00:00:02 Speaker 1: Bloomberg Audio Studios. Podcasts Radio News. 00:00:11 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Farrow, along with Lisa Abramowitz and Anne-Marie Hordern. Join us each day for insight from the best in markets, economics and geopolitics. From our global headquarters in New York City, we are live on Bloomberg Television weekday mornings from 6 to 9 a.m. Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always, on the Bloomberg Terminal and the Bloomberg Business App. We begin this out with tech lifting stocks near all-time highs. Aaron Kennedy of Clear Harbor Asset Management writing, AI may have started as a technology story. It is increasingly becoming a power, infrastructure, productivity, and capital market story. Aaron joins us now for more. Aaron, good morning. Good morning. Disruption. We did this with software earlier this year. Are we doing it again with different sectors? 00:00:56 Speaker 3: Yeah, well, I think that the SaaSpocalypse has come and gone and come and gone again. I mean, this past week, it was Metamuse, and how is it going to impact travel stocks? But how could it serve maybe as a tailwind to other entities or companies like Shopify, which actually signed an agreement? 00:01:15 Speaker 1: I think the story is maturing. 00:01:17 Speaker 3: I'm not sure it's a headwind more than it is still a tailwind for things like networking, electrification, power infrastructure. Those supply chain bottlenecks are there, but the demand is very, very high. 00:01:29 Speaker 2: Draw a distinction between the companies that are choosing to come along for the ride, Shopify, and the ones that are putting up a wall, Amazon. What do you think is the right path? 00:01:37 Speaker 3: Well, I can't speak for the management teams, but clearly Shopify is of the view that with 3.4 billion users at Facebook connected now to Shopify's platform, that could be a huge economic tailwind. I think Amazon's very concerned that Perhaps Meta is extracting insights into consumer activity on there and creating their own models that could potentially disintermediate some important sort of moats that have existed at Amazon over the past several years. So there's probably a nuance there. 00:02:18 Speaker 4: So, Aaron, John called me out on the demographic of who might be using Mr. 00:02:23 Speaker 2: Claude to manage their money. 00:02:26 Speaker 4: Do you think that that is actually a real and growing reality, that a lot of people who aren't just young entrants to college are allowing Anthropic to manage their money? 00:02:36 Speaker 2: So it's interesting. 00:02:37 Speaker 3: When you ask that question, I think about maybe 15 years ago, we had the robo-advisors entering our orbit. I remember back then looking at the average value of the average account at a place like Betterment, which was one of the leaders at the time. I think it was about $ 30, 000 10, 12 years ago. So that sort of speaks to maybe not an age demographic, but perhaps sort of a wealth quotient. And I think it's probably correlated as well. 00:03:09 Speaker 1: There's a greater. 00:03:10 Speaker 3: Proclivity to use technology among the younger cohort, and there are fewer dollars to be put to work. 00:03:16 Speaker 2: I do think it's evolving. 00:03:17 Speaker 3: I mean, clearly, if we all sat here 10 years ago, we were reticent to put our emails on on sites where we were shopping. Today, I don't think we think twice about doing that. So I think there's probably a growing acceptance of this among even the older age cohort. 00:03:36 Speaker 4: Although some of us are planning to move to the south of Italy and just check out entirely. 00:03:40 Speaker 2: I'm an old man. I'm an old man. I'm just saying, that's all. My birth certificate might suggest I'm in my 40s, but I'm actually in my 80s. And I would never, I would never allow anyone to book my flights. Even if you gave me a world-class assistant, I would never allow anyone else to book my flights. 00:03:55 Speaker 4: Well, and maybe this is why people like Aaron would go out and buy some of these stocks that are getting beaten up because this is such a topical. 00:04:00 Speaker 2: You let people book your flights? Yeah, why not? Oh, do you? No, I'm very. 00:04:03 Speaker 5: I just say I'd like to fly between this window. 00:04:06 Speaker 2: Thank you so much. No, I need to know the times. I need to know the airline. I need to know the seat. The seat's important. My mom now checks aircraft. sourcing that to anybody. I don't think that this is an age thing. 00:04:14 Speaker 4: I think this is, and real attention to detail that some of us might lack. 00:04:18 Speaker 2: You watch the Bloomberg light up with all the other type A's. 00:04:20 Speaker 3: Yes. 00:04:20 Speaker 2: They're all going to write in and say, do exactly the same thing. I think that you have a lot of company out there. 00:04:25 Speaker 4: I am curious though, do you see this as a dislocation that you want to get involved with? Because all of these scares are sort of the rotating ball of money as people try to hash through collectively the implications of some of this technology. 00:04:37 Speaker 3: Well, I mean, I think we have to parse through it. I think on the travel stocks, I mean, I think there are different technologies. I mean, I think the SaaSpocalypse is, you know, we're realizing too that there are so many different software companies that are controlling data, segmenting data. You know, one company that's private is Databricks in that regard. There are public companies that compete with Databricks. And so, you know, those seem to be in some sense like winners regardless of the evolution of this sort of thematic. As long as compute power is expanding, as long as AI agentic adoption is accelerating, you would think companies that are sort of in that data segment would be well positioned. 00:05:19 Speaker 2: Cybersecurity, as this all grows. 00:05:23 Speaker 3: Clearly at the epicenter of all of this, So there are huge opportunities here in the midst of a period of uncertainty for sure with AI growing. 00:05:31 Speaker 5: A lot of analysts are saying Muse is very consumer-focused, consumer-facing, so maybe there'll be higher ends of adoption. 00:05:38 Speaker 2: In that sense, it almost. 00:05:40 Speaker 5: Forces, at least this AI, is forcing potentially, or I'm asking you, do you think it'll force companies to have to lower their prices? Because you're going to have an agent that's going to be able to scour the market and get you the best deal. 00:05:54 Speaker 3: Well, I think there's a huge debate right now among the frontier models that investors are asking, how much of this model is a commodity and how much is it truly differentiating? I think if you look at Metamuse, Just because of the unique nature of meta, but also Google with all of its sort of ecosystem is another, you know, way to sort of think about it. What sort of information do they have about consumers and how valuable is that and how unique with Gmail and everything else? how unique can that frontier model be in crafting an output for the inputs that are placed into that model? So one could argue that there's less commoditization among certain frontier models and more among others. And I think that's going to play out over the. 00:06:43 Speaker 1: Next year or two. 00:06:44 Speaker 2: Stay with us. More Bloomberg surveillance coming up after this. Amos Hogstein joins us around the table here in New York City. Had a range of other things to do, but we're just going to skip it. Diesel export ban. You studied it too. 00:07:06 Speaker 1: Look, in 2022, I looked at a product. What do we do about it? We were at $ 5. about a gallon of gasoline in June of 2022. I don't believe that we have to look at this just as a ban or no ban. There's clearly a problem when we are exporting significant amounts and we are getting to points that could be price points in the United States that could be damaging to the economy and lead you eventually down to a recession. So you can't just say, oh, we can't do anything about it because there's some purity test of we don't export. And by the way, for decades we didn't export any crude, and I negotiated a deal with Senator Murkowski at the time, in 2015 or 16, to allow exports. So it's not like this thing that we've always done exports. I think that we have to look at a policy that ties our exports levels to inventories. And so when we have commercial inventories, and government inventories of diesel and gasoline at a certain level, you are free to export as much as you want. When they get reduced by a certain amount, exports get reduced by a certain amount. It doesn't have to be a ban or no ban. We can actually limit volume of exports. We can restrict it to no increases in exports, et cetera. There are things that levers that we can do. And I think that we got into the wrong place of discussing this as a totally binary ban or no ban. And I think there's plenty of creative space. 00:08:35 Speaker 2: That sounds more like smart long-term planning. I don't think that's the focus right now, is it? The focus right now is just to get prices down. 00:08:44 Speaker 1: First, I don't think it takes that long, and we worked on this not that long. I was in government less than two years ago, a year and a half ago. 00:08:52 Speaker 2: Let's just say, where are inventories now? Let's start there. So where are inventories now in this country? 00:08:56 Speaker 1: I think inventories are relatively tight here, which is why, because a lot goes to exports. 00:09:02 Speaker 2: So we'd have to rebuild them before we started exporting again. 00:09:05 Speaker 1: But what that means is if you said, listen, build the inventories, I'm going to reduce your exports, right? right? I'm not going to ban them. I'm going to reduce them to the levels that they were at, let's say, six months ago. 00:09:16 Speaker 2: Until we've rebuilt inventories. 00:09:18 Speaker 1: Actually, if you look at it, it wouldn't take that long to rebuild those inventories because the bad signal on an export ban is that it goes very quickly to production decreases, right? Not just at refineries, but at the oil side. If I think I have nothing to do with this thing and the price is going to crash there. And then you have this cycle, as was discussed on the show, I'm sure, all morning of prices go down and then eventually they'll go up. 00:09:43 Speaker 2: The dynamic that you're describing, though, wouldn't that be neutral for prices? 00:09:47 Speaker 1: No, because I think the market knows that I'm protected against the shortage, right? The price goes up because I have this imbalance between what the price internationally is fetching versus what the price domestically. So I keep driving the price domestically up to meet my export options. If I know that there's a ceiling there, so it starts balancing that price. 00:10:10 Speaker 5: So if you're in favor of some softer version of this, why didn't the Biden administration do it when gasoline was over $ 5 a gallon? 00:10:16 Speaker 1: So we looked at what the problem then was different than it is today. There was actually no problem in the market then. Just freak out. We had the Russia invasion of Ukraine. The market decided the Russians, this would stop all exports of crude. And so crude prices went to over $ 120 on literally nothing actually physically happening in the market. Nothing. No barrels were restricted. So what we had to do is restore confidence in the market that that's not going to happen. And so we instituted a 180 million barrel release. We also discussed some things with our friends in the Middle East and in OPEC. And that brought the price down from 120 to 100 very, very quickly once we did that. And with that, gasoline prices started going down. And within three months, we were back down to below $ 4. We were in threesomes. 00:11:10 Speaker 5: I am just curious and interested, the fact that you actually kind of agree with this idea of maybe having a softer version of a diesel ban. And it's being promoted by the same people who went after you and your colleagues for your LNG ban during the Biden administration. 00:11:26 Speaker 1: Look, if I. 00:11:31 Speaker 1: Look, I won't deny that I get a little, I smile a little bit when I hear some of my big critics about the 180 million barrel release from the SPR. I was told that I was destroying the United States, destroying America, and then they did 170 million. So, you know, look, I get that. I don't look at that. That's politics. I didn't take their criticism seriously then, and therefore I understand what they're doing now. I'm not for a softer version of a ban. I'm not for a ban. I think it's a bad idea because it also goes to the trust in the US economy for our consumers around the world that will seek to understand how do they live without relying on the United States, and that's damaging. I think adjustments there, are necessary. But they have a core problem. And that is, as long as the war is going on in Iran, and whether there's shooting or not doesn't really matter, right? The conflict is still there. As long as the conflict in Russia-Ukraine is still going on, this problem will persist. And you're moving the problem around, but you're not solving the underlying problem. You're going to have it. And therefore, at some point, these prices get to a political place where When I came on this show months ago, I said, at some point, they are going to be discussing what they're discussing now. There's no escaping it. Now, the fact that it's happening 40, 50 days before an election, Jesus, none of us would have been able to predict that. 00:12:50 Speaker 5: Well, you guys tapped the SBR before an election as well. 00:12:52 Speaker 2: We literally called it the Strategic Midterm Reserve under your administration. 00:12:57 Speaker 1: We were coming out of a recession. Just remember where we were in 2021. We were still in a recession. In 22, we were coming out of a recession. The war started, and everybody was saying, we're going back to a, is it going to be a hard landing or a soft landing? That was the whole discussion. And we tried to say that we're not going to have a landing, and that's why we did it. Yes, midterms were there, but that actually wasn't the main consideration at the time. We really thought we were going into a recession. The Fed thought we were going into a recession. 00:13:25 Speaker 4: Have you talked with anyone in the administration about your idea, not of a ban, but of some kind of understanding relationship between exports and the SPR? 00:13:37 Speaker 1: There are several people in the administration who are there now who were there when I was there. I think they know how to do this. I think there is a real two camps here in the administration of trying to force a ban through because the domestic political side of the White House versus some of the financial people who I understand. I think the problem they have is not just what the policy is. As long as you don't solve the wars, all of this is just moving the deck chairs around. And the Houthis now control Bab al-Mandab, right? The Iranians essentially control the straits. Yes, we have tankers flowing through. But that's crude, not product. No products going through. And on the Bab al-Mandab side, I'm right now trusting the Houthis, of all people, that they will, for assurances on freedom of navigation, how the heck did we get here that Iran, I need, the only way I get crude out of the Middle East is if I have a very expensive, taxpayer-funded, and I have to do dealings with terrorists that we never thought we'd ever even meet with, sit with, let alone do deals with that we're now doing. We're doing deals with the worst people on the planet who had no problem shooting at Americans and taking their word at something. And the market's saying, I'm good because I heard a speech yesterday that will either be an annihilation of the problem or we will have very, very good talks on the same exact thing. 00:15:04 Speaker 2: That was Anne-Marie's framing. That wasn't a market. That was Anne-Marie's framing this morning. 00:15:08 Speaker 1: No, but you look at the commodities market, you look at the broader picture here. That's what's happening. And I think that as we look at, look, what does this really matter? At the end of the day, it's going to drive to inflation. It goes to the bond, which is already driving the 30-year mortgage rates up, which is the housing. And that's how these prices affect the broader economy. It's not, yes, I get that energy is what's causing inflation and it's isolated. But it doesn't stay isolated when mortgages are above 7%. So what happens, this mismanagement of the wars... in both locations is driving energy markets, which I think is very dangerous. Where we are is very dangerous for the broader economy. 00:15:50 Speaker 2: Stay with us. More Bloomberg surveillance coming up after this. Meta's new AI agent moves emerging as the latest market disruptor. The technology sparking fears across banking, insurance, and consumer stocks. The threat to the big banks happened to push the S & P Financials Index to its lowest level since July. Juan Landono of the Cato Institute joins us now for more. Juan, welcome to the program. I want to think about the future market, what this looks like. How are you thinking about what this could potentially look like, the companies that come along for the ride and the companies that put up the walls? 00:16:30 Speaker 6: Yeah, thank you so much for having me. I think that's a good question. I think as Vandeep was just talking about, I see this tug of war between companies that want to have their own AI systems and their own agents to be the ones to stay in the market versus the agents themselves are going to push to get wide adoption. And I think it's going to be interesting to see the consumer response because if a platform blocks my AI agent, I might not want to interact with that platform as well. So it's going to be interesting to see what side our customer is going to fall into more loyalty. Are they going to be loyal to a platform or a retailer that I really like? Or am I going to be loyal to my agent? 00:17:08 Speaker 4: Juan, how much do you see this as a potential regulatory landmine if people are giving their personal financial information over to, say, a personal agent to manage? 00:17:20 Speaker 2: Where is the liability? 00:17:21 Speaker 4: Who bears the responsibility of making sure that someone doesn't execute a trade or put money towards someone's account without approval? 00:17:33 Speaker 6: Well, yeah, that's a very good question. And I think that's a lot of like the lack of clarity the U.S. has with the privacy system. It's very fragmented. We don't have a federal privacy law. So it might vary state by state. It might happen that states are making their own laws about it. But I think. On the same side, all these companies not only have the owners, but I think they have the clarity that they have to create those warning signs. I think when you go to Muse, it actually gives you a lot of prompts before it does something. When you go on Cloud and it wants to edit a document, it already asks a lot of like, are you sure you want to do this? I think platform design and model design is also going to be vital in creating a healthy ecosystem. Because if I don't trust my agent, if it does something I don't want it to do, well, I'm not going to use it again. And I'm not going to use it at all. 00:18:20 Speaker 4: Is AI regulation incompatible with winning the race, whatever that might be, to the most developed and advanced frontier technologies? 00:18:32 Speaker 2: Not necessarily. 00:18:33 Speaker 6: It really depends on how you regulate. I think there can be pro-market and pro-innovation regulation, especially when it resolves this question that we just asked. If people are asking and we need the legal system to maybe say, okay, to what extent is an agent responsible for my data being leaked versus me surrounding my data? I think giving that clarity to both consumers and businesses is pro-market because you can make a more informed decision in the market. And similar things with other like liability and potential risk of developing AI systems, frontier AI systems, where does the liability end and where does it start in sense like what happens if an agent goes rogue? And what we saw with OpenAI and Hugging Phase, I think giving clarity of what is the responsibility of the lab and what is not the responsibility is pro-innovation regulation. 00:19:22 Speaker 5: Juan, what are you looking forward to in terms of this meeting between the president and Xi Jinping? Will there be any incremental steps forward when it comes to the two viewing AI similarly, or does it not really matter? 00:19:33 Speaker 6: I feel like the meeting is in a very adverse position. It's almost a paradox that the race, as you were mentioning, is very adversarial, is very confrontational. But I think at the same time, you have these calls by labs and broader sort of societies to cooperate. But both nations are actively trying to hold each other down. So I don't really see how you tread the needle. I think it's almost impossible. But if anything, this meeting will shed some light if there's a possibility to do this cooperation amid conflict. 00:20:03 Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics and geopolitics. You can watch the show live on Bloomberg TV, weekday mornings from 6am to 9am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen. And as always, on the Bloomberg Terminal and the Bloomberg Business App.