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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordert. Join us each day
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Speaker 2: Terminal and the Bloomberg Business app. So here's the laces.
Speaker 2: This morning, the US and Eran exchanging strikes near the Stratiformers,
Speaker 2: with President Donald Trump calling on Tehran to make a
Speaker 2: deal to end a war. Stephen Koker CFRA right in
Speaker 2: the White House seems to have backed it south into
Speaker 2: a situation where it either escalates or hands Iran a
Speaker 2: strategic victory. Stephen joins us now from More. Stephen, welcome
Speaker 2: to the program. We've got a decent understanding of the
Speaker 2: details of the US proposal. We've been waiting a day
Speaker 2: or what kind of response to you expecting from the Iranians.
Speaker 3: I don't think it's going to be a positive response.
Speaker 4: The Iranians believe that they have more time on their
Speaker 4: hands to wait the president out to force the United
Speaker 4: States to capitulate. The US Intelligence community yesterday issued a
Speaker 4: report indicating that they believe that the Iranians can live
Speaker 4: like this for months with rising gas prices and other
Speaker 4: concerns for the American consumer. It does not seem that
Speaker 4: the President has as much time either way you have it.
Speaker 3: I think the statement.
Speaker 4: From the Iranian Foreign minister would suggest that we are
Speaker 4: still at a stalemate.
Speaker 5: When it comes to that report that Washington Post was
Speaker 5: talking about with the CIA, they say that the naval blockade,
Speaker 5: the Iranians could survive that for at least three to
Speaker 5: four months. We're talking about basically the entire summer. Stephen,
Speaker 5: do you think then the administration has to rethink its plan.
Speaker 4: Well, this is what I was seeing when I suggested
Speaker 4: that the President has backed himself into either sq relation
Speaker 4: or capitulate to the Iranians. If the Iranians can hold out,
Speaker 4: as the CIA indicates, they're not going to be forthcoming
Speaker 4: with any kind of proposal that requires them to give
Speaker 4: up enriching uranium, not having at least parcel control over
Speaker 4: the Strait of hor moves and giving up their ballistic
Speaker 4: missile program.
Speaker 3: We've already dropped basically the issue of proxies.
Speaker 4: So they are in a very strong position from where
Speaker 4: they believe they're in a very strong position. So the
Speaker 4: answer then is either for the United States to come
Speaker 4: off of its demands or for the President to actually
Speaker 4: escalate and try to force them to capitulate on the battlefield.
Speaker 4: So far, they haven't capitulated in either place, the battlefield
Speaker 4: or the negotiating.
Speaker 5: Table when it comes to the President's three red lines proxies,
Speaker 5: ballistic missiles, and a nuclear weapon. Is there any indication
Speaker 5: that we are closer on any of these aims.
Speaker 3: No, we're not closer on any of them.
Speaker 4: Again, the Iranians remained steadfast that they have a right
Speaker 4: to enricheranium. They're not going to give up their ballistic
Speaker 4: missile program. That is a significant threat to the neighbors
Speaker 4: that they want to hold on to after this conflict,
Speaker 4: and the proxies, although greatly diminished, are useful to them now.
Speaker 4: Add the new leverage that they have over the Strait
Speaker 4: of Remus, and the Iranians feel that they have all
Speaker 4: the advantages here. In addition, this is a regime that
Speaker 4: has already forced the Iranian people to suffer. At the
Speaker 4: low end of the estimates, they killed seven thousand people
Speaker 4: in a matter of days in January.
Speaker 3: At the high end, thirty thousand people.
Speaker 4: They are prepared to live out this blockade.
Speaker 3: And make Iranians eat dirt if they need to.
Speaker 1: Every single analyst has come on from Wall Street so
Speaker 1: far this morning has not wanted to talk about Iran.
Speaker 1: They have not wanted to talk about the straight up removes.
Speaker 1: They've wanted to move on. For all the people who
Speaker 1: are trying to tune this out because ultimately they have
Speaker 1: confidence that it's going to turn out one way or another.
Speaker 1: How do you explain why this is still incredibly important
Speaker 1: and potentially revolutionary when it comes to reshaping global alliances
Speaker 1: as well as supply chains.
Speaker 3: Yeah.
Speaker 4: Well, first, I think it's important just in terms of
Speaker 4: the American consumer. It costs a lot more money to
Speaker 4: fill up your car your SUV with gas these days,
Speaker 4: and that's going to have an impact on everything that
Speaker 4: everything that people buy. Eventually, we are somewhat insulated from
Speaker 4: it here in the United States because we're wealthy, but
Speaker 4: in time, this is going to really pinch.
Speaker 3: I'll note that the Israeli has.
Speaker 4: Recently agreed to send jet fuel to Germany so that
Speaker 4: Luftonza can maintain its obligations in its flight schedule. So
Speaker 4: this can be very, very disruptive in terms of reshaping
Speaker 4: global alliances. We are seeing a realignment in the region
Speaker 4: starting to take shape.
Speaker 3: You have the Saudi's, the.
Speaker 4: Turks, the cutlery Is, the Pakistanis on one end, and
Speaker 4: then you have the Israelis, Emerdis, Bahrainis and other extra
Speaker 4: regional actors like Greece, Kenya, Ethiopia, Somaliland on another end
Speaker 4: of an alignment. Here, the expectations that American policymakers have
Speaker 4: had over twenty five years about an alignment of Saudi Arabia,
Speaker 4: the UAE, Bahrain, Egypt, Jordan, and virtually less and not
Speaker 4: so virtually Israel have been shattered as a result of
Speaker 4: this conflict, and we're going to start seeing different blocks emerge.
Speaker 4: The Iranians are now empowered in ways that no one
Speaker 4: really had imagined when the President launched this conflict on
Speaker 4: February twenty eighth.
Speaker 2: Stay with US mul Bloomberg Savannan's coming up after this
Speaker 2: Francis don at the VABI SI joined us now for more. Francis,
Speaker 2: welcome to the program. One fifteen. The estimate sixty five
Speaker 2: is an upside surprise beneath the how encouraging our things.
Speaker 6: Well, John, you've heard me say it before. America needs workers,
Speaker 6: not jobs, and that is so clear in today's April release.
Speaker 6: Job creation is just fine in America. It is matching
Speaker 6: what we're seeing in low jobas claims, improving continuous claims,
Speaker 6: drops in layoffs activity. We have more than enough jobs
Speaker 6: to actually lower the rate of unemployment over time. We
Speaker 6: are substantially above that break even rate. And for a
Speaker 6: long time, for the last decade, that's what would have
Speaker 6: mattered most is the consumer employed. But that's not what
Speaker 6: matters in the American economy anymore. What matters is not
Speaker 6: do they have a job? It's are they working enough hours?
Speaker 6: A little bit better in April, and are they making
Speaker 6: enough money in those jobs? Now, wage growth a little
Speaker 6: disappointing here, and I'm watching this very very closely as
Speaker 6: we head into an inflationary shock. Real wages are very
Speaker 6: close to zero and could go negative. So the story
Speaker 6: here is one of cyclical improvement. But also a lot
Speaker 6: of structural themes coming through in this morning's numbers.
Speaker 2: Francis on the structural themes, you'd expect wages to be
Speaker 2: hotter than they are. When I hear you say we're
Speaker 2: lacking workers, not jobs. That sounds like a labor market
Speaker 2: that should be tight generating wage growth. So what's going
Speaker 2: wrong there.
Speaker 6: Well, it's not going wrong. You've got wage growth of
Speaker 6: three point six percent and moving higher. And again it's
Speaker 6: a structural theme that will evolve over time. There's also
Speaker 6: a sectoral issue here. I'm seeing almost half of this
Speaker 6: job growth is once again in healthcare and education in
Speaker 6: the past year. If you slip out, if you take
Speaker 6: out healthcare and education from the system, cyclical private payrolls
Speaker 6: are going negative. So we hear a lot about this
Speaker 6: no higher, no fire zone. That's true on aggregate, but
Speaker 6: it's not true bi sector. There's plenty of hiring in
Speaker 6: education and plenty of firing in trade related sectors. So
Speaker 6: just looking at that aggregate and saying, well, this is
Speaker 6: true for everybody isn't quite the case. And I'll highlight
Speaker 6: here once again my eye went right through it. Labor
Speaker 6: force participation rate is down again. This peaked in two
Speaker 6: thousand and one, John has been declining ever since and
Speaker 6: is getting worse, not better. So a little bit of
Speaker 6: wage growth is here, but this is going to be
Speaker 6: the issue going forward in the next one to three
Speaker 6: years in America is can you find the right workers?
Speaker 6: Can you find the right skilled workers? And what do
Speaker 6: you have to pay to get them?
Speaker 1: Francis, how much were you watching in real time the
Speaker 1: shift from white collar to other jobs, whether it's in
Speaker 1: manufacturing and construction or whether it's an education in healthcare.
Speaker 6: We talked to clients about this endlessly because what we
Speaker 6: highlight to them is as a growing share of jobs
Speaker 6: our public sector or public sector adjacent, the cyclicality of
Speaker 6: your job market starts to decline. For example, we don't
Speaker 6: see cyclicality and healthcare employment. If there's a recession, you
Speaker 6: don't really see a meaningful decline, and that sort of
Speaker 6: breaks the relationship between private sector cyclical weakness and the
Speaker 6: job market. It also means it's less likely to spread
Speaker 6: through the coole economy than it has before.
Speaker 3: Now.
Speaker 6: The downside of that is that you don't tend to
Speaker 6: see the same sort of large productivity increases. You don't
Speaker 6: see the same four or five six percent GDP numbers
Speaker 6: that you start to see a big private sector engagement.
Speaker 6: So effectively, what this means is as the job market
Speaker 6: moves towards more government and government adjacent type rules, you
Speaker 6: end up with a floor undergrowth, but also a ceiling.
Speaker 6: And that's the key takeaway from these big structural trends
Speaker 6: is the way that we've looked at these numbers, been
Speaker 6: on the show for a decade. I've talked about a
Speaker 6: lot of them. It's going to have to change.
Speaker 1: For insis how much does this underscore the difficult decision
Speaker 1: that the Federal Reserve has to make because ultimately they
Speaker 1: don't influence the jobs that you're talking about that much
Speaker 1: one way or another. They do, however, potentially influence financial
Speaker 1: conditions that are leading to some of the optimism in
Speaker 1: areas like artificial intelligence.
Speaker 6: You know, I don't know why it would be a
Speaker 6: difficult decision, although clearly there's some angst in the Federal Reserve.
Speaker 6: Where is the data that would suggests that easing is necessary?
Speaker 6: What problem are we trying to solve? Their job creation
Speaker 6: a very tight labor market, underlying trends of inflation are
Speaker 6: heading upwards, not downwards. There's still a significant amount of
Speaker 6: heat under this economy, and the risk now, particularly in
Speaker 6: the last month, of seeing a lot of underlying labor
Speaker 6: market indicators picking up is not of disinflation or needing
Speaker 6: to ease to correct for some growth downturn, but actually
Speaker 6: having to be very cognizant of the upside risks no
Speaker 6: longer just for inflation, but for the economy as well.
Speaker 6: And you know, every month we put out a report
Speaker 6: and we say what's the risk to our base case.
Speaker 6: The risk to our base case for growth is now
Speaker 6: tilted upwards. And that's really disjointed from the ongoing narrative
Speaker 6: that there's weakness in the job market and that there
Speaker 6: could be recession concerns coming. I just don't see it.
Speaker 2: Stay with us more Bloomberg Surveillan's coming up after this.
Speaker 2: Colway shares falling in the pre market after giving a
Speaker 2: disappointed forecast, and the stock is down by seven percent
Speaker 2: in the pre market. Sarah Counst of Cleo Capital Rights
Speaker 2: and Core Weave will be an early domino to fall
Speaker 2: in any real tech correction, and if I had gains there,
Speaker 2: I would lock them in and run. Sarah joined us
Speaker 2: now for more. Sarah, Welcome to the program. Why is
Speaker 2: Corewave in this move today potentially more signal than noise.
Speaker 7: Because this is a company that has just sort of
Speaker 7: struggled and has kept getting lucky because they keep sort
Speaker 7: of pulling out these these deals to be able to
Speaker 7: build more data centers. But when you look back to
Speaker 7: their IPO, the sentiment around that, I don't think that
Speaker 7: those concerns have materially changed. This is not a company
Speaker 7: that has super solid financials. It's gotten incredibly lucky that
Speaker 7: very solid companies, the videos of the world, the metas
Speaker 7: of the world, have all decided to sort of yolo
Speaker 7: their capbacks into data center spend.
Speaker 8: But I don't know how long that's going to last.
Speaker 2: Does it tell you something about the broader AI ecosystem
Speaker 2: or just this name? And I think that's what I'm
Speaker 2: going to get here.
Speaker 8: It's a little bit of both.
Speaker 7: I think Corewave is a uniquely fragile company in the ecosystem.
Speaker 7: We certainly saw that, you know, before their IPO, that
Speaker 7: was widely the sentiment, and so you know, I would
Speaker 7: go back and look at some of those notes then
Speaker 7: and say, has much really changed? But I think that
Speaker 7: the broader AI market, The question is when will they
Speaker 7: make money. We know that on the private side we're
Speaker 7: seeing a lot of unease around open ai, not just
Speaker 7: the lawsuits, but you know, questions of how sustainable is
Speaker 7: their current business model. Is there going to be huge
Speaker 7: price hikes from from open ai and Nthropic, which then
Speaker 7: drives a lot of the more casual users of smaller
Speaker 7: business users off of using them. How much efficiency or
Speaker 7: even really big enterprises actually getting.
Speaker 8: From ai in the workplace.
Speaker 7: There's a lot of data that shows that it might
Speaker 7: be close to zero, or that compute credits are actually
Speaker 7: more expensive to just hiring a good, solid junior engineer.
Speaker 8: To do some of this work.
Speaker 7: And so I think that we're spending like it's a
Speaker 7: sure thing, but when you look at the data, the ROI,
Speaker 7: even the revenue, it's really unclear if it is.
Speaker 1: You talked about open ai, and we were discussing earlier
Speaker 1: this morning how soft Bank is having trouble getting a
Speaker 1: margin loan for ten billion dollars backed by their stake
Speaker 1: in open ai because the creditors are concerned about the
Speaker 1: valuation being assigned to open Ai. How much is this
Speaker 1: just winners and losers? Coming to the surface, versus a
Speaker 1: sense that maybe the entire ecosystem is overpriced right now
Speaker 1: based on very high expectations and very high costs.
Speaker 7: Look, I love Masa because that guy is great for entertainment,
Speaker 7: but I don't know that if you can look at
Speaker 7: soft bank struggles and sort of wide in and out
Speaker 7: to the rest of the market, because they operate in
Speaker 7: an incredibly unique way if you think back to the
Speaker 7: we work days and Uber and all of that, so
Speaker 7: you know, I wouldn't be sort of overly looking at
Speaker 7: them as the signal. I think that that big question
Speaker 7: does come back to and where we see companies outside
Speaker 7: of the alphabets of the.
Speaker 8: World make real money on this.
Speaker 7: Obviously, in Nvidia, the chip makers are making a lot
Speaker 7: of money, but that money is only as good as
Speaker 7: the demand for the chips, which really could you know,
Speaker 7: kind of slow down and fall apart at any time.
Speaker 7: The other piece of it is as the global economy
Speaker 7: slows and contracts, which we know is happening, there are
Speaker 7: fewer enterprises who need AI. There are fewer people who
Speaker 7: are necessarily interested in paying for that subscription to be
Speaker 7: able to get you know, a slightly better restaurant recommendation
Speaker 7: or slightly better travel recommendation because they're not doing that,
Speaker 7: and so as those subscriptions wane, the entire industry sort
Speaker 7: of falls apart based on a lack of demand.
Speaker 1: I'd love your to take then, Sarah on cloud Flair,
Speaker 1: saying that they were playing to cut eleven hundred people
Speaker 1: because they can replace them with artificial intelligence. Notably, the
Speaker 1: shares are down significantly in pre market trading after that announcement,
Speaker 1: not being treated as exactly a cost savings. Why don't
Speaker 1: you think that that's being treated by the market as
Speaker 1: evidence of some of the productivity gains and actual monetization
Speaker 1: of some of these tools.
Speaker 8: I think at this point we've kind of heard that story, right.
Speaker 7: We see people go in, they do a big layoff,
Speaker 7: they say it's going to be great, We're going to
Speaker 7: do AI now, and then they realize, oh, the AI.
Speaker 8: Is not working that well. They have to kind of
Speaker 8: hire people back.
Speaker 7: It also is often seen, and certainly not in clouds
Speaker 7: Flares case, but it's often been seen in the market
Speaker 7: as hey, maybe there's something wrong with the underlying business,
Speaker 7: maybe there's something wrong with the revenue, and they are
Speaker 7: covering that with the AI driven layoffs, because that's a
Speaker 7: buzzword we like, and so I think that there's just
Speaker 7: a little bit We saw the same thing with Meta
Speaker 7: a few weeks ago with their layoffs announcement. There's just
Speaker 7: a little bit of I think, kind of people don't
Speaker 7: really buy that an AI triggered layoff is a good
Speaker 7: thing anymore.
Speaker 5: Sara, there's a report in the Wall Street Journal about
Speaker 5: a recent call the Vice President had with the heads
Speaker 5: of all these companies Elon Musk, Dario Mode, Sam Altman
Speaker 5: and expressing alarm about artificial intelligence. Do you think this
Speaker 5: White House in Washington is going to try to put
Speaker 5: a leash on some of these companies.
Speaker 7: I think that the White House is going to do
Speaker 7: what we've seen it do over the last few years,
Speaker 7: which is that you have to stay in.
Speaker 8: Their good graces.
Speaker 7: It's a bit of a pay to play, and so
Speaker 7: I think that what you're going to find is that
Speaker 7: they're going to say, you know, it's a little bit
Speaker 7: like when the mob comes into your store and says,
Speaker 7: you know, we want to make sure that you're taken.
Speaker 8: Well care of. And so I think that these AI companies.
Speaker 7: Are going to have to very aggressively stay on the
Speaker 7: sort of right side of the White House of the administration.
Speaker 7: I don't know how much sort of the anti data
Speaker 7: center sentiment, which we're seeing sort of bipartisan in communities
Speaker 7: across the country, is feeding.
Speaker 8: Into this, but I do think that one jd.
Speaker 7: Vance is trying to set himself apart a little bit
Speaker 7: from the rest of the administration and look like he's
Speaker 7: caring a little bit more about main street issues. Anti
Speaker 7: Data Center very much is a main street issue right now.
Speaker 7: And then two, this administration wants to make sure that
Speaker 7: everybody knows that at the end of the day, they're
Speaker 7: going to owe the White House something, and this is
Speaker 7: a great way to remind them.
Speaker 2: Sarah, Is any of that new? I remember when these
Speaker 2: companies used to dress themselves up in the cloak of
Speaker 2: liberal values and make out there was super progressive and
Speaker 2: left wing because they were worried about progressive people down
Speaker 2: in Washington, d C. Is any of this new Just
Speaker 2: a different flavor, isn't it.
Speaker 7: I think it's a certainly different and more aggressive flavor
Speaker 7: in the US. I think that the actual kind of
Speaker 7: the money that's changing hands around the ballroom and things
Speaker 7: is certainly a slightly more Banana Republic take on it.
Speaker 7: But I think that you know to your point, people
Speaker 7: tend to like to play nice with the most powerful
Speaker 7: government in the world for a good reason.
Speaker 2: This is the Bloomberg Survendans podcast, bringing you the best
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Speaker 2: the Bloomberg Business out Mm hmm.