WEBVTT - White House Explores Opening Antitrust Probe on Homebuilders 0:00:02.520 --> 0:00:10.520 Bloomberg Audio Studios, Podcasts, radio News. This is Bloomberg Business 0:00:10.520 --> 0:00:14.400 Week Daily reporting from the magazine that helps global leaders 0:00:14.440 --> 0:00:18.360 stay ahead with insight on the people, companies, and trends 0:00:18.360 --> 0:00:23.360 shaping today's complex economy. Plus global business finance and tech 0:00:23.440 --> 0:00:27.320 news as it happens. The Bloomberg Business Week Daily Podcast 0:00:27.640 --> 0:00:31.720 with Carol Masser and Tim Steneveek on Bloomberg Radio. 0:00:32.560 --> 0:00:35.159 Twelve shares of US homebuilders taking a hit earlier in 0:00:35.200 --> 0:00:37.680 today's session at their load today inter day load down 0:00:37.680 --> 0:00:40.960 about one point four percent. They've moved off that level, 0:00:41.080 --> 0:00:44.240 just slightly lower as we speak. In a Bloomberg exclusive, 0:00:44.280 --> 0:00:48.440 the Trump administration officials are exploring opening an anti trust 0:00:48.440 --> 0:00:52.280 investigation into US home builders as the White House sharpens 0:00:52.280 --> 0:00:55.520 its focus on tackling the country's housing affordability crisis. This 0:00:55.560 --> 0:00:56.760 story definitely cut our attention. 0:00:56.920 --> 0:00:59.200 Yeah with us is Bloomberg News real estate reporter Pac Clark. 0:00:59.240 --> 0:01:02.080 He joins us here the Berg Business Week Studio. Congratulations 0:01:02.120 --> 0:01:04.440 on another exclusive when it comes to the White House 0:01:04.440 --> 0:01:08.760 and housing affordability just this week. What can you tell us? 0:01:08.760 --> 0:01:10.480 What are these possible antitrust concerns? 0:01:11.400 --> 0:01:14.680 Well, the thing that you know, one thing that's caught 0:01:14.760 --> 0:01:18.320 the eye of administration officials is a trade group and 0:01:18.920 --> 0:01:22.640 they're concerned that, you know, are our home builders coordinating 0:01:22.920 --> 0:01:25.440 through the trade group. And that's the thing that's been raised, 0:01:25.480 --> 0:01:29.480 at least internally. I think that's a common concern about 0:01:29.480 --> 0:01:31.479 trade groups across industry coordinating. 0:01:31.560 --> 0:01:34.880 How well, you know, you're not supposed to talk about 0:01:35.240 --> 0:01:38.479 like anything, We're gonna set our prices in this way 0:01:38.640 --> 0:01:41.480 and right that's you're not supposed to tell your competitors 0:01:41.480 --> 0:01:42.520 how you're setting prices. 0:01:42.640 --> 0:01:43.959 And and. 0:01:45.160 --> 0:01:47.800 You know, I think it's a it's a concern that 0:01:47.880 --> 0:01:49.800 can come up, which is like you have this trade 0:01:49.800 --> 0:01:52.960 group where everyone is getting together and talking to each other, 0:01:53.040 --> 0:01:55.960 or they're talking to some centralized person in the trade group, 0:01:56.000 --> 0:02:01.760 and information gets disseminated. And this would not be I'm 0:02:01.760 --> 0:02:04.080 not an anti trust expert, but my understanding is that 0:02:04.200 --> 0:02:07.040 this would not be the first time that you know, 0:02:07.080 --> 0:02:10.679 there was a probe of you know, a trade group 0:02:10.800 --> 0:02:12.840 or some centralized body. 0:02:13.360 --> 0:02:17.160 The lending builders leading Builders of America is the trade group? 0:02:18.680 --> 0:02:20.600 What have they said? What have the homebuilders come out 0:02:20.639 --> 0:02:22.080 and said after this? 0:02:22.520 --> 0:02:24.920 They haven't responded. They're keeping their heads down right now 0:02:25.840 --> 0:02:28.600 or so it seems I think, you know, I mean, 0:02:28.600 --> 0:02:31.919 all this goes back to October when the President put 0:02:31.960 --> 0:02:36.480 out on a social media post that home builders are 0:02:36.560 --> 0:02:41.040 I mean, he likened them to opek and complained that 0:02:41.120 --> 0:02:45.960 builders are sitting on more lots than ever. And you know, 0:02:46.000 --> 0:02:47.480 I mean, I think this is if you go back 0:02:47.480 --> 0:02:49.960 to the story earlier this week about the builder's pitch 0:02:50.080 --> 0:02:53.560 for a Trump Homes project. In a way, that's like 0:02:53.600 --> 0:02:56.440 trying to get on the administration's good side in hopes 0:02:56.480 --> 0:02:58.440 that you know, they're not on the bad side, and 0:02:58.480 --> 0:03:00.240 this is kind of what the bad side might look like. 0:03:01.240 --> 0:03:05.520 Just last question, kudos to you two exclusives in terms 0:03:05.520 --> 0:03:08.240 of what the White House is working on housing affordability. 0:03:08.240 --> 0:03:10.360 Having said that, you know, they are said to be 0:03:10.360 --> 0:03:12.919 trying to do anything, Is there any progress, any really 0:03:12.960 --> 0:03:15.880 move forward in terms of being able to make homes 0:03:15.919 --> 0:03:19.160 more affordable. Some would say there are different issues at 0:03:19.200 --> 0:03:21.360 play in order making this work, but in terms of 0:03:21.400 --> 0:03:23.040 what the White House might be able to do. 0:03:23.919 --> 0:03:26.320 Listen, I mean, I think this is where we are 0:03:26.320 --> 0:03:29.440 on home prices. Is it took fifteen years to get 0:03:29.440 --> 0:03:32.280 to this point. It took a pandemic, you know, to 0:03:32.639 --> 0:03:34.840 get there. In the end of an interest rate environment 0:03:34.920 --> 0:03:37.520 that had been in place for a decade or so. So, 0:03:38.280 --> 0:03:41.320 you know, I don't think the standard should be getting 0:03:41.400 --> 0:03:45.240 to you know, a solution overnight. But yeah, it's in 0:03:45.280 --> 0:03:47.360 the something is going to you know, people are talking 0:03:47.400 --> 0:03:48.440 about things. What happens. 0:03:48.480 --> 0:03:50.040 I don't know, is it really a priority for the 0:03:50.040 --> 0:03:50.440 White House? 0:03:50.480 --> 0:03:51.600 Just quickly seems like it. 0:03:52.720 --> 0:03:55.520 Stay with us. More from Bloomberg Business Week Daily coming 0:03:55.560 --> 0:03:56.560 up after this. 0:04:00.440 --> 0:04:04.320 You're listening to the Bloomberg Business Week Daily Podcast. Catch 0:04:04.360 --> 0:04:07.080 us Live weekday afternoons from two to five eas during 0:04:07.240 --> 0:04:11.160 Listen on Applecarplay and Android Auto with the Bloomberg Business app, 0:04:11.360 --> 0:04:13.520 or watch us Live on YouTube. 0:04:14.240 --> 0:04:16.520 We're going to stay on the domestic economic state because 0:04:16.520 --> 0:04:18.359 we did get some data earlier today. 0:04:18.560 --> 0:04:22.040 Yeah, that data showed that US consumer sentiment unexpectedly improved 0:04:22.080 --> 0:04:25.159 to the highest in six months, largely propelled by wealthy 0:04:25.240 --> 0:04:28.960 Americans who've benefited from stock market gains. Digging into the 0:04:29.040 --> 0:04:32.679 US economic backdrop. Federal Reserve Bank of Atlanta President raphae 0:04:32.680 --> 0:04:36.039 Albostik reiterated it's important to keep interest rates at a 0:04:36.080 --> 0:04:39.960 level that restricts economic activity of returns inflation to two percent. 0:04:40.279 --> 0:04:42.799 He spoke about that and more in an exclusive interview 0:04:42.839 --> 0:04:45.760 with Bloomberg TV and Radio's International economics and policy correspondent 0:04:45.839 --> 0:04:50.600 Michael McKee. That was earlier in Atlanta. 0:04:50.720 --> 0:04:53.640 In terms of inflation, you know, what I've learned is 0:04:53.640 --> 0:04:56.240 that we really don't want to have inflation right. Once 0:04:56.279 --> 0:04:59.800 inflation gets entranstion, people's mindset changes how the economy evolves. 0:05:00.120 --> 0:05:01.800 And it's one of the reasons why I think that 0:05:01.839 --> 0:05:04.279 we need to keep our policy in a restrictive posture 0:05:04.520 --> 0:05:07.400 so that we get inflation back to two percent. That's paramount. 0:05:08.080 --> 0:05:11.920 High prices and the prospect of rising prices really do 0:05:12.080 --> 0:05:14.800 have a lot of families on the edge. And I 0:05:14.800 --> 0:05:16.359 mean you all have reported a lot about the K 0:05:16.560 --> 0:05:19.080 shaped economy. There are lots of families that are feeling 0:05:19.160 --> 0:05:21.719 very precarious right now, and that's a source of concern. 0:05:22.040 --> 0:05:24.960 Do you think the economy is becoming more K shaped? 0:05:26.120 --> 0:05:26.800 I don't know more. 0:05:26.920 --> 0:05:28.919 I mean it's been that way for a while. Just 0:05:28.960 --> 0:05:31.040 before the pandemic, I had been talking about this and 0:05:31.240 --> 0:05:34.840 we were trying to find into metrics to really detail 0:05:35.200 --> 0:05:37.000 how there's a split. I used to call it the 0:05:37.040 --> 0:05:39.360 Barbell economy where either you were at the high end 0:05:39.440 --> 0:05:41.839 or at the low end, the K shape is the 0:05:41.839 --> 0:05:43.640 same thing. What I know is that there are a 0:05:43.640 --> 0:05:47.039 lot of families that are precarious and are feeling very 0:05:47.120 --> 0:05:49.960 uncertain about their prospects for the future and the prospects 0:05:50.000 --> 0:05:53.400 for their children for that matter, and that concern, I 0:05:53.480 --> 0:05:57.440 think does underlie a bit of the lower on the 0:05:57.480 --> 0:06:00.960 low consumer confidence that we continue to see being reported. 0:06:01.279 --> 0:06:04.640 And what we'll need to do is really give people 0:06:04.680 --> 0:06:07.520 reasons to be optimistic, show them where the new jobs 0:06:07.520 --> 0:06:09.240 are coming from, and show them how do they get 0:06:09.240 --> 0:06:10.360 the skills to compete. 0:06:10.080 --> 0:06:10.960 For it well. 0:06:11.000 --> 0:06:13.800 This week, Treasury Secretary Besson said the FED has lost 0:06:13.880 --> 0:06:18.040 the confidence of the American people. Do you think you 0:06:18.160 --> 0:06:20.599 have lost the confidence of the American people in your district? 0:06:20.600 --> 0:06:23.760 Do you hear people raising questions about that? 0:06:23.760 --> 0:06:26.080 That's not been my experience. As I go around the 0:06:26.120 --> 0:06:29.720 sixth district, people tell me we're grateful for what you're doing. 0:06:30.320 --> 0:06:32.680 You have a very hard job, and we want you 0:06:32.760 --> 0:06:36.080 to be as data dependent and as open to information 0:06:36.160 --> 0:06:38.880 so you can make the best judgment that you can. Look, 0:06:38.960 --> 0:06:41.640 the world is very complicated. It's actually more complicated today 0:06:41.920 --> 0:06:43.320 than it has been my whole time. 0:06:43.400 --> 0:06:43.679 Here. 0:06:44.040 --> 0:06:48.000 So what I think most people understand that and they 0:06:48.040 --> 0:06:49.440 know that we're doing the best job that we can 0:06:49.520 --> 0:06:51.080 under very difficult circumstances. 0:06:51.440 --> 0:06:54.200 Right That, of course is Fedbank of Atlanta President Raphael 0:06:54.279 --> 0:06:57.480 Bostic an exclusive interview with Bloomberg TV and Radios own 0:06:57.640 --> 0:07:01.880 Michael McKee earlier from Atlanta to get into the economic 0:07:02.560 --> 0:07:05.120 macro situation, if you will, what faces the FED and 0:07:05.160 --> 0:07:07.040 so much more some of the things we just talked about, 0:07:07.400 --> 0:07:08.320 and great to really. 0:07:08.120 --> 0:07:08.840 Have back with us. 0:07:09.320 --> 0:07:11.320 And it's not a job's Friday, which I have to 0:07:11.360 --> 0:07:14.880 keep reminding everybody, which kind of blows my mind. Gregory Doco, 0:07:15.000 --> 0:07:17.480 he is chief economist at EY, he is here in studio. 0:07:17.560 --> 0:07:19.120 Welcome back, pleasure to be here. 0:07:19.240 --> 0:07:23.600 There's so much right even there, you know, housing affordability, 0:07:23.760 --> 0:07:26.400 and then kind of the bigger broader of what the 0:07:26.440 --> 0:07:31.200 White House does to help the US economy and more Americans. 0:07:31.680 --> 0:07:36.160 There's Rafael Bostek talking about FED confidence, two percent inflation, 0:07:36.320 --> 0:07:41.200 important to make sure that we have inflation under control. 0:07:41.520 --> 0:07:43.320 What's important and a job's Friday where it is in 0:07:43.400 --> 0:07:45.520 a job's Friday, but we'll get that read. When you 0:07:45.520 --> 0:07:47.520 think about the US economy, what is front and center 0:07:47.560 --> 0:07:47.840 for you. 0:07:48.200 --> 0:07:51.080 Well, I think it's the paradox of having strong growth 0:07:51.440 --> 0:07:55.320 but underlying weakness across different sectors and across different stratas 0:07:55.360 --> 0:07:58.560 of the economy. I don't really like the case shaped 0:07:58.760 --> 0:08:03.280 format because to signify that there are two groups of consumers, 0:08:03.320 --> 0:08:05.920 there are two groups of businesses. The reality is that 0:08:05.960 --> 0:08:09.320 there is polarization across the US economy. Whether you're looking 0:08:09.400 --> 0:08:13.440 at certain income groups, not just the lowest income groups, 0:08:13.440 --> 0:08:16.200 but the meat in income groups. They are increasingly struggling 0:08:16.200 --> 0:08:19.080 with high prices. When you look at business investment, there 0:08:19.160 --> 0:08:22.160 is polarization between those that are focused on AI investment 0:08:22.360 --> 0:08:25.040 and those that are not. There is polarization between large 0:08:25.080 --> 0:08:27.960 businesses and small businesses that are struggling more in the 0:08:28.000 --> 0:08:30.720 face of some of these palsy headwinds. So it's not 0:08:30.800 --> 0:08:33.520 necessarily a ca shaped economy as much as it is 0:08:33.520 --> 0:08:38.280 a polarized economy within which you're still seeing strong averages. 0:08:38.720 --> 0:08:43.320 Average consumer spending still doing well, average business investment still 0:08:43.320 --> 0:08:46.040 doing well, Average GDP still doing well. 0:08:46.080 --> 0:08:46.920 What's that masking? 0:08:46.960 --> 0:08:47.200 Though? 0:08:47.640 --> 0:08:49.760 I think taking the massage, taking the average is just 0:08:49.800 --> 0:08:53.400 that it's the average. It's yeah, and so what's it masking? 0:08:53.520 --> 0:08:56.200 It's masking an underlying fragility in the fact that you 0:08:56.240 --> 0:08:58.400 have these narrow pillars of growth that I've talked about 0:08:58.440 --> 0:08:59.920 in the past. And I think if you bring it 0:09:00.120 --> 0:09:03.080 back to income, which is really the fundamental pillar of 0:09:03.080 --> 0:09:07.120 economic activity, that is where there is pressure. The income 0:09:07.160 --> 0:09:11.000 growth for consumers is relatively low. We're talking about one 0:09:11.040 --> 0:09:15.000 percent growth for real disposable income growth, while consumer spending 0:09:15.000 --> 0:09:17.959 growth is at two and a half percent. That explains 0:09:18.000 --> 0:09:21.439 why the personal saving rate has fallen two percentage point 0:09:21.679 --> 0:09:23.920 since April and the early implementations. 0:09:23.960 --> 0:09:25.920 Nothing left to spend to save, right, people. 0:09:25.720 --> 0:09:28.800 Are dipping into their savings, They're using credit. And that's 0:09:28.800 --> 0:09:31.559 why I'm a little bit more cautious than others when 0:09:31.600 --> 0:09:33.360 it comes to this notion that there will be a 0:09:33.400 --> 0:09:36.679 lot of fiscal stimulus during the tax refund season. Yes, 0:09:37.040 --> 0:09:40.120 tax refunds may be higher, but what is this money 0:09:40.160 --> 0:09:42.040 going to be used for? Is it going to be 0:09:42.120 --> 0:09:45.400 used for spending or reimbursing some of the credit and 0:09:45.520 --> 0:09:46.559 replenishing savings. 0:09:46.640 --> 0:09:49.640 Listen, we've talked with you too about the wealthier consumer, 0:09:49.880 --> 0:09:52.640 and you know, you get into the A pillars or 0:09:52.679 --> 0:09:55.240 the three A pillars. You know, we had consumer sentiment 0:09:55.280 --> 0:09:57.200 come out today improved to the highest in six months, 0:09:57.280 --> 0:10:00.960 largely propelled by wealthier Americans have benefited from stock market gain. 0:10:01.080 --> 0:10:04.600 So yay, good. We know the wealthier consumer is very 0:10:04.679 --> 0:10:08.000 important to the US economy. But I am curious what 0:10:08.040 --> 0:10:09.839 was going through your mind this week? We were kind 0:10:09.840 --> 0:10:13.679 of talking about it amongst ourselves, with the AI trade 0:10:13.760 --> 0:10:16.120 a little bit in question and some nervousness around that. 0:10:16.160 --> 0:10:19.439 We saw that play out that has been important to 0:10:19.880 --> 0:10:24.920 stock market wealth, especially among the affluent. So I'm just curious, 0:10:25.080 --> 0:10:27.160 should we be a little worried that this could come 0:10:27.200 --> 0:10:27.920 undone this year? 0:10:28.120 --> 0:10:30.760 We should be very careful about the potential of an 0:10:30.760 --> 0:10:34.040 AI bust. This is a real downside risk, and it's 0:10:34.200 --> 0:10:37.839 interconnected with other potential risks to the US economy. We're 0:10:37.840 --> 0:10:40.400 seeing a great degree of focus on the fiscal situation. 0:10:40.520 --> 0:10:43.199 We're seeing a great degree of focus on pressures on 0:10:43.240 --> 0:10:46.160 the FED. Why do these matter because they can suddenly 0:10:46.240 --> 0:10:50.040 lead to changes in financial asset prices, And we know 0:10:50.280 --> 0:10:53.200 how the financial market has been behaving over the course 0:10:53.200 --> 0:10:55.520 of the past eighteen months. A lot of gains on 0:10:55.559 --> 0:10:58.960 the equity front, but also a lot of movements across 0:10:59.200 --> 0:11:02.360 different asset and nominations, a lot of movements into gold 0:11:02.520 --> 0:11:05.880 when things are not going well, not so much treasuries 0:11:06.360 --> 0:11:09.040 and not so much the US dollars. So these are 0:11:09.160 --> 0:11:13.520 important developments and everything happens together. And so if we 0:11:13.640 --> 0:11:16.000 are to see a little bit more of a downbeat 0:11:16.080 --> 0:11:19.400 sentiment in terms of the prospects for AI and importantly 0:11:19.480 --> 0:11:24.000 the return on investment, then that could metastize into something 0:11:24.040 --> 0:11:28.520 that is worse for higher wealth individuals and they're spending 0:11:28.559 --> 0:11:31.960 desires and spending capability. If you see a negative hit 0:11:32.160 --> 0:11:35.920 on financial markets, it could lead to some businesses pulling 0:11:36.000 --> 0:11:38.920 back on AI investment. We saw just today the four 0:11:39.040 --> 0:11:43.080 largest hyperscalers are promising to invest a lot in the US. 0:11:43.400 --> 0:11:46.040 What if that does not materialize? Is there a downside 0:11:46.080 --> 0:11:46.480 risk there? 0:11:46.559 --> 0:11:49.319 Yeah, Amazon just saying yesterday two hundred billion dollars and 0:11:49.440 --> 0:11:51.840 sixty billion more than analysts thought they would spend in 0:11:51.880 --> 0:11:54.760 twenty twenty six. So when you say we have to 0:11:54.760 --> 0:11:57.719 be careful about an AI bust, how does that manifest? 0:11:57.800 --> 0:11:59.880 What exactly does that look like? Because as Carol was 0:11:59.880 --> 0:12:02.079 referring to, it's been kind of a complicated week when 0:12:02.080 --> 0:12:06.079 it comes to really just tracking what these companies have done, 0:12:06.760 --> 0:12:08.640 or the stocks at least have done, because there's this 0:12:08.960 --> 0:12:12.680 concern about a SASS apocalypse with the software as of 0:12:12.720 --> 0:12:15.880 service companies as a result of what Anthropics Claude was 0:12:16.000 --> 0:12:17.920 shown to do this week. And then there's also the 0:12:17.960 --> 0:12:21.559 concern about some of the hyperscalers and spending. So when 0:12:21.559 --> 0:12:23.320 you say AI bust, what does that look like. 0:12:23.640 --> 0:12:26.840 Well, I think we're seeing a lot of pragmatism right now. 0:12:26.520 --> 0:12:30.320 We're seeing this notion of economics of necessity, what is 0:12:30.400 --> 0:12:33.480 necessary to drive growth? Where are going to be the 0:12:33.480 --> 0:12:36.440 next avenues of growth? And I think not many people 0:12:36.520 --> 0:12:39.559 know and very few actually know what the situation will 0:12:39.600 --> 0:12:41.720 be in a year's time, two years time when it 0:12:41.720 --> 0:12:44.840 comes to which sectors will be leading the way. We're 0:12:44.880 --> 0:12:48.280 in the midst of a technological revolution. There are always 0:12:48.280 --> 0:12:51.960 going to be excesses in terms of upside risks that 0:12:52.000 --> 0:12:53.560 are taken in downside. 0:12:53.160 --> 0:12:54.800 Risk there so we're definitely in the midst of this. 0:12:55.000 --> 0:12:57.679 We are in the midst of an AI technological revolution. 0:12:57.760 --> 0:13:01.560 And it's interesting because Amazon CEO Jassey told investors he's 0:13:01.559 --> 0:13:03.160 confident the company is going to see a return on 0:13:03.200 --> 0:13:06.600 its massive investments in artificial intelligence Listen, these guys have 0:13:06.640 --> 0:13:09.800 fiduciary responsibilities right when they make these spend So I 0:13:09.840 --> 0:13:12.160 guess to some extent, you've got to trust that whatever 0:13:12.200 --> 0:13:15.480 he's seeing, he feels comfortable enough to say that right, 0:13:15.520 --> 0:13:18.079 and doesn't want to put his company or his share 0:13:18.080 --> 0:13:21.280 price or any of this at risk. But again people 0:13:21.320 --> 0:13:23.400 will also say, well, these people are talking their books. 0:13:23.480 --> 0:13:25.719 I mean, like this is a big thing for them. 0:13:25.760 --> 0:13:28.120 So it's a hard thing to kind of weave through 0:13:28.200 --> 0:13:30.480 to figure out what's really going on. 0:13:30.559 --> 0:13:32.880 You know, when I say narrow foundation to growth. One 0:13:32.920 --> 0:13:36.079 thing that I find really amazing is that the announced 0:13:36.160 --> 0:13:39.800 investment in CAPEX from these four largest hyperscalers is worth 0:13:39.800 --> 0:13:44.319 about two hundred and fifty billion dollars. Assuming that materializes 0:13:44.440 --> 0:13:47.000 over the course of twenty twenty six, and assuming only 0:13:47.040 --> 0:13:50.800 a fourth leads to stronger economic activity domestically, so that 0:13:50.840 --> 0:13:54.200 three quarters are imported not necessarily counted in GDP, that 0:13:54.240 --> 0:13:56.560 would lead to a lift of GDP of zero point 0:13:56.600 --> 0:14:01.360 two percent. That's a significant boost from four companies. Yeah, right, 0:14:01.720 --> 0:14:05.320 So that is where the narrow foundation to growth is lying. 0:14:05.559 --> 0:14:08.800 You're seeing a lot of growth that is reliant on 0:14:08.960 --> 0:14:13.760 a few actors in the economy, wealthier individuals and larger 0:14:13.800 --> 0:14:18.880 firms and smaller businesses and lower income families are increasingly struggling. 0:14:19.160 --> 0:14:22.960 And where I start to worry a little bit is 0:14:23.000 --> 0:14:26.400 that we're seeing this bifurcation between the prospects for strong 0:14:26.440 --> 0:14:31.360 productivity growth but not necessarily the accompanying income growth that 0:14:31.520 --> 0:14:35.200 usually accompanies a strong productivity cycle. And that's because of 0:14:35.240 --> 0:14:36.480 this polarized economy. 0:14:36.560 --> 0:14:39.560 Great point like where okay, for more productive where's the 0:14:39.640 --> 0:14:41.360 income to Usually. 0:14:41.000 --> 0:14:43.360 That's the story, you get more productivity and more real 0:14:43.400 --> 0:14:45.200 wage growth. You're not seeing that right now. 0:14:45.280 --> 0:14:47.360 Hey, just the last forty seconds we have with you. 0:14:47.440 --> 0:14:50.600 On any normal friday, at this time, we'd be talking 0:14:50.600 --> 0:14:51.680 about labor. 0:14:51.760 --> 0:14:52.560 How many right? 0:14:52.840 --> 0:14:55.600 Yeah? Well, what does your analysis tell you about the 0:14:55.920 --> 0:14:58.040 health of the labor market right now? And just have 0:14:58.080 --> 0:14:58.960 about thirty seconds. 0:14:59.000 --> 0:15:02.440 It's in balance, but it's a fragile balance because we've 0:15:02.480 --> 0:15:06.560 seen a historical negative shock to labor supply from reduced immigration. 0:15:06.840 --> 0:15:09.160 So we have a break even rate that's close to zero, 0:15:09.600 --> 0:15:12.880 but we are seeing labor demand being hesitant. Business leaders 0:15:12.880 --> 0:15:15.280 that we speak to are very hesitant as to who 0:15:15.360 --> 0:15:18.280 they hire, what skilled they hire for, and at what salaries. 0:15:18.480 --> 0:15:21.440 And that is downward pressure on income, which in turn 0:15:21.560 --> 0:15:24.040 will feed into software consumer spending and going into the 0:15:24.040 --> 0:15:24.640 rest of the year. 0:15:25.160 --> 0:15:29.000 You're listening to the Bloomberg Business Week Daily podcast. Catch 0:15:29.080 --> 0:15:31.760 us Live weekday afternoons from two to five e's during 0:15:32.000 --> 0:15:35.920 Listen on Applecarplay and Android Auto with the Bloomberg Business app, 0:15:36.080 --> 0:15:38.240 or watch US Live on YouTube. 0:15:38.920 --> 0:15:40.560 Hey, one of the things we wanted to get to 0:15:41.000 --> 0:15:43.280 was one of the most read stories on the Bloomberg Today. 0:15:43.720 --> 0:15:47.480 For the biggest US tech companies together have forecast capital 0:15:47.480 --> 0:15:50.760 expenditures that will reach about six hundred and fifty billion 0:15:50.840 --> 0:15:53.400 dollars this year, which is really kind of a mind 0:15:53.440 --> 0:15:56.840 boggling tide of cash earmark for new data centers and 0:15:56.920 --> 0:15:59.320 all the gear that is housed within them. That is 0:15:59.320 --> 0:16:02.840 the spending plan by Alphabet, Amazon, Meta, and Microsoft, all 0:16:02.880 --> 0:16:06.200 in pursuit of dominance in the still nascent market for 0:16:06.280 --> 0:16:09.880 AI tools is a boom without a parallel this century, 0:16:09.960 --> 0:16:10.560 no doubt about it. 0:16:10.600 --> 0:16:10.840 Tim. 0:16:10.960 --> 0:16:14.480 Yeah, it's a lot, Okay, it's a lot. Look, we're 0:16:14.480 --> 0:16:17.560 talking about Alphabet, Amazon, Meta Platforms, and Microsoft. Each of 0:16:17.600 --> 0:16:20.320 these companies estimates for this year expected either near or 0:16:20.360 --> 0:16:22.480 to surpass their budgets for any of the past three 0:16:22.560 --> 0:16:25.680 years combined, the investors over the past two weeks have 0:16:25.800 --> 0:16:27.920 reacted to the news differently when it comes to earnings 0:16:27.960 --> 0:16:31.200 and quarterly updates from these companies. We've got a great 0:16:31.280 --> 0:16:34.280 voice joining us, Carol, who studied these companies for a 0:16:34.440 --> 0:16:35.120 very long time. 0:16:35.200 --> 0:16:36.920 Curious to see what he has to say. Mark Mahaney 0:16:36.920 --> 0:16:39.320 is with us, senior Managing director and head of Internet 0:16:39.320 --> 0:16:43.360 Research at Evercore, author of Nothing but Net ten, timeless 0:16:43.360 --> 0:16:46.239 stock picking lessons from one of Wall Street's top tech analysts. 0:16:46.480 --> 0:16:48.440 He joins us from San Francisco. By the way, he's 0:16:48.480 --> 0:16:52.960 got an outperform on both on actually Alphabet, Meta and Amazon, 0:16:53.000 --> 0:16:53.320 all of them. 0:16:53.320 --> 0:16:54.960 Mark, how are you good to have you back? 0:16:55.840 --> 0:16:56.800 Good to see you, Carol. 0:16:57.000 --> 0:16:58.560 Hey, one thing I got to ask you before we 0:16:58.560 --> 0:17:00.960 get into the individual cup and he's something like fifty 0:17:01.040 --> 0:17:04.159 thousand on the Dow. Does it mean anything to you 0:17:04.240 --> 0:17:09.200 when you think about the overall market trade? 0:17:09.480 --> 0:17:11.679 I'm sorry, I was surprised by that number two. 0:17:13.480 --> 0:17:16.359 That says a lot, I guess if I'm honest about it. 0:17:16.440 --> 0:17:19.720 No fair enough, which is what we want. 0:17:20.040 --> 0:17:23.560 We love the honesty. Hey, Let's get to what has 0:17:23.760 --> 0:17:27.320 been a trade depending on the company reporting the AI 0:17:27.520 --> 0:17:31.760 spend and AI trade. Some have been punished, some have 0:17:31.880 --> 0:17:34.760 been not any logic to it in your view. 0:17:35.480 --> 0:17:37.879 Yeah, I think so. We're going through a free cash 0:17:37.880 --> 0:17:38.560 flow desert. 0:17:38.720 --> 0:17:42.080 So there's no question that the level of investments is 0:17:42.200 --> 0:17:45.200 higher than we all thought, you know, a month ago 0:17:45.200 --> 0:17:46.919 at the beginning of the year, and certainly a lot 0:17:47.000 --> 0:17:50.160 higher than we thought a year ago. I don't nobody 0:17:50.240 --> 0:17:52.919 that I know of, and I didn't forecast this amount 0:17:52.960 --> 0:17:57.600 of CAPPEC spend by the major hyperscalers, the four companies 0:17:57.600 --> 0:18:03.199 you mentioned earlier, Amazon, medic Google and Microsoft. So I 0:18:03.280 --> 0:18:05.359 understand the market's hesitation, and what it means is that 0:18:05.400 --> 0:18:07.480 free cash flow is going to be tested in Amazon's 0:18:07.520 --> 0:18:09.920 going to have negative free cash flow this year, first 0:18:09.920 --> 0:18:12.359 time since twenty twenty two. I think Google is going 0:18:12.359 --> 0:18:15.439 to be positive cash flow. I think Meta is. But 0:18:15.480 --> 0:18:19.400 these huge amounts of CAPEC spend are challenging that free 0:18:19.440 --> 0:18:22.800 cash flow generation, and investors are right to be concerned. 0:18:22.880 --> 0:18:25.000 When investors should also, though, focus on, is what are 0:18:25.040 --> 0:18:27.800 they seeing in terms of ROAI, Like what kind of returns. 0:18:27.480 --> 0:18:28.040 Are we getting? 0:18:28.080 --> 0:18:30.919 So you know, Google is ramping up its CAPEX by 0:18:31.000 --> 0:18:34.040 ninety billion that's actually the biggest dollar increase. But what 0:18:34.080 --> 0:18:36.600 they gave you this last quarter was an acceleration in 0:18:36.640 --> 0:18:39.679 search growth was the fastest that they've had in four years. 0:18:39.800 --> 0:18:42.080 What they also gave you was almost fifty percent growth 0:18:42.080 --> 0:18:44.960 in cloud revenue and one hundred and fifty percent growth 0:18:45.119 --> 0:18:48.960 growth in cloud backlog. That is all generated or in 0:18:49.160 --> 0:18:51.960 large part generated by AI. So there's an example here 0:18:52.000 --> 0:18:54.119 of a return. And by the way, Google had record 0:18:54.200 --> 0:18:55.840 high operating margins in the last quarter. 0:18:56.040 --> 0:18:57.280 Amazon just gave you. 0:18:59.200 --> 0:19:03.160 Twenty four percent search I'm sorry, cloud revenue growth, AWS 0:19:03.200 --> 0:19:07.560 revenue growth fastest in four years, also with very consistent margins, 0:19:07.560 --> 0:19:10.120 and the backlog jump by more than they've ever had 0:19:10.240 --> 0:19:12.439 in a single quart or something like forty billions. So 0:19:12.760 --> 0:19:16.399 I'd argue that there is an ROAI on these for 0:19:16.480 --> 0:19:18.920 these companies that can make the same point about META, 0:19:18.960 --> 0:19:20.720 and I think investors just need to be able to 0:19:20.760 --> 0:19:23.000 work through this free cash flow troph year. If I'm 0:19:23.080 --> 0:19:24.879 right there, it's the troph year, and you're going to 0:19:24.920 --> 0:19:27.479 have accelerating growth that will take you into twenty seven. 0:19:27.640 --> 0:19:30.280 I think that sets up these stocks given their current valuations, 0:19:30.440 --> 0:19:31.040 very well. 0:19:31.359 --> 0:19:35.000 So Amazon right now is down just about seven percent 0:19:35.359 --> 0:19:38.159 as we speak. You've got an outperform rating on the 0:19:38.160 --> 0:19:41.320 company two hundred and eighty five dollars price target. Andy 0:19:41.400 --> 0:19:45.119 Jasse said yesterday that the money would predominantly go to 0:19:45.160 --> 0:19:48.760