00:00:02 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg Surveillance Podcast. Catch us live weekdays at seven am Eastern on Apple CarPlay or Android Auto with the Bloomberg Business app. Listen on demand wherever you get your podcasts, or watch us live on YouTube. 00:00:27 Speaker 2: We start strong constant Hunter with us with Ei you and the chief economist Paul just saved me with the worst head lines. My head is spinning. I'm using ask b Ai im Bloomberg and I can't keep up. Do you feel that way? Oh? 00:00:42 Speaker 3: Yeah, every day and if you layer on what's happening in the Gulf with the Middle East, which is a big reason why we saw this pullback last month and a potential reason why the you know, the July CPI may not be as favorable. You know, you wake up every morning and there's there's something new. 00:01:01 Speaker 4: So let's just walk through this CPI data. Here, it looks like it's energy really impacted. 00:01:06 Speaker 1: Here. 00:01:06 Speaker 4: What's your takeaway here? We had arguably elevated higher inflation last month, energy impacted kind of a little bit reversal here this month. 00:01:17 Speaker 3: It seems like yep, and that's great, but when we look forward, it really depends upon is the straight of horror movies going to be open or not right? And if we look internally within Iran, right, a lot of the actions that have been taken have really reversed some of that anti government sentiment we saw at the turn of the year. So now there is more support amongst the people of Iran for being hardliners against the US, and it just doesn't bode well for a settling of that situation. 00:01:48 Speaker 2: This deflationary tendency in one report four minutes ago, can you extrapolate that globally as you do at EIU and say that we're misjudging the inflation and there could be a dampening of prosperity, a dampening a phenomenal GDP that drives inflation lower. 00:02:06 Speaker 3: So the way I would look at this report is figuring out what part of it is going to be forward looking, what part of it is signal for what is coming ahead. And if we look down at some of the commodities where prices are softening, so we look at new vehicles and assuming I'm reading this right, new vehicles are flat. You see used cars and trucks down zero point two percent on the month year every year down one point eight. You see apparel falling, you see medical care commodities falling. So when we look at things like apparel, when we look at things like vehicles, what we're seeing is softening demand. And so we'll get more information later this week about retail sales. 00:02:48 Speaker 5: But if we just. 00:02:49 Speaker 3: Consider globally the impact of higher energy prices, of course, coming back to your question, it dampens demand, it subtracts from demand, and for other things in the economy. 00:02:59 Speaker 2: Paul, here's a war she headline at ten o'clock. This is a Paul Sweeney headline. Job creation has kept pace with the workforce. Yeah, I mean that's what you were talking about earlier. 00:03:09 Speaker 4: Yeah, it's interesting. I mean some reading some of the prepared to marks from Kevin Warsh, you know, really resolute about getting inflation down. But at the end of the day, the geopolitics are out of his control and out of the FEDG control. And we see that whip salt in global energy prices, which are now in the upswing yet again with WTA crude oil over eighty dollars a barreling. I mean, there's not much you can do sitting at the fun Reserve about. 00:03:31 Speaker 3: That and of course, while we had relief last month on gas prices are still looking at up over twenty five percent year over year. And we know that people attached what we call salient prices, things that they buy frequently, even if it's not the largest part of their consumption basket, they overweight it in their estimates of future inflation. So what's happening with gas prices definitely matters for inflation expectations, which matters for the FED. I mean, that's something Worse spoke about yesterday, is that when inflation experts are anchored, it's much the FED has to do much less when inflation rears its head. When inflation expectations are unanchored, they have to do more. 00:04:10 Speaker 2: Well, let me get to said, I get to go to IBM here on some really important perspective. One final question, I want to go to your wheelhouse. Do you frame that if Worsh does X, Y or z, that the governors and presidents have the ability to rebel against him, like what we saw at the Bank of England years ago. 00:04:30 Speaker 3: I think that the governors and presidents are going to do what they think is best for monetary policy, and if that works out, to use your word rebellion. Then that's how the cookie crumbles. I do think that they are all committed to central bank independence and to fulfilling their congressionally obliged mandate. 00:04:50 Speaker 2: God, she nailed that. She didn't even have to read that off the card. Constant under think you think thank you with ei you. Roberts shift been publishes on IBM. I don't know how he does this, he says, first of all, buckle up. Oh, he makes real clear that this is not just an IBM thing. He says, it's too early to write off IBM despite poor second quarter. That's his reaction. He says, quote will be an interesting day as the sky is falling. Theme builds that in technology. We continue on the state of the American economy. Francis Donald joins his chief economist RBC Capital Markets. You've had all of eight minutes, Francis, to digest the CPI report. Is it a one off disinflationary tendency or do you detect a trend? 00:05:45 Speaker 1: Well? 00:05:45 Speaker 6: Facetiously, when I saw the core CPI come in flat, I thought, Oh, Kevin Worrish is the most successful fedhair ever. He's done it in a matter of weeks. He's solved for the infliction challenge in play, except that to your point, what we're seeing this month is an entirely the energy drag explaining the headline decline, and there's enough going on in core CPI to tell us that these are probably some volatile components like motor vehicle insurance and wireless telephones THO have dragged on core CPI underneath the surface. I am still concerned, And firstly, I don't know that we should be saying inflation is totally solved when core inflation in America is still at two point six percent. We are over five years of inflation above target, and we still have some pretty serious issues in the areas that matter most to consumers, like food which is up three percent and still likely to accelerate ahead, and an extremely tight labor market that reminds me of the good old fashioned demand led inflation, which is still in the system as well. 00:06:48 Speaker 7: So I think two things can be true. 00:06:49 Speaker 6: We can celebrate that we've had some reprieve here this month in many areas of the report. This is good news for Chair warshs he heads into testimony, but it is too early to take our eye off the ball. 00:07:01 Speaker 4: Francis would I get thrown out of the Federal Reserve if I walked in and said, you know what, in today's world, order two and a half percent core CPI, that's fine. I mean in a world where there's globalization is going by the highway here and it's all you know, every man for himself, costs are going to be higher. That's just the way it is what happens. 00:07:22 Speaker 6: Then would you get thrown out, No, but you'd probably be relegated to the basement with a few other colleagues who share the view, and you'd have to be really quiet about it. I suspect that the way we have to think about inflation now is really comes down to this idea of what is supply let inflation and what is demand let inflation. And the San Francisco Fed actually breaks this out, and what they find right now is that it's about half supply given, and that's everything from AI to tariffs to the strait of horn moose coming through and created blockages. 00:07:53 Speaker 7: But half of it is demand led. 00:07:55 Speaker 6: And this is the area that the Federal Reserve can control and control. So while we continue to focus on these big structural trends that are meaningful to price levels and price growth. I think this Federal Reserve is really going to struggle more with the old fashioned types of inflation. And that's because Tom, I you've highlighted many times this morning. Nominal growth is very strong in America. The labor market is extraordinarily tight. There is a massive infrastructure build coming out. It is the Gilded Age two point zero, and you have an exceptionally wealthy top one percent consumer. Those are the types of things that drive demand lead inflation. So the FED can be excused and all central banks globally can be excused for wanting to look through supply lead inflation that maybe bigs US above two percent, but they have to stay focused on demand side. And that's where my concern in the second half of the year is much more so than are we seeing energy coming up or down in. 00:08:54 Speaker 5: A month to month? 00:08:56 Speaker 4: So from it, I'm looking at the work function here, still looking for almost two rate hikes this year. Does that seem reasonable to you? 00:09:07 Speaker 6: We have the FED on hold, and of course it's natural to say, okay, well what does this number mean for the Fed? But I look at this number now from a different lens, which is, what does this inflation mean for the consumer and tell us about the consumer, because at the end of the day, what will matter for most businesses, for anyone picking stocks, for those who are trying to serve, is what is this telling us about the consumer. It's telling us that the consumer is not struggling under the same gasoline prices that they were last month. It's telling us there are certain items that they'll get some reprieve on, but it's still telling us that prices are too high for most consumers. And when you combine the CPI number with the fact that we no longer have tax refunds, that we have seen savings eroded. This is a consumer that may have had some reprieve now, but if we see another price shock in the second half of the year, whether energy prices rise again, whether food prices rise, or a reprieve, I don't believe this is a consumer that can withstand that, and you'll see pricing powers eroded. 00:10:07 Speaker 2: Francis, one one final question I think just to get us, you know, through the year and on into twos. I haven't said this yet twenty twenty seven. Are you ready for that? I mean, Francis, I look at all the uncertainties, all the different threads and narratives off off your desk. Is there a confidence to be in the markets given the economic confusion? 00:10:34 Speaker 6: It's not too early for twenty twenty seven. We just had a meeting of when we were going to put out our twenty twenty seven outlook. It's July, and we have to contribute forecasts for twenty twenty seven. And when we look into twenty twenty seven, what we see is it is still really hard to bet against the American economy, and that is because of the structural support coming from non residential builds, that's infrastructure. You still have a wealthy top consumer, and there's a lot of government money inside. There's productivity growth that is helping the American economy stay at or above two percent growth for the next twelve. 00:11:09 Speaker 7: To eighteen months. 00:11:10 Speaker 6: And as we head into twenty twenty seven, then I think what will be the biggest challenge for markets to digest is that you're going to get what I'm calling fortuitous math, which is base effects are going to bring inflation in the second quarter down next year into as low as one point three percent. Core inflation will not be that low, it'll be in the mid to high twos, but we're going to have to digest some pretty serious base effects. But if you combine those two stories together, as I continue to say, it's real hard to bet against the US economy. 00:11:37 Speaker 2: Pansis people are slowing down on I eighty right now across America. Do you know how much our listeners hate base effects? They go to the grocery store and the base effect is, when did I pay seven dollars for oranges? They used to be three? 00:11:52 Speaker 6: Exactly, am your prices are up thirty percent in five years. Consumers care way less about year over years. They don't care about what fed worsh is going to do. They care about the real economy. And that's what numbers liked this morning. CPI tell us, They tell us there's some short term reprieve, but prices are too high and consumers, the mass consumer is still struggling under the weight of higher prices than the cost of living. 00:12:17 Speaker 2: Francis, thank you so much. Francis Donald, RBC. It's the way we roll, folks. Welcome across the nation. Constance Hunter with us from EIU and then Francis Donald from RBC. We've done, you know, really pretty much everything we can an hour and fifteen minutes away from from Chairman Warsh with us. It was we went to Europe earlier with Isabelle Matteosi logos. Let's do it again and get a different perspective. The conversation so important on this huge day. Maria at Manning joins US head of US equity strategy State Street here on a stock market reaction just the earning season that State Street sets up. Maria, I mean it's just got to be price to perfection and a buoyancy of earnings and revenue growth. 00:13:09 Speaker 8: Yeah, hello, of thanks for having me. I mean, I agree for lots of sectors, for lots of companies. As a market, pricing has been tough. I'll particularly worry about European equities where we really haven't seen a lot of earnings growth but a lot of price appreciation. So definitely price pop perfection. You asked me a little bit more optimistic as usual. I mean tech sector tends to provide majority of earnings growth and we see very little sign up that's slowing. 00:13:35 Speaker 4: So again, we got a lot of data points this morning from the big US global banks here. Boy, business seems pretty darn good. What do you make of it? 00:13:47 Speaker 8: Yeah, I mean bank earnings. I mean things, they usually come out first, and they usually come out like come out swinging. I mean the numbers are very substantial, very strong earnings. I mean, I for banks, I mean, the thing really focus on is the quality of earnings. So I'd like to look at what proportion of earnings come from interest and non interest income. And I mean we're beginning to. 00:14:09 Speaker 7: Detect quite war in science. 00:14:11 Speaker 8: I mean, yes, of course, financial market and in financial markets are booming, and banks make a lot of money in a non interesting income. I mean, in theory, markets should not really reprise based on that, if you really reprise based on underlying kind of corporate profitability interesting how I like lending demand and all that. So that's maybe, I mean, potentially one kind of weaker point. Well we've seen so far. I mean, obviously we were looking to see more more more bank reports. But that's something I'm watching out, the quality of earnings. 00:14:42 Speaker 4: We saw some inflation data today, Maria, that suggests that, you know, the markets are kind of reacting. Maybe the I'm looking at the work function the I guess the expectation for two ring cuts is now back down the closer to one. I'm sorry, great hike to one maybe so far this year. How does that impact kind of how you think about just equities in general. 00:15:03 Speaker 8: I mean yeah, I mean, like the numbers came out, I mean, city numbers came out fairly weak. I mean we expected weaker numbers, maybe not as weak as as we got, but kind of looking at transcen inflation, kind of our suspicion was that some signs of weakness. We haven't seen kind of a lot of transmission into core when oil price was coming coming up, so it was fairly insulated. So that has been to be honest, a little bit of a concern for us that companies were not able to pass higher input costs to to. 00:15:38 Speaker 7: To to their end consumers. 00:15:41 Speaker 8: So I mean we're somewhat concerned about like consumer stalks. So that's kind of where where weaknesses. I think your previous guest was talking about this kind of one percent a total one percent have a lot of money, what about the bottom ninety nine percent? So that's where. 00:15:55 Speaker 4: The stresses are. 00:15:56 Speaker 8: So I think this kind of divergence that we've seen in equities, our companies with strong margins from pers doing a lot better than the one was out. 00:16:04 Speaker 2: Thank you so much. Marie vent Many to sort of visit the States treatment stay with us. More from Bloomberg Surveillance coming up after this. 00:16:19 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us Live weekday afternoons from seven to ten am Eastern Listen on Applecarplay and Android Otto with the Bloomberg Business app, or watch us live on YouTube. 00:16:32 Speaker 2: Dan Tobin joins us at City Brain. Does Jane Frazier call you up and say, what's a dollar going to do? 00:16:39 Speaker 5: You know, it's actually been kind of quiet the past year despite all the hype about the collapse of the dollar, and you nailed the next time. 00:16:47 Speaker 2: You and Hollenhorse nailed this. Yeah, he had a higher rate regime. You had a strong dollar regime. 00:16:53 Speaker 5: Now what Yeah, Now, now that everybody's come on board to our side of things, we actually think that view might be getting a little bit crowded. It might be time to actually be thinking about a more neutral dollar outlook from here after the appreciation that we've gotten, and I think today reinforces the reason for that, which is that we've got a lot priced in for the Fed. 00:17:11 Speaker 7: They're probably not going to deliver on it. 00:17:13 Speaker 5: This year unless we get some real you know, escalation again in the conflict. And so if the FED kind of stays where they are, we're going to have to take some of that hawkish premium amount that might see the dollar bump. Well you see a little bit of a bump, but we're seeing that right now. We don't really think we're going to get a major dollar decline from that. But ultimately it is hard for the dollar to keep rallying if the FED doesn't actually deliver those hikes this year. 00:17:36 Speaker 4: So, speaking for a friend who is going to be in Europe in October, I got the am I going to get euro parody again? Or what's the realistic call for the euro? Because we had one twenty down to one fourteen? Here where are we going? 00:17:47 Speaker 2: Yeah? 00:17:48 Speaker 5: Sadly, no, you're not going to get that opportunity for this summer. Yeah, it's been You're probably going to have a better trip to Japan if you're going to go anywhere. 00:17:56 Speaker 2: Yeah, there you go. 00:17:57 Speaker 4: That's where the credit card statement service. 00:17:59 Speaker 5: Yes, so now unfortunately not you know, part of that is just that in order to get and move to powery, you really need to see the ECB and the FED diverging. That is the ECB is going to be cutting, the Fed's going to be hiking. While we have some cuts, are economists expects some cuts from the FED and some hikes from the ECB For FX, we're basically keeping them both neutral. We assume the ECB is not going to do anything this year. We assume that fed's not going to do anything this year, and if that's right, we're probably not going to get any big moves now from here. 00:18:24 Speaker 4: So all right, so we think about you mentioned the en. I mean, when we were all I was kind of on almost a one sixty five watch there for a while. Here we're sitting at once just under one sixty two to the end. What's the Bank of Japan think in these days? 00:18:38 Speaker 5: Well, I'm sure they're wondering, you know, how they can get this currency a bit stronger without necessarily destabilizing the economy and hiking too much. The reality is at this point the main issue for Japan and the end is fiscal not just rates. And so even if the Bank of Japan were to hike a little bit more than is currently expected, it's not going to be a game changer. We need to see the fiscal pressure ease in Japan JGB markets to stabilize. That's and then the rotation of the jgb's that's what will get you in appreciation. We're all looking for it, but the timing is uncertain and it might be longer than we want. 00:19:11 Speaker 2: Dan Tobin with the City Group, we continue here and what the litmus paper of the global system the dollar tells us? Alexis Christopherson a bit and Rich Hill and real estate is well. A couple of the worthies coming up later in the hour. The inter Jess Metton will be with us. Solid schedule, solid guest of the day. So, Dan, what I love is when when they send in research and they give a chart just for me, I mean, I tirap, I get Misseda. Sure. So it's d x Y the blended traditional Dollar index, fifty four percent euro whatever it is. China's not in it, EM's not in it. And Dan, you say, everybody's looking at the short termism and you go back to ana trend and the bottom line is A. It's lovely, b it's well contained. When we go down one log star and a deviation on DXY, which is where we are right now, why do we bounce up stronger dollar. 00:20:06 Speaker 5: At the end of the day, it comes down to relative growth. The US is still the world's growth engine. That has not changed. 00:20:14 Speaker 2: Money flows to US. It comes down the flow. This sounds like Bob City one on one from ages ago. Money comes in, flows up and up, goes down. 00:20:23 Speaker 5: Where does your money get treated the best? The US and from a big picture perspective, remains the place. 00:20:27 Speaker 2: I mean, it's like ready, folks from two thousand and eight, one ish grimmer, but one, two, three, four times, Paul, we've come back dollar weakness, OMG, the world's coming to an end. Boom. We get a Dan Tobin left Dan. 00:20:42 Speaker 4: What do you see value out there in the currency market? 00:20:45 Speaker 5: You know? I think right now one of the more interesting places is actually very small country some more like New Zealand, where there's been a lot of negative expectations, a lot of migration, a lot of kiwis left their own country, and you're starting to see people come back. Can often be assigned that things are starting to improve more tactically. We're looking at places like Brazil, great carry. Yes, there's some uncertainty on the election later on this year, but with real rates where they are, it's just so attractive. 00:21:08 Speaker 2: Paul so polite, he goes, you know what is your best day, you know what's your single best idea. 00:21:13 Speaker 5: Right now, we're short Ausy against Brazil, so we like the real against the Australian dollar Brazil, so it takes out they have very similar commodities. 00:21:23 Speaker 2: In the World Cup trade. 00:21:25 Speaker 5: Well, well maybe losers in the World Cup and a lot of carries, so you can earn a lot while sitting in that trade. You reduce your exposure to the SMP because both Ossie and Brazil moved similarly to the SMP. They move similarity to the dollar, they move similar to commodity price changes. So you hedge out a ton of risk and you're just picking up the carry and if it goes nowhere, earning a nice little coupon while you wait for more clarity in the future. 00:21:47 Speaker 2: Runs it. 00:21:48 Speaker 4: That was beautiful trade on. 00:21:50 Speaker 2: Bill Gross has never described pace on carry that glid. That was beautiful. Dan Toban, thank you, So bring miss Frasier with you next time when you show up. Piece out of FX A City group stay with us. More from Bloomberg Surveillance coming up after this. 00:22:12 Speaker 1: You're listening to the Bloomberg Surveillance podcast Catch us live weekday afternoons from seven to ten am Eastern. Listen on Applecarplay and Android Auto with the Bloomberg Business app, or watch us live on YouTube. 00:22:25 Speaker 2: So what we're going to do is fly in the men from La and this is on Apple. Mark German flat out drives a conversation worldwide. He joins us, our chief correspondent on technology and Apple at Bloomberg News. How's Tim Cook doing? I mean the litigation and all where they're like tantrums and arguments over the last two weeks as Apple went after Sam and Open AI. 00:22:51 Speaker 7: I have to tell you they're dealing with so much right now. They have this big management transition, right Tim Cook stuffing down at the beginning of September, John Turnas dating over. They're dealing with the memory shortage, dealing with global politics, Trump, tariffs, you name it, right, But like it feels like the biggest thing they've been dealing with over the last year is actually open Ai. Tim Cook, the executive team over there, they've been beside themselves, lost four hundred people, four hundred people, and in their mind they needed to do something to stop the bleeding. 00:23:24 Speaker 2: How can they stop people from leaving in or from lawsuit. 00:23:27 Speaker 7: The lawsuits. 00:23:28 Speaker 2: Okay, but the lawsuit. Every day everybody leaves, we lose people of Bloomberg, we gain people, yes, but what's this? So what here? 00:23:35 Speaker 7: We don't lose you know, another company, right, a competitor. Ten percent of that company isn't made up of Bloomberg employees, right. It's four hundred people leaving one company for another company. And it's in Apple's history, completely unprecedented. Open Ai probably made up between five and ten percent of that company's made up with people who came from Apple. It's in Apple's view, it's it's absurd. Apple believes there was some shady behavior going on. They couldn't prove it, of course, until they caught the kid, this iPhone engineer named Chang Lu who hacked into Apple servers after he left the company and was able to pull engineering presentations and all sorts of other material. And so they were able to build a case around that. But but one thing I'll tell you is even so the lawsuit is kind of flimsy. Like you said, people transfer between companies all the time. That is commonplace. But what Apple's doing here is they created a narrative to scare their current employees, I think, uh. And if you're an Apple employee right now and you're teetering between staying at Apple and going to open a eyeppens here, mister Bloomberg walks by me says, if you don't shape up, I'm cutting off coffee. Oh that's funny. 00:24:42 Speaker 4: Paul sweety with Marker, what's the what's what's the intent here of Apple here? Is it maybe, as you suggest, maybe to scare existing employees. But if you're you don't like to be in a position where you have to do that. You want to create an environment where you want to stay Apple because it's Apple. 00:24:57 Speaker 7: Well they're okay, Well, how much time do we have? But let's unpack this. So Apple has been dealing with a lot lately. Obviously the innovation engine has slowed down. There are a lot of people who wanted to go to open aie and work on this new technology with the promise of building something revolutionary, thinking we're going to build the next iPhone. 00:25:17 Speaker 2: Right. 00:25:17 Speaker 7: The other thing you have to know is that open ai is paying three four five. 00:25:21 Speaker 2: X what Apple is paying them more money. 00:25:23 Speaker 7: They're paying them more money. 00:25:24 Speaker 2: It's likely when they go from the giants to the Dodgers. 00:25:26 Speaker 7: It's the combiny. It's the combination of Yeah, there's no salary cap in Silicon Valley, right, You're getting the combination of more money with the promise of working on something far cooler, not doing the same phone or iPad or Apple Watch. 00:25:38 Speaker 2: Kay, guys, Sonara wearing BRUNICOUC and led T shirts. I get it, Like the way you style mark is there business? I mean, are we going to get a bombshell from them this quarter like we did from IBM this morning? I don't see it. 00:25:50 Speaker 7: No, that's not going to happen. In fact, if you wanted a record high yesterday, well let's turn the conversation into Apple's future. What Apple is going to do over the next two and a half years in terms of new products has never happened before in its history. There are so much stuff coming that I am having a hard time wrapping my heat around it. There's a lot coming. You've never seen anything like this. My credit card is already. I can feel it in my pockets. 00:26:15 Speaker 5: It's shaky, it is. 00:26:16 Speaker 2: I mean, I mean, I haven't folks, I don't get tweaked nerdy on this, but I'm gonna do it with young German. I got an M three Altra at home. Okay, I have a twenty nineteen Mac Pro, which I'm using as a coffee table to put a martini on. 00:26:31 Speaker 7: I didn't know you were that cool. I mean, I know you were cool, but I didn't know you were like an free Altra. 00:26:35 Speaker 2: Qui I have an M three alter blah blah blah. I don't want to get into it because you're your conversation is more important than mine. I don't see any innovation slow down here. I got a needle, Alexis go. Would somebody go up, go up to my man bag at my desk and pull out the Neo? 00:26:53 Speaker 7: Okay, just so MRK and see incredible. My wife's got one last week. Okay, that machine is awesome. Even though they at the hundred dollars price, Sike at seven hundred dollars, you're not getting anything in that category. So yeah, that is an innovative product and she loves it. Everyone I know who has the Neo absolutely loves it. By the way, there's a new Neo coming next year. 00:27:11 Speaker 2: They hit a record high yesterday. Woe is me, Apple, Paul, You've got to be kidning. IBM's done twenty percent. 00:27:18 Speaker 7: It's ridiculous. 00:27:19 Speaker 2: These guys are rocking the free world because they're not doing all this AI stuff right right. 00:27:23 Speaker 7: I mean it's funny people say, oh, Apples the new IBM, Apple is the new Microsoft, and they mean it in a negative sense. 00:27:28 Speaker 3: No, no, no, no, no. 00:27:29 Speaker 7: Apple's future the next three years extraordinarily strong AI wearables. They're working on three AI wearables, and they're working on three AI home products. They've got stuff coming that's going to blow your mind, from smart glasses to this new smart home device. I'm pumped. And don't get me started on the iPhone Ultra of the foldable phone. I'm really excited for that. 00:27:50 Speaker 4: So you think Apple, from an investor's perspective, can shake the concern that they're kind of missing AI, they're lagging behind AI. Can they change that narrative doing? 00:28:00 Speaker 7: Have you tried the new SERIAI on the phone? 00:28:03 Speaker 9: No? 00:28:03 Speaker 7: So, the public beta came out yesterday. I've been using it since the beginning of done the developer beta. But the new Serie AI, what they've gone from on Siri is completely incompetent to competent. I'm not saying it's anywhere near as good as chat GPT, but for ninety five percent of people, the Siria in your pocket now will do absolutely what you expect, and it's it's terrific. 00:28:23 Speaker 2: Pully. Finally, finally, yeah, I don't get Siri twenty eight point seven percent per year for the last ten years. 00:28:32 Speaker 4: This company's a failing exactly. It's terrible exactly. So what's next stage for this suit here? Because this kind of goes to the heart and soul of any tech company. It's the people. They walk out the door, your assets walk out the door every day at five o'clock. 00:28:46 Speaker 7: Well, let me just say, well, in some places five o'clock. But let me tell you this. If you're an Apple employee and you read that lawsuit, you'd have to be a lunatic to not second guests going to open AI the way that Apple frames this, the way Apple talks about how their security is going to go after you if you go to open AI. I think Apple employees are going to be very scared to move between companies at this point. 00:29:09 Speaker 2: Do you have winners and losers in your head? You don't have to tell those because I understand it's rude. But if there's like seven players in AI, does Mark German. Know these two or three aren't going to make it. 00:29:21 Speaker 7: That are not going to make it, well, I'll tell you this. I guess people are listening in on this one to hear about Apple. Apple's going to make it because Apple is a hardware company at its very core, and they have the models now from Google to do cool hardware stuff. And I think that these six AI products that they're coming out with are going to do an effective job. I think they're going to sell well, and I think the integration of hardware and AI is the next step for this company of those again, Okay, so we're going to see a few next year and a few of the year after. You've got smart glasses, you've got AirPods with AI, you've got a pendant, you've got the smart Home Hub. Basically, Tom Paul, you put this smart Home command center on your desk, you put it in your kitchen, you put it wherever you walk up to it, and it's like, oh hi, Paul, right, and be able to pull up your news, your notes, your music. You'll do FaceTime on it. It's going to be a really cool device. It's a game changer. 00:30:14 Speaker 2: If you met Rebecca Ferguson. I mean a guy as cool as you like Silo Season three on It, Apple Rocket It? Right now? Are you going to be one of these people at the beginning that's an executive producer? You know? How's that whole thing going for them? 00:30:30 Speaker 7: For Apple You're talking about the home devices. 00:30:32 Speaker 2: No, I'm talking about Apple TV and Silos. Oh, the season and there's executive there's all these fancy see people, executive producers. 00:30:42 Speaker 7: It's not a money maker for them, but it is is a marketing engine, right. How many people are falling in love with these shows and they're like, I want to be part of the SCO system. So I think that people ignore that this is part of the marketing budget even though it's a money loser. But like the tight is sort of turning right Like a few years ago it felt like I don't know how much long are they going to do this? For now it's feeling like they can do this forever and they are going to turn a profit on Apple TV at some point. 00:31:05 Speaker 2: And what's so great is we have Gerard Cassidy coming up Portland, Maine, who's using an iPhone eight. It's like Nixon mar. 00:31:14 Speaker 7: Phone eight twenty seventeen. It still works. 00:31:17 Speaker 2: It still works. 00:31:17 Speaker 4: I think it still works. 00:31:20 Speaker 1: Even. 00:31:21 Speaker 2: What's more amazing is drug cassidy still works. Mark German, thank you, thank you so much. For you is in our studios. Usually I see him at the bar at the Sunset Tower in la but he's here today and that's a good thing. On Apple, Stay with us more from Bloomberg Surveillance coming up after this. 00:31:46 Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live weekday afternoons from seven to ten am Eastern Listen on Applecarplay and Android Auto with the Bloomberg Business app, or watch us live on YouTube. 00:31:58 Speaker 2: There's a whole other world there. Matt Siegel's expert at this for years at Bloomberg and then holding cord at Vennek in digital asset research, where he uses the Bloomberg terminal eachin every day because he learned. 00:32:11 Speaker 4: How to do that. 00:32:13 Speaker 2: Kirubman, the laureate is out really, you know, doing what I do, which is saying, Okay, I don't get bitcoin. Your point is you don't get bitcoin. But there's a whole nother world out there in the crypto space where you can profit as you massively outperformed Bitcoin over the last x number of quarters. 00:32:34 Speaker 9: Yeah, Tom, you know, bitcoin is the foundational crypto asset, and it's one that's obviously gaining adoption by sovereign nations long term holders who have excess electricity that they can use to either mine bitcoin or mine AI tokens. But this ecosystem is now big enough that there's always a bull market somewhere in it. 00:32:58 Speaker 2: For example. 00:32:59 Speaker 9: Well, so our actively managed ETF node has outperformed the bitcoin price by something like one hundred percentage points since inception over the last thirteen months or so, and we've been focusing on cash flowing companies. Now those companies happen to be bitcoin miners at the moment because they are flush with electricity and power contracts, and they've been repurposing some of those data centers to serve the AI market. So one of our holdings, clean Spark, is up fifteen percent today. They just signed a six billion dollar lease in Georgia to repurpose some of these bitcoin facilities to AI. So these companies have optionality, they're very cheap versus data center rates at least on our work, and those names have driven the bulk of our returns. But look, what we're trying to do is provide diversified exposure to the entire crypto value chain at a reasonable price, avoid the pitfalls like over leverage, bad corporate governance, and if you do that, the space is working. 00:34:00 Speaker 2: Oh quite exactly like actual securities research. 00:34:03 Speaker 4: Exactly, How does the growth of AI in the last four three four years impacted the crypto space? This is a super broad question, so take it anywhere you want. How's impacted the crypto space. 00:34:16 Speaker 9: At the infrastructure level, it has validated the bitcoin mining thesis, which is if you can source very low cost electricity, oftentimes renewable, you can build a head of demand. And that's kind of what bitcoin miners do. They go out in search of the lowest cost power. And now that power ecosystem is being re rated. So you know that that's been the most concrete example of how crypto and AI are intersecting. But look, they're also competitive because in the end, AI is software and crypto is software, and there if you look at the performance of the alt coins, the ethereums, the solanas, there's a long tail of millions of these all coins, which you know a lot of them don't don't have much fundamental value, and AI is competing with some of those because it's easier to spin up a software platform or a database platform. So there's cross currents. 00:35:11 Speaker 4: So is note I'm looking at it, you're holding is it effectively an AI infrastructure play. 00:35:18 Speaker 9: It's become correlated with that theme because some of our highest conviction names are up four x, five x over the last year. I don't think that will always be the case. Bitcoin is a cyclical asset. It goes through a four year cycle. There's no buyer of last resort, so it's either going down or it's going up. This is the down year Historically we would expect a year from now when we're looking back, you know, our fund may look a little bit different, partially because of performance, partially because of reallocating. 00:35:46 Speaker 2: Dumb question of the day. If there are people mining bitcoin, does that mean there'll be more bitcoin threatening price? 00:35:55 Speaker 9: Now the bitcoin algorithm is fixed. The current inflation rate is about eighty base points per year. That will be cut in half in about eighteen months, down to forty basis points a year. No matter how many miners there are, the same bitcoin is produced each day. It's just divided among those proportionate to their share of the network. 00:36:18 Speaker 4: So called all coins have unperformed this year as corporations are building their own blockchains to capture so called our settlement economics previously flowing to open source chains. What does that mean? 00:36:30 Speaker 9: Yeah, I think the biggest development and surprise since the election. Everyone was expecting this deregulatory push and some of the open source coins like the ethereums and solanas would outperform. What actually happened is that the deregulation also hit the capital markets, and the investment banks are able to underwrite equity capital formation in this sector, and native companies like Circle for example, are launching their own blockchains that are competing with these open source ones, and you know they have some more attractive characteristics if you're an enterprise user. 00:37:06 Speaker 2: How did a guy from an English degree at Harvard become tech nerd Well? Tom? 00:37:12 Speaker 9: I learned by working in financial journalism about fake news pretty early and got pretty disillusioned with this space. You know, found myself into money markets in the buyside covering tech, and you know the thing to cover was the closed source network effect companies like Google and Apple, and you know, cryptography was liberalized by the Clinton administration. They allowed cryptography to be exported to the rest of the world. That ignited a bunch of new applications. Bitcoin was one of them. But all of cryptography has the chance to take margin away from these closed networks. And I see that margin opportunity, I think there's going to be a lot of consumer welfare created. 00:37:54 Speaker 2: Thank you, Thank you. Miss Siegel's been too long head of Digitalized that's research at Vanek. 00:37:59 Speaker 1: This is the Bluemberg Surveillance podcast, available on apples, Spotify, and anywhere else you get your podcasts. Listen live each weekday seven to ten am Eastern on Bloomberg dot com, the iHeartRadio app, tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.