WEBVTT - US Consumer Confidence Tumbles Again to Lowest Since Early 2021 0:00:02.720 --> 0:00:10.520 Bloomberg Audio Studios, Podcasts, radio news. You're listening to the 0:00:10.560 --> 0:00:14.480 Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 0:00:14.560 --> 0:00:18.479 Eastern on Applecarplay and Android Auto with the Bloomberg Business App. 0:00:18.600 --> 0:00:21.800 Listen on demand wherever you get your podcasts, or watch 0:00:21.920 --> 0:00:23.400 us live on YouTube. 0:00:23.920 --> 0:00:25.960 Bloomberg Intelligence Radio. All right, let's get back to those 0:00:25.960 --> 0:00:29.160 consumer confidence numbers, because we continue to see the soft 0:00:29.200 --> 0:00:32.120 data disappointing, yet we do not see that within the 0:00:32.240 --> 0:00:35.640 hard data dot dot dot. Yet consumer confidence falling to 0:00:35.800 --> 0:00:38.400 a two year low. From more on this, we are 0:00:38.479 --> 0:00:41.840 joined by Stephanie Guichard, senior economists at the Conference Board. 0:00:41.880 --> 0:00:44.880 She joins us, Stephanie walk us through this two year low. 0:00:44.920 --> 0:00:45.640 What was behind it? 0:00:47.000 --> 0:00:50.320 So the index fell seven point two points to ninety 0:00:50.320 --> 0:00:52.760 two point nine, and as you said, this was the 0:00:52.800 --> 0:00:57.080 lowest since August twenty twenty one. What's important is that 0:00:57.360 --> 0:01:01.120 now this okay, this was the fourth decline, and now 0:01:01.160 --> 0:01:04.479 the index is below that trench in which it has 0:01:04.560 --> 0:01:07.720 been overeing for the past two years. So it's clearly 0:01:07.880 --> 0:01:12.200 a week reading. What has been driving the decline is 0:01:12.319 --> 0:01:16.319 especially the expectation component of our index, where we see 0:01:16.360 --> 0:01:21.280 consumers negative about the future of the labor market, future 0:01:21.319 --> 0:01:26.280 label conditions, and importantly getting less more and more worried 0:01:26.360 --> 0:01:27.720 about future income. 0:01:28.680 --> 0:01:31.000 So, Stephanie, it seems like I would think one of 0:01:31.040 --> 0:01:33.399 the key issues here would be job security. And it 0:01:33.440 --> 0:01:35.479 seems like the job market is still the labor market's 0:01:35.480 --> 0:01:39.600 still pretty strong here. But is this just investors kind 0:01:39.600 --> 0:01:41.960 of taking in the day to day news flow and 0:01:42.480 --> 0:01:45.039 kind of putting that into a confidence kind of expectation. 0:01:46.000 --> 0:01:49.560 No, So for the current situation of the label market, 0:01:49.680 --> 0:01:52.520 I mean, consumers agree that the label market is still 0:01:52.640 --> 0:01:56.520 or actively strong, but looking into the next six months, 0:01:56.520 --> 0:01:59.840 we are getting worried. We're getting worried about the label 0:01:59.840 --> 0:02:03.520 mart in general. And what's interesting in US survey is 0:02:03.520 --> 0:02:06.880 that they're also getting worried about their income, which means 0:02:06.880 --> 0:02:11.040 that potentially about getting worried about losing their jobs in 0:02:11.080 --> 0:02:12.480 the next six months. 0:02:12.520 --> 0:02:15.880 Interesting that it's the labor part, not the inflation and 0:02:16.000 --> 0:02:19.160 rising up prices part. Where did that play into this? 0:02:20.280 --> 0:02:23.320 So we don't ask, especially, I mean, in our index 0:02:23.360 --> 0:02:27.760 we don't cover inflation directly. However, I mean we know 0:02:27.880 --> 0:02:29.880 and it has been the case for the past two years, 0:02:29.919 --> 0:02:34.040 consumers are not very happy about the level of prices 0:02:34.160 --> 0:02:39.320 and about the fact that inflation has stopped slowly. So 0:02:39.360 --> 0:02:43.000 that's I mean, this is clearly playing into consumers' mood, 0:02:43.720 --> 0:02:46.639 but it's not captured fully in our index because we 0:02:47.080 --> 0:02:50.360 focus on labor market, business condition, and future income. 0:02:51.200 --> 0:02:52.600 So I'm looking at the conference board. 0:02:52.639 --> 0:02:55.400 The expectations number came in at sixty five point two 0:02:55.520 --> 0:02:57.960 versus seventy two point or actually seventy four point eight 0:02:58.080 --> 0:03:01.639 last period, give usus a. Is that an order of bagnitude? 0:03:01.720 --> 0:03:02.440 Is that concerning? 0:03:03.960 --> 0:03:04.120 It? 0:03:04.200 --> 0:03:06.160 Is? I mean, we need to see whether this is 0:03:06.160 --> 0:03:09.120 getting confirmed next month, because as you know, the centex 0:03:09.240 --> 0:03:12.160 is going up and down on a months to months basis. 0:03:12.160 --> 0:03:14.640 But this is the lowest reading for the past twelve 0:03:14.760 --> 0:03:17.359 years as far as expectations are concerned. 0:03:18.320 --> 0:03:22.480 All right, one more questions as well. Do you do 0:03:22.520 --> 0:03:25.079 you do the survey? Is there any distinction between those 0:03:25.120 --> 0:03:28.360 that identify as independence, Democrats or republicans or is it 0:03:28.360 --> 0:03:29.239 across the board? 0:03:30.240 --> 0:03:32.080 So the survey is across the board. 0:03:32.760 --> 0:03:36.480 Meaning that the respondents identify across all of those three bases. 0:03:36.560 --> 0:03:38.960 So we is that what you mean? 0:03:40.160 --> 0:03:44.360 So we yeah, So the survey, the consumers, we survey 0:03:44.440 --> 0:03:47.880 across the board. They we have, you know, the different 0:03:47.960 --> 0:03:52.280 political groups covered. This is a representative sample of the 0:03:52.400 --> 0:03:53.160 US population. 0:03:54.280 --> 0:03:56.480 All right, definitely really appreciate it. Thank you so very much. 0:03:56.480 --> 0:04:00.120 Sepnickie Schard joining us from the Consumer Conference Board. She 0:04:00.200 --> 0:04:02.520 is a senior economist over there. After that drops to 0:04:02.680 --> 0:04:05.000 a two year low. But again we got a wait 0:04:05.040 --> 0:04:07.560 to see it in the hard data for us to 0:04:07.600 --> 0:04:10.640 suffer things to then affect sort of the real economy 0:04:10.640 --> 0:04:12.920 as well as the equity market and bond market, et cetera. 0:04:14.760 --> 0:04:18.440 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:04:18.520 --> 0:04:21.599 weekdays at ten am Eastern on Apple Coarcklay, and Android 0:04:21.640 --> 0:04:24.920 Auto with the Bloomberg Business App. Listen on demand wherever 0:04:25.000 --> 0:04:28.680 you get your podcasts, or watch us live on YouTube. 0:04:29.040 --> 0:04:32.479 We had some home building news out today. New home 0:04:32.520 --> 0:04:35.360 sales came in kind of just a smidge blow expectation 0:04:35.480 --> 0:04:37.720 six hundred and seventy six thousand versus six hundred and 0:04:37.720 --> 0:04:41.800 eighty thousand. We also had KB Homes report some earning 0:04:41.839 --> 0:04:43.440 to day that we're a little disappointing to the street. 0:04:43.440 --> 0:04:45.720 This stock is down five percent. Let's check in with 0:04:45.839 --> 0:04:49.760 Drew Reading. He covers all the homebuilders for Bloomberg Intelligence Drew. 0:04:49.800 --> 0:04:53.880 Let's start with the new home sales number, six hundred 0:04:53.880 --> 0:04:56.120 and seventy six thousand. It's again kind of just a 0:04:56.160 --> 0:04:59.240 smidge blow expectations, but a little better than last month. 0:05:00.120 --> 0:05:02.279 What's an industry look like, what's the market look like 0:05:02.320 --> 0:05:03.000 these days? 0:05:03.880 --> 0:05:06.360 Yeah, so we're about up about you know, two percent, 0:05:06.400 --> 0:05:08.760 give or take month over month and year overy year. 0:05:09.160 --> 0:05:11.919 We've kind of been bumping along this mid six hundred 0:05:12.000 --> 0:05:16.440 thousand annualized pace since mid twenty twenty three, so you know, 0:05:16.920 --> 0:05:20.120 demand isn't necessarily bad, but we're not seeing that lift 0:05:20.440 --> 0:05:23.440 that we had hoped coming into the year. So overall, 0:05:23.480 --> 0:05:25.840 the start to spring has been very soft, as you 0:05:25.880 --> 0:05:29.520 would expect. Affordability is still the biggest challenge out there 0:05:29.520 --> 0:05:32.599 in the market. Home prices are up fifty percent, Mortgage 0:05:32.680 --> 0:05:34.520 rates have come down, but they're still in the high 0:05:34.600 --> 0:05:38.000 six percent range. And what's interesting now that we're starting 0:05:38.040 --> 0:05:40.400 to hear more and more and kind of corroborated by 0:05:40.560 --> 0:05:43.840 some of the data this morning, is that declining consumer 0:05:43.920 --> 0:05:46.719 confidence is becoming more of an issue for housing. We 0:05:46.760 --> 0:05:48.400 heard it from a number of builders, we heard it 0:05:48.440 --> 0:05:52.000 from KB Home last night, and it's you know, consumers 0:05:52.000 --> 0:05:54.920 are more concerned about the direction and growth in the economy, 0:05:54.960 --> 0:05:58.560 perhaps more concerned that their job isn't secure. So I 0:05:58.600 --> 0:06:01.839 think that caution is all also contributing to the softness 0:06:01.880 --> 0:06:02.839 we're seeing in the market. 0:06:03.080 --> 0:06:04.920 So that's so interesting because we talk a lot about 0:06:04.920 --> 0:06:07.159 the sentiment data and how that has to translate into 0:06:07.160 --> 0:06:09.840 the hard data, and we think one thinks about that 0:06:09.880 --> 0:06:12.520 more in terms of like retail sales or GDP. But 0:06:13.160 --> 0:06:15.640 your hypothesis from the read through we get we're getting 0:06:15.640 --> 0:06:18.839 from the actual homebuilders is that that's actually translating into 0:06:19.240 --> 0:06:21.119 putting the pause button now. 0:06:22.440 --> 0:06:24.440 Yeah, I think you have consumers out there who are saying, 0:06:24.600 --> 0:06:26.680 maybe now is not the best time to make such 0:06:26.720 --> 0:06:30.400 an important and large decision. You know, we've also heard 0:06:30.440 --> 0:06:32.520 it from the home improvement retailer, so people in the 0:06:32.560 --> 0:06:37.440 repair remodeling market are delaying large ticket discretionary projects. 0:06:37.520 --> 0:06:37.680 You know. 0:06:37.720 --> 0:06:38.920 A lot of it has to do with the fact 0:06:38.920 --> 0:06:42.520 that coming into the year, consumers were expecting rates to 0:06:42.560 --> 0:06:44.880 come down. You know, if they come down a little 0:06:44.880 --> 0:06:47.600 bit since January, like I said, down about fifty basis points, 0:06:47.839 --> 0:06:49.640 but I don't think we've gotten the relief that they 0:06:49.680 --> 0:06:52.560 need to see what's interesting we heard this from Lenar 0:06:52.680 --> 0:06:56.360 last week, is that they're having more trouble qualifying buyers. 0:06:56.400 --> 0:06:59.680 So maybe people have the down payment and they can 0:06:59.680 --> 0:07:02.760 afford monthly payment, but their overall debt levels just because 0:07:02.800 --> 0:07:04.680 of everything else that they're having to deal with the 0:07:04.720 --> 0:07:08.440 cumulative impact of inflation is getting it a little more 0:07:08.480 --> 0:07:09.760 challenging for them to qualify. 0:07:10.800 --> 0:07:14.720 So we heard from KB Home they reported today I 0:07:14.760 --> 0:07:16.640 see the stock down five percent of the fifty two 0:07:16.680 --> 0:07:20.800 week low. They also, I guess called out home affordability. 0:07:21.200 --> 0:07:22.440 What's what's gone on to KB? 0:07:23.600 --> 0:07:26.480 Yeah, so sentiment coming into the quarter was already pretty 0:07:26.520 --> 0:07:28.680 low across the space, and you know, they fell short 0:07:28.680 --> 0:07:33.160 of those expectations. Orders were down seventeen percent. They had 0:07:33.160 --> 0:07:35.880 guide it to orders being about flat, so a pretty 0:07:35.920 --> 0:07:38.720 significant miss on the order front. So they also cut 0:07:38.760 --> 0:07:41.480 their revenue guidance and their margin guidance. And the reason is, 0:07:42.000 --> 0:07:44.600 and this is something we're seeing across the space, more incentives, 0:07:44.600 --> 0:07:46.360 but they're doing it on the home price front. So 0:07:46.360 --> 0:07:50.240 they're reducing base home prices, which has been less common 0:07:50.280 --> 0:07:53.280 so far in the industry. They've cut prices in about 0:07:53.320 --> 0:07:56.120 fifty percent of their markets by an average of fifteen 0:07:56.160 --> 0:07:59.400 thousand dollars. They said that ranges anywhere from five to 0:07:59.480 --> 0:08:02.720 thirty thousand dollars. And what's interesting is they mentioned that 0:08:02.760 --> 0:08:06.560 they're having to get more aggressive in markets in Florida, 0:08:06.560 --> 0:08:08.320 which is something we heard from Lennard as well. 0:08:08.920 --> 0:08:13.400 That's really interesting. Also quite a big number when you 0:08:13.480 --> 0:08:17.320 mentioned that the worry about higher rates, right, and everyone's 0:08:17.360 --> 0:08:19.120 kind of expecting lower rates this year or the end 0:08:19.160 --> 0:08:21.840 of last year and didn't materialize. If we just sort 0:08:21.880 --> 0:08:25.880 of normalize around these levels, what's the lead time until 0:08:25.920 --> 0:08:28.680 consumers say, oh, okay, I can make I can be 0:08:28.720 --> 0:08:30.160 okay with seven percent. 0:08:31.920 --> 0:08:33.960 Yeah. I don't know how comfortable people are going to 0:08:33.960 --> 0:08:35.920 be with the seven percent mortgagery. I think you need 0:08:35.960 --> 0:08:39.400 to see maybe something in the low sixes. You know, 0:08:39.440 --> 0:08:41.320 we've heard in the past that anything with a five 0:08:41.360 --> 0:08:44.280 handle from the builders has done well. But I think, 0:08:44.360 --> 0:08:46.520 you know, I think maybe the way forward might be 0:08:46.640 --> 0:08:49.079 for at least for the builders is on home prices. 0:08:49.720 --> 0:08:53.160 Prices are, like I said, fifty percent above pre pandemic levels, 0:08:53.200 --> 0:08:55.200 and I think people are just having a lot of 0:08:55.240 --> 0:08:57.000 problem with that. Maybe there's a little bit of fear 0:08:57.000 --> 0:08:58.959 of buying at the top of the market that's holding 0:08:59.000 --> 0:09:01.280 them back. So again it goes to not only the 0:09:01.280 --> 0:09:03.959 confidence issue from the economy, but how confident are they 0:09:03.960 --> 0:09:07.320 in the sustainability of these elevated home prices. So rates 0:09:07.360 --> 0:09:10.079 are certainly a big component. As rates come down, you'll 0:09:10.080 --> 0:09:12.200 see that marginal home buyer come back in. But I 0:09:12.200 --> 0:09:14.800 don't think that's the only factor that's holding things back. 0:09:15.120 --> 0:09:16.719 All right, Drew, thanks so much for joining us. Drew 0:09:16.720 --> 0:09:20.240 reading homebloading analysts for Bloomberg Intelligence, joining us from Princeton, 0:09:20.720 --> 0:09:22.400 New Jersey. 0:09:22.920 --> 0:09:26.600 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:09:26.679 --> 0:09:30.079 weekdays at ten am Eastern on Applecarcklay and Android Auto 0:09:30.200 --> 0:09:33.240 with the Bloomberg Business App. Listen on demand wherever you 0:09:33.280 --> 0:09:36.680 get your podcasts, or watch us live on YouTube. 0:09:37.440 --> 0:09:39.520 Alex Deeal Paul Sweeney, You're live here in our Bloomer 0:09:39.640 --> 0:09:42.920 Interactive Broker Studio. We are streaming live on YouTube as well. 0:09:43.440 --> 0:09:44.560 Head over to YouTube dot com and. 0:09:44.520 --> 0:09:48.320 Search Bloomberg Podcasts Live and that's where you'll find us here. 0:09:48.520 --> 0:09:50.559 Looks like the markets are kind of stabilized here. 0:09:50.559 --> 0:09:53.959 We had that Peaka trough pullback of about ten percent, 0:09:54.480 --> 0:09:56.960 and we've kind of been kind of bumping along, rolling 0:09:57.000 --> 0:09:58.800 a little bit two three percent off of that bottom. 0:09:58.840 --> 0:09:58.960 Here. 0:09:59.000 --> 0:10:00.200 Let's check out where we go from here. 0:10:00.280 --> 0:10:05.000 Grace Lee, Senior portfolio manager, Columbia thread Needle up in Boston, 0:10:05.080 --> 0:10:08.520 joining us via that zoom thing. So Grace again, peak 0:10:08.559 --> 0:10:10.240 to trough on yes and P five fund. Just a 0:10:10.240 --> 0:10:12.600 few days ago we kind of hit a ten percent 0:10:12.640 --> 0:10:13.280 correction level. 0:10:13.320 --> 0:10:14.520 We bounced a little bit here. 0:10:15.280 --> 0:10:17.160 How do you think about the market these days? 0:10:18.559 --> 0:10:21.680 Well, I think the market did have a healthy pullback. 0:10:21.720 --> 0:10:25.720 It was probably necessary after a couple really strong years, 0:10:26.520 --> 0:10:30.040 and it's it's probably warranted given all of the uncertainty, 0:10:30.720 --> 0:10:34.160 particularly with the Trump administration coming in not even one 0:10:34.240 --> 0:10:36.640 hundred days in and all of these these changes and 0:10:36.720 --> 0:10:40.319 executive orders and caraff threats and then pull back some 0:10:40.320 --> 0:10:42.880 on care for threats. So this is all I think, 0:10:43.000 --> 0:10:46.360 just part of a healthy digestion process, and I think 0:10:46.920 --> 0:10:50.600 it also might be heralding, you know, a shift in 0:10:51.040 --> 0:10:55.600 where investors might be looking for the next opportunities after 0:10:56.280 --> 0:11:00.839 you know, a huge run in, particularly growth stocks, which. 0:11:00.559 --> 0:11:03.920 Begs the very unsophisticated question, is it a sell the 0:11:04.000 --> 0:11:05.520 rally or by the dip scenario? 0:11:07.280 --> 0:11:10.000 Well, I think it's it's it might be a little 0:11:10.000 --> 0:11:12.880 bit more nuanced than that, you know, it might be 0:11:12.960 --> 0:11:16.960 more of a rotation by the dip in other uh, 0:11:17.280 --> 0:11:21.520 in other sectors, in other companies that that investors may 0:11:21.559 --> 0:11:25.400 not have looked at previously. It's not necessarily going back 0:11:25.440 --> 0:11:28.280 to the same things that have worked in the past. 0:11:29.320 --> 0:11:32.920 I do think the the market deserves to broaden out 0:11:32.920 --> 0:11:34.880 and is broadening out. And I think you can see 0:11:34.920 --> 0:11:38.840 that already. You're to date in the bifurcation between let's 0:11:38.840 --> 0:11:42.960 say value and growth stocks. You know, value investors like 0:11:43.000 --> 0:11:47.520 myself actually think things are are looking okay and feeling 0:11:47.720 --> 0:11:50.640 pretty decent in the market. You know, I think my 0:11:51.040 --> 0:11:54.720 growth peers maybe not not so much. But I think 0:11:54.800 --> 0:11:57.640 that you know, again, I think investors have maybe lost 0:11:57.679 --> 0:11:59.760 a little bit of their muscle memory and looking at 0:12:00.240 --> 0:12:03.480 at things that are not growth and momentum and tech, 0:12:04.679 --> 0:12:08.000 and so I think, you know, aside from from you know, 0:12:08.080 --> 0:12:14.120 selling the rally or uh, you know, or or rotating 0:12:14.160 --> 0:12:17.400 into the same old things, it's it's really you know, 0:12:17.640 --> 0:12:21.040 rotating into other things that that have not worked as well, 0:12:21.080 --> 0:12:26.280 and you know, are looking extremely inexpensive and actually attractive 0:12:26.320 --> 0:12:27.040 right now. 0:12:28.160 --> 0:12:31.600 Value versus growth, where do you see the opportunities here? 0:12:31.640 --> 0:12:33.840 This has been a market that's been driven by tech 0:12:33.880 --> 0:12:35.280 and the MAC seven for a long time. 0:12:36.200 --> 0:12:37.559 How do you see it going forward? 0:12:38.559 --> 0:12:41.600 Yeah, I think I think this might be the year 0:12:41.720 --> 0:12:44.600 for for value stocks. It is starting out that way, 0:12:44.840 --> 0:12:49.199 and I'm pretty I'm pretty optimistic about that. I think 0:12:49.280 --> 0:12:52.520 that the setup is actually very good for for value 0:12:52.559 --> 0:12:55.360 stocks in that you have had a couple of years 0:12:55.360 --> 0:13:00.000 of very strong growth driven markets, and and I think 0:13:00.120 --> 0:13:02.720 you're starting to see a little bit more hesitation on 0:13:02.960 --> 0:13:06.719 even things like the AI trade, and so for investors 0:13:06.720 --> 0:13:09.200 that want to hedge a little bit, take some chips 0:13:09.200 --> 0:13:12.920 off the table, not necessarily put it all in European stocks. 0:13:13.960 --> 0:13:17.960 You know, there's there's ordinary American stocks. I think people 0:13:18.000 --> 0:13:22.280 talk about is American exceptionalism over because of let's say 0:13:22.320 --> 0:13:25.440 deep seek. I would say that, you know, I think 0:13:25.480 --> 0:13:30.839 if they refocus on the American ordinariness, you know, the 0:13:31.200 --> 0:13:34.560 core companies that that make up the big base of 0:13:34.600 --> 0:13:37.360 the economy, you know, the bread and butter, and this 0:13:37.440 --> 0:13:41.959 is this largely pertains to traditional value stocks, you know, 0:13:42.000 --> 0:13:45.240 and these are the companies that put up reliable singles 0:13:45.240 --> 0:13:47.240 and doubles. They're usually not going to hit it out 0:13:47.280 --> 0:13:50.360 of the park. But you know, but I think that 0:13:50.360 --> 0:13:54.440 that's the area that again is starting to perk up 0:13:54.480 --> 0:13:57.000 this year and probably has some runway here. 0:13:57.679 --> 0:14:01.720 So that whole idea grace that Tina there is no alternative. 0:14:01.720 --> 0:14:03.640 That's why you have to buy us docs. It feels 0:14:03.640 --> 0:14:07.080 like Tina doesn't exist anymore. But that doesn't necessarily mean 0:14:07.320 --> 0:14:08.679 sell you stocks. 0:14:09.920 --> 0:14:10.600 Right right. 0:14:10.679 --> 0:14:14.640 It's just looking at again the ignored sectors of the market. 0:14:14.679 --> 0:14:16.960 I mean, could you if you could believe that the 0:14:17.120 --> 0:14:19.680 energy sector is up I think close to eight percent 0:14:19.800 --> 0:14:23.040 year to date, you know, and that's even with UH 0:14:23.640 --> 0:14:26.000 knowing that that OPEC plus might have a lot more 0:14:26.000 --> 0:14:28.520 oil coming on the market. So there's a lot of 0:14:29.200 --> 0:14:32.320 areas that have been really ignored by by a lot 0:14:32.320 --> 0:14:35.760 of investors who have really crowded into the growth tech 0:14:35.840 --> 0:14:39.760 space for such a long time. And you know, and 0:14:40.560 --> 0:14:43.600 I think it's looking at value stocks as not just 0:14:44.200 --> 0:14:48.320 a you know, run for shelter, but also just a 0:14:48.680 --> 0:14:53.920 good place to find you know, interesting companies UH and 0:14:53.920 --> 0:14:57.280 and sectors that are going to work you know in 0:14:57.280 --> 0:15:00.760 an in a moderating growth economy me which I think 0:15:00.800 --> 0:15:03.720 is what we're going to be seeing not necessarily recession, 0:15:03.760 --> 0:15:07.040 although if we do go into recession again, that a 0:15:07.040 --> 0:15:10.080 lot of these value and defensive stocks will work better 0:15:10.120 --> 0:15:10.600 as well. 0:15:10.680 --> 0:15:13.840 Right, all right, Grace, thank you so much. I always 0:15:13.840 --> 0:15:15.880 appreciate getting a few minutes of your time. Grace Lee, 0:15:15.960 --> 0:15:18.800 Senior Footfallway manager at Columbia Thread Needle. 0:15:20.480 --> 0:15:24.160 You're listening to the Bloomberg Intelligence podcast. Catch us live 0:15:24.280 --> 0:15:27.360 weekdays at ten am Eastern on Apple Coarclay, and Android 0:15:27.360 --> 0:15:30.680 Auto with the Bloomberg Business app. Listen on demand wherever 0:15:30.720 --> 0:15:35.160 you get your podcasts, or watch us live on youtubekoy. 0:15:35.200 --> 0:15:37.520 I think we've gone several days with that really talking 0:15:37.560 --> 0:15:38.480 technology that's. 0:15:38.360 --> 0:15:38.920 Not like us. 0:15:39.000 --> 0:15:40.480 It's been like a full twenty four hours, is it? 0:15:40.520 --> 0:15:40.720 Yeah? 0:15:40.720 --> 0:15:41.880 Okay, yeah, well we'll counting weekend. 0:15:41.920 --> 0:15:43.320 It's like seventy two exactly. 0:15:43.520 --> 0:15:46.200 Mandy've sing joins us, he'll fix that right away. He's 0:15:46.200 --> 0:15:48.000 a senior tech analyst for Bloomberg Intelligence. 0:15:48.000 --> 0:15:50.120 A kind of the news that got our tension a 0:15:50.120 --> 0:15:50.480 little bit. 0:15:50.520 --> 0:15:55.080 Is Bloomberg News reporting tech chiefs foreign leaders urge President 0:15:55.120 --> 0:15:59.000 Trump to rethink AI chip curbs. What is the current 0:15:59.080 --> 0:16:02.040 understanding of how towers may impact. 0:16:01.680 --> 0:16:02.840 The global chip marking point? 0:16:02.840 --> 0:16:05.480 Because when I think about a global supply chain, chips 0:16:05.520 --> 0:16:06.600 is certainly right there. 0:16:06.760 --> 0:16:11.240 Absolutely, And look, I think the earliest export controls go 0:16:11.360 --> 0:16:15.479 back to twenty twenty two when the Biden administration imposed 0:16:15.760 --> 0:16:20.040 controls on Nvidia kind of shipping their highest end chip 0:16:20.080 --> 0:16:23.640 to China. So at that time it was really restricting 0:16:23.680 --> 0:16:28.200 their interconnect bandwidth because remember with AI, all these chips 0:16:28.240 --> 0:16:30.840 are used as a big cluster, so they thought that 0:16:30.880 --> 0:16:34.360 could prevent you know, China from using the latest Nvidia chips. 0:16:34.680 --> 0:16:38.120 That didn't suffice, so then they added kind of a 0:16:38.160 --> 0:16:41.360 new form of restriction, and then the diffusion real rule 0:16:41.440 --> 0:16:44.440 came into play, which was almost one hundred and sixty 0:16:44.440 --> 0:16:49.360 eight page rule around like how Nvidia is supposed to 0:16:49.520 --> 0:16:53.640 ship their latest and greatest chips to three different sets 0:16:53.680 --> 0:16:56.920 of allies in terms of you know, countries that have 0:16:57.680 --> 0:17:02.600 unrestricted access versus the ones where China could use them 0:17:02.640 --> 0:17:05.000 as a proxy to get access to the chips. So 0:17:05.359 --> 0:17:08.440 there were different sort of clauses in terms of restricting 0:17:09.000 --> 0:17:12.439 the access to those chips. But at this point, you know, 0:17:12.480 --> 0:17:15.680 given we keep hearing about Chinese llms and group being 0:17:15.720 --> 0:17:19.680 the latest one releasing their own LLM at low costs, 0:17:20.080 --> 0:17:23.200 It just goes to show that even with all the restrictions, 0:17:23.240 --> 0:17:26.240 it hasn't really impeded their progress in any way and 0:17:26.320 --> 0:17:29.040 they are able to, you know, build on whatever they 0:17:29.080 --> 0:17:29.800 have available. 0:17:30.160 --> 0:17:33.920 So to that point, do chip companies that are like, hey, 0:17:34.000 --> 0:17:35.560 just let us get a piece of the pie that's 0:17:35.560 --> 0:17:38.040 already going to build no matter what, or are they 0:17:38.040 --> 0:17:39.399 really losing revenue from this? 0:17:39.960 --> 0:17:42.320 Yeah, So there are two sides to it. One is, 0:17:42.440 --> 0:17:45.640 if you ask an LLLM company like open Ai, Sam 0:17:45.680 --> 0:17:48.760 Altman has said, had it not been the export controls, 0:17:49.080 --> 0:17:52.720 they would be more undersupplied. Remember this market has been 0:17:52.840 --> 0:17:56.919 undersupplied for a very long time. Everyone wants more GPUs 0:17:57.080 --> 0:18:00.000 that they don't have access to. If the export controls 0:18:00.080 --> 0:18:03.480 were not in place, these companies would be even more undersupplied. 0:18:03.520 --> 0:18:06.760 But the other side is Nvidia is saying I'm losing 0:18:06.800 --> 0:18:10.080 revenue because I have got, you know, twenty percent revenue 0:18:10.080 --> 0:18:13.040 exposure to China. It's getting lower and lower to the 0:18:13.040 --> 0:18:16.040 point that it will be less than ten percent now 0:18:16.200 --> 0:18:19.200 and I'm losing potential revenue that I could get by 0:18:19.240 --> 0:18:22.040 selling my chips. So there are both sides to it. 0:18:22.160 --> 0:18:25.160 But I think the fact that this market is undersupplied 0:18:25.680 --> 0:18:29.240 means that Nvidia does have you know, somebody to buy 0:18:29.240 --> 0:18:32.119 their chips, and they continue to command premium pricing for that. 0:18:32.640 --> 0:18:35.680 Do we have any idea where China is in terms 0:18:35.680 --> 0:18:38.439 of developing their chips, where their technology is. 0:18:38.760 --> 0:18:39.040 Yeah. 0:18:39.080 --> 0:18:43.680 So with the latest Group model release, what they said 0:18:43.920 --> 0:18:46.840 was they were able to bring down the pre training 0:18:46.920 --> 0:18:50.679 costs by twenty percent by using not just the chips 0:18:50.680 --> 0:18:54.200 that are available from Nvidia, but also their homegrown Huawei 0:18:54.359 --> 0:18:57.280 chips or you know, AMD chips. So they talked about 0:18:57.280 --> 0:19:02.520 a heterogeneous computer architecture and using that for pre training. 0:19:02.600 --> 0:19:06.960 And look, in the end, everyone is looking to optimize 0:19:07.000 --> 0:19:10.320 the infrastructure, more so in the case of Chinese llms 0:19:10.359 --> 0:19:13.520 because they don't have access to the latest and video chips, 0:19:13.520 --> 0:19:17.360 which give you more performance per unit of power than 0:19:17.400 --> 0:19:21.080 any other chip company can provide. So from that perspective, 0:19:21.119 --> 0:19:24.560 I feel they've done well in terms of using what's available. 0:19:25.040 --> 0:19:28.119 But clearly I think the US based LLM companies have 0:19:28.200 --> 0:19:31.439 an advantage given they have the best performing chips and 0:19:31.520 --> 0:19:34.080 they can train their models much better. They can use 0:19:34.080 --> 0:19:36.960 it for reasoning, so it is an advantage at the 0:19:37.080 --> 0:19:37.600 end of the day. 0:19:37.640 --> 0:19:39.880 That's what I was asking for and and deep seek, etc. 0:19:40.200 --> 0:19:43.080 Like Are they accurate in the same way that LM 0:19:43.119 --> 0:19:44.440 models in the US are accurate. 0:19:44.640 --> 0:19:48.120 No, I think the OpenAI models are way better when 0:19:48.160 --> 0:19:52.200 it comes to the reasoning capabilities and really the multimodeal 0:19:52.240 --> 0:19:55.480 capabilities that everyone cares about. At the end of the day, 0:19:55.680 --> 0:19:58.400 the use case for AI is not just a tech 0:19:58.480 --> 0:20:02.479 space prompt risk sponds. It's much more than that. If 0:20:02.520 --> 0:20:06.800 you're talking about AGI, and you know, everyone feels like 0:20:06.880 --> 0:20:09.879 we can get to AGI, it's it's not just tech space. 0:20:09.960 --> 0:20:13.400 You need audio, you need video, and the Chinese lms 0:20:13.400 --> 0:20:16.840 are still way behind when it comes to the other modalities. 0:20:17.000 --> 0:20:19.200 Right, let's be honest, you and anurag build a career 0:20:19.800 --> 0:20:22.760 on seven stocks. Basically the people still want to talk 0:20:22.800 --> 0:20:25.639 to you about the MAG seven or is that just passe? 0:20:25.960 --> 0:20:29.400 Absolutely? I mean you can't really talk about the indices 0:20:29.440 --> 0:20:32.240 without these MAG seven stocks. So, no matter what happens 0:20:32.280 --> 0:20:35.080 to the market, these are some of the best companies 0:20:35.119 --> 0:20:38.120 when it comes to generating free cash flow. And look, 0:20:38.520 --> 0:20:41.960 they have tremendous modes so and they drive the marks. 0:20:41.960 --> 0:20:44.240 I just feel like that, you know, fifteen percent or 0:20:44.320 --> 0:20:47.800 so drawn down in the MAG seven's is that temporary 0:20:47.920 --> 0:20:51.160 there's still that has knock anybody's confidence in those names. 0:20:51.240 --> 0:20:54.919 Yeah, it's still the prevailing sort of sentiment that you know, 0:20:55.040 --> 0:20:58.159