Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller.
Speaker 2: Every business day, we bring you interviews from CEOs, market pros,
Speaker 2: and Bloomberg experts, along with essential market moven news.
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Speaker 1: And let's get figure out what's happening now in Washington, DC,
Speaker 1: because they have no idea what's going on down there.
Speaker 1: They're not even back like in session. I mean they're
Speaker 1: coming back tomorrow. I mean, the government's about the shutdown
Speaker 1: and they're still on some holiday.
Speaker 2: I think it's very popular in Washington, d C. To
Speaker 2: not do your job, right. I think that's what the
Speaker 2: constituency wants.
Speaker 1: You think, So it seems like it all right. Nathan Dean,
Speaker 1: I'm gonna blame him for all this. Nathan Dean is
Speaker 1: our senior US policy analyst for Bloomberg Intelligence. His job
Speaker 1: is to make sure this government works. He's not getting
Speaker 1: it done here. Nathan, talk to us about where we
Speaker 1: are with this possible shutdown. What's the feeling in Washington,
Speaker 1: DC these days?
Speaker 3: Yeah?
Speaker 4: You know, over the weekend, you know, Speaker of the
Speaker 4: House Kevin McCarthy talked about trying to pass for appropriation bills.
Speaker 4: You know, there's been talk about some Republicans bypassing the
Speaker 4: Speaker and working with Democrats to do something called a
Speaker 4: discharge petition. But if you're sitting in New York City,
Speaker 4: all you need to know is is that nothing really
Speaker 4: has changed. I mean, we're heading towards the shutdown Saturday night.
Speaker 4: You know, there's a lot of political fireworks that have
Speaker 4: to happen this week, but we just aren't seeing any
Speaker 4: movement at this point that the Speaker wants to actually
Speaker 4: do a deal with the Democrats and try and avoid
Speaker 4: this type of situation. So I think we're probably around
Speaker 4: seventy eighty percent chance and we're gonna.
Speaker 5: Have a shutdown next week.
Speaker 1: So Nathan is the choice for the speaker. I'm assuming,
Speaker 1: you know, Speaker McCarthy's is kind of driving the bus.
Speaker 1: Here is this choice, I do a deal with these
Speaker 1: radical Republicans, these small group Republicans, or I reach across
Speaker 1: the aisle to Democrats and deal with the political backlash.
Speaker 1: There is that his choice.
Speaker 2: At this point, there's no deal to be done with
Speaker 2: the radical Republicans. They want to shut down the government, right,
Speaker 2: Isn't that yes what they want?
Speaker 4: It's so much more of like, do I actually ask
Speaker 4: to the radical Republicans and then shut down the government
Speaker 4: and then get to a point where the Democrats just say, look,
Speaker 4: we're not going to deal. I mean, the odds of
Speaker 4: what the Republicans, some of those conservative Republicans are wanting,
Speaker 4: are less than a two percent chance of ever going
Speaker 4: to become law.
Speaker 5: And that's being grateful.
Speaker 4: So Speaker McCarthy's choice here is essentially saying, look, do
Speaker 4: I go through the motions of a government shutdown and
Speaker 4: then do I deal with the Democrats? Or do I
Speaker 4: deal with the Democrats now and get it over with? Ultimately,
Speaker 4: this is ending with a deal with the Democrats. And
Speaker 4: so I think from the Speaker's perspective, really what he
Speaker 4: has to do here is he has to do this deal,
Speaker 4: but he has to do it in a way that
Speaker 4: saves him face. Look, he's got to be showing that
Speaker 4: he's fighting for his ideals and so forth like that,
Speaker 4: And that's why I think he's going to accept the
Speaker 4: government shutdown if he makes a deal before then I
Speaker 4: think there are those people that are seeking to oust
Speaker 4: him get a little bit more ammunition, saying, look, he
Speaker 4: didn't even fight, so let's just kick him out. So
Speaker 4: I think speaker, I think the speaker's just playing a
Speaker 4: little bit of what if scenario NELS is here, But
Speaker 4: I think he's just going to say, look, we got
Speaker 4: to do this after sometime next week, after the shutdown.
Speaker 2: By the way, is it do we call them conservatives
Speaker 2: because they don't really act like that?
Speaker 6: Do we that the Freedom Club people? Nathan?
Speaker 2: I mean, they're not exactly acting like Ronald Reagan or
Speaker 2: George H. W.
Speaker 6: Bush. It's more like, I don't know what word you use.
Speaker 2: How do you describe that other than you know, radical populists.
Speaker 4: Well, you know, I could say somebody is a conservative Washington,
Speaker 4: and I'll get one hundred different answers what that means.
Speaker 4: But you know, ultimately what's going to happen here is
Speaker 4: it's the House Freedom Caucus. There's about fifteen or so members,
Speaker 4: maybe as much as twenty. But I would also point
Speaker 4: out that there's also another caucus called the House Problem
Speaker 4: Solvers Caucus. And one of the things that they're trying
Speaker 4: to do, and we've heard whispers on this is that
Speaker 4: there's about six of them. It would take six of
Speaker 4: them to say, look, I'm going to bypass Speaker. I'm
Speaker 4: going to work with the Democrats on something called the
Speaker 4: discharge petition, where I can actually overrule the Speaker. We'll
Speaker 4: have the Democrats have control of the floor. They'll make
Speaker 4: the deal. Now, I don't think Speaker McCarthy would be
Speaker 4: all that upset with it. Look, I mean, look, you
Speaker 4: could say, look, this is horrible that they're taking me
Speaker 4: my power, you know, so forth like that, but also
Speaker 4: as a get out of jail card free for you know,
Speaker 4: free get out of jail free card for him. So
Speaker 4: you know, I think what the Speaker is doing at
Speaker 4: this moment is just saying, look, I've got these people
Speaker 4: over here that want this. This is never going to happen.
Speaker 4: I got over here this idea of working with the Democrats,
Speaker 4: which I know eventually will happen, But I just can't
Speaker 4: go out there and say.
Speaker 6: I'm ready to do it just yet.
Speaker 4: So unfortunately, you know, it's the people that are going
Speaker 4: to be stuck at you know, the American people are
Speaker 4: going to suffer a little bit because of this.
Speaker 1: I mean, this seems from like, I don't know anything
Speaker 1: about politics and political calculus, but this seems like a
Speaker 1: disaster for the Republican Party. How does the leadership allow A?
Speaker 1: Is it a disaster? And B? How would the leadership
Speaker 1: at the Republican Party allow this to happen?
Speaker 4: Well, you know, it's not like they can come out
Speaker 4: and just wave their wand and say do as I say.
Speaker 4: I mean that, you know, the speaker McCarthy's.
Speaker 1: But we have whips and majority leaders and things like that.
Speaker 2: You know, if the party has fallen apart, you know,
Speaker 2: if they've lost their minds, then all right, But I'll.
Speaker 6: Say, but then you can't control them, right, I mean.
Speaker 4: But if they also make a deal within the next
Speaker 4: two weeks or so, we won't be talking about this
Speaker 4: come January. We'll be talking about you know, the presidential
Speaker 4: election cycle.
Speaker 7: And so forth.
Speaker 4: So there are people out there that say, look, shutdowns
Speaker 4: will be negative for the party that cause it, in
Speaker 4: this case would be the Republicans. But the independent voter's
Speaker 4: mindset is sort of short term, and per your inflation
Speaker 4: talk prior to this segment, you know, inflation may be
Speaker 4: around in January, and that may be the big ticket
Speaker 4: so there are some saying, look, shutdowns are bad, but
Speaker 4: you know how much of a political price we're gonna
Speaker 4: have to pay? Maybe not so much.
Speaker 5: It's a good point.
Speaker 2: It's a good point by but Nathan, let me get
Speaker 2: your takes of inflation on the UAW and President Biden,
Speaker 2: Oh yeah, going there, which I think is I mean,
Speaker 2: such an exciting story because I love the car makers
Speaker 2: and now you've got these one hundred and fifty thousand
Speaker 2: workers that are potentially going to make a lot more money.
Speaker 6: It's inflationary.
Speaker 2: President Biden says he's pro union, but he's also super
Speaker 2: pro green transition and EVS, which the union feels is
Speaker 2: in some ways is like their enemy.
Speaker 6: How do you look at that whole situation?
Speaker 2: Can he does he have the vitality to go and
Speaker 2: stand on a picket line.
Speaker 6: I'm just for me.
Speaker 4: This is all about Michigan. I mean, he needs Michigan
Speaker 4: to win reelection, and going to that picket line is
Speaker 4: just way to say that. Look, Michigan is one of
Speaker 4: those five or six states that I need. Going there
Speaker 4: is just to make sure that President Trump doesn't steal
Speaker 4: the press cycle by him going there. So you know
Speaker 4: the actions of President Biden actually walking the picket line
Speaker 4: and so forth like that. This was a political call.
Speaker 4: I'm not sure how much impact. You know, I haven't
Speaker 4: looked at the impact of how it would impact the
Speaker 4: UAW negotiations.
Speaker 7: But this was an easy call for him.
Speaker 4: To make because if he doesn't go there, President Trump
Speaker 4: was going to go there. Other Republican candidates would go
Speaker 4: there in one of your key states would be you know,
Speaker 4: you wouldn't actually be in one of those key states
Speaker 4: that you need.
Speaker 2: It'll be tough, though, if some of the workers on
Speaker 2: the picket line say, hey, Joe, what's with the billions
Speaker 2: of dollars in subsidies for electric vehicle transitions.
Speaker 4: Absolutely, I mean, you know, he's going to have a
Speaker 4: tough time talking to this. But you know, President Biden
Speaker 4: also claims to be the most pro union president ever Scranton, Pennsylvania,
Speaker 4: and this is something so I wouldn't put it past
Speaker 4: him to be able to rely on some of the
Speaker 4: institutional knowledge he's had over those seven years, seventy years
Speaker 4: to try and go forth and you know, at least
Speaker 4: get some talking points out of there. So I don't
Speaker 4: think it's going to be that much impactful in the
Speaker 4: way of the negotiations. But again it's a symbolic gesture
Speaker 4: that he needs to ensure that he wins the rust
Speaker 4: belts come twenty twenty four, because that in Arizona and
Speaker 4: Nevada are going to be pretty much all the states
Speaker 4: that matter going into this election.
Speaker 1: So is it expectation in DC? We're getting off topic
Speaker 1: a little bit. It's going to be Biden for the
Speaker 1: Democratic Party. Is or any credible discussion otherwise?
Speaker 8: No.
Speaker 4: I mean, look, we're three months away from a primary process,
Speaker 4: and if President Biden were to stand up and say, look,
Speaker 4: I'm not going to run for president, you know who
Speaker 4: would take his place? Obviously have Vice President Kamala Harris.
Speaker 4: But you know Vice President Harris was the first one
Speaker 4: to bow out in the twenty you know, in the
Speaker 4: prior election. That person doesn't automatically get the party's mantle.
Speaker 4: So if President Biden were to say today I'm not running,
Speaker 4: you would kick off a chaotic process in which the
Speaker 4: Democrats would be completely on you know, disjointed, and there'd
Speaker 4: be a really fast paced fight to try and see
Speaker 4: who can win. Governor Newsom, probably Governor Pritzker from Illinois,
Speaker 4: for example. It would just be very chaotic. So I
Speaker 4: really don't see President Biden saying that he's done.
Speaker 5: I think he's in this for the long bow.
Speaker 1: All right, Nathan, thanks so much for joining us. We
Speaker 1: can go a million ways with you. You've always got
Speaker 1: everything on topic. Nathan Deane, Senior Polo Saneles for the
Speaker 1: US government for Bloomberg Intelligence. He's based down in Washington,
Speaker 1: d C. And he is our go to guy. So
Speaker 1: there's a lot of balls in the air down in DC.
Speaker 1: Most notably, is this government gonna shut down? And it
Speaker 1: looks like appears at this stage at least that the
Speaker 1: answer is probably yes.
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Speaker 1: You know, Matt, you might remember two or three months ago,
Speaker 1: I took that whole recession talk off the table for me.
Speaker 1: But you know what, this federal reserve higher for longer,
Speaker 1: I don't know. I think they might run the risk
Speaker 1: of pushing us into something that we don't really need.
Speaker 1: So I'm going to talk to and ask a professional
Speaker 1: about this. Lydia Bussor senior economists at e Y Parthenon. So,
Speaker 1: Lydia was I a little bit early in taking the
Speaker 1: recession talk off the table. Is this Federal Reserve with
Speaker 1: its news or not new but continued effort to keep
Speaker 1: rates higher for longer? Are they bringing that recession talk
Speaker 1: back to the forefront?
Speaker 8: Hi, thanks for having me. I mean the higher for
Speaker 8: longer interest rate paradigm that the Federal Reserve strongly signaled
Speaker 8: after the meeting, and with this new dot plot showing
Speaker 8: interest rates remaining above five percent throughout next year, means
Speaker 8: that you know, we're going to see we're going to
Speaker 8: be in that higher interest rate environment for longer, higher
Speaker 8: cost of capital, and that's going to be waiting on
Speaker 8: spending decisions for consumers and businesses. I think this is
Speaker 8: going to be an additional headwind for the economy. This
Speaker 8: has already been impacting the economy, but we do believe
Speaker 8: that there remains a pathway for a soft lending. I
Speaker 8: think it's important to keep in mind that these higher
Speaker 8: for longer interest rates are also reflection of a more
Speaker 8: resilient and stronger economy and also expectations for that trend
Speaker 8: to continue moving forward.
Speaker 2: Well, first of all, Lydia, we just got a red
Speaker 2: hot sticky headline crossing the terminal and on China and
Speaker 2: the property issue there. So Evergrand Unit missed payment on
Speaker 2: four billion you on Onshore bond. We've all been watching
Speaker 2: the Chinese property sector again lately. Right, it looks worse
Speaker 2: than feared previously, and the short lived boost it got
Speaker 2: from the Chinese sort of stimulus activities is gone.
Speaker 1: Now.
Speaker 6: Is it possible that this.
Speaker 2: Spreads around the world or is it contained to the
Speaker 2: Chinese economy?
Speaker 3: You think?
Speaker 8: I mean, we believe that the China, the China, the
Speaker 8: China's economic explow down has emerged as a top risk
Speaker 8: for the global economy. When we look at the US
Speaker 8: in particular, when you purely looked at the trailing and
Speaker 8: financial linkages, they're fairly limited in terms of the US
Speaker 8: exposure and looking at US exports to China. But when
Speaker 8: you think about the impact on financial conditions and how
Speaker 8: that could potentially lead to China growth care the way
Speaker 8: we saw back in twenty fifteen twenty sixteen, that could
Speaker 8: have an impact on confidence, and that could have an
Speaker 8: impact on a more significant impact on the US economy. Now,
Speaker 8: looking at the broader global economy, this is going to
Speaker 8: have some ramification for economies that are more exposed, and
Speaker 8: this is potentially leading also to a sharper economy slow
Speaker 8: down globally, So.
Speaker 6: Not the US, right Lydia.
Speaker 2: When you say economies that are more exposed, I guess
Speaker 2: you're talking more about Europe than America.
Speaker 8: Europe is more exposed, but as I mentioned, the US,
Speaker 8: the exposure is really through more through financial conditions and
Speaker 8: a potential deeper global slowdown as some of the other
Speaker 8: trade partners for the US get impacted as well.
Speaker 1: Leading you back here in the US. One of the
Speaker 1: real points of resilience in this iconomy has been the
Speaker 1: labor market. And a lot of folks are kind of
Speaker 1: confused about why this labor market is so strong, given
Speaker 1: you know, the inflation editors are given the higher rates.
Speaker 1: How do you view and how do you explain the
Speaker 1: labor market to every one?
Speaker 8: Yeah, I mean, we've seen some persistent tightness in the
Speaker 8: label market and those lingering labor shortages in some sectors.
Speaker 8: So a lot of that tightness that we have seen
Speaker 8: is really tied to some of these post pandemic label
Speaker 8: market dynamics. We've seen a lot of these locations during
Speaker 8: the pandemic, and so what we're seeing today's companies essentially
Speaker 8: holding on to the workforce, their talent that they really
Speaker 8: had a hard time attracting and retaining over the past
Speaker 8: two years. So we are seeing some labor hoarding. And
Speaker 8: that is, you know, one of the reasons why even
Speaker 8: though you're saying that rebalancing, even though you're saying labor
Speaker 8: dement coming down, we haven't seen that a significant rising
Speaker 8: layoff that you would expect in this environment of higher
Speaker 8: interest rates.
Speaker 2: In terms of the you know, the path to a
Speaker 2: soft landing, you know, with all the risks that you
Speaker 2: mentioned Lydia, and we've been you know, we've been listing
Speaker 2: them here on Bloomberg Radio as well, from increased credit
Speaker 2: card debt to delinquencies on those cards and on auto loans,
Speaker 2: the return of student loan payments, higher oil and higher
Speaker 2: gas prices at the pump.
Speaker 6: What am I missing, Paul, No, those are all good.
Speaker 2: I mean, it seems like the strike, the UAW strike
Speaker 2: lasting a long time and expanding is a risk. I
Speaker 2: don't know if the government shutdown is a financial risk,
Speaker 2: or if it's just an amazing annoyance. But all of
Speaker 2: these things are bad, right, So where do you see
Speaker 2: a soft landing coming out of that?
Speaker 8: Yeah, I mean we all these headwinds, the headwinds you
Speaker 8: mentioned are really combining and will combine to slow down
Speaker 8: the economy. So we do expect to see a downshift
Speaker 8: in economic activity as we head into twenty twenty four.
Speaker 8: We think that growth will fall below potential, and then
Speaker 8: we're expecting a number of quarters where growth is going
Speaker 8: to be fairly modest as a result of some of
Speaker 8: the old headwinds higher interest rates, tighter credit conditions, and
Speaker 8: still high inflation and some of these new headwinds that
Speaker 8: you mentioned that are going to be waiting on growth
Speaker 8: in the fourth quarter. What's important to keep in mind
Speaker 8: with the strike, with the potential government shutdown is some
Speaker 8: of the impact is going to be reversed in the
Speaker 8: first quarter of next year. So this is also something
Speaker 8: that I think is important to keep in mind when
Speaker 8: you think about the outlook. But certainly a nuanced outlook
Speaker 8: with resilient economy, but some headwinds that are going to
Speaker 8: be waiting on private sector activity.
Speaker 1: So Lydia, we've seen inflation come down from the peak
Speaker 1: of eighteen month to go roughly, But now maybe the
Speaker 1: hard work starts. As a lot of economers are suggesting,
Speaker 1: how do you see inflation moving over the next six
Speaker 1: or twelve months.
Speaker 8: Yeah, we are in the camp that maybe the last
Speaker 8: inflation mile won't be as strainerous as some people think.
Speaker 8: There is a lot of ground to cover in terms
Speaker 8: of bringing inflation back to target, but we still think
Speaker 8: that there is there is this inflationary environment that remains
Speaker 8: in place.
Speaker 7: When you look further.
Speaker 8: Ahead at the next few months and going into twenty
Speaker 8: twenty four, when you look at core inflation, we are
Speaker 8: expecting to see modes inflation on the core side, with
Speaker 8: housing inflation having turned the corner, with the label market
Speaker 8: loosening as well, and also with the fact that you
Speaker 8: know we're going to see a slow down in demand
Speaker 8: and in economic activity and that will put further downwald
Speaker 8: pressure on inflation. So we think that we're going to
Speaker 8: see continue this inflation and looking at poor and headline inflation,
Speaker 8: it will still take some time, but by the end
Speaker 8: of next year we may have gotten closer to the
Speaker 8: two person target on both headline and poor.
Speaker 1: Lady health concerned. Are you about the European economies over there?
Speaker 1: I mean again, we talked about it earlier, but boy,
Speaker 1: their exposure to China and just compounds some some problems
Speaker 1: over there. What's about your forecast for just Europe in
Speaker 1: the UK going forward.
Speaker 8: Yeah, we are seeing more weakness for the deer and
Speaker 8: the European economy, and we are seeing more headwinds as
Speaker 8: well from the China slowdown. When we look at economic activity,
Speaker 8: we are seeing some economic indicators pointing to a further
Speaker 8: down shift. And now the outlook is, you know, not
Speaker 8: the same for each individual country within the Eurozone. We
Speaker 8: are seeing localized weakness in Germany with this this recession
Speaker 8: recessionary conditions in Germany. The UK is also showing most
Speaker 8: signs of weakness. But overall, this is a region where
Speaker 8: we are expecting to see more weakness this year and
Speaker 8: this is going to be a soft spot for the
Speaker 8: global economy along with the Chinese economy.
Speaker 1: Lydia, thank you so much for joining us. Always appreciate
Speaker 1: getting your comments. Lydia bussor senior economists at e Y
Speaker 1: Partha that you're.
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Speaker 1: Jess Larsen joins and sees the CEO and founder of
Speaker 1: Briarcliff Credit Partners. He joins us live here in our
Speaker 1: Bloomberg Interactive Broker studio. Just you guys, just focus on
Speaker 1: this exclusively. Matt and I. We know private credit as
Speaker 1: like direct lending. Well you're telling us it's more than that, right.
Speaker 10: That is, that's a good question, right, and private credit
Speaker 10: means a lot of things to a lot of people.
Speaker 10: And there's a little bit of a misunderstanding that directlenning
Speaker 10: is all rage of private credit. Dorek Lanny is a
Speaker 10: great sub strategy with in private credit, but private credit
Speaker 10: is really a lot more so. What we have identified
Speaker 10: is fall pillars of private credit. You got corporate credit,
Speaker 10: structure credit, real asset, and sparcusally finance underneath that twenty
Speaker 10: six different strategy way.
Speaker 5: It doesn't matter where in.
Speaker 10: The economic economic cycle we are there's always strategies for
Speaker 10: you to make money, and that's exciting about private credit.
Speaker 1: Right, and private credit seems to me to come out
Speaker 1: of nowhere over the last four or five.
Speaker 2: Well yeah, I mean I've been going to the super
Speaker 2: Turn conference for the past I don't know, seven or
Speaker 2: eight years in Berlin, which is which was a private
Speaker 2: equity conference, right, But more and more of the people
Speaker 2: there are just talking about private credit. And a lot
Speaker 2: of the big shops that you think of as PE
Speaker 2: shops are actually the majority of their investments are on
Speaker 2: the credit side now absolutely.
Speaker 10: I mean the big firms are pivoting from PE to
Speaker 10: private credit.
Speaker 6: Right.
Speaker 10: What we're seeing right now is we on the golden
Speaker 10: age of private credit. What we will see in ten years,
Speaker 10: if I can be so bold, is in ten years
Speaker 10: private credit it's gonna be bigger than private equity. Wow,
Speaker 10: this is our age, right. And I have to say, Matt,
Speaker 10: Berlin is great, But next year come to our summit.
Speaker 10: We had it last week. Over one hundred lpiece came
Speaker 10: to hear just about private credit.
Speaker 5: This is really a sou Where is it?
Speaker 6: Because the city is important to me.
Speaker 5: We did it here in the metropolitan club. We made
Speaker 5: it easy for you.
Speaker 2: Ah, I thought you're gonna say I could go to Copenhagen,
Speaker 2: which I would like to do, that's where I'm from.
Speaker 5: But you're more than welcome. We can do that as well.
Speaker 1: It's easier for us to take a subway to that's
Speaker 1: that's true. We can walk to the Metropologic Club. We
Speaker 1: can do that as well. We can do just talk
Speaker 1: to us about how this industry came about. Is it
Speaker 1: just simply the regular the regulators put the traditional big
Speaker 1: banks out of this business?
Speaker 3: That is?
Speaker 10: It is a really good question, right, because if we
Speaker 10: think about private credit, this is not a new thing.
Speaker 10: People have been lending to each other since the start
Speaker 10: of humankind, right, So we go back to Plato and
Speaker 10: those times the Medici family, it was all about lending.
Speaker 5: Now we call the usury. At the time, it was all.
Speaker 10: About lending, right, So lending a private credit has been
Speaker 10: around since the early times. Now, you're right, during the GFC,
Speaker 10: we've got the regulatory environment really supporting getting the credit
Speaker 10: out of the banks because he's not the right place
Speaker 10: for lending to mid market companies and get it into
Speaker 10: the private credit space. So that was really the catalyst
Speaker 10: of what I would call the golden nature.
Speaker 2: I mean, the Germans would have a problem with that,
Speaker 2: right because that's their bread and butter.
Speaker 6: Of German banking.
Speaker 2: And I think, uh, you know, there's no sort of
Speaker 2: middelstand credit here the way there there is on the
Speaker 2: other side of the Atlantic.
Speaker 6: But we would call that shadow banking. Is that a
Speaker 6: bad Is that a dirty term?
Speaker 5: I think private credit sounds a lot better than shadow banking.
Speaker 2: Come on, so it is, though, because you're pushing it
Speaker 2: out of the regulated banking sector into more of a
Speaker 2: I don't don't want to say wild West, because we
Speaker 2: talked to private credit men and women here all the time,
Speaker 2: who are obviously very responsible, learned individuals used to dealing
Speaker 2: with sophisticated investors.
Speaker 6: But you do have less regulation.
Speaker 10: You do have less regulations. I would be contrarian and say,
Speaker 10: we're pushing it out to where it belongs. Mid market
Speaker 10: lending does not necessarily belong in a bank. We saw
Speaker 10: the actual the risk you're taking on if you're a
Speaker 10: mid market company and you want to borrow some money,
Speaker 10: doing it with a bank adds a whole other layer
Speaker 10: of risk, right. We saw that, we see a compative bank.
Speaker 10: We saw that with credit and Signature Bank and so forth.
Speaker 10: Now that private credit funds are set up and have
Speaker 10: a much better asset liability match, so this is a
Speaker 10: much better place for our mid market. The economy needs it, right.
Speaker 10: The economy cannot survive without mid market lending, so we
Speaker 10: need it. But we just need to having a better place,
Speaker 10: and that's where we're going, all.
Speaker 1: Right, mid market lending? Do you envision the day when
Speaker 1: you characterize your industry is something more than mid market lending?
Speaker 1: Not that that's not a great business, great returns, but
Speaker 1: bigger deals, bigger tickets. Is that where we're going.
Speaker 10: That's also where we're going. I think you're one hundred
Speaker 10: percent of right, poll Mark. The terms of private credit
Speaker 10: is going to go from mid market to upper market
Speaker 10: to where we need to be right simply because it
Speaker 10: makes sense for the borers. If not, we wouldn't have it.
Speaker 2: What about the lenders, I mean right now or previously
Speaker 2: it was big institutional money, as I said, sophisticated investors,
Speaker 2: so people who you know, could afford to take losses.
Speaker 2: We've had people on the program that are looking to
Speaker 2: start platforms that allow retail money in is everybody going
Speaker 2: to get involved.
Speaker 5: It's coming, right.
Speaker 10: We all need to be careful when there's retail money, right,
Speaker 10: there is a high level of scrutiny, the high level
Speaker 10: of regulatory environment when it comes to retail money. I
Speaker 10: think we started the right place with the big institutional
Speaker 10: money or cabs are coming from the pension funds and
Speaker 10: dominance foundations, the big family jobs. We started with that money.
Speaker 10: We're slowly moving into the retail but it does require
Speaker 10: a little bit more of a regulatory overview.
Speaker 1: So what's a typical deal that Briarcliffe invests in.
Speaker 5: So we actually don't invest.
Speaker 10: What we really do is we take the smart funds
Speaker 10: and actually bring them out to the institutional investors their
Speaker 10: placement firm basically gotcha, okay, And the only one in
Speaker 10: private credit, believe.
Speaker 3: It or not.
Speaker 10: So you're the only one with the only place maiden
Speaker 10: in the world that is completely He wants.
Speaker 6: To hear the numbers. All Paul cares about in life
Speaker 6: is making money.
Speaker 3: I love it.
Speaker 10: So there's three thousand place maidens globally, there's only one
Speaker 10: that is dedicated to private credit.
Speaker 5: It happens to be in your studio right now.
Speaker 2: So are the what are the deals look like. I mean,
Speaker 2: especially as in this rising rate environment. On the one hand,
Speaker 2: I think it's going to get juicy. On the other hand,
Speaker 2: I may be worried about companies that have to refinance
Speaker 2: or companies that you know have been lent to at
Speaker 2: much lower levels.
Speaker 10: Yeah, yeah, I think it is a worry or it's
Speaker 10: an opportunity, whether which way you want to look at it.
Speaker 10: Because as we mentioned earlier, private credit is more than
Speaker 10: just direct lending, right, So there are special sits that
Speaker 10: distress managers out there. There are all sorts of strategies
Speaker 10: that can capitalize if the default rate starts to spike.
Speaker 5: Let's see if it happens.
Speaker 10: But if we are going to get more losses, there
Speaker 10: are credit funds out there that can actually capitalize, go
Speaker 10: in and save these companies. And that's what we need
Speaker 10: where the banks would shy away.
Speaker 2: Right right, because private lenders work more closely with management.
Speaker 5: It's other portfolio companies. And thank you for the pitch.
Speaker 6: Well, I think we need to be skeptical as well.
Speaker 2: That's our job, right And I wonder what you do
Speaker 2: when regulation does come knocking, because there's going to be
Speaker 2: a day, you know when some senator gets a craw
Speaker 2: in her bonnet or whatever and decides you're the problem.
Speaker 10: Yeah, Well the question is whether it's a problem. But
Speaker 10: I don't think regulation is necessarily a bad thing, right
Speaker 10: What we're doing right now is moving it out of
Speaker 10: the banking system to the private cretic system where.
Speaker 5: It is better placed. That's the first step.
Speaker 10: The next step is probably be getting a little bit
Speaker 10: more oversight, and we're already see in the regulatory environment
Speaker 10: starting to looking at valuation reporting and so forth. So
Speaker 10: it's coming and it's a good thing because it gives
Speaker 10: everybody a little bit more comfort.
Speaker 1: All right, Jess, thanks so much for joining us. Jess Larson,
Speaker 1: CEO and founder Briar Cliff Credit Partners.
Speaker 9: You're listening to the team Ken's Are Live program Bloomberg
Speaker 9: Markets weekdays at ten am Eastern on Bloomberg dot com,
Speaker 9: the iHeartRadio app, and the Bloomberg Business App, or listen
Speaker 9: on demand wherever you get your podcasts.
Speaker 1: A little bit of news out of Amazon today, they
Speaker 1: are going to invest up to four billion dollars in
Speaker 1: an AI firm by the name of Anthropic. It's a
Speaker 1: big number to me, four billion, but I guess if
Speaker 1: you're Amazon and you got a market cap at one
Speaker 1: point three to five trillion, maybe not that big a deal, but.
Speaker 2: Let's get it at it is though, because they don't
Speaker 2: typically go out and buy businesses exactly.
Speaker 1: And I think this is big because it's AI. So
Speaker 1: I pay attention on a Rock Ronick he also pays attention.
Speaker 1: He's a tech analyst at Bloomberg Intelligence. He joined us
Speaker 1: via Zoom from his happy place Bloomberg Chicago office. Loves
Speaker 1: that Honor Rock talk to us about this deal here, Anthropic.
Speaker 1: What's Amazon doing here? What does Anthropic do? And why
Speaker 1: is Amazon investing up the four billion?
Speaker 11: Yeah, I think it's a little bit of catching up
Speaker 11: to do because for the last twelve months, all we
Speaker 11: have heard is Microsoft and open ai investments in how
Speaker 11: OpenAI has the large language models and the foundation models
Speaker 11: that people can use, but they only run on Microsoft's cloud.
Speaker 11: So Amazon does not have that relationship with open Ai.
Speaker 11: So they're looking at other AI companies that have similar products,
Speaker 11: investing money in them, trying to offer that service. And
Speaker 11: that's really what's happening here for AWS. Remember one thing,
Speaker 11: AWS is a much bigger player in cloud infrastructure then
Speaker 11: Microsoft and I think it's for the first time they've
Speaker 11: been caught on the wrong floort.
Speaker 2: In terms of Claude, which is that name of their Claude,
Speaker 2: that's the name of the bot, the chatbot that Anthropy
Speaker 2: or whatever it's called runs right, what's it called anthropy
Speaker 2: anthropic anthropotropic.
Speaker 6: So in terms of Clauds usage, it's going.
Speaker 2: To be all on now AWS servers, and it's going
Speaker 2: to use Amazon chips, which I didn't even know that
Speaker 2: they were, you know, building this much of their own silicon.
Speaker 6: They have one chip for training it's called like trainium,
Speaker 6: and one chip for read in on this.
Speaker 2: Well, what's the other one is for like inference, It's
Speaker 2: called inferyon or something like that.
Speaker 6: How big of a business is that for them?
Speaker 11: So these are all emerging businesses. I mean, you know, financially,
Speaker 11: there's a probably negligible compared to the size of the
Speaker 11: business right now. But this is one thing that I
Speaker 11: think that really stood out to us was Amazon's not
Speaker 11: talking about using in video chips for this, but their
Speaker 11: own internal one. Now, it's going to be a while
Speaker 11: before we really figured out if it works, but you know,
Speaker 11: if AWS is making a big splash around it They're
Speaker 11: basically saying that we can run some of these foundation
Speaker 11: models or the large language models without the need of
Speaker 11: Nvidio GPUs, which to me is a big deal. A
Speaker 11: most large cloud companies eventually will design their own chips
Speaker 11: and get them made only because they want to, you know,
Speaker 11: have much higher performance than what they get from let's say,
Speaker 11: an Intel and an AMD or or anybody else out there.
Speaker 1: So Anrak, I'm probably like most investors out there, Like
Speaker 1: over the last twelve months, I've been trying to run
Speaker 1: around like crazy trying to figure out how I get
Speaker 1: exposure to this thing called AI, which I don't even
Speaker 1: really know what it is, but I know I got
Speaker 1: to own it. So you know, in Nvidia, the chip stocks,
Speaker 1: maybe a Microsoft something like that we kind of fell into.
Speaker 1: But I did not think about Amazon. And is that
Speaker 1: a problem for Amazon that it's not doesn't really it's
Speaker 1: not proceived to have a real AI angle.
Speaker 11: Yeah, I think this is this investment is basically they're
Speaker 11: telling that you know, they are also serious and they're
Speaker 11: gonna partner with other people. Oracle, for example, is partnering
Speaker 11: with another company called cohere in a similar way. You know,
Speaker 11: for us, when you get rid of or when you
Speaker 11: when you are over the hype of the the chip makers,
Speaker 11: when you move onto the software side, then the clear
Speaker 11: winners actually are the cloud infrastructure companies, which is Awos, Microsoft, Google,
Speaker 11: and to some extent, Oracle, because that's where you will
Speaker 11: host some of these models and do your work on it.
Speaker 11: And then on the downstream you have companies like you know,
Speaker 11: Ccenture and Captaremini and so forth that will implement some
Speaker 11: of that stuff. So on the software side, cloud infrastructure
Speaker 11: is one of the biggest beneficiaries in our view.
Speaker 2: Where do they get by the way their data sets
Speaker 2: because a lot of these companies, you know, Microsoft has
Speaker 2: a ton of our data. Obviously Apple has a ton
Speaker 2: of our data. But Amazon might have more of our
Speaker 2: data than anybody else.
Speaker 11: Right, Yeah, but Matt, they're not using your or my
Speaker 11: consumer data to run any of these things. What Amazon
Speaker 11: Web Services is selling is going to you know, let's
Speaker 11: say JP Morgan or Bank of America and saying, if
Speaker 11: you want to train your models, we are giving you
Speaker 11: the raw material for it. We are giving you the
Speaker 11: computing power, We're giving you the algorithms. You bring your
Speaker 11: own data, keep it in a contained environment, and test
Speaker 11: it out. Whatever the results you get, you get the
Speaker 11: benefit of it. They're basically just you know, selling compute
Speaker 11: power and storage. They're not really you know, selling their
Speaker 11: own or you're in my customer data to these companies.
Speaker 1: Is this a good deal for Amazon? And do they
Speaker 1: need to do more here?
Speaker 11: Oh, they need to do a lot more. They need
Speaker 11: to do a lot more and actually showcase a lot
Speaker 11: of the enterprise use cases, Paul, What we have seen
Speaker 11: so far is a lot of use cases when it
Speaker 11: comes to consumer consumers. So when it you know, when
Speaker 11: we see what's happening with chat GPT because it has
Speaker 11: all the Internet data behind it, We're seeing some of
Speaker 11: the stuff that Microsoft is doing because it has some
Speaker 11: of the user data around it, you know, Excel and Word.
Speaker 11: But the real use case in the long run is
Speaker 11: enterprises B to B. In the case of B to B,
Speaker 11: the data is diseggregated and it's in a lot of
Speaker 11: different systems, and it's people like Amazon, Microsoft and Google
Speaker 11: that are going to sell the infrastructure and say, you
Speaker 11: create your own bots, you create your own large language
Speaker 11: model trained on your own data, but we're going to
Speaker 11: sell you all the services that allow you to do that.
Speaker 1: So what I mean, it's it's when I think about Amazon,
Speaker 1: I mean the cloud is there's such a leader in cloud.
Speaker 1: Can I not say that that's a way to play
Speaker 1: this whole AI thing.
Speaker 11: This is the way, yeah, for software, that is the
Speaker 11: only way to play it and argue because Amazon has
Speaker 11: over a forty percent market share in cloud infrastructure. The
Speaker 11: problem was they didn't have a relationship with OPENINGI. Today
Speaker 11: they are, you know, So it's it's that's so the
Speaker 11: companies that are selling the algorithms or these big foundation
Speaker 11: models that are called or large language models. There are
Speaker 11: multiple companies out there, and you you should expect to
Speaker 11: see multiple deals like this with everybody down the road.
Speaker 6: Who has the best product?
Speaker 3: Have you?
Speaker 6: Have you been playing with all of the with claud
Speaker 6: and chat GBT and.
Speaker 11: It's it all depends on who has the underlying data.
Speaker 11: If you're going to ask me, who can summarize a
Speaker 11: picture for me or a write poem, that doesn't really
Speaker 11: move the needle for what I do for B to B.
Speaker 11: It really needs to be able to get into enterprise
Speaker 11: data and figure out whether I have the who's my
Speaker 11: best customer over the next twelve months for that I
Speaker 11: really need to tap into enterprise data warehouses and that's
Speaker 11: not an easy thing to do right now.
Speaker 1: All right, So what's what do you think is next
Speaker 1: here for Amazon in terms of their cloud and maybe
Speaker 1: in terms of AI specifically, because they have no shortage
Speaker 1: of capital to invest here, so.
Speaker 11: They're going to make investments like this. They're going to
Speaker 11: invest in ships, they're going to invest in large language model.
Speaker 11: You know, margin is not going to be a problem.
Speaker 11: We are coming to a point that the tough comparisons
Speaker 11: for cloud decline is almost over. We are expecting a
Speaker 11: bounce back either the end of this quarter or perhaps
Speaker 11: next quarter, and then we should see a rebound next year,
Speaker 11: just because we have seen a fair amount of shrinkage
Speaker 11: or the usage of cloud over the last twelve to
Speaker 11: fourteen months, and we are coming to a point where
Speaker 11: we should start to see a rebound. Now that's irrespective
Speaker 11: of what happens to the AI. But once we see
Speaker 11: more AI investments, hopefully next year, you know, that only
Speaker 11: adds to the fuel of the cloud rebound that we
Speaker 11: really believe in.
Speaker 1: All right, Donnroroq, thanks so much for joining us.
Speaker 9: You're listening to the tape, can to our live program
Speaker 9: Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio,
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Speaker 12: We want to welcome our Bloomberg television and radio audiences
Speaker 12: worldwide joining us now. Amazon Web Services CEO Adam Selipsky,
Speaker 12: and Adam Welcome to Bloomberg Technology. I want to start
Speaker 12: with some of the mechanics of this deal. Does Anthropic
Speaker 12: still pay Amazon to use AWS Cloud or is it
Speaker 12: structured such that the investment that you make in Anthropic
Speaker 12: is in the form of cash and credits for AWS Cloud?
Speaker 7: No, good morning, Thanks for having me.
Speaker 13: We're very excited for this expanded relationship with Anthropic, and
Speaker 13: the investment is a financial investment, as you say. And
Speaker 13: in addition, Anthropic will be training future versions of its
Speaker 13: models and running its models on AWS using our.
Speaker 7: Training chips and Inferentia chips.
Speaker 13: Those models will be guaranteed to be available for years
Speaker 13: to come in our Amazon Bedrock Managed service for llms,
Speaker 13: which provides the very wide choice of models, and AWS
Speaker 13: customers will actually receive early access to key features in
Speaker 13: Anthropics models in the future, such as fine tuning and
Speaker 13: customization of models. In addition, Anthropics on very talented technical teams,
Speaker 13: and we anticipate working closely with them to actually improve
Speaker 13: future versions of our training and inferential chips. So there
Speaker 13: are a lot of different benefits for our joint end
Speaker 13: customers from this relationship and we're very excited to be
Speaker 13: leaders in this together.
Speaker 12: Adam, there's a lot of emphasis on moving a maker
Speaker 12: of foundation models at that scale onto your proprietary silicon.
Speaker 12: How quickly will Anthropics start running AI workloads on Trainium
Speaker 12: and Inferentia.
Speaker 13: We've been working with Anthropic, they've been a customers of
Speaker 13: ours since I think they're founding over a couple of
Speaker 13: years ago, and so they use a variety of different
Speaker 13: technologies for a variety of different workloads on AWS that
Speaker 13: they'll be using GPUs on AWS and will also be
Speaker 13: using large quantities of Trainium and Inferentia. So I think
Speaker 13: everything's going to move very quickly and it'll all be
Speaker 13: a mix of technologies depending on their needs at the time.
Speaker 12: Adam, what's the mood like within Amazon and AWS this morning.
Speaker 12: There are lots of talented engineers that have been working
Speaker 12: on large language models generative tools internally, and now you're
Speaker 12: turning to a third party who's highly regarded as a
Speaker 12: leader in building foundation models.
Speaker 7: The mood here is great.
Speaker 13: We are a company of inventors who we love to build,
Speaker 13: and there's never been a better time to be a
Speaker 13: builder at AWS than right now.
Speaker 7: And as I mentioned.
Speaker 13: Before, a big part of our strategy in AI and
Speaker 13: generative AI specifically, it is all about customer choice and
Speaker 13: there's not going to be any one solution that works
Speaker 13: for all customers for all use cases. And Thropic has
Speaker 13: done an amazing job. They're clearly a leader in this space,
Speaker 13: and it's really important for customers that we continue to
Speaker 13: generate new capabilities together at the same time. Really, one
Speaker 13: of the hallmarks of our Amazon Bedrock managed service for
Speaker 13: generative AI is choice, and so Amazon is going to
Speaker 13: continue to build its own Titan models, which are going
Speaker 13: to be available later this year. Obviously, Anthropics models are
Speaker 13: prominent in Bedrock, and we will have models from other
Speaker 13: leading providers as well as we have today. So it's
Speaker 13: still an amazing time to build here at Amazon. We
Speaker 13: think our models are going to be great as well,
Speaker 13: and it's about customers choosing the right tool for the job, talking.
Speaker 14: About choice, and I just want to re welcome our
Speaker 14: TV and radio audiances with Adam Sleipski. What's so notable
Speaker 14: is that, well, Anthropic took a chunk of change one
Speaker 14: hundred million dollars worth from Google already, and I'm interested
Speaker 14: as to how you feel that is perhaps a concern
Speaker 14: for you or not the relationship that Anthropic already has
Speaker 14: with a previous cloud provider.
Speaker 13: Now, we feel great about the relationship with Anthropic. It's
Speaker 13: been a good relationship and I think today's announcement just
Speaker 13: makes it a deeper and longer term. Anthropic will use
Speaker 13: AWS as its primary cloud provider for mission critical workloads,
Speaker 13: including building foundational foundation models and doing AI safety research,
Speaker 13: and will run the majority of its workloads on AWS.
Speaker 13: So we feel great about being able to provide the
Speaker 13: capacity and the expertise and of course the security, the
Speaker 13: enterprise grade security that is so important to AWS customers.
Speaker 13: And we also feel great about working with Anthropic to
Speaker 13: make sure that our trainingum and inferential technology our chips
Speaker 13: are as cutting edge as possible going forward for years
Speaker 13: to come.
Speaker 14: I'm interested in drilling down sort of on why ed
Speaker 14: was going about the feeling internally right now, because I
Speaker 14: look at some of the analyst reaction to this Adam
Speaker 14: and Webbush, for example, they say this signals a new
Speaker 14: found urgency in Amazon's strategy to further integrate generative AI
Speaker 14: among your AWS suite of services. That urgency was there
Speaker 14: a lack of understanding or indeed a reality that Amazon
Speaker 14: was behind the curve here a little bit when it
Speaker 14: came to the integration of generative AI. Because we've been
Speaker 14: looking at open Ai Microsoft for a while now.
Speaker 13: We've been saying for many, many months, Carolyn, that we
Speaker 13: are fully urgent. We have a strategy that we really love.
Speaker 13: It is different than some other cloud provider strategies.
Speaker 7: It's true.
Speaker 13: We have a strategy of providing absolutely uncompromising security, which
Speaker 13: I don't think is true for all cloud providers. We
Speaker 13: have a strategy of providing customers the choices to use
Speaker 13: whatever is best for their job at hand. So Andthropic
Speaker 13: is going to be an amazing set of models for
Speaker 13: many many use cases. And Amazon is fully invested in
Speaker 13: building its own Titan models, which I think will be
Speaker 13: really useful for other customers and other circumstances, and of
Speaker 13: course our other model provider partners through Bedrock. So I
Speaker 13: really think it's an ill founded premise that there's been
Speaker 13: some change in urgency. We're fully urgent here on generative
Speaker 13: AI for one reason or one reason alone. It's because
Speaker 13: our customers need us to have great generative AI capabilities.
Speaker 13: So many of them have their data platforms on AWS,
Speaker 13: and if you got your data here, you really want
Speaker 13: to have your generative AI and all the powerful capabilities
Speaker 13: that you need from those capabilities are in the same place.
Speaker 13: And so we have been, are and will continue to
Speaker 13: be very motivated to deliver for customers.
Speaker 12: Adam, what does this mean for the kind of ramp
Speaker 12: up or path forward for Trainium and Inferentia. You put
Speaker 12: a lot of emphasis that anthropic brings you a maker
Speaker 12: or creator foundation models at scale. Well, you now need
Speaker 12: to ramp up I guess your third party manufacturing relationships
Speaker 12: to say, okay, let's get more Trainium on more inferential
Speaker 12: online to support the workloads.
Speaker 13: Well, it's absolutely true that there is a huge demand
Speaker 13: for all of the different ships with which people do
Speaker 13: a generative AI workloads, and so We absolutely have already
Speaker 13: been ramping up our training and inferential supply chain and
Speaker 13: ramping up the apply that we can.
Speaker 7: Create as quickly as possible.
Speaker 13: And yes, Anthropic will have access to very significant quantities
Speaker 13: of compute which we'll have trainum and inferentia in them.
Speaker 13: So yes, that's one of many reasons why we continue
Speaker 13: to ramp up and to provide a very robust AWS
Speaker 13: controlled supply chain for AI chips.
Speaker 14: And is that where the revenue boost comes, Adam, because
Speaker 14: we're looking at the share price reaction is higher on
Speaker 14: the day. When does this all start to really drive adoption,
Speaker 14: money and the bottom line for Amazon?
Speaker 7: Well, I think that AI in general.
Speaker 13: Look, AWS has had machine learning services since at least
Speaker 13: twenty seventeen when we released our sage Maker machine learning service,
Speaker 13: which has over one hundred thousand AWS customers on it.
Speaker 13: So we've been doing machine learning for a long time
Speaker 13: inside of AWS and obviously more recently have had a
Speaker 13: significant number of generative AI customers, and we will certainly
Speaker 13: continue to ramp up anticipate, you know, quite steeply. We
Speaker 13: have many sources of growth inside of AWS where a
Speaker 13: scaled and relatively sizable business at this point, and customers
Speaker 13: are running their data platforms on AWS. They are building
Speaker 13: out more and more applications for things like supply chain
Speaker 13: and contact center management on AWS.
Speaker 7: I've still a whole lot of.
Speaker 13: Storage and compute and database workloads ramping on our AWS,
Speaker 13: so we have many sources of growth I anticipate, but
Speaker 13: there's absolutely no doubt that generative AI looks like it's
Speaker 13: going to be an explosive additional source of growth in
Speaker 13: the years ahead.
Speaker 12: Adam, we put a lot of emphasis on the up
Speaker 12: to four billion dollars, and you know, I understand and
Speaker 12: thank you for explaining how the relationship will work in practice.
Speaker 12: If I put to you this is an example of
Speaker 12: Amazon or AWS basically paying a leader in the field
Speaker 12: of AI, handing over cash to allow to make them
Speaker 12: use trainum and inferentia, how would you respond to that
Speaker 12: and explain to me how you bring new customers on
Speaker 12: board who are really interested in the AI accelerators that
Speaker 12: you have built without having to invest in them as
Speaker 12: a sort of backup.
Speaker 7: Sure.
Speaker 13: Well, the I think the really big news today is
Speaker 13: the new expanded relationship between Anthropic and Amazon, in which
Speaker 13: they will have access to really large quantities of training
Speaker 13: and in FRENTI at Chips, customers will have access to
Speaker 13: those models, including early access to critical features through Amazon
Speaker 13: Bedrock and Amazon will get to AWS, We'll get to
Speaker 13: work with Anthropic to ensure that, you know, we optimize
Speaker 13: our training and Inferentia technology going forward.
Speaker 7: That's the benefit for customers. And yes, as part of this.
Speaker 13: We're pleased to be making an adial an initial investment
Speaker 13: of one point twenty five billion dollars into Anthropic's financial investment,
Speaker 13: and that could go up as high as four billions,
Speaker 13: as you said, over time. But it's really driven around
Speaker 13: customer value and what this is going to mean to
Speaker 13: customers who are very, very determined as they should be,
Speaker 13: to figure out generative AI strategies. We already are working
Speaker 13: in depth with customers, as is Anthropic on forming those
Speaker 13: strategies and actually moving to execution. We have a lot
Speaker 13: of great customers from Lonely Planet to Nexus, Lexus and
Speaker 13: a number of others who are actually moving to production
Speaker 13: with generative AI on AWS and Anthropic, And in addition,
Speaker 13: as you alluded to, we'll be working with all of
Speaker 13: the partners that our customers want to do business with.
Speaker 13: If it's an important partner to our customers. It's going
Speaker 13: to be an important partner to us as well.
Speaker 12: Amazon Web Services CEO Adam Selipski, thank you.
Speaker 5: You're listening to the tape.
Speaker 9: Catch our live program Bloomberg Markets weekdays at ten am
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Speaker 9: flagship New York station, Just say Alexa, play Bloomberg eleven thirty.
Speaker 1: Last month, existing US home sales the United States fell
Speaker 1: by zero point seven percent from the prior month. That's
Speaker 1: a seven month low. So higher interest rates and a
Speaker 1: lack of supply contributing to those declinents. Let's see kind
Speaker 1: of where we go from here. We can check in
Speaker 1: with Lisa's start Event, chief economists at Bright Mls. She
Speaker 1: joins us via zoom. Lisa again, it's nobody's putting. There's
Speaker 1: no there's really no supply out there. So the net result,
Speaker 1: there's not a lot of transactions. What do you see
Speaker 1: going forward?
Speaker 15: Of course, have made it more difficult for buyers, but
Speaker 15: those higher rates have also caused a lot of existing
Speaker 15: homeowners to stay put when they might have thought about
Speaker 15: listing their home for sale. I think mortgage rates are
Speaker 15: going to stay elevated throughout the fall and into the winter,
Speaker 15: so I think inventory is going to still be very
Speaker 15: very low for the last part of the of the year.
Speaker 15: I think we're I do think though, we're going to
Speaker 15: start to see buyer demand pull back even further. You
Speaker 15: mentioned August numbers were the lowest we've seen in several months,
Speaker 15: and I think we're going to see an even further
Speaker 15: contraction of buyer activity in the market simply because those
Speaker 15: rates are so high.
Speaker 1: Is there a rate, Lisa, that you think would entice
Speaker 1: people to come back into this market. I mean we're
Speaker 1: now looking at the UH, you know, the thirty year
Speaker 1: fixed like seven point sixty four percent. Here. Is there
Speaker 1: a level, whether it's six percent, five percent, four percent,
Speaker 1: where people start coming back into the market.
Speaker 6: Yeah, I don't think.
Speaker 15: We're going to see four percent UH in an eight
Speaker 15: in any short order, for sure. You know, I think
Speaker 15: it's I think it's not only about the level, but
Speaker 15: also about the timing. Last year, we saw rates go
Speaker 15: over seven percent, like right around the beginning of November,
Speaker 15: and we saw the market just sort of shut down.
Speaker 15: People were reacting to the higher rates, but they were
Speaker 15: also reacting to the fact that, you know, the holidays
Speaker 15: were coming and people were sort of just going to
Speaker 15: take a break before they returned to the market in
Speaker 15: the first of the year. So I think, you know,
Speaker 15: if we see mortgage rates come down to you know,
Speaker 15: six six and a half percent, which I don't think
Speaker 15: we're going to see until next year, Frankly, I do
Speaker 15: think that'll be the level that will change the landscape
Speaker 15: for a lot of buyers and sellers, importantly bringing more
Speaker 15: of those listings onto the market.
Speaker 1: So, I mean, I guess the key issue here for
Speaker 1: most people is just affordability. I mean, you know, the
Speaker 1: given the mortgage rates and given where housing prices are,
Speaker 1: just the affordability is just the key issue here for
Speaker 1: a lot of potential buyers.
Speaker 15: I think that's right. You know, we've been talking about
Speaker 15: inventory as the main constraint on the market, but affordability
Speaker 15: is going to be more and more of what we're
Speaker 15: talking about. You know, rates over the last fifty years.
Speaker 15: Mortgage rates have averaged about seven point seventy five percent
Speaker 15: over the last four decades, So the rates we're seeing
Speaker 15: now aren't particularly high by historic standards.
Speaker 6: But what's very.
Speaker 15: Different is that home prices have been rising much much
Speaker 15: faster than incomes over the last decade or two. And
Speaker 15: we're seeing now that affordability, when you compare household incomes
Speaker 15: to the price of buying a home, affordability is worse
Speaker 15: than it's been in history and is really the main
Speaker 15: driver of people having to leave the market, particularly first
Speaker 15: time home buyers. And that's a real problem as the
Speaker 15: ability to accumulate well through home ownership is you know,
Speaker 15: being is there's an obstacle to that for many first
Speaker 15: time buyers right now.
Speaker 1: So where are first time home buyers going? I mean,
Speaker 1: do they just continue to rent? What do they do?
Speaker 15: Yeah, So there's a couple of things we've been seeing.
Speaker 3: You know.
Speaker 15: We're seeing that first time buyers are getting a little
Speaker 15: bit more creative. We're seeing more first time buyers who
Speaker 15: might be you know, looking to buy a home with
Speaker 15: their parents, for example, or looking to buy with buy
Speaker 15: a home where they could rent out part of the
Speaker 15: home to have that income be able to make the
Speaker 15: month payment a little more doable. We're also seeing that
Speaker 15: maybe first time buyers are more willing to take on
Speaker 15: a fixer upper when that might not have been the
Speaker 15: case a couple of years ago. But frankly, we're seeing
Speaker 15: that folks in that first time home buying age actually
Speaker 15: maybe deciding that renting makes the most sense. As more
Speaker 15: apartment construction has come online, rents are actually falling in
Speaker 15: some markets across the country, and renting might be a
Speaker 15: better financial decision than buying at this point for those folks.
Speaker 1: You know, when you listen to the home builders, they
Speaker 1: talk about building these larger homes than McMansions, if you will,
Speaker 1: because that's simply where the profit margin is, but arguably
Speaker 1: where the demand is, or where the need is is
Speaker 1: for some of those first time buyers as smaller homes.
Speaker 1: But do are we seeing the homebuilders kind of move
Speaker 1: that way? Are they sticking with where the margin is?
Speaker 15: Yeah, you know, that's a great question. And you know,
Speaker 15: we have seeing that the size of new build homes
Speaker 15: has come down, and I do think that is in
Speaker 15: response to the demand from first time home buyers. The
Speaker 15: biggest constraint that home builders have really is the local
Speaker 15: zoning RD relations on the ground that limit the amount
Speaker 15: of homes that they can buy. So you talk about
Speaker 15: profit margins, if builders were able to build more homes
Speaker 15: on a given lot, they could build them smaller and
Speaker 15: still make the numbers pencil out. And that really is,
Speaker 15: you know, where the constraint is. Builders see that first
Speaker 15: time home buyer demand and if they could make it
Speaker 15: work in order to make a profit, they certainly would
Speaker 15: be building there. But there's still demand all along the
Speaker 15: price ranges, and so they're still seeing folks coming in
Speaker 15: for those larger homes.
Speaker 1: Is the tightness in the real estate market, the lack
Speaker 1: of liquiditying in the real estate market. Is that a
Speaker 1: are we seeing that across the country or the regional variances.
Speaker 15: Of note, Yeah, you know, I think we could characterize
Speaker 15: it as a tight inventory situation across the country for sure,
Speaker 15: But there are places where the market is loosening up
Speaker 15: a little bit. For example, we're seeing in markets that
Speaker 15: have been traditionally second home and vacation home markets. We're
Speaker 15: seeing those are places where inventory is increasing, perhaps as
Speaker 15: people who had per just a second home or a
Speaker 15: vacation home, or maybe a home to use as a
Speaker 15: short term rental are listing those homes for sale. So
Speaker 15: we are starting to see supply growing in some markets
Speaker 15: and I expect we'll see an uptick in inventory in
Speaker 15: other markets as we head into the end of the
Speaker 15: year and into the first part.
Speaker 3: Of next year.
Speaker 1: If I want to get a mortgage, can I get
Speaker 1: a mortgage?
Speaker 14: Yeah?
Speaker 15: You know, you still can get a mortgage. It still
Speaker 15: pays to shop around, for sure. We talked about what
Speaker 15: the average rate was on a thirty year fixed, but
Speaker 15: it obviously varies depending on the borrower. And I think
Speaker 15: the most important thing for a perspective home buyer right
Speaker 15: now is to make sure you're out there shopping around
Speaker 15: to find a lender who can provide you with the
Speaker 15: rate and the terms that make sense for your situation.
Speaker 15: More folks are looking at adjustable rate mortgages. We've seen
Speaker 15: in some markets where there are a lot of VA loans,
Speaker 15: for example, we're actually hearing more talk about assumable mortgages,
Speaker 15: which of course is limited to the VA product and
Speaker 15: to some other products. But I think you do need
Speaker 15: to cast your net a little bit why to make
Speaker 15: sure you're getting all of the options that are available
Speaker 15: to you.
Speaker 1: All right, Lisa, thank you so much for joining us.
Speaker 1: I really appreciate gatting your thoughts there. Lisa Sturtevant, Chief
Speaker 1: Economists at Bright MLS. Again, it is a tight real
Speaker 1: estate market out there, folks. US existing home sales fell
Speaker 1: to seventh month low on rates and supply. That was
Speaker 1: in the month of August, down zero point seven percent
Speaker 1: from the prior month. So not a lot getting transacted
Speaker 1: out of there, not a lot for sale, and then
Speaker 1: if you do find something, we've got to pay a
Speaker 1: pretty steep mortgagery. We'll keep on top of that.
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Speaker 6: I'm Matt Miller.
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