describing here?
Speaker 10: So from an AI perspective, they're really going to be
Speaker 10: from a user perspective, be giving users the ability to
Speaker 10: on the services side, from a cloud, from music, from
Speaker 10: TV to more and more of the devices cross pounding
Speaker 10: between different devices that you're going to be able to
Speaker 10: get different information within the actual Apple user. And I
Speaker 10: think what Cook's going to talk about is AI could
Speaker 10: be really another foundation, another monization of the Cupertino growth story.
Speaker 2: You're the Ober Bowl, you got a lot of people
Speaker 2: taking shots at you, and any research report halfway through
Speaker 2: there's three paragraph some total risks. What's the lead total
Speaker 2: risk paragraph?
Speaker 1: To AI?
Speaker 10: Biggest risk is basically what I view is the US
Speaker 10: China decoupling, because you could argue that that's a risk
Speaker 10: from an AI perspective, and today Taiwan to risk.
Speaker 1: Because this stuff is actually made off TSM.
Speaker 10: I mean, look, I was just in Taiwan a week
Speaker 10: and a half ago. I think right now it's Barkworths
Speaker 10: and Bye. In my opinion, in terms of as an
Speaker 10: overall risk, biggest risk is just companies don't spend. They
Speaker 10: had to heighten the economy ultimately, but as of right now,
Speaker 10: what we're seeing is, you know, I think this is
Speaker 10: right now a green light to own tech, you know,
Speaker 10: in terms of what we view and I think this
Speaker 10: is just I think the start. I think texts being
Speaker 10: up another ten to fifteen.
Speaker 1: Applebite margin thirty two cents on the dollar. What does
Speaker 1: AI do to that? Out five years.
Speaker 10: That basically increased it by about five hundred BIPs.
Speaker 1: So what is that some of the parts did you say?
Speaker 1: Up some of them?
Speaker 10: Some of the part you can say, Apple, it could
Speaker 10: add thirty to four dollars per share as it all
Speaker 10: gets monetized into the base.
Speaker 6: It's amazing, isn't it. I've heard it easy to sit
Speaker 6: here and just be smug.
Speaker 8: You know.
Speaker 5: I reflected on this a couple of times in the
Speaker 5: last few years, and once more recently. There's this great
Speaker 5: exchange Dan, and I'm sure you've seen it between an
Speaker 5: analyst on Wall Street, bullish on the Internet, and a
Speaker 5: journalist from sixty minutes. And the journalist from sixty minutes
Speaker 5: is sitting with this analyst on Wall Street and saying
Speaker 5: Amazon's worth more than Sears. Does that make sense?
Speaker 9: You know?
Speaker 5: He's so he's so convinced he's right about Amazon just
Speaker 5: being this bubble and Seas being you know what Sears was.
Speaker 5: And I'm just trying as hard as I can to
Speaker 5: be open minded about this moment. At the moment, Dan,
Speaker 5: any reflections on this period and that one.
Speaker 10: I mean, this period reminds me of what I've viewed
Speaker 10: coming out of the Apple launch with jobs in seven
Speaker 10: and it reminds me of my visits with e commerce
Speaker 10: companies in late nineties. In terms of so I would say,
Speaker 10: there's only two other times that I would compaired to this,
Speaker 10: and I believe that's why Nadella, that's why Cook, that's
Speaker 10: why Jentsen are going after as your by recommendations.
Speaker 2: Built half the houses in the Hamptons, I mean anything
Speaker 2: over five thousand square feet.
Speaker 1: They got a breastplack on it.
Speaker 2: Thank you, Dan, Because well, would you like to weigh
Speaker 2: in on the lobster roll debate in the Hampton's here?
Speaker 2: I mean you've got a little bit of experience at that.
Speaker 10: I do look super bullish in the lops of roll
Speaker 10: in Hampton's, but I continue believe the best loops of
Speaker 10: roles are a six one seven.
Speaker 1: Area could so help in Boston. You like it with
Speaker 1: the hot butter the cold.
Speaker 10: I did look and even though I'm a Long Island guy,
Speaker 10: I'm more of a six one seven when it comes
Speaker 10: to ops rolls.
Speaker 1: Johonna's no idea we're talking. I mean, I mean you
Speaker 1: don't have to go to.
Speaker 6: Maine to get the proper lobster in Boston. I'm very
Speaker 6: well traveled. Thank you, but I will set.
Speaker 2: Farawoo Durgen Parks years ago. Could you imagine what the
Speaker 2: waitress would do to John Fairwood your accent?
Speaker 1: Who are you.
Speaker 10: But the guy? The guy's a legend.
Speaker 6: It doesn't matter where where you tell him. You clear
Speaker 6: that up.
Speaker 5: I just got this message from Mandolai on Twitter, and
Speaker 5: thank you for writing game, because a lot if you've
Speaker 5: given us recommend are we recommendation? Loves the landing in Clinton, Connecticut.
Speaker 5: Oh yes, looks like this little shack by the water.
Speaker 6: It looks fantastic.
Speaker 2: Jonathan emails in surf Avenue, Coney Island. I'm actually down
Speaker 2: there a couple of times a year, after thought forces
Speaker 2: me to go down.
Speaker 1: Nathan's there. It is one, one, two too.
Speaker 10: And there's some under there's some under the radar lops
Speaker 10: or rule places and Hampton Bees and not in the
Speaker 10: core Hampton's, you know, some places a little.
Speaker 1: Off the grid out there.
Speaker 10: A research report on I could and maybe thing and
Speaker 10: and maybe a Chad gpt angle as well.
Speaker 6: Very cold, this might that happen.
Speaker 11: Of wet bush.
Speaker 2: We're gonna get through this very quickly because every moment's important.
Speaker 2: In Monaco and John Ferrell's far more abrupt than I
Speaker 2: am can say is in every sport there's someone that
Speaker 2: transcends the day to day grind of the sport.
Speaker 1: You have your heroes.
Speaker 2: Maybe it's Michael Jordan and basketball. Maybe it's a guy
Speaker 2: named Judge for the New York Yankees. Daniel Ricardo is
Speaker 2: so large for Red Bull and for F one racing.
Speaker 2: Anne Hathaway keeled over at the met Gala when she
Speaker 2: met him the other day.
Speaker 6: I bet she did.
Speaker 1: She Ann Hathaway.
Speaker 2: Fell Ivan Goods fell apart.
Speaker 6: Hardaway was the fanboy hit, not Daniel.
Speaker 1: You know what the problem is.
Speaker 2: He's wearing Tom Brown at the met Gala, Thank you
Speaker 2: Vogue for the images, and.
Speaker 1: He puts on a fake bow tie. Can you talk
Speaker 1: to him, John, when you're in Monico this weekend.
Speaker 2: We need Ricardo in a real bow tie, not a
Speaker 2: pretend bow tie.
Speaker 6: Tie by you.
Speaker 5: We can sew a twhim right now, Daniel on place
Speaker 5: to site, joined us guy and get into the Rice
Speaker 5: weekend in Moniccau. Daniel, wonder for to catch up with you, mate,
Speaker 5: Just talk to us about how special race weekend is
Speaker 5: in Monakau.
Speaker 12: I thought we were just going to talk about both eyes.
Speaker 12: I I, well, let's talk about Monaco. It's put it
Speaker 12: this way. I've been coming here now for thirteen fourteen
Speaker 12: years and it doesn't get old like that. That feeling.
Speaker 8: I don't know. Monica is just it's so special.
Speaker 12: It transforms into this, honestly, like this magical place for
Speaker 12: the race that rhymes.
Speaker 8: And you have to.
Speaker 12: I feel like everyone has to experience Monica Grand Prix
Speaker 12: at least once in their life.
Speaker 6: It's pretty surreal, Daniel, just to build on that.
Speaker 5: One thing for us, as we've discussed Formula one, it's
Speaker 5: explosion in the United States with with your boss, mister
Speaker 5: Horner others as well, is whether we resolute in the
Speaker 5: heritage of the sport as we expand in places like Vegas,
Speaker 5: Miami and elsewhere.
Speaker 6: How do you feel about that?
Speaker 12: I think there's look, they're always I think needs to
Speaker 12: remain a place for the as you say, like the
Speaker 12: historic venues, you know, yeah, your Monico's, You're I guess
Speaker 12: if it's Spa in Belgium or Silverstone Monza. So these
Speaker 12: places for me should always have a presence on the calendar.
Speaker 12: But I also love going to new places and I think,
Speaker 12: you know, how we're able to open ourselves up to
Speaker 12: new markets now and see the growth in the States.
Speaker 12: For me, I love because I really enjoy spending time
Speaker 12: in the States, so having.
Speaker 8: Like three races there is pretty unreal.
Speaker 12: So I'm I'm somewhere in the middle where I'm definitely
Speaker 12: open to having new venues, but I think you still
Speaker 12: have to keep those core few.
Speaker 8: They shall always remain if we can.
Speaker 5: I'd love to talk about your future as well. You're
Speaker 5: a super charismatic guy. Your personality, as I'm sure you're aware,
Speaker 5: has transcended the sport with what's happened on Netflix and beyond.
Speaker 5: But Daniel, I know deep down and you're a racing driver,
Speaker 5: and I want to understand from your perspective how frustrating
Speaker 5: it's been just been on the outside, on the fringes
Speaker 5: of the sport being the reserve driver. What it's like
Speaker 5: being in the simulator is if it's anywhere near to
Speaker 5: what it's like actually sitting in the car.
Speaker 12: I think this year certainly serves a purpose for me.
Speaker 12: I did need to kind of, I guess, remove myself
Speaker 12: a little bit from well, yeah, literally, I guess from
Speaker 12: the driver's seat, just to in a way like, in
Speaker 12: simple terms, probably just fall back in love with it
Speaker 12: again and to really like miss the sport. I'd come
Speaker 12: off like a more difficult kind of twelve twenty four
Speaker 12: months like competitive wise, and I was starting just to
Speaker 12: just have too many bad days where I needed a
Speaker 12: bit of a reset and a refresh.
Speaker 8: So I'm getting that this year. Sure it is frustrating.
Speaker 12: To be on the sidelines and to watch, but that's
Speaker 12: also building, like this fire and that desire back.
Speaker 8: So the plan is to find myself a seat next year.
Speaker 12: And but I don't I don't want to just be there,
Speaker 12: you know, I don't want to just get a seat,
Speaker 12: you know, to say I'm an F one driver, I
Speaker 12: want to find my way back to a podium.
Speaker 1: And Daniel, you're in the in between age.
Speaker 2: I mean, I don't know much about F one driving,
Speaker 2: but I've got a lionso making a splash this year
Speaker 2: at forty something years old.
Speaker 1: You got a lot of young turks following behind you.
Speaker 2: Tell us the experience value, whether it's Miami or Monaco,
Speaker 2: what do you what do you sell to a new
Speaker 2: team or even the Red Bull when you're you've got
Speaker 2: a lot more experience, How does that matter in a
Speaker 2: given race, including this weekend.
Speaker 8: Yeah, I think the little experience is I think in
Speaker 8: this sport as well a lot of sports.
Speaker 12: But it's it's very valuable because you know, it comes
Speaker 12: in terms of on driving, on on track situations. Of course,
Speaker 12: the more you can read a situation then that can
Speaker 12: obviously help. But also then building a car or helping
Speaker 12: the guys that build the current design the car, helping
Speaker 12: them with feedback and understanding. This helps the team ultimately
Speaker 12: progress and move forward. So that's the value I guess
Speaker 12: in experience. You know, I'm thirty three at the moment.
Speaker 12: As you mentioned Alonso, he's in his forties now and
Speaker 12: he's having one of the best years.
Speaker 8: Of his career.
Speaker 12: So that's encouraging for me because there is days you
Speaker 12: feel a bit old. Then seeing someone like him, you're like, oh,
Speaker 12: I feel young again.
Speaker 1: So yeah, look at the end of the.
Speaker 12: Day, it's how bad you want it, and look, I'm
Speaker 12: still in shape, and if I want it, then I
Speaker 12: believe I'll get back to it.
Speaker 2: I'm the ugly American learning about Formula one, and John
Speaker 2: Farroh has been great about explain to me the red
Speaker 2: Bull distinction. I was comparing them to the West Coast
Speaker 2: Eagles of Australian Football, who are in last place right now.
Speaker 1: You've been red Ball.
Speaker 2: Since you are like fifteen years old. Sixteen? What's the
Speaker 2: Red Bull Pixie Dust?
Speaker 12: Well, I don't know if that was a jab at me,
Speaker 12: because I love the Eagles and yes they're having an
Speaker 12: absolutely terrible season, but yeah, Red Bulls certainly, Yeah, they're
Speaker 12: the opposite right now and they've they've been look for.
Speaker 8: Me growing up.
Speaker 12: They were the program, you know, that was the that
Speaker 12: was the franchise if you will, that everyone wanted to
Speaker 12: be a part of and signed for. You know, they
Speaker 12: had all the resources to progress you up the ladder if.
Speaker 8: You were having the results.
Speaker 12: So that for me is like the family that gave
Speaker 12: me the opportunity and now being back in the family,
Speaker 12: it's like it feels like like it's the biggest family
Speaker 12: I've ever had in racing and the place where I
Speaker 12: feel like I belong.
Speaker 8: So right now, like that's my that's my dream.
Speaker 12: Is to be back here with this team racing and
Speaker 12: hopefully winning another Monaco one day.
Speaker 5: You think it's potential to get a again at Red
Speaker 5: Bull Racing, Daniel or you're looking out swear, I.
Speaker 12: Think, log I in this sport, I know things can
Speaker 12: change so quickly, and even in at the end of
Speaker 12: twenty eighteen.
Speaker 8: You know, when when I moved.
Speaker 12: On to Reno, people probably never ever thought they'd see
Speaker 12: me wearing a red bull polo shirt again. So things,
Speaker 12: things certainly change and can happen, so never say never.
Speaker 12: I'm also just like, look, if I focus on myself
Speaker 12: and apply myself and keep training, keep working hard, then
Speaker 12: anything could happen.
Speaker 8: So yeah, and it helps when you got you know,
Speaker 8: good looks in this sport.
Speaker 5: So of course, like Charles Leclair, I was just wondering,
Speaker 5: I never speak a bit of Italian. You've you've got
Speaker 5: that Italian blood running through your veins. Can you imagine
Speaker 5: being in the red outfit over a Ferrari I look.
Speaker 8: I again, never say never.
Speaker 12: I feel like it probably would have happened by now
Speaker 12: if it would have, so, yeah, that one's probably more slim.
Speaker 8: But honestly, this is a love to be here. That's
Speaker 8: that's that's right.
Speaker 5: App That's a nice place to leave it. Daniel, this
Speaker 5: was a pleasure, a privilege. If you make it to
Speaker 5: New York drop By, we'd love to catch up with you,
Speaker 5: Daniel Ricardo, that you bring out halfway think of course,
Speaker 5: bring out to and TK is going to teach you
Speaker 5: how to do it the Boats.
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