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Speaker 3: This is a joy.
Speaker 2: He is definitive in the world. A use of gold.
Speaker 2: James Steele joins now from HSBC. Really honored to have
Speaker 2: you in our studios. If we were to walk near
Speaker 2: our offices by the Ritz Carlton in Dubai, where Jumana
Speaker 2: Bertecci holds court, but if we go down by the
Speaker 2: canal in the old historic souks, where all of the
Speaker 2: Indian Ocean, all of Eurasia buys gold, what would be
Speaker 2: the mood in the souks of Dubai.
Speaker 4: Well, first of all, thank you for having me, Tom
Speaker 4: it's a real pleasure, I think, one of restraint. And
Speaker 4: now that we've seen such a big price rises, what
Speaker 4: has resonated through the physical side of things, And that's
Speaker 4: not hedge funds, that's not asset managers, portfolio managers. That's
Speaker 4: the people on the ground, rich and poor, buying gold.
Speaker 4: There's been a pullback. Bar demand is down. Physical coin
Speaker 4: demand is down. We know that because the premiums have
Speaker 4: come in. All the major mints are reporting somewhat lower demand,
Speaker 4: with exception of the Royal Mint, which has been a
Speaker 4: function of the election. So there's a trigger day demand
Speaker 4: for and coins, which we tend to see. If it
Speaker 4: ever looks in a democracy that the center left are
Speaker 4: going to win, there tends to be an increase in
Speaker 4: gold demand. But other than that, there's been there's been
Speaker 4: a pullback.
Speaker 3: I got to ask the question of the day.
Speaker 2: Is Fort Knox still like Goldfinger? Is Fort Knox still
Speaker 2: where we keep all our gold?
Speaker 4: This is where we keep our gold in the United States,
Speaker 4: And it has, to my knowledge, about thirty thousand highly
Speaker 4: trained troops guarding it.
Speaker 3: So it's like Goldfinger still.
Speaker 4: It is it is there, and and it's it's it's
Speaker 4: the country's gold.
Speaker 2: Like is a bar of gold set at Fort Knox
Speaker 2: for like sixty years or dare I say they've.
Speaker 3: Been it's been there, it's been.
Speaker 4: It's been there a long time.
Speaker 3: And Fort Knox is not at costco, Yes, exactly.
Speaker 4: The the you know, gold goes where the money goes.
Speaker 4: And in the inter war and post war period it
Speaker 4: came to the United States out of Europe. In the seventies,
Speaker 4: it went from the Advanced countries to the Middle East
Speaker 4: with oil, and now it's going to Asia. So and
Speaker 4: this is true for the last two thousand years, gold
Speaker 4: has followed where the money goes.
Speaker 5: Okay, talk to us about China. Can you tell us
Speaker 5: just give us a sense of demand for gold in China.
Speaker 1: That's what I've heard.
Speaker 5: I don't know anything about the gold business, but they
Speaker 5: say China. What's China mean for a gold demand? Who's
Speaker 5: buying gold?
Speaker 3: Well?
Speaker 4: I think you have to break it down into two components.
Speaker 4: One is central bank demand, the demand from the People's
Speaker 4: Bank of China, which, like all central bank demand, not
Speaker 4: just theirs, is somewhat opaque and we never get timely
Speaker 4: information generally speaking.
Speaker 3: And also.
Speaker 4: The demand outside of the People's Bank Now the demand
Speaker 4: outside of the People's Bank has been very good, but
Speaker 4: it's not necessarily because there's such devotees of gold. The
Speaker 4: property market is down, the equity markets are down, and
Speaker 4: most people in China don't quite have the same suite
Speaker 4: of investments, even at the most sophisticated end, at the
Speaker 4: professional investor end that we do, or British or American
Speaker 4: hedge funds have, et cetera, et cetera. So when both
Speaker 4: those things are down, gold is a winner by default,
Speaker 4: and that's what we've seen. I don't necessarily think it's
Speaker 4: because of a mad love affair with gold, and I
Speaker 4: suspect that when or if I suppose when, is more
Speaker 4: the question. The property market stabilizes, the equity markets they're stabilized,
Speaker 4: will get gold underfunded. Now the central bank buying is
Speaker 4: very different, and that's government buying.
Speaker 3: Now.
Speaker 4: They reported you might as well noticed the pullback in
Speaker 4: gold a few days ago. Last week, well, they reported
Speaker 4: unchanged gold reserves for the previous month. That did not
Speaker 4: mean that they've stopped buying. It just meant that they
Speaker 4: didn't buy that month. That was misinterpreted, I think by
Speaker 4: the market, and we got a very abrupt decline of
Speaker 4: seventy seven seventy nine dollars that day, But it wasn't
Speaker 4: a policy statement. They just said our gold reserves at
Speaker 4: the end of May were the same as they were
Speaker 4: at the end of April, and they had been accumulating
Speaker 4: gold every month for the previous eighteen months.
Speaker 3: So how about silver.
Speaker 5: Do we think about silver different because that's up twenty
Speaker 5: four percent this year? Is that just rising tides? Looking
Speaker 5: all boats for silvers or special you do.
Speaker 4: Tend to get a gold silver ratio that people will trade.
Speaker 4: And I remember in the old days down at the
Speaker 4: World Trade Center when I worked on the comes, when
Speaker 4: it was called that, I would see people look over
Speaker 4: at the silver booth and then back back to the
Speaker 4: gold and they would trade. That's exactly how it used
Speaker 4: to work. So the silver market's considerably less voluminous than
Speaker 4: the gold market, and so when you get a big
Speaker 4: moving gold, you generally get silver lifted. Now, the big
Speaker 4: difference between the two is that over fifty percent something
Speaker 4: like we estimate about fifty seven fifty eight percent of
Speaker 4: silver demand is not for bars or jewelry or coins
Speaker 4: the way it is for gold.
Speaker 3: Industrial.
Speaker 4: It's industrial exactly, and everything Now, even though we forecast
Speaker 4: rather sluggish industrial production growth this year, everything you need
Speaker 4: silverflo is growing at an above rate. So we think
Speaker 4: the silver demand industrial demand is moving at twice the
Speaker 4: rate of underlying industrial growth.
Speaker 2: There is a book that is like James Steele wrote
Speaker 2: the screenplay. It is William Silber Definitive of nineteen fourteen,
Speaker 2: when we took the gold standard from Britain. He literally
Speaker 2: describes the boat coming across the ocean where McAdoo said,
Speaker 2: it's our time and we became dominant. There's a content,
Speaker 2: there's a fear out there James Steele, that someday there's
Speaker 2: going to be a boat to China where they steal
Speaker 2: the gold standard from us. They deal they steal dollars,
Speaker 2: sovereigntry from us.
Speaker 4: How do you respond to it, Well, I think there's
Speaker 4: enough room for everybody. The United States is an enormously
Speaker 4: large economy. But I think what you're touching on is
Speaker 4: maybe this issue of dollar d dollarization, and that's been
Speaker 4: ascribed to some of the reasons that central banks, not
Speaker 4: just China, have been buying gold. No, we don't believe
Speaker 4: that there's going to be any loss of sovereignty for
Speaker 4: the US dollar as far as the world's reserve currency
Speaker 4: goes for the next ten twenty years, as far as
Speaker 4: you can see for reasons that would take an entire program,
Speaker 4: you and I could talk about it. But that's not
Speaker 4: to say that every single central bank in the world
Speaker 4: wants as many dollars as they do have. They may
Speaker 4: want to reduce their reserves by say sixty five percent
Speaker 4: to sixty two So what do you do with that
Speaker 4: three percent? Well, there's they're very limited as to what
Speaker 4: they can buy, both in fixed income and for currencies,
Speaker 4: and there may be a reason that they wouldn't want
Speaker 4: to buy the euro or the yen, and gold provides
Speaker 4: a perfect sweet spot of getting out of the dollar
Speaker 4: without going into something else.
Speaker 3: Well, this is where I wanted to go. It's like
Speaker 3: you read my script.
Speaker 2: Dennis Gartman, very different from James Steele, has nailed gold up.
Speaker 2: But he's also nailed it gold up in Japanese yen.
Speaker 2: And it's shocking what Gartman predicts if Japan doesn't get
Speaker 2: their act together and you don't see strong ye and
Speaker 2: you see continued week yen. Is there a linkage between
Speaker 2: James Steele's world of gold and currency that signals a
Speaker 2: huge opportunity in Europe.
Speaker 4: Well, I think you know much of that is the
Speaker 4: currency play as well. Yes, and exactly, And you take.
Speaker 3: It over to Jeremiah. I mean you guys are on
Speaker 3: speaking terms, right.
Speaker 4: I haven't spoken in a while, but we have done.
Speaker 4: I think I can't remember when.
Speaker 2: Talks daylight Steve Major, but Derren Myer, forget it.
Speaker 4: But they're they're both. They are both brilliant analysts. Say,
Speaker 4: I want to go on record as saying, but and
Speaker 4: that's what we've seen. That's one of the reasons that
Speaker 4: the physical demand for gold has weakened. If not only
Speaker 4: has gold gone up, but in Roupeat terms, for example,
Speaker 4: it's enormously expensive. So so yes, gold would be high
Speaker 4: in Japanese terms if the end we're to weaken. But
Speaker 4: but that's almost I don't want to quite say sophistry,
Speaker 4: but it's getting on.
Speaker 3: For we could say sophistry and survants. I don't know
Speaker 3: how to spell it.
Speaker 6: Exactly.
Speaker 5: Jim gl c O the Global Commodities Monitor, that's all
Speaker 5: I know about your business, commodities business. What's the trade
Speaker 5: that people want to talk to you most about these days?
Speaker 4: Well, trying to figure out a gold. One of the
Speaker 4: one of the interesting things is that I've just come
Speaker 4: back from Europe, and both in Europe and North America,
Speaker 4: the previous rallies have had a clear smoking gun. This
Speaker 4: one hasn't so much right, And that's what makes it
Speaker 4: so interesting because it's a couple of things. There's geopolitics
Speaker 4: going on as well. And one of the thing I
Speaker 4: just want to mention, and why it's so influential, is
Speaker 4: that you can come to me and you can say, Jim,
Speaker 4: what happens to gold? Usually when the FED cuts by
Speaker 4: fifty base points or when it increases but or when
Speaker 4: the dollar goes up this much or down this much.
Speaker 4: But Gaza is different from Ukraine, It's different from the
Speaker 4: South China Sea, its different from the Taiwan Straits, and
Speaker 4: so every geopolitical event may have a different impact on gold.
Speaker 3: You can't muddel it.
Speaker 2: Forty seconds left here, I'm asking for a friend. What's
Speaker 2: the markup on gold? It a fancy store in fifty
Speaker 2: seventh Street, like Tiffany.
Speaker 3: It's very very high. Thank you. It's good to know that.
Speaker 2: Why don't you say a double hundreds of percent plural?
Speaker 4: Well, you're paying, but you're paying for the artistry, and
Speaker 4: you're paying for the for the workmanship.
Speaker 3: You're not paying for the blue book, paying.
Speaker 4: For the you're paying for that too.
Speaker 3: But I mean, and.
Speaker 4: That's it's it's it's well worth it. It hasn't dimmed
Speaker 4: they demand at the high end. But it's one of
Speaker 4: the reasons the gold price doesn't doesn't change. And so
Speaker 4: whereas in Asia you'll see that the markup is very
Speaker 4: low and the price is changed rapidly in the shops.
Speaker 3: Interesting. This has been a pleasure. Please come in again.
Speaker 4: Thank you, Tom, Thank you for having me.
Speaker 2: James Steele with a question the definitive guy on fundamental
Speaker 2: Gold around this world from the Canal of Dubai to
Speaker 2: Asia to Fort Knax. I saw a Goldfinger like a
Speaker 2: while back. What a great movie. Still, I've never.
Speaker 1: Been anybody I try to play a concert, you.
Speaker 4: Know, I was, I was going to say, but I
Speaker 4: thought it would be a party political broadcast. Our vault
Speaker 4: is the second biggest vault in the American continent after
Speaker 4: Fort Knox.
Speaker 3: Wow, excuse me? Can I pray tell? Can I ask?
Speaker 3: Where is the HSBC vault?
Speaker 4: Yes, four fifty two Fifth Avenue. I could have taken
Speaker 4: you into it a couple of years.
Speaker 6: Ours taken notes. Thank you James always.
Speaker 2: Great, James till thank you so much, huge, huge, huge
Speaker 2: comments for James steal As there should be Virginia Mesanu
Speaker 2: joins us now, yes, global cio equity at Alian's what
Speaker 2: we really want to hear from her about this turmoil, Virginy.
Speaker 2: What happened is Charles de Gaulle's fifth Republic? Where did
Speaker 2: the middle go that Charles de gaud built out of
Speaker 2: World War Two?
Speaker 7: Well, I you know, it's it's really interesting and the
Speaker 7: results of the European elections were really shocking in a way,
Speaker 7: although not unexpected that I would say, you know, the
Speaker 7: quantum of that shift is really important. It's a bit
Speaker 7: of a uniform trend. You have Poland, Holland, France, Germany, Sweden,
Speaker 7: they've all moved towards more the far right. And of
Speaker 7: course the action that President Macrostecon calling for a snap
Speaker 7: election yesterday is is really important. Right, It's a bit
Speaker 7: but I think, yeah, he's got some good rationale for
Speaker 7: doing it, but it's going to be really interesting.
Speaker 3: Visionie.
Speaker 2: I think of a list of surveillance guests, including Madame Leguard,
Speaker 2: who have a transatlantic perspective. You're on that short list.
Speaker 2: Can the tensions, the political tensions of Europe carry over
Speaker 2: into America, in particularly to November of this year's election.
Speaker 7: Well, I think they are definitely linked in the sense
Speaker 7: that if you look at President Macon, he's done quite
Speaker 7: well on the economic front, the defense front, if you want,
Speaker 7: the diplomacy front. But some of the concerns that I've
Speaker 7: led the French electorate to move to the right, where
Speaker 7: domestic issues, issues of security, fear of the war, terrorist attacks,
Speaker 7: a lot of attacks on kids at school for example,
Speaker 7: immigration integration, you know, all those issues are important. And
Speaker 7: of course the far right party is more in support
Speaker 7: as Madame Lupinne and Bardella have made it public, more
Speaker 7: in support of Trump. And also there's definitely some links there, Paul,
Speaker 7: I think.
Speaker 3: We need to clear this up.
Speaker 2: I've had a lot of criticism about the use by
Speaker 2: Bloomberg a far right.
Speaker 3: We are not editorializing their folks.
Speaker 2: The parties are actually there's three, and they're actually called
Speaker 2: far right. When we say far right, that's the identifiable
Speaker 2: name of three of the fraction parties of the more
Speaker 2: conservative wing of French politics.
Speaker 5: VI Jinnie talk to us about when we think about
Speaker 5: over the last twenty four hours of the European Union
Speaker 5: and in France with the snap elections, how much of
Speaker 5: that is economics, how much are people concerned about their
Speaker 5: economic outlook, inflation and so on.
Speaker 7: Part of it is inflation, but I really think it's
Speaker 7: all about security, immigration and in a way a vote
Speaker 7: against green Green scene as a cost. It is really
Speaker 7: interesting if you see one of the biggest loser, of
Speaker 7: course is the Green Party. So I think that combined
Speaker 7: with the rising popularity of mister Bardella, the twenty eight
Speaker 7: year old, that if in fact there's a majority in
Speaker 7: the next elections for Madame Lupinn, he could become a
Speaker 7: very important part of the political life. And of course
Speaker 7: he's very untested. The President Macon had promoted Monsieur Taala
Speaker 7: as a younger if you want, politician, although older than Bordella,
Speaker 7: and in the recent debates around the key topics around
Speaker 7: electrification et cetera, it was very clear that mister Baldella
Speaker 7: was not really prepared for such a mandate. And I
Speaker 7: think that's the point that McCoy is trying to make.
Speaker 7: Bring them in and see how they will or will
Speaker 7: not be able to do as a big part of
Speaker 7: the government and hopefully influence in his mind the next
Speaker 7: elections in a couple of years in twenty seven.
Speaker 5: All right, So, Reginia, given all that backdrop here that
Speaker 5: we've seen over the last again couple of days coming
Speaker 5: out of Europe at alliance, how do you think about just,
Speaker 5: you know, allocating capital across the globe. I mean, how
Speaker 5: do you think that Europe versus the US versus is
Speaker 5: friends on sales.
Speaker 3: Friends on sales.
Speaker 6: That's simple.
Speaker 7: You might be able to buy it a bit cheaper.
Speaker 7: I mean, in general, the European markets are quite cheap.
Speaker 7: Of course, what you have supporting the markets is also
Speaker 7: the rate cuts taking place ahead of the FED. And
Speaker 7: of course what are the next ones? When are the
Speaker 7: next one? Is the big questions. You also have some
Speaker 7: interesting themes around electrification, around industrials and and and the
Speaker 7: energy transition. So we have not only the climate transition
Speaker 7: but also the energy transition given what's happening with Russia,
Speaker 7: and that is an important part of investment that I
Speaker 7: think is interesting for global investors.
Speaker 2: This has been very valuable Virginie Messina, who thank you
Speaker 2: so much with allions as we are audible towards the turmoil,
Speaker 2: the political.
Speaker 3: Turmoil in France. How do you go summer claudiate USC?
Speaker 6: I got to show up for class to do that.
Speaker 2: Will running us now with parchment from USA and distinguished
Speaker 2: at that as Lauren Goodwin, she strategius in New.
Speaker 3: York life as well.
Speaker 2: What was it like grinding and getting a deserved summicum
Speaker 2: laudie at USC? Were you the only one in class
Speaker 2: five days a week?
Speaker 1: Well, they just hold class on the lawn, right, you.
Speaker 3: Have to have economics on the law.
Speaker 1: Really a whiteboard that rolls on wheels. I still have
Speaker 1: one in my office. Actually it's a signature tree.
Speaker 3: They literally would.
Speaker 2: Roll the whiteboard out onto the lawn nose.
Speaker 1: But I did take a skateboarder class.
Speaker 5: You did take a skateboard to class.
Speaker 2: I took a snowshovel and I'm lucky I got home. Lauren,
Speaker 2: thanks for being with She worked for venerable firm. We've
Speaker 2: done too much of the parlor game today. On the FED,
Speaker 2: where's this fed going to be in a year or
Speaker 2: in six months?
Speaker 3: Do they have a plan or are they literally making
Speaker 3: it up? Report the report?
Speaker 1: I think that they're trying really hard to walk this
Speaker 1: tightrope between really where they sit right now, which is
Speaker 1: that the data are slowing. They believe they're restrictive, but
Speaker 1: they want to make sure that that doesn't turn into
Speaker 1: a policy mistake of being restrictive for too long. I
Speaker 1: think that the challenge that they face on the six
Speaker 1: to twelve month time horizon is that we're in a
Speaker 1: very capital intensive phase of economic activity. That's related to
Speaker 1: artificial intelligence, it's related to electrification and infrastructure. This is
Speaker 1: a policy environment but also a corporate spending environment that's
Speaker 1: constructive for economic activity, and that's going to be one.
Speaker 1: We're getting inflation closer to two percent. Allowing them to
Speaker 1: pull rates back to two and a half percent is
Speaker 1: just going to take time.
Speaker 5: So there's a lot of folks out there in academia
Speaker 5: and in practice in the marketplace that are saying the
Speaker 5: FED is missing the boat already. They need to be
Speaker 5: cutting rates.
Speaker 8: Now.
Speaker 5: What do you say to those folks?
Speaker 1: I tend to agree on the idea of the PI
Speaker 1: that the time may be now for the pivot, and
Speaker 1: that's because we are seeing not the aggregate economy, but
Speaker 1: areas of interest rate sensitive sectors, areas of lower income consumers,
Speaker 1: businesses that use banks or floating rate credit to borrow.
Speaker 1: And that's been the case that that turning point has
Speaker 1: been taking place over the past couple of years. And
Speaker 1: so if we are looking to soft land the economy,
Speaker 1: I think the evidence is in that inflation is moving
Speaker 1: reliably downward. That's something that's that's that's been clear to
Speaker 1: me over the last six months, and so I do
Speaker 1: think that if the FED we're looking to extend the
Speaker 1: cycle soon would.
Speaker 2: Be the time bring your economics over to investment a
Speaker 2: bond portfolio, in equity portfolio, do you need to set
Speaker 2: your actuarial assumption higher because of higher for longer or
Speaker 2: because of a new reset in our start?
Speaker 1: I believe that you do. Our star I believe has
Speaker 1: moved a bit higher as a result of this capital
Speaker 1: intensive stage of economic growth that we're in. And it's
Speaker 1: an environment where even in a traditional investor portfolio, you
Speaker 1: investors may be missing the point in the transition point
Speaker 1: we're looking at.
Speaker 2: Okay, so what an actual assumption If you're popping six
Speaker 2: percent and you're telling me I have to go to
Speaker 2: seven percent, that means I have to put more funding
Speaker 2: into my institutional or retail retirement account.
Speaker 1: Right, Yes, that's right.
Speaker 3: This is a big deal.
Speaker 5: I know.
Speaker 3: I mean, this is the government's way behind on this.
Speaker 2: There should be increased levels in four oh one ki R. Yeah,
Speaker 2: and pension and profit share.
Speaker 5: On the sweeney offsprings are all maxing album the full
Speaker 5: one kg and guarantee you that, Lauren, I love your
Speaker 5: notes here. You give us some high conviction ideas here.
Speaker 5: You say that equity valuations are high. A lot of
Speaker 5: folks believe that. All right, what do I deal? I'm
Speaker 5: not going to sell? Well, what do I do here?
Speaker 5: If I feel like equity valuations are high? What are
Speaker 5: my alternatives?
Speaker 1: Look, I think that you have to stay invested, and
Speaker 1: so what I'm about to say is not sell off
Speaker 1: all your equity and put it into somewhere else. But
Speaker 1: I do think that we've seen considerable gains, and the
Speaker 1: average investor, if they had a sixty forty portfolio a
Speaker 1: year ago or two years ago, they don't have that now.
Speaker 1: And so if the question is where do I put
Speaker 1: new money or where do I put those gains? I
Speaker 1: think that given where we are in the cycle and
Speaker 1: the strength that we've seen in the credit market, we've
Speaker 1: got an environment where those equity market gains may be
Speaker 1: better activated in fixed income and specifically in high yield. Okay,
Speaker 1: it's a sector that, while of course risks arising for
Speaker 1: the market as a whole, you have an interesting high coupon.
Speaker 1: We're also seeing investors start to diversify their US equity
Speaker 1: into international equity and move their cash into short duration
Speaker 1: fixed income to try to lock in the higher rates
Speaker 1: that we have. You think the FED cuts in September
Speaker 1: or December or even January, the next couple of months
Speaker 1: are historically the time to get in to capture those
Speaker 1: higher yields before the market starts to react.
Speaker 5: You know, we've been talking Tom and I have been
Speaker 5: this morning about Apple and AI. How do you guys
Speaker 5: think about AI? Is that's something you invest You just
Speaker 5: own and say, okay, I've got my AI trader. How
Speaker 5: do you guys think about that?
Speaker 1: You know, this is something over the past year that
Speaker 1: we've taken a deep dive on, not just in the
Speaker 1: investment arm of our company, but also in the corporate
Speaker 1: insurance company, working together to understand what these trends might
Speaker 1: look like. There's a couple of ways to think about it.
Speaker 1: I think First, the areas of the market, the Magnificent
Speaker 1: seven that have already seen gains from AI. It's going
Speaker 1: to be very difficult to displace these companies. That's because
Speaker 1: the cost the barriers to entry of this foundational layer
Speaker 1: of technology are just very high. They're doing good work
Speaker 1: that people want, but it takes a lot of power
Speaker 1: and infrastructure to do those things. So we think there's
Speaker 1: a physical layer of artificial intelligence that can be invested
Speaker 1: in via equity, bonds, real estate, and in the future
Speaker 1: it's going to be regulation and ethics that shape corporate
Speaker 1: use cases. We're not there yet.
Speaker 2: I don't want you to get in trouble with the
Speaker 2: general counsul of New York Life, but CIRE is not
Speaker 2: getting fun. I mean, just in the last month thirty days,
Speaker 2: it's really deteriorated. What's the fear level there?
Speaker 1: You know, the fear level I would say is aware
Speaker 1: but not fearful, if that makes sense. So a couple
Speaker 1: of things. First, when we look at a global real
Speaker 1: estate portfolio, we believe the bottom is in and other
Speaker 1: parts of the world, including in Asia and in Europe
Speaker 1: where office space is being used more. In the US,
Speaker 1: there's still price discovery happening. That's a lot of the
Speaker 1: newsflow that we see. There's a lot of what we're
Speaker 1: seeing in the news over the past couple of couple
Speaker 1: of a couple of weeks. But when we think about,
Speaker 1: you know, what do you do now? It is very
Speaker 1: likely that we're going to continue to see valuations written down,
Speaker 1: much in the way that's happened in brick and mortar
Speaker 1: retail over the last decade. I think that these write
Speaker 1: downs continue over the next several years. But commercial real
Speaker 1: estate is diversified differently from office I think regional banks
Speaker 1: are less allocated to real estate than is typically appreciated,
Speaker 1: and so this is a painful piece for investors in
Speaker 1: their portfolio. Across the board. It's going to take time
Speaker 1: to play out. But the systemic risk, all investors have
Speaker 1: their eye on that, So I'm not as concerned.
Speaker 3: Okay, Lauren, thank you so much.
Speaker 8: Lauren goodred with us in New York Life.
Speaker 3: This is a surprise.
Speaker 2: Yeah, let me describe it for you as a best
Speaker 2: I can Apple one ninety six comes down, one ninety three,
Speaker 2: doom and gloom, and then everybody read Gene Munster, Paul,
Speaker 2: and we got a moonshot on opening trading right up
Speaker 2: buttressed against one ninety eight. That's Apple up five dollars
Speaker 2: off the gloom of yesterday afternoon.
Speaker 5: Yeah, stock an early trading tom up two point four
Speaker 5: per hundred ninety eight dollars. It gives you a market
Speaker 5: cap three point zero three trillion dollars. Stocks up about
Speaker 5: twenty percent year to date.
Speaker 2: What a joy to speak to Mark German of Bloomberg
Speaker 2: News yesterday. Definitive on Apple. Let's listen.
Speaker 9: You saw nothing today that's better than the competition. You
Speaker 9: saw nothing today that's different from the competition except marketing
Speaker 9: and a focus on privacy. Right, So that's the difference here.
Speaker 9: They're not the first, but they're also not the best,
Speaker 9: and they're not the most advanced. They're here extremely late,
Speaker 9: and they showed up to the party without a gift.
Speaker 2: It showed up to the party, and we saw it.
Speaker 2: Yesterday's full disclosure. I turned it off after sixteen minutes
Speaker 2: because I knew Genemunster would tell us what the hell
Speaker 2: happened yesterday deep water asset managements at Gene Monster.
Speaker 3: Jane, I saw your Twitter feed.
Speaker 2: It's simple. The market listened to Gene Munster. Why is
Speaker 2: Apple up five dollars off the gloom of five pm yesterday.
Speaker 10: The reasons it up is because that even though these
Speaker 10: features are features that we have seen that those that
Speaker 10: have been following AI for the past year have seen
Speaker 10: from other companies, the reason why this dock goes up
Speaker 10: is these features are now going to be brought to
Speaker 10: Apple users for the first time. They are transformative, and
Speaker 10: Apple is going to require you to upgrade your hardware
Speaker 10: to get access to these and so about eighty five
Speaker 10: percent of the Apple hardware is going to be needed
Speaker 10: to upgrade. And at the most basic level is that
Speaker 10: these features are going to be something that I believe
Speaker 10: consumers are going to want.
Speaker 2: When will the cell side modify their what ifs, their
Speaker 2: margins ratios, their free cash flow guesstimates? Does that happen now?
Speaker 2: Does it happen ninety days from now? Does it happen
Speaker 2: in twenty twenty six.
Speaker 10: I think what you'll see is maybe twenty percent of
Speaker 10: the analysts are generally on board with this is going
Speaker 10: to have a nice lift over the next one to
Speaker 10: three years, and so you'll see some of those changes
Speaker 10: probably before they report the June quarter. So call it
Speaker 10: in the next month or so, and then you'll see
Speaker 10: the next phase, call it thirty percent will come in
Speaker 10: after the next iPhones come out, which will be middle
Speaker 10: of September, and then the laggards, the fifty percent, will
Speaker 10: probably come in early, probably when they report their December
Speaker 10: quarter of twenty twenty four, so that will be early
Speaker 10: in twenty five. But I think that the trajectory of
Speaker 10: this is you want to own stocks ahead of positive
Speaker 10: earnings revisions, and I think over the next six to
Speaker 10: nine months we're going to see those. And just to
Speaker 10: kind of put a final thought on what the magnitude
Speaker 10: of those revisions are, is that we're talking about growth
Speaker 10: going from call it two percent in calendar twenty four
Speaker 10: to around ten percent in calendar twenty five and maybe
Speaker 10: twelve percent in calendar twenty six. So it's a nice
Speaker 10: move higher. It's a far cry from what we've seen
Speaker 10: from some of these other aipower companies in terms of
Speaker 10: their growth rates, but it is for Apple, up twelve percent,
Speaker 10: up ten percent is much better than the down two
Speaker 10: that they have reported on average per quarter for the
Speaker 10: last year and a half.
Speaker 2: Paul Apple off the April gloom, that's where I sold
Speaker 2: everything up percent.
Speaker 5: Now zero perfect timing. Again, Hey Geene, I'm out here
Speaker 5: sporting an iPhone eleven? Is this changed to a Is
Speaker 5: that going to prompt me to get back into the
Speaker 5: Apple Store and upgrade in September?
Speaker 6: I think it will.
Speaker 10: And again, I think that this is the fundamental piece
Speaker 10: that a lot of those who just analyze this so
Speaker 10: closely are focused on the trees versus the forest. Is
Speaker 10: that I think that people like you are going to
Speaker 10: see these features and want to get upgraded. And maybe
Speaker 10: in your case, you're probably due for an upgrade either way.
Speaker 10: But I think in the case of many people who
Speaker 10: are three years out, I think that they're going to
Speaker 10: see these features and undoubtedly want them. This is the
Speaker 10: biggest change in Apple since the iPhone came out, and
Speaker 10: that's a bold statement, but just to put some perspective
Speaker 10: on it. Over the past, call it fifteen or so
Speaker 10: years since the iPhone came out, what we have seen
Speaker 10: is that, you know, we've had things like Vision Pro,
Speaker 10: We've had services like Apple TV Plus, we've had the iPad,
Speaker 10: we've had the App Store. Those have been kind of
Speaker 10: the cornerstone announcements. But what this fundamentally does is change
Speaker 10: the way that we interact with these devices. It's going
Speaker 10: to add more value and Paul, I think that that
Speaker 10: is going to be a major catalyst for upgrades here.
Speaker 5: So it's interesting, Gene. I'm certainly ready for it. You're right,
Speaker 5: I need to get out there and upgrade. But so,
Speaker 5: how do you think Apple is really approaching AI? Gene?
Speaker 5: Is this kind of like the first salvo in what
Speaker 5: will be a kind of a multiple product or multiple
Speaker 5: software kind of approach to really capturing AI in some
Speaker 5: of the use cases?
Speaker 6: It is, This is definitely the first step.
Speaker 10: And I think what we've seen is this distinction between
Speaker 10: small versus large models, and so from a consumer perspective,
Speaker 10: you don't need to worry about that, no need to
Speaker 10: think about what the distinction is. But Apple is really
Speaker 10: tackling the small models first. That's going to be that's
Speaker 10: going to be the parts of it that are going
Speaker 10: to do things related to our photos and our messages.
Speaker 10: All that data is going to be kept encrypted in
Speaker 10: private on your device, but the things that you can
Speaker 10: do with that is relatively limited. To put in a
Speaker 10: perspective that we measure the intelligence on these models in
Speaker 10: terms of parameters in the case of these models. These
Speaker 10: are three billion parameter models. That's a three billion parameter
Speaker 10: model GPT four. They haven't disclosed what that is, but
Speaker 10: it's probably around a trillion, and so this is an
Speaker 10: order of magnitude different. They need to get more to
Speaker 10: answer question Paul, in the next three to five years,
Speaker 10: to get more into those large language models to really
Speaker 10: have control of their AI future.
Speaker 2: Jane Eric Schmidt didn't walk out on stage yesterday. Is
Speaker 2: there any continuing dialogue with Google to me the bombshell,
Speaker 2: even with a litigation various and sundry governments going after them.
Speaker 2: I mean, I guess they got a linkage of Apple
Speaker 2: and Microsoft's open AI, but am I going to get
Speaker 2: a relationship between Apple and Google?
Speaker 10: So that's going to have This is going to have
Speaker 10: some formative impact. And just to quickly recap as Google
Speaker 10: pays Apple somewhere between thirteen and fifteen billion dollars a
Speaker 10: year to have Google as the default in your Safari browser,
Speaker 10: so it's a big number.
Speaker 6: Google has a product that.
Speaker 10: Competes with Opening Eyes GPT that they didn't get the business,
Speaker 10: so they're probably frustrated with that, but that's beyond the point.
Speaker 10: What the point is is that Google makes their decisions
Speaker 10: based on data, and if it continues to be profitable
Speaker 10: for them to pay Apple thirteen plus.
Speaker 6: Billion dollars a year, they'll do that.
Speaker 10: But one aspect here, as Apple integrates GPT into their experience,
Speaker 10: people will Google search less, and so I suspect that
Speaker 10: the value of the deal with Google will diminish over
Speaker 10: time because it's simply there's just going to be more
Speaker 10: usage that's going to be shifting towards GPT.
Speaker 6: Apple did say.
Speaker 10: They will eventually allow you to plug M and I
Speaker 10: into some of their base applications, so we'll see how
Speaker 10: that plays out longer term.
Speaker 2: I got another hour of questions Geene monster, thank you
Speaker 2: so much, and I should find out mister Munster deep
Speaker 2: water just tireless out on LinkedIn and Twitter.
Speaker 3: Just I mean, he was the informative voice yesterday.
Speaker 2: Absolutely everybody else is doing their thing and Gene's d vailue.
Speaker 5: I mean, you know, Gene put in context a while
Speaker 5: ago to talk about it, AI. I mean he puts
Speaker 5: it right up there with electricity as to the impact
Speaker 5: upon you know, yes, I feel in consumers, and he
Speaker 5: puts the Internet at like forty just to give you
Speaker 5: a sense of scale and magnitude of how Gene views
Speaker 5: AI and its impact on technology.
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