WEBVTT - Bloomberg Surveillance TV: May 30, 2024 0:00:02.440 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.439 with Lisa Bromwitz and am Marie Hordern. Join us each 0:00:18.520 --> 0:00:21.400 day for insight from the best in markets, economics, and 0:00:21.440 --> 0:00:24.720 geopolitics from our global headquarters in New York City. We 0:00:24.800 --> 0:00:27.440 are live on Bloomberg Television weekday mornings from six to 0:00:27.520 --> 0:00:31.040 nine am Eastern. Subscribe to the podcast on Apple, Spotify 0:00:31.200 --> 0:00:33.479 or anywhere else you listen, and as always on the 0:00:33.520 --> 0:00:36.920 Bloomberg Terminal and the Bloomberg Business App. With us around 0:00:36.920 --> 0:00:40.880 the Table, City's Rob Sokin Michael Clart of f UBS. Michael, 0:00:40.880 --> 0:00:43.240 to you first, your reaction to these numbers this morning. 0:00:43.840 --> 0:00:46.120 Yeah, not much of a signifiant change, So you know, 0:00:46.200 --> 0:00:47.880 there has been a little bit of slow down and 0:00:47.920 --> 0:00:52.240 growth from the really hot numbers last year. Still solid composition, 0:00:52.360 --> 0:00:55.120 still pretty good right now, but do think that we're 0:00:55.120 --> 0:00:57.680 going to continue to get some slowing as we go forward. 0:00:58.040 --> 0:00:59.880 I think one of the issues for the raids for 0:01:00.200 --> 0:01:03.000 out there is everyone's been mesmerized by this rise in 0:01:03.080 --> 0:01:07.319 the equity market, thinking that strong equities mean strong economy, 0:01:07.360 --> 0:01:10.760 therefore high rates. The problem with that is, you know, 0:01:10.840 --> 0:01:13.840 earnings were solid, but an awful lot of this rally 0:01:13.840 --> 0:01:17.480 has been AI and other non economic, noncyclical factors. 0:01:17.920 --> 0:01:20.119 So I think that, you know, as we go. 0:01:20.080 --> 0:01:22.520 Forward a little bit, we will see some slowing. We've 0:01:22.680 --> 0:01:26.039 taken out most of the downside risk in rates after 0:01:26.080 --> 0:01:28.600 a long time, we're respecting lots of easing, you know, 0:01:28.760 --> 0:01:32.000 decent recession probability. We priced most of that out, and 0:01:32.080 --> 0:01:33.920 so I think the market's cheap right here. 0:01:34.200 --> 0:01:36.800 Rub you're looking for some slowing, some big time slum 0:01:36.840 --> 0:01:39.000 because you've got a right cut call for July. I'm 0:01:39.040 --> 0:01:40.679 trying to work out what the data needs to look 0:01:40.760 --> 0:01:43.520 like from here come against July for that to take place. 0:01:43.520 --> 0:01:46.560 And let's start with payrolls next Friday. How bad does 0:01:46.600 --> 0:01:49.120 that Friday number need to be to keep your right 0:01:49.160 --> 0:01:49.920 cut col im plight. 0:01:50.360 --> 0:01:53.160 Yeah, absolutely, And to really get there, as you said, 0:01:53.200 --> 0:01:57.920 you need some type of nonlinear slowing in the labor market. 0:01:58.040 --> 0:02:01.240 And right now, these jobles figures, which are some of 0:02:01.280 --> 0:02:03.480 the best indicators of the labor market, are not really 0:02:03.480 --> 0:02:06.520 pointing to that. They're still quite quite low, quite stable, 0:02:06.560 --> 0:02:09.120 point to a fairly robust labor market right now. Our 0:02:09.240 --> 0:02:12.880 US team is looking for just a shade below one 0:02:12.880 --> 0:02:16.120 pin fifty on payrolls, you probably have to see an 0:02:17.040 --> 0:02:20.720 larger slowing in other labor market indicators and in the 0:02:20.800 --> 0:02:23.320 labor market more broadly after that to really get that 0:02:23.960 --> 0:02:27.120 July cut on the table. So I think if their 0:02:27.160 --> 0:02:30.280 call is right on payrolls, you're still not quite in 0:02:30.360 --> 0:02:33.120 that danger zone yet where the FED would really be 0:02:33.160 --> 0:02:35.560 worried about that nonlinear slowing, but it would be a 0:02:35.560 --> 0:02:38.760 pretty notable slow down from where we've been. That said, 0:02:38.760 --> 0:02:42.160 there's a lot of uncertainty around the report. For example, 0:02:43.200 --> 0:02:47.440 bad weather in April likely depressed April payrolls. It's possible 0:02:47.480 --> 0:02:49.400 you get some payback in May, so there is some 0:02:49.520 --> 0:02:50.639 upside risk to that figure. 0:02:50.760 --> 0:02:53.280 It doesn't sound like Robert, you have as much conviction 0:02:53.400 --> 0:02:56.120 about the July rate cut as maybe a month ago. 0:02:56.360 --> 0:02:56.880 Is that true? 0:02:56.919 --> 0:03:00.200 I mean, are you basically thinking how far before or 0:03:00.200 --> 0:03:01.720 we have to backpedal on this one. 0:03:02.120 --> 0:03:03.560 It's a tough call, as you said, and you're seeing 0:03:03.600 --> 0:03:07.600 that obviously reflected in markets. I think to get to 0:03:07.639 --> 0:03:11.560 that July cut you would need probably some combination of 0:03:11.720 --> 0:03:17.720 soft enough labor market data and enough decline in the 0:03:17.800 --> 0:03:21.280 run rate for inflation, that the Fed is seeing progress 0:03:21.360 --> 0:03:23.560 on the inflation side of its mandate and gets worried 0:03:23.560 --> 0:03:26.600 about activity. So the bar for that to happen both 0:03:26.639 --> 0:03:29.600 of those things is pretty is pretty high. We're still 0:03:29.600 --> 0:03:31.160 holding on to as I said, we see a lot 0:03:31.200 --> 0:03:35.280 of softness in a lot of more minor labor market 0:03:35.280 --> 0:03:40.840 indicators like surveys of small businesses hiring within the PMI reports, 0:03:41.560 --> 0:03:43.480 But even still, as you said, the bar is pretty 0:03:43.520 --> 0:03:45.720 high to get there, and I think over the last 0:03:45.800 --> 0:03:48.640 month it's become a bit more challenged, Michael, from. 0:03:48.560 --> 0:03:51.280 That standpoint, this is something people have been grappling with, 0:03:51.520 --> 0:03:53.520 and suddenly Bill Dudley is talking about the fact that 0:03:53.560 --> 0:03:55.760 maybe if you hold rates higher for longer, it isn't 0:03:55.760 --> 0:03:57.480 going to be restrictive in any way, shape or form, 0:03:57.520 --> 0:03:59.600 And then in fact we should be talking about holding 0:03:59.640 --> 0:04:02.800 rates here indefinitely. In Robert's view of things, and I 0:04:02.840 --> 0:04:06.040 believe you're sympathetic with this, it's actually not the case, 0:04:06.240 --> 0:04:10.480 and that if the Fed doesn't lower rates soon, it 0:04:10.520 --> 0:04:13.720 could actually tip the economy over into a hard landing. 0:04:13.800 --> 0:04:17.000 How much more are you thinking about that type of 0:04:17.160 --> 0:04:20.240 scenario at a time where the data isn't cooperating with 0:04:20.320 --> 0:04:22.480 the FED cuts as quickly, right. 0:04:22.520 --> 0:04:24.520 I think that's more an issue for later in the year, 0:04:24.600 --> 0:04:26.680 but it is. It does seem to be restrictive right now. 0:04:26.720 --> 0:04:29.880 We're certainly seeing it in housing numbers starting to soften 0:04:30.200 --> 0:04:33.000 a little more right there. So some of these most 0:04:33.560 --> 0:04:35.760 you know, interest rates sensitive sex to the economy. 0:04:35.839 --> 0:04:38.480 You are seeing a bite so you know, does have 0:04:38.560 --> 0:04:39.159 some effects. 0:04:39.880 --> 0:04:42.440 It's been a little bit offset by the fact that 0:04:42.880 --> 0:04:45.520 credit spreads are extraordinarily tight and you're getting these other 0:04:45.560 --> 0:04:49.599 loosening and financial conditions offsetting it. But you know, generally, 0:04:49.680 --> 0:04:51.919 I think you know it is biting. If you stay here, 0:04:52.360 --> 0:04:55.120 eventually you'll you'll feel a squeeze. 0:04:55.200 --> 0:04:56.800 My McKay, we wanted to come back to you for 0:04:56.800 --> 0:04:58.599 a final word on this role looking ahead to John 0:04:58.600 --> 0:05:00.919 Williams of the Neo F a little bit later on 0:05:00.960 --> 0:05:04.359 this afternoon. This pace that Lacy just mentioned from built 0:05:04.360 --> 0:05:07.520 out lay getting everyone's attention the FED things is finding inflation. 0:05:07.640 --> 0:05:10.200 Think again, even a more than five point five percent 0:05:10.200 --> 0:05:12.919 the Central Bank's short term interest rates target might not 0:05:13.000 --> 0:05:15.679 be high enough to call the economy. Mike, first of all, 0:05:15.839 --> 0:05:18.120 what's your reaction to that, and what would you look 0:05:18.160 --> 0:05:20.680 for from mister Arstar himself a little bit like to 0:05:20.720 --> 0:05:21.359 this afternoon. 0:05:22.200 --> 0:05:24.839 Well, it's something that a number of FED officials have 0:05:24.920 --> 0:05:27.920 been talking about, including John Williams, who spoke to me 0:05:27.960 --> 0:05:30.800 about a month ago here on Bloomberg Television and said 0:05:30.800 --> 0:05:34.240 that he was beginning to think that our star the 0:05:34.360 --> 0:05:39.920 neutral rate is higher than the FED basic consensus is 0:05:40.160 --> 0:05:42.760 about six tens of eight percent. And if that's the case, 0:05:43.040 --> 0:05:46.599 it would have implications for how much the FED funds 0:05:46.680 --> 0:05:49.760 rate is holding back the economy, and it raises that 0:05:49.880 --> 0:05:52.120 question that you've heard a number of people talk about 0:05:52.560 --> 0:05:56.200 of whether they might have to raise rates. The other 0:05:56.440 --> 0:05:59.679 option is that we still see lags at work, and 0:05:59.760 --> 0:06:02.600 we're going to be seeing them hit the economy and 0:06:02.760 --> 0:06:05.920 bring growth down and bring inflation down at the same time. 0:06:06.000 --> 0:06:09.120 So the interesting thing I think from Williams would be 0:06:09.240 --> 0:06:11.800 if he speaks about that, because we sort of know 0:06:11.880 --> 0:06:14.320 what he thinks, it's going to be like everyone else, 0:06:14.960 --> 0:06:18.240 that it will take higher for longer to get inflation down, 0:06:18.240 --> 0:06:20.120 and we're committed to that. But what does he say 0:06:20.240 --> 0:06:23.040 beyond that that might make news that could be it. 0:06:23.279 --> 0:06:24.960 Well, Robert and I know that neither of the people 0:06:24.960 --> 0:06:27.120 who are around the table, Michael Robert, both of you 0:06:27.520 --> 0:06:28.839 are not sympathetic with that view. 0:06:28.880 --> 0:06:30.000 You believe that there is a. 0:06:29.960 --> 0:06:32.239 Restrictiveness and that we are seeing that come through. 0:06:32.600 --> 0:06:34.280 Rob What would you have to see to. 0:06:34.160 --> 0:06:36.880 Actually go around to the Bill Dudley school of thought? 0:06:37.279 --> 0:06:40.480 Well, you know, as you know, we are seeing interest 0:06:40.520 --> 0:06:44.200 rates by different parts of the economy at varying speeds. 0:06:44.240 --> 0:06:49.440 We're seeing ongoing tightening credit conditions, weakening credit demand stresses, 0:06:49.440 --> 0:06:50.919 and lower income consumers. 0:06:51.640 --> 0:06:52.440 But that being. 0:06:52.240 --> 0:06:56.520 Said, if you look at the data, growth continue overall 0:06:56.600 --> 0:07:00.400 to hold up quite well, even at rates at a 0:07:00.400 --> 0:07:02.560 fairly high level, or rate that I would think is 0:07:02.600 --> 0:07:05.760 fairly is fairly restrictive. So I would say, if we're 0:07:05.880 --> 0:07:08.440 going into the second half of this year, and it 0:07:08.480 --> 0:07:11.160 was mentioned earlier the Atlanta Fed NowCast is running a 0:07:11.160 --> 0:07:13.800 pretty strong growth or second quarter, if we keep running 0:07:13.960 --> 0:07:17.480 at numbers that look like that, it would lead me 0:07:17.520 --> 0:07:20.480 to believe that either rates would have to stay at 0:07:20.480 --> 0:07:23.680 these levels for a much stronger, longer period because maybe 0:07:23.840 --> 0:07:27.640 short term our star has risen more significantly than expected, 0:07:28.000 --> 0:07:30.200 or maybe even rates could have to go higher from here. 0:07:30.360 --> 0:07:32.160 So I basically would have to look at the data. 0:07:32.160 --> 0:07:34.720 If we don't get that type of moderation or cooling 0:07:34.720 --> 0:07:38.800 in activity. I think I would move more into that camp. 0:07:38.920 --> 0:07:40.680 If you move into that camp, what does that do 0:07:40.920 --> 0:07:43.240 to your July call? Is that just totally the back 0:07:43.280 --> 0:07:45.120 end of the year you push it to twenty twenty five. 0:07:45.600 --> 0:07:48.640 I think, depending on how well the economy continues to 0:07:48.680 --> 0:07:52.240 hold up, we would have to probably push out that 0:07:52.320 --> 0:07:53.160 call even further. 0:07:53.880 --> 0:07:56.080 That may raise the risk of. 0:07:55.920 --> 0:07:58.760 Some type of harder landing ahead if the economy has 0:07:58.800 --> 0:08:02.320 to face elevated rates for an extended period. Normally we 0:08:02.360 --> 0:08:05.560 don't have to face rates at these levels for such 0:08:05.560 --> 0:08:08.000 an extended period. So basically I would think it would 0:08:08.000 --> 0:08:10.640 get pushed out towards later this year, and depending on 0:08:10.680 --> 0:08:12.600 the resilience, you could get pushed out even further. 0:08:12.960 --> 0:08:13.920 Michael, do you agree with that? 0:08:14.040 --> 0:08:15.840 That is just a matter of just if you do 0:08:15.920 --> 0:08:18.840 see this kind of ongoing strength in the economy, you 0:08:18.920 --> 0:08:20.720 might have to reset and kind of come around to 0:08:20.720 --> 0:08:22.960 this idea that maybe rates are not that restrictive at all. 0:08:23.720 --> 0:08:26.000 So even if our star is fifty basis points higher, 0:08:26.040 --> 0:08:29.080 we're still much tighter than that currently, so you know 0:08:29.120 --> 0:08:32.240 you're still tight. Anyway, you come up with that In 0:08:32.280 --> 0:08:34.800 addition for some of this, you know, high FED funds 0:08:34.880 --> 0:08:37.080 rates forever. I think one of the challenges to that 0:08:37.400 --> 0:08:41.120 is our star is really just shorthand for broad financial conditions. 0:08:41.160 --> 0:08:43.880 It says, you know, at a different funds rate over time, 0:08:44.160 --> 0:08:48.040 everything will average out a certain way if the consensus 0:08:48.120 --> 0:08:50.280 is right, and we're going to see steepening in the 0:08:50.360 --> 0:08:52.839 yield curve due to all this supply. You know, if 0:08:52.840 --> 0:08:54.720 you have a two and a half funds rate with 0:08:54.880 --> 0:08:59.080 no term premium, that's very different financial conditions than you 0:08:59.080 --> 0:09:00.760 know two and a half funds rate one hundred basis 0:09:00.760 --> 0:09:02.640 point term premium. 0:09:02.920 --> 0:09:03.880 In that case, the. 0:09:03.840 --> 0:09:06.720 Fed needs to have funds rate lower rather than higher 0:09:07.559 --> 0:09:11.120 to offset that higher rates out the curve. So I think, 0:09:11.559 --> 0:09:13.480 you know, the hurdle to get right. Heikes from here 0:09:13.640 --> 0:09:16.319 very very high. Does feel like inflation is going to 0:09:16.400 --> 0:09:17.160 slow too? 0:09:17.679 --> 0:09:19.720 You and the team SAMD buy bones. Is that the 0:09:19.720 --> 0:09:20.160 cool hit? 0:09:20.440 --> 0:09:20.680 Yeah? 0:09:20.800 --> 0:09:22.520 I think I think at this level, at the curve, 0:09:23.160 --> 0:09:25.280 so I think we're more sort of out in the 0:09:25.280 --> 0:09:27.880 tenure sector. I think that you know, at these levels 0:09:27.880 --> 0:09:31.000 you've got real yields, you know, at two and a 0:09:31.040 --> 0:09:34.960 quarter to value there well, just to sort. 0:09:34.800 --> 0:09:37.000 Of building this In other words, you believe that one 0:09:37.000 --> 0:09:39.200 way or another, inflation is going to come down, the 0:09:39.200 --> 0:09:41.680 Fed's going to cut rates. What about the other component, 0:09:41.920 --> 0:09:43.959 the idea of what we've been talking about, the term 0:09:43.960 --> 0:09:47.440 premium and all of these questions around just the fiscal 0:09:47.440 --> 0:09:48.960 profile of the country. 0:09:49.480 --> 0:09:52.679 Yeah, over long term supply has a has a huge effect. 0:09:52.880 --> 0:09:55.040 You know, every time my teenage daughters give me a 0:09:55.040 --> 0:09:57.120 hard time, I just roll with it because they should 0:09:57.160 --> 0:09:57.600 be angry. 0:09:58.160 --> 0:10:00.760 You know, all this debt, they're going to herod from us. 0:10:01.080 --> 0:10:03.319 So you're a better human than I. Carry on. 0:10:04.640 --> 0:10:07.600 But you know the problem is in the short term, 0:10:07.760 --> 0:10:09.960 the swings in demand, they're so much larger than the 0:10:10.000 --> 0:10:13.240 swings in supply. If you look back, the biggest supply 0:10:13.320 --> 0:10:16.400 shock in history was US ran a budget surplus from. 0:10:16.280 --> 0:10:17.360 Ninety eight to one. 0:10:17.920 --> 0:10:19.320 For the first two and a half years of that, 0:10:19.360 --> 0:10:22.079 the term premium went the wrong way, you know. 0:10:22.240 --> 0:10:25.960 So it's really the demand shifts overwhelmed the supply shifts. 0:10:26.000 --> 0:10:29.760 So if you do these supply trades, they'll probably work eventually, 0:10:29.920 --> 0:10:32.040 but it's going to be awfully mumpy ride on the way. 0:10:32.160 --> 0:10:33.840 Very few people will be able to hold that trade 0:10:33.880 --> 0:10:34.480 to the maturity. 0:10:34.679 --> 0:10:38.720 UBS has pulled Donovan overnight after the auctions said trusting 0:10:38.800 --> 0:10:41.400 up treasuries. Obviously immediately thought of Lisa, are you saying 0:10:41.440 --> 0:10:45.280 this is basically something that it's not immediate in the 0:10:45.320 --> 0:10:47.880 back burner. This is a problem that the market should 0:10:47.920 --> 0:10:48.920 care about it. 0:10:49.160 --> 0:10:51.080 It's the issue is we just don't know where the 0:10:51.080 --> 0:10:54.080 breaking point is. And the trouble is it feels like 0:10:54.160 --> 0:10:56.640 Congress because they haven't you know, they've been hearing about 0:10:56.679 --> 0:10:58.960 this tree branch breaking for a long time, and so 0:10:59.080 --> 0:11:01.040 they're sprinting as fast as they can out the tree 0:11:01.080 --> 0:11:06.000 branch right now. So you know, it's it's we don't know. 0:11:06.760 --> 0:11:09.680 We're in new territory here. But I think it's really 0:11:09.720 --> 0:11:12.520 one of those things where the supply you don't trade 0:11:12.679 --> 0:11:15.320 based off of that, you size your trades based off 0:11:15.320 --> 0:11:15.480 of that. 0:11:15.760 --> 0:11:16.120 So if the. 0:11:16.120 --> 0:11:19.679 Supply works for your idea, you upsize your risk a 0:11:19.720 --> 0:11:23.160 little bit. If it works against your trade, you downsize 0:11:23.200 --> 0:11:23.600 a little bit. 0:11:23.640 --> 0:11:25.400 So it's really more of a tail risk. 0:11:25.320 --> 0:11:27.640 Tends the volume up and down just a little bit. 0:11:27.679 --> 0:11:29.360 It's an interesting way of thinking about it. When I 0:11:29.440 --> 0:11:32.080 hear about doom, read about Doom, I think of Bramo too. 0:11:32.440 --> 0:11:36.000 First thing just Lisa Liz trus Bramo the first Place Psycho, 0:11:36.200 --> 0:11:39.600 First Place Psycho. We're all thinking about the supposed inflation 0:11:39.679 --> 0:11:43.239 re outcomes of November, whether it's going to be tariffs, 0:11:43.280 --> 0:11:46.960 what it might mean, additional supply, fiscal easing coming from 0:11:47.040 --> 0:11:49.640 whichever administration we might get. Is it's still too early 0:11:49.679 --> 0:11:51.679 to think about those things from your perspective, because we're 0:11:51.720 --> 0:11:53.960 getting guests coming on already at the end of May. 0:11:54.200 --> 0:11:55.240 Thinking about them. 0:11:55.679 --> 0:11:57.400 No, I think those are real, and I think they're 0:11:57.640 --> 0:12:00.480 you know, whichever party wins, you're going to see tightening 0:12:00.480 --> 0:12:04.040 on that side. It's a scale difference, but same direction 0:12:04.200 --> 0:12:04.839 on those things. 0:12:05.440 --> 0:12:07.280 That said, the reason we're kind. 0:12:07.120 --> 0:12:09.559 Of optimistic about inflation in the near term is if 0:12:09.600 --> 0:12:12.920 you look at, you know, all of these rental surveys, 0:12:13.559 --> 0:12:16.240 those peaked and rolled over a while ago, and so 0:12:16.600 --> 0:12:18.840 we all thought that that meant that OERE, the biggest 0:12:18.840 --> 0:12:21.240 piece of inflation, was going to roll over to the 0:12:21.360 --> 0:12:23.960 problem is that those surveys had run well ahead of 0:12:24.000 --> 0:12:26.840 OER for a long time, and it turned out OER had. 0:12:26.760 --> 0:12:28.800 To fill the gap between those. 0:12:29.120 --> 0:12:32.160 At this stage, it's filled a gap for all the 0:12:32.200 --> 0:12:36.320 surveys except one, So it does feel like we're finally 0:12:36.400 --> 0:12:39.160 going to start to see you know, some of this 0:12:39.559 --> 0:12:41.560 oer start to slow. You know, we can't be one 0:12:41.600 --> 0:12:43.640 hundred percenture because there's still is one survey that there's 0:12:43.640 --> 0:12:47.760 some gap to fill, but the preponderance of data says 0:12:47.800 --> 0:12:48.360 it'll slow. 0:12:48.559 --> 0:12:50.480 Rob to John's point, how are you thinking about twenty 0:12:50.520 --> 0:12:51.280 twenty five. 0:12:51.920 --> 0:12:56.640 Well, I think for the election and looking at the 0:12:56.679 --> 0:12:59.360 domestic implications. I know there's a lot of debate about this, 0:12:59.480 --> 0:13:02.240 but we still think deficits are going to stay pretty 0:13:02.360 --> 0:13:05.640 large no matter who comes to power. You know, the 0:13:05.679 --> 0:13:09.880 CBOs projecting five and a half percent or something around 0:13:09.920 --> 0:13:14.080 those levels for deficits per year as a percent GDP 0:13:14.200 --> 0:13:17.319 over next decade. I would probably look at that as 0:13:17.320 --> 0:13:20.360 sort of a floor estimate of whe where things could go. 0:13:20.600 --> 0:13:23.480 I think it's interesting when Trump and the Republicans were 0:13:23.480 --> 0:13:26.439 in power, they cut taxes and boosted deficits, and when 0:13:26.480 --> 0:13:29.320 Democrats and Biden were in power, they boosted spending and 0:13:29.320 --> 0:13:31.960 boosted deficits. So I think until the market really tells 0:13:31.960 --> 0:13:34.400 them this is a huge problem, and it would have 0:13:34.400 --> 0:13:35.880 to be a lot of market pressure, I think we're 0:13:35.880 --> 0:13:39.600 going to get large deficits for the foreseeable future, and 0:13:39.640 --> 0:13:42.840 then thinking about some of these international components. As you mentioned, 0:13:43.760 --> 0:13:45.520 I think both parties are going to be very tough 0:13:45.559 --> 0:13:47.440 on China. I think we saw that recently with the 0:13:47.440 --> 0:13:52.320 Biden administration's new tariffs on China, and in terms of 0:13:52.360 --> 0:13:55.880 tariff policy, Trump is probably going to be even more 0:13:55.880 --> 0:13:58.560 aggressive than Biden. I don't think you would go as 0:13:58.559 --> 0:14:01.360 far as sixty percent tariff, but I think is ten 0:14:01.400 --> 0:14:04.320 percent across the board is something we have to take seriously. 0:14:05.000 --> 0:14:07.000 But the buy administration is not going to shy away 0:14:07.040 --> 0:14:10.640 from using them. And then a minimum keeping what's what's 0:14:10.760 --> 0:14:11.880 there now in place. 0:14:11.960 --> 0:14:12.920 So I think. 0:14:13.480 --> 0:14:17.400 Tariff policy is going to be used or in place 0:14:17.440 --> 0:14:21.120 pretty extensively. And I think deficit spending is here to 0:14:21.120 --> 0:14:22.840 stay until markets tell them otherwise. 0:14:22.960 --> 0:14:25.080 Hi, Rob, it's going to say thank you, sir. Roughstock 0:14:25.120 --> 0:14:38.040 in there city a loveside Michael Clotti of ubs. You 0:14:38.080 --> 0:14:39.600 know in some of the games of stocks we've seen 0:14:39.640 --> 0:14:42.000 this year, this one right here, I don't think it's 0:14:42.000 --> 0:14:44.600 been talked about nearly enough a year today, move of 0:14:44.600 --> 0:14:48.040 one hundred and thirty four percent. Announcing a partnership with 0:14:48.160 --> 0:14:51.640 Nvidia won't hurt to expand this AI services. Let's have 0:14:51.680 --> 0:14:55.040 this conversation with Bank of America's Wamzi Mohn lifting his 0:14:55.160 --> 0:14:57.440 price target on down to one eighty and writing this, 0:14:57.760 --> 0:15:00.680 we expect strong momentum into twenty five given upside from 0:15:00.760 --> 0:15:04.880 AI service, high end storage, and PC refresh with optionality 0:15:05.120 --> 0:15:08.560 from AI. Wemnesday, Good morning's here Morne John. What is 0:15:08.640 --> 0:15:11.440 behind that months to move in Dell? And have you 0:15:11.480 --> 0:15:12.240 ever been busier? 0:15:13.040 --> 0:15:13.720 It's incredible. 0:15:13.760 --> 0:15:15.680 I I would kind of pose this as almost a 0:15:15.680 --> 0:15:18.760 hardware renaissance, right, Like, we've not been in a period 0:15:18.800 --> 0:15:23.840 where these hardware value stocks typically have performed as growth stocks, 0:15:24.040 --> 0:15:28.200 and it's been a real change in perception in rerating 0:15:28.240 --> 0:15:32.040 of valuations. And this is happening all because AI at 0:15:32.080 --> 0:15:35.600 its core is really going to be driven ultimately on 0:15:35.680 --> 0:15:38.920 physical servers, and physical servers, as we all know from 0:15:39.000 --> 0:15:43.280 Nvidia's perspective, are in big demand. And who are the suppliers? 0:15:43.320 --> 0:15:45.320 Who are the arms dealers for that? Right? So you 0:15:45.320 --> 0:15:47.880 look at the hyperscaler market, you got the Taiwani sodms. 0:15:48.120 --> 0:15:51.640 But as you think about AI adoption more broadly at 0:15:51.680 --> 0:15:55.160 tier two cloud service providers or in the enterprise, that 0:15:55.320 --> 0:15:58.400 is where Dell really shines, and so Dell's really being 0:15:58.440 --> 0:16:00.920 able to come up with a great story putting this 0:16:01.000 --> 0:16:04.040 technology together. And if you remember at GtC, he was 0:16:04.040 --> 0:16:06.239 the one exact Michael Dell was one of the executives 0:16:06.240 --> 0:16:09.280 who was called out multiple times by Jensen. I think 0:16:09.280 --> 0:16:11.720 that added a lot of street cred sort of to 0:16:11.840 --> 0:16:15.800 Dell's AI initiatives and the capability of those servers. 0:16:15.840 --> 0:16:19.280 You've listed a bunch of reasons to be constructive AI servers, 0:16:19.640 --> 0:16:24.120 high end storage, PC refresh. Where does PC refresh rank 0:16:24.160 --> 0:16:25.760 for you? I'm trying to work out we're about to 0:16:25.760 --> 0:16:28.440 see this big upgrade cycle. Everyone just saying the desktop's 0:16:28.520 --> 0:16:30.480 interesting again, let's upgrade the PC. 0:16:31.160 --> 0:16:33.720 Yeah, John, Look, I think PCs are probably just in 0:16:33.760 --> 0:16:35.880 the order that you described, right, the third order of 0:16:36.200 --> 0:16:40.240 sort of like the key drivers, because servers as a 0:16:40.320 --> 0:16:43.880 magnitude of the opportunity is just much larger dollar wise. 0:16:44.040 --> 0:16:47.440 When you think about storage, they are tied to the 0:16:47.480 --> 0:16:49.840 high end storage and ibms coming up with a mainframe 0:16:49.960 --> 0:16:53.400 refresh next year, and Dell is very well positioned. 0:16:53.400 --> 0:16:53.920 And these are the. 0:16:53.920 --> 0:16:58.400 High margins sixty percent plus gross margin opportunity that Dell has. 0:16:58.480 --> 0:16:59.640 When you think about PCs. 0:17:00.000 --> 0:17:03.080 So refreshes, not so much about AIPCS per se. In 0:17:03.120 --> 0:17:05.320 our opinion, I think that'll take a little bit longer. 0:17:05.560 --> 0:17:07.760 But we do see the echo of the boom of 0:17:07.880 --> 0:17:11.399 the demand that came up during COVID. So you had 0:17:11.440 --> 0:17:14.760 about one hundred and fifty million extra PCs sold in 0:17:14.840 --> 0:17:17.800 the COVID couple of years, and off that we'd say 0:17:17.800 --> 0:17:21.040 a third of dot Chromebooks and maybe about forty percent 0:17:21.080 --> 0:17:25.480 of the remainder were commercial pieces. Those commercial pieces are 0:17:25.520 --> 0:17:27.240 coming up for a refresh. 0:17:26.960 --> 0:17:27.920 And that's material. 0:17:28.240 --> 0:17:31.280 So when you think about that, coupled with the commercial 0:17:31.440 --> 0:17:34.320 refresh that's going to be driven by Windows ten end 0:17:34.359 --> 0:17:36.960 of life, those are two big catalysts that can drive 0:17:37.320 --> 0:17:40.399 PC units much higher than sort of the flatish that 0:17:40.440 --> 0:17:41.840 we've seen year today. 0:17:41.960 --> 0:17:43.480 I wish I could go back a couple of years 0:17:43.520 --> 0:17:45.280 and all the people who are saying the personal computer 0:17:45.400 --> 0:17:48.240 is dead and really sort of highlights some of these earnings. 0:17:48.280 --> 0:17:48.960 It's not just Dell. 0:17:49.200 --> 0:17:52.240 HP came out yesterday after the bell also beating expectations, 0:17:52.240 --> 0:17:54.600 is said about ten percent of shipments in the second 0:17:54.600 --> 0:17:56.960 half of this year are going to be AI equipped. 0:17:57.240 --> 0:17:59.080 How do you understand who the winners are going to 0:17:59.080 --> 0:18:02.800 be in thissance of the PC and who the losers are. 0:18:02.880 --> 0:18:06.320 I'm thinking maybe Apple who haven't maybe adapted as quickly. 0:18:06.760 --> 0:18:10.000 Yeah. I would say that our view on AI at 0:18:10.000 --> 0:18:12.840 the edge, more broadly speakingly says that when you think 0:18:12.840 --> 0:18:16.720 about the devices that hold most of the content and 0:18:16.760 --> 0:18:20.199 the information that consumers want to use and on a 0:18:20.280 --> 0:18:23.280 daily basis, it's really going to be the smartphone, and 0:18:23.320 --> 0:18:27.159 we're talking about the smartphone actually becoming dumb more like 0:18:27.200 --> 0:18:29.720 a feature phone, and the next wave of phones that 0:18:29.760 --> 0:18:33.280 are coming, which we're calling the intellphones, are really where 0:18:33.280 --> 0:18:36.399 the intelligence is embedded. You've got AI agents at the 0:18:36.440 --> 0:18:40.600 back that are pushing information back to your apps or 0:18:40.720 --> 0:18:43.760 forward facing phone users. 0:18:43.840 --> 0:18:46.520 And so we think that that adoption cycle. 0:18:46.320 --> 0:18:50.200 Is going to overtake the AI adoption at PCs on. 0:18:50.160 --> 0:18:51.920 The winners and losers on the PC side. 0:18:51.960 --> 0:18:57.560 Right, PC markets consolidated around the large OEMs of Dell, HP, 0:18:57.720 --> 0:19:00.359 Lenoo and so on. I think that remains it's pretty 0:19:00.400 --> 0:19:03.400 much status quo. On the Apple front, we think that 0:19:03.680 --> 0:19:08.520 you know, AI is going to be all across all devices, right, 0:19:08.600 --> 0:19:10.479 so this is something that Apple is going to do 0:19:10.520 --> 0:19:13.760