WEBVTT - ECB Holds Rates, US GDP Grows in 3Q 0:00:05.120 --> 0:00:07.119 This is the Bloomberg Surveillance Podcast. 0:00:07.160 --> 0:00:11.080 I'm Tom Keene, along with Jonathan Farrow and Lisa Abramowitz. 0:00:11.280 --> 0:00:15.760 Join us each day for insight from the best and economics, geopolitics, 0:00:15.760 --> 0:00:20.720 finance and investment. Subscribe to Bloomberg Surveillance on demand on Apple, 0:00:20.960 --> 0:00:25.400 Spotify and anywhere you get your podcasts, and always on 0:00:25.520 --> 0:00:29.880 Bloomberg dot Com, the Bloomberg Terminal, and the Bloomberg Business App. 0:00:31.640 --> 0:00:35.839 Jeremy Stretch of CIBC as he considers these headlines, not 0:00:35.960 --> 0:00:38.520 much movement in the market. I've got ero one oh 0:00:38.560 --> 0:00:42.240 five forty, Jeremy. A key question to me is simple, 0:00:42.760 --> 0:00:46.599 and that is the idea of what two percent means. 0:00:46.880 --> 0:00:50.559 These are different economies, different nations. Do you look at 0:00:50.560 --> 0:00:54.520 it as two point zero percent? Is the ECB Bundesbank 0:00:54.640 --> 0:00:58.120 hope two point two percent while the FEDS two percent 0:00:58.280 --> 0:00:59.640 is two point eight percent? 0:01:02.280 --> 0:01:05.360 Well, of course, the Eurozone is a difficult beast to manage, 0:01:05.400 --> 0:01:08.160 and I think President Leguard is very mindful of that because, 0:01:08.440 --> 0:01:11.520 as we've touched upon, there is a very different degree 0:01:11.560 --> 0:01:14.240 of performance and activity in a number of the different 0:01:14.240 --> 0:01:17.920 economies across the zone. Now, the Eurozone and ECB is 0:01:17.959 --> 0:01:20.919 aiming to get back inflation to that two percent target 0:01:20.959 --> 0:01:23.920 threshold over the medium term. I think it was notable 0:01:23.920 --> 0:01:27.520 that obviously inflation in September did fall a little fast 0:01:27.520 --> 0:01:29.160 and the ECB had been expecting. 0:01:29.480 --> 0:01:30.479 And as I say, I think. 0:01:30.840 --> 0:01:33.080 The next meeting in December will prove to be particularly 0:01:33.080 --> 0:01:35.679 instructive as we get forecasts out to twenty twenty six 0:01:36.200 --> 0:01:38.240 for the first time, but also looking at those longer 0:01:38.319 --> 0:01:41.320 run inflation expectations and if those are back towards the 0:01:41.400 --> 0:01:45.679 two percent threshold in aggregate across the whole of the zone, and. 0:01:45.560 --> 0:01:46.800 That of course is the difficulty. 0:01:47.080 --> 0:01:49.640 We will still get divergence in the individual nations, but 0:01:49.680 --> 0:01:51.960 as an aggregate measure, the ECB is going to be 0:01:52.000 --> 0:01:54.200 aiming to get back to that two percent target threshold 0:01:54.560 --> 0:01:56.360 over the course of the next two years. 0:01:56.520 --> 0:01:58.680 Jeremy, I'm going to go to a wonderful moment I 0:01:58.720 --> 0:02:02.400 had with the August and here from Leon Jean Claude Trichet, 0:02:03.080 --> 0:02:07.160 and he talked to me about transmission, the diffusement of 0:02:07.160 --> 0:02:12.720 an economy across borders. Europe doesn't have the transmission mechanisms 0:02:12.760 --> 0:02:14.119 of America, do they. 0:02:16.120 --> 0:02:19.040 Well, there is obviously one of the inadequacies of the 0:02:19.040 --> 0:02:22.440 Eurozone project is the you know, the difficulties on the 0:02:22.440 --> 0:02:25.560 fiscal side on a relative basis that the US obviously 0:02:25.600 --> 0:02:28.920 has because the US has the you know, the federal system, 0:02:28.960 --> 0:02:32.919 and we do get that disperse into federal funds across 0:02:32.919 --> 0:02:35.919 the fiscal dynamics. So we are in a situation where 0:02:36.000 --> 0:02:39.239 the plumbing, if you like, in terms of the Eurozone economy, 0:02:39.400 --> 0:02:41.840 in terms of monetary and fiscal policy is very diverse 0:02:41.880 --> 0:02:44.520 because of course fiscal dynamics, and that's still much more 0:02:44.520 --> 0:02:47.240 at the behest of national governments. But I think the 0:02:47.280 --> 0:02:49.800 other interesting dynamic to consider as we move into twenty 0:02:49.840 --> 0:02:52.720 twenty four is that the Eurozone is thinking about bringing 0:02:52.760 --> 0:02:56.680 back those fiscal thresholds that were put on or suspending 0:02:57.040 --> 0:02:59.600 during the COVID period, and that will be an interesting 0:02:59.680 --> 0:03:02.880 dynasm to add to the rinkle about fragmentation risk, and 0:03:02.919 --> 0:03:05.120 that of course is one of the big concerns that 0:03:05.120 --> 0:03:08.639 the ECB has to be mindfulwed even if prisident, Legard 0:03:08.720 --> 0:03:11.680 will try and downplay any concerns at this particular. 0:03:11.280 --> 0:03:13.799 Poet, Jeremy Stretch, thank you so much. 0:03:18.919 --> 0:03:24.800 October thirty, Apple to announce new MacBook pros I should 0:03:24.840 --> 0:03:27.760 say Lindsay Piaggs is pleased with that because as she 0:03:27.880 --> 0:03:31.120 ran her Excel spreadsheet on the American economy at burn 0:03:31.200 --> 0:03:34.120 Up or MacBook a couple days ago, Doctor piags it 0:03:34.240 --> 0:03:37.320 joins us now from Stifel as well. How hard is 0:03:37.320 --> 0:03:41.360 it to put together an Excel spreadsheet with the mysteries 0:03:41.400 --> 0:03:42.800 of this American economy. 0:03:43.720 --> 0:03:47.240 Well, it's typically difficult, but it's become increasingly difficult with 0:03:47.320 --> 0:03:49.720 all of these ancillary factors that are coming in that 0:03:49.800 --> 0:03:52.960 are virtually impossible to model. We do have a lot 0:03:53.000 --> 0:03:57.680 of international factors that are impacting the market's expectations. We 0:03:57.760 --> 0:04:01.520 do have now unprecedented fiscal variables that we're trying to 0:04:01.960 --> 0:04:04.840 account for. But I think right now the market is 0:04:05.040 --> 0:04:10.080 very much discounting that third quarter number, focusing onstead on 0:04:10.120 --> 0:04:14.240 the latest central bank decisions the BOC the ECB as 0:04:14.280 --> 0:04:17.160 a proxy for what to expect from the Fed next week, 0:04:17.480 --> 0:04:21.240 suggesting that developed central banks around the world, despite still 0:04:21.240 --> 0:04:25.760 elevated inflation, are starting to pull back in anticipation of 0:04:25.800 --> 0:04:29.279 a slower level of longer term growth. So the market 0:04:29.400 --> 0:04:33.400 very much anticipating the Fed maybe moving to the sideline 0:04:33.960 --> 0:04:36.680 for certainly a prolonged period of time, but maybe indefinitely 0:04:36.760 --> 0:04:37.400 at this point. 0:04:37.800 --> 0:04:39.839 So, lindsay, just to crystallize what you're saying, are you 0:04:39.880 --> 0:04:42.599 saying that the Fed can kind of look through what 0:04:42.640 --> 0:04:45.120 we're getting out of this blowout GDP print, or at 0:04:45.200 --> 0:04:46.720 least that's the market's expectation. 0:04:47.600 --> 0:04:49.200 No, that's the market's expectation. 0:04:49.360 --> 0:04:52.080 But remember the market has been preemptively calling an end 0:04:52.160 --> 0:04:54.359 to FED rate hikes for the past two years and 0:04:55.080 --> 0:04:58.880 wrongly pricing in rate cuts. The Fed, however, has been 0:04:59.040 --> 0:05:02.480 very clear beating drum of higher for longer, very consistent 0:05:02.520 --> 0:05:04.760 in their message, and I think when we look at 0:05:04.800 --> 0:05:07.359 some of the underlying data in the Q three report, 0:05:07.720 --> 0:05:11.479 the resilience of businesses, the resilience of the consumer, and yes, 0:05:11.640 --> 0:05:13.560 to Lisa's point, we have seen a little bit of 0:05:13.560 --> 0:05:17.799 an uptick in claims, particularly continuing claims, but broadly speaking, 0:05:17.839 --> 0:05:21.280 the labor market is still extremely tight. So the FED 0:05:21.360 --> 0:05:24.640 is looking at all of these data juxtaposed with inflation 0:05:24.680 --> 0:05:27.040 that's still too high. I think the Committee is going 0:05:27.080 --> 0:05:30.040 to have a very difficult time selling a prolonged period 0:05:30.320 --> 0:05:32.960 of a pause. I think there is still more work 0:05:33.000 --> 0:05:36.080 to be done before they reach a sufficiently restrictive level 0:05:36.400 --> 0:05:39.920 to ensure that we remain on a disinflationary trend back 0:05:39.920 --> 0:05:40.600 to two percent. 0:05:41.040 --> 0:05:43.200 Well, Linda, you're getting of what I've been wondering about. 0:05:43.279 --> 0:05:46.240 Of course, this is a very binary question, and we 0:05:46.279 --> 0:05:48.039 live in a shades of gray world. But when you 0:05:48.040 --> 0:05:50.599 think about the just raft of numbers that we got 0:05:50.640 --> 0:05:52.480 this morning, you take a look at to blow out 0:05:52.520 --> 0:05:55.080 GDP print, but then you look at initial jobless claims 0:05:55.200 --> 0:05:57.960 a little bit higher. What's the stronger signal there? Which 0:05:57.960 --> 0:05:59.320 one should we be focusing on? 0:06:00.080 --> 0:06:02.560 Oh, the consumer, certainly, And I understand that this is 0:06:02.560 --> 0:06:05.359 backward looking, but remember claims are extremely volatile, and we 0:06:05.360 --> 0:06:07.599 don't want to look at one data point, but rather 0:06:07.680 --> 0:06:11.120 the underlying trend in claims, which is still extremely low, 0:06:11.440 --> 0:06:15.320 still signaling that tight labor market or tight labor market conditions, 0:06:15.560 --> 0:06:18.279 which is going to continue to perpetuate the ability for 0:06:18.520 --> 0:06:22.640 upward pressure on wages, extending that to further purchasing power 0:06:22.640 --> 0:06:26.720 for the consumer in the marketplace, suggesting again the backbone 0:06:26.760 --> 0:06:29.960 of the economy, the underlying support of the economy, i e. 0:06:30.080 --> 0:06:32.120 The consumer remains resilient. 0:06:32.360 --> 0:06:34.440 There's been a real angst to underpinning some of the 0:06:34.480 --> 0:06:36.880 recent sell off in the bond market. The longer end 0:06:36.920 --> 0:06:38.960 that hasn't been tied to the Fed at all. It's 0:06:38.960 --> 0:06:42.880 been tied to a widening deficit and likely increasing spending. 0:06:43.320 --> 0:06:46.480 How much is the FED going to find itself increasingly 0:06:46.600 --> 0:06:49.560 at odds with fiscal spending because you talk about the 0:06:49.600 --> 0:06:52.120 need potentially for the Feds do more. How much is 0:06:52.120 --> 0:06:55.200 the strength that we're seeing in the gd preprint tied 0:06:55.279 --> 0:06:57.400 directly to that government spending. 0:06:58.080 --> 0:07:00.919 Oh? Absolutely, this is one of the problems when monetary 0:07:00.960 --> 0:07:04.320 policy and fiscal policy are moving in opposite directions, that's 0:07:04.360 --> 0:07:06.400 going to force the Fed's hand to take an even 0:07:06.560 --> 0:07:11.680 firmer position to counteract that expansion of government outlays. Now, 0:07:11.720 --> 0:07:14.640 we do know that federal stimulus has largely concluded, but 0:07:14.680 --> 0:07:17.920 there's other fiscal stimulus that's coming down the pipeline as 0:07:17.920 --> 0:07:20.160 a result of legislation that was passed over the last 0:07:20.200 --> 0:07:23.760 twelve to eighteen months, be that infrastructure spending, the IRA, 0:07:24.320 --> 0:07:27.080 the Chips Act, and other spatterings of state and local 0:07:27.120 --> 0:07:30.960 stimulus that is still being spent on constituents. So there 0:07:31.000 --> 0:07:33.680 is still a lot of purchasing power, a lot of 0:07:33.760 --> 0:07:37.120 borrowing and investment power out in the marketplace that the 0:07:37.160 --> 0:07:40.160 FED is desperately trying to drain out of the system. 0:07:40.480 --> 0:07:42.880 But again, the more that we see monetary and fiscal 0:07:42.920 --> 0:07:46.120 policy moving in opposite directions, the more that becomes a 0:07:46.160 --> 0:07:49.840 barrier for the FED to achieve its goal of price stability. 0:07:50.000 --> 0:07:51.760 Lindsay. A lot of people are writing in. 0:07:51.800 --> 0:07:54.160 They're saying that I didn't really have a right to 0:07:54.200 --> 0:07:56.520 be confused because it's core PCE. When you look at 0:07:56.560 --> 0:07:59.320 the actual inflation, yes, you're seeing growth, but it is 0:07:59.400 --> 0:08:02.880 disinflation stare you are seeing a reduced pace of growth 0:08:02.920 --> 0:08:06.520 when you strip out energy and food. How much credence 0:08:06.560 --> 0:08:08.160 do you give the idea that we got in this 0:08:08.200 --> 0:08:12.520 gdpreprint a core PCE read two point four percent. 0:08:12.640 --> 0:08:14.640 Is that the sort of number to hinge off. 0:08:15.480 --> 0:08:18.800 It's certainly encouraging, But again, when we look at some 0:08:18.880 --> 0:08:22.200 of the other data metrics, when we look at headline 0:08:22.240 --> 0:08:25.240 pc when we look at the headline CPI, we're not 0:08:25.320 --> 0:08:28.400 seeing this clear downward trend of disinflation. Now, of course, 0:08:28.520 --> 0:08:32.079 monetary policy is not based on headline price pressures. We 0:08:32.120 --> 0:08:35.160 strip out those volatile food and energy composedonents. 0:08:35.600 --> 0:08:39.160 Lindsay piigs a stiff very near her good conversation with 0:08:39.320 --> 0:08:56.400 US year Edward Mills. Hugely experienced. He is at Raymond 0:08:56.480 --> 0:09:02.040 James with far more has legit committee, an individual congresspeople's 0:09:02.120 --> 0:09:06.480 skills in Washington, particularly working with Maloney of. 0:09:07.000 --> 0:09:08.479 New York ed Mills. 0:09:08.559 --> 0:09:12.400 This new speaker the uproar that I hear, and yet 0:09:12.400 --> 0:09:15.080 your research note says he can drive to the center. 0:09:15.440 --> 0:09:19.440 How does the gentleman from Louisiana move the Republicans to 0:09:19.520 --> 0:09:20.600 a doable center. 0:09:21.880 --> 0:09:23.520 I think it's going to be a tough task. I 0:09:23.559 --> 0:09:26.160 think Tom the thing that I am most focused on 0:09:26.240 --> 0:09:29.400 with the news speaker is how quickly at the end 0:09:29.440 --> 0:09:32.720 it happens. In DC things appear impossible right up until 0:09:32.720 --> 0:09:37.319 the moment it's inevitable. So having a unified Republican caucus 0:09:37.800 --> 0:09:40.760 is not something we would have thought. But the big 0:09:40.880 --> 0:09:43.200 question in my mind is this is a speaker who 0:09:43.240 --> 0:09:46.439 has not been vetted, and as he is vetted, how 0:09:46.480 --> 0:09:47.920 does he come out of that vet? 0:09:48.480 --> 0:09:50.959 What type of narrative about his leadership? 0:09:51.280 --> 0:09:54.080 And I think what we're talking about is for him 0:09:54.120 --> 0:09:56.880 to keep that, for him to keep the seat, for 0:09:57.040 --> 0:09:58.840 him to be able to govern. 0:10:00.080 --> 0:10:00.760 Do you need to. 0:10:00.720 --> 0:10:03.400 Find the middle, because what we've seen is that the 0:10:03.440 --> 0:10:08.439 fringe does not support many legislative packages, and that's paralysis. 0:10:08.520 --> 0:10:10.320 Help me with the sequence here. 0:10:10.720 --> 0:10:15.240 Course before Kart is November seventeenth and a government shut 0:10:15.280 --> 0:10:19.760 down prior to the defense allocations you mentioned, the first 0:10:19.800 --> 0:10:24.760 task of Senate House House Senate is well war funding 0:10:24.840 --> 0:10:28.200 if you will. Is that going to be before November seventeen? 0:10:29.840 --> 0:10:32.120 I think it's kind of a toss up between the two. 0:10:32.120 --> 0:10:37.080 I think to start with the November seventeenth deadline, Tom. 0:10:36.200 --> 0:10:37.840 We're not going to have a government shut down. 0:10:37.960 --> 0:10:41.520 It looks like we are going to punt government funding 0:10:41.679 --> 0:10:45.800 either into January or maybe as far as April. But 0:10:45.920 --> 0:10:49.640 in doing that there will be the conversation about defense funding. 0:10:50.080 --> 0:10:54.800 The President has sent up to Congress a robust supplemental package, 0:10:55.240 --> 0:10:58.560 and what we're hearing is the Senate will want to 0:10:58.600 --> 0:11:02.040 have a strong, by hardistan vote on that, trying to 0:11:02.040 --> 0:11:06.960 put pressure on the House, not differentiating aid for Ukraine 0:11:07.200 --> 0:11:09.640 from Israel or Taiwan. 0:11:10.480 --> 0:11:13.240 So how do you understand the fact that Mike Johnson 0:11:13.280 --> 0:11:17.240 has made a real important issue of his cutting the deficit, 0:11:17.520 --> 0:11:20.560 and yet there are all of these requests to finance 0:11:20.600 --> 0:11:23.960 some pretty big military expenditures. How much is that going 0:11:24.000 --> 0:11:26.600 to be a sticking point that makes it uncertain whether 0:11:26.640 --> 0:11:28.680 we get this aid across. We were speaking earlier with 0:11:28.760 --> 0:11:31.160 John Lieber of Eurasia and he was saying, we're going 0:11:31.200 --> 0:11:33.600 to get it passed. Are you as confident? 0:11:34.480 --> 0:11:36.920 I am confident that will get something passed. I think 0:11:37.000 --> 0:11:40.280 that the big question is timing in the scale of. 0:11:40.240 --> 0:11:40.840 This, Lisa. 0:11:41.480 --> 0:11:44.439 When you go back to some of the other pushes 0:11:44.480 --> 0:11:47.720 to become speaker, this was probably most out in the 0:11:47.760 --> 0:11:49.520 focus during. 0:11:49.360 --> 0:11:50.800 The push for Jim Jordan. 0:11:51.360 --> 0:11:55.000 The only way some of the defense hawks within the 0:11:55.040 --> 0:11:57.840 Republican Caucus who were willing to support him and the 0:11:57.880 --> 0:12:01.320 expectation is the only reason why they're willing to sport Johnson. 0:12:01.320 --> 0:12:03.640 Was that they needed to get a guarantee on a. 0:12:03.640 --> 0:12:08.160 Robust defense bill extra defense funding in the Defense Authorization 0:12:08.240 --> 0:12:11.400 Act before the end of the year. That group is 0:12:11.559 --> 0:12:15.679 far greater than the ord needed to keep that speakership. 0:12:15.840 --> 0:12:18.160 So if he wants to keep that speakership, he's been 0:12:18.200 --> 0:12:20.760 against that Defense aid in the past, and especially voted 0:12:20.760 --> 0:12:25.240 against Ukraine aid, but the geopolitical environment's very different now 0:12:25.520 --> 0:12:29.720 in his political position is completely changed and ed. 0:12:29.800 --> 0:12:30.400 To do all that. 0:12:30.440 --> 0:12:32.640 You made the point that Johnson really needs to find 0:12:32.679 --> 0:12:35.640 the middle here. But if he doesn't, I was speaking 0:12:35.640 --> 0:12:37.720 to Henrietta Treys Yester and she made the point that 0:12:37.760 --> 0:12:41.080 the Senate is still functional. That's the saving grace because 0:12:41.280 --> 0:12:42.960 at the end of the day, the House will do 0:12:43.360 --> 0:12:45.120 what the Senate tells it to do. 0:12:45.160 --> 0:12:47.960 You agree with that logic largely. 0:12:48.000 --> 0:12:51.000 I think when you see the Senate, if they pass 0:12:51.080 --> 0:12:55.640 something with eighty ninety votes, it's not a politically tenable 0:12:55.720 --> 0:12:58.320 position not to even have a vote on that in 0:12:58.360 --> 0:13:00.559 the House. And if you were to have a vote 0:13:00.559 --> 0:13:02.960 on something that ascid with eighty or ninety of one 0:13:03.000 --> 0:13:05.840 hundred votes in the Senate, in the House is near 0:13:05.920 --> 0:13:09.160 guaranteed to have a majority go to the president's desk. 0:13:09.880 --> 0:13:12.120 And I do think Johnson has a little bit of 0:13:12.240 --> 0:13:14.880 leeway here where he doesn't have the baggage of some 0:13:14.920 --> 0:13:17.439 of the previous ones. So some of the first fights, 0:13:17.600 --> 0:13:21.400 which will be government funding and defense funding, he's not 0:13:21.440 --> 0:13:25.600 necessarily going to get blamed for the position that Republicans 0:13:25.640 --> 0:13:27.720 are in because he's new to the job. 0:13:27.880 --> 0:13:29.200 Hey, you know, Ed Mills, I look at this. 0:13:29.280 --> 0:13:31.240 I was taking ann Rey hoard in three to zero two, 0:13:31.320 --> 0:13:34.840 which is advanced Civics lessons inside the Beltleigh, and I 0:13:34.880 --> 0:13:37.640 guess every speaker has a lot of power. Is he 0:13:37.679 --> 0:13:41.400 going to blow up the leadership of the Republican Party 0:13:41.480 --> 0:13:43.640 or is he going to attach himself to, say the 0:13:43.679 --> 0:13:45.840 hockey player from Minnesota and the others. 0:13:46.480 --> 0:13:48.360 Well, I think he's going to attach himself to the 0:13:48.400 --> 0:13:51.600 majority leader. I think i'd go back to the last 0:13:51.600 --> 0:13:54.280 time we had a speaker that no one really had 0:13:54.360 --> 0:13:57.520 heard of, which was Speaker Hasser. And you have the 0:13:57.559 --> 0:14:02.840 most empowered majority leader of in decades with Tom Delay 0:14:03.200 --> 0:14:05.800 when you saw him have the press constraints and there 0:14:05.880 --> 0:14:08.920 was some booze by Virginia Fox. What I was watching 0:14:09.000 --> 0:14:12.560 is Steve Scalise, the majority leader from his state of Louisiana, 0:14:12.920 --> 0:14:16.120 was standing right behind him and told him exactly what 0:14:16.160 --> 0:14:18.960 he said. He said, next question, let's talk about policy. 0:14:19.120 --> 0:14:22.040 Then Mike Johnson said, next question. So he is a 0:14:22.240 --> 0:14:24.920 lockstep with the current majority. 0:14:26.120 --> 0:14:27.840 And that is the Edmills perspectives. 0:14:27.840 --> 0:14:30.720 It's so valuable with Raymond James, Edmills, thank you so much. 0:14:35.400 --> 0:14:39.280 Meta shares not diverging from the rest of the complex, 0:14:39.280 --> 0:14:43.280 shares falling after the company warned a quote uncertain revenue 0:14:43.320 --> 0:14:44.280 outlook for next year. 0:14:44.800 --> 0:14:46.800 This was the dominant narrative. 0:14:46.480 --> 0:14:49.920 Even though the tech giant beat expectations on third quarter revenue. 0:14:50.240 --> 0:14:53.040 All of this dashing hopes for a long term recovery 0:14:53.040 --> 0:14:56.840 in the company's advertising business. It's spending, though aggressively in 0:14:56.920 --> 0:15:01.440 other areas and artificial intelligence and virtual reality. It raises 0:15:01.480 --> 0:15:04.160 this question, you know, what are people hinging onto just 0:15:04.160 --> 0:15:07.000 this hope of uncertainty or expectation of uncertainty that we 0:15:07.000 --> 0:15:08.680 all know just Instagram? 0:15:08.760 --> 0:15:11.640 You know, it's just Instagram. It's it's what Storm's doing 0:15:11.640 --> 0:15:12.960 over at Instagram. 0:15:12.720 --> 0:15:16.760 Plus six classics, mandeep sexy technology analytics. 0:15:16.480 --> 0:15:18.560 Through Instagram and Go. That's a short. 0:15:19.400 --> 0:15:20.920 Bloomberg Intelligence joining us. 0:15:20.960 --> 0:15:23.440 Now, Mandy, what does it tell you that they came 0:15:23.440 --> 0:15:26.600 out with really good earnings at least on the fundamental 0:15:26.640 --> 0:15:29.480 basis that they say that there's uncertainty and that they 0:15:29.520 --> 0:15:30.280 share sell off. 0:15:30.880 --> 0:15:34.760 Well, so I think they gave a pretty broad guidance 0:15:34.840 --> 0:15:37.760 thirteen to twenty four percent for next quarter. When you 0:15:37.800 --> 0:15:40.640 see that sort of white guidance, you know, you know 0:15:40.720 --> 0:15:43.840 the company is not sure and they didn't have that 0:15:43.960 --> 0:15:46.800 sort of uncertain guidance on the expense side, So they 0:15:46.840 --> 0:15:50.920 said reality labs losses would mount, and I think fear 0:15:51.040 --> 0:15:54.320 that company is really feeling the investors is not giving 0:15:54.360 --> 0:15:57.880 them markers around what they're actually doing. I mean, losing 0:15:57.920 --> 0:16:00.840 fifteen billion dollars a year on reality labs and not 0:16:01.000 --> 0:16:04.240 telling what you are investing in. Because we know Apple 0:16:04.360 --> 0:16:07.760 has a new virtual reality headset. It didn't take them 0:16:07.760 --> 0:16:10.640 fifteen billion dollars to make that headset. So clearly they 0:16:10.640 --> 0:16:13.560 are investing in something that nobody knows, and I think 0:16:13.560 --> 0:16:15.000 that's the uncertain How is. 0:16:15.160 --> 0:16:20.120 AI different for Zuckerberg than AI is different for Google 0:16:20.480 --> 0:16:24.120 where AI is different for Microsoft. 0:16:23.640 --> 0:16:26.880 So there is an overlap between Google and Meta's version 0:16:26.960 --> 0:16:29.520 of AI versus Microsoft's. 0:16:28.800 --> 0:16:31.200 And microsofce corporate. I got to get a job done. 0:16:31.280 --> 0:16:35.400 Let's go Yeah, and what's Meta's AI is? You are 0:16:35.440 --> 0:16:40.880 consuming Instagram feeds, Facebook feeds, I mean the average user is, 0:16:40.960 --> 0:16:44.320 and so how can AI enhance that experience both for 0:16:44.440 --> 0:16:47.840 the consumer as well as for the creator who's creating 0:16:47.880 --> 0:16:50.840 content for the feed? And AI can offer you a 0:16:50.840 --> 0:16:53.880 lot of tools to generate images based on text description. 0:16:54.040 --> 0:16:56.600 So there's a lot that AI can do in messaging, 0:16:57.080 --> 0:16:59.760 think of customer service, you know WhatsApp. 0:16:59.360 --> 0:17:02.520 So this AI and Instagram. I don't buy it AI 0:17:02.560 --> 0:17:05.600 and Amazon this afternoon. What is Josie going to spin 0:17:05.760 --> 0:17:07.720 on AI? Amazon? 0:17:07.840 --> 0:17:12.160 I mean amazonal story hardboard box is about compute training 0:17:12.160 --> 0:17:16.200 the models. Everyone wants these GPUs to train their large 0:17:16.240 --> 0:17:16.880 language model. 0:17:16.960 --> 0:17:20.040 They're buying AI from Microsoft. I saw that ten days 0:17:20.040 --> 0:17:21.080 ago or so, right. 0:17:21.280 --> 0:17:25.040 Yeah, well they are upgrading their three sixty five on 0:17:25.119 --> 0:17:26.520 Prime version to Microsoft. 0:17:26.640 --> 0:17:27.720 So completely lost. 0:17:28.920 --> 0:17:32.440 And so that's the thing about the generative AI wave 0:17:32.600 --> 0:17:35.960 that it is quite broad and every company can use 0:17:36.000 --> 0:17:39.240 it in different ways. Some companies are focusing on training models, 0:17:39.280 --> 0:17:41.800 some are focused on inferencing use cases. 0:17:41.880 --> 0:17:44.879 And you don't even know what this is, Cady. It 0:17:44.880 --> 0:17:47.720 feels like a Morcan mindy skip. You know, Robin Williams 0:17:47.760 --> 0:17:50.760 is going no, no, no, no. I just everybody's got 0:17:50.800 --> 0:17:51.879 a different definition of. 0:17:51.880 --> 0:17:56.320 AI or I guess they're trying to play for a 0:17:56.400 --> 0:18:00.000 different part of this large pie that everyone sees with generator. 0:18:00.240 --> 0:18:00.600 Save me. 0:18:00.880 --> 0:18:03.200 Let's talk about something we all know. Let's talk about 0:18:03.240 --> 0:18:04.840 the cloud business at Amazon. 0:18:04.880 --> 0:18:06.080 Of course AWS. 0:18:06.400 --> 0:18:09.080 You saw sales growth there slow to a record low 0:18:09.400 --> 0:18:11.800 in the second quarter. We know that the cloud business 0:18:11.880 --> 0:18:13.320 was why Alphabet had such a. 0:18:13.280 --> 0:18:14.520 Bad day yesterday. 0:18:14.560 --> 0:18:15.840 What are we going to see out of the cloud 0:18:15.840 --> 0:18:16.720 business at Amazon? 0:18:16.800 --> 0:18:20.200 I mean, the good thing is expectations are lower for Amazon, 0:18:20.280 --> 0:18:24.600 and we're talking about mid teen's growth for AWS, and yes, 0:18:24.680 --> 0:18:27.760 it has the largest base in cloud, but everyone perceives 0:18:27.800 --> 0:18:31.560 them to be behind with generative AI workloads. That may 0:18:31.600 --> 0:18:33.679 not be the case, and so there is room for 0:18:33.760 --> 0:18:36.240 an upside as long as they prove to the street 0:18:36.320 --> 0:18:39.280 that you know, they are catching up with Jenai and 0:18:39.400 --> 0:18:43.040 offering the compute that everyone needs to train their models. 0:18:42.760 --> 0:18:44.080 And not to go back in time. 0:18:44.119 --> 0:18:46.800 But you think about what happened at Alphabet, I mean, 0:18:46.800 --> 0:18:49.320 I'm just stuck on the share price move yesterday down 0:18:49.320 --> 0:18:53.240 almost ten percent, worst day since March twenty twenty. Is 0:18:53.280 --> 0:18:54.200 that an overreaction? 0:18:54.359 --> 0:18:56.119 Was it that bad with Alphabet? 0:18:56.160 --> 0:19:00.639 It definitely feels felt like an overreaction, simply because the 0:19:00.880 --> 0:19:05.200 search business actually did remarkably well, and unlike Meta, which 0:19:05.240 --> 0:19:08.720 continues to see ad pricing declined, Alphabet saw an ad 0:19:08.720 --> 0:19:12.760 pricing increase, which is a positive sign. It's an auction mechanism, 0:19:12.800 --> 0:19:15.640 so advertisers are bidding up for your ads. And there 0:19:15.800 --> 0:19:19.359 was talk about uncertainty yesterday around the Middle East war 0:19:19.800 --> 0:19:23.040 and everything that will draw down the advertisers spending. But 0:19:23.480 --> 0:19:26.960 clearly Alphabet had a positive print on the search side 0:19:27.000 --> 0:19:28.119 and the cloud side. 0:19:28.160 --> 0:19:29.800 Really the expectations were. 0:19:29.640 --> 0:19:32.119 Too high, So I think that's where Amazon may have 0:19:32.160 --> 0:19:33.560 an advantage going into the print. 0:19:33.640 --> 0:19:36.119 I want to try to understand the psychology of the 0:19:36.160 --> 0:19:38.639 investor base in some of these tech names, because it's 0:19:38.680 --> 0:19:41.800 been shifting over time and we've seen that. What are 0:19:41.840 --> 0:19:44.399 we learning about what the key triggers are going to 0:19:44.400 --> 0:19:46.159 be to buy and what the key triggers are going 0:19:46.200 --> 0:19:47.840 to be to sell after the games that we've seen 0:19:47.880 --> 0:19:48.520 so far this year. 0:19:48.800 --> 0:19:51.120 I mean, look, the cost of capital is going up, 0:19:51.240 --> 0:19:54.359 and so I think the days of spending fifteen billion 0:19:54.440 --> 0:19:57.639 dollars a year on moonshots are probably gone even for 0:19:57.800 --> 0:20:00.439 larger companies, as long as they keep deliver bring you know, 0:20:00.480 --> 0:20:04.600 twenty percent plus growth meta for Meta. Everyone is okay 0:20:04.680 --> 0:20:08.360 with them spending on reality labs. The moment that growth decelerates, 0:20:08.720 --> 0:20:11.560 that's when that fifteen billion dollar loss really becomes a 0:20:11.600 --> 0:20:13.040 sticking point for free cash flow. 0:20:13.400 --> 0:20:16.320 Is that the reason why you expect things for Amazon 0:20:16.359 --> 0:20:19.440 to be positive because they have that infrastructure AWS, which 0:20:19.480 --> 0:20:21.480 is the major player in the cloud space, they have 0:20:21.600 --> 0:20:24.040 that revenue coming in, they have Tom Keynes offspring buying 0:20:24.040 --> 0:20:24.840 lots of boxes. 0:20:25.080 --> 0:20:27.720 How much is that really going to play into a. 0:20:27.720 --> 0:20:30.200 Positive that could offset some of the negativity that we're 0:20:30.200 --> 0:20:31.840 hearing from the likes of ups this morning. 0:20:32.119 --> 0:20:36.280 Clearly, I think everyone believes that, you know, digital transformation, 0:20:36.560 --> 0:20:39.800 generative AI. These are secular trends, and right now, I 0:20:39.840 --> 0:20:43.240 think for Meta to spend thirty billion dollars in capex 0:20:43.320 --> 0:20:46.399 and not have a cloud business or something equivalent is 0:20:46.440 --> 0:20:49.600