WEBVTT - Sustaining S&P Rally amid Market Pressures 0:00:00.040 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.800 --> 0:00:17.880 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:21.960 on Apple CarPlay or Android Auto with the Bloomberg Business App. 0:00:22.320 --> 0:00:25.640 Listen on demand wherever you get your podcasts, or watch 0:00:25.720 --> 0:00:27.040 us live on YouTube. 0:00:27.840 --> 0:00:30.160 Our interview of the Day on Fixed in Come James Karen. 0:00:30.200 --> 0:00:35.000 Jim Karen joins us with Morgan Stanley, Cio crossess at Solutions. 0:00:35.040 --> 0:00:36.599 Jim, you know I love your note. 0:00:36.360 --> 0:00:39.919 Where you review nominal GDP when you talk to your 0:00:40.040 --> 0:00:45.200 accountants your economists. Excuse me, when you talk to your economists, 0:00:45.400 --> 0:00:49.280 do you see a sustained nominal GDP or can it 0:00:49.360 --> 0:00:51.320 come down from the five percent level? 0:00:52.880 --> 0:00:55.600 Good morning Tom and Paul. Listen. 0:00:56.240 --> 0:01:00.240 You know nominal GDP is really if I'm talking into 0:01:00.280 --> 0:01:02.560 my account, he sees only nominal dollars. 0:01:02.680 --> 0:01:02.880 Right. 0:01:02.920 --> 0:01:05.520 We all get paid in nominal dollars, right, So what 0:01:05.560 --> 0:01:07.959 we observe in the world is a nominal world. We 0:01:08.000 --> 0:01:10.360 don't observe like we don't get paid in real dollars. 0:01:10.800 --> 0:01:14.080 So you know the fact that nominal GDP first quarter 0:01:14.560 --> 0:01:17.520 of this year was running at six percent, which is 0:01:17.560 --> 0:01:20.520 significantly above the average over the last you know, many years, 0:01:20.560 --> 0:01:25.479 which was closer to four and in the second quarter nominal. 0:01:25.080 --> 0:01:27.240 GDP, if you look at the GDP. 0:01:27.000 --> 0:01:31.240 Deflator, nominal GDP was running closer to seven point nine percent. 0:01:31.360 --> 0:01:34.640 If you use PCE as your inflation measure, it's closer 0:01:34.640 --> 0:01:37.280 to six and a half percent. But the point here, Tom, 0:01:37.440 --> 0:01:40.400 is that if you're in a higher nominal GDP world, 0:01:40.760 --> 0:01:44.120 you tend to get higher earnings. No surprise there. We 0:01:44.160 --> 0:01:45.840 could take a look and see what's going on with 0:01:45.880 --> 0:01:48.880 second quarter earnings and even with first quarter earnings, and 0:01:49.000 --> 0:01:51.040 that's the kind of connection that we should draw. So 0:01:51.080 --> 0:01:54.360 when I talk about higher nominal GDP, think about that 0:01:54.520 --> 0:01:58.440 as higher equity earnings and earnings per growth in earnings 0:01:58.480 --> 0:01:59.200 per share growth. 0:01:59.800 --> 0:02:03.560 So, Jim, how does our federal reserve adapt to this 0:02:03.680 --> 0:02:05.919 type of economic environment and growth environment? 0:02:07.200 --> 0:02:09.359 Well, I mean, you know, part of this is is 0:02:09.760 --> 0:02:12.720 the inflation element to it, right, you know, So nominal 0:02:12.760 --> 0:02:15.600 GDP is real growth plus the inflation. 0:02:16.200 --> 0:02:19.320 So you know what's driving the higher nominal. 0:02:18.840 --> 0:02:21.600 GDP is that we are living in a higher inflation 0:02:21.720 --> 0:02:24.480 world somewhere around two and a half three percent, let's say. Well, 0:02:24.520 --> 0:02:28.160 I guess we'll find out more on Wednesday. So you know, 0:02:28.639 --> 0:02:33.840 the question is, is inflation accelerating higher? Can we sustain 0:02:34.080 --> 0:02:36.600 a two and a half percent inflation to three percent 0:02:36.639 --> 0:02:39.560 for the time being until it settles back down? Yes, 0:02:39.720 --> 0:02:43.519 I don't think that that is going to be overly corrosive, 0:02:43.720 --> 0:02:46.360 you know, for the FED, as long as they believe 0:02:46.680 --> 0:02:50.679 that the inflation and inflation expectations are not becoming ingrained 0:02:51.080 --> 0:02:54.239 where it becomes, you know, something that you know, becomes 0:02:54.280 --> 0:02:58.280 more destructive going forward. But so at this point right now, 0:02:58.680 --> 0:03:01.600 I think it's sustainable. But you know, I guess we'll 0:03:01.600 --> 0:03:03.160 find out more on Wednesday with CPI. 0:03:04.120 --> 0:03:08.000 How do you expect here? Just kind of interest rates 0:03:08.000 --> 0:03:11.080 in general? It just feels like we're higher for longer here, Jim, 0:03:11.120 --> 0:03:12.560 is that the world do you think we're in or 0:03:13.200 --> 0:03:14.280 we're going to see some moderation? 0:03:15.160 --> 0:03:17.080 Yeah, I do think that we're in a higher for 0:03:17.160 --> 0:03:19.160 longer in environment. 0:03:19.280 --> 0:03:20.160 So you know, one of. 0:03:20.080 --> 0:03:22.120 The correlations that you can draw and you can go 0:03:22.200 --> 0:03:25.360 back over a long period of time is nominal GDP 0:03:25.880 --> 0:03:29.600 versus the ten year yield. Those two usually sit pretty 0:03:29.600 --> 0:03:31.560 close to each other. And I'm not calling for ten 0:03:31.600 --> 0:03:33.840 year yields to go up, you know, significantly, I think 0:03:33.919 --> 0:03:36.160 that we're primarily in a range and we're going to 0:03:36.200 --> 0:03:37.680 go pretty much sideways into the end. 0:03:37.640 --> 0:03:38.040 Of the year. 0:03:38.480 --> 0:03:41.840 But you know, the ability for rates to move down 0:03:41.960 --> 0:03:45.080 sharply right now, particularly at the back end, outside of 0:03:45.120 --> 0:03:48.160 having a recession or some really sharp slowdown in the economy, 0:03:48.480 --> 0:03:52.080 I think is somewhat limited because you know, in the 0:03:52.200 --> 0:03:54.480 environment that we're in, you know, at the current moment, 0:03:54.840 --> 0:03:57.320 it just seems that nominal growth is going to be higher, 0:03:57.720 --> 0:04:00.440 which means that it just it just a leevys the 0:04:00.560 --> 0:04:02.960 risk of yields moving down sharply. 0:04:03.160 --> 0:04:06.240 So the Jim the Gloom crew is going to step 0:04:06.280 --> 0:04:09.120 in and say, Okay, there's all this fancy Jim Karen talk. 0:04:09.560 --> 0:04:13.040 But the question is the fiscal state we're in, how 0:04:13.040 --> 0:04:17.960 do you pull in our debt and our deficit into 0:04:18.040 --> 0:04:22.479 that ancient worry oops, price down, yields up bigley. 0:04:23.600 --> 0:04:27.240 So this is a great question, Tom, So let's connect 0:04:27.240 --> 0:04:29.920 the dots on this. So the idea is that if 0:04:29.960 --> 0:04:33.039 you have higher nominal growth, which we do, that's what 0:04:33.120 --> 0:04:36.000 pays down your deficit. Right, that is the number one 0:04:36.000 --> 0:04:38.360 thing that pays down your deficit. So you're absolutely right, 0:04:38.400 --> 0:04:40.680 the deficit is two high it's around six percent of GDP. 0:04:40.800 --> 0:04:44.239 It's been coming down by some measures, it's slightly under six. 0:04:45.680 --> 0:04:47.880 I'm sorry, that's the fiscal deficit, not debt to GDP. 0:04:48.000 --> 0:04:50.080 Debt to GDP is you know, it is still a 0:04:50.120 --> 0:04:53.080 little bit high depending on what metric you're using, around 0:04:53.080 --> 0:04:56.200 one hundred and twenty percent. Now, that's likely to come 0:04:56.279 --> 0:05:00.240 down as long as you have higher nominal growth. That's 0:05:00.240 --> 0:05:02.720 what brings that down the fastest. That's what we did 0:05:02.800 --> 0:05:05.600 after World War two, right, we had yield curve control. 0:05:05.680 --> 0:05:07.680 We capped you know, ten year yields of two and 0:05:07.720 --> 0:05:10.360 a half percent, and we allowed nominal GDP to get 0:05:10.360 --> 0:05:12.960 above six and that's what paid down the deficit after 0:05:13.000 --> 0:05:16.280 World War two. So in some ways we're doing something 0:05:16.400 --> 0:05:19.560 similar to the right now with higher nominal growth. 0:05:20.720 --> 0:05:24.080 Jim, how is this kind of world of higher economic growth? 0:05:24.080 --> 0:05:26.400 Has that changed your asset allocation at all? 0:05:27.560 --> 0:05:29.280 Yeah? Absolutely So. 0:05:29.880 --> 0:05:33.880 Basically, if you're at a higher nominal world, you're likely 0:05:33.920 --> 0:05:36.800 going to favor more equities over fixed income. So when 0:05:36.839 --> 0:05:39.400 you think of sixty forty, I would say, you know, 0:05:39.440 --> 0:05:42.280 sixty percent equity forty percent fixed income is a traditional 0:05:42.320 --> 0:05:43.400 balance portfolio. 0:05:43.880 --> 0:05:45.080 I would say that the. 0:05:45.000 --> 0:05:48.359 Forty percent in fixed income becomes somewhat challenged right now, 0:05:48.760 --> 0:05:51.840 just because you don't have the ability to generate high 0:05:51.920 --> 0:05:55.880 levels of return without rates moving down very sharply. So 0:05:56.640 --> 0:05:59.640 the equity markets tend to have higher valuations. When you 0:05:59.720 --> 0:06:02.200 have inflation somewhere around two and a half to three 0:06:02.240 --> 0:06:04.080 and a half percent, which is where it is today, 0:06:04.680 --> 0:06:08.760 valuations tend to be higher and sustainably higher. Companies have margins, 0:06:08.800 --> 0:06:13.920 they have pricing power, they generate higher earnings, So equities 0:06:14.040 --> 0:06:16.960 tend to be the asset class that is in favor 0:06:17.360 --> 0:06:20.200 in a higher nominal growth world. So it tilts me 0:06:20.320 --> 0:06:22.760 more towards the equity spectrum and a little bit of 0:06:22.800 --> 0:06:23.719 way from fixed income. 0:06:23.880 --> 0:06:26.080 So do you look in terms of use of cash, 0:06:27.320 --> 0:06:32.200 is dividend growth and share buyback to be a constructive 0:06:32.360 --> 0:06:35.880 yield equivalent forward three or five years? 0:06:36.920 --> 0:06:37.160 Yeah? 0:06:37.640 --> 0:06:41.080 Yes, you know absolutely, because look, you know, dividend yields 0:06:41.200 --> 0:06:44.520 are real yields, right, you know, that's the yield you 0:06:44.640 --> 0:06:47.720 get after all the expenses and inflation is a cost, right, 0:06:47.760 --> 0:06:49.400 that's what you get back from the you know, the 0:06:49.440 --> 0:06:52.479 you know, the stock that you bought. So what you 0:06:52.560 --> 0:06:56.839 want to have are higher, real returning assets real yields, 0:06:57.160 --> 0:06:59.160 and as I always like to say that, you know, 0:06:59.480 --> 0:07:04.880 equity are are a nominal asset with real returns because 0:07:04.960 --> 0:07:09.400 with equities you get the return after all the expenses, 0:07:09.560 --> 0:07:13.040 inflation being one of those expenses. So whether it's dividends 0:07:13.200 --> 0:07:17.280 or if it's buybacks, or whatever the case may be, that's. 0:07:17.080 --> 0:07:19.000 Where you're likely to see the appreciation. 0:07:19.120 --> 0:07:22.160 The most appreciation in your investment is likely to come 0:07:22.200 --> 0:07:24.680 from the equity side of the ledger as opposed to 0:07:24.680 --> 0:07:27.200 the fixed income side. That doesn't mean fixed income is important. 0:07:27.280 --> 0:07:29.200 You still need that as a hedge and it's a 0:07:29.240 --> 0:07:32.040 good source of income in your portfolios, but you have 0:07:32.120 --> 0:07:33.280 to balance it properly. 0:07:33.640 --> 0:07:38.280 Jim Carrot, thank you terrific Monday Morning Brief with Mortgane Stanley, 0:07:38.840 --> 0:07:44.360 Jim Karret. Stay with us. More from Bloomberg Surveillance coming 0:07:44.440 --> 0:07:45.480 up after this. 0:07:52.680 --> 0:07:56.280 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:07:56.360 --> 0:07:59.480 weekday afternoons from seven to ten am Eastern Listen on 0:07:59.560 --> 0:08:03.240 Apple and Android Auto with the Bloomberg Business app, or 0:08:03.400 --> 0:08:05.040 watch us live on YouTube. 0:08:05.640 --> 0:08:08.720 Shoining us on. John Gallive writ's a wonderful earnings update 0:08:09.080 --> 0:08:13.280 all through the quarter, as well with Seaport at Research Partners. 0:08:13.600 --> 0:08:17.440 You are in the surveillance timeout chair. A sixty six 0:08:17.520 --> 0:08:21.160 page power point is an October event. Now you have 0:08:21.200 --> 0:08:24.320 an August sixty six page power point. When are you 0:08:24.400 --> 0:08:28.360 Mary Meeker? Which is the most important slide in your 0:08:28.400 --> 0:08:30.680 sixty six page power point? 0:08:30.760 --> 0:08:34.040 There is one slide right at the beginning which highlights 0:08:34.120 --> 0:08:37.080 that the market is up whatever it is, you know, 0:08:37.360 --> 0:08:40.520 between ten and fifteen percent this year, but the earnings 0:08:41.040 --> 0:08:44.360 are way above that number, and the stock multiple is down. 0:08:44.800 --> 0:08:47.640 And the narrative that's out in the market is that 0:08:48.240 --> 0:08:49.240 this market. 0:08:48.920 --> 0:08:52.119 Is expensive because it's up so much. 0:08:51.960 --> 0:08:55.480 And in reality, it's all earnings and the valuation is 0:08:55.720 --> 0:08:58.120 two and a half multiple points cheaper. 0:08:58.160 --> 0:09:00.720 That's about twelve percent cheaper. And it was the beginning. 0:09:00.760 --> 0:09:06.280 So how do you treat major firms tweaking their target 0:09:06.320 --> 0:09:08.760 out twelve months up one hundred do and peak points, 0:09:09.080 --> 0:09:11.520 let's go to seventy eight hundred, let's go to eight thousand, 0:09:11.800 --> 0:09:15.400 this creeping extrapolation. How do you synthesize that? 0:09:16.400 --> 0:09:21.280 Well, I mean, if there's a theme, the analysts are 0:09:21.520 --> 0:09:23.800 underestimating the power of these earnings. 0:09:23.880 --> 0:09:25.080 Earnings are growing. 0:09:25.520 --> 0:09:29.720 Fifty percent this quarter, compared to a year ago. 0:09:31.280 --> 0:09:32.319 That just doesn't happen. 0:09:32.360 --> 0:09:34.800 The only time it does happen is when you're leaving 0:09:34.800 --> 0:09:37.880 a recession and you're comparing a broken quarter a year 0:09:37.880 --> 0:09:40.800 ago to a really good quarter now, And that's not 0:09:40.840 --> 0:09:44.640 what's happening. You don't have mid cycle earnings seasons with 0:09:44.720 --> 0:09:46.640 fifty percent growth, and even if you take out one 0:09:46.679 --> 0:09:48.520 time items, you're a thirty percent. 0:09:48.600 --> 0:09:49.880 That's still an insane number. 0:09:50.200 --> 0:09:53.240 So what screens well for you? Here are we chasing 0:09:53.520 --> 0:09:56.160 this earnings growth? What are you guys looking at these days? 0:09:56.480 --> 0:10:01.280 So's there's actually a number of story So across the 0:10:01.360 --> 0:10:06.679 tech landscape, things look really great, except the hyperscalers, if 0:10:06.720 --> 0:10:09.320 you look at it on a cash flow basis, are 0:10:09.360 --> 0:10:13.160 a real problem. But otherwise even their earnings growth is strong. 0:10:13.440 --> 0:10:16.480 The financials, all of this activity that we're seeing on 0:10:16.600 --> 0:10:19.640 data centers and all this stuff needs to be financed 0:10:20.000 --> 0:10:22.560 the banks. We went into earning season expectations were for 0:10:22.640 --> 0:10:24.559 seven and a half percent growth. It looks like the 0:10:24.640 --> 0:10:28.040 numbers are going to come in over twenty five percent growth. 0:10:28.120 --> 0:10:31.040 So we just a massive underestimation of the role that 0:10:31.160 --> 0:10:32.400 banks play in this. 0:10:32.679 --> 0:10:35.480 So what is the AI theme for you? These days. 0:10:35.480 --> 0:10:37.040 I mean, it used to be just by the chips, 0:10:37.080 --> 0:10:38.880 and I guess that's still a good way to do it, 0:10:38.920 --> 0:10:42.080 but people are looking for derivative plays and derivative off 0:10:42.080 --> 0:10:43.800 of those derivatives. How do you guys think about it? 0:10:44.040 --> 0:10:46.760 Well, first of all, if we step back, what percentage 0:10:46.760 --> 0:10:49.720 of the SMP is ultimately part of this If you 0:10:49.760 --> 0:10:53.680 look at the entire tech related basket, because you know, 0:10:53.720 --> 0:10:56.720 Google is considered a communications company and Amazon is considered 0:10:56.720 --> 0:10:59.760 a consumer company, if you take that basket, it's over 0:10:59.800 --> 0:11:02.040 four five percent of the SMP. But then you have 0:11:02.120 --> 0:11:04.880 to add the power generation companies and the companies that 0:11:04.960 --> 0:11:08.600 make refrigeration and all of the things that go into 0:11:08.640 --> 0:11:12.600 that process. You're talking about well over fifty percent of 0:11:12.640 --> 0:11:15.920 the market is part of this theme. And if you 0:11:15.960 --> 0:11:20.319 go abroad, interestingly, emerging markets and you're talking about Taiwan 0:11:20.400 --> 0:11:22.480 and Korea are plays on this theme. 0:11:22.720 --> 0:11:24.600 The only thing that's not, you know, you're talking about 0:11:24.640 --> 0:11:25.240 Europe before. 0:11:25.520 --> 0:11:28.400 Europe's not a play on this on this theme, and 0:11:28.440 --> 0:11:30.760 they're kind of getting left behind in terms of earnings growth. 0:11:30.960 --> 0:11:33.480 So it's pretty much everywhere you're looking out there into 0:11:33.480 --> 0:11:34.040 the market. 0:11:33.960 --> 0:11:39.160 It's sixty five percent of the public equity market. 0:11:39.160 --> 0:11:42.480 So we're going to have a FED. Doesn't appear that's 0:11:42.480 --> 0:11:44.520 going to be helping this market. But I guess with 0:11:44.559 --> 0:11:47.040 the if the fed's not gonna be learning rates, you 0:11:47.080 --> 0:11:49.440 really have to rely upon earnings. And that's good because 0:11:49.440 --> 0:11:50.360 the earnings are coming through. 0:11:50.360 --> 0:11:53.360 I guess, well, if you look at the valuation on stocks, 0:11:53.400 --> 0:11:57.920 first of all, the credit spread, the ability for a 0:11:57.960 --> 0:12:01.640 company to make that debt payment is way more important 0:12:01.679 --> 0:12:06.440 than the general interest rate. And that's a tad this year, 0:12:06.480 --> 0:12:08.960 but it's not a huge But the fact is, forget 0:12:08.960 --> 0:12:11.560 about the FED. The ten yure boniold does up seventy 0:12:11.640 --> 0:12:14.199 basis points or so this year, and you know, if 0:12:14.200 --> 0:12:17.160 your discount rate is up, your multiple goes down. And 0:12:17.280 --> 0:12:20.520 that's one of the big reasons why you have earnings 0:12:20.559 --> 0:12:21.840 up more than the stock prices. 0:12:22.720 --> 0:12:27.800 Rotation it seems it seems almost antiquated, like you know, 0:12:28.040 --> 0:12:31.840 everybody in the room is so young that nobody knows rotation. 0:12:32.720 --> 0:12:36.880 But are we doing traditional rotation or is it like 0:12:36.920 --> 0:12:37.600 all new now? 0:12:38.320 --> 0:12:39.960 Well, if you take a look at first of all, 0:12:40.200 --> 0:12:44.480 there's a huge amount of movement under the hood. So 0:12:44.720 --> 0:12:47.320 in the month of July, you basically had a flat market, 0:12:47.720 --> 0:12:50.240 but you had a you know, in between June and 0:12:50.280 --> 0:12:53.079 July a really large tech and growth sell off and 0:12:53.120 --> 0:12:54.360 a value went into favors. 0:12:54.400 --> 0:12:55.000 So yeah, there's a. 0:12:55.000 --> 0:12:55.520 Lot of movement. 0:12:55.679 --> 0:12:58.080 I don't buy it, bel chuns is in later. Index 0:12:58.160 --> 0:13:00.480 funds don't rotate, do they? 0:13:00.679 --> 0:13:05.360 The market? What the market favors rotates. So the index 0:13:05.400 --> 0:13:07.640 fund may not be moving in or out, but whether 0:13:07.760 --> 0:13:11.040 it's give you an example, tom as interest rates have 0:13:11.080 --> 0:13:14.080 been rising on the long end of the curve, they 0:13:14.160 --> 0:13:17.800 are punishing tech more so on days or months or 0:13:17.800 --> 0:13:20.720 weeks when interest rates go up. They don't treat everything equally. 0:13:21.360 --> 0:13:23.960 Okay, are you hunt? What do you do with marginally? 0:13:24.000 --> 0:13:26.720 With mag seven? Do you sell it? If you own it? 0:13:27.280 --> 0:13:29.240 Do you buy it at the margin? Right now? 0:13:30.000 --> 0:13:31.920 First of all, I'm not sure that that definition is 0:13:31.960 --> 0:13:32.760 the most important. 0:13:33.120 --> 0:13:37.600 Definitely, Okay, but no, let's let's if we break it down. 0:13:37.640 --> 0:13:38.680 There's two tech stories. 0:13:38.840 --> 0:13:42.120 There's the hyperscalers that are spending money like crazy, that 0:13:42.240 --> 0:13:45.200 have a cash flow problem, and then you have the 0:13:45.240 --> 0:13:48.040 rest of tech and even software where people are concerned 0:13:48.320 --> 0:13:50.360 about what is AI going to do in terms of 0:13:51.000 --> 0:13:55.000 disrupting it over the long run. Their earnings are fantastic, 0:13:55.040 --> 0:13:57.760 and then Hardware and Semis are off the charge total gloom. 0:13:57.920 --> 0:14:02.120 Third week of June, red Sox are place. Akmen and Gollum. 0:14:02.280 --> 0:14:05.360 It's a wonderful firm. Ackman and Gollups say shut up 0:14:05.400 --> 0:14:10.880 and buy Microsoft. It's up forty three percent from that 0:14:11.080 --> 0:14:14.120 June low. I mean, some of this Bag seven stuff 0:14:14.160 --> 0:14:15.040 is popping. 0:14:15.679 --> 0:14:18.640 And it's popping because the earnings are there. 0:14:18.800 --> 0:14:21.520 And Microsoft is kind of interesting because they're part of 0:14:21.560 --> 0:14:25.560 this hyper scaler's business. Their cash flows are fantastic, so 0:14:25.680 --> 0:14:28.120 not all of them are the same, but the amount 0:14:28.160 --> 0:14:31.840 of spending capex that they are part of is enormous. 0:14:31.920 --> 0:14:34.520 John Gottlip, thank you so much. Seaport Advisors can't say 0:14:34.560 --> 0:14:37.840 enough about his research. Note again, we protect the copyright 0:14:37.920 --> 0:14:41.800 of all of our guests. Look to Seaport Advisors for 0:14:42.480 --> 0:14:48.800 Gallob's brilliance. Stay with us. More from Bloomberg Surveillance coming 0:14:48.880 --> 0:14:49.840 up after this. 0:14:57.120 --> 0:15:00.680 You're listening to the Bloomberg Surveillance podcast that's just live 0:15:00.760 --> 0:15:03.760 weekday afternoons from seven to ten am. E's durn Listen 0:15:03.840 --> 0:15:07.400 on Applecarplay and Android Auto with the Bloomberg Business app, 0:15:07.560 --> 0:15:09.400 or watch us live on YouTube. 0:15:09.600 --> 0:15:12.440 One of the good things with Heather Rice at KPMG 0:15:12.920 --> 0:15:16.240 is she doesn't toss a sixty six page power point 0:15:16.320 --> 0:15:20.360 on our lab at KPMG. Here in August as well, 0:15:20.480 --> 0:15:25.280 joining us Heather us Products Line business leader at KPMG 0:15:25.880 --> 0:15:28.640 power points, I'd like, do your eyes glaze over after 0:15:28.680 --> 0:15:29.680 the twentieth page? 0:15:29.920 --> 0:15:31.880 Yeah? I think power points are dead? 0:15:34.680 --> 0:15:36.760 What's AI done to power points? 0:15:37.160 --> 0:15:37.240 Like? 0:15:37.320 --> 0:15:39.640 Can you claud a power point? 0:15:40.680 --> 0:15:40.880 Yeah? 0:15:41.000 --> 0:15:41.680 I think you can. 0:15:41.760 --> 0:15:43.920 But trying to convey information that way, I think it 0:15:43.960 --> 0:15:46.960 was just difficult. I think more and more people are, 0:15:47.040 --> 0:15:48.560 you know, are looking for storytelling. 0:15:49.440 --> 0:15:52.840 Okay, tell us about storytelling right now? In August of 0:15:52.880 --> 0:15:54.160 twenty twenty six. 0:15:54.680 --> 0:15:56.280 Well, I think the main story we can you know, 0:15:56.320 --> 0:16:01.000 continue to hear is the AI is being used for 0:16:01.080 --> 0:16:04.600 operational efficiency right as consumer and goods companies are faced 0:16:04.640 --> 0:16:06.760 with tariffs they have been for a year. You know, 0:16:06.760 --> 0:16:09.040 you're thinking about the war and Iran and the oil 0:16:09.040 --> 0:16:12.720 prices and what it's doing to logistics. So I think 0:16:12.760 --> 0:16:16.080 the bigger, the bigger story is how do you look 0:16:16.080 --> 0:16:20.080 at your operational structure in terms of cost and understanding 0:16:20.080 --> 0:16:21.680 what like what companies are doing? 0:16:22.240 --> 0:16:24.520 You know what I mean. Paul's getting us this question. 0:16:24.800 --> 0:16:27.560 I'm taking it away from them right now? What are 0:16:27.600 --> 0:16:30.480 they doing? Are we losing jobs due to AI? Did 0:16:30.480 --> 0:16:33.840 I do? Okay? There? Well? Sure, okay? Are we losing 0:16:33.960 --> 0:16:35.160 jobs because of AI? 0:16:36.040 --> 0:16:36.240 Yeah? 0:16:36.280 --> 0:16:38.280 I wouldn't. I wouldn't frame it like that. 0:16:38.360 --> 0:16:42.200 How I would say, companies are using AI to move 0:16:42.240 --> 0:16:45.760 faster in business, and we have massive amounts of data, 0:16:45.800 --> 0:16:46.560 but what do we do with that? 0:16:46.600 --> 0:16:48.400 I kind of call it the paralysis of data? 0:16:50.000 --> 0:16:54.120 And so I think you have employees that are now 0:16:54.160 --> 0:16:57.160 being able to be more valuable and spending more time 0:16:57.200 --> 0:16:59.760 analyzing the data to make business decisions quicker. 0:17:00.400 --> 0:17:03.280 So I mean the companies your clients are they looking 0:17:03.760 --> 0:17:06.879 how are they looking to implement AI? Because there is 0:17:06.920 --> 0:17:09.199 a cost component to it, and I think companies are 0:17:09.240 --> 0:17:11.920 becoming more and more sensitive to So what are the 0:17:11.960 --> 0:17:13.639 conversations that you're having with your clients? 0:17:14.600 --> 0:17:14.800 Yeah? 0:17:14.840 --> 0:17:16.119 I mean, and I kind of view us as a 0:17:16.200 --> 0:17:17.880 kind of clients zero on how we've kind of weave 0:17:17.920 --> 0:17:21.639 shaped that narrative. But what I would say is thinking 0:17:21.680 --> 0:17:24.280 about the operational structure of a business. And I think 0:17:24.320 --> 0:17:26.080 everybody's trying to think about how do you take out 0:17:26.240 --> 0:17:27.000 back end costs? 0:17:27.280 --> 0:17:31.879 Right? Because that is a non value add to you know, 0:17:31.920 --> 0:17:33.359 the price of the product that we're selling. 0:17:33.440 --> 0:17:37.520 So thinking about how we can create some of the 0:17:38.240 --> 0:17:40.920 or the take out some of the non value pieces 0:17:40.960 --> 0:17:44.240 of our business to streamline it and free up people 0:17:44.359 --> 0:17:46.360 to do more value add tasks. 0:17:46.840 --> 0:17:50.040 Is that actually we're probably not even in the bottom 0:17:50.040 --> 0:17:51.680 of the first inning here. I mean, it feels like 0:17:51.720 --> 0:17:54.080 a lot of companies, like a lot of individuals, are 0:17:54.119 --> 0:17:57.000 just trying to figure out what is AI, How do 0:17:57.080 --> 0:18:01.920 I use it? How do I use it ethically? Where 0:18:01.960 --> 0:18:03.800 are the I mean, do you feel like your clients 0:18:03.840 --> 0:18:05.840 are on the forefront here or they're trying to catch up? 0:18:06.280 --> 0:18:07.360 What are you seeing it there? 0:18:07.440 --> 0:18:09.080 I say, I don't think anybody's trying to catch up. 0:18:09.080 --> 0:18:10.679 I think everyone is still trying to figure out how 0:18:10.680 --> 0:18:12.359 we're going to use it and what it looks like 0:18:12.440 --> 0:18:14.280 within your business. And I think that there's a I 0:18:14.280 --> 0:18:15.800 think there's a lot of steps you have to do. 0:18:15.840 --> 0:18:18.439 I don't think it is a quick plug and play solution, right. 0:18:19.400 --> 0:18:21.959 If anything, I think it's exposed that your data has 0:18:22.080 --> 0:18:22.399 to be good. 0:18:22.680 --> 0:18:26.280 Yeah, well, hell, you're in an esteemed room here. I 0:18:26.280 --> 0:18:32.119 mean Paul Sweeney Valet Cars at the Jefferson Hotel in Richmond, Virginia. 0:18:32.520 --> 0:18:36.000 Just a few years ago. You are in Richmond, which 0:18:36.040 --> 0:18:39.160 to me is a perfect melting pot of the stress 0:18:39.280 --> 0:18:42.800 parents and their kids are having about AI. What do 0:18:42.840 --> 0:18:46.439 you say to Robin's school people at Richmond coming out 0:18:46.920 --> 0:18:48.840 and they're like, Okay, I got to get a job, 0:18:48.880 --> 0:18:50.679 but everybody tells me I'm not going to get a 0:18:50.760 --> 0:18:53.320 job because of AI. How do you respond to that 0:18:53.400 --> 0:18:54.200 at KPMG. 0:18:55.119 --> 0:18:57.480 Yeah, I would say lean into it. I actually think 0:18:57.520 --> 0:18:59.800 it makes you smarter. I think you're able to in 0:18:59.840 --> 0:19:03.000 azed data quicker, look at the trends, connect the dots 0:19:03.600 --> 0:19:05.479 in a way that we haven't been able to do before. 0:19:06.119 --> 0:19:06.440 And so. 0:19:07.880 --> 0:19:11.919 I think be a curious learner, use it to give 0:19:11.920 --> 0:19:16.600 yourself more time to really understand business. Right, And so 0:19:16.680 --> 0:19:19.240 I think, like you know, for Richmond, I would say 0:19:19.280 --> 0:19:20.119 they're encouraging it. 0:19:20.280 --> 0:19:24.040 I agree with everything you just said. But do CEOs 0:19:24.119 --> 0:19:27.040 agree with what you just said or are they just 0:19:27.080 --> 0:19:29.280 looking at it as one big cost cut? 0:19:29.680 --> 0:19:30.760 No, I think that they are. 0:19:30.840 --> 0:19:33.040 I think CEOs are trying to evaluate how are we 0:19:33.040 --> 0:19:34.720 going to use it in our business? I mean, certainly 0:19:34.800 --> 0:19:38.479 it's it's not going to you know, robots aren't going 0:19:38.520 --> 0:19:40.960 to be you know, running a running a business and 0:19:41.080 --> 0:19:45.840 you know anytime soon. But they are looking to understand 0:19:45.920 --> 0:19:49.040 how do we continue to train our employees, how do 0:19:49.119 --> 0:19:52.240 we move faster in this day and age. You have 0:19:52.320 --> 0:19:54.080 to go quick or you're going to get left behind. 0:19:54.600 --> 0:19:58.679 How do you consumer products companies that you cover. We 0:19:58.680 --> 0:20:01.920 were just talking about this earlier in flo higher costs, 0:20:01.920 --> 0:20:04.959 they're just doesn't seem like they're going away, And I'm like, 0:20:05.359 --> 0:20:08.240 how do your companies do they just assume they can 0:20:08.240 --> 0:20:11.000 continue raising prices to maintain margin. 0:20:11.119 --> 0:20:12.560 Yeah, I would say the exact opposite. 0:20:12.640 --> 0:20:14.920 And I certainly think it depends on if you're looking 0:20:14.920 --> 0:20:17.440