Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amerie Hordern. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
Speaker 2: from our global headquarters in New York City. We are
Speaker 2: live on Bloomberg Television weekday mornings from six to nine
Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or
Speaker 2: anywhere else you listen, and as always on the Bloomberg
Speaker 2: Terminal and the Bloomberg Business App. Jim Zouder, the president
Speaker 2: of Apollo Global Management, out with a new report, asking
Speaker 2: the question, what if the world doesn't work the way
Speaker 2: you think it does? Zout from the team, going on
Speaker 2: to write the era of free money is over, ultra
Speaker 2: low interest rates. Our history inflation is structural, not transitory.
Speaker 2: It's redefining risk, return and the cost of capital. Jim
Speaker 2: joins us, now for more. Jim good Mornic.
Speaker 3: I got to hire you at Apollo as a marketing guy.
Speaker 4: You're doing a good job.
Speaker 5: Go one step further.
Speaker 4: Thank you.
Speaker 2: I woke up the other week, came into the office
Speaker 2: handwritten note from you, and it said, public markets power
Speaker 2: the narrative, private markets power the economy.
Speaker 5: Just start there.
Speaker 2: What is the question you're posing for clients at the moment,
Speaker 2: what you want to get them to think about.
Speaker 3: Well, it's a bigger conversation about market structure and the
Speaker 3: changing backdrops, about how investors think about investing from a
Speaker 3: sixty to forty portfolio historically, and the tools they have
Speaker 3: to create better outcomes with less volatility.
Speaker 4: The reality is.
Speaker 3: Alternatives have worked for forty years for institutions, and if
Speaker 3: we think thoughtfully about the growing need for retirees around
Speaker 3: the globe, how do we augment which worked well in
Speaker 3: the past but may not be the compass for the future.
Speaker 3: On the other side of the coin, it's for companies
Speaker 3: eight thousand companies down to four thousand, the role of
Speaker 3: private capital is changing. Companies like SpaceX and Spie and
Speaker 3: Stripe can become the state it for much longer, and
Speaker 3: so a little bit when I hear about your headlines
Speaker 3: this morning, I feel like many folks that come on
Speaker 3: talk a little bit about the world in the rear
Speaker 3: view mirror versus looking to the windshield. And the real
Speaker 3: AHA moment for us came two three years ago when
Speaker 3: we heard, when we saw what was going on with
Speaker 3: rates rising dramatically in this cycle, and universally we all
Speaker 3: thought that the economy would hit skids and they would
Speaker 3: be tightening financial conditions, and that.
Speaker 4: Really didn't happen.
Speaker 3: So that was a very practical situation where we really said,
Speaker 3: maybe our textbook that we've using all along is wrong.
Speaker 3: But changing market structure, how companies finance, how investors invest,
Speaker 3: it is a new playbook, a new.
Speaker 2: Paradigm redefining public and private markets. Our good friend Mark
Speaker 2: Round would often talk about this and say, often the
Speaker 2: distinction was risk high risk in private markets, and now
Speaker 2: the distinction I think you and a team want to
Speaker 2: make is liquidity.
Speaker 3: Yeah, I mean the old idea when we grew up
Speaker 3: in a marketplace. This is my fortieth year in the
Speaker 3: business where private was was risky and volatile and public
Speaker 3: was safe and liquid. And there's many examples right now.
Speaker 3: I come from the world of credit, you know, and
Speaker 3: I started out as a high yield slash junk bond
Speaker 3: trader back in the eighties, and there was it might
Speaker 3: have been it might have been a public security, but
Speaker 3: trust me, it was volatile and it was risky. And
Speaker 3: now over thirty years is now junk bonds have become
Speaker 3: high yield and asset class. There's still a lot of
Speaker 3: inherent volatility in that. And again we would say that
Speaker 3: across the whole risk reward spectrum. You know, I grew
Speaker 3: up in Rochester, New York. Coodeax Xerox, Bousel, MOAM, three
Speaker 3: great American icon companies. They didn't get the memo on disruption.
Speaker 3: They were safe in investment grade companies and Vohil they're
Speaker 3: not in existence anymore.
Speaker 2: Can we talk about how things have changed over the
Speaker 2: last forty years? So you and the team would often
Speaker 2: talk about you are what you originate, you are what
Speaker 2: you create. The capex needs of companies now seem to
Speaker 2: have changed. I was reading the transcript from your address
Speaker 2: at a financial markets conference earlier this week, and you
Speaker 2: talked about the capex needs twenty to thirty forty years
Speaker 2: ago relative to now and the change in quality, the
Speaker 2: changing character of things. How important is that given where
Speaker 2: we're at.
Speaker 3: Well, just just to reset that question. You know, in
Speaker 3: the last thirty years, the high ual market globally has
Speaker 3: finance companies that are going through either regulatory change or
Speaker 3: technology change. Think cable, think shale, think airlines, think telecommunications,
Speaker 3: and for the most part that massive capbax was on
Speaker 3: non investment grade companies. As we sit here in twenty
Speaker 3: twenty five. In the next ten years, massive capbacks boom
Speaker 3: between data, AI, sustainability, energy transition, transmission lines, the transaction
Speaker 3: we did for RWE this year, this week in Germany.
Speaker 3: And so I don't think people are still thinking that
Speaker 3: private credit and private capital is small, ill liquid, non
Speaker 3: investment grade companies. And the reality is eighty to ninety
Speaker 3: percent of the private credit market is really investment grade
Speaker 3: counter parties, investment grade debt. And again many, many companies
Speaker 3: now are afforded the opportunity to stay private much longer
Speaker 3: because of the breath and the breadth of the financing markets.
Speaker 6: To build on what John is talking about, does private
Speaker 6: debt have more of a role than private equity at
Speaker 6: this point?
Speaker 3: Well, the debt markets and the capital markets and the
Speaker 3: credit markets are, as the Congress learned in seven oh nine,
Speaker 3: it's the lifeblood of the economy. When ge could not
Speaker 3: roll over their commercial paper, it was the aha moment
Speaker 3: for the Congress to say, wait a second, we need
Speaker 3: to act here. And so when you think about the
Speaker 3: scope of private credit and scale, certainly the application with
Speaker 3: investment grade solutions, it's in the multi multi trillions, tend
Speaker 3: to forty trillion, and the PE industry is a seven
Speaker 3: to ten trillion, depending on how you think about the
Speaker 3: dry powder and the overhang.
Speaker 4: So I would argue over the.
Speaker 3: Next decade, the impact of private credit, investment grade and
Speaker 3: non investment grade will probably have as large an impact,
Speaker 3: if not larger, than private equity has had in the
Speaker 3: last decade.
Speaker 1: So the peak of private equities over well, I.
Speaker 4: Wouldn't say that.
Speaker 3: I mean I think that the private equity industry is
Speaker 3: going to go through an evolution, and it's going to
Speaker 3: be a Darwinian evolution, and I think that the challenges
Speaker 3: of monetization, the challenges of upfront capital commitments, there will
Speaker 3: be fewer and fewer firms that are able to go
Speaker 3: to investors and have that dialogue and have that relationship.
Speaker 3: We believe for one of them because of our investment
Speaker 3: track record, But the reality is I think that many
Speaker 3: PE firms that business model is going to change and
Speaker 3: how can they adapt.
Speaker 6: This is a really important conversation to be having, especially
Speaker 6: because on surveillance we keep talking about the divide between
Speaker 6: public markets and the underlying economy, and it seems like
Speaker 6: it's growing increasingly dramatic fashion, and we keep wondering whether
Speaker 6: the economy is really struggling right now, at least by
Speaker 6: virtue of some of these labor market pictures. The same
Speaker 6: time that you're seeing the oracles of the world do
Speaker 6: very well.
Speaker 1: Are you seeing that?
Speaker 6: Are you seeing the need for money to be a
Speaker 6: little more free right now in order to rejucee some
Speaker 6: of that activity?
Speaker 4: You know, we're not seeing yet.
Speaker 3: But I do think the question you're really asking is
Speaker 3: and it is the same question about you know, with
Speaker 3: the amount public markets used to be a great diversifier
Speaker 3: for portfolios, and it really was the bellweather how the
Speaker 3: US economy and the global economy was doing. But as
Speaker 3: more companies have stayed private and more companies are funding privately,
Speaker 3: you really are questioning that barometer and what is telling you.
Speaker 3: Torsen has a good piece out this morning talking about
Speaker 3: the concentration of the CAPEX cycle and how it's concentrated
Speaker 3: in a handful of companies in data, AI and technology.
Speaker 3: And while the CAPEX is a massive number and it's
Speaker 3: driving a north started growth. You're asking a provocative question,
Speaker 3: is it really hiding the underlying economy, which is driven
Speaker 3: by private companies? Ninety percent of the hiring in America
Speaker 3: is by private companies, and is at a different story today?
Speaker 3: It could be we're seeing if you look at the
Speaker 3: public numbers in terms of earnings over the second quarter,
Speaker 3: it beat consensus by seven hundred basis points eleven versus four.
Speaker 3: And for the most part, the credit portfolios that we oversee,
Speaker 3: the multi thousands of counterpartysusite to four thousand, it actually
Speaker 3: showed quality upgrades three to one versus downgrades in terms
Speaker 3: of performance. So in the breadth of our credit portfolios,
Speaker 3: we're not seeing a weakness. I will tell you we
Speaker 3: definitely see more lingering inflation. And I do believe that
Speaker 3: the while this administration is dead set on getting rates lower,
Speaker 3: I believe that there is a legacy inflation issues in
Speaker 3: the economy. When's the last time any one of us
Speaker 3: bought something in the last year and he said, wow,
Speaker 3: that was cheaper than a year ago.
Speaker 4: It has not happened.
Speaker 3: And that's just in the and I do believe that's
Speaker 3: going to be the scourge of this rate cycle because
Speaker 3: I do believe there's greater inflation and companies are having
Speaker 3: it a much more challenging time passing that along to consumers.
Speaker 3: This is that we're seeing it across the board.
Speaker 5: There's lots to impact that.
Speaker 2: One of the things I wanted to impact was the
Speaker 2: concentration risk and the AI financing that we've seen both
Speaker 2: in data centers and the energy transition. There's a quote
Speaker 2: in the last year that's just stuck with me for
Speaker 2: the last twelve months, and it came from the Alphabet
Speaker 2: CEO that the bigger risk is under investing and not
Speaker 2: over investing, and that just sounded like a commitment to
Speaker 2: over investing. Now, I'd want to understand how your industry
Speaker 2: avoids a massive misallocation of resources at a time when
Speaker 2: everyone is chasing the same story.
Speaker 3: Well, it feels like you have a bug in our
Speaker 3: investment committee rooms. I mean, I've been talking the last
Speaker 3: six months about the cycles of dark fiber and the
Speaker 3: late nineties, of shale on the early teens, ten to
Speaker 3: twelve to sixteen, and certainly enterprise software in the last
Speaker 3: five years, and you have to be concerned as an
Speaker 3: investor today, are you taking equity risk for a fixed
Speaker 3: rate of return. That's the ultimate sort of bubble, if
Speaker 3: you would, And I don't think that the true economics.
Speaker 3: Certainly consumers industry, the economy is going to benefit, but
Speaker 3: not all industries as they evolved. Was it a great
Speaker 3: investor to be an investor? The cell phone industry is
Speaker 3: a great example. Only in the last decade is it
Speaker 3: become a good investment for companies to invest. So I
Speaker 3: don't have the answer that once it's a question we're
Speaker 3: asking ourselves. Now we find ourselves both on the debt
Speaker 3: and the equity side of funding a lot of the
Speaker 3: data center activity. But there's a tremendous amount needed and
Speaker 3: there's a voracious appetite. But I certainly understand what the
Speaker 3: Alphabet executive was saying.
Speaker 2: Do you think there's a bit of a duration mismatch
Speaker 2: between how long it takes to build a data center
Speaker 2: and how long it takes to build the energy infrastructure
Speaker 2: to enable it?
Speaker 5: And could that be problematic?
Speaker 4: There?
Speaker 3: Certainly is we have spent more time. The energy supply
Speaker 3: issue could be a governor to growth, and that's a
Speaker 3: challenge that we've not seen yet. But if you pencil
Speaker 3: out the numbers, that could be a concern, but I
Speaker 3: think the bigger questions back The first one we asked
Speaker 3: is these are ten twenty thirty year infrastructure builds. Who
Speaker 3: really with our marketplace going towards indexes and ETFs and
Speaker 3: multipod shops that are all thinking about, you know, moment
Speaker 3: to moment liquidity. The era of the long investor is
Speaker 3: a question mark. Who is that long investor? And we
Speaker 3: would say it's the retirees of tomorrow. Every day twelve
Speaker 3: thousand folks in the US you hit sixty five, and
Speaker 3: the West broadly speaking, and other countries around the world
Speaker 3: have not done a great job with retirees, and so
Speaker 3: the ability to thoughtfully introduce long duration infrastructure inflation hedge
Speaker 3: assets into these portfolios. In the UK they call it
Speaker 3: matching adjustment for insurance assets. Those are really where the
Speaker 3: growth of our business is going to go, and that's
Speaker 3: going to benefit investors.
Speaker 2: This makes a lot of sense, particularly if you're investing
Speaker 2: for retirement. You don't need daily liquidity, that's just logical.
Speaker 2: I think where the criticism is coming from for your
Speaker 2: industry at the moment is that family offices are already
Speaker 2: doing a lot of this. I think you are the
Speaker 2: team we talked about that a ton high net worth
Speaker 2: individuals are doing the same. You're now going go after retail,
Speaker 2: and then people start to feel a little bit uncomfortable
Speaker 2: with that. Are you're looking for a new bank older?
Speaker 2: Are we looking for someone else to pick up the pieces?
Speaker 2: What's the response from you and the team to address
Speaker 2: that head on?
Speaker 3: I think it's all about doing it in a methodical, logical,
Speaker 3: diverse way. You know, this is all about the you know,
Speaker 3: the proper amount in the proper diversity. Certainly, we would
Speaker 3: never advocate for someone taking an outsized portfolio of their
Speaker 3: retirement and putting it all into alternatives. But clearly, over
Speaker 3: the last thirty to forty years, history has shown us
Speaker 3: that an allocation of alternatives ten to twenty percent of
Speaker 3: a portfolio increases returns and brings down volatility. And so
Speaker 3: from our perspective, there's a variety of areas in the
Speaker 3: world of credit, in particular the world of infrastructure, the
Speaker 3: world of secondaries that are more yield oriented, compounding type
Speaker 3: of vehicles. And certainly we have a view that private equity,
Speaker 3: while a very attractive asset class, even in returns over
Speaker 3: the next decade, mid to high teens that that should
Speaker 3: be done in appropriate doses. So it's all about diversity
Speaker 3: and proper portfolio allocation.
Speaker 2: Stay with us more Bloomberg surveillance coming up.
Speaker 4: Off to this.
Speaker 2: Congressman French Hill, chairman of the House Financial Committee on
Speaker 2: Financial Services, joined us now for more. Congressman Hill, welcome
Speaker 2: to the program. So I've got a lot to get through,
Speaker 2: and I just wanted to stop with the independence of
Speaker 2: the Federal serve and the role that your committee's got
Speaker 2: to play is this spat continues to build down at Washington.
Speaker 7: Blogan Morthon, Jonathan, great to be with you. As you know,
Speaker 7: I've spoken out many times about the importance of the
Speaker 7: independence of the FED, and so has my colleague across
Speaker 7: the capital, Tim Scott, the chairman of the Senate Banking Committee.
Speaker 7: But because we fully support FED independence doesn't mean the
Speaker 7: Fed's immune from criticism. And every president in my adult
Speaker 7: life has been very vocal about criticizing the FED at
Speaker 7: one time or another. So I don't think FED independence
Speaker 7: is in question when it comes.
Speaker 8: To what could actually happen in terms of financial stability.
Speaker 8: We have FED Governor Lisa Cook's lawyer saying that the
Speaker 8: President was a lawful and removing Governor Cook and said
Speaker 8: it's vague allegations would endanger the stability of our financial
Speaker 8: system and undermine the rule of law.
Speaker 4: Do you agree with that assessment?
Speaker 7: Well, I think there's some hyperbole in there. Lisa Cook
Speaker 7: has been accused of effectively mortgage fraud. Those are significant
Speaker 7: allocations for someone, allegations, for someone who is a financial regulator.
Speaker 7: But I think they need to be adjudicated. I mean,
Speaker 7: she needs her due process, her day in court to
Speaker 7: prove that in fact that's not the case, and I
Speaker 7: think that's underway right now. And that's again something I've
Speaker 7: said in recent days.
Speaker 8: Do you think the president should have waited for the
Speaker 8: courts to play out in terms of this investigation, for
Speaker 8: these allegations to actually become charges and a conviction to
Speaker 8: then take up this idea to fire her for cause.
Speaker 7: Look, the president's entitled to his own opinion. He has
Speaker 7: access to the facts that probably I don't, so he's
Speaker 7: made his decision about it. But by judgment is that's
Speaker 7: a serious allegation and if true, is certainly potentially a
Speaker 7: disqualifying allegation and charge for someone who's involved, very much
Speaker 7: intimately involved in the federal regulatory process.
Speaker 8: Taking a step back, though, do you agree with the
Speaker 8: Treasury Secretary on resetting the Fed's mission.
Speaker 7: Well, you know, I believe that for a long time,
Speaker 7: I believe the FED should have a single mandate, which
Speaker 7: is price stability. The biggest, most punishing tax on the
Speaker 7: American people, our citizens, is inflation, and inflation's caused by
Speaker 7: too much money chasing too few goods. And we've had
Speaker 7: a dramatic example of that FED policy during the pandemic
Speaker 7: and the Biden administration's fiscal policy in combination very punishing
Speaker 7: forty year highs in inflation. So I believe we need
Speaker 7: fewer mandates, and I think we need that monetary policy
Speaker 7: focused on price stability.
Speaker 4: Again.
Speaker 7: That's why I set up a task force in this
Speaker 7: Congress to review the Fed's monetary policy since two thousand
Speaker 7: and eight, review the Fed's role and a financial regulation
Speaker 7: and supervision, and to make sure that we're also taking
Speaker 7: steps to make sure our treasury security market is resilient.
Speaker 7: All this work is led by Frank Lucas of Oklahoma,
Speaker 7: and we're deep in that process. So I think taking
Speaker 7: a strong look at the Fed's monetary policy and their Governman,
Speaker 7: it's an important factor, and I agree with the Treasury
Speaker 7: Secretary on that.
Speaker 6: Well, inflation has not been below two percent for more
Speaker 6: than four years at this point, and we're still talking
Speaker 6: about fifty basis point rate cuts, maybe seventy five basis
Speaker 6: points of rate cuts this year. Do you think that
Speaker 6: that's premature, If this should be a single mandate federal
Speaker 6: Reserve that looks solely on inflation, Well, I.
Speaker 7: Think this is the tough decision they have coming up.
Speaker 7: And we've seen a softness in the economy during the
Speaker 7: whole year in terms of consumer's ability to purchase the
Speaker 7: jobs reports that we've gotten. This is why the FED chairman,
Speaker 7: I think consistent. We have said, let's look at the data,
Speaker 7: look at our data assessment and the forecast associated with it,
Speaker 7: and also make our own judgment about whether we're at
Speaker 7: the neutral rate for pricing, because we don't want to
Speaker 7: see the economy stall out and then go into stagflation,
Speaker 7: particularly when you're right about inflation getting close to two
Speaker 7: but not below too and not right at two. But
Speaker 7: when you look at inflation expectations, they seem to be
Speaker 7: more closely anchored it to and that should give the
Speaker 7: Fed some confidence as they entertain their decision in the
Speaker 7: next few days.
Speaker 4: Cheer Hill.
Speaker 8: I know you and your colleagues almost just recently got
Speaker 8: back from summer recess. But our Trumper first is fast
Speaker 8: approaching and the Trump administration is weighing and pushing for
Speaker 8: this idea for a stopgap funding measure to keep the
Speaker 8: government open through January thirty first, would you be on
Speaker 8: board with that?
Speaker 7: But we're talking about it among ourselves and obviously with
Speaker 7: our friends in the Senate. We've each passed three appropriations
Speaker 7: bills and the Senate in the House, I think it
Speaker 7: would be great to go to conference on those bills
Speaker 7: and then pursue get those enacted into law, and then
Speaker 7: pursue a CR that's a shorter term. CR would be
Speaker 7: my advice for consideration so that we can get this
Speaker 7: work done. We're very close. Both the House and Senate
Speaker 7: are processing these bills. We have the Republicans in charge
Speaker 7: of the House and the Senator in the White House.
Speaker 7: So we ought to get together, find our top line number,
Speaker 7: and get our work done this year.
Speaker 2: T Wisman, Before you got the important stuff Arkansas football
Speaker 2: razor Backs got to get done this year.
Speaker 7: I really enjoyed watching the quarterback come and have his
Speaker 7: great game against Arkansas State. This was the first time
Speaker 7: in Arkansas history that Arkansas State played the University of
Speaker 7: Arkansas in Little Rocket, the famous nineteen forty nine War
Speaker 7: Memorial Stadium. It was a fantastic day. He looks pretty good.
Speaker 7: We play Ole Miss this weekend, so that'll be the
Speaker 7: first SEC game and that's where the rubber hits the road.
Speaker 2: Stay with us, Mulplindex. Savanna's coming up after this. Let's
Speaker 2: get the bullush freew on things. Danas of Wetbush two
Speaker 2: seventy price target outperform writing on Chance of Apple. Dan
Speaker 2: John just now for more dank and monic.
Speaker 4: Great to be here.
Speaker 2: You've sat here so many times in September alongside us
Speaker 2: and talked about the upgrade super cycle.
Speaker 5: It hasn't happened. Is it has happened? With this? And
Speaker 5: why no?
Speaker 9: I mean, I look this in those supercycles we've talked about,
Speaker 9: I mean they definitely were disappointing, right, I mean the
Speaker 9: reality I think this is one where street expectations going
Speaker 9: in are I think pretty soft relative to the next year.
Speaker 9: So when you think about on scale one ten, this
Speaker 9: is probably eight point five. Well, do you have over
Speaker 9: three hundred million that haven't upgrade their iPhone? Is there
Speaker 9: going to be a huge catalyst here? Are they a
Speaker 9: wi just pin up to men, especially in China?
Speaker 4: But the reality.
Speaker 9: Is the elephant in the room, it's AI and I
Speaker 9: think that's when you talk about what's going to truly
Speaker 9: drive the stock.
Speaker 4: That's it. We've talked about it. That right now is
Speaker 4: front and.
Speaker 6: Center before we get there, and we'll find out more
Speaker 6: I'm assuming later this year at the WWDC. There is
Speaker 6: this signal from the fact that they didn't raise prices
Speaker 6: on the phone significantly except for the highest end phone.
Speaker 6: Does this suggest that they're going to take it more
Speaker 6: on margin, especially given how much their costs are increasing
Speaker 6: pretty much across the board.
Speaker 9: Yeah, I mean some small price increased book. I think
Speaker 9: also the reality that's why Cook, you know, play nice
Speaker 9: in the sandbox with Trump, right because it's very important
Speaker 9: in terms of Indian and trying to make sure that
Speaker 9: you have some exemptions when it comes to the tariffs.
Speaker 9: But look, the reality is they cannot raise prices significant
Speaker 9: at this point because the last thing you want is
Speaker 9: churn other competitive issues. You have a phone that's definitely
Speaker 9: an improvement, but nothing that's jaw dropping. And it all
Speaker 9: leads the whole reason you own Apple. See in saal base.
Speaker 9: I mean, it's all about when they monetize the one
Speaker 9: point five billion iPhones for.
Speaker 5: Just jump in the install base.
Speaker 2: For a long time, you've seen that as a source
Speaker 2: of potential growth. It isn't about time to start seeing
Speaker 2: as a source of potential risk that you've got this
Speaker 2: massive install base that hasn't upgraded for a long long time.
Speaker 3: Done.
Speaker 2: We have to start questioning whether they have a will
Speaker 2: and whether the real risk here is they might actually
Speaker 2: go and buy a different phone from someone else.
Speaker 4: Look, we've talked about that.
Speaker 9: That's what we've been so I think, you know, strong
Speaker 9: in our view, like the clock struck midnight in terms
Speaker 9: of them needing to now goes back to AI because
Speaker 9: when you talking about monization and what keeps people in
Speaker 9: the ecosystem and what really is the golden goods for
Speaker 9: mines comes down to AI and reality is every Apple
Speaker 9: event the last few years, I feel like Michael J.
Speaker 4: Fox back to the future, you know, and.
Speaker 9: That's been a big part of the problem relative to
Speaker 9: the rest of tech when it comes embracing AI.
Speaker 1: The install based is sick of waiting.
Speaker 6: That is sort of a worry that a lot of
Speaker 6: people have in Samsung right now. And Google are out
Speaker 6: there trying to troll everybody who's been waiting for something
Speaker 6: new and saying.
Speaker 1: Ha ha, look ours fold.
Speaker 6: There's a question about, especially if they're getting a heads
Speaker 6: up or if they're getting a head start on the
Speaker 6: AI development of whether they install base starts to leave.
Speaker 1: Aren't we starting to see signs? If that doesn't that
Speaker 1: worry you.
Speaker 4: Look, I think it is.
Speaker 9: It's probably the stickiest install based out there right in
Speaker 9: terms of just when you think about Apple and customers
Speaker 9: that really don't leave. I think the worry is really
Speaker 9: around the monization, and that's why we've said, like okay,
Speaker 9: perplexity was really more to see what happened with Google
Speaker 9: once DOJ Once they had that victory.
Speaker 4: Now I think they walk down the aisle.
Speaker 9: From some sort of major partnership from a Gemini perspective,
Speaker 9: but I think this is Look, this is a critical
Speaker 9: time next six to nine months for Apple to make
Speaker 9: sure you have the AI strategy, you don't lose customers,
Speaker 9: you have an upgrade cycle that you know right now
Speaker 9: in New York City cab drivers, Barish and Apple. So
Speaker 9: I think that sets up pretty positive relative there. But
Speaker 9: it comes down to AI innovation. This is a very
Speaker 9: chance to me playing Ryder Cup bes Page and that
Speaker 9: happening inside of Apple, it has come externally.
Speaker 8: Dan, you mentioned Tim Cook playing nice in the sandbox
Speaker 8: with Donald Trump. Should he go on the state visit
Speaker 8: next week when Trump's bringing a bunch of tech executives
Speaker 8: like Jensen Wang.
Speaker 9: I think you get on that plane because I mean,
Speaker 9: you know, you know it so well. It's like he
Speaker 9: obviously got called out in terms of Middle East. To
Speaker 9: the right, you have really the new Trust their advisor
Speaker 9: wearing the black leather jack of Jens And I mean
Speaker 9: Cook needs to make sure he's not on the outside
Speaker 9: looking in. And that's why that you know, what we
Speaker 9: saw last week in DC was also an important moment.
Speaker 8: Too when you say that he's playing nice in the
Speaker 8: sandbox when Lisa was asking about pricing of iPhones. He's
Speaker 8: constrained you think by the White House and audience are one.
Speaker 8: You think he's constrained by where the consumers are right
Speaker 8: now and has to meet them where they are.
Speaker 4: Yeah, I think it's a combo.
Speaker 9: But I think the reality too is that raising prices
Speaker 9: definitely is not the right thing to do from a
Speaker 9: consumer perspective.
Speaker 4: But when it comes to.
Speaker 9: Tariffs, that's also where like the India, they're essentially doing
Speaker 9: a dance around right when it comes to India and
Speaker 9: China tariff exemptions. Obviously, he's significantly investing in the US,
Speaker 9: but we've talked about like it's a fairy tale that
Speaker 9: they'll ever make iPhone pros.
Speaker 4: In the US.
Speaker 9: Again, it goes back to like if you like three
Speaker 9: thousand dollars iPhones, we should make them New Jersey. So
Speaker 9: I just think that that's going to continue to be
Speaker 9: something that's in Asia despite off to a lot of
Speaker 9: the investments from an AI perspective.
Speaker 4: In the US.
Speaker 2: You're a published guy. Let's just finish on already pick
Speaker 2: nine this morning, Oracle and twenty five. But the dollar
Speaker 2: plus a market camp could be added to this company,
Speaker 2: like thround this morning, we're high up by thirty two
Speaker 2: percent in the pre market.
Speaker 5: What do you make of this month?
Speaker 4: I mean it's a.
Speaker 9: Drop the mic from Saffra and Ellison, right, because the
Speaker 9: reality is that it shows this AI revolution, you know,
Speaker 9: as much of the haters and the skeptic you could. No, no, no, no,
Speaker 9: I'm saying, dude, you're dude, you're a big supporter. I'm saying,
Speaker 9: like but Li said, I think, but I think the
Speaker 9: reality is that many they are is skeptical of maybe like.
Speaker 4: Some of the growth.
Speaker 9: You look at these numbers, that arr number, that that's
Speaker 9: a drop to mic and I think with that sho
Speaker 9: the rest of tech, the rest of a That's what.
Speaker 4: We continue to say.
Speaker 9: It's ten fifteen and the AI party was nine pm,
Speaker 9: and that party goes to four am.
Speaker 2: It's an outfit worthy of the SNCK move. It's going
Speaker 2: to see it. Thanks, Do I appreciate it, sir. I've
Speaker 2: got a distance to play, Beth Page, you never know
Speaker 2: more of.
Speaker 4: A short game. I don't have. I don't have Pharaoh's
Speaker 4: long long.
Speaker 2: I wish I had that kind of distant exactly like
Speaker 2: Mcarroy three fifty kind of stuff.
Speaker 9: Exactly book Bethpage Black that that tests the distance.
Speaker 5: I'm very pro America.
Speaker 2: That's gonna be like a few days that I'm going
Speaker 2: to be very pro Europe on this program. Oh but
Speaker 2: I's just you're gonna have to let it go, of course,
Speaker 2: give me some space.
Speaker 9: But again Europe doesn't have a guy named.
Speaker 5: Scarley stay with us.
Speaker 2: Marblinderg surveillance coming up after this. Seth competor of Mark
Speaker 2: and Stanley Seth, good.
Speaker 5: Morning, it's good to see it, great to be here.
Speaker 2: Thank you. I want to give you some time before
Speaker 2: we get into this data point to flesh out how
Speaker 2: you view the world right now. So I've been following
Speaker 2: your research and certainly you and the team consider what
Speaker 2: took place on April second and the months after that
Speaker 2: not as an event but as a process. And we've
Speaker 2: got to wait to let this play out in the
Speaker 2: coming months. Just flesh that out for us. How you're
Speaker 2: thinking about the world with regards the teriffs and a
Speaker 2: pass through to end inflation.
Speaker 10: Yeah, no, I think that's a key question. And I
Speaker 10: do get the sense talking to lots of investors around
Speaker 10: the world that people feel like we've seen seen tariffs,
Speaker 10: we've seen sort of how high they could go, we've
Speaker 10: seen the retlacement. We get it. Now let's move on
Speaker 10: and look at what's next. And I'm not sure we
Speaker 10: can quite move that quickly. Evidence we have from twenty
Speaker 10: eighteen to twenty nineteen. Evidence we have now this round
Speaker 10: is that it takes three four months before you really
Speaker 10: start to see the effect of the tariffs show through
Speaker 10: to consumer prices. The last two cbi prints, in fact,
Speaker 10: we were able to get evidence that in at least
Speaker 10: the core consumer goods components where we expect to see it,
Speaker 10: are starting to see an initial pickup. It's not crazy.
Speaker 10: It's not the inflation that we saw a few years ago,
Speaker 10: but it's moving up for sure. I think the tricky
Speaker 10: part here is going to be the tariffs were much
Speaker 10: broader than what we saw in twenty eighteen, so trade
Speaker 10: diversion is going to be harder. On the other hand,
Speaker 10: there's a lot more negotiation back and forth, So how
Speaker 10: many industries are going to be gaming absorb it for now,
Speaker 10: pass it on later? And I think that uncertainty is critical.
Speaker 10: I think we still have a lot of additional inflation
Speaker 10: from tariffs in front of us. And then what we
Speaker 10: can't forget as well is that tariffs hurt economic growth
Speaker 10: as well. In twenty eighteen, the evidence was six, seven, eight,
Speaker 10: nine months of a lag. We're just coming up on
Speaker 10: that in the fourth quarter and then into next year.
Speaker 10: Take the imports from China. Two thirds of what we
Speaker 10: import from China are either capital goods or intermedia goods
Speaker 10: that go into manufacturing in the US. So the tariffs
Speaker 10: are at tax on domestic capex and attacks on domestic manufacturing.
Speaker 10: The tax provision helped on the capex side of things
Speaker 10: to some degree. A tariff are going in the opposite direction.
Speaker 10: Where's the net? How are things going to work out?
Speaker 10: I think these are the reasons why no one should
Speaker 10: feel like they have the whole picture already clear in
Speaker 10: their head.
Speaker 6: Yeah, well, what you just describe sounds a lot like stagflation,
Speaker 6: which no one should feel too happy about. It's always
Speaker 6: kind of a disaster, at least tagflation light, as some
Speaker 6: people have been describing it as.
Speaker 1: Do you disagree with fed Shair J.
Speaker 6: Powell who said that any kind of inflationary pressure from
Speaker 6: tariff's will be a one time price adjustment, and that
Speaker 6: is the reason why this central bank seems to be
Speaker 6: placing a greater emphasis on the slow on that you're
Speaker 6: talking about, or as we saw yesterday, some of the
Speaker 6: revisions and just the labor market lack of momentum that
Speaker 6: we've seen.
Speaker 10: Well, I think as a baseline forecast and we have
Speaker 10: to make our baseline forecast. The answer to that is yeah,
Speaker 10: the most likely outcome is that teriffs will lead to
Speaker 10: a one time increase in the price level, which means
Speaker 10: that the inflationary effect, the percentage change in prices will
Speaker 10: be temporary. I think that's a really great place to
Speaker 10: start a forecast. That's where our forecast is. That's not
Speaker 10: the only game that the FED has to play. They
Speaker 10: also have to ask, well, what if we are wrong
Speaker 10: about our forecast when things turn out differently than our baseline.
Speaker 10: And in particular, the last time we saw tariffs and
Speaker 10: it was temporary, we had the biggest problem for the
Speaker 10: FED was too low inflation, not too high inflation. Here
Speaker 10: we are over four years into inflation being above the
Speaker 10: fed's target for a long time. Businesses are kind of
Speaker 10: getting used to inflation being high. Consumers might be getting
Speaker 10: used to inflation being high. They might be getting sick
Speaker 10: of it, But they also might put less effort into thinking,
Speaker 10: oh my god, do I have to go look somewhere
Speaker 10: else for an additional lower price because now everything is
Speaker 10: just more expensive. So I think there's a risk that
Speaker 10: the inflationary impulse is longer this time.
Speaker 4: Gets more embedded.
Speaker 10: And let's not forget in the services component of things,
Speaker 10: we have now labor restriction going on because of immigration.
Speaker 10: We talked about the revisions to the labor market. Job
Speaker 10: creation was less than people thought. Job creation has come
Speaker 10: down a great deal. The unemployment rate four point three percent.
Speaker 10: I'm old enough to remember when four point three percent
Speaker 10: was actually pretty good, and it's bowed unchanged. It's only
Speaker 10: up a little bit from a year ago. That to
Speaker 10: me says is that the labor supply side of things
Speaker 10: has also come down a lot. And so then the
Speaker 10: question becomes, how do the services industry, especially the ones
Speaker 10: who might find themselves constrained for labor, How does that
Speaker 10: show through in prices?
Speaker 6: So that brings us to the data that we get today,
Speaker 6: which shows that inflation really isn't as big of a
Speaker 6: concern as some people expected. When it comes to producer prices.
Speaker 6: We'll see what CPI has to say. Some people are
Speaker 6: calling for the FED to cut in a more significant
Speaker 6: way next week, maybe even fifty basis points. Do you
Speaker 6: think that if they were to do story even seventy
Speaker 6: five basis points, it's catered to that bloomberpose subscriber do
Speaker 6: you think that that would actually ignite the risk of
Speaker 6: inflation over the medium term, or do you think that
Speaker 6: would be appropriate.
Speaker 10: So I think the risk is that it would be
Speaker 10: premature to cut seventy five basis points for sure, and
Speaker 10: even fifty basis points. I don't know from my judgment
Speaker 10: that it balances the risk between slow growth and inflation.
Speaker 4: Now this is flash.
Speaker 5: I am not the chair of.
Speaker 10: The Fed is so my opinion is much less important.
Speaker 1: Yet I hear that you could be in the running.
Speaker 10: So the way I think about it is they've got
Speaker 10: a dual mandate full employment maximustainable employment, i e. How
Speaker 10: close is the unemployment rate to what they perceive to
Speaker 10: be full employment, which they've told us is four point
Speaker 10: two percent, and stable prices, which they've defined as two percent.
Speaker 4: Inflation.
Speaker 10: Inflation's above target. Inflation's rising, it's not skyrocketing, but it's
Speaker 10: going up. Tomorrow's CPI is going to be really important
Speaker 10: for the consumer goods side of things. So where is
Speaker 10: that balance of risks? I think that's really the question.
Speaker 10: What char Powell told us that Jackson Hole was he
Speaker 10: changed his mind a bit and said, you know what,
Speaker 10: now we're going to lean more on the risk of
Speaker 10: employment getting weaker and accept a little bit more risk
Speaker 10: on inflation going higher. At the prior FMC press conference,
Speaker 10: so he kind of had said, let's look at the
Speaker 10: unemployment rate. You know, you could imagine payrolls coming down
Speaker 10: a lot as long as the unemployment rate is stable.
Speaker 10: That's what full employment, maximum sustainable employment is really about.
Speaker 10: So there has been a little bit of a change
Speaker 10: in that risk adjustment. Can't There's no black and white.
Speaker 10: He's clearly wrong, He's clearly right. This is a very
Speaker 10: very difficult situation for the Fed. There two variables that
Speaker 10: they have mandates for are kind of going in opposite directions.
Speaker 10: That is the most difficult situation for a central banker.
Speaker 8: Well, he went full Waller basically at Jackson Hole. But
Speaker 8: to John's point, all morning, if they had had this
Speaker 8: information in terms of actually where the economy was, the
Speaker 8: labor market was, do you think they should have been cutting?
Speaker 8: Wouldn't they have been cutting sooner?
Speaker 10: I mean, I think there's clearly the argument that they
Speaker 10: might have been cutting sooner given where Powell is now,
Speaker 10: given his remarks at Jackson Hole, given his remarks though
Speaker 10: at the July press conference that the unemployment rate, which
Speaker 10: is saying, how is labor demand doing relative to labor supply.
Speaker 10: It's much less obvious that they're anywhere near as far
Speaker 10: behind the curve as you would infer just from a
Speaker 10: read on the non farm payrolls print. So this is
Speaker 10: an extraordinarily difficult, nuanced, tricky situation. It is the time
Speaker 10: where it's both great to be an economy because we
Speaker 10: get to go into details, and it's terrible to be
Speaker 10: an economist because nobody.
Speaker 5: Wants to hear it. Well, actually, what do they tell you?
Speaker 5: A matter a lot.
Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best
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