Speaker 1: This is the Bloomberg Surveillance Podcast.
Speaker 2: I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz.
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Speaker 2: With Richey Jealia, this is the interview of the day
Speaker 2: on this folks. We're going to talk to an adult
Speaker 2: right now of the melding of all this, How do
Speaker 2: you get to Nvidia, which mister Jelia does not cover,
Speaker 2: over to the software world of Microsoft that we think
Speaker 2: we know. Ruchy Jelia out of Berkeley and Rawschool, Michigan
Speaker 2: at RBC Capital Markets ex JAMP, which is a boutique
Speaker 2: firm of incredible ability.
Speaker 1: Richie, honored, you're with us this morning.
Speaker 2: Okay, they're going to walk in two guys, five guys,
Speaker 2: five hundred engineers and they're going to make two chips
Speaker 2: or whatever to compete with Nvidia. Let's start with the
Speaker 2: why why does Microsoft, enormous Microsoft have to compete with Nvidia, Yeah, and.
Speaker 3: Thank you so much for having me in the warm introduction.
Speaker 3: I think there's two reasons. Number one is the unit economics.
Speaker 3: You know, we can all look at Nvidia's gross margins
Speaker 3: and obviously the amazing rally the stock has had and
Speaker 3: the revenue growth, and Microsoft knows that there's a lot
Speaker 3: of ability to save money and bring down costs. But
Speaker 3: I think the more important factor of why they want
Speaker 3: to bring in their own tips is because there is
Speaker 3: eight major GPU shortage out there, and you are in
Speaker 3: a situation where it is hard to meet demand. And
Speaker 3: because of all of this, costs are prohibitively expensive for
Speaker 3: generative AI, and that can actually be a limiting factor.
Speaker 3: That's a piece I've talked to when I've had my
Speaker 3: conversations with companies is a lot of companies want to
Speaker 3: go down the route of adopting gender of AI a
Speaker 3: big way, but the costs are what stopped them. By
Speaker 3: my estimates, a generative AI workload cost about five times
Speaker 3: more than a traditional cloud workload.
Speaker 4: How do you bring those costs down?
Speaker 3: It starts with the hardware, and you want to bring
Speaker 3: that cost curve down to make it more useful and
Speaker 3: ultimately you get generative AI to become a much more
Speaker 3: prevalent technology.
Speaker 2: On a percentage basis, how Nvidia ish is Microsoft? Is
Speaker 2: it a two three percent bolt on to Nadella's ginormous
Speaker 2: company or can it be out three five years a
Speaker 2: germane part of Microsoft. Compare the potential size of what
Speaker 2: Allman can do to the total of Microsoft.
Speaker 4: Yeah.
Speaker 3: From a broader AI perspective, this is going to be
Speaker 3: more like the cloud. And then, you know, that's the
Speaker 3: big thing about AI is it is that seismic technological
Speaker 3: change similar.
Speaker 4: To what we saw with the cloud.
Speaker 3: Look at what happened to Microsoft when they were an
Speaker 3: on premise company. Look at where they are as a
Speaker 3: cloud company, not just their stock price, get their revenue growth,
Speaker 3: look get their profitability, and look at their relevance in
Speaker 3: the technology world. And I think AI can be a
Speaker 3: similar accelerator.
Speaker 5: You know.
Speaker 3: And the great thing about having Sam and Greg and
Speaker 3: whoever else joins if this is how it proceeds, and
Speaker 3: obviously this is changing by the hour that Microsoft not
Speaker 3: only is continue to be a leader in AI, they're
Speaker 3: actually in control of their own destiny. That was I
Speaker 3: think one of the few knocks that people had against
Speaker 3: Microsoft is they didn't control their destiny.
Speaker 4: They were up to open AI. Now this happens kind
Speaker 4: of all internally.
Speaker 3: So this can be a major accelerator for Microsoft, and
Speaker 3: I think this can be a much bigger company as
Speaker 3: a result.
Speaker 6: Risia, I'm still stuck on this idea that it costs
Speaker 6: about five times based on how expensive some of the
Speaker 6: hardware is for generative AI to get certain workloads done
Speaker 6: as it does the traditional means of just hiring people.
Speaker 4: Does it basically mean.
Speaker 6: That in Vidia's access is success so far? Is the
Speaker 6: reason why the Microsoft's of the world, the software focused area,
Speaker 6: have not been able to monetize AI in as material
Speaker 6: a way.
Speaker 4: I don't think it's because of the GPU shortage. I
Speaker 4: think that is one factor.
Speaker 3: And then by the way I would maybe push back,
Speaker 3: I think Microsoft is monetizing AI in a big way.
Speaker 3: By my estimates, AI is already a half billion dollar
Speaker 3: arr business for Microsoft after what two or three quarters,
Speaker 3: which is kind of an amazing, unheard of trajectory for
Speaker 3: the rest of software.
Speaker 4: However, I think there are a couple of reasons.
Speaker 3: You know, Microsoft, remember has a huge head start when
Speaker 3: it comes to generative AI. They invest in open AI
Speaker 3: back in twenty nineteen. A lot of other companies are
Speaker 3: playing catch up. I think a lot of enterprises are
Speaker 3: also maybe have concerns around data privacy, residency, and they
Speaker 3: just you know, security, and that's also a limiting factor.
Speaker 3: Another think, maybe lastly, is a lot of companies are
Speaker 3: figuring this out.
Speaker 4: Remember generally I is a little bit of.
Speaker 3: A blank canvas and you have to figure out the
Speaker 3: right way to use it. Think about the way you
Speaker 3: and I use chat GPT today versus what you know
Speaker 3: a year ago when it first got launched. Part of
Speaker 3: it is obviously it's gotten more powerful, but part of
Speaker 3: it is we had to figure out what's the right
Speaker 3: prompt to ask it, what's the right way to tweak it?
Speaker 3: And you know, with APIs it's maybe ten times more
Speaker 3: complex and difficult.
Speaker 4: I think the monetization is going to come.
Speaker 3: I just think for software it's probably a twenty twenty
Speaker 3: five event when it starts to be material for you know,
Speaker 3: the hubspots and the Mango DB's of the world. But
Speaker 3: for Microsoft, I would say it is already material and
Speaker 3: rapidly going.
Speaker 6: So when you keep talking about GPU, it's graphics processing.
Speaker 6: You and one of the key components for some of
Speaker 6: these chips that are required for generative AI. Do you
Speaker 6: think that Microsoft canterially get into the chip creation, the
Speaker 6: physical word world, the hardware game as it ramps up
Speaker 6: to the software monetary prowess.
Speaker 4: I think they can't. Now.
Speaker 3: I would say they're not going to be directly selling
Speaker 3: GPUs to customers in a big way. I think it's
Speaker 3: more of a you can rent out GPU capacity via Azure,
Speaker 3: and this becomes a boost for the Azure business that
Speaker 3: I you know, this becomes the preferred cloud vendor to
Speaker 3: run dinner to AI workloads, not only because they have,
Speaker 3: you know, the best AI technology out there, including all
Speaker 3: these Azure opening eye services that they're already monetizing, but
Speaker 3: now they're going to have more and more capacity, and
Speaker 3: again at a competitive rate.
Speaker 4: Versus how things have been.
Speaker 3: So I think this is more of a unit economics
Speaker 3: for Microsoft and a boost Azure.
Speaker 2: For she gets a slow day here, we got to
Speaker 2: make some news. Everybody's piled on Microsoft. Now it's one
Speaker 2: big love fest. You know, we're on our way to
Speaker 2: three trillion dollars. I think it's four to four. You're
Speaker 2: at a three ninety. The well dressed, dan Ives and
Speaker 2: the rest of them are up there. Are you going
Speaker 2: to be a justin a higher year? When you see
Speaker 2: this unfold? Can we get you out over four to
Speaker 2: twenty on Microsoft right now?
Speaker 4: Yeah?
Speaker 3: Obviously I can't comment on the price target changes that
Speaker 3: I may or may not bring. I would point you
Speaker 3: in our note we do talk about, you know, a
Speaker 3: bowl case, which would be beyond that, and you know
Speaker 3: you can kind of draw your own conclusion.
Speaker 1: Come on, come on, no listen where among friends? What's
Speaker 1: your bookcase? Give me a number or can you out ives?
Speaker 1: Dan Ives?
Speaker 3: Uh, look by by bookcase, you know, and the note
Speaker 3: would be above about four hundred dollars this year. I
Speaker 3: think the thing we have to say is, right now,
Speaker 3: I'm not modeling huge generative AI revenues in my model.
Speaker 3: If we start to think about Officer sixty five copilot,
Speaker 3: for example, that's all kind of gravy on top of this.
Speaker 4: And I haven't even really brought in you know.
Speaker 3: A calendar, your twenty five calendar, your twenty six numbers.
Speaker 3: So again I would say you can draw a lot
Speaker 3: of conclusions based on those sort of things to get
Speaker 3: you significantly above where this dock is today, but published
Speaker 3: price target during our ninety.
Speaker 7: Bucks Rischie, thank you, camplonsistent in bet, don't worry about it, Rischie,
Speaker 7: Jeliria about me, sick capital, Marcus, they wake up about
Speaker 7: a thirty c k.
Speaker 2: Victoria Fernandez with his chief market strategist at cross Mark
Speaker 2: Global Investment. I have no idea how you reallocate rebellance,
Speaker 2: Victoria for next year.
Speaker 1: What's the cross Mark strategy?
Speaker 8: Yeah, well, Tom, as you know, throughout the last year,
Speaker 8: when a lot of people were trying to make the
Speaker 8: decisions of what it would be in or out of
Speaker 8: the market for our clients, we were completely in the market,
Speaker 8: but we were being very cautious as to where we
Speaker 8: were putting our money to work. We had a lot
Speaker 8: of defensive names in our portfolio while still having a
Speaker 8: little bit of cyclical names in there. And our strategy
Speaker 8: hasn't changed tremendously on days when the equity market is
Speaker 8: up right now, because we don't think that we're in
Speaker 8: this solid bull market right now, we're trimming some names
Speaker 8: and we're going in to some of the names that
Speaker 8: have pulled back.
Speaker 9: You mentioned energy. That's one area where we've been.
Speaker 8: Adding some exposure to names like Conico Phillips. We actually
Speaker 8: are adding in healthcare too. Healthcare has been decimated, but
Speaker 8: you look at the balance sheets of some of these
Speaker 8: companies and you have a lot of opportunity there adding
Speaker 8: a little bit of fixed income, having a little bit
Speaker 8: of cash, using some alternatives in your portfolio like covered calls.
Speaker 8: We think this is the time when you really need
Speaker 8: to have that diversification and be ready because we think
Speaker 8: there's still quite a bit of volatility to go.
Speaker 7: Do you get uncorrelated diversification and fixed income right now
Speaker 7: versus equities?
Speaker 9: You know, not as much as you probably used to.
Speaker 8: But what you're going to be using your fixed income
Speaker 8: for right now is for the cash flow for our client.
Speaker 8: So you can get a five percent yield on the
Speaker 8: short term part of the yield curve. It's an opportunity
Speaker 8: to have something a little bit better than cash, a
Speaker 8: little bit better than government agencies. You can lock that
Speaker 8: in for a short period of time and then add
Speaker 8: a little bit Jonathan on the longer end of the curve,
Speaker 8: or you can have that longer steady cash flow over
Speaker 8: a longer period of time to help buffer any equity volatility.
Speaker 6: When you look forward, there's a real question about whether
Speaker 6: rate cuts next year are good or bad for risk.
Speaker 6: How do you think about that at a time when
Speaker 6: people are expecting the soft landing as the base case.
Speaker 8: So I think there is a misconception here that the
Speaker 8: FED is going to cut in the first half of
Speaker 8: next year.
Speaker 9: If you look Lisa, over.
Speaker 8: This hiking cycle, we've already had six dubvish headfakes where
Speaker 8: the market has gotten ahead of itself.
Speaker 9: Assumed the FED was going to be more dubvish than.
Speaker 8: It was, and they've had to price that back out
Speaker 8: of the market. I think we're seeing a little bit
Speaker 8: of that now. I don't expect the FED to cut
Speaker 8: rates until the second half of next year, and I
Speaker 8: think it will be more because we're seeing a deterioration
Speaker 8: in the economy than it is because of inflation expectations.
Speaker 9: I mean, look at delinquencies right now.
Speaker 8: We're back up at pre COVID levels in regards to autos,
Speaker 8: in regards to credit cards, especially in that eighteen to
Speaker 8: twenty nine year old age group, where they've got student
Speaker 8: loan debts coming as well. And as delinquencies go up
Speaker 8: at a time with very low unemployment, what does that
Speaker 8: mean for banks, it means they're going to increase their
Speaker 8: low loss reserves. It means low growth goes down. These
Speaker 8: are things that are going to stimmy the economy. It's
Speaker 8: going to stimmy the consumer, and I think that's where
Speaker 8: we're going to see rate cuts come in.
Speaker 6: So when you take a look at risk appetite heading
Speaker 6: into next year, do you think that people are overly
Speaker 6: optimistic about both rates coming lower and equity is continuing
Speaker 6: to do well led by the names that have done
Speaker 6: best this year.
Speaker 8: I do think there's a little bit too much optimism
Speaker 8: right now.
Speaker 9: And I'd like to be optimistic.
Speaker 8: I like to say good things are going to happen,
Speaker 8: but look we've said for the last year, you've got
Speaker 8: to be cautious. You look at leading economic indicators down again.
Speaker 8: Even coincident economic indicators are flat right now.
Speaker 9: Consumer is weakening.
Speaker 8: You've been talking about mister McMillan's statement about deflation going
Speaker 8: on and worries about the consumer. We've heard it in
Speaker 8: the retail earnings that have come out. And I think
Speaker 8: you're going to see some of the things that have
Speaker 8: been propping up the equity markets, like buybacks, start to
Speaker 8: come back.
Speaker 2: But Victoria you're living in Texas. The Austin boom and
Speaker 2: the Austin boom is a broad sense is service sector
Speaker 2: in technology. How do you underweight the Magnificent seven.
Speaker 8: It's a tough decision to make on what you do
Speaker 8: with this Magnificent seven. Obviously, the AI tailwind to those
Speaker 8: names has been tremendous, and we assume Nvidia is going
Speaker 8: to report.
Speaker 9: Good earnings and that's going to continue.
Speaker 8: Then to lead that narrative and help that Magnificent seven,
Speaker 8: you have to have exposure to these names. You do,
Speaker 8: but I just think you have to be a little
Speaker 8: bit cautious and putting all your eggs in that basket.
Speaker 9: If you have, you've done well this year, so I
Speaker 9: can't deny that.
Speaker 8: But as we assume that we're going to have a
Speaker 8: pullback in this economy and the consumer is going to
Speaker 8: come back, and capital expenditures and spending by corporations is
Speaker 8: going to slow down, I think you have to be
Speaker 8: a little bit concerned about what those earnings look like
Speaker 8: going forward.
Speaker 9: So have your.
Speaker 8: Exposure, but like we said, add that diversification and other
Speaker 8: areas as well.
Speaker 7: Victoria, thank you. We've got to leave it there. Happy
Speaker 7: Thanksgiving enjoy the next coup of night guys. Thank you,
Speaker 7: Victoria Fernandez. There a Crossmark Global Investments.
Speaker 2: Right now and fixed Income Michael Collins joined Senior portfolio
Speaker 2: manager Page and fixed Income. Michael, what is the symbolism
Speaker 2: of the inflation adjusted ten year yield coming in and in?
Speaker 2: I got a two point zero nine percent print this morning.
Speaker 2: That's extraordinary. What does that mean for our viewers, our listeners.
Speaker 10: Well, as you know, you know the world's discount rate,
Speaker 10: you know, the US real yield is what's driving valuations
Speaker 10: on everything in the world, and that real yield TOM
Speaker 10: at two point one or so is probably still one
Speaker 10: hundred basis points too high, right.
Speaker 1: I think it's supposed to.
Speaker 4: Be somewhere between zero and.
Speaker 10: Two, So I think there's still room to go there.
Speaker 10: I think if you believe the real yield should be
Speaker 10: above two permanently, remember it was at two and a
Speaker 10: half just a few weeks ago. You're buying into the
Speaker 10: notion that we're going to have this continuation of really
Speaker 10: strong real growth in the US and around the world,
Speaker 10: and it feels like that that's not in the cards.
Speaker 2: What is your xxis to get even halfway there? That's
Speaker 2: a bold statement by you that the inflation is just
Speaker 2: a yield two point five to zero down to two
Speaker 2: point one zero and it will I'm going to use
Speaker 2: this word carefully, Michael plunge Lower. What's your timeline to
Speaker 2: make that happen?
Speaker 10: You know these things tend to happen more quickly than
Speaker 10: the market's price in right. I mean, just a few
Speaker 10: weeks ago, the markets were pricing in a funds rate
Speaker 10: that ended at four and a half percent and never
Speaker 10: got lower than that over the next ten years. And
Speaker 10: now that number is four, right, So the markets are
Speaker 10: pricing in kind of a permanent funds rate at four
Speaker 10: and again that probably is one hundred or maybe two
Speaker 10: hundred basis points too high as well. And we do
Speaker 10: know when the feed is done. And the feed is done,
Speaker 10: that's why the minutes today today don't matter. When they're done.
Speaker 10: Rates rally, right, that's the begin of the rally in
Speaker 10: the bond market, as soon as the message is clear
Speaker 10: that the hiking cycle is over. Because the market is
Speaker 10: always overshoot on the upside and then they overshoot on
Speaker 10: the downside. So I think we just hit the overshoot
Speaker 10: at a five percent tenure at a two and a
Speaker 10: half percent real yield, and now we're probably on the
Speaker 10: way down. I mean, rates today maybe you look fair
Speaker 10: value in a good world, but you know, we've had disinflation,
Speaker 10: as you've all talked about this morning, and it's been
Speaker 10: driven almost solely by the supply side, the huge rebound
Speaker 10: in the supply side, both from the labor market and
Speaker 10: the productivity boost. And I worry that twenty twenty four
Speaker 10: is going to be a demand side story. And that's
Speaker 10: the bad disinflation right that we're worried about. And if
Speaker 10: that plays out, if inflation ends up having one handles
Speaker 10: instead of three handles, which is which is very possible,
Speaker 10: and we're kind of moving in that direction pretty quickly now.
Speaker 10: You know who knows rates could be be off sized
Speaker 10: by quite a bit.
Speaker 7: That's the worry of equity investors as well.
Speaker 1: Mike.
Speaker 7: Let's talk about bigger picture, and I'll do this for
Speaker 7: you because you're fun too modest. About ten years ago,
Speaker 7: you and a team I'm thinking Robert Breck Peters were
Speaker 7: really known for this call of low interest rates, low inflation,
Speaker 7: range band yields, low and range band. I remember the phrase.
Speaker 7: It was the low ranger. Now Mike, that was ten
Speaker 7: years ago. You guys won awards for all of that.
Speaker 7: We celebrated them on this program a decade later. Post pandemic,
Speaker 7: Can you talk to us about this regime and how
Speaker 7: different you think it will be.
Speaker 10: I mean, certainly, you're in a world right now, Jonathan,
Speaker 10: where you're seeing a kind of generational high in capital
Speaker 10: investment in this country in technology related things that you've
Speaker 10: been talking about AI all morning, right, and it's happening,
Speaker 10: and it's real, and it's increased our productivity in this
Speaker 10: country significantly over the last year. And there's a chance
Speaker 10: that that is sustainable, that this AI and the robotics
Speaker 10: and all of the technology investment does lead to more
Speaker 10: sustainably and higher real GDP in this country, let's say
Speaker 10: in the twos as opposed to in the ones. And
Speaker 10: that's a big difference. And there's also a chance that inflation,
Speaker 10: you know, doesn't fall back to one and a half,
Speaker 10: that it gets stuck at two and a half or three.
Speaker 10: And I think geopolitics and climate related risks and energy
Speaker 10: transition and shortages of labor around the world are all
Speaker 10: factors that could lead to stickier inflation. So yeah, there's
Speaker 10: this big high probability scenario out there that you know
Speaker 10: that heck, maybe, like I said, rates are fair value here,
Speaker 10: that the funds rate bounces between three and five for
Speaker 10: the next ten years, and the ten year bounces between
Speaker 10: three and a half and five and a half, and
Speaker 10: maybe you're in the middle of that range now. So
Speaker 10: that's a scenario that we're really contemplating very seriously as
Speaker 10: a pretty high probability. But of course you do have
Speaker 10: to be humble in this business, and that downside risk
Speaker 10: is always out there, lurking and looming. So it's something
Speaker 10: we're certainly looking at.
Speaker 6: Have you gotten more conviction over the past four weeks,
Speaker 6: Michael Is? The market seems to be accepting the idea
Speaker 6: of possibly more aggressive rate cuts.
Speaker 10: Next year, you know, more conviction on rates, maybe a
Speaker 10: little bit more, you know, I think the inflation side
Speaker 10: is really what's given us more encouragement. The disinflation story
Speaker 10: seems to be kind of embedded now and we're not
Speaker 10: as worried about a permanently higher you know, inflationary environment. Right,
Speaker 10: So that's really a big delta that we're seeing recently
Speaker 10: with goods prices in deflation right now, right, and services.
Speaker 10: Inflation is finally coming down, so and the labor market
Speaker 10: is seeing some cracks, right, which leads to lower wages.
Speaker 10: So all those things give us encouragement. Inflation which given
Speaker 10: us encouragement. Hey, maybe we've seen the high end rates,
Speaker 10: and who knows, maybe the next move is fifty basis
Speaker 10: points lower instead of fifty basis points higher. On the
Speaker 10: credit side, though, you know, the markets have run with
Speaker 10: this low inflation, soft landing world and have in the
Speaker 10: equity market too, right, So risk assets of rallied hard
Speaker 10: us in the last few weeks, and I think you're
Speaker 10: supposed to be really careful there and fade those rallies.
Speaker 7: It feels like a much tough of co on the
Speaker 7: credit side. My thank you, sir. It's gonna catch up
Speaker 7: with you. Mike Cullins. They have PGIM fixed income.
Speaker 2: Sometimes you get lucky, and we do that always with
Speaker 2: Robert Hormatz. He is of tough in of generations of presidents.
Speaker 2: This could easily be a three hour conversation, Ambassador Hormatz
Speaker 2: with the Yale School of Management. So many narrors, Bob,
Speaker 2: you and I could go for three hours right now.
Speaker 2: We got about seven minutes.
Speaker 1: There's James Earl.
Speaker 2: Carter with Saddat from another time and place. We have
Speaker 2: a nostelgia for that moment that you lived in the
Speaker 2: success of with Brazinski and the rest that you lived.
Speaker 2: What image were are we going to see when we
Speaker 2: extricate ourselves from this war in Gaza?
Speaker 5: I think at that point there was there were two
Speaker 5: interloctors that Carter was trying to pull together and was
Speaker 5: able to do that. Now you have a much different environment.
Speaker 5: You have Hamas, you have the Israelis. The Israelis are divided.
Speaker 5: Hamas is a very inco it kind of operation. You know,
Speaker 5: it's not quite clear how much power the center of
Speaker 5: Hamas has. It's a very dispersed organization, and we really
Speaker 5: with hostages, as you've correctly pointed out, you really don't
Speaker 5: know until it's actually done. Remember the movie The Bridge
Speaker 5: of Spies. You know, they didn't actually know that the
Speaker 5: transfer was going to take place until it did. They
Speaker 5: arrive and I think these things are very sensitive. But
Speaker 5: what's very important about this is that the United States
Speaker 5: and Qatar have played this intermediary role, which I think
Speaker 5: is constructive and it gets the United States back into
Speaker 5: the game and a positive.
Speaker 2: Robert Gates my essay of certainly of November and Foreign
Speaker 2: Affairs magazine. It's a primal wake up call on American
Speaker 2: diplomacy is being efficacious.
Speaker 1: You have said this for decades.
Speaker 2: Bob Rmance, that we can't let down our diplomacy. What
Speaker 2: does our next diplomacy look like after what we've lived
Speaker 2: the last eight or even twelve years.
Speaker 5: Well, that's the interesting point that that is. During the
Speaker 5: Cold War, diplomacy was Washington Moscow essentially, and now you've
Speaker 5: got lots of power centers. Obviously, this summit with the
Speaker 5: Chinese was I thought, very constructive summit, and actually I'm
Speaker 5: going to China in a week to talk about what
Speaker 5: kind of progress can be made to support what was
Speaker 5: done in the California summit, but opening up new opportunities
Speaker 5: I think for business and for diplomacy, but talking to
Speaker 5: a number of people about how we move the very
Speaker 5: constructive process that was begun there alone. But you also
Speaker 5: have a variety of new power centers that you have
Speaker 5: to have very proactive diplomacy. India's playing a greater role,
Speaker 5: particularly in the global South. Iran's power in the region.
Speaker 5: Saudi Arabia is playing a much greater role, so you
Speaker 5: have to have a much more agile and a much
Speaker 5: more diffuse diplomacy. There are lots of power centers of
Speaker 5: different levels of power, but a lot more influential countries
Speaker 5: than there were in the past.
Speaker 6: Which is the reason why there was a lot of
Speaker 6: focus on China's meeting recently with Arab leaders and wondering
Speaker 6: how exactly they were navigating something that they really haven't
Speaker 6: taken a particular stance on. What did you clean from that?
Speaker 5: Well, that's a very good example of this. The Chinese
Speaker 5: really for years played virtually no role in the Middle East.
Speaker 5: They have a base in Djibouti, but that's sort of
Speaker 5: north and out of the framework. It's really on the
Speaker 5: tip of Africa, but they were not engaged in the
Speaker 5: Middle East. Then sort of a surprise, we find that
Speaker 5: they broke heer to deal between Saudi Arabia and Iran.
Speaker 5: So it's clear that they have a new, positive, proactive,
Speaker 5: and I would say, in that case, quite constructive diplomatic approach.
Speaker 5: They have very sophisticated diplomats. We shouldn't underestimate the quality
Speaker 5: of the Chinese diplomatic core. They're very good. So they're
Speaker 5: playing a greater role, and the fact that we're now
Speaker 5: re engaging or engaging in this diplomacy to help deal
Speaker 5: with the hostages with Gutter sort of shows that we're
Speaker 5: now coming back into the game and playing a constructive role.
Speaker 5: But we're going to have to do this in a
Speaker 5: whole lot of countries because there's a lot of power centers,
Speaker 5: and we're going to have to play a role if
Speaker 5: we want to play a global role in a variety
Speaker 5: of regions.
Speaker 6: The more I read, the less I feel like I
Speaker 6: know about what's going on in the Middle East right now,
Speaker 6: in terms of where the power centers are, who's brokering,
Speaker 6: how whether Saudi Arabia is getting more sort of aggressive
Speaker 6: with Israel or not. Do you have a sense of
Speaker 6: just whether there still is this animosity between Iran and
Speaker 6: Saudi Arabia, of whether there is this move from Cutter
Speaker 6: and Egypt and others to move away from israall. Do
Speaker 6: you have any sense of exactly how this tide is shifting.
Speaker 5: It's very hard to read the tea leaves. I would
Speaker 5: say that Iran and Saudi Arabia probably still have a
Speaker 5: lot of questions about each other and a lot of suspicion,
Speaker 5: but at least they're engaging in conversation in a way
Speaker 5: that they weren't before, and I would say it's probably
Speaker 5: true as well. I do think that the sunny Arab
Speaker 5: countries in the region did want to have and still
Speaker 5: do want to have a close relationship with Israel. And
Speaker 5: one of the reasons I think Hamas did this horrible
Speaker 5: thing is that it didn't like that that was going
Speaker 5: on and thought this would interrupt that process. So I
Speaker 5: still think the underlying goal is to have a greater
Speaker 5: degree of nor between Israel and the Sinni Arabs.
Speaker 2: You just celebrated your eightieth birthday, and I think I
Speaker 2: can say, between you and Michael Bloomberg, you are as
Speaker 2: well preserved as anybody.
Speaker 3: I know.
Speaker 2: What's the damn secret to look at this good at.
Speaker 5: Eighty getting up early and coming on this show.
Speaker 1: Okay, that's the right answer.
Speaker 2: I want you to talk right now about this crazy
Speaker 2: American gerontocracy that we're living right now. The president's eighty one,
Speaker 2: the other guy seventy eight. How did we get half
Speaker 2: of Congress is ninety two? How did we get here?
Speaker 5: Bob Mormtz, Well, you've asked a question with really two
Speaker 5: powerful ingredients. One is, we certainly need to begin to
Speaker 5: tap the younger political leaders. And there are plenty of
Speaker 5: very good people who are in the process of moving
Speaker 5: up in the political process, but the older leaders have
Speaker 5: sort of taken the oxygen away from them. They don't
Speaker 5: get to participate in a lot of the proactive debates
Speaker 5: that are going on because you know, you've got two
Speaker 5: leaders who are older, who take a lot of that oxygen,
Speaker 5: the political oxygen and money away. But the second point
Speaker 5: that's even bigger is we have to start thinking a
Speaker 5: lot more of the implications of what we do today
Speaker 5: for the next generation and the next generation and the
Speaker 5: next generation. That particularly has to do with a budget,
Speaker 5: because we're leaving our children and grandchildren with us.
Speaker 2: This book from a couple of years ago, when's the
Speaker 2: second edition out?
Speaker 5: And I too, I just did an article for Fortune
Speaker 5: magazine explaining why this was a problem and what it
Speaker 5: was going to mean for social security, what's going to
Speaker 5: mean for the budget for contingent liabilities? And the numbers
Speaker 5: are up and up and up. Who's going to pay
Speaker 5: the interest our children and grandchildren? We're leaving them with
Speaker 5: a burden. That's one climates and other breaking news is
Speaker 5: getting in the way. Bob Horme has I got to
Speaker 5: cut you off. Thank you so much for joining us.
Speaker 5: Amory to you twenty seconds any breaking news here into
Speaker 5: the nine.
Speaker 11: O'clock hour, just that we remain very close to getting
Speaker 11: this hostage deal done. We also did hear from the
Speaker 11: Israeli Prime Minister, the Benjamin net and Yahoo in the
Speaker 11: Israelis are tweeting that you will have a cabinet, a
Speaker 11: war cabinet meeting this evening.
Speaker 2: Stay for this and Emory hoard and balance of power
Speaker 2: look for that at this evening. We say thank you
Speaker 2: to Robert Hormats of the Yale School of Management. Subscribe
Speaker 2: to the Bloomberg Surveillance podcast on Apple, Spotify and anywhere
Speaker 2: else you get your podcasts. Listen live every weekday starting
Speaker 2: at seven am Eastern on Bloomberg dot Com, the iHeartRadio app,
Speaker 2: tune In, and the Bloomberg Business app. You can watch
Speaker 2: us live on Bloomberg Television and always. I'm the Bloomberg Terminal.
Speaker 2: Thanks for listening. I'm Tom Keane, and this is Bloomberg