WEBVTT - Lab-Grown Diamond Demand On The Rise 0:00:00.800 --> 0:00:04.040 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 0:00:04.040 --> 0:00:06.920 my co host Matt Miller. Every business day, we bring 0:00:06.960 --> 0:00:11.520 you interviews from CEOs, market pros, and Bloomberg experts, along 0:00:11.560 --> 0:00:15.600 with essential market moving news. Find the Bloomberg Markets Podcast 0:00:15.640 --> 0:00:18.479 on Apple Podcasts or wherever you listen to podcasts, and 0:00:18.480 --> 0:00:22.599 at Bloomberg dot com slash podcast. Well, Matt, you know, 0:00:22.680 --> 0:00:24.560 as you know, this is not my first rodeo. I've 0:00:24.600 --> 0:00:26.680 been around this block a couple of times. I thought 0:00:26.720 --> 0:00:29.840 I kind of knew everything that's kind of worth knowing. 0:00:29.920 --> 0:00:32.800 But I learned something new today that you can grow 0:00:33.080 --> 0:00:36.400 a diamond in a lab. Did you know that? Oh? Yes, 0:00:36.600 --> 0:00:40.200 I had no idea where. Ye man, it's just amazing. Fortunately, 0:00:40.200 --> 0:00:42.680 we've got a great guest to talk to us about 0:00:42.720 --> 0:00:45.680 this growing business. A Miss Shaw, president of a l 0:00:45.760 --> 0:00:49.440 TR created Diamonds, joins us on the phone. I Miss again, 0:00:49.479 --> 0:00:52.360 I learned something new today. Tell me how you grow 0:00:52.440 --> 0:00:58.760 a diamond in a lab. A diamonds grown in a 0:00:58.880 --> 0:01:04.280 high tech labar tree in an enclosed chamber, and it 0:01:04.400 --> 0:01:08.040 starts from a diamond. If you think of a thin 0:01:08.360 --> 0:01:12.480 slice of a diamonds thes a hair um that is 0:01:12.880 --> 0:01:18.560 placed in a chamber that is pressurized with temperatures in 0:01:18.600 --> 0:01:23.080 the range of about degrees center centigrade about two thousand 0:01:23.080 --> 0:01:29.160 degrees fahrenheit, and a combination of propriety gases that contained 0:01:29.240 --> 0:01:36.480 pure carbon are being exposed. Carbon bonds with the slice, 0:01:36.600 --> 0:01:42.800 which is a lattice of carbon on the diamond, growing 0:01:42.880 --> 0:01:47.880 the diamond into a larger crystal. In about six hundred hours, 0:01:48.840 --> 0:01:52.440 you have a type two way which is among the 0:01:52.480 --> 0:01:56.920 two percent of the world's pure as diamonds born in 0:01:57.000 --> 0:02:00.920 this chamber. So how expensive is it to do that then, 0:02:01.160 --> 0:02:05.480 compared to, you know, just mining a diamond. I think 0:02:05.520 --> 0:02:11.399 from the perspective of technology worsus mining um. The first 0:02:11.480 --> 0:02:13.919 round of technology is very expensive, just like every other 0:02:14.000 --> 0:02:18.760 industry was. Over a period of time. The economy of 0:02:19.200 --> 0:02:24.720 volume and improved technology gives consumer almost a fifty better 0:02:24.800 --> 0:02:28.760 value and that's where we have already achieved. All right, 0:02:28.840 --> 0:02:32.440 So the technology is there, are you selling any of 0:02:32.480 --> 0:02:35.919 these times? Do we have a market price? Talk to 0:02:36.000 --> 0:02:41.240 us about that the commercials. Yeah, absolutely, So we entered 0:02:41.240 --> 0:02:45.280 the marketplace in two thousand sixteen. Our first retail fit 0:02:45.320 --> 0:02:48.959 out was that one of Berkshire had to store in Omaha. 0:02:49.360 --> 0:02:53.000 I mean the last five years, the overall category has 0:02:53.040 --> 0:02:58.919 grown to almost two billion dollars UM. The simplest weight 0:02:59.000 --> 0:03:02.040 to the comprices is if an Earth's Mind diamond was 0:03:02.600 --> 0:03:07.120 five thousand dollars for a one carrot, but the same prize, 0:03:07.560 --> 0:03:10.080 you would almost get a fifty larger diamond at one 0:03:10.120 --> 0:03:15.440 point five carrot. And how difficult is it to tell 0:03:15.440 --> 0:03:18.160 the difference? I mean, can you know the experts in 0:03:18.280 --> 0:03:21.400 I don't know where they are Antwerp or Street or whatever. 0:03:21.440 --> 0:03:24.160 Can they Can they look at one of these diamonds 0:03:24.240 --> 0:03:28.240 and an earth Mind diamond and tell the difference instantly? 0:03:30.080 --> 0:03:33.680 Actually not, because a diamond is a diamond irrespective of 0:03:33.720 --> 0:03:39.280 how it's grown. You would need is meter to tell 0:03:39.320 --> 0:03:42.920 the difference between these two diamonds. Alright, So I think 0:03:42.960 --> 0:03:46.280 about a big retail chain like Pandora. Are they selling 0:03:46.280 --> 0:03:49.119 your diamonds or are they selling diamonds that are lab 0:03:49.160 --> 0:03:54.440 grown diamonds? I guess uh. Pandora has just recently entered 0:03:54.520 --> 0:03:59.280 into the lab grown diamond category. UM labgown diamond category 0:03:59.360 --> 0:04:02.040 is expanding. The very high pace is the growthy year 0:04:02.120 --> 0:04:06.480 over a year is in triple digit and because of 0:04:06.520 --> 0:04:12.120 the value it's offering the consumer briant from accessory to find. 0:04:12.200 --> 0:04:16.360 Jewelry are starting to enter the category, but your products 0:04:16.360 --> 0:04:18.800 are I'm thinking of your products on a higher price 0:04:18.880 --> 0:04:21.960 level than a Pandora, than the average take the price 0:04:21.960 --> 0:04:27.240 at Pandora. Yes, we currently operate in the larger from 0:04:27.240 --> 0:04:30.200 a one character four character price point, so we would 0:04:30.240 --> 0:04:35.200 be almost a few times of the Pandora price point. Okay, 0:04:35.279 --> 0:04:39.920 So I go into a diamond store. I feel like 0:04:40.200 --> 0:04:42.520 this isn't widely lone or maybe it's just me. I'm 0:04:42.520 --> 0:04:44.480 not haven't been in the diamond market. Dude, did you 0:04:44.480 --> 0:04:48.479 not see blood diamonds? I did not, Leonardo DiCaprio, it 0:04:48.560 --> 0:04:52.800 was awesome, and like, so here's the deal. The kids 0:04:52.960 --> 0:04:58.200 are unhappy, a justifiably so. I mean, you know, there's 0:04:58.200 --> 0:05:01.799 a lot of ethical and moral concerns with earth mind diamonds. 0:05:01.880 --> 0:05:05.240 That's why this is such a great solution, is um. 0:05:05.839 --> 0:05:08.280 And I just wonder how much of the market are 0:05:08.279 --> 0:05:11.000 you going to take with with lab grown diamonds As 0:05:11.040 --> 0:05:13.279 more and more people say, look, it's just as good 0:05:13.360 --> 0:05:17.280 or maybe better, and bigger is always better. So um, 0:05:17.279 --> 0:05:19.360 I'd rather have this than a diamond that I'm not 0:05:19.440 --> 0:05:23.520 really sure about the origin of Yeah, if you think 0:05:23.520 --> 0:05:27.320 about it today, if you and it's an environmentally and 0:05:27.360 --> 0:05:31.000 a socially conscious product, the product that's made above the 0:05:31.120 --> 0:05:36.000 ground in sophisticated labs. And the important part is it's 0:05:36.040 --> 0:05:40.880 actually a finer quality diamond. And then when you look 0:05:40.920 --> 0:05:43.240 from the prize val, it's like you're getting something better 0:05:43.400 --> 0:05:47.279 for less. In terms of how much market place this 0:05:47.320 --> 0:05:50.440 will cover over the next decade. From two billion dollars, 0:05:50.440 --> 0:05:53.800 we're looking at about fifteen billion dollars in the next 0:05:53.839 --> 0:05:58.040 ten years. What is also more interesting is the overall 0:05:58.080 --> 0:06:01.240 diamond in diamonds come to the market each here is 0:06:01.240 --> 0:06:04.200 about twenty billion dollars, so you can see that the 0:06:04.279 --> 0:06:07.240 consumption is going to grow. Also, it opens a much 0:06:07.279 --> 0:06:09.839 more bigger market space. I think that's the bigger part, 0:06:10.880 --> 0:06:13.800 aspirations are not going to be achievable because people can 0:06:13.839 --> 0:06:19.200 afford more diamonds. What is the diamond industry? What's been 0:06:19.279 --> 0:06:26.480 a response from the mind years. I think, like every industry, 0:06:26.520 --> 0:06:28.480 and I think yours you must have seen this more 0:06:28.560 --> 0:06:32.159 than meat. The manhoods always take it with hard feelings. 0:06:33.680 --> 0:06:37.679 Nobody likes their customers to change their taste or choice 0:06:38.240 --> 0:06:42.120 and nobody likes the midstream to change what is happening forever. 0:06:42.520 --> 0:06:46.640 It happened with cars, it happened with every consumer product. 0:06:46.640 --> 0:06:48.960 But at the end of the day, the consumer makes 0:06:49.000 --> 0:06:51.520 the decision. What's the marketing like now? I mean, I 0:06:51.560 --> 0:06:54.760 can imagine if I said diamonds are a girl's best friend. 0:06:54.880 --> 0:06:57.280 I think my wife might slap me. It just seems 0:06:57.320 --> 0:06:59.760 like a sexist thing to say. On the other hand, 0:07:00.080 --> 0:07:03.600 she loves diamonds, right, and I don't care about them, 0:07:03.640 --> 0:07:08.839 So what's the marketing play? The marketing play is a 0:07:08.960 --> 0:07:12.080 larger and more beautiful diamond for the same money. I'll 0:07:12.120 --> 0:07:14.200 put it this way. If you had to get your 0:07:14.240 --> 0:07:16.720 wife a one carrot diamond, and you went to a 0:07:16.760 --> 0:07:20.560 store with her, and she would have a one carrot 0:07:20.560 --> 0:07:23.640 on a finger or a pendem internet and she would 0:07:23.640 --> 0:07:27.440 have a one point larger and you were paying the 0:07:27.480 --> 0:07:30.720 same amount of money. You would be happy. But think 0:07:30.720 --> 0:07:32.800 about how much more happier she's going to be well, 0:07:32.840 --> 0:07:34.840 And she would be happy about the social aspect of 0:07:34.880 --> 0:07:36.680 it as well, because I don't think she's comfortable with 0:07:36.720 --> 0:07:41.280 the you know, the possibility that the diamonds she wants 0:07:41.440 --> 0:07:44.680 could have caused so many people, so much pain. It's 0:07:44.720 --> 0:07:47.920 such a fascinating story. Miss thanks so much for joining 0:07:48.000 --> 0:07:50.160 us and as Shaw there, President A. L. T R. 0:07:50.800 --> 0:08:00.000 Created diamonds. Let's talk taxation, global taxation and the corporate 0:08:00.160 --> 0:08:03.480 minimum attacks. To dive into that, we welcome Mimi's song, 0:08:03.600 --> 0:08:06.200 Chief Economists for Cross Border Solutions Me me, thanks so 0:08:06.320 --> 0:08:09.400 much for joining us here. Just give us a background here. 0:08:09.480 --> 0:08:11.840 Where are we? I know there's a lot of discussion here. 0:08:11.880 --> 0:08:15.000 Where are we with a corporate minimum tax on a 0:08:15.080 --> 0:08:20.200 global basis? Well, we've we've already seen that the G 0:08:20.320 --> 0:08:23.720 seven has met to come to at least this consensus 0:08:23.760 --> 0:08:27.160 lot of framework of what that global minimum taxation would 0:08:27.200 --> 0:08:31.560 look like. And based on that, we've even had a 0:08:31.640 --> 0:08:34.880 hundred and thirty countries come to the table and agree 0:08:34.920 --> 0:08:38.280 that this makes sense and everybody is willing to negotiate, 0:08:38.320 --> 0:08:41.120 which is a huge step towards trying to get to 0:08:41.160 --> 0:08:46.280 this global minimum taxation. So is it a minimum uh 0:08:46.559 --> 0:08:50.839 tax rate? Or I mean in the US, for example, um, 0:08:50.840 --> 0:08:55.160 the corporate tax rate is and a lot of companies 0:08:55.240 --> 0:08:57.520 end up not paying any taxes at all? Is that 0:08:57.559 --> 0:09:01.360 still going to happen when it drops to fifteen? So 0:09:01.480 --> 0:09:04.720 the the idea here, and the reason for these proposals 0:09:04.800 --> 0:09:09.160 is ultimately such that corporations can no longer take advantage 0:09:09.160 --> 0:09:14.400 of those tax arbitract situations and establish these elaborate schemes 0:09:14.640 --> 0:09:16.880 where they don't pay any taxes at all. So this 0:09:17.040 --> 0:09:21.120 idea of you know, profit being untaxable, and so that 0:09:21.280 --> 0:09:24.600 this is what the the global community is coming together 0:09:24.880 --> 0:09:28.240 to try to mitigate. They want to they want to 0:09:28.320 --> 0:09:31.280 tax corporations. They want to make sure that corporations are 0:09:31.280 --> 0:09:34.960 paying their fair shared taxes in the right locations. And 0:09:35.080 --> 0:09:38.600 under the proposal there, it gets a little bit complicated, 0:09:38.640 --> 0:09:43.000 but essentially there's two aspects of it. Number one, the 0:09:43.080 --> 0:09:47.640 aspect that companies need to you know, companies operating in 0:09:47.679 --> 0:09:52.080 this digital economy because of the antiquated tax rules, they're 0:09:52.120 --> 0:09:57.480 not being taxed because in in the right countries, because 0:09:57.520 --> 0:10:01.079 those countries don't have the taxing rights of the idea 0:10:01.080 --> 0:10:04.560 of taxation historically was based on brick and mortar structures, 0:10:04.679 --> 0:10:07.880 and now that's no longer the case. They're redefining what 0:10:08.120 --> 0:10:11.520 that taxation right looks like. And then on top of that, 0:10:11.880 --> 0:10:14.720 they're going to be applying this concept of a minimum 0:10:14.760 --> 0:10:19.400 taxation where a company headquartered in a certain location. There 0:10:19.440 --> 0:10:23.320 is the global tax you know, the global effective tax 0:10:23.440 --> 0:10:26.560 rates should be at this minimum rate right where everybody 0:10:26.559 --> 0:10:30.240 has to taste the proposal somewhere around fifteen percent at 0:10:30.240 --> 0:10:32.760 this point, but of course all those details have yet 0:10:32.800 --> 0:10:36.679 to be finalized. God, this so complicated, man, it's I mean, 0:10:36.679 --> 0:10:41.040 it's already complicated classes right. I love the There is 0:10:41.080 --> 0:10:43.920 a letter circulating Donald Rumsfeld's into the I R S 0:10:43.960 --> 0:10:46.480 where he said, like, I've looked at this, I've got 0:10:46.520 --> 0:10:49.640 a college degree, I've had accountants look at it, and 0:10:50.000 --> 0:10:51.800 even my wife looked it over, and we still have 0:10:51.840 --> 0:10:55.920 no idea if this is right. Um, I was going 0:10:56.000 --> 0:10:58.720 to say, the tax is like hundreds and hundreds of 0:10:58.760 --> 0:11:02.480 pages long, and it just create It's even more complicated 0:11:02.600 --> 0:11:06.240 because it's layers on layers on top of you know, 0:11:06.360 --> 0:11:09.120 tax code. Right, it's just building upon something instead of 0:11:09.240 --> 0:11:12.280 building the house from scratch. I mean, is this just 0:11:12.320 --> 0:11:16.360 the way politicians like like it? Is this? You know 0:11:16.440 --> 0:11:20.240 how you know salaried professionals making a hundred seventies six 0:11:20.240 --> 0:11:23.000 thousand dollars a year end up being multi multi millionaires 0:11:23.080 --> 0:11:28.319 or is there any possibility of the tax code being simplified. 0:11:30.000 --> 0:11:33.240 You know, that's that's that's that's a difficult question to answer. 0:11:33.280 --> 0:11:36.120 I think everyone would love simplification of the tax code. 0:11:36.120 --> 0:11:39.200 But I think it's nearly impossible to go back to 0:11:39.320 --> 0:11:42.920 that state, right, because like I said, it's it's it's 0:11:42.920 --> 0:11:45.920 actually of thousands of pages of tax code. I mean 0:11:46.360 --> 0:11:50.040 that that that just is so complicated that trying to 0:11:50.120 --> 0:11:53.040 start over from scratch is going to be nearly impossible. 0:11:53.080 --> 0:11:55.800 And so now it's just a matter of you know, 0:11:56.120 --> 0:12:00.320 it's trying to fix what what is some you know, 0:12:00.920 --> 0:12:03.640 you know it will be interesting, Mami. One of the reasons, right, 0:12:03.679 --> 0:12:09.559 is that we try and incentivize behavior with UM tax deductions. Well, 0:12:09.600 --> 0:12:11.760 we no longer be able to do that if there's 0:12:11.800 --> 0:12:16.000 a minimum rate. Well, so this that's that's an interesting 0:12:16.080 --> 0:12:19.640 question because the minimum rate is one aspect of taxation, 0:12:19.760 --> 0:12:23.720 but that incentive there are other tax incentives, tax credits 0:12:23.760 --> 0:12:27.800 that will that will actually help to bolster and continue 0:12:27.840 --> 0:12:32.160 to UM sort of bring in investment and innovation. Right, 0:12:32.240 --> 0:12:34.480 So R and D tax credits, which is another section 0:12:34.760 --> 0:12:38.880 of the tax code beyond this this just overall effective 0:12:38.920 --> 0:12:41.720 tax rate. And so the interplay between all of these 0:12:41.760 --> 0:12:49.480 different aspects of taxation. It's just really complicated, and no, 0:12:49.679 --> 0:12:52.120 it is really I was just thinking, Paul, we should 0:12:52.160 --> 0:12:56.679 do a podcast on taxation. It would be fun, it 0:12:56.720 --> 0:12:59.000 would be fun for us, and we'd have mania on. 0:12:59.200 --> 0:13:01.640 But I don't know if anybody would click on a 0:13:01.720 --> 0:13:05.120 taxation podcast any case. Mimi, thanks very much for joining us. 0:13:05.160 --> 0:13:07.480 Great to have you. Mimi Song, chief economists at Cross 0:13:07.520 --> 0:13:12.640 Border Solutions. Let's bring in now Steve Wyatt, his chief 0:13:12.640 --> 0:13:16.440 investment strategist at b Okay Financial. They have ninety two 0:13:16.640 --> 0:13:20.160 billion dollars in assets under management, and Steve, maybe you 0:13:20.160 --> 0:13:22.840 can help shut us, help us shed some light on 0:13:23.480 --> 0:13:26.520 what's going on in treasuries right now. We're looking at 0:13:26.559 --> 0:13:30.600 a yield of only one thirty sixty two and the 0:13:30.679 --> 0:13:36.079 real yield is below one full percent. Why our investors 0:13:36.120 --> 0:13:39.600 buying bonds after the fed's hawk ish turn and amidst 0:13:39.760 --> 0:13:43.079 taper talk. Yeah, so, good morning, Matthew. Thank you for 0:13:43.120 --> 0:13:45.240 the opportunity to be here, and I really appreciate you 0:13:45.280 --> 0:13:48.160 starting off with such an easy question like that. Uh. 0:13:49.080 --> 0:13:51.559 It's uh, it truly is something that has somebody that 0:13:51.640 --> 0:13:54.840 started their career in two under a Paul Boker Fed 0:13:54.920 --> 0:13:57.960 as in the bond market, you look at what's happening 0:13:58.000 --> 0:14:01.040 and it's a it's it's a bit of a head scratcher. 0:14:01.320 --> 0:14:04.720 I think that in the end we can talk about 0:14:04.760 --> 0:14:09.600 the distortion of quantitative easing is is causing in today's 0:14:09.840 --> 0:14:13.400 you know, on the domestic market, uh, the impact of 0:14:13.520 --> 0:14:16.960 what's happening from a global standpoint. But I think if 0:14:17.000 --> 0:14:18.640 you just have to look at the shape of the 0:14:18.720 --> 0:14:21.400 yield curve and what's happened since the Fed came out 0:14:21.480 --> 0:14:26.000 and gave some indication that there was some disagreement on 0:14:26.040 --> 0:14:28.600 the f O m C about when the interest rates 0:14:28.640 --> 0:14:31.800 may need to rise, and the response to that, This 0:14:32.000 --> 0:14:35.200 flattening of the yield curve, to me, is a pretty 0:14:35.240 --> 0:14:38.640 strong cautionary statement on the part of the bond market 0:14:39.400 --> 0:14:41.800 that the Fed, as much as we want them to 0:14:41.880 --> 0:14:47.080 be able to get back to a normal monetary policy, 0:14:47.160 --> 0:14:49.680 we want our economy to be able to operate without 0:14:49.720 --> 0:14:53.840 the level of extraordinary monetary accommodation that we have today. 0:14:54.040 --> 0:14:56.080 I think the bond markets send in a signal to 0:14:56.120 --> 0:14:58.440 the Fed that they better be very careful about how 0:14:58.480 --> 0:15:03.160 they do that and how how important their communication process 0:15:03.240 --> 0:15:06.640 between now and then is going to be Steve. A 0:15:06.640 --> 0:15:09.400 big part of the inflation discussion is obviously wages, and 0:15:09.400 --> 0:15:13.240 we got some the Jolts data this morning. Still a 0:15:13.400 --> 0:15:15.400 lot of job openings out there. We had a pretty 0:15:15.440 --> 0:15:20.520 good jobs number last week, but still, um, it's tough 0:15:20.560 --> 0:15:23.480 to make a call for inflation if there's still uh, 0:15:23.520 --> 0:15:27.080 you know, a lot of folks that are not employed. Yeah, 0:15:27.120 --> 0:15:29.240 and look, I think it's going to be important one 0:15:29.240 --> 0:15:32.760 of the uh you know, one of the important topics 0:15:32.760 --> 0:15:34.520 that we're looking at, kind of the trends that we're 0:15:34.560 --> 0:15:36.120 looking at between now and the end of the year 0:15:36.120 --> 0:15:38.800 as we think about our outlook for the economy. How 0:15:38.840 --> 0:15:42.000 the labor force unfolds from its current position is going 0:15:42.040 --> 0:15:45.320 to be a key metric. It's so important as we 0:15:45.400 --> 0:15:50.479 think about how we move from a stimulus based recovery 0:15:51.000 --> 0:15:55.280 to a more private sector driven expansion that can last 0:15:55.360 --> 0:15:58.400 for a longer period of time. What did we have 0:15:58.440 --> 0:16:00.560 a hard John say that we're now up to nine 0:16:00.600 --> 0:16:04.160 point to one million job openings, were still seven million 0:16:04.280 --> 0:16:07.840 something jobs short of where we were in the economy 0:16:07.880 --> 0:16:10.800 before we went into the pandemic. So there's clearly this 0:16:10.880 --> 0:16:13.880 huge gap. It's not like there's a I think for 0:16:14.000 --> 0:16:17.080 job seekers. It's not like there's a fear of missing out. 0:16:17.280 --> 0:16:19.920 There's a lot of jobs out there. I think the 0:16:19.960 --> 0:16:23.720 reasons why the labor market has been slow to respond 0:16:23.800 --> 0:16:27.200 or complex, but we anticipate that is going to change 0:16:27.240 --> 0:16:29.240 over time that we think that there is going to 0:16:29.440 --> 0:16:32.840 we're gonna see steady improvement. I would not be surprised 0:16:32.880 --> 0:16:35.800 to see non farm payroll gains of over a million 0:16:36.320 --> 0:16:39.280 UH in a couple of months as we moved between 0:16:39.280 --> 0:16:41.760 now and the end of the year. And there other 0:16:41.800 --> 0:16:44.000 reason that's so important is that's going to play such 0:16:44.000 --> 0:16:48.040 a big part and how the FED approaches their monetary 0:16:48.080 --> 0:16:51.600 policy because they keyed in on the labor market right 0:16:51.720 --> 0:16:55.640 or wrong, agree or disagree whether or not monetary policy 0:16:55.680 --> 0:16:59.680 is the right tool to help solve the labor markets problems. 0:16:59.800 --> 0:17:03.160 That what the FED has focused on, and that's what 0:17:03.240 --> 0:17:05.919 we think is going to drive monetary policy from a 0:17:05.960 --> 0:17:12.160 longer term perspective. In terms of investments, Steve Um Bloomberg's 0:17:12.200 --> 0:17:14.760 Danni Burger put a chart out this morning that I 0:17:14.800 --> 0:17:19.440 thought was interesting showing that the US Economic Surprise Index. 0:17:19.640 --> 0:17:21.520 You know many banks have these, but Bloomberg has its 0:17:21.560 --> 0:17:24.320 own U s ECO Surprise Index fell to the lowest 0:17:24.359 --> 0:17:29.880 level since June of not still positive, but it's not 0:17:30.680 --> 0:17:33.000 it's just barely positive. And I wonder if that means, 0:17:33.320 --> 0:17:35.800 you know, most of the recovery, most of the growth 0:17:35.800 --> 0:17:39.720 ahead of us is already priced in. Well, there's part 0:17:39.720 --> 0:17:41.239 of that, and I think the other part of that 0:17:41.320 --> 0:17:43.399 is whether or not we're at this peak growth. And 0:17:43.440 --> 0:17:46.800 it's like the second derivative problem. It's still positive, but 0:17:46.840 --> 0:17:50.640 not as positive as it was correct and so we 0:17:50.720 --> 0:17:53.800 kind of think we're right at that peak stimulus, the 0:17:53.880 --> 0:17:58.560 impact of monetary policy easing, the fiscal stimulus that occurred, 0:17:58.600 --> 0:18:02.159 which was material and really frankly puts US in a 0:18:02.240 --> 0:18:05.600 different position than we've been in past periods. We I think, 0:18:05.640 --> 0:18:07.760 for all of us in this business, we have to 0:18:07.800 --> 0:18:10.240 be humble enough to say that as we look forward, 0:18:10.280 --> 0:18:12.600 there's a lot we just don't know. If we think 0:18:12.640 --> 0:18:16.040 about where we were twelve months ago and the conversations 0:18:16.080 --> 0:18:19.440 that we're having today versus then uh, it's a lot better. 0:18:19.560 --> 0:18:22.040 The risk that I think we're facing today are more 0:18:22.080 --> 0:18:25.159 manageable than they would have been had we not taken 0:18:25.200 --> 0:18:28.640 some of those steps. But our thought as we look 0:18:28.720 --> 0:18:33.920 forward is what's next is somewhat less monetary accommodation, somewhat 0:18:34.040 --> 0:18:39.840 less fiscal accommodation, somewhat slower economic growth, still positive, but 0:18:39.880 --> 0:18:42.639 we're not going to do what's the Atlanta FA GDP 0:18:42.800 --> 0:18:46.080 now and X ten ten eleven for the second quarter. 0:18:46.480 --> 0:18:48.600 We're not going to see earning's growth at the same 0:18:48.680 --> 0:18:51.679 level that we've seen, but still going to be positive 0:18:51.920 --> 0:18:53.920 and uh, and that's still going to be an environment 0:18:53.920 --> 0:18:57.000 where we can look for the economy to expand and 0:18:57.640 --> 0:19:01.000 job growth to remain positive. All right, Steve, great to 0:19:01.000 --> 0:19:04.119 get your thoughts. Really appreciate you dropping by with some insight. 0:19:04.200 --> 0:19:07.480 Steve Wyatt, I said, is chief investment strategist to be 0:19:07.520 --> 0:19:12.520 okay financially about ninety two billion dollars of assets under management, 0:19:12.680 --> 0:19:15.520 and UM, you know, I think, if anything, this is 0:19:15.560 --> 0:19:18.960 the time when you really need expert advice. I mean, 0:19:19.040 --> 0:19:22.919 this is a very sensitive market. Is it priced to perfection? 0:19:23.040 --> 0:19:26.280 Are there still opportunities out there? Um? I don't know 0:19:26.320 --> 0:19:29.360 about you, but I need some guidance. And that's why 0:19:29.400 --> 0:19:37.160 we talked to experts like Steve. This is Bloomberg bringing 0:19:37.240 --> 0:19:40.680 Naomi Nick. She's a corporate influence reporter for Bloomberg News. 0:19:40.720 --> 0:19:43.760 She joins us on the phone from Washington, d C. Naomi. Uh, 0:19:44.080 --> 0:19:48.040 your story here about Amazon's really interesting. Here, just refresh 0:19:48.119 --> 0:19:50.280 our memory here kind of how did this play out? 0:19:50.600 --> 0:19:52.680 I guess it was a couple of years ago when 0:19:52.720 --> 0:19:58.240 this big contract was being awarded, a Jedi contract, Jedi contract, Yes, 0:19:58.960 --> 0:20:03.480 potentially you know out UM awarded the Jedi contract, which 0:20:03.720 --> 0:20:06.600 is a which was a contract that would have given 0:20:07.000 --> 0:20:10.200 the winner ten billion dollars up to ten billion dollars 0:20:10.200 --> 0:20:14.520 over a decade to be the Pentagon's sort of big 0:20:14.560 --> 0:20:19.399 cloud services provider. That project got a lot of pushback 0:20:19.520 --> 0:20:23.080 from industry in Cooling Oracle, Microsoft, and IBM, who all 0:20:23.160 --> 0:20:26.560 thought the deal was tailor made for Amazon because it 0:20:26.600 --> 0:20:30.440 has already won a similar deal from the CIA. Uh. 0:20:30.560 --> 0:20:33.800 Fast forward a couple of years and the Pentagon gives 0:20:33.800 --> 0:20:39.240 it to Microsoft Amazon who saying the reason Microsoft got 0:20:39.240 --> 0:20:44.000 it is because of President Donald Trump. Uh and um. 0:20:44.080 --> 0:20:46.920 And then you know, now depending on saying okay, we're 0:20:46.920 --> 0:20:50.359 going to just abandon the project altogether because Trumps is 0:20:50.359 --> 0:20:55.160 the idea, right, Yeah. Essentially that that that Trump hatd 0:20:55.280 --> 0:20:57.800 Bezos because you know, if you in the Washington Posts, 0:20:57.880 --> 0:21:01.200 and Trump was making a lot of that publicly at 0:21:01.200 --> 0:21:04.159 the time, questioning the fairness of the project, which was 0:21:04.240 --> 0:21:07.840 unusual for a sitting president to do in a procament 0:21:07.960 --> 0:21:11.960 like this. I have to say, the story is amazing. 0:21:12.200 --> 0:21:15.159 I mean I woke up at three o'clock in the morning, 0:21:15.400 --> 0:21:18.040 checked my Bloomberg and read this story and was like, 0:21:18.080 --> 0:21:21.639 oh my god, it's there's so much drama. Um. So 0:21:21.680 --> 0:21:24.120 the Jedi contract one of the things I found interesting. 0:21:24.240 --> 0:21:26.320 It was going to be what a tenuere deal? Right, 0:21:26.400 --> 0:21:29.120 but they said three and a half years later, all 0:21:29.200 --> 0:21:33.879 that technology is basically obsolete Naomi, So now they're gonna 0:21:33.880 --> 0:21:37.040 do what is it a five year deal? Um? And 0:21:37.119 --> 0:21:40.560 I guess we're expecting it to just become obsolete near 0:21:40.600 --> 0:21:43.239 the end of the contract. Why don't they just do 0:21:43.320 --> 0:21:46.120 these every year? You know? Eventually I guess there will 0:21:46.119 --> 0:21:49.000 be a tiny little clouds um everywhere and it will 0:21:49.000 --> 0:21:52.720 be on the blockchain. But what what's the idea? So 0:21:52.880 --> 0:21:56.320 the new contract, um, one of the biggest changes is 0:21:56.320 --> 0:21:58.760 the Pentagon is saying we're going to give this contract 0:21:58.800 --> 0:22:01.800 to multiple company these, which is what industry has been 0:22:01.840 --> 0:22:05.800 planning for all along. And yet the main cont industry 0:22:05.840 --> 0:22:14.160 outside of Microsoft, right, um. And so yeah, it's gonna 0:22:14.200 --> 0:22:17.399 be over the course of five years. We're expecting it 0:22:17.480 --> 0:22:21.159 to be in the billions UM and there right now 0:22:21.200 --> 0:22:24.040 are saying, we know that Amazon and Microsoft are eligible 0:22:24.119 --> 0:22:25.960 for this. We're planning to talk to some of the 0:22:25.960 --> 0:22:29.440 other tech companies like IBM, an Oracle, and Google to 0:22:29.480 --> 0:22:32.480 see if they're also eligible for this UM and if 0:22:32.480 --> 0:22:34.960 they are, they can submit a proposal. But this is 0:22:35.000 --> 0:22:38.680 expected to be like a bridge contract, and the depending 0:22:38.720 --> 0:22:40.840 on is saying, you know, we're transitioning to the cloud, 0:22:41.240 --> 0:22:43.920 and another five years they'll have maybe an even more 0:22:44.000 --> 0:22:49.240 robust contract UH to award to some of the players. 0:22:49.960 --> 0:22:55.640 What has been the response for Microsoft Microsoft was, I mean, look, 0:22:55.680 --> 0:22:59.280 Microsoft was in a tough position. Amazon had actually filed 0:22:59.280 --> 0:23:03.399 a lawsuit right that was against uh Microsoft win of 0:23:03.440 --> 0:23:07.480 the contract, and so that the Microsoft was facing the 0:23:07.520 --> 0:23:10.280 prospect that Amazon was going to drag this thing out 0:23:10.320 --> 0:23:14.080 in court. Meanwhile, Microsoft at the time had to stop 0:23:14.119 --> 0:23:16.920 doing any work with the Pentagon. So in some ways, 0:23:17.000 --> 0:23:21.679 this this deal provides some resolution to Microsoft to actually 0:23:21.680 --> 0:23:24.760 get started on doing some of the work. But obviously 0:23:24.920 --> 0:23:27.879 it's what's the baby, and so they're getting less money. 0:23:27.920 --> 0:23:33.560 So they offered somewhat optimistic comments public comments, which I expected. Yeah, 0:23:33.560 --> 0:23:35.680 they're supportive as long as they keep getting paid. One 0:23:35.680 --> 0:23:38.480 of the my takeaways was, how does the Pentagon not 0:23:38.640 --> 0:23:43.199 have its own cloud? Shouldn't like DARPA have invented the 0:23:43.240 --> 0:23:47.000 sweetest cloud for the Pentagon to have, And especially as 0:23:47.200 --> 0:23:50.440 we were seeing like Cozy Bear. If a hacker group 0:23:50.480 --> 0:23:55.040 called cozy Bear can get into your databases, um, how 0:23:55.080 --> 0:23:58.960 are you gonna guard more confidence in Amazon and Microsoft 0:23:58.960 --> 0:24:01.320 than I do the US government? Yeah? But if it's not, 0:24:01.560 --> 0:24:05.080 it's not just Amazon, it's gonna be Microsoft and Amazon 0:24:05.160 --> 0:24:08.320 and maybe Oracle and IBM and a longer change, it's 0:24:08.359 --> 0:24:11.000 gonna have a weak link. Like I just I just 0:24:11.040 --> 0:24:13.480 think it's such an amazing story. Naomi, thanks so much 0:24:13.520 --> 0:24:16.280 for joining us on this. It'll be one we continue 0:24:16.359 --> 0:24:19.240 to cover for sure. Naomi Mix and Matt Day wrote 0:24:19.240 --> 0:24:22.000