WEBVTT - Bloomberg Surveillance: Tech in Focus

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<v Speaker 1>This is the Bloomberg Surveillance Podcast. I'm Tom Keene along

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<v Speaker 1>with Paul Sweeney. Join us each day for insight from

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<v Speaker 1>the best in economics, finance, investment, and international relations. You

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<v Speaker 1>can also watch the show live on YouTube. Visit the

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<v Speaker 1>Bloomberg Podcast channel on YouTube to see the show weekday

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<v Speaker 1>mornings from seven to ten am Eastern from our global

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<v Speaker 1>headquarters in New York City. Subscribe to the podcast on Apple, Spotify,

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<v Speaker 1>or anywhere else you listen, and always I'm Bloomberg Radio,

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<v Speaker 1>the Bloomberg Terminal, and the Bloomberg Business App. Look how

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<v Speaker 1>out of the net right now? Helping us here with

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<v Speaker 1>the markets? What do you do at thirty eight thousand

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<v Speaker 1>or UBS one?

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<v Speaker 2>By and large, you're prepared for a consolidation given the

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<v Speaker 2>strength of the run, but you prepare for hire. Really

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<v Speaker 2>is our view or view coming into the year, is

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<v Speaker 2>that the surprise of the year, the thing that markets

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<v Speaker 2>weren't expecting, would be that stocks actually in a soft

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<v Speaker 2>landing less than any other major asset class, and that

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<v Speaker 2>stocks could rise hit pressure record highs without getting much

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<v Speaker 2>help from lower bond yields. So far, that's what happened.

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<v Speaker 2>What we expect the next leg will be you know,

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<v Speaker 2>possibly after some consolidation, is a more broadening out of

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<v Speaker 2>that rally. So it's not just you know, on the

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<v Speaker 2>backs of the of the few.

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<v Speaker 1>So kay, we got industrials coming out and it's pretty

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<v Speaker 1>shaky this morning. We didn't J and J did well,

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<v Speaker 1>but others really pretty rocky morning. Do you subdivide into

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<v Speaker 1>the day to day grind the tech growthy profitable companies,

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<v Speaker 1>cash flow companies like Microsoft from everybody else, or do

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<v Speaker 1>you pull them together?

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<v Speaker 2>So our view for for a while now has been

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<v Speaker 2>that given just the extent of earnings out performance you're

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<v Speaker 2>getting from some of these names intact, you just you

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<v Speaker 2>can't you can't be short them. You really cannot be

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<v Speaker 2>short some of these cast generating machines. And you know

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<v Speaker 2>we have no overweight to technology and sector ETFs where

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<v Speaker 2>we have that ability. So it the short answer is

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<v Speaker 2>is yes, still still enjoy those, still separate them. However,

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<v Speaker 2>you know, our view is more towards the broadening out.

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<v Speaker 2>Want to have betting on a lot of different winners,

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<v Speaker 2>whether that's in US financials, whether that's in you know,

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<v Speaker 2>em ex China, whether that's in Japan. I really do

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<v Speaker 2>think the story is the soft landing and narrative is

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<v Speaker 2>a boon to risk assets the world over.

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<v Speaker 3>Hey, look, you know we had that great run to

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<v Speaker 3>end the year last year in kind of November December.

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<v Speaker 3>I don't recall earnings expanding that much during that period.

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<v Speaker 3>We have a valuation risk here in the marketplace. Given

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<v Speaker 3>that run we had.

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<v Speaker 2>Certainly at a valuation risk. You could also say that

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<v Speaker 2>since the start of twenty twenty two and theory valuations

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<v Speaker 2>have also improved mildly, So you can you know, you

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<v Speaker 2>can play that off one way or another. Valuation is

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<v Speaker 2>clearly not the best market timing tool. What it is

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<v Speaker 2>very good at is kind of delineating how close to

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<v Speaker 2>the money you might want your stop to be at

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<v Speaker 2>a very very rich valuation. You might want to stop

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<v Speaker 2>a little closer to the money at something that you

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<v Speaker 2>know has a little more evaluation support. You might be

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<v Speaker 2>a little more consistent to be able to bear out

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<v Speaker 2>a weaker stretch.

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<v Speaker 3>So you mentioned merging markets here. I've heard Japan mentioned,

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<v Speaker 3>not to Japan's on merging market, but I've heard Japan

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<v Speaker 3>mentioned more in the last six months that I have

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<v Speaker 3>in the last twenty years. What's going on in Japan.

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<v Speaker 2>There's a lot of different elements here I think you

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<v Speaker 2>can tie together. I think first, there's been a long

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<v Speaker 2>story of trying to get to corporate Japan to improve

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<v Speaker 2>its shareholder return programs that actually became serious. You actually

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<v Speaker 2>really start to see more concrete steps around that, you know,

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<v Speaker 2>let's call it February March of last year, and really

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<v Speaker 2>start to see that ramp up and the market glom

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<v Speaker 2>onto that. The second is Japan is probably the best

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<v Speaker 2>levered play to nominal growth that you have out there.

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<v Speaker 2>It's you're predominantly export oriented the earnings outlook, and it's

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<v Speaker 2>also benefited from, at the same time having the end

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<v Speaker 2>as weak as it is. The third element, Sorry I

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<v Speaker 2>have to, but the third element is is it just

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<v Speaker 2>definitely the fact that from an Asian perspective, if it's

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<v Speaker 2>China or Japan, I think that rotational flow has been

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<v Speaker 2>a very important story.

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<v Speaker 1>The heart of the matter is this debate over cash

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<v Speaker 1>or deep into January, and everybody knows there's six eight

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<v Speaker 1>trillion out there, bringing up literally in every conversation because

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<v Speaker 1>all of our listeners and viewers are looking at cash,

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<v Speaker 1>where's it going to go? Is there a UBS formula

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<v Speaker 1>that says x percent of it goes back to deposits.

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<v Speaker 2>I would say the just speaking generally into longer duration assets.

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<v Speaker 2>So this is something that even at the start of

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<v Speaker 2>last year, because I would say the macromood was a

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<v Speaker 2>lot lower. Going to the start of last year, A

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<v Speaker 2>big thing I was pounding the table on was reinvestment risk.

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<v Speaker 2>Reinvestment risk, You're not going to be able to get

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<v Speaker 2>this yield on cash forever. Well, now that's actually more

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<v Speaker 2>teed up. I think people are a lot more aware

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<v Speaker 2>of what's what's coming down the pipe here. So it's

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<v Speaker 2>it's effectively we are going to see some flows into

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<v Speaker 2>whether it's longer duration or whether it's into the equity market.

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<v Speaker 2>We would expect some more support on a flow basis

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<v Speaker 2>as it becomes more apparent that cuts and the yield

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<v Speaker 2>on cash is going down for good news reasons, a

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<v Speaker 2>soft landing, falling inflation, rather than bad news reasons a stumbling,

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<v Speaker 2>a deteriorating economy.

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<v Speaker 3>All right, so Tom's been all over this magnificent seven.

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<v Speaker 3>He's just been printing it in twenty twenty three.

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<v Speaker 1>How about for the rest of us.

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<v Speaker 3>I mean I missed that trade, no surprise, my new

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<v Speaker 3>Jersey municipals have done just fine, thank you. But where

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<v Speaker 3>do I go now? I mean, do I chase those

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<v Speaker 3>magnificent seven yere I miss?

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<v Speaker 2>I must have missed it when Tom left the Triple

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<v Speaker 2>Lover doll Hash Fund in favor of Greener your.

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<v Speaker 3>Pastors, now Stealth's move into market.

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<v Speaker 2>Are our views things like US mid caps, US financials, EMX, China.

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<v Speaker 2>Those are some of the areas where you are seeing

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<v Speaker 2>some more relative earning support valuations a heck of a

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<v Speaker 2>lot supportive. So if you if you're looking at things

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<v Speaker 2>that have been relative laggards, have a lot of catch

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<v Speaker 2>up potential if the risk gone mood stays going. Those

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<v Speaker 2>are probably some of the spaces where we expectator.

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<v Speaker 1>Love Kawa talk. Now we got to go to hockey.

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<v Speaker 1>You know, there's a great video out there, folks of

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<v Speaker 1>a really magnificent moment and I lived it in that

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<v Speaker 1>Michigan when I played was number one in the nation

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<v Speaker 1>with that question. Red Berenson was the force there and

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<v Speaker 1>I had the privilege of talking to him as he said, Tom,

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<v Speaker 1>you're not good enough. You're not going to escape from Michigan.

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<v Speaker 1>Somebody else was and it's one of the most famous

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<v Speaker 1>goals in NCAA history. Your father and I went back

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<v Speaker 1>and forth, Lukala the other day on one of the

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<v Speaker 1>greatest goals the NCD he went around Jim Craig and

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<v Speaker 1>put the Urban the net and they lost to Wisconsin

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<v Speaker 1>in the finals. But so lot, that's Wisconsin, a bunch

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<v Speaker 1>of Canadians. But what a joy growing up with Ben Kawa.

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<v Speaker 1>What was that like? I mean, was he do you

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<v Speaker 1>have you in the backyard doing sprints?

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<v Speaker 2>Not not sprints? But man, they're still next to his

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<v Speaker 2>his dad just turned one hundred this year. They're still

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<v Speaker 2>an outdooryard right in the park beside their place where

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<v Speaker 2>he remembers skating as early as hell in some years.

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<v Speaker 2>And you know, now, I think it's well into the

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<v Speaker 2>new year before that thing freezes over. To make what

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<v Speaker 2>you will. But yeah, no, what a what a great guy,

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<v Speaker 2>what a great coach. And it's been, you know, great

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<v Speaker 2>getting to banter with him on hockey over the years,

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<v Speaker 2>as it is with you as well.

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<v Speaker 1>Okay, well, thanks so much, Lukawa with us in good

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<v Speaker 1>morning to Ben Koa and mister Kyler Senior. One hundred

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<v Speaker 1>years old, one hundred years very cool. Carl Ricadonna is

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<v Speaker 1>at VMP Perry Bob, and he knows that you read

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<v Speaker 1>Blinder in ballmart at fourteenth edition at Princeton, because that

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<v Speaker 1>is gospel.

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<v Speaker 4>And if you go to.

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<v Speaker 1>Chapter eighteen, they talk about factors of production and other

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<v Speaker 1>bow tie stuff involving productivity. Carl, productivity right now is

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<v Speaker 1>a mystery. How does our mystery of productivity marginal productivity theory,

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<v Speaker 1>how does that into what I believe is a fully

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<v Speaker 1>employed America.

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<v Speaker 4>Well, we good morning all, first of all, and as

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<v Speaker 4>we think about the productivity numbers, it's really kind of

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<v Speaker 4>a snow globe at the moment post polgetic, because we've

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<v Speaker 4>had wild swings in both directions, and so this is

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<v Speaker 4>really a residual measure of economic performance. And I think

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<v Speaker 4>we won't understand the productivity trend until we get to

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<v Speaker 4>more steady state performance in the economy, which I'm optimistic

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<v Speaker 4>that will be the case in twenty twenty four. But

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<v Speaker 4>typically as you have a kind of labor scarcity episodes

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<v Speaker 4>and high wage inflation, that creates the type of capital

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<v Speaker 4>investment which does lead to higher productivity numbers. That being said,

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<v Speaker 4>as we look at forward indicators of capital spending and whatnot.

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<v Speaker 4>They don't look great. Capex intentions look pretty poor for

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<v Speaker 4>the economy at the moment. So there really is kind

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<v Speaker 4>of a two way narrative or two way discussion that

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<v Speaker 4>we'll have to filter through over the course of this year.

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<v Speaker 1>I love, love, love the Rick Adonna snow Globe analog.

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<v Speaker 1>We will steal that and use that, Carl. If that

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<v Speaker 1>is the case, we're a fully employed America. But Paul

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<v Speaker 1>Sweeney and I are getting emails by the hour saying,

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<v Speaker 1>you guys are nuts. How can we have a four

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<v Speaker 1>percent sub four percent unemployment rate and we're getting the

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<v Speaker 1>emails we're getting.

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<v Speaker 5>How does that happen?

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<v Speaker 4>Well, what's interesting if we look at the last jobs report,

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<v Speaker 4>there was some peculiar behavior in labor force participation. Had

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<v Speaker 4>we not seen those moves, the unemployment rate would indeed

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<v Speaker 4>be moving above four percent. So there's definitely a down

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<v Speaker 4>vector on the labor market at the moment. It's been

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<v Speaker 4>pretty steadily decelerating for the last twenty four months really,

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<v Speaker 4>and so this may be creating some perceptions of economic weakness.

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<v Speaker 4>But tying into today's events in New Hampshire and as

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<v Speaker 4>we think about the presidential cycle, there's weak economic sentiment

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<v Speaker 4>from the public. But I think that over the course

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<v Speaker 4>of this year, as it becomes more apparently that inflation

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<v Speaker 4>has moderated and it becomes more apparent that the labor

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<v Speaker 4>market is still on a relatively healthy footing, this economic messaging,

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<v Speaker 4>I think is going to play favorably into incumbent politicians,

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<v Speaker 4>most importantly the top of the ticket. The presidential races

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<v Speaker 4>are very sensitive to economic conditions. Ronald Reagan said it

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<v Speaker 4>in nineteen eighty asking voters, are you better off than

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<v Speaker 4>four years ago? And Bill Clinton also honed in on

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<v Speaker 4>that message in ninety two with his unofficial campaign slogan

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<v Speaker 4>of it's the economy stupid, and I think it's the

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<v Speaker 4>economy is going to resonate with voters, and maybe we

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<v Speaker 4>saw kernels of that in the last Michigan sentiment survey

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<v Speaker 4>as well.

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<v Speaker 3>Hey Carl, what are you? And the good people at

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<v Speaker 3>BNP parabal what are you? Quick're econom a call here

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<v Speaker 3>for twenty four A you in the soft landing camp?

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<v Speaker 6>Where are you guys?

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<v Speaker 4>It's some version of soft landing, So maybe we'll say

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<v Speaker 4>soft ish landing, because when you have the fastest and

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<v Speaker 4>most aggressive fed tightening campaign in four decades. Just to

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<v Speaker 4>think that comes in for a perfect landing, I think

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<v Speaker 4>is maybe a little bit too optimistic. So we are

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<v Speaker 4>cognizant that there will be some tensions here between still

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<v Speaker 4>very restrictive monetary policy, rising real rates in the economy

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<v Speaker 4>at the same time that the labor market and income

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<v Speaker 4>trends are decelerating. So I think it will be a

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<v Speaker 4>bumpier version of soft landing that plays out, but I

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<v Speaker 4>think it will still fall short of what would be

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<v Speaker 4>called a recession by the Business Cycle Dating Committee. So

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<v Speaker 4>all in all, it looks to be a decent year ahead.

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<v Speaker 3>Hey, Carl, we just saw some earnings from some of

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<v Speaker 3>the industrial companies, whether it's General Electric or three AM.

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<v Speaker 3>A little bit of softness there, and we've seen softness

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<v Speaker 3>in the manufacturing economy for many months now. But boy,

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<v Speaker 3>the consumers hanging in there. What's your call on the

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<v Speaker 3>consumer here for the year.

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<v Speaker 4>So the consumers hanging in there, And just to take

0:12:12.760 --> 0:12:17.320
<v Speaker 4>one step back looking at those big industrials, rights, as

0:12:17.360 --> 0:12:20.520
<v Speaker 4>a macroeconomist puts on his equity strategist hat, right, we

0:12:20.960 --> 0:12:25.480
<v Speaker 4>focus on the nominal GDP trend and rather than margins,

0:12:25.600 --> 0:12:28.680
<v Speaker 4>we look at inflation, right, there, they're measuring the same

0:12:28.679 --> 0:12:31.640
<v Speaker 4>thing essentially, and when we think about the twenty twenty

0:12:31.640 --> 0:12:34.800
<v Speaker 4>four outlook, it will be a year where nominal GDP

0:12:34.960 --> 0:12:37.840
<v Speaker 4>is slower than what we've seen in the recent years.

0:12:37.960 --> 0:12:41.520
<v Speaker 4>Doesn't mean it's contracting, but it's definitely decelerating. And also,

0:12:41.720 --> 0:12:45.040
<v Speaker 4>as inflation moderates, that's going to put pressure on corporate margins.

0:12:45.040 --> 0:12:48.319
<v Speaker 4>So if you have slowing top line growth and margin compression,

0:12:48.360 --> 0:12:53.119
<v Speaker 4>that's a challenging year, you know, a challenging outlook for

0:12:53.120 --> 0:12:55.679
<v Speaker 4>for equities. Now, the other side of that is that

0:12:55.840 --> 0:12:59.240
<v Speaker 4>consumers are relatively healthy. We still have a tight labor market,

0:12:59.280 --> 0:13:03.120
<v Speaker 4>we still have a persistent wage pressure. So one way

0:13:03.120 --> 0:13:05.480
<v Speaker 4>to think of that is it delays the fed's rate

0:13:05.520 --> 0:13:09.360
<v Speaker 4>cut plans, but you know, wage pressures are still running.

0:13:09.400 --> 0:13:12.520
<v Speaker 4>It effectively four percent four point six percent is measured

0:13:12.520 --> 0:13:16.200
<v Speaker 4>by the Employment cost Index, and this is, you know,

0:13:16.320 --> 0:13:18.120
<v Speaker 4>bad news for the FED that wants to get quickly

0:13:18.160 --> 0:13:21.160
<v Speaker 4>back to two percent inflation, but it's good news for

0:13:21.280 --> 0:13:23.920
<v Speaker 4>the resilience of consumer activity in a car.

0:13:24.280 --> 0:13:27.680
<v Speaker 1>I use a ten year inflation adjusted yield to real yield, folks,

0:13:27.840 --> 0:13:30.240
<v Speaker 1>is sort of my you know, it's like the Gilbert

0:13:30.320 --> 0:13:33.280
<v Speaker 1>Kem set to correct donated years ago in the basement,

0:13:33.760 --> 0:13:36.920
<v Speaker 1>and I look, Carl, the tenure really yield one point

0:13:36.960 --> 0:13:38.920
<v Speaker 1>eight zero to break out above one point eight six

0:13:39.080 --> 0:13:42.720
<v Speaker 1>is new territory. Are you suggesting a sustained higher real

0:13:42.840 --> 0:13:45.720
<v Speaker 1>yield is where at one point eighty three right now?

0:13:47.679 --> 0:13:51.120
<v Speaker 4>I think if we have a sustained higher real yield,

0:13:51.120 --> 0:13:54.439
<v Speaker 4>that is going to put downward pressure on economic activity.

0:13:54.440 --> 0:13:56.360
<v Speaker 4>And I like to think of it in Fed funds terms.

0:13:56.440 --> 0:13:58.000
<v Speaker 4>So if we take the you know, five and a

0:13:58.040 --> 0:14:01.880
<v Speaker 4>half Fed funds rate, we look what's happening in core inflation.

0:14:02.080 --> 0:14:05.520
<v Speaker 4>Pick your poison, whether you want to look at inflation expectations,

0:14:05.640 --> 0:14:08.640
<v Speaker 4>core CPI, core PC deflator, which we'll get another look

0:14:08.679 --> 0:14:12.760
<v Speaker 4>at this Friday. In that type of measure, it's telling

0:14:12.760 --> 0:14:16.679
<v Speaker 4>you that the policy rate is moving higher and maybe

0:14:16.760 --> 0:14:20.360
<v Speaker 4>too high for kind of a soft landing type of

0:14:21.000 --> 0:14:22.960
<v Speaker 4>play out for the year. And so I think that

0:14:23.000 --> 0:14:24.880
<v Speaker 4>means that there has to be a course correction. I

0:14:24.920 --> 0:14:27.160
<v Speaker 4>don't think at the March meeting, but I think by

0:14:27.200 --> 0:14:29.440
<v Speaker 4>the time the second quarter rolls around, we will have

0:14:29.600 --> 0:14:33.600
<v Speaker 4>more confidence that the economy is moderating, the labor market

0:14:33.640 --> 0:14:37.240
<v Speaker 4>is coming into better balance, inflation pressures have moved lower,

0:14:37.320 --> 0:14:40.560
<v Speaker 4>so they still need to continue pushing on inflation with

0:14:41.720 --> 0:14:44.440
<v Speaker 4>real rates well above our star so at two percent

0:14:44.480 --> 0:14:46.600
<v Speaker 4>real rate. But there will be a time for a

0:14:46.720 --> 0:14:49.080
<v Speaker 4>recalibration around the middle of this year.

0:14:49.200 --> 0:14:52.360
<v Speaker 1>Well, we're our start FREEO on Tuesday, Carlson in short here,

0:14:52.400 --> 0:14:55.320
<v Speaker 1>thank you so much. Carl Rick. Odona is a BNP paradi.

0:15:00.080 --> 0:15:02.360
<v Speaker 1>She did the Gabelli track, that's what we call it here.

0:15:02.360 --> 0:15:04.400
<v Speaker 1>If you go to BC and then Fordham, yep, we

0:15:04.480 --> 0:15:05.560
<v Speaker 1>call that the Mario Gabelli.

0:15:05.680 --> 0:15:07.400
<v Speaker 3>That's a good track. And this is this is a.

0:15:07.440 --> 0:15:11.960
<v Speaker 1>Really important conversation, folks, because she came off the derivatives

0:15:12.000 --> 0:15:14.760
<v Speaker 1>desk at Deutsche Bank and it's socked Gen, which is

0:15:14.960 --> 0:15:20.600
<v Speaker 1>owned European derivatives. Sock Gen invented the math trading gaining

0:15:20.680 --> 0:15:24.240
<v Speaker 1>and losing here on equity derivatives. Sylvia Jablonski joins us

0:15:24.240 --> 0:15:27.080
<v Speaker 1>with Defiance this morning. Sylvia, let me just start out

0:15:27.080 --> 0:15:30.760
<v Speaker 1>with Defiance ETFs. I love your cruise ETF. You know

0:15:31.480 --> 0:15:33.960
<v Speaker 1>it's it's been great. It's a triple leverage all cruise

0:15:34.000 --> 0:15:37.600
<v Speaker 1>ETF love it. But why did you guys choose not

0:15:37.720 --> 0:15:39.560
<v Speaker 1>to do a bitcoin ETF.

0:15:39.680 --> 0:15:43.120
<v Speaker 5>Let's go right there, good, good morning time, Thanks for

0:15:43.120 --> 0:15:45.880
<v Speaker 5>having me. Well, you know, I think it's at ETFs

0:15:45.880 --> 0:15:48.440
<v Speaker 5>A lot of times it's a it's a first movers market,

0:15:48.560 --> 0:15:51.880
<v Speaker 5>and there were a whole lot of first movers yeah here.

0:15:52.080 --> 0:15:54.880
<v Speaker 5>You know, so once you start hearing that black rocks

0:15:54.880 --> 0:15:57.000
<v Speaker 5>in the game, you know you had to great scale

0:15:57.000 --> 0:15:59.600
<v Speaker 5>people converting GBTC. It's just you know, you have to

0:15:59.600 --> 0:16:02.080
<v Speaker 5>make sound business decisions and know where you're going to win.

0:16:02.200 --> 0:16:04.440
<v Speaker 5>But we probably would have to be honest if we

0:16:04.440 --> 0:16:07.920
<v Speaker 5>were had a chance of being first just within the cards.

0:16:07.920 --> 0:16:11.360
<v Speaker 1>For us, we understand price volatility, like in cruises during

0:16:11.360 --> 0:16:14.200
<v Speaker 1>the pandemic. I'm sure your ETF was sport there on

0:16:14.240 --> 0:16:16.000
<v Speaker 1>a day to day basis. What do you make of

0:16:16.080 --> 0:16:19.560
<v Speaker 1>price volatility of bitdog forty nine thousand when I stepped

0:16:19.560 --> 0:16:22.360
<v Speaker 1>into it. Thank you folks that worked out and we're

0:16:22.440 --> 0:16:25.520
<v Speaker 1>enjoying sub forty thousand this morning, thirty eight thousand and

0:16:25.600 --> 0:16:28.880
<v Speaker 1>nine sixty one. What will be the ramifications of that

0:16:29.000 --> 0:16:35.160
<v Speaker 1>price volatility for the billions in bitdog ETFs.

0:16:35.760 --> 0:16:38.000
<v Speaker 5>I like the Bitdog ETFs. I think that a whole

0:16:38.040 --> 0:16:39.680
<v Speaker 5>lot of people are going to buy the bit Dog

0:16:39.720 --> 0:16:43.920
<v Speaker 5>ETFs pretty soon when it falls to that, you know,

0:16:44.040 --> 0:16:46.920
<v Speaker 5>thirty seven thousand, maybe even thirty six thousand level before

0:16:46.920 --> 0:16:48.840
<v Speaker 5>it starts to rally up. I think this is kind

0:16:48.840 --> 0:16:51.160
<v Speaker 5>of a classic sell the news thing. And you know,

0:16:51.240 --> 0:16:53.960
<v Speaker 5>the thing with these bitcoin ETFs and bitcoin in general,

0:16:54.200 --> 0:16:55.960
<v Speaker 5>you have a lot of people that actually believe in

0:16:56.000 --> 0:16:58.160
<v Speaker 5>the thesis of the product and that you know, it

0:16:58.240 --> 0:17:00.880
<v Speaker 5>will be digital gold, that there's a place for it

0:17:00.920 --> 0:17:03.800
<v Speaker 5>in a portfolio. And if you see these institutions actually

0:17:03.880 --> 0:17:06.359
<v Speaker 5>allocating that one to two percent, just give it, you know,

0:17:06.440 --> 0:17:09.399
<v Speaker 5>give it a go and invest on that thesis. Plus

0:17:09.400 --> 0:17:11.640
<v Speaker 5>the people who just invest because they think a whole

0:17:11.680 --> 0:17:12.879
<v Speaker 5>lot of people are going to buy it and the

0:17:12.920 --> 0:17:14.880
<v Speaker 5>price is going to go up, but have no conviction

0:17:15.040 --> 0:17:17.639
<v Speaker 5>on it. You know, you can see that bitcoin is

0:17:17.680 --> 0:17:20.640
<v Speaker 5>going to get some tailwind here in the future because

0:17:20.680 --> 0:17:23.560
<v Speaker 5>of these ETFs. If you look at the ETF filings,

0:17:23.880 --> 0:17:25.720
<v Speaker 5>there are so many of them out there now for

0:17:25.840 --> 0:17:29.159
<v Speaker 5>covered call strategies, for put right strategies and things like this.

0:17:29.320 --> 0:17:31.239
<v Speaker 5>So you know, just the sheer amount of volume of

0:17:31.320 --> 0:17:33.560
<v Speaker 5>stuff that comes in and the amount of people that

0:17:33.600 --> 0:17:35.120
<v Speaker 5>are willing to give it a.

0:17:35.080 --> 0:17:35.840
<v Speaker 6>Try and buy it.

0:17:35.920 --> 0:17:37.000
<v Speaker 5>I think we'll move the price.

0:17:37.119 --> 0:17:40.119
<v Speaker 1>It's inside baseball. Jabloski's all jargon. I mean there, but

0:17:40.200 --> 0:17:43.720
<v Speaker 1>can you imagine it covered right now? God, I can't

0:17:43.760 --> 0:17:47.119
<v Speaker 1>imagine framing out a covered right to bring in premium

0:17:47.400 --> 0:17:48.880
<v Speaker 1>on bitcoin. I just can't go there.

0:17:48.960 --> 0:17:51.000
<v Speaker 6>But I know a lot of people are and either

0:17:51.119 --> 0:17:53.159
<v Speaker 6>or not because we looked at this that you'd be

0:17:53.240 --> 0:17:56.320
<v Speaker 6>surprised the actual you know, the actual kind of juiced

0:17:56.320 --> 0:17:59.680
<v Speaker 6>inness is less there we go than like a vix

0:18:00.200 --> 0:18:01.160
<v Speaker 6>It's really surprising.

0:18:01.160 --> 0:18:03.280
<v Speaker 5>It's kind of surprisingly boring, to be honest. I don't

0:18:03.280 --> 0:18:05.760
<v Speaker 5>know how it'll change our time, but there's not as

0:18:05.840 --> 0:18:07.120
<v Speaker 5>much juice in there as you think.

0:18:07.280 --> 0:18:09.240
<v Speaker 1>And what's great about this is the way you learn

0:18:09.240 --> 0:18:11.600
<v Speaker 1>about Jews. You don't learn that like in CFA one

0:18:11.640 --> 0:18:15.480
<v Speaker 1>oh one. You learn a Marianne Boston and you're going

0:18:15.480 --> 0:18:16.719
<v Speaker 1>to Boston College.

0:18:16.920 --> 0:18:17.880
<v Speaker 7>So Soviet.

0:18:18.040 --> 0:18:20.280
<v Speaker 3>I mean, I've just been blown away really over the

0:18:20.359 --> 0:18:23.240
<v Speaker 3>last ten fifteen years in the growth of the ETF business.

0:18:23.240 --> 0:18:26.000
<v Speaker 3>It's just been extraordinary. And the more you learn about it,

0:18:26.040 --> 0:18:28.280
<v Speaker 3>the more sense it makes. And we have some good

0:18:28.280 --> 0:18:31.080
<v Speaker 3>folks here Bloomberg got are really following the ETF business.

0:18:31.800 --> 0:18:34.960
<v Speaker 3>Where do we go next, what's the what's the next

0:18:35.000 --> 0:18:40.360
<v Speaker 3>area of growth? For etfscuse the fun flows there just extraordinary.

0:18:40.480 --> 0:18:42.159
<v Speaker 5>Yeah, the fun flows are back. I think, you know,

0:18:42.320 --> 0:18:45.920
<v Speaker 5>post twenty twenty two, like everything else. ETF sixteen of recovery.

0:18:46.000 --> 0:18:48.560
<v Speaker 5>You've seen you know, the majority of inflows this year,

0:18:49.119 --> 0:18:51.639
<v Speaker 5>and I think a lot of the kind of you know,

0:18:51.960 --> 0:18:55.359
<v Speaker 5>kitchy mean types of products have now been closed and

0:18:55.440 --> 0:18:57.280
<v Speaker 5>kind of filtered out, and now what you have out

0:18:57.280 --> 0:18:59.800
<v Speaker 5>there are the classic ETF products. You have some good

0:19:00.440 --> 0:19:03.360
<v Speaker 5>and invest in things like AI and you know, supercomputing

0:19:03.440 --> 0:19:05.280
<v Speaker 5>things like that. We do a lot of that. But

0:19:05.440 --> 0:19:07.320
<v Speaker 5>the next, you know, the next kind of hurrah for

0:19:07.440 --> 0:19:10.760
<v Speaker 5>ETF seems to be using options to do different things.

0:19:10.800 --> 0:19:13.320
<v Speaker 5>So whether it's to generate income, you know, there's been

0:19:13.359 --> 0:19:15.639
<v Speaker 5>a huge growth and covered call strategies, there's been a

0:19:15.720 --> 0:19:19.520
<v Speaker 5>huge growth in put right strategies to generate income. You've

0:19:19.520 --> 0:19:22.560
<v Speaker 5>seen a lot of flows there and you've also seen

0:19:22.760 --> 0:19:25.439
<v Speaker 5>you know, different issuers doing creative things with leverage. You're

0:19:25.480 --> 0:19:28.080
<v Speaker 5>starting to see four beta you know, four x daily

0:19:28.480 --> 0:19:31.920
<v Speaker 5>rebalanced products, single stock products, and I think that there's

0:19:31.960 --> 0:19:34.480
<v Speaker 5>appetite there. I mean, billions of dollars have flown into it,

0:19:34.520 --> 0:19:36.960
<v Speaker 5>so it's it's hard to say there isn't. And I

0:19:36.960 --> 0:19:39.639
<v Speaker 5>think using the option structure to generate income will be

0:19:39.640 --> 0:19:40.880
<v Speaker 5>a big theme this year.

0:19:41.240 --> 0:19:43.320
<v Speaker 3>You know, Sylvia, I you know, when I first started learning,

0:19:43.359 --> 0:19:45.120
<v Speaker 3>and I think a lot of people learning about ETFs,

0:19:45.160 --> 0:19:47.320
<v Speaker 3>it was the whole passive thing y s and P

0:19:47.520 --> 0:19:50.680
<v Speaker 3>five hundred type of thing, and I got that JET

0:19:50.720 --> 0:19:54.400
<v Speaker 3>would allow you to operate a really low cost structure

0:19:54.480 --> 0:19:57.200
<v Speaker 3>type of rapper here. But then you guys introduced you

0:19:57.240 --> 0:19:59.919
<v Speaker 3>guys being ETF industry introduced active ets and that's kind

0:19:59.920 --> 0:20:02.159
<v Speaker 3>of or you lost me here. So is the cost

0:20:03.000 --> 0:20:07.240
<v Speaker 3>advantage to an active ETF that much better than you know,

0:20:07.280 --> 0:20:09.359
<v Speaker 3>walking down the street and getting a FID outing mutual fund.

0:20:11.040 --> 0:20:12.879
<v Speaker 5>Well, it depends on the fun right. I mean, mutual

0:20:12.880 --> 0:20:16.120
<v Speaker 5>funds were sort of historically classically expensive. Some of them

0:20:16.119 --> 0:20:19.080
<v Speaker 5>have cut their fees because of what ETFs have done.

0:20:19.359 --> 0:20:21.679
<v Speaker 5>And it depends on the performance, right. I think on

0:20:21.720 --> 0:20:24.720
<v Speaker 5>a lot of these active ETFs, if you're getting you know,

0:20:24.800 --> 0:20:27.720
<v Speaker 5>twenty forty sixty percent returns, you don't really care that

0:20:27.760 --> 0:20:30.880
<v Speaker 5>you're paying one percent, which is arguably on the high

0:20:30.960 --> 0:20:33.679
<v Speaker 5>side for ETFs, right, So it's all about what the

0:20:33.720 --> 0:20:37.560
<v Speaker 5>ETF actually delivers. And then ETFs are just but you know,

0:20:37.560 --> 0:20:39.600
<v Speaker 5>they're just better. I mean they are they are a

0:20:39.640 --> 0:20:41.800
<v Speaker 5>better mousetrape. You can buy and sell them all day long.

0:20:42.240 --> 0:20:44.080
<v Speaker 5>You know, you can arbitrage them. You can go to

0:20:44.119 --> 0:20:46.679
<v Speaker 5>a market maker, you know, get filled that nav. I mean,

0:20:46.680 --> 0:20:47.760
<v Speaker 5>they're just a better product.

0:20:48.240 --> 0:20:51.040
<v Speaker 1>Sylvia question off the market. This goes to SoC Gen.

0:20:51.080 --> 0:20:53.040
<v Speaker 1>I spent a lot of time with SoC Gen animals

0:20:53.040 --> 0:20:55.560
<v Speaker 1>in London. There was a Cuban there's a Cuban cigar

0:20:55.640 --> 0:20:59.400
<v Speaker 1>bar and warder Stream, which is basically the cafeteria for

0:20:59.440 --> 0:21:01.840
<v Speaker 1>SoC Gen. This is a few This is before Sylvia's

0:21:01.840 --> 0:21:04.159
<v Speaker 1>said she's too young to remember this, but you know

0:21:04.200 --> 0:21:07.439
<v Speaker 1>it's Satcha and you guys are pros it trying to

0:21:07.480 --> 0:21:10.280
<v Speaker 1>figure out where the shadows are and leverage right now,

0:21:10.600 --> 0:21:13.399
<v Speaker 1>away from Defiance and your great work there, what do

0:21:13.400 --> 0:21:16.359
<v Speaker 1>you worry about within the shadows of the derivative space

0:21:16.480 --> 0:21:19.720
<v Speaker 1>right now? The leveraging up the notion? What what's the

0:21:19.760 --> 0:21:23.320
<v Speaker 1>shadow out there that concerns you?

0:21:23.320 --> 0:21:26.920
<v Speaker 5>You know, I think if the in terms of the

0:21:26.960 --> 0:21:29.400
<v Speaker 5>structure of those products, you know, I think that they've

0:21:29.400 --> 0:21:32.080
<v Speaker 5>become kind of more stable and safe. I was actually

0:21:32.480 --> 0:21:36.600
<v Speaker 5>at SoC Gen, you know, shortly around the time that

0:21:37.600 --> 0:21:39.159
<v Speaker 5>you had the leam and crashing things like that. I

0:21:39.200 --> 0:21:40.719
<v Speaker 5>was working on the swaps desk when all of that

0:21:40.800 --> 0:21:42.919
<v Speaker 5>was going on, So that was you know, that was

0:21:42.920 --> 0:21:44.679
<v Speaker 5>eye opening, right, And people learn that you kind of

0:21:44.720 --> 0:21:48.000
<v Speaker 5>have to have a third party holding the overnight collateral.

0:21:48.920 --> 0:21:51.040
<v Speaker 5>You have to have you know a lot of kind

0:21:51.080 --> 0:21:54.920
<v Speaker 5>of like good Monte Carlo simulation before you take certain

0:21:54.960 --> 0:21:57.240
<v Speaker 5>things on and swap and things like this. So I

0:21:57.280 --> 0:22:00.280
<v Speaker 5>think that the risk standards are a lot higher. I think,

0:22:00.440 --> 0:22:03.679
<v Speaker 5>you know, having having actual cash and physical funds at

0:22:03.680 --> 0:22:06.159
<v Speaker 5>a third party matters. I worry more about the client.

0:22:06.200 --> 0:22:07.960
<v Speaker 5>You know, if you get a big market move and

0:22:08.119 --> 0:22:09.879
<v Speaker 5>you have a four X product, I mean you gompe

0:22:09.880 --> 0:22:12.560
<v Speaker 5>bout the fund in a day, right, But all of

0:22:12.640 --> 0:22:18.000
<v Speaker 5>us yeah, I mean, you know, so I haven't actually

0:22:18.040 --> 0:22:19.560
<v Speaker 5>seen that. I spend a lot of time at Direction

0:22:19.680 --> 0:22:22.200
<v Speaker 5>the three X you know place too. And even during

0:22:22.280 --> 0:22:25.040
<v Speaker 5>COVID when we had these massive moves, the company itself

0:22:25.080 --> 0:22:27.040
<v Speaker 5>took the leverage point from three to two to kind

0:22:27.080 --> 0:22:30.760
<v Speaker 5>of protect the protect people from themselves really and and

0:22:31.000 --> 0:22:32.720
<v Speaker 5>you know, the volcility and things like that, and so

0:22:32.800 --> 0:22:33.840
<v Speaker 5>you hope companies do that.

0:22:34.040 --> 0:22:35.360
<v Speaker 2>But yeah, that's the risk.

0:22:35.760 --> 0:22:40.080
<v Speaker 1>This is you hugely, hugely valuable. She's a defiance ETF

0:22:40.200 --> 0:22:53.520
<v Speaker 1>Sylvia Jablanski with US joining US no op tech wizards

0:22:53.520 --> 0:22:57.800
<v Speaker 1>who figured out YouTube decades ago. Gene Munster joins US

0:22:57.840 --> 0:23:00.879
<v Speaker 1>co founder deep Water Asset Management, Gane I've got like

0:23:01.000 --> 0:23:03.520
<v Speaker 1>eight ways to go. Let's start at sixty thousand feet.

0:23:04.240 --> 0:23:06.680
<v Speaker 1>I'm in the theme that if any broke, don't fix it.

0:23:06.800 --> 0:23:11.680
<v Speaker 1>The Magnificent seven had a magnificent twenty twenty three. I

0:23:11.840 --> 0:23:14.600
<v Speaker 1>just don't buy the idea it ends. Will it continue

0:23:14.760 --> 0:23:15.760
<v Speaker 1>into this year and.

0:23:15.840 --> 0:23:20.879
<v Speaker 7>Next for the year, I think it absolutely will. And

0:23:21.200 --> 0:23:24.080
<v Speaker 7>what we're seeing as a gravitational pull when it comes

0:23:24.160 --> 0:23:29.040
<v Speaker 7>to the AI opportunity with Magnificent seven and also what

0:23:29.160 --> 0:23:32.480
<v Speaker 7>I would call the Ordained fifteen, which are the private

0:23:32.720 --> 0:23:37.080
<v Speaker 7>late stage AI companies, and I think that's where all

0:23:37.160 --> 0:23:38.880
<v Speaker 7>the traction is going to happen. I would say, there's

0:23:38.880 --> 0:23:40.879
<v Speaker 7>a mag seven on the public side, there's also going

0:23:40.960 --> 0:23:44.560
<v Speaker 7>to be this Magnificent seven or ten on the private side.

0:23:44.600 --> 0:23:47.000
<v Speaker 7>But yes, Tom, I think it's going to continue, I

0:23:47.080 --> 0:23:51.040
<v Speaker 7>would caution, and continue for the year. I would caution

0:23:51.760 --> 0:23:54.920
<v Speaker 7>this earnings period is going to be a lot of intensity,

0:23:54.960 --> 0:23:58.879
<v Speaker 7>a lot of focus from investors related to commentary about

0:23:59.200 --> 0:24:02.760
<v Speaker 7>AI contribution in twenty twenty four. I think that is

0:24:02.840 --> 0:24:05.840
<v Speaker 7>the a topic that's going to orbit around the mag

0:24:06.000 --> 0:24:09.080
<v Speaker 7>seven for this earnings period, and I suspect that the

0:24:09.200 --> 0:24:13.440
<v Speaker 7>commentary is going to be relatively muted, or the commentary

0:24:13.480 --> 0:24:16.879
<v Speaker 7>will be we expect some contribution the good news, so

0:24:16.960 --> 0:24:19.400
<v Speaker 7>I think that that could cause a new term pause

0:24:19.440 --> 0:24:21.520
<v Speaker 7>in some of these stocks. I think the good news

0:24:21.640 --> 0:24:24.159
<v Speaker 7>for a lot of these for the companies, if you

0:24:24.200 --> 0:24:27.440
<v Speaker 7>look at the estimates for the December quarter for the

0:24:27.520 --> 0:24:29.640
<v Speaker 7>growth rates and then for the full year of twenty

0:24:29.760 --> 0:24:33.520
<v Speaker 7>twenty four, December twenty three and twenty twenty four, analysts

0:24:33.560 --> 0:24:38.960
<v Speaker 7>aren't really expecting much contribution from AI. I think psychologically

0:24:39.480 --> 0:24:41.960
<v Speaker 7>it's a bigger topic than it is relative to the numbers.

0:24:42.000 --> 0:24:43.919
<v Speaker 7>But I just I think that these companies are going

0:24:44.000 --> 0:24:44.880
<v Speaker 7>to continue to do well.

0:24:45.280 --> 0:24:45.520
<v Speaker 1>I do.

0:24:47.160 --> 0:24:50.399
<v Speaker 7>Anticipate this earnings period to be mixed in terms of

0:24:50.480 --> 0:24:51.160
<v Speaker 7>the stock reaction.

0:24:51.400 --> 0:24:55.040
<v Speaker 1>Early Gene Monster monsters so large. There's early gene Monster,

0:24:55.160 --> 0:24:58.040
<v Speaker 1>middle Gene Monster, and later Gene Monster. Early Gene Monster

0:24:58.600 --> 0:25:01.119
<v Speaker 1>was fourteen page or some pipe Jeffrey which came in

0:25:01.160 --> 0:25:03.320
<v Speaker 1>at four pm and you had to read it by

0:25:03.400 --> 0:25:06.240
<v Speaker 1>dinner you couldn't focus. And in the back of it,

0:25:06.400 --> 0:25:09.560
<v Speaker 1>he always had these brilliant some of the parts analysis

0:25:09.840 --> 0:25:13.040
<v Speaker 1>gene Monster for the Magnificent seven, for Apple and Microsoft

0:25:13.400 --> 0:25:15.960
<v Speaker 1>in particular. Whats the sum of the parts look like

0:25:16.119 --> 0:25:16.439
<v Speaker 1>right now?

0:25:19.000 --> 0:25:21.399
<v Speaker 7>Well, there's some of the parts. It's ultimately when you

0:25:21.440 --> 0:25:25.359
<v Speaker 7>think about Apple, it's about services, it's about from you

0:25:25.440 --> 0:25:26.920
<v Speaker 7>put all this together, I think it's better than a

0:25:26.960 --> 0:25:30.600
<v Speaker 7>three trillion dollar company. I think the iPhone business today

0:25:30.640 --> 0:25:33.440
<v Speaker 7>it's just over half of their total revenue. I think

0:25:33.480 --> 0:25:37.200
<v Speaker 7>in aggregate that should be should trade at essentially a

0:25:37.280 --> 0:25:40.920
<v Speaker 7>thirty five multiple. I think that multiple is justified given

0:25:41.480 --> 0:25:44.400
<v Speaker 7>even though it doesn't grow much. I think it's justified

0:25:44.440 --> 0:25:47.920
<v Speaker 7>because these devices have become substance to our life. We

0:25:48.080 --> 0:25:50.920
<v Speaker 7>can't live without these Basically half the people in the

0:25:51.000 --> 0:25:53.680
<v Speaker 7>US can't live without these devices. And so I think

0:25:53.760 --> 0:25:55.800
<v Speaker 7>that you put this together, I think this is a

0:25:55.960 --> 0:25:58.920
<v Speaker 7>three plus trillion dollar company. I think that there is

0:25:58.920 --> 0:26:01.360
<v Speaker 7>a lot of uncertainty related to Apple at this time.

0:26:01.440 --> 0:26:04.800
<v Speaker 7>I haven't I haven't recalled a time in Apple's history

0:26:04.840 --> 0:26:08.680
<v Speaker 7>when there's been as much concern really going into this

0:26:09.160 --> 0:26:11.920
<v Speaker 7>to a quarter, there's concern about the iPhone demand. He's

0:26:12.000 --> 0:26:14.359
<v Speaker 7>concerned about some of the delays that they've had or

0:26:14.400 --> 0:26:16.600
<v Speaker 7>taking some of that watch aff off the table because

0:26:16.640 --> 0:26:20.360
<v Speaker 7>of the blood oxygen monitoring. And there's also some concerns

0:26:20.359 --> 0:26:24.040
<v Speaker 7>related to how their app store policies are changing, specifically

0:26:24.119 --> 0:26:26.680
<v Speaker 7>related to steering in the impact on the app store revenue.

0:26:27.040 --> 0:26:29.880
<v Speaker 7>But I think that I think that you know when

0:26:29.880 --> 0:26:32.560
<v Speaker 7>you when you course these out, I think that this

0:26:32.720 --> 0:26:35.800
<v Speaker 7>is a three plus trillion dollar company. And when it

0:26:35.840 --> 0:26:38.960
<v Speaker 7>comes to Microsoft, from some of the parts, there's two

0:26:39.040 --> 0:26:42.679
<v Speaker 7>basic parts to it. There's their cloud business. That business

0:26:42.720 --> 0:26:46.480
<v Speaker 7>say they have twenty two percent market share. Microsoft in

0:26:46.520 --> 0:26:49.720
<v Speaker 7>total is of two hundred and twenty billion dollar revenue company.

0:26:50.000 --> 0:26:52.720
<v Speaker 7>It's going to grow about fifteen percent this year. But

0:26:52.960 --> 0:26:55.720
<v Speaker 7>as you think about and aggregate, their cloud business is

0:26:56.200 --> 0:26:59.359
<v Speaker 7>worth even though it's called fifteen percent of total revenue,

0:26:59.640 --> 0:27:02.600
<v Speaker 7>given the profitability, it's thirty plus percent of the valuation.

0:27:03.240 --> 0:27:06.560
<v Speaker 7>The biggest lever when it comes to Microsoft over the

0:27:06.600 --> 0:27:08.120
<v Speaker 7>next year in terms of the some of the parts

0:27:08.200 --> 0:27:11.520
<v Speaker 7>is related to what's going on with the upside and

0:27:11.920 --> 0:27:18.119
<v Speaker 7>uptake with Microsoft their copilot and office that contribution, so

0:27:18.359 --> 0:27:20.840
<v Speaker 7>they of course have raised the price call going from

0:27:20.880 --> 0:27:24.080
<v Speaker 7>fifteen to thirty dollars a month that started back in November.

0:27:24.440 --> 0:27:28.840
<v Speaker 7>There's about three hundred and fifty million office office users,

0:27:29.760 --> 0:27:33.760
<v Speaker 7>so the office business today is about a sixty five

0:27:33.840 --> 0:27:36.800
<v Speaker 7>million dollar business. Of that two hundred and twenty total

0:27:36.960 --> 0:27:40.080
<v Speaker 7>in revenue, But you could build a case if ten

0:27:40.280 --> 0:27:42.719
<v Speaker 7>if a third of those people pay up for colpile,

0:27:42.760 --> 0:27:45.440
<v Speaker 7>which I think is conservative, you know that that can

0:27:45.520 --> 0:27:48.640
<v Speaker 7>increase revenue by ten percent. And that's probably the biggest

0:27:49.000 --> 0:27:51.280
<v Speaker 7>sum of the parts. Lever when it comes to Microsoft

0:27:51.440 --> 0:27:54.000
<v Speaker 7>is what the uptake is going to be. They haven't

0:27:54.000 --> 0:27:57.200
<v Speaker 7>broken out what those numbers have been. As I mentioned,

0:27:57.280 --> 0:27:59.879
<v Speaker 7>it's started in November. All they've said is that they

0:28:00.040 --> 0:28:04.480
<v Speaker 7>know they've had a positive reception from their early corporate

0:28:04.600 --> 0:28:07.359
<v Speaker 7>beta testers with this coal Pilot, and I suspect this

0:28:07.480 --> 0:28:08.760
<v Speaker 7>is going to be a hit product that's going to

0:28:08.800 --> 0:28:11.640
<v Speaker 7>help you compose emails, help you do powerpoints.

0:28:13.119 --> 0:28:13.639
<v Speaker 3>Exactly.

0:28:13.760 --> 0:28:15.280
<v Speaker 7>Yeah, taxes potentially.

0:28:16.040 --> 0:28:18.520
<v Speaker 1>So you thought that was funny, Lisa, Yeah, you want

0:28:18.560 --> 0:28:21.600
<v Speaker 1>to jump in here. What would you use co pilot for, Lisa, mateo.

0:28:21.760 --> 0:28:23.879
<v Speaker 2>Let's see, I know what my kids would use it.

0:28:23.960 --> 0:28:26.879
<v Speaker 7>For help with the homework.

0:28:27.760 --> 0:28:29.879
<v Speaker 3>Of course, we're talking to Gene Monster managing partner and

0:28:29.960 --> 0:28:32.200
<v Speaker 3>co founder deep Water Asset Management.

0:28:32.440 --> 0:28:32.960
<v Speaker 4>Hey, Gene, I.

0:28:32.960 --> 0:28:35.240
<v Speaker 3>Think you know that in twenty twenty three, not just

0:28:35.359 --> 0:28:37.480
<v Speaker 3>in tech, but for the whole stock market, AI was

0:28:37.520 --> 0:28:40.360
<v Speaker 3>such a driver of positive sentiment, and I think what

0:28:40.480 --> 0:28:43.000
<v Speaker 3>a lot of investors who are pulling away and just saying,

0:28:43.240 --> 0:28:44.920
<v Speaker 3>let me just take a look at this AI story.

0:28:45.280 --> 0:28:47.480
<v Speaker 3>And the question I hear most often is how much

0:28:47.520 --> 0:28:50.480
<v Speaker 3>of this spending across tech over the next several years

0:28:51.320 --> 0:28:55.400
<v Speaker 3>for AI will be actually incremental to what was already

0:28:55.440 --> 0:28:58.040
<v Speaker 3>kind of a base case for tech spending in general.

0:28:58.040 --> 0:28:59.440
<v Speaker 3>Do you have an idea how that might look?

0:29:00.960 --> 0:29:04.280
<v Speaker 7>So, yes, the answer is that it's it's a substantial

0:29:04.320 --> 0:29:08.240
<v Speaker 7>amount the twenty to twenty to thirty percent range. Meta

0:29:08.480 --> 0:29:11.200
<v Speaker 7>last week had some commentary about what their spend is

0:29:11.280 --> 0:29:14.200
<v Speaker 7>going to be on GPUs and if you look at

0:29:14.240 --> 0:29:17.320
<v Speaker 7>what their baseline spend was before they announced that, it's

0:29:17.360 --> 0:29:20.480
<v Speaker 7>a thirty percent increase and spend is these you know,

0:29:20.560 --> 0:29:23.360
<v Speaker 7>there was this talk about pause in AI last summer.

0:29:23.440 --> 0:29:25.720
<v Speaker 7>There was this letter that went around that a bunch

0:29:25.760 --> 0:29:29.480
<v Speaker 7>of people, including ironically Elon, must signed and there has

0:29:29.560 --> 0:29:32.840
<v Speaker 7>been no pause. Is that this has been these companies

0:29:32.920 --> 0:29:36.320
<v Speaker 7>continue to aggressively go after this, and I think that

0:29:36.520 --> 0:29:39.480
<v Speaker 7>that is one of the I think one of the

0:29:39.560 --> 0:29:42.000
<v Speaker 7>clearest signs how much investment is going on from these

0:29:42.040 --> 0:29:46.240
<v Speaker 7>companies that this AI, that the AI substance is ultimately

0:29:46.320 --> 0:29:49.920
<v Speaker 7>going to exceed the hype. It may take several years

0:29:50.000 --> 0:29:54.080
<v Speaker 7>to get there, but yes, there the infrastructure spend is remarkable,

0:29:54.800 --> 0:29:58.280
<v Speaker 7>especially with the Magnificent seven. And of course that infrastructure

0:29:58.360 --> 0:30:02.080
<v Speaker 7>spend helps a lot of companies, many companies, potentially most

0:30:02.160 --> 0:30:05.520
<v Speaker 7>companies to enable AI in their products in the years

0:30:05.560 --> 0:30:05.840
<v Speaker 7>to come.

0:30:06.280 --> 0:30:07.840
<v Speaker 3>Hey, Gene, one of the things that I think some

0:30:08.000 --> 0:30:10.320
<v Speaker 3>investors are waiting for when you think about AI is

0:30:10.360 --> 0:30:13.920
<v Speaker 3>that defining IPO. Like maybe Google was a defining IPO

0:30:14.000 --> 0:30:17.320
<v Speaker 3>for the search business, Facebook was the defining IPO for

0:30:18.440 --> 0:30:21.360
<v Speaker 3>the social media business. And you mentioned some private companies.

0:30:21.440 --> 0:30:23.239
<v Speaker 3>Do you see something like that in the next year

0:30:23.320 --> 0:30:25.360
<v Speaker 3>or two of a company or a group of companies

0:30:25.440 --> 0:30:29.360
<v Speaker 3>that say, wow, AI has really arrived as a standalone

0:30:29.600 --> 0:30:31.240
<v Speaker 3>kind of investment opportunity.

0:30:32.680 --> 0:30:35.880
<v Speaker 7>Absolutely, I think that's going to be the next leading class.

0:30:35.920 --> 0:30:38.040
<v Speaker 7>I think it's probably two to three years away. But

0:30:38.160 --> 0:30:40.640
<v Speaker 7>I think that that you know, these companies that are

0:30:40.680 --> 0:30:43.120
<v Speaker 7>AI first companies, so we look at the Magnificent seven.

0:30:43.200 --> 0:30:46.240
<v Speaker 7>I talked about the upside related to copile at Microsoft

0:30:46.360 --> 0:30:49.120
<v Speaker 7>and saying that that could add ten percent to their revenue. Well,

0:30:49.160 --> 0:30:52.120
<v Speaker 7>these companies that are AI peer plays, they're growing at

0:30:52.120 --> 0:30:56.080
<v Speaker 7>three hundred percent off small bases, but approaching more than

0:30:56.120 --> 0:30:58.560
<v Speaker 7>a billion in revenue some of them. And I think

0:30:58.640 --> 0:31:01.440
<v Speaker 7>that these AI peer plays, there will be this moment

0:31:01.880 --> 0:31:04.120
<v Speaker 7>ultimately when you put it together at deep Water, we

0:31:04.200 --> 0:31:06.440
<v Speaker 7>think we are going to enter an AI bubble in

0:31:06.480 --> 0:31:08.160
<v Speaker 7>the next three to five years. We don't think we're

0:31:08.160 --> 0:31:10.720
<v Speaker 7>anything close to it right now. We put this in

0:31:11.880 --> 0:31:15.000
<v Speaker 7>and put we think we're in like nineteen ninety five

0:31:15.480 --> 0:31:17.360
<v Speaker 7>and we still have five more years to go before

0:31:17.400 --> 0:31:19.440
<v Speaker 7>this really escalates. But I think that's going to be

0:31:19.880 --> 0:31:23.720
<v Speaker 7>one of those moments where it really gets some excitement

0:31:23.760 --> 0:31:26.000
<v Speaker 7>in the market once we get some of these IPOs

0:31:26.040 --> 0:31:28.520
<v Speaker 7>and who are they? You know it could be open

0:31:28.600 --> 0:31:35.080
<v Speaker 7>AI data Bricks is one hugging face. Those are mid journey.

0:31:35.200 --> 0:31:38.160
<v Speaker 7>Those are kind of the four most obvious ones that

0:31:38.240 --> 0:31:38.960
<v Speaker 7>would be published.

0:31:38.960 --> 0:31:41.440
<v Speaker 1>That's a secret world of gene Monster there Gane. The

0:31:41.560 --> 0:31:46.160
<v Speaker 1>fact of the matter is, mister Nadella is firing on

0:31:46.280 --> 0:31:50.040
<v Speaker 1>all cylinders. You mentioned co pilot and all the applications

0:31:50.040 --> 0:31:52.880
<v Speaker 1>that we're seeing of actual money coming in twenty dollars

0:31:52.960 --> 0:31:56.400
<v Speaker 1>a person, ten dollars, thirty dollars a person, and I'm

0:31:56.520 --> 0:31:59.600
<v Speaker 1>enjoying a thirty eight multiple, and maybe my monster guestimate

0:31:59.680 --> 0:32:03.680
<v Speaker 1>four squeezes down to a thirty five multiple. What do

0:32:03.760 --> 0:32:06.280
<v Speaker 1>you do with a tech stock when all the good

0:32:06.360 --> 0:32:09.000
<v Speaker 1>news is in, like in Microsoft right now.

0:32:11.080 --> 0:32:13.880
<v Speaker 7>Well, if your view is that all the good news

0:32:14.000 --> 0:32:17.040
<v Speaker 7>is in, you probably sell it. And I think in

0:32:17.120 --> 0:32:19.920
<v Speaker 7>the case of you know that you know owning, that

0:32:20.080 --> 0:32:23.080
<v Speaker 7>is a great way to build wealth, is to own

0:32:23.160 --> 0:32:25.960
<v Speaker 7>and have people agree with you later. And if you

0:32:26.480 --> 0:32:28.959
<v Speaker 7>there's generally a consensus that the good times are going

0:32:29.000 --> 0:32:31.520
<v Speaker 7>to continue for these large companies, and so I think

0:32:31.560 --> 0:32:33.320
<v Speaker 7>that if you have a view that maybe this is

0:32:33.360 --> 0:32:35.240
<v Speaker 7>as good as it gets, that this is absolutely the

0:32:35.280 --> 0:32:38.000
<v Speaker 7>time to sell because you'll get multiple compression. I of

0:32:38.080 --> 0:32:41.560
<v Speaker 7>course don't believe that that's the case, and I just

0:32:41.640 --> 0:32:44.480
<v Speaker 7>want to put one put some a little bit of

0:32:44.560 --> 0:32:46.760
<v Speaker 7>perspective on that in terms of, you know, how on

0:32:46.920 --> 0:32:51.440
<v Speaker 7>Earth I really strive to be level headed when it

0:32:51.480 --> 0:32:54.760
<v Speaker 7>comes to these tech trends and making sure that I'm

0:32:54.800 --> 0:32:57.440
<v Speaker 7>not getting carried away. Yeah, and some of the overall

0:32:57.520 --> 0:33:00.720
<v Speaker 7>hype on it. And when I think of A I'm

0:33:00.760 --> 0:33:03.680
<v Speaker 7>in the camp that electricity is one hundred, the mobile

0:33:03.680 --> 0:33:06.400
<v Speaker 7>phones of twenty five in terms of scale of importance,

0:33:06.520 --> 0:33:09.320
<v Speaker 7>the Internet's of fifteen. I think AI is probably a ninety.

0:33:09.360 --> 0:33:14.880
<v Speaker 7>I think this is ultimately wow. And if in fact

0:33:15.600 --> 0:33:18.640
<v Speaker 7>that ends up playing out, then we really haven't seen.

0:33:18.920 --> 0:33:22.920
<v Speaker 7>I'll give you another example is that we were buying

0:33:23.120 --> 0:33:25.400
<v Speaker 7>Meta over the last couple of years and it's done

0:33:25.440 --> 0:33:28.240
<v Speaker 7>well recently, and we debated about internally about should we

0:33:28.320 --> 0:33:30.520
<v Speaker 7>use this a stock that we should sell ted a

0:33:30.560 --> 0:33:32.760
<v Speaker 7>good run, let's take our money and go other places.

0:33:32.840 --> 0:33:35.480
<v Speaker 7>But then we just thought more about the impact that

0:33:35.680 --> 0:33:37.280
<v Speaker 7>I was going to have in their business, and it

0:33:37.480 --> 0:33:39.760
<v Speaker 7>just felt like this is one to continue to hold.

0:33:39.760 --> 0:33:40.680
<v Speaker 7>And so that's what we're doing.

0:33:40.920 --> 0:33:43.560
<v Speaker 1>Single most important inside of the week. You just heard

0:33:43.600 --> 0:33:46.320
<v Speaker 1>it from Geen at Monster with war wounds of selling

0:33:46.440 --> 0:33:50.200
<v Speaker 1>too soon, and he said he has a winner in Facebook.

0:33:50.560 --> 0:33:53.960
<v Speaker 1>Guess what he and his team said, extend that and

0:33:54.080 --> 0:33:56.400
<v Speaker 1>that Paul, you and I know how much money have

0:33:56.480 --> 0:33:59.320
<v Speaker 1>I left on the table. I'm in triple levers dog

0:33:59.440 --> 0:34:01.920
<v Speaker 1>cash coveraged up with a fifteen percent gross and I

0:34:02.040 --> 0:34:04.240
<v Speaker 1>go now lighting up and I'm wrong every time.

0:34:04.520 --> 0:34:06.600
<v Speaker 3>Hey, Gene one of the I'm just trying to think

0:34:06.640 --> 0:34:09.359
<v Speaker 3>of some headwinds here for the tech space. I mean,

0:34:09.440 --> 0:34:11.480
<v Speaker 3>do I have to worry about Washington DC here in

0:34:11.640 --> 0:34:15.279
<v Speaker 3>terms of regulations more just broadly defined on tech and

0:34:15.360 --> 0:34:18.600
<v Speaker 3>maybe even specific for AI. How are you guys framing

0:34:18.640 --> 0:34:19.200
<v Speaker 3>that risk out?

0:34:21.200 --> 0:34:23.200
<v Speaker 7>Well, when it comes to AI, there's going to be

0:34:23.320 --> 0:34:26.720
<v Speaker 7>more regulation. Of course, we've got that letter that I mentioned.

0:34:26.960 --> 0:34:30.360
<v Speaker 7>Tim Cook has been he hasn't said anything in the

0:34:31.600 --> 0:34:34.520
<v Speaker 7>prepared commentary on their earnings calls in twenty twenty three

0:34:34.640 --> 0:34:38.680
<v Speaker 7>related to AI. He has made comments more recently outside

0:34:38.680 --> 0:34:41.120
<v Speaker 7>of the earnings calls and said that regulation is important.

0:34:41.160 --> 0:34:43.160
<v Speaker 7>He's mentioned that also in their Q and A. I

0:34:43.239 --> 0:34:46.960
<v Speaker 7>think when you have a company like Apple inviting regulation

0:34:47.120 --> 0:34:49.440
<v Speaker 7>in I think it's probably something that is going to

0:34:49.560 --> 0:34:52.120
<v Speaker 7>play out as far as the impact on the business

0:34:52.239 --> 0:34:55.960
<v Speaker 7>and how profound this growth can be. I don't think

0:34:56.000 --> 0:34:58.319
<v Speaker 7>it's going to have an impact on that. I think

0:34:58.360 --> 0:34:59.920
<v Speaker 7>that a lot of the regulation is going to come

0:35:00.560 --> 0:35:04.920
<v Speaker 7>around things like water marking related to images to try

0:35:04.960 --> 0:35:08.240
<v Speaker 7>to help prevent deep fakes, and the use of AI

0:35:08.600 --> 0:35:12.880
<v Speaker 7>for you know whether it's for for malice behavior, but

0:35:12.960 --> 0:35:16.320
<v Speaker 7>I don't think that. I think that this aggressive investment

0:35:16.400 --> 0:35:20.240
<v Speaker 7>cycle is ultimately going to continue. The broader topic beyond

0:35:20.360 --> 0:35:24.480
<v Speaker 7>AI and regulation in Washington is something that has orbited

0:35:25.040 --> 0:35:26.880
<v Speaker 7>obviously for years, and we have at the end of

0:35:26.920 --> 0:35:32.239
<v Speaker 7>this month, Meta and Snapchat and TikTok is are They're

0:35:32.239 --> 0:35:34.359
<v Speaker 7>all going to be and on Capitol Hill and talk

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<v Speaker 7>about some of the latest issues related to some of

0:35:37.640 --> 0:35:40.880
<v Speaker 7>the targeting that's going on on those platforms. The simple

0:35:40.960 --> 0:35:45.600
<v Speaker 7>answer is that regulation sounds bad, and really the substance

0:35:45.680 --> 0:35:49.200
<v Speaker 7>of it hasn't played out, and it's a little bit

0:35:49.280 --> 0:35:52.360
<v Speaker 7>hard for me to imagine why now this is the

0:35:52.400 --> 0:35:54.600
<v Speaker 7>time when this would have it start to have an impact.

0:35:54.520 --> 0:35:56.800
<v Speaker 1>Really generous time with us today gene Monster, Thank is

0:35:56.880 --> 0:35:59.799
<v Speaker 1>so much deepwater asset management there on your view of tech.

0:36:00.320 --> 0:36:03.520
<v Speaker 1>This is the Bloomberg Surveillance Podcast, bringing you the best

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