1 00:00:05,120 --> 00:00:08,480 Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keene, along 2 00:00:08,520 --> 00:00:12,360 Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day 3 00:00:12,400 --> 00:00:16,880 Speaker 1: for insight from the best and economics, geopolitics, finance and investment. 4 00:00:17,280 --> 00:00:22,079 Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 5 00:00:22,320 --> 00:00:26,600 Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com, 6 00:00:26,640 --> 00:00:30,440 Speaker 1: the Bloomberg Terminal, and the Bloomberg Business App. Henri Out 7 00:00:30,440 --> 00:00:33,199 Speaker 1: a trace with us right now director of Economic Policy 8 00:00:33,280 --> 00:00:38,040 Speaker 1: Research if out of Partners, but far more political economic 9 00:00:38,120 --> 00:00:42,159 Speaker 1: policy as well. When an election starts five hundred and 10 00:00:42,159 --> 00:00:46,760 Speaker 1: sixty days out, Henrietta, what's the gridlock look like? What 11 00:00:46,920 --> 00:00:50,240 Speaker 1: is the new gridlock after the election is engaged? 12 00:00:52,040 --> 00:00:54,400 Speaker 2: The new gridlock is, basically, we get this debt ceiling 13 00:00:54,480 --> 00:00:57,440 Speaker 2: past us, hopefully in the next month or two, and 14 00:00:57,480 --> 00:01:01,240 Speaker 2: then we move pretty much exclusively to and there will 15 00:01:01,240 --> 00:01:04,080 Speaker 2: be a focus on trying to craft a bipartisan bill, 16 00:01:04,959 --> 00:01:08,520 Speaker 2: any attempt to differentiate the Republicans from the Democrats on 17 00:01:08,560 --> 00:01:11,120 Speaker 2: that front, and I suspect they'll both be job owning 18 00:01:11,120 --> 00:01:14,160 Speaker 2: about what could come on the China front, including Tariff's 19 00:01:14,160 --> 00:01:18,720 Speaker 2: investment restrictions. Heading into seven that's what will. 20 00:01:18,600 --> 00:01:22,680 Speaker 1: Be, so that'll be the legislative debate. But does China 21 00:01:22,800 --> 00:01:27,360 Speaker 1: fold into election results? The maxim I've always heard is 22 00:01:27,400 --> 00:01:31,760 Speaker 1: that domestic issues are far more important in an election dash. 23 00:01:32,160 --> 00:01:36,400 Speaker 1: Does China play into the election dash? 24 00:01:36,440 --> 00:01:36,959 Speaker 3: I think so. 25 00:01:37,640 --> 00:01:40,600 Speaker 2: You have nearly eighty percent of the US population who 26 00:01:40,640 --> 00:01:43,640 Speaker 2: believes that China is something of an enemy to the 27 00:01:43,720 --> 00:01:46,759 Speaker 2: United States, so it's a very popular boogeyman. I think 28 00:01:46,800 --> 00:01:49,720 Speaker 2: you have to question what the underlying macroeconomic data is 29 00:01:49,760 --> 00:01:50,280 Speaker 2: going to look like. 30 00:01:50,360 --> 00:01:51,200 Speaker 3: What's unemployment? 31 00:01:51,240 --> 00:01:52,320 Speaker 2: You know, if it's still in the three and a 32 00:01:52,360 --> 00:01:55,000 Speaker 2: half even four percent range, it's not going to be 33 00:01:55,000 --> 00:01:57,400 Speaker 2: that striking topic like it has been in years past 34 00:01:57,400 --> 00:01:59,440 Speaker 2: and we were at eight nine to ten percent. If 35 00:01:59,480 --> 00:02:01,920 Speaker 2: inflation has come down and it similarly is not in 36 00:02:01,960 --> 00:02:03,880 Speaker 2: the eight nine to ten percent range, you're going to 37 00:02:03,960 --> 00:02:07,160 Speaker 2: have an opportunity to focus on foreign policy because domestic 38 00:02:07,200 --> 00:02:13,119 Speaker 2: politics or domestic economic policy data will have a cooler temperature. 39 00:02:13,120 --> 00:02:16,399 Speaker 2: It will be big enough to occupy headlines every single day, 40 00:02:16,400 --> 00:02:17,880 Speaker 2: so you can have an opening for China to be 41 00:02:17,919 --> 00:02:18,520 Speaker 2: a conversation. 42 00:02:18,680 --> 00:02:21,320 Speaker 4: A lot of shift right now when it comes to geopolitics, 43 00:02:21,360 --> 00:02:23,320 Speaker 4: a lot of shift when it comes to economics, and 44 00:02:23,360 --> 00:02:25,120 Speaker 4: there's not a lot of shift. When it comes to 45 00:02:25,160 --> 00:02:28,000 Speaker 4: the most likely matchup for the twenty twenty four election, 46 00:02:28,200 --> 00:02:29,239 Speaker 4: it is President Biden. 47 00:02:29,280 --> 00:02:30,040 Speaker 5: He is in the running. 48 00:02:30,080 --> 00:02:32,160 Speaker 4: That is what he said earlier this morning with the 49 00:02:32,200 --> 00:02:35,480 Speaker 4: official announcement, and former President Trump. 50 00:02:35,440 --> 00:02:36,919 Speaker 5: This is the likely matchup. 51 00:02:36,960 --> 00:02:39,320 Speaker 4: What does that say to you that it's the two 52 00:02:39,440 --> 00:02:41,239 Speaker 4: known entities going at it again. 53 00:02:42,440 --> 00:02:43,680 Speaker 3: You know, it's really interesting. 54 00:02:43,680 --> 00:02:45,320 Speaker 2: I'm trying to find a great way to say this, 55 00:02:45,480 --> 00:02:47,560 Speaker 2: but as an analyst, you know, we're always looking for 56 00:02:47,600 --> 00:02:50,560 Speaker 2: some sort of nuance or edge to share with clients 57 00:02:50,560 --> 00:02:52,919 Speaker 2: and help them have a little bit of extra juice 58 00:02:52,919 --> 00:02:54,040 Speaker 2: going into any kind of a. 59 00:02:53,960 --> 00:02:54,680 Speaker 3: Big event like this. 60 00:02:54,800 --> 00:02:57,959 Speaker 2: But realistically, we have a pretty solid run rate to 61 00:02:58,040 --> 00:03:02,760 Speaker 2: work with Democrats the midterm elections in twenty eighteen by 62 00:03:02,800 --> 00:03:07,160 Speaker 2: an overwhelming majority. Democrats won the twenty twenty presidential election, 63 00:03:07,280 --> 00:03:12,240 Speaker 2: picking up Arizona and Nevada, Georgia even we won the 64 00:03:12,360 --> 00:03:15,560 Speaker 2: special elections in Georgia twice, and then in twenty twenty 65 00:03:15,560 --> 00:03:19,520 Speaker 2: two ran in a super high inflationary environment coming out 66 00:03:19,520 --> 00:03:21,720 Speaker 2: of the pandemic in a race that Democrats had no 67 00:03:21,800 --> 00:03:24,600 Speaker 2: business winning, and the minority party lost in the most 68 00:03:24,639 --> 00:03:26,400 Speaker 2: epic blowout since the nineteen thirties. 69 00:03:26,400 --> 00:03:28,040 Speaker 3: So it's really difficult to. 70 00:03:28,080 --> 00:03:30,920 Speaker 2: Try to find a rationale for not knowing the outcome 71 00:03:31,000 --> 00:03:33,880 Speaker 2: of the twenty twenty four presidential election cycle. We've seen 72 00:03:33,919 --> 00:03:37,600 Speaker 2: this fight literally four times now and each one ends 73 00:03:37,600 --> 00:03:40,040 Speaker 2: the same way. So it's difficult to find a way 74 00:03:40,120 --> 00:03:44,000 Speaker 2: to explain or convince anybody, including my own brain, about 75 00:03:44,000 --> 00:03:46,080 Speaker 2: how you can see Republicans win in this environment with 76 00:03:46,080 --> 00:03:46,800 Speaker 2: the same candidate. 77 00:03:46,960 --> 00:03:49,280 Speaker 4: How much is this Democrats winning and how much is 78 00:03:49,280 --> 00:03:52,920 Speaker 4: this Republicans losing with respect to where the balance of 79 00:03:52,960 --> 00:03:54,440 Speaker 4: power is in that party. 80 00:03:57,160 --> 00:03:59,560 Speaker 2: I would definitely look at the key states. I mean, 81 00:04:00,000 --> 00:04:01,640 Speaker 2: all our clients know, and y'all know, it doesn't matter 82 00:04:01,680 --> 00:04:04,480 Speaker 2: what the national data is. It's really about key states 83 00:04:04,520 --> 00:04:07,400 Speaker 2: and the electoral College. So look at Arizona, look at Pennsylvania. 84 00:04:07,600 --> 00:04:10,480 Speaker 2: In those states, Joe Biden is ahead by four points 85 00:04:10,640 --> 00:04:13,960 Speaker 2: one point, and that's the outcome. 86 00:04:13,640 --> 00:04:14,240 Speaker 3: Of the cycle. 87 00:04:14,360 --> 00:04:18,320 Speaker 2: So you might have some scenarios where certain states are 88 00:04:18,320 --> 00:04:22,400 Speaker 2: going more aggressively for Trump, but mostly it's going to 89 00:04:22,400 --> 00:04:26,000 Speaker 2: be a national referendum in key states against the Republican 90 00:04:26,160 --> 00:04:28,000 Speaker 2: caucus and their policies. 91 00:04:28,160 --> 00:04:31,240 Speaker 1: Henry and I've brought up twice today a question of 92 00:04:31,320 --> 00:04:34,320 Speaker 1: progresses or liberals within the Democratic Party. I mean, in 93 00:04:34,360 --> 00:04:39,120 Speaker 1: the republican concept. There's this idea Republican in name only. 94 00:04:39,960 --> 00:04:42,640 Speaker 1: Is Joe Biden a Democrat in name only? 95 00:04:44,640 --> 00:04:46,680 Speaker 2: I think that if you were to pull a Bernie 96 00:04:46,720 --> 00:04:50,640 Speaker 2: Sanders or some of his supporters, they would say things 97 00:04:50,640 --> 00:04:52,760 Speaker 2: along those lines. But it's really difficult to look at 98 00:04:52,760 --> 00:04:55,000 Speaker 2: the track record and see a one point nine trillion 99 00:04:55,000 --> 00:04:57,120 Speaker 2: dollar Cares Act bill passed in the first month of 100 00:04:57,120 --> 00:05:00,559 Speaker 2: his administration, the Chips Act, which was bipartisan by Parson, 101 00:05:00,640 --> 00:05:05,000 Speaker 2: infrastructure bill, and then the Inflation Reduction Act. There is establishment, democratic, 102 00:05:05,600 --> 00:05:08,880 Speaker 2: democratic and name only agenda items like Chips and the 103 00:05:09,400 --> 00:05:12,600 Speaker 2: but then there's also those progressive items green energy tax 104 00:05:12,640 --> 00:05:15,360 Speaker 2: credits that are very expansive. And then obviously the one 105 00:05:15,360 --> 00:05:17,960 Speaker 2: point I joined down the COVID relief bill, which had 106 00:05:18,040 --> 00:05:20,000 Speaker 2: a lot of progressive agenda items in there. 107 00:05:20,160 --> 00:05:23,200 Speaker 1: So you can make thank you so much, Henry out 108 00:05:23,279 --> 00:05:30,359 Speaker 1: Tre's director of economic policy Vada Partners. There. We have 109 00:05:30,440 --> 00:05:32,880 Speaker 1: a wonderful guest with it that John's going to bring in. 110 00:05:32,920 --> 00:05:35,080 Speaker 1: But you know, John, it's going to be important. Newburger. 111 00:05:35,080 --> 00:05:38,200 Speaker 1: Berman is going to focus today on the four pm 112 00:05:38,320 --> 00:05:44,400 Speaker 1: earnings Thursday. On the four pm earnings tomorrow, every set 113 00:05:44,520 --> 00:05:48,480 Speaker 1: there will be shifted from financial media over to Manchester 114 00:05:48,560 --> 00:05:56,440 Speaker 1: City will not be watching Meta earnings tomorrow. How big 115 00:05:56,480 --> 00:05:59,640 Speaker 1: a game is that tomorrow that's going to constract Global Walls. 116 00:05:59,520 --> 00:06:02,240 Speaker 6: Told, this is six pointer? Don't we schouse epic? It's 117 00:06:02,240 --> 00:06:04,680 Speaker 6: a six pointer? How big is this for Arsenal? For 118 00:06:04,720 --> 00:06:05,240 Speaker 6: the gunners? 119 00:06:05,320 --> 00:06:07,360 Speaker 7: It's huge. I was at Hibury when I was four, 120 00:06:08,200 --> 00:06:10,280 Speaker 7: so I have a you really, I really was. My 121 00:06:10,400 --> 00:06:12,520 Speaker 7: dad was teaching at the London School of Economics and 122 00:06:13,040 --> 00:06:15,880 Speaker 7: he dragged me along to Hibury and I'm super excited 123 00:06:15,880 --> 00:06:18,479 Speaker 7: about Wednesday. So we'll have the three broombroog screens going 124 00:06:18,560 --> 00:06:20,840 Speaker 7: and one will have the matron and the rest will 125 00:06:20,880 --> 00:06:21,240 Speaker 7: have Meta. 126 00:06:21,839 --> 00:06:23,479 Speaker 6: I had to say to Tom on Friday when they 127 00:06:23,520 --> 00:06:26,800 Speaker 6: were throwing the game against Southampton away. I said, Tom, 128 00:06:26,839 --> 00:06:29,440 Speaker 6: you need to understand the phrase bottling it? Are they 129 00:06:29,480 --> 00:06:30,039 Speaker 6: bottling it? 130 00:06:31,000 --> 00:06:34,000 Speaker 7: They choking a little. It's tough to lead the whole 131 00:06:34,080 --> 00:06:38,080 Speaker 7: year from the front, and it's been remarkable and we'll 132 00:06:39,080 --> 00:06:41,480 Speaker 7: we'll know tomorrow. We'll know tomorrow. 133 00:06:41,560 --> 00:06:44,080 Speaker 6: Top of the league Arsenal going up against Manchester City, 134 00:06:44,120 --> 00:06:46,359 Speaker 6: the top two the face down tomorrow, so you won't 135 00:06:46,400 --> 00:06:48,279 Speaker 6: be watching meta earning, so I imagine you'll be looking at 136 00:06:48,320 --> 00:06:51,080 Speaker 6: Google and Microsoft a little bit later. These tech names 137 00:06:51,120 --> 00:06:53,960 Speaker 6: have had massive moves here today. Lisa talked about meta 138 00:06:54,160 --> 00:06:56,400 Speaker 6: of something like seventy to eighty percent so far in 139 00:06:56,440 --> 00:06:59,120 Speaker 6: twenty twenty three. Are you expecting the numbers to validate 140 00:06:59,160 --> 00:06:59,559 Speaker 6: the moves? 141 00:07:01,080 --> 00:07:03,520 Speaker 7: I think the two stories this afternoon will be a 142 00:07:03,560 --> 00:07:06,880 Speaker 7: little different. Microsoft's are going to be all about Azure 143 00:07:06,920 --> 00:07:12,080 Speaker 7: and the enterprise slowing and the large enterprise companies have 144 00:07:12,720 --> 00:07:15,200 Speaker 7: all kind of looked at their cloud spend and decided 145 00:07:15,240 --> 00:07:19,200 Speaker 7: to rationalize a little bit. But then on Microsoft, it's 146 00:07:19,240 --> 00:07:21,840 Speaker 7: going to be telling the long, long term story around 147 00:07:22,720 --> 00:07:26,120 Speaker 7: open Ai and their forty nine percent investment there. We've 148 00:07:26,160 --> 00:07:28,880 Speaker 7: done the math on some of that. The maths not easy. 149 00:07:29,280 --> 00:07:31,680 Speaker 7: You know, the AI market will be over a trillion 150 00:07:31,720 --> 00:07:36,280 Speaker 7: dollar market in by twenty thirty and Microsoft's magnificently positioned 151 00:07:36,280 --> 00:07:39,920 Speaker 7: there and can add at least maybe twenty percent to 152 00:07:40,040 --> 00:07:42,960 Speaker 7: their top line over the next five to six years. 153 00:07:42,960 --> 00:07:47,080 Speaker 7: So I think Microsoft is going to be You're going 154 00:07:47,120 --> 00:07:49,840 Speaker 7: to look through the valley to the next peak, so 155 00:07:49,880 --> 00:07:52,360 Speaker 7: to speak, kind of ignore the shorter term headwinds and 156 00:07:52,920 --> 00:07:56,240 Speaker 7: focus more on the longer term opportunity. Where Google, I 157 00:07:56,280 --> 00:07:59,960 Speaker 7: think it's they haven't provided the sizzle that Microsoft has 158 00:08:00,040 --> 00:08:02,560 Speaker 7: as as relates to open AI, So I think there 159 00:08:02,600 --> 00:08:04,920 Speaker 7: we're looking for a lot of clarity around their longer 160 00:08:05,000 --> 00:08:08,760 Speaker 7: term strategy. I think they magnificently position there as well. 161 00:08:09,560 --> 00:08:14,160 Speaker 7: But unlike Microsoft, we're going to be thinking through efficiency 162 00:08:14,520 --> 00:08:18,040 Speaker 7: and optimization as it relates to their to their cost structure. 163 00:08:18,040 --> 00:08:21,880 Speaker 7: They sell at two vastly different valuations. The point I'd 164 00:08:21,880 --> 00:08:26,239 Speaker 7: make maybe more generally about technology that maybe sometimes gets 165 00:08:26,360 --> 00:08:30,000 Speaker 7: gets lost. The by and large, the resiliency you've seen 166 00:08:30,080 --> 00:08:33,920 Speaker 7: in earnings out of the index, so to speak, is 167 00:08:33,960 --> 00:08:38,800 Speaker 7: because these businesses have magnificent income statement flexibility. And the 168 00:08:38,920 --> 00:08:42,319 Speaker 7: challenge with the financial companies is they they don't have 169 00:08:42,480 --> 00:08:46,000 Speaker 7: income statement flexibility. They are tied by their balance sheets. 170 00:08:46,000 --> 00:08:49,800 Speaker 7: And so I am quite optimistic that the very large 171 00:08:50,160 --> 00:08:54,120 Speaker 7: index contributors will will deliver earnings that are high quality 172 00:08:54,840 --> 00:08:57,640 Speaker 7: and they're protecting they're protecting their cash flows. This year 173 00:08:57,679 --> 00:09:00,920 Speaker 7: the market shifted, as you know, from rev you to 174 00:09:01,000 --> 00:09:02,480 Speaker 7: what matters, which is cash in the. 175 00:09:02,400 --> 00:09:05,199 Speaker 4: Bank, which they have magnificently displayed. 176 00:09:05,360 --> 00:09:08,480 Speaker 5: Will open AI be the new blockchain. 177 00:09:08,720 --> 00:09:11,640 Speaker 4: I mean, basically, have we already fully priced in just 178 00:09:11,679 --> 00:09:15,200 Speaker 4: saying chat GPT and then seeing your stock sore. 179 00:09:15,640 --> 00:09:19,199 Speaker 7: I don't think we have, and we certainly haven't at Microsoft, 180 00:09:19,480 --> 00:09:21,839 Speaker 7: and we certainly haven't at Google because Google sells it 181 00:09:21,920 --> 00:09:25,640 Speaker 7: ten times EV to enterprise value. That is not evaluation. 182 00:09:25,840 --> 00:09:28,520 Speaker 7: That suggests a lot of good news is priced in. 183 00:09:28,920 --> 00:09:32,600 Speaker 7: I like the analogy to the to blockchain. We think 184 00:09:32,720 --> 00:09:38,680 Speaker 7: the efficiency opportunity for people that adopt AI is two 185 00:09:38,960 --> 00:09:42,280 Speaker 7: x on the margin line relative to the blockchain. So 186 00:09:42,320 --> 00:09:44,520 Speaker 7: we're talking If you thought blockchain was a was a 187 00:09:44,679 --> 00:09:48,600 Speaker 7: two hundred basis points improvement to efficiency for companies adopting it, 188 00:09:48,920 --> 00:09:52,000 Speaker 7: we think open ai is probably five hundred basis points. 189 00:09:52,280 --> 00:09:55,720 Speaker 7: Think through the efficiency of that, and think through the productivity. 190 00:09:56,120 --> 00:09:58,480 Speaker 1: I want to focus on your courage to own a 191 00:09:58,520 --> 00:10:01,000 Speaker 1: few things on a big were down. I believe twenty 192 00:10:01,000 --> 00:10:03,480 Speaker 1: four percent last year in one portfolio, and maybe that 193 00:10:03,600 --> 00:10:06,200 Speaker 1: was a little worse than others because you had big 194 00:10:06,240 --> 00:10:09,680 Speaker 1: tech owning. I want to talk about the street. Focus 195 00:10:09,840 --> 00:10:13,160 Speaker 1: on that these stocks are too big, too dominant, and 196 00:10:13,280 --> 00:10:18,680 Speaker 1: people are diversifying away. Peter Lynch called it diversification in general. 197 00:10:18,760 --> 00:10:22,800 Speaker 1: Are people diversifying away where they should own more of 198 00:10:22,880 --> 00:10:23,360 Speaker 1: big tech. 199 00:10:23,840 --> 00:10:28,439 Speaker 7: It's it's a big question. We have the growth strategy, 200 00:10:29,360 --> 00:10:31,480 Speaker 7: a large cup growth strategy that was down twenty four 201 00:10:31,480 --> 00:10:34,640 Speaker 7: percent last year. We felt great relative to the large 202 00:10:34,640 --> 00:10:38,000 Speaker 7: cap growth indices. I think it proved out the high quality, 203 00:10:38,040 --> 00:10:41,480 Speaker 7: defense and nature of how we proceed with growth. I 204 00:10:41,480 --> 00:10:44,720 Speaker 7: think I gave you the analogy with with with Microsoft. 205 00:10:45,040 --> 00:10:48,800 Speaker 7: He as a company that can add you know, twenty 206 00:10:48,840 --> 00:10:52,520 Speaker 7: to city billion dollars to their revenues over the next 207 00:10:52,520 --> 00:10:55,640 Speaker 7: five years, and they're running at two hundred billion dollars 208 00:10:55,640 --> 00:10:59,800 Speaker 7: of revenue today. I don't know many companies that that 209 00:11:00,040 --> 00:11:03,280 Speaker 7: and operate at that scale with that type of opportunity. 210 00:11:03,559 --> 00:11:05,680 Speaker 7: And I think when you think through when you think 211 00:11:05,679 --> 00:11:08,240 Speaker 7: through Google, the challenge there is going to be can 212 00:11:08,360 --> 00:11:10,839 Speaker 7: It's a little bit of the innovator's dilemma. Can they 213 00:11:11,320 --> 00:11:15,640 Speaker 7: can they understand the threat that AI provides to their 214 00:11:15,679 --> 00:11:18,200 Speaker 7: core search business, which is kind of a ninety two 215 00:11:18,240 --> 00:11:23,080 Speaker 7: percent monopoly business while capturing the opportunity of AI. Not 216 00:11:23,320 --> 00:11:26,559 Speaker 7: different to how Netflix kind of attack themselves as they 217 00:11:26,640 --> 00:11:30,320 Speaker 7: went from you know, physical delivery of content to digital 218 00:11:31,160 --> 00:11:35,800 Speaker 7: and you've got a factor in valuation. Look in this environment, 219 00:11:36,840 --> 00:11:39,360 Speaker 7: I think you've got to quality up. You've got to 220 00:11:39,400 --> 00:11:42,600 Speaker 7: own income statement flexibility, you've got to be mindful of 221 00:11:42,640 --> 00:11:45,000 Speaker 7: the balance sheet, and you've got to own businesses that 222 00:11:45,640 --> 00:11:48,720 Speaker 7: if the tide was to go out, you feel really 223 00:11:48,720 --> 00:11:51,160 Speaker 7: good about their next three to five year positioning. And 224 00:11:51,480 --> 00:11:55,080 Speaker 7: I think you just find that today in the large 225 00:11:55,160 --> 00:11:58,280 Speaker 7: companies that are that are going to be massive beneficiaries 226 00:11:58,640 --> 00:12:01,240 Speaker 7: of all the compute spans. And that's going to take 227 00:12:01,280 --> 00:12:06,120 Speaker 7: place with AI. Microsoft magnificently positioned, so is Google, so 228 00:12:06,360 --> 00:12:10,720 Speaker 7: is Amazon, so is Meta. These folks own the largest 229 00:12:10,720 --> 00:12:13,120 Speaker 7: computers in the world, and they're going to rent them 230 00:12:13,120 --> 00:12:16,199 Speaker 7: out to everyone else, and everyone else is going to 231 00:12:16,320 --> 00:12:20,000 Speaker 7: enjoy a five hundred basis point margin improvement over time. 232 00:12:20,600 --> 00:12:24,120 Speaker 7: And that's going to be very good for for for 233 00:12:24,480 --> 00:12:27,160 Speaker 7: the economy. It's going to come with lots of headwinds, 234 00:12:27,200 --> 00:12:32,199 Speaker 7: no doubt, lots of regulatory scrutiny for sure. But but 235 00:12:32,200 --> 00:12:35,439 Speaker 7: but net net, it's it's it's it's it's massive. 236 00:12:35,559 --> 00:12:39,640 Speaker 6: I didn't hear around VMH or as up in quality. 237 00:12:39,679 --> 00:12:42,000 Speaker 6: That's all we're hearing about Europe, luxury players, all of 238 00:12:42,000 --> 00:12:43,679 Speaker 6: that good stuff. Then why you're not there? 239 00:12:44,400 --> 00:12:47,040 Speaker 7: I think I mean we we're not there necessarily with 240 00:12:47,160 --> 00:12:51,480 Speaker 7: that specific wonderful high end retail them. My wife's there 241 00:12:51,520 --> 00:12:57,480 Speaker 7: in shades spades. We were recently in Europe and there 242 00:12:57,559 --> 00:13:00,440 Speaker 7: is a currency heads, you know, currency of trash, so 243 00:13:00,520 --> 00:13:02,720 Speaker 7: to speak. So I'm familiar with the power of that brand. 244 00:13:03,080 --> 00:13:05,840 Speaker 7: They've bought a remarkable company. They've got to go through, uh, 245 00:13:06,280 --> 00:13:07,560 Speaker 7: you know, they've got to figure out which of the 246 00:13:07,600 --> 00:13:10,760 Speaker 7: five favorite kids are are going to run on the show. 247 00:13:10,800 --> 00:13:14,120 Speaker 7: But I think this morning from Pepsi and McDonald's, you 248 00:13:14,200 --> 00:13:19,000 Speaker 7: saw what quality and innovation and convenience and value delivered. 249 00:13:19,840 --> 00:13:22,600 Speaker 1: Charles character can segue from Lewis Wooten. 250 00:13:25,120 --> 00:13:28,240 Speaker 7: I know less about McDonald's from both all of that, 251 00:13:28,400 --> 00:13:29,920 Speaker 7: but it's just quality and and so. 252 00:13:31,440 --> 00:13:33,360 Speaker 5: McDonald's in the. 253 00:13:34,120 --> 00:13:36,000 Speaker 7: It's a function of who the consumer is. I mean, 254 00:13:36,040 --> 00:13:39,719 Speaker 7: the consumer of McDonald's ses tremendous value, as does as 255 00:13:39,760 --> 00:13:42,520 Speaker 7: does the LVMH customer in a different way. 256 00:13:42,720 --> 00:13:46,680 Speaker 1: You were acclaimed on Whole Foods. Amazon. Whole Foods is 257 00:13:46,720 --> 00:13:48,880 Speaker 1: now thrown on a towel. They're going to go low price, 258 00:13:49,040 --> 00:13:50,480 Speaker 1: lower price. Is it going to work? 259 00:13:51,000 --> 00:13:52,960 Speaker 7: I don't know if they're going to do that precisely 260 00:13:53,600 --> 00:13:56,600 Speaker 7: in your honor was back there on Saturday, just buying 261 00:13:56,640 --> 00:14:01,079 Speaker 7: a few things for dinner. Look, they have made wholesome 262 00:14:01,120 --> 00:14:05,640 Speaker 7: food affordable for all of America. You know what gets 263 00:14:05,679 --> 00:14:08,800 Speaker 7: lost with Amazon is they now have relationships with three 264 00:14:08,840 --> 00:14:12,560 Speaker 7: thousand local producers. That's way up from when Whole Foods 265 00:14:12,600 --> 00:14:15,360 Speaker 7: was a standalone company. And if you're a prime member, 266 00:14:15,640 --> 00:14:17,040 Speaker 7: you're getting value with Whole. 267 00:14:18,280 --> 00:14:19,720 Speaker 6: I don't know about you, but when I go into Whole 268 00:14:19,720 --> 00:14:22,680 Speaker 6: Foods to get dinner, I could have bought ms scaff. 269 00:14:25,240 --> 00:14:28,600 Speaker 7: It's not perfectly cheap, but it hasn't It hasn't come 270 00:14:28,640 --> 00:14:32,720 Speaker 7: down that much relative to fifteen seconds you pay for quality. 271 00:14:33,000 --> 00:14:33,920 Speaker 6: Do you miss Highbury? 272 00:14:34,600 --> 00:14:38,200 Speaker 7: I do miss Highbury And I haven't yet been to Emirates. 273 00:14:38,000 --> 00:14:39,800 Speaker 6: Into the Amates a couple of times, and my. 274 00:14:39,760 --> 00:14:42,200 Speaker 7: Guess is the seating at the Emirates is a little 275 00:14:42,200 --> 00:14:43,040 Speaker 7: bit no comfortable. 276 00:14:43,760 --> 00:14:47,440 Speaker 6: Those old stadiums I think a Fenway and Boston. Just 277 00:14:47,640 --> 00:14:49,200 Speaker 6: the romance of it. 278 00:14:48,840 --> 00:14:49,280 Speaker 1: It's great. 279 00:14:49,280 --> 00:14:50,240 Speaker 6: I wish that kept them. 280 00:14:51,640 --> 00:14:55,600 Speaker 1: Can talk to mister Levy. Canter's got you mass to. 281 00:14:55,520 --> 00:14:59,760 Speaker 6: Help him parachute in and parachuting and sports. I'm not sure, 282 00:14:59,800 --> 00:15:03,480 Speaker 6: but as a quality right now, something well that's. 283 00:15:02,760 --> 00:15:23,560 Speaker 8: A thank you everyone. 284 00:15:15,760 --> 00:15:18,120 Speaker 1: Right now in banking, and surely expert on is Christopher 285 00:15:18,160 --> 00:15:22,320 Speaker 1: Merinack JOINSUS director of Research Jenny Montgomery Scott Philadelphia and 286 00:15:22,400 --> 00:15:25,760 Speaker 1: in Atlanta this morning. Christopher, you know you and I 287 00:15:25,800 --> 00:15:27,720 Speaker 1: do the same thing when you get the Key Friette 288 00:15:28,040 --> 00:15:32,080 Speaker 1: Bank Index out of twenty two banks, and it's real simple. 289 00:15:32,080 --> 00:15:35,760 Speaker 1: Were the latest tobacco? They're priced back to nineteen ninety eight. 290 00:15:36,400 --> 00:15:39,600 Speaker 1: How many others are there like FRC? Do you do 291 00:15:39,640 --> 00:15:43,160 Speaker 1: you look at them as a discreet disaster or is 292 00:15:43,160 --> 00:15:47,080 Speaker 1: there enough of them out there to affect something like 293 00:15:47,120 --> 00:15:49,560 Speaker 1: the twenty two banks and the KBW index. 294 00:15:50,640 --> 00:15:52,920 Speaker 9: I think First Republic stands on its own, Tom, I 295 00:15:52,960 --> 00:15:57,400 Speaker 9: really think that it's at once opportunity. Unfortunately that was 296 00:15:57,480 --> 00:16:01,360 Speaker 9: hit by friendly fire and they have really struggled clearly 297 00:16:01,360 --> 00:16:05,240 Speaker 9: for the quarter. Deposits worse than we thought. As you said, 298 00:16:05,600 --> 00:16:07,640 Speaker 9: I think the conference call did not go well. I 299 00:16:07,680 --> 00:16:09,840 Speaker 9: think the market didn't like the lack of questions, and 300 00:16:09,880 --> 00:16:12,080 Speaker 9: I think there's real changes the company has to make. 301 00:16:12,520 --> 00:16:16,320 Speaker 1: The answer is combinations. The basic thing we've had is 302 00:16:16,360 --> 00:16:19,360 Speaker 1: four thousand banks, whether it's twenty two larger regionals or not. 303 00:16:19,960 --> 00:16:22,800 Speaker 1: When do we start to see the mergers that are 304 00:16:22,840 --> 00:16:23,880 Speaker 1: just to have to come. 305 00:16:25,240 --> 00:16:27,600 Speaker 9: Well for First Republic, it could happen very soon. I 306 00:16:27,600 --> 00:16:29,440 Speaker 9: mean they need to do something. They either need to 307 00:16:29,440 --> 00:16:31,360 Speaker 9: strength the balance you do, they need to find a buyer. 308 00:16:31,960 --> 00:16:34,080 Speaker 9: They're going to have to raise capital either way. So 309 00:16:34,160 --> 00:16:36,320 Speaker 9: if they sell the company, that avoids that, but they're 310 00:16:36,320 --> 00:16:38,800 Speaker 9: going to have to take action as soon as today. 311 00:16:39,120 --> 00:16:41,000 Speaker 9: I'm not sure they can wait a whole lot longer. 312 00:16:41,320 --> 00:16:43,680 Speaker 4: Christopher, who would want to buy a firm like this 313 00:16:44,040 --> 00:16:46,080 Speaker 4: when they can get the deposits some other way and 314 00:16:46,120 --> 00:16:47,560 Speaker 4: they're taking all the liabilities. 315 00:16:48,840 --> 00:16:51,160 Speaker 9: Well, there could be the attitude that you want the 316 00:16:51,480 --> 00:16:53,960 Speaker 9: wealth management business and the clients that they have, even 317 00:16:54,000 --> 00:16:57,400 Speaker 9: though they did lose advisors precipitously towards the end of 318 00:16:57,480 --> 00:17:00,040 Speaker 9: March and also here in April. I think trying to 319 00:17:00,080 --> 00:17:02,840 Speaker 9: get that business would be very attractive to a Goldman, Sachs, 320 00:17:02,840 --> 00:17:05,879 Speaker 9: to Morgan Stanley, to perhaps even JP Morgan. You'd have 321 00:17:05,960 --> 00:17:09,040 Speaker 9: to have some regulatory relief if you're JPM to get 322 00:17:09,040 --> 00:17:11,960 Speaker 9: that done from an asset perspective, but it's not impossible. 323 00:17:12,280 --> 00:17:14,720 Speaker 9: But certainly I think the wealth management business would be 324 00:17:14,760 --> 00:17:17,000 Speaker 9: the ticket that would be most attractive here. 325 00:17:17,160 --> 00:17:19,119 Speaker 4: I was struck this morning, Christopher, when I came in 326 00:17:19,480 --> 00:17:21,800 Speaker 4: that all the other regional banks are being punished as well. 327 00:17:21,840 --> 00:17:23,639 Speaker 4: It's not just First Republic, it's even those that have 328 00:17:23,720 --> 00:17:26,359 Speaker 4: reported earnings and came in better than people we feared, 329 00:17:26,400 --> 00:17:29,080 Speaker 4: whether it was Western Alliance, whether it was Zions, whether 330 00:17:29,119 --> 00:17:30,159 Speaker 4: it was any of the others. 331 00:17:30,400 --> 00:17:33,439 Speaker 5: Still they are lower. What does that tell you about 332 00:17:33,640 --> 00:17:34,680 Speaker 5: what is going on there? 333 00:17:34,720 --> 00:17:38,960 Speaker 4: But also more broadly about sentiment, Well, banks are leverage vehicles. 334 00:17:38,960 --> 00:17:41,119 Speaker 9: They work off of trust, and I think the confidence 335 00:17:41,119 --> 00:17:43,560 Speaker 9: and trust has slipped with the First Republic news, and 336 00:17:43,600 --> 00:17:45,280 Speaker 9: I think we just have to get through this air 337 00:17:45,320 --> 00:17:48,680 Speaker 9: pocket today and this week. Most of these companies are 338 00:17:48,800 --> 00:17:52,560 Speaker 9: very strong on capital, They have liquidity. They simply have 339 00:17:52,760 --> 00:17:55,520 Speaker 9: question marks with the confidence given the deposit run that 340 00:17:55,600 --> 00:17:58,120 Speaker 9: happened in the system in March, and so we're still 341 00:17:58,160 --> 00:17:59,879 Speaker 9: kind of working through that. Think of it as a 342 00:18:00,119 --> 00:18:03,400 Speaker 9: lou and the patient's not completely healed yet. I do 343 00:18:03,440 --> 00:18:06,000 Speaker 9: think that banks have to consider raising capital just to 344 00:18:06,000 --> 00:18:08,200 Speaker 9: show that they can. It would be a sign of confidence. 345 00:18:08,840 --> 00:18:11,200 Speaker 9: That to me is where this ultimately goes. Maybe we're 346 00:18:11,240 --> 00:18:13,320 Speaker 9: another six or eight weeks away from that, but I 347 00:18:13,320 --> 00:18:15,479 Speaker 9: think that's the answer to the problem. 348 00:18:15,560 --> 00:18:17,479 Speaker 6: And christ I think we've all forgotten this happened at 349 00:18:17,480 --> 00:18:20,240 Speaker 6: the very end of the first quarter in the month 350 00:18:20,280 --> 00:18:22,000 Speaker 6: of March, and I'm trying to work out what that 351 00:18:22,080 --> 00:18:24,880 Speaker 6: might mean for profits coming forward from here Q two, 352 00:18:25,040 --> 00:18:27,399 Speaker 6: Q three, Q four. What do you think that's going 353 00:18:27,440 --> 00:18:27,879 Speaker 6: to look like? 354 00:18:29,040 --> 00:18:31,399 Speaker 9: So for First Republic, I think it's a break even 355 00:18:31,440 --> 00:18:35,240 Speaker 9: at best, because if you reset their funding costs again 356 00:18:35,280 --> 00:18:37,520 Speaker 9: in the second quarter, it definitely takes away a lot 357 00:18:37,520 --> 00:18:40,040 Speaker 9: of the profitability. We also think they have to strength 358 00:18:40,080 --> 00:18:42,600 Speaker 9: the balance sheet, and that obviously hurts the revenue side. 359 00:18:42,760 --> 00:18:45,160 Speaker 9: If you sell securities, sell loans, etc. 360 00:18:45,520 --> 00:18:46,720 Speaker 3: And then capital of course. 361 00:18:46,480 --> 00:18:48,600 Speaker 9: Comes under pressure as you're going to have to sell 362 00:18:48,600 --> 00:18:51,439 Speaker 9: those assets at a loss. So that definitely puts pressure 363 00:18:51,480 --> 00:18:54,439 Speaker 9: on the revenue line and the earnings for sure. But 364 00:18:54,520 --> 00:18:56,600 Speaker 9: I think there's a case for the company to break even. 365 00:18:56,960 --> 00:18:59,600 Speaker 9: It's just a challenge to execute. And I think the 366 00:18:59,680 --> 00:19:01,399 Speaker 9: thing that we worry about is that this is a 367 00:19:01,440 --> 00:19:04,760 Speaker 9: company that has been a growth oriented company, not one 368 00:19:04,880 --> 00:19:06,040 Speaker 9: man's for profitability. 369 00:19:06,080 --> 00:19:07,440 Speaker 3: They haven't had a. 370 00:19:07,480 --> 00:19:10,680 Speaker 9: Quarter above a one percent hour away since twenty sixteen. 371 00:19:10,720 --> 00:19:12,480 Speaker 9: It's just not been in their DNA. They've been a 372 00:19:12,480 --> 00:19:15,520 Speaker 9: growth oriented bank, and it's a it's a very hard 373 00:19:15,560 --> 00:19:16,800 Speaker 9: pivot for them to do. 374 00:19:16,800 --> 00:19:18,800 Speaker 6: Does that mean they need new dataship? 375 00:19:20,480 --> 00:19:21,720 Speaker 3: Not sure about the leadership. 376 00:19:21,760 --> 00:19:23,240 Speaker 9: I think it's a change in mindset. 377 00:19:23,320 --> 00:19:25,520 Speaker 3: I think that they can do this if they. 378 00:19:25,520 --> 00:19:28,479 Speaker 9: Change from a growth company into a profit company and 379 00:19:28,560 --> 00:19:31,119 Speaker 9: make that immediate. I don't think it's impossible, but it 380 00:19:31,160 --> 00:19:34,240 Speaker 9: is a mindset change that would be relatively vague in 381 00:19:34,280 --> 00:19:34,840 Speaker 9: their history. 382 00:19:35,200 --> 00:19:39,080 Speaker 6: Listen, months changed, Tom forced on them after the events 383 00:19:39,080 --> 00:19:40,840 Speaker 6: of the Last Stand a few weeks. 384 00:19:41,200 --> 00:19:44,280 Speaker 1: You know, I'm thinking Johnavan to Charles Dickens novel eighteen 385 00:19:44,400 --> 00:19:49,240 Speaker 1: thirty England, where the banks were not growth vehicles. 386 00:19:49,520 --> 00:19:51,359 Speaker 6: I'm not sure to regulate to one banks to be 387 00:19:51,400 --> 00:19:54,320 Speaker 6: growth vehicles anyway. 388 00:19:53,520 --> 00:19:57,480 Speaker 1: I at leasta get out to surveillance, Cork, I'm going 389 00:19:57,560 --> 00:20:00,440 Speaker 1: to need it to protect the innocent here. I think 390 00:20:00,520 --> 00:20:04,399 Speaker 1: it's it's what I would say is the zombies are 391 00:20:04,400 --> 00:20:07,239 Speaker 1: going to get rolled up. How many First Republics are 392 00:20:07,240 --> 00:20:08,440 Speaker 1: out there is an important question. 393 00:20:08,480 --> 00:20:10,560 Speaker 6: I've seen people refer to this bank as a zombie. 394 00:20:10,600 --> 00:20:13,000 Speaker 6: I'm not going to reselves yesterday, Chris, thanks to that. 395 00:20:13,200 --> 00:20:16,399 Speaker 6: Good to catch up, Chris Famronak. There of Jenny Montgomery Scott. 396 00:20:20,520 --> 00:20:23,280 Speaker 1: As we lean forward with Charles Canter here of Newburger Berman, 397 00:20:23,400 --> 00:20:26,800 Speaker 1: we do better with RBC Capital Markets. Rishi Jaluia. Now 398 00:20:26,920 --> 00:20:30,840 Speaker 1: he's a software equity analyst, forget about it, expert on Microsoft. 399 00:20:31,040 --> 00:20:33,520 Speaker 1: Here we go, folks on the big stock you don't own. 400 00:20:34,280 --> 00:20:37,960 Speaker 1: Rishi twenty six percent per year total return over the 401 00:20:38,000 --> 00:20:42,520 Speaker 1: last ten years. The free cash flow blowout pre pandemic 402 00:20:43,040 --> 00:20:46,760 Speaker 1: is absolutely stunning. I mean, the cash flow growth out 403 00:20:46,800 --> 00:20:50,560 Speaker 1: five years to a model twenty twenty four is off 404 00:20:50,600 --> 00:20:54,880 Speaker 1: the chart. Is the story priced into the stock now 405 00:20:55,520 --> 00:20:58,440 Speaker 1: or will there be constructive surprises forward? 406 00:21:00,040 --> 00:21:00,240 Speaker 8: Yeah? 407 00:21:00,240 --> 00:21:02,640 Speaker 10: Thanks so much for having me. You know, I think 408 00:21:02,480 --> 00:21:05,320 Speaker 10: the big story around Microsoft is if we put maybe 409 00:21:05,320 --> 00:21:07,360 Speaker 10: the near term macro aside. 410 00:21:07,400 --> 00:21:08,520 Speaker 3: Is really AI. 411 00:21:09,000 --> 00:21:12,840 Speaker 10: And as we've outlined, we really think the opportunity with 412 00:21:12,960 --> 00:21:16,320 Speaker 10: generative AI for Microsoft is a call option on the stock. 413 00:21:16,400 --> 00:21:17,880 Speaker 3: It is not priced in today. 414 00:21:18,359 --> 00:21:20,960 Speaker 10: We actually needed to make money off Microsoft stock apps 415 00:21:21,000 --> 00:21:23,400 Speaker 10: in any AI story. But really that's where you gets 416 00:21:23,480 --> 00:21:26,479 Speaker 10: legive growth up and I do not think that's priced in. 417 00:21:26,520 --> 00:21:28,480 Speaker 10: You know, if you think about all the different ways 418 00:21:28,720 --> 00:21:31,640 Speaker 10: throughout Microsoft's portfolio that can that it can benefit from 419 00:21:31,960 --> 00:21:34,960 Speaker 10: generative AI, be it in Azure, from their agreement with 420 00:21:35,040 --> 00:21:39,479 Speaker 10: open Ai, be it competitively with the Microsoft through sixty 421 00:21:39,480 --> 00:21:42,879 Speaker 10: five suite, and the integration of co pilot throughout, be 422 00:21:42,960 --> 00:21:45,800 Speaker 10: it in their security, be it in GitHub. I think 423 00:21:45,800 --> 00:21:48,720 Speaker 10: there's so many ways Microsoft can benefit from generative AI, 424 00:21:48,720 --> 00:21:50,520 Speaker 10: and I think that's the next leg of growth up. 425 00:21:50,440 --> 00:21:52,159 Speaker 1: Here, Risha, I want to go to that. Okay, the 426 00:21:52,200 --> 00:21:55,280 Speaker 1: free casual in numbers, folks is thirty eight billion dollars 427 00:21:55,320 --> 00:21:58,359 Speaker 1: pre pandemic, and they went out to seventy three billion 428 00:21:58,400 --> 00:22:00,840 Speaker 1: dollars modeled off for two twenty four. That's the existing 429 00:22:00,880 --> 00:22:05,639 Speaker 1: company with two hundred thousand employees. Rishie explain how AI 430 00:22:05,880 --> 00:22:11,040 Speaker 1: is different than other new things, the bright, shiny new concept, 431 00:22:11,359 --> 00:22:14,600 Speaker 1: and that it's a call option on Microsoft that has 432 00:22:14,720 --> 00:22:15,760 Speaker 1: real durability. 433 00:22:17,280 --> 00:22:17,480 Speaker 3: Yeah. 434 00:22:17,520 --> 00:22:21,600 Speaker 10: I mean, look, this is the fourth big technological change 435 00:22:21,840 --> 00:22:25,399 Speaker 10: in my lifetime, right, going back to the Internet, going 436 00:22:25,440 --> 00:22:29,720 Speaker 10: back to mobility, the cloud, and now AI. And I 437 00:22:29,720 --> 00:22:31,679 Speaker 10: know we've been talking about AI for so long, but 438 00:22:32,119 --> 00:22:36,760 Speaker 10: chat GPT was that watershed moment that gets AI widespread 439 00:22:36,800 --> 00:22:39,280 Speaker 10: throughout the ecosystem. This is like when Netscape for the 440 00:22:39,280 --> 00:22:42,840 Speaker 10: Internet came out, or the iPhone for mobility, and that 441 00:22:43,040 --> 00:22:45,760 Speaker 10: is where we really think this has so much potential 442 00:22:46,119 --> 00:22:48,760 Speaker 10: not just for revenue, but to your point on the 443 00:22:48,760 --> 00:22:51,840 Speaker 10: bottom line, for free cash flow for Microsoft, that we 444 00:22:51,840 --> 00:22:54,560 Speaker 10: can see that number continue to move up. And because 445 00:22:54,560 --> 00:22:57,800 Speaker 10: of Microsoft's first mover advantage, because of how far ahead 446 00:22:57,800 --> 00:23:00,520 Speaker 10: of others open AI is, and because of how quickly 447 00:23:00,560 --> 00:23:02,679 Speaker 10: every other company is having to move to have a 448 00:23:02,720 --> 00:23:06,120 Speaker 10: generative AI strategy, we believe Microsoft will be an outside 449 00:23:06,160 --> 00:23:07,080 Speaker 10: beneficiary of that. 450 00:23:07,400 --> 00:23:09,359 Speaker 3: And if you look out throughout the entire. 451 00:23:09,280 --> 00:23:12,919 Speaker 10: Portfolio of Microsoft's products, all the growth rates will be 452 00:23:13,000 --> 00:23:15,960 Speaker 10: significantly different. Everyone's going to be talking about as your 453 00:23:16,000 --> 00:23:18,760 Speaker 10: growth rates, and you know, it seems it's realistic to 454 00:23:18,800 --> 00:23:21,440 Speaker 10: me that that's going to accelerate to probably twenty percent 455 00:23:21,480 --> 00:23:24,320 Speaker 10: growth over the coming quarters. But if once you start 456 00:23:24,359 --> 00:23:27,240 Speaker 10: layering in the benefits from generative AI, because this is 457 00:23:27,280 --> 00:23:30,600 Speaker 10: so much more resource intensive, not to mention, you'll probably 458 00:23:30,640 --> 00:23:33,520 Speaker 10: have an entire trillion dollar economy built on open AI, 459 00:23:33,720 --> 00:23:35,639 Speaker 10: just like you had a trillion dollar economy with the 460 00:23:35,640 --> 00:23:37,879 Speaker 10: iPhone and a trillion dollar economy with AWUS. 461 00:23:38,200 --> 00:23:40,560 Speaker 3: I think that as your number goes back above thirty. 462 00:23:40,359 --> 00:23:42,640 Speaker 4: Percent growth, Rishie, how much smaller can some of these 463 00:23:42,880 --> 00:23:45,719 Speaker 4: big tech companies be on a headcount level based on 464 00:23:45,760 --> 00:23:48,280 Speaker 4: some of the efficiencies that everyone keeps talking about with 465 00:23:48,400 --> 00:23:49,439 Speaker 4: artificial intelligence. 466 00:23:51,040 --> 00:23:52,359 Speaker 3: Yeah, I think that's a great question. 467 00:23:52,400 --> 00:23:54,760 Speaker 10: I would say, you know, number one, for Microsoft, I 468 00:23:54,760 --> 00:23:57,000 Speaker 10: think in contrast to a lot of the other big 469 00:23:57,040 --> 00:24:00,119 Speaker 10: tech they didn't over hire at the same rate. I 470 00:24:00,119 --> 00:24:02,680 Speaker 10: know they have done a riff. Some of that was 471 00:24:03,040 --> 00:24:06,440 Speaker 10: eliminating under performing employees, some of that was actual cost 472 00:24:06,440 --> 00:24:09,680 Speaker 10: savings and reallocating of employees. But I'd say Microsoft maybe 473 00:24:09,680 --> 00:24:12,520 Speaker 10: had more responsible hiring practices and a lot of other 474 00:24:12,560 --> 00:24:15,359 Speaker 10: big tech companies that have had to do significantly bigger riffs, 475 00:24:15,840 --> 00:24:17,159 Speaker 10: And if you benchmark. 476 00:24:16,800 --> 00:24:20,159 Speaker 3: Their employee efficiency relative to other companies enterprise software, they 477 00:24:20,240 --> 00:24:21,960 Speaker 3: were very high even prior to the riff. 478 00:24:22,480 --> 00:24:24,800 Speaker 10: Now, in terms of the cost savings from generator AI, 479 00:24:25,119 --> 00:24:27,359 Speaker 10: I think that's a big open ended question. You know, 480 00:24:27,560 --> 00:24:30,560 Speaker 10: we can talk about innovation and what general AI brings there, 481 00:24:30,720 --> 00:24:34,440 Speaker 10: but there is also It makes developers significantly more effective, 482 00:24:34,440 --> 00:24:37,879 Speaker 10: it makes marketers more effective, salespeople more effective, and I 483 00:24:37,920 --> 00:24:40,960 Speaker 10: wouldn't be surprised if we could see a company be 484 00:24:41,040 --> 00:24:43,600 Speaker 10: able to get away with significantly lower headcount. 485 00:24:43,600 --> 00:24:45,280 Speaker 3: I'm talking double digit, right, ten. 486 00:24:45,119 --> 00:24:48,840 Speaker 10: Percent plus lower headcount as a result of really embracing 487 00:24:48,880 --> 00:24:51,800 Speaker 10: and leveraging generative AI on the back end. You know, 488 00:24:51,840 --> 00:24:53,879 Speaker 10: that's maybe more of a three year story than a 489 00:24:53,960 --> 00:24:57,040 Speaker 10: near term one. But absolutely every company I talked to 490 00:24:57,240 --> 00:25:01,080 Speaker 10: is trying to use generative AI for greater operational efficiency, efficiency, 491 00:25:01,119 --> 00:25:04,240 Speaker 10: and then I think the terminal margins across enterprise software 492 00:25:04,240 --> 00:25:06,800 Speaker 10: and really across big tech has to be a higher 493 00:25:06,840 --> 00:25:08,760 Speaker 10: long term now because of this, just. 494 00:25:08,920 --> 00:25:12,040 Speaker 4: Real quick here, Who's going to win the generative AI game? 495 00:25:12,040 --> 00:25:13,919 Speaker 4: Will it be Google or will it be Microsoft? 496 00:25:15,560 --> 00:25:18,199 Speaker 10: Yeah, it's it's early to tell, but I think Microsoft 497 00:25:18,240 --> 00:25:21,440 Speaker 10: has such a huge lead from their early investment in 498 00:25:21,520 --> 00:25:23,919 Speaker 10: open ai, from the fact that open ai is an 499 00:25:24,000 --> 00:25:26,919 Speaker 10: arms length transaction. You look at the advantages you have 500 00:25:26,960 --> 00:25:29,640 Speaker 10: in chat, GPT versus all the other systems out there, 501 00:25:29,680 --> 00:25:33,119 Speaker 10: including Bard and Claude and any others that have been 502 00:25:33,119 --> 00:25:35,360 Speaker 10: out there, I think Microsoft has a huge advantage. 503 00:25:35,640 --> 00:25:36,720 Speaker 3: It is theirs to lose. 504 00:25:37,160 --> 00:25:39,520 Speaker 6: Richie Great to get your perspective on a case story. 505 00:25:39,520 --> 00:25:43,160 Speaker 6: A little bit later on this afternoon, Ritchie Delury of VOMBIEC. 506 00:25:53,119 --> 00:25:53,600 Speaker 1: Joining us. 507 00:25:53,600 --> 00:25:53,719 Speaker 10: Now. 508 00:25:53,800 --> 00:25:56,600 Speaker 1: The gentleman from Auburn, Paul Jacobson joins his chief financial 509 00:25:56,640 --> 00:26:01,480 Speaker 1: officer at General motors. Paul drive the Hummer EV. It 510 00:26:01,640 --> 00:26:05,280 Speaker 1: clocks in at eighty five thousand dollars marked up to 511 00:26:05,320 --> 00:26:08,720 Speaker 1: the proper Paul Jacobson level. It's maybe, oh one hundred 512 00:26:08,720 --> 00:26:12,800 Speaker 1: and four ninety five thousand, whatever it is. The answer is, 513 00:26:12,960 --> 00:26:16,360 Speaker 1: you boosted the range on a nine thousand pound vehicle? 514 00:26:16,880 --> 00:26:21,199 Speaker 1: Does America want that? Is there real demonstrable evidence that 515 00:26:21,400 --> 00:26:24,200 Speaker 1: Broad America wants to drive EV? 516 00:26:26,520 --> 00:26:30,280 Speaker 11: Well, Good morning, Tom and Lisa and John, Thanks so 517 00:26:30,280 --> 00:26:31,879 Speaker 11: so much for having me. First of all, let me 518 00:26:31,920 --> 00:26:35,480 Speaker 11: say thanks to the GM team for an excellent quarter 519 00:26:35,600 --> 00:26:37,920 Speaker 11: and the confidence that we have going into the year. 520 00:26:38,359 --> 00:26:40,680 Speaker 11: You know, when we're looking at EV's you know, we 521 00:26:41,440 --> 00:26:44,880 Speaker 11: have really strong demand for everything that we've produced so far, 522 00:26:45,520 --> 00:26:48,000 Speaker 11: and when you look at the order back logs and 523 00:26:48,040 --> 00:26:50,800 Speaker 11: the ramp up of cell capacity, we feel good about 524 00:26:50,800 --> 00:26:53,920 Speaker 11: our ability to ratchet up production to meet that demand. 525 00:26:53,960 --> 00:26:57,720 Speaker 11: But you know, consumers are speaking with their commitments to us, 526 00:26:57,800 --> 00:27:00,760 Speaker 11: and we feel good about the products, the vehicles that 527 00:27:00,800 --> 00:27:04,199 Speaker 11: we're producing. The Hummer EV is just a great vehicle 528 00:27:04,280 --> 00:27:07,240 Speaker 11: engineered by our team. Here we go and customers can't 529 00:27:07,240 --> 00:27:08,080 Speaker 11: get it fast enough. 530 00:27:08,720 --> 00:27:10,760 Speaker 1: You know, I look at this, Paul, and it is 531 00:27:10,920 --> 00:27:14,560 Speaker 1: unit and price. Mister Musk is playing with price, it 532 00:27:14,600 --> 00:27:18,159 Speaker 1: seems like on a weekly basis at Tesla. How I 533 00:27:18,160 --> 00:27:21,320 Speaker 1: was talking to our David Welch in Detroit, it's real simple. 534 00:27:21,440 --> 00:27:27,040 Speaker 1: How do you adapt to Tesla's price strategy. Is it 535 00:27:27,119 --> 00:27:30,000 Speaker 1: something you react to, is it something you ignore. 536 00:27:32,400 --> 00:27:35,520 Speaker 11: So we've actually been very consistent with our pricing on 537 00:27:35,600 --> 00:27:38,159 Speaker 11: our evs, and that's really a function of the demand 538 00:27:38,240 --> 00:27:41,919 Speaker 11: that we've seen for them. So, you know, there's been 539 00:27:41,960 --> 00:27:45,680 Speaker 11: a lot of industry noise around pricing all across the world, 540 00:27:45,760 --> 00:27:49,320 Speaker 11: and it's something that we've been very consistent with our 541 00:27:49,359 --> 00:27:52,600 Speaker 11: strategy and it's one that consumers are responding to over 542 00:27:52,640 --> 00:27:55,360 Speaker 11: the long term. Obviously, we've got a competitor that is 543 00:27:55,600 --> 00:27:59,000 Speaker 11: posting really strong results, really strong margins. We need to 544 00:27:59,000 --> 00:28:02,240 Speaker 11: make sure that we lower our costs, especially our structural costs, 545 00:28:02,240 --> 00:28:05,080 Speaker 11: and we're aggressively getting after that. We announced a two 546 00:28:05,080 --> 00:28:08,480 Speaker 11: billion dollar program today. We're talking about being at the 547 00:28:08,560 --> 00:28:11,719 Speaker 11: high end of that range in twenty twenty three, getting 548 00:28:11,960 --> 00:28:14,800 Speaker 11: about a billion dollars out this year, with the other 549 00:28:14,840 --> 00:28:17,280 Speaker 11: billion to follow next year. And it's just the first 550 00:28:17,280 --> 00:28:19,760 Speaker 11: step in the process of making sure that we're competitive 551 00:28:19,760 --> 00:28:21,000 Speaker 11: for the next generation. 552 00:28:20,720 --> 00:28:22,600 Speaker 5: Does cost savings mean mean layoffs. 553 00:28:24,800 --> 00:28:27,840 Speaker 11: We're actually not doing any layoffs, Lisa. So we at 554 00:28:27,880 --> 00:28:30,400 Speaker 11: the end of the day, we had a voluntary severance program. 555 00:28:30,600 --> 00:28:34,160 Speaker 11: We had over five thousand of our colleagues opt either 556 00:28:34,240 --> 00:28:38,120 Speaker 11: to retire or to move on, and that alone is 557 00:28:38,160 --> 00:28:39,800 Speaker 11: going to save us about a billion dollars in the 558 00:28:39,880 --> 00:28:42,040 Speaker 11: run rate, and that's something that we think we can 559 00:28:42,440 --> 00:28:44,880 Speaker 11: manage through and hit our goals on our two billion 560 00:28:44,920 --> 00:28:45,560 Speaker 11: dollar program. 561 00:28:45,800 --> 00:28:49,160 Speaker 4: You reported a full year expectations, Paul, that exceeded what 562 00:28:49,240 --> 00:28:51,880 Speaker 4: a lot of people were anticipating. How much does this 563 00:28:52,000 --> 00:28:55,240 Speaker 4: hinge on North America and not on China? How much 564 00:28:55,560 --> 00:28:58,160 Speaker 4: is this completely independent of an international story? 565 00:28:58,160 --> 00:28:59,480 Speaker 5: And very much us focused. 566 00:29:01,280 --> 00:29:03,880 Speaker 11: Well, the bulk of our business is obviously in our 567 00:29:03,920 --> 00:29:07,280 Speaker 11: North America segment, and we had a really strong quarter there. 568 00:29:07,800 --> 00:29:11,360 Speaker 11: Pricing is still up as we see, wholesale prices are 569 00:29:11,400 --> 00:29:14,200 Speaker 11: still lapping the increases we had last year that we 570 00:29:14,200 --> 00:29:16,720 Speaker 11: put through as a result of the higher input costs, 571 00:29:17,280 --> 00:29:20,479 Speaker 11: and demand still remained strong. So our volumes were up 572 00:29:20,480 --> 00:29:23,920 Speaker 11: about four percent, our inventories were flat, and I think 573 00:29:23,920 --> 00:29:26,520 Speaker 11: the team's doing a very good job of managing through that. 574 00:29:27,920 --> 00:29:30,040 Speaker 11: We've planned for the year and We alluded to this 575 00:29:30,120 --> 00:29:32,120 Speaker 11: and our guidance at the beginning of the year that 576 00:29:32,200 --> 00:29:36,280 Speaker 11: we were assuming a fifteen million unit market here in 577 00:29:36,320 --> 00:29:39,719 Speaker 11: the US, and we came in slightly above that. But 578 00:29:40,080 --> 00:29:42,440 Speaker 11: we've got some cushion built in in case we see 579 00:29:43,000 --> 00:29:46,280 Speaker 11: demand start to fall off in our expectations. But when 580 00:29:46,320 --> 00:29:48,880 Speaker 11: you look at our first quarter out performance and the 581 00:29:48,920 --> 00:29:52,640 Speaker 11: confidence of our cost reduction plan, we felt comfortable raising 582 00:29:52,680 --> 00:29:56,280 Speaker 11: the guide. Now, China obviously a very competitive they're still 583 00:29:56,280 --> 00:29:59,560 Speaker 11: coming out of coming out of COVID, and we see 584 00:29:59,600 --> 00:30:02,760 Speaker 11: demand covering, but it's also an incredibly competitive market. The 585 00:30:02,800 --> 00:30:05,320 Speaker 11: team there has done a great job. We were able 586 00:30:05,320 --> 00:30:08,720 Speaker 11: to maintain profitability in Q one, but we think second 587 00:30:08,800 --> 00:30:10,360 Speaker 11: quarter is going to be a little bit challenging and 588 00:30:10,400 --> 00:30:12,640 Speaker 11: then we start to see some improvement in the back half. 589 00:30:12,480 --> 00:30:12,880 Speaker 3: Of the year. 590 00:30:13,080 --> 00:30:15,520 Speaker 4: Given how exposed you are to the US market, Paul, 591 00:30:15,520 --> 00:30:17,640 Speaker 4: what is your concern level in terms of tightening credit. 592 00:30:17,640 --> 00:30:21,040 Speaker 4: We talk all about smaller banks and restricting credit on 593 00:30:21,120 --> 00:30:24,320 Speaker 4: the margins, in particular when it comes to auto lending. 594 00:30:24,360 --> 00:30:26,720 Speaker 5: Are you seeing that already? How aware are you of that? 595 00:30:28,760 --> 00:30:32,200 Speaker 11: We haven't seen that affecting our consumers and our customers, 596 00:30:32,800 --> 00:30:36,560 Speaker 11: and you know We obviously have a captive financing arm 597 00:30:36,560 --> 00:30:39,840 Speaker 11: through GM Financial. Their credit statistics we look at them 598 00:30:40,480 --> 00:30:44,080 Speaker 11: every week and they're still they're still quite strong. We've 599 00:30:44,120 --> 00:30:47,200 Speaker 11: seen a little bit of normalization but really back to 600 00:30:47,280 --> 00:30:49,720 Speaker 11: kind of pre COVID levels, but nothing that we've seen 601 00:30:50,320 --> 00:30:52,560 Speaker 11: that gives us any area of concern right now for 602 00:30:52,600 --> 00:30:53,280 Speaker 11: our consumers. 603 00:30:53,520 --> 00:30:57,440 Speaker 1: Paul, You've got a familiarity with Auburn, Alabama, and I 604 00:30:57,480 --> 00:31:01,360 Speaker 1: see in Auburn there's sixty two public charging stations, but 605 00:31:01,480 --> 00:31:07,320 Speaker 1: only six are free EV charging stations. Does General Motors 606 00:31:07,360 --> 00:31:10,800 Speaker 1: have to provide leadership and set up a grid of 607 00:31:10,840 --> 00:31:14,080 Speaker 1: electric charging stations across America? 608 00:31:16,320 --> 00:31:18,480 Speaker 11: So this is an area that we we got out 609 00:31:18,480 --> 00:31:20,680 Speaker 11: to an early start on TOM as we started to 610 00:31:20,680 --> 00:31:23,040 Speaker 11: build out that network, and we think it's an important 611 00:31:23,640 --> 00:31:27,440 Speaker 11: piece for EV adoption across the country for sure. But 612 00:31:27,480 --> 00:31:30,360 Speaker 11: we committed about seven hundred and fifty dollars to a 613 00:31:30,440 --> 00:31:33,840 Speaker 11: multi pronged charging strategy. The leading piece of it was 614 00:31:34,200 --> 00:31:37,720 Speaker 11: a partnership with Pilot Flying JA to help increase the 615 00:31:38,040 --> 00:31:41,760 Speaker 11: interstate system for road trip charging across the board. But 616 00:31:41,800 --> 00:31:45,040 Speaker 11: we also partner with our dealers in local communities to 617 00:31:45,120 --> 00:31:48,440 Speaker 11: locate chargers for those families that may not have one 618 00:31:48,480 --> 00:31:51,640 Speaker 11: in their home, and really we feel like we need 619 00:31:51,640 --> 00:31:55,239 Speaker 11: to provide solutions for everyone across the board. But you know, 620 00:31:55,400 --> 00:31:59,120 Speaker 11: paid charging is actually something that's I've found as far 621 00:31:59,160 --> 00:32:02,640 Speaker 11: more economical than even filling up your car with gas. 622 00:32:02,640 --> 00:32:04,960 Speaker 11: So it's something that ultimately we're committed to. 623 00:32:05,160 --> 00:32:07,240 Speaker 1: What are you to do in the dividend, I'm absolutely fair, 624 00:32:07,880 --> 00:32:10,000 Speaker 1: I've been talking about use of cash right now. I 625 00:32:10,000 --> 00:32:12,480 Speaker 1: got a gross yield to one percent. I'm not even 626 00:32:12,520 --> 00:32:15,520 Speaker 1: sure what dividend growth is. Describe the five year dividend 627 00:32:15,520 --> 00:32:17,480 Speaker 1: growth forward for General Motors. 628 00:32:19,280 --> 00:32:21,880 Speaker 11: So we look at our dividend as an important part 629 00:32:21,880 --> 00:32:26,120 Speaker 11: of our capital allocation priorities. You know, the first one 630 00:32:26,160 --> 00:32:28,400 Speaker 11: is obviously investing in the business. We have a lot 631 00:32:28,400 --> 00:32:34,040 Speaker 11: of capital that we are investing for the transformation, eleven 632 00:32:34,080 --> 00:32:38,400 Speaker 11: to thirteen billion dollars this year alone. But we're still 633 00:32:38,440 --> 00:32:41,280 Speaker 11: generating really sizeable amounts of free cash, and that's a 634 00:32:41,440 --> 00:32:43,760 Speaker 11: testament to both the team as well as the demand 635 00:32:43,800 --> 00:32:46,800 Speaker 11: for our products across the board. This past quarter, we 636 00:32:46,920 --> 00:32:49,640 Speaker 11: repurchased about three hundred and sixty five million dollars of 637 00:32:49,720 --> 00:32:53,920 Speaker 11: stock while also early retiring one point five billion dollars 638 00:32:53,920 --> 00:32:56,600 Speaker 11: of debt, so taking care of the balance sheet, being 639 00:32:56,880 --> 00:32:59,560 Speaker 11: prudent with our capital across the board and a dividend 640 00:32:59,640 --> 00:33:03,000 Speaker 11: is a part of that. But we also are actively 641 00:33:03,080 --> 00:33:06,480 Speaker 11: using share repurchases as a tool to return capital to shareholders. 642 00:33:06,640 --> 00:33:08,840 Speaker 6: Have you noticed how much more comfortable CFOs not to 643 00:33:09,000 --> 00:33:09,960 Speaker 6: when they beaten Rice? 644 00:33:10,360 --> 00:33:16,000 Speaker 12: Have you noticed that it is his voice change? Okay, yeah, 645 00:33:16,040 --> 00:33:21,040 Speaker 12: it's common, Jacobson. Thank you, say for sure, General Mode CFO. 646 00:33:21,480 --> 00:33:25,320 Speaker 1: Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify and 647 00:33:25,480 --> 00:33:29,680 Speaker 1: anywhere else you get your podcasts. Listen live every weekday 648 00:33:29,920 --> 00:33:33,440 Speaker 1: starting at seven am Eastern. I'm Bloomberg dot Com, the 649 00:33:33,560 --> 00:33:38,080 Speaker 1: iHeartRadio app, tune In, and the Bloomberg Business app. You 650 00:33:38,120 --> 00:33:42,160 Speaker 1: can watch us live on Bloomberg Television and always I'm 651 00:33:42,200 --> 00:33:46,200 Speaker 1: the Bloomberg Terminal. Thanks for listening. I'm Tom Keen, and 652 00:33:46,280 --> 00:33:47,800 Speaker 1: this is Bloomberg