WEBVTT - Caterpillar Warns Tariff Impact Bigger Than Previously Seen 0:00:02.759 --> 0:00:10.600 Bloomberg Audio Studios, podcasts, radio news. You're listening to the 0:00:10.640 --> 0:00:14.600 Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 0:00:14.640 --> 0:00:17.880 Eastern on Apple, Cocklay and Android Auto with the Bloomberg 0:00:17.960 --> 0:00:21.080 Business App. Listen on demand wherever you get your podcasts, 0:00:21.400 --> 0:00:23.120 or watch us live on YouTube. 0:00:24.200 --> 0:00:27.520 Dell reported fewer sales of AI servers, lower profit margins 0:00:27.560 --> 0:00:30.360 and expected that's really taking a toll on shares. They're 0:00:30.360 --> 0:00:32.959 down about nine percent. So you want someone who could 0:00:32.960 --> 0:00:35.320 break it all down for us. Let's bring in Woojin Ho, 0:00:35.440 --> 0:00:39.839 Bloomberg Intelligence senior technology analysts joining us from Princeton. Woojin, 0:00:39.960 --> 0:00:42.960 welcome back to the show. I want to start broader. 0:00:43.040 --> 0:00:46.239 So taking these results into consideration, I mean, is it 0:00:46.360 --> 0:00:49.239 showing that the AI rally has has more room to 0:00:49.360 --> 0:00:51.400 run or not? I mean, what are you hearing? 0:00:52.600 --> 0:00:56.440 And in terms of the AI rally in general, I 0:00:56.480 --> 0:00:59.200 mean we saw in videos numbers and video is actually 0:00:59.280 --> 0:01:01.240 doing quiet well. I mean if you ex out to 0:01:01.320 --> 0:01:07.720 China outlook right, the demand is still robust and this 0:01:07.760 --> 0:01:13.080 actually flows through to Dell. If anything, the AI numbers 0:01:13.120 --> 0:01:15.600 for a server numbers were better than expected in the quarter, 0:01:15.880 --> 0:01:18.360 and they also raised their guidance by another full year 0:01:18.360 --> 0:01:20.640 guidance by another five billion, So instead of fifteen billion 0:01:20.640 --> 0:01:23.479 for the year, they're expecting twenty billion for the year, 0:01:23.760 --> 0:01:26.880 and add more of these sovereign and neocloud deployment start 0:01:26.959 --> 0:01:29.920 ramping up. You know, twenty twenty six AI server revenue 0:01:29.959 --> 0:01:33.040 should be better for Dell given how they're positioned. 0:01:33.680 --> 0:01:36.119 So then can you try to explain why this stock 0:01:36.160 --> 0:01:38.680 is down nine percent? I mean, Dell just said it 0:01:38.680 --> 0:01:42.319 now plans to ship twenty billion dollars of artificial intelligence 0:01:42.319 --> 0:01:46.319 servers in fiscal twenty twenty six, double what it sold 0:01:46.400 --> 0:01:48.800 last year. What is upsetting investors? 0:01:49.560 --> 0:01:52.280 Yeah, So, so there's a couple of things. Let's start 0:01:52.360 --> 0:01:55.640 on the AI server piece first. I've always said and 0:01:56.360 --> 0:02:00.320 Dell is we'll contend to it. Having Aisells is double 0:02:00.400 --> 0:02:03.760 edged sword. What you're getting in sales, you kind of 0:02:03.800 --> 0:02:06.040 lose out on gross margin. So let me give you 0:02:06.040 --> 0:02:10.239 an example. From a gross margin standpoint, traditional servers as 0:02:10.280 --> 0:02:14.360 well as storage combined are roughly in the you know, 0:02:14.400 --> 0:02:19.359 the twenties to thirties range, right. AI servers they're they're 0:02:19.639 --> 0:02:23.480 closer to the mid teens range, right, So from an 0:02:23.480 --> 0:02:28.200 operating margin standpoint, it actually is somewhat earnings deluded to 0:02:28.240 --> 0:02:32.040 some degree if you sell way too much AI servers. 0:02:32.240 --> 0:02:35.600 So you know, the one point two billion AI server 0:02:35.760 --> 0:02:39.800 beat that only equated to two cents in an EPs. 0:02:39.840 --> 0:02:42.280 So what Della has been saying for quite some time now, 0:02:42.560 --> 0:02:45.880 don't focus on operating margin because that's that's what they missed. 0:02:46.320 --> 0:02:51.359 Focus on the operating margin dollars. That's fantastic, But you know, 0:02:51.800 --> 0:02:55.000 the you know, the the incremental five billion for the 0:02:55.080 --> 0:02:57.640 year isn't going to be the big boost the EPs 0:02:57.639 --> 0:02:58.880 that people are hoping for. 0:03:00.080 --> 0:03:02.960 A big concern for investors is at the profitability of 0:03:03.000 --> 0:03:05.680 AI servers. I mean they run on processors from companies 0:03:05.680 --> 0:03:07.760 like Nvideo, A m D right, which are which are 0:03:07.840 --> 0:03:10.200 pretty pricey. I mean, should they be worried about that? 0:03:11.200 --> 0:03:13.440 Well, you know, the hope is is that once we 0:03:13.480 --> 0:03:17.760 start moving away from these hyper scale and neocloud type 0:03:17.760 --> 0:03:22.680 of deals, right because they're selling you know, fifty fifty 0:03:22.720 --> 0:03:26.320 thousand servers plus to each of these each of these companies, 0:03:27.400 --> 0:03:29.680 you know, they're not going to get as much they're 0:03:29.840 --> 0:03:32.000 they're heavily discounted. But if they start selling to the 0:03:32.160 --> 0:03:38.680 enterprise over time, the gross margin profile should get better 0:03:38.800 --> 0:03:42.920 and be more in line with traditional service. Now, that's 0:03:42.960 --> 0:03:45.920 going to take a couple of years to materialize. But 0:03:45.960 --> 0:03:47.560 the more important thing is if we think about it 0:03:47.600 --> 0:03:50.520 from a longer term perspective, as long as Dell is 0:03:50.560 --> 0:03:55.640 ahead of from from a competitive standpoint, they should continue 0:03:55.680 --> 0:03:59.360 to win this AI game, not only on the neocloud side, 0:03:59.360 --> 0:04:02.280 but also on the enterprise side, which should help profitability 0:04:02.320 --> 0:04:04.360 longer term. But you're gonna have to wait. 0:04:05.000 --> 0:04:06.760 And you know, when I did a little more digging 0:04:06.840 --> 0:04:11.000 into this earnings report, I found that Dell spent one 0:04:11.000 --> 0:04:15.720 point three billion dollars on share repurchases and dividends during 0:04:15.720 --> 0:04:18.560 the quarter. That's an enviable position to be in. But 0:04:18.600 --> 0:04:21.359 do you think it's the best use of Dell's money? 0:04:22.120 --> 0:04:28.000 Well, so, I think they've They've they've always been since 0:04:28.600 --> 0:04:30.479 they came back to public and then spun off the 0:04:30.560 --> 0:04:35.920 VMware business. They've been very focused on shareholder returns. Right now, 0:04:36.200 --> 0:04:40.040 if you think about from a valuation standpoint, you know, 0:04:40.440 --> 0:04:42.840 M and A is probably going to be something that's 0:04:42.880 --> 0:04:45.320 going to be tough for them to do. They've already 0:04:45.400 --> 0:04:47.880 learned a lesson from big m and A with a 0:04:47.960 --> 0:04:50.200 VMware deal, and which is one of the reasons why 0:04:50.200 --> 0:04:54.960 they spunted out. So if from a shareholder standpoint, if 0:04:55.040 --> 0:04:58.479 there's nothing that Dell can buy, I'd rather have it 0:04:58.560 --> 0:05:02.240 back in dividends and and buybacks. How is it changing, sure, 0:05:02.279 --> 0:05:03.040 like a day like today? 0:05:03.440 --> 0:05:05.880 Well yeah, oh yeah. 0:05:05.920 --> 0:05:09.080 How is how is Dell shaping up against its competitors, 0:05:09.120 --> 0:05:11.800 Let's say, like an HP or super micro computer. 0:05:12.560 --> 0:05:14.320 Yeah, so so let's let me take it from a 0:05:14.720 --> 0:05:18.960 two standpoints. Right from super Micro, we're thinking about it 0:05:18.960 --> 0:05:21.600 more along the lines from AI servers. Super Micro still 0:05:21.680 --> 0:05:24.960 leads the way in the AI server market. Now, one 0:05:24.960 --> 0:05:27.680 of the things that we can glean from the numbers 0:05:27.760 --> 0:05:31.800 is that Dell has been heavily discounting to win to 0:05:31.839 --> 0:05:35.480 win its market share, and they actually have the financial 0:05:35.480 --> 0:05:37.920 have to do so with a strong balance sheet. Now, 0:05:37.920 --> 0:05:41.239 from an HP standpoint, this is more personal computing side, 0:05:41.279 --> 0:05:43.200 and this is one of the This is another reason 0:05:43.240 --> 0:05:46.159 why the shares may be pulling back a little bit 0:05:46.680 --> 0:05:50.800 their PC growth. That segment only grew one percent, and 0:05:51.279 --> 0:05:54.160 on contrast, HP grew five percent. So there's a lot 0:05:54.200 --> 0:05:57.240 of questions in terms of the competitive nature for Dell 0:05:57.400 --> 0:06:00.919 versus HP on the PC market. Now that being said, 0:06:01.040 --> 0:06:03.240 what we can glean from the guide and it is 0:06:03.279 --> 0:06:07.480 the second half of this calendar year. HP should get 0:06:07.480 --> 0:06:09.719 back on track from back to school spending as well 0:06:09.760 --> 0:06:12.960 as Windows eleven upgrade, So I think they should do 0:06:12.960 --> 0:06:15.839 about five percent growth in the second half of the year. 0:06:16.720 --> 0:06:19.080 In the seconds we have left, can you tell us 0:06:19.120 --> 0:06:22.520 how Dell is stacking up against the competition, namely HP. 0:06:23.839 --> 0:06:28.080 Yeah, so from a PC stamp from HP, you know, 0:06:29.279 --> 0:06:31.640 HP is actually winning the game over the last couple 0:06:31.720 --> 0:06:33.880 of quarters, but it's going to be neck and neck 0:06:33.880 --> 0:06:36.479 over the next couple of years. But from an AI 0:06:36.680 --> 0:06:39.240 and a server standpoint, Dell should be fine. 0:06:39.440 --> 0:06:41.279 And in the last minute we have where does Dell 0:06:41.400 --> 0:06:43.599 go from here? I mean, what should their focus be? 0:06:44.680 --> 0:06:46.760 Oh, I really do think it should be on the 0:06:46.800 --> 0:06:50.559 traditional server side as well as source side with AI, 0:06:50.720 --> 0:06:53.000 because they're all going to be melded into one type 0:06:53.000 --> 0:06:55.560 of business going forward, and the Dell's well positioned their 0:06:55.600 --> 0:06:56.279 longer term. 0:06:56.560 --> 0:06:59.040 Stay with us for more Bloomberg Intelligence coming. 0:06:58.880 --> 0:07:04.799 Up after this, you're listening to the Bloomberg Intelligence podcast. 0:07:05.160 --> 0:07:08.080 Catch us live weekdays at ten am. He's Dene on Apple, 0:07:08.120 --> 0:07:11.360 Cocklay and Android Auto with the Bloomberg Business app, listen 0:07:11.440 --> 0:07:14.560 on demand wherever you get your podcasts, or watch us 0:07:14.600 --> 0:07:15.560 live on YouTube. 0:07:16.560 --> 0:07:18.880 One of the big movers today is Caterpillar. Mover to 0:07:18.920 --> 0:07:22.080 the downside, that is off nearly four percent right now. 0:07:22.120 --> 0:07:24.720 It's warning investors that tariffs are expected to have an 0:07:24.720 --> 0:07:27.960 even greater impact, take an even bigger bite out of 0:07:28.000 --> 0:07:30.880 its bottom line, expected to cost CAT as much as 0:07:30.880 --> 0:07:34.600 one point eight billion dollars this year. Let's dig into 0:07:34.600 --> 0:07:37.080 it a little more with Christopher Ciolino. He is Bloomberg 0:07:37.120 --> 0:07:41.760 Intelligence Senior US Machinery analyst. So what is it about 0:07:41.760 --> 0:07:45.920 this report that's got investors in a tizzy? 0:07:46.040 --> 0:07:48.600 Well, you're right, I mean, tariff's will be a bigger 0:07:48.680 --> 0:07:52.840 cost headwind this year, more than KAT previously expected. And 0:07:52.880 --> 0:07:56.800 the revision really seems to be driven by additional clarifications 0:07:56.880 --> 0:08:00.120 around the Section two thirty two steal in aluminum tariffs 0:08:00.320 --> 0:08:03.160 and some of the reciprocal rates on India as you 0:08:03.200 --> 0:08:05.600 alluded to. You know, KAT thinks these TIFFs could be 0:08:05.760 --> 0:08:07.560 you know, up to a one point eight billion dollar 0:08:07.640 --> 0:08:10.760 impact in twenty twenty five. That's up you know, two 0:08:10.760 --> 0:08:13.240 to three hundred million versus their prior view, so a 0:08:13.280 --> 0:08:16.800 little bit higher. So you know, even though that we're 0:08:16.840 --> 0:08:19.240 looking at these incremental costs this year, we think it's 0:08:19.280 --> 0:08:23.800 pretty easily digestible for CAT and probably represents, you know, 0:08:23.880 --> 0:08:27.280 the peak headwind that we'll likely see. They really haven't 0:08:27.280 --> 0:08:31.960 implemented significant cost mitigation or pricing actions yet. I suspect 0:08:32.000 --> 0:08:34.280 you'll see more of those measured than twenty twenty six, 0:08:34.800 --> 0:08:37.000 which could ultimately offset these impacts. 0:08:37.240 --> 0:08:41.040 So is it steal an aluminum? Is that the main focus? 0:08:42.440 --> 0:08:44.680 Yeah, we think so. So we did get an update 0:08:44.720 --> 0:08:47.599 on the section two thirty two taraffs for steel and 0:08:47.679 --> 0:08:50.280 aluminum that expanded the coverage to you know, I think 0:08:50.280 --> 0:08:53.560 an additional four hundred different products. So you know, we 0:08:53.600 --> 0:08:57.160 had CAT report earlier this month and we had that 0:08:57.240 --> 0:09:00.240 subsequent update, So I think that's probably the big driver 0:09:00.360 --> 0:09:03.600 behind it. Obviously, heavy machinery companies use a lot of 0:09:03.640 --> 0:09:06.960 steel and aluminum. It's their largest input costs, so that 0:09:07.080 --> 0:09:09.000 certainly does move the needle. 0:09:09.880 --> 0:09:12.560 We're talking about headwinds, but what about tailwinds any of 0:09:12.559 --> 0:09:13.640 those for Caterpillar. 0:09:14.880 --> 0:09:18.280 Yeah, you know, despite some of these near term costs headwinds, 0:09:18.840 --> 0:09:21.600 I don't think it really ultimately changes the narrative here. 0:09:21.640 --> 0:09:24.120 You know, we're still quite optimistic that earnings are going 0:09:24.200 --> 0:09:27.360 to bottom this year. There's a number of cyclical and 0:09:27.400 --> 0:09:29.880 secular tailwinds that we think are going to drive higher 0:09:29.880 --> 0:09:33.640 earnings in twenty six and twenty seven. The backlocks is 0:09:33.679 --> 0:09:36.679 sitting at a record high. We've seen very solid order 0:09:36.760 --> 0:09:40.319 trends these past you know, four quarters, and dealer inventories 0:09:40.800 --> 0:09:44.680 remain at you know, pretty healthy levels considering softness in 0:09:44.760 --> 0:09:48.280 the broader economy. So all of these are really positive 0:09:48.360 --> 0:09:49.959 leading indicators for Caterpillar. 0:09:50.400 --> 0:09:52.760 And Chris, you follow this company very closely. So when 0:09:52.760 --> 0:09:57.120 we have an economics flowdown, what segments of Caterpillar's business 0:09:57.200 --> 0:09:58.720 tend to hold up the best. 0:10:00.160 --> 0:10:02.520 So right now, the segment holding up the best would 0:10:02.559 --> 0:10:05.480 be their E and T or energy and transportation business, 0:10:06.160 --> 0:10:08.640 and really I think the big driver behind that is 0:10:08.720 --> 0:10:12.760 power generation, particularly on the data center side. Those are 0:10:12.880 --> 0:10:17.319 much longer cycle products have you know, very extended backlogs 0:10:17.320 --> 0:10:21.480 for many years. Caterpillars adding capacity there, so we've seen 0:10:21.520 --> 0:10:24.760 that business hold up very well. On the flip side, 0:10:25.160 --> 0:10:28.839 the more cyclical construction industry's business is probably the one 0:10:29.160 --> 0:10:33.520 more harder hit, and also their resource industry's business, which 0:10:33.640 --> 0:10:36.199 is a lot of mining equipment that's been a little 0:10:36.200 --> 0:10:38.680 softer as well. But you know, I think, you know, 0:10:38.679 --> 0:10:41.120 if we're looking at a lower rate environment moving forward, 0:10:42.280 --> 0:10:44.480 we're certainly a little bit more optimistic on some of 0:10:44.480 --> 0:10:47.640 the growth prospects and those two businesses moving forward. 0:10:48.160 --> 0:10:51.280 Stay with us for more Bloomberg Intelligence coming up after this. 0:10:53.840 --> 0:10:57.520 You're listening to the Bloomberg Intelligence Podcast. Catch us live 0:10:57.600 --> 0:11:00.720 weekdays at ten am Eastern on apple Cock and Android 0:11:00.720 --> 0:11:03.520 Auto with the Blue Work Business app. Listen on demand 0:11:03.640 --> 0:11:07.200 wherever you get your podcasts, or watch us live on YouTube. 0:11:08.120 --> 0:11:11.200 In Video and AI, it was out with earnings this 0:11:11.280 --> 0:11:15.120 week and it impressed with more proof that that AI 0:11:15.200 --> 0:11:17.480 spending continues to be strong. I want to talk more 0:11:17.480 --> 0:11:21.400 about AI in the real world with Binran. He is 0:11:21.480 --> 0:11:24.760 founder and CEO at the software company sig Tech. He 0:11:24.880 --> 0:11:28.400 joins us from London. Ben, thanks so much for being 0:11:28.480 --> 0:11:31.040 with us. Before we get into Sigtech and what you 0:11:31.080 --> 0:11:33.240 do with AI agents, we'll get into what all of 0:11:33.280 --> 0:11:35.800 that is. I just want your take your thoughts on 0:11:36.160 --> 0:11:37.760 In Video's earnings report this week. 0:11:38.280 --> 0:11:42.040 I think we are seeing unprecedented demand for AI services, 0:11:42.080 --> 0:11:46.040 AI inference. If you look at the you know, not 0:11:46.160 --> 0:11:49.960 only the hyperscaters, purchasing GPUs and building data centers. 0:11:50.000 --> 0:11:51.000 It's keep going up. 0:11:51.440 --> 0:11:55.680 And if you look at the consumptions of tokens by 0:11:56.240 --> 0:11:59.880 large language model providers such as Opening Ai and Google 0:12:00.080 --> 0:12:04.880 and the Anthropic, it's growing at one hundred percent every 0:12:04.880 --> 0:12:10.360 six months. So the adoption, the usage, the consumption is 0:12:10.400 --> 0:12:15.280 all going up the trend. There's no no reason why 0:12:15.280 --> 0:12:18.079 it's going to slow down or certainly all stopping. 0:12:19.200 --> 0:12:21.920 We've heard a lot about different types of AI. Jen 0:12:21.960 --> 0:12:24.439 AI is a huge one. I mean, I know everyone's 0:12:24.480 --> 0:12:28.319 on the CHADGBT or whatever whatever else you have, but 0:12:28.520 --> 0:12:31.360 do generic AI tools They can help out in a 0:12:31.400 --> 0:12:34.679 lot of fields. But what about financial institutions, I mean 0:12:35.160 --> 0:12:37.440 you focus more on on custom AI? 0:12:37.520 --> 0:12:38.120 Is that correct? 0:12:39.600 --> 0:12:39.800 Yeah? 0:12:39.800 --> 0:12:43.920 We focused on building entirely bespoke and custom AI agents 0:12:43.920 --> 0:12:47.480 for customers in capital markets. I think people now one 0:12:47.559 --> 0:12:51.480 hundreds of millions of people have used CHGBT, so we all 0:12:51.520 --> 0:12:54.880 have a good idea of you know, what a chat 0:12:54.960 --> 0:12:58.920 bolt can do for us, which is extremely useful. But 0:12:58.960 --> 0:13:02.840 when it comes to business is there's an increasing gap 0:13:03.400 --> 0:13:07.439 between what the large language models are capable of and 0:13:07.640 --> 0:13:11.840 what actually value users in businesses are getting out of 0:13:13.000 --> 0:13:16.960 the getting out of the applications using using the same models. 0:13:17.840 --> 0:13:20.920 You know, the large nugree model capability has been improving 0:13:22.120 --> 0:13:30.839 dramatically and frankly the probably the most improved applications unfortunately 0:13:30.920 --> 0:13:34.440 have been restricted to only a few areas, mainly about 0:13:35.120 --> 0:13:40.520 writing code. That that has been the killer app outside chatboard. 0:13:41.120 --> 0:13:44.800 In finance, the difficulty is there actually there are many 0:13:44.800 --> 0:13:48.600 different reasons why the application is not delivering the kind 0:13:48.600 --> 0:13:51.480 of potential we are expecting. One of the reasons is 0:13:52.320 --> 0:13:56.000 in finance we use a lot of private data that 0:13:56.440 --> 0:13:59.160 the large language models are mainly trained on public data. 0:14:00.000 --> 0:14:04.400 And then the question of how to converting the vast 0:14:04.480 --> 0:14:09.600 corpus of financial documents in PDFs, in world documents in 0:14:09.679 --> 0:14:15.040 excels into the right formats that actually can be effectively 0:14:15.200 --> 0:14:20.920 used by large language models. Any error English data conversion 0:14:21.320 --> 0:14:27.120 document processing pipeline will immediately result in very pro qualities 0:14:27.280 --> 0:14:32.200 downstream and in other areas. In finance, we prontion numbers, 0:14:32.640 --> 0:14:35.880 and the large language models are very bad at cremching 0:14:35.960 --> 0:14:39.400 numbers right and it's probably the most expensive calculator we 0:14:39.440 --> 0:14:39.920 can think of. 0:14:40.880 --> 0:14:42.240 So to make large. 0:14:42.160 --> 0:14:45.960 Nuguerte models working in finance we have to provide a 0:14:46.280 --> 0:14:51.080 very wide range of financial tools. These tools can be software, 0:14:51.280 --> 0:14:55.400 can be APIs, can be desktop applications. Then we have 0:14:55.480 --> 0:14:58.880 to train models to use them, and there are other 0:14:59.200 --> 0:15:01.880 challenges to Yeah, that's why everything has to be bespoke. 0:15:02.720 --> 0:15:05.400 Then we keep hearing that AI is going to be 0:15:05.480 --> 0:15:08.600 a job killer, and we're already seeing it. Frankly, a 0:15:08.600 --> 0:15:12.920 lot of you know, entry level positions being taken over 0:15:12.960 --> 0:15:15.920 by AI. That means a lot of recent graduates from 0:15:15.960 --> 0:15:18.320 college or finding it even harder to find a job 0:15:18.360 --> 0:15:22.800 in unemployment during and amidst that demographics about six percent 0:15:22.880 --> 0:15:24.680 right now versus you know, a little more than four 0:15:24.720 --> 0:15:28.000 percent for the rest of us. So what what how 0:15:28.040 --> 0:15:30.120 do you see the future of work looking and how 0:15:30.120 --> 0:15:31.120 does AI play a part? 0:15:33.920 --> 0:15:38.360 I think whatever, there's you know, unprecedented new technology coming along, 0:15:38.440 --> 0:15:39.760 so transformative and. 0:15:39.800 --> 0:15:42.000 So disruptive like AI. 0:15:42.240 --> 0:15:46.240 But previously there was internet, there was industrial revolution, there 0:15:46.360 --> 0:15:50.440 was the invention of airplanes and cars. I mean, inevitably 0:15:50.560 --> 0:15:53.680 some jobs will be killed, I guess you can say that, 0:15:54.080 --> 0:15:57.240 but there will be new jobs created. I think the 0:15:57.320 --> 0:16:01.360 key here is to understand from them mentally what AI 0:16:01.440 --> 0:16:05.520 can do and what AI cannot do and what makes 0:16:05.600 --> 0:16:10.000 us by us, I mean humans special. AI is very 0:16:10.040 --> 0:16:18.320 good at doing repetitive, non non creative work, non creative 0:16:18.560 --> 0:16:24.760 knowledge work. Humans we are uniquely equipped to be creative 0:16:24.920 --> 0:16:28.720 and imaginative. And also, by the way you you probably 0:16:28.760 --> 0:16:31.760 know that AI is really bad at telling a. 0:16:31.760 --> 0:16:34.200 Joke, a good joke, and there's a reason for. 0:16:34.200 --> 0:16:39.960 It, because AI is trained to predict the next the 0:16:40.000 --> 0:16:43.640 next most likely word, the word by word, and to 0:16:43.800 --> 0:16:46.560 deliver a good joke, and the punchline has to be 0:16:46.600 --> 0:16:48.480 surprising and the witty. 0:16:48.640 --> 0:16:50.040 So it's large number. 0:16:50.120 --> 0:16:52.160 Models are literally not trained to be able to tell 0:16:52.200 --> 0:16:58.600 a good joke. So all the comedians and they have 0:16:58.720 --> 0:17:01.480 right own stuff, and they have to have inspiration, they 0:17:01.520 --> 0:17:04.800 have to have new experiences, imagination and creativity. I think 0:17:04.800 --> 0:17:08.440 that's probably a good room model for the future work. 0:17:08.480 --> 0:17:12.400 Look like we can spend more time on being imaginative 0:17:12.440 --> 0:17:17.000 and creative and frankly more intellectually satisfying, and less time 0:17:17.080 --> 0:17:20.080 on things frankly we don't wake up and be excited about. 0:17:20.440 --> 0:17:23.520 Stay with us for more Bloomberg Intelligence coming up after this. 0:17:26.080 --> 0:17:29.760 You're listening to the Bloomberg Intelligence podcast. Catch us Live 0:17:29.840 --> 0:17:32.960 weekdays at ten am Eastern on Apple, Cocklay and Android 0:17:32.960 --> 0:17:36.280 Auto with the Bloomberg Business app. Listen on demand wherever 0:17:36.320 --> 0:17:39.960 you get your podcasts, or watch us live on YouTube. 0:17:40.440 --> 0:17:42.560 Want to switch gears for a minute and talk about 0:17:42.600 --> 0:17:46.840 the sleepy summer for the housing market would be home buyers. 0:17:46.880 --> 0:17:48.680 We know they've been staying on the sideline, so they're 0:17:48.680 --> 0:17:50.800 waiting for mortgage rates to come down. They're waiting for 0:17:51.320 --> 0:17:54.840 housing prices to come down. So will they And when 0:17:55.400 --> 0:17:58.359 Best Friedman, she's been looking into her crystal ball, we 0:17:58.480 --> 0:18:01.720 called her in for some help. EO at Brown, Harris Stevens, 0:18:02.200 --> 0:18:04.239 that's always good to see you. Thanks so much for 0:18:04.359 --> 0:18:07.080 joining us. So let's just start with a reality check. 0:18:07.480 --> 0:18:10.359 Are things improving? I mean I heard that inventory was 0:18:10.400 --> 0:18:12.639 starting to beef up a little bit, So are you 0:18:12.640 --> 0:18:14.360 seeing some pockets of improvement? 0:18:15.359 --> 0:18:17.640 You know, it's interesting. Good morning, so nice to see 0:18:17.640 --> 0:18:19.800 you as well. Thanks for having me. I think we 0:18:19.840 --> 0:18:22.399 see a step forward and then a step back. And 0:18:22.440 --> 0:18:25.800 I would describe our housing market at least through the summer, 0:18:25.840 --> 0:18:30.199 it's very frustrating people buyers and sellers couldn't get on 0:18:30.200 --> 0:18:35.000 the same page. You know, for buyers things have become unaffordable. 0:18:35.080 --> 0:18:37.880 Rates are too high. Sellers aren't budging on their prices. 0:18:37.920 --> 0:18:40.960 They're taking their homes off the market. So there's been 0:18:41.000 --> 0:18:43.480 a little bit of that, and it's gradual. You know, 0:18:43.520 --> 0:18:46.680 we definitely performed better this year than we did last year. 0:18:46.760 --> 0:18:51.640 It's a better housing market. But having said that, it's 0:18:51.760 --> 0:18:53.320 it's going to take a little bit of time. And 0:18:53.359 --> 0:18:56.639 I know that everybody's expecting or thinking that the FED 0:18:56.760 --> 0:19:01.320 is going to cut the FED fund rate in September. 0:19:01.440 --> 0:19:04.200 Maybe we'll have to see how the jobs report comes out. 0:19:04.720 --> 0:19:07.280 But you know, even that, you know, I don't know 0:19:07.320 --> 0:19:08.960 that's going to have a dramatic impact. 0:19:09.000 --> 0:19:11.080 It's going to take time for us to come. 0:19:10.880 --> 0:19:15.120 To a better place where we see supply and demand intersecting. 0:19:15.200 --> 0:19:19.160 That's a healthy market, and we don't really have that best. 0:19:19.200 --> 0:19:21.680 I have to tell you, I've been kind of caught 0:19:21.720 --> 0:19:23.560 in the middle of all this. I mean, I was 0:19:23.560 --> 0:19:25.800 trying to find a home. I've been out bid by 0:19:25.840 --> 0:19:28.280 like one hundred and seventy thousand dollars in New Jersey. 0:19:28.359 --> 0:19:29.680 I mean, it was rough. 0:19:30.520 --> 0:19:32.920 So can you break it down as far as areas 0:19:32.920 --> 0:19:35.439 of the US right, what areas are are home selling 0:19:35.480 --> 0:19:38.000 at a faster pace or or maybe what areas have 0:19:38.160 --> 0:19:39.080 more inventory. 0:19:40.440 --> 0:19:43.360 I mean, every real estate market is so local. I'm 0:19:43.400 --> 0:19:48.040 sorry that you have that experience. I'm still there are areas. 0:19:48.320 --> 0:19:51.320 I'll give you an example and market that is completely 0:19:51.359 --> 0:19:53.960 on fire. There's no inventory and there's bidding wars. Is 0:19:54.080 --> 0:19:58.960 Upstate New York, Rinebeck. You can't find anything. Whatever comes on, 0:19:59.040 --> 0:20:01.040 there's a bidding war, similar to what happened to you 0:20:01.080 --> 0:20:05.000 in New Jersey. Places like Montclair, New Jersey, very popular, 0:20:05.119 --> 0:20:10.119 a really strong market, and you know, people get discouraged 0:20:10.119 --> 0:20:12.480 when they walk in they see twenty people there waiting, 0:20:12.520 --> 0:20:14.480 and then they know there's going to be multiple bids 0:20:14.520 --> 0:20:17.280 and rates are higher. Price is now going to be higher, 0:20:17.320 --> 0:20:19.880 and so you know, that's very tough. But that's more 0:20:19.920 --> 0:20:23.560 the exception to the rule. Palm Beach is similar, but 0:20:23.680 --> 0:20:26.439 other places like New York is a pretty steady market. 0:20:26.440 --> 0:20:29.840 In New York City right now, the market has been decent, 0:20:30.040 --> 0:20:33.919 not great. The rental market really strong. That's all I 0:20:33.960 --> 0:20:36.600 hear about is people cannot afford to rent in New York. 0:20:36.880 --> 0:20:40.960 There's no vacancies. So it really depends on what's going 0:20:41.000 --> 0:20:44.439 on with supply and demand in the market. Like in Connecticut, 0:20:44.480 --> 0:20:48.640 for example, also really strong demand and lack of supply, 0:20:49.320 --> 0:20:51.639 and so that's starting. 0:20:51.680 --> 0:20:54.040 We're starting to see more inventory come on and so 0:20:54.119 --> 0:20:55.000 that's a good thing. 0:20:55.200 --> 0:20:57.480 And so hopefully if we get a little bit of 0:20:57.760 --> 0:20:59.520 if rates come down a little bit they have come 0:20:59.560 --> 0:21:02.600 down a little bit, that might inspire more buyers to 0:21:02.640 --> 0:21:05.800 get into the market. But it's gonna it's tough. I'm 0:21:05.840 --> 0:21:08.920 sorry that you had that experience. You know, in due time, 0:21:09.000 --> 0:21:10.960 something will come on that you love and you will 0:21:11.000 --> 0:21:12.480 find it and you will bid on it. 0:21:13.240 --> 0:21:13.520 Bess. 0:21:13.680 --> 0:21:16.720 I want your thoughts on a trend we're continuing to 0:21:16.760 --> 0:21:20.320 see grow, and that is corporations backed by private equity 0:21:20.359 --> 0:21:24.520 groups now buying up single family homes. So folks are 0:21:24.560 --> 0:21:27.840 not only competing against other would be home buyers, they're 0:21:27.880 --> 0:21:30.680 competing against the big guns, these institutional investors. I saw 0:21:30.720 --> 0:21:34.280 this one report from MetLife Investment Management. Get this, They 0:21:34.280 --> 0:21:38.359 say investors, institutional investors may control forty percent of the 0:21:38.440 --> 0:21:41.879 single family rental home market by twenty thirty. How's the 0:21:41.880 --> 0:21:44.320 little guys supposed to compete with that? 0:21:44.320 --> 0:21:45.840 That's really hard. I don't know. 0:21:45.880 --> 0:21:48.800 And we are and we have housing shortage in the 0:21:48.880 --> 0:21:49.720 United States. 0:21:49.760 --> 0:21:51.920 You know, we're we need to build. 0:21:52.000 --> 0:21:54.879 We need four million homes here, So I don't know, 0:21:54.960 --> 0:21:57.879 that's not a good sign. Because people find that they 0:21:57.920 --> 0:22:01.320 can't afford rent, they can't afford to buy, and so 0:22:01.359 --> 0:22:03.720 we need to figure out ways to work together with 0:22:03.800 --> 0:22:07.760 our state and local officials to make rules and legislation 0:22:07.840 --> 0:22:10.240 that makes sense so that people can afford to buy 0:22:10.320 --> 0:22:11.600 and can afford to rent. 0:22:12.040 --> 0:22:14.560 And so yeah, the little guy matters. 0:22:14.600 --> 0:22:16.880 We have to make sure that everyday people can afford 0:22:16.920 --> 0:22:20.000 to pursue their dream, which is to buy a home 0:22:20.119 --> 0:22:22.600 or to rent the home, whatever it is. It's really 0:22:22.600 --> 0:22:25.119 important and we've lost a little bit of that in 0:22:25.160 --> 0:22:28.080