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Speaker 2: Our interview of the Day on Fixed in Come James Karen.
Speaker 2: Jim Karen joins us with Morgan Stanley, Cio crossess at Solutions.
Speaker 3: Jim, you know I love your note.
Speaker 2: Where you review nominal GDP when you talk to your
Speaker 2: accountants your economists. Excuse me, when you talk to your economists,
Speaker 2: do you see a sustained nominal GDP or can it
Speaker 2: come down from the five percent level?
Speaker 3: Good morning Tom and Paul. Listen.
Speaker 4: You know nominal GDP is really if I'm talking into
Speaker 4: my account, he sees only nominal dollars.
Speaker 5: Right.
Speaker 4: We all get paid in nominal dollars, right, So what
Speaker 4: we observe in the world is a nominal world. We
Speaker 4: don't observe like we don't get paid in real dollars.
Speaker 4: So you know the fact that nominal GDP first quarter
Speaker 4: of this year was running at six percent, which is
Speaker 4: significantly above the average over the last you know, many years,
Speaker 4: which was closer to four and in the second quarter nominal.
Speaker 3: GDP, if you look at the GDP.
Speaker 4: Deflator, nominal GDP was running closer to seven point nine percent.
Speaker 4: If you use PCE as your inflation measure, it's closer
Speaker 4: to six and a half percent. But the point here, Tom,
Speaker 4: is that if you're in a higher nominal GDP world,
Speaker 4: you tend to get higher earnings. No surprise there. We
Speaker 4: could take a look and see what's going on with
Speaker 4: second quarter earnings and even with first quarter earnings, and
Speaker 4: that's the kind of connection that we should draw. So
Speaker 4: when I talk about higher nominal GDP, think about that
Speaker 4: as higher equity earnings and earnings per growth in earnings
Speaker 4: per share growth.
Speaker 6: So, Jim, how does our federal reserve adapt to this
Speaker 6: type of economic environment and growth environment?
Speaker 4: Well, I mean, you know, part of this is is
Speaker 4: the inflation element to it, right, you know, So nominal
Speaker 4: GDP is real growth plus the inflation.
Speaker 3: So you know what's driving the higher nominal.
Speaker 4: GDP is that we are living in a higher inflation
Speaker 4: world somewhere around two and a half three percent, let's say. Well,
Speaker 4: I guess we'll find out more on Wednesday. So you know,
Speaker 4: the question is, is inflation accelerating higher? Can we sustain
Speaker 4: a two and a half percent inflation to three percent
Speaker 4: for the time being until it settles back down? Yes,
Speaker 4: I don't think that that is going to be overly corrosive,
Speaker 4: you know, for the FED, as long as they believe
Speaker 4: that the inflation and inflation expectations are not becoming ingrained
Speaker 4: where it becomes, you know, something that you know, becomes
Speaker 4: more destructive going forward. But so at this point right now,
Speaker 4: I think it's sustainable. But you know, I guess we'll
Speaker 4: find out more on Wednesday with CPI.
Speaker 6: How do you expect here? Just kind of interest rates
Speaker 6: in general? It just feels like we're higher for longer here, Jim,
Speaker 6: is that the world do you think we're in or
Speaker 6: we're going to see some moderation?
Speaker 4: Yeah, I do think that we're in a higher for
Speaker 4: longer in environment.
Speaker 3: So you know, one of.
Speaker 4: The correlations that you can draw and you can go
Speaker 4: back over a long period of time is nominal GDP
Speaker 4: versus the ten year yield. Those two usually sit pretty
Speaker 4: close to each other. And I'm not calling for ten
Speaker 4: year yields to go up, you know, significantly, I think
Speaker 4: that we're primarily in a range and we're going to
Speaker 4: go pretty much sideways into the end.
Speaker 3: Of the year.
Speaker 4: But you know, the ability for rates to move down
Speaker 4: sharply right now, particularly at the back end, outside of
Speaker 4: having a recession or some really sharp slowdown in the economy,
Speaker 4: I think is somewhat limited because you know, in the
Speaker 4: environment that we're in, you know, at the current moment,
Speaker 4: it just seems that nominal growth is going to be higher,
Speaker 4: which means that it just it just a leevys the
Speaker 4: risk of yields moving down sharply.
Speaker 2: So the Jim the Gloom crew is going to step
Speaker 2: in and say, Okay, there's all this fancy Jim Karen talk.
Speaker 2: But the question is the fiscal state we're in, how
Speaker 2: do you pull in our debt and our deficit into
Speaker 2: that ancient worry oops, price down, yields up bigley.
Speaker 4: So this is a great question, Tom, So let's connect
Speaker 4: the dots on this. So the idea is that if
Speaker 4: you have higher nominal growth, which we do, that's what
Speaker 4: pays down your deficit. Right, that is the number one
Speaker 4: thing that pays down your deficit. So you're absolutely right,
Speaker 4: the deficit is two high it's around six percent of GDP.
Speaker 4: It's been coming down by some measures, it's slightly under six.
Speaker 4: I'm sorry, that's the fiscal deficit, not debt to GDP.
Speaker 4: Debt to GDP is you know, it is still a
Speaker 4: little bit high depending on what metric you're using, around
Speaker 4: one hundred and twenty percent. Now, that's likely to come
Speaker 4: down as long as you have higher nominal growth. That's
Speaker 4: what brings that down the fastest. That's what we did
Speaker 4: after World War two, right, we had yield curve control.
Speaker 4: We capped you know, ten year yields of two and
Speaker 4: a half percent, and we allowed nominal GDP to get
Speaker 4: above six and that's what paid down the deficit after
Speaker 4: World War two. So in some ways we're doing something
Speaker 4: similar to the right now with higher nominal growth.
Speaker 6: Jim, how is this kind of world of higher economic growth?
Speaker 6: Has that changed your asset allocation at all?
Speaker 3: Yeah? Absolutely So.
Speaker 4: Basically, if you're at a higher nominal world, you're likely
Speaker 4: going to favor more equities over fixed income. So when
Speaker 4: you think of sixty forty, I would say, you know,
Speaker 4: sixty percent equity forty percent fixed income is a traditional
Speaker 4: balance portfolio.
Speaker 3: I would say that the.
Speaker 4: Forty percent in fixed income becomes somewhat challenged right now,
Speaker 4: just because you don't have the ability to generate high
Speaker 4: levels of return without rates moving down very sharply. So
Speaker 4: the equity markets tend to have higher valuations. When you
Speaker 4: have inflation somewhere around two and a half to three
Speaker 4: and a half percent, which is where it is today,
Speaker 4: valuations tend to be higher and sustainably higher. Companies have margins,
Speaker 4: they have pricing power, they generate higher earnings, So equities
Speaker 4: tend to be the asset class that is in favor
Speaker 4: in a higher nominal growth world. So it tilts me
Speaker 4: more towards the equity spectrum and a little bit of
Speaker 4: way from fixed income.
Speaker 2: So do you look in terms of use of cash,
Speaker 2: is dividend growth and share buyback to be a constructive
Speaker 2: yield equivalent forward three or five years?
Speaker 3: Yeah?
Speaker 4: Yes, you know absolutely, because look, you know, dividend yields
Speaker 4: are real yields, right, you know, that's the yield you
Speaker 4: get after all the expenses and inflation is a cost, right,
Speaker 4: that's what you get back from the you know, the
Speaker 4: you know, the stock that you bought. So what you
Speaker 4: want to have are higher, real returning assets real yields,
Speaker 4: and as I always like to say that, you know,
Speaker 4: equity are are a nominal asset with real returns because
Speaker 4: with equities you get the return after all the expenses,
Speaker 4: inflation being one of those expenses. So whether it's dividends
Speaker 4: or if it's buybacks, or whatever the case may be, that's.
Speaker 3: Where you're likely to see the appreciation.
Speaker 4: The most appreciation in your investment is likely to come
Speaker 4: from the equity side of the ledger as opposed to
Speaker 4: the fixed income side. That doesn't mean fixed income is important.
Speaker 4: You still need that as a hedge and it's a
Speaker 4: good source of income in your portfolios, but you have
Speaker 4: to balance it properly.
Speaker 2: Jim Carrot, thank you terrific Monday Morning Brief with Mortgane Stanley,
Speaker 2: Jim Karret. Stay with us. More from Bloomberg Surveillance coming
Speaker 2: up after this.
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Speaker 2: Shoining us on. John Gallive writ's a wonderful earnings update
Speaker 2: all through the quarter, as well with Seaport at Research Partners.
Speaker 2: You are in the surveillance timeout chair. A sixty six
Speaker 2: page power point is an October event. Now you have
Speaker 2: an August sixty six page power point. When are you
Speaker 2: Mary Meeker? Which is the most important slide in your
Speaker 2: sixty six page power point?
Speaker 7: There is one slide right at the beginning which highlights
Speaker 7: that the market is up whatever it is, you know,
Speaker 7: between ten and fifteen percent this year, but the earnings
Speaker 7: are way above that number, and the stock multiple is down.
Speaker 7: And the narrative that's out in the market is that
Speaker 7: this market.
Speaker 3: Is expensive because it's up so much.
Speaker 7: And in reality, it's all earnings and the valuation is
Speaker 7: two and a half multiple points cheaper.
Speaker 3: That's about twelve percent cheaper. And it was the beginning.
Speaker 2: So how do you treat major firms tweaking their target
Speaker 2: out twelve months up one hundred do and peak points,
Speaker 2: let's go to seventy eight hundred, let's go to eight thousand,
Speaker 2: this creeping extrapolation. How do you synthesize that?
Speaker 7: Well, I mean, if there's a theme, the analysts are
Speaker 7: underestimating the power of these earnings.
Speaker 3: Earnings are growing.
Speaker 7: Fifty percent this quarter, compared to a year ago.
Speaker 3: That just doesn't happen.
Speaker 7: The only time it does happen is when you're leaving
Speaker 7: a recession and you're comparing a broken quarter a year
Speaker 7: ago to a really good quarter now, And that's not
Speaker 7: what's happening. You don't have mid cycle earnings seasons with
Speaker 7: fifty percent growth, and even if you take out one
Speaker 7: time items, you're a thirty percent.
Speaker 3: That's still an insane number.
Speaker 6: So what screens well for you? Here are we chasing
Speaker 6: this earnings growth? What are you guys looking at these days?
Speaker 7: So's there's actually a number of story So across the
Speaker 7: tech landscape, things look really great, except the hyperscalers, if
Speaker 7: you look at it on a cash flow basis, are
Speaker 7: a real problem. But otherwise even their earnings growth is strong.
Speaker 7: The financials, all of this activity that we're seeing on
Speaker 7: data centers and all this stuff needs to be financed
Speaker 7: the banks. We went into earning season expectations were for
Speaker 7: seven and a half percent growth. It looks like the
Speaker 7: numbers are going to come in over twenty five percent growth.
Speaker 7: So we just a massive underestimation of the role that
Speaker 7: banks play in this.
Speaker 6: So what is the AI theme for you? These days.
Speaker 6: I mean, it used to be just by the chips,
Speaker 6: and I guess that's still a good way to do it,
Speaker 6: but people are looking for derivative plays and derivative off
Speaker 6: of those derivatives. How do you guys think about it?
Speaker 7: Well, first of all, if we step back, what percentage
Speaker 7: of the SMP is ultimately part of this If you
Speaker 7: look at the entire tech related basket, because you know,
Speaker 7: Google is considered a communications company and Amazon is considered
Speaker 7: a consumer company, if you take that basket, it's over
Speaker 7: four five percent of the SMP. But then you have
Speaker 7: to add the power generation companies and the companies that
Speaker 7: make refrigeration and all of the things that go into
Speaker 7: that process. You're talking about well over fifty percent of
Speaker 7: the market is part of this theme. And if you
Speaker 7: go abroad, interestingly, emerging markets and you're talking about Taiwan
Speaker 7: and Korea are plays on this theme.
Speaker 3: The only thing that's not, you know, you're talking about
Speaker 3: Europe before.
Speaker 7: Europe's not a play on this on this theme, and
Speaker 7: they're kind of getting left behind in terms of earnings growth.
Speaker 6: So it's pretty much everywhere you're looking out there into
Speaker 6: the market.
Speaker 7: It's sixty five percent of the public equity market.
Speaker 6: So we're going to have a FED. Doesn't appear that's
Speaker 6: going to be helping this market. But I guess with
Speaker 6: the if the fed's not gonna be learning rates, you
Speaker 6: really have to rely upon earnings. And that's good because
Speaker 6: the earnings are coming through.
Speaker 7: I guess, well, if you look at the valuation on stocks,
Speaker 7: first of all, the credit spread, the ability for a
Speaker 7: company to make that debt payment is way more important
Speaker 7: than the general interest rate. And that's a tad this year,
Speaker 7: but it's not a huge But the fact is, forget
Speaker 7: about the FED. The ten yure boniold does up seventy
Speaker 7: basis points or so this year, and you know, if
Speaker 7: your discount rate is up, your multiple goes down. And
Speaker 7: that's one of the big reasons why you have earnings
Speaker 7: up more than the stock prices.
Speaker 2: Rotation it seems it seems almost antiquated, like you know,
Speaker 2: everybody in the room is so young that nobody knows rotation.
Speaker 2: But are we doing traditional rotation or is it like
Speaker 2: all new now?
Speaker 7: Well, if you take a look at first of all,
Speaker 7: there's a huge amount of movement under the hood. So
Speaker 7: in the month of July, you basically had a flat market,
Speaker 7: but you had a you know, in between June and
Speaker 7: July a really large tech and growth sell off and
Speaker 7: a value went into favors.
Speaker 2: So yeah, there's a.
Speaker 3: Lot of movement.
Speaker 2: I don't buy it, bel chuns is in later. Index
Speaker 2: funds don't rotate, do they?
Speaker 7: The market? What the market favors rotates. So the index
Speaker 7: fund may not be moving in or out, but whether
Speaker 7: it's give you an example, tom as interest rates have
Speaker 7: been rising on the long end of the curve, they
Speaker 7: are punishing tech more so on days or months or
Speaker 7: weeks when interest rates go up. They don't treat everything equally.
Speaker 2: Okay, are you hunt? What do you do with marginally?
Speaker 2: With mag seven? Do you sell it? If you own it?
Speaker 2: Do you buy it at the margin? Right now?
Speaker 7: First of all, I'm not sure that that definition is
Speaker 7: the most important.
Speaker 3: Definitely, Okay, but no, let's let's if we break it down.
Speaker 3: There's two tech stories.
Speaker 7: There's the hyperscalers that are spending money like crazy, that
Speaker 7: have a cash flow problem, and then you have the
Speaker 7: rest of tech and even software where people are concerned
Speaker 7: about what is AI going to do in terms of
Speaker 7: disrupting it over the long run. Their earnings are fantastic,
Speaker 7: and then Hardware and Semis are off the charge total gloom.
Speaker 2: Third week of June, red Sox are place. Akmen and Gollum.
Speaker 2: It's a wonderful firm. Ackman and Gollups say shut up
Speaker 2: and buy Microsoft. It's up forty three percent from that
Speaker 2: June low. I mean, some of this Bag seven stuff
Speaker 2: is popping.
Speaker 3: And it's popping because the earnings are there.
Speaker 7: And Microsoft is kind of interesting because they're part of
Speaker 7: this hyper scaler's business. Their cash flows are fantastic, so
Speaker 7: not all of them are the same, but the amount
Speaker 7: of spending capex that they are part of is enormous.
Speaker 2: John Gottlip, thank you so much. Seaport Advisors can't say
Speaker 2: enough about his research. Note again, we protect the copyright
Speaker 2: of all of our guests. Look to Seaport Advisors for
Speaker 2: Gallob's brilliance. Stay with us. More from Bloomberg Surveillance coming
Speaker 2: up after this.
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Speaker 2: One of the good things with Heather Rice at KPMG
Speaker 2: is she doesn't toss a sixty six page power point
Speaker 2: on our lab at KPMG. Here in August as well,
Speaker 2: joining us Heather us Products Line business leader at KPMG
Speaker 2: power points, I'd like, do your eyes glaze over after
Speaker 2: the twentieth page?
Speaker 8: Yeah? I think power points are dead?
Speaker 2: What's AI done to power points?
Speaker 9: Like?
Speaker 2: Can you claud a power point?
Speaker 6: Yeah?
Speaker 8: I think you can.
Speaker 5: But trying to convey information that way, I think it
Speaker 5: was just difficult. I think more and more people are,
Speaker 5: you know, are looking for storytelling.
Speaker 2: Okay, tell us about storytelling right now? In August of
Speaker 2: twenty twenty six.
Speaker 5: Well, I think the main story we can you know,
Speaker 5: continue to hear is the AI is being used for
Speaker 5: operational efficiency right as consumer and goods companies are faced
Speaker 5: with tariffs they have been for a year. You know,
Speaker 5: you're thinking about the war and Iran and the oil
Speaker 5: prices and what it's doing to logistics. So I think
Speaker 5: the bigger, the bigger story is how do you look
Speaker 5: at your operational structure in terms of cost and understanding
Speaker 5: what like what companies are doing?
Speaker 2: You know what I mean. Paul's getting us this question.
Speaker 2: I'm taking it away from them right now? What are
Speaker 2: they doing? Are we losing jobs due to AI? Did
Speaker 2: I do? Okay? There? Well? Sure, okay? Are we losing
Speaker 2: jobs because of AI?
Speaker 6: Yeah?
Speaker 8: I wouldn't. I wouldn't frame it like that.
Speaker 5: How I would say, companies are using AI to move
Speaker 5: faster in business, and we have massive amounts of data,
Speaker 5: but what do we do with that?
Speaker 8: I kind of call it the paralysis of data?
Speaker 5: And so I think you have employees that are now
Speaker 5: being able to be more valuable and spending more time
Speaker 5: analyzing the data to make business decisions quicker.
Speaker 6: So I mean the companies your clients are they looking
Speaker 6: how are they looking to implement AI? Because there is
Speaker 6: a cost component to it, and I think companies are
Speaker 6: becoming more and more sensitive to So what are the
Speaker 6: conversations that you're having with your clients?
Speaker 3: Yeah?
Speaker 5: I mean, and I kind of view us as a
Speaker 5: kind of clients zero on how we've kind of weave
Speaker 5: shaped that narrative. But what I would say is thinking
Speaker 5: about the operational structure of a business. And I think
Speaker 5: everybody's trying to think about how do you take out
Speaker 5: back end costs?
Speaker 8: Right? Because that is a non value add to you know,
Speaker 8: the price of the product that we're selling.
Speaker 5: So thinking about how we can create some of the
Speaker 5: or the take out some of the non value pieces
Speaker 5: of our business to streamline it and free up people
Speaker 5: to do more value add tasks.
Speaker 6: Is that actually we're probably not even in the bottom
Speaker 6: of the first inning here. I mean, it feels like
Speaker 6: a lot of companies, like a lot of individuals, are
Speaker 6: just trying to figure out what is AI, How do
Speaker 6: I use it? How do I use it ethically? Where
Speaker 6: are the I mean, do you feel like your clients
Speaker 6: are on the forefront here or they're trying to catch up?
Speaker 6: What are you seeing it there?
Speaker 8: I say, I don't think anybody's trying to catch up.
Speaker 5: I think everyone is still trying to figure out how
Speaker 5: we're going to use it and what it looks like
Speaker 5: within your business. And I think that there's a I
Speaker 5: think there's a lot of steps you have to do.
Speaker 5: I don't think it is a quick plug and play solution, right.
Speaker 5: If anything, I think it's exposed that your data has
Speaker 5: to be good.
Speaker 2: Yeah, well, hell, you're in an esteemed room here. I
Speaker 2: mean Paul Sweeney Valet Cars at the Jefferson Hotel in Richmond, Virginia.
Speaker 2: Just a few years ago. You are in Richmond, which
Speaker 2: to me is a perfect melting pot of the stress
Speaker 2: parents and their kids are having about AI. What do
Speaker 2: you say to Robin's school people at Richmond coming out
Speaker 2: and they're like, Okay, I got to get a job,
Speaker 2: but everybody tells me I'm not going to get a
Speaker 2: job because of AI. How do you respond to that
Speaker 2: at KPMG.
Speaker 5: Yeah, I would say lean into it. I actually think
Speaker 5: it makes you smarter. I think you're able to in
Speaker 5: azed data quicker, look at the trends, connect the dots
Speaker 5: in a way that we haven't been able to do before.
Speaker 1: And so.
Speaker 5: I think be a curious learner, use it to give
Speaker 5: yourself more time to really understand business. Right, And so
Speaker 5: I think, like you know, for Richmond, I would say
Speaker 5: they're encouraging it.
Speaker 2: I agree with everything you just said. But do CEOs
Speaker 2: agree with what you just said or are they just
Speaker 2: looking at it as one big cost cut?
Speaker 8: No, I think that they are.
Speaker 5: I think CEOs are trying to evaluate how are we
Speaker 5: going to use it in our business? I mean, certainly
Speaker 5: it's it's not going to you know, robots aren't going
Speaker 5: to be you know, running a running a business and
Speaker 5: you know anytime soon. But they are looking to understand
Speaker 5: how do we continue to train our employees, how do
Speaker 5: we move faster in this day and age. You have
Speaker 5: to go quick or you're going to get left behind.
Speaker 6: How do you consumer products companies that you cover. We
Speaker 6: were just talking about this earlier in flo higher costs,
Speaker 6: they're just doesn't seem like they're going away, And I'm like,
Speaker 6: how do your companies do they just assume they can
Speaker 6: continue raising prices to maintain margin.
Speaker 8: Yeah, I would say the exact opposite.
Speaker 5: And I certainly think it depends on if you're looking
Speaker 5: at consumer staples or if you're looking at luxury goods.
Speaker 8: But I would say I don't.
Speaker 5: I don't think we're seeing companies pass the price on
Speaker 5: to consumers, especially in the staple market. I mean, if
Speaker 5: you think about it, these very large brands, right they've dominated.
Speaker 8: The physical shelf for years, or.
Speaker 5: You walk down the aisle and see right in the
Speaker 5: middle with anything. As e commerce has come on right
Speaker 5: especially during COVID and after COVID, they have to be
Speaker 5: really careful because they they do not want to get
Speaker 5: lost in what I kind of call call the search bar,
Speaker 5: the digital the search bar. So if you raise prices,
Speaker 5: you potentially could lose out on consumers and become invisible
Speaker 5: and the digital age.
Speaker 6: Well, I think the issues I think since COVID and
Speaker 6: just inflation in general, the store brands are just I
Speaker 6: can't believe I'll big there. Maybe I just wasn't seeing
Speaker 6: it before, but now I don't walk down on and
Speaker 6: they're everywhere.
Speaker 5: Yeah, I mean there's certainly more private, private labels, and
Speaker 5: I think and I think that's where the brands are
Speaker 5: really at risk if they do pass on those prices
Speaker 5: to consumers, even by five percent. Right, there's a there's
Speaker 5: a set amount of wallet that consumers have. And if
Speaker 5: if you increase your price just a little bit and
Speaker 5: you cause a consumer to look down grab the private label, yep,
Speaker 5: you're at risk of maybe losing a customer forever.
Speaker 8: If the customer doesn't find value in what you're paying, yep.
Speaker 2: Charge don't be a stranger. Heather Rice with us from
Speaker 2: Richmond US Products Line business leader at KPMG decades at KPMG.
Speaker 2: A really really interesting tone there on AI and what
Speaker 2: it means for all of those stay with us. More
Speaker 2: from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us Live
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Speaker 2: This is a joy and is an earned position. He's
Speaker 2: at the Conference Board, which is legendary. We talked to
Speaker 2: their economists. They are a wonderful group. But he comes
Speaker 2: as a CEO of the Conference Board after a wonderful
Speaker 2: heritage of running companies across America. Stephen Adlin I first
Speaker 2: knew I think at Office Deepot years ago and just
Speaker 2: wonderful to speak to him today on a broader, bigger
Speaker 2: view of America than actually running a company. Steve adad
Speaker 2: what is the confidence right now of our CEOs? They
Speaker 2: got a boom economy, they got boom nominal gdp Ernie's
Speaker 2: like we've never seen. But when they look into two
Speaker 2: thousand in twenty seven or plan for two thy twenty eight,
Speaker 2: what's the level of confidence?
Speaker 9: Well, good morning, Tom, Yeah, there. The Conference Sports CEO
Speaker 9: Confidence Index just came out and this is a quarterly
Speaker 9: index that goes between zero and one hundred hundred being
Speaker 9: max and zero being the least. We came in at
Speaker 9: fifty two, so right about the middle, which is up
Speaker 9: a little bit from the second quarter when things were
Speaker 9: just starting to rage in Iran and oil prices we're
Speaker 9: taking off, so it's it's come up a little bit,
Speaker 9: but we're seeing CEO confidence float with the level of
Speaker 9: inflation and with what's going on in geopolitics.
Speaker 2: Now.
Speaker 9: The good news is that they're telling us that we're
Speaker 9: in a low higher low fire situation. We're at you know,
Speaker 9: relatively full employment and h and they're not letting go
Speaker 9: of jobs even though they're you know, they're a little pessimistic.
Speaker 10: On where we stand with inflation.
Speaker 9: So that's at least good news Tom, because they you know,
Speaker 9: they can to hold on to their employe.
Speaker 2: Is the confidence of CEOs shaded by the technology boom
Speaker 2: is everywhere but four zip codes on the East Coast,
Speaker 2: in seven zip codes in Los Angeles, A and that
Speaker 2: we don't see that Dallas, Austin is an example, is booming.
Speaker 9: Well, you know, this whole AI thing is scary because
Speaker 9: it's yet another transition, and for a while people were
Speaker 9: saying oh, it's going to kill jobs. If you remember,
Speaker 9: this is the same thing that's happened over the past
Speaker 9: fifty years that every evolution of technology, right so the
Speaker 9: digital technology continues, that hasn't happened. We haven't seen on
Speaker 9: the sale lots of jobs right now. What you're seeing
Speaker 9: is massive investment and the hope from you know, and
Speaker 9: that's helping the AI industry the firms that are doing it,
Speaker 9: but everybody else is investing like crazy, and the hope
Speaker 9: is that they can drive some productivity, not an elimin HB,
Speaker 9: but drive productivity. And remember, Tom, this is what we
Speaker 9: saw in the nineties through the last evolution. It's all
Speaker 9: about basis points a year on the GDP okay.
Speaker 2: But the urchins coming out of Notre Dame are out
Speaker 2: of Kellogg's School in Northwestern where you darkened the door
Speaker 2: years ago. Can you tell them they're going to get
Speaker 2: a job with AI or that AI can improve their prospects?
Speaker 3: Yeah?
Speaker 2: I can.
Speaker 9: And the reason is because we've seen it. You've seen it,
Speaker 9: and you know we've been tracking it for a very
Speaker 9: long time. It's a scary thing that comes in, but
Speaker 9: AI is actually creating jobs, net jobs and it's changing
Speaker 9: the way workflows and so the quality of their work
Speaker 9: will improve.
Speaker 10: They're not going to be doing as much grunt work.
Speaker 10: They're going to be doing.
Speaker 9: Higher order work as AI does the grunt work, and
Speaker 9: there's more automation. So you know, it's an exciting frontier
Speaker 9: that I don't think should be feared.
Speaker 2: What's the other key insight you see within your news study?
Speaker 10: Yeah, so I mentioned the low higher low fire.
Speaker 9: We're seeing projections of wage increases next year in the
Speaker 9: three to four percent range. That's where people are gearing,
Speaker 9: which is right where inflation is right. So you know
Speaker 9: they're hanging in there. In their injections with that, they
Speaker 9: also tell us that there are the top risks have changed.
Speaker 9: So you know, a quarter ago it was.
Speaker 10: All around iron Iran.
Speaker 9: Now we're seeing it's back to cyber and UH and
Speaker 9: of course AI and the risks of managing around that.
Speaker 2: Because so I see office depot, and you know, I
Speaker 2: look at the other companies running out of zone and such.
Speaker 2: If we have a new higher rate regime, how does
Speaker 2: that change? I mean, if we stay here it's some
Speaker 2: kind of higher rate regime that's way different than where
Speaker 2: we were six seven years ago, isn't it.
Speaker 9: It is, but it's still you know, about where it
Speaker 9: was before that. So you know what we were in
Speaker 9: is a temporary situation, you know, with two and a
Speaker 9: half percent mortgages because of zero zero discount rate. Okay,
Speaker 9: that's just not reality that that's not where it needs
Speaker 9: to be. I think Kevin Watsh's is a brilliant guy.
Speaker 9: He is very close to the business community. He calls
Speaker 9: CEOs personally to try to keep his finger on the
Speaker 9: pulse of main Street and what's going on in the economy.
Speaker 9: The conference WHAR is projecting no increase or decrease, no
Speaker 9: rate change for the balance of the year, and interesting,
Speaker 9: actually we'll see a couple of rate changes in twenty seven.
Speaker 2: I love I love asking you this because you're such
Speaker 2: an operational guy. Across your heritage, across your resume. What's
Speaker 2: the biggest myth about CEOs that Hollywood holds and that
Speaker 2: the public holds?
Speaker 9: Well, it is interesting, you know, you watch these movies
Speaker 9: and these CEOs are always the evil people. You know,
Speaker 9: they're they're ordering, you know, crimes to be done and everything.
Speaker 9: You know, Look, I know I've known hundreds and hundreds
Speaker 9: of CEOs These are good, decent people who get up
Speaker 9: every morning worried about their consumers, their investors, their employees,
Speaker 9: trying to take care of their business, and trying to
Speaker 9: make sure that they create jobs, protect jobs, grow the economy,
Speaker 9: do the right thing for the country. These are true
Speaker 9: patriots and we should honor them.
Speaker 2: I can see Steve Oublin's central casting the Bad Guys CEO.
Speaker 2: He is the bad guy at the conference board, Steven Ablin.
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