1
00:00:05,120 --> 00:00:07,119
Speaker 1: This is the Bloomberg Surveillance Podcast.

2
00:00:07,160 --> 00:00:11,080
Speaker 2: I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz.

3
00:00:11,280 --> 00:00:15,760
Speaker 2: Join us each day for insight from the best and economics, geopolitics,

4
00:00:15,760 --> 00:00:20,720
Speaker 2: finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple,

5
00:00:20,960 --> 00:00:25,439
Speaker 2: Spotify and anywhere you get your podcasts, and always on

6
00:00:25,520 --> 00:00:29,800
Speaker 2: Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App.

7
00:00:29,840 --> 00:00:32,320
Speaker 2: With Richey Jealia, this is the interview of the day

8
00:00:32,320 --> 00:00:34,120
Speaker 2: on this folks. We're going to talk to an adult

9
00:00:34,200 --> 00:00:36,640
Speaker 2: right now of the melding of all this, How do

10
00:00:36,680 --> 00:00:39,560
Speaker 2: you get to Nvidia, which mister Jelia does not cover,

11
00:00:40,320 --> 00:00:43,800
Speaker 2: over to the software world of Microsoft that we think

12
00:00:43,880 --> 00:00:47,479
Speaker 2: we know. Ruchy Jelia out of Berkeley and Rawschool, Michigan

13
00:00:47,840 --> 00:00:51,560
Speaker 2: at RBC Capital Markets ex JAMP, which is a boutique

14
00:00:51,600 --> 00:00:53,639
Speaker 2: firm of incredible ability.

15
00:00:53,720 --> 00:00:56,240
Speaker 1: Richie, honored, you're with us this morning.

16
00:00:56,640 --> 00:00:59,760
Speaker 2: Okay, they're going to walk in two guys, five guys,

17
00:01:00,160 --> 00:01:03,760
Speaker 2: five hundred engineers and they're going to make two chips

18
00:01:03,880 --> 00:01:07,960
Speaker 2: or whatever to compete with Nvidia. Let's start with the

19
00:01:08,080 --> 00:01:15,600
Speaker 2: why why does Microsoft, enormous Microsoft have to compete with Nvidia, Yeah, and.

20
00:01:15,680 --> 00:01:18,240
Speaker 3: Thank you so much for having me in the warm introduction.

21
00:01:18,880 --> 00:01:22,200
Speaker 3: I think there's two reasons. Number one is the unit economics.

22
00:01:22,360 --> 00:01:24,720
Speaker 3: You know, we can all look at Nvidia's gross margins

23
00:01:24,720 --> 00:01:27,640
Speaker 3: and obviously the amazing rally the stock has had and

24
00:01:27,720 --> 00:01:30,959
Speaker 3: the revenue growth, and Microsoft knows that there's a lot

25
00:01:30,959 --> 00:01:34,120
Speaker 3: of ability to save money and bring down costs. But

26
00:01:34,160 --> 00:01:36,759
Speaker 3: I think the more important factor of why they want

27
00:01:36,800 --> 00:01:39,319
Speaker 3: to bring in their own tips is because there is

28
00:01:39,400 --> 00:01:42,280
Speaker 3: eight major GPU shortage out there, and you are in

29
00:01:42,319 --> 00:01:45,959
Speaker 3: a situation where it is hard to meet demand. And

30
00:01:46,400 --> 00:01:49,760
Speaker 3: because of all of this, costs are prohibitively expensive for

31
00:01:49,880 --> 00:01:52,559
Speaker 3: generative AI, and that can actually be a limiting factor.

32
00:01:52,640 --> 00:01:54,640
Speaker 3: That's a piece I've talked to when I've had my

33
00:01:54,720 --> 00:01:58,040
Speaker 3: conversations with companies is a lot of companies want to

34
00:01:58,080 --> 00:02:00,160
Speaker 3: go down the route of adopting gender of AI a

35
00:02:00,160 --> 00:02:03,320
Speaker 3: big way, but the costs are what stopped them. By

36
00:02:03,320 --> 00:02:07,680
Speaker 3: my estimates, a generative AI workload cost about five times

37
00:02:07,680 --> 00:02:09,880
Speaker 3: more than a traditional cloud workload.

38
00:02:10,160 --> 00:02:11,600
Speaker 4: How do you bring those costs down?

39
00:02:11,760 --> 00:02:14,079
Speaker 3: It starts with the hardware, and you want to bring

40
00:02:14,120 --> 00:02:16,160
Speaker 3: that cost curve down to make it more useful and

41
00:02:16,240 --> 00:02:19,280
Speaker 3: ultimately you get generative AI to become a much more

42
00:02:19,320 --> 00:02:20,280
Speaker 3: prevalent technology.

43
00:02:20,440 --> 00:02:25,600
Speaker 2: On a percentage basis, how Nvidia ish is Microsoft? Is

44
00:02:25,639 --> 00:02:29,679
Speaker 2: it a two three percent bolt on to Nadella's ginormous

45
00:02:29,760 --> 00:02:32,960
Speaker 2: company or can it be out three five years a

46
00:02:33,080 --> 00:02:38,120
Speaker 2: germane part of Microsoft. Compare the potential size of what

47
00:02:38,160 --> 00:02:40,920
Speaker 2: Allman can do to the total of Microsoft.

48
00:02:42,280 --> 00:02:42,520
Speaker 4: Yeah.

49
00:02:42,520 --> 00:02:44,800
Speaker 3: From a broader AI perspective, this is going to be

50
00:02:44,800 --> 00:02:47,440
Speaker 3: more like the cloud. And then, you know, that's the

51
00:02:47,480 --> 00:02:50,279
Speaker 3: big thing about AI is it is that seismic technological

52
00:02:50,360 --> 00:02:51,079
Speaker 3: change similar.

53
00:02:50,880 --> 00:02:52,320
Speaker 4: To what we saw with the cloud.

54
00:02:52,880 --> 00:02:55,040
Speaker 3: Look at what happened to Microsoft when they were an

55
00:02:55,120 --> 00:02:57,440
Speaker 3: on premise company. Look at where they are as a

56
00:02:57,480 --> 00:03:01,000
Speaker 3: cloud company, not just their stock price, get their revenue growth,

57
00:03:01,000 --> 00:03:04,200
Speaker 3: look get their profitability, and look at their relevance in

58
00:03:04,200 --> 00:03:07,080
Speaker 3: the technology world. And I think AI can be a

59
00:03:07,120 --> 00:03:08,480
Speaker 3: similar accelerator.

60
00:03:09,280 --> 00:03:09,440
Speaker 5: You know.

61
00:03:09,680 --> 00:03:12,480
Speaker 3: And the great thing about having Sam and Greg and

62
00:03:12,520 --> 00:03:15,640
Speaker 3: whoever else joins if this is how it proceeds, and

63
00:03:15,639 --> 00:03:21,040
Speaker 3: obviously this is changing by the hour that Microsoft not

64
00:03:21,240 --> 00:03:24,480
Speaker 3: only is continue to be a leader in AI, they're

65
00:03:24,520 --> 00:03:27,200
Speaker 3: actually in control of their own destiny. That was I

66
00:03:27,200 --> 00:03:29,440
Speaker 3: think one of the few knocks that people had against

67
00:03:29,440 --> 00:03:32,080
Speaker 3: Microsoft is they didn't control their destiny.

68
00:03:32,080 --> 00:03:34,600
Speaker 4: They were up to open AI. Now this happens kind

69
00:03:34,600 --> 00:03:35,320
Speaker 4: of all internally.

70
00:03:35,360 --> 00:03:38,640
Speaker 3: So this can be a major accelerator for Microsoft, and

71
00:03:38,680 --> 00:03:40,680
Speaker 3: I think this can be a much bigger company as

72
00:03:40,720 --> 00:03:41,360
Speaker 3: a result.

73
00:03:41,560 --> 00:03:43,480
Speaker 6: Risia, I'm still stuck on this idea that it costs

74
00:03:43,480 --> 00:03:45,760
Speaker 6: about five times based on how expensive some of the

75
00:03:45,840 --> 00:03:49,600
Speaker 6: hardware is for generative AI to get certain workloads done

76
00:03:49,680 --> 00:03:52,280
Speaker 6: as it does the traditional means of just hiring people.

77
00:03:52,640 --> 00:03:53,920
Speaker 4: Does it basically mean.

78
00:03:54,000 --> 00:03:56,680
Speaker 6: That in Vidia's access is success so far? Is the

79
00:03:56,720 --> 00:03:59,920
Speaker 6: reason why the Microsoft's of the world, the software focused area,

80
00:04:00,520 --> 00:04:03,720
Speaker 6: have not been able to monetize AI in as material

81
00:04:03,760 --> 00:04:04,040
Speaker 6: a way.

82
00:04:05,600 --> 00:04:07,880
Speaker 4: I don't think it's because of the GPU shortage. I

83
00:04:07,880 --> 00:04:09,280
Speaker 4: think that is one factor.

84
00:04:09,520 --> 00:04:11,240
Speaker 3: And then by the way I would maybe push back,

85
00:04:11,280 --> 00:04:14,120
Speaker 3: I think Microsoft is monetizing AI in a big way.

86
00:04:14,440 --> 00:04:18,920
Speaker 3: By my estimates, AI is already a half billion dollar

87
00:04:19,240 --> 00:04:22,919
Speaker 3: arr business for Microsoft after what two or three quarters,

88
00:04:22,960 --> 00:04:25,800
Speaker 3: which is kind of an amazing, unheard of trajectory for

89
00:04:25,839 --> 00:04:26,960
Speaker 3: the rest of software.

90
00:04:27,000 --> 00:04:29,039
Speaker 4: However, I think there are a couple of reasons.

91
00:04:29,320 --> 00:04:32,240
Speaker 3: You know, Microsoft, remember has a huge head start when

92
00:04:32,279 --> 00:04:34,640
Speaker 3: it comes to generative AI. They invest in open AI

93
00:04:34,760 --> 00:04:37,480
Speaker 3: back in twenty nineteen. A lot of other companies are

94
00:04:37,480 --> 00:04:40,240
Speaker 3: playing catch up. I think a lot of enterprises are

95
00:04:40,279 --> 00:04:46,120
Speaker 3: also maybe have concerns around data privacy, residency, and they

96
00:04:46,200 --> 00:04:49,400
Speaker 3: just you know, security, and that's also a limiting factor.

97
00:04:49,640 --> 00:04:52,160
Speaker 3: Another think, maybe lastly, is a lot of companies are

98
00:04:52,160 --> 00:04:53,040
Speaker 3: figuring this out.

99
00:04:53,279 --> 00:04:56,080
Speaker 4: Remember generally I is a little bit of.

100
00:04:56,040 --> 00:04:59,120
Speaker 3: A blank canvas and you have to figure out the

101
00:04:59,200 --> 00:05:01,200
Speaker 3: right way to use it. Think about the way you

102
00:05:01,279 --> 00:05:04,800
Speaker 3: and I use chat GPT today versus what you know

103
00:05:04,800 --> 00:05:07,320
Speaker 3: a year ago when it first got launched. Part of

104
00:05:07,360 --> 00:05:09,680
Speaker 3: it is obviously it's gotten more powerful, but part of

105
00:05:09,720 --> 00:05:12,320
Speaker 3: it is we had to figure out what's the right

106
00:05:12,400 --> 00:05:15,400
Speaker 3: prompt to ask it, what's the right way to tweak it?

107
00:05:15,680 --> 00:05:18,120
Speaker 3: And you know, with APIs it's maybe ten times more

108
00:05:18,760 --> 00:05:19,800
Speaker 3: complex and difficult.

109
00:05:20,080 --> 00:05:21,760
Speaker 4: I think the monetization is going to come.

110
00:05:22,000 --> 00:05:24,440
Speaker 3: I just think for software it's probably a twenty twenty

111
00:05:24,520 --> 00:05:27,240
Speaker 3: five event when it starts to be material for you know,

112
00:05:27,320 --> 00:05:30,920
Speaker 3: the hubspots and the Mango DB's of the world. But

113
00:05:30,920 --> 00:05:33,320
Speaker 3: for Microsoft, I would say it is already material and

114
00:05:33,480 --> 00:05:34,200
Speaker 3: rapidly going.

115
00:05:34,240 --> 00:05:37,159
Speaker 6: So when you keep talking about GPU, it's graphics processing.

116
00:05:37,200 --> 00:05:39,000
Speaker 6: You and one of the key components for some of

117
00:05:39,040 --> 00:05:43,599
Speaker 6: these chips that are required for generative AI. Do you

118
00:05:43,640 --> 00:05:48,920
Speaker 6: think that Microsoft canterially get into the chip creation, the

119
00:05:48,960 --> 00:05:53,280
Speaker 6: physical word world, the hardware game as it ramps up

120
00:05:53,400 --> 00:05:56,760
Speaker 6: to the software monetary prowess.

121
00:05:57,600 --> 00:05:58,560
Speaker 4: I think they can't. Now.

122
00:05:58,600 --> 00:06:00,760
Speaker 3: I would say they're not going to be directly selling

123
00:06:00,880 --> 00:06:04,360
Speaker 3: GPUs to customers in a big way. I think it's

124
00:06:04,400 --> 00:06:08,159
Speaker 3: more of a you can rent out GPU capacity via Azure,

125
00:06:08,200 --> 00:06:11,480
Speaker 3: and this becomes a boost for the Azure business that

126
00:06:11,600 --> 00:06:14,520
Speaker 3: I you know, this becomes the preferred cloud vendor to

127
00:06:14,640 --> 00:06:17,080
Speaker 3: run dinner to AI workloads, not only because they have,

128
00:06:17,480 --> 00:06:20,680
Speaker 3: you know, the best AI technology out there, including all

129
00:06:20,680 --> 00:06:24,240
Speaker 3: these Azure opening eye services that they're already monetizing, but

130
00:06:24,279 --> 00:06:26,960
Speaker 3: now they're going to have more and more capacity, and

131
00:06:27,240 --> 00:06:29,400
Speaker 3: again at a competitive rate.

132
00:06:29,560 --> 00:06:30,800
Speaker 4: Versus how things have been.

133
00:06:31,080 --> 00:06:32,960
Speaker 3: So I think this is more of a unit economics

134
00:06:32,960 --> 00:06:34,960
Speaker 3: for Microsoft and a boost Azure.

135
00:06:34,720 --> 00:06:36,479
Speaker 2: For she gets a slow day here, we got to

136
00:06:36,520 --> 00:06:39,800
Speaker 2: make some news. Everybody's piled on Microsoft. Now it's one

137
00:06:39,839 --> 00:06:42,120
Speaker 2: big love fest. You know, we're on our way to

138
00:06:42,160 --> 00:06:45,120
Speaker 2: three trillion dollars. I think it's four to four. You're

139
00:06:45,160 --> 00:06:48,080
Speaker 2: at a three ninety. The well dressed, dan Ives and

140
00:06:48,080 --> 00:06:49,600
Speaker 2: the rest of them are up there. Are you going

141
00:06:49,680 --> 00:06:52,600
Speaker 2: to be a justin a higher year? When you see

142
00:06:52,600 --> 00:06:55,040
Speaker 2: this unfold? Can we get you out over four to

143
00:06:55,120 --> 00:06:56,720
Speaker 2: twenty on Microsoft right now?

144
00:06:58,200 --> 00:06:58,360
Speaker 4: Yeah?

145
00:06:58,400 --> 00:07:02,040
Speaker 3: Obviously I can't comment on the price target changes that

146
00:07:02,400 --> 00:07:04,440
Speaker 3: I may or may not bring. I would point you

147
00:07:04,520 --> 00:07:06,800
Speaker 3: in our note we do talk about, you know, a

148
00:07:06,880 --> 00:07:09,960
Speaker 3: bowl case, which would be beyond that, and you know

149
00:07:09,960 --> 00:07:11,440
Speaker 3: you can kind of draw your own conclusion.

150
00:07:11,520 --> 00:07:13,960
Speaker 1: Come on, come on, no listen where among friends? What's

151
00:07:14,000 --> 00:07:16,680
Speaker 1: your bookcase? Give me a number or can you out ives?

152
00:07:16,760 --> 00:07:17,440
Speaker 1: Dan Ives?

153
00:07:18,600 --> 00:07:20,960
Speaker 3: Uh, look by by bookcase, you know, and the note

154
00:07:21,000 --> 00:07:23,920
Speaker 3: would be above about four hundred dollars this year. I

155
00:07:23,920 --> 00:07:25,800
Speaker 3: think the thing we have to say is, right now,

156
00:07:25,880 --> 00:07:30,200
Speaker 3: I'm not modeling huge generative AI revenues in my model.

157
00:07:30,760 --> 00:07:33,720
Speaker 3: If we start to think about Officer sixty five copilot,

158
00:07:33,840 --> 00:07:36,920
Speaker 3: for example, that's all kind of gravy on top of this.

159
00:07:37,240 --> 00:07:38,800
Speaker 4: And I haven't even really brought in you know.

160
00:07:38,760 --> 00:07:41,200
Speaker 3: A calendar, your twenty five calendar, your twenty six numbers.

161
00:07:41,720 --> 00:07:43,520
Speaker 3: So again I would say you can draw a lot

162
00:07:43,560 --> 00:07:46,000
Speaker 3: of conclusions based on those sort of things to get

163
00:07:46,040 --> 00:07:48,480
Speaker 3: you significantly above where this dock is today, but published

164
00:07:48,480 --> 00:07:49,880
Speaker 3: price target during our ninety.

165
00:07:49,640 --> 00:07:52,920
Speaker 7: Bucks Rischie, thank you, camplonsistent in bet, don't worry about it, Rischie,

166
00:07:52,960 --> 00:07:56,200
Speaker 7: Jeliria about me, sick capital, Marcus, they wake up about

167
00:07:56,200 --> 00:07:57,080
Speaker 7: a thirty c k.

168
00:08:07,080 --> 00:08:10,680
Speaker 2: Victoria Fernandez with his chief market strategist at cross Mark

169
00:08:10,720 --> 00:08:14,920
Speaker 2: Global Investment. I have no idea how you reallocate rebellance,

170
00:08:15,040 --> 00:08:16,280
Speaker 2: Victoria for next year.

171
00:08:16,520 --> 00:08:19,200
Speaker 1: What's the cross Mark strategy?

172
00:08:19,720 --> 00:08:22,360
Speaker 8: Yeah, well, Tom, as you know, throughout the last year,

173
00:08:22,360 --> 00:08:23,880
Speaker 8: when a lot of people were trying to make the

174
00:08:23,920 --> 00:08:25,640
Speaker 8: decisions of what it would be in or out of

175
00:08:25,680 --> 00:08:29,280
Speaker 8: the market for our clients, we were completely in the market,

176
00:08:29,280 --> 00:08:31,520
Speaker 8: but we were being very cautious as to where we

177
00:08:31,520 --> 00:08:33,760
Speaker 8: were putting our money to work. We had a lot

178
00:08:33,760 --> 00:08:36,400
Speaker 8: of defensive names in our portfolio while still having a

179
00:08:36,440 --> 00:08:39,199
Speaker 8: little bit of cyclical names in there. And our strategy

180
00:08:39,280 --> 00:08:42,959
Speaker 8: hasn't changed tremendously on days when the equity market is

181
00:08:43,040 --> 00:08:45,600
Speaker 8: up right now, because we don't think that we're in

182
00:08:46,160 --> 00:08:49,440
Speaker 8: this solid bull market right now, we're trimming some names

183
00:08:49,480 --> 00:08:51,400
Speaker 8: and we're going in to some of the names that

184
00:08:51,400 --> 00:08:52,120
Speaker 8: have pulled back.

185
00:08:52,160 --> 00:08:55,160
Speaker 9: You mentioned energy. That's one area where we've been.

186
00:08:55,040 --> 00:08:59,320
Speaker 8: Adding some exposure to names like Conico Phillips. We actually

187
00:08:59,320 --> 00:09:02,880
Speaker 8: are adding in healthcare too. Healthcare has been decimated, but

188
00:09:02,960 --> 00:09:04,720
Speaker 8: you look at the balance sheets of some of these

189
00:09:04,720 --> 00:09:08,600
Speaker 8: companies and you have a lot of opportunity there adding

190
00:09:08,600 --> 00:09:10,800
Speaker 8: a little bit of fixed income, having a little bit

191
00:09:10,840 --> 00:09:14,680
Speaker 8: of cash, using some alternatives in your portfolio like covered calls.

192
00:09:14,840 --> 00:09:17,520
Speaker 8: We think this is the time when you really need

193
00:09:17,559 --> 00:09:20,520
Speaker 8: to have that diversification and be ready because we think

194
00:09:20,559 --> 00:09:22,520
Speaker 8: there's still quite a bit of volatility to go.

195
00:09:22,720 --> 00:09:26,360
Speaker 7: Do you get uncorrelated diversification and fixed income right now

196
00:09:26,440 --> 00:09:27,320
Speaker 7: versus equities?

197
00:09:28,360 --> 00:09:30,520
Speaker 9: You know, not as much as you probably used to.

198
00:09:30,760 --> 00:09:32,840
Speaker 8: But what you're going to be using your fixed income

199
00:09:32,920 --> 00:09:36,400
Speaker 8: for right now is for the cash flow for our client.

200
00:09:36,559 --> 00:09:38,880
Speaker 8: So you can get a five percent yield on the

201
00:09:38,920 --> 00:09:42,480
Speaker 8: short term part of the yield curve. It's an opportunity

202
00:09:42,520 --> 00:09:44,600
Speaker 8: to have something a little bit better than cash, a

203
00:09:44,600 --> 00:09:47,560
Speaker 8: little bit better than government agencies. You can lock that

204
00:09:47,640 --> 00:09:49,920
Speaker 8: in for a short period of time and then add

205
00:09:49,960 --> 00:09:52,960
Speaker 8: a little bit Jonathan on the longer end of the curve,

206
00:09:53,280 --> 00:09:55,840
Speaker 8: or you can have that longer steady cash flow over

207
00:09:55,880 --> 00:09:59,120
Speaker 8: a longer period of time to help buffer any equity volatility.

208
00:09:59,240 --> 00:10:01,760
Speaker 6: When you look forward, there's a real question about whether

209
00:10:01,840 --> 00:10:04,080
Speaker 6: rate cuts next year are good or bad for risk.

210
00:10:04,440 --> 00:10:06,880
Speaker 6: How do you think about that at a time when

211
00:10:06,920 --> 00:10:09,360
Speaker 6: people are expecting the soft landing as the base case.

212
00:10:10,679 --> 00:10:13,120
Speaker 8: So I think there is a misconception here that the

213
00:10:13,160 --> 00:10:16,040
Speaker 8: FED is going to cut in the first half of

214
00:10:16,080 --> 00:10:16,600
Speaker 8: next year.

215
00:10:16,960 --> 00:10:18,720
Speaker 9: If you look Lisa, over.

216
00:10:18,640 --> 00:10:22,680
Speaker 8: This hiking cycle, we've already had six dubvish headfakes where

217
00:10:22,679 --> 00:10:24,800
Speaker 8: the market has gotten ahead of itself.

218
00:10:24,640 --> 00:10:26,800
Speaker 9: Assumed the FED was going to be more dubvish than.

219
00:10:26,720 --> 00:10:29,040
Speaker 8: It was, and they've had to price that back out

220
00:10:29,040 --> 00:10:31,199
Speaker 8: of the market. I think we're seeing a little bit

221
00:10:31,240 --> 00:10:33,679
Speaker 8: of that now. I don't expect the FED to cut

222
00:10:33,800 --> 00:10:36,160
Speaker 8: rates until the second half of next year, and I

223
00:10:36,200 --> 00:10:39,240
Speaker 8: think it will be more because we're seeing a deterioration

224
00:10:39,440 --> 00:10:43,079
Speaker 8: in the economy than it is because of inflation expectations.

225
00:10:43,120 --> 00:10:45,160
Speaker 9: I mean, look at delinquencies right now.

226
00:10:45,200 --> 00:10:48,440
Speaker 8: We're back up at pre COVID levels in regards to autos,

227
00:10:48,480 --> 00:10:51,800
Speaker 8: in regards to credit cards, especially in that eighteen to

228
00:10:51,840 --> 00:10:54,480
Speaker 8: twenty nine year old age group, where they've got student

229
00:10:54,520 --> 00:10:57,600
Speaker 8: loan debts coming as well. And as delinquencies go up

230
00:10:57,679 --> 00:11:00,679
Speaker 8: at a time with very low unemployment, what does that

231
00:11:00,760 --> 00:11:02,720
Speaker 8: mean for banks, it means they're going to increase their

232
00:11:02,760 --> 00:11:06,680
Speaker 8: low loss reserves. It means low growth goes down. These

233
00:11:06,720 --> 00:11:08,720
Speaker 8: are things that are going to stimmy the economy. It's

234
00:11:08,760 --> 00:11:11,440
Speaker 8: going to stimmy the consumer, and I think that's where

235
00:11:11,440 --> 00:11:12,880
Speaker 8: we're going to see rate cuts come in.

236
00:11:13,280 --> 00:11:15,600
Speaker 6: So when you take a look at risk appetite heading

237
00:11:15,640 --> 00:11:18,600
Speaker 6: into next year, do you think that people are overly

238
00:11:18,679 --> 00:11:23,559
Speaker 6: optimistic about both rates coming lower and equity is continuing

239
00:11:23,600 --> 00:11:25,800
Speaker 6: to do well led by the names that have done

240
00:11:25,840 --> 00:11:26,520
Speaker 6: best this year.

241
00:11:27,679 --> 00:11:29,880
Speaker 8: I do think there's a little bit too much optimism

242
00:11:29,960 --> 00:11:30,280
Speaker 8: right now.

243
00:11:30,320 --> 00:11:31,840
Speaker 9: And I'd like to be optimistic.

244
00:11:31,920 --> 00:11:33,640
Speaker 8: I like to say good things are going to happen,

245
00:11:33,960 --> 00:11:36,040
Speaker 8: but look we've said for the last year, you've got

246
00:11:36,040 --> 00:11:39,800
Speaker 8: to be cautious. You look at leading economic indicators down again.

247
00:11:40,040 --> 00:11:43,720
Speaker 8: Even coincident economic indicators are flat right now.

248
00:11:43,920 --> 00:11:45,040
Speaker 9: Consumer is weakening.

249
00:11:45,080 --> 00:11:49,360
Speaker 8: You've been talking about mister McMillan's statement about deflation going

250
00:11:49,400 --> 00:11:51,480
Speaker 8: on and worries about the consumer. We've heard it in

251
00:11:51,520 --> 00:11:54,360
Speaker 8: the retail earnings that have come out. And I think

252
00:11:54,400 --> 00:11:56,600
Speaker 8: you're going to see some of the things that have

253
00:11:56,640 --> 00:11:59,880
Speaker 8: been propping up the equity markets, like buybacks, start to

254
00:12:00,040 --> 00:12:00,520
Speaker 8: come back.

255
00:12:00,720 --> 00:12:05,480
Speaker 2: But Victoria you're living in Texas. The Austin boom and

256
00:12:05,520 --> 00:12:09,160
Speaker 2: the Austin boom is a broad sense is service sector

257
00:12:09,280 --> 00:12:13,920
Speaker 2: in technology. How do you underweight the Magnificent seven.

258
00:12:16,000 --> 00:12:18,520
Speaker 8: It's a tough decision to make on what you do

259
00:12:18,600 --> 00:12:22,560
Speaker 8: with this Magnificent seven. Obviously, the AI tailwind to those

260
00:12:22,640 --> 00:12:25,960
Speaker 8: names has been tremendous, and we assume Nvidia is going

261
00:12:26,000 --> 00:12:26,720
Speaker 8: to report.

262
00:12:26,400 --> 00:12:28,000
Speaker 9: Good earnings and that's going to continue.

263
00:12:28,040 --> 00:12:31,240
Speaker 8: Then to lead that narrative and help that Magnificent seven,

264
00:12:31,360 --> 00:12:33,520
Speaker 8: you have to have exposure to these names. You do,

265
00:12:33,880 --> 00:12:35,680
Speaker 8: but I just think you have to be a little

266
00:12:35,720 --> 00:12:38,720
Speaker 8: bit cautious and putting all your eggs in that basket.

267
00:12:38,920 --> 00:12:40,840
Speaker 9: If you have, you've done well this year, so I

268
00:12:40,880 --> 00:12:41,720
Speaker 9: can't deny that.

269
00:12:42,000 --> 00:12:44,040
Speaker 8: But as we assume that we're going to have a

270
00:12:44,040 --> 00:12:46,760
Speaker 8: pullback in this economy and the consumer is going to

271
00:12:46,800 --> 00:12:51,240
Speaker 8: come back, and capital expenditures and spending by corporations is

272
00:12:51,280 --> 00:12:53,120
Speaker 8: going to slow down, I think you have to be

273
00:12:53,200 --> 00:12:55,440
Speaker 8: a little bit concerned about what those earnings look like

274
00:12:55,520 --> 00:12:56,120
Speaker 8: going forward.

275
00:12:56,160 --> 00:12:56,920
Speaker 9: So have your.

276
00:12:56,840 --> 00:13:00,360
Speaker 8: Exposure, but like we said, add that diversification and other

277
00:13:00,400 --> 00:13:01,240
Speaker 8: areas as well.

278
00:13:01,440 --> 00:13:03,319
Speaker 7: Victoria, thank you. We've got to leave it there. Happy

279
00:13:03,320 --> 00:13:06,120
Speaker 7: Thanksgiving enjoy the next coup of night guys. Thank you,

280
00:13:06,200 --> 00:13:09,880
Speaker 7: Victoria Fernandez. There a Crossmark Global Investments.

281
00:13:13,600 --> 00:13:16,520
Speaker 2: Right now and fixed Income Michael Collins joined Senior portfolio

282
00:13:16,559 --> 00:13:19,359
Speaker 2: manager Page and fixed Income. Michael, what is the symbolism

283
00:13:19,720 --> 00:13:22,800
Speaker 2: of the inflation adjusted ten year yield coming in and in?

284
00:13:22,840 --> 00:13:26,360
Speaker 2: I got a two point zero nine percent print this morning.

285
00:13:26,440 --> 00:13:30,319
Speaker 2: That's extraordinary. What does that mean for our viewers, our listeners.

286
00:13:31,240 --> 00:13:34,080
Speaker 10: Well, as you know, you know the world's discount rate,

287
00:13:34,160 --> 00:13:38,480
Speaker 10: you know, the US real yield is what's driving valuations

288
00:13:38,520 --> 00:13:41,640
Speaker 10: on everything in the world, and that real yield TOM

289
00:13:41,679 --> 00:13:46,000
Speaker 10: at two point one or so is probably still one

290
00:13:46,080 --> 00:13:47,800
Speaker 10: hundred basis points too high, right.

291
00:13:47,840 --> 00:13:48,800
Speaker 1: I think it's supposed to.

292
00:13:48,800 --> 00:13:50,960
Speaker 4: Be somewhere between zero and.

293
00:13:50,880 --> 00:13:53,440
Speaker 10: Two, So I think there's still room to go there.

294
00:13:53,440 --> 00:13:55,960
Speaker 10: I think if you believe the real yield should be

295
00:13:56,080 --> 00:13:58,240
Speaker 10: above two permanently, remember it was at two and a

296
00:13:58,280 --> 00:14:01,480
Speaker 10: half just a few weeks ago. You're buying into the

297
00:14:01,520 --> 00:14:04,600
Speaker 10: notion that we're going to have this continuation of really

298
00:14:04,679 --> 00:14:08,400
Speaker 10: strong real growth in the US and around the world,

299
00:14:08,480 --> 00:14:10,200
Speaker 10: and it feels like that that's not in the cards.

300
00:14:10,440 --> 00:14:13,360
Speaker 2: What is your xxis to get even halfway there? That's

301
00:14:13,360 --> 00:14:16,400
Speaker 2: a bold statement by you that the inflation is just

302
00:14:16,440 --> 00:14:19,120
Speaker 2: a yield two point five to zero down to two

303
00:14:19,160 --> 00:14:21,600
Speaker 2: point one zero and it will I'm going to use

304
00:14:21,640 --> 00:14:25,320
Speaker 2: this word carefully, Michael plunge Lower. What's your timeline to

305
00:14:25,360 --> 00:14:26,120
Speaker 2: make that happen?

306
00:14:27,080 --> 00:14:29,680
Speaker 10: You know these things tend to happen more quickly than

307
00:14:29,720 --> 00:14:32,600
Speaker 10: the market's price in right. I mean, just a few

308
00:14:32,640 --> 00:14:34,760
Speaker 10: weeks ago, the markets were pricing in a funds rate

309
00:14:34,800 --> 00:14:36,840
Speaker 10: that ended at four and a half percent and never

310
00:14:37,280 --> 00:14:39,560
Speaker 10: got lower than that over the next ten years. And

311
00:14:39,600 --> 00:14:41,720
Speaker 10: now that number is four, right, So the markets are

312
00:14:41,760 --> 00:14:44,360
Speaker 10: pricing in kind of a permanent funds rate at four

313
00:14:44,840 --> 00:14:48,920
Speaker 10: and again that probably is one hundred or maybe two

314
00:14:48,960 --> 00:14:52,120
Speaker 10: hundred basis points too high as well. And we do

315
00:14:52,280 --> 00:14:55,040
Speaker 10: know when the feed is done. And the feed is done,

316
00:14:55,880 --> 00:14:58,240
Speaker 10: that's why the minutes today today don't matter. When they're done.

317
00:14:58,720 --> 00:15:00,880
Speaker 10: Rates rally, right, that's the begin of the rally in

318
00:15:00,920 --> 00:15:03,240
Speaker 10: the bond market, as soon as the message is clear

319
00:15:03,560 --> 00:15:05,480
Speaker 10: that the hiking cycle is over. Because the market is

320
00:15:05,520 --> 00:15:08,120
Speaker 10: always overshoot on the upside and then they overshoot on

321
00:15:08,160 --> 00:15:10,320
Speaker 10: the downside. So I think we just hit the overshoot

322
00:15:10,560 --> 00:15:12,200
Speaker 10: at a five percent tenure at a two and a

323
00:15:12,240 --> 00:15:16,480
Speaker 10: half percent real yield, and now we're probably on the

324
00:15:16,520 --> 00:15:19,320
Speaker 10: way down. I mean, rates today maybe you look fair

325
00:15:19,440 --> 00:15:23,160
Speaker 10: value in a good world, but you know, we've had disinflation,

326
00:15:23,400 --> 00:15:25,200
Speaker 10: as you've all talked about this morning, and it's been

327
00:15:25,280 --> 00:15:29,320
Speaker 10: driven almost solely by the supply side, the huge rebound

328
00:15:29,760 --> 00:15:32,280
Speaker 10: in the supply side, both from the labor market and

329
00:15:32,320 --> 00:15:35,200
Speaker 10: the productivity boost. And I worry that twenty twenty four

330
00:15:35,320 --> 00:15:37,880
Speaker 10: is going to be a demand side story. And that's

331
00:15:37,880 --> 00:15:40,760
Speaker 10: the bad disinflation right that we're worried about. And if

332
00:15:40,760 --> 00:15:44,359
Speaker 10: that plays out, if inflation ends up having one handles

333
00:15:44,760 --> 00:15:47,400
Speaker 10: instead of three handles, which is which is very possible,

334
00:15:47,440 --> 00:15:50,440
Speaker 10: and we're kind of moving in that direction pretty quickly now.

335
00:15:50,920 --> 00:15:53,000
Speaker 10: You know who knows rates could be be off sized

336
00:15:53,000 --> 00:15:53,600
Speaker 10: by quite a bit.

337
00:15:54,000 --> 00:15:56,360
Speaker 7: That's the worry of equity investors as well.

338
00:15:56,440 --> 00:15:56,640
Speaker 1: Mike.

339
00:15:56,840 --> 00:15:59,120
Speaker 7: Let's talk about bigger picture, and I'll do this for

340
00:15:59,160 --> 00:16:01,960
Speaker 7: you because you're fun too modest. About ten years ago,

341
00:16:02,600 --> 00:16:05,600
Speaker 7: you and a team I'm thinking Robert Breck Peters were

342
00:16:05,640 --> 00:16:09,000
Speaker 7: really known for this call of low interest rates, low inflation,

343
00:16:09,240 --> 00:16:11,840
Speaker 7: range band yields, low and range band. I remember the phrase.

344
00:16:11,880 --> 00:16:15,160
Speaker 7: It was the low ranger. Now Mike, that was ten

345
00:16:15,240 --> 00:16:17,080
Speaker 7: years ago. You guys won awards for all of that.

346
00:16:17,120 --> 00:16:21,800
Speaker 7: We celebrated them on this program a decade later. Post pandemic,

347
00:16:21,880 --> 00:16:24,520
Speaker 7: Can you talk to us about this regime and how

348
00:16:24,560 --> 00:16:26,160
Speaker 7: different you think it will be.

349
00:16:27,440 --> 00:16:29,880
Speaker 10: I mean, certainly, you're in a world right now, Jonathan,

350
00:16:29,920 --> 00:16:35,080
Speaker 10: where you're seeing a kind of generational high in capital

351
00:16:35,120 --> 00:16:39,160
Speaker 10: investment in this country in technology related things that you've

352
00:16:39,200 --> 00:16:42,440
Speaker 10: been talking about AI all morning, right, and it's happening,

353
00:16:42,440 --> 00:16:45,600
Speaker 10: and it's real, and it's increased our productivity in this

354
00:16:45,680 --> 00:16:49,760
Speaker 10: country significantly over the last year. And there's a chance

355
00:16:50,600 --> 00:16:54,000
Speaker 10: that that is sustainable, that this AI and the robotics

356
00:16:54,040 --> 00:16:58,120
Speaker 10: and all of the technology investment does lead to more

357
00:16:58,160 --> 00:17:01,920
Speaker 10: sustainably and higher real GDP in this country, let's say

358
00:17:02,160 --> 00:17:05,040
Speaker 10: in the twos as opposed to in the ones. And

359
00:17:05,080 --> 00:17:08,200
Speaker 10: that's a big difference. And there's also a chance that inflation,

360
00:17:08,920 --> 00:17:10,680
Speaker 10: you know, doesn't fall back to one and a half,

361
00:17:10,720 --> 00:17:13,000
Speaker 10: that it gets stuck at two and a half or three.

362
00:17:13,040 --> 00:17:17,240
Speaker 10: And I think geopolitics and climate related risks and energy

363
00:17:17,320 --> 00:17:21,360
Speaker 10: transition and shortages of labor around the world are all

364
00:17:21,480 --> 00:17:25,120
Speaker 10: factors that could lead to stickier inflation. So yeah, there's

365
00:17:25,160 --> 00:17:28,760
Speaker 10: this big high probability scenario out there that you know

366
00:17:28,840 --> 00:17:31,800
Speaker 10: that heck, maybe, like I said, rates are fair value here,

367
00:17:31,800 --> 00:17:34,800
Speaker 10: that the funds rate bounces between three and five for

368
00:17:34,840 --> 00:17:37,200
Speaker 10: the next ten years, and the ten year bounces between

369
00:17:37,920 --> 00:17:39,439
Speaker 10: three and a half and five and a half, and

370
00:17:39,440 --> 00:17:41,480
Speaker 10: maybe you're in the middle of that range now. So

371
00:17:41,560 --> 00:17:45,600
Speaker 10: that's a scenario that we're really contemplating very seriously as

372
00:17:45,640 --> 00:17:48,879
Speaker 10: a pretty high probability. But of course you do have

373
00:17:48,920 --> 00:17:51,640
Speaker 10: to be humble in this business, and that downside risk

374
00:17:51,720 --> 00:17:54,720
Speaker 10: is always out there, lurking and looming. So it's something

375
00:17:54,760 --> 00:17:56,199
Speaker 10: we're certainly looking at.

376
00:17:56,359 --> 00:17:58,480
Speaker 6: Have you gotten more conviction over the past four weeks,

377
00:17:58,480 --> 00:18:01,600
Speaker 6: Michael Is? The market seems to be accepting the idea

378
00:18:01,760 --> 00:18:03,800
Speaker 6: of possibly more aggressive rate cuts.

379
00:18:03,520 --> 00:18:09,399
Speaker 10: Next year, you know, more conviction on rates, maybe a

380
00:18:09,560 --> 00:18:12,399
Speaker 10: little bit more, you know, I think the inflation side

381
00:18:12,440 --> 00:18:16,280
Speaker 10: is really what's given us more encouragement. The disinflation story

382
00:18:16,359 --> 00:18:20,119
Speaker 10: seems to be kind of embedded now and we're not

383
00:18:20,160 --> 00:18:24,840
Speaker 10: as worried about a permanently higher you know, inflationary environment. Right,

384
00:18:24,880 --> 00:18:28,720
Speaker 10: So that's really a big delta that we're seeing recently

385
00:18:28,760 --> 00:18:32,600
Speaker 10: with goods prices in deflation right now, right, and services.

386
00:18:32,640 --> 00:18:36,000
Speaker 10: Inflation is finally coming down, so and the labor market

387
00:18:36,040 --> 00:18:38,240
Speaker 10: is seeing some cracks, right, which leads to lower wages.

388
00:18:38,280 --> 00:18:40,920
Speaker 10: So all those things give us encouragement. Inflation which given

389
00:18:41,040 --> 00:18:43,639
Speaker 10: us encouragement. Hey, maybe we've seen the high end rates,

390
00:18:44,240 --> 00:18:46,800
Speaker 10: and who knows, maybe the next move is fifty basis

391
00:18:46,800 --> 00:18:49,240
Speaker 10: points lower instead of fifty basis points higher. On the

392
00:18:49,280 --> 00:18:52,160
Speaker 10: credit side, though, you know, the markets have run with

393
00:18:52,200 --> 00:18:56,560
Speaker 10: this low inflation, soft landing world and have in the

394
00:18:56,560 --> 00:18:59,440
Speaker 10: equity market too, right, So risk assets of rallied hard

395
00:19:00,119 --> 00:19:02,240
Speaker 10: us in the last few weeks, and I think you're

396
00:19:02,240 --> 00:19:05,320
Speaker 10: supposed to be really careful there and fade those rallies.

397
00:19:05,320 --> 00:19:06,879
Speaker 7: It feels like a much tough of co on the

398
00:19:06,880 --> 00:19:09,119
Speaker 7: credit side. My thank you, sir. It's gonna catch up

399
00:19:09,119 --> 00:19:10,960
Speaker 7: with you. Mike Cullins. They have PGIM fixed income.

400
00:19:21,359 --> 00:19:24,000
Speaker 2: Sometimes you get lucky, and we do that always with

401
00:19:24,160 --> 00:19:29,080
Speaker 2: Robert Hormatz. He is of tough in of generations of presidents.

402
00:19:29,320 --> 00:19:32,879
Speaker 2: This could easily be a three hour conversation, Ambassador Hormatz

403
00:19:33,080 --> 00:19:36,720
Speaker 2: with the Yale School of Management. So many narrors, Bob,

404
00:19:36,760 --> 00:19:38,480
Speaker 2: you and I could go for three hours right now.

405
00:19:38,480 --> 00:19:40,280
Speaker 2: We got about seven minutes.

406
00:19:40,680 --> 00:19:41,919
Speaker 1: There's James Earl.

407
00:19:41,720 --> 00:19:46,280
Speaker 2: Carter with Saddat from another time and place. We have

408
00:19:46,359 --> 00:19:49,679
Speaker 2: a nostelgia for that moment that you lived in the

409
00:19:49,720 --> 00:19:53,320
Speaker 2: success of with Brazinski and the rest that you lived.

410
00:19:53,800 --> 00:19:55,800
Speaker 2: What image were are we going to see when we

411
00:19:55,960 --> 00:19:59,000
Speaker 2: extricate ourselves from this war in Gaza?

412
00:20:00,000 --> 00:20:02,440
Speaker 5: I think at that point there was there were two

413
00:20:03,240 --> 00:20:07,080
Speaker 5: interloctors that Carter was trying to pull together and was

414
00:20:07,160 --> 00:20:11,200
Speaker 5: able to do that. Now you have a much different environment.

415
00:20:11,240 --> 00:20:15,320
Speaker 5: You have Hamas, you have the Israelis. The Israelis are divided.

416
00:20:16,359 --> 00:20:21,359
Speaker 5: Hamas is a very inco it kind of operation. You know,

417
00:20:21,400 --> 00:20:24,440
Speaker 5: it's not quite clear how much power the center of

418
00:20:25,040 --> 00:20:31,560
Speaker 5: Hamas has. It's a very dispersed organization, and we really

419
00:20:31,640 --> 00:20:34,560
Speaker 5: with hostages, as you've correctly pointed out, you really don't

420
00:20:34,640 --> 00:20:38,760
Speaker 5: know until it's actually done. Remember the movie The Bridge

421
00:20:38,760 --> 00:20:42,159
Speaker 5: of Spies. You know, they didn't actually know that the

422
00:20:42,440 --> 00:20:45,199
Speaker 5: transfer was going to take place until it did. They

423
00:20:45,440 --> 00:20:48,280
Speaker 5: arrive and I think these things are very sensitive. But

424
00:20:48,320 --> 00:20:52,000
Speaker 5: what's very important about this is that the United States

425
00:20:52,600 --> 00:20:56,400
Speaker 5: and Qatar have played this intermediary role, which I think

426
00:20:56,520 --> 00:21:00,800
Speaker 5: is constructive and it gets the United States back into

427
00:21:00,800 --> 00:21:03,000
Speaker 5: the game and a positive.

428
00:21:02,640 --> 00:21:05,320
Speaker 2: Robert Gates my essay of certainly of November and Foreign

429
00:21:05,320 --> 00:21:08,680
Speaker 2: Affairs magazine. It's a primal wake up call on American

430
00:21:08,680 --> 00:21:11,280
Speaker 2: diplomacy is being efficacious.

431
00:21:11,320 --> 00:21:13,880
Speaker 1: You have said this for decades.

432
00:21:13,400 --> 00:21:17,479
Speaker 2: Bob Rmance, that we can't let down our diplomacy. What

433
00:21:17,520 --> 00:21:21,000
Speaker 2: does our next diplomacy look like after what we've lived

434
00:21:21,000 --> 00:21:22,800
Speaker 2: the last eight or even twelve years.

435
00:21:23,280 --> 00:21:26,600
Speaker 5: Well, that's the interesting point that that is. During the

436
00:21:26,600 --> 00:21:32,560
Speaker 5: Cold War, diplomacy was Washington Moscow essentially, and now you've

437
00:21:32,600 --> 00:21:37,240
Speaker 5: got lots of power centers. Obviously, this summit with the

438
00:21:37,320 --> 00:21:40,880
Speaker 5: Chinese was I thought, very constructive summit, and actually I'm

439
00:21:40,880 --> 00:21:44,879
Speaker 5: going to China in a week to talk about what

440
00:21:44,960 --> 00:21:48,280
Speaker 5: kind of progress can be made to support what was

441
00:21:48,520 --> 00:21:53,200
Speaker 5: done in the California summit, but opening up new opportunities

442
00:21:53,280 --> 00:21:56,119
Speaker 5: I think for business and for diplomacy, but talking to

443
00:21:56,119 --> 00:21:58,440
Speaker 5: a number of people about how we move the very

444
00:21:58,440 --> 00:22:01,680
Speaker 5: constructive process that was begun there alone. But you also

445
00:22:01,800 --> 00:22:04,840
Speaker 5: have a variety of new power centers that you have

446
00:22:04,880 --> 00:22:07,920
Speaker 5: to have very proactive diplomacy. India's playing a greater role,

447
00:22:08,240 --> 00:22:12,639
Speaker 5: particularly in the global South. Iran's power in the region.

448
00:22:12,840 --> 00:22:15,080
Speaker 5: Saudi Arabia is playing a much greater role, so you

449
00:22:15,160 --> 00:22:18,600
Speaker 5: have to have a much more agile and a much

450
00:22:18,600 --> 00:22:22,000
Speaker 5: more diffuse diplomacy. There are lots of power centers of

451
00:22:22,040 --> 00:22:26,640
Speaker 5: different levels of power, but a lot more influential countries

452
00:22:26,680 --> 00:22:28,560
Speaker 5: than there were in the past.

453
00:22:28,359 --> 00:22:29,520
Speaker 6: Which is the reason why there was a lot of

454
00:22:29,560 --> 00:22:33,520
Speaker 6: focus on China's meeting recently with Arab leaders and wondering

455
00:22:33,600 --> 00:22:37,280
Speaker 6: how exactly they were navigating something that they really haven't

456
00:22:37,320 --> 00:22:40,280
Speaker 6: taken a particular stance on. What did you clean from that?

457
00:22:40,600 --> 00:22:42,960
Speaker 5: Well, that's a very good example of this. The Chinese

458
00:22:43,040 --> 00:22:47,920
Speaker 5: really for years played virtually no role in the Middle East.

459
00:22:47,920 --> 00:22:50,760
Speaker 5: They have a base in Djibouti, but that's sort of

460
00:22:50,840 --> 00:22:54,919
Speaker 5: north and out of the framework. It's really on the

461
00:22:54,960 --> 00:22:58,240
Speaker 5: tip of Africa, but they were not engaged in the

462
00:22:58,280 --> 00:23:01,760
Speaker 5: Middle East. Then sort of a surprise, we find that

463
00:23:01,840 --> 00:23:04,600
Speaker 5: they broke heer to deal between Saudi Arabia and Iran.

464
00:23:05,240 --> 00:23:10,640
Speaker 5: So it's clear that they have a new, positive, proactive,

465
00:23:11,160 --> 00:23:15,800
Speaker 5: and I would say, in that case, quite constructive diplomatic approach.

466
00:23:15,880 --> 00:23:19,879
Speaker 5: They have very sophisticated diplomats. We shouldn't underestimate the quality

467
00:23:19,920 --> 00:23:23,960
Speaker 5: of the Chinese diplomatic core. They're very good. So they're

468
00:23:23,960 --> 00:23:26,679
Speaker 5: playing a greater role, and the fact that we're now

469
00:23:28,400 --> 00:23:32,720
Speaker 5: re engaging or engaging in this diplomacy to help deal

470
00:23:32,720 --> 00:23:35,280
Speaker 5: with the hostages with Gutter sort of shows that we're

471
00:23:35,280 --> 00:23:39,000
Speaker 5: now coming back into the game and playing a constructive role.

472
00:23:39,000 --> 00:23:40,399
Speaker 5: But we're going to have to do this in a

473
00:23:40,400 --> 00:23:42,919
Speaker 5: whole lot of countries because there's a lot of power centers,

474
00:23:42,920 --> 00:23:44,800
Speaker 5: and we're going to have to play a role if

475
00:23:44,800 --> 00:23:47,640
Speaker 5: we want to play a global role in a variety

476
00:23:47,680 --> 00:23:48,320
Speaker 5: of regions.

477
00:23:48,480 --> 00:23:49,879
Speaker 6: The more I read, the less I feel like I

478
00:23:49,960 --> 00:23:53,040
Speaker 6: know about what's going on in the Middle East right now,

479
00:23:53,080 --> 00:23:55,800
Speaker 6: in terms of where the power centers are, who's brokering,

480
00:23:56,440 --> 00:24:01,359
Speaker 6: how whether Saudi Arabia is getting more sort of aggressive

481
00:24:01,600 --> 00:24:04,480
Speaker 6: with Israel or not. Do you have a sense of

482
00:24:04,560 --> 00:24:07,359
Speaker 6: just whether there still is this animosity between Iran and

483
00:24:07,400 --> 00:24:10,480
Speaker 6: Saudi Arabia, of whether there is this move from Cutter

484
00:24:10,600 --> 00:24:12,879
Speaker 6: and Egypt and others to move away from israall. Do

485
00:24:12,880 --> 00:24:15,840
Speaker 6: you have any sense of exactly how this tide is shifting.

486
00:24:16,600 --> 00:24:18,400
Speaker 5: It's very hard to read the tea leaves. I would

487
00:24:18,440 --> 00:24:22,800
Speaker 5: say that Iran and Saudi Arabia probably still have a

488
00:24:22,840 --> 00:24:26,600
Speaker 5: lot of questions about each other and a lot of suspicion,

489
00:24:26,960 --> 00:24:31,159
Speaker 5: but at least they're engaging in conversation in a way

490
00:24:30,840 --> 00:24:34,400
Speaker 5: that they weren't before, and I would say it's probably

491
00:24:34,440 --> 00:24:38,000
Speaker 5: true as well. I do think that the sunny Arab

492
00:24:38,040 --> 00:24:41,920
Speaker 5: countries in the region did want to have and still

493
00:24:41,920 --> 00:24:44,719
Speaker 5: do want to have a close relationship with Israel. And

494
00:24:44,800 --> 00:24:48,040
Speaker 5: one of the reasons I think Hamas did this horrible

495
00:24:48,080 --> 00:24:51,960
Speaker 5: thing is that it didn't like that that was going

496
00:24:52,000 --> 00:24:56,239
Speaker 5: on and thought this would interrupt that process. So I

497
00:24:56,280 --> 00:24:59,359
Speaker 5: still think the underlying goal is to have a greater

498
00:24:59,440 --> 00:25:02,520
Speaker 5: degree of nor between Israel and the Sinni Arabs.

499
00:25:02,560 --> 00:25:05,879
Speaker 2: You just celebrated your eightieth birthday, and I think I

500
00:25:05,920 --> 00:25:08,560
Speaker 2: can say, between you and Michael Bloomberg, you are as

501
00:25:08,560 --> 00:25:10,080
Speaker 2: well preserved as anybody.

502
00:25:10,119 --> 00:25:10,320
Speaker 3: I know.

503
00:25:10,400 --> 00:25:13,080
Speaker 2: What's the damn secret to look at this good at.

504
00:25:13,000 --> 00:25:15,400
Speaker 5: Eighty getting up early and coming on this show.

505
00:25:15,600 --> 00:25:16,959
Speaker 1: Okay, that's the right answer.

506
00:25:17,440 --> 00:25:20,520
Speaker 2: I want you to talk right now about this crazy

507
00:25:20,640 --> 00:25:24,679
Speaker 2: American gerontocracy that we're living right now. The president's eighty one,

508
00:25:24,800 --> 00:25:27,520
Speaker 2: the other guy seventy eight. How did we get half

509
00:25:27,560 --> 00:25:30,320
Speaker 2: of Congress is ninety two? How did we get here?

510
00:25:30,359 --> 00:25:34,120
Speaker 5: Bob Mormtz, Well, you've asked a question with really two

511
00:25:34,240 --> 00:25:39,320
Speaker 5: powerful ingredients. One is, we certainly need to begin to

512
00:25:39,440 --> 00:25:44,480
Speaker 5: tap the younger political leaders. And there are plenty of

513
00:25:44,640 --> 00:25:50,560
Speaker 5: very good people who are in the process of moving

514
00:25:50,640 --> 00:25:55,000
Speaker 5: up in the political process, but the older leaders have

515
00:25:55,080 --> 00:25:57,840
Speaker 5: sort of taken the oxygen away from them. They don't

516
00:25:58,200 --> 00:26:02,880
Speaker 5: get to participate in a lot of the proactive debates

517
00:26:02,920 --> 00:26:05,320
Speaker 5: that are going on because you know, you've got two

518
00:26:05,440 --> 00:26:09,240
Speaker 5: leaders who are older, who take a lot of that oxygen,

519
00:26:09,320 --> 00:26:13,119
Speaker 5: the political oxygen and money away. But the second point

520
00:26:13,160 --> 00:26:16,760
Speaker 5: that's even bigger is we have to start thinking a

521
00:26:16,800 --> 00:26:19,760
Speaker 5: lot more of the implications of what we do today

522
00:26:21,480 --> 00:26:24,000
Speaker 5: for the next generation and the next generation and the

523
00:26:24,000 --> 00:26:27,159
Speaker 5: next generation. That particularly has to do with a budget,

524
00:26:27,200 --> 00:26:29,800
Speaker 5: because we're leaving our children and grandchildren with us.

525
00:26:29,840 --> 00:26:31,639
Speaker 2: This book from a couple of years ago, when's the

526
00:26:31,680 --> 00:26:32,480
Speaker 2: second edition out?

527
00:26:32,520 --> 00:26:34,920
Speaker 5: And I too, I just did an article for Fortune

528
00:26:34,960 --> 00:26:39,520
Speaker 5: magazine explaining why this was a problem and what it

529
00:26:39,560 --> 00:26:41,879
Speaker 5: was going to mean for social security, what's going to

530
00:26:41,920 --> 00:26:44,639
Speaker 5: mean for the budget for contingent liabilities? And the numbers

531
00:26:44,640 --> 00:26:46,560
Speaker 5: are up and up and up. Who's going to pay

532
00:26:46,560 --> 00:26:49,200
Speaker 5: the interest our children and grandchildren? We're leaving them with

533
00:26:49,240 --> 00:26:53,600
Speaker 5: a burden. That's one climates and other breaking news is

534
00:26:53,600 --> 00:26:55,200
Speaker 5: getting in the way. Bob Horme has I got to

535
00:26:55,240 --> 00:26:57,280
Speaker 5: cut you off. Thank you so much for joining us.

536
00:26:57,280 --> 00:27:00,400
Speaker 5: Amory to you twenty seconds any breaking news here into

537
00:27:00,440 --> 00:27:00,879
Speaker 5: the nine.

538
00:27:00,720 --> 00:27:04,240
Speaker 11: O'clock hour, just that we remain very close to getting

539
00:27:04,240 --> 00:27:06,840
Speaker 11: this hostage deal done. We also did hear from the

540
00:27:06,880 --> 00:27:09,080
Speaker 11: Israeli Prime Minister, the Benjamin net and Yahoo in the

541
00:27:09,080 --> 00:27:11,800
Speaker 11: Israelis are tweeting that you will have a cabinet, a

542
00:27:11,840 --> 00:27:13,479
Speaker 11: war cabinet meeting this evening.

543
00:27:13,880 --> 00:27:16,280
Speaker 2: Stay for this and Emory hoard and balance of power

544
00:27:16,320 --> 00:27:18,719
Speaker 2: look for that at this evening. We say thank you

545
00:27:18,760 --> 00:27:22,040
Speaker 2: to Robert Hormats of the Yale School of Management. Subscribe

546
00:27:22,080 --> 00:27:25,880
Speaker 2: to the Bloomberg Surveillance podcast on Apple, Spotify and anywhere

547
00:27:25,880 --> 00:27:30,240
Speaker 2: else you get your podcasts. Listen live every weekday starting

548
00:27:30,280 --> 00:27:34,840
Speaker 2: at seven am Eastern on Bloomberg dot Com, the iHeartRadio app,

549
00:27:35,160 --> 00:27:38,720
Speaker 2: tune In, and the Bloomberg Business app. You can watch

550
00:27:38,920 --> 00:27:43,200
Speaker 2: us live on Bloomberg Television and always. I'm the Bloomberg Terminal.

551
00:27:43,600 --> 00:27:47,800
Speaker 2: Thanks for listening. I'm Tom Keane, and this is Bloomberg