WEBVTT - Bloomberg Wall Street Week April 28th, 2023 0:00:00.560 --> 0:00:02.880 This is Bloomberg Wall Street Week. 0:00:02.920 --> 0:00:05.640 We turn our attention to the markets this week. USCPI 0:00:05.760 --> 0:00:10.160 Nembers reinforcing concerns about inflation, the financial stories that shape 0:00:10.200 --> 0:00:12.799 our work. A really different reaction to Mark. It's more 0:00:12.800 --> 0:00:16.000 indications of just how hot the US economy really is. 0:00:16.079 --> 0:00:19.479 Through the eyes of the most influential voices. Larry Summers, 0:00:19.480 --> 0:00:22.680 the former Treasurer Secretary, Katherine Keating, CEO of bny ME 0:00:22.840 --> 0:00:26.200 and Sam Zel Sharman and founder of Aquatic Group Investment. 0:00:26.360 --> 0:00:30.320 Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:00:30.680 --> 0:00:34.600 Mixed signals from the economy, from earnings, but not from 0:00:34.600 --> 0:00:37.880 President Biden. This is Bloomberg Wall Street Week. I'm David Weston. 0:00:38.720 --> 0:00:41.880 This week special contributor Larry Summers on whether we're headed 0:00:41.920 --> 0:00:43.480 for a recession after. 0:00:43.240 --> 0:00:46.960 All the odds on that happening sometime in the next 0:00:47.479 --> 0:00:51.159 twelve months, I think are pretty good, perhaps seventy percent. 0:00:51.520 --> 0:00:56.280 Former IBM Haad Sam Palmasano on next steps for generative AI. 0:00:56.800 --> 0:00:59.600 Business leaders and companies can show the way they could 0:00:59.680 --> 0:01:01.120 establish the guard wear. 0:01:01.360 --> 0:01:04.480 And Steve Rattner of Willett Advisors on how to invest 0:01:04.720 --> 0:01:05.560 in China. 0:01:05.640 --> 0:01:07.800 On the plus side, I would say China's back. 0:01:08.120 --> 0:01:10.760 The flip side of it is clearly they're a bit 0:01:10.800 --> 0:01:26.880 off balance. Global Wall Street spent the week pouring over 0:01:26.959 --> 0:01:29.200 a lot of data looking for a signal in all 0:01:29.240 --> 0:01:33.080 of that noise. Big tech earnings are surprised to the upside. 0:01:33.200 --> 0:01:36.240 They have had such large gains in this sector, not 0:01:36.280 --> 0:01:38.440 even the sector as a whole, but these fang names. 0:01:38.760 --> 0:01:41.720 But most of the talk was about artificial intelligence and 0:01:41.760 --> 0:01:44.080 what it could mean for the tech industry, and for 0:01:44.160 --> 0:01:44.959 that matter, for us. 0:01:44.959 --> 0:01:49.560 All AI is bigger than any single company, or any 0:01:49.600 --> 0:01:52.440 single industry, or indeed any single country. 0:01:52.600 --> 0:01:55.400 And after all those encouraging earnings last week from the 0:01:55.400 --> 0:01:58.080 big banks, we learned just how bad things had gotten 0:01:58.080 --> 0:02:01.920 for credit suitees before UBS came to the rescue. 0:02:01.320 --> 0:02:02.680 In three to four years time. 0:02:02.960 --> 0:02:05.920 I like to see the employees of the combined organization 0:02:06.680 --> 0:02:09.520 this country, our clients to be very proud to be 0:02:09.560 --> 0:02:10.840 associated with the UBS. 0:02:11.360 --> 0:02:13.440 And then at the very end of the week, reports 0:02:13.480 --> 0:02:17.320 came that the FDIC will put First Republic Bancorp into receivership, 0:02:17.639 --> 0:02:20.040 saying the time had run out for a private solution. 0:02:20.440 --> 0:02:23.799 President Biden was unambiguous in telling us bed indeed, he 0:02:23.960 --> 0:02:26.560 would like another four years in the White House. 0:02:26.880 --> 0:02:27.959 Let's finish this job. 0:02:28.160 --> 0:02:29.000 There's nothing that. 0:02:29.160 --> 0:02:30.680 We cannot do the thing together. 0:02:30.840 --> 0:02:34.240 And economic numbers pointed in both directions, with home prices 0:02:34.280 --> 0:02:35.080 and sales up. 0:02:35.280 --> 0:02:38.200 If housing comes back does not give the consumer. 0:02:37.760 --> 0:02:39.919 Another boost, consumer confidence down. 0:02:40.200 --> 0:02:43.680 The consumer confidence number really interesting for April, so overall 0:02:43.760 --> 0:02:45.200 it falls a touch, and. 0:02:45.240 --> 0:02:49.040 GDP numbers out Thursday mixed as well, slowing in the 0:02:49.080 --> 0:02:51.880 first quarter, but not as much as some had feared. 0:02:53.560 --> 0:02:56.360 Then on Friday we got consumer spending numbers and the 0:02:56.400 --> 0:03:00.519 all important Employment Cost Index showing spending was flat, while 0:03:00.520 --> 0:03:03.080 the ECI moved up higher than expected one point two 0:03:03.120 --> 0:03:05.880 percent for the first quarter. Markets took it all pretty 0:03:05.919 --> 0:03:08.120 much in stride, with the yield and the tenure down 0:03:08.120 --> 0:03:10.640 about thirteen basis points for the week, ending up at 0:03:10.639 --> 0:03:13.840 three four hundred three point four to three nine, while 0:03:13.960 --> 0:03:16.840 equities held up nicely. The Nasdaq was up almost one 0:03:16.840 --> 0:03:19.239 point four percent for the week, while the sp five 0:03:19.320 --> 0:03:21.840 hundred was up almost nine ten to percent, leaving it 0:03:21.880 --> 0:03:24.840 at forty one sixty nine, or about ninety four points 0:03:24.880 --> 0:03:27.360 above the median of where our l's projected will end 0:03:27.360 --> 0:03:29.600 the year. One of the most prominent of the l's 0:03:29.680 --> 0:03:32.240 Mike Wilson of Morgan Stanley is one of our most 0:03:32.240 --> 0:03:35.040 parish He's projecting at a year end of about thirty 0:03:35.120 --> 0:03:37.480 nine hundred and this week he noted a shift. This 0:03:37.520 --> 0:03:40.200 is according to Mike, while macro news has taken a 0:03:40.280 --> 0:03:43.680 larger focus in recent weeks, the reporting season has the 0:03:43.720 --> 0:03:48.600 potential to refocus investors' attention on equity fundamentals. To take 0:03:48.680 --> 0:03:50.640 us through the week in the markets, we welcome now 0:03:50.720 --> 0:03:54.680 Greg Peters PGIM Cocio for fixed income and Monama Hodgen. 0:03:54.880 --> 0:03:58.440 She is Edward Jones, Senior investment strategist. Welcome both you 0:03:58.600 --> 0:04:00.800 back to Wall Street weeks. So Moon, let me start 0:04:00.800 --> 0:04:02.760 with you. What about what Mike Wilson had to say? 0:04:02.960 --> 0:04:05.360 Are we looking at fundamentals now more than some of 0:04:05.400 --> 0:04:06.680 the macro factors we have been? 0:04:07.520 --> 0:04:09.360 Yeah, you know, look, I think Mike got it right. 0:04:09.440 --> 0:04:09.960 This week. 0:04:10.200 --> 0:04:13.080 Certainly markets were driven by those earnings results, and really 0:04:13.080 --> 0:04:16.720 their earnings results from the megacap technology names, and as 0:04:16.760 --> 0:04:19.400 you noted, they surprised, and the surprised to the upside. 0:04:19.440 --> 0:04:21.800 And that wasn't only earnings beats. A lot of them 0:04:21.839 --> 0:04:24.800 are now showing that their business models are resilient even 0:04:24.880 --> 0:04:27.800 through economics swings, and also they are showing off a 0:04:27.800 --> 0:04:30.400 little bit of their cash piles. We saw a couple 0:04:30.480 --> 0:04:33.559 of very big share buyback programs announced this week as well, 0:04:34.080 --> 0:04:35.680 and we saw at the end of the week really 0:04:35.760 --> 0:04:39.000 equity markets were bullish, they were positive for the week, 0:04:39.160 --> 0:04:43.240 and that came even despite softer than expected GDP data 0:04:43.360 --> 0:04:45.640 inflation data that might be a little bit stickier than 0:04:45.640 --> 0:04:49.040 some might have hoped for. So generally for the last 0:04:49.040 --> 0:04:51.400 couple of weeks, it certainly has been the earning story 0:04:51.560 --> 0:04:54.920 driving markets and really driving those growth sectors in particular. 0:04:55.400 --> 0:04:58.080 But as we look towards the weeks ahead, especially next week, 0:04:58.120 --> 0:05:01.400 when the FED becomes more in focus again and as 0:05:01.800 --> 0:05:04.880 the economy and inflation continues to remain to the forefront, 0:05:05.040 --> 0:05:07.720 I think we'll see a swing from earnings and equity 0:05:07.760 --> 0:05:11.159 fundamentals to macro picture becoming more in focus in the 0:05:11.160 --> 0:05:13.760 weeks ahead as well. So it's certainly right for this week. 0:05:13.600 --> 0:05:16.000 Greg what's driving the fixed income markets. 0:05:16.320 --> 0:05:19.840 It is inflation, the economy, and what is the FED 0:05:19.960 --> 0:05:22.960 going to do about it? So we're on knife's edge 0:05:23.120 --> 0:05:26.440 in fixed income, whether it's a recession or soft landing. 0:05:26.480 --> 0:05:30.040 There's talk of sagflation still, of course, and the data 0:05:30.160 --> 0:05:32.760 are so all over the place in this furse that 0:05:32.920 --> 0:05:37.440 you can basically draw a narrative or conclusion from you know, 0:05:37.800 --> 0:05:39.240 the data in any way you want. 0:05:39.640 --> 0:05:41.919 Well, so I'm curious about that because the tenure yield, 0:05:42.120 --> 0:05:43.760 at least in my eye, has not been going much 0:05:43.760 --> 0:05:46.599 of anywhere anytime soon. Is that because people are happy 0:05:46.600 --> 0:05:48.039 with where it is, or it's because they can't just 0:05:48.080 --> 0:05:50.400 decide anyway they look, it could go either way, They 0:05:50.440 --> 0:05:51.080 just can't tell. 0:05:51.240 --> 0:05:53.880 Yeah, and so that masks you know, what's underneath. And 0:05:53.920 --> 0:05:56.359 so what we're seeing though on an inter day basis 0:05:56.680 --> 0:06:01.280 in the week, the the moves are pretty extreme. So 0:06:01.400 --> 0:06:05.400 fixed income volatility remains really really high. So yes, the 0:06:05.520 --> 0:06:10.479 tenure is virtually unchanged this month of April, but the 0:06:10.600 --> 0:06:14.320 swings are pretty substantial and mona. 0:06:14.360 --> 0:06:16.000 What about in the equity markets? What are we seeing 0:06:16.040 --> 0:06:17.640 in the fix is pretty subdued, is it not? 0:06:18.440 --> 0:06:18.719 Yeah? 0:06:18.800 --> 0:06:21.000 You know, it really is. One of the key stories 0:06:21.000 --> 0:06:22.919 that has emerged over the last few weeks, which is 0:06:22.920 --> 0:06:26.760 that volatility index some call it the Wall Street fear gauge, 0:06:26.839 --> 0:06:30.200 has been very subdued. In fact, down about twenty five 0:06:30.279 --> 0:06:33.760 percent year to date, which shows a bit of complacency 0:06:33.800 --> 0:06:37.360 from the markets and perhaps a little bit of investors 0:06:37.560 --> 0:06:40.080 hiding out. You know, keep in mind, cash and cash 0:06:40.120 --> 0:06:43.760 equivalents are offering attractive yield, so investors do want to 0:06:44.360 --> 0:06:47.680 wait for better opportunities. They certainly had an alternative now 0:06:48.040 --> 0:06:51.440 that is a pretty attractive alternative. But generally speaking, you know, 0:06:51.480 --> 0:06:54.080 some of the catalysts that were supposed to emerge early 0:06:54.120 --> 0:06:58.520 on this year, including earnings, including the FED potentially next week, 0:06:58.560 --> 0:07:02.320 and including this economic downtry, really haven't yet surprised in 0:07:02.360 --> 0:07:05.039 any material way, and so I do think markets have 0:07:05.120 --> 0:07:08.200 yet to see a meaningful catalyst. Perhaps the FED pause 0:07:08.240 --> 0:07:10.040 that maybe on the horizon will be that one. 0:07:10.120 --> 0:07:12.680 Well, well, Mona, what about the possibility of recession, because 0:07:12.680 --> 0:07:14.400 we still have a lot of economists saying that it's 0:07:14.400 --> 0:07:17.160 more likely than that, perhaps as highest seventy percent likelihood. 0:07:17.360 --> 0:07:18.760 I don't think I can see that very much in 0:07:18.800 --> 0:07:21.080 the equity markets. So does the equity markets know something 0:07:21.080 --> 0:07:23.360 the economists don't, or do the economists know something maybe 0:07:23.360 --> 0:07:24.360 the equity markets don't. 0:07:24.800 --> 0:07:26.760 Yeah, you know, look, I think this recession that is 0:07:26.800 --> 0:07:28.720 on the horizon is probably one of the worst kept 0:07:28.960 --> 0:07:32.720 secrets that's out there among economists and investors. Everybody has 0:07:32.760 --> 0:07:35.640 been talking about it. The deceleration. We saw this this 0:07:35.680 --> 0:07:39.120 past week. In first quarter GDP has shown a slow 0:07:39.160 --> 0:07:41.800 down from three point two percent in Q three, two 0:07:41.840 --> 0:07:44.480 point six percent in Q four of last year this 0:07:44.960 --> 0:07:48.000 quarter one point one percent, So we're seeing this downward trajectory. 0:07:48.160 --> 0:07:50.600 The consumer is still holding up, but if you look 0:07:50.640 --> 0:07:52.960 at forecasts for Q three and Q four of this year, 0:07:53.160 --> 0:07:57.120 we are in fact seeing negative and slightly negative annualized 0:07:57.120 --> 0:07:59.760 growth rates. So in our view, this idea that a 0:08:00.080 --> 0:08:03.280 mild recession is on the horizon is very likely still 0:08:03.320 --> 0:08:06.320 probably still a base case scenario, and markets won't be 0:08:06.320 --> 0:08:09.760 able to completely ignore that. But keep in mind, we 0:08:09.800 --> 0:08:11.760 did put in a lot of work to the downside 0:08:11.880 --> 0:08:14.760 over the last fifteen months or so. The SMP went 0:08:14.840 --> 0:08:16.800 down almost twenty five percent. 0:08:16.520 --> 0:08:17.320 Peak to trough. 0:08:17.760 --> 0:08:19.800 We don't see a repeat of that happening even if 0:08:19.840 --> 0:08:22.560 we have a mild recession ahead. So any period of 0:08:22.640 --> 0:08:27.200 volatility consolidation pullback, we think could provide some opportunities for 0:08:27.240 --> 0:08:30.480 investors as they look past this bear market and perhaps 0:08:30.480 --> 0:08:31.960 towards a recovery period ahead. 0:08:32.120 --> 0:08:34.319 Greg what about the bond markets, because we got a 0:08:34.320 --> 0:08:36.439 lot of economic data this week and it showed sort 0:08:36.480 --> 0:08:39.320 of slow in growth, perhaps, but inflation is not going away. 0:08:39.400 --> 0:08:41.400 Maybe a head in the right direction is not going away. 0:08:41.600 --> 0:08:44.040 Are the bond markets prepared for the possibility to Fed 0:08:44.200 --> 0:08:46.400 hiking even past May No. 0:08:46.559 --> 0:08:49.440 In fact, the market's pricing in the opposite, right, they're 0:08:49.480 --> 0:08:52.319 pricing in rate cuts in the back end of this year. 0:08:53.120 --> 0:08:56.240 And to me, that is, you know, the risk markets 0:08:56.280 --> 0:08:58.760 are ignoring that if the Fed cuts, that means we 0:08:58.800 --> 0:09:01.600 are into a recession or much weaker period. But the 0:09:01.640 --> 0:09:04.839 binding constraint continues to be inflation, and I think we're 0:09:04.840 --> 0:09:06.280 in a very different environment. 0:09:07.000 --> 0:09:09.440 We've been so accustomed to the FED coming to. 0:09:09.360 --> 0:09:11.760 The rescue and it's much easier to do that when 0:09:11.800 --> 0:09:15.200 they're operating below that two percent level. When they're above, 0:09:15.200 --> 0:09:19.160 and they're pretty meaningfully above, their degrees of freedom really 0:09:19.200 --> 0:09:21.959 really get much tighter. So I think the markets are 0:09:21.960 --> 0:09:24.240 miscalibrating what the Fed can do. 0:09:25.120 --> 0:09:26.840 And the opposite is also. 0:09:26.640 --> 0:09:30.080 True, David, where if the numbers continue to assert themselves 0:09:30.080 --> 0:09:33.040 on the inflation side, there's more work to do, And 0:09:33.120 --> 0:09:37.760 the markets have been consistently wrong on the level of 0:09:37.800 --> 0:09:40.800 inflation and what the Fed's response function. 0:09:40.920 --> 0:09:43.280 Yeah, as has a FED quite often wrong, as best 0:09:43.320 --> 0:09:45.920 I can tell. Greg Peers of PGUM and Mona Mahagron 0:09:46.200 --> 0:09:48.080 of Edward Jones. We're going to be staying with us 0:09:48.160 --> 0:09:50.679 as we turn to what a failed First Republic could 0:09:50.720 --> 0:09:53.280 mean for the markets. That's next on Wall Street Week. 0:09:53.559 --> 0:10:06.400 We're on Bloomberg. This is Bloomberg Well Street Week with 0:10:06.559 --> 0:10:16.040 David Weston from Bloomberg Radio. This is Wall Street Week. 0:10:16.080 --> 0:10:19.000 I'm David Weston. The saga of American banks continued this 0:10:19.080 --> 0:10:22.679 week with news that First Republic is headed apparently for receivership. 0:10:22.840 --> 0:10:24.800 To talk about what that could mean for the market, 0:10:24.840 --> 0:10:27.840 it's Monamahadgen of Edward Jones and Greg Peters and PGUM 0:10:28.000 --> 0:10:29.480 are still with us. So Greg, let me turn to 0:10:29.480 --> 0:10:32.880 you first. We don't know exactly what's going on with 0:10:32.880 --> 0:10:35.199 the First Public. Let's assume it does go into receivership, 0:10:35.200 --> 0:10:37.880 as reports right now say it will. What does that 0:10:37.960 --> 0:10:39.679 mean for the markets as a practical matter. 0:10:40.200 --> 0:10:43.079 I think what it means is that the market will 0:10:43.120 --> 0:10:46.280 continue to search for the next weekest link and so 0:10:46.360 --> 0:10:48.839 First Republic has been very much in the market the 0:10:48.920 --> 0:10:50.920 past month or so, so it's not a complete and 0:10:51.000 --> 0:10:54.240 utter surprise, but the markets are really looking to suss 0:10:54.280 --> 0:10:58.080 out the week players to see whether it's systemic or not. 0:10:58.640 --> 0:11:01.320 But I think the real issue on the table is 0:11:01.760 --> 0:11:05.240 how broad is the pullback and lending on the regional 0:11:05.280 --> 0:11:08.160 and community bank side, and what influence does that have 0:11:08.559 --> 0:11:12.640 on the market and the economy. And you know that 0:11:12.760 --> 0:11:15.920 contraction of credit is really meaningful because it goes to 0:11:16.040 --> 0:11:19.160 the small and medium sized businesses, which quite frankly are 0:11:19.200 --> 0:11:22.199 the lifeblood of the economy and the labor market. 0:11:22.360 --> 0:11:24.520 So what doesn't mean potentially for equities, but in fact 0:11:24.600 --> 0:11:27.000 we continue to contract on the credit side because the 0:11:27.000 --> 0:11:30.160 banks are under control, under stress, and they get more 0:11:30.200 --> 0:11:31.840 and more conservative as a practical matter. 0:11:32.440 --> 0:11:34.640 Yeah, you know, it certainly has been interesting on equities. 0:11:34.640 --> 0:11:38.000 Of course, financials have had some difficulty this year and 0:11:38.040 --> 0:11:40.319 in fact still down here to date one of the 0:11:40.360 --> 0:11:42.600 worst performing sectors on the S and P five hundred, 0:11:43.080 --> 0:11:45.240 and part of that, of course is the banking turmoil 0:11:45.280 --> 0:11:47.240 we've seen over the last month and now at first 0:11:47.240 --> 0:11:50.120 Republic coming back to the forefront. Really, the question, to 0:11:50.160 --> 0:11:53.559 Greg's point, is is there another shoe to drop after 0:11:53.600 --> 0:11:57.120 First republic and market uncertainty, of course, is never welcomed 0:11:57.120 --> 0:12:00.400 by investors. But what we would say is one the 0:12:00.440 --> 0:12:03.760 bank tightening of credit, and that actually had started even 0:12:03.800 --> 0:12:07.360 prior to the March turmoil. We started to see metrics 0:12:07.400 --> 0:12:10.720 like the Senior Loan Officers Survey starting to show meaningful tightening. 0:12:10.760 --> 0:12:13.120 So what that means is banks will make it harder 0:12:13.160 --> 0:12:17.360 for consumers and corporations to get loans. Now that that's 0:12:17.400 --> 0:12:20.520 a double edged sword. On one side, yes, economic activity 0:12:20.559 --> 0:12:23.880 will cool and the economic growth prospects look worse, But 0:12:23.960 --> 0:12:26.600 on the other hand, the inflationary story we've been talking 0:12:26.600 --> 0:12:32.200 about could see a marginally less pressure on inflation, inflation 0:12:32.320 --> 0:12:36.280 moderating even further because banks are pulling back, and consumption 0:12:36.480 --> 0:12:39.560 and corporate spending may thus pull back as well. So 0:12:40.200 --> 0:12:43.520 really we're watching both edges of that story, of both 0:12:43.520 --> 0:12:46.599 sides of that story. But more broadly, we'd say the 0:12:46.720 --> 0:12:49.640 volatility that we've seen in the financial sector we think 0:12:49.800 --> 0:12:53.559 probably has some room to run here. But one final 0:12:53.600 --> 0:12:57.240 point there, we don't yet see any systemic disruption or 0:12:57.280 --> 0:12:59.599 any scope for a systemic disruption to the US or 0:12:59.600 --> 0:13:02.560 global banking system. We do think large cap banks here 0:13:02.600 --> 0:13:05.000 in the US are still sound and much better. 0:13:05.120 --> 0:13:07.680 Thank you so much, Tomana Mahadjen of Edward Jones and 0:13:07.720 --> 0:13:11.679 also Greg Peters of p JIM. In a week full 0:13:11.720 --> 0:13:14.240 of big tech earnings, all the talk was really about 0:13:14.320 --> 0:13:17.280 generative AI, it's potential and also some of the potential 0:13:17.360 --> 0:13:20.240 risks to take us through. Those who welcome now Sam Palmasano. 0:13:20.440 --> 0:13:22.679 He was the chairman and CEO of IBM. He now 0:13:22.760 --> 0:13:25.320 is chairman of the Center for Global Enterprise. So Sam, 0:13:25.360 --> 0:13:27.200 great to have you back with us on Wall Street week. 0:13:27.440 --> 0:13:29.680 Let me put you back as either CEO of IBM 0:13:29.800 --> 0:13:33.080 or another huge corporation publicly traded. What would you be 0:13:33.160 --> 0:13:37.520 doing right now today to prepare for or to incorporate AI. 0:13:38.920 --> 0:13:42.120 Well, David, it's an excellent question, and as I think 0:13:42.120 --> 0:13:44.439 about it, I would think about all the lessons I've 0:13:44.480 --> 0:13:47.120 learned in the past, either running an IBM or or 0:13:47.160 --> 0:13:49.600 if I was currently a CEO, what I've learned over 0:13:49.640 --> 0:13:52.000 the past ten or fifteen years, and that is that 0:13:52.280 --> 0:13:56.320 we face these challenges before, there's always been these disruptive 0:13:56.320 --> 0:14:00.600 technologies to come along. They represent from phenomenal promise, but 0:14:00.679 --> 0:14:02.079 also they can be disruptive. 0:14:02.280 --> 0:14:03.480 There are a couple of different paths. 0:14:03.600 --> 0:14:05.840 I mean, I'll make some suggestions, but you can dismiss it, 0:14:07.000 --> 0:14:08.080 you can wait and see. 0:14:08.240 --> 0:14:09.920 But then you know, you learn we learned. 0:14:09.760 --> 0:14:11.520 In the last time that you can be left behind 0:14:11.559 --> 0:14:13.520 if you do that and other leaders have urge in 0:14:13.559 --> 0:14:16.800 your peer group. Another way to do is let it 0:14:16.840 --> 0:14:18.679 just go like that would be the early days of 0:14:18.720 --> 0:14:19.200 the internet. 0:14:19.280 --> 0:14:19.960 Just let it run. 0:14:20.040 --> 0:14:21.600 And then the problem is then you have to clean 0:14:21.640 --> 0:14:23.880 it all up, you know, and that takes time, you 0:14:23.960 --> 0:14:25.880 lose some momentum, as it cost you some money, and 0:14:25.920 --> 0:14:28.440 those sorts of things. But I would start with creative 0:14:28.480 --> 0:14:32.640 management system that takes advantage of these technologies in your 0:14:32.680 --> 0:14:37.520 strategy and implement that company wide. The benefit of starting 0:14:37.560 --> 0:14:39.800 there is you won't have the problems of the past 0:14:39.800 --> 0:14:43.000 with digitization in the Internet, and plus you can scale 0:14:43.240 --> 0:14:46.160 and integrate and learn a lot quicker once you get 0:14:46.200 --> 0:14:48.280 your footing and you know where you want to go 0:14:48.400 --> 0:14:52.240 to take your business. The other thing is that I'll 0:14:52.240 --> 0:14:56.000 add is these technologies are going to mature, and they will. 0:14:56.080 --> 0:14:58.320 I mean, there's a lot of innovation yet to come. 0:14:58.400 --> 0:15:01.040 As exciting as this is a lot more to happen here, 0:15:01.040 --> 0:15:02.680 and it has to happen in other gaps that need 0:15:02.720 --> 0:15:06.400 to be filled. Having said that, it becomes ubiquitous, which 0:15:06.440 --> 0:15:09.360 means it touches everybody in your workforce. So you have 0:15:09.440 --> 0:15:11.640 to think about the jobs, the nature and work and 0:15:11.680 --> 0:15:14.600 how it changes how you develop skills. And it's not 0:15:15.200 --> 0:15:17.280 go out hire three data scientists. You're going to have 0:15:17.320 --> 0:15:21.040 to train and educate your people across the entire enterprise. 0:15:21.680 --> 0:15:23.840 And the last one, I would think ask them to 0:15:23.840 --> 0:15:25.880 think about or I would think about culture. Culture are 0:15:25.920 --> 0:15:30.000 so so important you need to adopt ethical principles for AI. 0:15:30.520 --> 0:15:33.320 We see the issues today for companies that haven't done that. 0:15:33.920 --> 0:15:36.080 You need to be trusted in this space if you're 0:15:36.160 --> 0:15:39.000 an enterprise. But they're the things that a management system 0:15:39.440 --> 0:15:41.960 think about, learning of your employee base and the impact 0:15:42.000 --> 0:15:43.360 to them and your culture. 0:15:43.920 --> 0:15:46.840 One of the issues I suspect is productivity. I mean AI, 0:15:46.960 --> 0:15:49.280 a generative AI has the potential at least to really 0:15:49.320 --> 0:15:52.240 increase the productivity of a company, something that we're always 0:15:52.320 --> 0:15:54.520 looking for. How do you make sure that you take 0:15:54.520 --> 0:15:57.200 advantage of that as a CEO without letting it go 0:15:57.320 --> 0:15:57.680 too far? 0:15:57.960 --> 0:16:01.280 Well, that's exactly the point fundamentally, which you need to 0:16:01.320 --> 0:16:03.680 do is I would say you need to think about 0:16:03.680 --> 0:16:07.040 the technology as a compliment to what's going on today. 0:16:07.320 --> 0:16:10.400 So therefore your knowledge worker can become an expert not 0:16:10.480 --> 0:16:12.840 just an average knowledge worker. Or a teacher can become 0:16:12.920 --> 0:16:15.960 an expert teacher, not just a participant. 0:16:15.400 --> 0:16:17.920 In teaching grammar or language, whatever happens to be. 0:16:18.440 --> 0:16:20.200 So if you think about that way, you said, how 0:16:20.200 --> 0:16:25.160 do you compliment the technology with the actual the. 0:16:25.080 --> 0:16:28.040 Work of the knowledge worker in your organization? I think 0:16:28.080 --> 0:16:28.440 if you. 0:16:28.440 --> 0:16:32.400 Do that, you won't have all the chaos that occur historically. 0:16:32.480 --> 0:16:34.280 I mean, chaos is okay, we learned, I mean, so 0:16:34.360 --> 0:16:37.440 there's nothing wrong with learning, but let's take the learning 0:16:37.440 --> 0:16:38.280 into the past. 0:16:38.040 --> 0:16:40.040 And try to avoid those as we get into the future. 0:16:40.080 --> 0:16:42.360 Here, Sam, what is the role if any of the 0:16:42.400 --> 0:16:44.280 government all this. There's a lot of time about regulation. 0:16:44.360 --> 0:16:46.240 We already saw it. China come out with a draft 0:16:46.360 --> 0:16:48.760 or set of regulations basically saying whatever you do with 0:16:48.800 --> 0:16:50.440 this general of AI, it's got to be consistent with 0:16:50.480 --> 0:16:53.080 our values, which is all the censorship that comes with that. 0:16:53.480 --> 0:16:56.400 So when it comes to US government, Europe, India, what 0:16:56.560 --> 0:17:00.400 is the constructive role of government in really directing AI 0:17:00.560 --> 0:17:01.720 in constructive ways? 0:17:02.600 --> 0:17:04.480 Well, I think government does have a role, and we 0:17:04.520 --> 0:17:07.520 see what happens when government's late to get ahead of 0:17:07.560 --> 0:17:09.520 these kinds of issues. You see that today with the 0:17:09.560 --> 0:17:13.119 social media companies and the issues around data and data privacy. 0:17:13.600 --> 0:17:14.680 So there's clearly a role. 0:17:14.920 --> 0:17:18.480 But the challenge is, as we know, and as we've learned, 0:17:18.800 --> 0:17:23.040 these regulations and standards have to be global. I mean, 0:17:23.440 --> 0:17:27.000 standards will emerge over time that are global. That takes 0:17:27.040 --> 0:17:29.920 a long time. So in the interim, what does a 0:17:30.000 --> 0:17:34.480 regulator do? And that's laid out the problem, David. That's 0:17:34.480 --> 0:17:37.879 where it's complicated because there's different systems. I'll call it 0:17:37.880 --> 0:17:40.960 the Chinese control system, there's the open system of the 0:17:41.080 --> 0:17:43.320 United States, and let's see some of the West. 0:17:43.400 --> 0:17:45.040 But then you're somewhere in between. 0:17:45.440 --> 0:17:49.439 So how do you get global regulation that's consistent And 0:17:49.480 --> 0:17:52.440 to do this regionally just won't work. It won't work 0:17:52.480 --> 0:17:56.400 because fundamentally, these platforms are global by definition. They're open 0:17:56.440 --> 0:17:59.800 source software by definition. So I know reagions think they 0:17:59.800 --> 0:18:03.160 can take control, but the technology moves so fast they 0:18:03.200 --> 0:18:06.080 will really struggle in doing so unless you completely shut 0:18:06.080 --> 0:18:08.400 the place down and you wall it off, but that 0:18:08.440 --> 0:18:10.080 has economic implications. 0:18:10.400 --> 0:18:12.480 So to me, the question is in the interim, what 0:18:12.520 --> 0:18:14.840 do you do? And I think there's a role here 0:18:14.880 --> 0:18:16.440 for business leaders and companies. 0:18:16.840 --> 0:18:19.560 I think business leaders and companies can show the way 0:18:19.880 --> 0:18:24.280 they could establish the guard wails, the principles ethical transparency 0:18:24.480 --> 0:18:25.959 and implement this themselves. 0:18:26.640 --> 0:18:28.800 And finally, Sam, this week we had some of the 0:18:28.800 --> 0:18:32.560 biggest tech companies reporting earnings and almost all the discussion 0:18:32.680 --> 0:18:36.160 was really about AI and generative AI and its potential. 0:18:36.280 --> 0:18:38.080 And there are people in the street you know this 0:18:38.200 --> 0:18:39.919 right now who are saying, maybe this will give a 0:18:40.000 --> 0:18:43.040 new impetus to the tech sector generally. It has been 0:18:43.040 --> 0:18:44.720 such a growth sector for so long that it was 0:18:44.760 --> 0:18:46.560 waning just a little bit in the growth. Now they say, 0:18:46.600 --> 0:18:48.560 but it's a whole new wave. Do you think they're right? 0:18:49.800 --> 0:18:52.000 Well, it's definitely going to be a huge growth in 0:18:52.000 --> 0:18:55.720 innovation opportunities, There's no doubt about it. The question of 0:18:55.920 --> 0:18:59.400 David is who emerges as the winner here. So I'll 0:18:59.400 --> 0:19:01.480 take you back a little bit in history. If I 0:19:01.520 --> 0:19:04.600 go back like fifty years of the tech industry, it's 0:19:05.040 --> 0:19:08.080 interesting you see these patterns of who emerge as the 0:19:08.200 --> 0:19:10.399 winner take client server to cloud. 0:19:11.320 --> 0:19:13.359 Sam, thank you so much, as always a treasure to 0:19:13.440 --> 0:19:15.960 have you back on Wall Streetek. That Sam PALMASONO, the 0:19:16.000 --> 0:19:20.600 former chairman and CEO of IBM, coming up. We wrap 0:19:20.680 --> 0:19:23.560 up the week with our special contributor Larry Summers of Harvard. 0:19:24.000 --> 0:19:34.480 That's next on Wall Street Week on Bloomberg. This is 0:19:34.480 --> 0:19:36.600 Wall Street Week. I'm David Western. We're joined once again 0:19:36.640 --> 0:19:38.680 by our very special contributor here in Wall Street Week. 0:19:38.680 --> 0:19:40.800