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Speaker 2: Terminal and the Bloomberg Business app. Nrian Rabini of NYU
Speaker 2: and Hadson Bay Capital proposing a solution writing quote to
Speaker 2: resolve their current tensions, Canada, Mexico and the United States
Speaker 2: should start drafting plans for a North American economic union.
Speaker 2: Noria Rabini joined us now for more. Welcome to the
Speaker 2: program sir, Thanks for making time for us. That's quite
Speaker 2: a statement. Just go through the way you're thinking about it.
Speaker 2: How on earth would this work?
Speaker 3: Well?
Speaker 4: For now, we have only a free trade area between US,
Speaker 4: Canada and Mexico, and there already tensions involved. There's nothing
Speaker 4: not only to do with of course drugs, fan and
Speaker 4: ila and migrants but the US is also concerned about
Speaker 4: the trade imbalance between Mexico, US and Canada. They are
Speaker 4: very large trade services with the United States. So you
Speaker 4: can really negotiate the USMCA in a direction of restricting trade,
Speaker 4: and US is now probably asking Mexico and Canada to
Speaker 4: also restrict trade in automobiles. There may be twenty twenty
Speaker 4: five percent tarries on that because there are lots of
Speaker 4: job loss in US. Or you can do something that
Speaker 4: is more bold, forming a full economic union. They would
Speaker 4: imply free trade not only in goods, but also in services,
Speaker 4: in the movement of capital, labor, data, technology, and information.
Speaker 4: That's what the European country have done for the last
Speaker 4: few decades, and from any economic point of view, America
Speaker 4: is an optimal trading area that goes beyond goods. Now,
Speaker 4: one step you can take along those lines before having
Speaker 4: a full economic union could be, for example, to form
Speaker 4: a custom union. What's the difference between a custom union
Speaker 4: and a free trade area. In a free trade area,
Speaker 4: there is no common external tariff against other countries. So
Speaker 4: for example, there are lots of Chinese cars that are
Speaker 4: now entering into Mexico, while US is a one hundred
Speaker 4: percent tariff on against Chinese ev if you form a
Speaker 4: custom unions, the first step for economic union, you have
Speaker 4: to have the same tariff impost on Chinese cars whether
Speaker 4: they go to Mexico or US or Canadata. And in
Speaker 4: this way you create a full market, for example, for automobiles,
Speaker 4: and you prevent the imposition of say twenty twenty five
Speaker 4: percent tariffs on experts for Chinese cars or parts from
Speaker 4: Mexico to the United States. So you can do a
Speaker 4: reform of the trade agreement action of shrinking trade, or
Speaker 4: you can do it in the direction of expanding trade.
Speaker 4: And I argue that actually in the economic benefit of
Speaker 4: all three counties to expand trade. To first the custom
Speaker 4: union and then a full economic union.
Speaker 2: You offer a different vision then first, before we get
Speaker 2: to the much bigger one later, Can we just talk
Speaker 2: about the much bigger one. Freedom of labor, free movement
Speaker 2: of labor between the United States and Mexico just sounds
Speaker 2: like a complete nonstarter, Noriel, do you actually think that
Speaker 2: could be a stepping stone further out down the road
Speaker 2: in the future.
Speaker 4: Well, in the case of the European Union, you had
Speaker 4: the same problem. The country with the were much poorer
Speaker 4: in central Eastern Europe. They you joined the U, there
Speaker 4: was a transition period of many decades until they reached
Speaker 4: a certain level of per capita income, a certain level
Speaker 4: of governor, at a certain level of reform. Of course,
Speaker 4: free trade in labor within US and Canada would not
Speaker 4: be a problem, same per capita income, same culture, language,
Speaker 4: and actually there'll be probably more people going from US
Speaker 4: to Canada. They yeah, we around because of global climate
Speaker 4: change and shipland in Canada.
Speaker 3: With Mexico.
Speaker 4: Of course, at the current level of per capita income,
Speaker 4: you cannot have free trade in labor. But as I said,
Speaker 4: like in the case of Europe, you can have Sundard
Speaker 4: criteria that suggests that maybe after ten or twenty years,
Speaker 4: when Mexican per capita income is much higher, there's better
Speaker 4: governance than you free up that type of trade. So
Speaker 4: I say that in economic union, the part that is
Speaker 4: controversial is only probably migration of labor. It will be
Speaker 4: in the interest of the United States who have free
Speaker 4: trade in goods, in services where it has comparative advantage,
Speaker 4: in the movement of capital, portfolio and FDI, and of
Speaker 4: course data information technology, where the US as a major
Speaker 4: comparative advantage. Real to Mexico and to Canada. The only
Speaker 4: controversial part, as I said, is labor movement, but you
Speaker 4: can restrict it over time.
Speaker 5: Noel, do you get the sense that anyone in the
Speaker 5: current administration is sympathetic to this type of proposal at
Speaker 5: a time where it seems like people are increasingly going
Speaker 5: for economic isolation rather than reducing the walls entirely.
Speaker 4: I will start conversation within the administration on this matter,
Speaker 4: but I would say that certainly a step towards reforming
Speaker 4: the USMCA in the direction of a custom union makes
Speaker 4: sense because right now, of course, the automakers, that the
Speaker 4: producers are very worried about the impact on their own
Speaker 4: production costs and profit margins of restricting and imposing a
Speaker 4: lot of tariffs on say auto trade. The unions and
Speaker 4: the workers are in favor of it, but the problem
Speaker 4: is that you're imposing these twenty five percent tariff or
Speaker 4: on both automotive trade. The cost of cars in North
Speaker 4: America is going to increase by ten twenty percent. That's
Speaker 4: going to hurt first of all, consumers, but it's going
Speaker 4: to also hurt the workers. So if you care about
Speaker 4: US auto workers, there are two options wanted to impose
Speaker 4: the tariffs and restricting trade in automotive, but that's going
Speaker 4: to be bad for everybody. Another one is instead having
Speaker 4: a casto union, where if you essentially have an external
Speaker 4: tariff that is common against Chinese autos, then Chinese autos
Speaker 4: that are not entering the United States today will not
Speaker 4: enter Mexico either, and therefore the market for US automaker
Speaker 4: is going to be much bigger because you have one
Speaker 4: hundred and twenty million Mexican they need auto and that
Speaker 4: by now mostly Chinese cars. So you can have a
Speaker 4: win win solution that makes everybody better off, including the
Speaker 4: auto workers if you go in the direction of a
Speaker 4: custom union and eventually in economic union, so you have
Speaker 4: to go forward other than going backward. And I think
Speaker 4: that those arguments can be made in Washington, in Mexico City,
Speaker 4: and of course in Canada as well.
Speaker 1: Noreel is this proposal potentially a way that the United
Speaker 1: States could have more heft when it comes to driving
Speaker 1: a wedge between Beijing.
Speaker 4: Well, certainly, one of the concerns that the United States
Speaker 4: has is not just fentanyl that is coming to the
Speaker 4: US via China, but more important that the Chinese have
Speaker 4: avoided tariffs by essentially exporting goods to Mexico and from
Speaker 4: Mexico to the United States as if there were Mexican goods.
Speaker 4: The Mexican production of many goods as a lot of
Speaker 4: content of parts that is Chinese. And there is also
Speaker 4: a concern about the fact that the Chinese are taking
Speaker 4: over the auto market of Mexico as well. Exporting chip
Speaker 4: cars isn't otherwise to Mexico. So if you care about
Speaker 4: the risking the relationship with essentially China, whether it's in
Speaker 4: auto or other critical parts of the economy, it makes
Speaker 4: sense to have initially customed union and then having also
Speaker 4: a full economic union where decisions about how much you
Speaker 4: trade and you investment with China from North America are
Speaker 4: done not by the US alone side alone, and then
Speaker 4: Mexico can do whatever they want as they do right now,
Speaker 4: but everything the context of an economic union, and initially
Speaker 4: so it makes sense for the US, it makes sense
Speaker 4: for North America.
Speaker 2: Noiel provocative as always, It's going to catch up with this, sir,
Speaker 2: and I should say thanks for making sign for us.
Speaker 2: I know you're on a bit of a world tour,
Speaker 2: so looking forward to catching up with you. When you're
Speaker 2: back in New York, Noria Rabini there of n Yu
Speaker 2: Stern and Hudson Bay. We'll begin this hour with stocks
Speaker 2: lower struggling to snap a four week losing street seem
Speaker 2: a shower of principal ascent management writing. Whether the rally
Speaker 2: can reassert itself and deliver positive equity returns going forward
Speaker 2: will likely depend on whether Earning's growth can deliver. Seema
Speaker 2: joins us now for more, Sema, welcome to the program.
Speaker 2: Can it deliver relative to expectations? So let's talk about expectations.
Speaker 2: Have they pulled back sufficiently over the last several weeks.
Speaker 6: Hi, John, I don't know if it necessarily has. I mean,
Speaker 6: we've already seen a couple of downgrades to economic growth forecast. Actually,
Speaker 6: from learning's perspective, I don't think it's moved down enough,
Speaker 6: particularly when you start to think about the second of
Speaker 6: April and the amount that could happen to global stocks,
Speaker 6: global earnings. So I think there's a little bit further
Speaker 6: to go. You know, we need to see a number
Speaker 6: of other I guess boosts coming in the second half
Speaker 6: of the year, but I think for the next couple
Speaker 6: of months it's going to be a really rocky road.
Speaker 2: Same as some of the retailers have come out and
Speaker 2: said that the next year could be difficult. They've loved
Speaker 2: red expectations. Delta air Lines the Airlines Group have done
Speaker 2: a similar thing over the last several weeks as well.
Speaker 2: Which parts of the market do you think are more
Speaker 2: vulnerable going into earning season?
Speaker 6: So I think anything, of course, any which has got
Speaker 6: any kind of international revenue exposure, anything which is linked
Speaker 6: to consumers. The things that we're really concerned about with
Speaker 6: consumer is just what we're seeing with regards to price increases,
Speaker 6: the pressures that people are having on household income. So
Speaker 6: actually it's spread across so many sectors because there's so
Speaker 6: much significant exposure. There are parts of the market which
Speaker 6: we think a little bit less vulnerable, places like financials
Speaker 6: which have had a bit of a pullback. It could
Speaker 6: see some return, but so much really depends on what
Speaker 6: can we expect to come through from a stimulus perspective,
Speaker 6: not just from the FED, but in terms of you know,
Speaker 6: what happens to tabs in the second half of the year,
Speaker 6: Are something can be lifted, Are we going to expect
Speaker 6: to see deregulation if that comes through then there are
Speaker 6: parts of the market that stand to gain over the
Speaker 6: coming months. But as I said, I think the jury
Speaker 6: is out until we have some further clarity of where
Speaker 6: this administration is going with a number of their different policies.
Speaker 5: And there also needs to be some clarity some of
Speaker 5: those inflationary pressures that you're referring to, both with respect
Speaker 5: to households and what that does to their spending capacity,
Speaker 5: as well as two companies and their ability to pass
Speaker 5: it along. Two said consumers, Do you have a sense
Speaker 5: of whether so far some of these price pressures are
Speaker 5: actually inflationary or whether they have the seeds of being
Speaker 5: disinflationary down the line in tandem with weaker growth.
Speaker 6: So actually, I don't think there is any clarity tool.
Speaker 6: I think we're hearing really contradictory stories. You know, about
Speaker 6: a year ago, we were talking to a number of
Speaker 6: our larger clients who had told us that typically you
Speaker 6: can pass on increases twice. You know, consumers can handle
Speaker 6: it twice. The third time the third time is a
Speaker 6: complete nogo, and we're almost looking at the third time now.
Speaker 6: On the other hand, we are hearing some small businesses
Speaker 6: who are saying that there's so much uncertainty and they
Speaker 6: cannot be left out of pockets, so they're already starting
Speaker 6: to increase prices ahead of what could be reciprocation on
Speaker 6: tariffs on April the second. So actually it's a very,
Speaker 6: very very story, which of course it doesn't help businesses, companies,
Speaker 6: investors really plan ahead.
Speaker 5: At the end of another week where my mind feels
Speaker 5: somewhat fried, I wonder if people are just getting sick
Speaker 5: of all of the uncertainty in the United States and
Speaker 5: are looking for the certainty of the budget that was
Speaker 5: just passed in Germany, the certainty of other regions in
Speaker 5: the world that might be engaging in fiscal stimulus. Do
Speaker 5: you jump on that train or do you think that
Speaker 5: that sort of haven from uncertainty or just.
Speaker 7: Another story, another narrative.
Speaker 5: Do you think that that's basically played out as people realize, Okay,
Speaker 5: it's going to be more complicated.
Speaker 6: So it's funny. So I've been in Madrid all of
Speaker 6: this week speaking to clients, and it was interesting from
Speaker 6: their perspective. They're a little bit more skeptical than I'm
Speaker 6: finding the US audience to be. They're looking at this
Speaker 6: and they're saying, look, this is really great news for Germany,
Speaker 6: without a doubt, but in terms of how it feeds
Speaker 6: through to Europe, they are still unsure of really what
Speaker 6: the positive repercussions could be. They don't really think there's
Speaker 6: going to be a major fiscal stimulus from their countries,
Speaker 6: and even if there was, they're worried about what happened
Speaker 6: to debt markets, and on top of that, from their perspective,
Speaker 6: the real game changer that they're looking for is deregulation
Speaker 6: in Europe, which unfortunately is not something that they are
Speaker 6: particularly optimistic about. So I think there is some potential,
Speaker 6: certainly that there's good news at least in one part
Speaker 6: of the world rather than the other. But how far
Speaker 6: this can go in the near term, I think is questionable,
Speaker 6: and certainly we think there could be a near term
Speaker 6: pullback for Europe in equities as you start to see
Speaker 6: some reality set in around what's happening with tariffs, and
Speaker 6: really you know how quickly this fiscal stimus can actually
Speaker 6: feed through to the German economy, let alone the European economy.
Speaker 5: So see, why are you challenging this idea that the
Speaker 5: wall of exceptionalism is shifting over to Europe and China
Speaker 5: and elsehere we're in away from the United States, that
Speaker 5: that's maybe overly simplistic and it's just getting more complicated
Speaker 5: with a less clear path to which area and which
Speaker 5: stocks are going to outperform.
Speaker 7: Is that kind of how you see things?
Speaker 6: So I think that the near term is a little
Speaker 6: bit cloudy than many people who have been thinking. I
Speaker 6: think the near term, you know, there's been so much
Speaker 6: positivity around the fiscal stimulus news, but there's still, as
Speaker 6: you said, you know a lot of things with regards
Speaker 6: to the tariffs, how quickly the fiscal stimulus can be
Speaker 6: passed through that in the near term some of that
Speaker 6: optimism around international equities could take a bit of a setback.
Speaker 6: The other thing that we're thinking is that exceptional sorry
Speaker 6: exceptionalism should necessarily be in question. We do think that
Speaker 6: the US is still going to see superior growth going forward,
Speaker 6: but is it going to does that necessarily stop European
Speaker 6: equities Chinese equities from doing well? Even a move to
Speaker 6: benchmark positions for so many investors would be a significant
Speaker 6: tail wind for equities. So it's just that the world
Speaker 6: is a bigger place now. There are other opportunities for
Speaker 6: investors that and if you haven't had a chance in
Speaker 6: the last couple of weeks to get onto that ride,
Speaker 6: you probably will see aune to within the next few months.
Speaker 1: When it comes to the uncertainty in the United States
Speaker 1: around teriffs, is April second then.
Speaker 7: Going to be a clearing event?
Speaker 6: Well, you know, one hand, yes, we hope that there
Speaker 6: will be some kind of certainty coming through. That is
Speaker 6: one thing which is overhanging, particularly for global investors or
Speaker 6: investors looking at international equities. So I think there'd be
Speaker 6: some clarity. Does it really clear up everything that we
Speaker 6: that we are waiting to hear? I guess I'm fairly
Speaker 6: pessimistic on that, but at least we're getting to a
Speaker 6: process that at some point within the next few months
Speaker 6: we know some kind of direction where this administration is going,
Speaker 6: and then businesses can plan. So that's why for the
Speaker 6: second half of the year we have slightly more optimism
Speaker 6: because we think some of the uncertainty will clear.
Speaker 2: Up the life of a European based strategist. Here Lisa Sprinkler, Madrid,
Speaker 2: a little bit of London, quick trip to Rome, doesn't it.
Speaker 7: I think they we're both really tired.
Speaker 2: Spending its head over there. It's all added up.
Speaker 7: Yeah, but as long as you don't fire to Heathrow.
Speaker 2: Before it did, makes sense at all.
Speaker 3: Yeah.
Speaker 5: Well, but I will say it's interesting that in Spain
Speaker 5: they're not particularly interested in what Germany's doing as being
Speaker 5: the Holy Grail, considering that it doesn't necessarily open up
Speaker 5: the purse strings for them, and frankly it might make
Speaker 5: them more in a difficult spot because of what spreads
Speaker 5: are doing on the periphery.
Speaker 2: Sam, I appreciate your time, as always, sim Michan, they're
Speaker 2: a principal asset man. We begin this hour with stocks lower,
Speaker 2: Kate more of city wealth writing sentiment has weakened, but
Speaker 2: not fully collapsed, an absent full capitulation, and with persistently
Speaker 2: high and certainty around Tariff's growth and policy, we believe
Speaker 2: it it's too soon to step in. Kate joined us
Speaker 2: now for more. Kate morning, good to see you. Yeah,
Speaker 2: thanks John, congratulations on the new seat as well.
Speaker 7: Thank you.
Speaker 2: We've seen you since you moved over.
Speaker 7: That's yeah.
Speaker 8: I had a nice break and I've been getting ramped
Speaker 8: up in city. You know, it sort of pains me
Speaker 8: to have to write what I just wrote and what
Speaker 8: you read, you know, me.
Speaker 7: I like risk.
Speaker 8: I've always liked to look at opportunities. I like to
Speaker 8: see when they're just locations and say, this is a
Speaker 8: nice time to step in and right now to the
Speaker 8: conversation you guys were just having around uncertainty, not just
Speaker 8: in terms of the macro forecast, but also in earnings.
Speaker 8: It's almost impossible for me to say we've seen the bottom.
Speaker 8: We can break out of this trading range, and it's
Speaker 8: time for us to add.
Speaker 2: There's always a price. Have we reset price low enough?
Speaker 2: How much more do we need to do that? Have
Speaker 2: we reset expectations sufficiently? What would you look for that
Speaker 2: would change your mind that a risk reward would become
Speaker 2: more compelling.
Speaker 8: Well, one of the things that I keep getting my
Speaker 8: head stuck on is everyone's focus on pas right on
Speaker 8: multiples and valuation, and they keep on saying over and
Speaker 8: over again, you know we've derated a little bit. It's
Speaker 8: now looking a little bit more attractive, And I say,
Speaker 8: that's great. We have no faith and confidence in the
Speaker 8: denominator and against that backdrop, if you don't know what
Speaker 8: you're measuring yourself against.
Speaker 7: Like are we cheap? I don't think so.
Speaker 8: Look, there are super high quality companies in the US.
Speaker 8: I know we've had some rotation away from those companies
Speaker 8: over the last couple of weeks of trading, but you
Speaker 8: know that doesn't mean we need to step in and
Speaker 8: kind of back up the truck and add back to
Speaker 8: those companies right now.
Speaker 7: And I hate, as I said, sitting.
Speaker 8: On my hands a little bit, because like everyone else
Speaker 8: in this business, I have a bias to action.
Speaker 5: How inconsistent are some of the projections that we're getting
Speaker 5: right now at of Wall Street.
Speaker 7: Gosh, well, on one page you've got I know, it's
Speaker 7: a big question. You want to just start there.
Speaker 8: Yeah, no, this is I mean, it's a terrible time
Speaker 8: to have to put out forecasts. I'm fortunate enough to
Speaker 8: not have to put a target on the S and
Speaker 8: P or say here's my technical buying level, or here's
Speaker 8: my earnings expectation at the moment, because it is going
Speaker 8: to be a losing game at this moment. We could
Speaker 8: get to April second and have some clarity, I would
Speaker 8: put a much higher probability that we don't have clarity
Speaker 8: after April second, and so people are going to have
Speaker 8: to make these constant revisions, and especially as.
Speaker 7: We were talking about four corporates don't know what's going
Speaker 7: to happen.
Speaker 8: One of the things I'm worried about and Slash watching
Speaker 8: as we go into this next earning season is not
Speaker 8: just whether or not companies take down their guidance, but
Speaker 8: whether or not they pull guidance all together. If they say,
Speaker 8: we don't have enough information to even reaffirm or adjust
Speaker 8: or even take down what we've given you before and
Speaker 8: we're going to step back, that tells us that kind
Speaker 8: of all bets are off and kind of continuing to
Speaker 8: sit on the sidelines makes make some sense now to
Speaker 8: be fair for like city wealth clients who have you know,
Speaker 8: multi assid portfolios.
Speaker 7: We're not saying sell, but.
Speaker 8: You know, there are a lot of folks that have
Speaker 8: big cash balances and we want to be convicted when
Speaker 8: we say put that cash to work.
Speaker 2: That was what I was just going to ask.
Speaker 5: Why sitting on your hands actually mean in financial terms?
Speaker 5: This is just means sitting on cash? Does it mean
Speaker 5: sitting on gold?
Speaker 8: Going too big ass allocation decisions right now? Let's wait
Speaker 8: for more information and whether that's you know, tweaking our
Speaker 8: equity allocations or looking for more opportunities across the fixed
Speaker 8: income or alternative space, like, we don't need to do
Speaker 8: that right now. Let's wait for hopefully what will be
Speaker 8: a little bit more clarity.
Speaker 1: Do you think you're going to have the conviction after
Speaker 1: April second? May make some of those decisions.
Speaker 8: I think April second is an arbitrary date. I mean
Speaker 8: it is a point which we will have some information
Speaker 8: on tariffs.
Speaker 7: But we won't have a significant.
Speaker 8: Outlook for the for the entire policy program in the US.
Speaker 8: And until we have that, it's pretty hard to say,
Speaker 8: you know, what the growth forecast should look like.
Speaker 7: This is what I would also say.
Speaker 8: We have a pattern of behavior from this administration over
Speaker 8: the last couple weeks or a couple months that suggests there's,
Speaker 8: you know, a constant revisiting of their own targets and
Speaker 8: what pain they're willing to take, even as they stay
Speaker 8: focused on what they believe their big goals are. And
Speaker 8: the communication has not always been consistent to the corporate sector,
Speaker 8: anti the investment community, and I don't know that that
Speaker 8: changes just because we get to April third.
Speaker 1: One thing is consistent. The President this morning just minutes
Speaker 1: ago saying April second is Liberation Day in America.
Speaker 7: But to your point.
Speaker 1: To a lot of people's point, they're not expecting April
Speaker 1: second to be the end all the bal If uncertainty
Speaker 1: is a feature, not a bug.
Speaker 7: How do you do this for four years?
Speaker 8: I think you're going to have to stay really focused
Speaker 8: on the areas where.
Speaker 7: You do have certainty.
Speaker 3: You know.
Speaker 8: I always have a bit of a laugh when everyone
Speaker 8: says we want to own quality companies. No kidding, there's
Speaker 8: no point in the cycle where you don't want to
Speaker 8: own a quality company. And like any fund manager or
Speaker 8: investor says, like, I don't care about quality. I mean,
Speaker 8: I think you should probably head for the door. But
Speaker 8: what we're looking for, I think in an environment where
Speaker 8: there is a lot of uncertainty is earning, sustainability and
Speaker 8: earnings you know, yeah, stability. Basically in general, we want
Speaker 8: companies that can earn through all parts of the economic cycle,
Speaker 8: that have strong products and business models, and like really
Speaker 8: like outstanding management teams that we can have faith in.
Speaker 8: When it comes to fixed income, we're going to have
Speaker 8: to see what happens to the inflation and growth side.
Speaker 8: So I can't say for sure what that kind of
Speaker 8: uncertainty will mean for that allocation.
Speaker 2: The new policy is not confusing the administration. They seem
Speaker 2: to change every day, and they can change again very soon,
Speaker 2: and they will do on a for a second and
Speaker 2: maybe again multiple times after that as well. That's had
Speaker 2: enough understanding. How the rest of the world responds to
Speaker 2: it is equally as complex. How much has Europe's response
Speaker 2: to this complicated? How we allocate assets in the United States?
Speaker 8: OK, I know people have gotten really excited about, you know,
Speaker 8: closing their underweights. I'm not going to say, going explicitly
Speaker 8: long Europe closing their underweights to Europe, and they've said, look,
Speaker 8: there's some of these pockets a fiscal stimulus, something we
Speaker 8: haven't gotten in a long time, and they've gotten really excited.
Speaker 8: I don't think that we can say we're going to
Speaker 8: make a wholesale regional equity change based on a few
Speaker 8: policy announcements. And unfortunately, and I hate saying this, but
Speaker 8: I'm going to say it anyway, When the US needze
Speaker 8: is the rest of the.
Speaker 7: World catches the cold. If there's a.
Speaker 8: Significant slowdown in demand and activity on both consumers and
Speaker 8: businesses in the US, you know, it's really hard for
Speaker 8: me to imagine that all these global multinationals domiciled and
Speaker 8: all these other markets won't feel it, and that consumption
Speaker 8: patterns won't change.
Speaker 2: So you don't buy into the erosion of US exceptionalism.
Speaker 8: I think the US has some really exceptional parts of
Speaker 8: our economy and our corporate sector, but we are at.
Speaker 7: A more challenging part of the cycle.
Speaker 8: The other thing I would say is, you know, even
Speaker 8: going into this policy uncertainty, you guys know this very well,
Speaker 8: some of the macro data was slowing a little bit
Speaker 8: before any of this uncertainty was introduced. You know, there
Speaker 8: were some pockets of retail and consumer. We were talking
Speaker 8: about that a year ago. Remember, you know, as we
Speaker 8: were going through first quarter earnings for twenty twenty four,
Speaker 8: everyone was saying, you know, is the consumer cracking. It
Speaker 8: didn't fully crack, but as we got into the beginning
Speaker 8: part of this year, some of.
Speaker 7: Those fractures look more pronounced.
Speaker 8: So that happened before the policy uncertainty, and I think
Speaker 8: we have to keep a very close.
Speaker 7: Eye on that.
Speaker 2: This space to a wait and see moment. There's so
Speaker 2: many people are in right now, not just businesses but
Speaker 2: investors too.
Speaker 5: I just want to know what's going to end that
Speaker 5: right if it's not April.
Speaker 7: Second.
Speaker 5: If it's not necessarily guidance that companies can't give, what's
Speaker 5: going to give anyone a sense of conviction at a
Speaker 5: time of endless uncertainty.
Speaker 8: Yeah, I wish I knew right now, and if I
Speaker 8: had the roadmap and my crystal ball was crystal clear,
Speaker 8: that would make me sleep a little bit better at
Speaker 8: night at this moment. But I will say here, we
Speaker 8: are on a Friday morning, and we know a lot
Speaker 8: of investors, both fast money and real money, don't really
Speaker 8: want to go into the close today or into a
Speaker 8: weekend super long risk, you know, because.
Speaker 7: Of the uncertainty factor.
Speaker 8: I want to see a change in that overall behavior
Speaker 8: once we start to really neutralize some of the big
Speaker 8: overweights and sometimes underweights that people have had in their
Speaker 8: portfolios over the last couple of years, and people feel
Speaker 8: confident that what they're owning and what they're adding to
Speaker 8: you can perform in a sustained way over multiple quarters. Like,
Speaker 8: I'll sleep a lot better. I just don't think we're
Speaker 8: there yet.
Speaker 2: Okay, it's good to see you.
Speaker 7: Yeah, thanks for going to catch up.
Speaker 2: It's been too long. Yes, hopefully we can do this
Speaker 2: more often. K more of city.
Speaker 1: OK, thank you.
Speaker 2: Cisco announcing plans this week to extend their partnership, creating
Speaker 2: their most advanced AI architecture package that will provide secure
Speaker 2: enterprise AI networking. I'm very placed to say the Cisco
Speaker 2: Chief Product Officer and executive vice president G two Patau
Speaker 2: joined us now for more. G too, It's good to see.
Speaker 3: You, sir. It's great to see you.
Speaker 2: Thank you for having me, Thank you for being here.
Speaker 2: If I wanted to do this for a while with you,
Speaker 2: we all have. Let's just take a giant step back
Speaker 2: before we get into this partnership. You know what I
Speaker 2: worry about. I worry the AI will do to services
Speaker 2: what manufacturing was done so by globalization. What is the
Speaker 2: risk of that happening over the next several decades.
Speaker 9: Look at any replatforming that happens. You'll always have some
Speaker 9: level of displacement of jobs, and we need to make
Speaker 9: sure that we make it as painless for society to
Speaker 9: make that transition happen. But I worry less about AI
Speaker 9: taking my job. I worry more about someone who uses
Speaker 9: AI really well.
Speaker 3: Taking my job.
Speaker 9: But if you take a step back, it's actually really
Speaker 9: exciting to see what the possibilities are with AI because
Speaker 9: what people, even despite all the hype, what people grossly
Speaker 9: underestimate is the original insights that AI is going to
Speaker 9: be able to go derive that don't exist in the
Speaker 9: human corpus of knowledge, that allow us to solve problems
Speaker 9: that we have not been able to solve until now.
Speaker 9: And so, you know, whether it be in healthcare or
Speaker 9: financial services, or transportation or whatever industry you pick, you
Speaker 9: will actually have a reimagination of the ways in which
Speaker 9: we can solve problems that have not existed up until now.
Speaker 9: And that's exciting, frankly, because you'll have this, you know,
Speaker 9: a population of eight billion people that will feel like
Speaker 9: it's got the thru but capacity of eighty billion.
Speaker 2: Are we seeing that happen right now? Is that a
Speaker 2: dream for the future or something that's being realized in
Speaker 2: this very moment.
Speaker 3: You're going to start seeing it happen.
Speaker 9: In twenty twenty five, for example, there'll be you know,
Speaker 9: a meaningful amount of code that will actually start getting
Speaker 9: autonomously written, and so you'll actually start to see so
Speaker 9: many more the capacity of engineers will actually.
Speaker 3: Ten x during the course of twenty twenty five.
Speaker 2: It's exciting to see this, as you know, is the
Speaker 2: societal issue that I'd be slightly concerned about. So there
Speaker 2: are a bunch of graduates who are graduating over the
Speaker 2: next couple of years or so, and they went to
Speaker 2: learn to code because they were told this is what
Speaker 2: you need to go and learn to do, and they're
Speaker 2: coming out into a workforce where maybe they feel like
Speaker 2: they're no longer needed. What's the advice you'd give to
Speaker 2: them as they graduate.
Speaker 9: Here's the thing that I feel like people, you might
Speaker 9: overestimate the capabilities on that front, because AI is still
Speaker 9: not going to have the human instinct and the judgment
Speaker 9: that you're going to need to have.
Speaker 3: You still going to need to do oversight. There's a
Speaker 3: human in the loop.
Speaker 9: But now that developer is going to have a companion
Speaker 9: that can actually do the stuff that they didn't really
Speaker 9: care to do or they weren't as good as at doing.
Speaker 9: So this is a net positive in my mind, and
Speaker 9: you're going to see a lot of progress in society
Speaker 9: because of it, rather than a regression that happens.
Speaker 5: Not to build on negativity, because I actually am a
Speaker 5: very big believer on the positivity and I'm excited for it,
Speaker 5: but there is this question of who's going to lose
Speaker 5: their jobs in the meantime, and John alluded to this,
Speaker 5: this idea that it's more of a white collar issue
Speaker 5: than a blue collar issue. And I'm thinking of things
Speaker 5: that we've heard about, like at banks where there have
Speaker 5: been fat fingers that cause transfers or whatever else, and
Speaker 5: that some of those efforts are being shifted to AI.
Speaker 5: How significant do you think that transition is going to be.
Speaker 9: You will always have some degree of jobs that will
Speaker 9: get displaced, and then there'll be new jobs that actually
Speaker 9: get created.
Speaker 3: And the thing that.
Speaker 9: We have to keep in mind is there's a lot
Speaker 9: of jobs that right now people don't have enough labor
Speaker 9: to get done that we are either we just don't
Speaker 9: have the resources to do that actually don't happen right now.
Speaker 9: And so what AI will allow us to do is
Speaker 9: not just go do things that humans don't do as well,
Speaker 9: not just do things that replace humans, but actually do
Speaker 9: things that humans don't have the time to get done.
Speaker 5: Which industries do you think are being the most aggressive
Speaker 5: about adapting to different AI tools and bringing them into
Speaker 5: their entry.
Speaker 9: I think it's costs the board you're seeing it right now,
Speaker 9: In fact, i'd say, you know, two years ago when
Speaker 9: chat GPT came out, almost every company in every industry
Speaker 9: when I'm noticing what's our AI strategy going to look like?
Speaker 3: And we've now had a couple of.
Speaker 9: Years to go bake that, and in twenty twenty five,
Speaker 9: you're going to see this really exciting move from just
Speaker 9: chat pots to agents where you'll actually have workflows get
Speaker 9: automated in every industry, in every sector, in every segment
Speaker 9: of the market, and every geography. So I feel like,
Speaker 9: you know, there's only going to be two kinds of
Speaker 9: companies in the world, those that are going to be
Speaker 9: really dexterous for the use of AI and others that
Speaker 9: are going to really struggle for elements.
Speaker 2: Before we talk about facilitating that for Corporate America. G two,
Speaker 2: can we talk about how things are changing inside Cisco?
Speaker 2: What's different about how Cisco's operating with these advancements that
Speaker 2: you're talking about.
Speaker 9: We are lucky in the sense that we've actually got
Speaker 9: a front row seat on what's happening, and you know,
Speaker 9: everything from the way in which we're building out infrastructure
Speaker 9: to the way in which we are getting our security
Speaker 9: and safety parameters in the right way, and then making
Speaker 9: sure that the workflows get automated. So you know, how
Speaker 9: are we using AI and engineering? How are we using
Speaker 9: AI in our contact center so that when customers call
Speaker 9: because they've got a problem, we're using AI to make
Speaker 9: sure that we can help them solve the problems faster.
Speaker 9: What are we doing in legal? What are we doing
Speaker 9: in marketing? What are we doing in sales? Each one
Speaker 9: of these areas is getting rethought and reimagined. It's actually
Speaker 9: exciting to see.
Speaker 2: The whole world's got to do this. Yes, every company's
Speaker 2: got to do the same thing.
Speaker 3: Every company, EVERYDA introduces.
Speaker 2: This partnership with in Vidio. Talk to us about that
Speaker 2: and what's going to change over the next several years
Speaker 2: with that partnership in mind.
Speaker 3: So we're excited.
Speaker 9: Jensen, the CEO of n Vidia, put it best. He said,
Speaker 9: Cisco and Nvideo are putting together the blueprint for securing AI.
Speaker 9: And John, I go talk to a lot of customers
Speaker 9: all the time, and when you go, when you go,
Speaker 9: ask customers how enthusiastic they are about AI. Virtually every
Speaker 9: ceo we had a study we recently did, ninety seven
Speaker 9: percent of the CEO said they were excited about AI,
Speaker 9: but only one point seven percent felt prepared right, and
Speaker 9: so there's this kind of dissonance between the preparedness and
Speaker 9: the level of enthusiasm that's there. And then you ask
Speaker 9: in the next level question, why do you not feel prepared?
Speaker 9: There's two reasons that come up. The first one is
Speaker 9: they don't feel like they've got the right infrastructure in
Speaker 9: place to make sure that they'll be able to harness
Speaker 9: the full potential of AI. And the second one is
Speaker 9: safety and security actually holds them back because they feel
Speaker 9: like it also is going to have a negative effect
Speaker 9: on adoption because if you don't trust the system, you're
Speaker 9: not going to use it right, and so that's in it.
Speaker 9: Those are two areas where Cisco helps customers out and
Speaker 9: what we've done with n videos, we just announced a
Speaker 9: partnership for this thing called the Cisco the Secure AI Factory. Now,
Speaker 9: what is an AI factory. An AI factory essentially is
Speaker 9: a data center that's meticulously built for AI workloads.
Speaker 3: And what it.
Speaker 9: Allows you to do is make sure that you can
Speaker 9: you can create these data centers in the enterprise that
Speaker 9: can allow organizations to fully harness the potential of AI.
Speaker 9: And so we're jointly partnering over there WLBR networking, our security,
Speaker 9: their technologies looks. Cisco is one of the greatest networking
Speaker 9: companies in the world, and Nvidia is a pioneer on
Speaker 9: the chips and actually create it to some degree. The
Speaker 9: movement in AI and the combination of the two companies together,
Speaker 9: and I think you're going to see more and more
Speaker 9: of this where companies are going to partner with each
Speaker 9: other in this ecosystem to really go serve needs of
Speaker 9: customers and work backwards, even if there might be a
Speaker 9: slight competitive elopment.
Speaker 5: This is fascinating to me because what it signifies is
Speaker 5: there's a growing number of companies that don't want to
Speaker 5: rely on the hyperscalers, that don't want to rely on
Speaker 5: the cloud systems to provide the artificial intelligence for their businesses.
Speaker 5: And it raises a question about them that everyone has
Speaker 5: bought into in the market, which is that they will
Speaker 5: be the big beneficiaries. How much is that changing with
Speaker 5: companies not wanting to necessarily develop their artificial intelligence in
Speaker 5: the cloud for security reasons and want to have it
Speaker 5: in secure locations that keeps their data encapsulated.
Speaker 3: I think you're going to have both.
Speaker 9: I think there's going to be probably the fastest growth
Speaker 9: that hyperscalers experience that they've ever experienced with AI, and
Speaker 9: they'll be the fastest growth that enterprises have because there
Speaker 9: will be some data centers that they'll want to repatriate
Speaker 9: back within the enterprise so that they can make sure
Speaker 9: that especially in areas like inferns, you'll actually see a
Speaker 9: lot more of that.
Speaker 3: There's two big areas.
Speaker 9: There's training infrastructure that's needed to train the models, and
Speaker 9: then there's inferencing, which is what happens when you use
Speaker 9: the models. And on the inferencing side, you're seeing a
Speaker 9: fair amount of repatriation of data centers back in enterprise,
Speaker 9: and I think you're going to see a little bit
Speaker 9: of both. And we want to make sure that whether
Speaker 9: you're a hyperscaler, you're a service provider, you're an enterprise,
Speaker 9: Cisco wants to serve each one of them in a
Speaker 9: way that they can actually have infrastructure be plug and
Speaker 9: play and it's massively simplified.
Speaker 3: It's still too complicated.
Speaker 1: What's the role of government in this. There's tremendous competition
Speaker 1: around the world. Obviously, I'm thinking of Washington, and Beijing.
Speaker 1: Do you like what you're hearing out of the administration.
Speaker 9: I'm actually very optimistic about the kind of things that
Speaker 9: you're seeing across the board, with the enthusiasm on THEI.
Speaker 9: If we weren't talking about AI, I would be concerned.
Speaker 9: But right now the governments are talking about it. They're
Speaker 9: talking about how automation happens within the government, how automation
Speaker 9: is happening in the private sector, how are they're going
Speaker 9: to make sure that they can accelerate the innovation on
Speaker 9: those areas.
Speaker 3: So I think it's not positive.
Speaker 2: Are we going to be replaced? So we care about?
Speaker 9: No, John, You'll still be here in five years from now.
Speaker 9: I'm still going to come and talk to you at
Speaker 9: the show, and it's not going to be an AI humanoid.
Speaker 3: It's going to be John.
Speaker 2: That's all I wanted to know. That's all I care about.
Speaker 7: How do you know I haven't already been replaced?
Speaker 6: That would be.
Speaker 3: Sorry.
Speaker 2: Kerry had a guest recently. It was remote, and I
Speaker 2: word it might be AI. Just didn't have a clique.
Speaker 2: You never know, you never know, you never know.
Speaker 9: Wonder an optimist. Someday this is ben War converting me.
Speaker 2: I'm looking forward to being on this journey with you.
Speaker 2: G T one of the best. Appreciate it, thanks for
Speaker 2: being Thank you. G. Two p's out there the Cisco
Speaker 2: Chief Product Officer and Executive vice president. This is the
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