1 00:00:02,960 --> 00:00:10,840 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the 2 00:00:10,880 --> 00:00:15,040 Speaker 1: Bloomberg Intelligence podcast. Catch us live weekdays at ten am 3 00:00:15,080 --> 00:00:17,520 Speaker 1: Eastern on Apple car Play and Android Auto with the 4 00:00:17,520 --> 00:00:21,440 Speaker 1: Bloomberg Business App. Listen on demand wherever you get your podcasts, 5 00:00:21,640 --> 00:00:24,520 Speaker 1: or watch us live on YouTube. 6 00:00:25,040 --> 00:00:27,760 Speaker 2: One other stuff we're watching today is Home Depot. It's 7 00:00:27,760 --> 00:00:30,240 Speaker 2: off by about one and a half percent. The company 8 00:00:30,240 --> 00:00:34,040 Speaker 2: said it's going to buy building products distributor SRS Distribution, 9 00:00:34,159 --> 00:00:37,839 Speaker 2: a roofing company, for about eighteen point twenty five billion dollars. 10 00:00:37,880 --> 00:00:39,440 Speaker 2: So I want to get more on that, and who do 11 00:00:39,520 --> 00:00:41,680 Speaker 2: we go to? The best guy in the housing industry 12 00:00:41,680 --> 00:00:45,160 Speaker 2: when it comes to analysts, Drew Redding is Boomberg Intelligence 13 00:00:45,280 --> 00:00:47,920 Speaker 2: US home building analyst joining us. All right, what do 14 00:00:47,920 --> 00:00:49,760 Speaker 2: you make of the acquisition? The fact that stock's down? 15 00:00:51,960 --> 00:00:55,240 Speaker 3: Yeah, So this deal eighteen point two five billion, is 16 00:00:55,280 --> 00:00:59,440 Speaker 3: Home Depot's largest ever acquisition. Prior to this one, it's 17 00:00:59,520 --> 00:01:01,960 Speaker 3: largest was the eight billion dollar deal it did for 18 00:01:02,160 --> 00:01:06,319 Speaker 3: HD Supply back in twenty twenty as I did about 19 00:01:06,360 --> 00:01:08,680 Speaker 3: ten billion dollars of revenue. So for a company as 20 00:01:08,720 --> 00:01:12,200 Speaker 3: big as Home Depot, this is actually a pretty big deal. 21 00:01:12,240 --> 00:01:15,000 Speaker 3: And we think it fits with their strategic plan of 22 00:01:15,040 --> 00:01:19,760 Speaker 3: going after that professional customer. It's a very highly fragmented market, 23 00:01:20,240 --> 00:01:22,000 Speaker 3: you know. Our view has been that if they really 24 00:01:22,040 --> 00:01:24,800 Speaker 3: want to accelerate their growth, particularly in this segment of 25 00:01:24,840 --> 00:01:27,800 Speaker 3: the market, they would probably have to do a couple 26 00:01:27,800 --> 00:01:30,160 Speaker 3: of deals. They did a deal the one I mentioned 27 00:01:30,240 --> 00:01:33,520 Speaker 3: HD Supply back in twenty twenty. They recently did a 28 00:01:33,560 --> 00:01:36,360 Speaker 3: deal for International Designs Group, and now they added on 29 00:01:36,440 --> 00:01:40,160 Speaker 3: with this one. You mentioned the stock is down, you know, 30 00:01:40,200 --> 00:01:41,880 Speaker 3: as I mentioned, it's a pretty big deal, and I 31 00:01:41,920 --> 00:01:45,520 Speaker 3: think the fact that people are still kind of hoping 32 00:01:45,720 --> 00:01:48,880 Speaker 3: and waiting for that the underlying housing market to kind 33 00:01:48,880 --> 00:01:52,400 Speaker 3: of return to growth, and that's really the primary driver 34 00:01:52,480 --> 00:01:54,600 Speaker 3: of Home Depot's business. I think the fact that you're 35 00:01:54,680 --> 00:01:58,200 Speaker 3: layering this on top of you know, those market expectations 36 00:01:58,240 --> 00:01:59,280 Speaker 3: may be weighing a little bit. 37 00:02:00,320 --> 00:02:02,280 Speaker 4: I'm looking at the structure of the deal. 38 00:02:02,320 --> 00:02:02,520 Speaker 5: First. 39 00:02:02,520 --> 00:02:03,960 Speaker 4: I go to m Go, which is the first thing 40 00:02:04,000 --> 00:02:05,960 Speaker 4: I do for an M and A story, and to 41 00:02:06,000 --> 00:02:08,480 Speaker 4: see who the bankers and lawyers are and ma Go 42 00:02:08,560 --> 00:02:11,040 Speaker 4: does not have that information. I'm very disappointed. I have 43 00:02:11,080 --> 00:02:13,320 Speaker 4: to talk to the people and it hasn't been disclosed. 44 00:02:13,919 --> 00:02:15,200 Speaker 4: They're gonna go to the debt markets. 45 00:02:15,240 --> 00:02:15,400 Speaker 6: Here. 46 00:02:15,400 --> 00:02:16,760 Speaker 4: They do have a little bit of cash on the 47 00:02:16,800 --> 00:02:19,679 Speaker 4: balance sheet here, but they're going to finance it with 48 00:02:19,760 --> 00:02:22,080 Speaker 4: some debt. Is that okay with you and the credit 49 00:02:22,040 --> 00:02:22,919 Speaker 4: analysts out there. 50 00:02:23,760 --> 00:02:26,520 Speaker 3: Yeah, so their leverage is going to tick up even 51 00:02:26,560 --> 00:02:29,400 Speaker 3: are about two and a half times. The goal going 52 00:02:29,440 --> 00:02:31,639 Speaker 3: forward is to de leverage over the next twenty four 53 00:02:31,680 --> 00:02:34,120 Speaker 3: months to get back to a kind of two times target. 54 00:02:34,120 --> 00:02:35,880 Speaker 3: So it's it's not that much of a concern at 55 00:02:35,919 --> 00:02:39,280 Speaker 3: this point. You know. In order to do that, the 56 00:02:39,960 --> 00:02:42,280 Speaker 3: goal is obviously to accelerate growth, but at the same time, 57 00:02:42,320 --> 00:02:44,880 Speaker 3: they're going to put their sherry purchases on hold in 58 00:02:44,960 --> 00:02:47,560 Speaker 3: order to get that leverage back down in a timely fashion. 59 00:02:47,760 --> 00:02:49,680 Speaker 2: Okay, well, there you go. That's why the stocks down. 60 00:02:50,160 --> 00:02:52,480 Speaker 2: This is why I love angering with Paul because it's 61 00:02:52,520 --> 00:02:55,079 Speaker 2: like two different perspectives. I'm like, what's the macro read 62 00:02:55,160 --> 00:02:57,240 Speaker 2: and You're like, let's talk about how they're paying for it. 63 00:02:57,280 --> 00:02:59,320 Speaker 2: This is perfect. This is why Paul's mean you so awesome. 64 00:03:00,440 --> 00:03:02,440 Speaker 2: But to the point of like the why this is 65 00:03:02,480 --> 00:03:05,960 Speaker 2: not like John Tucker renovating a closet to a bathroom, right, Like, 66 00:03:06,000 --> 00:03:07,919 Speaker 2: it's not that like these are the real people. 67 00:03:09,440 --> 00:03:14,760 Speaker 3: Yeah, these are the professional remodelers, so srs caters to 68 00:03:14,840 --> 00:03:20,480 Speaker 3: especialty trade contractors. So think building materials primarily roofing, as 69 00:03:20,480 --> 00:03:22,960 Speaker 3: well as landscape and pools. So building materials are about 70 00:03:22,960 --> 00:03:25,760 Speaker 3: two thirds of their business and the pool and landscape 71 00:03:25,760 --> 00:03:30,280 Speaker 3: pieces are about a third. Those are actually newer markets 72 00:03:30,320 --> 00:03:33,200 Speaker 3: that they entered in through M and A. So Home 73 00:03:33,240 --> 00:03:36,480 Speaker 3: Depot's main strategy is going after an untapped two hundred 74 00:03:36,560 --> 00:03:39,800 Speaker 3: billion dollar market for what they call complex projects. And 75 00:03:39,920 --> 00:03:43,360 Speaker 3: you think about a professional contractor who is typically juggling, 76 00:03:43,600 --> 00:03:46,320 Speaker 3: you know, a handful of supplier relationships. For a larger 77 00:03:46,360 --> 00:03:48,880 Speaker 3: scale job, they might have to go to one distributor 78 00:03:48,920 --> 00:03:51,120 Speaker 3: for windows, they might have to go somewhere else for flooring, 79 00:03:51,200 --> 00:03:54,000 Speaker 3: somewhere else for doors. Yeah, and so on and so forth, 80 00:03:54,000 --> 00:03:56,800 Speaker 3: and so home depots goal and their strategy is to 81 00:03:56,880 --> 00:04:01,320 Speaker 3: kind of consolidate the need for contractors to go to 82 00:04:01,400 --> 00:04:03,200 Speaker 3: all those different suppliers. You want to become a one 83 00:04:03,240 --> 00:04:03,840 Speaker 3: stop shop. 84 00:04:04,440 --> 00:04:06,040 Speaker 4: Talk to me about just kind of the economics of 85 00:04:06,040 --> 00:04:08,120 Speaker 4: that business, Like what's the Is there a difference between 86 00:04:08,200 --> 00:04:11,320 Speaker 4: selling piece applywood to the John Tucker's of the world 87 00:04:11,400 --> 00:04:14,760 Speaker 4: versus selling a peace applywood to you know, a local contractor. 88 00:04:16,040 --> 00:04:20,200 Speaker 3: Well, professional contractors are typically higher spending. I mean, you 89 00:04:20,240 --> 00:04:24,200 Speaker 3: see that if you look at the store productivity of 90 00:04:24,240 --> 00:04:27,039 Speaker 3: a Home Depot compared to Lows after the last several years, 91 00:04:27,040 --> 00:04:30,159 Speaker 3: you see the sales per square foot sales for store 92 00:04:30,800 --> 00:04:33,400 Speaker 3: highly much stronger for Home Deep, And a lot of 93 00:04:33,400 --> 00:04:35,560 Speaker 3: that has to do with the spending nature of that 94 00:04:36,000 --> 00:04:37,279 Speaker 3: professional contractor. 95 00:04:37,800 --> 00:04:40,800 Speaker 2: I see. Okay, I mean just look at Duhn Tucker, 96 00:04:40,880 --> 00:04:42,520 Speaker 2: like he's definitely not going to be spending that high. 97 00:04:42,560 --> 00:04:44,359 Speaker 2: He's not going to the high end place, but he. 98 00:04:44,360 --> 00:04:46,520 Speaker 4: Does high quality work though I'm sure, oh. 99 00:04:46,360 --> 00:04:48,880 Speaker 2: No, no, totally into the high quality work one d PC. 100 00:04:49,760 --> 00:04:52,719 Speaker 2: So it sounds like you think this deal makes sense. 101 00:04:52,800 --> 00:04:54,599 Speaker 2: Where does it put it then, in relation to Lows, 102 00:04:54,600 --> 00:04:57,000 Speaker 2: which I must assume has to be trying to carve 103 00:04:57,040 --> 00:04:58,039 Speaker 2: out its own niche in that. 104 00:05:00,120 --> 00:05:00,320 Speaker 1: Yeah. 105 00:05:00,360 --> 00:05:04,200 Speaker 3: So it's a good question. And the strategy, you know, 106 00:05:04,240 --> 00:05:07,000 Speaker 3: in attacking the pro segment between Home Depot and Lows 107 00:05:07,640 --> 00:05:09,960 Speaker 3: is a little bit different. As I mentioned, home Depot 108 00:05:10,040 --> 00:05:13,160 Speaker 3: is targeting kind of that larger pro whereas Low's is 109 00:05:14,080 --> 00:05:17,120 Speaker 3: kind of focusing on that small and medium sized, medium 110 00:05:17,160 --> 00:05:20,680 Speaker 3: sized contractor. And this is kind of an area they've 111 00:05:20,680 --> 00:05:24,200 Speaker 3: been emphasizing over the last couple of years because prior 112 00:05:24,279 --> 00:05:27,560 Speaker 3: to twenty eighteen, when the new CEO, Marvin Elison came in, 113 00:05:27,720 --> 00:05:31,360 Speaker 3: Lows didn't really have a dedicated pro strategy. It was 114 00:05:31,440 --> 00:05:34,159 Speaker 3: kind of all over the place. So they're they're, you know, 115 00:05:34,160 --> 00:05:37,960 Speaker 3: philosophy has Let's get back to the fundamentals of the business. 116 00:05:38,040 --> 00:05:39,800 Speaker 3: Let's have the right brands, Let's make sure we have 117 00:05:39,880 --> 00:05:41,760 Speaker 3: things in stock, Let's make sure we have the proper 118 00:05:41,839 --> 00:05:45,000 Speaker 3: quantities and the right staffing. So they're kind of coming 119 00:05:45,040 --> 00:05:47,320 Speaker 3: from a different position where they're getting back to basics, 120 00:05:47,360 --> 00:05:50,400 Speaker 3: where home Depot already has that dominant position and they're 121 00:05:50,440 --> 00:05:52,480 Speaker 3: looking to expand into an untapped market. 122 00:05:52,680 --> 00:05:56,039 Speaker 4: All right, let's step back, Drew, talk to us about 123 00:05:56,040 --> 00:05:58,760 Speaker 4: what's going on in the housing market. What's the elevator 124 00:05:58,800 --> 00:06:01,160 Speaker 4: pitch you're giving to clients these days. How are investors 125 00:06:01,200 --> 00:06:04,200 Speaker 4: approaching the housing market, because I don't see a lot 126 00:06:04,240 --> 00:06:05,400 Speaker 4: of houses for sale, dude. 127 00:06:06,560 --> 00:06:09,200 Speaker 3: Yeah, So, I mean we've talked before in the way 128 00:06:09,240 --> 00:06:11,200 Speaker 3: we describe housing as a tail of two markets. We 129 00:06:11,279 --> 00:06:13,000 Speaker 3: still think that the new home market is in the 130 00:06:13,080 --> 00:06:16,480 Speaker 3: driver's seat, both from a supply perspective, and from an 131 00:06:16,480 --> 00:06:20,039 Speaker 3: affordability perspective, the most important thing to remember is that 132 00:06:20,080 --> 00:06:22,960 Speaker 3: builders are growing their community counts, they're bringing new products 133 00:06:23,000 --> 00:06:25,640 Speaker 3: to market, and unlike what you see in the resale market, 134 00:06:25,720 --> 00:06:28,880 Speaker 3: they're making financing more attractive, so they're buying down rates. 135 00:06:28,920 --> 00:06:31,120 Speaker 3: So right now, if you if you look out there 136 00:06:31,120 --> 00:06:32,960 Speaker 3: in the market, you're seeing something you know, in the 137 00:06:33,000 --> 00:06:35,960 Speaker 3: six point nine seven percent range on a thirty year fixed. 138 00:06:37,200 --> 00:06:38,520 Speaker 3: You know, if you go to the new home market, 139 00:06:38,560 --> 00:06:41,239 Speaker 3: you're seeing something much lower. You probably have a five handle, 140 00:06:41,320 --> 00:06:43,680 Speaker 3: so the math looks a lot better in the new 141 00:06:43,680 --> 00:06:47,680 Speaker 3: home market. Interestingly, more recently, we have started to see 142 00:06:47,680 --> 00:06:50,480 Speaker 3: a little bit more inventory come to the market and 143 00:06:50,560 --> 00:06:53,000 Speaker 3: the resale side, you know, which which you mentioned has 144 00:06:53,040 --> 00:06:56,800 Speaker 3: been kind of the the major theme permeating throughout the industry, 145 00:06:56,839 --> 00:06:59,359 Speaker 3: So we could see that start to help volumes. We 146 00:06:59,400 --> 00:07:02,720 Speaker 3: think that the the resale market starts to rebound later 147 00:07:02,800 --> 00:07:04,839 Speaker 3: in this year and maybe sees a little bit of 148 00:07:04,880 --> 00:07:05,679 Speaker 3: modest growth. 149 00:07:06,160 --> 00:07:09,080 Speaker 2: I have a really dumb question if if I want 150 00:07:09,080 --> 00:07:11,000 Speaker 2: to sell my apartment and I have a two point 151 00:07:11,160 --> 00:07:14,080 Speaker 2: seventy five thirty or fixed, can I sell that rate 152 00:07:14,200 --> 00:07:19,640 Speaker 2: along with the apartment. No, it's a harder. 153 00:07:20,040 --> 00:07:23,040 Speaker 3: It's hard the buyer in your market is going to 154 00:07:23,080 --> 00:07:26,440 Speaker 3: be coming with something significantly higher. Now, there there are 155 00:07:26,520 --> 00:07:30,480 Speaker 3: ways where, you know, through various concessions, a seller can 156 00:07:30,640 --> 00:07:33,560 Speaker 3: help buyer kind of lower that rate. You know, if 157 00:07:33,560 --> 00:07:35,960 Speaker 3: the buyer were to pay points, and then you know, 158 00:07:36,040 --> 00:07:39,080 Speaker 3: the seller can contribute to closing costs. That's one way 159 00:07:39,120 --> 00:07:41,400 Speaker 3: to do it. But you know, as you mentioned, that's 160 00:07:41,440 --> 00:07:44,000 Speaker 3: one of the well, that's the primary reason why people 161 00:07:44,000 --> 00:07:46,119 Speaker 3: aren't putting their homes on the market. It's also what's 162 00:07:46,160 --> 00:07:47,920 Speaker 3: what's keeping people from making purchases. 163 00:07:48,680 --> 00:07:51,280 Speaker 2: Yeah, okay, well that that's very clear. Also, why would 164 00:07:51,280 --> 00:07:51,600 Speaker 2: I do that? 165 00:07:51,720 --> 00:07:53,320 Speaker 4: Yeah, yeah, there forever. 166 00:07:53,520 --> 00:07:55,240 Speaker 2: No, I'm there forever. I'm for sure. This is not 167 00:07:55,320 --> 00:07:57,960 Speaker 2: like a promo, like unless I win the lottery. 168 00:07:58,120 --> 00:08:01,520 Speaker 4: You just know, way right, yes, because that interviraces. 169 00:08:01,080 --> 00:08:03,720 Speaker 2: Just makes it it's unreal. It's also a condo, so 170 00:08:03,760 --> 00:08:05,200 Speaker 2: then it can always rent it out, like if I 171 00:08:05,400 --> 00:08:08,720 Speaker 2: move somewhere else or whatever. Like it's from that perspective, 172 00:08:08,720 --> 00:08:11,240 Speaker 2: even a co op, though I wouldn't in a million years. 173 00:08:11,240 --> 00:08:13,840 Speaker 2: He drew. Thanks a lot, really appreciate your reading Bloomberg Intelligence, 174 00:08:13,960 --> 00:08:16,400 Speaker 2: US home building analysts and just so you're all clear 175 00:08:16,440 --> 00:08:18,480 Speaker 2: that it is a two point seventy five percent thirty 176 00:08:18,560 --> 00:08:21,400 Speaker 2: year fix that I got in twenty twenty. Just putting 177 00:08:21,440 --> 00:08:22,680 Speaker 2: that out of there, I feel like. 178 00:08:22,640 --> 00:08:26,680 Speaker 4: It's on the other handing in twenty twenty three March 179 00:08:26,680 --> 00:08:29,400 Speaker 4: of twenty twenty three even six percent. 180 00:08:30,560 --> 00:08:31,880 Speaker 2: But that now feels cool. 181 00:08:31,960 --> 00:08:34,280 Speaker 4: Yeah, Like I felt like a complete knucklehead at the time, like, oh, 182 00:08:34,320 --> 00:08:35,640 Speaker 4: you're supposed to be a Wall Street cat and you're 183 00:08:35,640 --> 00:08:38,280 Speaker 4: just paying through the nose here on the rates. But boy, 184 00:08:38,320 --> 00:08:39,520 Speaker 4: then they went up to seven. 185 00:08:39,440 --> 00:08:41,200 Speaker 2: Yeah, no, no, yeah. I have a friend who's trying 186 00:08:41,240 --> 00:08:44,320 Speaker 2: to buy a house first home home buyer, like you know, 187 00:08:44,480 --> 00:08:46,440 Speaker 2: ground up, like thirty years old kind of thing, and 188 00:08:46,480 --> 00:08:48,800 Speaker 2: it's it's really hard, Like it's really tough, and it's 189 00:08:48,840 --> 00:08:50,920 Speaker 2: like when do you do that? The prices haven't really 190 00:08:50,920 --> 00:08:54,000 Speaker 2: matched up with those higher rates. So anyway, there we go. 191 00:08:54,040 --> 00:08:54,800 Speaker 2: I'm glad we got that. 192 00:08:54,760 --> 00:08:55,319 Speaker 3: On out of the way. 193 00:08:56,840 --> 00:09:01,319 Speaker 1: You're listening to The Bloomberg Intelligence Podcast US live weekdays 194 00:09:01,360 --> 00:09:04,600 Speaker 1: at ten am Eastern on applecar Play and Android Otto 195 00:09:04,720 --> 00:09:07,520 Speaker 1: with the Bloomberg Business Act. You can also listen live 196 00:09:07,600 --> 00:09:10,800 Speaker 1: on Amazon Alexa from our flagship New York station. Just 197 00:09:10,840 --> 00:09:13,480 Speaker 1: say Alexa play Bloomberg eleven thirty. 198 00:09:14,800 --> 00:09:16,800 Speaker 2: All right to the markets we go. We're seeing a 199 00:09:16,800 --> 00:09:18,160 Speaker 2: little bit of a sell off in the front end, 200 00:09:18,200 --> 00:09:22,000 Speaker 2: yields up just a touch, despite some pretty hawkish ish 201 00:09:22,080 --> 00:09:25,679 Speaker 2: messaging coming out from Chris Waller yesterday evening, where it 202 00:09:25,760 --> 00:09:28,440 Speaker 2: seemed like it was we're gonna be waiting. We're gonna 203 00:09:28,440 --> 00:09:30,640 Speaker 2: be waiting and waiting and waiting. Ira Jersey as Bloomberg 204 00:09:30,679 --> 00:09:35,000 Speaker 2: Intelligence Chief US interest rate strategist, joining us. Now, Ira, 205 00:09:35,080 --> 00:09:37,000 Speaker 2: I'll reach you the quote. In my view, it is 206 00:09:37,040 --> 00:09:39,880 Speaker 2: appropriate to reduce the overall number of rate cuts or 207 00:09:39,920 --> 00:09:42,440 Speaker 2: push them further into the future in response to the 208 00:09:42,440 --> 00:09:46,079 Speaker 2: recent data. There's still no rush. These were to remark 209 00:09:46,160 --> 00:09:48,920 Speaker 2: to the Economic Club of New York as of yesterday. 210 00:09:49,200 --> 00:09:50,400 Speaker 2: What does that tell us? 211 00:09:51,440 --> 00:09:54,320 Speaker 7: Yeah, well, it's a continuation of what some of the 212 00:09:54,320 --> 00:09:56,559 Speaker 7: more hawkish members of the Federal Reserve have been saying. 213 00:09:57,600 --> 00:10:00,160 Speaker 7: You know, we think that Governor Waller probably is in 214 00:10:00,200 --> 00:10:02,600 Speaker 7: the two cut this year camp. So you know, there's 215 00:10:02,600 --> 00:10:04,720 Speaker 7: an when you look at the dot plot and we 216 00:10:04,760 --> 00:10:07,640 Speaker 7: only received it, you know, last week, so so it's 217 00:10:07,720 --> 00:10:10,280 Speaker 7: very fresh. We think that he's one of one of 218 00:10:10,280 --> 00:10:12,920 Speaker 7: the people in the two cut camps. So but but 219 00:10:13,080 --> 00:10:16,000 Speaker 7: so that means that he's maybe kind of the spokesperson 220 00:10:16,040 --> 00:10:19,080 Speaker 7: for the more hawkish members of the committee, whereas you know, 221 00:10:19,400 --> 00:10:21,199 Speaker 7: it's still a bulk of the committee is in the 222 00:10:21,679 --> 00:10:22,480 Speaker 7: three cut camp. 223 00:10:22,880 --> 00:10:23,319 Speaker 8: I think the. 224 00:10:23,320 --> 00:10:27,600 Speaker 7: Important thing about Governor Willer's comments is, you know, you 225 00:10:27,679 --> 00:10:31,719 Speaker 7: can't you can't be assured of a June cut at 226 00:10:31,760 --> 00:10:33,600 Speaker 7: the moment. Like, in order to get a June cut, 227 00:10:33,640 --> 00:10:37,280 Speaker 7: you need to probably have a continuation of slowing economic 228 00:10:37,360 --> 00:10:41,320 Speaker 7: activity and certainly a decline in inflation. And and you know, 229 00:10:41,360 --> 00:10:43,480 Speaker 7: we put out a piece just this morning saying, look, 230 00:10:43,480 --> 00:10:46,439 Speaker 7: if we keep getting you know, point two inflation prints 231 00:10:46,720 --> 00:10:48,720 Speaker 7: for the next couple of months, that's not going to 232 00:10:48,760 --> 00:10:52,600 Speaker 7: lower the year on year inflation number at all. So yeah, 233 00:10:52,640 --> 00:10:55,160 Speaker 7: you know, so it's it's unclear to us whether or not, 234 00:10:55,480 --> 00:10:58,520 Speaker 7: you know, June or July, or even maybe that the 235 00:10:58,520 --> 00:10:59,960 Speaker 7: Fed might have to wait till November. 236 00:11:00,040 --> 00:11:01,200 Speaker 5: And that's where you can. 237 00:11:01,080 --> 00:11:05,200 Speaker 7: Get a lot of a lot of market pricing shifts 238 00:11:05,240 --> 00:11:07,640 Speaker 7: if if we don't price in for a junior July 239 00:11:07,720 --> 00:11:10,240 Speaker 7: cut anymore, and we wind up pushing things out even further. 240 00:11:11,080 --> 00:11:14,720 Speaker 4: So Ira tomorrow, I'm not going to be here. Markets 241 00:11:14,760 --> 00:11:16,920 Speaker 4: are going to be equity market's going to be closed here. 242 00:11:17,400 --> 00:11:19,400 Speaker 7: Yeah, we get US bond markets closed too, there, Paul, 243 00:11:19,480 --> 00:11:21,800 Speaker 7: what's that bond market is closed too? 244 00:11:21,880 --> 00:11:23,839 Speaker 4: Okay, I don't want I don't want to speak for 245 00:11:23,880 --> 00:11:25,840 Speaker 4: the bond market people. You guys have your own little 246 00:11:25,880 --> 00:11:29,360 Speaker 4: club over there. PC deflator, we're gonna get some meaningful 247 00:11:29,400 --> 00:11:34,520 Speaker 4: information tomorrow. Odd timing aside, how do you think the 248 00:11:34,559 --> 00:11:37,160 Speaker 4: Fed's thinking about the data tomorrow? The PC deflator? The 249 00:11:37,160 --> 00:11:40,240 Speaker 4: core deflator expected coming to zero point three percent? 250 00:11:41,200 --> 00:11:43,960 Speaker 7: Yeah, so zero point three is a continuation of the trend. 251 00:11:44,000 --> 00:11:46,720 Speaker 7: And yeah, you know, given that we have CPI, I 252 00:11:46,760 --> 00:11:48,720 Speaker 7: think that PC will kind of take a little bit 253 00:11:48,760 --> 00:11:51,440 Speaker 7: of a backseat to some of the other details that 254 00:11:51,440 --> 00:11:53,800 Speaker 7: that we're going to parse through, particularly since the market's closed, 255 00:11:53,840 --> 00:11:55,720 Speaker 7: so there won't be the same kind of knee jerk 256 00:11:55,760 --> 00:11:59,440 Speaker 7: reaction you might get in in the US markets. Anyway, 257 00:12:00,040 --> 00:12:02,280 Speaker 7: Europe will still be opened, so that'll or parts of 258 00:12:02,320 --> 00:12:04,440 Speaker 7: europeill still be open, So that'll be interesting to see 259 00:12:04,440 --> 00:12:06,800 Speaker 7: how they react, and that'll give you a clue as 260 00:12:06,840 --> 00:12:09,400 Speaker 7: to how we'll open up at seven pm on Sunday 261 00:12:09,480 --> 00:12:13,640 Speaker 7: night in the treasury market. The you know what, I'll 262 00:12:13,640 --> 00:12:15,920 Speaker 7: be looking for in this in these numbers is a 263 00:12:15,920 --> 00:12:18,840 Speaker 7: continuation of the actual consumption trends. Because remember, even though 264 00:12:19,080 --> 00:12:23,000 Speaker 7: we get that very important PC deflator, so the inflation 265 00:12:23,120 --> 00:12:27,680 Speaker 7: component of the PC report, you also get personal consumption numbers. 266 00:12:27,720 --> 00:12:31,000 Speaker 7: So actually what people are spending their money on, how 267 00:12:31,240 --> 00:12:33,439 Speaker 7: how things are growing, And what I like to look 268 00:12:33,440 --> 00:12:36,760 Speaker 7: at is what's called the quantity the quantity indices, So 269 00:12:36,800 --> 00:12:40,400 Speaker 7: these are basically real spending and how those are developing. 270 00:12:40,440 --> 00:12:42,600 Speaker 7: And what you've seen of late is that even though 271 00:12:42,640 --> 00:12:45,360 Speaker 7: you've had a little bit of a leveling off in 272 00:12:45,400 --> 00:12:49,240 Speaker 7: people spending on durable goods, the number, the amount of 273 00:12:49,280 --> 00:12:51,880 Speaker 7: money that people are spending on services continues to go up. 274 00:12:51,880 --> 00:12:54,640 Speaker 7: And you even saw that today in the GDP report. 275 00:12:55,240 --> 00:12:58,240 Speaker 7: All of the revisions of the fourth quarter GDP came 276 00:12:58,600 --> 00:13:02,520 Speaker 7: because of higher consumption of services and that was revised higher. 277 00:13:02,840 --> 00:13:06,120 Speaker 7: And as long as services continue to be a big 278 00:13:06,160 --> 00:13:09,760 Speaker 7: focus and people are content to continue to spend on services, 279 00:13:09,559 --> 00:13:12,160 Speaker 7: there's a feedback loop because that's where most of the 280 00:13:12,200 --> 00:13:14,679 Speaker 7: people in the United States are employed. So as long 281 00:13:14,720 --> 00:13:17,400 Speaker 7: as people are spending on services, that means that services 282 00:13:17,720 --> 00:13:19,719 Speaker 7: are going to be making money and that people can 283 00:13:19,920 --> 00:13:23,560 Speaker 7: request wage increases those wage increases, they go back and 284 00:13:23,800 --> 00:13:25,480 Speaker 7: be spent again on services. 285 00:13:25,520 --> 00:13:25,679 Speaker 8: Right. 286 00:13:25,760 --> 00:13:28,880 Speaker 7: So I think that that those are the kinds of 287 00:13:28,960 --> 00:13:30,719 Speaker 7: numbers and some of the detail that I think will 288 00:13:30,720 --> 00:13:33,120 Speaker 7: be important as to whether or not, you know, the 289 00:13:33,200 --> 00:13:35,679 Speaker 7: economy is really going to be starting to slow and 290 00:13:35,920 --> 00:13:39,120 Speaker 7: if that will feed into then lower inflation, because even 291 00:13:39,160 --> 00:13:41,360 Speaker 7: in the inflation components, what we'll be looking for is 292 00:13:41,640 --> 00:13:45,120 Speaker 7: how much is services inflation versus goods inflation. Goods inflation 293 00:13:45,200 --> 00:13:47,839 Speaker 7: has been zero basically for the last six months, and 294 00:13:47,920 --> 00:13:50,200 Speaker 7: it's all everything. All of the inflation has really been 295 00:13:50,200 --> 00:13:52,400 Speaker 7: coming from the services sector, so that that has to 296 00:13:52,440 --> 00:13:54,120 Speaker 7: be everyone's focus right now. 297 00:13:54,640 --> 00:13:57,280 Speaker 2: Oh sorry, it's that pesky button where I press off, 298 00:13:57,280 --> 00:13:59,720 Speaker 2: but I mean on, And anyway, I wish my cousin 299 00:13:59,760 --> 00:14:02,840 Speaker 2: Probed wishes he had that button. But anyway, what I 300 00:14:02,920 --> 00:14:06,480 Speaker 2: was saying is that goods inflation too. The disinflation narrative 301 00:14:06,520 --> 00:14:09,040 Speaker 2: around that is also coming into question. Potentially, when you 302 00:14:09,080 --> 00:14:12,360 Speaker 2: have the Baltimore Bridge collapse, et cetera, you're still at two. 303 00:14:13,360 --> 00:14:15,360 Speaker 2: Is the risk that you actually pair that down to 304 00:14:15,480 --> 00:14:19,440 Speaker 2: one or zero or is the risk that it's actually three? 305 00:14:19,920 --> 00:14:22,720 Speaker 7: Yeah, Well, I think that the well, the market's still 306 00:14:22,720 --> 00:14:25,640 Speaker 7: priced for three cuts this year. Now you know what 307 00:14:25,680 --> 00:14:28,000 Speaker 7: we were pricing just two months ago, six cuts, right, 308 00:14:28,000 --> 00:14:30,880 Speaker 7: six one hundred and fifty basis points of interest rate cuts. Yeah, 309 00:14:31,120 --> 00:14:34,160 Speaker 7: I think the risk is that the FED starts a 310 00:14:34,240 --> 00:14:36,920 Speaker 7: little bit later, but the path looks very similar to 311 00:14:36,960 --> 00:14:40,080 Speaker 7: what's being priced right now. So it's more that things 312 00:14:40,120 --> 00:14:42,960 Speaker 7: get pushed forward and forward and forward. And keep in mind, 313 00:14:43,240 --> 00:14:46,440 Speaker 7: you know, the market will often price for outcomes that 314 00:14:46,560 --> 00:14:49,360 Speaker 7: aren't going to be realized, and that's where you know, 315 00:14:49,400 --> 00:14:53,480 Speaker 7: we try, that's where strategists and portfolio managers can kind 316 00:14:53,480 --> 00:14:55,960 Speaker 7: of you know, make their living in trying to determine 317 00:14:55,960 --> 00:15:00,240 Speaker 7: what's kind of mispriced and what are the highest probability outcomes. Yeah, 318 00:15:00,280 --> 00:15:04,200 Speaker 7: you know, interestingly, you know, to your point, you know, 319 00:15:04,240 --> 00:15:07,240 Speaker 7: there is a risk that there's actually no cuts this year, 320 00:15:07,320 --> 00:15:10,040 Speaker 7: and the market is actually pricing for upwards of a 321 00:15:10,080 --> 00:15:12,880 Speaker 7: twenty percent chance of that if you look at options 322 00:15:12,880 --> 00:15:16,320 Speaker 7: on short term interest rate futures like the futures on sofa, 323 00:15:17,480 --> 00:15:20,040 Speaker 7: So our options model suggests that that you know, there's 324 00:15:20,040 --> 00:15:23,840 Speaker 7: a pretty high prob possibility being priced that you know 325 00:15:24,240 --> 00:15:26,360 Speaker 7: the Fed's on hold, and you even saw some activity 326 00:15:26,360 --> 00:15:28,840 Speaker 7: this morning, you know ed Bollenbrook, who does a really 327 00:15:28,840 --> 00:15:31,880 Speaker 7: good job with looking at flows in the short term 328 00:15:31,880 --> 00:15:34,880 Speaker 7: interest rate markets for Bloomberg News. He even noted this 329 00:15:34,920 --> 00:15:39,760 Speaker 7: morning that there were people buying buying puts on on 330 00:15:39,840 --> 00:15:43,440 Speaker 7: these futures that suggest that the that the FED might 331 00:15:43,520 --> 00:15:46,520 Speaker 7: not actually cut at all this year. So so I 332 00:15:46,600 --> 00:15:49,360 Speaker 7: think that there is a there is a growing kind 333 00:15:49,400 --> 00:15:52,960 Speaker 7: of community out there that's that's fearful that the economy 334 00:15:53,000 --> 00:15:55,240 Speaker 7: won't slow down enough for the FED to actually cut. 335 00:15:55,560 --> 00:15:57,480 Speaker 4: All right, we'll see Ira Jersey, thank you so much. 336 00:15:57,520 --> 00:16:00,240 Speaker 4: We appreciate that. As always, Ira Jersey, easy you have 337 00:16:00,280 --> 00:16:03,800 Speaker 4: his interest rate strategists for Bloomberg Intelligence. Joining us from Princeton, 338 00:16:03,840 --> 00:16:05,960 Speaker 4: New Jersey via that zoom thing. 339 00:16:08,440 --> 00:16:12,320 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 340 00:16:12,400 --> 00:16:15,080 Speaker 1: weekdays at ten am Eastern on Affle, car Play and 341 00:16:15,080 --> 00:16:18,080 Speaker 1: Android Auto with the Bloomberg Business app. Listen on demand 342 00:16:18,160 --> 00:16:22,520 Speaker 1: wherever you get your podcasts, or watch us live on YouTube. 343 00:16:23,240 --> 00:16:26,120 Speaker 2: So let's get back to what Governor Waller talked about, 344 00:16:26,200 --> 00:16:28,840 Speaker 2: and that was basically like we're just not there yet. 345 00:16:28,920 --> 00:16:30,920 Speaker 2: Let's wait, let's wait, let's wait, and then it's raising 346 00:16:30,960 --> 00:16:33,960 Speaker 2: the risk of maybe no cuts this year, which leads 347 00:16:34,000 --> 00:16:37,120 Speaker 2: me to the market reaction. The overwhelming idea in the 348 00:16:37,160 --> 00:16:39,840 Speaker 2: first quarter was that you're gonna have bonds outperformed stocks 349 00:16:39,880 --> 00:16:42,600 Speaker 2: because we were gonna get cuts. That obviously didn't work 350 00:16:42,640 --> 00:16:44,080 Speaker 2: out for you. So what do you do for the 351 00:16:44,120 --> 00:16:46,920 Speaker 2: second quarter? Joining us now is David Kudla. He's founder, 352 00:16:47,040 --> 00:16:50,480 Speaker 2: CEO and chief investment strategist over at Mainstay Capital Management, 353 00:16:50,840 --> 00:16:53,200 Speaker 2: and he joins US now. David, is this going to 354 00:16:53,240 --> 00:16:56,240 Speaker 2: be another quarter of stocks outperforming bonds? 355 00:16:57,760 --> 00:17:00,360 Speaker 5: I think it will be. I think the stock in 356 00:17:00,440 --> 00:17:01,200 Speaker 5: rally mode. 357 00:17:02,000 --> 00:17:06,840 Speaker 6: We're almost in a melt up situation that the increase 358 00:17:06,880 --> 00:17:09,159 Speaker 6: we've had in twenty twenty four a loan, the increase 359 00:17:09,240 --> 00:17:12,119 Speaker 6: we've had now over the past five months has just 360 00:17:12,160 --> 00:17:13,640 Speaker 6: been incredible. 361 00:17:14,119 --> 00:17:15,400 Speaker 5: And the problem. 362 00:17:15,760 --> 00:17:20,360 Speaker 6: The problem for bonds is that we keep you know, 363 00:17:20,760 --> 00:17:24,000 Speaker 6: we've talked about six or seven FED rate cuts just 364 00:17:24,040 --> 00:17:26,680 Speaker 6: a few months ago. We're down to two or three 365 00:17:27,680 --> 00:17:30,000 Speaker 6: maybe one. They're getting moved out. They were March, got 366 00:17:30,000 --> 00:17:32,320 Speaker 6: moved out to June, moving out as far as September. 367 00:17:32,480 --> 00:17:35,600 Speaker 6: We may not see a rate cut this year. So 368 00:17:36,640 --> 00:17:40,199 Speaker 6: that's problematic for bonds obviously, and we've seen what the 369 00:17:40,280 --> 00:17:42,359 Speaker 6: ten year and the rest of bond's done because of 370 00:17:42,400 --> 00:17:45,359 Speaker 6: that what we've done, where you do have opportunity in 371 00:17:45,440 --> 00:17:48,119 Speaker 6: bonds though for your portfolio, for someone in a sixty 372 00:17:48,160 --> 00:17:51,560 Speaker 6: to forty portfolio, they need that bond allocation. Stay ultra 373 00:17:51,680 --> 00:17:56,320 Speaker 6: short on ultra short term bonds, so you have very 374 00:17:56,320 --> 00:17:59,280 Speaker 6: little duration, very little indust rate sensitivity. But we have 375 00:17:59,320 --> 00:18:02,680 Speaker 6: these high yield we're still getting with rates being this high, 376 00:18:02,720 --> 00:18:06,119 Speaker 6: so that is an attractive part of the yield curve 377 00:18:07,119 --> 00:18:10,240 Speaker 6: for a bond allocation. But you know, stocks I think 378 00:18:10,280 --> 00:18:12,879 Speaker 6: continue to be en rolled. We we are due for 379 00:18:12,960 --> 00:18:16,000 Speaker 6: a pullback at any time here of four or five percent. 380 00:18:16,040 --> 00:18:18,480 Speaker 6: We've gone so long without as much as a two 381 00:18:18,560 --> 00:18:21,840 Speaker 6: percent pullback in a day and any meaningful pullback. But 382 00:18:22,800 --> 00:18:25,800 Speaker 6: you know, we're still very constructive on stocks and constructive 383 00:18:25,920 --> 00:18:26,919 Speaker 6: relative to bonds. 384 00:18:27,680 --> 00:18:30,760 Speaker 4: So, David, where are we in terms of valuation here? 385 00:18:30,760 --> 00:18:32,800 Speaker 4: How do you think about the evaluations any equity markets? 386 00:18:32,840 --> 00:18:35,000 Speaker 4: If you know, maybe we're in this melted up kind 387 00:18:35,000 --> 00:18:35,480 Speaker 4: of mode. 388 00:18:36,320 --> 00:18:38,480 Speaker 5: Yeah, so we're getting a little rich. 389 00:18:39,520 --> 00:18:43,560 Speaker 6: We're at twenty point nine as let's call it twenty 390 00:18:43,600 --> 00:18:46,240 Speaker 6: one forward price startings on the. 391 00:18:46,240 --> 00:18:47,280 Speaker 5: S and P five hundred. 392 00:18:48,040 --> 00:18:51,800 Speaker 6: The five year average is around nineteen, so we're you know, 393 00:18:51,840 --> 00:18:55,240 Speaker 6: we're a little bit rich, not as not as rich 394 00:18:55,440 --> 00:18:58,280 Speaker 6: as we've seen in the past. And you know, there's 395 00:18:58,320 --> 00:19:00,520 Speaker 6: a lot of people referring to this as a bubble, 396 00:19:00,520 --> 00:19:03,600 Speaker 6: and I think that people that think we're in a 397 00:19:03,640 --> 00:19:07,120 Speaker 6: bubble for stocks haven't studied a lot of bubbles to know, 398 00:19:07,520 --> 00:19:09,080 Speaker 6: you know what that really means when we look at 399 00:19:09,080 --> 00:19:11,760 Speaker 6: the fundamentals. You know, we have some of these gross 400 00:19:11,760 --> 00:19:15,520 Speaker 6: stocks and the megatech stocks trading at higher pees than 401 00:19:15,560 --> 00:19:19,399 Speaker 6: twenties and thirties, but they deserve it, right, and so 402 00:19:20,040 --> 00:19:23,399 Speaker 6: you know, we think that we can still and you 403 00:19:23,480 --> 00:19:26,600 Speaker 6: never want to make a market call based on valuation, right, 404 00:19:26,640 --> 00:19:29,400 Speaker 6: stocks can stay undervalued or overvalued for a very very 405 00:19:29,440 --> 00:19:32,120 Speaker 6: long time. So while they're starting to get a little 406 00:19:32,119 --> 00:19:35,960 Speaker 6: bit stretched, that's not a big concern for us because 407 00:19:36,000 --> 00:19:38,520 Speaker 6: I think the fundamentals are still there to support it. 408 00:19:39,680 --> 00:19:43,040 Speaker 2: So based on that though, I guess because you're right, like, 409 00:19:43,080 --> 00:19:45,399 Speaker 2: you can always still go higher even if it's overvalued, 410 00:19:45,480 --> 00:19:47,760 Speaker 2: right if the equity market, for example, but do you 411 00:19:47,840 --> 00:19:49,960 Speaker 2: need to also rotate so maybe not going to sell 412 00:19:50,000 --> 00:19:52,280 Speaker 2: them mag seven for example, or sell them video, but 413 00:19:52,680 --> 00:19:54,879 Speaker 2: do you need to rotate into more cyclicals and like 414 00:19:55,080 --> 00:19:58,359 Speaker 2: what do ork quality, what does that wind up looking like? 415 00:19:59,320 --> 00:20:02,080 Speaker 5: Right, so you know what we favor right now? 416 00:20:02,200 --> 00:20:05,639 Speaker 6: Our our overall investment strategy can be summed up very easy, 417 00:20:05,800 --> 00:20:10,160 Speaker 6: large over small, growth, over value, the US over foreign 418 00:20:10,640 --> 00:20:13,560 Speaker 6: Outside of the US. We also like Japan. 419 00:20:14,119 --> 00:20:17,640 Speaker 5: But the key here. 420 00:20:17,440 --> 00:20:20,720 Speaker 6: In diversification is, you know, we're seeing industrial as financial, 421 00:20:20,880 --> 00:20:24,040 Speaker 6: some of the other areas starting to perform better. We're 422 00:20:24,040 --> 00:20:26,840 Speaker 6: seeing more breadth in the market. But we would stay 423 00:20:27,400 --> 00:20:31,640 Speaker 6: with that. With megacap tech, the power of generative AI. 424 00:20:32,480 --> 00:20:37,560 Speaker 6: They just announced healthcare assistance basically that do the work 425 00:20:37,560 --> 00:20:41,080 Speaker 6: of a nurse. You know, there's just it's entering, so 426 00:20:41,240 --> 00:20:43,359 Speaker 6: it's going to enter so much of our lives in 427 00:20:43,760 --> 00:20:49,119 Speaker 6: the professional workplace be transformational. So we've narrowed our magnificent 428 00:20:49,200 --> 00:20:52,880 Speaker 6: seven down to our own fab four. We took out Apple, 429 00:20:53,480 --> 00:20:59,160 Speaker 6: Google and Tesla, and and that fabulous four is that 430 00:20:59,200 --> 00:21:02,440 Speaker 6: fabulous four is up thirty eight percent this year, and 431 00:21:02,880 --> 00:21:07,240 Speaker 6: you know, really it's become you know, surprisingly enough somewhat 432 00:21:07,280 --> 00:21:09,640 Speaker 6: of a safety trade to go to these stocks when 433 00:21:10,000 --> 00:21:10,960 Speaker 6: rates are going higher. 434 00:21:10,960 --> 00:21:12,520 Speaker 5: They don't care about registrates. 435 00:21:12,560 --> 00:21:15,720 Speaker 6: They have plenty of free cash flow to fund operations 436 00:21:15,760 --> 00:21:19,439 Speaker 6: in the research and development. So it just it remains 437 00:21:19,480 --> 00:21:21,880 Speaker 6: to be a good core of the portfolio. But there's 438 00:21:21,880 --> 00:21:25,119 Speaker 6: some other places you can look out. We'd avoid small 439 00:21:25,160 --> 00:21:29,000 Speaker 6: caps until we know rates are coming down. Also with cyclicals. 440 00:21:29,640 --> 00:21:31,440 Speaker 6: Mid caps, though we've increased our. 441 00:21:31,359 --> 00:21:32,080 Speaker 5: Exposure to. 442 00:21:33,520 --> 00:21:36,360 Speaker 6: Is an area, you know, the the in between ers 443 00:21:36,400 --> 00:21:40,119 Speaker 6: that they've grown out of the small cap camp, not 444 00:21:40,240 --> 00:21:43,919 Speaker 6: the large cap yet, but mid caps have also started 445 00:21:43,920 --> 00:21:46,080 Speaker 6: to shine as well other sectors. 446 00:21:46,160 --> 00:21:48,920 Speaker 4: David, Besides some of those technology names, we've heard some 447 00:21:48,960 --> 00:21:53,200 Speaker 4: folks talk about healthcare, some folks talk about financials. Either 448 00:21:53,240 --> 00:21:54,080 Speaker 4: of those get your attention. 449 00:21:55,280 --> 00:22:01,119 Speaker 6: Yeah, financials, healthcare, industrials especially, think it makes sense to 450 00:22:01,800 --> 00:22:04,679 Speaker 6: you know, we want to have a diversified portfolio. We 451 00:22:04,760 --> 00:22:09,119 Speaker 6: are overweight tech, it's our highest weighting by far, or 452 00:22:09,160 --> 00:22:13,520 Speaker 6: I t UH and communications. But we we we do 453 00:22:13,600 --> 00:22:16,119 Speaker 6: think that as rates start to come down, you know, 454 00:22:16,280 --> 00:22:18,879 Speaker 6: when the when the yield curve finally gets back to 455 00:22:18,960 --> 00:22:23,440 Speaker 6: looking like something normal, that will be very helpful for financials. 456 00:22:24,760 --> 00:22:28,240 Speaker 6: And you know what, we'll we'll see industrials can do well. 457 00:22:28,280 --> 00:22:31,520 Speaker 6: We when we look towards this year, we're not looking 458 00:22:31,560 --> 00:22:36,080 Speaker 6: for recession, you know, and and we think we could 459 00:22:36,160 --> 00:22:38,760 Speaker 6: have a soft landing but our we think it's more 460 00:22:38,800 --> 00:22:41,199 Speaker 6: about a no landing. It's it's more that we'll have 461 00:22:41,240 --> 00:22:44,760 Speaker 6: a slow down and re accelerate. We've got GDP was 462 00:22:44,880 --> 00:22:47,679 Speaker 6: just revised for the fourth quarter to three point four percent. 463 00:22:47,800 --> 00:22:50,280 Speaker 6: Economy strong, labor remains strong. 464 00:22:50,840 --> 00:22:51,080 Speaker 3: Uh. 465 00:22:51,119 --> 00:22:54,040 Speaker 6: There's some indicators out there with you know, the level 466 00:22:54,040 --> 00:22:57,160 Speaker 6: of bankruptcy, these credit card debt, credit card interist rates, 467 00:22:57,680 --> 00:23:00,919 Speaker 6: what's happening in housing. There's a worriesome air is but 468 00:23:01,760 --> 00:23:03,399 Speaker 6: economy just keeps chugging a little bit. 469 00:23:04,080 --> 00:23:10,360 Speaker 2: Wouldn't that scenario they'll be good for industrials, materials, energy 470 00:23:10,480 --> 00:23:11,520 Speaker 2: like those sectors. 471 00:23:11,920 --> 00:23:12,320 Speaker 5: Yeah. 472 00:23:12,440 --> 00:23:16,840 Speaker 6: Yeah, And we're saying there's some other reasons and energy 473 00:23:17,160 --> 00:23:21,119 Speaker 6: there always are, uh you know, political risk, premium and 474 00:23:21,160 --> 00:23:24,639 Speaker 6: so forth. We've seen what oil has been doing. Uh, 475 00:23:24,680 --> 00:23:29,920 Speaker 6: We've seen what cocoa has been doing. I just it's 476 00:23:30,000 --> 00:23:33,440 Speaker 6: very high, it's very expensive. Having a lot of fun 477 00:23:33,480 --> 00:23:37,000 Speaker 6: with that one. Maybe needing to avoid as much. Maybe 478 00:23:37,040 --> 00:23:41,600 Speaker 6: not the chocolate Easter egg this year, but uh, you 479 00:23:41,600 --> 00:23:45,240 Speaker 6: know there are commodities doing better. Uh and and actually 480 00:23:45,560 --> 00:23:49,720 Speaker 6: you know, the cocoa story is just incredible. But uh, yeah, 481 00:23:49,760 --> 00:23:57,160 Speaker 6: we think that Yeah, materials with more normal you occur financials, healthcare. 482 00:23:57,280 --> 00:24:00,440 Speaker 6: Certainly that's a large sector for us as well. 483 00:24:01,119 --> 00:24:03,159 Speaker 4: All Right, David, thank you so much for joining us. 484 00:24:03,200 --> 00:24:06,120 Speaker 4: David Kudla, He's a founder, chief executive officer, and chief 485 00:24:06,160 --> 00:24:09,920 Speaker 4: investment officer for Mainstake Capital Management. Troy, Michigan is where 486 00:24:09,920 --> 00:24:11,600 Speaker 4: he hails from, so we got him via zoom. 487 00:24:11,800 --> 00:24:17,239 Speaker 1: There, you're listening to the Bloomberg Intelligence Podcast. Catch us 488 00:24:17,280 --> 00:24:20,680 Speaker 1: live weekdays at ten am Eastern on applecar Play and 489 00:24:20,680 --> 00:24:23,600 Speaker 1: Android Auto with the Bloomberg Business app. You can also 490 00:24:23,680 --> 00:24:27,160 Speaker 1: listen live on Amazon Alexa from our flagship New York station. 491 00:24:27,520 --> 00:24:31,000 Speaker 1: Just say Alexa playing Bloomberg eleven thirty. 492 00:24:31,440 --> 00:24:33,680 Speaker 4: Heb Meles, a good little m and a trade more 493 00:24:33,760 --> 00:24:35,679 Speaker 4: than me. And that's what Amazon's up to. They invested 494 00:24:35,720 --> 00:24:39,000 Speaker 4: two point seventy five billion in AI startup and Thropic. 495 00:24:39,400 --> 00:24:41,960 Speaker 4: So when we talk about Amazon, one of the voices 496 00:24:42,000 --> 00:24:44,200 Speaker 4: we have to get on board is anurag Ran, a 497 00:24:44,280 --> 00:24:50,159 Speaker 4: senior technology analyst for Bloomberg Intelligence. Anurrog tell us about Anthropic. 498 00:24:50,240 --> 00:24:53,560 Speaker 4: What is anthropic and as why is Amazon investing another 499 00:24:53,600 --> 00:24:55,920 Speaker 4: two point seventy five billion dollars into this company? 500 00:24:57,160 --> 00:24:59,480 Speaker 8: Yeah, Paul, so think of Anthropic as very similar to 501 00:24:59,480 --> 00:25:02,840 Speaker 8: opening it's a company that develops as large language models 502 00:25:02,880 --> 00:25:05,440 Speaker 8: that people can use to do you know whatever AI 503 00:25:05,520 --> 00:25:08,200 Speaker 8: related chat pots and other kind of analysis that they 504 00:25:08,200 --> 00:25:10,320 Speaker 8: want to do. Now, the thing is, as you know 505 00:25:10,640 --> 00:25:14,359 Speaker 8: open Ai, when Microsoft invested in them, open Ai runs 506 00:25:14,359 --> 00:25:18,280 Speaker 8: on Microsoft's cloud. And this is what Amazon wants. It 507 00:25:18,400 --> 00:25:21,919 Speaker 8: wants anthropics, you know, code business to run on their cloud. 508 00:25:22,000 --> 00:25:24,480 Speaker 8: People go out and experiment with them. You know, that's 509 00:25:24,560 --> 00:25:26,520 Speaker 8: kind of feeds into their cloud business. 510 00:25:27,440 --> 00:25:30,640 Speaker 2: How much have they now spent on AI cloud stuff 511 00:25:31,880 --> 00:25:32,560 Speaker 2: on Amazon? 512 00:25:32,920 --> 00:25:34,800 Speaker 8: One of the things is this is just you know, 513 00:25:34,840 --> 00:25:37,320 Speaker 8: a few billion dollars over here. But I would I 514 00:25:37,359 --> 00:25:39,720 Speaker 8: would argue that the base that they are doing, or 515 00:25:39,760 --> 00:25:43,520 Speaker 8: the base architecture, or the base infrastructure that they have 516 00:25:43,640 --> 00:25:45,880 Speaker 8: on cloud. You know, they've spent over one hundred billion 517 00:25:45,920 --> 00:25:48,600 Speaker 8: dollars over it, you know, the last ten fifteen years. 518 00:25:48,680 --> 00:25:51,879 Speaker 8: So this is a big enough number because you can't 519 00:25:51,960 --> 00:25:54,199 Speaker 8: run a lot of these models without being on cloud. 520 00:25:54,359 --> 00:25:57,120 Speaker 8: Now that's not truly true. There are you can run 521 00:25:57,160 --> 00:25:59,600 Speaker 8: it on premise, on on the device also, but a 522 00:25:59,680 --> 00:26:02,240 Speaker 8: large portion of the processing will be done on the cloud. 523 00:26:02,400 --> 00:26:04,640 Speaker 2: Just to follow on that has that compared to its 524 00:26:04,680 --> 00:26:05,919 Speaker 2: other competitors in the biz. 525 00:26:07,480 --> 00:26:10,840 Speaker 8: It's one of the things I would say is, you know, Microsoft, 526 00:26:11,240 --> 00:26:13,480 Speaker 8: you know, I don't think they got lucky. They really 527 00:26:13,560 --> 00:26:15,639 Speaker 8: knew what they've been investing in. When it went to 528 00:26:15,680 --> 00:26:18,640 Speaker 8: open Ai. Open Ai came up with its product far, 529 00:26:19,160 --> 00:26:21,760 Speaker 8: far sooner than anybody else, and that's why all of 530 00:26:21,800 --> 00:26:24,560 Speaker 8: us talk about it. But companies like Anthropic, I think 531 00:26:24,640 --> 00:26:27,040 Speaker 8: it's you know, I won't call them behind, but I'm 532 00:26:27,119 --> 00:26:29,240 Speaker 8: sure that their models are going to be used by 533 00:26:29,280 --> 00:26:29,760 Speaker 8: other people. 534 00:26:29,840 --> 00:26:32,159 Speaker 4: Also, yeah, that's I'm seeing just in fern of the 535 00:26:32,160 --> 00:26:35,720 Speaker 4: reporting here Anthropic. So this isn't exclusive to Amazon. I 536 00:26:35,720 --> 00:26:39,400 Speaker 4: mean it seems like Anthropic has you know, tie ups 537 00:26:39,400 --> 00:26:44,040 Speaker 4: with Google as well, Spartan some others. So what's really 538 00:26:44,080 --> 00:26:45,840 Speaker 4: a strategic value for Amazon here? 539 00:26:46,880 --> 00:26:49,320 Speaker 8: I think they call themselves their preferred cloud vendor. And 540 00:26:49,359 --> 00:26:52,040 Speaker 8: again for Amazon's point of view, what they're doing is 541 00:26:52,080 --> 00:26:55,040 Speaker 8: they're giving people a laundry list of multiple models they 542 00:26:55,080 --> 00:26:57,840 Speaker 8: can use. They can use Amazon's own model, they can 543 00:26:57,920 --> 00:27:00,960 Speaker 8: actually use Meta's model called Lama, or they can use 544 00:27:01,000 --> 00:27:04,399 Speaker 8: Anthropic and in a couple others. So you know, if 545 00:27:04,480 --> 00:27:07,200 Speaker 8: I'm if I'm an enterprise, if I'm a big large 546 00:27:07,240 --> 00:27:09,480 Speaker 8: bank and I want to experiment with them. It's my 547 00:27:09,600 --> 00:27:11,920 Speaker 8: choice what I want to use over there, and that's 548 00:27:11,920 --> 00:27:13,119 Speaker 8: really what Amazon's selling. 549 00:27:13,320 --> 00:27:15,720 Speaker 2: See, this is where an imang and I in our 550 00:27:15,760 --> 00:27:17,439 Speaker 2: world can collide. Power. 551 00:27:17,640 --> 00:27:19,120 Speaker 4: Oh here, we got that coming. 552 00:27:19,200 --> 00:27:19,360 Speaker 3: Yeah. 553 00:27:19,359 --> 00:27:21,920 Speaker 4: I was like, we waited the proper amountage. I should 554 00:27:21,960 --> 00:27:22,440 Speaker 4: wait for. 555 00:27:22,359 --> 00:27:24,159 Speaker 2: Like a couple more minutes, but I just had to 556 00:27:24,160 --> 00:27:26,159 Speaker 2: go there. We can always go back, It's cool. So 557 00:27:26,200 --> 00:27:29,520 Speaker 2: an wrong. Well, I was just down in Texas for 558 00:27:29,600 --> 00:27:31,919 Speaker 2: Sarah Week, which is like energy's big super Bowl, and 559 00:27:32,000 --> 00:27:35,520 Speaker 2: the only conversation everyone was having was about power h 560 00:27:35,560 --> 00:27:38,720 Speaker 2: and power demand skyrocketing due to data centers and AI, 561 00:27:38,840 --> 00:27:42,040 Speaker 2: et cetera, and that Amazon had bought nuclear power reactor 562 00:27:42,080 --> 00:27:44,520 Speaker 2: center in order to power one of their data centers. 563 00:27:44,520 --> 00:27:47,080 Speaker 2: Can you just talk me through the more they invest 564 00:27:47,080 --> 00:27:48,879 Speaker 2: in AI and stuff, does that just mean they have 565 00:27:48,960 --> 00:27:50,399 Speaker 2: to just go buy more power plants. 566 00:27:51,320 --> 00:27:54,840 Speaker 8: Yeah. If you look at capital expenditures for Microsoft and Amazon, 567 00:27:55,160 --> 00:27:57,720 Speaker 8: it's really ballooning up right now. I mean once trying 568 00:27:57,720 --> 00:28:00,440 Speaker 8: to spend I think forty plus billion dollars a year 569 00:28:01,160 --> 00:28:04,240 Speaker 8: into expanding a lot of their data center capacity. Now 570 00:28:04,240 --> 00:28:06,080 Speaker 8: you could say that, oh, that's going to take out 571 00:28:06,119 --> 00:28:09,200 Speaker 8: a lot of you know, operational cash flow or help 572 00:28:09,359 --> 00:28:11,760 Speaker 8: you know, bend margins. Maybe in the near term, but 573 00:28:11,840 --> 00:28:14,639 Speaker 8: I would argue that their business is becoming stronger by 574 00:28:14,680 --> 00:28:17,359 Speaker 8: the day because nobody else can replicate this stuff. I mean, 575 00:28:17,400 --> 00:28:19,680 Speaker 8: it's not easy to come up with these many billions 576 00:28:19,680 --> 00:28:21,919 Speaker 8: of dollars to come up with their data centers. And 577 00:28:21,960 --> 00:28:24,359 Speaker 8: in fact, I would say that companies that have their 578 00:28:24,400 --> 00:28:27,119 Speaker 8: own data centers may be forced to close out and 579 00:28:27,240 --> 00:28:29,600 Speaker 8: move a lot more stuff to the cloud because these 580 00:28:29,640 --> 00:28:31,360 Speaker 8: guys have so much firepower with them. 581 00:28:31,880 --> 00:28:34,960 Speaker 4: Oh interesting, Hey on rag. I know the company here, 582 00:28:35,280 --> 00:28:39,400 Speaker 4: Anthropic offers a chatbot name Claude, but the companies are. 583 00:28:39,720 --> 00:28:41,440 Speaker 2: I totally want a chat butt name Claude. 584 00:28:41,480 --> 00:28:45,600 Speaker 4: Yeah exactly. But they're kind of emphasizing developing AI safely 585 00:28:45,920 --> 00:28:50,280 Speaker 4: and responsibly. Where are we on that whole concept of 586 00:28:50,360 --> 00:28:53,400 Speaker 4: safety responsibility for technology that most of us really don't 587 00:28:53,400 --> 00:28:54,000 Speaker 4: fully grasp it? 588 00:28:54,080 --> 00:28:55,560 Speaker 2: Like one a company is like I want to be profitable. 589 00:28:55,560 --> 00:28:57,640 Speaker 2: It's like, well, I hope so exactly. 590 00:28:59,040 --> 00:29:01,640 Speaker 8: You know, Paul and Alex, I'm still waiting for that 591 00:29:01,760 --> 00:29:04,840 Speaker 8: in the social media applications, you know, So I do 592 00:29:04,920 --> 00:29:06,760 Speaker 8: not know how that's going to shape up. But one 593 00:29:06,760 --> 00:29:08,640 Speaker 8: of the things that we've seen with Claude is they 594 00:29:08,640 --> 00:29:11,680 Speaker 8: are marketing themselves as being better than open AI in 595 00:29:11,760 --> 00:29:14,640 Speaker 8: certain aspects. I think that's you know, again, that's the 596 00:29:14,640 --> 00:29:16,959 Speaker 8: company saying, so please, you know, take that into account 597 00:29:17,240 --> 00:29:20,320 Speaker 8: that a lot of their experiments have said that Claud's 598 00:29:20,560 --> 00:29:22,520 Speaker 8: better at certain things than open ai is. 599 00:29:23,600 --> 00:29:26,960 Speaker 4: So I mean, what's the next thing for Amazon? Like, 600 00:29:27,160 --> 00:29:29,680 Speaker 4: I'm just wondering if there's not much to go out 601 00:29:29,680 --> 00:29:33,360 Speaker 4: there and buy to automatically give you AI pil a 602 00:29:33,440 --> 00:29:36,160 Speaker 4: commands scale. Even if you're Amazon, you can't just write 603 00:29:36,160 --> 00:29:38,600 Speaker 4: a check like you can in Hollywood for example, if 604 00:29:38,600 --> 00:29:40,760 Speaker 4: you want to get into to that business. Is this 605 00:29:40,920 --> 00:29:45,600 Speaker 4: just the tech industry just I guess putting their R 606 00:29:45,640 --> 00:29:48,400 Speaker 4: and D, putting their capex, putting their funding to all 607 00:29:48,400 --> 00:29:49,520 Speaker 4: things AI going forward? 608 00:29:50,240 --> 00:29:53,400 Speaker 8: Yeah, I absolutely say that. Now think about it this way. Currently, 609 00:29:53,440 --> 00:29:56,440 Speaker 8: what's happening is Microsoft is reaping the benefits of you 610 00:29:56,560 --> 00:29:59,160 Speaker 8: and I using chack GPT mode. So if we do 611 00:29:59,280 --> 00:30:02,160 Speaker 8: more processing, Microsoft get the benefits of it. Now what 612 00:30:02,280 --> 00:30:04,680 Speaker 8: Amazon is saying, then listen, that's one way to make 613 00:30:04,720 --> 00:30:07,160 Speaker 8: money in AI. How about I do this. I'll give 614 00:30:07,200 --> 00:30:09,080 Speaker 8: you all the raw materials for you to go out 615 00:30:09,080 --> 00:30:11,760 Speaker 8: and build your own chat bought internally, let's say for 616 00:30:11,800 --> 00:30:14,600 Speaker 8: a bank or for a beverage company. If you want 617 00:30:14,600 --> 00:30:16,760 Speaker 8: to do that, then come to my cloud. I have 618 00:30:16,840 --> 00:30:19,240 Speaker 8: all the raw material for you, I have all the models, 619 00:30:19,400 --> 00:30:21,320 Speaker 8: and I will do it safely for you. And that's 620 00:30:21,360 --> 00:30:25,760 Speaker 8: Amazon's pitch, which means that the revenue fall through maybe 621 00:30:25,800 --> 00:30:28,400 Speaker 8: a little bit longer than what we are seeing at Microsoft. 622 00:30:28,520 --> 00:30:30,920 Speaker 2: And then do we know how sticky those customers are? 623 00:30:31,400 --> 00:30:32,960 Speaker 2: Like if Amazon's like, hey, I'll do all this stuff 624 00:30:33,000 --> 00:30:34,600 Speaker 2: for you, and I'm like cool and I stay there 625 00:30:34,720 --> 00:30:36,720 Speaker 2: or is it I guess I'm getting as their first 626 00:30:36,720 --> 00:30:37,760 Speaker 2: mover advantage to that. 627 00:30:38,720 --> 00:30:42,000 Speaker 8: Yeah, from a alex From a logical point of view, 628 00:30:42,040 --> 00:30:44,920 Speaker 8: once you choose a cloud vendor to do any kind 629 00:30:44,920 --> 00:30:47,080 Speaker 8: of process, it could be just your back office work, 630 00:30:47,280 --> 00:30:49,040 Speaker 8: and it's very difficult for you to get rid of that. 631 00:30:49,120 --> 00:30:51,640 Speaker 8: And that's the whole point of cloud. So what essentially 632 00:30:51,680 --> 00:30:53,800 Speaker 8: both of them are selling not so much an AI, 633 00:30:54,120 --> 00:30:56,640 Speaker 8: but they're basically selling just come to micloud and start 634 00:30:56,760 --> 00:30:58,760 Speaker 8: using it because once you start using it, you're not 635 00:30:58,800 --> 00:30:59,680 Speaker 8: going to go anywhere else. 636 00:31:00,240 --> 00:31:02,400 Speaker 4: Does Apple have an AI strategy? 637 00:31:03,320 --> 00:31:06,360 Speaker 8: Well, we'll find out on WWDC. I believe in June 638 00:31:06,440 --> 00:31:08,440 Speaker 8: that they're going to go out and basically, you know, 639 00:31:08,520 --> 00:31:11,400 Speaker 8: put the AI into Apple. But that's going to be 640 00:31:11,400 --> 00:31:14,719 Speaker 8: fun to see what happens over there. The initial response, 641 00:31:14,840 --> 00:31:16,680 Speaker 8: or at least discussions that we are seeing, is that 642 00:31:16,720 --> 00:31:18,520 Speaker 8: they're going to try to outsource that a little bit 643 00:31:18,560 --> 00:31:21,040 Speaker 8: to Google. And if they do, I think that good 644 00:31:21,040 --> 00:31:23,680 Speaker 8: reception is going to be very strong. If they basically 645 00:31:23,680 --> 00:31:25,600 Speaker 8: say we're going to just do it in house, then 646 00:31:25,720 --> 00:31:27,320 Speaker 8: we don't know how long it's going to take for 647 00:31:27,360 --> 00:31:30,280 Speaker 8: those products to really evolve. So I think this is 648 00:31:30,360 --> 00:31:33,360 Speaker 8: that is one of the pivotal moments for Apple it 649 00:31:33,360 --> 00:31:36,640 Speaker 8: as relates to their sales and profit growth over the 650 00:31:36,720 --> 00:31:38,160 Speaker 8: next twelve to twenty four months. 651 00:31:39,120 --> 00:31:40,480 Speaker 4: Can I go to this conference s or you have 652 00:31:40,520 --> 00:31:41,560 Speaker 4: to be like invite only? 653 00:31:42,640 --> 00:31:44,760 Speaker 8: I think it's invite only. I've been absolutely I'm not 654 00:31:44,840 --> 00:31:45,200 Speaker 8: going to make it. 655 00:31:45,360 --> 00:31:47,920 Speaker 2: I think you could make it. You know everybody, she knows, 656 00:31:47,960 --> 00:31:51,160 Speaker 2: all the people. I'm looking at Amazon, Stock, at ononanyone 657 00:31:51,640 --> 00:31:55,360 Speaker 2: dot twenty one. Do you feel like all I know 658 00:31:55,400 --> 00:31:57,440 Speaker 2: that their cloud business might be different, but the AI 659 00:31:57,600 --> 00:31:59,240 Speaker 2: part of all of this, do you feel like it's 660 00:31:59,280 --> 00:32:03,160 Speaker 2: accurately prior how do you model it. 661 00:32:02,120 --> 00:32:04,960 Speaker 8: It's it's see, it's very difficult to price any of 662 00:32:04,960 --> 00:32:07,920 Speaker 8: the AI related revenue because at the end of the day, 663 00:32:07,960 --> 00:32:10,000 Speaker 8: it all is, it all goes to the cloud. So 664 00:32:10,040 --> 00:32:12,480 Speaker 8: I mean, that's how what we want to see. Having 665 00:32:12,520 --> 00:32:14,200 Speaker 8: said that, as I said, it's going to take a 666 00:32:14,240 --> 00:32:17,120 Speaker 8: little bit longer for Amazon to monetize a lot of 667 00:32:17,160 --> 00:32:19,840 Speaker 8: these things. So we are not building in any kind 668 00:32:19,880 --> 00:32:22,400 Speaker 8: of our projections looking into you know, when the report 669 00:32:22,440 --> 00:32:25,040 Speaker 8: earnings next month, we think it's going to be still 670 00:32:25,080 --> 00:32:28,800 Speaker 8: about you know, six to twelve months out. But for Microsoft, 671 00:32:28,840 --> 00:32:32,280 Speaker 8: because it's a direct you know, usage of CHAGGPT, I 672 00:32:32,280 --> 00:32:34,840 Speaker 8: think they're going to get you know, a bigger boost 673 00:32:34,840 --> 00:32:36,200 Speaker 8: than anybody else at this point. 674 00:32:36,640 --> 00:32:38,560 Speaker 4: At an around RNA, thank you so much. We appreciate it. 675 00:32:38,560 --> 00:32:42,120 Speaker 4: On a Rod Rana Senior Technology Anels Bloomberg Intelligence, uh 676 00:32:42,280 --> 00:32:45,640 Speaker 4: phoning it in, zooming in from somewhere looking at Amazon 677 00:32:45,680 --> 00:32:49,280 Speaker 4: dot Com stocks up nineteen percent today, I'm sorry, nineteen 678 00:32:49,280 --> 00:32:53,520 Speaker 4: percent year to date, all time high for this name. 679 00:32:53,600 --> 00:32:55,520 Speaker 4: I love putting up the long term chart like from 680 00:32:55,520 --> 00:32:57,640 Speaker 4: beginning of time because remember this this stock was nowhere 681 00:32:57,640 --> 00:32:59,200 Speaker 4: for a lot because they were losing money hand every 682 00:32:59,240 --> 00:33:01,320 Speaker 4: fist and then at some point, Jeff Besis got the 683 00:33:01,360 --> 00:33:03,640 Speaker 4: street to just switch it on a dime and say, 684 00:33:03,920 --> 00:33:07,200 Speaker 4: don't worry about profits. We're investing in the future, and 685 00:33:07,600 --> 00:33:09,720 Speaker 4: our future is great. You do you want us investing 686 00:33:09,760 --> 00:33:11,880 Speaker 4: in the future. You don't want us delivering EPs to you. 687 00:33:12,440 --> 00:33:14,440 Speaker 4: For years and years and years, that didn't work, and 688 00:33:14,440 --> 00:33:16,640 Speaker 4: then we hit an inflection and boom, because I think 689 00:33:16,680 --> 00:33:19,040 Speaker 4: people realize, oh this scene, you can sell more than 690 00:33:19,120 --> 00:33:21,360 Speaker 4: just books on this thing, right right, right, right. 691 00:33:21,160 --> 00:33:23,480 Speaker 2: Oh, now I understand you're just not a Barnes and 692 00:33:23,520 --> 00:33:27,000 Speaker 2: Normal competitor, You're something else. But you know, that's such 693 00:33:27,000 --> 00:33:29,040 Speaker 2: a great point because I feel like when when we 694 00:33:29,040 --> 00:33:31,640 Speaker 2: talk to any company about look at our new AI offering, 695 00:33:31,800 --> 00:33:34,280 Speaker 2: Look at this cool partnership we have with Microsoft, Look 696 00:33:34,280 --> 00:33:37,000 Speaker 2: what we're doing with Amazon, it's really hard for lay 697 00:33:37,000 --> 00:33:40,480 Speaker 2: people like me to understand what that means, Like is 698 00:33:40,480 --> 00:33:42,680 Speaker 2: it a tangible thing? Is it just you know, a 699 00:33:42,720 --> 00:33:44,600 Speaker 2: sexy bell and whistle that's not going to actually do 700 00:33:44,640 --> 00:33:47,520 Speaker 2: anything materially for you. And it's hard to kind of 701 00:33:47,520 --> 00:33:49,719 Speaker 2: weed through all the stuff, to be honest, which is 702 00:33:49,760 --> 00:33:50,640 Speaker 2: why I guess it's good to. 703 00:33:50,640 --> 00:33:52,960 Speaker 4: Have on it and stuff exactly. I mean, for me, 704 00:33:53,080 --> 00:33:56,240 Speaker 4: AI to me, what's incremental on the CAPEC spend that 705 00:33:56,280 --> 00:33:58,320 Speaker 4: everybody talks about it in the next five years, and 706 00:33:58,360 --> 00:34:01,280 Speaker 4: what is just more just re position some other keepec spinning. 707 00:34:01,320 --> 00:34:02,080 Speaker 4: That's kind of for me. 708 00:34:04,640 --> 00:34:08,520 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 709 00:34:08,600 --> 00:34:11,640 Speaker 1: weekdays at ten am Eastern on Apple card Play and 710 00:34:11,640 --> 00:34:14,560 Speaker 1: Android Otto with the Bloomberg Business app. You can also 711 00:34:14,640 --> 00:34:17,799 Speaker 1: listen live on Amazon Alexa from our flagship New York 712 00:34:17,880 --> 00:34:22,200 Speaker 1: station Just Say Alexa playing Bloomberg eleven thirty. 713 00:34:22,400 --> 00:34:24,800 Speaker 4: Max Chak which Ken joins us. He's a Bloomberg BusinessWeek 714 00:34:24,840 --> 00:34:28,400 Speaker 4: senior reporter. He's got his piece entitled Bankman Fried's Original 715 00:34:28,440 --> 00:34:32,120 Speaker 4: sin at FTX is trouble for all of crypto. Max 716 00:34:32,200 --> 00:34:33,920 Speaker 4: ex much for joining us here. I really appreciate you 717 00:34:33,960 --> 00:34:36,720 Speaker 4: taking the time here. I think at the crypto industry, 718 00:34:36,719 --> 00:34:38,440 Speaker 4: if you speak, if you think about it as a 719 00:34:38,480 --> 00:34:40,560 Speaker 4: broad entity, they'd like to put all this behind it. 720 00:34:40,680 --> 00:34:40,879 Speaker 8: Yeah. 721 00:34:40,880 --> 00:34:43,759 Speaker 9: Absolutely. And when you look at who has been most 722 00:34:43,760 --> 00:34:47,960 Speaker 9: sort of most vociferous in uh calling out Sam Bankman Freed, 723 00:34:48,200 --> 00:34:50,840 Speaker 9: you sort of have two groups, one or some crypto critics, 724 00:34:50,880 --> 00:34:53,839 Speaker 9: but actually a lot of the crypto companies themselves. Because 725 00:34:53,880 --> 00:34:57,080 Speaker 9: the idea here is this guy is a bad apple. 726 00:34:57,360 --> 00:34:59,160 Speaker 9: We got to get him out, We got to excise 727 00:34:59,320 --> 00:35:03,080 Speaker 9: him for from the industry, which is understandable. But as 728 00:35:03,080 --> 00:35:05,040 Speaker 9: we as we write in the story, you know, there's 729 00:35:05,080 --> 00:35:07,160 Speaker 9: some problems with that, And the main problem is that 730 00:35:07,320 --> 00:35:11,040 Speaker 9: a lot of the conditions that made FTX possible continue, 731 00:35:11,239 --> 00:35:14,200 Speaker 9: and the crypto industry is essentially trying to deregulate the 732 00:35:14,239 --> 00:35:17,160 Speaker 9: industry for further So sort of responding to this crisis 733 00:35:17,200 --> 00:35:18,879 Speaker 9: by saying we need fewer rules. 734 00:35:18,560 --> 00:35:23,600 Speaker 2: Not more, is that gonna Would that have made a difference. 735 00:35:24,120 --> 00:35:25,200 Speaker 4: If there were more rules? 736 00:35:25,239 --> 00:35:25,560 Speaker 8: Yeah? 737 00:35:26,239 --> 00:35:29,080 Speaker 2: I mean, but how because he was actively lobbying sort 738 00:35:29,120 --> 00:35:32,600 Speaker 2: of Congress to do stuff like he wanted that, So 739 00:35:32,800 --> 00:35:35,040 Speaker 2: doesn't that fly in the face of if more rules, 740 00:35:35,080 --> 00:35:36,200 Speaker 2: he wouldn't have been able to do what. 741 00:35:36,160 --> 00:35:39,520 Speaker 9: He did he So this is like a sort of 742 00:35:39,560 --> 00:35:42,000 Speaker 9: common misunderstanding I think. I mean, just because he's lobbying 743 00:35:42,040 --> 00:35:45,640 Speaker 9: for Congress doesn't mean that he's he's wanting to be regulated. 744 00:35:45,640 --> 00:35:48,239 Speaker 9: He was lobbying for rules that would have been, you know, 745 00:35:48,719 --> 00:35:50,680 Speaker 9: conducive to what he wanted to do. I mean, the 746 00:35:50,760 --> 00:35:54,920 Speaker 9: central thing is FTX was operating offshore quote unquote operating 747 00:35:54,960 --> 00:35:59,799 Speaker 9: in the Bahamas officially not selling products to Americans, although 748 00:35:59,800 --> 00:36:02,880 Speaker 9: we know from what's happened since that Americans were finding 749 00:36:02,920 --> 00:36:06,000 Speaker 9: their way into some of these banned products. A lot 750 00:36:06,000 --> 00:36:08,759 Speaker 9: of these crypto companies have been wanting to bring that 751 00:36:08,920 --> 00:36:11,920 Speaker 9: model to the United States, Like that's the big thing. 752 00:36:12,000 --> 00:36:13,759 Speaker 9: That is what Sam Bankmin Freed was trying to do 753 00:36:14,120 --> 00:36:16,920 Speaker 9: and what many in crypto essentially still want to do. 754 00:36:17,800 --> 00:36:20,120 Speaker 4: Are there people, is it a fair criticism of the 755 00:36:20,239 --> 00:36:22,080 Speaker 4: industry or maybe some of the leading people in the 756 00:36:22,120 --> 00:36:25,080 Speaker 4: crypto industry that the industry itself and some of the 757 00:36:25,160 --> 00:36:27,719 Speaker 4: leaders enabled Sam Bankmin Freed along the way, and that's 758 00:36:27,760 --> 00:36:29,480 Speaker 4: simply trying to wash your hands of it at this point, 759 00:36:29,600 --> 00:36:31,600 Speaker 4: is you know, disingenuous? 760 00:36:31,680 --> 00:36:31,839 Speaker 8: Yeah? 761 00:36:31,880 --> 00:36:35,400 Speaker 9: Absolutely, I mean FTX was entirely enmeshed in the industry, 762 00:36:35,480 --> 00:36:37,680 Speaker 9: investing in many of the companies. You know, during the 763 00:36:38,239 --> 00:36:40,400 Speaker 9: sort of collapse the crypto markets in twenty twenty two, 764 00:36:40,520 --> 00:36:42,480 Speaker 9: bailed out many of the companies. You know, remember all 765 00:36:42,480 --> 00:36:46,880 Speaker 9: these headlines around describing Sam Bankton Freed as the you know, 766 00:36:47,160 --> 00:36:49,319 Speaker 9: as the savior of the crypto industry, as as the 767 00:36:49,360 --> 00:36:51,960 Speaker 9: Warren Buffet of crypto is the next Warren Buffett and 768 00:36:52,000 --> 00:36:54,440 Speaker 9: those all came because because this was a company that 769 00:36:54,600 --> 00:36:57,960 Speaker 9: was putting huge sums of money into all these other companies, 770 00:36:57,960 --> 00:37:01,640 Speaker 9: and it's the reason why the markets crashed further in 771 00:37:01,680 --> 00:37:05,680 Speaker 9: the weeks and months after the FTX bankruptcy. So yes, absolutely, 772 00:37:05,920 --> 00:37:08,520 Speaker 9: although of course that's like a somewhat awkward question, and 773 00:37:08,640 --> 00:37:11,440 Speaker 9: also there have been differences in approach. It's not like 774 00:37:11,760 --> 00:37:13,640 Speaker 9: it's not like all the companies are operating in the 775 00:37:13,680 --> 00:37:17,440 Speaker 9: exact same way. I think Coinbase has legitimately made more 776 00:37:17,440 --> 00:37:21,040 Speaker 9: of an effort on the regulatory front than say FTX, 777 00:37:21,239 --> 00:37:24,120 Speaker 9: but Coinbase is also trying to deregulate in various ways. 778 00:37:24,480 --> 00:37:26,480 Speaker 2: What about the recovery, So I feel like a lot 779 00:37:26,480 --> 00:37:29,480 Speaker 2: of this has been on. You know, Bernie Madoff's victims, 780 00:37:29,480 --> 00:37:32,640 Speaker 2: for example, didn't get anything back, and therefore if Sam 781 00:37:32,640 --> 00:37:35,800 Speaker 2: Bagman Freed's victims got some back, then that should reduce 782 00:37:35,840 --> 00:37:37,279 Speaker 2: his jail time. Talk us through that. 783 00:37:37,440 --> 00:37:40,359 Speaker 9: So in fact, Bernie madeoff victims have gotten money back. 784 00:37:40,400 --> 00:37:44,320 Speaker 9: So this is so this Initially, of course, they lost. 785 00:37:44,160 --> 00:37:44,720 Speaker 4: All their money. 786 00:37:44,880 --> 00:37:47,719 Speaker 9: But in the years since, and it's you know, many 787 00:37:47,800 --> 00:37:51,120 Speaker 9: years now, ninety percent of the initial investment from the 788 00:37:51,160 --> 00:37:54,160 Speaker 9: madeoff victims has been recovered. Now that doesn't like the 789 00:37:54,200 --> 00:37:56,440 Speaker 9: Madoff victims are still very unhappy, and even if they 790 00:37:56,440 --> 00:37:58,400 Speaker 9: get to one hundred percent, still going to be very 791 00:37:58,480 --> 00:38:01,400 Speaker 9: unhappy because not having access to your money for years 792 00:38:01,480 --> 00:38:05,200 Speaker 9: or even decades. Yeah, and they're huge and as many 793 00:38:05,239 --> 00:38:08,160 Speaker 9: of the victims have pointed out in this case, getting 794 00:38:08,239 --> 00:38:10,839 Speaker 9: one hundred percent of your assets back at the time 795 00:38:10,840 --> 00:38:14,520 Speaker 9: of bankruptcy years later is still difficult. People have suffered 796 00:38:14,560 --> 00:38:18,280 Speaker 9: extreme emotional distress, like you know, their lives have essentially 797 00:38:18,320 --> 00:38:22,040 Speaker 9: been ruined. So there's that point. But then there's the 798 00:38:22,160 --> 00:38:24,799 Speaker 9: legal matter, which is it doesn't matter. And the judge 799 00:38:24,840 --> 00:38:28,240 Speaker 9: brought this up in the proceeding today. You know, if 800 00:38:28,280 --> 00:38:31,560 Speaker 9: you squander, if you steal customer money or or and 801 00:38:31,600 --> 00:38:33,359 Speaker 9: take it to your put in your pocket, walk into 802 00:38:33,360 --> 00:38:35,960 Speaker 9: a Vegas casino and then later pay them, you know, 803 00:38:36,000 --> 00:38:38,640 Speaker 9: somebody else comes along and pays them off, that doesn't 804 00:38:38,960 --> 00:38:42,400 Speaker 9: change the legal situation. So so there's a moral question 805 00:38:42,440 --> 00:38:43,880 Speaker 9: of like, well, what does it mean if they've been 806 00:38:43,880 --> 00:38:46,360 Speaker 9: able to recover their money, and then there's the legal one. 807 00:38:46,440 --> 00:38:48,400 Speaker 9: For the legal one, it just it doesn't matter. 808 00:38:48,480 --> 00:38:50,760 Speaker 4: And I'm just you know, reading your story here. Unfortunately, 809 00:38:50,840 --> 00:38:53,799 Speaker 4: the conditions that allowed people to fall for schemes such 810 00:38:53,800 --> 00:38:56,319 Speaker 4: as bankuan freeds. Tho's a lot of those conditions still 811 00:38:56,360 --> 00:38:59,400 Speaker 4: remain here. And is there where are we in just 812 00:38:59,560 --> 00:39:03,200 Speaker 4: terms of the regulatory framework? Is there any agreement maybe 813 00:39:03,239 --> 00:39:04,720 Speaker 4: how this should evolve over time? 814 00:39:05,239 --> 00:39:09,680 Speaker 9: No, I mean we have seen certain I don't know 815 00:39:09,680 --> 00:39:11,279 Speaker 9: if you wanna call it progress. I mean, of course 816 00:39:11,280 --> 00:39:15,960 Speaker 9: there are like the SEC approved certain spot bitcoin ETFs. 817 00:39:16,520 --> 00:39:19,480 Speaker 9: There's now a big debate, you know, within the industry 818 00:39:19,480 --> 00:39:22,839 Speaker 9: should should they allow for other spot etfsa ethereum or 819 00:39:22,960 --> 00:39:25,960 Speaker 9: or other assets that are maybe not as well established 820 00:39:26,000 --> 00:39:29,359 Speaker 9: as bitcoin. The SEC Gary Gensler has been pretty cool 821 00:39:29,400 --> 00:39:33,640 Speaker 9: to that possibility. You know, the industry, you know, backing up, 822 00:39:34,440 --> 00:39:37,120 Speaker 9: there's a ton of money coming in here. Crypto prices 823 00:39:37,160 --> 00:39:41,280 Speaker 9: are soaring, a lot of the same kind of frothy 824 00:39:41,480 --> 00:39:44,920 Speaker 9: enthusiasm that we saw in the pre FTX collapse. It's there, 825 00:39:45,040 --> 00:39:47,480 Speaker 9: you know, and in certain ways it's worse, right, But 826 00:39:47,960 --> 00:39:50,160 Speaker 9: during the FTX build up, we were talking about all 827 00:39:50,160 --> 00:39:52,719 Speaker 9: the wonderful use cases for crypto. Blockchain was going to 828 00:39:52,840 --> 00:39:55,200 Speaker 9: change everything, And when you actually listen to what people 829 00:39:55,200 --> 00:39:57,799 Speaker 9: in the crypto industry are talking about lately, they're just 830 00:39:57,840 --> 00:40:00,520 Speaker 9: more talking about the numbers going up and the fact that, yeah, 831 00:40:00,520 --> 00:40:02,640 Speaker 9: you have new money coming in through these ETFs, and 832 00:40:03,040 --> 00:40:06,200 Speaker 9: we're seeing all of these tokens, some tokens where really 833 00:40:06,280 --> 00:40:08,719 Speaker 9: there's nothing going on besides vibes. You know, these quote 834 00:40:08,760 --> 00:40:11,359 Speaker 9: unquote mean coins that are also soaring. And in fact, 835 00:40:11,680 --> 00:40:13,120 Speaker 9: many of the tokens that have gone up the most 836 00:40:13,200 --> 00:40:15,080 Speaker 9: are the same tokens that were going up during the 837 00:40:15,160 --> 00:40:18,480 Speaker 9: FTX run up. So I think there is certainly when 838 00:40:18,800 --> 00:40:21,759 Speaker 9: you're talking about huge amounts of speculation, there is going 839 00:40:21,800 --> 00:40:24,279 Speaker 9: to be pain ahead for some of the speculators. Of course, 840 00:40:24,280 --> 00:40:28,200 Speaker 9: there's also the potential for ever more wealth. So that's 841 00:40:28,239 --> 00:40:28,680 Speaker 9: the tension. 842 00:40:28,760 --> 00:40:30,359 Speaker 2: Before I let you go, we have like a minute left. 843 00:40:30,840 --> 00:40:33,000 Speaker 2: We have later on on TV William Quigley, who's the 844 00:40:33,200 --> 00:40:37,600 Speaker 2: co founder of Tether, what's my question for him? 845 00:40:37,680 --> 00:40:42,400 Speaker 9: I mean, I think, like the Tether situation. One of 846 00:40:42,400 --> 00:40:44,799 Speaker 9: the things that's craziest about this if you went back 847 00:40:44,840 --> 00:40:47,880 Speaker 9: ten years ago or five years ago and asked, you know, 848 00:40:47,920 --> 00:40:51,040 Speaker 9: which company is most likely to run into issues regulatory 849 00:40:51,080 --> 00:40:53,000 Speaker 9: issues and so on, people, you know, Tether was one 850 00:40:53,040 --> 00:40:56,839 Speaker 9: that cryptoskeptics have brought up over and over again over 851 00:40:56,840 --> 00:40:59,759 Speaker 9: the years. And they have managed to stick it out 852 00:40:59,800 --> 00:41:01,840 Speaker 9: and are still here at a time when you know 853 00:41:02,080 --> 00:41:03,880 Speaker 9: the CEO of finance is headed for prison. 854 00:41:04,280 --> 00:41:04,400 Speaker 8: Uh. 855 00:41:04,600 --> 00:41:06,799 Speaker 9: You know the former CEO of ft X, former CEO 856 00:41:06,800 --> 00:41:09,480 Speaker 9: of Binance, former CEO of FTX also appears to be 857 00:41:09,480 --> 00:41:13,479 Speaker 9: headed to prison. So that's impressive. I do wonder how 858 00:41:13,640 --> 00:41:18,160 Speaker 9: tether UH tries to adjust further or if they have 859 00:41:18,200 --> 00:41:20,200 Speaker 9: plans to adjust further. Right, For for years people have 860 00:41:20,239 --> 00:41:22,720 Speaker 9: wanted to see more information about what's on their balance sheets, 861 00:41:22,840 --> 00:41:25,560 Speaker 9: and they've essentially resisted. So I'm curious what their plans 862 00:41:25,560 --> 00:41:26,280 Speaker 9: are going forward. 863 00:41:26,480 --> 00:41:30,120 Speaker 4: Max great stuff, Zeke Fox, Max Chafkin, They've got this 864 00:41:30,200 --> 00:41:32,640 Speaker 4: really good story. I just keep scrolling down and there's 865 00:41:32,719 --> 00:41:35,040 Speaker 4: more and more and more good stuff here. Bankman Freed's 866 00:41:35,239 --> 00:41:38,840 Speaker 4: original senate FTX is trouble for all of crypto. For 867 00:41:38,880 --> 00:41:41,200 Speaker 4: all our listeners and viewers out there that are, you know, 868 00:41:41,280 --> 00:41:43,839 Speaker 4: interested in this space, go to Bloomberg dot com uh 869 00:41:43,960 --> 00:41:46,480 Speaker 4: and find this story because it is really good reporting, 870 00:41:46,520 --> 00:41:49,480 Speaker 4: some really cool stuff in there. So check it out there. 871 00:41:49,800 --> 00:41:52,560 Speaker 4: Max chaffickin he does all that stuff for Bloomberg BusinessWeek. 872 00:41:52,960 --> 00:41:57,480 Speaker 1: This is the Bloomberg Intelligence podcast, available on apples Spotify, 873 00:41:57,680 --> 00:42:00,279 Speaker 1: and anywhere else you will get your podcasts. US and 874 00:42:00,320 --> 00:42:04,320 Speaker 1: live each weekday ten am tonoon Eastern on Bloomberg dot com, 875 00:42:04,400 --> 00:42:07,799 Speaker 1: the iHeartRadio app tune In, and the Bloomberg Business app. 876 00:42:07,920 --> 00:42:10,880 Speaker 1: You can also watch US live every weekday on YouTube 877 00:42:11,120 --> 00:42:13,000 Speaker 1: and always on the Bloomberg terminal