WEBVTT - Apple's AI Announcement, SEC's Boeing Probe 0:00:00.120 --> 0:00:06.800 Bloomberg Audio Studios, podcasts, radio news. 0:00:10.119 --> 0:00:13.920 This is the Bloomberg Daybreak Asia podcast. I'm Brian Curtis 0:00:13.920 --> 0:00:16.639 along with Doug Krisner. Join us each day for the 0:00:16.680 --> 0:00:20.080 stories making news and moving markets in the Asia Pacific. 0:00:20.280 --> 0:00:22.720 You can subscribe to the show anywhere you get your 0:00:22.720 --> 0:00:26.680 podcasts and always on Bloomberg Radio, the Bloomberg Terminal, and 0:00:26.720 --> 0:00:28.080 the Bloomberg Business app. 0:00:28.520 --> 0:00:31.280 Later this year, Apple will deliver some of its new 0:00:31.360 --> 0:00:36.160 AI features using data centers engineered with Apple's in house 0:00:36.200 --> 0:00:39.000 micro processors. This is part of a sweeping plan to 0:00:39.120 --> 0:00:44.440 infuse Apple devices with AI capabilities, Sources telling Bloomberg, the 0:00:44.520 --> 0:00:48.600 company will place its high end M two Ultra chips 0:00:48.960 --> 0:00:52.680 in its cloud computing services. Those chips debuted last year 0:00:52.720 --> 0:00:57.160 as part of the MacPro and Mac Studio computers. Simple 0:00:57.200 --> 0:01:01.320 AI TESK will be processed directly on on Apples, computers 0:01:01.320 --> 0:01:04.600 and mobile devices. Apple is expecting to lay out an 0:01:04.640 --> 0:01:09.720 ambitious AI strategy at the Worldwide Developers Conference that will 0:01:09.760 --> 0:01:11.520 happen on June tenth. 0:01:11.600 --> 0:01:14.800 Brian, all right, let's bring in Mark German for a 0:01:14.840 --> 0:01:19.480 closer look at this story. Bloomberg Chief Global Technology correspondent 0:01:19.920 --> 0:01:23.440 and one of the experts on Apple mark. So this 0:01:23.520 --> 0:01:28.920 is in data centers. How does this actually work and 0:01:29.000 --> 0:01:31.040 compare with AI inference? 0:01:32.640 --> 0:01:36.960 Very good question. So Apple's developing multiple large language models. 0:01:37.400 --> 0:01:39.280 Some of the lms are going to run on the 0:01:39.319 --> 0:01:42.039 devices themselves, so in the iPhone and the iPad, in 0:01:42.080 --> 0:01:44.880 the Mac, in the Apple Watch. Another set of the 0:01:45.040 --> 0:01:47.400 lms that Apple's developed are going to run on the 0:01:47.400 --> 0:01:50.840 cloud itself. Why is that important, Well, some of these 0:01:51.160 --> 0:01:55.160 large models can't actually fit or run on the processors 0:01:55.160 --> 0:01:57.920 in the phone. You need more space, you need more 0:01:57.920 --> 0:02:01.200 advanced processing power, go to the cloud. And so what 0:02:01.240 --> 0:02:03.800 Apple's done is they outfitted some of their data centers 0:02:03.840 --> 0:02:07.120 with M two Ultras, that's currently their highest end processors 0:02:07.360 --> 0:02:11.080 with the biggest AI capabilities and processing horsepower. And so 0:02:11.200 --> 0:02:14.560 the more advanced features like summarizing a lot of text, 0:02:14.840 --> 0:02:17.680 image and text generation, those are going to rely on 0:02:17.720 --> 0:02:21.240 the data centers, whereas simpler tasks are going to involve 0:02:22.160 --> 0:02:23.960 running directly on the phone themselves. 0:02:24.240 --> 0:02:26.840 So in terms of the chip, I'm going to imagine 0:02:27.040 --> 0:02:30.799 that the chip is being manufactured by TSMC, is Apple 0:02:30.880 --> 0:02:34.000 partnering with another firm. In terms of the construction of 0:02:34.040 --> 0:02:36.040 the actual server itself. 0:02:36.560 --> 0:02:39.520 Well, these chips, the M two Ultras, These shifts actually 0:02:39.600 --> 0:02:41.920 last June, so these have been on the marketplace for 0:02:41.960 --> 0:02:45.040 a while. And yeah, as you know, TSMC is the 0:02:45.120 --> 0:02:50.400 exclusive manufacturing manufacturing partner for Apple's chips at this point, right, 0:02:50.480 --> 0:02:53.520 so those are TSMC made. I don't expect this to 0:02:53.560 --> 0:02:56.280 be a big boon to TSMC. This is part of 0:02:56.320 --> 0:03:00.160 the normal cadence of manufacturing for these chips. Anyways, there's 0:03:00.160 --> 0:03:02.760 a new chip that's the M four that Apple announced 0:03:02.760 --> 0:03:05.400 in the iPad pro earlier this week. A version of 0:03:05.440 --> 0:03:07.560 that next year. Later next year will come to the 0:03:07.639 --> 0:03:11.120 data centers for more increases in processing power as they 0:03:11.160 --> 0:03:13.440 expand the cloud performance. 0:03:13.480 --> 0:03:16.239 Here, perhaps we can talk a little bit more about 0:03:16.240 --> 0:03:19.079 these AI type of chips. But I also wanted to 0:03:19.720 --> 0:03:23.880 get to a comment by the ARM CEO, Renee Haas 0:03:24.280 --> 0:03:27.440 he talked about how geopolitics has hurt Apple in China 0:03:27.520 --> 0:03:30.600 and that local brands are getting featured there and we 0:03:30.680 --> 0:03:33.160 understand that, but he also said that they're not going 0:03:33.200 --> 0:03:37.880 to seed that ground. And I'm wondering how that translates 0:03:38.400 --> 0:03:41.600 and what it translates into. Does that mean that Apple 0:03:42.240 --> 0:03:44.400 might get more aggressive on pricing in China? 0:03:45.440 --> 0:03:47.840 Well to that end, here's the good news for Apple 0:03:47.880 --> 0:03:50.800 and China. They've been losing some steam there, they've been 0:03:50.840 --> 0:03:54.600 losing some share there, but they've done nothing to stop 0:03:54.640 --> 0:03:58.280 the bleeding. They haven't pulled any lever available to them 0:03:58.680 --> 0:04:01.440 to try to turn things around there, right, And so 0:04:01.520 --> 0:04:04.000 the good news is it's very likely as they start 0:04:04.040 --> 0:04:07.720 pulling those levers, you're going to start seeing a turnaround. Pricing, 0:04:08.240 --> 0:04:14.000 lower end devices, colors, promotions, new financing plans, particular to 0:04:14.040 --> 0:04:16.839 the Chinese market, those are all things you can see 0:04:16.880 --> 0:04:19.600 Apple try to engage with over the coming months. 0:04:19.880 --> 0:04:21.840 So, Mark, if we circle back and talk a little 0:04:21.839 --> 0:04:25.400 bit about Apple's approach to artificial intelligence. We know that Microsoft, 0:04:25.400 --> 0:04:27.920 for example, has been working with open Ai. In fact, 0:04:27.920 --> 0:04:31.039 they have a big position in the company. And then 0:04:31.640 --> 0:04:36.080 down the road in Silicon Valley you've got Google, Alphabet 0:04:36.120 --> 0:04:41.320 really in partnership with Anthropic along with Amazon. Is Apple 0:04:41.560 --> 0:04:45.680 choosing to partner with anybody when it comes to artificial intelligence. 0:04:46.960 --> 0:04:50.320 So the models that I described, the cloud model as 0:04:50.360 --> 0:04:53.200 well as the in house model, those are developed internally 0:04:53.400 --> 0:04:57.640 at Apple, and so those are Apple models. However, Apple 0:04:57.680 --> 0:05:01.560 has not developed its own gender Todai chatbot things like 0:05:01.680 --> 0:05:06.279 Google Gemini, things like open AI's chat GPT. That's actually 0:05:06.279 --> 0:05:09.080 where Gemini from Google and open i come into play. 0:05:09.480 --> 0:05:12.599 Apple is in talks with both of those companies to 0:05:12.839 --> 0:05:16.039 partner with them to implement their chatbots zeep into the 0:05:16.080 --> 0:05:18.520 new version of iOS and the new iPhones coming in 0:05:18.560 --> 0:05:22.599 the fall in September, I expect Apple to ultimately partner 0:05:22.680 --> 0:05:26.960 with open Ai. Talks have advanced, they've intensified. I've reported 0:05:27.360 --> 0:05:29.880 a couple of weeks ago, and at this point it 0:05:30.000 --> 0:05:32.680 seems pretty likely that there's going to be a deal 0:05:32.720 --> 0:05:35.760 with open Ai reached by June when this announcement is expected. 0:05:36.400 --> 0:05:39.120 And it's also possible becomes you an agreement with Google 0:05:39.160 --> 0:05:39.839 at some point too. 0:05:41.279 --> 0:05:43.640 And I also wanted to ask you about this ad 0:05:44.120 --> 0:05:46.520 that they now have that Apple now has said we'll 0:05:46.560 --> 0:05:51.040 not run on television about the iPad and the destruction 0:05:51.160 --> 0:05:56.119 of a lot of creative tools let's say the human 0:05:56.160 --> 0:06:00.600 condition has been using for thousands of years into a iPad. 0:06:01.200 --> 0:06:04.960 Just your thoughts about the thinking behind that and perhaps 0:06:05.040 --> 0:06:06.520 where and how it went wrong. 0:06:07.680 --> 0:06:10.880 I see exactly what Apple was trying to do, but 0:06:10.920 --> 0:06:14.040 here's a very simplistic perspective. They are trying to show 0:06:14.080 --> 0:06:17.080 that the iPad is super thin, and they're using a 0:06:17.279 --> 0:06:20.520 you know, an industrial press machine to squeeze in all 0:06:20.560 --> 0:06:24.800 the items that are in a that people can do 0:06:24.880 --> 0:06:27.280 on the iPad, the physical items, but squeeze it into 0:06:27.360 --> 0:06:29.520 that really thin five millimeter device. So that's what they 0:06:29.560 --> 0:06:33.800 tried to do. How it appeared Apple's destroying everything that 0:06:33.960 --> 0:06:37.160 people love from the real world in favor of using 0:06:37.360 --> 0:06:41.440 the iPad. Not a great look. Obviously they missed the mark. 0:06:42.080 --> 0:06:44.680 If they have come to that conclusion beforehand, maybe they 0:06:44.720 --> 0:06:47.040 wouldn't have done it this way. I think it was 0:06:47.080 --> 0:06:50.080 a ridiculous move that this ad even made it to market. 0:06:50.600 --> 0:06:53.440 But I guess this is like the third apology in 0:06:53.480 --> 0:06:56.360 the history of Apple. So we'll take this one until 0:06:56.360 --> 0:06:58.280 the next start, think fifteen years from now. 0:06:58.520 --> 0:07:01.000 So give us your assessment of the new iPad. I mean, 0:07:01.080 --> 0:07:04.200 it's been a while since they've updated this product line. 0:07:04.240 --> 0:07:05.359 I mean, what's your take. 0:07:06.680 --> 0:07:09.520 It's a spec bump. It looks better, it's cooler, it 0:07:09.560 --> 0:07:12.440 doesn't do anything new, it doesn't change the iPad story. 0:07:12.880 --> 0:07:15.320 They still need to upgrade the software on this thing 0:07:15.720 --> 0:07:18.720 to make it more like a macroplacement or a laptop. 0:07:18.800 --> 0:07:22.520 Success or it doesn't do anything differently than the last iPad, 0:07:22.600 --> 0:07:25.400 the iPad before that, or the ten models before that. 0:07:25.560 --> 0:07:27.880 So the hardware is awesome, but the hardware on the 0:07:27.920 --> 0:07:30.880 iPad has always been awesome. The problem's always been the software. 0:07:31.280 --> 0:07:34.040 This doesn't change that one bit. 0:07:34.600 --> 0:07:38.280 Yeah, so the iPad was positioned between the phone and 0:07:38.320 --> 0:07:40.720 the laptop, but a lot closer to the phone than 0:07:40.760 --> 0:07:43.560 the phone got bigger. So, as I've read from a 0:07:43.560 --> 0:07:45.640 lot of the stuff that you've written, you know this 0:07:45.680 --> 0:07:48.960 is an effort going in the other direction. How much 0:07:49.080 --> 0:07:52.000 further does it need to go to get closer to 0:07:53.120 --> 0:07:57.200 a you know, to a laptop without actually trying to 0:07:57.240 --> 0:07:57.720 become one. 0:07:58.960 --> 0:08:00.920 Well, I'll answer it this way. It needs to become 0:08:00.960 --> 0:08:03.520 a laptop. They need to go all the way or 0:08:03.720 --> 0:08:04.320 this device. 0:08:04.360 --> 0:08:06.040 And why do you need a laptop? Then if you've 0:08:06.120 --> 0:08:08.640 if you've got an iPad that is a laptop. 0:08:09.360 --> 0:08:13.280 Well, the Mac line isn't doing so hot, the iPad 0:08:13.280 --> 0:08:16.000 line is not doing so hot. You should create, if 0:08:16.000 --> 0:08:18.320 you're Apple, the best version of the iPad that you 0:08:18.400 --> 0:08:21.120 can make, and they're just holding that product back. So 0:08:21.240 --> 0:08:23.880 what if it kills the laptop? Something's going to kill 0:08:23.880 --> 0:08:25.920 the laptop? One day it might as well be Apple. 0:08:25.960 --> 0:08:28.840 But right now they're just kind of screwing around and 0:08:28.960 --> 0:08:32.560 creating the Twitter device. They've moved way past that. The 0:08:32.600 --> 0:08:35.199 market has moved way past that. It's time to kill 0:08:35.240 --> 0:08:38.600 the laptop or make this a laptop replacement, make the 0:08:38.640 --> 0:08:39.640 laptops even better. 0:08:40.800 --> 0:08:43.840 German tells it like it is, Mark, thank you for 0:08:43.920 --> 0:08:48.120 joining us. Some very interesting comments there, Mark German, Bloomberg, 0:08:48.200 --> 0:08:58.520 Chief Global Technology Correspondent. The Security is In Exchange Commission 0:08:58.600 --> 0:09:01.920 is launching a probe into claims made by Boeing about 0:09:01.960 --> 0:09:06.079 its own safety practices. This after a January accident aboard 0:09:06.160 --> 0:09:09.439 one of the seven thirty seven Max nine planes. Joining 0:09:09.480 --> 0:09:14.120 us now is Julie Johnson, Bloomberg, Senior Aerospace reporter. So 0:09:14.280 --> 0:09:17.520 what is it that the SEC is particularly concerned about 0:09:17.679 --> 0:09:21.920 that perhaps these comments about the safety record were inaccurate 0:09:22.040 --> 0:09:22.760 or went too far. 0:09:23.800 --> 0:09:26.839 Well, that's what we'll find out or or not. We'd 0:09:26.920 --> 0:09:28.920 love to know a little bit more about what they're 0:09:29.360 --> 0:09:36.120 what they're looking into, and whether whether the company made 0:09:37.600 --> 0:09:42.079 maybe made assurances to investors. I mean, they've been stressing 0:09:42.160 --> 0:09:47.720 safety publicly ever since the twenty nineteen you know, accidents 0:09:47.760 --> 0:09:53.679 and global grounding. So it's you know, I think the 0:09:54.080 --> 0:09:58.160 regulator regulators will want to know whether Boeing may be 0:09:58.640 --> 0:10:01.680 over sold what was going on in its own factories, 0:10:01.760 --> 0:10:04.840 but the actual details we don't have. 0:10:05.240 --> 0:10:08.360 So this is the panel that brew off that Max nine, 0:10:08.840 --> 0:10:11.319 the Alaska Airlines flight AM I right about that, and 0:10:11.760 --> 0:10:14.880 since that time, there have been a lot of other 0:10:15.000 --> 0:10:18.680 issues that the company has had to address regarding things 0:10:18.760 --> 0:10:20.880 like safety and design and manufacturing. 0:10:21.720 --> 0:10:26.440 Yeah, that that January incident really sort of precipitated this 0:10:26.480 --> 0:10:31.400 whole crisis, and so Boeing's being investigated on a number 0:10:31.440 --> 0:10:36.400 of fund fronts. You've got the FAA and NTSB, you know, 0:10:36.480 --> 0:10:40.960 looking into what happened with that accident, what went wrong 0:10:41.040 --> 0:10:44.560 within Boeing's own factories. And then the FAA has come 0:10:44.640 --> 0:10:49.920 down really hard on on Boeing over the last few 0:10:49.960 --> 0:10:54.760 months and has its auditors, you know, in Boeing's factories 0:10:54.840 --> 0:11:00.800 and looking very closely at quality controls and safety and 0:11:00.920 --> 0:11:04.719 Boeing's Boeing's got a critical report coming up on that. 0:11:05.440 --> 0:11:08.960 And then there's a criminal investigation launched by the Justice 0:11:09.000 --> 0:11:13.800 Department and the grand jury in Seattle. So it's it's 0:11:13.840 --> 0:11:15.120 really been something. 0:11:14.800 --> 0:11:18.079 Else for Boeing Julie. Is there any suggestion of a 0:11:18.120 --> 0:11:19.480 whistleblower on this? 0:11:20.520 --> 0:11:23.439 I don't think so. I think this is more looking 0:11:23.480 --> 0:11:29.000 at whether the company's private practices uh were in line 0:11:29.040 --> 0:11:32.640 with what it was saying publicly around what was going 0:11:32.679 --> 0:11:36.640 on in its factory. And just as a reminder with 0:11:36.760 --> 0:11:42.240 the SEC, we don't know of any allegations of wrongdoing here. 0:11:42.480 --> 0:11:47.520 And these enforced enforcement actions don't you know, don't always 0:11:47.679 --> 0:11:54.840 flow from investigations, but quite often the agency can levy 0:11:54.880 --> 0:11:58.559 finds against the company or the corporate officers. 0:11:58.920 --> 0:12:01.320 So it's not just going from might understand. I mean 0:12:01.440 --> 0:12:05.319 Spirit Arrow Systems, which is the company that manu factiously 0:12:05.760 --> 0:12:09.520 the wing assembly the fuselage. That company also has some exposure. 0:12:09.559 --> 0:12:11.920 But are they going to be swept up in this 0:12:12.840 --> 0:12:13.840 SEC probe? 0:12:13.880 --> 0:12:15.520 Do you think yes? 0:12:15.679 --> 0:12:19.360 Actually, one of the interesting things is that we found 0:12:19.360 --> 0:12:22.760 out about this in part because Spirit had a very 0:12:22.800 --> 0:12:28.160 detailed explanation of the various probes and subpoenas that it's 0:12:28.240 --> 0:12:33.880 facing in a quarterly financial statement that it made on Tuesday, 0:12:34.480 --> 0:12:39.280 and they disclosed that the SEC had subpoened them, you know, 0:12:40.559 --> 0:12:43.600 related to the seven thirty seven MAX issues in the 0:12:43.640 --> 0:12:47.560 Alaska incident. They didn't provide a whole lot of details, 0:12:47.600 --> 0:12:50.920 but it was pretty clear the agency was looking hard 0:12:50.960 --> 0:12:54.960 at Spirit and they're so closely tied to Boeing on 0:12:55.040 --> 0:12:59.400 this that you know that it made sense that Boeing 0:12:59.520 --> 0:13:01.800 was also, you know, a target. 0:13:02.880 --> 0:13:06.960 Julie, do we have any new information about exactly what's 0:13:07.000 --> 0:13:10.920 happening with the chief executive officer position at Going Oh. 0:13:10.840 --> 0:13:14.240 I'd love to know what's going on there. The board 0:13:14.679 --> 0:13:19.800 is searching for, you know, a new CEO, and they 0:13:19.920 --> 0:13:23.080 launched that that search back in March, and it's being 0:13:23.160 --> 0:13:28.160 led by the chairman, Steve Mallenkopf and Dennis or sorry, 0:13:28.160 --> 0:13:29.160 Tennis Ballenberg is. 0:13:29.120 --> 0:13:29.880 The former CEO. 0:13:30.320 --> 0:13:34.240 Dave Yeah, Dave Calhoun, the current CEO is is staying 0:13:34.240 --> 0:13:37.600 on until a successor is found. And the board's sort 0:13:37.600 --> 0:13:40.760 of given itself a lot of leeway with that search 0:13:41.080 --> 0:13:45.520 and by saying, you know that Calhoun will be around 0:13:45.520 --> 0:13:49.080 through the end of the year, but you get the 0:13:49.120 --> 0:13:52.560 sense that they would like to get this done sooner 0:13:52.679 --> 0:13:55.920 rather than later, just because right now it's it's a 0:13:55.960 --> 0:13:59.960 bad time to be you know, I'm in transition to your. 0:14:00.160 --> 0:14:02.120 Leader, and it's a bad time for the airlines that 0:14:02.200 --> 0:14:04.160 have been waiting for new aircraft. I mean, that's the 0:14:04.200 --> 0:14:06.880 other part of the story, that production has come to 0:14:06.960 --> 0:14:11.199 a virtual standstill and you have many airlines that have 0:14:11.240 --> 0:14:13.480 been unable to take delivery of new aircraft. 0:14:14.200 --> 0:14:19.280 Yeah, that's so true. It's it really has become a 0:14:19.360 --> 0:14:22.480 huge sort of pressure point for the whole industry. And 0:14:22.520 --> 0:14:26.520 you've seen a lot of frustration voiced by the US 0:14:26.680 --> 0:14:31.280 carriers as well. And you know, I mean, Boeing's got 0:14:31.320 --> 0:14:34.720 its own problems, but everybody's struggling. I mean, Airbus is 0:14:34.720 --> 0:14:39.000 doing better, but they're not They're not hitting delivery targets either. 0:14:39.920 --> 0:14:43.200 So it's just a bad time for an airline, you 0:14:43.200 --> 0:14:45.520 know that that's out there looking for planes. 0:14:45.920 --> 0:14:48.720 I'm kind of curious something that you alluded to moments ago, 0:14:48.840 --> 0:14:51.480 but I'd like to hear more on it about the 0:14:51.560 --> 0:14:56.359 coordination and or differences between the SEC and the FAA 0:14:56.680 --> 0:14:57.640 when it comes to Boeing. 0:14:58.600 --> 0:15:03.000 Yeah, that's a that's a really great question. I wish 0:15:03.320 --> 0:15:06.560 I knew what was going on behind the scenes, but 0:15:08.400 --> 0:15:11.239 you know, because sometimes we just we get our information 0:15:11.480 --> 0:15:13.640 sort of bit by bit and we don't have the 0:15:13.840 --> 0:15:19.120 entire picture. But you know, the FAA got sort of 0:15:19.120 --> 0:15:22.880 a black eye for certifying the seven thirty seven max 0:15:24.000 --> 0:15:27.640 and standing by Boeing back in twenty nineteen when these 0:15:27.680 --> 0:15:32.480 tragedies happened and some of Boeing's shortcomings were made public. 0:15:33.120 --> 0:15:36.640 And so they've been this time around. They've just been very, 0:15:36.760 --> 0:15:40.680 very diligent. And I think that the SEC action is 0:15:40.680 --> 0:15:43.320 something you would expect. And it's an election year in 0:15:43.360 --> 0:15:46.160 the US, by the way, so everybody's going to want to, 0:15:47.800 --> 0:15:50.800 you know, stay on top of this. 0:15:50.600 --> 0:15:53.000 This situation one of the interesting things and maybe you 0:15:53.000 --> 0:15:55.080 can weigh in very quickly on this, Julie. One of 0:15:55.160 --> 0:15:58.080 the very interesting things about this industry, and I'm talking 0:15:58.120 --> 0:16:01.680 about aerospace as a real rates to commercial aircraft, that 0:16:01.800 --> 0:16:05.680 these manufacturers are almost self regulated. They are expected to 0:16:05.720 --> 0:16:09.520 do a fair amount of the monitoring that you would 0:16:09.520 --> 0:16:12.960 expect a federal agency would do during the manufacturing process. 0:16:13.440 --> 0:16:16.560 Oh, I know, it's a real conundrum for everybody, and 0:16:17.560 --> 0:16:20.760 the FAA is not a huge agency. This is part 0:16:20.760 --> 0:16:25.440 of the problem. And to fully fund them to go back, 0:16:25.640 --> 0:16:27.640 you know to the days when they were climbing all 0:16:27.680 --> 0:16:32.440 over Boeing's factories would be you know, that takes a 0:16:32.440 --> 0:16:35.960 lot of money, and US Congress has been cutting, you know, 0:16:36.080 --> 0:16:40.960 cutting their bundt for years. So yeah, it's that complicated, Yes, 0:16:41.200 --> 0:16:41.680 sure does. 0:16:42.320 --> 0:16:44.720 Julie, thank you so much for joining us. Julie Johnson 0:16:44.720 --> 0:16:54.400 Bloomberg senior aerospace reporter. Joining us now in our studios 0:16:54.440 --> 0:16:57.320 for a closer look at markets is Richard Harris, CEO 0:16:57.400 --> 0:17:01.360 of Port Shelter Investment Management. Richard, thanks for coming into 0:17:01.400 --> 0:17:05.480 the studios. So May has been a reasonably good period 0:17:05.560 --> 0:17:09.679 here for both stocks and bonds, and we're waiting on 0:17:10.200 --> 0:17:14.120 confirmation of any kind of economic slowdown. And the reason 0:17:14.160 --> 0:17:16.280 why that's being seen as good news, obviously is it 0:17:16.680 --> 0:17:19.640 might take a little pressure off the FED. But when 0:17:19.640 --> 0:17:21.880 you get these like we had the claims that Doug 0:17:21.920 --> 0:17:26.000 mentioned earlier, claims jumping a little bit, you wonder whether 0:17:26.080 --> 0:17:29.439 or not this is a welcome cooling of the labor 0:17:29.480 --> 0:17:33.200 market or some sort of unwelcome development, like a more 0:17:33.440 --> 0:17:34.360 serious slowdown. 0:17:34.359 --> 0:17:36.959 Your thoughts, well, well, the market seems to have the 0:17:37.119 --> 0:17:39.320 emphasis of the moment of eat, drink and be merry 0:17:39.359 --> 0:17:42.119 for tomorrow. We die because we have good news and 0:17:42.119 --> 0:17:44.679 the markets go up. We have slightly bad news and 0:17:44.720 --> 0:17:49.159 the markets go down. I do think that unemployment is 0:17:49.480 --> 0:17:51.840 going to be a very big indicator looking out forward, 0:17:51.880 --> 0:17:55.320 because we are relying on consumer growth driving earnings in 0:17:55.359 --> 0:17:58.600 the market. So yes, that's a very big narrative going through. 0:17:58.680 --> 0:18:01.439 But I'm not sure that we're actually there yet. I 0:18:01.480 --> 0:18:04.000 think that what we're seeing is that the market's quite 0:18:04.040 --> 0:18:07.120 happy to take a rather bullish view, risk on view 0:18:08.080 --> 0:18:10.600 all the way through, despite the fact that elements of 0:18:10.680 --> 0:18:13.040 bad news. You know, as we were looking over ago, 0:18:13.080 --> 0:18:16.600 the market has been relatively flat, despite the fact that 0:18:16.640 --> 0:18:19.800 we've had issues with huties, issues in hor Moos, the 0:18:19.840 --> 0:18:22.720 whole escapade in Gus, and the mark's been reatively flat. 0:18:22.760 --> 0:18:24.439 There are a lot of bad news out there, but 0:18:24.480 --> 0:18:25.920 the market doesn't really want to look at it. 0:18:26.080 --> 0:18:29.200 I guess we can refer to this as the Dionician trade. 0:18:29.440 --> 0:18:31.679 Is that fair? I mean, at least for the moment, 0:18:31.840 --> 0:18:34.880 right eat, drink and be merry and let it rip 0:18:34.920 --> 0:18:37.919 to the upside for as long as it's able. And 0:18:37.960 --> 0:18:40.040 I'm curious to get your take on what's happening in 0:18:40.119 --> 0:18:42.240 China right now. So much of what we have focused 0:18:42.280 --> 0:18:44.080 on here is the FED and whether or not we're 0:18:44.080 --> 0:18:45.600 going to get a rate cut before the end of 0:18:45.600 --> 0:18:48.200 the year. The earnings to the quality of corporate earnings 0:18:48.200 --> 0:18:51.760 here in the States have been okay, but there's been 0:18:51.800 --> 0:18:54.480 a perhaps a bigger question over a lot of what's 0:18:54.480 --> 0:18:57.760 happening in China. We were talking yesterday about the fact 0:18:57.760 --> 0:19:01.239 that the market's been powering ahead. Maybe this is just 0:19:01.400 --> 0:19:05.840 kind of the introduction of a lot of foreign capital 0:19:05.920 --> 0:19:08.720 that's testing the water in China. How much do you 0:19:08.760 --> 0:19:11.240 think of what the move that we have seen, either 0:19:11.280 --> 0:19:13.760 in Hong Kong or on the mainland is predicated on 0:19:13.840 --> 0:19:16.240 the assumption that the quality of earnings is going to 0:19:16.280 --> 0:19:18.000 begin to improve for Chinese firms. 0:19:18.800 --> 0:19:20.600 Well, I think that's right, but I think a lot 0:19:20.600 --> 0:19:22.679 of the move at the moment has been stress relief. 0:19:22.720 --> 0:19:25.000 You know, we've had very weak period in China. We 0:19:25.080 --> 0:19:29.280 had huge expectations both COVID and nothing really came of it. 0:19:29.320 --> 0:19:32.280 The Hong Kong market has been especially bad, and the 0:19:32.320 --> 0:19:34.439 Hong Kong market's probably likely to act as a warrant 0:19:34.480 --> 0:19:37.359 on China, you know, worse when China does bet does worse, 0:19:37.400 --> 0:19:40.560 and better when China does better. China has recently been 0:19:40.560 --> 0:19:43.399 doing better, and one key reason for this, of course, 0:19:43.480 --> 0:19:46.400 is that the authorities need to keep that economy going. 0:19:46.480 --> 0:19:49.640 They can't have it in the slough of despond for 0:19:50.080 --> 0:19:52.439 a long period of time. So they have put a 0:19:52.440 --> 0:19:55.520 lot of stimulus into the market pretty well at trillion dollars, 0:19:55.560 --> 0:19:57.480 you know, which even for China's a reasonable amount of 0:19:57.480 --> 0:20:01.320 money that's starting to come through. They use the big Bazuka. 0:20:01.840 --> 0:20:04.000 But there are signs so they may actually be now 0:20:04.040 --> 0:20:06.879 looking at restructuring the property market, maybe putting some of 0:20:06.920 --> 0:20:09.520 the bad debt into a bad bank, put it aside, 0:20:09.600 --> 0:20:12.639 making sure the apartments there already been bull to finish 0:20:12.680 --> 0:20:15.879 these kind of things. If they can tackle that property market, 0:20:16.040 --> 0:20:18.719 I think the sentiment in China will improve dramatically. 0:20:19.320 --> 0:20:22.199 The tricky part, Richard, is that markets get out in 0:20:22.240 --> 0:20:25.520 front of the actual data. That's why I don't think 0:20:25.560 --> 0:20:30.240 that really smart investors are always data dependent. For instance, 0:20:30.280 --> 0:20:33.719 you look at the HANKSNG index. It has matched the 0:20:33.800 --> 0:20:36.719 S and P five hundred year today nine percent higher 0:20:36.720 --> 0:20:39.919 for both. And we have not seen good earnings in 0:20:40.000 --> 0:20:43.159 Hong Kong, we have not seen good earnings in China, 0:20:43.280 --> 0:20:46.840 and yet the market has moved out. So we've talked 0:20:46.840 --> 0:20:50.880 also about the queues. The ETF that looks at Nazaq 0:20:50.920 --> 0:20:54.159 one hundred and it's actually flat for the past three months, 0:20:54.160 --> 0:20:57.080 and yet there hasn't been bad earnings from companies like 0:20:57.200 --> 0:21:01.119 Nvidia and Broadcom. So give me something where you're looking 0:21:01.160 --> 0:21:03.920 out into the future that the data of the day 0:21:04.000 --> 0:21:04.760 is not telling us. 0:21:04.960 --> 0:21:05.200 Well. 0:21:05.560 --> 0:21:08.679 I mean, you make an extremely good point, Brian, because 0:21:08.720 --> 0:21:10.560 you know what we're talking here is the wisdom of 0:21:10.600 --> 0:21:13.600 the crowd. We all know the market. The crowd seems 0:21:13.640 --> 0:21:16.239 to sense that good news is coming through. You know, 0:21:16.680 --> 0:21:19.040 why is it that markets are doing quite well? And 0:21:19.080 --> 0:21:21.960 then the data comes through and say, oh, that's why 0:21:22.000 --> 0:21:25.320 the market was doing well, you know, because the probabilities 0:21:25.359 --> 0:21:29.679 of things happening become sharper towards as time goes on. 0:21:30.040 --> 0:21:33.000 And I think that's what we're seeing with this forecasting element. 0:21:33.040 --> 0:21:35.680 But doesn't it take you back to a big question 0:21:35.720 --> 0:21:38.640 about the FED? The FED is always data dependent. Well, 0:21:38.680 --> 0:21:41.720 if you're waiting for data to come through, it's too late. 0:21:42.359 --> 0:21:44.680 And maybe this is a problem with so many people 0:21:44.720 --> 0:21:46.920 in the FED being economists. Maybe you should have more 0:21:46.920 --> 0:21:51.000 bankers in the FED who actually spend their time looking 0:21:51.040 --> 0:21:52.120 forward and not back. 0:21:52.400 --> 0:21:54.760 So the FED has obviously been a key theme. Another 0:21:54.840 --> 0:21:59.280 key theme has been artificial intelligence. We were talking about armholdings. 0:21:59.280 --> 0:22:02.200 We were talking about Apple a short while ago, getting 0:22:02.240 --> 0:22:05.560 ready to unveil some new AI features later in the year. 0:22:06.040 --> 0:22:10.000 How are you feeling about AI as a trade still? 0:22:10.080 --> 0:22:13.080 Does it have legs or would you be concerned maybe 0:22:13.119 --> 0:22:16.320 that things are a little overextended in certain areas and 0:22:16.400 --> 0:22:19.800 it would be prudent to remove a little bit of risk. 0:22:20.640 --> 0:22:23.439 Well, the AI bubble reminds me a little bit of 0:22:23.480 --> 0:22:27.719 the dot com bubble of the two thousands, but you know, 0:22:27.760 --> 0:22:29.880 I don't think it's anything like that. I think it's 0:22:30.280 --> 0:22:32.680 a mere shadow of that. And yes, we don't really 0:22:32.680 --> 0:22:35.040 know what AI is going to do. We had maybe 0:22:35.040 --> 0:22:37.360 a bit of a clear impact of what the Internet 0:22:37.440 --> 0:22:39.639 was going to do, but we didn't really know. You know, 0:22:39.760 --> 0:22:41.919 is it going to be the most fantastic thing. Is 0:22:41.960 --> 0:22:44.040 it going to be a disaster. It'll be a bit 0:22:44.080 --> 0:22:46.240