WEBVTT - Bloomberg Surveillance TV: February 7, 2025 0:00:02.400 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.600 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.440 --> 0:00:18.360 with Lisa Bromwitz and a Marie Hortern. Join us each 0:00:18.480 --> 0:00:21.360 day for insight from the best in markets, economics, and 0:00:21.400 --> 0:00:24.720 geopolitics from our global headquarters in New York City. We 0:00:24.760 --> 0:00:27.400 are live on Bloomberg Television weekday mornings from six to 0:00:27.480 --> 0:00:31.000 nine am Eastern. Subscribe to the podcast on Apple, Spotify 0:00:31.200 --> 0:00:33.479 or anywhere else you listen, and as always on the 0:00:33.479 --> 0:00:37.000 Bloomberg Terminal and the Bloomberg Business app. Toss and Slock 0:00:37.040 --> 0:00:39.120 of Apollo joins us now for more Toss and good monit, 0:00:39.159 --> 0:00:40.639 sir Brnie. We've got a few minutes to go over 0:00:40.680 --> 0:00:41.760 this one. What's your first take? 0:00:42.120 --> 0:00:45.040 Well, very important backdrop for this is that the framework 0:00:45.080 --> 0:00:47.840 to fit users for evaluating whether they should be hiking 0:00:47.840 --> 0:00:49.919 ourcording is the tailor rule, and the tailor rule has 0:00:49.920 --> 0:00:52.160 on the right hand side two variables, name you, unemployment 0:00:52.360 --> 0:00:55.240 and inflation. And both these components name you wage, inflation 0:00:55.440 --> 0:00:58.320 and unemployment are actually pointing in a direction at least 0:00:58.520 --> 0:01:00.720 of the fifth thing on hold. Obviously, this is not 0:01:00.840 --> 0:01:02.920 enough for them to consider begin to hiking. 0:01:03.000 --> 0:01:04.240 But at the end of the day. 0:01:04.200 --> 0:01:06.640 The tailwinds to growth continues were very strong. We have 0:01:06.640 --> 0:01:09.280 an AI and data center boom, we have strong defense spending, 0:01:09.480 --> 0:01:11.840 we have strong tailwinds also from the chipsack the Inflation 0:01:11.840 --> 0:01:14.680 Production Act, and we also still have relatively itervated stark 0:01:14.680 --> 0:01:16.800 price on whole prizes, all things that are supporting the 0:01:16.880 --> 0:01:19.440 US consumer. And even before we then know what Trump 0:01:19.480 --> 0:01:22.080 will do and what he announced on the tax policy yesterday, 0:01:22.120 --> 0:01:25.039 if we do get lower taxes on Social Security, on 0:01:25.120 --> 0:01:27.400 over time, on tips, other things, this will also be 0:01:27.480 --> 0:01:29.720 a tailwind to the outlook. So it's not clear at 0:01:29.720 --> 0:01:32.280 all that the fit is done, and for now I 0:01:32.319 --> 0:01:33.840 think it will be that they will be keeping them 0:01:33.880 --> 0:01:36.119 on hold, but the door is still open to hikes. 0:01:36.160 --> 0:01:39.679 Coming to this recent communication certainly suggests they'll be on hold. 0:01:39.840 --> 0:01:42.600 Implied in their routlook still and their communication as well 0:01:42.720 --> 0:01:44.880 is ad bias to reduce interest rates. When you say 0:01:45.080 --> 0:01:47.640 there is a chance to hike, I understand from what 0:01:47.640 --> 0:01:49.480 we've heard from a lot of people on this program 0:01:49.520 --> 0:01:52.120 the bar to cut has got higher, but it's the 0:01:52.160 --> 0:01:54.480 bar to hike a whole lot higher. Just how low 0:01:54.560 --> 0:01:54.920 is that bar? 0:01:55.080 --> 0:01:57.640 But think about it. Since the election, we have certainly 0:01:57.640 --> 0:02:00.440 seen animal spirits increase quite significantly. If you look at 0:02:00.480 --> 0:02:03.680 kapex plans from the regional fits, they have all started 0:02:03.680 --> 0:02:06.200 to reaccelerate. In the last two months, we've seen very 0:02:06.200 --> 0:02:09.400 strong improvements in a number of sentiment indicators, all pointing 0:02:09.440 --> 0:02:11.799 towards that there is still a chance that now that 0:02:11.919 --> 0:02:14.440 may be in the business see time, particular the feeling 0:02:14.480 --> 0:02:16.520 that well, maybe we should begin to hire more, maybe 0:02:16.560 --> 0:02:18.800 we should begin to spend more in terms of capex. 0:02:19.040 --> 0:02:21.160 So it is still true where we sit today. 0:02:21.240 --> 0:02:23.520 The buyer is high because the expectation is that inflation 0:02:23.560 --> 0:02:26.280 will continue to come down. But inflation today is still 0:02:26.720 --> 0:02:29.400 roughly at around three percent, so we're not near the target. 0:02:29.440 --> 0:02:30.720 And the trend in the last few months on a 0:02:30.760 --> 0:02:32.000 year a year basis has been up. 0:02:32.120 --> 0:02:32.880 So if you take. 0:02:32.720 --> 0:02:35.519 Both inflation and the label market, and particularly on imployment 0:02:35.560 --> 0:02:38.040 rate falling and also wage growth as high as four 0:02:38.080 --> 0:02:40.840 point one on verhr eunings, those are very important indicators 0:02:40.880 --> 0:02:42.360 for the fit when they think about what they want 0:02:42.400 --> 0:02:42.639 to do. 0:02:42.760 --> 0:02:45.720 A lot of independent indicators for wage growth don't show 0:02:45.760 --> 0:02:47.600 that same kind of heat. And as we heard from 0:02:47.639 --> 0:02:49.440 my Collins. Some of this has to do with just 0:02:49.480 --> 0:02:52.600 the hours work coming down, and when you do the multiplication, 0:02:53.080 --> 0:02:55.040 that's what ends up happening, is that you see that 0:02:55.120 --> 0:02:57.919 kind of wage growth. I'm just wondering, are you seeing 0:02:58.000 --> 0:03:01.360 other signs of inflation pick back up other than eggs 0:03:01.639 --> 0:03:04.520 that really could be sustainable in an economy that otherwise 0:03:04.520 --> 0:03:09.320 seems increasingly concerned about disinflationary de growth impacts. 0:03:09.440 --> 0:03:11.280 So some of the indicators that have come in again 0:03:11.360 --> 0:03:14.399 since the election is M services prices paked have really 0:03:14.480 --> 0:03:17.760 jumped higher. They also see NFIB planning to raise average 0:03:17.800 --> 0:03:20.640 selling prices have also gone higher, and the home based data, 0:03:20.800 --> 0:03:22.959 which is much higher frequency for the label market, is 0:03:23.000 --> 0:03:25.600 also looking a lot harder. So there are various indicators 0:03:25.639 --> 0:03:28.440 that certainly suggest that it's not clear that this narrative 0:03:28.480 --> 0:03:31.160 is that we are in a territory where monetary. 0:03:30.760 --> 0:03:31.920 Policy is very restrictive. 0:03:32.000 --> 0:03:34.760 If monetary policy was so restrictive, why is there unplanner 0:03:34.840 --> 0:03:35.440 rate going down? 0:03:35.760 --> 0:03:37.120 The on planiner rate should be going up. 0:03:37.400 --> 0:03:39.680 So in that sense, there's a lot of conversations around still, 0:03:39.800 --> 0:03:41.440 is it really the case that we are in restrictive 0:03:41.480 --> 0:03:44.600 turrets or in particular again with policies potitionally coming not 0:03:44.640 --> 0:03:48.080 only on turiffs, but also position coming on restrictions of immigration, 0:03:48.360 --> 0:03:50.720 and also polices potentially coming in the last few days 0:03:50.800 --> 0:03:52.160 on tailwinds to fiscal policy. 0:03:52.280 --> 0:03:53.120 If this is. 0:03:53.080 --> 0:03:55.240 Actually true, that the Fed could hike rate and that 0:03:55.360 --> 0:03:58.080 policy is not restrictive in any way, does it make 0:03:58.120 --> 0:04:01.280 sense to you that stocks would fall if benchmark rates 0:04:01.320 --> 0:04:03.680 stay the same or the idea the prospect of FED 0:04:03.760 --> 0:04:05.720 rate cuts later this year is taken off the table. 0:04:05.800 --> 0:04:07.960 Well, the main reason why stocks are falling, in my 0:04:08.080 --> 0:04:10.839 view is that forty percent of the index is the 0:04:10.880 --> 0:04:13.400 top ten stocks that are really the Magnificent seven, and 0:04:13.440 --> 0:04:15.280 they have such a big weight, and they are so 0:04:15.360 --> 0:04:17.640 sensitive in the risk parity models to what interest rates do. 0:04:18.040 --> 0:04:20.400 So if rates on out a bit higher and higher 0:04:20.400 --> 0:04:23.360 for longer, then of course the Magnificent seven do tend 0:04:23.360 --> 0:04:25.760 to train lower. So I think a very important answer 0:04:25.800 --> 0:04:28.279 to your question is that the Magnificent seven and the 0:04:28.279 --> 0:04:30.599 tech companies make up such a big share of the index. 0:04:30.880 --> 0:04:33.279 So that's why we have seen some broadening out away 0:04:33.279 --> 0:04:36.000 from them. But the difference in performance between the tech 0:04:36.040 --> 0:04:38.839 stocks and the S and P four ninety three continues 0:04:38.880 --> 0:04:39.600 to be very important. 0:04:39.680 --> 0:04:42.799 Courson, you're talking about these tailwinds potentially from the policy 0:04:42.839 --> 0:04:44.920 in Washington, DC. But how much you think Trump is 0:04:44.960 --> 0:04:46.919 willing to expand the deficit. 0:04:48.600 --> 0:04:52.080 Well, the Committee for Responsible Federal Budget scored what came 0:04:52.120 --> 0:04:55.520 out yesterday and found that it would increase spending by 0:04:55.720 --> 0:04:58.279 five to eleven trillion early the next decade. So in 0:04:58.320 --> 0:05:01.280 some sense, it all depends on exactly what comes through, 0:05:01.320 --> 0:05:03.120 and we will all over the next six months have 0:05:03.240 --> 0:05:06.240 a lot of budget discussions, including culminating with the dead 0:05:06.279 --> 0:05:09.000 ceiling in June. So let's see where it all goes 0:05:09.000 --> 0:05:11.839 in terms of what the ultimate fiscal impulse will be. 0:05:12.320 --> 0:05:14.560 But it's clear that at least what came out yesterday 0:05:14.800 --> 0:05:17.560 did not point in the direction of physical console edition, 0:05:17.720 --> 0:05:20.839 but pointed in aggregate in the direction of tilwinst grows. 0:05:20.920 --> 0:05:22.520 Let's talk about where we are right now if you 0:05:22.560 --> 0:05:24.679 are just joining us. Twelve minutes ago, the jobs report 0:05:24.760 --> 0:05:27.279 came in with a downside surprise on the headline number 0:05:27.480 --> 0:05:29.800 one forty three against an estimate of one to seventy 0:05:29.800 --> 0:05:32.360 five on non farm pay rolls, but an upside surprise 0:05:32.440 --> 0:05:35.040 on average ALI earnings month over month, coming in at 0:05:35.120 --> 0:05:38.440 zero point five percent. The estimate zero point three, unemployment 0:05:38.480 --> 0:05:41.359 dropping back to four percent from four point one. The 0:05:41.480 --> 0:05:44.120 estimate was also four point one percent, so that unemployment 0:05:44.160 --> 0:05:46.760 scare of the summer is over, dead and buried. The 0:05:46.800 --> 0:05:49.359 Federal Reserve, of course, was a little bit nervous about that, 0:05:49.520 --> 0:05:51.719 and delivered one hundred basis points of rate cuts across 0:05:51.720 --> 0:05:54.040 a number of meetings to close out last year. Now 0:05:54.040 --> 0:05:56.919 we're firmly on pause. We'll were talking a lot about 0:05:56.920 --> 0:06:00.360 the revisions for twenty twenty four. The average month gain 0:06:00.400 --> 0:06:03.880 has been revised to one sixty six from one eighty six, 0:06:03.920 --> 0:06:05.599 and I think there were some economists that we're looking 0:06:05.600 --> 0:06:07.920 for something a lot weaker than that, which. 0:06:07.720 --> 0:06:10.000 Is the reason why people are looking at this and saying, 0:06:10.040 --> 0:06:12.520 wait a second, we were expecting last year to have 0:06:12.600 --> 0:06:15.040 even less strength, and actually. 0:06:14.640 --> 0:06:15.599 It was pretty strong. 0:06:16.480 --> 0:06:19.480 It just goes to undermine the fear that we had 0:06:19.480 --> 0:06:22.280 at the end of last year that caused those rate 0:06:22.360 --> 0:06:25.280 cuts by the Federal Reserve and raises questions, is this 0:06:25.400 --> 0:06:28.800 really a market that's so susceptible to cracks forming if 0:06:28.839 --> 0:06:31.159 there is a policy that hangs out there that creates 0:06:31.160 --> 0:06:32.200 a good deal of uncertainty. 0:06:32.279 --> 0:06:34.680 Jeff Rosenberger Blank roc joins US Now for more, Jeff, 0:06:34.720 --> 0:06:37.040 you've had about thirteen minutes to poll river these numbers. 0:06:37.240 --> 0:06:38.440 What's your big tank, Sir. 0:06:39.960 --> 0:06:40.440 Jonathan. 0:06:40.520 --> 0:06:43.839 I think the big take here is January is a 0:06:43.880 --> 0:06:46.359 difficult month. There's a lot of moving parts. This is 0:06:46.360 --> 0:06:48.960 a mixed report. I think the conclusion remains the same. 0:06:49.240 --> 0:06:51.359 There's a very strong labor market. It's not going to 0:06:51.440 --> 0:06:54.480 change the FED outlook. But probably the most interesting thing 0:06:54.560 --> 0:06:56.600 is the last thing that you said that maybe what 0:06:56.640 --> 0:06:59.400 the market is keyed on, which is then will benchmark 0:06:59.440 --> 0:07:04.720 revisions the market having expected a lot bigger validation of 0:07:04.760 --> 0:07:09.120 the story that the labor market is overstated in terms 0:07:09.120 --> 0:07:12.520 of payrolls, and the overstatement was not as overstated as 0:07:12.560 --> 0:07:15.840 people thought, and so maybe that's pushing up a little 0:07:15.840 --> 0:07:16.960 bit on the rate reaction. 0:07:17.240 --> 0:07:19.120 But overall it's a mixed report. 0:07:20.120 --> 0:07:22.400 H is Mike Collins and you guys highlighted you know 0:07:22.400 --> 0:07:25.160 that's probably flattered by the reduction in the work week, 0:07:25.400 --> 0:07:28.800 the unemployment rate tacking down. That's on the strong side, 0:07:28.840 --> 0:07:31.440 and the payroll headline is a little bit disappointing, especially 0:07:31.440 --> 0:07:36.040 given the seasonal expectation that that would give it a 0:07:36.160 --> 0:07:39.760 seasonal boost. Overall, you know, I think you talked about 0:07:39.760 --> 0:07:42.360 in the earlier session about the asymmetry to the FED. 0:07:42.440 --> 0:07:45.280 It's going to take a very very strong report and 0:07:45.400 --> 0:07:48.520 unlikely to come out of the labor report, but really 0:07:48.520 --> 0:07:52.320 an inflation report to push the FED off of the 0:07:52.360 --> 0:07:56.640 cutting expectations, whereas a weakening side, the FED is going 0:07:56.680 --> 0:07:59.160 to be very quick to cut. I don't think this 0:07:59.280 --> 0:08:03.120 changes the out look. We're still on pause here well 0:08:03.120 --> 0:08:05.600 through the first half of the year, and a lot 0:08:05.640 --> 0:08:07.640 more data is going to be necessary for the FED 0:08:08.240 --> 0:08:12.080 to accelerate their pace of cutting. Is they were very 0:08:12.080 --> 0:08:16.080 clear in highlighting in the FMC they're in no hurry 0:08:16.120 --> 0:08:16.560 to cut. 0:08:16.720 --> 0:08:19.440 Jeff, you talk about the asymmetry and the fedce reaction 0:08:19.560 --> 0:08:22.560 function and their propensity to cut rather than hike if 0:08:22.560 --> 0:08:24.800 there is a weakening rather than some sort of boon. 0:08:25.440 --> 0:08:27.960 Is there an asymmetry and investors that needs to be 0:08:28.040 --> 0:08:31.320 rethought that people really believed that this was an economy 0:08:31.360 --> 0:08:34.480 that was starting to show weakness, which justified some of 0:08:34.520 --> 0:08:36.080 the rate cuts that we saw at the end of 0:08:36.160 --> 0:08:39.640 last year, that maybe that didn't really exist, maybe that 0:08:39.720 --> 0:08:43.120 we actually had a much stronger labor market than people 0:08:43.160 --> 0:08:45.880 had expected. And this is a market that is more 0:08:45.920 --> 0:08:49.280 susceptible to overheating than some people gave it credence over 0:08:49.320 --> 0:08:50.280 the past few weeks. 0:08:51.720 --> 0:08:52.960 Yeah, that's the change. 0:08:53.000 --> 0:08:54.960 You know, we had the fear on the labor market 0:08:55.360 --> 0:09:00.000 late summerfall last year. That's been replaced by a debate 0:09:00.160 --> 0:09:03.240 you started to get into it earlier around Really are 0:09:03.240 --> 0:09:06.800 we that type given how strong these labor markets are, 0:09:06.840 --> 0:09:08.720 and maybe the FED doesn't have to move. 0:09:08.600 --> 0:09:10.520 As far and maybe neutrals a lot. 0:09:10.400 --> 0:09:13.199 Higher than we thought it was because of the performance, 0:09:13.480 --> 0:09:17.839 the strength of the labor markets, the strength in the economy, 0:09:17.960 --> 0:09:22.760 and the halting progress that we're making on disinflation. That's 0:09:23.080 --> 0:09:26.600 kind of the summation of the change that has really 0:09:26.640 --> 0:09:29.440 pushed us away from the FED is going to push 0:09:29.480 --> 0:09:32.440 us into recession. The big increases in interest rates much 0:09:32.480 --> 0:09:35.719 more towards what I keep saying on this program. You know, 0:09:35.800 --> 0:09:38.439 the Fed's ignoring the role of financial conditions. 0:09:38.480 --> 0:09:40.199 An incredible wealth. 0:09:39.920 --> 0:09:43.720 Creation coming out of that mag seven AI wealth creation, 0:09:44.080 --> 0:09:49.439 wealth effect that is leading to much looser financial conditions 0:09:49.640 --> 0:09:52.880 than you would expect given the interest rates structure. And 0:09:52.920 --> 0:09:56.000 that's really I think the issue here is that financial 0:09:56.000 --> 0:10:00.760 conditions haven't been transmitting into the real li economy as 0:10:00.880 --> 0:10:04.320 tight of policy as the rate piece and the FED 0:10:04.400 --> 0:10:07.960 and comparisons to the tailor rule and interest rates are 0:10:07.960 --> 0:10:10.679 just missing the boat here that in a modern economy, 0:10:10.720 --> 0:10:15.120 really the post GFC economy, it's financial conditions through which 0:10:15.360 --> 0:10:18.559 monetary policy transmits, not so much the interest rate. 0:10:18.600 --> 0:10:20.360 We're much less interest rates sensitive. 0:10:20.520 --> 0:10:24.040 We're much more confidence in spending sensitive, and that's driven 0:10:24.040 --> 0:10:25.080 by financial conditions. 0:10:25.200 --> 0:10:27.320 So, Jeff, all of that said, when you put it together, 0:10:27.360 --> 0:10:29.480 would you fade the rally that we've seen over the 0:10:29.520 --> 0:10:31.760 past four weeks and the ten year treasure yield? 0:10:33.559 --> 0:10:35.760 Well, you know, it's interesting you talk about the ten 0:10:35.840 --> 0:10:39.160 year treasury yield rally and here we're talking about kind 0:10:39.160 --> 0:10:42.040 of before FED and FED policy. And obviously there's a 0:10:42.080 --> 0:10:45.520 disconnect here between talking about the rates on the short end, 0:10:45.559 --> 0:10:48.440 what the FED is going to control, what the markets 0:10:48.440 --> 0:10:50.400 are going to react to with respect to the FED, 0:10:50.800 --> 0:10:53.120 and what's going on on the long end, and what's 0:10:53.120 --> 0:10:54.559 going on on the long end is going to be 0:10:54.640 --> 0:10:59.559 much more affected by things like term premium, inflation uncertainty 0:10:59.559 --> 0:11:01.680 and inflation risk premium and. 0:11:01.640 --> 0:11:03.360 The fiscal policy outlook. 0:11:03.440 --> 0:11:06.000 So I think that we've gotten to a level of 0:11:06.160 --> 0:11:10.800 term premium that is normalized part way. You've gotten a 0:11:10.840 --> 0:11:13.720 lot better in terms of the term premium, and that's 0:11:13.880 --> 0:11:17.199 raised the attractiveness in terms of the ten year relative 0:11:17.240 --> 0:11:20.040 to the two year. I think that fading it is 0:11:20.080 --> 0:11:22.960 not really the outlook right here. I think what you're 0:11:23.000 --> 0:11:26.440 going to be looking for is the debate around the 0:11:26.480 --> 0:11:29.280 next policy. You know a lot of focus on trade 0:11:29.280 --> 0:11:32.600 and tariffs. We're going to turn that focus into taxes 0:11:32.600 --> 0:11:34.840 and fiscal and that's going to weigh a lot on 0:11:35.120 --> 0:11:37.400 where that ten year and that term premium settles. 0:11:37.400 --> 0:11:39.160 And that's how you down around a points at question. 0:11:39.200 --> 0:11:42.520 Jeff Rosenbo Flank CROWK, Jeffer Frecid. It's a thank you 0:11:42.600 --> 0:11:45.320 very much. Following the Pairoster port about twenty minutes ago, 0:11:45.400 --> 0:11:47.640 down Sun surprise on the headline's number, but a much 0:11:47.679 --> 0:12:01.520 helter that expected white Print to tack the latest standings 0:12:01.520 --> 0:12:04.880 from Amazon, delivering bets unexpected earnings but giving disappointed guidance 0:12:04.880 --> 0:12:07.560 for the current quarter. The CEO Anti Jasse warning growth 0:12:07.559 --> 0:12:11.520 will be lumpy due to hardware delays and power constraints. Schwetzer, 0:12:11.559 --> 0:12:14.440 Cjuria of Wolf Research right in the stock and perform 0:12:14.480 --> 0:12:17.040 with the two seventy price target Swetzer Joints. Now for more, 0:12:17.200 --> 0:12:19.959 Welcome to the program. First question, what we just heard 0:12:19.960 --> 0:12:22.440 from Amazon. How much of that was in line with 0:12:22.480 --> 0:12:25.120 what we'd heard from other players, the likes of Microsoft, 0:12:25.120 --> 0:12:26.040 for instance. 0:12:27.360 --> 0:12:28.520 Well, thanks for having me. 0:12:29.320 --> 0:12:34.600 I would say the parts that were similar from at Amazon, 0:12:34.640 --> 0:12:38.400 from Andy Jase to Microsoft and Google and Meta was 0:12:38.440 --> 0:12:39.880 around Gapex and Cloud. 0:12:40.360 --> 0:12:43.200 So what we heard from Andy Jasse were two things. 0:12:43.360 --> 0:12:46.920 One is that these Gapex investments where they guided to 0:12:47.000 --> 0:12:50.160 over one hundred billion dollars in Gapex for twenty twenty five, 0:12:50.480 --> 0:12:53.960 they're leaning into what they believe there is demand for 0:12:54.160 --> 0:12:56.400 and they would not be spending this money if they 0:12:56.480 --> 0:12:59.640 did not know that there was demand coming, because you 0:13:00.080 --> 0:13:03.600 procure all these infrastructure and data centers only if there 0:13:03.640 --> 0:13:05.800 is demand, and we have heard that time and time 0:13:05.840 --> 0:13:09.400 again from Google Cloud, from Sundar as well as at Microsoft. 0:13:09.480 --> 0:13:10.680 That was part one. 0:13:11.120 --> 0:13:12.400 Two was his. 0:13:12.400 --> 0:13:15.160 Comment around and his reaction to what happened with deep 0:13:15.240 --> 0:13:18.679 Seek and there are one model and the commonality here 0:13:18.760 --> 0:13:21.640 is basically the same thing that we heard from Zuckerberg 0:13:21.920 --> 0:13:25.400 at Meta as well as Sundar at Google around if 0:13:25.520 --> 0:13:31.120 costs of training and inference go down. The intuition is 0:13:31.160 --> 0:13:34.600 that the demand for AI will likely expand. It will 0:13:34.600 --> 0:13:36.560 expand the TAM because there will be so many more 0:13:36.679 --> 0:13:42.520 uses that will be attractive around applications to drive AAI compute, 0:13:42.559 --> 0:13:46.240 and against that, all these companies are leaning into gap 0:13:46.320 --> 0:13:47.480 expend TATA. 0:13:47.559 --> 0:13:51.240 So many analysts after these earnings came out pointed out 0:13:51.280 --> 0:13:53.240 time and again, this is still a bihemoth. 0:13:53.400 --> 0:13:54.800 They're going to do very well. 0:13:55.040 --> 0:13:57.680 We don't understand why people are punishing them. And yet 0:13:57.760 --> 0:14:00.240 four out of six of the magnificent seven that have 0:14:00.320 --> 0:14:03.480 reported so far have been meeted with a really disappointing 0:14:03.520 --> 0:14:07.160 response in markets. How much do you think that ultimately 0:14:07.200 --> 0:14:10.920 this is investors saying we are worried about valuations and 0:14:10.960 --> 0:14:14.360 we're not going to extend things further period, even though 0:14:14.400 --> 0:14:17.080 there is still that same promise of cloud computing. 0:14:18.520 --> 0:14:20.080 I think it is more of that. I mean, if 0:14:20.080 --> 0:14:23.440 we look at valuations now, all the AI levered names 0:14:23.480 --> 0:14:26.160 have done so well over the past two years, we're 0:14:26.440 --> 0:14:31.360 very limited upside for multiples in Meta or in Google 0:14:31.440 --> 0:14:35.040 given that they also have the search overhang, or even Amazon, 0:14:35.800 --> 0:14:39.160 of the megacap names that we cover. I think that 0:14:39.280 --> 0:14:43.160 Amazon has the best valuation on a growth adjusted basis, 0:14:43.400 --> 0:14:46.920 but it is more of that against the fundamentals. I 0:14:46.920 --> 0:14:50.680 think that there's a common belief that AI demand and 0:14:50.760 --> 0:14:53.840 AI is going nowhere, but given where the multiples are, 0:14:54.000 --> 0:14:57.120 perhaps you would have to see greater upward revisions on 0:14:57.240 --> 0:14:59.920 earnings before they get more credit on the share price. 0:15:00.320 --> 0:15:02.360 Just to sort of underscore this point, Schwudda, do you 0:15:02.360 --> 0:15:04.840 think that this is more an issue of just simply 0:15:04.880 --> 0:15:07.800 people generate about valuations and maybe even the flow of 0:15:07.880 --> 0:15:11.160 money due to other considerations, and less about deep seek 0:15:11.400 --> 0:15:13.680 and a feeling that you really can do it with less. 0:15:15.560 --> 0:15:16.120 I think so. 0:15:16.160 --> 0:15:19.400 I think that the knee jerk reaction with deep Seek 0:15:19.440 --> 0:15:23.160 and our one model was that this is negative for 0:15:23.240 --> 0:15:27.200 the megagap names, at least with an Internet. I'm going 0:15:27.280 --> 0:15:29.800 to refrain myself from talking about the impact on Nvidio, 0:15:29.880 --> 0:15:33.640 but for the megacaps within our coverage. But as more 0:15:33.840 --> 0:15:37.320 commentary came out from all the CEOs, it is becoming 0:15:37.360 --> 0:15:40.960 increasingly clear that perhaps there is demand that is more 0:15:40.960 --> 0:15:43.640 to come, and all these companies are looking at our 0:15:43.680 --> 0:15:46.240 one model under a microscope and will figure out a 0:15:46.280 --> 0:15:49.080 way to lower costs. So I think that is established 0:15:49.080 --> 0:15:52.400 that costs will likely come down for training and for inference, 0:15:52.560 --> 0:15:54.760 and against that there will be demand. I guess the 0:15:54.840 --> 0:15:57.440 question is we now need to seek accelerated back to 0:15:57.560 --> 0:16:01.000 returns on these investments. And until we see that, estimates 0:16:01.040 --> 0:16:03.160 like you won't go up, and until then he may 0:16:03.160 --> 0:16:04.800 not get full credit swet. 0:16:04.520 --> 0:16:06.160 To appreciate it. It's going to catch up with you, 0:16:06.280 --> 0:16:08.160 Schwerder Cojuri there will for research. 0:16:08.240 --> 0:16:08.720 Thank you. 0:16:19.240 --> 0:16:21.600 The Treasury Secretary skill best and making the case for 0:16:21.760 --> 0:16:24.880 passing President Trump's tax bill and making the twenty seventeen 0:16:24.920 --> 0:16:28.240 tax counts permanent. Terry Haynes of Pangaea writing, should the 0:16:28.240 --> 0:16:30.800 tax bill go to plan, it lightly convinces markets to 0:16:30.800 --> 0:16:35.000 fuel US economic exceptionalism for longer and with more fervor. Terry, John, 0:16:35.040 --> 0:16:37.080 just now for more Terry, Welcome to the program, buddy. 0:16:37.080 --> 0:16:38.760 It's going to see you as always. We caught up 0:16:38.760 --> 0:16:40.800 with Kim Wallace a twenty two V research about an 0:16:40.800 --> 0:16:42.880 hour ago actually, who made the case that he'd be 0:16:42.920 --> 0:16:46.160 surprised to see a tax bill pass before December and 0:16:46.200 --> 0:16:48.560 this might become a twenty twenty sixth story. Are you 0:16:48.600 --> 0:16:50.240 on the same timeline. 0:16:50.360 --> 0:16:53.000 No, not at all, John, and Good morning to everybody, 0:16:53.800 --> 0:16:56.240 not at all, because what they've got to do is 0:16:56.280 --> 0:16:59.080 they've got to pass this thing in the first calendar year. 0:16:59.360 --> 0:17:02.160 They know that I've got the tax bill at eighty 0:17:02.160 --> 0:17:05.040 percent likely to happen. The reason why is you've got 0:17:05.359 --> 0:17:09.080 Congress that knows it needs a signature accomplishment, and you've 0:17:09.080 --> 0:17:12.840 got a president that wants things. Look what you'll hear 0:17:12.960 --> 0:17:17.040 from Washington tax boffins now is all is all process 0:17:17.119 --> 0:17:20.960 related and kind of third level stuff. But best will 0:17:20.960 --> 0:17:23.800 give you the clue here. What they want to do 0:17:23.880 --> 0:17:27.840 is preserve the United States economic exceptionalism in the markets 0:17:28.000 --> 0:17:31.359 absolutely for as long as possible. They need a tax 0:17:31.400 --> 0:17:35.159 built for geopolitics, to keep America strong. They need a 0:17:35.200 --> 0:17:39.240 strong economic policy to buoy the domestic economy and to 0:17:39.240 --> 0:17:42.680 make America strong abroad. All that stuff. And by the way, 0:17:42.680 --> 0:17:44.680 they've got to get rid of a world where debt 0:17:44.760 --> 0:17:48.840 service is the biggest expenditure, so because that imperils all 0:17:48.880 --> 0:17:51.920 of the stuff that I just mentioned. Yeah, and you've 0:17:51.920 --> 0:17:54.720 got a president that's interested in doing big things. This 0:17:54.760 --> 0:17:56.800 is a time for big things. This isn't a time 0:17:56.840 --> 0:17:57.480 for small ball. 0:17:57.760 --> 0:17:59.720 So is this a time for one big bill or two. 0:18:00.040 --> 0:18:02.080 Sorry it is in my newshe of Washington. But I 0:18:02.119 --> 0:18:04.760 think it does matter because this is going to be 0:18:04.960 --> 0:18:07.239 incredibly hard one or two bills to make sure that 0:18:07.280 --> 0:18:11.120 this Republican Congress signs off on it, given terry how 0:18:11.280 --> 0:18:12.679 slim their majority is. 0:18:13.600 --> 0:18:15.760 Well, it matters some memory. Sure, I'm not going to 0:18:15.800 --> 0:18:17.960 say to the process doesn't matter at all. Of course 0:18:18.000 --> 0:18:21.440 it matters some. What I am suggesting, though, is that 0:18:22.119 --> 0:18:25.080 you shouldn't be diverted. No one should be diverted by 0:18:25.400 --> 0:18:29.760 process as if it's the main thing, and one bill 0:18:29.800 --> 0:18:33.000 to bill they get this thing done. You might recall 0:18:33.040 --> 0:18:38.800 back in twenty seventeen the Congress faft around with doing 0:18:38.840 --> 0:18:41.000 healthcare for the first four months of the year, and 0:18:41.760 --> 0:18:45.160 that only switched relatively late into the tax bill. That's 0:18:45.160 --> 0:18:48.919 not going to happen this year. They're all about economy, economy, economy. 0:18:49.280 --> 0:18:51.919 But what I would suggest is that anything the answer 0:18:51.960 --> 0:18:55.200 to the process question is, anything that helps achieve those 0:18:55.200 --> 0:18:58.600 big goals that I just mentioned, is what the process 0:18:58.640 --> 0:19:03.000 is going to end up being. Beyond that, though it's minimal. 0:19:03.119 --> 0:19:04.920 You know, the people that are in favor of one 0:19:04.960 --> 0:19:07.800 big bill, by and large are people who are afraid 0:19:07.840 --> 0:19:11.240 to cross Trump. But if what ends up happening is 0:19:11.280 --> 0:19:14.679 that two bills provide a quicker start to all this, 0:19:15.480 --> 0:19:16.880 then he's going to be for that too. 0:19:16.920 --> 0:19:20.480 And he said, so, Terry, the President has talked about 0:19:20.480 --> 0:19:23.560 a lot of policies, tax policies he would like to see. 0:19:23.880 --> 0:19:26.760 Yesterday we got carrot interest loophole added to the list, 0:19:26.800 --> 0:19:29.639