1 00:00:02,360 --> 00:00:06,720 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,640 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amerie Hordernt. Join us each day 4 00:00:18,720 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,919 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,000 --> 00:00:36,960 Speaker 2: Terminal and the Bloomberg Business app. We begin this out, 10 00:00:37,000 --> 00:00:39,280 Speaker 2: which starts looking to bounce back from a week full 11 00:00:39,440 --> 00:00:42,519 Speaker 2: of tech jitters. Alisha Lavina BNY Wealth Writing, expect a 12 00:00:42,600 --> 00:00:46,280 Speaker 2: summer of volatility, a midterm election year, AI backlash and 13 00:00:46,360 --> 00:00:50,360 Speaker 2: IPO supply will produce a consolidating market. Alisha joins us 14 00:00:50,400 --> 00:00:52,640 Speaker 2: now for more. Alisha Gimrnig, Good morning. Given all of 15 00:00:52,640 --> 00:00:55,000 Speaker 2: those things that long long list, what's the road the 16 00:00:55,040 --> 00:00:55,840 Speaker 2: path to ek? 17 00:00:56,280 --> 00:00:57,080 Speaker 3: So the path to. 18 00:00:57,040 --> 00:01:00,280 Speaker 4: AK is the earnings, right, It's the earnings and the 19 00:01:00,320 --> 00:01:03,480 Speaker 4: fact that it's not just focused on the AI beneficiaries, 20 00:01:03,520 --> 00:01:07,040 Speaker 4: but it's actually broadening throughout the S and P and 21 00:01:07,040 --> 00:01:09,560 Speaker 4: that's what gets you to the eight thousand. Also, you know, 22 00:01:09,600 --> 00:01:11,440 Speaker 4: the multiples are really not that high. We're back to 23 00:01:11,480 --> 00:01:15,040 Speaker 4: twenty one times forward earnings and market that's growing at 24 00:01:15,080 --> 00:01:17,960 Speaker 4: twenty three or twenty four times on the earning side. 25 00:01:17,959 --> 00:01:21,000 Speaker 4: It's pretty extraordinary. And we're still looking for seventeen percent 26 00:01:21,040 --> 00:01:25,000 Speaker 4: growth for next year. So you're following two very strong 27 00:01:25,120 --> 00:01:27,920 Speaker 4: years with a multiple that seems fine, but you're going 28 00:01:27,959 --> 00:01:30,360 Speaker 4: to get volatility. There has to be consolidation here. I mean, 29 00:01:30,400 --> 00:01:33,360 Speaker 4: some of those charts are parabolic with the memory names, 30 00:01:33,720 --> 00:01:36,160 Speaker 4: you know, like you know, that's the center of that, 31 00:01:36,520 --> 00:01:38,959 Speaker 4: and it's going to pull some of the market down 32 00:01:39,080 --> 00:01:42,360 Speaker 4: with it, just because they are the leaders right now. Right, 33 00:01:42,400 --> 00:01:45,880 Speaker 4: it's not the mag seven, the lag seven. Right. Maybe 34 00:01:45,880 --> 00:01:49,160 Speaker 4: there's a buying opportunity there, frankly, but that's what's led 35 00:01:49,200 --> 00:01:51,800 Speaker 4: the market higher. So you've got to so it's not 36 00:01:51,880 --> 00:01:54,520 Speaker 4: just tech, it's not just memories. All over the industrial space. 37 00:01:54,880 --> 00:01:57,960 Speaker 4: Healthcare is you know, is raising its head here as 38 00:01:58,000 --> 00:02:00,520 Speaker 4: an interesting sector to look at the charts likele lot better, 39 00:02:01,000 --> 00:02:04,120 Speaker 4: but those are not large enough to get your index higher. 40 00:02:04,160 --> 00:02:06,640 Speaker 4: So you know you're going to have a rotation, but 41 00:02:06,960 --> 00:02:09,919 Speaker 4: you're challenged probably on the index level for the next 42 00:02:09,960 --> 00:02:10,519 Speaker 4: few months. 43 00:02:10,600 --> 00:02:13,480 Speaker 2: Our performance on the equal Waite performance on small caps 44 00:02:13,919 --> 00:02:15,880 Speaker 2: you alluded to, it is it time to start thinking 45 00:02:15,880 --> 00:02:17,680 Speaker 2: about the hyperscatus gain, which have really. 46 00:02:17,560 --> 00:02:21,639 Speaker 4: Lacked and they look terrible on the charts. But I 47 00:02:21,720 --> 00:02:24,359 Speaker 4: think that you have to believe that the managements there 48 00:02:24,400 --> 00:02:27,160 Speaker 4: are not going to let their businesses go quietly into 49 00:02:27,200 --> 00:02:29,640 Speaker 4: that dark night, right. I mean, if you think about 50 00:02:29,639 --> 00:02:32,880 Speaker 4: some of the other companies in the hyperscaler world, where 51 00:02:32,919 --> 00:02:34,560 Speaker 4: we thought that was the end of it, it's never 52 00:02:34,600 --> 00:02:36,920 Speaker 4: going to happen, and then they revamped their businesses, and 53 00:02:36,919 --> 00:02:39,679 Speaker 4: we have to believe that the managements there are going 54 00:02:39,720 --> 00:02:42,440 Speaker 4: to do that. The headlines don't look great, charts look terrible, 55 00:02:42,680 --> 00:02:46,360 Speaker 4: but given the massive outperformance on the hardware side, I 56 00:02:46,400 --> 00:02:49,000 Speaker 4: think there's some room here for the hyperscalers. I mean, 57 00:02:49,040 --> 00:02:52,120 Speaker 4: what's happened is is the eight hundred billion dollars that 58 00:02:52,200 --> 00:02:55,560 Speaker 4: five companies are spending is funding theps of every you 59 00:02:55,560 --> 00:02:59,200 Speaker 4: know of sixty companies. So that's where the investor base 60 00:02:59,240 --> 00:03:03,959 Speaker 4: has gone, playing capital from the spenders into the recipients. 61 00:03:04,240 --> 00:03:05,959 Speaker 4: And so the question you have to ask is one, 62 00:03:06,520 --> 00:03:09,160 Speaker 4: how long can this funding go on? And to what's 63 00:03:09,200 --> 00:03:10,080 Speaker 4: the reversion trade? 64 00:03:10,120 --> 00:03:12,080 Speaker 1: Are you expecting them to cut back on cappex and 65 00:03:12,080 --> 00:03:14,040 Speaker 1: actually push back on the pricing for some of these 66 00:03:14,080 --> 00:03:15,440 Speaker 1: chip manufacturers, So the. 67 00:03:15,360 --> 00:03:17,680 Speaker 4: Market is telling them to do that. The market is 68 00:03:17,720 --> 00:03:19,440 Speaker 4: saying you're not going to get the multiple if you 69 00:03:19,520 --> 00:03:22,040 Speaker 4: keep on spending like this. Yet at the same time, 70 00:03:22,480 --> 00:03:26,000 Speaker 4: the AI beneficiaries still move higher. So there's a bit 71 00:03:26,000 --> 00:03:30,160 Speaker 4: of a schizophrenia here about what actually is the path to, 72 00:03:30,760 --> 00:03:33,400 Speaker 4: you know, sort of a peaceful place for the market. 73 00:03:34,000 --> 00:03:37,680 Speaker 4: At some point, you're not growing CAPEX one hundred percent 74 00:03:37,800 --> 00:03:41,200 Speaker 4: year over year, right, the growth rate is going to slow, 75 00:03:41,600 --> 00:03:45,080 Speaker 4: still positive, but a negative rate of change. That's where 76 00:03:45,120 --> 00:03:48,440 Speaker 4: you're going to get the negative impact on the AI beneficiaries, 77 00:03:48,920 --> 00:03:50,640 Speaker 4: and that's where you're going to start getting some movement 78 00:03:50,680 --> 00:03:52,080 Speaker 4: out of the hyperscalers. 79 00:03:52,200 --> 00:03:54,400 Speaker 1: Where is the pushback the greatest when it comes to 80 00:03:54,440 --> 00:03:56,320 Speaker 1: the financing of this. Is it just in the share 81 00:03:56,360 --> 00:03:58,480 Speaker 1: price of the hyperscalers? Where is it actually in the 82 00:03:58,480 --> 00:04:02,280 Speaker 1: recent performance of this FACEX debt and equity as well 83 00:04:02,320 --> 00:04:05,320 Speaker 1: as the potential delayed open open IPO. 84 00:04:05,400 --> 00:04:07,960 Speaker 4: So I think it's most it's really in the hyperscalers 85 00:04:08,000 --> 00:04:13,960 Speaker 4: because the question fundamentally is can the spending justify the 86 00:04:14,000 --> 00:04:16,240 Speaker 4: businesses that are going to come out of this in 87 00:04:16,279 --> 00:04:19,280 Speaker 4: the next three to four years. And so that's really 88 00:04:19,640 --> 00:04:21,719 Speaker 4: you're seeing it in the equity market. And don't forget 89 00:04:21,760 --> 00:04:24,240 Speaker 4: the business models have changed. You know, we used to 90 00:04:24,279 --> 00:04:27,920 Speaker 4: talk about the hyperscalers as bond equivalents, right, throwing off 91 00:04:28,000 --> 00:04:33,800 Speaker 4: cash stable businesses, very high margins, high free cash flow margins. 92 00:04:33,960 --> 00:04:36,280 Speaker 4: We don't have that so much anymore, right, So you've 93 00:04:36,279 --> 00:04:39,280 Speaker 4: got two or three of them, you know, actually selling debt, 94 00:04:39,600 --> 00:04:41,880 Speaker 4: having to sell debt, not just equity, but debt. That's 95 00:04:41,920 --> 00:04:44,520 Speaker 4: a very different business model. And that's what's happening on 96 00:04:44,560 --> 00:04:46,960 Speaker 4: the equity price. It's just reflecting a different business model. 97 00:04:46,960 --> 00:04:48,680 Speaker 5: Well to that point, bi Aske when we talked about 98 00:04:48,680 --> 00:04:50,880 Speaker 5: this in the last hour, the Bank of International Settlements 99 00:04:50,920 --> 00:04:54,080 Speaker 5: is warning against these threats of the circular financing. It's 100 00:04:54,120 --> 00:04:55,840 Speaker 5: not just equity, it's debt. When it comes to the 101 00:04:55,880 --> 00:04:58,159 Speaker 5: AI build out. Does that give you caution? 102 00:04:58,760 --> 00:05:03,120 Speaker 4: What gives me caution is that I see correlations everywhere, right, 103 00:05:03,200 --> 00:05:05,760 Speaker 4: So there's something of a concentrated correlation. Now on a 104 00:05:05,800 --> 00:05:08,320 Speaker 4: bull we have an a thousand price target on the SMP. 105 00:05:08,839 --> 00:05:11,599 Speaker 4: But we have to be cognizant of the risks, and 106 00:05:11,680 --> 00:05:15,520 Speaker 4: the risks are that you have more or less twenty 107 00:05:15,560 --> 00:05:18,360 Speaker 4: percent of the S and P driving the earnings of 108 00:05:18,400 --> 00:05:21,360 Speaker 4: the rest of the market funded by six companies of 109 00:05:21,400 --> 00:05:24,520 Speaker 4: the S and P, and you have a bond market 110 00:05:24,760 --> 00:05:28,480 Speaker 4: which is now reflecting AI as well because the hyperscalers 111 00:05:28,520 --> 00:05:32,000 Speaker 4: are funding themselves with debt to do this. Then if 112 00:05:32,000 --> 00:05:34,280 Speaker 4: you think of emerging markets, think of the indices right 113 00:05:34,320 --> 00:05:37,640 Speaker 4: South Korea, Taiwan, Well, fifty percent of the M index 114 00:05:37,800 --> 00:05:40,280 Speaker 4: is now AI as well. And so when you put 115 00:05:40,360 --> 00:05:43,520 Speaker 4: all together in a what we do a diversified portfolio, 116 00:05:43,760 --> 00:05:48,599 Speaker 4: you're starting to look at concentrated risk in AI across 117 00:05:48,600 --> 00:05:51,360 Speaker 4: all your asset classes, and so as an asset allocator, 118 00:05:51,400 --> 00:05:53,839 Speaker 4: that's what you really have to be focused on, like 119 00:05:53,880 --> 00:05:55,760 Speaker 4: how do you how do you hedge that risk? 120 00:05:55,880 --> 00:05:56,799 Speaker 2: How do you okay? 121 00:05:56,800 --> 00:05:59,679 Speaker 4: So we think, you know, for infrastructure and real assets 122 00:05:59,720 --> 00:06:03,320 Speaker 4: are a must in a higher inflationary world. You know, 123 00:06:03,760 --> 00:06:06,039 Speaker 4: it's not popular to say good bye Europe, but Europe 124 00:06:06,040 --> 00:06:09,440 Speaker 4: really is not the AI play and other developed markets 125 00:06:09,440 --> 00:06:11,760 Speaker 4: that are not focused on AI. So you have to 126 00:06:11,760 --> 00:06:14,599 Speaker 4: really think about, you know, how does your em exposure 127 00:06:15,080 --> 00:06:18,000 Speaker 4: pair with your US exposure. If it's all being driven 128 00:06:18,040 --> 00:06:21,880 Speaker 4: by the same factor, which is AI investment and AI beneficiary. 129 00:06:22,120 --> 00:06:23,200 Speaker 4: I mean that's the issue. 130 00:06:23,320 --> 00:06:24,080 Speaker 2: That's the big. 131 00:06:23,880 --> 00:06:27,360 Speaker 4: Issue for all of us who do us an allocation 132 00:06:27,520 --> 00:06:30,000 Speaker 4: and think about building our portfolios like withstand this. 133 00:06:30,520 --> 00:06:34,040 Speaker 2: Stay with us. More Bloomberg surveillance coming up after this. 134 00:06:43,440 --> 00:06:45,560 Speaker 2: Look at how much money is sloshing around right now? 135 00:06:45,560 --> 00:06:48,320 Speaker 2: Look to South Korea upin gets planned the AI race 136 00:06:48,320 --> 00:06:51,400 Speaker 2: announcing massive investments in chips and data centers. We make 137 00:06:51,480 --> 00:06:54,640 Speaker 2: you of PSP growth. Writing on one hand, its signals 138 00:06:54,680 --> 00:06:57,359 Speaker 2: demand is reird enough to justify the scale of investment. 139 00:06:57,480 --> 00:06:59,880 Speaker 2: The cautious read is that the cost of serving A 140 00:07:00,320 --> 00:07:02,960 Speaker 2: just keeps going up, and so does the burden of proof. 141 00:07:03,640 --> 00:07:05,760 Speaker 2: Mama cue joined us Now for more, mamma, welcome to 142 00:07:05,800 --> 00:07:08,200 Speaker 2: the program. There's two arguments there, which one would you 143 00:07:08,200 --> 00:07:11,120 Speaker 2: put more whites on At the moment, I. 144 00:07:11,000 --> 00:07:11,960 Speaker 3: Think no, good morning. 145 00:07:12,000 --> 00:07:15,760 Speaker 6: I think the overall sentiment in AI is still positive today. 146 00:07:16,200 --> 00:07:18,200 Speaker 6: But the big question, the elephant in the room is 147 00:07:18,520 --> 00:07:22,600 Speaker 6: AI capex is not only just massive, but the estimates 148 00:07:22,720 --> 00:07:24,920 Speaker 6: keep moving up and we don't know when it's going 149 00:07:24,960 --> 00:07:25,440 Speaker 6: to stop. 150 00:07:25,680 --> 00:07:27,040 Speaker 3: First, the bottleneck is. 151 00:07:26,960 --> 00:07:30,080 Speaker 6: On GPUs, and now you see with the recent pair 152 00:07:30,080 --> 00:07:32,960 Speaker 6: of investments that that bottlenecks has shifted to memory and 153 00:07:33,000 --> 00:07:34,320 Speaker 6: now we're talking about power. 154 00:07:34,800 --> 00:07:37,920 Speaker 3: So the one thing that is certain is the expenses 155 00:07:38,000 --> 00:07:38,720 Speaker 3: keep going up. 156 00:07:38,840 --> 00:07:41,360 Speaker 6: But on the demand side, we are seeing optimism and 157 00:07:41,400 --> 00:07:44,280 Speaker 6: we're seeing enterprise adoptions starting to come in, but the 158 00:07:44,320 --> 00:07:46,160 Speaker 6: timeline for that is still stretched out. 159 00:07:46,240 --> 00:07:47,320 Speaker 3: So the question in. 160 00:07:47,280 --> 00:07:50,880 Speaker 6: Everyone's mind is eventually, if this is critical infrastructure that 161 00:07:51,040 --> 00:07:53,160 Speaker 6: is going to pay off, that everyone's going. 162 00:07:52,960 --> 00:07:54,440 Speaker 3: To adopt, then it's worth it. 163 00:07:54,480 --> 00:07:59,240 Speaker 6: Otherwise your capex keeps expanding upwards and investors are going 164 00:07:59,240 --> 00:07:59,920 Speaker 6: to be inpatient. 165 00:08:00,200 --> 00:08:03,000 Speaker 1: Well, may have you noticed a shift in market sentiment 166 00:08:03,120 --> 00:08:05,520 Speaker 1: over the past couple of weeks, not the belief in 167 00:08:05,560 --> 00:08:08,720 Speaker 1: AI and the promises, but the willingness to finance some 168 00:08:08,800 --> 00:08:12,280 Speaker 1: of this as evidenced by SpaceX's IPO, or the price 169 00:08:12,280 --> 00:08:14,960 Speaker 1: did trade down and the bonds have lost value as 170 00:08:15,000 --> 00:08:18,920 Speaker 1: evidenced by open ai delaying their IPO potentially to mid 171 00:08:19,000 --> 00:08:19,680 Speaker 1: year next year. 172 00:08:20,520 --> 00:08:20,760 Speaker 3: Yeah. 173 00:08:20,800 --> 00:08:24,160 Speaker 6: Absolutely, I think the question for AI now has shifted 174 00:08:24,200 --> 00:08:28,120 Speaker 6: from technology to financing, where the question of the day 175 00:08:28,280 --> 00:08:31,400 Speaker 6: is not just on ROI, but let's assume demand does 176 00:08:31,440 --> 00:08:34,319 Speaker 6: come but who is going to finance and for how long? 177 00:08:34,559 --> 00:08:37,800 Speaker 6: And to your point on the public market side, there 178 00:08:37,880 --> 00:08:40,680 Speaker 6: was a time a few weeks back when we thought 179 00:08:40,800 --> 00:08:44,000 Speaker 6: the public equity investors cannot wait to get their hands 180 00:08:44,000 --> 00:08:47,479 Speaker 6: on the four trillion of new market cap across SpaceX, 181 00:08:47,520 --> 00:08:50,400 Speaker 6: across andthropic across open Ai and. 182 00:08:50,760 --> 00:08:53,040 Speaker 3: All those SpaceX. I think it's still trading above its 183 00:08:53,040 --> 00:08:53,840 Speaker 3: IPO price. 184 00:08:54,480 --> 00:08:57,720 Speaker 6: We're seeing that the demand is not bursting at all 185 00:08:58,120 --> 00:09:00,640 Speaker 6: out of the seams in terms of everyone just rushing 186 00:09:00,640 --> 00:09:04,559 Speaker 6: to MS in that and bondholders, I agree, bondholders are 187 00:09:04,640 --> 00:09:06,760 Speaker 6: cautious that they're demanding higher prices. 188 00:09:06,800 --> 00:09:10,959 Speaker 3: They're seeing on technology risk and years of. 189 00:09:10,920 --> 00:09:15,520 Speaker 6: Negative cash flows that is uncommon in investment grade bonds before. 190 00:09:15,760 --> 00:09:18,400 Speaker 3: So I do think you have that caution, and it's fragile, right. 191 00:09:18,480 --> 00:09:21,120 Speaker 6: You have open Ai delaying IPO needs and all of 192 00:09:21,160 --> 00:09:24,000 Speaker 6: a sudden you send shares of the whole AI trade down. 193 00:09:24,240 --> 00:09:27,560 Speaker 6: And today with the k high Inex news and Samsung news, 194 00:09:27,760 --> 00:09:29,720 Speaker 6: you think demand is back up again and the finance 195 00:09:29,800 --> 00:09:32,240 Speaker 6: markets are backups. So I think there's just a lot 196 00:09:32,240 --> 00:09:35,160 Speaker 6: of fragileness in the market, but the overall sentiment, I 197 00:09:35,160 --> 00:09:37,120 Speaker 6: think people are still pretty bullish. 198 00:09:37,120 --> 00:09:39,679 Speaker 1: As you do get some financing pushback, maybe there is 199 00:09:39,720 --> 00:09:41,680 Speaker 1: still this bullishness underneath. But as you do get some 200 00:09:41,760 --> 00:09:45,880 Speaker 1: financing pushback, how much does that advantage the Chinese AI 201 00:09:46,000 --> 00:09:49,199 Speaker 1: players over say the US ones. I'm thinking of anthropic 202 00:09:49,240 --> 00:09:51,880 Speaker 1: and open AI given the fact that some of those 203 00:09:51,920 --> 00:09:55,080 Speaker 1: models are a lot cheaper, they are being adopted by 204 00:09:55,120 --> 00:09:58,160 Speaker 1: US companies that are constrained by both capacity and price 205 00:09:58,240 --> 00:10:00,200 Speaker 1: here in the US. How much do you see is 206 00:10:00,200 --> 00:10:03,280 Speaker 1: becoming a real trend? And frankly the Chinese playbook. 207 00:10:03,360 --> 00:10:06,160 Speaker 6: I think the AA has already moved on from just 208 00:10:06,200 --> 00:10:11,600 Speaker 6: technology to national security, national competitiveness. You see that with 209 00:10:11,760 --> 00:10:15,440 Speaker 6: the ice ca Hennix news today, where Korea is starting 210 00:10:15,480 --> 00:10:18,200 Speaker 6: to take its hold on the memory side while the 211 00:10:18,360 --> 00:10:22,000 Speaker 6: US has Nvidia and the hyper scalers. And I do 212 00:10:22,040 --> 00:10:25,840 Speaker 6: think China has a lead today around the open source models, 213 00:10:25,920 --> 00:10:31,400 Speaker 6: around offering the ability to run AI models more cheaply. 214 00:10:31,559 --> 00:10:32,640 Speaker 3: So I don't think. 215 00:10:32,760 --> 00:10:34,680 Speaker 6: I think that is still shifting and the story is 216 00:10:34,679 --> 00:10:38,160 Speaker 6: still being written out right now. But every country, because 217 00:10:38,200 --> 00:10:42,439 Speaker 6: now it's not just about technology, is about national competitiveness, 218 00:10:42,559 --> 00:10:45,280 Speaker 6: is trying to find its own edge in terms of 219 00:10:45,520 --> 00:10:47,320 Speaker 6: where it can have a hold in the market in 220 00:10:47,400 --> 00:10:50,199 Speaker 6: terms of its advantage in competitiveness. 221 00:10:50,480 --> 00:10:52,559 Speaker 5: Speaking of China, there was a report over the weekend 222 00:10:52,600 --> 00:10:55,440 Speaker 5: Apple's pressing the White House for approval to get chips 223 00:10:55,440 --> 00:10:58,800 Speaker 5: from a Chinese company that is actually blacklisted. Do you 224 00:10:58,920 --> 00:11:03,600 Speaker 5: see potentially more pressure in the policy arena because of 225 00:11:03,640 --> 00:11:08,920 Speaker 5: what is going on with the chip sector, the demand issue, 226 00:11:08,960 --> 00:11:12,000 Speaker 5: But at the same time de Lisa's point, the cybersecurity 227 00:11:12,000 --> 00:11:13,840 Speaker 5: and national security issues at play. 228 00:11:14,440 --> 00:11:18,520 Speaker 6: Yeah, I think those are all intertwined again. AI has 229 00:11:18,559 --> 00:11:21,800 Speaker 6: shifted now from technology to a national issue, and I 230 00:11:21,800 --> 00:11:26,160 Speaker 6: think you will see this tug of war between the 231 00:11:26,200 --> 00:11:28,560 Speaker 6: economic side of things of the national security side. I 232 00:11:28,559 --> 00:11:32,120 Speaker 6: mean a few weeks ago we saw this conversation happening 233 00:11:32,160 --> 00:11:35,360 Speaker 6: with Nvidia, Right, should Nvidia even be supplying. 234 00:11:36,320 --> 00:11:37,040 Speaker 3: GPUs at all? 235 00:11:37,080 --> 00:11:39,440 Speaker 6: It's of China, and I don't think we have an 236 00:11:39,480 --> 00:11:42,120 Speaker 6: answer today, but I think that's going to be part 237 00:11:42,120 --> 00:11:44,760 Speaker 6: of the conversation for the next few weeks and months 238 00:11:44,760 --> 00:11:45,080 Speaker 6: to come. 239 00:11:45,360 --> 00:11:48,040 Speaker 5: There's another report about Google putting limits on Meta's use 240 00:11:48,080 --> 00:11:51,040 Speaker 5: of tim and AI models. Everyone is just trying to 241 00:11:51,040 --> 00:11:54,720 Speaker 5: get compute. There's just not enough demand. At some point, 242 00:11:54,760 --> 00:11:56,320 Speaker 5: when do you see this leveling out? 243 00:11:57,240 --> 00:12:00,600 Speaker 6: Well, we are building out the ground work right of 244 00:12:00,640 --> 00:12:04,880 Speaker 6: AI infrastructure. So I think the things that everyone's paying 245 00:12:04,920 --> 00:12:09,800 Speaker 6: attention to is AI now going to become something durable, 246 00:12:10,000 --> 00:12:12,959 Speaker 6: and I think you won't get to see that until 247 00:12:13,320 --> 00:12:15,240 Speaker 6: the costs are really coming down. There's a lot of 248 00:12:15,240 --> 00:12:18,480 Speaker 6: focus on costs in inference right now, and you have 249 00:12:18,600 --> 00:12:21,559 Speaker 6: to believe that the enterprise adoption is going to. 250 00:12:21,520 --> 00:12:24,800 Speaker 3: Come, and that is still waiting to be proven out. 251 00:12:25,280 --> 00:12:28,800 Speaker 2: Stay with us mul Bloomberg surveillance coming up after this. 252 00:12:38,200 --> 00:12:41,760 Speaker 2: USMCA facing its first test since being signed by the 253 00:12:41,760 --> 00:12:43,240 Speaker 2: President in its first term. 254 00:12:43,760 --> 00:12:47,680 Speaker 6: The USMCA is the largest, fairest, most balanced, and modern 255 00:12:47,720 --> 00:12:49,359 Speaker 6: trade agreement ever achieved. 256 00:12:49,480 --> 00:12:52,040 Speaker 5: I would rather not have the agreement, but I may 257 00:12:52,120 --> 00:12:52,560 Speaker 5: sign it. 258 00:12:52,640 --> 00:12:55,120 Speaker 3: We do better as a country. We don't have an agreement. 259 00:12:55,400 --> 00:12:57,960 Speaker 2: The US, Mexico and Canada sets a blow pass that 260 00:12:58,040 --> 00:12:59,960 Speaker 2: July first deadlines renew their trade. 261 00:13:00,280 --> 00:13:00,319 Speaker 4: No. 262 00:13:00,480 --> 00:13:04,120 Speaker 2: Christiani, the head of Latin America Investment Strategy jpm morkan 263 00:13:04,160 --> 00:13:08,120 Speaker 2: private bank, writing the base case is an extension with modifications, 264 00:13:08,280 --> 00:13:12,599 Speaker 2: but the tails are asymmetric and underappreciated by markets. No 265 00:13:12,760 --> 00:13:14,280 Speaker 2: joint to staw for more. No good morning, good to 266 00:13:14,280 --> 00:13:16,559 Speaker 2: see you, Thank you, John so refresher if we can. 267 00:13:16,679 --> 00:13:16,760 Speaker 4: So. 268 00:13:16,760 --> 00:13:20,400 Speaker 2: It wasn't after became USMCI under the president's first term, 269 00:13:20,480 --> 00:13:23,160 Speaker 2: and now he wants to redo the thing that he 270 00:13:23,280 --> 00:13:26,439 Speaker 2: came up with. The best agreement in the world makes 271 00:13:27,400 --> 00:13:28,000 Speaker 2: wants please. 272 00:13:28,120 --> 00:13:33,600 Speaker 7: Yes, So, when NATA was turned into USMSEE, instead of 273 00:13:33,679 --> 00:13:37,280 Speaker 7: a set of guidelines were put in place for periodic reviews. 274 00:13:37,320 --> 00:13:39,320 Speaker 7: We're coming to that first periodic review. 275 00:13:39,480 --> 00:13:40,439 Speaker 3: I think it's. 276 00:13:40,120 --> 00:13:44,720 Speaker 7: Next Wednesday or Thursday, July first. And what it calls 277 00:13:44,720 --> 00:13:47,280 Speaker 7: for is if there's no agreement between the three parties, 278 00:13:47,679 --> 00:13:50,560 Speaker 7: it goes to another annual review, and another annual review, 279 00:13:50,600 --> 00:13:53,040 Speaker 7: and another annual review until the agreement expires. 280 00:13:52,679 --> 00:13:53,800 Speaker 2: In two thousand and thirty six. 281 00:13:54,360 --> 00:13:58,160 Speaker 7: If there is an agreement, the whole USMSEE can get 282 00:13:58,200 --> 00:14:02,920 Speaker 7: extended up until I leave twenty twenty forty or twenty thirty. 283 00:14:02,720 --> 00:14:04,440 Speaker 2: Son other sixteen years. Yes, exactly. 284 00:14:04,920 --> 00:14:08,880 Speaker 7: So right now we're basically fased upon this check in. 285 00:14:08,960 --> 00:14:10,760 Speaker 7: I would call it more as a check in between 286 00:14:10,760 --> 00:14:13,280 Speaker 7: the three parties. Do we all agree with the same 287 00:14:13,360 --> 00:14:16,720 Speaker 7: terms that were negotiated upon six years ago, or do 288 00:14:16,760 --> 00:14:18,720 Speaker 7: we need to tweak something or do we need to 289 00:14:18,760 --> 00:14:23,120 Speaker 7: really change things and bring this review into a whole renegotiation. 290 00:14:23,240 --> 00:14:24,000 Speaker 7: That's where we stand. 291 00:14:24,040 --> 00:14:24,800 Speaker 2: What do you expecting. 292 00:14:26,120 --> 00:14:28,960 Speaker 7: The reality is that what we are anticipating is very 293 00:14:28,960 --> 00:14:32,960 Speaker 7: little modifications and that this review will basically kick the 294 00:14:33,000 --> 00:14:36,600 Speaker 7: can down the road for another annual review. There's very 295 00:14:36,640 --> 00:14:39,360 Speaker 7: little insight right now that we're having any sort of 296 00:14:39,400 --> 00:14:42,680 Speaker 7: agreement between the three parties, which means that July first 297 00:14:42,680 --> 00:14:45,040 Speaker 7: will come, we're going to have the three countries sitting 298 00:14:45,040 --> 00:14:48,280 Speaker 7: together saying we didn't reach an agreement, and this will 299 00:14:48,320 --> 00:14:50,720 Speaker 7: take us down into twenty twenty seven review and then 300 00:14:50,760 --> 00:14:51,840 Speaker 7: twenty twenty eight review. 301 00:14:51,880 --> 00:14:55,040 Speaker 5: If maybe briefly, what does every country want changed? 302 00:14:56,240 --> 00:15:00,080 Speaker 7: There's different things for US and Canada, for example. A 303 00:15:00,160 --> 00:15:02,680 Speaker 7: lot of it has to do with energy. Between Mexico 304 00:15:02,760 --> 00:15:07,520 Speaker 7: and the US. There's a lot of concerns around transshipment, 305 00:15:07,760 --> 00:15:12,120 Speaker 7: especially as Mexico brings on exports or imports from other countries, 306 00:15:12,160 --> 00:15:16,000 Speaker 7: particularly China. Assembols seeing a different fashion stamps on the 307 00:15:16,080 --> 00:15:18,320 Speaker 7: label made in Mexico and then sends to a US 308 00:15:18,920 --> 00:15:20,880 Speaker 7: that's a big thing, and the other one that. 309 00:15:20,880 --> 00:15:21,640 Speaker 2: Is very important. 310 00:15:21,720 --> 00:15:23,760 Speaker 7: So the reforms that have been taking place in Mexico 311 00:15:23,760 --> 00:15:26,240 Speaker 7: in the last couple of years have challenged to some extent, 312 00:15:26,400 --> 00:15:34,360 Speaker 7: the rules, rule of law, or investor certainty preclusions that 313 00:15:34,400 --> 00:15:36,160 Speaker 7: were included in the original USMC. 314 00:15:36,840 --> 00:15:40,480 Speaker 5: Individuals, business c suites definitely want clarity. I was with 315 00:15:40,560 --> 00:15:43,920 Speaker 5: the President Wisconsin and he was addressing farmers. They want clarity, 316 00:15:44,000 --> 00:15:46,760 Speaker 5: desperately want clarity on the issue like this, Given corn 317 00:15:46,800 --> 00:15:50,120 Speaker 5: goes to Mexico and the likes of agriculture up to Canada. 318 00:15:50,240 --> 00:15:52,240 Speaker 5: How do you see this playing out in terms of 319 00:15:52,640 --> 00:15:55,200 Speaker 5: level of clarity, in terms of is it going to 320 00:15:55,280 --> 00:15:57,440 Speaker 5: be like Liberation Day where we get whips out every 321 00:15:57,480 --> 00:15:59,880 Speaker 5: day by headlines with USMCA, or is this going to 322 00:15:59,920 --> 00:16:01,800 Speaker 5: be one of those stories that just kind of fades 323 00:16:01,840 --> 00:16:02,600 Speaker 5: into the background. 324 00:16:02,880 --> 00:16:05,360 Speaker 7: I think it's going to fade into the background when 325 00:16:05,400 --> 00:16:07,560 Speaker 7: it comes to markets, but it's not necessarily going to 326 00:16:07,600 --> 00:16:10,640 Speaker 7: fade into the background. If you're a farmer exporting to Mexico, 327 00:16:10,720 --> 00:16:13,840 Speaker 7: or if you're not a producer in Mexico sending auto 328 00:16:13,840 --> 00:16:16,240 Speaker 7: parts or cars to the US, that's definitely going to 329 00:16:16,240 --> 00:16:18,480 Speaker 7: be the case. What has happened so far and what 330 00:16:18,520 --> 00:16:20,320 Speaker 7: has happened for the last couple of years, is that 331 00:16:20,360 --> 00:16:22,560 Speaker 7: a lot of the investments that were planned out to 332 00:16:22,680 --> 00:16:25,960 Speaker 7: happen are being pulled back, are being posted, and the 333 00:16:26,080 --> 00:16:28,360 Speaker 7: risk of that happening is that right now we're running 334 00:16:28,400 --> 00:16:30,360 Speaker 7: and you guys know these really well, we have been 335 00:16:30,440 --> 00:16:33,960 Speaker 7: running in an economy that's capex driven for basically two years, 336 00:16:34,160 --> 00:16:38,000 Speaker 7: kapex that is very much dependent on all the AI boom. Well, 337 00:16:38,000 --> 00:16:40,880 Speaker 7: that AI boom is also partly dependent as well on 338 00:16:40,920 --> 00:16:44,600 Speaker 7: what happens with exports. With exports and imports. Mexico became 339 00:16:44,680 --> 00:16:48,600 Speaker 7: the largest exporter of advanced technology products to the US 340 00:16:48,600 --> 00:16:50,720 Speaker 7: in twenty twenty five, and very few people know that. 341 00:16:50,800 --> 00:16:53,400 Speaker 7: So yes, maybe it's not going to be overnight, it's 342 00:16:53,400 --> 00:16:54,800 Speaker 7: not going to be from one day to the next, 343 00:16:54,840 --> 00:16:58,680 Speaker 7: But at some point, if there is more uncertainty playing 344 00:16:58,680 --> 00:17:01,360 Speaker 7: out in terms of how easily can you bring in 345 00:17:01,400 --> 00:17:05,040 Speaker 7: Mexican exports, this could even impact the gapex boom that 346 00:17:05,080 --> 00:17:06,160 Speaker 7: we're seeing in these states. 347 00:17:06,320 --> 00:17:09,639 Speaker 1: Where in markets is this risk misspriced not necessarily on 348 00:17:09,720 --> 00:17:12,320 Speaker 1: July first, but over the next couple of weeks and months. 349 00:17:13,359 --> 00:17:17,320 Speaker 7: Industrials, mainly auto aerospace, that's where we're seeing the biggest 350 00:17:17,400 --> 00:17:20,080 Speaker 7: risks that those are the sectors that are the most 351 00:17:20,119 --> 00:17:22,480 Speaker 7: reliant and dependent on the agreement to continue. 352 00:17:22,640 --> 00:17:24,960 Speaker 2: Is that a Mexico Canada problem or a US problem 353 00:17:24,960 --> 00:17:25,399 Speaker 2: as well. 354 00:17:25,480 --> 00:17:28,960 Speaker 7: It is a US problem as well. Trade with both 355 00:17:29,000 --> 00:17:31,760 Speaker 7: Canada and Mexico represent five percent of the US GDP. 356 00:17:32,680 --> 00:17:36,359 Speaker 2: It's not little. This is the bloomberg S Events podcast, 357 00:17:36,480 --> 00:17:40,560 Speaker 2: bringing you the best in markets, economics, angiopolitics. You can 358 00:17:40,560 --> 00:17:43,320 Speaker 2: watch the show live on bloombag TV weekday mornings from 359 00:17:43,359 --> 00:17:46,640 Speaker 2: six am to nine am Eastern. Subscribe to the podcast 360 00:17:46,680 --> 00:17:50,240 Speaker 2: on Apple, Spotify, or anywhere else you listen, and as always, 361 00:17:50,240 --> 00:17:52,800 Speaker 2: on the Bloomberg Terminal and the Bloomberg Business app.