WEBVTT - OpenAI Gives Microsoft 27% Stake, Completes For-Profit Shift 0:00:02.520 --> 0:00:10.520 Bloomberg Audio Studios, Podcasts, radio News. This is Bloomberg business 0:00:10.520 --> 0:00:14.400 Week Daily reporting from the magazine that helps global leaders 0:00:14.440 --> 0:00:18.360 stay ahead with insight on the people, companies, and trends 0:00:18.360 --> 0:00:23.360 shaping today's complex economy. Plus global business finance and tech 0:00:23.440 --> 0:00:27.320 news as it happens. The Bloomberg Business Week Daily Podcast 0:00:27.640 --> 0:00:31.720 with Carol Masser and Tim Stenebeck on Bloomberg Radio. 0:00:32.400 --> 0:00:35.000 As we've said, Tim, there's just so much coming at 0:00:35.040 --> 0:00:37.000 us on this Tuesday, and E love it is because 0:00:37.000 --> 0:00:39.080 of end Video, but there's just so much going on 0:00:39.120 --> 0:00:41.120 when it comes to AI related news today. 0:00:41.280 --> 0:00:44.640 Yeah, Opening I continue so to forge relationships, as does PayPal. 0:00:44.760 --> 0:00:47.400 The two announce to tie up whereby PayPal's digital wallet 0:00:47.440 --> 0:00:50.720 will be embedded into Chat GPT. It'll send PayPal shares 0:00:50.800 --> 0:00:52.280 up the most in more than six months, or it 0:00:52.320 --> 0:00:54.120 did send PayPal shares up the most in more than 0:00:54.200 --> 0:00:56.720 six months. And then the Microsoft news that we've talked 0:00:56.720 --> 0:01:00.320 about quite a bit, Carol, longtime backer, Microsoft a twenty 0:01:00.600 --> 0:01:03.120 seven percent ownership stake in Open Ai. This part of 0:01:03.160 --> 0:01:05.840 a restructuring plan that took nearly a year to negotiate. 0:01:05.920 --> 0:01:08.880 It rooms a major uncertainty for both companies. And clears 0:01:08.920 --> 0:01:11.200 the path for chat GPT and the maker of chat 0:01:11.240 --> 0:01:13.560 GPT to become a for profit business. 0:01:13.640 --> 0:01:15.440 It's a lot, so let's get into it and really 0:01:15.520 --> 0:01:17.520 just how open ai continues to be at the center 0:01:17.560 --> 0:01:20.120 of so much. But we've so many questions about why 0:01:20.240 --> 0:01:23.440 Microsoft is doing this at this time. Limberg Intelligence senior 0:01:23.440 --> 0:01:26.600 technology analyst an rog Rana joining us from the Bloomberg 0:01:26.600 --> 0:01:30.080 News bureau in Chicago, anurag why is Microsoft doing this? 0:01:30.240 --> 0:01:33.320 Did the company need to do this kind of cement 0:01:33.840 --> 0:01:37.839 that relationship financially and otherwise with open Ai. 0:01:39.600 --> 0:01:41.280 Yeah, I mean they had to do it because Open 0:01:41.319 --> 0:01:43.920 the Eye has been raising capital with the idea that 0:01:44.000 --> 0:01:46.440 they will go from a not for profit to a 0:01:46.520 --> 0:01:49.840 for profit company eventually going public someday. So I mean 0:01:49.880 --> 0:01:52.240 this had to be done. The big contentious for there 0:01:52.240 --> 0:01:54.920 are so many things that they were arguing against, you know, 0:01:55.000 --> 0:01:59.200 revenue share, technology share, all sorts of different things. Microsoft 0:01:59.200 --> 0:02:02.800 had controllable which cloud providers that they can use, et cetera. 0:02:02.920 --> 0:02:05.640 So this new agreement kind of cements a lot of 0:02:05.680 --> 0:02:08.880 those things, removes a big overhang that's on I would 0:02:08.880 --> 0:02:12.400 say more on Microsoft than on open Ai, frankly, because 0:02:12.480 --> 0:02:16.760 Microsoft is using open eies technology in their products, in 0:02:16.800 --> 0:02:19.799 the copilot products that are out there. You know, that's 0:02:19.840 --> 0:02:22.440 I think for us that's the most important thing. Frankly, 0:02:22.520 --> 0:02:24.600 it's not so much the other financial details. 0:02:24.760 --> 0:02:28.200 Since Microsoft will have this twenty seven percent ownership stake 0:02:28.639 --> 0:02:33.440 in open ai, can we look at Microsoft share price 0:02:33.480 --> 0:02:36.400 on a daily basis as some sort of public proxy 0:02:37.160 --> 0:02:39.760 for open ai and how investors are valuing open Ai 0:02:40.040 --> 0:02:41.560 or am I trying to do too much math here? 0:02:42.760 --> 0:02:42.799 No? 0:02:43.000 --> 0:02:45.519 I think that's that's a bit too extrapolation over there. 0:02:45.560 --> 0:02:47.880 The thing that you want to focus on is or 0:02:48.080 --> 0:02:51.560 how many US will Microsoft has have access to open 0:02:51.600 --> 0:02:54.920 EI's leading models. So when you look at frontier models, 0:02:54.960 --> 0:02:58.320 you have open Ai, you know, perhaps you know most 0:02:58.360 --> 0:03:00.880 in the lead. Then you have Entropic Gemini. Those are 0:03:00.919 --> 0:03:04.440 the three big ones that everybody talks about down the road. 0:03:04.520 --> 0:03:07.200 Microsoft needs to make sure that the copilot products that 0:03:07.200 --> 0:03:09.360 they are selling out to the public, both on the 0:03:09.800 --> 0:03:12.200 M three sixty five and then the GETHLP co pilot 0:03:12.240 --> 0:03:15.399 which is used for coding, they really have an alternative 0:03:15.400 --> 0:03:17.840 to open EI. One answer could be they have their 0:03:17.880 --> 0:03:21.360 own models, but they're not there yet. So this contract, 0:03:21.400 --> 0:03:24.800 you know, extend that to twenty thirty two, which is, 0:03:24.960 --> 0:03:27.000 you know, you can say that they're giving themselves seven 0:03:27.040 --> 0:03:28.239 years to figure this thing out. 0:03:29.480 --> 0:03:30.079 Help me out. 0:03:30.080 --> 0:03:33.359 Though, It's just like open ai and Microsoft. I'm looking 0:03:33.400 --> 0:03:37.160 at the Bloomberg open ai and PayPal, open ai and 0:03:37.280 --> 0:03:42.160 SoftBank open ai, you know, pick your company. They are 0:03:42.320 --> 0:03:47.160 just I feel like lining up deals or agreements or 0:03:47.200 --> 0:03:51.640 relationships with everybody and anybody. I mean Microsoft, I mean, 0:03:51.680 --> 0:03:54.840 are they going to have to share the wealth if 0:03:54.880 --> 0:03:57.680 you will? And does it become a little bit messy 0:03:58.560 --> 0:04:01.840 because I'm just assuming that there will be companies that 0:04:01.960 --> 0:04:05.120 maybe in some ways are also competing with Microsoft that 0:04:05.200 --> 0:04:08.200 have deals with open ai or is that not right? 0:04:08.640 --> 0:04:09.040 I don't know. 0:04:09.600 --> 0:04:12.680 See it's a very common thing in technology. Almost everybody 0:04:12.680 --> 0:04:15.400 who's competing with each other are also working closely with 0:04:15.440 --> 0:04:17.240 each other. So that's you know, that's on the side. 0:04:17.279 --> 0:04:19.800 But when you look at open ai, that's an area 0:04:19.800 --> 0:04:23.680 where you and I use a chat GPT a lot. 0:04:23.839 --> 0:04:26.320 But imagine that. Now what you can do is, you know, 0:04:26.400 --> 0:04:29.080 let's say they have a partnership with Walmart with PayPal. 0:04:29.120 --> 0:04:31.679 Today you are looking at a product and you decide 0:04:31.680 --> 0:04:34.400 that you can just buy the product seamlessly from that. 0:04:34.720 --> 0:04:38.359 They have a similar agreement with Stripe and Shopify. So 0:04:38.640 --> 0:04:41.400 what OPENINGI is basically saying, let us be the front 0:04:41.520 --> 0:04:43.920 end for a lot of what you're doing. Let's say 0:04:43.920 --> 0:04:45.960 on the consumer side, so example that I gave you 0:04:46.240 --> 0:04:49.000 is more for a retail purchase. But on the other hand, 0:04:49.000 --> 0:04:51.800 they also have a deal with Salesforce, so for example, 0:04:52.040 --> 0:04:54.840 if you are in chat GPT and you want to 0:04:54.880 --> 0:04:58.000 look at your Salesforce application, you can do that as well. 0:04:58.120 --> 0:05:00.000 So open AI wants to make sure that they are 0:05:00.200 --> 0:05:02.200 the front end for a lot of discussions that are 0:05:02.240 --> 0:05:04.360 going to happen, and that's where I think a lot 0:05:04.360 --> 0:05:06.240 of the fighting is going to be down the road 0:05:07.080 --> 0:05:07.760 on it rog. 0:05:07.640 --> 0:05:08.120 I'm, i'm. 0:05:08.640 --> 0:05:11.000 We had this conversation with you on Vanka Vanak yesterday 0:05:11.040 --> 0:05:13.520 and he talked a lot about AI and the AI trade, 0:05:13.520 --> 0:05:16.680 but he also mentioned some stats about when when web 0:05:16.760 --> 0:05:21.080 traffic is going from chat GPT two websites, and it 0:05:21.120 --> 0:05:25.320 got me thinking about how people are increasingly replacing or 0:05:25.600 --> 0:05:28.880 supplementing what they do on the internet using chat GPT. 0:05:29.480 --> 0:05:32.520 The news today too that that this potential PayPal tie 0:05:32.600 --> 0:05:36.080 up where you can pay for stuff within chat GPT 0:05:36.640 --> 0:05:40.919 also got me thinking, does Golphabet have to be scared 0:05:40.920 --> 0:05:42.200 about its core business here? 0:05:43.960 --> 0:05:45.640 But you know, but that's been the case for so 0:05:45.720 --> 0:05:47.320 many years. I mean, there have been people have been 0:05:47.320 --> 0:05:50.600 talking about this the first day chat GPT was launched, that, oh, 0:05:50.600 --> 0:05:53.400 what's going to kill Google search business? I mean, so far, 0:05:53.520 --> 0:05:55.880 I haven't seen those numbers that are out there that 0:05:56.000 --> 0:05:58.880 are just having a very large financial impact. I'm sure 0:05:58.920 --> 0:06:01.359 there is some share loss and searchers, but I haven't 0:06:01.360 --> 0:06:04.600 seen it. So we'll see. You know, how the shapes 0:06:04.640 --> 0:06:08.760 uf Google has or Alphabet has a lot of interesting assets. 0:06:08.760 --> 0:06:11.680 I mean, they have semi conductors that are very important, 0:06:11.720 --> 0:06:16.159 They have a cloud platform, they have a large frontier model. 0:06:16.240 --> 0:06:18.120 So I think they have all the pieces out there. 0:06:18.400 --> 0:06:21.080 The question is, you know, whether the market is big 0:06:21.200 --> 0:06:24.680 enough for a lot of them to exist core coexist 0:06:25.000 --> 0:06:25.760 at the same time. 0:06:26.000 --> 0:06:28.560 Hey, Anna Rogh, you know, over the summer, Bloomberg put 0:06:28.600 --> 0:06:33.120 out how open ai said, Elon Musk identified Mark Zuckerberg 0:06:33.200 --> 0:06:34.799 is one of the people with whom he had communicated 0:06:34.800 --> 0:06:39.040 about potentially financing a deal to purchase open ai. Does 0:06:39.080 --> 0:06:41.560 this Microsoft deal put an end to any other big 0:06:41.560 --> 0:06:42.320 player coming in? 0:06:42.360 --> 0:06:43.800 I mean this is theirs. 0:06:45.640 --> 0:06:48.240 I think so. But again, you know, legal grammifications are 0:06:48.279 --> 0:06:50.440 such that you don't know how some of the judges 0:06:50.480 --> 0:06:53.000 will move towards. But this is you know, this is 0:06:53.160 --> 0:06:55.880 basically open AI saying we have figured out a way 0:06:55.920 --> 0:06:59.560 to how to go you know, you could say, become nonprofit, 0:07:00.080 --> 0:07:02.880 become for profit, and eventually some day go public. 0:07:04.440 --> 0:07:07.320 M Yeah, that's going to be interesting, right, I mean, 0:07:07.360 --> 0:07:10.400 listen what valuation. Well for open right, but. 0:07:10.400 --> 0:07:13.080 For open AI, right, they can kind of stop the 0:07:13.120 --> 0:07:16.280 money grab for now, right because they just got a 0:07:16.440 --> 0:07:18.440 massive cash infusion. 0:07:20.360 --> 0:07:22.760 Yeah, but they're also spending at the amount that nobody 0:07:22.760 --> 0:07:24.960 has seen. I mean, they have a very large contract 0:07:24.960 --> 0:07:27.360 with open Air, with the Oracle and they you know 0:07:27.400 --> 0:07:30.000 today with this agreement, they've committed another two hundred and 0:07:30.000 --> 0:07:33.680 fifty billion dollars of computing capacity with Microsoft. So it's 0:07:33.720 --> 0:07:38.520 you know, their expense is far exceeding the revenue right now. 0:07:38.520 --> 0:07:41.560 They are doing these you know, you could say investments 0:07:41.560 --> 0:07:44.880 so that down the road they can recognize the value 0:07:44.920 --> 0:07:46.760 of some of these investments. So that's I think where 0:07:46.800 --> 0:07:49.520 the where the mismatches for a lot of people, And 0:07:49.560 --> 0:07:51.920 so unless there is some equilibrium, I think it's going 0:07:51.960 --> 0:07:53.440 to be very tough for them to go public. 0:07:53.560 --> 0:07:56.760 Yeah, the money flows around AI in out is like phenomenal. 0:07:57.600 --> 0:08:00.560 An rag YouTube phenomenal. Thank you, Thank you so much. 0:08:00.600 --> 0:08:03.160 He is Bloomberg Intelligence Senior technology analyst out there in 0:08:03.160 --> 0:08:04.640 our Bloomberg New Chicago bureau. 0:08:05.960 --> 0:08:08.760 Stay with us. More from Bloomberg Business Week Daily coming 0:08:08.840 --> 0:08:09.720 up after this. 0:08:13.680 --> 0:08:17.520 You're listening to the Bloomberg Business Week Daily podcast. Catch 0:08:17.600 --> 0:08:20.280 us live weekday afternoons from two to five eas during 0:08:20.480 --> 0:08:24.440 Listen on Applecarplay and Android Auto with the Bloomberg Business app, 0:08:24.600 --> 0:08:27.160 or watch us live on YouTube. 0:08:27.920 --> 0:08:30.200 It's a FED Tuesday, Carol. It is a FED Tuesday, 0:08:30.240 --> 0:08:32.240 which means it's followed by a FED Wednesday. 0:08:33.240 --> 0:08:34.000 That's how it works. 0:08:34.000 --> 0:08:34.800 Two day meetings. 0:08:35.800 --> 0:08:37.760 Let's get too. Let's get into it with Danielle di 0:08:37.840 --> 0:08:40.200 Martino bo She's CEO and chief strategist at the research 0:08:40.240 --> 0:08:43.479 and analytics firm QI Research. He's also a former advisor 0:08:43.559 --> 0:08:46.360 at the Dallas Fed. She's here in our Bloomberg Interactive 0:08:46.360 --> 0:08:49.320 Brokers studio. We've spoken to you a couple times in 0:08:49.360 --> 0:08:51.800 recent months. I want to go back to our conversation 0:08:51.880 --> 0:08:53.360 with you. 0:08:52.800 --> 0:08:53.520 Back in July. 0:08:54.400 --> 0:08:56.199 I remember it because You were kind of the first 0:08:56.200 --> 0:09:00.880 person to warn me of weakness in the lane labor market. 0:09:01.440 --> 0:09:03.440 You talked about the gig workers out there and the 0:09:03.440 --> 0:09:07.000 people who were driving for Uber for example, or Lyft 0:09:07.080 --> 0:09:09.160 or doing other gig work, and the way that a 0:09:09.200 --> 0:09:11.320 lot of them, in your view, were overqualified because they 0:09:11.320 --> 0:09:13.320 couldn't find work and what they were trained for, what 0:09:13.360 --> 0:09:16.320 they went to college for. Is the labor market worse 0:09:16.360 --> 0:09:17.720 now than it was back in July? 0:09:18.800 --> 0:09:20.800 Judging by my lift in Uber drivers, I would have 0:09:20.840 --> 0:09:25.240 to say yes. The demographics has expanded, and you've especially 0:09:25.280 --> 0:09:28.320 got a lot of kind of college graduates right now 0:09:28.320 --> 0:09:30.440 who are looking for gig work because they can't secure 0:09:30.480 --> 0:09:34.800 work in the broader economy as they thought they would 0:09:34.800 --> 0:09:37.280 be able to, you know, walk across the stage proud 0:09:37.280 --> 0:09:40.760 with their diploma, and boom, there's no work. So I mean, 0:09:40.840 --> 0:09:43.839 right now, the unemployment rate among college graduates is the 0:09:43.880 --> 0:09:44.640 high suspense since. 0:09:44.640 --> 0:09:45.400 Nineteen eighty eight. 0:09:45.520 --> 0:09:48.000 Nineteen eighty eight, it was a supply issue because that 0:09:48.080 --> 0:09:50.800 was a peak of baby boomers entering the workforce. Now 0:09:50.840 --> 0:09:52.840 it's the flip side of it. It's a demand issue, 0:09:53.520 --> 0:09:56.840 and these kids are rightfully, they're very anxious. 0:09:57.600 --> 0:10:02.200 So when You've got Amazon on letting go fourteen thousand jobs, 0:10:02.200 --> 0:10:05.280 a lot of it corporate, right, We've got UPS and 0:10:05.320 --> 0:10:06.720 that's part of its cost cutting. 0:10:06.760 --> 0:10:09.240 Matt Zetie Deutsche Bank says, pay no attention to these 0:10:09.280 --> 0:10:12.200 headline figures because they're small in comparison to the churn 0:10:12.280 --> 0:10:13.760 that we see each and every month. 0:10:13.679 --> 0:10:15.800 And that five million jobs are still being created. So 0:10:16.800 --> 0:10:18.319 what is the net. 0:10:18.120 --> 0:10:19.319 New look skeptical. 0:10:19.559 --> 0:10:21.200 Yeah, well, I mean so. 0:10:22.640 --> 0:10:25.880 We collaborate sometimes with Macro Edge and they're they're an 0:10:25.880 --> 0:10:27.680 alternative to challenge your grand Christmas. 0:10:27.760 --> 0:10:28.120 Yeah. 0:10:28.160 --> 0:10:32.319 And with the UPS announcement this morning, and of course 0:10:32.360 --> 0:10:34.520 that was so much higher than what was expected, right, 0:10:34.840 --> 0:10:37.520 it was thirty percent of what they had previously announced. 0:10:37.559 --> 0:10:40.440 So we learned from so many companies after the fact 0:10:40.520 --> 0:10:44.280 about attrition or layoffs rather than layoffs being announced in 0:10:44.280 --> 0:10:46.880 any event. At one hundred and thirty one thousand announced 0:10:46.920 --> 0:10:50.600 layoffs for the month of October thus far, and being 0:10:50.600 --> 0:10:52.480 in the heat of earning season, when so many companies 0:10:52.520 --> 0:10:53.880 are like, I'm going to get the stock to pop, 0:10:53.920 --> 0:10:56.720 I'm going to lay some people off. We're seeing the 0:10:56.760 --> 0:11:00.400 third highest level of announced layoffs in three excuse me, 0:11:00.400 --> 0:11:03.360 in two years so that, to me at least, is 0:11:03.760 --> 0:11:07.199 alarming when you do what Chair Powell suggests you do, 0:11:07.760 --> 0:11:11.080 if you add the lack of hiring to the firing, 0:11:11.200 --> 0:11:14.120 because a few years ago there wasn't. 0:11:13.880 --> 0:11:15.240 All of this lack of hiring. 0:11:15.480 --> 0:11:19.440 Now it's very much a pervasive phenomenon in addition to 0:11:19.559 --> 0:11:20.560 the layoffs coming through. 0:11:21.400 --> 0:11:23.520 Yeah, and then there was the hoarding that was still 0:11:23.559 --> 0:11:24.960 going on after the pandemic. 0:11:25.040 --> 0:11:25.959 People were freaked out. 0:11:26.000 --> 0:11:29.280 They couldn't find workers, right, absolute pandemic post pandemic, and 0:11:29.360 --> 0:11:31.000 so they're like, let me hold on to it. 0:11:31.000 --> 0:11:33.480 I mean, UPS is ap eight percent, and they're you know, 0:11:33.880 --> 0:11:34.720 UPS is flawed. 0:11:34.760 --> 0:11:35.920 I mean, but I mean, but look at the one 0:11:35.960 --> 0:11:36.480 year chart. 0:11:36.840 --> 0:11:40.079 Yeah, it's a good point of UPS. And that required 0:11:40.120 --> 0:11:41.360 forty eight thousand layoffs. 0:11:41.400 --> 0:11:44.800 In addition to the thirty four thousand they announced there 0:11:44.800 --> 0:11:48.400 was another fourteen thousand in their corporate office. Amazon today 0:11:48.440 --> 0:11:52.000 said that's fourteen, but that's fourteen of thirty and we 0:11:52.080 --> 0:11:52.360 know that. 0:11:52.320 --> 0:11:56.439 Stocks down thirty percent in the past year. WEPS, Yeah, UPS, 0:11:56.440 --> 0:12:01.040 Oh yes, absolutely well, So then got quite the all right, 0:12:01.120 --> 0:12:02.720 one word, how do you describe the economy? 0:12:02.760 --> 0:12:07.240 One word weak? So does the FED obviously needs to cut. 0:12:07.040 --> 0:12:11.080 In your view, I don't think the FED has any Yes, 0:12:11.120 --> 0:12:12.800 the FED absolutely has to cut. I think that they 0:12:12.920 --> 0:12:15.880 begin to discuss given the magnitude of the layoffs that 0:12:15.920 --> 0:12:19.240 are rolling in and the lack of hiring that Chair 0:12:19.320 --> 0:12:22.440 Powell said could in and of itself increase the unemployment rate. 0:12:22.600 --> 0:12:24.800 I think that right now what they're discussing is twenty 0:12:24.800 --> 0:12:26.400 five or fifty in December. 0:12:27.559 --> 0:12:28.800 So can I just throw at you? 0:12:30.120 --> 0:12:33.000 Like Tim and I have had lots of conversations about earnings, right, 0:12:33.440 --> 0:12:35.920 Earnings growth is there, Revenue growth is there. 0:12:36.679 --> 0:12:40.760 So companies are doing well. 0:12:41.120 --> 0:12:43.560 That's the analysis that has come our way. And it's 0:12:43.600 --> 0:12:45.440 not just big tech, although we'll see what big tech 0:12:45.480 --> 0:12:47.680 has right this week because we get a big read, 0:12:49.280 --> 0:12:50.880 but it's been broader based. 0:12:51.880 --> 0:12:53.520 I would say that Earth you not agree with that? 0:12:53.760 --> 0:12:55.480 No, no, no, I would say that earnings are doing 0:12:55.520 --> 0:12:59.600 better than revenues. And so in one survey after another, 0:12:59.760 --> 0:13:03.040 whether it's a CEO survey, a CFO survey, a regional FED. 0:13:02.800 --> 0:13:05.640 Surveys, revenue growth, it's I think coming in better. That's again, 0:13:06.160 --> 0:13:08.520 there's revenue growth. But remember these are all. 0:13:08.400 --> 0:13:12.800 Based on lowered bars that are easier to get over. 0:13:12.840 --> 0:13:15.640 I mean, if it's if you want to look at 0:13:15.640 --> 0:13:18.240 the entire revenue picture, I think it's important to bring 0:13:18.240 --> 0:13:21.120 in the bcy go function and look at the bankruptcies 0:13:21.120 --> 0:13:23.160 that are coming in on top of this. And that 0:13:23.400 --> 0:13:27.559 is you know, S and P has been tracking monthly 0:13:27.600 --> 0:13:32.599 bankruptcies uh forever and last month September came into the 0:13:32.640 --> 0:13:36.199 highest number in the post pandemic era of bankruptcies. And 0:13:36.240 --> 0:13:39.839 we're seeing what I mean, bcygos hoppin'. Whoever whatever's in 0:13:39.920 --> 0:13:40.720 charge of that is busy. 0:13:40.880 --> 0:13:42.560 So is is you know, we talk a lot about 0:13:42.559 --> 0:13:44.960 the K shaped economy when it comes to consumers, but 0:13:45.080 --> 0:13:48.120 is it is it? Is it a K shaped market 0:13:48.720 --> 0:13:51.680 where you know the and we know this about the 0:13:51.720 --> 0:13:53.760 S and P five hundred companies that they are, you know, 0:13:54.080 --> 0:13:56.840 the mag seven have just carried this index for years. 0:13:57.040 --> 0:14:01.240 But are you seriously concerned about pretty much the other 0:14:01.280 --> 0:14:02.560 company all the other companies? 0:14:03.320 --> 0:14:04.920 Well, I mean, if you're asking me if I'm seriously 0:14:04.920 --> 0:14:07.400 concerned about the other ninety percent of Americans who are 0:14:07.400 --> 0:14:09.880 outside of the top ten percent who represent fifty percent 0:14:09.880 --> 0:14:10.720 of spending. 0:14:10.640 --> 0:14:11.560 Yes, yes I am. 0:14:11.960 --> 0:14:14.480 And I think we're seeing that in freight. 0:14:14.440 --> 0:14:16.680 But we're seeing it in freight, and we're seeing it 0:14:16.679 --> 0:14:19.400 in some companies, but we're not seeing it. I mean, 0:14:19.440 --> 0:14:21.040 we're at record a new record for. 0:14:22.280 --> 0:14:24.240 Not seeing it in asset prices. Why are we not 0:14:24.240 --> 0:14:25.480 buying it an assets prices? 0:14:25.480 --> 0:14:28.520 Well, there's something very automated about this market, and this 0:14:28.600 --> 0:14:30.920 market will continue to feed on itself because that is 0:14:31.360 --> 0:14:33.360 that is the structure of passive investing. 0:14:33.440 --> 0:14:33.840 Structure. 0:14:34.000 --> 0:14:37.280 Passive investing forces stock prices up because you have to 0:14:37.320 --> 0:14:41.000 buy the biggest market cap look at Nvidia today. But 0:14:41.120 --> 0:14:45.120 that's that is a function not of necessarily enthusiasm about 0:14:45.120 --> 0:14:47.400 in Nvidia the stock on a fundamental level, the way 0:14:47.480 --> 0:14:49.560 we used to think of portfolio management one oh one. 0:14:49.680 --> 0:14:52.880 But it is a function of passive investing flows. 0:14:54.000 --> 0:14:56.080 So what do you tell investors? Do you just tell 0:14:56.080 --> 0:14:57.880 them get ready? 0:15:01.600 --> 0:15:04.480 According to Bloomberg, the cost of hedging against a decline 0:15:04.480 --> 0:15:06.880 in the markets is very expensive right now. So we 0:15:07.000 --> 0:15:09.600 know that, we know that portfolio managers are very nervous 0:15:09.600 --> 0:15:10.360 about what's happening. 0:15:10.560 --> 0:15:11.880 But no, I actually watch. 0:15:11.800 --> 0:15:15.400 The FED the most closely because you've got all of 0:15:15.440 --> 0:15:17.560 this money, trillions and trillions, and I think twelve thirteen 0:15:17.600 --> 0:15:20.200 trillion dollars in cash cast equivalents, money market friends, et cetera. 0:15:21.240 --> 0:15:24.040 That's you know, that's predominantly owned by people who are 0:15:24.080 --> 0:15:24.800 seventy and older. 0:15:25.040 --> 0:15:25.720 So as long as the. 0:15:25.640 --> 0:15:28.560 FED does not cut too much, I think we're okay. 0:15:29.000 --> 0:15:32.200 But if the FED starts to cut into what retirees 0:15:32.240 --> 0:15:34.440 consider to be the corpus of their monthly income, because 0:15:34.440 --> 0:15:37.880 they have really enjoyed the FED being higher for longer, 0:15:38.400 --> 0:15:42.320 they've collected every single fifty basis point cut by the FED, 0:15:42.400 --> 0:15:44.960 you take seventy one billion dollars of cash out of 0:15:45.000 --> 0:15:47.320 the hands of retirees. We don't want for people who 0:15:47.400 --> 0:15:49.320 own forty percent of the stock market, ie the seventy 0:15:49.360 --> 0:15:52.680 year olds to even think about selling, because that unleash 0:15:52.720 --> 0:15:53.200 is passive. 0:15:53.440 --> 0:15:55.840 Okay, got to leave it there. Hey, thanks, good to 0:15:55.840 --> 0:15:56.120 see you. 0:15:56.200 --> 0:15:59.360 Danielle Di Martino Booth CEO, Chief strategist at the Research 0:15:59.360 --> 0:16:01.560 and Analytics for QI Research. 0:16:02.960 --> 0:16:05.720 Stay with us. More from Bloomberg Business Week Daily coming 0:16:05.840 --> 0:16:06.720 up after this. 0:16:10.280 --> 0:16:13.480 Let's not forget we have a big storm. We know 0:16:13.600 --> 0:16:17.720 Hurricane Melissa has made landfall in Jamaica. Strong, strong wind 0:16:17.840 --> 0:16:20.920 and so it's something we're talking about a Category five storm. 0:16:21.000 --> 0:16:22.960 This is a very serious storm. 0:16:23.120 --> 0:16:26.320 Yeah, Melissa Crosston to Jamaica, with sustained winds of one 0:16:26.400 --> 0:16:28.760 hundred and eighty five miles per hour, making it a 0:16:28.840 --> 0:16:32.200 rare Category five hurricane at landfall. It's struck near your 0:16:32.240 --> 0:16:34.800 New Hope on Jamaica's southern coast, is about twenty five 0:16:34.840 --> 0:16:38.320 miles south of Montego Bay. The US National Hurricane Center 0:16:38.360 --> 0:16:40.920 set in a statement at one pm in New York Times. 0:16:40.960 --> 0:16:44.080 Since then, it's strongest winds have weakened to one hundred 0:16:44.080 --> 0:16:46.480 and sixty miles per hour, still at the top of 0:16:46.560 --> 0:16:49.920 the five step scale. We got a great voice with us. 0:16:49.920 --> 0:16:51.880 I want to bring in Eric Roston. He's Bloomberg News 0:16:51.880 --> 0:16:55.360 Climbate reporter. He joins us from New Jersey. Eric, it's 0:16:55.400 --> 0:16:58.840 too early to be talking about the actual cleanup effort. 0:16:59.040 --> 0:17:02.320 We don't even know that devastation that this current storm 0:17:02.320 --> 0:17:06.719 will rot and also what happens later on in hurricane season. 0:17:06.760 --> 0:17:09.880 But you've talked a lot, and you've written and reported 0:17:09.920 --> 0:17:14.360 a lot about the big business of disaster recovery. Let's 0:17:14.400 --> 0:17:18.320 talk numbers here, because you looked at those numbers in Asheville, 0:17:18.359 --> 0:17:21.480 North Carolina, for example. Just how much does it cost 0:17:21.480 --> 0:17:23.800 to clean up after one of these natural disasters. 0:17:26.480 --> 0:17:29.400 Just to take readers back a second to a year ago. 0:17:30.080 --> 0:17:33.960 In at the end of September twenty twenty four, Hurricane Helene. 0:17:34.320 --> 0:17:37.560 Technically it was a tropical storm by then, but didn't matter. 0:17:38.760 --> 0:17:41.040 Instead of going out to the Atlantic, took a left 0:17:41.040 --> 0:17:45.479 of the Appalachians and brought us just about the worst 0:17:45.640 --> 0:17:49.160 Appalachian hurricane you've ever seen. That's not a phrase we're 0:17:49.240 --> 0:17:55.800 used to hearing before. In December, after there was an accounting, 0:17:56.520 --> 0:17:59.560 North Carolina came out with a report saying that it 0:17:59.640 --> 0:18:04.400 caused sixty billion dollars in damage, concentrated in the western 0:18:04.440 --> 0:18:14.960 part of the state, which includes Ashville. Wow, the cleanup 0:18:15.000 --> 0:18:22.000 effort has largely been completed. When it comes to the 0:18:22.000 --> 0:18:27.720 immediate aftermath of removing debris, there was three and a 0:18:27.760 --> 0:18:33.399 half million cubic yards of debris removed from Buncombe County alone. 0:18:33.960 --> 0:18:38.200 That's the county where Asheville, the city of Ashville is located. 0:18:39.160 --> 0:18:43.679 And what you miss from the numbers is, and I 0:18:43.680 --> 0:18:47.360 spent time down there in May, is just the incredible 0:18:48.800 --> 0:18:54.639 vitality of this community and the incredible pride of western 0:18:54.640 --> 0:18:57.240 North Carolinians. Of course, other states were hit as well, 0:18:58.280 --> 0:19:02.000 in trying to claw back the worst hurricane that part 0:19:02.040 --> 0:19:03.520 of the state I'd ever seen. 0:19:03.920 --> 0:19:05.639 You know, I got to say, Eric, that doesn't surprise 0:19:05.720 --> 0:19:08.119 me my husband as a family member who is living 0:19:08.320 --> 0:19:10.560 in that area, and just first of all the neighborhoods 0:19:10.560 --> 0:19:12.959 coming out to help one another with generators and so 0:19:13.000 --> 0:19:15.919 on and so forth. But then you know, everybody kind 0:19:15.960 --> 0:19:18.440 of had to leave because there was no infrastructure left 0:19:19.640 --> 0:19:22.359 really you know, to be there day by day. But 0:19:22.520 --> 0:19:25.640 as you say, it's impressive, like the comeback or what 0:19:25.800 --> 0:19:27.680 people want to do to bring everything back. 0:19:28.480 --> 0:19:30.080 It's interesting in a day. 0:19:29.960 --> 0:19:32.960 Where we're talking a lot about the US economy, we're 0:19:32.960 --> 0:19:35.880 waiting for a FED decision, we have a government shutdown, 0:19:35.920 --> 0:19:38.200 we don't get a lot of government data. We're trying 0:19:38.200 --> 0:19:41.159 to figure out what is the economy going forward, what 0:19:41.200 --> 0:19:44.160 will be the strains on the economy. Maybe AI will 0:19:44.200 --> 0:19:49.840 mean less job creation here. Unfortunately, these extreme weather disasters, 0:19:50.480 --> 0:19:53.480