1 00:00:02,759 --> 00:00:10,600 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the 2 00:00:10,640 --> 00:00:14,600 Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 3 00:00:14,640 --> 00:00:17,880 Speaker 1: Eastern on Apple, Cocklay and Android Auto with the Bloomberg 4 00:00:17,960 --> 00:00:21,080 Speaker 1: Business App. Listen on demand wherever you get your podcasts, 5 00:00:21,400 --> 00:00:23,560 Speaker 1: or watch us live on YouTube. 6 00:00:23,200 --> 00:00:27,880 Speaker 2: Through Department of Justice has dropped its investigation into JPL 7 00:00:28,360 --> 00:00:33,200 Speaker 2: and the Federal Reserve regarding its building cost overrun. 8 00:00:33,680 --> 00:00:34,639 Speaker 3: Let's bring in Michael. 9 00:00:34,440 --> 00:00:39,080 Speaker 2: McKee, our chief International Economics and Policy correspondent, Mike, this 10 00:00:39,479 --> 00:00:42,839 Speaker 2: is something that should smooth the path for Kevin Walsh, 11 00:00:43,440 --> 00:00:47,760 Speaker 2: President Trump's nominee for the Federal Reserve chair to become 12 00:00:47,840 --> 00:00:49,680 Speaker 2: FED chair, doesn't it. 13 00:00:49,240 --> 00:00:51,000 Speaker 3: It smooths the path. 14 00:00:51,040 --> 00:00:53,120 Speaker 4: But whether the path gets taken or not, we don't 15 00:00:53,120 --> 00:00:55,720 Speaker 4: know yet, because we don't know whether the agreement to 16 00:00:55,720 --> 00:01:00,840 Speaker 4: have the Inspector General continue a probe to the buildings, 17 00:01:01,040 --> 00:01:05,800 Speaker 4: and we don't know whether that includes Powell, which Piro 18 00:01:06,160 --> 00:01:09,240 Speaker 4: had included. Well, we don't know whether that's enough for 19 00:01:09,280 --> 00:01:12,160 Speaker 4: Tom Tillis to say, okay, let's have a vote. 20 00:01:12,240 --> 00:01:14,920 Speaker 3: He has not commented. 21 00:01:14,640 --> 00:01:19,080 Speaker 4: And everybody's madly watching his Twitter feed and et cetera 22 00:01:19,160 --> 00:01:21,520 Speaker 4: to see what he thinks that would be step one, 23 00:01:21,840 --> 00:01:24,840 Speaker 4: and then step two is getting the nomination to a 24 00:01:24,920 --> 00:01:27,480 Speaker 4: vote in committee and getting it out to the floor. 25 00:01:27,760 --> 00:01:30,600 Speaker 3: There isn't a lot of legislative days left, but they 26 00:01:30,600 --> 00:01:32,800 Speaker 3: can make things happen if they want to. So it 27 00:01:33,000 --> 00:01:35,679 Speaker 3: is odds are a little better now. 28 00:01:35,760 --> 00:01:35,920 Speaker 5: Yep. 29 00:01:36,000 --> 00:01:37,240 Speaker 3: Shall we say we're. 30 00:01:37,280 --> 00:01:40,319 Speaker 6: Talking in the studio to Elliott Stein. He's a litigation 31 00:01:40,400 --> 00:01:43,959 Speaker 6: analyst for Bloomberg Intelligence, he's a lawyer. He said, if 32 00:01:43,959 --> 00:01:47,360 Speaker 6: you were advising Chairman j Powell, he would say, you 33 00:01:47,400 --> 00:01:50,160 Speaker 6: need to get an immunity your agreement. Yeah, I mean, 34 00:01:50,240 --> 00:01:52,480 Speaker 6: that's well, that's a big move. 35 00:01:52,760 --> 00:01:57,160 Speaker 4: That's been my thought all along because Inspector General's reports 36 00:01:57,160 --> 00:01:58,960 Speaker 4: and they were talking about also the Banking Committee maybe 37 00:01:58,960 --> 00:02:02,200 Speaker 4: doing an investigational congressional investigations. Both of those can lead 38 00:02:02,240 --> 00:02:05,480 Speaker 4: to criminal referrals to the Justice Department. So the question 39 00:02:05,640 --> 00:02:10,960 Speaker 4: is a obviously, they could find that Jay Powell had 40 00:02:10,960 --> 00:02:12,960 Speaker 4: his hand in the cookie jar, which I very very 41 00:02:13,040 --> 00:02:17,400 Speaker 4: much doubt, but there could be just some pretext in 42 00:02:17,480 --> 00:02:21,160 Speaker 4: the IG's report that Janine Piro would seize on again 43 00:02:21,440 --> 00:02:25,320 Speaker 4: once j once Kevin Warsh is in as chair, and 44 00:02:25,360 --> 00:02:30,480 Speaker 4: then go after Powell because Trump wants revenge. So I 45 00:02:30,520 --> 00:02:33,040 Speaker 4: think that it's not going to satisfy the FED chair 46 00:02:33,160 --> 00:02:35,440 Speaker 4: unless he has some kind of immunity agreement. 47 00:02:36,200 --> 00:02:39,720 Speaker 2: Mike Dumb question, how does this change the FMC meeting? 48 00:02:39,760 --> 00:02:43,680 Speaker 2: The deliberations next week, They begin on Tuesday, and they 49 00:02:43,720 --> 00:02:46,160 Speaker 2: come out with their decision Wednesday two pm. You will 50 00:02:46,160 --> 00:02:48,280 Speaker 2: be of course announcing it for us here on Bloomberg 51 00:02:48,280 --> 00:02:50,799 Speaker 2: Television and Bloomberg Radio, and then J Powell takes the 52 00:02:50,880 --> 00:02:53,560 Speaker 2: lectern at two thirty pm to hold his news conference. 53 00:02:53,919 --> 00:02:55,519 Speaker 3: I don't think it changes much at all. 54 00:02:55,639 --> 00:02:59,000 Speaker 4: It's not going to be a factor in the decision 55 00:02:59,040 --> 00:03:04,600 Speaker 4: making in terms of interest rates, in terms of the 56 00:03:04,600 --> 00:03:07,440 Speaker 4: there is no new economic outlook or dot plot at 57 00:03:07,440 --> 00:03:10,600 Speaker 4: this meeting, so it was going to be pretty much 58 00:03:10,639 --> 00:03:13,240 Speaker 4: a quiet meeting, and that leaves the vacuum to be 59 00:03:13,280 --> 00:03:16,160 Speaker 4: filled by questions about and to J Powell, which I 60 00:03:16,200 --> 00:03:17,440 Speaker 4: think is what we still get. 61 00:03:17,760 --> 00:03:20,400 Speaker 3: But it doesn't change the way. 62 00:03:20,200 --> 00:03:23,079 Speaker 4: The markets are going to react to this because it's 63 00:03:23,120 --> 00:03:27,000 Speaker 4: not going to really involve interest rate policy. It'll start 64 00:03:27,040 --> 00:03:32,480 Speaker 4: to as we move forward, once Kevin Warsh gets finally confirmed, 65 00:03:33,360 --> 00:03:36,320 Speaker 4: then we'll maybe see some reaction to what people think 66 00:03:36,360 --> 00:03:37,000 Speaker 4: he might do. 67 00:03:37,480 --> 00:03:39,800 Speaker 6: But in this press conference, next Wednesday, which you'll be 68 00:03:39,800 --> 00:03:40,840 Speaker 6: attending in Washington. 69 00:03:41,680 --> 00:03:44,360 Speaker 3: Don't you think mister powellill have to have. 70 00:03:44,320 --> 00:03:46,800 Speaker 6: A definitive statement one way or the other, as opposed 71 00:03:46,840 --> 00:03:49,360 Speaker 6: to kind of we'll see how it develops. 72 00:03:50,440 --> 00:03:53,640 Speaker 3: I'm not sure he has to. He's getting close to 73 00:03:53,680 --> 00:03:54,160 Speaker 3: the time. 74 00:03:53,960 --> 00:03:56,440 Speaker 4: When he's not chaired anymore, and that would be in 75 00:03:56,560 --> 00:04:00,000 Speaker 4: theory when you would make a resignation announcement. 76 00:04:00,000 --> 00:04:02,400 Speaker 3: That's mid May or end of May May fifteenth, OK. 77 00:04:02,640 --> 00:04:05,640 Speaker 3: And so maybe he says something. 78 00:04:06,640 --> 00:04:09,000 Speaker 4: But again, as we were talking about the idea of 79 00:04:09,040 --> 00:04:13,920 Speaker 4: a immunity grant, he may be waiting for something like that. 80 00:04:14,600 --> 00:04:16,320 Speaker 3: It's just not at all clear. 81 00:04:16,920 --> 00:04:20,520 Speaker 4: He also may want to stay on because he wants 82 00:04:20,600 --> 00:04:23,359 Speaker 4: to see how things develop. 83 00:04:24,000 --> 00:04:25,200 Speaker 3: But that's not the worm, right. 84 00:04:25,320 --> 00:04:26,640 Speaker 2: That doesn't usually happen. 85 00:04:26,920 --> 00:04:28,679 Speaker 4: It's not the way it's been done in the past. 86 00:04:29,040 --> 00:04:31,200 Speaker 4: There's only been one FED chair who stayed on as 87 00:04:31,200 --> 00:04:34,640 Speaker 4: a governor, and that was in the late nineteen forties, 88 00:04:34,640 --> 00:04:38,200 Speaker 4: early nineteen fifties, and so that's not likely to happen again. 89 00:04:38,279 --> 00:04:40,960 Speaker 4: I would think that Jay Powell would end up leaving, 90 00:04:41,360 --> 00:04:44,040 Speaker 4: but he could end up staying for a couple of months. 91 00:04:45,560 --> 00:04:48,520 Speaker 6: And Stewart Paul from Bloomerick Economics are saying, you know, 92 00:04:48,720 --> 00:04:51,800 Speaker 6: his hands are kind of tied me Kevin Wah. She 93 00:04:51,880 --> 00:04:53,680 Speaker 6: can't go out there and start just slashing short term 94 00:04:53,760 --> 00:04:56,720 Speaker 6: rates because that's going to really stoke inflation and you'd 95 00:04:56,760 --> 00:04:58,760 Speaker 6: see rates go up on the back end of the 96 00:04:58,760 --> 00:05:00,839 Speaker 6: curve and all that. I mean, he's not much he 97 00:05:00,880 --> 00:05:02,320 Speaker 6: can really do, Kenny. 98 00:05:02,360 --> 00:05:04,000 Speaker 4: No, And I think it's going to take a while 99 00:05:04,080 --> 00:05:08,480 Speaker 4: for people really to internalize that because the markets are 100 00:05:08,520 --> 00:05:11,719 Speaker 4: all hoping so much for rate cuts, but when you 101 00:05:11,760 --> 00:05:14,280 Speaker 4: look at what's happening with the war, with the oil prices, 102 00:05:14,400 --> 00:05:16,560 Speaker 4: with the economy in general, the fact that we've seen 103 00:05:16,680 --> 00:05:19,160 Speaker 4: inflation rising, he can't come in the door and start 104 00:05:19,160 --> 00:05:23,520 Speaker 4: cutting rates. So it'll take a while before anybody's going 105 00:05:23,560 --> 00:05:25,800 Speaker 4: to be able to point to the Fed and say, well, 106 00:05:25,800 --> 00:05:28,200 Speaker 4: that was Kevin Warsh pushing them to do that, because 107 00:05:28,200 --> 00:05:30,840 Speaker 4: they're not going to do that right away, and there 108 00:05:30,839 --> 00:05:34,760 Speaker 4: won't be any kind of decision about other reforms immediately. 109 00:05:34,880 --> 00:05:38,480 Speaker 4: But he could work on things like communications. He doesn't 110 00:05:38,480 --> 00:05:40,360 Speaker 4: like the dot plot. Maybe they get rid of that. 111 00:05:41,000 --> 00:05:44,440 Speaker 4: Those things might even come before any rate stay with us. 112 00:05:44,480 --> 00:05:46,839 Speaker 3: More from Bloomberg Intelligence coming up after this. 113 00:05:50,320 --> 00:05:54,000 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 114 00:05:54,120 --> 00:05:57,200 Speaker 1: weekdays at ten am Easterned on Apple, Coarclay, and Android 115 00:05:57,200 --> 00:06:00,520 Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever 116 00:06:00,560 --> 00:06:03,840 Speaker 1: you get your podcasts, or watch us live on YouTube. 117 00:06:03,720 --> 00:06:05,440 Speaker 6: You want to talk to tech, you talk to Dan 118 00:06:05,480 --> 00:06:09,360 Speaker 6: I's globalhead of Technology Research at web Bush Securities. Dan, 119 00:06:09,480 --> 00:06:12,520 Speaker 6: I'm guessing the conversations you're having with your clients over 120 00:06:12,520 --> 00:06:15,400 Speaker 6: the last several weeks are a lot different than what 121 00:06:15,440 --> 00:06:17,960 Speaker 6: they were kind of late last year as it relates 122 00:06:18,000 --> 00:06:21,039 Speaker 6: to tech. How do you frame it out for us? 123 00:06:22,320 --> 00:06:26,400 Speaker 5: Look, Paul, I think right now it's really about okay, 124 00:06:26,560 --> 00:06:29,920 Speaker 5: cap backs, but where's the monetization? Are you starting to 125 00:06:29,960 --> 00:06:33,480 Speaker 5: see it? Is it starting to actually spread out beyond 126 00:06:33,640 --> 00:06:35,440 Speaker 5: just big tech? And I think you're starting to see 127 00:06:35,440 --> 00:06:38,720 Speaker 5: that obviously with Intel, Cisco and others look at it. 128 00:06:38,760 --> 00:06:42,480 Speaker 5: And obviously it's been a huge debate right relatively anthropic 129 00:06:42,640 --> 00:06:45,760 Speaker 5: software goes trade. We saw what happened this week in 130 00:06:45,839 --> 00:06:48,960 Speaker 5: terms of Service Now and others, So I think I 131 00:06:49,000 --> 00:06:52,760 Speaker 5: would call it a huge debat, and that's why it 132 00:06:52,800 --> 00:06:56,560 Speaker 5: all leads to next week really being like huge pieces 133 00:06:56,560 --> 00:06:58,960 Speaker 5: to the puzzle. Of the tech trade. 134 00:06:59,360 --> 00:07:02,200 Speaker 2: What is the market sentiment like right now when it 135 00:07:02,240 --> 00:07:06,600 Speaker 2: comes to CAPEX, Because for a while, if companies reported 136 00:07:08,000 --> 00:07:09,880 Speaker 2: ended up saying that CAPEX would be more than they 137 00:07:09,920 --> 00:07:11,840 Speaker 2: had forecast, it was seen as okay, and then it 138 00:07:11,880 --> 00:07:14,360 Speaker 2: was seen as negative. How are investors feeling right now? 139 00:07:15,200 --> 00:07:17,240 Speaker 5: Yeah, it sort of. That's been a hot and cold 140 00:07:17,280 --> 00:07:20,280 Speaker 5: situation right relative to the cap backs. I think now 141 00:07:20,880 --> 00:07:24,480 Speaker 5: there's almost a consensus view where it's like, Okay, cap 142 00:07:24,480 --> 00:07:26,680 Speaker 5: BAX is going to be reiterated by big tech. No 143 00:07:26,800 --> 00:07:29,120 Speaker 5: big tech company is going to go down cappacs go 144 00:07:29,200 --> 00:07:32,440 Speaker 5: into next week. If they did, stock would be down 145 00:07:32,680 --> 00:07:35,200 Speaker 5: because that would ultimately be a negative in this arms race. 146 00:07:36,040 --> 00:07:37,800 Speaker 5: I think the big question is going to be with 147 00:07:37,840 --> 00:07:41,760 Speaker 5: the hyper scale or especifically Microsoft, Google, Amazon. Do you 148 00:07:41,960 --> 00:07:46,360 Speaker 5: see accelerations beats when it comes to cloud growth? That's 149 00:07:46,400 --> 00:07:50,960 Speaker 5: important in terms of capacity. What it really means is 150 00:07:51,080 --> 00:07:53,880 Speaker 5: the cap BAX is now starting to bear fruit. The 151 00:07:54,080 --> 00:07:57,440 Speaker 5: miztions happening. You're seeing it on the software on the 152 00:07:57,520 --> 00:08:01,800 Speaker 5: hyper scale outside and look, that's that's the big piece, 153 00:08:02,120 --> 00:08:04,640 Speaker 5: that's really the de beat. Do you start to seeing monization? 154 00:08:04,840 --> 00:08:07,240 Speaker 5: I think we start to see it next week and 155 00:08:07,280 --> 00:08:09,040 Speaker 5: I think med is another one. We'll see it on 156 00:08:09,080 --> 00:08:10,560 Speaker 5: the advertising side. 157 00:08:11,400 --> 00:08:15,840 Speaker 6: Dan, I know you initiated coverage of Oracle. Talk to 158 00:08:15,920 --> 00:08:19,400 Speaker 6: us about that company. How you see it participating in 159 00:08:19,440 --> 00:08:21,160 Speaker 6: this in this tech stack here going forward? 160 00:08:21,400 --> 00:08:23,880 Speaker 5: Yeah, and Paul I covered it for many years. And 161 00:08:23,920 --> 00:08:26,760 Speaker 5: the reason I like re initiate on and here just 162 00:08:26,800 --> 00:08:32,960 Speaker 5: because I believe the street is way miscalculating this name. 163 00:08:33,480 --> 00:08:36,160 Speaker 5: I mean, look, I get the worries about the debt 164 00:08:36,200 --> 00:08:38,440 Speaker 5: and what they're taking on given to open AI and 165 00:08:38,480 --> 00:08:40,880 Speaker 5: what they're going for in terms of the six seven 166 00:08:40,960 --> 00:08:44,000 Speaker 5: hundred billion that they're going after the fifty billion a debt. 167 00:08:44,600 --> 00:08:48,199 Speaker 5: I think Oracle is going to be a tremendously bigger 168 00:08:48,240 --> 00:08:51,360 Speaker 5: company the next two three, four years and is today. 169 00:08:51,840 --> 00:08:56,520 Speaker 5: I think investments are way discounting their ability to monetize 170 00:08:56,640 --> 00:08:59,880 Speaker 5: what's going to be this backlog. And really, you know, 171 00:09:00,200 --> 00:09:04,480 Speaker 5: more and more companies move to the AI revolution with 172 00:09:04,559 --> 00:09:06,480 Speaker 5: the Oracle and that's a whole colt. I mean two 173 00:09:06,520 --> 00:09:09,920 Speaker 5: twenty values price target, but this stock ultimately that could 174 00:09:09,960 --> 00:09:14,240 Speaker 5: double as they monetize AI over the coming years and 175 00:09:14,280 --> 00:09:15,960 Speaker 5: think way way over sold. 176 00:09:16,600 --> 00:09:18,320 Speaker 2: I mean, the thing with Oracle is that it needs 177 00:09:18,360 --> 00:09:20,960 Speaker 2: to borrow so much money that it's got to tap 178 00:09:21,000 --> 00:09:24,280 Speaker 2: the public markets and the private markets kind of everywhere 179 00:09:24,440 --> 00:09:26,959 Speaker 2: in order to be able to fund this build out. 180 00:09:27,320 --> 00:09:30,800 Speaker 2: And we've heard from Moody's warning that private credit funds 181 00:09:30,840 --> 00:09:33,240 Speaker 2: with a lot of exposure to software and tech face 182 00:09:33,440 --> 00:09:36,240 Speaker 2: a lot of refinancing risks because there's a bunch of 183 00:09:36,280 --> 00:09:39,720 Speaker 2: debt that matures starting in twenty twenty eight. How do 184 00:09:39,760 --> 00:09:41,679 Speaker 2: you think about that in terms of what that means 185 00:09:41,679 --> 00:09:44,520 Speaker 2: for these big tech companies needs to borrow. 186 00:09:45,559 --> 00:09:49,040 Speaker 5: Yeah, I think it's a great point. Obviously a huge debate. 187 00:09:50,240 --> 00:09:54,320 Speaker 5: When you get things like Toma, Bravo Medallion, some other thing, 188 00:09:54,360 --> 00:09:56,880 Speaker 5: you can paint them all with the same brush. Right 189 00:09:56,880 --> 00:09:59,000 Speaker 5: when you look at Oracle, you're talking about a company 190 00:09:59,640 --> 00:10:02,720 Speaker 5: that the amount of debt that don't take on is 191 00:10:02,720 --> 00:10:06,120 Speaker 5: still pretty small relative to their cash flow generation and 192 00:10:06,160 --> 00:10:09,920 Speaker 5: the overall what I believe structured the business. I think 193 00:10:09,920 --> 00:10:12,400 Speaker 5: they'll be able to raise and they've already sort of 194 00:10:12,480 --> 00:10:14,680 Speaker 5: laid out to forty five to fifty billion. How they're 195 00:10:14,679 --> 00:10:18,760 Speaker 5: going to do that now? Is it ideal? Because companies 196 00:10:18,800 --> 00:10:21,640 Speaker 5: obviously free cast flow. You don't want to see software 197 00:10:21,720 --> 00:10:25,880 Speaker 5: companies take on debt, But Scott. My view is to 198 00:10:25,880 --> 00:10:29,360 Speaker 5: take on fifty billion of debt to go after seven 199 00:10:29,520 --> 00:10:33,319 Speaker 5: eight hundred billion, that that, to me is a bet 200 00:10:33,440 --> 00:10:34,880 Speaker 5: that I want to see them take. 201 00:10:36,040 --> 00:10:38,880 Speaker 6: Hey, Dan, let's switch gears to Tesla. They made some 202 00:10:38,920 --> 00:10:41,920 Speaker 6: news just yesterday kind of talking about capex and they're 203 00:10:41,920 --> 00:10:44,920 Speaker 6: boosting their CAPEX to twenty five billion dollars for AI 204 00:10:45,840 --> 00:10:50,080 Speaker 6: and for their robot business. Put that in context for us, 205 00:10:50,120 --> 00:10:51,760 Speaker 6: how do you think that? Is that a good move 206 00:10:51,800 --> 00:10:52,439 Speaker 6: for this company? 207 00:10:53,840 --> 00:10:56,440 Speaker 5: I think it's exactly what they need to do. I mean, 208 00:10:56,800 --> 00:11:00,080 Speaker 5: we've always talked about a lot. It's like the future 209 00:11:00,160 --> 00:11:03,840 Speaker 5: is about autonomous robotics optimal. I mean, this is a 210 00:11:03,920 --> 00:11:07,720 Speaker 5: company from a physical aid perspective. I viewed Nvidia and 211 00:11:07,840 --> 00:11:10,880 Speaker 5: Tesla to best physical AI plays in the market. I 212 00:11:11,040 --> 00:11:15,040 Speaker 5: want to see them do this step by step, build it, 213 00:11:15,679 --> 00:11:20,400 Speaker 5: because that's really the next five ten years. That's what Tesla. 214 00:11:20,520 --> 00:11:23,880 Speaker 5: Tesla is an AI company going forward. This is not 215 00:11:23,920 --> 00:11:25,040 Speaker 5: an auto company. 216 00:11:25,679 --> 00:11:28,800 Speaker 2: Yeah, that's that's been made very clear. I mean, certainly 217 00:11:28,800 --> 00:11:31,440 Speaker 2: Elon Musk has been pushing that narrative for a long time. 218 00:11:31,480 --> 00:11:31,720 Speaker 5: Now. 219 00:11:32,480 --> 00:11:34,800 Speaker 2: I'm curious, and this is a might be a really 220 00:11:34,840 --> 00:11:37,400 Speaker 2: basic question, but how does the warrant iron and the 221 00:11:37,520 --> 00:11:41,640 Speaker 2: uncertainty there affect these big tech companies as they report. 222 00:11:41,679 --> 00:11:44,400 Speaker 2: I mean, do we expect any kind of mention of 223 00:11:44,440 --> 00:11:47,800 Speaker 2: the uncertainty, the fog of war affecting their decision making 224 00:11:47,840 --> 00:11:48,960 Speaker 2: their planning in any way. 225 00:11:49,440 --> 00:11:52,080 Speaker 5: I mean, like Service now hit it a bit writ 226 00:11:52,120 --> 00:11:54,640 Speaker 5: in terms of the Middle East deals. Look, I think 227 00:11:54,679 --> 00:11:56,760 Speaker 5: when you think in terms of a lot of the 228 00:11:56,840 --> 00:12:01,200 Speaker 5: buildouts outside the US, some of the big data center, 229 00:12:01,240 --> 00:12:05,880 Speaker 5: big AI buildouts are in UAE, Saudi. But I don't 230 00:12:05,880 --> 00:12:07,640 Speaker 5: really think that that's something that's going to be a 231 00:12:07,720 --> 00:12:11,000 Speaker 5: huge thing on the conference call. I think that's much 232 00:12:11,120 --> 00:12:15,720 Speaker 5: more year and a half from now, two years from now. Now, 233 00:12:15,760 --> 00:12:20,920 Speaker 5: I think the big question is supply helium, especially through 234 00:12:20,960 --> 00:12:23,199 Speaker 5: the street. We were just an easier for two weeks. 235 00:12:23,240 --> 00:12:28,160 Speaker 5: I continue to think unless this stale me last past 236 00:12:28,320 --> 00:12:32,480 Speaker 5: Memorial Day into June July. Like for now, I think 237 00:12:32,480 --> 00:12:36,480 Speaker 5: it's pretty contained. But look, I think I think investors 238 00:12:36,559 --> 00:12:39,240 Speaker 5: want to understand what the demand environment looks like, and 239 00:12:39,320 --> 00:12:42,959 Speaker 5: these companies they're not slowing things down in any way 240 00:12:43,280 --> 00:12:45,160 Speaker 5: right because of the geoput. 241 00:12:45,360 --> 00:12:46,000 Speaker 3: Stay with us. 242 00:12:46,120 --> 00:12:48,520 Speaker 6: More from Bloomberg Intelligence coming up after this. 243 00:12:52,360 --> 00:12:56,040 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 244 00:12:56,120 --> 00:12:59,200 Speaker 1: weekdays at ten am Eastern on Apple Coarcklay, and Android 245 00:12:59,240 --> 00:13:02,520 Speaker 1: Otto with the Work Business app. Listen on demand wherever 246 00:13:02,600 --> 00:13:05,720 Speaker 1: you get your podcasts, or watch us live on YouTube. 247 00:13:06,160 --> 00:13:09,839 Speaker 6: We often talked about the restaurant industry because we think 248 00:13:09,880 --> 00:13:11,320 Speaker 6: it's a really good way to get a sense of 249 00:13:11,360 --> 00:13:13,679 Speaker 6: how the consumer is faring out there. Because there's so 250 00:13:13,720 --> 00:13:16,960 Speaker 6: many different strata within the or so many tiers within 251 00:13:17,000 --> 00:13:19,360 Speaker 6: the restaurant industry, gives you a good view of the consumer. 252 00:13:19,600 --> 00:13:23,280 Speaker 6: One of the key cost issues for the restaurant industry 253 00:13:23,320 --> 00:13:26,120 Speaker 6: is labor. It's usually can I get enough labor at 254 00:13:26,120 --> 00:13:27,920 Speaker 6: the right price. So we want to delve into that 255 00:13:27,960 --> 00:13:30,600 Speaker 6: a little bit. Chad Moutraye, chief economists for the National 256 00:13:30,720 --> 00:13:35,199 Speaker 6: Restaurant Association, Chad talk to us about the labor component 257 00:13:35,240 --> 00:13:38,400 Speaker 6: of the restaurant industry in this country. We've got labor 258 00:13:38,440 --> 00:13:41,439 Speaker 6: participation pretty low levels, I think the lowest in the 259 00:13:41,520 --> 00:13:43,840 Speaker 6: last four or five years. We've got immigration reform, which 260 00:13:43,880 --> 00:13:47,040 Speaker 6: is choked off a source of labor here. How's that 261 00:13:47,080 --> 00:13:48,439 Speaker 6: impacting the restaurant industry. 262 00:13:49,760 --> 00:13:52,600 Speaker 7: Well, the good news is that only twenty two percent 263 00:13:52,640 --> 00:13:55,360 Speaker 7: of restaurants told US last year that they were understaff, 264 00:13:55,480 --> 00:13:59,360 Speaker 7: so that was the lowest we've seen since the pandemic. 265 00:14:00,120 --> 00:14:03,440 Speaker 7: Yet you still continue to see, you know, restaurants struggling 266 00:14:03,480 --> 00:14:07,160 Speaker 7: with managers, chefs, really highly skilled workers. You've seen even 267 00:14:07,520 --> 00:14:11,200 Speaker 7: stories about dishwashers being a challenge. I think the immigration 268 00:14:11,280 --> 00:14:14,600 Speaker 7: story certainly is also very challenging for a lot of 269 00:14:14,640 --> 00:14:17,640 Speaker 7: restaurants in terms of their ability to retain workers, to 270 00:14:17,679 --> 00:14:21,360 Speaker 7: get workers to show up right. Certainly, that affects sales 271 00:14:21,400 --> 00:14:24,800 Speaker 7: as well. In general, I think it's easier to hire 272 00:14:24,840 --> 00:14:27,680 Speaker 7: today than it was, say two or three years ago, 273 00:14:28,120 --> 00:14:30,240 Speaker 7: but it's still a challenge. There's a lot of turnover 274 00:14:30,320 --> 00:14:33,360 Speaker 7: in the sector, and the ability to fill those jobs 275 00:14:33,360 --> 00:14:34,640 Speaker 7: can be pretty challenging. 276 00:14:34,920 --> 00:14:36,880 Speaker 2: And I imagine the ability to fill those jobs in 277 00:14:36,920 --> 00:14:40,440 Speaker 2: certain markets is harder than in other markets as well. 278 00:14:40,480 --> 00:14:43,080 Speaker 2: How does that change the landscape of the restaurant industry 279 00:14:43,120 --> 00:14:43,800 Speaker 2: in this country? 280 00:14:45,480 --> 00:14:48,040 Speaker 7: Well, I think, you know, certainly, I think restaurants have 281 00:14:48,080 --> 00:14:50,280 Speaker 7: had to look at ways that they can fill those 282 00:14:50,360 --> 00:14:51,040 Speaker 7: jobs quicker. 283 00:14:51,120 --> 00:14:51,280 Speaker 3: Right. 284 00:14:51,320 --> 00:14:54,120 Speaker 7: So technology is certainly one of those enablers that really 285 00:14:54,160 --> 00:14:57,080 Speaker 7: gets you to speed up that hiring process. The last 286 00:14:57,080 --> 00:14:59,240 Speaker 7: thing you want if you're a restaurant. Keep in mind 287 00:14:59,280 --> 00:15:02,440 Speaker 7: we're in the hospitalality business is to be understaffed, that 288 00:15:02,480 --> 00:15:05,880 Speaker 7: can affect sales, that could affect overall employee morale. And 289 00:15:05,920 --> 00:15:09,280 Speaker 7: so we've seen, through a lot of investments in technology, 290 00:15:09,400 --> 00:15:12,200 Speaker 7: the ability to speed that up from weeks to days. 291 00:15:12,440 --> 00:15:14,880 Speaker 7: So I think we've seen a lot of restaurants certainly 292 00:15:14,920 --> 00:15:18,280 Speaker 7: adopt that overall model, maybe doing some multi training of 293 00:15:18,960 --> 00:15:23,600 Speaker 7: their staff so they can perform other roles. But as 294 00:15:23,880 --> 00:15:26,000 Speaker 7: we said earlier, well, overall wage growth is up at 295 00:15:26,040 --> 00:15:29,320 Speaker 7: least thirty five percent since the pandemic, and when I 296 00:15:29,360 --> 00:15:32,640 Speaker 7: talk to operators, labor costs even more than food costs, 297 00:15:32,800 --> 00:15:35,200 Speaker 7: are really one of the bigger challenges that they're facing 298 00:15:35,280 --> 00:15:35,720 Speaker 7: right now. 299 00:15:36,320 --> 00:15:39,240 Speaker 6: Well, usually for a lot of people, including myself, the 300 00:15:39,280 --> 00:15:42,960 Speaker 6: restaurant industry is kind of an entry level into the workforce. 301 00:15:44,200 --> 00:15:48,400 Speaker 6: Is that how those trends changing? If at all, that's 302 00:15:48,640 --> 00:15:51,000 Speaker 6: still very true, Paul. You know, the reality is half 303 00:15:51,040 --> 00:15:53,560 Speaker 6: of all Americans got their first job in a restaurant, 304 00:15:53,600 --> 00:15:58,000 Speaker 6: including me, and if you include everyone who's had any 305 00:15:58,040 --> 00:16:00,720 Speaker 6: experience in a restaurant, that's two thirds of all Americans, right, 306 00:16:00,760 --> 00:16:04,360 Speaker 6: And so we are often that training ground for people, 307 00:16:04,360 --> 00:16:06,840 Speaker 6: even if you don't stay in the restaurant sector. You're 308 00:16:06,920 --> 00:16:09,080 Speaker 6: that training ground to learn some of those key skills 309 00:16:09,080 --> 00:16:11,480 Speaker 6: of how you work with people, how you continue to 310 00:16:11,480 --> 00:16:14,600 Speaker 6: get things done and work with under pressure. And I 311 00:16:14,640 --> 00:16:17,040 Speaker 6: think one of the challenges is that given where the 312 00:16:17,080 --> 00:16:20,120 Speaker 6: participation rate is now, you're seeing a lot of young men, 313 00:16:20,320 --> 00:16:22,320 Speaker 6: a lot of younger folks who are not getting some 314 00:16:22,400 --> 00:16:25,280 Speaker 6: of those early skills before they go out of the 315 00:16:25,280 --> 00:16:27,760 Speaker 6: workforce that they would have gotten in a restaurant sector, 316 00:16:28,040 --> 00:16:30,880 Speaker 6: a restaurant setting had they taken some of those jobs 317 00:16:30,920 --> 00:16:31,680 Speaker 6: in their team years. 318 00:16:32,360 --> 00:16:35,840 Speaker 2: Although certain policies might make the jobs more attractive now 319 00:16:35,880 --> 00:16:39,800 Speaker 2: to people, including the no tax on tips right. So 320 00:16:40,160 --> 00:16:44,840 Speaker 2: I'm wondering how that is showing up in hiring for restaurants. 321 00:16:45,040 --> 00:16:47,880 Speaker 2: Is that something that has marked a sea change. 322 00:16:48,960 --> 00:16:51,400 Speaker 7: Well, when I talk to operators, many of them are 323 00:16:51,440 --> 00:16:53,640 Speaker 7: saying that that is a huge selling point, the fact 324 00:16:53,640 --> 00:16:55,680 Speaker 7: that you know the first twenty five thousand dollars of 325 00:16:55,720 --> 00:16:57,840 Speaker 7: your tips are not taxed, right. You also have no 326 00:16:58,000 --> 00:17:01,360 Speaker 7: tax on overtime, and both of those those kind of 327 00:17:01,360 --> 00:17:04,320 Speaker 7: working in tandem, I think can help that overall recruitment 328 00:17:04,359 --> 00:17:07,879 Speaker 7: and retention story. Again, not everyone in the restaurant is 329 00:17:08,600 --> 00:17:10,680 Speaker 7: getting tips, but you know, to the extent that folks 330 00:17:10,720 --> 00:17:13,000 Speaker 7: are being those tips are being shared, I think it 331 00:17:13,000 --> 00:17:16,080 Speaker 7: certainly can be a huge recruitment tool for getting some 332 00:17:16,119 --> 00:17:17,400 Speaker 7: of those workers in the door. 333 00:17:18,240 --> 00:17:22,520 Speaker 6: So chat on the policy front, are there other policies 334 00:17:22,520 --> 00:17:25,199 Speaker 6: that would be helpful to the restaurant industry here, particularly 335 00:17:25,240 --> 00:17:25,920 Speaker 6: on the labor front. 336 00:17:27,680 --> 00:17:29,000 Speaker 7: Well, I think one of the things that we need 337 00:17:29,040 --> 00:17:31,719 Speaker 7: to keep in mind is that overall restaurant the restaurant 338 00:17:31,720 --> 00:17:34,479 Speaker 7: business is very challenging. We know that the typical profit 339 00:17:34,560 --> 00:17:37,479 Speaker 7: margin for a restaurant is just two point eight percent. 340 00:17:37,600 --> 00:17:42,200 Speaker 7: That's for full time for a full service restaurant. That's 341 00:17:42,240 --> 00:17:44,800 Speaker 7: well below where it would have been before the pandemic. 342 00:17:44,800 --> 00:17:47,760 Speaker 7: We've seen those overall profits be continued to be squeezed, 343 00:17:48,200 --> 00:17:49,800 Speaker 7: and I think one of the stats that came out 344 00:17:49,840 --> 00:17:52,119 Speaker 7: in our State of the Industry report in February that 345 00:17:52,200 --> 00:17:54,919 Speaker 7: really was the most telling was that forty two percent 346 00:17:54,960 --> 00:17:58,800 Speaker 7: of restaurants were not profitable last year. Right, So profitability 347 00:17:58,880 --> 00:18:01,760 Speaker 7: is a real challenge, and I think it's incumbent, I think, 348 00:18:01,760 --> 00:18:04,760 Speaker 7: really on policy makers to recognize just how difficult the 349 00:18:04,800 --> 00:18:08,119 Speaker 7: math is for restaurants that try not to add additional 350 00:18:08,119 --> 00:18:10,720 Speaker 7: burdens to them in terms of regulatory burdens, et cetera. 351 00:18:11,280 --> 00:18:13,359 Speaker 7: And I think that's really I think one of the 352 00:18:13,440 --> 00:18:15,879 Speaker 7: more eye opening numbers that I look at for a 353 00:18:15,920 --> 00:18:19,240 Speaker 7: limited service restaurant, the typical profit margin is four percent. Again, 354 00:18:19,240 --> 00:18:21,560 Speaker 7: that would have been six percent before the pandemic, and 355 00:18:21,640 --> 00:18:26,320 Speaker 7: so that profit squeeze really really hits home the fact 356 00:18:26,320 --> 00:18:28,600 Speaker 7: that the math is just so challenging right now for 357 00:18:28,960 --> 00:18:31,280 Speaker 7: restaurant operators, and yet we still have people getting into 358 00:18:31,320 --> 00:18:34,520 Speaker 7: this business right so there's certainly I think a desire 359 00:18:34,800 --> 00:18:38,199 Speaker 7: and a churn. I think that is helpful and vibrant 360 00:18:38,280 --> 00:18:40,880 Speaker 7: for the sector, but it is challenging for many. 361 00:18:41,080 --> 00:18:44,560 Speaker 2: Operators that struggle to achieve profitability. How does that change 362 00:18:44,600 --> 00:18:47,439 Speaker 2: who actually owns and operates restaurants? Do we then have 363 00:18:47,560 --> 00:18:51,240 Speaker 2: more big companies owning restaurants and operating restaurants rather than 364 00:18:51,440 --> 00:18:53,000 Speaker 2: individuals or mom and pops. 365 00:18:54,400 --> 00:18:56,040 Speaker 7: Well, I think you see the diversity there. I mean, 366 00:18:56,080 --> 00:18:57,760 Speaker 7: the reality is, I mean, yes, we talk a lot 367 00:18:57,760 --> 00:19:00,600 Speaker 7: about closures, but there's a lot of flks getting into 368 00:19:00,640 --> 00:19:04,240 Speaker 7: this business too. And I think independent operators when you 369 00:19:04,280 --> 00:19:06,440 Speaker 7: know those mom and pop restaurants down the street, I 370 00:19:06,480 --> 00:19:08,919 Speaker 7: think there's certainly a desire to get out there to 371 00:19:09,000 --> 00:19:11,919 Speaker 7: cater to some of those new tastes. We are in 372 00:19:11,960 --> 00:19:14,720 Speaker 7: the hospitality business, and I think making sure that that 373 00:19:14,840 --> 00:19:17,600 Speaker 7: restaurants really are stressing some of those basics in terms 374 00:19:17,600 --> 00:19:20,959 Speaker 7: of delivering value, delivering on that overall experience, I think 375 00:19:21,000 --> 00:19:23,560 Speaker 7: there's certainly a lot of new opportunities to do that. 376 00:19:23,800 --> 00:19:28,480 Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, 377 00:19:28,640 --> 00:19:32,120 Speaker 1: and anywhere else you get your podcasts. 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