WEBVTT - Markets Rebound on Strong Start for Earnings 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business app. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.080 us live on YouTube. 0:00:27.120 --> 0:00:29.520 Even if you didn't read the eight hundred and thirty pages. 0:00:30.600 --> 0:00:34.160 It had a lovely purple lavender cover and you could 0:00:34.159 --> 0:00:38.560 walk around campus toading your Absfeld and rogueoff and you 0:00:38.720 --> 0:00:41.839 get cool points just for that. Joining us now. One 0:00:41.880 --> 0:00:46.800 of the Foundation academics we have on our international macroeconomics 0:00:47.159 --> 0:00:52.360 Maurice Obsfeld. He's with the Peterson Institute with Posen and Blanchard. 0:00:52.479 --> 0:00:56.160 He is at Berkeley forever and always professor. Thank you 0:00:56.200 --> 0:00:59.959 so much for joining us. What I see in percolate 0:01:00.280 --> 0:01:05.319 right now, Maurice Sobsfeld, is real tensions about supply lines 0:01:05.400 --> 0:01:12.280 falling apart, supply lines fragile because of tariffs, the interstitial, 0:01:13.880 --> 0:01:15.480 the interstitual. 0:01:14.800 --> 0:01:17.840 Wiring of our trade system. Is it broken. 0:01:19.880 --> 0:01:23.840 It's not broken yet, but it's understrained. It's understrained because 0:01:23.840 --> 0:01:29.720 of tariffs. It's understrained because of geopolitical tensions. It's understrained 0:01:29.720 --> 0:01:32.240 because of the trade war. And we can see this 0:01:32.400 --> 0:01:37.319 and the threats flying back between President Trump and China 0:01:37.400 --> 0:01:42.040 right now over everything from shipping to rar earths to 0:01:42.120 --> 0:01:42.720 cooking oil. 0:01:43.080 --> 0:01:46.240 There just seems to be two Americas, one affected by 0:01:46.280 --> 0:01:51.760 goods and trade worry and angst, in another a financial boom. 0:01:51.920 --> 0:01:54.600 Like Morgan Stanley, can we exist like this? 0:01:56.320 --> 0:02:00.840 Well, you know, the US economy has become increasingly financialized 0:02:01.080 --> 0:02:05.040 over the decades, and you know, at some level, the 0:02:05.200 --> 0:02:10.600 US is the world's banker at this point. And interestingly, 0:02:10.639 --> 0:02:14.520 finance hasn't seen the kind of backlash that we've seen 0:02:14.560 --> 0:02:19.840 against trade. You know, trade is blamed for deficits with 0:02:19.960 --> 0:02:24.200 other countries, it's blamed for the declient of manufacturing. You know, 0:02:24.240 --> 0:02:30.320 we don't see people wanting to curb financial transactions. Quite 0:02:30.320 --> 0:02:36.280 the contrary, we're seeing deregulation stable coins and the like. 0:02:36.440 --> 0:02:39.679 So there really really is a divorce between those two sectors. 0:02:39.720 --> 0:02:41.880 And you know, the question I have is can that 0:02:41.919 --> 0:02:42.639 go on forever? 0:02:42.840 --> 0:02:43.280 Yeah? 0:02:43.400 --> 0:02:48.120 Or will the trade tensions eventually feed into the financial sphere? 0:02:48.520 --> 0:02:49.240 I think they will. 0:02:50.080 --> 0:02:52.079 And Professor, that's kind of where we are right now. 0:02:52.120 --> 0:02:55.160 The folks that are supporting tariffs. They say, we are 0:02:55.240 --> 0:02:55.880 not seeing. 0:02:55.680 --> 0:02:56.720 The economy slow down. 0:02:56.760 --> 0:02:59.440 We recently had a very strong third quarter GDP print, 0:03:00.160 --> 0:03:03.480 not seeing a material increase in inflation data, although we 0:03:03.560 --> 0:03:06.720 are now lacking data because of the shutdown. So again 0:03:06.800 --> 0:03:09.280 the supporters of tariffs are saying, we're just not seeing 0:03:09.320 --> 0:03:13.239 those economic headwinds coming from tariffs. So my question to 0:03:13.280 --> 0:03:15.360 you is is it just a matter of time or 0:03:15.440 --> 0:03:17.119 are corporations adapting? 0:03:17.960 --> 0:03:19.680 Oh? I think it's a matter of time. 0:03:19.760 --> 0:03:23.960 There is some adaptation, of course, as corporations look for 0:03:24.160 --> 0:03:25.200 cheaper suppliers. 0:03:25.280 --> 0:03:27.760 But you know, just look at what we've seen. 0:03:27.960 --> 0:03:31.680 We have not seen any material fall in the dollar 0:03:31.800 --> 0:03:37.880 prices that foreign countries charge for US. We've seen some 0:03:38.080 --> 0:03:43.080 limited increase in consumer prices of imported goods and close 0:03:43.160 --> 0:03:47.600 substitutes for those imported goods, but not enough to offset 0:03:47.720 --> 0:03:52.320 the tariff. But we've also seen substantial revenue coming into 0:03:52.360 --> 0:03:56.880 the treasury from tariffs, which is being paid by our importers. 0:03:57.000 --> 0:03:59.080 So how do you square that circle? 0:04:00.320 --> 0:04:00.560 Right? 0:04:00.840 --> 0:04:04.400 You square it with a hit to profitability and with 0:04:04.600 --> 0:04:10.360 the observation that firms have been swallowing these tariffs to 0:04:10.400 --> 0:04:14.280 some extent while they wait for tariff policy to stabilize 0:04:14.320 --> 0:04:17.520 and figure out what it's going to be going forward 0:04:18.160 --> 0:04:21.200 now that we kind of know where we are with tariffs. 0:04:21.240 --> 0:04:23.640 To some extent, I think firms are going to be 0:04:23.680 --> 0:04:27.240 adjusting by passing those cost increases on. 0:04:27.640 --> 0:04:31.720 Professor Obsfeld synthesize here, say the work of Douglas or 0:04:31.760 --> 0:04:35.600 when at Dartmouth with down the hall from you at Berkeley, 0:04:35.640 --> 0:04:40.800 Barry Kengreen, and this whole trade up set and the 0:04:40.920 --> 0:04:44.400 risk to the dollar. This goes back to Obsfeld, Rogueoff, 0:04:44.480 --> 0:04:48.680 and frankly back to Mundell. I'm assuming you don't have 0:04:48.920 --> 0:04:52.599 a fear of the gloom crew on a dollar. 0:04:52.760 --> 0:04:56.640 Is that correct? The gloom crew? 0:04:57.520 --> 0:05:02.520 You know, I'm worried long term about the status of 0:05:02.560 --> 0:05:07.360 the dollar. I think they're very strong forces keeping the 0:05:07.400 --> 0:05:12.120 dollar in the prime position it's in in global markets 0:05:12.160 --> 0:05:17.880 as the world's currency. But foreign countries are increasingly worried 0:05:17.960 --> 0:05:23.440 about the kind of course of punitive actions that this 0:05:23.520 --> 0:05:29.480 administration has been taken to enforce its will globally, not 0:05:29.600 --> 0:05:33.240 just in the trade sphere, but looking at issues like 0:05:33.880 --> 0:05:38.680 internal politics. You know, we see this across the board 0:05:39.960 --> 0:05:43.880 for positive and negative. The Treasury right now is bailing 0:05:43.880 --> 0:05:48.240 out Argentina for largely political reasons. So I think I 0:05:48.279 --> 0:05:51.440 think the bottom line is that that foreign countries no 0:05:51.520 --> 0:05:55.880 longer trust the US as a responsible steward of the 0:05:55.880 --> 0:06:00.240 global economy are going to seek to decouple and sure 0:06:00.320 --> 0:06:05.520 themselves against policy volatility emanating from right. 0:06:05.360 --> 0:06:07.600 Here, Mars, I gotta get a breaking news, Paul. Can 0:06:07.640 --> 0:06:11.159 I ask a rude question of Professor Hobsfeld? Yeah, professor, 0:06:11.240 --> 0:06:15.599 and iiching green question for you, Maurice Hobsfeld on gold 0:06:15.600 --> 0:06:17.880 at four dollars announce? 0:06:18.200 --> 0:06:20.960 What would Barry say? 0:06:21.120 --> 0:06:23.960 I'm not going to speak for Barry, my good and 0:06:24.040 --> 0:06:27.320 longtime friend, but I think he would say that. 0:06:28.320 --> 0:06:30.120 I guess I am speaking for him. I want to 0:06:30.160 --> 0:06:31.040 speak for myself. 0:06:32.480 --> 0:06:34.880 Barry and I agree about a lot of things, not everything. 0:06:35.760 --> 0:06:41.039 You know, gold is a bell weather of fear, and 0:06:41.640 --> 0:06:47.159 the escalation in its price is far beyond what you 0:06:47.200 --> 0:06:51.039 would expect to see coming from inflationary fears. Although I 0:06:51.080 --> 0:06:55.400 think that's part of the picture. I think it be 0:06:55.520 --> 0:07:02.520 tokens a shift into something that is perceived as safer 0:07:02.520 --> 0:07:05.400 than the dollar and not subject to. 0:07:06.880 --> 0:07:10.400 Extra territorial action by the US. 0:07:10.600 --> 0:07:13.080 I mean, you know, we've seen the escalation and price 0:07:13.520 --> 0:07:17.880 We've also seen increasing purchases of gold by emerging market 0:07:17.960 --> 0:07:21.200 central banks. A lot of that is China, but not 0:07:21.240 --> 0:07:24.280 all of it is China, Okay, So that I think 0:07:24.320 --> 0:07:25.360 tells us something. 0:07:25.120 --> 0:07:26.400 About the fear out there. 0:07:26.560 --> 0:07:31.560 And you know, the escalation and bitcoin prices is a 0:07:31.600 --> 0:07:32.560 similar phenomenon. 0:07:32.880 --> 0:07:35.200 Professor got to leave it there too short a visit. 0:07:35.400 --> 0:07:36.200 Thank you so much. 0:07:36.240 --> 0:07:39.200 Thank you to you and the Peterson Institute, Adam Posen, 0:07:39.320 --> 0:07:43.080 Professor Blanchard and others for just great support of what 0:07:43.120 --> 0:07:47.360 we do. Marky Sobsfeld forever from the University of California 0:07:47.560 --> 0:07:48.160 at Berkeley. 0:07:48.480 --> 0:07:49.400 Stay with us. 0:07:49.440 --> 0:07:52.800 More from Bloomberg Surveillance coming up after this. 0:08:00.080 --> 0:08:03.480 Are listening to the Bloomberg Surveillance podcast. Catch us live 0:08:03.560 --> 0:08:06.720 weekday afternoons from seven to ten am Eastern Listen on 0:08:06.800 --> 0:08:10.480 Applecarplay and Android Otto with the Bloomberg Business app, or 0:08:10.600 --> 0:08:12.040 watch us live on YouTube. 0:08:12.240 --> 0:08:16.600 Chris Whalen is definitive on the American financial system. I'm 0:08:16.640 --> 0:08:20.000 standing or surrounded by dinosaurs in Houston, and I'm going 0:08:20.040 --> 0:08:22.280 I think I got Chris Whalen in a couple of days. 0:08:22.680 --> 0:08:26.240 Must listen for Global Wall Street, he joins us. Now 0:08:26.320 --> 0:08:29.840 I can't say enough about his value to the American 0:08:29.880 --> 0:08:33.680 financial system, his history, his books, and also his work 0:08:33.679 --> 0:08:37.480 at Whaling Global Advisors. Chris, I'm just going to cut 0:08:37.559 --> 0:08:43.080 to the chase. First Brands try Coller have a Are 0:08:43.120 --> 0:08:45.040 we living two thousand and six? 0:08:45.400 --> 0:08:50.000 Chris Whalen, Yeah, we're kind of repeating the same mistakes. 0:08:50.040 --> 0:08:52.640 You know, if you don't have a trustee to hold 0:08:52.679 --> 0:08:56.240 the paper, then you have double pledges of collateral. Remember 0:08:56.240 --> 0:09:00.720 bear Stearns. Yeah, I'm familiar, same same things. So it's 0:09:00.720 --> 0:09:04.240 called fraud. And you know, the terms on a lot 0:09:04.240 --> 0:09:07.240 of deals in the past ten fifteen years have loosened 0:09:07.600 --> 0:09:11.360 in favor of the issuers to the disadvantage of investors. 0:09:11.720 --> 0:09:13.760 And First Brand is a case in point. 0:09:13.880 --> 0:09:16.640 Chris Wayman, there was no other question at my CFA 0:09:16.720 --> 0:09:21.320 meeting in Houston, no other question. What's the contagion You're 0:09:21.559 --> 0:09:24.320 expert at the history of this. Come on, Is it 0:09:24.400 --> 0:09:28.200 like Continental Illinois? Is it like bear Stearns? As you mentioned, 0:09:28.440 --> 0:09:33.439 what's a contagion factor? In October of twenty twenty. 0:09:33.160 --> 0:09:38.680 Five, it's brewing. We won't really see it until we do. 0:09:38.960 --> 0:09:39.080 So. 0:09:39.920 --> 0:09:42.840 The commercial side of the equation is where the problems 0:09:42.880 --> 0:09:45.320 are for the banks, right now they are trying to 0:09:45.400 --> 0:09:48.440 hide them as best they can. We've just changed the 0:09:48.480 --> 0:09:52.520 accounting rules for loan modifications, by the way, so if 0:09:52.559 --> 0:09:54.960 it pays for twelve months, we pretend the loan was 0:09:55.000 --> 0:09:58.880 never modified. How cool is that? And I think that 0:09:58.960 --> 0:10:02.240 the industry of the rate laters are all walking past 0:10:02.280 --> 0:10:06.000 the graveyard because private equity, commercial real estate, all of 0:10:06.040 --> 0:10:10.040 these sectors are still having significant problems. On the other hand, 0:10:10.160 --> 0:10:15.080 consumer is quiet. We've been releasing reserves and reducing provisions 0:10:15.080 --> 0:10:18.559 for loan loss on the consumer side because there's nothing 0:10:18.640 --> 0:10:21.840 happening yet that may come next year. But the commercial 0:10:21.880 --> 0:10:25.319 side is where the action is right now, Tom. 0:10:25.080 --> 0:10:27.120 Chris, I've learned a new term, I guess in the 0:10:27.160 --> 0:10:30.600 last few weeks, and that is the basement trade. Where 0:10:30.760 --> 0:10:33.960 is my understanding is investors are saying, I'm worried about 0:10:33.960 --> 0:10:35.920 all this government spending around the world, So maybe I 0:10:35.920 --> 0:10:40.040 don't want to own government securities like currencies, maybe even 0:10:40.760 --> 0:10:43.240 the government debt, and that includes the US stuff. 0:10:43.559 --> 0:10:46.880 Maybe I'll buy some other stuff like gold. What do 0:10:46.920 --> 0:10:47.439 you make of that? 0:10:49.120 --> 0:10:51.800 I've been telling my readers to put at least ten 0:10:51.840 --> 0:10:55.080 to fifteen percent of their total allocation in the gold 0:10:55.720 --> 0:10:58.960 for most of this year, and I think it's solely 0:10:59.040 --> 0:11:02.360 beginning to start for the simple reason that there isn't 0:11:02.360 --> 0:11:07.160 a lot of deliverable supplying gold. People are worried about deficits. 0:11:07.200 --> 0:11:09.640 They are worried about the dollar, and I think they're 0:11:09.720 --> 0:11:12.200 right to do so. The dollar is probably going to 0:11:12.240 --> 0:11:16.760 continue to go down. We have structural problems in this country. 0:11:16.960 --> 0:11:21.000 You notice Chairman Powell is talking about continuing to shrink 0:11:21.040 --> 0:11:21.880 the balance sheet. 0:11:22.160 --> 0:11:22.520 Why. 0:11:22.920 --> 0:11:25.960 As Bill Nelson at Bank Policy Institute wrote this week, 0:11:26.000 --> 0:11:29.040 the Fed funds market may collapse thanks to the big 0:11:29.080 --> 0:11:31.720 balance sheet. So we have a lot of issues. In 0:11:31.760 --> 0:11:36.040 the background. The markets look great AI, everybody's still making 0:11:36.080 --> 0:11:39.320 tons of money. But in the background, people are worried 0:11:39.720 --> 0:11:42.720 because when you have these old time highs one after another, 0:11:43.040 --> 0:11:45.720 they tend to not be confirmed after a while. 0:11:45.840 --> 0:11:48.720 For Global Wall Street Worldwide on YouTube, across all of 0:11:48.760 --> 0:11:52.680 our audio product Christopher Whalan joins us his one volume 0:11:52.720 --> 0:11:55.280 on the American Financial system, my book of the Year. 0:11:55.720 --> 0:11:58.720 Ages ago were begging him, He's going to put a book. 0:11:58.960 --> 0:11:59.920 DiCaprio skeed. 0:12:00.400 --> 0:12:03.280 Oh, I got to signed up and continue with Chris Whaley. 0:12:03.520 --> 0:12:04.199 Chris talked to us. 0:12:04.160 --> 0:12:07.880 About liquidity in the marketplace, and I'm thinking about not 0:12:07.960 --> 0:12:09.880 so much as stock market, but just kind of across 0:12:09.920 --> 0:12:12.520 the fixed income space, maybe the currency space. 0:12:12.960 --> 0:12:17.319 Is that a worry for you, Yes. 0:12:17.480 --> 0:12:18.120 Very much. So. 0:12:18.160 --> 0:12:22.240 It's almost like we're back to December twenty eighteen when 0:12:22.440 --> 0:12:25.920 Jerome Powell almost ran the ship aground. You recall they 0:12:25.920 --> 0:12:30.480 pivoted very quickly in January nineteen and started easing. That's 0:12:30.520 --> 0:12:33.760 when they went to this ample reserve policy that they've 0:12:33.800 --> 0:12:34.680 had since then. 0:12:35.000 --> 0:12:37.319 And I think that what we're worried about. 0:12:37.120 --> 0:12:40.560 Is that the model that the FED uses to judge 0:12:40.600 --> 0:12:44.080 whether liquidity is adequate or not is based on GDP, 0:12:44.600 --> 0:12:50.839 which has nothing to do with anything. Liquidity is highly compartmentalized. 0:12:51.240 --> 0:12:54.400 It does not flow one way in another, so you 0:12:54.840 --> 0:12:57.480 really don't know until there's not enough. 0:12:57.679 --> 0:12:59.320 Chris, I think that's where we are today. 0:13:00.040 --> 0:13:01.800 I gotta get two things in here. It's too important. 0:13:01.760 --> 0:13:05.160 Sweeney's lined up. Sweeny's got notes this morning for Chris Whalen. 0:13:05.240 --> 0:13:09.319 I have Christopher Waller tomorrow. What is Chris Whalen's question 0:13:09.760 --> 0:13:13.360 for Governor Waller A presultive chairman, What's your question? 0:13:13.480 --> 0:13:13.840 Whalen? 0:13:15.160 --> 0:13:18.480 He was very bullish on shrinking the balance sheet earlier 0:13:18.520 --> 0:13:21.360 this year. Ask him how he feels now? Ask him 0:13:21.360 --> 0:13:22.720 where round is now? 0:13:22.920 --> 0:13:23.760 I don't have to work. 0:13:23.840 --> 0:13:27.720 We're landing in the fall. We don't have an altimeter. Okay, 0:13:28.040 --> 0:13:31.319 where is the ground? Does he know? That's the key question? 0:13:31.440 --> 0:13:31.560 Broll. 0:13:31.640 --> 0:13:32.880 Yeah, we'll try to get to that again. 0:13:32.880 --> 0:13:34.480 You're going to see that in the nine o'clock hour 0:13:34.520 --> 0:13:38.000 tomorrow with Christopher wall in his speech at the Council 0:13:38.040 --> 0:13:41.559 and Foreign Relations, and then I will grill him as 0:13:41.600 --> 0:13:46.600 best I can. He's really quite He's a prodigious intellect, folks, 0:13:46.600 --> 0:13:49.320 particularly in the game theory of central banking. 0:13:49.400 --> 0:13:51.480 Okay, Chris, let's go to it right now. 0:13:52.160 --> 0:13:55.760 I suggest that the major banks, led by JP Morgan 0:13:56.400 --> 0:14:00.559 and Bank of America literally are hiding how proud comfitable 0:14:00.640 --> 0:14:05.440 they are. In the Whalen history, back to Granpa Whale 0:14:05.520 --> 0:14:08.800 great great Grandpa Whalen was with Alexander Hamilton. A few 0:14:08.840 --> 0:14:13.920 years ago, Chris Whalen described the profitability of this modern 0:14:14.000 --> 0:14:16.360 era of ginormous big banks. 0:14:18.000 --> 0:14:21.440 I'm not sure that they're that much more profitable today 0:14:21.480 --> 0:14:24.160 than they have been in the past. Asset returns are 0:14:24.160 --> 0:14:28.960 barely one percent. They are giving back capital because they're underutilized. 0:14:29.480 --> 0:14:31.640 Why are they lending all this money to non bank, 0:14:32.200 --> 0:14:36.320 non depository institutions because loan demand otherwise is pretty slack. 0:14:36.640 --> 0:14:39.720 You know, deposits are growing twice as fast as demand 0:14:39.720 --> 0:14:43.520 for loans. So hopefully when rates fall, we'll see volumes 0:14:43.560 --> 0:14:46.520 pick up a bit like last September. This September two, 0:14:46.560 --> 0:14:47.880 by the way, is going to turn out to be 0:14:47.920 --> 0:14:51.080 a very good month for banks and non banks. But 0:14:51.200 --> 0:14:52.960 you know, the bottom line is that there are so 0:14:53.000 --> 0:14:56.280 many alternatives to traditional banks now that have been spawned 0:14:56.280 --> 0:14:59.600 in the equity markets and are funded with actity and debt, 0:15:00.080 --> 0:15:02.920 that you have plenty places to go spawn. 0:15:03.200 --> 0:15:07.280 Yes, exactly, only way they would say spawn, private credit. 0:15:07.120 --> 0:15:11.000 Was spawned exactly. Hey, here, get your thoughts on the 0:15:11.000 --> 0:15:11.680 housing market. 0:15:11.680 --> 0:15:15.080 Broady defined here that affordability issue continues to be a huge, 0:15:15.120 --> 0:15:17.920 huge issue for people, particularly young people. I got a 0:15:17.920 --> 0:15:20.480 mortgage rate still got a six handle out there, and 0:15:20.520 --> 0:15:23.480 I've got housing costs that are fifty percent since twenty nineteen. 0:15:24.360 --> 0:15:27.000 This is a problem, isn't it. 0:15:27.000 --> 0:15:29.080 It is, But it's a problem that's going to be fixed. 0:15:29.480 --> 0:15:32.040 Donald Trump is going to goos to housing market with 0:15:32.080 --> 0:15:35.520 his friend Bill Polti. They want to support homebuilders at 0:15:35.560 --> 0:15:38.320 a time when the homebuilders have already got too much inventory. 0:15:38.680 --> 0:15:42.080 Supply has caught up with demand. And remember the prediction 0:15:42.160 --> 0:15:44.960 of my good friend Stan Middleman, the founder of Freedom 0:15:45.000 --> 0:15:47.760 Mortgage Misery on the eighths. I think we see a 0:15:47.800 --> 0:15:51.560 maxi home price reset in twenty twenty eight. If you've 0:15:51.560 --> 0:15:56.080 got that high coupon mortgage, wait a little bit and 0:15:56.240 --> 0:15:58.760 maybe go into a floater, and then you'll be able 0:15:58.760 --> 0:16:01.280 to refinance it much lower in a couple of years. 0:16:02.000 --> 0:16:05.000 So, Chris, I guess the question is that there seems 0:16:05.040 --> 0:16:06.360 to be a housing shortage in this country. 0:16:06.400 --> 0:16:08.280 I'm not sure how he got there. How do you 0:16:08.320 --> 0:16:09.320 think that happened in. 0:16:09.200 --> 0:16:12.000 Some parts of the country, not everywhere here in New York, 0:16:12.240 --> 0:16:15.320 in the Blue States where we don't build. Yes, it's 0:16:15.400 --> 0:16:17.840 astounding to me because this is a market that had 0:16:18.000 --> 0:16:21.520 very poor volumes before COVID, but the prices keep going 0:16:21.600 --> 0:16:24.560 up because nobody's building houses. Down south, we have the 0:16:24.560 --> 0:16:28.680 opposite problem. Chris Carolina is in Texas, Florida. We are 0:16:28.800 --> 0:16:30.040 up to our ear lobes and. 0:16:30.000 --> 0:16:34.280 Support Michael Barrowe's equal time. Chris Whalen quickly here every 0:16:34.320 --> 0:16:37.560 Brady undergraduate wants to know when's the new book come out? 0:16:39.080 --> 0:16:42.160 Well, the second edition should have inflated is out, of course, 0:16:42.520 --> 0:16:45.560 and I did that for you. David Kotok did the introduction, 0:16:45.640 --> 0:16:47.880 by the way, very cool, and we're working on a 0:16:47.880 --> 0:16:50.200 gold book for next year, which will be very good. 0:16:50.320 --> 0:16:52.400 You'll probably talk to Iike agreed. That's the way. Chris 0:16:52.400 --> 0:16:54.920 Whalen rules. Christopher Whalen, thank you so much. 0:16:55.360 --> 0:16:59.240 I can't say enough, folks the importance of his skepticism 0:16:59.640 --> 0:17:02.800 about some of the verbiage of our financial system. 0:17:03.240 --> 0:17:04.000 Stay with us. 0:17:04.200 --> 0:17:14.520 More from Bloomberg Surveillance coming up after this. 0:17:14.520 --> 0:17:18.440 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:17:18.440 --> 0:17:21.760 starting at seven am Eastern on Applecarplay and Android Auto 0:17:21.880 --> 0:17:24.840 with the Bloomberg Business app. You can also listen live 0:17:24.920 --> 0:17:28.520 on Amazon Alexa from our flagship New York station, Just 0:17:28.560 --> 0:17:31.080 say Alexa play Bloomberg eleven thirty. 0:17:31.440 --> 0:17:32.040 She had a. 0:17:32.000 --> 0:17:35.800 Huge impact the last time she was on. Fatima Bulani 0:17:35.920 --> 0:17:38.840 joins us. She is at City Group and she is 0:17:39.080 --> 0:17:45.240 hard wired into the technology and software industry. Fatima Bulani 0:17:45.320 --> 0:17:48.600 joins us for an important brief this morning. Burying your 0:17:48.600 --> 0:17:51.359 note Fatima work. Not only in the first inning, the 0:17:51.400 --> 0:17:55.200 guy the third batters of the ondeck circle. You've got 0:17:55.280 --> 0:18:00.800 six percent of software spend is on AI. Where is 0:18:00.840 --> 0:18:05.880 that software spend on AI in one year, in three years, 0:18:06.000 --> 0:18:06.960 in five years. 0:18:08.359 --> 0:18:11.320 Well, it's it's a race to catch up here. You know, 0:18:12.040 --> 0:18:16.640 we have the pleasure and privilege of running our CIO 0:18:16.720 --> 0:18:21.399 survey every quarter, so excellent time series data and information 0:18:21.680 --> 0:18:26.160 about you know, an average organization and very large organizations 0:18:26.320 --> 0:18:32.680 appetite and proclivity to invest in particular parts of their 0:18:32.680 --> 0:18:36.320 IT infrastructure. And you know, I think the trends we 0:18:36.359 --> 0:18:40.040 are seeing as we're inching closer and closer to having AI, 0:18:40.400 --> 0:18:45.359 generative AI and related efforts to operationalize this concept of 0:18:45.400 --> 0:18:48.679 AI really showing up in the budgets and the wallet 0:18:48.720 --> 0:18:52.240 and the wallet allocation, and so you know, I think 0:18:52.240 --> 0:18:55.280 it's it's tough tough to sort of, you know, look 0:18:55.320 --> 0:18:57.359 into the crystal valid say that six percent is going 0:18:57.359 --> 0:19:01.480 to become twelve percent in the next twelve months. But 0:19:01.800 --> 0:19:08.320 the infrastructure spending and the velocity with which we're seeing 0:19:08.680 --> 0:19:11.560 so much capital being thrown at, you know. 0:19:11.600 --> 0:19:15.320 Enabling the AI enterprise, you know, it's. 0:19:15.160 --> 0:19:17.840 Only a matter of time till organizations catch up, and really, 0:19:17.880 --> 0:19:19.879 you know, one of the gating factors, and ultimately there 0:19:19.880 --> 0:19:23.760 are several gating factories. There's a lot of spaghetti being 0:19:23.760 --> 0:19:26.440 thrown on the wall way zat Black. 0:19:26.240 --> 0:19:30.280 Recking and VIDIA forty billion today a small number moments ago, 0:19:30.760 --> 0:19:35.640 Oracle collaborates with Microsoft to enhance supply chain efficiency. 0:19:35.760 --> 0:19:37.240 There you go, I have no I no idea. 0:19:37.400 --> 0:19:38.960 Only Fatima knows what that is. 0:19:39.520 --> 0:19:42.280 Fatima, I know in your survey here the next twelve 0:19:42.280 --> 0:19:46.880 month IT budget growth weakens with the US and EMEA 0:19:47.040 --> 0:19:48.320 below historical levels. 0:19:48.680 --> 0:19:51.919 Why is that? Do you think? You know, I think the. 0:19:52.160 --> 0:19:57.080 Inference there is there's most likely some share shift happening. Right, 0:19:57.680 --> 0:20:03.800 Most I organizations have the unfortunate uh decision and dilemma of, 0:20:04.200 --> 0:20:06.159 you know, keeping the lights on. So you have to 0:20:06.240 --> 0:20:10.040 invest in existing uh in your existing footprint of it 0:20:10.920 --> 0:20:14.960 UH infrastructure and capabilities just to keep the lights on. 0:20:15.080 --> 0:20:17.320 But then at the same time you have to sort 0:20:17.320 --> 0:20:19.760 of invest where the puck is going. Look at me 0:20:19.800 --> 0:20:24.880 mixing my metaphors, right, and so that's very like, yeah, 0:20:26.560 --> 0:20:30.200 that's the partial Canadian and me talking, and so really 0:20:30.240 --> 0:20:32.879 it's uh, you know this this notion and this inference 0:20:32.960 --> 0:20:36.280 of we're going to see some wallet share shifting in 0:20:36.359 --> 0:20:39.840 terms of allocation and right, so, uh, how how do 0:20:39.920 --> 0:20:41.399 you avoid starving? 0:20:41.960 --> 0:20:42.200 Uh? 0:20:42.320 --> 0:20:44.240 You know, initiatives that help keep the lights on in 0:20:44.240 --> 0:20:50.080 the organization whilst also straddling this executive and boardroom mandate 0:20:50.119 --> 0:20:51.919 of we have to do something with AI, we have 0:20:52.000 --> 0:20:57.680 to invest in AI, we have to create capabilities and operationalize. Uh, 0:20:57.880 --> 0:21:00.919 these AI efforts to build busines, this value and delivered 0:21:00.920 --> 0:21:01.840 business value. 0:21:02.040 --> 0:21:04.199 It seems like all Tom and I talk about all 0:21:04.320 --> 0:21:08.320 day is AI. But your survey indicates that cybersecurity remains 0:21:08.359 --> 0:21:11.320 the number one investment priority. 0:21:11.359 --> 0:21:12.119 Talk to us about that. 0:21:13.560 --> 0:21:17.840 Yeah, I rtially joke that once cybersecurity falls off the 0:21:17.920 --> 0:21:20.400 number one perch, you know, wake me up when that happens. 0:21:20.440 --> 0:21:24.159 Because this has been a very very consistent theme and 0:21:24.240 --> 0:21:28.479 trend in over a decade of survey results and survey 0:21:28.520 --> 0:21:31.119 work that we've done. Right that being said, you know, 0:21:31.200 --> 0:21:37.159 cybersecurity has become this this snowballing, this juggernaut of a 0:21:37.240 --> 0:21:42.320 priority for boardrooms and now especially now because you're a 0:21:42.400 --> 0:21:46.200 tech surface, has you know, effectively metastasized, right, I mean 0:21:46.800 --> 0:21:49.679 back in the nineteen nineties, it was your corporate network 0:21:49.800 --> 0:21:53.040 and the Internet you just had to protect. You know, 0:21:53.160 --> 0:21:55.120 you just have to bear your corporate net the work 0:21:55.119 --> 0:21:59.080 against the Internet. And now it's cloud, it's remote workers, 0:21:59.119 --> 0:22:04.800 it's you know, your distributed offices, it's AI, right, and 0:22:04.880 --> 0:22:10.399 so the new blind spots, the exposure, the susceptibility of 0:22:10.440 --> 0:22:14.240 what used to be a pretty tightly controlled network is 0:22:14.320 --> 0:22:16.399 completely unfurled, right, and so you kind of get the 0:22:16.480 --> 0:22:20.480 dynamic of your entire attack surface not only has increased, 0:22:20.520 --> 0:22:24.679 it's also changed and it's so much more nuances. And 0:22:24.680 --> 0:22:26.840 so that's why, you know, cybersecurity is sort of going 0:22:26.840 --> 0:22:29.800 to be the perennial number one spot. And you know, 0:22:29.840 --> 0:22:31.399 one of the things that you sort of asked me 0:22:31.440 --> 0:22:35.080 earlier was, well, what's stopping organizations from taking six percent 0:22:35.080 --> 0:22:39.040 of their IT budgets allocated towards AI initiatives? The twenty 0:22:39.160 --> 0:22:42.040 twenty five fifty cybersecurity is one of those reasons. 0:22:42.040 --> 0:22:47.639 Okay, yeah, Fatima, that's just brilliant Mark Bergenfolks his brilliant effort. 0:22:47.680 --> 0:22:50.640 I read a cover to cover like comments, subscribe Mark 0:22:50.680 --> 0:22:53.760 Bergen's Definitive book on YouTube. Thank you for that, He 0:22:53.840 --> 0:22:58.959 writes this morning for Bloomberg news Fatima, Microsoft cuts forth 0:22:59.240 --> 0:23:04.320 n scaled deal with Texas AI data center they're going 0:23:04.400 --> 0:23:06.960 to build. I love this, Paul, thank you for Bloomberg 0:23:07.040 --> 0:23:11.199 AI n scale two hundred and forty megawatts of power. 0:23:12.119 --> 0:23:14.920 The site will deploy one hundred and four thousand new 0:23:15.119 --> 0:23:16.040 Nvidia Corp. 0:23:16.520 --> 0:23:18.639 Chips. The rest of it I don't understand. 0:23:20.040 --> 0:23:23.320 I mean, Fatima, how does a pro like you who's 0:23:23.400 --> 0:23:27.520 worried about cash flow at Microsoft, how do you bring 0:23:27.640 --> 0:23:32.199 in this utility constraint that Mark Bergen writes about this morning. 0:23:33.640 --> 0:23:34.719