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Speaker 2: Joining us for extensive comments is loud brainer. We are
Speaker 2: thrilled that she is here, young duty at Wesleyan in
Speaker 2: Connecticut and up to Harvard and her public service, and
Speaker 2: really were the more policy effort? Well, I'm dying to
Speaker 2: ask you this question. We just head on the show
Speaker 2: Magnificent Stephanie Stancheva out of Harvard, and then I see
Speaker 2: a Nobel Prize of Claudia Golden out of Harvard. What
Speaker 2: was it like for you to have the courage to
Speaker 2: do economics a number of years ago? How lonely was
Speaker 2: it to be a woman in economics back in the
Speaker 2: time of Laurence Summer at the school.
Speaker 3: Well, I would say that by the time I got
Speaker 3: to Harvard, obviously we did have some women on the faculty.
Speaker 3: Claudia Golden arrived while I was there, Susan Collins was
Speaker 3: there for a period of time. There were some really
Speaker 3: outstanding young women professors, and you know, it was an
Speaker 3: exciting time. I care a lot, of course about how
Speaker 3: we use economics to better outcomes in policy, and so
Speaker 3: it was just great to be studying with some of
Speaker 3: the people who have really shaped economic policy making in
Speaker 3: the preceding decades.
Speaker 2: Doctor Braner, I was laying out the differences between a
Speaker 2: Clarida and a Brainer, where you look at Dsge and
Speaker 2: all the mathewness of Clarida and Gertler, and you were
Speaker 2: the really historic policy the effort of getting things done
Speaker 2: in economics color. The nature of the uncertainty now that
Speaker 2: the FED has to face is we bounce from copper
Speaker 2: down the most in forty years to a non printed
Speaker 2: India trade agreement. What's the nature of our present uncertainty?
Speaker 3: So, on the one hand, we know a lot about
Speaker 3: how tariffs generally affect the economy. We had a little
Speaker 3: trial run back in twenty eighteen when Trump, the first
Speaker 3: Trump administration, imposed tariffs on China, mostly on China as
Speaker 3: well as steel and aluminum. We do know that tariffs
Speaker 3: raise prices. Ultimately, that that time between when tariffs are
Speaker 3: imposed and when you can see it actually in prices
Speaker 3: varies a great deal, but the last time through four
Speaker 3: to six months. And we also know that tariffs are
Speaker 3: like a supply shock and they can disrupt the labor market.
Speaker 3: So we know all of that. What we don't know,
Speaker 3: and where this uncertainty is so important is twofold. First
Speaker 3: of all, we have not seen tariffs at these levels
Speaker 3: for decades. These are smooth, holly level tariffs in many cases,
Speaker 3: and so the extent of the changes we just haven't seen.
Speaker 3: And secondly, of course, the administration is still in the
Speaker 3: process of telling us what those tariff levels are in
Speaker 3: those trade agreements are not yet very firm or very clear.
Speaker 4: Low. What did you take away from the FED minutes
Speaker 4: yes the FED news yesterday, the meeting yesterday from Fed
Speaker 4: Chairman Jpow What was your takeaway?
Speaker 3: So the takeaway I think was that the large majority
Speaker 3: of members of the Open Markets Committee want two more
Speaker 3: months of data and they will get it before the
Speaker 3: next meeting in September. That they are still quite concerned
Speaker 3: about potential risks to the upside to inflation, which has
Speaker 3: been running high over the last few years, and of
Speaker 3: course that means they have to be particularly attentive to
Speaker 3: inflation expectations. But that they're also attentive to potential weakening.
Speaker 3: And of course we got the GDP report on the
Speaker 3: same day, and if you look underneath the hood, there
Speaker 3: has been quite a bit of moderation in those core
Speaker 3: domestic components, particularly the consumer, over the first half of
Speaker 3: the year. So they are balancing those two potential risks,
Speaker 3: and they really want that additional data before they make
Speaker 3: a decision to move further potentially on cutting rates.
Speaker 4: You know, LOI, We've had a number of guests over
Speaker 4: the last several days, maybe even weeks, say, well, it
Speaker 4: just kind of feels like a year ago, or maybe
Speaker 4: the Fed decided not to move in July when the
Speaker 4: data suggested maybe they should, and then they were forced
Speaker 4: to maybe go a little bit more than they wanted
Speaker 4: to do in September. You feel like the Fed might
Speaker 4: be behind the times here a little bit in terms
Speaker 4: of cutting rates.
Speaker 3: So I think there is always that risk that the
Speaker 3: Federal Reserve, in the effort to get more data to
Speaker 3: be more certain, waits a little longer than would have
Speaker 3: been ideal with the benefit of hindsight. But we already
Speaker 3: were talking about just how much uncertainty the evolving tariff
Speaker 3: landscape is injecting into the outlook for the dual mandate
Speaker 3: for both inflation and unemployment, and that explains, I think
Speaker 3: why they are stuck waiting.
Speaker 2: I've got two things to talk about here, doctor brainer
Speaker 2: that I think are important. What a nasty I'll ed
Speaker 2: by you in the Washington Boast a few weeks ago
Speaker 2: it was the close ara out Low Brainerd going after
Speaker 2: the president. The treatment of chair of Chair Pole love Brainerd.
Speaker 2: Is things smoothed down a little bit even with Trump
Speaker 2: treats even the morning is well, does the industry have
Speaker 2: mister Powell's back?
Speaker 3: Well, Look, I think what has been surprising to me
Speaker 3: is to hear the President talk about lowering rates as
Speaker 3: though it is the Federal Reserves responsibility to lower rates
Speaker 3: for US Treasury debt management. And that, of course is
Speaker 3: exactly how central banks go wrong in emerging markets like Turkey.
Speaker 3: When the President the administration lean on a central bank
Speaker 3: to prioritize lowering the cost of borrowing to the government,
Speaker 3: it undermines the inflation control credibility of the central bank,
Speaker 3: and so for me, of course, what is very important
Speaker 3: is that the Federal Reserve continue to have that credibility
Speaker 3: for inflation fighting. Now it's more important than ever, having
Speaker 3: just come off period of high inflation and of course
Speaker 3: facing some inflation from tariff, so that independence is more
Speaker 3: important than ever.
Speaker 2: Well, I look at the tariff you know what's changed
Speaker 2: since your Washington Post op ed. I look at the
Speaker 2: tariff debate, erning Tedesky doing great work at the budget
Speaker 2: lab at Yale, allile Yale's to college in New Haven.
Speaker 2: I don't know if you're familiar with that, but you know,
Speaker 2: I look lol at the tariffs now, JP Morgan modeling
Speaker 2: eighteen percent, clearly Smoot Hawley nineteen thirty three, maybe back
Speaker 2: to the Gilded Age. Will the president be overcome by
Speaker 2: events if we see job jobless increase, if we see
Speaker 2: GDP decrease, do you just assume at some point, like
Speaker 2: mckinnley adjusted, and I think it was nineteen oh one,
Speaker 2: is Trump going to have to adjust to the failure
Speaker 2: of the magnitude move in tariffs?
Speaker 3: Well, it's very hard to say right now. Of course
Speaker 3: I don't have any insights into that, but I would
Speaker 3: say what is clear to me, because I have been
Speaker 3: listening carefully to the Treasury Secretary and the President, is
Speaker 3: that they see tariffs as a way of raising revenues,
Speaker 3: and they have a very aggressive revenue target for tariffs.
Speaker 3: They want to raise hundreds of billions, three hundred billion
Speaker 3: dollars a year in tariff revenues, which is an order
Speaker 3: of magnitude larger than what we have seen recently, and
Speaker 3: that means that tariff rights have to be at those
Speaker 3: high smooth Haley levels with the attendant potential effects on
Speaker 3: the labor market. And we've already seen substantial slowing in
Speaker 3: the second quarter in terms of underlying private domestic final demand.
Speaker 3: Consumers look like they are feeling a little bit cautious.
Speaker 3: We can see that even in today's personal consumption expenditures day,
Speaker 3: which really was very modest growth. So yes, I do
Speaker 3: believe there's some risk that by trying to achieve those
Speaker 3: very aggressive tariff revenue goals, they really are putting a
Speaker 3: big dampener on what could be a very dynamic and
Speaker 3: exciting period in American growth.
Speaker 4: Lyle, the FED has that dual mandate, of course, of
Speaker 4: full employment and price stability. Do you think one is
Speaker 4: taking a precedent over the other these days within the Fed?
Speaker 3: Well, I think we heard the chair talk about both
Speaker 3: sides of the dual mandate yesterday risks to the upside
Speaker 3: potentially on inflation, and we see it in this morning's
Speaker 3: preferred Fed inflation gauge. You see those core goods going
Speaker 3: back up again after a long period where they had
Speaker 3: been coming down. But of course you also see it
Speaker 3: in the labor market, where private hiring has really ground
Speaker 3: to a halt. Now super market is in balance. As
Speaker 3: the chair told everyone yesterday multiple times, the unemployment rate
Speaker 3: has remained low, and that in part reflects the fact
Speaker 3: that labor demand is falling at the same time that
Speaker 3: labor supply is also being constricted on the immigration front.
Speaker 3: So it remains in balance. But I do worry about
Speaker 3: downside risks to employment.
Speaker 2: Love bringing it a young upstart economist up at Harvard.
Speaker 2: His name is let me look here, Jason Furman. I
Speaker 2: think you may be familiar with Jason Furman. I love
Speaker 2: what he's doing onannualized analysis. Folks out moments ago on
Speaker 2: Twitter from Professor Firman driving x ten up at Harvard.
Speaker 2: One month core PCE three point one percent, three months
Speaker 2: two point six percent, six months annualize three point two percent,
Speaker 2: twelve months two point nine percent, I'm sorry, Rick Michigan
Speaker 2: and John B. Taylor at Stanford, those guys maybe policy
Speaker 2: they're on different pages. They're in the same page that
Speaker 2: core pc inflation all is too high, isn't it.
Speaker 3: Well, the core PCE inflation is too high, and it's going,
Speaker 3: unfortunately in the wrong direction. That is the bind. So
Speaker 3: you know what we were seeing before a lot of
Speaker 3: the tariffs started to get imposed was actually, finally services
Speaker 3: inflation were coming down. Core goods had already come down,
Speaker 3: and so core inflation was trending down towards the target.
Speaker 3: Now it is detouring with those core goods lifting it again.
Speaker 3: And core services actually in the last two months were
Speaker 3: a little stronger than we had previously seen. So it's
Speaker 3: moving in the wrong direction, and of course that's a concern.
Speaker 2: And Paul I can't emphasize enough the granularity of these
Speaker 2: are full time pros, heavyweights analyzing the tariff impact, guessing
Speaker 2: out to Labor Day, guessing out to Christmas, guessing into
Speaker 2: next year. And the answer is nobody's talking disinflation.
Speaker 4: Disinflation. How about the consumer, lyle, how do you, given
Speaker 4: the backdrop, so to Tom just outlined here, how do
Speaker 4: you think the consumer is these days.
Speaker 3: Well, we've got some insights into consumers and their feelings
Speaker 3: about both the economy currently and their expectations through some
Speaker 3: of the consumer surveys, and of course a little bit
Speaker 3: less negative, but still quite negative relative to where it
Speaker 3: had been before the tariff agenda started rolling out. They
Speaker 3: seem to be worried that prices just are still too high,
Speaker 3: and of course that now is creeping back into more goods.
Speaker 3: But housing has been a problem for a while, and
Speaker 3: that goes to the President's concerns, valid concerns. I think
Speaker 3: that mortgage rates are quite high and then the housing
Speaker 3: market is frozenly.
Speaker 2: One more thing, I'll be quick here. This is the
Speaker 2: magic of Twitter, if they would get if they get
Speaker 2: their ex straightened out. I've got Jason Furman, Steve Rattner,
Speaker 2: and Ernie Tedesky back to back to back in my feed. Lyle,
Speaker 2: this is stunning from Ernie Tedesky. Now at Yale, durable
Speaker 2: goods have risen by one point seven percent other than
Speaker 2: the depths of COVID. That's the strongest six months rise
Speaker 2: since nineteen eighty seven. Does Washington understand that, Lyle brainerd So,
Speaker 2: I think Ernie is doing a great job pointing out
Speaker 2: the granular.
Speaker 3: Effects which have to be in part reflecting tariff effects.
Speaker 3: And when we get pronouncements from the White House, sweeping
Speaker 3: pronouncements that a country is going to see twenty five
Speaker 3: percent tariffs, nineteen percent tariffs, you really wonder whether they've
Speaker 3: had the time and the bandwidth to do the kind
Speaker 3: of detailed analysis that would allow them to see that
Speaker 3: some of those tariffs they're imposing are actually going to
Speaker 3: disadvantage American producers because input prices are going up. It's
Speaker 3: going to actually not only hurt American consumers, but in
Speaker 3: many cases, like in US domestic auto producers, is actually
Speaker 3: making their supply chains more expensive and will make them
Speaker 3: less competitive.
Speaker 2: This has been fabulous. I got goosebumps right, that's great. Love, Brainerd,
Speaker 2: thank you so much with Richard Clarita in this hour
Speaker 2: on our nation's economy and what it means for us.
Speaker 2: Thank you to ninety two nine FM Boston or Boston
Speaker 2: News Bureau for bringing us doctor Brainerd. This morning.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live
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Speaker 2: We are honored to have with us Richard clarda always
Speaker 2: with Columbia University, with Pimco as well. The former Vice
Speaker 2: chairman of the Fed, Ian Lincoln at Bank of Montreal,
Speaker 2: the iconic Bank of Canada, just published and he said,
Speaker 2: I'm sorry, every inflation series is ticking up. Do we
Speaker 2: see tariffs in the minutia of price change already? Do
Speaker 2: we see tariffs now?
Speaker 5: Sure, they're starting to show up to some extent in
Speaker 5: the inflation data, in particular in those sectors exposed to tariff.
Speaker 5: Goods prices are moving up. The overall indexes are are
Speaker 5: coming in more or less in line with expectations because
Speaker 5: services inflation continues to fall.
Speaker 4: So if you're the Fed, yeah, what did you hear
Speaker 4: yesterday from our chairman? Yes, he send it a little
Speaker 4: bit more hawkish than maybe the statement.
Speaker 5: I don't know, Harry Truman. I think once said he
Speaker 5: wanted he wanted to meet the one armed economist because
Speaker 5: he kept getting on the one hand, on the other hand,
Speaker 5: I think that was that's what we got yesterday from
Speaker 5: from chair Powe. You know, very balanced. I think the
Speaker 5: revealing moment was when he was asked by a reporter
Speaker 5: about whether or not the dots at the June meeting
Speaker 5: were indicative of where the committee was where they showed
Speaker 5: two cuts this year. He basically said, look, that was
Speaker 5: six weeks ago. We're not paying attention to that. So
Speaker 5: he clearly, I think, came in with the goal of
Speaker 5: giving himself and the committee optionality in September to pause
Speaker 5: or to cut, and I think I think he achieved
Speaker 5: that for sure.
Speaker 2: I got to get this side of the way. I
Speaker 2: have to ask, have you been contacted by the Trump
Speaker 2: administration about future employment in our central Bank? I have not. Okay,
Speaker 2: we're waiting on it. There was Psias Glenn Ubberd the
Speaker 2: same question at the same silence treatment as well. In
Speaker 2: your work in folks, this is wicked fancy mathematics called
Speaker 2: dynamic stochastic general equilibrium theorem. Uncertainty is outside the system.
Speaker 2: It's what we call exogenous. Our listeners, our viewers are
Speaker 2: living indgenous uncertainty right now with all of these shocks
Speaker 2: to the system led by tariffs. How do you color
Speaker 2: the uncertainty that the PhDs, the FED face.
Speaker 5: It is elevated. I think perhaps less elevated than it
Speaker 5: may have been after Liberation Day. I think, in particular,
Speaker 5: I think we have a better sense and firms have
Speaker 5: a better sense of where we're going to end up
Speaker 5: in terms of the new trade regime. And importantly also
Speaker 5: we now sort of know the parameters of fiscal policy,
Speaker 5: tariff revenue, the deals that are being caught in terms
Speaker 5: of investment in the US. So there is uncertainty, but
Speaker 5: I think it's moving in both directions. For the economy,
Speaker 5: do we have clarity?
Speaker 2: I mean, I look at the Yell budget lab Ernie
Speaker 2: Tanowsky and that crew yesterday, Bob Michael modeling eighteen percent
Speaker 2: blended work at JP Morgan maybe up to twenty percent
Speaker 2: as well. How do people like you that have actually
Speaker 2: studied the history give us I like to say, there's
Speaker 2: Hubert Heaver tariffs, we're back to the thirties, We're back
Speaker 2: to FDR and some you look at the series, we're
Speaker 2: back late McKinley like, how do you process the magnitude
Speaker 2: change in tariffs?
Speaker 5: Well, sure, and we haven't seen we haven't seen trade
Speaker 5: policy like this in a very long time. I think
Speaker 5: right now I would say the economy's shown good resilience
Speaker 5: so far, both both in the labor market and on
Speaker 5: the GDP side. But I think anyone who pretends to
Speaker 5: have a precise model or estimate. But I think importantly
Speaker 5: what's going on here, Tom is you know that the
Speaker 5: Trump folks are really trying to change the trading regime,
Speaker 5: and it's early days in that, but I think that's
Speaker 5: an important part of the story as well.
Speaker 4: So, Richard, we had two FED Board governors dissented yesterday.
Speaker 5: Both very good friends of mine and former colleagues.
Speaker 4: So I FED people tell me that's kind of something
Speaker 4: we should pay attention to that.
Speaker 2: What did you make of it?
Speaker 5: It's the first time I think in thirty plus years
Speaker 5: that two governors have dissented. Reserve Bank presidents dissent more
Speaker 5: and more frequently. Both Chris Waller and Mickey Bowman, I
Speaker 5: think before the meeting indicated that that was going to
Speaker 5: be their preference, and I think that I'm sure they
Speaker 5: came into the meeting with sound and reasonable arguments for
Speaker 5: beginning rate cuts right now. We'll probably hear from them
Speaker 5: after the blackout is over as well. But share Powell
Speaker 5: also acknowledged that he thought it was a good discussion
Speaker 5: at the committee.
Speaker 2: Do they negotiate descents like if there's someone who's the
Speaker 2: third descent? Did they say, now you can wait to
Speaker 2: the next meeting. Come on, you know, not at the
Speaker 2: table in the Eckles building. Wait the tables under construction
Speaker 2: fore right now? But is there a discussion within the
Speaker 2: propriety of American we're all on the same page economics
Speaker 2: that we almost negotiate who and who does not dissent?
Speaker 5: I wouldn't, I wouldn't call the negotiation. What does happen?
Speaker 5: And I think this happened under Bernanki and yelling as well.
Speaker 5: But certainly during my time at the Palfeed, the chair
Speaker 5: before each meeting had individual conversations with all all eighteen people.
Speaker 5: Interesting and so there's there. You know, no one gets
Speaker 5: blindsided going into the meeting about about the views on
Speaker 5: the on the outlooks.
Speaker 2: This is original. This goes back to Larry Myers and
Speaker 2: Green spent in that meeting. Is it a courtesy that
Speaker 2: you tell the chairman where you're heading?
Speaker 5: Again, those conversations were typically by the.
Speaker 2: Share really unhappy and showed ups today. No, no, no.
Speaker 5: The During my time there, the chair did have individual
Speaker 5: conversations with all eighteen folks. Obviously they were nineteen total,
Speaker 5: and the purpose of those conversations was so that both
Speaker 5: sides had a sense of where policy makers were heading
Speaker 5: going into the meeting, and then during the meeting, which
Speaker 5: go on for a day and a half. Sometimes minds
Speaker 5: change as well during the meeting, but at least going
Speaker 5: into the meeting, people all have a sense of where
Speaker 5: other folks are.
Speaker 4: I tell you what's changed this in the last couple
Speaker 4: of days, Richard is. I think after yesterday's discussion, the
Speaker 4: market's kind of pulling back a little bit on the
Speaker 4: two rate cuts this year. I don't know before between
Speaker 4: now in September, the Fed's going to get some more
Speaker 4: inflation data. They're going to get some more labor market data.
Speaker 2: Yeah. Are they just going to wait for that?
Speaker 5: I guess.
Speaker 4: I mean that's being data dependent. I guess right.
Speaker 5: The chair indicated that yesterday. I think that that would
Speaker 5: make sense. He'll also have another bite at the communications
Speaker 5: apple to mixed metaphors at Jackson Hole in three weeks
Speaker 5: and not always, but oftentimes the chairs do use Jackson
Speaker 5: Hole as a way to preview the September meeting. So
Speaker 5: perhaps another motivation for the two handed economist. Yesterday from
Speaker 5: Jay Powell is I'll have the stage to himself at
Speaker 5: the end of the month.
Speaker 2: For all of you on your commute across the nation.
Speaker 2: A wonderful treat today within the technology earnings allow Brainer
Speaker 2: scheduled to be with us here later on in this
Speaker 2: half hour, of course, all every work with our central bank,
Speaker 2: and now Richard Clarida with us with Pimco, a former
Speaker 2: vice chairman. I hate torst and Slock because on a
Speaker 2: Wednesday he sends me an email from Apollo Global Management
Speaker 2: with six seven things to read, and usually the top
Speaker 2: ones are a little light quick reads. Here's what he
Speaker 2: sends today. Clarida post pandemic, global inflation, disinflation and central
Speaker 2: Bank policy responses, goes on, It's like a movie. It's
Speaker 2: got a British movie. It's got a long title. Yeah,
Speaker 2: Nber a paper you just published with your thoughts on
Speaker 2: twenty one and twenty two. Take this important paper that
Speaker 2: Torsten Slock mentions and bring it forward to present day
Speaker 2: policy making.
Speaker 5: I'll give you the quick elevator version. Please, global surgeon inflation,
Speaker 5: Where did it come from? How do we think about it?
Speaker 5: And what are the lessons learned, and the basic point
Speaker 5: of that paper is essentially to summarize a lot of
Speaker 5: sort of one stop shopping. If you don't read fifty papers,
Speaker 5: you can read my summary of the papers. And the
Speaker 5: basic story is the inflation came from three factors. A
Speaker 5: once in a century pandemic which led to a shock
Speaker 5: to supply, triggered a fiscal and monetary policy response, and
Speaker 5: then on top of that, of course, you had the
Speaker 5: Russian invasion of Ukraine. Policy reacted right, rates, inflation came down,
Speaker 5: central banks were confident enough to cut rates. So I
Speaker 5: think the lessons learned to me is once in a
Speaker 5: century pandemic shocks are very challenging for policy, and on
Speaker 5: the other side of it, inflation expectations are anchored. And
Speaker 5: that's where we are.
Speaker 2: Peter Orzag at Lazard Now I'm in a shop at
Speaker 2: Lazard and also working and Brookings really emphasize the supply
Speaker 2: side shocks that we had. Are we there now? Is
Speaker 2: the tariff uncertainty now one big supply side shock. I mean,
Speaker 2: witness copper, biggest drop for years that yesterday. Sure.
Speaker 5: The other thing I'd like to emphasize as well is
Speaker 5: the unemployment rate is low.
Speaker 2: And that is great.
Speaker 5: It's at a very low historical level, but there's still
Speaker 5: room for the labor market to expand. In terms of
Speaker 5: labor force participation, it's about a point below where it
Speaker 5: was decades ago, especially among men prime age male. So
Speaker 5: a low unemployment rate is good, but the economy's capacity
Speaker 5: depends upon labor force as well, and I think there's
Speaker 5: still room to run there.
Speaker 4: President Trump continues his pressure on this fetter reserves, saying
Speaker 4: that they should be cutting rates. But we have folks
Speaker 4: that we really respect come through the studio that's say
Speaker 4: that is behind again. It really needs to cut rates.
Speaker 4: I mean, whether you look at real rents or whatever.
Speaker 4: I mean, if you look at the real time data,
Speaker 4: it's already there. The conditions are already there.
Speaker 2: The cut rates.
Speaker 4: How do you think about that?
Speaker 5: I think a straight reading of sort of standard monetary
Speaker 5: policy rules, including the ones I worked on with Girtler
Speaker 5: and Galley, for a pretty wide range of assumptions, would
Speaker 5: indicate that there's some room to cut rates from current levels.
Speaker 5: The details will depend on the model and your views
Speaker 5: of inflation, but anywhere in the range of you know,
Speaker 5: of fifty to seventy five basis points from here under
Speaker 5: the view that Waller and Embowman of express that the
Speaker 5: tariffs are not really an inflation shock, they're a price
Speaker 5: level shock. And so I think that is the case,
Speaker 5: and I think Chirpell himself a month or so ago
Speaker 5: indicated the butt for the trade policy uncertainty, they would
Speaker 5: probably be cutting rates now.
Speaker 2: But this is important, Richard. Yeah, I really can't say enough.
Speaker 2: We are slaves to trend? Oh shuret for we cut rates.
Speaker 2: It establishes a vector. Oh yeah, that we must follow.
Speaker 2: Why I'm speaking for President Trump now, good morning, mister president.
Speaker 2: If you'd like to call in, we'd love to talk
Speaker 2: to you. Why in God's name can we just announce
Speaker 2: let's just do a one off rate cut and see
Speaker 2: where we stand in September or end of October. Why
Speaker 2: are we slaves to trend?
Speaker 5: I think that's the sixty four billion dollar question, and
Speaker 5: it reflects the evolution in monetary policy. If you go
Speaker 5: back to when Tom, you and I start our careers
Speaker 5: in the in the eighties with with Vulgar, Vulgar would
Speaker 5: never give you an indication of where rates we're going.
Speaker 2: To be, Thank you, thank you. Years.
Speaker 5: It was one meeting at a time, and for the
Speaker 5: first half of green Span it was one meeting then
Speaker 5: at a time.
Speaker 2: But this is really important, folks.
Speaker 5: Well, two things happened. The academic literature to which I
Speaker 5: contributed said there can be benefits to providing guidance on
Speaker 5: the rate path, and so I think policymakers fall in
Speaker 5: love with that idea. They doubled down on it when
Speaker 5: we hit the zero lower bound, and it made sense
Speaker 5: to do that. But one of the points I make
Speaker 5: in the paper that you nicely plugged, Tom, is that
Speaker 5: monetary policy is not immune from the laws of economics.
Speaker 5: There are benefits and cost to decisions, and there are
Speaker 5: benefits in cost and diminishing returns. And I think you
Speaker 5: raise a very good point. We could be in a
Speaker 5: different world if basically the FED and other central banks said,
Speaker 5: you know, there's a lot of uncertain we're going to
Speaker 5: do one meeting at a time.
Speaker 2: Let me cut to the chase. Are we live in
Speaker 2: physics envy. We have a lot of fancy people, including
Speaker 2: Clareness math folks. It's world class. I can't taste their shoelaces.
Speaker 2: I can't tell you I'm a dinosaur. There's not a
Speaker 2: dinosaur you're a dinaso. But are we slaves to the
Speaker 2: certitude of inertial force where we set up a vector
Speaker 2: and we've got a momentum of something. Are you kidding me?
Speaker 2: We can't, wouldn't.
Speaker 5: I wouldn't say we're slaves. But that mindset has a
Speaker 5: very very powerful hold on a lot of thinking in
Speaker 5: markets and in policy making.
Speaker 2: Paul, get one more question.
Speaker 4: In I'm going to take a million dollar cowboy bar
Speaker 4: out out west somewhere next month, what should the FED
Speaker 4: chairman say in Jackson Hole? Should he change his tune,
Speaker 4: should he try to set up the market for September?
Speaker 4: What do you think we will hear when Tom's out
Speaker 4: there in a million dollar caboy bore.
Speaker 5: I think he's probably going to devote his remarks to
Speaker 5: previewing or laying out what they've decided in terms of
Speaker 5: their framework. And I think what he will do is
Speaker 5: embrace more or less traditional inflation targeting, saying we're not
Speaker 5: close to the zero bound now, and policy will act
Speaker 5: symmetrically in terms of what he does in terms of
Speaker 5: the next meeting in September or the rest of the year.
Speaker 5: I think it will depend in part on the data
Speaker 5: that we get between now and then, and it will
Speaker 5: depend as well on his assessment of his understanding of
Speaker 5: the current trade regime.
Speaker 2: Ye, I will read your paper and they'll have Can
Speaker 2: I do a report card on a three by five card? Exactly,
Speaker 2: Richard Claire to thank you so much, Absolutely brilliant, folks.
Speaker 2: That was an absolute clinic on some of the trends,
Speaker 2: the physics, the background of how these officials, saying Richard
Speaker 2: Claire to the former vice chairman of the FED.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Apple Corplay and Android
Speaker 1: Auto with the Bloomberg Business app. You can also listen
Speaker 1: live on Amazon Alexa from our flagship New York station,
Speaker 1: Just say Alexa Play Bloomberg eleven thirty A Mere Panda.
Speaker 2: Joins us from JP Morgan, where they're looking at the
Speaker 2: tech juggernaut from sixty thousand feet. How does tech in
Speaker 2: America in this clear you know, I'm going to take
Speaker 2: the ego of dish exceptionalism. How does it affect an
Speaker 2: overall investment outlook?
Speaker 6: When we think about the history of US exceptionalists and
Speaker 6: over the last call it decade fifteen years. It's been
Speaker 6: about economic exceptionalism when we think about this miracle of
Speaker 6: high growth, relatively low inflation, relatively low interest rates as well,
Speaker 6: but it's also been about corporate exceptionalism. And going forward,
Speaker 6: we may have some deterioration in some of that economic exceptionalism,
Speaker 6: but certainly you still have that corporate exceptionalism, and it's
Speaker 6: rebirthing itself. It's just reviving itself time after time, in
Speaker 6: twenty twenty three with the Ai Revolution, but also much
Speaker 6: before that in the first phase of some of these companies.
Speaker 6: So it has been spectacular to watch some of these
Speaker 6: very mature companies reinvent them themselves and grow profits as
Speaker 6: they have.
Speaker 2: I just plugged into the Total Return Index five five
Speaker 2: five on Microsoft. Yeah, which is where it's going to open.
Speaker 2: I guess last ten years twenty nine percent per year, And.
Speaker 4: I'm looking at it today and I'm like, how do
Speaker 4: you not own it? Even today?
Speaker 2: I don't own it? Thank you. Triple Lover's dog cash
Speaker 2: mirror up to be asleep like a baby. All good, Mira.
Speaker 4: What have we seen from earnings? What have you guys
Speaker 4: seen from earning so far? And what do you what
Speaker 4: do you think of the market needs to see from
Speaker 4: earnings cycle.
Speaker 6: Earnings have been pretty healthy, but also remember the fact
Speaker 6: that estimates for earnings were basically cut in half for
Speaker 6: this quarter since the beginning of the second quarter and
Speaker 6: over the course there so the bar was relatively low.
Speaker 6: We're seeing earnings surpass that you are seeing the MAG seven,
Speaker 6: of course so far blowing the lice out on earnings,
Speaker 6: expected to contribute about two thirds overall to earnings growth
Speaker 6: over the course of this quarter, but that should broaden
Speaker 6: out over the next couple of quarters. So the good
Speaker 6: news is that we are not only hanging our hat
Speaker 6: on MAG seven. Profits across the board story is improving incrementally,
Speaker 6: But when you think about how that passes through to markets,
Speaker 6: the MAG seven are driving about a third of the
Speaker 6: returns in markets. So the market does not does demand
Speaker 6: that the MAG seven continue to post these types of profits.
Speaker 6: When I think about it from a broader allocation perspective
Speaker 6: in terms of what clients do and don't own, we
Speaker 6: should also remember that given the comeback in the MAG
Speaker 6: seven itself, you probably already own a lot, so it's
Speaker 6: not necessarily requiring us to double down on it. There
Speaker 6: are names that you want to have in your portfolio,
Speaker 6: but also think about broadening out beyond that. Given the
Speaker 6: fact that this year, for the first time in a while,
Speaker 6: we've got choices.
Speaker 4: Well, one of the choices is, and we saw people
Speaker 4: make this choice earlier in the year, is they move
Speaker 4: money out of the US into rest of world, maybe
Speaker 4: even European equities for example. How did you guys view
Speaker 4: that kind of trend and did you guys participate.
Speaker 6: We did see investors, at least at a headline level,
Speaker 6: more interested outside of the US, but also didn't necessarily
Speaker 6: see investors actually selling the US. You still have foreign
Speaker 6: investors owning about a quarter of the treasury market at
Speaker 6: about twenty percent of the equity market, and you also
Speaker 6: see Americans and foreigners doubling down not only the retail segment,
Speaker 6: but also increasingly the institutional segment. So I don't think
Speaker 6: that sell America narrative is intact. However, I do think
Speaker 6: that people are putting that incremental dollar towards some of
Speaker 6: the other more diversified opportunities across the board internationally, and
Speaker 6: it's not just the dollar. We're seeing the dollar move
Speaker 6: a little bit higher, as Tom pointed out, and yet
Speaker 6: international equities have survived on a number of different catalysts.
Speaker 2: Bob Michael stopped me cold yesterday. It was a single
Speaker 2: sentence of the Fed decides show Parole and Casman are
Speaker 2: modeling now as earning. Tedeski at Yell budget lab eighteen
Speaker 2: percent tariffs back to thirty three, thirty four, and Bob
Speaker 2: even goes up to twenty percent, which to me is unimaginable. Folks,
Speaker 2: this is like McKinley terrorists in the Gilded Age. If
Speaker 2: we get that, what happens to an investment strategy in America.
Speaker 6: We do have to be mindful that if we get that,
Speaker 6: it's probably going to result in higher inflation and slower growth.
Speaker 6: But we also have a little bit of a wrench
Speaker 6: in the works here when we think about where we
Speaker 6: get to in the beginning of next year, in that
Speaker 6: we're going to start to see the impacts of fiscal stimulus.
Speaker 6: When it comes to some of those tax cuts, some
Speaker 6: of them are extensions, but there are some sweeteners in
Speaker 6: there that are going to add some fiscal stimulus to
Speaker 6: the economy that could potentially keep inflation a little bit higher.
Speaker 6: It could also boost growth.
Speaker 2: Do rate cuts come to rescue? Are rate cuts just
Speaker 2: to normalize, or can they actually add on to the
Speaker 2: stimulus of the huge fiscal bill. They could.
Speaker 6: I'm not sure that rate cuts are actually as relevant
Speaker 6: when we think about the fact that over the last
Speaker 6: couple of years you've actually had even higher interest rates,
Speaker 6: and you've had twenty plus percent markets even outside of
Speaker 6: the mag seven. The S and P was up eight
Speaker 6: percent ten percent over the last two years perspectively. So
Speaker 6: we don't need rate cuts to save the market. I mean,
Speaker 6: the market doesn't look like it needs any saving at all.
Speaker 2: Have you been in the new building, not yet.
Speaker 6: I've seen it. You can see in through the windows
Speaker 6: from the building across the street. Very exciting, very exciting.
Speaker 2: It's just, you know, then, all that's going on in
Speaker 2: New York City in this tragedy is just great to
Speaker 2: see the leadership at JP Morgan and Sitadel and others
Speaker 2: on Kevin, I really can't say enough about it. You're Panda,
Speaker 2: Thank you so much. Global Market Strategist JP Morgan, Investment
Speaker 2: not Management.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Apple Coarclay and Android
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Speaker 1: us live every weekday on YouTube and always on the
Speaker 1: Bloomberg terminal.
Speaker 2: Now we go ever stronger market. Lehman is with Citizens,
Speaker 2: JMP Securities. He is definitive on the culture of San
Speaker 2: Francisco in Silicon Valley. This goes way back to Montgomery
Speaker 2: and other aims in the past. This is a guy
Speaker 2: with sell side, get out the Excel spreadsheet, cred but
Speaker 2: also done em and A. I want to talk about
Speaker 2: picking up the pieces off of First Republic May of
Speaker 2: twenty twenty three. You've been intimately involved, not so much
Speaker 2: in the details, but his San Francisco and Silicon Valley
Speaker 2: recovered from that tobacco recovering.
Speaker 7: And it's a good theme with what we talked about today,
Speaker 7: and we'll talk about with Meta because it's about AI
Speaker 7: and it starts with the election we had last year
Speaker 7: and Daniel Lurie becoming mayor. So a year ago the
Speaker 7: mayor Lendon Breed had about a thirty percent positive and
Speaker 7: a seventy percent negative. Today Daniel Lurie is a seventy
Speaker 7: percent positive and a thirty percent You probably couldn't get
Speaker 7: a seventy percent positive on anything today.
Speaker 2: You're Buch Frank Cautron yesterday. Yeah, this guy is like Frank,
Speaker 2: you're more qualified than anybody I know to give me
Speaker 2: the X axis on AI. Is AI equivalent to anything
Speaker 2: in the past? And how far out do you see this?
Speaker 2: As I'm speaking as an amateur, this boom.
Speaker 7: It's I hate to say it because the stocks have
Speaker 7: moved so much, but it's early and Met is a
Speaker 7: perfect example of that. Some of the things that they're
Speaker 7: starting to work on and starting to see are showing
Speaker 7: in the numbers, but it's really just the beginning. And
Speaker 7: I'll give you one example, Tom. They they even talked
Speaker 7: about some of the the using large language models for
Speaker 7: the first time, and as you know, those have been
Speaker 7: we've been talking about those for a bit. But they're
Speaker 7: starting to use those for some of their offerings. And
Speaker 7: so we've already seen the numbers show up. We're already
Speaker 7: seen what they're doing with Capax, but it's showing up
Speaker 7: with the numbers already, and we're just at the beginning.
Speaker 8: So as much as these.
Speaker 7: Stocks have run in, as much as we've seen great
Speaker 7: gains in the stock market, I hate to say this
Speaker 7: because it's going to spook some people.
Speaker 8: We may be early.
Speaker 4: Interesting and Mark, I mean you're responsible for the state
Speaker 4: of California, the business, investment, banking business for citizens in Californa.
Speaker 4: That's like one of the biggest economies in the world.
Speaker 4: Talk to us about California writ large, because we've heard
Speaker 4: so many stories about people leaving New York, people leaving
Speaker 4: California for Texas and Florida and so on. So how
Speaker 4: is the economy in California.
Speaker 7: So it's gone from the fifth biggest economy of the
Speaker 7: world the fourth biggest. Citizens has now a major footprint
Speaker 7: there where before it had a minor footprint. As you know,
Speaker 7: they bought my predecessor firm, JMP, but they've gone in
Speaker 7: a variety of markets, whether San Francisco, Silicon Valley, Orange County,
Speaker 7: Los Angeles, San Diego. Citizens now is a footprint and
Speaker 7: private banking and some of the halo that First Republic
Speaker 7: had we've been fortunate to garner because we've just hired
Speaker 7: some of these people who are really how many.
Speaker 8: People say they love their bank and young people.
Speaker 7: At First Republic love their bank, and we've been able
Speaker 7: to garner some of that halo because it's all about
Speaker 7: service and it's all about coordinating. We're coordinating across the platform,
Speaker 7: so of our mid tier piers, we're coordinating across a
Speaker 7: private bank and investment bank of commercial and consumer.
Speaker 2: How will Silicon Valley defend against Lord Dell down in
Speaker 2: Texas and Texas building out they're doing with the New
Speaker 2: York Stock Exchange in Texas. Y'all Street, y'all street, what
Speaker 2: are you watching land? How does California strategically defend against
Speaker 2: the Dell juggernaut in Texas?
Speaker 8: I think it's a big pie. I think we have
Speaker 8: some things going for us.
Speaker 7: Obviously we are as I'd like to say, the Golden
Speaker 7: Gate Bridge isn't leaving.
Speaker 8: Cal's not leaving. Stanford's probably not.
Speaker 2: Leaving, so educational funding.
Speaker 7: When I hear everybody's leaving San Francisco, I just have
Speaker 7: my best guess is Call and Stanford are staying and
Speaker 7: yet and the talent and the dollars that are being
Speaker 7: spent on AI. You can look at the statistics the
Speaker 7: dollars that are being spent in San Francisco, that's a
Speaker 7: big number.
Speaker 2: The horrific tragedy in New York City we're living in
Speaker 2: the last seventy two hours with Blackstone, their commitment before
Speaker 2: all of this horror to Western Pennsylvania is just absolutely
Speaker 2: extraordinary again Carnegie Mellon University of Pittsburgh and that so
Speaker 2: are we going to see a greater at the margin
Speaker 2: cash commitment into Silicon Valley.
Speaker 7: I think what you're going to see is a public
Speaker 7: private partnership, and San Francisco is leading that. Like I
Speaker 7: said at the top, Daniel Luriy and the business leaders
Speaker 7: in San Francisco are committed to finding ways to exploit
Speaker 7: the talent.
Speaker 8: Base that we have. Some of the ills that we
Speaker 8: have are being fixed.
Speaker 7: And I think there's nothing we like more in this country.
Speaker 7: To kind of denigrate things, but there's nothing we like
Speaker 7: even greater that than a resurrection story. And I think
Speaker 7: you're seeing that real time in San Francisco. And I
Speaker 7: think that public private partnership is the most important thing.
Speaker 4: Mark we heard from some of the big banks reported
Speaker 4: earnings last week. We heard some pretty positive rhetoric from
Speaker 4: the Jamie Diamonds of the world, the Brian Morny hands
Speaker 4: of the world, talking about the big global capital markets business,
Speaker 4: global banking business. How are you seeing it in the
Speaker 4: mid market in California.
Speaker 8: It's definitely picking up.
Speaker 7: I think you're seeing the first signs of a resurrection
Speaker 7: of the IPO market. It has not been like we
Speaker 7: saw in twenty twenty one, and I will not predict that.
Speaker 7: But you're going to see the back half of this
Speaker 7: year a bunch of tech companies and a bunch of.
Speaker 4: Who saw Figma price last night exactly?
Speaker 7: And you're going to see several after Labor Day, and
Speaker 7: you're gonna see more going out of twenty twenty six.
Speaker 2: Tell us about electric generation, you know there's there's an
Speaker 2: angst about it. I think nationwide. I'll say in Virginia
Speaker 2: leading the way. But is there going to be a
Speaker 2: power suck with the lights don't go on in the
Speaker 2: Golden gate Bridge because of all the AI wrapped around
Speaker 2: the San Francisco Giants.
Speaker 8: Yeah, not.
Speaker 7: As going to an eight and the postly All Star break.
Speaker 7: There's two and eight after they also, right, but it's painful.
Speaker 2: I traded with the Red Sox.
Speaker 8: I did, and I'm not sure Devers is happy.
Speaker 2: But his new homes have to see that, thank you.
Speaker 7: But my hunch is no, I think there's going to
Speaker 7: be the kind of innovation that we're seeing in technology.
Speaker 7: You're going to see in power generation and it is
Speaker 7: a land grab right now. And the Warren talent for
Speaker 7: that is real. With the kind of AI purchase that
Speaker 7: we've seen Matta make and Microsoft make, can we.
Speaker 2: Go back to Mark Leman old school forget about this
Speaker 2: executive m and a bank backed and all that. The
Speaker 2: cash use of these juggernauts that we all own, we're
Speaker 2: all living. Did they understand they have to deploy cash
Speaker 2: to shareholders within buybacks or as Paul mentions always dividend growth.
Speaker 7: If you're talking about the Big seven or Big eight,
Speaker 7: I think, like we said, it is kind of a
Speaker 7: Warren talent right now. And when you see the headlines
Speaker 7: that Meta got for spending fifteen billion dollars for half
Speaker 7: a company, they really spend fifteen billion dollars on a
Speaker 7: bunch of talent and it barely is you know, it's
Speaker 7: not one percent of the company, right so it looks
Speaker 7: like an enormous number in an enormous bet, but it's
Speaker 7: really not. And when you see the kind of returns
Speaker 7: that the companies get on their investments and their investments.
Speaker 8: Are people I think right now they think a bigger.
Speaker 7: Investment is in that race, and it is a race
Speaker 7: and there's four or five incumbents, and then there's obviously
Speaker 7: open Ai, which we saw their valuation recently, and others.
Speaker 7: But there aren't going to be twenty of these. And
Speaker 7: there's one other thing that I think is really important
Speaker 7: to know is that there are a couple of companies
Speaker 7: that have resurrected. I have said for a very long
Speaker 7: time there's only two tech companies who reinvent in themselves.
Speaker 2: It's App on Microsoft.
Speaker 7: But look at the market cap ascent of Oracle, look
Speaker 7: at the market cap acent of IBM, and these companies
Speaker 7: were left for dead basically obviously they really are. So
Speaker 7: when you it's about leadership, and it's about talent, and
Speaker 7: it's about drive in future.
Speaker 2: Twenty seconds, Intel helpless.
Speaker 7: You know, uh and video is going to market cap
Speaker 7: is going to go out more than into three intels
Speaker 7: today and I just I hate to be pessimistic.
Speaker 8: It's really hard to find to wait that path for that.
Speaker 2: I got goosebumps this week of technology, Mark Lehman with
Speaker 2: his CEO citizens at JMP. That's a great brief before
Speaker 2: we speak with enerrog Rana.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
Speaker 1: starting at seven am Eastern on Applecarplay and Android Auto
Speaker 1: with the Bloomberg Business app. You can also listen live
Speaker 1: on Amazon Alexa from our flagship New York station. Just
Speaker 1: say Alexa play Bloomberg eleven thirty the.
Speaker 2: Way we roll. We got Mark Lehman with us here
Speaker 2: with citizens JMP and anrog Rana on the physics of
Speaker 2: this AI moment. He's with Bloomberg Intelligence and has been
Speaker 2: absolutely dead on and I have courage for a long
Speaker 2: tail of AI excellence ANIAG after what we saw yesterday.
Speaker 2: I want you to frame out capital spending for twenty six,
Speaker 2: twenty seven, and even twenty eight. Is it a linear expansion,
Speaker 2: does it accelerate into the coming years, or is this
Speaker 2: as good as a get.
Speaker 9: So at least for the next two years, we think
Speaker 9: the number are numbers are going to go up, the
Speaker 9: rate of growth is going to slow down. But it's
Speaker 9: tough to call out twenty seven and twenty eight because
Speaker 9: right now we have just started to see the benefits
Speaker 9: of all these investments that, for example, Microsoft has made.
Speaker 9: So I think a lot depends on the pace of
Speaker 9: adoption and more so on the enterprise side. To see
Speaker 9: what twenty seven and twenty eight looks like. But at
Speaker 9: this point we feel very confident about twenty five and
Speaker 9: twenty six.
Speaker 2: So I mean, for.
Speaker 4: Microsoft, give us the two or three things that the
Speaker 4: bulls are really hanging their hat on here. Again, we're
Speaker 4: gonna looks like we're going to hit four trillion dollar
Speaker 4: market cap here today.
Speaker 9: So patly, I mean the simple you know, basics is
Speaker 9: when when a company's size gets bigger, the growth rates
Speaker 9: stops or slows down. In the Microsoft's case, you could
Speaker 9: see that growth in Azure is accelerating. This is now
Speaker 9: a seventy five billion dollar business as of the end
Speaker 9: of lean a lost quarter. So in that case, when
Speaker 9: you see growth rate in the thirties accelerating, that basically
Speaker 9: shows that the AI adoption rate is picking up. And
Speaker 9: you know, people just assume that this is just the
Speaker 9: beginning of the adoption curve. Right now, all we're seeing
Speaker 9: is the infrastructure spending and that's the benefit everybody's seeing,
Speaker 9: whether it's Nvidia or you know, Dell servers, et cetera.
Speaker 9: But now what we're seeing is adoption rate on the
Speaker 9: cloud side, and I think that is really what is
Speaker 9: exciting a lot of people out there.
Speaker 4: So on argument, Well, take a look at Microsoft here,
Speaker 4: I mean, what percentage of the cloud an AI do
Speaker 4: you feel like is their market share versus some of
Speaker 4: the competitors, because we still have to hear from Amazon.
Speaker 9: Yeah, so when you look at just the cloud infrastructure site,
Speaker 9: you know, they are the second biggest player after Amazon.
Speaker 9: Amazon's you know rund rate as well, over one hundred billion.
Speaker 9: But Amazon's growing in the you know, let's say around
Speaker 9: the eighteen to twenty percent range. Microsoft now is showing
Speaker 9: that they're growing, you know, thirty eight thirty nine percent.
Speaker 9: That's a very big difference between the two. So, I mean,
Speaker 9: just imagine as seventy five billion dollar business growing in
Speaker 9: the mid thirties. And that's because they have that direct
Speaker 9: relationship with open ai where they're getting the direct benefit
Speaker 9: of U and B using more chat, GBT.
Speaker 2: And right, let's do a two part question. I'll get
Speaker 2: the apple on the back end of this color out
Speaker 2: the nature of their businesses. Dani's is very big that
Speaker 2: Microsoft is the enterprise cloud a person. What is Amazon?
Speaker 2: What is Oracle in the rest? What's the character of
Speaker 2: those cloud businesses?
Speaker 9: I think that's probably one of the most important questions
Speaker 9: for people to think about it right now, when you
Speaker 9: look at somebody like an article there, I would say
Speaker 9: primarily an infrastructured AI infrastructure player at this point, which
Speaker 9: means you want to go there, you want to rent
Speaker 9: out the GPUs and you are training your models. Microsoft
Speaker 9: is basically said, that's the business they're not so keen on.
Speaker 9: They really want to rent out capacity for training to others.
Speaker 9: But they are really on the infant size, which is
Speaker 9: when an application is running, they want to run that
Speaker 9: application because they eventually want to grow with that application.
Speaker 9: We think that's a more high value product.
Speaker 2: So then bring it to Apple. This afternoon, Apple and
Speaker 2: Google have a search agreement. Do you just assume there's
Speaker 2: going to be an announcement that Google Gemini becomes part
Speaker 2: of the Apple family. What do you see anaragus salvation
Speaker 2: for Apple's AI, Miss.
Speaker 9: Tom As far as I am concerned, you know, that
Speaker 9: is the biggest overhang on the stock that nobody talks about.
Speaker 9: That twenty billion our payment that comes from Google is
Speaker 9: very high margin business adds really to the free cat
Speaker 9: flow and the valuation of the company. If they ever
Speaker 9: make a deal on that, I think it will be
Speaker 9: good for the company.
Speaker 2: It will be good for the stock.
Speaker 9: But one of the good things Mark German has reported
Speaker 9: is Apple's ready to go out and partner with other
Speaker 9: companies to get their AI into their ecosystem. I think
Speaker 9: once they do that, that's another overhang that goes away from.
Speaker 2: Its all wants to get in here, let me be quick.
Speaker 2: What are they waiting for?
Speaker 9: I think it's a little bit of they take their
Speaker 9: time and making these decisions. They are not yet. They
Speaker 9: never do things in haste, and I think that speaks
Speaker 9: to the way they treat their user base. They want
Speaker 9: to protect their privacy, they want to make sure things
Speaker 9: are fine for them. So again, I'm not gonna get
Speaker 9: rid of my phone just because the AI is a
Speaker 9: little bit slower. I can't make some pictures, but I
Speaker 9: think it's gonna come over the next twelve months.
Speaker 4: I mean that kind of goes to my point on
Speaker 4: a rogaman. Every time I hear you and other smart
Speaker 4: people like Mandep Seing talk about AI in the context
Speaker 4: of Amazon or Microsoft, it just the initial question is
Speaker 4: what about Apple? So it's I kind of feel like
Speaker 4: they don't have to be first, but boy, they just
Speaker 4: feel like they're getting every single day farther and farther behind.
Speaker 4: I kind of feel like time is of the essence
Speaker 4: for them to announce something major.
Speaker 9: Yeah, I completely agree with you. But at the same time,
Speaker 9: this is a company that controls probably the most important
Speaker 9: distribution system for consumers out there. I mean, people will
Speaker 9: stick to the phone no matter what if they get
Speaker 9: if they get it wrong, but you know, Paul, that
Speaker 9: really makes a huge difference for them. So this is
Speaker 9: why they're taking their time. They're using multiple models to
Speaker 9: figure out what's best for them.
Speaker 2: I mean an rog just to keep up with you.
Speaker 2: This guy's physics University of Deli. You know, I know
Speaker 2: it's amazing. I mean anerrag I did MSFT equity. Tom
Speaker 2: Sikunda said, time you gotta do more. Turn stay with
Speaker 2: me on this, two hands on the steering wheel, okay,
Speaker 2: Ani rag MSFT Equity, AAPL Equity. Hs I did a
Speaker 2: ratio spread analysis, and Apple's failing off of Microsoft by
Speaker 2: two standard deviations, which you know is ginormous. Where's the urgency?
Speaker 2: And Cooper Tino, Well, think about it this way.
Speaker 9: Microsoft sales last night grew at fifteen percent. Apple's gonna
Speaker 9: grow at five percent. I've been debating I always never
Speaker 9: understood why there was always their you know, valuations were
Speaker 9: at parity at that point. Now we are coming to
Speaker 9: a point when the valuation shows the growth potential of Microsoft.
Speaker 9: Imagine a company this size growing at fifteen percent. I
Speaker 9: mean that's pretty big. Apple six seven percent max at
Speaker 9: the best at this point. If they come up with
Speaker 9: a new iPhone seventeen, maybe it goes to seven or eight,
Speaker 9: but that's where it ends. Frankly, doesn't go in double
Speaker 9: digits under no circumstances. Can I see Apple growing in
Speaker 9: double digits?
Speaker 2: Interact thirty seconds? Is elon in this discussion? Yes?
Speaker 9: But the question I always you know, wonder whether Zelan
Speaker 9: or Meta is how are they going to monetize their
Speaker 9: large language models.
Speaker 2: Now this is.
Speaker 9: Where Microsoft really has the biggest distribution army in the
Speaker 9: enterprise world, so they will stick there. You know, AI
Speaker 9: products across every enterprise out there, even if it's not
Speaker 9: the best. I do not know how the others are
Speaker 9: going to monetize that is.
Speaker 2: This great Mark Linman back to back with the enter Atlanta.
Speaker 2: Yep is in the on deck. Certain, yeah he is,
Speaker 2: He's on the subway. It's just is that how you're
Speaker 2: it's coming in than very good interog. Thank you so much,
Speaker 2: an rog Rana. They're with great seats for the Chicago Cubs.
Speaker 2: Oh yeah, it's unbelievable.
Speaker 4: It's a burgeoning tech cub Chicago.
Speaker 2: It is. It is a tech hub. Androg Rana, thank
Speaker 2: you so much. That was fascinating on the different ais,
Speaker 2: I don't pretend to understand it.
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