WEBVTT - UK Watchdog Probes Amazon and Microsoft Cloud 0:00:01.440 --> 0:00:06.280 From Marhart where Innovation, Money and Power Collie in Silicon. 0:00:05.840 --> 0:00:10.280 Valley, NBN. This is Bloomberg Technology with Caroline Hyde and 0:00:10.520 --> 0:00:11.120 Ed lud Love. 0:00:25.079 --> 0:00:27.440 I'm Karine Hyde at Bloomberg's world headquarters in New York. 0:00:27.520 --> 0:00:30.080 Ed Ludo, who's off today? This is Bloomberg Technology, the 0:00:30.200 --> 0:00:34.040 UK's antitrust watchdog. It strikes again, this time with an 0:00:34.040 --> 0:00:37.720 investigation into Amazon and Microsoft's cloud services. Details on yet 0:00:37.800 --> 0:00:41.360 more concerns that US tech giants could be abusing market 0:00:41.360 --> 0:00:43.920 power for US. It is day two in the historic 0:00:44.000 --> 0:00:46.800 FTX fraud trial. A look into the crypto hedge fund 0:00:46.800 --> 0:00:49.560 at Almedia Research in Caroine Ellison's role. 0:00:50.280 --> 0:00:51.440 And this hour we have. 0:00:51.400 --> 0:00:54.760 An exclusive conversation with San Francisco Fair President Mary Daily 0:00:54.800 --> 0:00:56.000 from the Economics Club of. 0:00:56.000 --> 0:00:58.600 New York, who do not want to miss it. We're 0:00:58.640 --> 0:01:01.840 looking at Amazon, also off by one point four percent. Interesting. 0:01:02.000 --> 0:01:04.720 This is being eyed in the CMA by the UK 0:01:04.880 --> 0:01:08.160 in terms of its home monopolization. They are potentially worried 0:01:08.160 --> 0:01:11.360 about of the cloud market. Remember the FTC analyzing Amazon 0:01:11.400 --> 0:01:13.959 here in the United States about its marketplace. And of 0:01:14.000 --> 0:01:17.200 course this is all in this atmosphere of more regulation 0:01:17.319 --> 0:01:19.800 coming towards some of these big tech companies and the 0:01:19.800 --> 0:01:22.760 worry of the prominence they have. Let's just stick on 0:01:22.760 --> 0:01:24.880 that particular role of Amazon right now. I want to 0:01:24.920 --> 0:01:28.039 bring in Bloomberg's Thomas Seal for more. But the CMA 0:01:28.280 --> 0:01:30.679 is once again trying to show its chops here. They 0:01:30.680 --> 0:01:33.640 did it with Microsoft and Activision Blizzard, and now they're 0:01:33.640 --> 0:01:35.800 analyzing Amazon and Microsoft in this case. 0:01:37.400 --> 0:01:40.680 That's right, it's the next one in the series and 0:01:40.800 --> 0:01:45.400 Microsoft again in the spotlight for another cloud concern. Microsoft 0:01:45.400 --> 0:01:49.120 and Amazon between them occupy about seventy to eighty percent 0:01:49.200 --> 0:01:53.000 of the British cloud computing and storage market. Offcom found 0:01:53.000 --> 0:01:55.080 after it's been looking at this for a year and 0:01:55.120 --> 0:01:57.800 it's decided there are concerns and it's given this to 0:01:57.840 --> 0:02:01.040 the antitrust watchdog, the CMA, which kicks off a huge 0:02:01.080 --> 0:02:02.440 process again. 0:02:03.240 --> 0:02:06.600 Amazon itself has come back and said, you know, you're 0:02:06.600 --> 0:02:07.760 misreading our data. 0:02:08.520 --> 0:02:11.400 Ultimately, what is the argument of offcom. What are they. 0:02:11.320 --> 0:02:15.880 Seeing in terms of pricing power that these two players have. 0:02:17.560 --> 0:02:21.680 Yeah, they really outlined three concerns in the big Offcom study. 0:02:21.919 --> 0:02:25.320 One of them is this thing called egress fees basically 0:02:25.400 --> 0:02:27.680 exit fees if you try to take your data out 0:02:27.720 --> 0:02:30.520 of the cloud, you get charged, especially if it's a 0:02:30.520 --> 0:02:32.440 big amount of data and more and more people are 0:02:32.440 --> 0:02:35.679 doing this, this is something that could lock you in. 0:02:36.280 --> 0:02:38.640 This is what offcom is kind of worrying about. Another 0:02:38.680 --> 0:02:41.560 thing is interoperability. Lots of big companies want to run 0:02:41.600 --> 0:02:44.640 more than one cloud, different clouds for different things. That's 0:02:44.680 --> 0:02:49.200 technically difficult. And the final thing is discounting. For big 0:02:49.200 --> 0:02:52.800 committed spend, this could incentivize keeping all of your eggs 0:02:52.840 --> 0:02:56.080 in one basket, and that's not very competitive. That's another 0:02:56.120 --> 0:02:57.400 worry that the offcome outlined. 0:02:58.200 --> 0:03:00.280 Amazon has come back and said, look, we just agree 0:03:00.280 --> 0:03:03.760 with offcomm's findings. Quite bluntly, they say, we're based on 0:03:03.800 --> 0:03:07.840 a fundamental misconception of how the IT sector functions and 0:03:07.880 --> 0:03:11.400 the services in discounts that they offer remind us Thomas, like, 0:03:11.560 --> 0:03:12.959 this is really expensive. 0:03:13.200 --> 0:03:15.960 To be an offerer of cloud you have to almost 0:03:16.000 --> 0:03:17.200 be a huge player. 0:03:17.280 --> 0:03:19.600 How hard is it to have fundamentally a lot of 0:03:19.600 --> 0:03:20.560 smaller players within this. 0:03:22.240 --> 0:03:25.120 Yeah, I think Amazon and Microsoft didn't fall into this. 0:03:25.240 --> 0:03:28.160 They've really built the backbone of the Internet. You know, 0:03:28.600 --> 0:03:34.080 massive data centers, warehouses, subse cables, increasingly edged data centers 0:03:34.120 --> 0:03:36.000 which are close to cities so that you get that 0:03:36.040 --> 0:03:39.320 snappy five G internet that everyone's going to be increasingly needing. 0:03:39.720 --> 0:03:41.320 So you know, they have put a lot of work 0:03:41.320 --> 0:03:45.120 into maintaining and building this position. But Offcom and now 0:03:45.120 --> 0:03:47.520 the CMA are going to be looking into well, can 0:03:47.560 --> 0:03:50.800 anyone else get into this? Is this going to impact 0:03:50.800 --> 0:03:52.840 on the kinds of services that we have in the future, 0:03:53.800 --> 0:03:56.200 and you know, are their potential concerns for what this 0:03:56.280 --> 0:03:58.680 means for AI, which is going to you know, people 0:03:58.720 --> 0:04:01.200 think youse if more cloud computing than. 0:04:01.080 --> 0:04:01.640 We use today. 0:04:02.720 --> 0:04:07.520 Ultimately we're interested also in just the UK visav the 0:04:07.680 --> 0:04:08.360 US vis a. 0:04:08.360 --> 0:04:09.560 V Germany too. 0:04:09.600 --> 0:04:12.160 I mean, the EU has also been looking into competition 0:04:12.200 --> 0:04:14.760 within the cloud space. How much is that something that 0:04:14.920 --> 0:04:16.840 some of the big tech companies are having to navigate. 0:04:18.240 --> 0:04:20.320 I'm really sorry there, I've lost you. I think you 0:04:20.400 --> 0:04:22.120 were asking about international comparison. 0:04:22.279 --> 0:04:23.960 Yes, let's look at Germany for a moment. 0:04:24.440 --> 0:04:27.240 Yes, I mean it's it's an interesting one for the 0:04:27.240 --> 0:04:30.080 CMA because post Brexit it's sort of out there alone, 0:04:30.080 --> 0:04:33.680 whereas before it was part of Europe. Offcom's report does 0:04:33.800 --> 0:04:35.839 note what's going on in other parts of the world, 0:04:36.040 --> 0:04:39.839 so notes the FTC looking at this, the EU looking 0:04:39.839 --> 0:04:44.520 at this, and ultimately maybe the CMA becomes, you know, 0:04:44.720 --> 0:04:47.720 more of a sideshow as these much bigger regulatory regimes, 0:04:48.080 --> 0:04:50.320 you know, hone in on this same market, and. 0:04:50.279 --> 0:04:52.599 Also start to think not just about the impact from 0:04:53.360 --> 0:04:56.320 well work perspective, social media perspective, but now of course 0:04:56.360 --> 0:04:59.640 generative AI and foundational model perspective. Thomas Seal, great to 0:04:59.640 --> 0:05:01.240 have some time with you. Thank you for laying it 0:05:01.279 --> 0:05:03.480 out when it comes to Amazon. Now let's get back 0:05:03.520 --> 0:05:06.800 to antitrust here in the US, because Google's trial, well, 0:05:06.839 --> 0:05:09.800 it's still under way, and in transcripts unsealed by the 0:05:09.839 --> 0:05:13.080 judge last night, we learned that Apple actually held talks 0:05:13.080 --> 0:05:15.640 with dot Go to replace Google as a default search 0:05:15.640 --> 0:05:19.200 engine for the private mode on Apple Safari browser. Ultimately 0:05:19.400 --> 0:05:22.160 they rejected the idea. Blomberg Sarah Ford and now joins 0:05:22.240 --> 0:05:26.040 us in Washington. And yet more sort of detail. 0:05:25.680 --> 0:05:28.480 Coming out here of just how much Apple had. 0:05:28.360 --> 0:05:31.760 Analyzed other competitive search offerings out there. 0:05:33.480 --> 0:05:36.760 Yes, and exactly the unsealing of this testimony last night 0:05:36.839 --> 0:05:39.719 was really quite extraordinary in a very important part of 0:05:39.760 --> 0:05:41.960 this case. In fact, the judge himself said that he 0:05:42.320 --> 0:05:44.719 read through the testimony which had been taken in a 0:05:44.800 --> 0:05:48.080 sealed courtroom. He read through it line by line and 0:05:48.080 --> 0:05:50.640 felt that that what is being said here by these 0:05:50.680 --> 0:05:54.080 executives really cuts to the heart of the case against Google. 0:05:54.760 --> 0:05:57.280 And this has to do with Google's, you know, twelve 0:05:57.279 --> 0:06:01.800 billion dollar agreement with Apple allows it to be the 0:06:01.920 --> 0:06:07.680 default search engine on all Apple iPhones and other desktops, 0:06:07.720 --> 0:06:10.719 So it gives them access to a tremendous amount of data, 0:06:11.240 --> 0:06:13.920 and we know that data and building scale for a 0:06:13.960 --> 0:06:17.400 search engine is actually key to sort of keeping that that, 0:06:17.520 --> 0:06:21.760 you know, those search results high and quality and dominating 0:06:21.800 --> 0:06:22.280 the market. 0:06:22.680 --> 0:06:25.279 I mean, the level of detail, as you say, is extraordinary. 0:06:25.360 --> 0:06:28.320 Duc dot Go CEO, testifying that what he met with 0:06:28.360 --> 0:06:34.000 Apple twenty meetings in the phone calls with various Apple executives, including. 0:06:33.839 --> 0:06:34.920 The head of Safari. 0:06:35.880 --> 0:06:40.240 Does this, though, ultimately paint a picture that yes, they 0:06:40.279 --> 0:06:44.320 didn't find a better offering out there than what Google 0:06:44.360 --> 0:06:48.240 currently serves to the market. They're not favorizing Google because 0:06:48.279 --> 0:06:50.279 of the money. It's just that it's a better search 0:06:50.279 --> 0:06:51.239 product for the consumer. 0:06:53.040 --> 0:06:55.279 Well, that is true, and in fact, there was testimony 0:06:55.360 --> 0:06:59.520 from the Apple executive who negotiated the deal with Google, 0:07:00.240 --> 0:07:03.360 John John Andrea, and he said ultimately they didn't go 0:07:03.440 --> 0:07:06.119 for an alternative. He also revealed there had been talks 0:07:06.120 --> 0:07:10.120 with Being as well in twenty eighteen twenty nineteen, but 0:07:10.120 --> 0:07:13.720 they ultimately decided that Google was the best. So certainly 0:07:13.720 --> 0:07:17.200 that's a business case. But I think this testimony is 0:07:17.240 --> 0:07:20.240 going to be very critical in terms of how the 0:07:20.360 --> 0:07:26.160 judge ultimately decides about the market issues and the dominance issues. 0:07:26.160 --> 0:07:28.440 And this is not a jury trial, so the judge 0:07:28.440 --> 0:07:30.720 will will be the one to decide this case. 0:07:30.880 --> 0:07:33.280 And is of course earlier this week that the judge 0:07:33.320 --> 0:07:37.360 had from Satin Nadella, the CEO Microsoft, who was trying 0:07:37.400 --> 0:07:40.040 to be out there building Being as a competitor. And 0:07:40.840 --> 0:07:43.480 it's in this moment though, that we feel that there 0:07:43.520 --> 0:07:46.280 is some competition potentially coming from a being with the 0:07:46.320 --> 0:07:48.760 partnership that they have with Open Ai, certainly as search 0:07:48.800 --> 0:07:52.680 perhaps pivots in this generative AI world. From all the 0:07:52.720 --> 0:07:55.200 testimony thus far, is there any weed that you're getting 0:07:55.360 --> 0:07:58.200 as to which direction the judge might end up landing here. 0:08:00.120 --> 0:08:04.679 It's still too soon to say, but certainly the government 0:08:04.760 --> 0:08:07.640 is putting on the best case that it can. This 0:08:07.680 --> 0:08:10.200 is a test case in every way. This has never 0:08:10.240 --> 0:08:15.679 been done before. And this afternoon, actually the expert witness 0:08:15.720 --> 0:08:18.120 for the Justice Department is going to be testifying about 0:08:18.440 --> 0:08:21.880 market definition and so that's going to be key information 0:08:22.040 --> 0:08:23.720 that the judge is going to need in order to 0:08:23.720 --> 0:08:24.560 make this decision. 0:08:25.320 --> 0:08:28.119 We'll keep the rest of it with your help, Sarah Fordon, 0:08:28.320 --> 0:08:32.079 Thank you very much. Indeed, all things regulation at the 0:08:32.080 --> 0:08:34.000 top of this show. Meanwhile, coming up, we're going to 0:08:34.040 --> 0:08:36.720 be looking at another trial, but this one well a 0:08:36.760 --> 0:08:39.679 fraud one Sam Bangwun freed, the disgraced thirty one year 0:08:39.720 --> 0:08:42.720 old preparing to convince a jury that his crypto empire 0:08:43.080 --> 0:08:46.320 wasn't a fraud. And let's take a look at quickly 0:08:46.360 --> 0:08:48.640 it shares as we go to break There's plenty of 0:08:48.640 --> 0:08:50.199 things on the move when you look at the micro 0:08:50.320 --> 0:08:51.120 detail today. 0:08:51.400 --> 0:08:52.760 So apart from the macro. 0:08:52.600 --> 0:08:55.319 Jobs data, we're looking at individual companies that are currently 0:08:55.559 --> 0:08:58.160 not on the downside. On a day of selloff, Rivian 0:08:58.200 --> 0:09:02.199 absolutely tumbling. We saw it as much as nineteen percent. 0:09:02.360 --> 0:09:05.160 This is the company electric vehicle company. It's actually looking 0:09:05.200 --> 0:09:08.000 to sell more convertible debt. What does that mean, Well, 0:09:08.000 --> 0:09:10.199 it could end up booting the supply of shares out there. 0:09:10.200 --> 0:09:12.319 So we're seeing a depressing force on the stock. We're 0:09:12.360 --> 0:09:15.199 off by some twenty percent let's call it nineteen dollars 0:09:15.280 --> 0:09:16.880 is where we trade and also looking. 0:09:16.679 --> 0:09:17.440 At Lucid Group. 0:09:17.520 --> 0:09:20.360 Now interestingly this could be falling in sympathy, but also 0:09:20.440 --> 0:09:22.679 the ev maker actually offering. 0:09:22.679 --> 0:09:24.640 A new, perhaps cheaper model. 0:09:24.880 --> 0:09:27.480 Investors may be reading the worry about whether that's really 0:09:27.520 --> 0:09:29.920 a price cut in this current environment. This sounds on 0:09:30.080 --> 0:09:32.480 nine percent one of the worst performers on the NASAK 0:09:32.520 --> 0:09:33.280 one hundred a day. 0:09:33.480 --> 0:09:34.600 This is a Bloomberg technology. 0:09:46.000 --> 0:09:47.360 We've got to get you up to speed with the 0:09:47.440 --> 0:09:50.240 latest on the trial of former FTX head Sirm Magmund Freed. 0:09:50.640 --> 0:09:52.600 Please to say, not at the courthouse, but here in 0:09:52.760 --> 0:09:55.480 the New York studio is Shnali Bassak, but really keeping 0:09:55.840 --> 0:09:58.920 the context broad here of now, who else is going 0:09:58.960 --> 0:10:01.880 to be giving evidence? What shocking revelations we could hear 0:10:01.920 --> 0:10:02.160 from it? 0:10:02.320 --> 0:10:04.000 Yeah, and I must say it's interesting. I love being 0:10:04.040 --> 0:10:06.280 on set next to you, but that courthouse right now 0:10:06.360 --> 0:10:09.440 is just also fascinating. You have the witnesses one by 0:10:09.480 --> 0:10:12.840 one starting to come up, including a developer at FTX 0:10:12.880 --> 0:10:15.600 who has been speaking about his long friendship with Sam 0:10:15.640 --> 0:10:17.560 Megmin fried since mit. 0:10:17.720 --> 0:10:20.160 As well as what he was told while. 0:10:19.920 --> 0:10:21.920 He was working at the company in the safety and 0:10:22.000 --> 0:10:24.959 security of the firm while he was there. More interestingly, 0:10:25.000 --> 0:10:28.600 you have Gary Wang, who was the former technology officer 0:10:28.640 --> 0:10:32.040 of co founder of FTX, expected to testify as early 0:10:32.080 --> 0:10:34.200 as today. Remember Gary Wang was one of the people 0:10:34.400 --> 0:10:37.840 who had pled guilty and is a cooperating witness for 0:10:37.880 --> 0:10:40.959 the trial. One of three very important key figures from 0:10:41.240 --> 0:10:43.880 the very inner workings of FTX. As we know, the 0:10:43.880 --> 0:10:46.960 prosecution has drawn out that really there were only a 0:10:47.000 --> 0:10:50.760 few people that knew the extent to which this was 0:10:51.040 --> 0:10:53.320 allegedly this fraud was carried out. 0:10:53.320 --> 0:10:56.319 And one of the key people is Caroline Evison Allison, 0:10:56.320 --> 0:10:59.960 who of course was heading up Alameda Research, which Ultimate 0:11:00.640 --> 0:11:04.160 was attested to be sharing and co mingling funds from 0:11:04.200 --> 0:11:04.800 Alari day. 0:11:04.840 --> 0:11:07.719 The Caroline Ellison part of this is just becoming more 0:11:07.760 --> 0:11:10.560 and more pronounced as this trial goes on. She was 0:11:10.559 --> 0:11:13.400 brought up both in the prosecution's opening arguments as well 0:11:13.440 --> 0:11:16.080 as the defense for the prosecution. Remember that in her 0:11:16.080 --> 0:11:18.680 circle I was talking about, they were talking about bringing 0:11:18.720 --> 0:11:20.520 her to the fore along with some of the other 0:11:20.559 --> 0:11:24.120 co founders for them to explain their interactions with Sam 0:11:24.160 --> 0:11:27.400 bankman Fried alongside the evidence that will be presented, the 0:11:27.440 --> 0:11:31.240 prosecution really defines two ways that Alameda had taken money 0:11:31.520 --> 0:11:34.520 through FTX by means of both cash as well as 0:11:34.559 --> 0:11:37.120 through its digital wallets. So they will be using Caroline 0:11:37.120 --> 0:11:40.240 Ellison to show how that exactly had happened and when 0:11:40.480 --> 0:11:42.920 and what Sam bankman Fried knew and what he had 0:11:42.960 --> 0:11:45.439 actually directed. Now, in the defense part of the argument, 0:11:45.800 --> 0:11:48.160 they have said that Caroline Ellison was the one that 0:11:48.240 --> 0:11:50.640 was running Alameda. They had made the case in the 0:11:50.679 --> 0:11:53.960 defense that one person cannot be not one person, that 0:11:54.040 --> 0:11:56.920 one CEO can be at all places at all times, 0:11:57.160 --> 0:12:00.800 and as a shareholder of Alameda, had directed Caroline Ellison 0:12:00.840 --> 0:12:03.200 to do things like hedge the portfolio ahead of the 0:12:03.240 --> 0:12:06.520 crash that had led to the ultimate bankruptcy of FTX, 0:12:07.120 --> 0:12:10.480 despite the alleged co mingling of the funds. So remember 0:12:10.520 --> 0:12:13.560 this is Sam Ingmanfrey's former girlfriend we are talking about, 0:12:13.559 --> 0:12:16.320 who had a lot of details about how Sam operated himself. 0:12:16.520 --> 0:12:18.440 It will be up to the jury to decide whether 0:12:18.480 --> 0:12:22.160 that defense will be sufficient enough to really pin a 0:12:22.160 --> 0:12:23.920 lot of the blame not just on Sam but his 0:12:23.960 --> 0:12:25.720 colleagues who have already played guilty. 0:12:25.400 --> 0:12:26.720 By the way, fascinating. 0:12:26.840 --> 0:12:28.679 Thanks for keeping us up to speed on it, Shannadi 0:12:28.720 --> 0:12:31.599 bus like there with all things FTX. But let's go 0:12:31.679 --> 0:12:33.880 macro now, let's go to the Economic Club new or 0:12:33.960 --> 0:12:36.320 one piece of say our own Lisa Bromowitz A sitting down, 0:12:36.559 --> 0:12:38.880 none of them in the San Francisco Fed President, it's 0:12:38.960 --> 0:12:39.760 very daily listening. 0:12:39.880 --> 0:12:42.840 If it doesn't need to hike again again, I'm going 0:12:42.880 --> 0:12:44.960 to remind everybody my views are my own, and I 0:12:45.000 --> 0:12:49.280 don't speak for anyone on the committee, but that's exactly 0:12:49.280 --> 0:12:52.360 how I think about it. So just instead of that, 0:12:52.480 --> 0:12:55.719 let's go back to the June SEP where, if you 0:12:55.840 --> 0:12:59.400 remember or maybe you don't, I'll remind in the June 0:12:59.440 --> 0:13:02.559 summary efcconomic projections there were two more rate hikes projected 0:13:02.640 --> 0:13:05.560 for this year. Then in July we took one of 0:13:05.559 --> 0:13:09.280 those rate hikes and another one in the September SEP 0:13:09.640 --> 0:13:13.920 was the median outlook. But the bond market has tightened 0:13:14.000 --> 0:13:16.800 quite considerably over about thirty six basis points since we 0:13:16.880 --> 0:13:19.679 met in September. Well, that is equivalent to about a 0:13:19.760 --> 0:13:22.400 rate hike, right, and so then the need to do 0:13:22.720 --> 0:13:27.079 tightening additionally is not there? So from my own perspective, 0:13:27.080 --> 0:13:29.720 that's what I look at my job as I see it. 0:13:30.080 --> 0:13:32.120 Our job, as I see it. 0:13:31.760 --> 0:13:36.120 Is not to tighten, just do our part. It's to 0:13:36.160 --> 0:13:40.240 watch financial conditions. Because monetary policy works, We raise the 0:13:40.240 --> 0:13:43.440 funds rate and it moves through all the other interest rates. 0:13:43.559 --> 0:13:48.319 If financial conditions are sufficiently tight, our work is not necessary. 0:13:47.840 --> 0:13:49.319 Because we don't need to boost them more. 0:13:49.960 --> 0:13:52.080 Yeah, because that makes sense absolutely and reach clared I 0:13:52.080 --> 0:13:54.560 said today that the rise and yields actually does the 0:13:54.600 --> 0:13:55.640 Fed's job for it. 0:13:56.000 --> 0:13:57.920 Would you agree with that? 0:13:57.960 --> 0:14:00.680 Would you sympathize that kind of sentiment, that is actually 0:14:00.679 --> 0:14:03.120 how it works, right, if financial conditions tightened. I mean, 0:14:03.120 --> 0:14:05.320 one of the things that's happened in the last ninety 0:14:05.400 --> 0:14:08.640 days and certainly in the last few weeks, is that 0:14:08.800 --> 0:14:12.920 financial markets have collectively seem to take on board a 0:14:13.000 --> 0:14:15.160 variety of things. But one of the things that I 0:14:15.240 --> 0:14:18.280 heard from many commentators and many of the market outreach 0:14:18.320 --> 0:14:21.680 I do is that they have a general understanding now 0:14:22.000 --> 0:14:26.160 that we are committed at the FMC to keeping rates 0:14:26.240 --> 0:14:29.720 higher for longer in an effort to bring inflation fully 0:14:29.760 --> 0:14:33.320 back down to two percent, And that recognition, along with 0:14:33.360 --> 0:14:35.480 all the other factors we could put in a list 0:14:35.680 --> 0:14:38.960 about why bond yields have risen are affecting certainly the 0:14:38.960 --> 0:14:41.360 financial conditions and the tightening. And I see that as 0:14:41.600 --> 0:14:45.560 a positive outcome that we would have tighter financial conditions, 0:14:45.600 --> 0:14:47.960 because then we can really get the job done of 0:14:48.000 --> 0:14:50.040 putting inflation back to rest. 0:14:50.480 --> 0:14:53.960 When is a sell off something that's welcome from a 0:14:54.000 --> 0:14:56.800 perspective of finding the market is coming to terms with 0:14:56.840 --> 0:14:59.120 what the FED has been saying, and when is it 0:14:59.200 --> 0:15:03.359 disorderly to disruptive on a level that causes concern. 0:15:03.760 --> 0:15:07.680 So you always want an orderly repricing over a disorderly repricing. 0:15:07.720 --> 0:15:10.600 And so far, what I see is this, you know, 0:15:10.640 --> 0:15:12.280 and this is why we watch it so carefully. But 0:15:12.280 --> 0:15:15.400 here's how I'm seeing it is that what we're having, 0:15:15.440 --> 0:15:17.600 what is happening is financial markets. They are actually trying 0:15:17.640 --> 0:15:20.960 to find their footing in the right price for things, 0:15:21.000 --> 0:15:23.400 and they've got to digest a lot of information. One 0:15:23.440 --> 0:15:26.840 is the supply and demand changes in the treasury space 0:15:26.920 --> 0:15:30.680 right so supply is going up and demand is going down, 0:15:30.840 --> 0:15:33.760 especially from foreign buyers. So that is a one factor 0:15:33.800 --> 0:15:37.080 to digest. Another factor to diest is FED policy, and 0:15:37.160 --> 0:15:40.840 for guidance in the SEP. A third factor to digest 0:15:40.920 --> 0:15:43.840 is this increasing conversation people are having about whether the 0:15:43.880 --> 0:15:47.400 real neutral rate of interest is actually risen. So we 0:15:47.480 --> 0:15:51.280 came into the pandemic or with it at about point five, 0:15:51.320 --> 0:15:54.560 which means nominal neutral about two point five. And when 0:15:54.560 --> 0:15:56.520 people say, oh, the neutral rate might have risen for 0:15:56.600 --> 0:16:00.760 variety of factors, I'm hearing everything from meybe it's five 0:16:00.960 --> 0:16:03.600 to something that I would seem more likely, which is 0:16:03.600 --> 0:16:06.560 between two five and three for the nominal neutral. 0:16:06.600 --> 0:16:09.080 You know, probably there is. We don't know if it's risen. 0:16:09.200 --> 0:16:11.720 Frankly, I don't think anybody really knows, but certainly we 0:16:11.760 --> 0:16:14.120 should have those conversations. But then markets try to price 0:16:14.200 --> 0:16:16.400 that in. So all of those factors, and there's lots 0:16:16.400 --> 0:16:19.480 of uncertainty in the economy and geopolitical risk and you know, 0:16:19.520 --> 0:16:22.280 our own fiscal risk, and so that's what markets do. 0:16:22.320 --> 0:16:24.400 They digest a lot of information and try to find 0:16:24.400 --> 0:16:25.680 their footing on it. 0:16:25.760 --> 0:16:27.120 And I think that's what we're seeing. 0:16:27.360 --> 0:16:30.800 But so far it hasn't spilled over into disorderly so far. 0:16:30.920 --> 0:16:33.160 Even today when the job's claims came up and it 0:16:33.200 --> 0:16:35.560 was sort of I don't know what to make of it, right. 0:16:35.400 --> 0:16:37.080 So that's what the market serve ad it. 0:16:37.080 --> 0:16:40.000 You didn't see things shaking up in a wild or 0:16:40.040 --> 0:16:41.080 disorderly fashion. 0:16:41.240 --> 0:16:42.760 So so far, so good. 0:16:43.080 --> 0:16:45.240 Here bond quote of the day, four seventy on the 0:16:45.280 --> 0:16:46.280 tenure I just checked. 0:16:46.280 --> 0:16:46.760 So that's it. 0:16:46.760 --> 0:16:49.280 Seems like yields are coming in as we speak to 0:16:49.400 --> 0:16:52.120 her point about it not being disorderly. Back in March, 0:16:52.480 --> 0:16:56.320 when there was this concern about the banking situation, yields 0:16:56.360 --> 0:16:59.400 were at the low of March. We're about one hundred 0:16:59.400 --> 0:17:02.160 and fifty bases points lower than where they are now. 0:17:02.880 --> 0:17:06.960 Are you seeing the same type of financial distress today 0:17:07.080 --> 0:17:08.080 that you did back then? 0:17:08.280 --> 0:17:09.600 Even on the peripherez? 0:17:09.720 --> 0:17:13.600 How do you rationalize why it hasn't materialized in the 0:17:13.600 --> 0:17:14.400 same kind of way. 0:17:14.720 --> 0:17:17.359 So March was a unique situation, and we want to 0:17:17.400 --> 0:17:18.919 learn from that unique situation. 0:17:19.040 --> 0:17:20.840 But it was an unique situation in this way. 0:17:20.880 --> 0:17:24.639 We had a bank run, an old, very old fashioned 0:17:24.640 --> 0:17:28.600 but true bank run, where the bank's liquidity was completely 0:17:28.600 --> 0:17:32.280 squeezed and it went, it dissolved in a period that 0:17:32.359 --> 0:17:35.840 was it was short, rapid period of dissolution, and then 0:17:35.880 --> 0:17:39.720 that's filled over to two other banks and that was 0:17:39.760 --> 0:17:41.800 the extent. Now, one of the things I always remind 0:17:41.840 --> 0:17:44.320 people of is we have over four thousand banks in 0:17:44.359 --> 0:17:48.240 the country and three failed and all other banks that 0:17:48.320 --> 0:17:50.280 even felt the stresses, and there were a large number 0:17:50.400 --> 0:17:53.120 that felt stresses because they were near neighbors in sort 0:17:53.160 --> 0:17:59.160 of size and balance sheet distribution composition. They felt stresses, 0:17:59.320 --> 0:18:01.800 but they managed those stresses because in part they had 0:18:01.840 --> 0:18:04.320 been a little more effective at edging their risks. And 0:18:04.359 --> 0:18:06.520 then the FED and the Treasure with the Treasury support 0:18:06.560 --> 0:18:09.880 came in with the BTFP, and that produced a lot 0:18:09.920 --> 0:18:12.919 of calmness in the water. So since that time, banking 0:18:12.960 --> 0:18:15.920 stresses have really not been something that when you ask 0:18:16.000 --> 0:18:18.879 people in the community or the business leaders what do 0:18:18.960 --> 0:18:21.720 you top of your worries, that is not something they list. 0:18:21.960 --> 0:18:26.359 They list inflation, uncertainty, etc. So I think one of 0:18:26.440 --> 0:18:30.919 the reasons that we are seeing this yield rising not 0:18:31.080 --> 0:18:34.440 spilling back over is that essentially we know what's going 0:18:34.440 --> 0:18:37.400 on in the banking sector. Investor letters have been published 0:18:37.440 --> 0:18:39.919 for months saying here's what this balance sheet looks like. 0:18:39.960 --> 0:18:41.679 Here's what this balance sheet looks like. So there's not 0:18:41.760 --> 0:18:42.320 a surprise. 0:18:42.720 --> 0:18:45.879 And the second is because the banking system is safe, sound, 0:18:45.920 --> 0:18:49.080 and resilient, and we have remedies in place that solved 0:18:49.119 --> 0:18:51.439 parts of the of the crisis and the stresses. So 0:18:51.480 --> 0:18:53.600 I think we're coming in. It's the same thing when 0:18:53.600 --> 0:18:56.159 you have the rise in yields. We're doing it against 0:18:56.160 --> 0:18:59.280 a strong economy. We're doing it against a strong, a 0:18:59.320 --> 0:19:00.480 solid banking system. 0:19:00.680 --> 0:19:01.800 So that just means that the. 0:19:02.720 --> 0:19:06.600 Ripple effects are not going to be tipping things over. 0:19:07.400 --> 0:19:10.440 The fragility is not there, right, it's a sound system, 0:19:10.720 --> 0:19:12.399 and then you have this and so then you have 0:19:12.640 --> 0:19:15.520 it able to absorb the tension points. 0:19:15.920 --> 0:19:17.480 One thing that there's. 0:19:17.320 --> 0:19:19.840 Been a huge debate around is the long and variable lags, 0:19:20.359 --> 0:19:22.720 And this really speaks to this question of all of 0:19:22.760 --> 0:19:24.879 a sudden, if you think that ten year yields are 0:19:25.320 --> 0:19:27.320 five percent rather than four percent or three and a 0:19:27.359 --> 0:19:32.040 half percent, that changes what implication there is into different 0:19:32.080 --> 0:19:35.800 business models. How much does it change the business model 0:19:35.800 --> 0:19:39.280 of commercial real estate owners of different residential real estate 0:19:39.320 --> 0:19:41.480 owners of some of the constituents for you speak to 0:19:41.480 --> 0:19:42.480 on a regular basis. 0:19:42.640 --> 0:19:44.560 So I'm going to separate that's a terrific question, but 0:19:44.600 --> 0:19:46.080 I'm going to unpack it into two parts. If you 0:19:46.119 --> 0:19:50.360