WEBVTT - Bloomberg Surveillance TV: June 25th, 2026 0:00:00.040 --> 0:00:06.720 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amerie Hordert. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.919 anywhere else you listen, and as always on the Bloomberg 0:00:34.000 --> 0:00:36.919 Terminal and the Bloomberg Business app. We begin this out 0:00:36.920 --> 0:00:39.640 were Stock's pushing kaya following a boost from Micron's blowout 0:00:39.640 --> 0:00:42.839 earnings report. Sebastian page of two, Row price writing AI 0:00:43.080 --> 0:00:46.200 is an expanding theme from GPUs to other bottlenecks along 0:00:46.240 --> 0:00:49.040 the data center supply chain, as buzz light Years said 0:00:49.159 --> 0:00:52.360 to infinity and beyond. Sebastian joins us now for more. So, 0:00:52.440 --> 0:00:54.400 welcome back to the program, Buddy. Are you just saying, 0:00:54.720 --> 0:00:57.120 stay on grip tie, keep rounding this ball? 0:00:59.080 --> 0:01:01.280 John? When I wrote my notes, I didn't think you'd 0:01:01.280 --> 0:01:03.480 pick up on the buzz light year quote. I'm going 0:01:03.520 --> 0:01:08.320 to be honest. We have an expending trade from bottlenecks 0:01:09.040 --> 0:01:14.959 to more and more bottlenecks. You look at cooling, at electrification, 0:01:15.640 --> 0:01:20.880 at aerospace, at gas turbines, We're invested in those bottlenecks. 0:01:21.080 --> 0:01:23.160 We think it's a trade that has legs. Look the 0:01:23.200 --> 0:01:25.759 AI build out. A lot of people mentioned those forecasts 0:01:25.840 --> 0:01:29.560 on your show, but we're looking at three trillion by 0:01:30.240 --> 0:01:33.840 twenty twenty eight. So it's a trade and it's going 0:01:33.920 --> 0:01:37.640 to continue to go. In my mind, the key question 0:01:37.880 --> 0:01:41.520 right now is when is this going to show in 0:01:41.720 --> 0:01:47.360 AI users' margins. Now we have three hundred analysts on 0:01:47.400 --> 0:01:50.520 our platform. I read their notes, but now I use 0:01:50.600 --> 0:01:53.760 AI to read their notes, and I ask AI, where 0:01:53.760 --> 0:01:57.760 are we seeing companies in our own proprietary research that 0:01:57.800 --> 0:02:02.320 are increasing their margins because they're using AI. Now I've 0:02:02.360 --> 0:02:06.000 seen estimates out there John that are I think exaggerated, 0:02:06.560 --> 0:02:10.760 but anecdotally we're starting to see this as well in 0:02:10.800 --> 0:02:13.440 the users of AI. This will be the next leg. 0:02:13.720 --> 0:02:16.919 So I think that technology revolution will continue. I'm conscious 0:02:16.919 --> 0:02:18.680 as I say this I sound a little bit like 0:02:18.760 --> 0:02:22.040 Dan Ives, but yeah, this we're long US large cap 0:02:22.080 --> 0:02:22.720 growth stocks. 0:02:22.880 --> 0:02:24.760 So I'll push back just a little bit and I'll 0:02:24.760 --> 0:02:26.720 give you the alternative view on things step where the 0:02:26.760 --> 0:02:28.959 economics of all of this get a little bit complicated. 0:02:29.240 --> 0:02:31.960 So the cost of building capacity is increasing. We can 0:02:32.000 --> 0:02:34.560 see that evidenced by some of the margins at some 0:02:34.639 --> 0:02:37.520 of these companies at a time when the end user 0:02:37.600 --> 0:02:40.800 demand is getting a little bit fragile with regards to 0:02:40.840 --> 0:02:45.519 pricing goverall, and they're rationally spending on AI. How's that 0:02:45.600 --> 0:02:47.359 going to make sense going forward? What we need to 0:02:47.440 --> 0:02:48.200 rationalize here? 0:02:50.600 --> 0:02:53.400 Look, as long as the products keep improving, and they 0:02:53.440 --> 0:02:57.440 are there is tremendous demand for it, it looks to 0:02:57.480 --> 0:03:01.000 me like we're still scratching the surface on demand and 0:03:01.200 --> 0:03:05.920 usage of AI. And by the way, John, I completely 0:03:05.960 --> 0:03:10.919 take the point that this spending is gigantic and free 0:03:10.960 --> 0:03:14.000 cash flows are coming down really fast for a lot 0:03:14.040 --> 0:03:17.040 of the hyper scalers. But you know, if you think 0:03:17.080 --> 0:03:21.520 about it, the price earnings on the Russell one thousand growth, 0:03:21.720 --> 0:03:24.880 we were in the thirty range. We peaked at thirty 0:03:25.000 --> 0:03:28.320 several times over the last five years. John, We're at 0:03:28.480 --> 0:03:31.120 twenty two. So there is you know, trust the market. 0:03:31.160 --> 0:03:35.720 There is an adjustment here that's been made. You know, 0:03:35.800 --> 0:03:38.600 this is this is in the bottom for Russell one 0:03:38.640 --> 0:03:41.520 thousand growth valuation. This is in the bottom thirty percent 0:03:41.600 --> 0:03:45.240 of the last ten year range. You can also play 0:03:45.280 --> 0:03:48.600 AI bottlenecks, by the way, in other areas. You can 0:03:48.640 --> 0:03:51.560 also play them in small and MidCap, which we're long too. 0:03:51.600 --> 0:03:54.520 We have this barbell between US larscap growth and small 0:03:54.560 --> 0:03:58.160 and MidCap. We're talking about the golden component. Once you 0:03:58.240 --> 0:04:01.040 have a component that becomes a part just a bottleneck, 0:04:01.080 --> 0:04:05.080 a part of that electrification, power supply, data center, whatever 0:04:05.120 --> 0:04:09.480 it is, your company stock goes vertical. Also, merging markets, 0:04:09.560 --> 0:04:12.160 A lot of people mention this on surveillance. Emerging markets 0:04:12.200 --> 0:04:15.680 are becoming part of that trade. So yeah, I mean 0:04:15.720 --> 0:04:18.920 it's a position you need to balance. You need to 0:04:18.960 --> 0:04:21.200 diversify the risk in the portfolio. For example, I still 0:04:21.200 --> 0:04:23.680 think there's inflation risk in the portfolio, and at some 0:04:23.760 --> 0:04:27.359 point that becomes part of the supplying the energy to AI, 0:04:27.480 --> 0:04:29.360 that becomes part of the picture. 0:04:29.480 --> 0:04:31.280 Well, pick up on that just one second, SEB. 0:04:31.560 --> 0:04:34.400 You're talking about trying to race to find the next 0:04:34.400 --> 0:04:37.039 bottleneck where you can see stocks go vertical, akin to 0:04:37.040 --> 0:04:40.360 what we're seeing with Micron this morning. I just wonder 0:04:40.720 --> 0:04:43.279 if people truly are understanding or if it's a healthy 0:04:43.320 --> 0:04:45.560 technical They just have a rolling ball of cash. On 0:04:45.560 --> 0:04:48.560 one hand, people are chasing who has pricing power. On 0:04:48.600 --> 0:04:51.080 the other hand, Google shares down eight percent this month. 0:04:51.240 --> 0:04:54.560 Microsoft poised for its worst monthly loss going back to 0:04:54.600 --> 0:04:58.440 twenty and eight of nineteen percent losses. The payers of 0:04:58.480 --> 0:05:01.080 this bill are getting penal At what point is that 0:05:01.160 --> 0:05:03.919 a warning side? 0:05:04.160 --> 0:05:08.440 I mean, it is absolutely, Lisa. You have winners and losers. 0:05:08.560 --> 0:05:12.040 And this is why skilled active management and fundamental research 0:05:12.200 --> 0:05:15.240 is working here. You're going to have software companies that 0:05:15.279 --> 0:05:17.560 are going to be disrupted, but you're going to have 0:05:17.600 --> 0:05:20.640 companies that, I think increasingly the next leg of this 0:05:20.920 --> 0:05:25.159 is along the bottlenecks to eventually the handoff to the 0:05:25.279 --> 0:05:28.760 users that are going to create real efficiency. I see 0:05:28.760 --> 0:05:32.800 it in our company. We're creating efficiency, We're improving our processes. 0:05:33.240 --> 0:05:35.320 It's really that that's going to be the next leg, 0:05:35.360 --> 0:05:38.080 and that's what is going to keep it going. And 0:05:38.120 --> 0:05:40.520 again I go back to the fact that it's not 0:05:41.360 --> 0:05:44.080 you know, a lot of this increase in leverage and 0:05:44.160 --> 0:05:47.600 borrowing and decrease in free cash flow margins, a lot 0:05:47.640 --> 0:05:51.719 of it has been adjusted in the price twenty two 0:05:52.040 --> 0:05:56.400 relative to the thirty range. In prior episodes over the 0:05:56.440 --> 0:05:58.599 last five years, I think is pretty good for Russell 0:05:58.640 --> 0:05:59.760 one thousand growth. 0:06:00.120 --> 0:06:03.840 Se could you justify the investment and further AI, if 0:06:03.839 --> 0:06:07.080 the borrowing costs were higher in the face of inflation, 0:06:07.360 --> 0:06:09.560 in the face of some of this acceleration that we're 0:06:09.560 --> 0:06:13.159 seeing in other components and price components that everyone's trying 0:06:13.200 --> 0:06:13.640 to chase. 0:06:15.920 --> 0:06:19.160 Well, the reality is that this three trillion is spending. 0:06:19.480 --> 0:06:22.960 A lot of it is generating, generated by companies that 0:06:23.200 --> 0:06:25.719 still have a ton of cash. I don't like the 0:06:25.760 --> 0:06:28.440 comparisons to the Duck Humbubble, but we're nowhere near the 0:06:28.600 --> 0:06:32.520 level of corporate leverage and aggregate that we had. So yes, 0:06:32.560 --> 0:06:34.599 there is some borrowing, but if you look at the 0:06:34.640 --> 0:06:40.000 metrics by historical standards, it's not a very high level 0:06:40.600 --> 0:06:45.200 of leverage by historical standards, And there is tremendous capital 0:06:45.279 --> 0:06:48.560 that's available, as we're seeing with IPOs and you know 0:06:48.600 --> 0:06:52.760 those issues. I think there is there is demand for 0:06:52.800 --> 0:06:55.080 the end product at the end of the day, that's 0:06:55.120 --> 0:06:58.480 what really matters. People want to use it. They're billions 0:06:58.480 --> 0:07:02.080 of users already, they're just scratching the surface. I'm doing 0:07:02.200 --> 0:07:06.080 roundtables with investors and I realize a lot of them, 0:07:06.279 --> 0:07:08.960 my peers, a lot of them are just starting. It 0:07:09.000 --> 0:07:11.360 makes me happy because I feel like we're really ahead 0:07:11.360 --> 0:07:13.440 and how we're using agents and so on in our 0:07:13.440 --> 0:07:16.560 investment process. But also it makes me think that as 0:07:16.600 --> 0:07:18.880 long as the demand for the end product is there, 0:07:19.080 --> 0:07:20.800 people are willing to pay for it. We'll go through 0:07:20.840 --> 0:07:23.160 ups and downs. We'll go through episodes where tokens get 0:07:23.200 --> 0:07:25.960 more expensive and people go to cheaper models and so on, 0:07:26.280 --> 0:07:27.520 But the trend is our friend. 0:07:27.560 --> 0:07:27.720 Here. 0:07:27.760 --> 0:07:31.080 Three trillion spending by twenty eight. Again, Lisa, I didn't 0:07:31.080 --> 0:07:33.200 think I come in this morning and sound like dan Ives, 0:07:33.240 --> 0:07:36.200 but we do have a long position in US large 0:07:36.240 --> 0:07:40.000 gap growth, and we do believe in the AI bottlenecks 0:07:40.000 --> 0:07:41.600 and the expansion of that trade. 0:07:41.720 --> 0:07:45.760 You also are concerned that even with oil prices becoming lower, 0:07:45.760 --> 0:07:47.600 that you actually think there's still a lot of inflation 0:07:47.680 --> 0:07:50.920 baked into the system. Is a fed potentially having to 0:07:51.040 --> 0:07:53.920 maybe hike going to be an issue for where you 0:07:53.960 --> 0:07:57.440 see the market going and your dan Ives bullishness this morning. 0:07:59.360 --> 0:08:02.320 Yeah, Look, I'm Marie. If we like twenty five base 0:08:02.400 --> 0:08:05.160 points fifty base points of hikes, I don't think that's 0:08:05.160 --> 0:08:09.559 a big issue for markets. I do think generally though, 0:08:09.720 --> 0:08:13.720 inflation right now is underestimated as a risk. You had 0:08:13.720 --> 0:08:18.360 the Torsten Slock quote earlier, I would argue that he's right. 0:08:18.520 --> 0:08:21.239 I would agree with that, Yes, oil prices are coming 0:08:21.320 --> 0:08:24.240 back down really quickly. My view is that there's spent 0:08:24.400 --> 0:08:28.480 up inflation. There are lots of lags in inflation data 0:08:28.520 --> 0:08:32.199 and in inflation itself. You have from fertilizer to food, 0:08:32.720 --> 0:08:36.840 from freight and insurance to transportation, to industrial production to 0:08:36.880 --> 0:08:41.160 the final goods, from fiscal stimulus to demand. There's lots 0:08:41.200 --> 0:08:44.160 of lags that are working their way through. By the way, 0:08:44.400 --> 0:08:47.280 the last three months on the rolling basis, the headline 0:08:47.280 --> 0:08:50.480 CPI is up eight percent. If you annualize it, you're 0:08:50.480 --> 0:08:53.320 not supposed to analyze three months. You know it's noisy data, 0:08:53.360 --> 0:08:56.640 but still eight percent. But the shelter for the last 0:08:56.679 --> 0:08:59.120 three months is four point eight percent. There's also a 0:08:59.240 --> 0:09:03.160 lag de fact here with prior rent increases. Now, put 0:09:03.160 --> 0:09:05.400 all of this in context of the fact that the 0:09:05.440 --> 0:09:08.559 break even for the one year horizon is one point 0:09:08.600 --> 0:09:11.800 seven percent and the one year inflation swap is two 0:09:11.880 --> 0:09:14.800 point two percent. So my mind is still an underestimated 0:09:14.880 --> 0:09:17.640 risk especially for the next three to six months. In 0:09:17.679 --> 0:09:20.440 the long run, yeah, will normalize, but I think the 0:09:20.480 --> 0:09:23.160 market is underpricing the inflation risk. I guess we have 0:09:23.200 --> 0:09:26.439 a print this morning, We'll see I watch surveillance often 0:09:26.480 --> 0:09:29.640 with a twelve or twenty four hour lag, and I 0:09:29.720 --> 0:09:32.320 always I'm mindful that some people come in and make 0:09:32.400 --> 0:09:35.319 forecasts a few minutes before the data release. I'm not 0:09:35.360 --> 0:09:37.440 going to make that. I'm I'm not going to do 0:09:37.520 --> 0:09:40.400 that this morning. It's always interesting to listen to it 0:09:40.480 --> 0:09:43.360 after the fact when you know what happened. But as 0:09:43.400 --> 0:09:46.400 a general trend, I'm not talking necessarily PC maybe four 0:09:46.440 --> 0:09:49.520 percent this morning, but as a general trend, the inflation 0:09:50.080 --> 0:09:53.360 here is underestimated by the market based on the pricing 0:09:53.400 --> 0:09:56.040 you've seen in break evens and inflation swap. 0:09:56.280 --> 0:09:59.720 Stay with us, Mulblinberg, Savana's coming up off to this, 0:10:09.120 --> 0:10:12.360 Micron's share searching on its blockbus to forecast. Hey, Terry 0:10:12.400 --> 0:10:14.520 of City Research right in the health of the AI 0:10:14.640 --> 0:10:17.880 trade will continue to be defined by the irresistible force 0:10:17.920 --> 0:10:22.480 of enterprise demand meeting the immovable object of inference capacity. 0:10:22.760 --> 0:10:24.600 Heith joins us now for more. Hath good morning, good 0:10:24.640 --> 0:10:24.920 to see it. 0:10:25.080 --> 0:10:25.440 Good morning. 0:10:25.520 --> 0:10:27.560 Let's pick up on that enterprise demand. Just how robust 0:10:27.600 --> 0:10:28.280 is that right now? 0:10:28.520 --> 0:10:31.000 Look, it's incredibly robust. We'll get Q two numbers in 0:10:31.040 --> 0:10:32.600 a few weeks. But if you look at what we've 0:10:32.640 --> 0:10:34.560 seen over the last the last few quarters, we've gone 0:10:34.600 --> 0:10:36.400 from twenty eight percent year over your growth in Q 0:10:36.480 --> 0:10:39.240 one of last year to thirty three percent in Q two, 0:10:39.679 --> 0:10:42.240 to fifty three percent in Q three, to ninety one 0:10:42.240 --> 0:10:44.160 percent to one hundred and forty one percent in Q 0:10:44.240 --> 0:10:47.080 one of this year. Like that kind of bend in 0:10:47.120 --> 0:10:49.240 the S curve that we're that we're seeing here and 0:10:49.240 --> 0:10:51.840 we believe it's going to accelerate again in Q two. 0:10:52.160 --> 0:10:54.600 That's the best proxy for what's happening in enterprise demand. 0:10:54.600 --> 0:10:57.319 And anybody who works at a Fortune five hundred type 0:10:57.360 --> 0:11:01.439 company that is pushing this into products could can tell 0:11:01.480 --> 0:11:02.720 you they're seeing it in real time. 0:11:02.800 --> 0:11:04.559 There is a rush to build out capacity to make 0:11:04.559 --> 0:11:07.440 all this demand. Some companies are benefiting both than others 0:11:07.440 --> 0:11:10.719 Microme with eighty five percent margins. Other companies that are 0:11:10.720 --> 0:11:12.960 doing a lot of the spending right now being punished. 0:11:13.000 --> 0:11:14.760 The stocks are being punished. This is a thing we 0:11:14.840 --> 0:11:17.600 keep bringing up that changes the trajectory for spending. 0:11:18.040 --> 0:11:21.960 Look, no, I mean not anytime soon, because the companies 0:11:21.960 --> 0:11:25.720 are getting real returns on this. The market right now 0:11:25.880 --> 0:11:27.840 is not giving the companies that are spending on this, 0:11:27.880 --> 0:11:31.160 the hyperscalers the kind of credit that they normally would 0:11:31.200 --> 0:11:33.120 for a couple of different reasons, but the biggest one 0:11:33.160 --> 0:11:35.599 is there is this gap between when you have to 0:11:35.640 --> 0:11:37.520 start spending and building all of this out when you 0:11:37.520 --> 0:11:39.600 actually start seeing the returns on it. If you look 0:11:39.600 --> 0:11:42.160 at cash return on cash invested, which we believe is 0:11:42.200 --> 0:11:44.400 sort of the best gauge of the returns that they're 0:11:44.400 --> 0:11:47.360 actually generating on this, hyper scalers are generating twenty nine 0:11:47.360 --> 0:11:51.160 percent returns on this investment, very stable. It was twenty 0:11:51.240 --> 0:11:53.040 nine percent in Q one, is twenty nine percent in 0:11:53.120 --> 0:11:55.640 Q four. If you have the ability to borrow at 0:11:55.679 --> 0:11:58.760 six percent or to issue equity and get a twenty 0:11:58.840 --> 0:12:01.120 nine percent return on it, you're supposed to do that 0:12:01.200 --> 0:12:03.120 regardless of what your stock price is doing. And while 0:12:03.160 --> 0:12:06.240 the stock prices aren't doing what Micron stock price is doing, 0:12:06.840 --> 0:12:09.439 they're hanging in there enough that investors haven't rejected this. 0:12:09.600 --> 0:12:09.840 Right. 0:12:10.880 --> 0:12:14.320 Google issued eighty five billion dollars worth of equities the 0:12:14.360 --> 0:12:15.680 market didn't really blink. 0:12:15.800 --> 0:12:17.800 Well, just to build on though what John is talking about, 0:12:18.080 --> 0:12:19.959 maybe people are still lending and they're. 0:12:19.760 --> 0:12:20.960 Still able to raise cash. 0:12:21.000 --> 0:12:23.679 Nonetheless, it's getting a little bit hairy for the likes 0:12:23.679 --> 0:12:27.319 of Microsoft down eighteen percent for this worst monthly performance 0:12:27.360 --> 0:12:29.920 going back to two thousand and eight. You see Oracle 0:12:29.960 --> 0:12:32.000 down more than thirty percent. Are we starting to see 0:12:32.000 --> 0:12:35.199 the beginnings of investor pushback that maybe hasn't put teeth 0:12:35.240 --> 0:12:38.600 in this trade by withdrawing cash, but certainly has put 0:12:38.679 --> 0:12:40.840 a little bit of notice around that capital. 0:12:41.000 --> 0:12:44.480 Well, the thing that we have to remember, particularly when 0:12:44.480 --> 0:12:47.400 it comes to Microsoft and Oracle, is those are both 0:12:47.440 --> 0:12:50.599 software companies. Look at everything else in software and what 0:12:51.320 --> 0:12:56.320 those stocks have done. The market's not responding negatively to 0:12:56.360 --> 0:12:58.640 the acceleration and growth that you're seeing at Azure, the 0:12:58.679 --> 0:13:01.240 returns you're seeing at Azure. It's responding to the other 0:13:01.720 --> 0:13:05.640 seventy percent of Microsoft's business that is software. It's responding 0:13:05.640 --> 0:13:08.600 to the biggest part of Oracle's business, which is software. 0:13:09.240 --> 0:13:14.800 And so I think that's that, if anything, should encourage 0:13:14.840 --> 0:13:17.600 more investment in this area, particularly as we start to 0:13:17.640 --> 0:13:21.240 see the acceleration in Azure revenues through through the end 0:13:21.280 --> 0:13:23.720 of this year, which we believe the market will respond 0:13:23.760 --> 0:13:24.400 positively to. 0:13:24.640 --> 0:13:26.680 We've seen this rolling ball of cash, and as we 0:13:26.720 --> 0:13:29.360 heard from Sebastian Page earlier, everyone's looking for the choke points. 0:13:29.720 --> 0:13:32.240 The next place where you're going to see things just 0:13:32.280 --> 0:13:35.800 sort of shoot exponentially higher because of this insatiable demand 0:13:36.040 --> 0:13:39.160 and a limited supply. After memory, what's next, I mean, 0:13:39.200 --> 0:13:41.440 do you have your eye on kind of those choke points. 0:13:41.840 --> 0:13:42.560 I mean we do. 0:13:42.640 --> 0:13:44.560 I mean the choke points sort of exist throughout the 0:13:44.559 --> 0:13:48.079 supply chain right now, Memories obviously the biggest one. Anthropic 0:13:48.120 --> 0:13:50.440 told you that very loudly a few weeks ago when 0:13:50.480 --> 0:13:53.800 they raised their most recent round. They have the opportunity 0:13:53.840 --> 0:13:57.320 to choose strategic partners. They could have picked anyone they wanted. 0:13:57.480 --> 0:14:00.800 They chose three, Samsung, Micron, and Heinex, and so like 0:14:01.120 --> 0:14:04.720 if anyone who's surprised by what's happening with Micron today 0:14:04.760 --> 0:14:07.240 and what's been happening with high bandwidth memory didn't pay 0:14:07.240 --> 0:14:11.720 attention to what Anthropic told them, the next point after 0:14:11.760 --> 0:14:16.280 that is it's at interconnect, it's in storage, it's in 0:14:16.400 --> 0:14:18.760 labor in a very big way, and of course it's 0:14:18.800 --> 0:14:21.120 in power. We've been talking about that for so long. 0:14:21.400 --> 0:14:23.680 It's also because of what you see with Micron. It's 0:14:23.800 --> 0:14:26.760 very much in semicap equipment because we do have to 0:14:26.800 --> 0:14:28.560 make more memory, we do have to make more chips, 0:14:28.560 --> 0:14:31.720 We need more compute, we need more storage and memory. 0:14:31.920 --> 0:14:34.240 Do you think some of these companies along the supply 0:14:34.320 --> 0:14:36.920 chain we could potentially see these issues emerged later in 0:14:36.920 --> 0:14:38.680 the year or next year as they build this out. 0:14:38.720 --> 0:14:40.040 Are undervalued right now? 0:14:40.400 --> 0:14:40.560 Well? 0:14:40.600 --> 0:14:44.880 I mean, so we've been saying this, like from I 0:14:45.040 --> 0:14:47.520 started at City a year ago. The first thing that 0:14:47.560 --> 0:14:49.000 we said is you want to be where the model 0:14:49.000 --> 0:14:51.160 necks are, and that has continued to be the case, 0:14:51.200 --> 0:14:54.000 and we sort of stuck with that. This is where 0:14:54.040 --> 0:14:56.280 pricing goes. You were talking about sort of the underperformance 0:14:56.280 --> 0:14:59.200 of the hyperscalers. You want to be where people are 0:14:59.240 --> 0:15:01.680 spending money, not necessarily with the people who are spending 0:15:01.720 --> 0:15:04.600 the money, and so that's going to continue to be 0:15:04.640 --> 0:15:06.480 the case. We would argue it's not even so much 0:15:06.560 --> 0:15:10.720 undervalued as just estimates are too low, Consensus numbers aren't 0:15:10.840 --> 0:15:13.880 high enough. Because the amount of infrastructure that is going 0:15:13.920 --> 0:15:15.960 to get built, the amount of pricing increases that you're 0:15:16.000 --> 0:15:20.480 going to see that, you know, irresistible demand, immovable supply. 0:15:20.800 --> 0:15:23.360 The only thing that breaks in that is price. You 0:15:23.400 --> 0:15:25.720 saw in the Micron number eighty five percent gross margins. 0:15:25.760 --> 0:15:28.080 Memory companies are not supposed to have eighty five percent 0:15:28.120 --> 0:15:31.840 gross margins. Eventually, that will settle out because that's what 0:15:31.880 --> 0:15:35.640 cyclicals do. But we're a long way away from that happening. 0:15:35.680 --> 0:15:37.840 You said that one of the choke points was in labor. 0:15:37.880 --> 0:15:40.480 Are you talking about Jonas Adler Are you talking about 0:15:40.560 --> 0:15:43.320 Dave who constructs some of what we're seeing with the 0:15:43.480 --> 0:15:44.560 hyperscaler buildings. 0:15:44.600 --> 0:15:47.360 So it's certainly both. There is not a lot of 0:15:47.360 --> 0:15:50.400 talent out there that has the capability of advancing these 0:15:50.440 --> 0:15:53.000 models the way that level of sort of the Jonas 0:15:53.040 --> 0:15:54.160 Addlers of the world do. 0:15:54.920 --> 0:15:55.880 I have no idea, but. 0:15:55.880 --> 0:15:58.360 I mean, if you look at some of the stuff 0:15:58.360 --> 0:16:00.560 that was announced last summer, right when Meta was doing 0:16:00.560 --> 0:16:03.040 these deals, right, Anthropic is doing these deals now, Meta 0:16:03.120 --> 0:16:05.120 was doing them last summer, it was six and in 0:16:05.120 --> 0:16:05.840 some cases, you know. 0:16:05.800 --> 0:16:06.640 I mean it was it was. 0:16:08.360 --> 0:16:11.960 Very large sort of you know, in some cases billion 0:16:12.040 --> 0:16:14.960 dollar kind of pay packages over multi multi years. And 0:16:15.000 --> 0:16:16.840 when you look at sort of the acquisition hires that 0:16:16.880 --> 0:16:19.400 many companies have done. It falls into that hundreds of 0:16:19.400 --> 0:16:24.080 millions and beyond kind of level. That said, what I 0:16:24.120 --> 0:16:28.400 was referring to is very much it's the electricians, the plumbers, 0:16:28.400 --> 0:16:31.160 the construction people that actually have to build these data centers. 0:16:31.280 --> 0:16:33.080 There are very few people in the world that have 0:16:33.160 --> 0:16:36.280 the skills to be able to build at the level 0:16:36.320 --> 0:16:39.120 that these data centers require. And those people are in 0:16:39.480 --> 0:16:42.120 massive demand right now, and deservedly they're getting paid a 0:16:42.160 --> 0:16:43.600 lot more to stay with us. 0:16:43.920 --> 0:16:56.680 Mult Bloomberg surveyance coming up after this check Kevin Walsh 0:16:57.080 --> 0:17:00.560 making changes at the Central Bank limited forward guidance task 0:17:00.600 --> 0:17:04.040 forces and putting even more way on signals from financial markets. 0:17:04.080 --> 0:17:06.399 The former New York Fed President Bill do be Wang 0:17:06.440 --> 0:17:09.720 in writing this a fresh look is appropriate, but this 0:17:09.760 --> 0:17:11.760 needs to be done with greater care than w WASSH 0:17:11.880 --> 0:17:14.360 is shown to date. Bill joins us now for more. Bill, 0:17:14.400 --> 0:17:16.280 welcome to the show. It's nice to reflect on these 0:17:16.359 --> 0:17:18.040 kind of things with you, So thanks for being with us. 0:17:18.359 --> 0:17:19.800 What are you reflecting on right now? What are you 0:17:19.840 --> 0:17:21.240 concerned about? Is this comes together? 0:17:22.119 --> 0:17:22.239 Well? 0:17:22.240 --> 0:17:25.199 What I'm concerned about is that I'm perfectly fine with 0:17:25.200 --> 0:17:27.639 it getting rid of four guns. But what I'm concerned 0:17:27.640 --> 0:17:30.800 about is worsh is not disclosing what is monetary policy 0:17:30.840 --> 0:17:33.119 reaction functions. In other words, how would the FED adjust 0:17:33.200 --> 0:17:36.480 policy as the economic environment changes. And I think that's 0:17:36.480 --> 0:17:38.160 a big mistake and the idea that you can rely 0:17:38.240 --> 0:17:40.080 on financial markets to tell you what you should do 0:17:40.080 --> 0:17:43.040 in terms of monetary policy, that won't work because markets 0:17:43.040 --> 0:17:45.040 priced to what they think the FED will do. So 0:17:45.119 --> 0:17:46.920 if the Fed's looking at the markets and the markets 0:17:46.960 --> 0:17:49.359 are looking at the FED, how is policy actually set. 0:17:50.200 --> 0:17:53.080 It's really important in the United States that markets understand 0:17:53.200 --> 0:17:57.200 how the Feds could react, because monetary policy works mainly 0:17:57.240 --> 0:17:59.879 through financial conditions, the effect of short term rates on 0:18:00.080 --> 0:18:03.919 bond stocks, credit spreads, the dollar. So if the markets 0:18:03.920 --> 0:18:06.960 don't understand what the FED is doing, uh, those markets 0:18:07.000 --> 0:18:09.080 aren't going to be priced appropriately relative to what the 0:18:09.080 --> 0:18:11.200 FED is actually going to do. And that's going to 0:18:11.359 --> 0:18:14.280 both slow down the transmission of mandre policy to the 0:18:14.320 --> 0:18:16.840 real economy, but it's also going to make it less, 0:18:16.920 --> 0:18:19.160 you know, less less efficient. 0:18:19.760 --> 0:18:21.320 So it seems to me like you've. 0:18:21.160 --> 0:18:23.879 Got to provide more guidance about how you're actually going 0:18:23.920 --> 0:18:27.200 to react if things evolve differently than you anticipate. 0:18:27.320 --> 0:18:29.159 To your point, Bet, I think you're picking up on attention. 0:18:29.320 --> 0:18:31.520 We are witnessed in the news conference he seemed to 0:18:31.520 --> 0:18:36.960 find difficult to separate forward guidance from communicating articulating a 0:18:37.000 --> 0:18:38.960 reaction function. Where do you think that came from? Why 0:18:39.040 --> 0:18:40.840 is that difficult? Do you think it's straightforward? 0:18:41.840 --> 0:18:42.680 I think it's straightforward. 0:18:42.720 --> 0:18:45.280 I mean, I think Ford guidance is really basically saying, 0:18:45.520 --> 0:18:48.640 here's what we expect to do next. The madre policy 0:18:48.640 --> 0:18:50.640 reaction function isn't about what we're going to do next. 0:18:50.640 --> 0:18:53.080 It's about how we would react to different sorts of 0:18:53.200 --> 0:18:54.200 incoming information. 0:18:54.520 --> 0:18:57.000 So I think he needs to distinguish between those two things. 0:18:57.200 --> 0:18:59.600 Right now, I don't really understand how much how he 0:18:59.640 --> 0:19:02.800 expects to set mandreate policy. The job of mandre policy 0:19:02.840 --> 0:19:04.560 is the fedest job, not the market job, and so 0:19:04.640 --> 0:19:05.920 the FEDS needs to do its job. 0:19:06.200 --> 0:19:09.919 Part of his argument, perhaps just being generous, might be 0:19:10.119 --> 0:19:13.280 that their task forces for that, and essentially they have 0:19:13.320 --> 0:19:16.240 to understand what data they're looking for at before they 0:19:16.320 --> 0:19:18.520 understand exactly how they should react. 0:19:18.880 --> 0:19:22.840 Do you buy that argument, Well, obviously it makes sense 0:19:22.840 --> 0:19:24.960 to take a fresh look at what data is available, 0:19:25.680 --> 0:19:27.280 but at the end of the day, these task forces 0:19:27.320 --> 0:19:29.159 have a finite life. I mean, the FED has basically 0:19:29.160 --> 0:19:31.480 got to conduct mandre policy not just over the next 0:19:31.520 --> 0:19:34.040 six months, but over the next number of years. So 0:19:34.080 --> 0:19:36.480 I think the reliance on task forces maybe it buys 0:19:36.520 --> 0:19:38.560 him some time to think about what he really wants 0:19:38.560 --> 0:19:40.440 to do. But at the end of the day, these 0:19:40.440 --> 0:19:44.320 task forces are not a replacement for the FED communicating 0:19:44.359 --> 0:19:47.880 about how it's going to act as economic conditions change. 0:19:48.119 --> 0:19:49.879 Right now, BO, when you take a look at the 0:19:50.000 --> 0:19:52.240 inflation ry, when you take a look at the oil input, 0:19:52.280 --> 0:19:55.960