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The European capitals reactive as shock to President Trump's abrupt turn against Ukrainian President Voldimir Zelenski, seeking simultaneously to reassure Kiev that it has the continents backing while trying to appeal to Washington now, President Trump yesterday embraced the Kremlins narrative, denouncing Zelenski as a dictator his word. Trump warned in a social media post that the Ukrainian leader had better move fast to reach a deal with Russia or he's
not going to have a country left. Meantime, one more thing to layer on top of this, the US signal that sanctions really for Russia could be on the table and talks over the world in Ukraine. Earlier today on Bloomberg, US Treasury Secretary Scott Besson said that the US is prepared to either ramp up or take down penalties based on the Kremlin's willingness to negotiate.
He also talked about what the.
Administration seems to say is a misstep by the Ukrainian president.
I think President Vilensky unfortunately escalated and has put some daylight between the escalator that a lot of his remarks in Munich I thought were inappropriate. President Zelensky, when I met with him, assured me that he'd be the signing the minerals deal in Munich.
He has not.
And look the real purpose here, and I think it's turned into this media circus that President Trump had a very elegant plan, and it was bring the Ukrainians closer to the US. Let's do this economic deal. And the even Karl Rove in the Wall Street Journal this morning approves of it that the US, with greater economic interest
in Ukraine, provides a security shield. So the sequencing of what was going to happen was bring the Ukrainians closer to the US through economic ties, convince the American people and the American public, get them onside, and then tell the Russians go to the negotiating table with a very fulsome message that if we need to, we will take sanctions.
Up, Well, what about tapping the Russian frozen assets and three hundred billion dollars? Would you force your European counterparts to not just have them frozen, but actually tap them. Trump talks about repaying the American taxpayer. Shouldn't Russia be a part of that?
Well, what's happening now is they are being tapped. So the returns from interest, the returns from the freezed asset pile, is going to pay the Europeans. What's very important to understand here is everything the US has done to date, the American people, the American taxpayer is grant Europeans roughly half of what they've done are loans, and the runoff from the frozen assets is being used to repay European loans.
Have you communicated that to the Europeans? The europe sent with them?
What's that?
Have you communicate to the Europeans that you're absent with them?
I think Vice President vents that are a pretty good job in Unich.
Do you think they understand that the United States is running a deficit of north of six percent, close to seven percent, and that the budget for defense is north of eight hundred billion dollars. Do they think do you think they understand the gravity of the moment in the United States the US perspective.
Look, I think that they understand that President Trump during his first term this term, Vice President Vance and the entire security apparatus had told them that many of the countries are deficient in their NATO spending and they need to.
Come up all right.
That, of course, was US Treasury Secretary Scott Besson earlier on Bloomberg Surveillance on Bloomberg Radio and TV along with Jonathan Faraoh, Ann Marie Hordern and Lisa Bramo as the co hosts of Bloomberg Surveillance will monitoring all of this continue to report on the Russia Ukraine war and what an end might look like is Bloomberg News International Affairs communist Mark Champion he joins us now from London.
Mark, good to have you here with us.
The US Treasury Secretary said, the President is committed to ending this conflict very quickly. It's now three years old and still going. There are two players in that war, and yet Ukraine seems to increasingly be cut out. Is that a fair assessment?
Absolutely?
I mean, you can.
Ending wars is easy if one side surrenders, it capitulates and the other side gets what they want. And the reason that this war hasn't come to a settlement yet is it the two sides remain really far apart, with President Putin still making demands. Reportedly, for example, in Riad, the demand Russian demand was repeated that NATO should go back to its nineteen ninety seven borders, So that mean
Poland et cetera would have to leave NATO. So these are still very sort of extensive demands on NATO let alone Ukraine, and the Ukrainians obviously have been fighting a war to prevent that because they understand that it would mean that they no longer had a state, an independent state, and the Russians have been clear that that is their intent. So it is it's very difficult unless one side capitulates.
And I think what President Trump has basically done is to identify that he has a lot of leverage with one side because it's very dependent on American support and financing and weapons, and very much less leverage with the other. Is also I think identified that there's a lot more to be gained, you know, by cutting a deal with the Russians, they have more more to offer larger economy, all that sort of thing. And you know, he did make this proposal to the Ukrainians. It was, in fact,
originally Zelensky's idea. What the Treasury Sectorary omitted to say in his interview was that the actual when he Zelensky got the actual details of the US proposal, what it says is that the Ukraine should hand over fifty of all its natural resources, infrastructure, ports, et cetera, fifty revenues to the US in perpetuity. And there was nothing in the deal about security guarantees, and that the kinds of
things that Zelensky was trying to get. So it's you know, it was a deal that was clearly designed to be rejected.
Mark.
One thing that I think is notable about this entire conversation is the role of a Treasury secretary being part of this negotiation. How should we think about that?
Well, I mean, actually, American Treasury secretaries are unique in the world in the sense that one of the most powerful foreign policy tools and weapons of coercion that the United States has is the Treasury and its sanctions apparatus. And they are extremely powerful, and it makes a lot of sense that they should be involved you know, the Secretary talked about lifting sanctions. Of course, both the EU
and the US have imposed sanctions on Russia. But essentially if the US were to lift sanctions, that would be the end of it, because the EU simply doesn't have the kinds of you know, depth of enforcement personnel and expertise that the US has. It doesn't have the US dollar as a point of leverage, and it has no experience whatsoever with enforcing secondary sanctions.
So you know, it doesn't surprise me at all that he's involved.
I think what's also fascinating and intriguing about your column is that this isn't about an end of the war, but about the United States and President Trump negotiating a reset with Russia. Again your view, But is it because explain that, I guess I want to ask you. And then is it because there is so much more potentially that the US has to gain? Is it business interests? Is it geopolitically? Is it in terms of maybe keeping nuclear war at bay?
Is that it? And if so, is that such a bad thing?
Well so, the Secretary of State Marco Rubio, after the re meeting said very clearly that you know, there was enormous opportunities to be had both geopolitical and economic for
the United States in securing this deal. And what I was trying to say is that if you look at this, you know, the Trump administration's approach in terms of them trying to get what the Europeans want and the Ukrainians want, which is the best possible deal to you know, retain Ukraine's status as a sovereign state, retain as much land as it can, etc. If that is the goal, then nothing that President Trump has done makes sense because he handed over some of the most important demands that the
Russians have made before talks have even begun, and in fact, in read setting up teams to begin talks on a ceasefire was just one of the outcomes and not the one that was first listed. You know. The first one that was listed was to restore diplomatic relation and economic relations between Russia and the US. That's also why Ukraine and europe were not at the table, because it wasn't
a deal that was primarily about them. The difficulty for Ukraine and for the Europeans is that, you know, once that once that's understood, then Ukraine and its ceasefire they become just a lesser tool in a wider deal, and they are both you know, something that the US you know, has some leverage with over Russia because Russia wants, you know,
control over Ukraine. But it's also if Ukraine stands in a way and won't give the you know, won't agree to a deal and to the terms that are being imposed, then it becomes the obstacle to the wider agreement that President Trump is looking for. So it just makes a lot more sense to me if you look at it in those terms.
Mark, just about a minute left, what was this say? Ignore that you think it's sent to the world and sent to the US that the president yesterday called Zelensky a quote dictator.
Very much. You know, again, in terms of that framing, what he has identified is that Zilynsky and Ukraine are the problem at this point as far as he's concerned. So he is adopting the sort of Kremlin narrative in order to try and undermine Zilensky and weaken him and uh, you know, make make him understand that he has to play ball or things will only get worse.
Unbelievable.
Yeah, just interesting, Mark, Thank you so much. Glad we could chat with you about your column Today. Mark Champion, his international affairs columnist for our Bloomberg Opinion team, joining us from London again.
You can check out his column.
You can find it on the Bloomberg Terminal and at Bloomberg dot com Slash Opinions.
You were listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five pm Eastern. Listen on Applecarplay and Android Auto with the Bloomberg Business app, or watch us live on YouTube.
Not an update either for sales or the giant retailer. Walmart shares down around eight percent at one point earlier in the session, the most in more than a year, after it forecasts lower than expected profit for the full year, signaling that even the world's largest retailer is not immune to risks in the broader economic environment.
That's right, Walmart's CFO acknowledging quote uncertainties related to consumer behavior, something we were just kind of talking about with our own Jody Laurie. Uncertainty is related to consumer behavior and global economic and geopolitical conditions. That from the Walmart CFO. Keep in mind this comes just days after retail sales signaled and abrupt pullback by consumers. So let's get to it with more on Walmart's business what it may say
about the US consumer spending environment. With us is at Emily Cohen. She's Bloomberg News Consumer team leader right here in studio.
So Emily walk us.
Through this latest update on Walmart and wy investors are so concerned.
Yeah, so it wasn't all together a bad report. Fourth quarter sales were actually strong. Stock is down though on a lower than expected profit guidance for the full year, and you nailed it. The theme of the call with analysts today was uncertainty. We just heard that word over and over and over again, and that's a consumer sentiment. That's tariffs, that's everything we're reading about in the news, just making it really hard for these companies to project what's going to happen.
Is that the issue though, it's that it's difficult to project. They don't know what's going to happen. But because of that, they're just setting out the worst case scenario here.
Yeah, I mean, this wasn't worst case for by any means. Like Walmart has historically given conservative outlook to start the year. Last year, they actually offered the same exact outlook three to four percent, so it's it's definitely in line. It's conservative. We read analysts Bobby Griffin say they're taking a conservative approach on near term investments. We saw the cost of the acquisition of Visio up here. That's still hitting the
bottom line for Walmart this year. So what typically happens with Walmart as they raise their guidance early on in the year. So it's not worst case scenario.
Because when they start the year with a cautious outlook, right, and then raise as we go along.
It's sort of like in line with expectations. But expectations are really high for Walmart. Their last year was their strongest stock performance since nineteen ninety eight. The stock is up seventy seven percent, although that will be lower over the last twelve months after close today, So expectations are really high.
And well, I think what's also interesting is, I remember was it I feel like in the last quarter of last year we were increasingly talking about and Walmart pointed out that their consumer is also a higher end consumer. So when we are trying to get if their higher end consumer is even maybe pulling back or they're concerned about that, you know, that does make you wonder about
consumer spending overall. They're having potentially a tougher time, then you can assume everybody's having a tougher time for sure.
So I mean one of the areas that the biggest area of growth for them right now in those last quarter was those people from those higher income households, households that are making one hundred thousand dollars or more. So that makes me wonder where are they gaining that market share from who's losing those those customers? And that's what we'll be looking for. This is the start of big box earning seasons. We have Target coming up, Costco Home Depot.
We'll be trying to decipher that a little bit more.
Do we know how Target, or rather how Walmart would be affected by tariffs? They get certainly some food from Mexico. I mean, you walk into a Walmart, it's going to be hard to find something in there that's not from China. Yeahs the what's the way that they're.
Impacting Yeah, Yeah, A lot of produces coming from Mexico. A lot of general merchandise is coming from China. And this isn't new to them either. I mean China tariffs last time around with Trump hit them as well. But yeah, they are definitely exposed to China, as are a lot of their competitors.
Emily, I always think about you know, Walmart, They're just they're massive, right, the world's largest, And you know there's certain retailers that when something comes out of them, even if historically they're cautious at the beginning, it does make a stop and think.
But as you said, it's just the beginning of the big box.
Is there something Target might say or who is it that might say something that.
Says all right?
So maybe this is just the Walmart the way they operate, and we'll get things better.
You know.
Is there someone that can help shape the narrative here around retail?
Yeah, I think it'll be Target. Okay, last year, last quarter, rather, we saw a pretty positive reaction from Wall Street after Walmart earnings and then the complete opposite reaction.
Targets down almost two percent today.
Yeah, Target and Costco shares both fell immediately after Walmart reported this morning, So we'll be looking to see that. I mean, Target relies a lot on like discretionary spending. You come into Target for one thing, and then you see a lot of other cute things and you grab them and and those are the kinds of things that
people are pulling back on right now. And if that chopper is not even going to Walmart because they're sorry, if they're not even going to Target because they're going to Walmart instead, that's bad news for Target.
Does a report such as this apart from Target, a report such as this from Walmart make you rethink expectations for the entire sector for the current quarter?
For sure? Walmart is the bell weather of consumer spending.
What's the one we should be watching next?
I'm watching Target?
Yeah, a home depot. What is that going to tell us?
You know, home depot has a lot of other factors too, whether other types of spending.
I mean, I'm also thinking about just like yeah, I'm also thinking about the housing market. Yeah, to what extent, you know, A dreary sort of outlook there, Yeah, for sure affects that company.
Yeah, you buy a new house, you're moving into a new house, you go to Walmart, Target, Costco or to fill up on things. And if you're not buying a new house, you're not buying those things.
Yeah, and we have seen pressure.
I'm just gonna I mean homes today are up about nine tens of a percent just looking at what they're doing.
Sofa here in twenty twenty five, down about four percent.
But again we keep yesterday we got hit because of Toll Brothers exactly exactly. But we do hear like the conversation that if mortgage rates continue to stay hi. You know, sometimes it makes people say, Okay, here's where we're settling. I'll get off the fence and do something and buy a home and then fill it with stuff. Others say, I'm still going to wait till maybe things go down. Emily,
thank you, appreciate, thank you. The rundown on Walmart Emily Cone, she's Consumer team leader here at Bloomberg News, joining us right here in our studio. As we mentioned Walmart shares, they are definitely under pressure. Stock down now about six and a half percent, so just shy of.
Its worst levels of the day.
If we take a look at the trade here in twenty twenty five for Walmart just up about seven point six percent.
This is the Bloomberg Business Week Podcast. Listen live each weekday starting at two pm Eastern up on applecar Play and the Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York State. Just Say Alexa played Bloomberg eleven thirty.
So this popped up on our radar today.
Bloomberg Opinion commas Tyler Cowen a professor of economics at George Mason.
He's also a host of the Marginal Revolution blog.
He writes a column today that the US economy may be heading towards stagflation. You know what that is a combination of high inflation high unemployment, which last occurred in
the mid nineteen seventy, so it's been a while. He notes that current inflation rates are three percent and may increase due to factors such as rising rent rents, wage growth, and also President Trump's trade policy, which could lead ultimately to higher prices and tim Our next guest believes the US economy can function perfectly well with inflation closer to three percent. We'll see if he has any caveats to that.
We've got with us. Dan Genter, CEO of Genter Capital Management. He joins us here in the Bloomberg a BusinessWeek studio, they've got about seven and a quarter billion dollars in assets under management. Dan good to see you three percent inflation. We always talk about the FEDS target of two percent. It's a long story about why that target it exists. But three percent, why do you think it's manageable?
Well, look, it's been manageable for a very long period of time. And three percent pretty well goes along with long term population growth. Frankly, so it kind of runs hand in hand that as you have that population growth, you're consuming mort goods and services, and those prices tend
to go up in line with that. That's not even taking into consideration if you have a one percent increase in productivity, which is normal, kind of throws you back into that two percent range when you're really looking at effective prices from disposal income. So long term, that's, in
my opinion, a very very manageable number. I mean, the significance of the number really becomes more of the Fed policy, their outlook and the effect on interest rates, all right, because you know, in a very simplified format, look, interest rates basically determine the cost of everything. It determines your cost of production, it determines your cost of financing, It determines your cost for the two biggest items for almost every American which is their mortgage and their car loans.
And so that's.
Really going to be the key with regards to how fast do we go or how fast do we slow?
So interesting does it matter in terms of population growth?
The aging uh?
You know is it if it's population growth where I don't know, with an aging population, does that kind of change the outcome of things?
Just curious?
Yeah, Carol, radically changes the consumption patterns, right because you know, there there's basically an economic phenomenon which has never been broken, and that is that you cannot break the baby boomer bubble, all right. That the baby boomer bubble made the Camaro, it made the Mustang, you know, then it made the suv and now it's moving to Mercedes and BMW and vacation homes and you know, and you can't fight it.
It's just too big of a bubble of consumption. And now when you have a situation to where you know that that generation, if you will, is largely leaving the workforce, then it's also become you know, a very high consumption, but it's a different pattern of consumption. So they're not
buying as many of the consumer durable goods. They don't buy as many refrigerators and other things that you know, in many cases drive some of the underlying pressures and inflation, but luxury goods and so on, you know, go on to terror for that.
It's funny that you said that.
I actually just wrote up a report that talked about luxury spending and how the luxury world has really kind of ignored what they call the so called silver generation. And there's some some stats from McKinsey that estimates almost half of the incremental growth and consumer spending this year compared with last year will be driven by.
Those older than fifty. And it's just kind of interesting.
To say, not ignore it, certainly for the luxury space, but maybe more generally.
Well, look the evidence. Look at the end of last year.
You look at fourth quarter sending with regards of retail goods and holiday spending, all right, and everyone was more or less flat, all right. The only one I had a big jump was Hermes, all right, So pretty well confirms that situation. You take the upper of the upper end, and they have plenty of money that's set aside. They have plenty of capital since they're major investors, they're also the major beneficiaries of the wealth effect from the stock market.
So, look, that part.
Of the consuming public feels very flush right now.
Okay, that part of the consuming public is not going to be around forever. And I'm curious about what you think of the next generation, especially with regard to the way the economy has changed. We're now living in an economy where people are wondering, Hey, what's going to happen to my job as a result of disruption caused by AI? How should we be thinking about that?
Well, look, there clearly is going to be a significant amount of disruption for certain sectors. You know, there's going to be a number of service jobs, you know, people that are basically answering the phones and giving client service over the phone for you know, various consumer products and so on. Look, are recording in a robot can do that? Certainly? And frankly, security jobs and things that robots can do. Anything that you can automate, you know they're going to
be able to take over. Now, there's going to be other jobs that it's not going to effect, and certain things that it's going to help.
Well, so let's say those folks who do get displaced by AI by robots, what do they then go and do well.
Hopefully, what we're going to see is under the current administration, there is going to be a very big push and there's also going to be a lot of support for recreating manufacturing jobs in this country. So what we see is that there's probably going to be a fall off in some of the low end jobs, but there'll be an increase in some of the higher paying manufacturing and those types of jobs, you know, more of what historically we call the blue collar jobs that way have in America.
You know, especially as we try to move tech jobs back, chip production back, you know, power generation, oil production. We're trying to move everything back to make America great again. And those are actually higher paying jobs than the ones that are going to get displaced by robotics or.
Electronics, higher paying jobs, higher selleries. I'm all for it, higher wages across the board, but that also probably means everything costs a lot more. So, is it potentially it's not just a three percent inflation rate, but a lot higher.
Well, I don't know that necessarily is going to cost a lot more, because if you're increasing the estic supply, right, okay, whether that be electronic jury and energy or or from oil and gas, or manufacturing. If the supply is going up, then the pricing is not necessarily going to go up. So I think the concern about inflation is to say, you know, where where is the pivot you.
Talked about higher paying jobs, so that if AI replaces kind of those lower paying jobs and we have more higher paying jobs. I mean, that is a cost line, certainly on balancing.
Absolutely then depends on productivity, all right, because basically if the wages go up but the productivity goes up, then your cost of good sould is not necessarily going to go up and you don't have to pass out along to the consumer.
You know.
To me, a bigger issue, frankly, is that where do the lines crossed between potential tariffs and then also taking those production jobs you know, back to America, because if you're in a position where you know, we do end up in a trade war some type and you have a literally overnight increase of fifteen to twenty percent, that's clearly inflationary.
If you can't come back and.
Say, oh, we're going to now increase production domestically you know, to where it's going to supplement that and take the place do.
You think we will end up in a trade war. No, I don't.
Well, I think we will have trade wars with certain countries. I think our major trading partners that are going to have the biggest effect are, you know, negotiating as we speak. You know, we're seeing everybody coming to the table. If it's going to be a tariff, it's going to be minimal.
So I think the idea of saying, look, if you want to fight with us, we're going to have a tariff and we'll collect money from you, you know, or you want to work with us in essence where we're you will take more of our goods and we'll take your goods. Then basically that's advantageous to us because now we're distributing more of our goods to other places in the world, and that's advantageous Doe domestic companies.
Well, it's just interesting though. Then do you not think that the end of global supply chains is near? Do you think that ultimately, if we don't have a tariff war, then global supply chains kind of stay put and we don't necessarily bring everything back to the United States And just got about twenty seconds.
Yeah, Look, I don't think we'll ever get out of a global supply chain. I think that what we're going to see is that we want to be treated fairly. Yeah, we're not asking for a special treatment, just you know, a level playing field. And then there's certainly some strategic from national security that we don't want to be where we're subject to all of our seven percent of our chips being made in Taiwan.
All right, got to leave it on that note.
Dan, great to get some time with you, Dan Gender. He is CEO of Jettor Capital Management.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five eas during Listen on Applecarplay and Android Auto with the Bloomberg Business app, or watch us live on YouTube.
We know that data centers used to power AI use a lot of energy. We spent a lot of time yesterday talking about where the power is going to come from, totally showing up the grid in Texas. We talked to Zach Dwall about that, and then also Maria Korsnik over at the Nuclear Energy Institute about nuclear Here's some context, Carol. Data centers use more electricity than most countries. Only sixteen nations, including the US and China, consume more. If you take
all the data centers together, it's a lot. It's a lot. It's a lot. So it does raise the question and does the infrastructure exist to support these demands? And we're not just talking electrical infrastructure, we're talking about the way that computer systems and computer networks are built. Christina Shim was part of a group of executives who tried to answer that question today. She's Chief Sustainability Officer at IBM.
She was joined at her panel at the Future Investment Initiative Institute in Miami by Sarah Fryar, CFO at OpenAI, and Rogie Nanda, CEO at Data Vaults, among a few others. Christina joins us now from Miami. Did you answer the question today, Christina? Does the infrastructure exist?
I think you probably heard from most of us that there is definitely constraints on capacity at the moment, But the idea is more about how can we solution around that? Right, So what we're trying to do is think about the entire like you mentioned, the full stack of AI, So it's not just about the data centers. It's yes, the infrastructure supporting the data centers. It's also the chips. It's
also the models themselves. When you're thinking about AI, it's the entire stack of it, and how you can be intentional across all of those to be able to make more of an increased in terms of capacity and decrease in terms of energy requirements and usage.
If we think about this as like a chain, where is the weakest link?
Oh, I mean, look, I think there's good ways to be intentional across all of those areas. Look the chips themselves. We're talking about in the last fifteen years, a ninety nine percent increase in efficiency in chips. One of the chips that we're investing in is called the North Pole and it's really based on the physiology of the brain and that and of itself has shown twenty five times more efficiency than the pre previous iterations of the chips
that we had worked on. If you think about the infrastructure too, and how they can potentially be tied in terms of the processing to renewable energy or other energy sources, you can also think about every iteration of the mainframe and other infrastructure, hard infrastructure that's going into the data centers being increasingly generation by generation more and more efficient
tied to different sources of energy that are required. And so I think that, combined with how we think about this journey of smaller models that are much more efficients, that are really much more efficient, not just efficient, but fit for purpose, more intentional about the use cases. Tying all of this together, you're really creating a much more powerful way of thinking about the computing capacity and the constraints that we're currently facing.
I have to say, I did a quick Google search, so forgive me for my did.
You use the AI part of the Google s.
I didn't use? I did not, but I was like intrigued.
When you said north Pole physiology of the brain, I was like, wait what, and so my understanding I'm looking so co locates memory and processing and the connections between neurons inspired by the brain. North Po tightly couple's memory with the chips compute units and control logic, leading to a massive thirteen terabytes per second.
On chip memory bandwidth. Did I get it right?
Incredible?
Right?
I mean, look, I'm not going to be the technical experts to speak to all of the ins and outs of that particular model, but the fact of the matter is there are some amazing investments in research and technology that are across as I mentioned the entire stack, the chips being one of them, and how cool is that it is being you know, kind of builds off the physiology of how we think about our brain mass.
It's just kind of sorry, it was, you know, the elephant in the living room.
I had to go there.
Having said that, though, Christina, you know when you talk about you know, more productive chips, more efficient chips, what does that mean though? In terms of energy demand? You know, I did moderate this panel about a week ago and it was with the Nuclear Energy Institute, and it was about, you know how powered demand, which hasn't really moved for a long time, has now increased dramatically over the last year or so and the forecasts continue to see that growth.
So are these chips which.
Increasingly are needed, efficient enough, productive enough to kind of outpace that overall growth in demand.
Because it sounds like no.
Yeah, I think, you know, to be honest, I think the innovation needs to continue, right, and so there's continued technological innovation. Is it going to solve all problems at this current moment? No, But I think going forward, the fact that there is this increased innovation across all the different areas of technology that affects how we think about capacity constraints and infrastructure for AI. We will get there and let the I give you an example for the
AI specific chips and infrastructure. We had set up a set of accelerators of these chips that were installed at the University of Alabama and Huntsville, which is just down the road from the NASA Marshall Space Center. And why that's relevant is that we have a partnership with NASA.
We have built these geospatial foundation models. This set of AIU accelerated accelerator chips that were installed there for gen AI experiments was incredible because we were able to do a lot of the climate and geospatial testing of these models off of these chips, and just an early tests alone with these models, we saw that the cluster could run three times more efficiently than the commercial GPUs that
are out there. So, while it may not be the the answer to all things at the moment, we're seeing that there is increased acceleration of the innovation that goes into how we can solve this problem for the medium to longer term.
Yeah, Christina, Caroly and I have spent a lot of time over the last few weeks playing with Chad GPT is that your only is that.
What you're That's the only one I've played.
Around you, not like a Gemini person.
Yet I haven't gotten there, and I haven't.
Paid the quad for you.
Yet it stops showing up. No deep Seek, No deep Seek.
I don't know if you're allowed to use deep Seek.
I don't know that I am either.
I'm not actually sure I'm allowed to use it here.
I have to use it on my phone. Yeah, So it does raise the question though. So we've been doing you know, we haven't been. We're not power users by any means, but I love to when we talk to people like you, to have you lay out a vision for us, because we understand what these lllms can do. But what's the world we're going to be living in, say five to ten years, and the role AI is going to have in it?
You know, it's funny you say five to ten years. I would say even pause. It a lot closer to us than that. I mean, lllms are think what people are most used to because we're already used to like Google searches. Everything is done by words. But the multi modal element is going to be huge going forward. It already is right, the fact that you can speak to it, the fact that you can snap a picture, that it
creates pictures for you. So the generative aspect from a multile my modal perspective is going to be much bigger. That's going to include video, that's going to include what I mentioned about geospatial I mean, all of these different ways of really making sense of the world and the world and the technology making sense of things for us is going to be profound, and that I don't think
it's going to take five years. Already happening now, but at a much more accelerated pace of adoption because as you said, the power the power users maybe using them, but the average users may not be. I think that that's where you know the next, the next iteration of this will be going.
But do you are you concerned when you think about sustainability in particular? That's what your job is, chief sustainability officer, And I'm not quite sure how you define it.
As we ramp up.
Energy or try to meet the energy demand from AI and just the electrification of our world thing increased industrialization once again of our world, I mean, are we able to do it in a sustainable, greener without harming Earth anymore than we already have.
Yeah, right, it's a very important question, so thank you for asking it. I think the idea is that just as much as energy efficiencies has increased or improved over the last several decades, it will continue to do so. So while it is requiring an immense amount of energy and water as well for data center cooling at the current moment, because of a lot of the technological innovation, I have hope that that's actually where we will be able to manage some of the and mitigate for the
environmental footprint. And I said before too, and I'll say it one more time that the intentionality of how we think about using AI is really important. So how you think about what chips you're using and how energy efficient those are your infrastructure, And again, as I mentioned, is it closely tied to a data center that's using renewable energy versus oil and gas. That will make a huge
difference as well. And also the size of the model, right, you don't need a trillion parameter model to do anything, and everything we've seen, you know, thirty folds increases in capacity just by using smaller models, but also lowering the costs and increasing the efficiency of that as well. So I think if your intentional across the entire stack of it, we can all be much more responsible on how we're thinking about the use of AI. For sure, it's a concern.
We need to be intentional about it, and I'm hoping that you know, increasingly, as we're working through with our partners and educating more broadly, that the average user will also as well.
Hey, you're done in Miami at the Future Investment Initiative Institute. Some big names there, including you, in addition Saffercats at Oracle, Eric Schmidt of Alphabet and Google fame, Robert Smith, Stephen Ross, Marcelo Clare, Stephen Cohen, Travis Kalanick formerly of Uber. The lift continues the list that happens when I talk about it, where sometimes I say lifts, The list just continues to go on. What's the vibe there, what's the conversation, what's dominating the conversation?
Number One, incredible excitement about the opportunities to work between the world, collaborate. The Saudi Arabian government is just you know, investing a ton in how we are collaborating together and showing that technology and these partnerships and technology are going to make significant impacts on the world in a positive way. I would say that's like first and foremost and too.
I mean that the theme of the conference is invest with purpose, the idea of being you know, as you mentioned big names in the room, trillions of dollars of capital either owned or being managed by these people in one room, and the idea is, how do we make sure that we are investing with purpose thinking about the impact that we're having, both the consequences as well as positive.
Christina has to just jump in because here you have, you know, a day where city scraps diversity goals DEI term under a Trump pressure, pressure from the White House, they came out and said that earlier today PEPSI pulled back on DEI programs. I feel like there's a rethink too about maybe concerns about climate change. What confidence do you have that the build out to meet the demand is done in a purposeful way and maybe a careful way,
certainly when it comes to impact on the environment. And we've just got about thirty seconds here.
Sure, Look, I can't speak to what all the other companies are doing. For us, it's still about long term value creation for our clients and our partners. I know that I've met with many people here who feel the
same way, and so we'll continue to do that. And you know, whether or not it's using certain categories of words or not, at the end of the day, it's about the outcomes of what we can drive and how we can make sure that we're doing that in the most responsible and ethical way, and so that's what we will contain it.
So the value creation continues to include whether it's diversity or making sure that the impact on the environment is minimal.
Are still sustainable? Is that fair? That's fair?
And I would say even more than that, it's not one or the other.
Right.
One of the main things that I say is that sustasability is as much of a business driver as anything else. It's not one or the other. And I think that's critical as part of this.
Christina, thank you so much, appreciate it. This is Bloomberg.
Macle I'll bet you let me drive.
Oh no, no, no, no, this is not a twenty Okay, please.
Excuse me.
I want to drive.
It's a question. This is the drive to the clothes.
Pungs for me a thing.
Well, drill don on Bloomberg Radio.
Is it that time, Carol, Oh, TikTok. Yeah, that's when I usually do that. Sorry, I'm a little off today.
No, I don't think so. I'm off.
All right, today's your day to be up. I'm on so TikTok. Everybody better, you better be on eighteen minutes ago. And do we wrap up the.
Train on the s and everything.
Yeah, it is time for the drive to the clothes folks. We want to get right to it because we love talking to Brian Kelly, Chief investment Officer portfolio manager over at Hennessy Funds. He co manages the Hennessy Cornerstone MidCap thirty fund. It has returned on average nearly twenty two percent annually, putting the fund in the ninety ninth percentile against those in the sector, beating pretty much just about everyone in that group. That's according to our own data here at Bloomberg.
He joins us from Chapel Hill, North Carolina. As I'm reading this along with Carol, Ryan, I'm wondering if that's if it's tough act to kind of follow performance such as that, like no pressure. Yeah, kind of a little bit of pressure, right.
Oh, absolutely, no pressure at all. No, actually, there is not a whole lot of pressure. I'll tell you why this fund was conceived in two thousand and three.
The formula that it uses.
Is actually the exact same today as it was back then. This is a fundamental quant type formula. Now don't think of it as quantitative as in AI. Just like all that you were taught about a moment ago. We're not going to need data centers galore for this type of investing strategy. But it is a formula, and it sticks to the exact same thing year in and year out. And we do, of course have some years in which
we're down. We're actually lagging a little bit this year already, But overall the entire history of the fund, yes, it's done very well. So it actually does take a little bit of the pressure off. Just knowing that you can take some of the emotion out of investing. You can stick to your formula, you can stick to your guns even when it seems like it might not be working.
Or sometimes when you know a stock you own has gone up at one point it was up eight hundred percent, and you think, well, maybe I should get rid of it.
Well, there was still some more upside in that.
So this is really a formula based fund, and it kind of makes it a little easier to run.
So let's talk about the formula. What's the secret sauce, what's the quant method here?
Absolutely, the secret sauce, first of all, is actually published on our website. It's on our fact sheets and our perspectus, it's everywhere. The idea is that we want to give investors a really great portfolio of about thirty companies in the MidCap space. Now we define MidCap is between one and ten billion. We're then looking for three main things. We're looking for earnings growth, we're looking for valuations, and we're looking for momentum. So we pick stocks that are
below one and a half times priced to sales. We want earnings growth on a year over year basis, and we want momentum three and six month price appreciation.
And then what we do is we take that.
Entire portfolio whatever's left over, and sometimes there's about one hundred and fifty companies if you look at the entire space, and we rank them by their best one year performance, and the top thirty enter the fund. Now, a couple of little nuances that I think really help the fund is that we pick these thirty stocks. They go into the fund at about three point three percent each, but along the way, we only do this once a year.
We let them run, so we end up reinvesting more into stocks that are doing well and investing less into stocks that aren't doing so well.
And I know, the last time we talked to you with I think was in November, you guys had done kind of the reboot and the rebalance and only two stayed in that portfolio of thirty.
Is that correct, that's correct, yes, yep, yeah, that was the last time. And that's kind of typical of what the fund does. There's about, you know, a ninety percent turnover every year each year, and I think the reason is is that you get stocks that have had better momentum over the current year versus the last year, and that kind of makes a lot of them fall out, but we end up, you know, keeping whatever still stays in makes the cut, and then we put new ones in as well.
But at the end of the day, we end up with thirty stocks, all equally weighted at about three point three percent, and then let them go from there.
I got to ask you. So, which were the two that stuck around? I can't remember.
That is a good question. I can pick that up.
Oh it was m Core one of them, and I need to figure out the other one.
Okay, that's that's it called a Carol Master pop quiz.
Sorry, there a couple.
You know. It's interesting now in terms of the top holdings, Peloton, Alaska, Brinker, and Newell Brands. Newell's been struggling this year, so that's an interesting one to see. But Peloton, let's start there. How did Peloton end up as the top holding?
Again, this was a situation where when we did the rebalance, and this was back in November of last year, Peloton came into the portfolio at a three point three percent position as well, we bought it all it around to say five and a half six dollars range. This rebalance we talked about usually takes about two to three weeks, and the stock has surged since. Certainly there's been some ups and downs a little more volatile than some of the stocks we have in there, but that's why it's
now the largest position. It's had a really nice start this year until today. You know, it's down a lot today, but the point is it was trading at below one and a half times priced to sales. It really was kind of out of favor. Yet it had some good momentum behind it, just enough to make the portfolio. And since that time it's it's up about seventy percent from our entry price.
Well, and another one that you got is have the in the portfolio Brinker International, which is already up about seventeen percent so far this year. They own Chilis and a few other chains, so that one's in the portfolio as well.
Absolutely, you know, And that's another one. It's a typical type of investment that we find. These are companies that have been around for a while, they have good products. Chili's has done they own Chili's, Brinker does. They've done a great job of refocusing on their brand, sort of
simplifying their menu, bringing customers back, and it's worked. And this type of investing, I would say, for various reasons in how the portfolio, how the actual metrics work together, ends up finding stocks that are kind of turnaround stories. We're not going to be the smartest guys in the room. We're not going to buy things before they turned because we want that momentum already to happen, but it's happened
again and again. And a good example of that is that and you can be sectors as well as individual stocks. Energy about you know, four or five years ago, when energy was trading at forty, when oil was trading.
At forty dollars a barrel. A lot of those.
Companies were, of course not making a lot of money at that point, but they still had a pretty low price to sales. And we at one point owned about thirty percent of the fund in energy stocks. Energy swored oil prices hit almost one hundred and twenty at one point and then settled in around eighty or ninety, and that ended up being a really really good part of
the fund. And it was an example of how an entire sector might be out of favor, an entire you know, different individual companies could be out of favor, and we'll see them as a turnaround story in the fund.
Yeah, bring our International up two hundred and six percent last year, up thirty five percent twenty twenty three, but still coming up. As you said, you look at earnings, growth, valuation, and momentum in the fun pretty.
Cool stuff baby back ribs.
Did you have to see that there, babyback, isn't it Ryan Kelly. We do love getting time with you. Thank you so much for stopping by Ryan Kelly, Chief Investment Officer Portfolio manager at Tennessee Funds. Out there in Chapel Hill, New North Carolina, Chapel Hill, North Carolina.
Which is kind of cold behind them?
Is it cold there?
Looks a little cold, looks a little looks a little cold.
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