1 00:00:02,400 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,680 --> 00:00:15,480 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,520 --> 00:00:18,440 Speaker 2: with Lisa Bromwitz and a Marie Hordern. Join us each 4 00:00:18,520 --> 00:00:21,440 Speaker 2: day for insight from the best in markets, economics, and 5 00:00:21,440 --> 00:00:24,759 Speaker 2: geopolitics from our global headquarters in New York City. We 6 00:00:24,800 --> 00:00:27,479 Speaker 2: are live on Bloomberg Television weekday mornings from six to 7 00:00:27,560 --> 00:00:31,040 Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify 8 00:00:31,240 --> 00:00:33,519 Speaker 2: or anywhere else you listen, and as always on the 9 00:00:33,520 --> 00:00:37,200 Speaker 2: Bloomberg Terminal and the Bloomberg Business App. Joining usna's Tiffany 10 00:00:37,240 --> 00:00:40,479 Speaker 2: Wilding of Himco. Tiffany, Welcome to the program. It's there 11 00:00:40,479 --> 00:00:43,560 Speaker 2: a stagflationary light mix coming together here on the data 12 00:00:43,600 --> 00:00:45,320 Speaker 2: that you see. 13 00:00:46,680 --> 00:00:50,239 Speaker 3: Yeah, so I think we're getting what we expected on inflation. 14 00:00:50,320 --> 00:00:53,600 Speaker 3: We're getting some pass through of tariffs. It looks like 15 00:00:53,680 --> 00:00:59,240 Speaker 3: it's predominantly the firming categories are in goods, and otherwise 16 00:00:59,480 --> 00:01:00,960 Speaker 3: things look at a little bit better. I think the 17 00:01:01,000 --> 00:01:03,840 Speaker 3: more concerning news from the data this morning is the 18 00:01:03,920 --> 00:01:08,479 Speaker 3: jumping claims. It's been relatively contained despite the labor market, 19 00:01:08,600 --> 00:01:11,039 Speaker 3: you know, really slowing to a halt over the last 20 00:01:11,160 --> 00:01:14,600 Speaker 3: year and now the jump today looks a little bit 21 00:01:14,600 --> 00:01:17,080 Speaker 3: more concerning, like we're moving out of of just a 22 00:01:17,080 --> 00:01:20,360 Speaker 3: period of you know, very little activity or very little 23 00:01:20,400 --> 00:01:23,959 Speaker 3: hiring or firing, you know, to potentially some more separations. 24 00:01:23,959 --> 00:01:26,800 Speaker 3: And that's certainly that's going to be super concerning. I 25 00:01:26,800 --> 00:01:29,160 Speaker 3: think for the Federal Reserve, you know, I agree with 26 00:01:29,240 --> 00:01:31,240 Speaker 3: Mike McKee. I think over all the data this morning, 27 00:01:31,280 --> 00:01:35,160 Speaker 3: I think confirms a twenty five basis point cut. There's 28 00:01:35,480 --> 00:01:38,120 Speaker 3: probably going to be discussion around fifty, although that's not 29 00:01:38,200 --> 00:01:40,600 Speaker 3: our base case, you know, and I think there's there's 30 00:01:40,680 --> 00:01:43,600 Speaker 3: reasons if you continue to see this kind of momentum 31 00:01:43,640 --> 00:01:46,080 Speaker 3: on the labor market, you know, to get several more 32 00:01:46,120 --> 00:01:47,280 Speaker 3: cuts in the back half of the year. 33 00:01:47,920 --> 00:01:50,680 Speaker 1: Tiffany, What I find interesting about the market reaction is 34 00:01:50,720 --> 00:01:53,240 Speaker 1: that yes, so picking up on this idea that claims 35 00:01:53,280 --> 00:01:55,960 Speaker 1: came in the wrong kind of upside surprises. John was 36 00:01:56,000 --> 00:01:59,880 Speaker 1: saying that the trailing average is picking up at a remarkable, 37 00:02:00,000 --> 00:02:03,720 Speaker 1: alarming speed, but that longer term, we're seeing the tenure 38 00:02:03,800 --> 00:02:06,559 Speaker 1: yield now break below four percent for the first time 39 00:02:07,160 --> 00:02:09,200 Speaker 1: this year. I mean, we're looking at a tenure that 40 00:02:09,320 --> 00:02:13,480 Speaker 1: is also responding. Are you changing your longer term trajectory 41 00:02:13,680 --> 00:02:16,760 Speaker 1: for US growth prospects and the heels some of these 42 00:02:16,840 --> 00:02:19,160 Speaker 1: labor market revisions and the sort of negativity that we're 43 00:02:19,160 --> 00:02:20,160 Speaker 1: seeing from the claims. 44 00:02:22,160 --> 00:02:24,640 Speaker 3: Well, you know, I think that you know, just the 45 00:02:24,720 --> 00:02:28,160 Speaker 3: fact that the US treasury market continues to be a 46 00:02:28,240 --> 00:02:34,880 Speaker 3: hedge for for macroeconomic risks, for riskier asset volatility, you know, 47 00:02:34,919 --> 00:02:38,280 Speaker 3: I think is why you're seeing movements, you know, in 48 00:02:38,360 --> 00:02:40,960 Speaker 3: the longer end of the interest rate curve. You know, 49 00:02:41,000 --> 00:02:42,919 Speaker 3: I think when when we look at you know, sort 50 00:02:42,919 --> 00:02:46,400 Speaker 3: of valuations, you know, we think kind of intermediate sector 51 00:02:46,680 --> 00:02:51,200 Speaker 3: looks attractive here, does still provide risk you know against 52 00:02:51,200 --> 00:02:54,960 Speaker 3: downside protection, you know, And it's something that you know 53 00:02:55,000 --> 00:02:56,920 Speaker 3: that we've we've been very focused on. So it's not 54 00:02:57,040 --> 00:03:00,000 Speaker 3: surprising necessarily to me that you're seeing it in longer 55 00:03:00,080 --> 00:03:02,160 Speaker 3: data and interest rates. You know. I mean, I think 56 00:03:02,200 --> 00:03:04,280 Speaker 3: I think overall on the you know, on the economy side, 57 00:03:04,320 --> 00:03:06,200 Speaker 3: you know, we are really entering this kind of period 58 00:03:06,240 --> 00:03:10,519 Speaker 3: of weakness, potential weakness. You know, we'll see some fiscal 59 00:03:10,600 --> 00:03:14,440 Speaker 3: supports that are offsetting the tariff effects, but they don't 60 00:03:14,520 --> 00:03:17,640 Speaker 3: kick in until you know, the beginning of twenty twenty six, 61 00:03:18,000 --> 00:03:20,600 Speaker 3: you know, call it February March, when when consumers are 62 00:03:20,600 --> 00:03:24,000 Speaker 3: starting to get really big refunds from retroactive tax cuts. 63 00:03:24,480 --> 00:03:26,799 Speaker 3: But until then, we're really kind of in this period 64 00:03:26,800 --> 00:03:29,320 Speaker 3: of weakness. And to us, the question is some of 65 00:03:29,360 --> 00:03:32,080 Speaker 3: these smaller and mid sized businesses that are really having 66 00:03:32,120 --> 00:03:35,440 Speaker 3: to shoulder the effects of tariffs, maybe they're not getting 67 00:03:35,440 --> 00:03:38,240 Speaker 3: as much benefit from the one big beautiful bill tax cuts. 68 00:03:38,440 --> 00:03:41,520 Speaker 3: You know, can they really hold on here without firing people? 69 00:03:42,120 --> 00:03:44,080 Speaker 3: You know, and it seems like, you know, maybe there's 70 00:03:44,520 --> 00:03:47,280 Speaker 3: there's more concern around that, you know, as as we 71 00:03:47,480 --> 00:03:49,080 Speaker 3: as we're as we're watching the data. 72 00:03:48,960 --> 00:03:51,720 Speaker 2: Tiffany wild think of PIMCO. Definitely great to catch up 73 00:03:51,760 --> 00:03:53,440 Speaker 2: with you, and you've got to catch up with clients too, 74 00:03:53,440 --> 00:03:55,600 Speaker 2: So thanks for making sign for us this morning. Let's 75 00:03:55,640 --> 00:03:57,840 Speaker 2: move in the bond market. This data is good for bonds, 76 00:03:57,920 --> 00:04:01,480 Speaker 2: it's questionable for equities. Equity is just about unchanged. We'll 77 00:04:01,520 --> 00:04:02,920 Speaker 2: see if this move sticks. But at the front end 78 00:04:02,960 --> 00:04:04,680 Speaker 2: of the curve we're down six basis points, and as 79 00:04:04,760 --> 00:04:07,400 Speaker 2: Lisa pointed out, we're down across the curve and this 80 00:04:07,440 --> 00:04:09,400 Speaker 2: is largely because of the way the Federal Reserve chairs 81 00:04:09,400 --> 00:04:12,480 Speaker 2: set things up coming into September. He basically told us 82 00:04:12,480 --> 00:04:15,360 Speaker 2: the following that you could have one off effect on inflation, 83 00:04:15,640 --> 00:04:18,400 Speaker 2: but not all at once, and the labor market data 84 00:04:18,440 --> 00:04:20,960 Speaker 2: was concerning him, Which is why we're seeing yields down 85 00:04:21,000 --> 00:04:23,440 Speaker 2: this morning, because there's a much more emphasis on what 86 00:04:23,480 --> 00:04:24,880 Speaker 2: we're seeing on claims. 87 00:04:24,520 --> 00:04:26,560 Speaker 1: And it seems like the idea that you're seeing a 88 00:04:26,560 --> 00:04:30,240 Speaker 1: pickup in layoffs, to Tiffany's point, raises the question of 89 00:04:30,240 --> 00:04:33,600 Speaker 1: how companies are adapting to some of the higher input costs. 90 00:04:33,720 --> 00:04:36,479 Speaker 1: I was looking at some of the specifics here in 91 00:04:36,520 --> 00:04:39,480 Speaker 1: the CPI print. Airline fare is up five point nine 92 00:04:39,480 --> 00:04:42,440 Speaker 1: percent on the monthly basis, So again it talks about 93 00:04:42,440 --> 00:04:44,760 Speaker 1: the K shaped economy and how the FED is trying 94 00:04:44,760 --> 00:04:47,560 Speaker 1: to cater to people who cannot afford to pay that 95 00:04:47,680 --> 00:04:48,960 Speaker 1: those who can are. 96 00:04:49,160 --> 00:04:52,520 Speaker 2: David Kelly of JP Milgan Asset Management standing by David, 97 00:04:52,520 --> 00:04:54,240 Speaker 2: you've been looking at the data. Just when your first 98 00:04:54,320 --> 00:04:56,400 Speaker 2: reaction please, I. 99 00:04:56,360 --> 00:04:58,960 Speaker 4: Think, both of regard to the CPI and with regard 100 00:04:59,000 --> 00:05:01,600 Speaker 4: to the claims, everyone should sort of take a deep 101 00:05:01,680 --> 00:05:05,800 Speaker 4: breath and not overreact to them on claims. Key thing 102 00:05:05,839 --> 00:05:08,719 Speaker 4: to think about is last week was a week that 103 00:05:08,880 --> 00:05:11,479 Speaker 4: contained a Monday bank holiday or a Monday a bank 104 00:05:11,480 --> 00:05:15,000 Speaker 4: holiday called in the UK, but a Monday holiday labor day. 105 00:05:15,880 --> 00:05:19,440 Speaker 4: The unemployment claims data are notoriously bad in a week 106 00:05:19,480 --> 00:05:21,640 Speaker 4: that contains a public holiday. They've just had never figured 107 00:05:21,640 --> 00:05:24,000 Speaker 4: out how to seasonal adjust that properly. So I think 108 00:05:24,040 --> 00:05:26,400 Speaker 4: that's an overshoot on claims, and I would not be 109 00:05:26,400 --> 00:05:29,760 Speaker 4: surprised to see that number come down next week. Now, 110 00:05:29,920 --> 00:05:32,440 Speaker 4: it still fits into a mosaic of a slowing labor market. 111 00:05:32,520 --> 00:05:34,839 Speaker 4: I don't deny that I think the economy is gradually 112 00:05:34,880 --> 00:05:37,280 Speaker 4: grinding into a halt here, but I think that overstates 113 00:05:37,320 --> 00:05:40,279 Speaker 4: the deterioration in the labor market. And then similarly on 114 00:05:41,040 --> 00:05:44,919 Speaker 4: the on inflation, these numbers are very close to in 115 00:05:44,920 --> 00:05:47,200 Speaker 4: line with what we thought. The big surprises were probably 116 00:05:47,240 --> 00:05:50,600 Speaker 4: an increase in motor vehicle repair costs two point four 117 00:05:50,640 --> 00:05:54,120 Speaker 4: percent month over month, and then as East was just saying, 118 00:05:54,200 --> 00:05:57,240 Speaker 4: a five point nine percent increase in airline fairs. But 119 00:05:57,360 --> 00:05:59,280 Speaker 4: remember they felt very sharply over the course of the 120 00:05:59,279 --> 00:06:01,960 Speaker 4: summer as the airline travel was down. Now it's picking up 121 00:06:02,000 --> 00:06:05,240 Speaker 4: again in this case shaped economy, So overall the economy 122 00:06:05,320 --> 00:06:08,279 Speaker 4: is still moving forward slowly. Inflation's gradually going up. The 123 00:06:08,320 --> 00:06:10,520 Speaker 4: economy is gradually slowing down. That's what That's what we 124 00:06:10,520 --> 00:06:12,040 Speaker 4: thought tariffs are going to do. It's going to slow 125 00:06:12,040 --> 00:06:14,360 Speaker 4: growth and it's going to add to inflation. But I 126 00:06:14,400 --> 00:06:16,200 Speaker 4: don't think it's nearly as dramatic as either of these 127 00:06:16,279 --> 00:06:17,279 Speaker 4: numbers suggest this morning. 128 00:06:17,279 --> 00:06:19,119 Speaker 2: Well, David, let's just stay on the labor market story, 129 00:06:19,120 --> 00:06:20,920 Speaker 2: because that seems to feel that the market is moving on, 130 00:06:21,000 --> 00:06:23,600 Speaker 2: at least initially. Do you think the claims data maybe 131 00:06:23,600 --> 00:06:25,440 Speaker 2: overstates the weakness. Do you think they step down in 132 00:06:25,480 --> 00:06:27,760 Speaker 2: payrolls growth overstates the weakness too. 133 00:06:30,520 --> 00:06:30,680 Speaker 1: No. 134 00:06:30,720 --> 00:06:33,120 Speaker 4: I mean we saw the big down revision yesterday that 135 00:06:33,720 --> 00:06:37,039 Speaker 4: or earlier this week. That was not a surprise. No, 136 00:06:37,120 --> 00:06:39,760 Speaker 4: I mean there's there's weakness that The thing is, as j. 137 00:06:39,920 --> 00:06:42,320 Speaker 4: Pallace pointed out, it's a very curious kind of labor 138 00:06:42,320 --> 00:06:44,880 Speaker 4: market because we're having a huge reduction in labor supply 139 00:06:44,920 --> 00:06:49,239 Speaker 4: at the same time. So this does not speak of significant, 140 00:06:49,760 --> 00:06:52,480 Speaker 4: you know, labor markers weakness. I mean, it's still a 141 00:06:52,520 --> 00:06:55,680 Speaker 4: tight marker. It's still hard to find good people. But 142 00:06:56,360 --> 00:06:58,440 Speaker 4: I do think it's it reflects the fact that people 143 00:06:58,560 --> 00:06:59,760 Speaker 4: that businesses don't want. 144 00:06:59,640 --> 00:07:00,360 Speaker 5: To hire here. 145 00:07:00,480 --> 00:07:03,279 Speaker 4: I don't think there's a huge ongoing jump in layoffs, 146 00:07:03,279 --> 00:07:05,080 Speaker 4: but it's getting harder and hard to find a job 147 00:07:05,120 --> 00:07:07,919 Speaker 4: because businesses are just frozen because they don't know what 148 00:07:08,000 --> 00:07:09,440 Speaker 4: the playing field is going to be with regard to 149 00:07:09,480 --> 00:07:11,440 Speaker 4: tariff's going forward. And I think that is, you know, 150 00:07:12,040 --> 00:07:13,200 Speaker 4: that's the biggest thing that I think. 151 00:07:13,120 --> 00:07:14,720 Speaker 5: People are ignoring here, David. 152 00:07:14,760 --> 00:07:16,800 Speaker 2: A lot of people are hoping that things pick up 153 00:07:17,040 --> 00:07:19,840 Speaker 2: in twenty twenty six, that the growth story gets better 154 00:07:20,200 --> 00:07:22,920 Speaker 2: fueled by the right cuts we're about to see. Speaking 155 00:07:22,920 --> 00:07:25,680 Speaker 2: of things, maybe that we underappreciate something you've been talking 156 00:07:25,720 --> 00:07:28,120 Speaker 2: about for a while, this tax bill, the kind of 157 00:07:28,160 --> 00:07:30,600 Speaker 2: stimulatory effect it might have in twenty six. Could you 158 00:07:30,640 --> 00:07:32,680 Speaker 2: just sort of outline that for us this morning. 159 00:07:33,000 --> 00:07:36,040 Speaker 4: Absolutely really important. All these new tax cuts, getting rid 160 00:07:36,080 --> 00:07:38,840 Speaker 4: of the tax on tips over time, increases, standard deduction 161 00:07:39,000 --> 00:07:41,760 Speaker 4: and so forth, the sole tax break, all of them 162 00:07:41,800 --> 00:07:45,040 Speaker 4: were made retroactive to January one, twenty twenty five, but 163 00:07:45,240 --> 00:07:48,320 Speaker 4: the irs is not changed. With holding schedules, that means 164 00:07:48,320 --> 00:07:50,400 Speaker 4: that there's going to be basically a full year's worth 165 00:07:50,440 --> 00:07:53,040 Speaker 4: of refunds on all of those tax breaks kick in 166 00:07:53,040 --> 00:07:55,400 Speaker 4: in the first few weeks of twenty twenty six, or 167 00:07:55,440 --> 00:07:57,520 Speaker 4: first few months or twenty twenty six. That is the 168 00:07:57,520 --> 00:08:00,760 Speaker 4: equivalent of big stimulus checks last year. The average incompact 169 00:08:00,800 --> 00:08:03,440 Speaker 4: three fund is about thirty two hundred dollars. This next 170 00:08:03,520 --> 00:08:05,120 Speaker 4: year in twenty twenty six, we think it's going to 171 00:08:05,120 --> 00:08:08,480 Speaker 4: be over four thousand dollars, seventy percent of households receiving that. 172 00:08:08,480 --> 00:08:11,000 Speaker 4: That is like one big stimulus check, one big lump 173 00:08:11,080 --> 00:08:13,480 Speaker 4: of sugar put into the economy early next year, so 174 00:08:13,600 --> 00:08:17,120 Speaker 4: we can get to the first quarter without slipping into recession. 175 00:08:17,440 --> 00:08:20,080 Speaker 4: There is you know, there'll be some stimulus there, but 176 00:08:20,120 --> 00:08:22,080 Speaker 4: I do think that between now and then the economy 177 00:08:22,080 --> 00:08:23,400 Speaker 4: is going to be slowing in the fourth quarter. 178 00:08:25,840 --> 00:08:29,280 Speaker 2: Stay with us, mul Bloomberg Surveillance coming up after this, 179 00:08:38,400 --> 00:08:40,960 Speaker 2: let's tand to tack Oracle shares hiring the free market 180 00:08:41,000 --> 00:08:43,920 Speaker 2: after gaining the most since nineteen ninety two. On an 181 00:08:43,920 --> 00:08:47,720 Speaker 2: aggressive outlook, vadimas AzaC of the global head of Digital 182 00:08:47,880 --> 00:08:50,880 Speaker 2: Infrastructure at KKR right in the following we're living through 183 00:08:50,920 --> 00:08:54,120 Speaker 2: the largest build out since the Interstate Highway system, a 184 00:08:54,280 --> 00:08:57,120 Speaker 2: ten to fifteen trillion dollar wave to rewire the global 185 00:08:57,160 --> 00:09:01,880 Speaker 2: economy around power, compute, and activity. Vatama joins es now 186 00:09:01,880 --> 00:09:03,920 Speaker 2: for Marko Monitor, Good morning, it's going to see you. 187 00:09:03,960 --> 00:09:06,360 Speaker 2: Thanks for being here. Let's talk about these demand numbers. 188 00:09:06,480 --> 00:09:09,079 Speaker 2: The demand we're seeing is real. Yes, yeah, there is 189 00:09:09,120 --> 00:09:13,160 Speaker 2: still this conversation about a monster misallocation of resources coming together. 190 00:09:13,400 --> 00:09:14,400 Speaker 2: What do you stand on there? 191 00:09:15,720 --> 00:09:18,560 Speaker 6: It is a really the right question to ask. We 192 00:09:18,640 --> 00:09:22,000 Speaker 6: don't see it, honestly. I think if you look at 193 00:09:22,160 --> 00:09:26,280 Speaker 6: the fundamental spent relative to any other indicators from a 194 00:09:26,320 --> 00:09:31,000 Speaker 6: bubble stand perspective, right, I mean, often comparisons and drawn 195 00:09:31,040 --> 00:09:33,839 Speaker 6: to the dot com bubble and you know, other housing bubble, 196 00:09:33,880 --> 00:09:37,960 Speaker 6: et cetera, it doesn't appear so and all of that 197 00:09:38,080 --> 00:09:42,600 Speaker 6: compute that is ultimately being procured is getting consumed and deployed. 198 00:09:42,920 --> 00:09:45,080 Speaker 6: I think the question that you're sort of leading into 199 00:09:45,280 --> 00:09:49,200 Speaker 6: is is there ultimately a business case for AI to 200 00:09:49,280 --> 00:09:52,200 Speaker 6: be made? And I think there are a lot of 201 00:09:52,240 --> 00:09:56,320 Speaker 6: great data points that would suggest, you know, adoption is increasing, 202 00:09:56,559 --> 00:10:00,520 Speaker 6: use cases are increasing, is enabling it? Tromento, There's amount 203 00:10:00,520 --> 00:10:04,680 Speaker 6: across the economy and society generally speaking, but there isn't 204 00:10:04,679 --> 00:10:07,640 Speaker 6: the killer app so to speak, that would suggest that 205 00:10:08,880 --> 00:10:10,880 Speaker 6: the ROI may be justifiable. 206 00:10:11,280 --> 00:10:13,000 Speaker 2: I think the issue for many people as well who 207 00:10:13,040 --> 00:10:16,079 Speaker 2: experienced the dot com bubble, the bust, and the boom 208 00:10:16,120 --> 00:10:18,199 Speaker 2: that followed. Really afterwards, it took a long time to 209 00:10:18,200 --> 00:10:20,760 Speaker 2: find out who the winners were. And to begin with, 210 00:10:20,880 --> 00:10:22,800 Speaker 2: you had to have everyone throwing money at the wall. 211 00:10:22,679 --> 00:10:23,559 Speaker 5: To see what sticks. 212 00:10:23,880 --> 00:10:25,920 Speaker 2: And if we go through this process now there are 213 00:10:26,000 --> 00:10:28,360 Speaker 2: risks involved in that. How do you navigate some of 214 00:10:28,400 --> 00:10:30,400 Speaker 2: those risks at the moment it is? 215 00:10:30,480 --> 00:10:33,040 Speaker 6: It is again another excellent question which you would expect 216 00:10:33,040 --> 00:10:35,840 Speaker 6: on a morning show from you guys. But I think 217 00:10:35,880 --> 00:10:40,280 Speaker 6: you know, our approach at KKR has really been pretty 218 00:10:40,280 --> 00:10:43,520 Speaker 6: simple on discipline, right. I think we focus. We clearly 219 00:10:43,520 --> 00:10:45,680 Speaker 6: are one of the leaders in digital infrastructure and in 220 00:10:45,720 --> 00:10:48,360 Speaker 6: the power ecosystem totality about sixty five billion dollars of 221 00:10:48,360 --> 00:10:51,280 Speaker 6: capital that we've invested in that. Over the last few years, 222 00:10:52,040 --> 00:10:54,000 Speaker 6: we have seen the convergence of those two mega themes, 223 00:10:54,040 --> 00:10:55,880 Speaker 6: which is really interesting. I think we talked about this 224 00:10:55,920 --> 00:10:59,239 Speaker 6: on the previous show, and I think it's now really applicable. 225 00:10:59,280 --> 00:11:02,040 Speaker 6: You're seeing data centers are no longer about rex, it's 226 00:11:02,080 --> 00:11:05,520 Speaker 6: about watts and megawatts of power compute right, They're AI factories, 227 00:11:06,559 --> 00:11:09,280 Speaker 6: And I think that convergence is really in place. So 228 00:11:09,320 --> 00:11:12,200 Speaker 6: I think for us so we've been focusing on core 229 00:11:12,240 --> 00:11:14,400 Speaker 6: and core plus markets for most of our compute. This 230 00:11:14,559 --> 00:11:18,160 Speaker 6: is where ultimately data is being generated and processed by users. 231 00:11:18,480 --> 00:11:21,839 Speaker 6: We focus on high quality customers. We do not chase 232 00:11:22,520 --> 00:11:27,320 Speaker 6: yield on very speculative business models. I think we focus 233 00:11:27,360 --> 00:11:30,120 Speaker 6: on fungibility in the use of these assets. It may 234 00:11:30,160 --> 00:11:33,120 Speaker 6: have been enterprise five years ago, today it's cloud, tomorrow, AI, 235 00:11:33,200 --> 00:11:36,920 Speaker 6: whatever may come next. And we ultimately are not making 236 00:11:37,000 --> 00:11:41,320 Speaker 6: bets on field of dreams sites. It's really trying to 237 00:11:41,360 --> 00:11:45,080 Speaker 6: focus on things that if there is a contract high 238 00:11:45,160 --> 00:11:49,040 Speaker 6: quality counterparty, we start building and deploying capital against that 239 00:11:49,040 --> 00:11:51,400 Speaker 6: that Maybe all of that seems logical, but I'm not 240 00:11:51,400 --> 00:11:53,719 Speaker 6: sure that's universally adopted in the industry, and I think 241 00:11:53,720 --> 00:11:55,400 Speaker 6: we differentiate ourselves in that approach. 242 00:11:55,640 --> 00:11:58,000 Speaker 1: I guess one of the fears in John was alluding 243 00:11:58,000 --> 00:12:01,040 Speaker 1: to it is this idea that everyone gets incredibly leveraged 244 00:12:01,040 --> 00:12:03,440 Speaker 1: to a couple of key names and makes really big 245 00:12:03,520 --> 00:12:06,960 Speaker 1: bets for a long term development at a time where 246 00:12:06,960 --> 00:12:09,319 Speaker 1: we don't have a great deal of visibility into how 247 00:12:09,360 --> 00:12:11,160 Speaker 1: this is going to be adapted, how this is going 248 00:12:11,200 --> 00:12:14,040 Speaker 1: to be really transforming the economy, and frankly, the way 249 00:12:14,040 --> 00:12:15,920 Speaker 1: that we live our everyday lives. So how do you 250 00:12:16,320 --> 00:12:19,360 Speaker 1: hedge that concentration risk at a time where what you 251 00:12:19,440 --> 00:12:23,280 Speaker 1: offer is the balance sheet to really deploy to these 252 00:12:23,320 --> 00:12:24,800 Speaker 1: big blue chip players. 253 00:12:25,040 --> 00:12:28,719 Speaker 6: Yeah, I think you're right. It is almost a Barbell strategy. 254 00:12:28,960 --> 00:12:30,400 Speaker 6: I think if you look at the market and if 255 00:12:30,400 --> 00:12:32,400 Speaker 6: you look at the performance and the haves and have nots, 256 00:12:32,440 --> 00:12:36,200 Speaker 6: it's been sort of that Barbell view. And certainly the 257 00:12:36,240 --> 00:12:39,640 Speaker 6: mag seven are such an incredible driver of the growth. 258 00:12:40,000 --> 00:12:44,120 Speaker 6: Thirty percent of the US spent on AI is driven 259 00:12:44,160 --> 00:12:47,640 Speaker 6: by those three names. Seven hundred billion dollar capex thirty 260 00:12:47,640 --> 00:12:49,400 Speaker 6: five percent a year over year. That's, by the way, 261 00:12:49,480 --> 00:12:52,360 Speaker 6: seven hundred billion is equivalent to the entire spend for 262 00:12:52,480 --> 00:12:55,520 Speaker 6: the fiber buildout in the nineties and we're now spending 263 00:12:55,559 --> 00:12:57,920 Speaker 6: that on an annual basis, which is sort of incredible 264 00:12:57,920 --> 00:13:00,840 Speaker 6: to think about the quantum of dollars. And so I 265 00:13:00,880 --> 00:13:03,920 Speaker 6: think if you look at that, certainly needed the Meg seven, 266 00:13:04,040 --> 00:13:08,240 Speaker 6: all of those names, pristine balance sheets, incredibly free cash 267 00:13:08,240 --> 00:13:08,960 Speaker 6: flow generative. 268 00:13:09,040 --> 00:13:09,160 Speaker 7: Right. 269 00:13:09,160 --> 00:13:11,840 Speaker 6: I think we are looking at certainly trading multiples and 270 00:13:11,840 --> 00:13:15,320 Speaker 6: p racials and spend, but they're not overspending relative to 271 00:13:15,320 --> 00:13:17,840 Speaker 6: the free cash flow that they're generating from either their 272 00:13:17,840 --> 00:13:22,600 Speaker 6: existing core businesses or the convergence of AI integrated within 273 00:13:22,640 --> 00:13:26,880 Speaker 6: their sort of existing business models. So you're right, you 274 00:13:26,920 --> 00:13:31,160 Speaker 6: have a customer concentration, but the customer concentration is in 275 00:13:31,200 --> 00:13:33,679 Speaker 6: fact with the highest quality names that you probably want 276 00:13:33,800 --> 00:13:35,479 Speaker 6: to do if you're investing in infrastructure. 277 00:13:35,480 --> 00:13:38,120 Speaker 1: From our point of view, where's the concentration investment when 278 00:13:38,120 --> 00:13:41,000 Speaker 1: it comes to data centers versus energy production? And this 279 00:13:41,080 --> 00:13:43,439 Speaker 1: is another sort of key question at a time where 280 00:13:43,480 --> 00:13:46,360 Speaker 1: people are building data centers as quickly as they can 281 00:13:46,760 --> 00:13:48,840 Speaker 1: with a question around deep seek and whether we can 282 00:13:48,920 --> 00:13:51,840 Speaker 1: do this more efficiently with smaller data centers and less energy, 283 00:13:52,240 --> 00:13:54,199 Speaker 1: and then we don't have the energy to actually fuel 284 00:13:54,200 --> 00:13:55,720 Speaker 1: those data centers that are getting built. 285 00:13:55,720 --> 00:13:57,880 Speaker 5: So where do you sort of stack up on sort of. 286 00:13:57,800 --> 00:14:00,199 Speaker 1: The dissonance between the development of those. 287 00:14:00,559 --> 00:14:02,400 Speaker 6: And this is why it's such a wonderful time to 288 00:14:02,440 --> 00:14:04,600 Speaker 6: really be alive and doing what we're doing. And certainly, 289 00:14:04,960 --> 00:14:08,400 Speaker 6: you know, an infrastructure investor wouldn't think about being in 290 00:14:08,440 --> 00:14:12,680 Speaker 6: sort of such a growth industry, but it's really incredible. 291 00:14:12,720 --> 00:14:14,120 Speaker 6: I think if you look at a couple of stats, 292 00:14:14,160 --> 00:14:16,840 Speaker 6: we certainly have had stagnated sort of demand growth in 293 00:14:16,840 --> 00:14:19,600 Speaker 6: the US and the power industry for the best twenty years. 294 00:14:20,040 --> 00:14:23,080 Speaker 6: That is now a massive inflection point. Globally, the expectation 295 00:14:23,200 --> 00:14:25,320 Speaker 6: is that data centers will consume something like ten percent 296 00:14:25,320 --> 00:14:28,880 Speaker 6: of global power in the next ten years. By the way, 297 00:14:28,920 --> 00:14:32,160 Speaker 6: that's equivalent to India by two thousand and thirty. So 298 00:14:32,760 --> 00:14:34,760 Speaker 6: if data centers were a country will be third after 299 00:14:34,880 --> 00:14:38,200 Speaker 6: China and US. So certainly power consumption is increasing. There 300 00:14:38,200 --> 00:14:40,840 Speaker 6: are a couple of dueling factors. You do have efficiency 301 00:14:40,840 --> 00:14:44,359 Speaker 6: which is certainly driven by chip manufacturings by algorithms, which 302 00:14:44,440 --> 00:14:47,840 Speaker 6: is incredible. That's ultimately driving the cost of the delivery 303 00:14:47,840 --> 00:14:50,880 Speaker 6: of the compute. So just in eighteen months, if you 304 00:14:50,880 --> 00:14:53,400 Speaker 6: think about the tokens which are being used for I 305 00:14:53,440 --> 00:14:55,280 Speaker 6: think of it, you know, Training for America we talked 306 00:14:55,320 --> 00:14:59,960 Speaker 6: about earlier, it's calories for AI. Token price has gone 307 00:15:00,280 --> 00:15:03,560 Speaker 6: has decreased two hundred eighty x over the last eighteen months, 308 00:15:03,640 --> 00:15:05,680 Speaker 6: which means the adoption is increasing. If you look at 309 00:15:05,680 --> 00:15:08,800 Speaker 6: about token usage has increased four and a half thousand percent, 310 00:15:09,160 --> 00:15:11,640 Speaker 6: So certainly usage is increasing. I think if you just 311 00:15:11,680 --> 00:15:14,000 Speaker 6: go back to your question, I think most of the 312 00:15:14,000 --> 00:15:16,880 Speaker 6: capital today is being spent on data centers, and then 313 00:15:16,920 --> 00:15:20,600 Speaker 6: there is an increased capex being put in grid and 314 00:15:20,640 --> 00:15:23,320 Speaker 6: certainly power generations. So we're starting to see that trend 315 00:15:23,360 --> 00:15:26,240 Speaker 6: line actually converging. But in terms of growth on an 316 00:15:26,280 --> 00:15:29,040 Speaker 6: adjusted basis, it's really been those two that are probably 317 00:15:29,040 --> 00:15:30,480 Speaker 6: the biggest drivers of the. 318 00:15:30,440 --> 00:15:33,640 Speaker 8: Capex is deregulation and getting rid of some of the 319 00:15:33,680 --> 00:15:36,640 Speaker 8: red tape. What comes when when you have to make 320 00:15:36,680 --> 00:15:39,600 Speaker 8: these AI data centers actually keeping up though with that 321 00:15:39,680 --> 00:15:40,760 Speaker 8: capex fend you're. 322 00:15:40,600 --> 00:15:44,360 Speaker 6: Seeing is it is really interesting because sort of from 323 00:15:44,360 --> 00:15:47,760 Speaker 6: a policy perspective, there's two dueling factors that are. 324 00:15:47,760 --> 00:15:48,600 Speaker 5: The collision course. 325 00:15:48,920 --> 00:15:53,440 Speaker 6: One is when the AI race globally, and the second 326 00:15:53,560 --> 00:15:56,480 Speaker 6: is protect the rate payers, which you know in the 327 00:15:56,600 --> 00:15:58,560 Speaker 6: US over the last five years we've seen about twenty 328 00:15:58,560 --> 00:16:02,680 Speaker 6: five percent increase in power price. And I think there 329 00:16:02,680 --> 00:16:04,920 Speaker 6: are a couple of things that are happening and including 330 00:16:04,960 --> 00:16:07,720 Speaker 6: I think elimination of some of the red tape and 331 00:16:08,760 --> 00:16:11,520 Speaker 6: streamlining of approvals, and I think those are great things 332 00:16:11,560 --> 00:16:13,880 Speaker 6: by the administration to help enable the build out of 333 00:16:13,880 --> 00:16:18,280 Speaker 6: this infrastructure. You can just turn power on overnight. It's 334 00:16:18,320 --> 00:16:20,880 Speaker 6: a four or five year cycle to build this infrastructure, 335 00:16:21,360 --> 00:16:23,920 Speaker 6: and I think that is a great step towards that. 336 00:16:24,080 --> 00:16:28,400 Speaker 6: Now we're even cutting through the red tape that is 337 00:16:28,440 --> 00:16:30,880 Speaker 6: helping solve things three four or five years from now. 338 00:16:31,000 --> 00:16:32,600 Speaker 6: We have a gap in the next twenty four to 339 00:16:32,600 --> 00:16:34,920 Speaker 6: thirty six months. So what can be done. I think 340 00:16:34,920 --> 00:16:38,040 Speaker 6: we can optimize the grid. There is dynamic line rating, 341 00:16:38,080 --> 00:16:41,880 Speaker 6: there's investment in superconducting cables which minimizes the loss. There 342 00:16:41,920 --> 00:16:44,840 Speaker 6: is sort of a There are all sorts of innovative 343 00:16:44,840 --> 00:16:48,040 Speaker 6: solutions like the one we just deployed in Texas, where 344 00:16:48,040 --> 00:16:50,680 Speaker 6: you collocate a data center with a power plant. You 345 00:16:50,720 --> 00:16:54,920 Speaker 6: have a way to effectively augment and draw electrons from 346 00:16:55,000 --> 00:16:57,040 Speaker 6: the power plant. You have a way to support the 347 00:16:57,080 --> 00:17:01,400 Speaker 6: grid in cases of emergency. I think innovative solutions like 348 00:17:01,440 --> 00:17:04,200 Speaker 6: that will help bridge us into the next phase when 349 00:17:04,240 --> 00:17:08,120 Speaker 6: we see this massive development cycle of most likely natural 350 00:17:08,119 --> 00:17:11,040 Speaker 6: gas power plants, and of course at some point we'll 351 00:17:11,040 --> 00:17:14,200 Speaker 6: talk about nuclear and nuclear will be five ten years 352 00:17:14,200 --> 00:17:16,399 Speaker 6: from now. I think that's the long game. From a 353 00:17:16,440 --> 00:17:21,359 Speaker 6: carbon carbon efficiency and just a general efficiency of power generation. 354 00:17:21,720 --> 00:17:24,080 Speaker 1: There's a feeling on Wallstreet right now. They're scared of this. 355 00:17:24,280 --> 00:17:27,400 Speaker 1: They're saying, maybe it's gotten over its skis you travel 356 00:17:27,800 --> 00:17:31,560 Speaker 1: to Silicon Valley and there's just absolute object euphoria. Can 357 00:17:31,560 --> 00:17:33,359 Speaker 1: you bridge that gap the idea that everyone's trying to 358 00:17:33,359 --> 00:17:37,399 Speaker 1: poke holes over in New York and in San Francisco, 359 00:17:37,640 --> 00:17:39,840 Speaker 1: people are just running around saying we can't invest enough. 360 00:17:40,480 --> 00:17:43,159 Speaker 6: It's yeah, it is interesting. I do spend time on 361 00:17:43,200 --> 00:17:48,600 Speaker 6: the West Coast quite frequently, and it's incredibly energizing when 362 00:17:48,640 --> 00:17:50,320 Speaker 6: I'm there and coming back and you sort of have 363 00:17:50,400 --> 00:17:53,120 Speaker 6: this wet blanket put a new in terms of all 364 00:17:53,119 --> 00:17:56,760 Speaker 6: the skepticism. But I do think that there is a 365 00:17:56,800 --> 00:17:58,840 Speaker 6: bridge there. I think there is now. I think a 366 00:17:58,880 --> 00:18:02,800 Speaker 6: bridge and understanding of certainly, I think the technology mindset 367 00:18:02,840 --> 00:18:05,919 Speaker 6: of you know, move fast and break things has to 368 00:18:06,040 --> 00:18:08,600 Speaker 6: come and somehow be bridged in terms of building of 369 00:18:08,600 --> 00:18:12,399 Speaker 6: this infrastructure, which is really a very different investment cycle, 370 00:18:12,520 --> 00:18:15,000 Speaker 6: very different risk cycle, and a very different cost of 371 00:18:15,040 --> 00:18:18,679 Speaker 6: capital cycle. And so I do think that we're helping 372 00:18:18,720 --> 00:18:22,320 Speaker 6: bridge that gap and saying this is incredibly obviously exciting, 373 00:18:22,640 --> 00:18:24,440 Speaker 6: but you have to obviously capitalize as. 374 00:18:24,400 --> 00:18:26,360 Speaker 5: An efficient way. And by the way, the quantum of. 375 00:18:26,320 --> 00:18:28,520 Speaker 6: Dollars that we're just discussing, whether it's ten or fifteen 376 00:18:28,520 --> 00:18:32,919 Speaker 6: trillion dollars, the annual spend requires all sorts of different innovative, 377 00:18:32,960 --> 00:18:35,520 Speaker 6: creative and sort of a holistic solutions to help build 378 00:18:35,520 --> 00:18:38,560 Speaker 6: out this infrastructure. I mean, Oracles earnings yesterday, which we 379 00:18:38,600 --> 00:18:41,160 Speaker 6: touched on earlier this morning, were just terrific. It's incredible 380 00:18:41,160 --> 00:18:43,000 Speaker 6: to see that. So you have a half a trillion 381 00:18:43,080 --> 00:18:45,440 Speaker 6: dollars of backlog, and then the news this morning that's 382 00:18:45,600 --> 00:18:48,800 Speaker 6: another three hundred billion of backlog. The numbers are starting 383 00:18:48,840 --> 00:18:52,400 Speaker 6: to sort of seem silly. We're moving from billions to trillions. 384 00:18:52,520 --> 00:18:55,560 Speaker 6: And you know, that amount of infrastructure will require many 385 00:18:55,600 --> 00:18:58,480 Speaker 6: many gigouts of power, many many gigouts of compute. And 386 00:18:58,480 --> 00:19:02,200 Speaker 6: that's why you see, you know, or power companies move 387 00:19:02,280 --> 00:19:04,399 Speaker 6: up on the news. You see the chip manufacturers move 388 00:19:04,480 --> 00:19:05,879 Speaker 6: up on the news, you see data centers move up 389 00:19:05,920 --> 00:19:08,040 Speaker 6: on the news. Because it just suggests that we're still 390 00:19:08,080 --> 00:19:10,760 Speaker 6: in a very early evenings of that investment cycle that 391 00:19:10,880 --> 00:19:11,520 Speaker 6: is taking place. 392 00:19:12,280 --> 00:19:15,800 Speaker 2: Stay with us. More Bloomberg surveillance coming up after this. 393 00:19:25,040 --> 00:19:28,240 Speaker 2: Let's turn to Thomas Show of KPW, a Stifel company, 394 00:19:28,400 --> 00:19:29,919 Speaker 2: for more. Tom, welcome to the program. 395 00:19:29,920 --> 00:19:31,119 Speaker 5: Good good morning, good morning. 396 00:19:31,240 --> 00:19:33,560 Speaker 2: Before we talk about this, let's just talk about what 397 00:19:33,680 --> 00:19:36,040 Speaker 2: day it is you were headquartered in the World Trade 398 00:19:36,080 --> 00:19:39,359 Speaker 2: Center lost sixty seven people that day. I want to 399 00:19:39,359 --> 00:19:41,160 Speaker 2: spend a few moments with you just to think about 400 00:19:41,240 --> 00:19:43,720 Speaker 2: what that day still means to you today, and how 401 00:19:43,760 --> 00:19:46,760 Speaker 2: we ensure that this generation that's now coming on to 402 00:19:46,840 --> 00:19:50,560 Speaker 2: Wall Street who weren't alive that day hadn't been born, 403 00:19:51,280 --> 00:19:53,080 Speaker 2: how we make sure they don't forget either. 404 00:19:54,080 --> 00:19:57,879 Speaker 7: Correct, thank you. Yes, we think it's very important to 405 00:19:58,800 --> 00:20:01,359 Speaker 7: not forget. We said that day we were never going 406 00:20:01,440 --> 00:20:04,440 Speaker 7: to forget, and there have been a lot of big 407 00:20:04,480 --> 00:20:07,240 Speaker 7: pieces to what never forget means, because never forget means 408 00:20:07,280 --> 00:20:10,720 Speaker 7: different things to different people. One of the things that 409 00:20:10,760 --> 00:20:13,840 Speaker 7: we're doing is making sure that nine to eleven isn't 410 00:20:13,840 --> 00:20:18,240 Speaker 7: defined just by the people who flew airplanes into our building. Instead, 411 00:20:18,880 --> 00:20:21,400 Speaker 7: I'm working with a group nine to eleven Day dot org, 412 00:20:21,400 --> 00:20:24,920 Speaker 7: which is a group that KBW helped found to think 413 00:20:24,960 --> 00:20:27,800 Speaker 7: about the resilience and the goodwill and the rebuild and 414 00:20:27,880 --> 00:20:31,720 Speaker 7: honor the victims of that attack with that spirit. So 415 00:20:31,880 --> 00:20:34,520 Speaker 7: we worked with Congress and in two thousand and nine 416 00:20:34,560 --> 00:20:36,800 Speaker 7: we got Congress to pass a law making nine to 417 00:20:36,840 --> 00:20:39,600 Speaker 7: eleven a national day of service. And we think today 418 00:20:39,640 --> 00:20:42,840 Speaker 7: they're going to be thirty three million Americans who participate 419 00:20:42,880 --> 00:20:45,520 Speaker 7: in the Day of service to remember the victims of 420 00:20:45,600 --> 00:20:48,480 Speaker 7: nine to eleven and to remember the resilience and to 421 00:20:48,520 --> 00:20:52,320 Speaker 7: remember the goodwill that it took to rebuild. There is 422 00:20:52,359 --> 00:20:55,439 Speaker 7: one service project in particular that we support. We're going 423 00:20:55,480 --> 00:20:58,200 Speaker 7: to be in twenty four cities in America today. We're 424 00:20:58,200 --> 00:21:00,680 Speaker 7: going to pack close to nine million meals for those 425 00:21:00,680 --> 00:21:04,200 Speaker 7: who are food insecure. We have over eight hundred corporate customers, 426 00:21:04,480 --> 00:21:08,320 Speaker 7: it's our corporate partners. In this next year, our aim 427 00:21:08,440 --> 00:21:10,760 Speaker 7: is to try to double that for the twenty fifth 428 00:21:11,040 --> 00:21:14,760 Speaker 7: recognition and anniversary of nine to eleven. To continue to 429 00:21:14,800 --> 00:21:17,160 Speaker 7: talk about what it took for America to. 430 00:21:17,160 --> 00:21:19,320 Speaker 5: Rebuild after the attack. 431 00:21:19,440 --> 00:21:21,680 Speaker 7: So you don't end up with nine to eleven being 432 00:21:21,720 --> 00:21:23,440 Speaker 7: two paragraphs in a history book. 433 00:21:23,560 --> 00:21:24,680 Speaker 5: We're not going to let that happen. 434 00:21:24,720 --> 00:21:27,400 Speaker 2: You'll contribute in to a lasting legacy and making sure 435 00:21:27,400 --> 00:21:29,480 Speaker 2: it's a positive one. So I think we're all right 436 00:21:29,520 --> 00:21:31,159 Speaker 2: behind you, sir, and thank you for being with us 437 00:21:31,160 --> 00:21:33,440 Speaker 2: today to talk about it. We need to talk about 438 00:21:33,480 --> 00:21:35,760 Speaker 2: the broader business world too, need to talk about what's 439 00:21:35,800 --> 00:21:39,159 Speaker 2: happening with banking activity. Things are bouncing back and you 440 00:21:39,200 --> 00:21:40,680 Speaker 2: can see that and hear it in the words of 441 00:21:40,760 --> 00:21:43,040 Speaker 2: Jane Fraser of City, you seeing that too. 442 00:21:43,480 --> 00:21:45,640 Speaker 7: So I've been a guest on your show many times 443 00:21:45,680 --> 00:21:48,080 Speaker 7: over the last couple of years. The factors that were 444 00:21:48,119 --> 00:21:52,280 Speaker 7: headwinds are now tailwinds. I'm about as optimistic on the 445 00:21:52,280 --> 00:21:55,919 Speaker 7: fundamentals of the banking sector and financial services in general 446 00:21:56,160 --> 00:21:59,440 Speaker 7: as I've been in several years. There's revenue growth, there's 447 00:21:59,480 --> 00:22:03,080 Speaker 7: earnings share growth. We're looking for ten percent this year 448 00:22:03,119 --> 00:22:06,920 Speaker 7: and next. The economy is okay enough, So that's all 449 00:22:07,040 --> 00:22:07,720 Speaker 7: very bullish. 450 00:22:07,880 --> 00:22:09,440 Speaker 5: And then there's the other stuff. 451 00:22:09,160 --> 00:22:14,600 Speaker 7: Which is, rather than regulatory attention slowing down financial services, 452 00:22:14,800 --> 00:22:17,679 Speaker 7: it's now resetting to where it typically is, which is 453 00:22:17,720 --> 00:22:21,679 Speaker 7: one that's more supportive of growth. So the consolidation is 454 00:22:21,720 --> 00:22:24,840 Speaker 7: going to restart in the industry, and the other things. 455 00:22:24,840 --> 00:22:27,359 Speaker 7: I heard you talking earlier about how the market's at 456 00:22:27,359 --> 00:22:29,600 Speaker 7: an all time high six straight days. I think in 457 00:22:29,640 --> 00:22:32,479 Speaker 7: the NASDAC of records, the reality is you don't have 458 00:22:32,520 --> 00:22:35,800 Speaker 7: the downside risk and the valuation for the financials. 459 00:22:35,920 --> 00:22:38,640 Speaker 5: While the stocks have done well, they're still well. 460 00:22:38,520 --> 00:22:41,439 Speaker 7: Far away from their historic norms. There still is a 461 00:22:41,480 --> 00:22:45,120 Speaker 7: lot of valuation upside in the financials. And my experience 462 00:22:45,200 --> 00:22:48,240 Speaker 7: is is that when earning's estimates are going up, profitability 463 00:22:48,320 --> 00:22:51,480 Speaker 7: is improving, the stocks tend to do well. 464 00:22:50,920 --> 00:22:52,120 Speaker 5: So a lot to unpack there. 465 00:22:52,240 --> 00:22:53,760 Speaker 1: I want to just hone in on the idea of 466 00:22:53,760 --> 00:22:56,000 Speaker 1: the mergers and acquisitions we have seen some of those 467 00:22:56,280 --> 00:22:58,840 Speaker 1: announced in recent days, the PNC one coming just a 468 00:22:58,840 --> 00:23:02,240 Speaker 1: couple of days ago. Where are we in this process? 469 00:23:02,359 --> 00:23:05,119 Speaker 1: How much more of that do you see in six months? 470 00:23:05,200 --> 00:23:08,520 Speaker 7: So my opinion is we are approaching the endgame. There 471 00:23:08,520 --> 00:23:11,359 Speaker 7: are one hundred and forty banks in America north of 472 00:23:11,440 --> 00:23:14,720 Speaker 7: ten billion in assets. Ninety six percent of the banks 473 00:23:14,720 --> 00:23:17,800 Speaker 7: in America are below ten billion, our community banks ninety 474 00:23:17,840 --> 00:23:19,840 Speaker 7: six percent of any numbers almost all of it. 475 00:23:20,480 --> 00:23:23,360 Speaker 5: There are very few banks above ten billion. 476 00:23:23,720 --> 00:23:25,880 Speaker 7: And I think the bigger banks are beginning to think 477 00:23:25,880 --> 00:23:28,320 Speaker 7: about what the endgame's going to look like, and they're 478 00:23:28,359 --> 00:23:32,600 Speaker 7: being very strategic and thinking about these acquisitions. In the 479 00:23:32,640 --> 00:23:36,320 Speaker 7: previous administration, it had an antim and a bias and 480 00:23:36,359 --> 00:23:39,760 Speaker 7: wouldn't even give an answer to bank merger applications unless 481 00:23:39,760 --> 00:23:43,399 Speaker 7: they were forced to. Now the administration's gone back to 482 00:23:43,440 --> 00:23:46,160 Speaker 7: what historically had been the case, and they will give 483 00:23:46,200 --> 00:23:49,199 Speaker 7: you an answer to a merger application. That's all the 484 00:23:49,240 --> 00:23:53,360 Speaker 7: industry needed to restart the consolidation wave and where it's 485 00:23:53,440 --> 00:23:54,440 Speaker 7: underway right now. 486 00:23:54,640 --> 00:23:56,679 Speaker 1: So what does it look like in the end? Is 487 00:23:56,720 --> 00:23:59,399 Speaker 1: it just a couple of sort of the megas and 488 00:23:59,440 --> 00:24:03,200 Speaker 1: then this sort of media megas, anyone else. 489 00:24:03,080 --> 00:24:06,639 Speaker 7: To take the funnel real quickly? Remember the non banks 490 00:24:06,680 --> 00:24:09,879 Speaker 7: we were talking You were talking about Larna earlier. Financial 491 00:24:09,960 --> 00:24:12,679 Speaker 7: banks used to be half of the SMP five hundred 492 00:24:12,680 --> 00:24:13,800 Speaker 7: waiting in financials. 493 00:24:14,119 --> 00:24:16,040 Speaker 5: Now they are a quarter of it. 494 00:24:16,640 --> 00:24:18,359 Speaker 7: We think Areas is going to get added to the 495 00:24:18,440 --> 00:24:21,320 Speaker 7: s and P five hundred next. That's a very big, 496 00:24:21,359 --> 00:24:24,919 Speaker 7: eighty billion dollar market cap company. So banks are a 497 00:24:25,000 --> 00:24:29,680 Speaker 7: smaller piece of the financial services industry. They're competing with Klarna. 498 00:24:30,040 --> 00:24:32,439 Speaker 7: They need to have the scale and the capacity to 499 00:24:32,520 --> 00:24:36,760 Speaker 7: do that. Otherwise the industry will evolve with four really 500 00:24:36,800 --> 00:24:39,199 Speaker 7: big banks and then a lot of other ones that 501 00:24:39,240 --> 00:24:42,400 Speaker 7: are much smaller. The best thing to do for the economy, 502 00:24:42,400 --> 00:24:45,600 Speaker 7: in our opinion, is to allow these regional champions to 503 00:24:45,880 --> 00:24:48,840 Speaker 7: get the scale to compete with the big four banks 504 00:24:49,000 --> 00:24:51,560 Speaker 7: and then compete with non banks. And I think our 505 00:24:51,600 --> 00:24:54,879 Speaker 7: economy and main street America will be better served if 506 00:24:54,920 --> 00:24:55,359 Speaker 7: that happens. 507 00:24:55,440 --> 00:24:58,720 Speaker 1: She's incredibly optimistic about bank stocks right now? How hinged 508 00:24:58,800 --> 00:25:03,240 Speaker 1: is that to a reacceleration underlying economy versus a secular shift. 509 00:25:03,359 --> 00:25:04,919 Speaker 7: Let me talk to you about the one thing that 510 00:25:04,960 --> 00:25:07,199 Speaker 7: can stop it. The one thing that can stop it 511 00:25:07,240 --> 00:25:11,040 Speaker 7: is credit quality. So this past week was the Barkley's 512 00:25:11,080 --> 00:25:13,160 Speaker 7: Conference in New York. It was the last big channel 513 00:25:13,240 --> 00:25:16,640 Speaker 7: check we get for the quarter. Everybody's saying the same thing. 514 00:25:17,000 --> 00:25:21,840 Speaker 7: Credit quality continues to remain pristine. The industry is over 515 00:25:21,920 --> 00:25:24,800 Speaker 7: earning on credit at the moment. It shouldn't always be 516 00:25:24,960 --> 00:25:27,480 Speaker 7: this way, so there will be a moment where credit 517 00:25:27,560 --> 00:25:30,440 Speaker 7: costs go up. That shouldn't be the surprise. The surprise 518 00:25:30,520 --> 00:25:33,760 Speaker 7: is for how long it's been essentially zero. So as 519 00:25:33,800 --> 00:25:37,040 Speaker 7: long as as we have a solid enough economy, then 520 00:25:37,080 --> 00:25:39,480 Speaker 7: I think the bull story is very much intact. 521 00:25:39,960 --> 00:25:40,679 Speaker 5: Usually, if we. 522 00:25:40,680 --> 00:25:43,959 Speaker 7: Get a credit cycle, investors tend to sell bank stocks 523 00:25:43,960 --> 00:25:46,840 Speaker 7: first and ask questions later. So the fact of the 524 00:25:46,880 --> 00:25:48,879 Speaker 7: matter is we don't see a credit cycle on the 525 00:25:48,880 --> 00:25:52,000 Speaker 7: horizon in the banking sector. So our view is that 526 00:25:52,000 --> 00:25:55,320 Speaker 7: that is what's necessary. And one point nine percent GDP 527 00:25:55,480 --> 00:25:58,720 Speaker 7: growth is good enough to keep the fundamental story in play. 528 00:25:58,800 --> 00:26:02,320 Speaker 7: And actually the banks are talking about accelerating loan growth, 529 00:26:02,960 --> 00:26:04,760 Speaker 7: which is a positive part of the story. 530 00:26:04,840 --> 00:26:08,000 Speaker 2: Can you just remind everyone, it's my favorite stat of yours. 531 00:26:08,359 --> 00:26:12,480 Speaker 2: Just remind us all of the top ten mortgage providers 532 00:26:12,480 --> 00:26:14,520 Speaker 2: in this country now and how many banks are in 533 00:26:14,520 --> 00:26:17,160 Speaker 2: the top ten compared to say, a decade plus so. 534 00:26:17,440 --> 00:26:21,360 Speaker 7: Pre global financial crisis, eight of the top ten mortgage 535 00:26:21,359 --> 00:26:27,040 Speaker 7: originators were banks. Today three of the top ten are 536 00:26:27,160 --> 00:26:30,680 Speaker 7: banks now. The question along that line, John, is did 537 00:26:30,720 --> 00:26:34,760 Speaker 7: banks forget how to make mortgages? They're all primarily founded 538 00:26:34,960 --> 00:26:40,000 Speaker 7: to make mortgages, and that is regulation. Because the response 539 00:26:40,080 --> 00:26:43,960 Speaker 7: to every crisis is regulate the banks, which tied their hands, 540 00:26:44,160 --> 00:26:46,840 Speaker 7: which is why the non banks have so much market share. 541 00:26:47,440 --> 00:26:49,840 Speaker 7: The right thing to do is to take the foot 542 00:26:49,880 --> 00:26:52,880 Speaker 7: off the banks, let them compete with the non banks. 543 00:26:53,119 --> 00:26:55,600 Speaker 7: And I think you can do it without putting too 544 00:26:55,640 --> 00:26:58,119 Speaker 7: much risk in the system because the risk has just 545 00:26:58,160 --> 00:27:01,800 Speaker 7: gone elsewhere, and it's gone out side the supervisory umbrella. 546 00:27:02,160 --> 00:27:04,720 Speaker 7: And when we get the next cycle, we're going to 547 00:27:04,760 --> 00:27:06,200 Speaker 7: find out if we were better off. 548 00:27:07,240 --> 00:27:10,800 Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best 549 00:27:10,800 --> 00:27:14,120 Speaker 2: in markets, economics, and geopolitics. You can watch the show 550 00:27:14,200 --> 00:27:17,119 Speaker 2: live on Bloomberg TV weekday mornings from six am to 551 00:27:17,280 --> 00:27:21,040 Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify, 552 00:27:21,160 --> 00:27:23,399 Speaker 2: or anywhere else you listen, and as always, on the 553 00:27:23,400 --> 00:27:25,840 Speaker 2: Bloomberg terminal and the Bloomberg Business app.