1 00:00:05,160 --> 00:00:08,480 Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 2 00:00:08,520 --> 00:00:12,360 Speaker 1: with Jonathan Farrow and Lisa Abramowitz. Join us each day 3 00:00:12,400 --> 00:00:16,880 Speaker 1: for insight from the best and economics, geopolitics, finance and investment. 4 00:00:17,280 --> 00:00:22,079 Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 5 00:00:22,320 --> 00:00:26,600 Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com, 6 00:00:26,640 --> 00:00:30,479 Speaker 1: the Bloomberg Terminal, and the Bloomberg Business App. What you 7 00:00:30,560 --> 00:00:33,280 Speaker 1: need on Jobs Day more Newtonian calculus. We'll do that 8 00:00:33,320 --> 00:00:36,000 Speaker 1: with Randall Krosner of the Bus School, Chicago, of course, 9 00:00:36,040 --> 00:00:38,920 Speaker 1: the former Fed governor, one of our great and giant 10 00:00:39,080 --> 00:00:44,000 Speaker 1: financial economists in America. What's the second derivative of the 11 00:00:44,080 --> 00:00:45,360 Speaker 1: jobs market look like? 12 00:00:45,479 --> 00:00:46,680 Speaker 2: Randy? When it moves? 13 00:00:46,880 --> 00:00:47,680 Speaker 3: Does it move? 14 00:00:49,400 --> 00:00:51,879 Speaker 4: Ah? And that's the key question exactly what you were 15 00:00:51,920 --> 00:00:55,680 Speaker 4: talking about. What does this pretend for the trajectory going forward? 16 00:00:55,960 --> 00:00:59,520 Speaker 4: Certainly we're seeing a slowing pace over the last few 17 00:00:59,520 --> 00:01:03,480 Speaker 4: months downward revisions. And then the question is will this 18 00:01:03,600 --> 00:01:05,959 Speaker 4: be nice and smooth or will this pretend something that 19 00:01:06,080 --> 00:01:08,680 Speaker 4: is going to be As at LISTA mentioned before, nonlinear, 20 00:01:09,760 --> 00:01:12,920 Speaker 4: very difficult to predict any nonlinear moves and things. But 21 00:01:12,959 --> 00:01:17,880 Speaker 4: I do think it's consistent with a somewhat softening labor market. 22 00:01:18,640 --> 00:01:22,120 Speaker 4: I think the FED will certainly be heartened by the 23 00:01:22,120 --> 00:01:26,040 Speaker 4: wage growth coming down a bit over time. I think 24 00:01:26,040 --> 00:01:28,200 Speaker 4: this takes the wind of the sales of those who 25 00:01:28,280 --> 00:01:30,479 Speaker 4: wanted to go further. I think it makes it much 26 00:01:30,520 --> 00:01:33,840 Speaker 4: more likely that we will just hold where we are 27 00:01:33,959 --> 00:01:36,840 Speaker 4: for a while. But so far, there's nothing in this 28 00:01:36,920 --> 00:01:38,800 Speaker 4: to suggest that the FED is going to be eager 29 00:01:38,840 --> 00:01:41,679 Speaker 4: to cut or be even talking about cutting anytime soon. 30 00:01:42,000 --> 00:01:44,200 Speaker 5: Do you think, Randy is some people are pointing to 31 00:01:44,280 --> 00:01:47,440 Speaker 5: manufacturing as a point of weakness, that that is a 32 00:01:47,520 --> 00:01:50,880 Speaker 5: leading indicator in the way it has been in previous times, 33 00:01:50,960 --> 00:01:53,760 Speaker 5: just because of how many people were hired during the 34 00:01:53,760 --> 00:01:54,760 Speaker 5: peak of the pandemic. 35 00:01:56,080 --> 00:01:57,640 Speaker 4: It is certainly one area that there was a lot 36 00:01:57,680 --> 00:02:00,600 Speaker 4: of bounce back, because of course people want to things, 37 00:02:01,120 --> 00:02:05,160 Speaker 4: but now people want services, and so the services part 38 00:02:05,200 --> 00:02:08,520 Speaker 4: is still extremely important. I wouldn't put too much emphasis 39 00:02:08,560 --> 00:02:10,760 Speaker 4: on any one particular sector. I think you have to 40 00:02:10,800 --> 00:02:14,040 Speaker 4: look over overall, and as Mike had said, you know, 41 00:02:14,080 --> 00:02:17,520 Speaker 4: we're seeing a little bit of slow down broadly, but 42 00:02:17,680 --> 00:02:20,359 Speaker 4: not enormous amount of slow down. But I do think 43 00:02:20,400 --> 00:02:23,160 Speaker 4: that is consistent with in somestance where the FED wants 44 00:02:23,200 --> 00:02:24,920 Speaker 4: to go. They want to see the uneployment rate go 45 00:02:25,000 --> 00:02:26,919 Speaker 4: up a little bit, not too much. They want to 46 00:02:26,960 --> 00:02:29,280 Speaker 4: see wage growth come down a little bit, but not 47 00:02:29,360 --> 00:02:31,160 Speaker 4: too much. And I think it's just going to be 48 00:02:31,200 --> 00:02:33,880 Speaker 4: tougher to be hiring people going forward. Until just a 49 00:02:33,919 --> 00:02:38,000 Speaker 4: few months ago, real wages were not growing, they were 50 00:02:38,000 --> 00:02:42,120 Speaker 4: actually negative. Real wage growth was negative. Now real wage 51 00:02:42,120 --> 00:02:44,800 Speaker 4: growth is positive, so it gives less of an incentive 52 00:02:44,880 --> 00:02:49,119 Speaker 4: for firms to hire. Real interest rates are now positive. 53 00:02:49,200 --> 00:02:52,080 Speaker 4: They had been negative for a very long time. That 54 00:02:52,200 --> 00:02:55,040 Speaker 4: combination is probably going to lead firms to be less 55 00:02:55,040 --> 00:02:57,440 Speaker 4: eager to hire, less eager to invest, and I think 56 00:02:57,480 --> 00:02:59,880 Speaker 4: that's going to be leading to what I think is 57 00:03:00,040 --> 00:03:02,680 Speaker 4: potentially a hard ish but not hard landing. 58 00:03:02,919 --> 00:03:05,040 Speaker 2: This is an important jobs report. 59 00:03:05,040 --> 00:03:09,160 Speaker 1: This November report of the October data just absolutely extraordinary. 60 00:03:09,240 --> 00:03:12,640 Speaker 1: Randy Krasner, thank you so much, Professor Krasner with the 61 00:03:12,680 --> 00:03:21,520 Speaker 1: Boost School the University of Chicago. If you're not part 62 00:03:21,520 --> 00:03:24,160 Speaker 1: of the global Wall Street gang, you've got to understand 63 00:03:24,639 --> 00:03:27,680 Speaker 1: it's hard to look at the Bloomberg screen and frame 64 00:03:27,720 --> 00:03:30,560 Speaker 1: it out from where we were two weeks ago, which 65 00:03:30,600 --> 00:03:34,320 Speaker 1: gets us to canes and when the facts change, I change. 66 00:03:34,400 --> 00:03:38,160 Speaker 1: Jeffrey Rosenberg studied as Maynard Keynes at Carnegie Mellon. He's 67 00:03:38,160 --> 00:03:42,760 Speaker 1: a black Rock portfolio manager systematic multi strategy fund. 68 00:03:42,720 --> 00:03:46,320 Speaker 2: For all of us. Jeff Rosenberg, are the facts changing? 69 00:03:47,880 --> 00:03:49,080 Speaker 3: Great question, Tom. 70 00:03:49,720 --> 00:03:53,400 Speaker 6: You know, the narrative is changing and the facts are 71 00:03:53,600 --> 00:03:56,200 Speaker 6: driving that. And so Lisa asked the kind of the 72 00:03:56,280 --> 00:03:58,560 Speaker 6: key question, You know, how do you rally in front 73 00:03:58,600 --> 00:04:00,840 Speaker 6: of a slowing labor picture? 74 00:04:01,040 --> 00:04:03,640 Speaker 3: And that's because it's where we are. 75 00:04:04,160 --> 00:04:09,120 Speaker 6: Equity markets were weaker while the economy was strengthening, and 76 00:04:09,160 --> 00:04:11,520 Speaker 6: that was really about the rise in the denominator, in 77 00:04:11,560 --> 00:04:13,560 Speaker 6: the discount rate and the interest rates. So as you 78 00:04:13,640 --> 00:04:16,400 Speaker 6: ease off the pressure in terms of the interest rates, 79 00:04:16,720 --> 00:04:19,840 Speaker 6: there's a little window here where the narrative changes and 80 00:04:20,320 --> 00:04:23,240 Speaker 6: there's relief because the discount raid is expected to be 81 00:04:23,240 --> 00:04:25,279 Speaker 6: a bit lower, and you see it in the bond market. 82 00:04:25,640 --> 00:04:28,520 Speaker 6: But that's about horizon and so the near term horizon 83 00:04:28,600 --> 00:04:32,400 Speaker 6: narrative will shift, but the longer term horizon about that 84 00:04:32,480 --> 00:04:34,600 Speaker 6: hardish landing that Randy just mentioned. 85 00:04:34,920 --> 00:04:37,360 Speaker 3: That'll be for future conversations. 86 00:04:37,440 --> 00:04:40,240 Speaker 6: Right now, the market's pretty excited about lower discount. 87 00:04:39,839 --> 00:04:42,680 Speaker 1: Way, Jeff Rosenberg, people would say, Blackrock is part of 88 00:04:43,000 --> 00:04:46,039 Speaker 1: that wall of money that's out there. Okay, we got 89 00:04:46,040 --> 00:04:48,160 Speaker 1: a short cover here, a short cover there, I got 90 00:04:48,200 --> 00:04:51,440 Speaker 1: futures up eighteen. Rosenberg knows the numbers better than me. 91 00:04:51,960 --> 00:04:56,120 Speaker 1: Are we underestimating Jeff Rosenberg? How many people here are 92 00:04:56,200 --> 00:04:59,000 Speaker 1: off sides and need to get in and play? 93 00:04:59,400 --> 00:04:59,719 Speaker 2: Now? 94 00:05:00,160 --> 00:05:02,560 Speaker 3: Yeah, you know we talked about this after the FMC. 95 00:05:02,920 --> 00:05:06,360 Speaker 6: You know, the near term volatility is all about technicals 96 00:05:06,440 --> 00:05:09,760 Speaker 6: and positioning, and so you're going to have that and 97 00:05:09,760 --> 00:05:11,600 Speaker 6: you're going to see you're going to see those moves. 98 00:05:11,839 --> 00:05:14,840 Speaker 6: The longer term positioning is going to be about trajectory 99 00:05:15,200 --> 00:05:18,919 Speaker 6: and fundamentals. But certainly, you know, after a report that 100 00:05:19,760 --> 00:05:22,719 Speaker 6: you know pretty much convincingly across the board, as you 101 00:05:22,800 --> 00:05:26,320 Speaker 6: highlighted earlier, you know, this is a report that helps 102 00:05:26,360 --> 00:05:29,480 Speaker 6: to support the narrative of slowing in the labor markets, 103 00:05:29,839 --> 00:05:32,719 Speaker 6: slowing in wage inflation, even though that's a mixed shift 104 00:05:32,800 --> 00:05:36,800 Speaker 6: probably in the AH number, but across the board, especially 105 00:05:36,800 --> 00:05:38,719 Speaker 6: with the revisions, you know, it just looks like this 106 00:05:38,839 --> 00:05:42,200 Speaker 6: is coming in slower, and so that helps to feed 107 00:05:42,240 --> 00:05:45,160 Speaker 6: the near term narrative that you get to the soft landing. 108 00:05:45,839 --> 00:05:47,760 Speaker 6: You know, as Randy said, whether it's soft landing or 109 00:05:47,760 --> 00:05:50,600 Speaker 6: hardish landing or hard landing will remain to be seen. 110 00:05:50,760 --> 00:05:52,479 Speaker 5: When do you go with groupthink and when do you 111 00:05:52,520 --> 00:05:53,039 Speaker 5: push back? 112 00:05:53,120 --> 00:05:53,200 Speaker 1: Right? 113 00:05:53,279 --> 00:05:54,480 Speaker 5: I mean, when do you go with the crowd if 114 00:05:54,520 --> 00:05:56,719 Speaker 5: sentiment is shifting and you're seeing people go into risk, 115 00:05:57,080 --> 00:05:59,479 Speaker 5: if you believe that essentially bad news will be bad 116 00:05:59,520 --> 00:06:01,000 Speaker 5: news for risk acts. 117 00:06:01,480 --> 00:06:03,360 Speaker 6: Yeah, you know, it's a lot about kind of what's 118 00:06:03,400 --> 00:06:05,480 Speaker 6: in the looking at what's in the price, and how 119 00:06:05,520 --> 00:06:09,000 Speaker 6: much cushion you have against the consensus move and where 120 00:06:09,040 --> 00:06:14,640 Speaker 6: the asymmetries lie. So I think right now the momentum 121 00:06:14,680 --> 00:06:16,760 Speaker 6: and the sentiment around soft landing is going to be 122 00:06:16,760 --> 00:06:19,960 Speaker 6: pretty hard to push back against. But you know, as 123 00:06:20,000 --> 00:06:23,320 Speaker 6: we see successive waves of data, we got a couple 124 00:06:23,360 --> 00:06:26,120 Speaker 6: more here in terms of before we get to the 125 00:06:26,120 --> 00:06:29,520 Speaker 6: December FOMC, there's going to be a little bit of 126 00:06:29,560 --> 00:06:33,479 Speaker 6: momentum here around the easing off of financial conditions, the 127 00:06:33,520 --> 00:06:37,240 Speaker 6: easing off of tightening from the FED, and I think 128 00:06:37,240 --> 00:06:39,000 Speaker 6: that's going to provide a little bit of a tailwind 129 00:06:39,040 --> 00:06:40,080 Speaker 6: for a short horizon trap. 130 00:06:40,320 --> 00:06:43,400 Speaker 5: And definitely the momentum tends to overshoot, and there is 131 00:06:43,440 --> 00:06:46,240 Speaker 5: this feeling that this does set the market up for 132 00:06:46,360 --> 00:06:49,560 Speaker 5: more fragility heading into a print that could be a 133 00:06:49,600 --> 00:06:52,240 Speaker 5: big surprise on the downside. Jeff, how much is that 134 00:06:52,279 --> 00:06:54,440 Speaker 5: sort of the play right now is to lean into 135 00:06:54,440 --> 00:06:56,560 Speaker 5: the momentum, go at the flow, soft landing. Sure you 136 00:06:56,560 --> 00:06:59,120 Speaker 5: can celebrate, but the music will stop eventually, and each 137 00:06:59,200 --> 00:07:00,960 Speaker 5: one of these economics prints are going to have that 138 00:07:01,040 --> 00:07:03,279 Speaker 5: much more heft and importance in markets. 139 00:07:03,920 --> 00:07:06,680 Speaker 6: Yeah, and you know, the main issue here is really 140 00:07:06,720 --> 00:07:08,880 Speaker 6: about long and variable lags. And Tom, I know you 141 00:07:08,880 --> 00:07:12,480 Speaker 6: hate when every time I say that, but it is 142 00:07:12,600 --> 00:07:15,680 Speaker 6: where do you see that pressure coming in? Randy talked 143 00:07:15,680 --> 00:07:18,080 Speaker 6: about the pressure in terms of easing off of hiring 144 00:07:18,120 --> 00:07:21,400 Speaker 6: because real wages are no longer negative, it's more expensive. 145 00:07:21,880 --> 00:07:24,240 Speaker 3: You talked about funding costs, and maybe there's. 146 00:07:24,240 --> 00:07:26,120 Speaker 6: A little bit of an opening up in terms of 147 00:07:26,120 --> 00:07:30,000 Speaker 6: the bond market, but I think you got to remember here, 148 00:07:30,640 --> 00:07:34,560 Speaker 6: these are much more expensive funding costs. And so if 149 00:07:34,600 --> 00:07:36,920 Speaker 6: you don't have to issue that debt because you've termed 150 00:07:36,920 --> 00:07:40,360 Speaker 6: it out, you don't want to issue that debt. And 151 00:07:40,400 --> 00:07:42,440 Speaker 6: so even though the market may be open, it's at 152 00:07:42,480 --> 00:07:45,600 Speaker 6: a much higher cost. And that lagged effect of tightening 153 00:07:45,600 --> 00:07:48,160 Speaker 6: in terms of interest expenses something you know, the market 154 00:07:48,200 --> 00:07:49,800 Speaker 6: is still going to have to figure out where are 155 00:07:49,800 --> 00:07:53,800 Speaker 6: the vulnerabilities, and there are vulnerabilities to that impact on. 156 00:07:53,840 --> 00:07:55,200 Speaker 2: Bloomberg Television and radio. 157 00:07:55,280 --> 00:07:58,320 Speaker 1: Jeffrey Rosenberg with us is Blackrack really timely, and of 158 00:07:58,320 --> 00:08:00,240 Speaker 1: course we thank him forst fed work as well well. 159 00:08:00,320 --> 00:08:02,440 Speaker 1: He's going to stay with us at right now, I 160 00:08:02,480 --> 00:08:04,840 Speaker 1: can't do it to complete data check because Jeff Rosenberg 161 00:08:04,880 --> 00:08:05,480 Speaker 1: is too important. 162 00:08:05,480 --> 00:08:07,760 Speaker 2: But Lisa, there's some real nuances here. 163 00:08:07,800 --> 00:08:10,640 Speaker 1: Futures up nineteen continue to advance down, futures up one 164 00:08:10,720 --> 00:08:13,320 Speaker 1: thirty nine. Can I get to a VIXA fourteen, I'm 165 00:08:13,320 --> 00:08:15,239 Speaker 1: not there yet fifteen point two six. 166 00:08:15,680 --> 00:08:16,920 Speaker 2: As Bramba mentioned. 167 00:08:16,640 --> 00:08:21,080 Speaker 1: Folks a two year yield in thirteen basis points, we 168 00:08:21,200 --> 00:08:25,160 Speaker 1: continue to see lower yields and a higher prices ten 169 00:08:25,240 --> 00:08:27,880 Speaker 1: year in his stunning eleven basis points. 170 00:08:27,960 --> 00:08:29,520 Speaker 2: And just you know, outside the. 171 00:08:29,440 --> 00:08:33,640 Speaker 1: Box here, I got weaker dollar, I got euros through. 172 00:08:33,440 --> 00:08:37,680 Speaker 2: One oh seven. I've got yen dynamics, but euro yen. 173 00:08:37,800 --> 00:08:41,520 Speaker 2: What does the Japanese institutions do this weekend? Off what 174 00:08:41,600 --> 00:08:44,920 Speaker 2: Jeff Rosenberg says? Because I got euro yin one sixty 175 00:08:45,000 --> 00:08:45,880 Speaker 2: point zero one. 176 00:08:46,200 --> 00:08:49,400 Speaker 1: If they're not going to act now, Lisa, when are 177 00:08:49,400 --> 00:08:50,040 Speaker 1: they going to act. 178 00:08:50,120 --> 00:08:52,640 Speaker 5: That does raise a good question and Jeff to that point, 179 00:08:52,840 --> 00:08:55,360 Speaker 5: does the move that we're seeing in the US a 180 00:08:55,440 --> 00:08:59,720 Speaker 5: sigh of relief open up possible monetary disruption elsewhere hint 181 00:08:59,760 --> 00:09:02,559 Speaker 5: hind Bank of Japan that could be disruptive on the 182 00:09:02,600 --> 00:09:03,400 Speaker 5: other side. 183 00:09:03,720 --> 00:09:06,800 Speaker 6: Yeah, I mean that's a big global story and one 184 00:09:06,840 --> 00:09:09,120 Speaker 6: we've been talking about for a while waiting for. We 185 00:09:09,200 --> 00:09:12,760 Speaker 6: got a little bit of it in terms of changing 186 00:09:12,880 --> 00:09:16,040 Speaker 6: the definition of yield curve control. 187 00:09:15,600 --> 00:09:17,640 Speaker 3: And there's an expectation that there's going to be more. 188 00:09:17,679 --> 00:09:20,720 Speaker 6: And there's an incredible amount of fiscal stimulus coming out 189 00:09:20,720 --> 00:09:25,079 Speaker 6: of Japan that is really going to push the BOJ 190 00:09:25,400 --> 00:09:26,120 Speaker 6: even further. 191 00:09:26,320 --> 00:09:28,560 Speaker 3: And so that's been a global impact. 192 00:09:28,600 --> 00:09:32,920 Speaker 6: It's dampening term premium It's part of the term premium 193 00:09:32,920 --> 00:09:36,040 Speaker 6: steepening story. You know, the refunding you know, certainly is 194 00:09:36,040 --> 00:09:38,760 Speaker 6: pushed back on that and positioning you know, a bit 195 00:09:38,800 --> 00:09:43,360 Speaker 6: off sides for that surprise somewhat surprise refunding. But really 196 00:09:43,400 --> 00:09:45,160 Speaker 6: the big story there is going to be global term 197 00:09:45,200 --> 00:09:47,880 Speaker 6: premium steepening and that's I think long term going to 198 00:09:47,960 --> 00:09:50,200 Speaker 6: come back to the US. But near term this is 199 00:09:50,240 --> 00:09:53,160 Speaker 6: going to be about softish landing and slowing of the Fed, 200 00:09:53,320 --> 00:09:54,920 Speaker 6: and the market is going to run with that. 201 00:09:55,000 --> 00:09:57,120 Speaker 5: We're looking right now at two year yields just tanking. 202 00:09:57,160 --> 00:09:59,560 Speaker 5: I mean, honestly, this is quite a move fifteen bas 203 00:09:59,679 --> 00:10:02,960 Speaker 5: points nearly from top to bottom in this trading session 204 00:10:03,000 --> 00:10:05,640 Speaker 5: as people parse through this, Jeff just want to finish 205 00:10:05,760 --> 00:10:08,520 Speaker 5: up with the Fed's reaction function, this concept of what 206 00:10:08,679 --> 00:10:11,680 Speaker 5: it takes for the Federal Reserve to cut rates. Right now, 207 00:10:11,760 --> 00:10:14,640 Speaker 5: there is base into the markets in real time, a 208 00:10:14,720 --> 00:10:18,120 Speaker 5: sense that they will be cutting rates in much sooner 209 00:10:18,160 --> 00:10:20,920 Speaker 5: than they're saying. Do you think that's accurate that the 210 00:10:21,120 --> 00:10:24,680 Speaker 5: bar to cut rates has somehow come in as a 211 00:10:24,720 --> 00:10:27,680 Speaker 5: result of just the general feeling and the public and 212 00:10:27,720 --> 00:10:30,480 Speaker 5: the lack of willingness to tolerate much higher on employment rates. 213 00:10:30,880 --> 00:10:32,320 Speaker 3: Well, it's tricky, Lisa. 214 00:10:32,360 --> 00:10:35,040 Speaker 6: I mean, I think the reaction you're getting right now 215 00:10:35,120 --> 00:10:39,160 Speaker 6: pricing out the kind of probabilities, the limited probabilities of 216 00:10:39,679 --> 00:10:40,600 Speaker 6: the last hike. 217 00:10:40,880 --> 00:10:41,080 Speaker 3: Right. 218 00:10:41,160 --> 00:10:44,480 Speaker 6: So, you know, you go back to Wednesday, and you 219 00:10:44,520 --> 00:10:46,720 Speaker 6: know you remember the question, and you know you talked 220 00:10:46,760 --> 00:10:49,960 Speaker 6: about we're not even you know, talking about cutting rate now. 221 00:10:50,000 --> 00:10:53,760 Speaker 6: Obviously the market is because the market is looking forward here. 222 00:10:54,400 --> 00:10:57,000 Speaker 6: I think you got to see a lot more development 223 00:10:57,080 --> 00:10:59,679 Speaker 6: on the inflation side before you get there. And then 224 00:10:59,720 --> 00:11:01,480 Speaker 6: the other the problem we're going to talk about, I 225 00:11:01,520 --> 00:11:03,960 Speaker 6: think is the reflexivity. I think you mentioned it is 226 00:11:03,960 --> 00:11:07,360 Speaker 6: that you know, well, we the FED could do less 227 00:11:07,440 --> 00:11:10,520 Speaker 6: because the market's doing more. But the more the market 228 00:11:10,600 --> 00:11:13,520 Speaker 6: does more in terms of using financial conditions. 229 00:11:13,240 --> 00:11:14,679 Speaker 3: The more then the Fed has to do. 230 00:11:14,760 --> 00:11:17,600 Speaker 6: So you kind of get yourself chasing your own tail 231 00:11:18,600 --> 00:11:21,120 Speaker 6: around that story in terms of whether they can cut. 232 00:11:21,160 --> 00:11:24,520 Speaker 6: So it will come back to does the inflation really 233 00:11:24,559 --> 00:11:27,840 Speaker 6: fall fast enough to that two percent level that gets 234 00:11:27,880 --> 00:11:30,720 Speaker 6: real interest rates high enough that gets them concerned that 235 00:11:30,760 --> 00:11:33,560 Speaker 6: they're too tight where they really need to deliver those cuts, 236 00:11:33,600 --> 00:11:36,520 Speaker 6: and that I think is still way out into the future. 237 00:11:36,640 --> 00:11:38,600 Speaker 1: And Lisa, where do you get to show where jeff 238 00:11:38,679 --> 00:11:42,439 Speaker 1: Rosenberg channels George Soros on reflexivity. I mean, there's nowhere 239 00:11:42,480 --> 00:11:44,559 Speaker 1: else in the world you can have this much fun. 240 00:11:44,640 --> 00:11:47,559 Speaker 1: Jeffrey Rosenberg, thank you so much for joining us. 241 00:11:57,800 --> 00:11:59,200 Speaker 2: That's the way it works, folks. 242 00:11:59,320 --> 00:12:04,680 Speaker 1: The street only focuses on revenue dynamics, and if they're brave, 243 00:12:04,840 --> 00:12:07,480 Speaker 1: they go down the income statement and they'll find that 244 00:12:08,000 --> 00:12:08,760 Speaker 1: and then it's what I. 245 00:12:08,720 --> 00:12:10,760 Speaker 2: Call concept concept concept. 246 00:12:10,400 --> 00:12:14,400 Speaker 1: China, worry, worry, worry, yep iPhone worry where iPads omg 247 00:12:15,360 --> 00:12:18,760 Speaker 1: and thank god. Gen Monster, with all of his work 248 00:12:19,080 --> 00:12:23,640 Speaker 1: on Apple and technology, says, you know, maybe they're rock solid. 249 00:12:24,360 --> 00:12:27,520 Speaker 1: Maybe they're running this thing for profit. 250 00:12:28,320 --> 00:12:28,600 Speaker 2: Gene. 251 00:12:28,679 --> 00:12:34,520 Speaker 1: I saw a record third quarter gross margin. I saw 252 00:12:34,559 --> 00:12:40,400 Speaker 1: the persistency of services maintained, and critically, I saw cash 253 00:12:40,559 --> 00:12:45,320 Speaker 1: generation in the gloom of Apple this morning. The second guessing, 254 00:12:45,800 --> 00:12:48,439 Speaker 1: is there free cash flow growth going to EBB. 255 00:12:50,720 --> 00:12:54,240 Speaker 7: No, Tom, I think it's just going to flow and 256 00:12:54,400 --> 00:12:58,360 Speaker 7: flow higher. And ultimately they showed, as you said, some 257 00:12:58,400 --> 00:13:01,480 Speaker 7: of the most impressive margins, most impressive gross margins that 258 00:13:01,559 --> 00:13:06,000 Speaker 7: they've ever printed a mikeed environment where component costs are rising, 259 00:13:06,520 --> 00:13:09,720 Speaker 7: of labor costs, shipping costs, all of that, and they've 260 00:13:09,760 --> 00:13:14,360 Speaker 7: been maintaining price that shows operation efficiency. That's what drives 261 00:13:14,400 --> 00:13:18,480 Speaker 7: free cash flow. And you said it right. One big 262 00:13:18,720 --> 00:13:22,400 Speaker 7: X factor around free cash flow that we've observed with 263 00:13:22,480 --> 00:13:25,680 Speaker 7: big tech over the last nine months is they all 264 00:13:25,720 --> 00:13:28,400 Speaker 7: say we're going to be investing more into AI. Tim 265 00:13:28,440 --> 00:13:30,840 Speaker 7: Cook talks about that but says he wants to do 266 00:13:30,880 --> 00:13:35,120 Speaker 7: it responsibly, which means he wants to protect margins and 267 00:13:35,160 --> 00:13:37,040 Speaker 7: do that that is a unique perspective. 268 00:13:37,559 --> 00:13:40,120 Speaker 1: John from his house, looking down on the Helix and 269 00:13:40,160 --> 00:13:43,000 Speaker 1: New Jersey emails in and says, is it a time 270 00:13:43,040 --> 00:13:46,400 Speaker 1: to buy Apple? If there's all this worry about legitimate 271 00:13:46,400 --> 00:13:49,839 Speaker 1: things like China, is gene monster saying load the boat. 272 00:13:51,720 --> 00:13:55,160 Speaker 7: So this is not investment advice, but I do think 273 00:13:55,200 --> 00:13:58,640 Speaker 7: that this is a time to own Apple. And ultimately 274 00:13:58,960 --> 00:14:01,439 Speaker 7: is you have to play this picture forward for one, 275 00:14:01,559 --> 00:14:04,240 Speaker 7: two and five years. And what we've seen in the 276 00:14:04,280 --> 00:14:07,800 Speaker 7: near term is that the importance of their devices in 277 00:14:07,840 --> 00:14:11,920 Speaker 7: our lives are central and that shows up and effectively. 278 00:14:11,960 --> 00:14:15,360 Speaker 7: The guidance I think it's misunderstood is for seven percent growth, 279 00:14:15,440 --> 00:14:18,720 Speaker 7: up from one percent last quarter. So that's the baseline. 280 00:14:19,040 --> 00:14:21,440 Speaker 7: The second is just the opportunity that they have to 281 00:14:21,560 --> 00:14:25,920 Speaker 7: continue to sell that engage base more products. And third 282 00:14:26,160 --> 00:14:29,040 Speaker 7: is that they have opportunities to go into new markets, 283 00:14:29,080 --> 00:14:32,840 Speaker 7: whether it be spatial computing or what potentially could come 284 00:14:32,880 --> 00:14:35,440 Speaker 7: out of automotive. And so I think when you put 285 00:14:35,480 --> 00:14:38,360 Speaker 7: all this together, this is a unique dynamic and I 286 00:14:38,400 --> 00:14:41,120 Speaker 7: think that this will power shares higher in the years 287 00:14:41,120 --> 00:14:41,320 Speaker 7: to come. 288 00:14:41,600 --> 00:14:42,280 Speaker 2: Paul, you know this. 289 00:14:42,360 --> 00:14:44,000 Speaker 1: I mean you've lived this where you're like, is it 290 00:14:44,040 --> 00:14:46,000 Speaker 1: a twelve week quarter, thirteen. 291 00:14:45,640 --> 00:14:47,320 Speaker 2: Week quarter of fourteen week quarter. 292 00:14:47,360 --> 00:14:49,360 Speaker 3: I mean it's like death exactly. 293 00:14:49,400 --> 00:14:51,600 Speaker 8: Hey, Gene, you know, going into the quarter, the pundits 294 00:14:51,600 --> 00:14:53,680 Speaker 8: were saying, you know, the primary focus is going to 295 00:14:53,720 --> 00:14:58,920 Speaker 8: be China. So let's approach that from the perspective of competition. 296 00:14:59,080 --> 00:15:03,560 Speaker 8: Talk to us about the Huawei phone. How much of 297 00:15:03,600 --> 00:15:06,000 Speaker 8: a competitor is that. How much is a concern about 298 00:15:06,080 --> 00:15:10,320 Speaker 8: nationalism weighing on potentially future demand for Apple products. 299 00:15:12,280 --> 00:15:14,720 Speaker 7: So the first is the Huawei phone that's picked up 300 00:15:14,760 --> 00:15:17,080 Speaker 7: a lot of traction during the quarter, a lot of 301 00:15:17,160 --> 00:15:19,520 Speaker 7: speculation this was going to weigh on the China numbers, 302 00:15:19,560 --> 00:15:23,080 Speaker 7: and China was down two percent year over year, at 303 00:15:23,200 --> 00:15:26,360 Speaker 7: a similar rate that it was down back in March 304 00:15:26,760 --> 00:15:29,880 Speaker 7: when before the new Wuahwei phones came out. It was 305 00:15:29,920 --> 00:15:33,560 Speaker 7: down seven percent December of twenty twenty two, and so 306 00:15:33,960 --> 00:15:37,000 Speaker 7: it fluctuates as the bottom line, China's up and down, 307 00:15:37,040 --> 00:15:39,000 Speaker 7: and I don't think that the Huawei phone is having 308 00:15:39,000 --> 00:15:43,240 Speaker 7: an impact. Apple gained share in China in the September quarter, 309 00:15:43,640 --> 00:15:46,480 Speaker 7: and Huawei may have gained share too, But Apple is 310 00:15:46,520 --> 00:15:49,040 Speaker 7: gaining share, and so I think that it is not 311 00:15:49,160 --> 00:15:51,920 Speaker 7: having an impact on their business. And if you look 312 00:15:51,920 --> 00:15:54,520 Speaker 7: at their China business, and I look at this on 313 00:15:54,680 --> 00:15:57,360 Speaker 7: excluding the FX on a constant currency basis, it was 314 00:15:57,440 --> 00:16:00,040 Speaker 7: up four percent. I'm reluctant to do that because I 315 00:16:00,120 --> 00:16:03,480 Speaker 7: want to give but it's worth noting that China's doing 316 00:16:03,520 --> 00:16:04,280 Speaker 7: okay for Apple. 317 00:16:04,480 --> 00:16:09,160 Speaker 1: Yeah, Paul, Code of the day, Aniograna genius. Apple has 318 00:16:09,480 --> 00:16:15,640 Speaker 1: eighteen percent one eight eighteen percent of the unit installed base. 319 00:16:16,160 --> 00:16:18,360 Speaker 2: And yet you just heard g monsters say they're gaining 320 00:16:18,440 --> 00:16:19,520 Speaker 2: share in the training share. 321 00:16:19,680 --> 00:16:21,000 Speaker 8: All right, let's go to the other side of the 322 00:16:21,040 --> 00:16:23,480 Speaker 8: income statement. There a gene on the cost side here. 323 00:16:24,000 --> 00:16:27,280 Speaker 8: I guess you know, when I look at the operations 324 00:16:27,280 --> 00:16:29,320 Speaker 8: of Apple, I just don't see any scenarre where the 325 00:16:29,600 --> 00:16:33,920 Speaker 8: d couple from China. Now, they can, I guess, reduce 326 00:16:34,240 --> 00:16:38,600 Speaker 8: to some extent their dependency on sourcing and manufacturing in China, 327 00:16:38,600 --> 00:16:41,760 Speaker 8: but they really can't decouple. So did how do investors, 328 00:16:41,800 --> 00:16:44,160 Speaker 8: long term investors like you get comfortable with that side 329 00:16:44,160 --> 00:16:44,640 Speaker 8: of the equation. 330 00:16:47,000 --> 00:16:48,560 Speaker 7: I don't think you do. And I think that I 331 00:16:48,640 --> 00:16:50,520 Speaker 7: mentioned everything is good in China. I was talking about 332 00:16:50,520 --> 00:16:53,360 Speaker 7: on the consumer side. I think on the production manufacturing side, 333 00:16:53,400 --> 00:16:56,160 Speaker 7: it's a different story. And the story is that Apple 334 00:16:56,240 --> 00:16:58,680 Speaker 7: needs to get out of China or at least reduce 335 00:16:58,760 --> 00:17:01,720 Speaker 7: its exposure. Right now, we estimate that about forty to 336 00:17:01,760 --> 00:17:05,359 Speaker 7: forty five percent of their revenue is manufactured in China. 337 00:17:05,400 --> 00:17:07,560 Speaker 7: Now it's down from sixty percent a few years ago, 338 00:17:07,600 --> 00:17:10,359 Speaker 7: so they've been reducing their exposure there. But the bottom 339 00:17:10,440 --> 00:17:13,119 Speaker 7: line is that I don't think investors until that number 340 00:17:13,119 --> 00:17:15,639 Speaker 7: gets down to twenty percent, I don't think investors are 341 00:17:15,680 --> 00:17:18,480 Speaker 7: going to rest easy because this is as a geopolitical 342 00:17:18,520 --> 00:17:21,399 Speaker 7: element to it and is a wild card when it 343 00:17:21,440 --> 00:17:24,119 Speaker 7: comes to some of the confidence that investor have in 344 00:17:24,160 --> 00:17:27,640 Speaker 7: the company's ability to produce products to meet this sensational demand. 345 00:17:27,560 --> 00:17:30,000 Speaker 8: And gene does a company have a strategy or are 346 00:17:30,000 --> 00:17:32,960 Speaker 8: they articulating any confidence that they can in fact get 347 00:17:33,000 --> 00:17:35,600 Speaker 8: down to that twenty or twenty five percent exposure. 348 00:17:36,160 --> 00:17:40,680 Speaker 7: They do, it's predominantly India. India's right now about two 349 00:17:40,720 --> 00:17:44,240 Speaker 7: percent of their production, and they've talked about ramping production 350 00:17:44,320 --> 00:17:46,600 Speaker 7: there and so it'll go tell a lot of other areas, 351 00:17:46,640 --> 00:17:48,639 Speaker 7: even like you probably will see something in Mexico in 352 00:17:48,680 --> 00:17:49,640 Speaker 7: the next five years too. 353 00:17:50,240 --> 00:17:55,360 Speaker 1: Jane, quickly here services up sixteen percent. It's a persistent vector. 354 00:17:56,040 --> 00:17:59,000 Speaker 1: Do you have a terminal rate on services or does 355 00:17:59,000 --> 00:18:02,359 Speaker 1: it just grow out, you know, until Frozen eight comes 356 00:18:02,359 --> 00:18:03,120 Speaker 1: out for Disney. 357 00:18:03,200 --> 00:18:04,919 Speaker 2: I mean, you know, does it just go out forever. 358 00:18:06,680 --> 00:18:09,880 Speaker 7: It's gonna keep going out forever because they have pricing leverage. 359 00:18:09,880 --> 00:18:12,240 Speaker 7: It's not just in what they've raised the pricing with 360 00:18:12,280 --> 00:18:15,119 Speaker 7: Apple TV Plus, but they raise pricing with the storage. 361 00:18:15,160 --> 00:18:17,640 Speaker 7: You get those notifications. They raise it at buck a month. 362 00:18:17,680 --> 00:18:19,480 Speaker 7: You don't think much about it, but that's a fifteen 363 00:18:19,520 --> 00:18:22,280 Speaker 7: percent increase. And so I think that this business is 364 00:18:22,359 --> 00:18:25,679 Speaker 7: generally a ten percent growing business for the foreseeable future, 365 00:18:25,680 --> 00:18:28,120 Speaker 7: which can put three to five years ten seconds. 366 00:18:28,240 --> 00:18:31,720 Speaker 1: Gene Monster, what's your terminal some of the parts on 367 00:18:31,840 --> 00:18:32,800 Speaker 1: Apple right now? 368 00:18:32,880 --> 00:18:34,920 Speaker 2: Some of the parts some of. 369 00:18:34,840 --> 00:18:39,639 Speaker 7: The parts is two forty And I think that's based 370 00:18:39,680 --> 00:18:43,960 Speaker 7: on as we think about just ultimately what they can 371 00:18:44,000 --> 00:18:45,159 Speaker 7: earn in twenty twenty. 372 00:18:44,920 --> 00:18:46,120 Speaker 2: Five, Gene Munster. 373 00:18:46,280 --> 00:18:48,040 Speaker 7: Not investment advice, but that's where we're at. 374 00:18:48,119 --> 00:18:50,920 Speaker 2: It's not investment advice. But Tucker's got his by order 375 00:18:50,960 --> 00:18:58,280 Speaker 2: out right now. G Muster, thank you so much. Luke Vencha. Well, 376 00:18:58,320 --> 00:19:00,840 Speaker 2: let's say the show now. You can always do that 377 00:19:01,240 --> 00:19:02,719 Speaker 2: with anarog Rana. 378 00:19:02,920 --> 00:19:06,359 Speaker 1: He is truly expert on the cloud and has a 379 00:19:06,400 --> 00:19:10,000 Speaker 1: partial interest in an Apple computer as well, Anna Regan, 380 00:19:10,040 --> 00:19:12,560 Speaker 1: why you to explain to the audience how a tech 381 00:19:12,680 --> 00:19:17,960 Speaker 1: company runs their company for profit versus running. 382 00:19:17,680 --> 00:19:19,800 Speaker 2: It just at the top line. 383 00:19:20,080 --> 00:19:24,960 Speaker 1: To me, Apple is a profit cast generating juggernaut. 384 00:19:25,480 --> 00:19:27,720 Speaker 2: Why is that so odd, so strange? 385 00:19:29,040 --> 00:19:31,960 Speaker 9: Yeah, I think that goes back to the foundation of 386 00:19:32,000 --> 00:19:35,800 Speaker 9: the company. It really believes in having high margin products. 387 00:19:35,800 --> 00:19:38,159 Speaker 9: It does not believe in gaining market share. You know, 388 00:19:38,200 --> 00:19:41,240 Speaker 9: even after all these years, it has only eighteen percent 389 00:19:41,359 --> 00:19:44,240 Speaker 9: of the unit market share of smartphones around the world. 390 00:19:44,480 --> 00:19:47,080 Speaker 9: It can completely change that overnight if they drop the 391 00:19:47,119 --> 00:19:49,159 Speaker 9: price of the phone, but they will never do that 392 00:19:49,280 --> 00:19:52,200 Speaker 9: because they believe in gross margins more than anything else. 393 00:19:52,760 --> 00:19:55,800 Speaker 9: Over time, they will gain enough market share in every market. 394 00:19:56,119 --> 00:19:58,600 Speaker 9: But this is not something that they do is try 395 00:19:58,640 --> 00:19:59,680 Speaker 9: to gain market share just. 396 00:19:59,600 --> 00:20:01,440 Speaker 10: For the same It's the journey on a rag. As 397 00:20:01,440 --> 00:20:03,560 Speaker 10: you know. Before we start talking about lower prices, can 398 00:20:03,560 --> 00:20:05,920 Speaker 10: we talk about the absence of higher prices? Have they 399 00:20:05,920 --> 00:20:07,000 Speaker 10: lost pricing power? 400 00:20:08,080 --> 00:20:10,399 Speaker 9: No? No, I don't think so. The problem over here 401 00:20:10,440 --> 00:20:12,560 Speaker 9: is people are keeping their phones for a longer period 402 00:20:12,600 --> 00:20:14,679 Speaker 9: of time. If you are keeping it, let's say for 403 00:20:14,720 --> 00:20:17,520 Speaker 9: an average three point six years before, you're probably keeping 404 00:20:17,520 --> 00:20:19,840 Speaker 9: closer to four years. So what that does is it 405 00:20:19,920 --> 00:20:23,120 Speaker 9: just elongates the time it takes for you to refresh 406 00:20:23,119 --> 00:20:25,520 Speaker 9: your phones or for that bat at any other product. 407 00:20:25,760 --> 00:20:27,760 Speaker 9: So I don't think it has nothing to do with 408 00:20:27,800 --> 00:20:32,040 Speaker 9: the pricing power. The Promax is unbelievably expensive compared to 409 00:20:32,080 --> 00:20:34,680 Speaker 9: the older models, and it's doing very well. 410 00:20:34,760 --> 00:20:38,600 Speaker 10: Clearly the revenue mixed growth shift is moving towards services 411 00:20:38,800 --> 00:20:41,000 Speaker 10: and IRAQ. How does that change your approach to value 412 00:20:41,000 --> 00:20:41,640 Speaker 10: in this company? 413 00:20:42,800 --> 00:20:45,480 Speaker 9: Yeah, I mean it has been a true surprise to 414 00:20:45,520 --> 00:20:49,160 Speaker 9: see that number grow still in double digits. I expected 415 00:20:49,160 --> 00:20:51,960 Speaker 9: that to be back into the high single digits by now. 416 00:20:52,480 --> 00:20:54,560 Speaker 9: It has a high gross margin. It has a seventy 417 00:20:54,600 --> 00:20:57,760 Speaker 9: percent plus gross margin compared to products, which is in 418 00:20:57,800 --> 00:21:00,760 Speaker 9: the thirties. So over time, when you see the revenue 419 00:21:00,960 --> 00:21:04,159 Speaker 9: mix shift towards services, you can expect the overall company 420 00:21:04,160 --> 00:21:06,880 Speaker 9: gross margins to trend up inch, you know, inch by 421 00:21:06,920 --> 00:21:09,359 Speaker 9: inch growing up, and we have seen that already in 422 00:21:09,400 --> 00:21:10,439 Speaker 9: the last few years. 423 00:21:10,600 --> 00:21:13,280 Speaker 5: Anor do you think that analysts are overplaying or underplaying 424 00:21:13,320 --> 00:21:14,720 Speaker 5: the declines that we saw in China? 425 00:21:16,440 --> 00:21:18,520 Speaker 9: I think you have to sit down and think what 426 00:21:18,600 --> 00:21:20,439 Speaker 9: kind of company this is and I think this is 427 00:21:20,760 --> 00:21:23,840 Speaker 9: really evident, and you know, I've discussed this with Tom 428 00:21:23,880 --> 00:21:26,240 Speaker 9: and Paul many times, that this is not a company 429 00:21:26,240 --> 00:21:28,560 Speaker 9: that's going to grow sales in double digits. This is 430 00:21:28,600 --> 00:21:31,000 Speaker 9: at best, at this point, you know, mid to high 431 00:21:31,080 --> 00:21:33,640 Speaker 9: single digit company. And I think people are getting used 432 00:21:33,640 --> 00:21:37,240 Speaker 9: to that fact. Yesterday when they guide it for December quarter, 433 00:21:37,320 --> 00:21:40,359 Speaker 9: which the estimate was it's going to grow about five percent, 434 00:21:40,400 --> 00:21:43,320 Speaker 9: they said about flatish sales, and that's when the stock drop. 435 00:21:43,560 --> 00:21:45,320 Speaker 9: I think people need to come to that point that 436 00:21:45,560 --> 00:21:48,320 Speaker 9: you know, refresch cycles are going up and it's going 437 00:21:48,359 --> 00:21:51,560 Speaker 9: to be a time before things are going to grow 438 00:21:51,600 --> 00:21:53,000 Speaker 9: at that same pace, which. 439 00:21:52,760 --> 00:21:55,040 Speaker 5: Then leads to a question of how much growth, how 440 00:21:55,119 --> 00:21:57,560 Speaker 5: much future growth is baked into the valuation of the 441 00:21:57,600 --> 00:22:00,359 Speaker 5: company that's seen a thirty seven percent rally. 442 00:22:00,359 --> 00:22:03,600 Speaker 9: You're todate, Yeah, I think valuation is something that we 443 00:22:03,640 --> 00:22:06,240 Speaker 9: talk about a lot with investors, and you know, sometimes 444 00:22:06,280 --> 00:22:08,840 Speaker 9: you have to really ask yourself is this a technology 445 00:22:08,840 --> 00:22:11,720 Speaker 9: company or this is a consumer stables company, Because if 446 00:22:11,720 --> 00:22:14,320 Speaker 9: you take the heart of a consumer stables company, you know, 447 00:22:14,400 --> 00:22:16,919 Speaker 9: something like a Coca Cola or a Costco, then you 448 00:22:16,960 --> 00:22:19,360 Speaker 9: see things with a very different lens because those companies 449 00:22:19,400 --> 00:22:21,600 Speaker 9: also are not growing, you know, eight to ten percent 450 00:22:21,680 --> 00:22:22,280 Speaker 9: top line. 451 00:22:23,320 --> 00:22:26,040 Speaker 1: Ana, I want to look at something beneath the radar. 452 00:22:26,119 --> 00:22:29,159 Speaker 1: This week, it's a Friday, and in the world of 453 00:22:29,240 --> 00:22:31,480 Speaker 1: Microsoft is a different Friday. 454 00:22:32,119 --> 00:22:33,879 Speaker 2: It's a copilot Friday. 455 00:22:34,400 --> 00:22:38,719 Speaker 1: What is the importance of this announcement that Microsoft's making 456 00:22:39,280 --> 00:22:43,600 Speaker 1: where we actually do AI with a modeled marketed program 457 00:22:44,000 --> 00:22:46,440 Speaker 1: for global corporations. 458 00:22:46,680 --> 00:22:49,080 Speaker 2: What does co pilot mean to Microsoft? 459 00:22:50,160 --> 00:22:53,560 Speaker 9: So, copilots is basically an AI tool that goes with 460 00:22:53,680 --> 00:22:56,840 Speaker 9: your original software package. In the case of Microsoft, it's 461 00:22:56,920 --> 00:23:00,560 Speaker 9: launched that with their Office Suite, which started setting yesterday. 462 00:23:00,760 --> 00:23:03,760 Speaker 9: It's about thirty dollars per user per month, and they're 463 00:23:03,800 --> 00:23:06,400 Speaker 9: hoping that, you know, the serious worker in the office 464 00:23:07,119 --> 00:23:10,160 Speaker 9: that's probably somewhere in one hundred and fifteen million to 465 00:23:10,200 --> 00:23:13,520 Speaker 9: two hundred million people around the world that currently use 466 00:23:13,560 --> 00:23:16,400 Speaker 9: the Office Suite will opt some portion of that will 467 00:23:16,400 --> 00:23:20,080 Speaker 9: opt for this particular feature to help gain productivity. Copilot 468 00:23:20,119 --> 00:23:22,800 Speaker 9: can also be used in writing software. So it is 469 00:23:22,920 --> 00:23:24,600 Speaker 9: just a tool that everybody has. 470 00:23:25,080 --> 00:23:25,520 Speaker 3: They are the. 471 00:23:25,440 --> 00:23:28,600 Speaker 9: First ones to come out with it at such aggressive face. 472 00:23:29,000 --> 00:23:31,120 Speaker 1: What's your prediction on this? I mean, come on, you've 473 00:23:31,200 --> 00:23:33,840 Speaker 1: nailed the cloud. You got a cloud view out three 474 00:23:33,920 --> 00:23:37,280 Speaker 1: years or five years, which is just absolutely remarkable. What 475 00:23:37,400 --> 00:23:41,400 Speaker 1: is your prediction on how copilot will will do? 476 00:23:42,560 --> 00:23:44,800 Speaker 9: I think, and I argue it's going to be very 477 00:23:44,840 --> 00:23:47,600 Speaker 9: slow and steady because the thirty dollars per user, you know, 478 00:23:47,640 --> 00:23:50,359 Speaker 9: per month is a very steep price. We think, you know, 479 00:23:50,400 --> 00:23:52,640 Speaker 9: adoption rate is not going to be more than three 480 00:23:52,640 --> 00:23:55,000 Speaker 9: to five percent in the first year of coming out, 481 00:23:55,280 --> 00:23:57,480 Speaker 9: so you know, perhaps at two to three billion dollar 482 00:23:57,600 --> 00:24:01,280 Speaker 9: upside on that. On the on the software coding side 483 00:24:01,320 --> 00:24:03,439 Speaker 9: of it, which is getthub co Pilot, we think the 484 00:24:03,520 --> 00:24:05,480 Speaker 9: adoption rate is going to be very high, you know, 485 00:24:05,520 --> 00:24:07,840 Speaker 9: close to seventy five percent, because I don't see any 486 00:24:07,880 --> 00:24:10,840 Speaker 9: developer out there that can afford to right code without 487 00:24:10,840 --> 00:24:12,120 Speaker 9: this tool right next to them. 488 00:24:12,320 --> 00:24:13,320 Speaker 10: And Rex, thank you, sir. 489 00:24:24,200 --> 00:24:27,400 Speaker 1: In Washington, Terry Haynes joins US now founder of pengea 490 00:24:27,480 --> 00:24:31,239 Speaker 1: policy Terry with great cheer for the exhaustion of our 491 00:24:31,280 --> 00:24:36,240 Speaker 1: secretary straight. Does Shuttle diplomacy for Blincoln work like Shuttle 492 00:24:36,280 --> 00:24:38,119 Speaker 1: diplomacy worked for Kissinger? 493 00:24:39,600 --> 00:24:42,320 Speaker 11: I think it's very different for a couple of reasons, 494 00:24:42,400 --> 00:24:46,480 Speaker 11: one of one of which is kind of bubbling under here. 495 00:24:47,760 --> 00:24:50,720 Speaker 11: You know, Blincoln's mission this time, as opposed to the 496 00:24:50,800 --> 00:24:55,240 Speaker 11: last few times, is designed to try to get to 497 00:24:55,280 --> 00:24:57,480 Speaker 11: try to convince the Israeli government of some kind of 498 00:24:57,560 --> 00:25:02,680 Speaker 11: pause or humanitarian something like that. And it calls into 499 00:25:02,760 --> 00:25:05,119 Speaker 11: question a couple of things. It calls into question the 500 00:25:05,119 --> 00:25:07,720 Speaker 11: degree to which the United States continues to support the 501 00:25:07,800 --> 00:25:12,960 Speaker 11: current Israeli government. The Biden aids are running around Washington 502 00:25:13,000 --> 00:25:16,720 Speaker 11: briefing against net Nyau right now. And Secondly, it calls 503 00:25:16,760 --> 00:25:19,480 Speaker 11: into question whether or not and to what extent the 504 00:25:19,600 --> 00:25:24,679 Speaker 11: US still supports the Israel's war aims in Gaza, and 505 00:25:24,720 --> 00:25:30,439 Speaker 11: that's a concern. All this also complicates the Israel the 506 00:25:30,480 --> 00:25:35,120 Speaker 11: Israeli aid package, because Congress is not going to pass 507 00:25:35,160 --> 00:25:39,640 Speaker 11: the Israel package if they don't clearly understand what administration 508 00:25:39,720 --> 00:25:42,760 Speaker 11: policy is. So we've got a lot of a lot 509 00:25:42,760 --> 00:25:45,480 Speaker 11: of problems here that complicate Lincoln's mission. 510 00:25:45,800 --> 00:25:47,800 Speaker 1: Terry, unfair question, but I got to go there. It 511 00:25:47,840 --> 00:25:50,520 Speaker 1: isn't the zeitgeist end of the weekend as well. Then 512 00:25:50,560 --> 00:25:53,160 Speaker 1: you were there with Lord Kitchener and Mark Sykes when 513 00:25:53,160 --> 00:25:55,720 Speaker 1: they divided up the Middle East after World War One. 514 00:25:55,760 --> 00:25:58,440 Speaker 1: I understand that all of a sudden we're talking about 515 00:25:58,480 --> 00:26:02,800 Speaker 1: a partition of God, we saw a partition of Vietnam, 516 00:26:03,160 --> 00:26:06,359 Speaker 1: a partition of Korea. Is that the easy way out 517 00:26:06,359 --> 00:26:09,679 Speaker 1: here is whatever this word means, A partition of the 518 00:26:09,720 --> 00:26:10,479 Speaker 1: Gaza strip. 519 00:26:11,280 --> 00:26:14,159 Speaker 11: Yeah, there's a partition, and you know, it's kind of 520 00:26:14,280 --> 00:26:18,440 Speaker 11: international administration or all the phrases that go together. These 521 00:26:18,440 --> 00:26:21,639 Speaker 11: are phrases that go back, as you quite quite rightly 522 00:26:21,720 --> 00:26:25,600 Speaker 11: point out to post World War One League of Nations 523 00:26:26,000 --> 00:26:31,680 Speaker 11: mandate style governance, and and they tend to bury the 524 00:26:32,600 --> 00:26:37,680 Speaker 11: harder realities, which are then the nature of the terrorist organizations, 525 00:26:37,720 --> 00:26:41,040 Speaker 11: the nature of their funding, and you know what sorts 526 00:26:41,040 --> 00:26:44,919 Speaker 11: of proxies they are, and they tend to bury, you know, 527 00:26:45,160 --> 00:26:49,760 Speaker 11: kind of kind of regional responsibility for the problem. And 528 00:26:49,960 --> 00:26:51,640 Speaker 11: all those are going to have to be dealt with, 529 00:26:51,920 --> 00:26:54,239 Speaker 11: and you know, we haven't even started to deal with 530 00:26:54,280 --> 00:26:55,040 Speaker 11: any of those yet. 531 00:26:55,200 --> 00:26:58,240 Speaker 5: Terry, what do you make about the strife within the 532 00:26:58,320 --> 00:27:04,520 Speaker 5: Republican Party stemming from Senator Tuberville of Alabama, this idea 533 00:27:04,520 --> 00:27:08,639 Speaker 5: that he will stall with the affirmation the confirmation of 534 00:27:08,680 --> 00:27:12,320 Speaker 5: some of the military promotions at a time of expanding 535 00:27:12,359 --> 00:27:14,840 Speaker 5: conflict overseas well. 536 00:27:14,880 --> 00:27:18,600 Speaker 11: You know, I'd give you two points about that. One 537 00:27:18,920 --> 00:27:25,040 Speaker 11: is that it is obviously providing some strife within the military. 538 00:27:25,119 --> 00:27:29,919 Speaker 11: And at the same time, the Senator says directly, and 539 00:27:30,160 --> 00:27:33,760 Speaker 11: to my knowledge, has never been countermanded, that he wants 540 00:27:33,840 --> 00:27:36,160 Speaker 11: to have a dialogue with the Department of Defense about 541 00:27:36,200 --> 00:27:39,840 Speaker 11: all this stuff and come to some sort of resolution, 542 00:27:40,160 --> 00:27:42,600 Speaker 11: and that he's not got it. What I think is 543 00:27:42,640 --> 00:27:45,320 Speaker 11: going to end up happening is this gets resolved somehow 544 00:27:45,400 --> 00:27:50,520 Speaker 11: in the defense spending legislation that comes up by about 545 00:27:50,560 --> 00:27:52,280 Speaker 11: the end of the year. One way or another, this 546 00:27:52,359 --> 00:27:54,200 Speaker 11: is going to get dealt with in the next two months. 547 00:27:54,320 --> 00:27:57,040 Speaker 5: There was a resolution that passed the House offering support 548 00:27:57,080 --> 00:27:59,880 Speaker 5: to Israel, but also tying it to cuts to the IRS, 549 00:28:00,280 --> 00:28:03,760 Speaker 5: which some have suggested would actually cause a bigger deficit 550 00:28:03,800 --> 00:28:08,360 Speaker 5: because it would reduce tax revenues that the US government gets. 551 00:28:08,600 --> 00:28:11,680 Speaker 5: Does this progress the issue or actually push it back 552 00:28:11,720 --> 00:28:13,160 Speaker 5: in terms of the debate. 553 00:28:13,680 --> 00:28:16,400 Speaker 11: Well, two things. One is that the you know, only 554 00:28:16,440 --> 00:28:19,760 Speaker 11: in Washington, would the I R S get beyond being 555 00:28:19,840 --> 00:28:23,560 Speaker 11: rough here, would get eighty billion more dollars and then 556 00:28:23,680 --> 00:28:27,080 Speaker 11: have it cut by fourteen and have that considered by 557 00:28:27,119 --> 00:28:30,399 Speaker 11: anybody to be a cut in IRS spending. You know, 558 00:28:30,480 --> 00:28:34,399 Speaker 11: But there you are Secondly, I think the funding is 559 00:28:35,680 --> 00:28:39,440 Speaker 11: the help is really is funded is almost beside the point. 560 00:28:39,800 --> 00:28:43,120 Speaker 11: The bigger problem that we have right now really is this. 561 00:28:43,520 --> 00:28:46,200 Speaker 11: You know, you ran Admiral Kirby and your lead in 562 00:28:46,360 --> 00:28:50,360 Speaker 11: Admiral Kirby says that the administration has four priorities and 563 00:28:50,360 --> 00:28:53,040 Speaker 11: they all need to get dealt with together. Well, these 564 00:28:53,040 --> 00:28:56,520 Speaker 11: are Biden's priorities. These are Biden's foreign policy. Biden's going 565 00:28:56,560 --> 00:28:58,800 Speaker 11: to have to get all this stuff done and in 566 00:28:58,840 --> 00:29:03,840 Speaker 11: a way that funded properly, and right now, whatever else 567 00:29:04,320 --> 00:29:10,080 Speaker 11: Secretary Blincoln's doing. The apparent change in Biden policy towards 568 00:29:10,120 --> 00:29:13,280 Speaker 11: Israel is making that more difficult because now Congress doesn't 569 00:29:13,360 --> 00:29:15,680 Speaker 11: understand exactly what Biden's foreign policy is. 570 00:29:15,960 --> 00:29:18,120 Speaker 10: Hey, Terry, great to get your input as always, Terry 571 00:29:18,160 --> 00:29:19,880 Speaker 10: Hanks there of Panchaea policy. 572 00:29:20,040 --> 00:29:23,840 Speaker 1: Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify and 573 00:29:23,960 --> 00:29:28,200 Speaker 1: anywhere else you get your podcasts. Listen live every weekday 574 00:29:28,440 --> 00:29:31,920 Speaker 1: starting at seven am Eastern. I'm Bloomberg dot Com, the 575 00:29:32,040 --> 00:29:36,600 Speaker 1: iHeartRadio app, tune In, and the Bloomberg Business app. You 576 00:29:36,640 --> 00:29:40,680 Speaker 1: can watch us live on Bloomberg Television and always I'm 577 00:29:40,680 --> 00:29:41,760 Speaker 1: the Bloomberg terminal. 578 00:29:42,160 --> 00:29:46,360 Speaker 2: Thanks for listening. I'm Tom Keen, and this is Bloomberg