Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside my co host Matt Miller.
Every business day we bring you interviews from CEOs, market pros, and Bloomberg experts, along with essential market moving news.
Find the Bloomberg Markets podcast called Apple Podcasts or wherever you listen to podcasts, and at Bloomberg dot com slash podcast. What a take a look at some eco data coming at here. I'm looking at the leading Economic indicators.
Let me see what I pop it up on my ECO screen, which.
Gives you all the economic data out there. The Leading Economic Index came in. It negative zero point six percent. I guess the bad news is it's it's a negative number, but it's in line with expectations and it's better than the prior month. But let's get some perspective on what this leading economic indicator means. Dana Peterson, she's a chief economist at the Conference Board. She joins us here. So Dana put this number in perspective for us.
Sure, I mean this number is just in a string of really bad numbers of negative LAI prints the last year, and it continues to suggest when you look at the year over year measure of this that there's a recession. It's probably starting right about now. And indeed, when we look at the components, most of the components have been very weak, not only in the last month but over
the last six months. And certainly credit conditions have been tightening, consumer confidence has been weaker, housing and activities been on the downturn. The only areas that have been somewhat better were certainly the labor market indicators even leading it. But even JABOS claims, which are leading indicators, have been picking up a little bit as the labor market is showing some signs of cracks.
So, I mean, give us a sense, though, Dana, how is the trend here? You know, it's tough to read here, but what are you seeing in some of the data? Is you kind of do a three month or six months kind of trailing kind of look at this thing.
Sure, so definitely a year on years down eight percent, so that's not great. And when we look at the six months that's down eight point seven percent, and so both these measures are pretty weak. Certainly three months, looking at three months, it's still down. So no matter what gauge or transformation you do on these data, it's telling us the same story that the economy is weakening, it's flowing. We've already seen housing activity cool. Businesses are investing less.
But the key thing is the labor market and consumer spending on services. We saw in the retail sales data that consumers are still pleased to go out and go to restaurants and they are interested in services. And also the jobs market is holding up. But like I said, there are some signs of weakness, certainly amongst those former pandemic darlings that are restructuring at this time. But you still have a lot of those services industries where you
have to physically show up to work still hiring. So that's the challenge certainly for our CEI, which is the current economic indicator, and that has not moved really, it's continuing to sow strength because two out of the four measures are from the labor market.
So at the conference board, what is your kind of economic outlook in terms of recession?
Are we having one? Are we in one?
How deep will it be, how prolonged will it be? Where are you guys as you take a look at your data.
Sure, we do believe a recession is going to happen. It will be short and shallow. We're thinking that we're probably going to see negative GDP growth in the second quarter where we are right now, and then it'll deepen in the third quarter, be a little less bad in the fourth quarter, and then by the beginning of next year we'll be coming out of it. So not too bad, but certainly a recession nonetheless.
So in terms of inflation, that's clearly what our Federal Reserve is looking at here. And we heard comments from some FED members just over the last couple of days they were down in Amelia Island, Florida at the Atlanta FED conference Amelia Island, Florida. I mean, have a not Cleveland, John, I mean, who's kidding who here? But so, what do you think the FED is going to do with some of this data we're seeing here?
Dana?
Do you think this Fed's going to pause here? Do you think they even maybe even think about raising rates? Or where do you think we are here with a FED?
Sure they're looking at everything. If they're looking at the leading indicators, yes, that does signal recession. But they have indicated that they are prepared for some quote unquote pain, which would be a mild recession. It's necessary to bring out inflation. And when we look at inflation, certainly last week we received the CPI, we saw some positive momentum downward, but still in all, both the headline and the core
are pretty elevated. And the key drivers of underlying inflation right now are food prices on the good side, but on the services side, it's still housing in the form of rent. We should start seeing that come off in a couple of months, reflecting what's happened in home price valuations, but it's still those services, especially for travel and hotels and restaurants and healthcare, that are still very sticky, and
that's what that's being challenged by. So against that backdrop, I would imagine the Fed would still look to raise interest rates at least one more time, and then once they're finished raising rates to keep them there elevated for the balands of this year.
Dana Creadiegupta in New York here kind of hopping into this conversation. You're an economist by trade, of course, but from a markets perspective that doesn't seem to be priced in at all. It feels like the markets are looking ahead to cuts, are essentially just saying that the federal reserve is done hiking.
And the core of that thesis is.
Not only the recession call that you all were talking about at the beginning of the segment, but also the idea that the lags still haven't fully taken effect. Are you in that camp that we haven't seen the full effect of the tightening thus far, Well.
No, we haven't seen the full effect because the lags are variable. It depends on what you're talking about. So certainly the housing market that's the first area of the economy to experience weakness when interest rates rise, and we've seen that. Also, businesses have pulled back on investments and capex and equipment. They're still spending on intellectual property that's kind of the digital transformation angle, but certainly businesses have
pulled back. Consumers have also pulled back on durables. First of all, they're more focused on services, but also durables that anything that needs to be financed is more expensive. So the last piece of the puzzle really is services.
So we're still waiting for that shoe to fall. But regarding what markets are anticipating, yes, you're right, markets are pricing in either I think most likely, you know, some kind of recession and thinking that if GDP numbers go negative or jobless or i'm sorry, jobs really weakened, that the Fed's going to blink. But I think the FED
would only blink if it's really bad. And also, inflation gauges we're moving in the right direction right now, They're still very sticky, and I think the FED will would tolerate a mild recession in favor of addressing inflation. Inflation is the biggest problem in their view.
All right, So I'm thinking about the labor market here and again we had a little bit better and expected jobs claims today. Where do you think the unemployment rate goes? I mean, I guess maybe just more broadly, are you kind of surprised that the labor market is as strong as it is and do you expect it to weaken materially going forward.
I'm not surprised the labor market is as strong as it is, because the big difference between this potential recession and others is labor shortages. We have millions of baby boomers leaving the market the labor market, and there are enough younger people to work and replace them, and so businesses are caught in the mind. So they are many of them, according to our own survey, are hoarding workers.
So they're not letting people go because they think if there is a recession, we'll be short, it will be shallow. And by the way, we don't want to everyone go and then have to bring them back at a higher pricing point. So that's why the labor market is showing signs of resiliency. It's not that it's out of step with weakness in the economy. It's because you have these severe labor shortages.
When java severe labor shortages, Dana in just three thirty seconds, excuse me, are you worried at all about some sort of bifurcation when we're talking about kind of higher income lower income jobs or bisectors thirty seconds?
Is that a concern for you at all?
Well, I mean you're seeing it really is bisector So again the pandemic darlings, they are letting people go. The industries where you have to physically show up to work, they are hiring people, and everyone else in the middle, which is a lot, is not doing anything. So you are seeing this segmentation in the labor market.
All right, Dana, thank you so much. We really appreciate it.
Dan Peterson, chief Economists for the Conference Board, joining us today. Again, the leading economic indicator released by the Conference Board came in negative zero point six percent, in line with expectations.
I don't know.
I guess the good news is it's it's better than last month. But the bad news is it's still negative and consistently negative. So looking for turn there. Certain parts of the consumer remained very strong, as Dana was mentioning, but again the Conference Board calling for a shallow recession.
You're listening to the team Can's are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg dot com, the iHeartRadio app and the Bloomberg Business app, or listen on demand wherever you get your podcasts.
You know what we've been mentioning just more and more and more and more over the last several months, is artificial intelligence. The kids call it AI. It's on the tip of every CEO's tongue. Doesn't matter what business they're in, where they are they a tech company, a non ten company. Everybody's talking about it AI. I'm convinced it's just a gooster stock multiple but we'll see what how real this is?
It is real. It's see how this scene plays out.
Now, when you think about AI, you think about there's got to be an ETF for AI, right.
I mean, there's an ETF for everything.
There's an ETF for everything.
We've got the folks who have one of these ETFs. Chris Natividad, he's a co founder in CIO and Art Amador, co founder and COO of Equbot. Equbot has it? Am I going right there? That's right equbot boom hit that?
All right?
So do you guys have an AI powered e t F A I e Q is the ticker art tell us about what's going on there?
Yeah?
Absolutely?
So what we what we do with aiq's It leverages IBM Watson's natural language processing and we analyze millions of news articles, social media posts, all of this unstructured data, and then we marry it with traditional data things like
financials macro oh sorry, financials macro data. In order to make predictions on different prices, AIQ analyzes about five thousand US companies and then invest in about one hundred and twenty five and fifty names that have the highest opportunity for appreciation based on those those market signals.
So all right, so talk to us about a little bit about kind of what are some of the names you guys have in there, and kind of how do you screen to put names in there, because again, there seems to be so many people that are really looking at this.
Chris.
Yeah, So when we think about AI, it's pattern recognition and that's what our system's doing. And some of the top names that we actually see are are AI related.
So names like.
Pollunteer and Google. I mean, these are are heavily referenced in a lot of the unstructured data that aren't mentioned. And when we think about it, you know, do we think there are going to be more instances of folks coming on social media and talking about companies and moving stock prices more in the future or less? And I definitely think it's pointing to that more.
I think you're right.
I just want to read a red headline just coming across the tape. Equity Residential founder and chairman Samuel Zell he dies at age eighty one.
Will at more reporting on that coming up.
Yeah, it's a pretty significant story. Of course, when we're talking about his group, the equity Office I believe purchased by Blackstone right about Yeah, I'm not.
Sure if I know Samzell has been mister real estate, mister Reed.
Yeah, absolutely decades.
We're going to get Shanlie bassek in here asapt to cover that. But let's stick with the AI story for now. Let's start with the idea of whether or not AI is actually overpriced. It feels like the majority of the games in the last few months or so, especially in the tech market, have come from this AI mentioned as Paul said, is there any concern that this is kind of the end of it, this is peak AI?
Absolutely not. And what just came out a few minutes ago is Goldman talking about the potential of AI rallying equity markets thirty percent the coming year. This morning we hear about news coming from the US government about putting in AI regulatory bodies, right, and so what we see from the data is that there's an AI arms race. You know, people the big players, Apples, the Googles, IBM, all of these large tech companies are investing in AIS.
So there's going to be more data. It's coming and come quicker, and it's going to help us have the opportunity to really grow our businesses and what we do in our daily lives.
So I found out. I was wondering about these two guys. Now I figured it out.
They both got NBA from Berkeley.
I mean, some smart dudes at Berkeley Outstanding School. So talk to us about like kind of what you think the future of AI is, and maybe let let's start with generative AI. Can you explain what generative AI is because I think that's when I think of A, that's what I think is really really AI.
Yeah, so generative AI is is all the all the hot rage right now on our partner. I've being with Watson actually just came out with just just came out with Watson X, which leverages generative AI, which is leveraging transformers. But the way that we think about generative AI is
it helps put things in context. Right, So, if you're using chat GBT, you ask it a question, it gives you an answer, Then you ask it another question and it gets the context right of the of the previous the previous question, uh for the next answer right.
So it really helps put context around things.
And so when we think about how we're using how we're using it, we have something called a convolutional knowledge graph that helps combine structure and unstructured data and so when we analyze news article, social media posts, it's not just about the sentiment, it's about the intent, right, how
things are connected. And so what generate AI is going to do is going to provide more context which could lead to better predictions, whether it's markets or whether you're applying it to whatever particular problem you're you're trying to attack.
When you talk about so that's generative AI. It feels like AI falls into a lot of different types of of usable things. Paul, like I said, Paul says this every day he goes pets dot Com could be could be using AI.
There's dog food companies that are using AI, but there are different types. Can you walk us through just kind of the other use cases for it?
Yeah, so you think about image recognition, right, how you know, thinking about medical discovery and how it's impacting and positively helping folks live better, healthier lives. Right, helped us discover the vaccines and treatments related to COVID more recently. Right, it helped me out this past Mother's Day, what do I need to be buying my mother?
Right?
And you know there are.
Other folks at all stages of life that AI can really help you put things in front of you that you're not thinking about pattern recognition. Again, when we see the evolution of the hardware right with quantum computing, we truly see some great opportunities. And especially as our e t fai e Q improves on some of the different forms of trade timing. I think the best days are still ahead for a lot of these different players in the AI investment space.
Right talk to us about the actual ETF here, How much is in that fund, how did the launch go?
How big you think it can get?
Yeah, so the opportunities tremendous. So AIQ was the first AI powered exchange trade or fund. It was the first time anyone was willing to kind of publicly put in you know, AI algram out there in the in the marketplace. And as of today, it's about one hundred million dollars
in assets. But we have different indices out there that are being leveraged in banking products and insurance products, and in total, Equbot's got about five billion dollars in tracking AI indices and strategies, and so we think ai EQ could easily be over over a billion dollars and be one of the marquye AI funds and I think right now, I think it is the largest AI fund.
Hey, Christy, I see like you know Palenteer, I'm sure looking at your top ten holdings, Palenteer, cloud Fair, dat Data, Dog, I get all that stuff, McKesson and Albemarle, you know kind of there's a healthcare company, a chemicals company. Why are they in that in your ETA?
Yeah, you think about AI. It's pattern recognition, right. You think about some of the different things that can impact a stock price, the unstructured data about that our released from from news reports, syndicate research. You think about some of the technicals we may not be looking at, you know, the stochastics and mac and how are these impacting different
stock prices? That The thing I'm trying to get to is different data points drive different stocks, right, And so having a neural network helping you supercharge your investment portfolio and understand and look at the data unbiased because quite honestly, us humans have a lot of different bias when we invest and select these stocks. Saying, hey, if I'm looking at all this data, which are the highest companies that are going to have that highest chance of market appreciation?
And that's what it excites us. Again, we see the investment companies improving, the algorithms themselves improving, and so we still feel the fund's best days are still ahead.
But album moral, for example, we don't have about a minute left. It's a lithium company, isn't it, or like a lithium mining company. From a fundamental perspective, how does that flow into the AI story or is this purely stock performance?
Now again, fundamentals are just a single component, and those are just data points. You need to think about all of these structured data that you're talking about, all the different namonics that we're using on Bloomberg, but the unstructured data as well, and so you know that's really the opportunity how to look at it in aggregate.
All right, that's extraordinarily interesting because I've been talking everybody's been talking about it AI pretty I mean, it's not just us, but everybody's talking about AI. Everybody's talking about ETFs. So why not have an AI E t F and these.
Marriage of them both exactly what Katie Grafeld.
Exactly exactly right? All right.
Artm Amador COO and co founder of Qubot and Chris Natividad, cio of e Equalbot they joining us both here in a Bloomberg Interactive Broker studio.
We appreciate that talking about AI e Q.
You're listening to the tape Cat's are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa play Bloomberg eleven thirty.
The news that just broke was really interesting, particularly for folks that you know, play a lot in the real estate business. Think about the real estate investment trust business.
Sam Zel passed away at the age of eighty one.
Shelley Basic joints us here she covers all things Wall Street.
Chanelie, what's your sense here?
Sam Zel again, just a giant in the real estate business, in the investment business, in global finance business, A big.
Name, certainly a shock to anybody who knew him. I'm messaging with some folks in the investment community now, and it's just very sad news. He was only really eighty one years old and very much was you know, very active very recently. I mean, we've had him pretty recently on Bloomberg television as well. Remember, yes, why is he so well known? He book a residential you know, real estate company public and that was really kind of a novel thing when it was happening. I remember he had
been the founder and chairman of Equity Residential. That's a ticker EQR. He was founder and chairman. And so really he had been in the real estate business guy since college. I mean, this was his life's work. And in addition to his work in the real estate business, you have to kind of think about just the wide reach he had across many different institutions, from Northwestern University, Warton Reichman University,
he has exposure to private education institution in Israel. So he really, you know, Chicago born, makes sense to have such a close tie to Northwestern as well. So a very large figure in finance who has passed away.
And just according to Rich go On the Bloomberg terminal had a net worth of five point nine billion dollars. That made him the ranked four and at twenty third in terms of the Rich go List. So again, he's had obviously a long and very lucrative career.
Yeah, and we got to go back to kind of his equity residential shaw I mentioned kind of the real estate presence that he had a thirty one billion dollar apartment owner, developer and operator, and of course that was an S and P five hundred member before I believe being acquired by Blackstone.
If I'm well, no, equity residential currently is still a large company, but you're you're thinking about equity office. Yeah, I think that was a historic deal. So I'm glad you brought that up. Actually, I was just messaging with a banker that helped sell that company to Blackstone back before the financial crisis. So to the point that you were making here is that he was not only a big office sorry, a residential real estate owner, he was a massive deal maker, which was really what also kind
of solidified his ties across Wall Street. I remember an interview I had done with him in one of the top bankers vice chairman of Institutional group over at the City Group a while back, and it was on Bloomberg Television, and they were just reminiscing about the good old days. Does every crisis deal era, But yes, you don't, really.
You don't make them like that anymore.
There are very few tycoons in this industry as large as Sam Zal.
You know, he's obviously a real estate person, and I spent my career in the media industry, and our paths crossed a little bit in the mid two thousands because he backed the eight point three billion dollar buyout of media company Tribune in two thousand and seven, And you know, that was a time when people were unsure really where the newspaper media and the Tribune at the time owned a bunch of television stations as well.
In the Chicago parent couple of Chicago.
Chicago Tribune and back in the day, the Cubs as well, so kind of do it tying in that Chicago connection. So it wasn't just real estate. He was obviously an investor in other areas as well.
Yeah.
Absolutely, And to the point that you're making too, a deal maker in other areas outside of real estate as well. I think his dynamic personality when it came to doing deals, being bold and buying assets was a defined feature of samsou Shani Basik.
Thank you as always, our Wall Street correspondent all over the Sam Cell story.
You're listening to the team. Ken's a live program Bloomberg Markets weekdays at ten am. Eastern on Bloomberg dot com, the iHeartRadio app and the Bloomberg Business app or listening on demand wherever you get your podcasts.
Ye.
All right, let's go to Matt shut Now he's covers all the Washington DC stuff for Bloomberg Intelligence and Supreme Court upheld section.
Two thirty here today.
Now I know for it's social media liability shield and this is a big deal for the social media companies in general. So, Matt, how important? What tell us what the Supreme Court ruled today? Number one and number two? Why is that important?
Yeah, Paul. So, so today the Supreme Court announced its decision on this case about the liability shield, and basically
what the Court did is is punt on it. And so this is great news for the companies because what was really surprising was that the Court took this case at all and it heard argument in February on it because there was really no division among the courts of appeals that basically all the courts agreed that this liability shield protected all the social media companies that just because somebody posts something problematic, you can't go sue Google because
someone posted that, And all the courts had agreed on that and the fact that the Supreme Court took this case suggested, WHOA, maybe they're going to make changes to this long standing liability shield. Well, today we found out that isn't the case. The court punted on the case and said, look, we don't even have to address the liability shield. This claim wasn't very strong in the first place, so we're not even going to go there. So they
basically punted on it entirely. But that really eases what could have been a substantial risk if all of a sudden this liability shield had a big hole in it.
All Right, we're talking to Matt chetn Holm Bloomberg Intelligence covering the Supreme Court case talking about social media liability. I want to thank Shanali Bassk. She kind of gave us the latest on the passing of sam Zel. Shanali Basque covers all things Wall Street for us. So, Matt, who brought this case and are they going to come back again?
Do you think?
Yeah?
So, So, this case was brought against Google by by someone a family of a person who was killed in a terrorist attack, and and the allegation was that that Google recommended that content, that that led to the harm and and so this is an on you know, there's endless amounts of harm in the real world that can be caused in linked back to social media postings, and so in theory, if if the companies like Google or Facebook could could be sued every time they promote harmful content,
it opens up, you know, endless litigation, hundreds of millions of dollars a year of cases they would have to fight. And that's why it was a big deal that the Court, you know, took this because it suggested maybe they want to make changes. But but you know, we kind of dialed that back a little bit in February when the Court really dug in on this and asked questions of the Council on both sides. It really we had a pretty clear signal at that point the justices weren't ready
to make major changes. They didn't want to break the Internet basically, and so and that's what we're seeing today with this decision is Oops, maybe we shouldn't have gone here, Maybe we shouldn't have taken this case. We're not going to touch Section two thirty at this point. But you're right, this is not the end of the story. Congress is going to keep looking at whether it should change the
liability shield. And you're going to see more cases brought and more tests coming down the road, but this eases the immediate concern.
All right, Matt, thanks so much for joining us on short note. Really appreciated.
Matt schetting home bloombergntellents down in Washington, DC giving us the latest from the Supreme.
You're listening to the tape Cat's are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.
I think some of the big news coming out this morning.
There's a lot of news, as are typically is, but Speaker Kevin McCarthy said he expects the House to consider a deal on the federal debt limit next week, offering his most positive takeout on the negotiations to avoid a default. Negotiators, he told reporters Thursday, are in a quote much better place now. I can see now where a deal can come together, he said.
So that's good news. Let's check in with Liz McCormick.
She covers the treasury markets like no other for Bloomberg News, and she and Alexander Harris have a great article out here that I love the headline.
It really grabs your attention.
A one trillion dollar T bill deluge is painful risk of a debt limit deal. So, Liz, what do you mean by that is? If there were a debt default, they would try to, I don't know, cover themselves with a bunch of T bills.
Well, no, not exactly that ball. And hey, so if there's not a debt default and we get which, like you were saying, McCarthy's comments today seem very positive that they may get a deal next week. So once we get kind of back to status quo that Janet Yellen is not working under extraordinary measures, they have to kind of resume normal policy, which part of that is they
have to rebuild there. They carry a cash buffer they call the you know, Treasury General Account in case of emergency tech failure that they can fund themselves for a few days without having an issue new debt, and that is really dwindled down. So they have to sell this deluge of bills to help build that up again, and that's what we're getting at, which some of the mechanics, the way it works, is going to ultimately, you know, pull reserves out of the system and drain liquidity.
Well, Liz, even if we get these headlines, it doesn't feel like the markets.
Are acting much to it.
I'm the equity markets popped briefly. We're still hired by four tens and one percent on the Sep. Five hundred from like two tenths higher, so not a massive move there. But even the bond market note necessarily the spike and yields I would have expected, Why what's going on here?
Is this?
Is this reservation or is this priced in? How do you interpret that?
Well, I think, I mean that's a great point because we were looking like, even though you know how they avoid the bills that are going to mature right at the X date that's around June one, those bills remain way above that, so there's that kink in the bill curve. So I think investors are saying, yeah, this all sounds good, but we won't believe it till it's all done, because we've been through this before that. I mean, most people say, yeah, a deal's going to get done, because I've been through
this movie. It happens, but you know, twenty eleven was a mess. And I think until it's all signed on the dot line, some of these traders, especially in the rates market in the Bill area most especially, they're just not going to kind of say, oh, let me jump in until we know for sure the deal is done. Plus, like I think you guys were talking early Lori Logan's comments about you know, June may be in play. That's got the short end rates higher.
So there's some cross currents.
But I do think the market has to kind of really see it to believe. And like you said, the stock market didn't go nuts, right, I mean went up a little, but I just think we know how it goes. Then you know, President Biden could say X, and you know, all of a sudden, we're back to square zero.
So but it does look good.
Our DC reporting seems to indicate that I.
Were also joined by Michael McKee, Bloomberg Economics corresponding. He joins us here in a Bloomberg studio, Michael, what do you make of this? Is this kind of what we expected from a timing perspective here, and what does it mean?
Overall, do you think.
Well, it might even be sooner than we expected kind of timing perspective, since everybody's betting on a last minute deal and we have until approximately June first. I think this is, though, the way it normally plays out. Now. The complicating factor here is what we're talking about is the White House and the Republican leader on the ill
maybe making progress together. The question is, then, what do the rank and file in both parties think, because we've talked a lot about Republicans and whether or not they will go along with anything Kevin McCarthy negotiates. And then the Democrats have been very upset in the Senate too about the possibility that Biden would give away too much and for one thing, agree to work requirements for federal aid.
So we have to see how the main bodies of the House and Senate react in each party before we'll have a better idea of whether this can actually pass. So you've got those two cliffs. The negotiators have to reach agreement, but then they have to sell it to their people.
And this of course follows.
I think that news maybe a day or two ago that President Biden had already kind of slimmed down his negotiating team as well, which is a positive sign.
Mike, talk to us about the read through for the Federal Reserve. There is there.
Any we know?
Truman Powell was, as so Jenny Yellen very confident about, Well, they'll get to a deal.
They have to.
They have to raise the debt ceiling in some way. Any read through here for the.
Fed not yet.
The Fed, like everybody else, is watching from the outside what's going on. They have come up with their plans for what they would do if we did reach the debt ceiling, if we went over that cliff, which they are disclosing, but we know from history kind of the things that they're looking at, it would obviously have a major impact on the June FED decision if we were to go over the cliff. But I don't think they
are gonna I was asked about this morning. They're not really talking about it or putting it out there as an issue because it's so fluid and so uncertain that there isn't really anything they can say. Obviously, if we go over the cliff, they have to probably react, but if we don't, it doesn't make any difference.
Hey, Liz again in your reporting, you talk about this one trillion dollar number in a te bill more. Is that something the market can handle an orderly fashion, do you think or is that going to be really disruptive?
Well, you know, I will say in the Treasury Department, who I've talked to off and on for years.
They have a plan.
They know this is going to be a lot. They reached out to the primary dealers ahead of their last kind of gathering and said, how do we do this, you know, in the best way to not cause disruption? So I think Paul, they're going to be careful. I mean, it will filter through to rates and such, but they don't want it to be so disruptive that there's all these dislocations. So whether they're going to try to spread
it out enough. Some of these over a trillion issuance is out through the third quarter, so I think the US Treasury Department is going to be very careful. They've also seen this movie before where they've had to unfortunately get their cash balance painfully low and then look to build it up very fast. But either way, the net effects, you know, from the way the mechanics work, is we should see reserves come down somewhat in the banking system.
But you know, let's hope and I have trust in them that the Treasury Department can do it, you know, with as least pain as possible for the market.
Mike, in our last minute here, when you're talking about government spending at the end of the day, when you're talking about the nuts and bolts of this deal, how much of it could be inflationary.
It's an interesting question. If a cut back on spending, then you would have some deflationary effects, but it's generally spread out over such a long period of time that it wouldn't have much of an impact on what's going on. What might have more of an impact is what Liz was talking about. If they have to rebuild the TGA very quickly and liquidity drains out, that could have an impact. But we'll have to see how that plays out.
Hi, Michael McKay, thanks so much for jumping in here. Michael McKay, Bloomberg's economics correspondent, joining us here in our Bloomberg Interactive Broker studio and List McCormick, chief corresponding Global macro markets, breaking down this story today on Bloomberg News. Check out her reporting there. She joined us some Bloomberg News on the phone.
You're listening to the tape our live program, Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa Play Bloomberg eleven thirty's.
Thrilled to have our next guest here in studio, Lauramartin, Managing Director, Senior Media and Internet Analyst at Needham Folks. There are good animals out there, and then there are rock stars, and Laura Martin is a rock star, covering the media, the internet space, wherever this stuff evolves. Now she's into ad tech and who knows what else, but
Laura Martin joins us here in our Bloomberg Interactive Brookers studio. Hey, Lore, you guys had your eighteenth annual Needum Company Investor Conference this week in New York City. A bunch of CEOs coming, a bunch of institutional investors.
What were some of your takeaways from that look?
I would say the most disturbing takeaway was a panel I ran where two of the very smart people in this panel said the future of advertising has no humans in it. It is one hundred percent generated AI. It is all a B testing mad no mad men, no, no mad men like Madison Avenue closed like it's going to the dogs. And it was going to be one hundred percent like generative AI making the ad, putting the title on it, seeing if you clicked, doing a B testing doing the next one. That no human beings would
be involved in advertising. So I don't know where that leaves Coke and Pepsi and perfume companies. But according to these guys, it's all about the tech and generative AI.
We've heard that everywhere.
Don Draper will be very upset about to hear that.
We were just had some guests in here that have an ETF. It's called AI eq EQ so an ETF on all things AI.
Yeah.
Wild.
What's the timeframe on that though? Is that happening like next year?
So no, they were saying that to him this was the end state of where advertising. The pail was called future of advertising. So he's saying the end state is that we all know quote, we all know this is where the end state is in ten years, humans aren't involved in advertising it's one hundred percent yet out of AI.
So let me frame this after people Lara has been covering media for a long time.
Started you know, I'm talking.
Newspapers, radio, TV, the big entertainment guys like viacommon Disney and now all the Internet, the metas in the world and all that kind of stuff.
The biggest, one of the biggest disruptions.
I think we've seen in that timeframe has been a the Internet, but be streaming. Streaming has just disrupted your industry, the global big media industry.
How do you think this shakes out?
What does it mean for Disney, for Paramount, for Warner Brothers, Discovery, and for Netflix.
So I think one of the things that some people miss on the investment side is that media, when you and I followed it together, Paul was really either local, which is what newspapers are, or then it was over the air broadcast, which was like a city, you know, a d M A, or then cable made it regional. And now what's happened is streaming has made it global.
So you can actually price it about half in the US because you're going to get ten cents for South of and you're going to get eight cents from Germany, and you're going to go to Africa and get three cents, And when you add all that up, it will end up at one hundred and ten percent of a US only or two hundred percent of a local only market.
So media becoming global, but the returns on capital when you go offshore are really low because you have to lose money in a bunch of those countries in the beginning, because we have the biggest AD market. So I think these economics of companies who are only US are overstated because they are going to have to spend money to be global over time, because they have to compete with the big global empires like Netflix and HBO, Max and Disney.
They're all going to be global in the end because they need some of their economics to come from outside the US.
I'm glad you mentioned the Netflix story because isn't that their entire strategy that their most of their growth is coming from abroad, not stateside. The last time you were on our show, you called for an ad of recession, which you're timing on that.
Yeah, So I would say in every case I interviewed twenty CEOs in street, either streaming or they all have advertising. I've sort of an advertising analyst, So what I would say is every single guy is seeing strength somewhere so in their CEOs, so they're sort of hopelessly optimistic always. So some guys are saying, we're seeing more strength in the EU than in the US. Other guys are saying, I'm seeing strengthen autos, which would be great because autos
is like half of where it was pre COVID. I'm seeing strength in retail CpG, consumer product, packaged goods coming back through these retail media networks. Every CEO said he's seeing strengthen something, but if you push him, he says, oh, but by the way travels down or financial services into our tech spending em andy. Everybody says that the film studios not advertising. That's called media and entertainment advertising, and
they are high premium payers. They pay for interactive adue and it's full color takeovers, and so that everybody says that's week. So the question is when all of these categories of advertise come back, because they have eighty percent margins, but it is not yet.
So this week is also in addition to the week of your commerce, the week of upfront. That's when a broadcasting, cable and networks say come to New York. They get all the advertisers on Madison Avenue who still have jobs and say, hey, here are shows for next season. Pony up some money and advertising help us pre prefund our slate for next year. A why do we still have an upfront? And B what was the tone this year?
So I was saying the most important thing this year and it's been a transition, but this year they went all in is they'd say, here's ten pieces of the new content. These eight are for our streaming service, and they don't mention the linear TV network.
Wow.
In the olden days, you'd window, you'd say it's gonna be on linear TV first, or it's going to be on streaming first, and then we're gonna put it on linear TV three weeks later because then you can get
different windows. But no, nobody's doing that. Nope, everybody's saying we're releasing this and some of the some of the content feel absolutely feels prime time broadcast worthy three million dollars an hour, but they're putting it on their streaming platform and they will release it weekly like a normal broadcaster does. It won't be binge viewed, but the money going into this streaming is worthy of over the air trawelvision from pre covid.
Well that you're talking about the streaming story because it brings me to kind of tech and advertising and the mixture there.
But traditional tech like Apple or Tesla, for example.
I think Tesla made headlines this week and saying that Elon Mussing, you know, we're going to dip our toe into advertising, and it turned their stock into into.
A lot of green. What's your take on that?
Like traditional kind of hardware auto companies dipping their toe into advertising, you know.
It is my point of view, advertising is like heroin. It has eighty percent margins, and the minute you have reached, especially like a Tesla, think how desirable that target audience is and they're captive in your cars Like airport advertising, you know, you suddenly have a very narrow tarrogate market that's really valuable and hard to reach because those people pay extra for their streaming services not to have ads. So it is I think advertising is an easy revenue stream.
Wall Street loves multiple revenue streams and it has eighty percent margins. So once you build a direct salesforce or you go programmatic where you don't have to do anything except hire one of these big tech stacks. Then you get all this new money and Wall Street loves it,
and it's actually a really good in my opinion. Maybe it's a little invasive to your customer, but if he's a wealthy customer and you're showing in private islands off Hawaii like that, actually you could argue is value added to him because he didn't know it existed and now he knows where to go on vacation in Christmas Lard.
You've covered, you know, your coverage is the big media companies to tech companies and all that enabling stuff.
What's your top pick right these days?
So we're still of a view that we're in we might still go into recession. So I think it's a little too early to do advertising. So we would be an Apple okay, defensive, no advertising yet to speak of advertising. Revenue stream on the horizon. So I like that is ninety billion dollars of free cash frow, nice and liquid. If I'm wrong, you can get out today. After tomorrow
you won't move the shares. So I would say Apple will be my top pick until it's clear that advertising is not going to go through some kind of hard landing, soft landing, downdraft.
And then it might be some of the more the viacoms of Disney's, those types of things that do have a more advertising.
So good question, Paul. I mean what I would say is I cover a lot of companies that are one hundred percent advertising. So if we're going to have an advertising bounce, an advertising company will double, triple, quadruple. I want to be at one hundred percent ad driven, which sort of begs the question, we're what buyer buys Disney and Paramount and Fox now they're neither a fender, you know, Fisher.
Foul exactly right, all R. Laura Martin, thank you so much for joining us.
Laura Martin is a managing director, senior media and Internet analyst at Need. I'm a real joy to get here in our studio, shoes in town for her conference, a lot of investors, a lot of media company CEO's time well spent.
You're listening to the tape Cat's are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot com, and the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.
If we're talking about homebuilders, let's continue that discussion. Homebuilders are capitalizing on a seemingly unquenchable thirst for new housing as buyers struggle with limited inventories and mortgage rates.
I wondered who wrote that wonderful line.
Norah Melinda, Equity's reporter for Bloomberg News, joins us live in our Bloomberg Interactive Brokers studio. So noorah, there's not a lot of inventory out there, right, So we really if people want to buy houses, they get up buy, they're probably gonna be buying new houses.
I guess right.
I mean, thanks for having me on.
Existing home sales actually used to make up about ninety percent of the housing market, and so that didn't really leave as much space for new homebuilders that I continue to watch. But you know, we're seeing with rising mortgage rates and really a lot of people not wanting to move out of the houses that they already own, there's not much inventory left and so this has really made a complete perfect runway for home builders. They're soaring it's
really a rebound store. You know, homebuilders were down almost as much as forty percent last year, so we saw that last June, and now they're up about trading above about twenty seven percent above their two hundred day moving average. So it's a really stellar thing to look at right now.
Is that perform or mens linked to more homes for people like us to all go out and buy, hopefully.
Someday, Definitely, I hope so.
I mean, that's what I'm hearing from a lot of the sources that I'm speaking to. It seems as though homebuilders are just building rapidly. They're really trying to meet this demand. Of course, we already see a really really strong demand with the fact of the housing crisis. You know, there aren't enough homes for people to move in, and there's really really high demand, and so homebuilders may actually be solving that problem that we are seeing in the housing market right now.
What are homebuilders building?
I Mean, the concern I've heard from a lot of folks is one of the big problems we have in the housing stock in the US is there's not enough entry level housing. You know, the builders are out there building the McMansions, why because that's where the margin is. I understand that, but that's not really meeting market demand. What are they buying these what are they building these days?
Right for the average ones?
You know, maybe we're not looking for those million dollar mansions, but not not yet at this point at least. But you know, we are seeing a lot of companies like maybe Dr Horton offering incentives to get people to move into their homes that they're building. So I know, der Horton had just said at a conference earlier this week that it's buying down rates on about sixty five percent
of its sales, and so things like this. If you're seeing a mortgage rate of maybe six point five percent and Dr Horton or another company like it is willing to bring your mortgage rate down to five point five or maybe five percent even, it's going to make you feel a little bit more inclined to maybe make that purchase.
Do we know, though, which kind of income bracket they're targeting with the home builds in particular, or is it just kind of across the board and then they're offering these incentives to get whoever they can.
To get in.
So what I've been hearing is it tends to be more so across the board. But as you said to your earlier point, there are a lot of you know, maybe Middle America that are looking for homes and may not be able to afford it. So I think that's something that we'll have to look forward to as we continue to iron and look through the earnings.
So it looks like for these you know, homebuilders, I'm looking at like Toll Brothers and DH Horton and think things like that, they're still building because even though the rates are mortgage rates are six seven percent versus you know, like three percent up until just recently, they're still seeing the demand.
They are seeing demand.
Is it just like.
Doing Florida and Texas? I mean that's where everybody's moving, you know, not me. But is that kind of where the demand is or is it more broader?
I mean, I think it's pretty brought across markets.
I mean, obviously in New York City we even have issues with you know, intense housing demand. So we are really seeing it across multiple markets. But as you mentioned, you know, the Florida's and maybe the Texas states are maybe seeing a little bit more there.
Yeah, And I know, Nora that you look more macro entire sectors when it comes to real estate, Can you talk a little bit about why we're seeing the rally in you know, the home builder sector in particular now versus you know, among prior to that as a month forward from them.
I mean, I think all of this conversation in regards you know, to the FED and just the macro environment that we're currently in, my sources are saying that this is just the prime time for home builders. They're seeing, you know, they're taking market share from where maybe a lot of existing home sale companies you know, would have been making up in the market, but now they have this runway with less competition, we're seeing low inventory and they're able to solve that problem.
So this is the perfect timing for them to really soar.
LB one commodity is the generic one that I use for lumber, and it's just been so incredibly volatile, and I can't imagine being a person whose job is to build houses, and that's I got to think that's one of my big raw materials. What do the builders say about just the cost to build these houses, whether it's lumber or other products, in terms of actually building them, what's that doing to their margins.
Yeah, I mean I think that that is a place that a lot lot of people have been turning their attention. I mean, obviously in the past we had all these issues with being able to actually, you know, get these materials, and so now as you're pointing out, you know, looking at lumber and all of these different prices, how is that all pricing in and how much of a cost is that on these companies.
That's something that we'll have to just wait and see.
But they've had some pretty good earnings, right, I mean, Time has reported some pretty good earnings, So as you said, this is kind of the time to be in that to be in that sector, I guess. And knowing you're a reporter, you quote a couple of analysts on the street or pretty.
Bullish, definitely, I mean, most analysts that I've spoken to are very bullish. And as you mentioned there a lot of these past earnings have been positive, but not only that, but also positive forecast to come, which has been you know, kind of having people raise an eyebrow. Of course, we're in this really tough economy right now and in this tough macro environment, but they're still forecasting maybe some more positivity to come and saying that demand will continue.
So to your point, I think.
Maybe a lot of people are looking at this as a space to be Maybe it could be a space that will continue to.
Flourish within this earning season. What did people like most when it came to, you know, earning's calls for home builders?
What the street like most?
Yes, the street was really paying attention to my earlier point, the forecast that in addition to orders beats, that's a really really big metric that we look at in regards to the homebuilders sector, and a lot of these companies were just having orders beats across the board. So that just you know, kind of gives you more of a positive sentiment for the market.
When I think about it.
You know, home being built unders a bunch in my town being built right now. There's just a swarm of people there. You know, they've all got their nail guns and whatnot. But what are the builders saying about getting labor? Because I know, for a while, like everybody else, that was a problem.
Yes, and you know, we've had like multiple conversations and multiple articles and conversations coming out about labor. But I think that is a place that people are really tuned into right now, do we have enough people to act actually get the job done? And it seems that it's varied, but it does seem as though like it still tends to be like more of a positive amount of individuals who are actually able to get, you know, to work and get the job done.
That's what I've been hearing from sources.
I'm looking at Toll Brothers right here.
The A n R function just gives you a sense of analyst rating, analyst recommendation. So for Toll Brothers, which I think is you know, kind of me kind of a one of the belt bell Weathers in the group ten buy ratings, seven holds and two cells, so kind of split, you know people. I guess the analysts are trying to figure out, hey, is this trade played out?
Is more to go? So we'll see how that goes.
They had some good earnings this quarter coming from the builders normal Linda, thanks so much for joining us here. Nor Is, the equities reporter for Bloomberg News. Her report here on home builders sore to new highs on insatiable housing demand.
How about that?
So but you got to think, Maddie, they got you know, I'd like to see I guess the marketplace would like to see some more affordable housing go out there for folks as opposed to just another mcmanson.
You're listening to the tape Cat's are live program Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, the tune in app, Bloomberg dot Com, and the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
All right, Fandeep Singer's senior Analysty covers technology from Bloomberg Intelligence. I have no idea what he does, but he's in our studio, so I'm going to ask him to explain chat GPT. Not to someone who's like a five year old, to someone who's like a fifty nine year old. Okay, explain chat GPT, pretend on fifty nine years old.
Well, and I'll preface it by saying, we did a survey where we wanted to see where is chat GPT kind of resonating the most? And we found out in that survey the early adopters are the gen zs and you know, the sixteen to thirty four year olds. The thirty five plus are still behind when it comes to trying it out and just in terms of their usage. So clearly it's a gen Z phenomenon.
Which you're not even gen Z.
Well I'm not, but I covered the space. Sorry, there you go, so sure, line a line, But I.
Am in the group that's using it every single day.
And I think in our survey was obvious that people prefer it over the traditional search. They find it to be more useful time saver, and they are willing to pay for it, but only pay up to ten dollars, So that was the difference, Like even though the current subscription is twenty dollars, the propensity to pay for it is still low. They want it free, as is expected, and so I think the conclusion from that was ads will still be the way this thing is gonna get monetized.
And Google showed in their io event last week like you can have a follow up reply tab and then they can save the content of the prior search. So we'rely the search page as we know it will evolve, and that is getting more and more obvious with this you know, chat GPT revolution.
Why is Google at a fifty two week high at one hundred and you know, twenty two dollars.
Isn't this bad for Google?
Or is Google saying We're gonna use chat GPT better than everybody else?
So just to make that distinction, chat gipt is a foundational model, a large language model that is trained on rich open source Internet data set as well as any proprietary data set that OpenAI has. Google has its own large language model. It's called Palm two. They had a first iteration and now this is the second version. And think of you know, any Internet company in this space has the potential to develop their own large language model simply because of how rich their business is. Like all
the social media platforms. I mean, I put meta in that same bucket, they have their own foundational large anguage model because of the rich data that they have from their platform. So I think Internet companies in general are at an advantage in this generative AI race simply because they have a lot of their own data. Software companies, on the other hand, Microsoft didn't have a choice but to partner with chat gipt because Microsoft doesn't have its
own data. So how do you develop that foundational large language model.
You need data and the way you get data is.
One through open Internet, but also your own first party data, which is what Google has, Meta has and chatchipt has shown they also have that.
Well, I'm tossing.
I have a million questions I could ask you about this, but I guess, like not to sound kind of like a crypto enthusiast type, but if it the whole point is that it's open source, why would I ever consider paying for it?
You know what I mean? Because the quality of the results matter. So you're going to use chat cipt or anything equivalent only if it's better than traditional search. So the quality of the search really matters here, and based on the quality and the use case, you may be willing to pay for it.
You know, right now it's free and it's doing what I need. You know what I mean, Like, why would we offer it? Why would you start to pay for something?
So chat GPT plus has no restriction on the number of queries you can have in a day. It has some more features around the experience you have as a paid user versus a freemium user. So a casual user is happy to be a freemium user, but if you are, you know, using this for hundreds of queries in a day, and you are a prolific I mean, you really like this tool, then I think you may be willing to pay for it, So.
Maybe it's more of a company play. Then do you see that being the main customer?
I would say it has work related use cases. I mean we are talking about white collar jobs being affected by chat GIPT in certain cases get automated. How do
you drive that productivity? I mean, ultimately, it has to save time, it has to make you productive and that in those cases, again, I am of the belief, you know, ads will still be the predominant way this thing gets monetized, but in a corporate setting, you're not willing to look at ADS while you're using this tool, so you'll probably subscribe to it.
Does Bloomberg Intelligence have a chat GPT primer?
We have our own generative AI forecast, and we actually will have a detailed segment level analysis. It's still not published, so I'm just giving you a teaser there, okay, but we will have our own segmentation for this entire market, which is I think overused at this point of time.
Well, that's interesting because we were talking yesterday about Steve Cohen saying you know AI, it's the big thing, which, yeah, we've been discussing this, but if tech as a sector has sort of peaked, is AI the place to find growth right now?
I mean there is no doubt that this will drive the next leg of growth. Now the question is how do you monetize it? Who gets displaced in terms of you know, the incumbents that are getting affected. But when it comes to the next leg of growth, I mean this is huge simply because everyone realizes.
Now we have this, is this AI or is this chat GPT? Explain the difference or what.
I would say large language models. So chat GPT is one of the large language models that is out there. As I said, Google has their own large language model, Meta has their own large alguage models. And you're going to see more.
And more language models. Okay, yes, because and.
The reason why they're called large language is because of the number of parameters. We're talking about one hundred billion parameters. Think of a regression model, it's got five ten different variables. We're talking about billions of variables. In terms of training an algorithm.
Do we need it right? Do we need to regulate this thing?
And that's where Samuel Altman's testimony comes into limelight. I mean, obviously he was grilled this week around the safety issues. And look, from a large company's standpoint like Google, they would want regulation because this will prevent everyone else from really competing in this space. And the bar is even higher, like to even train a large anguage model, you need ten thousand GPUs. So we're talking about a big upfront investment here in terms of anybody who wants to compete
in this space. Otherwise, you just take what chatchipt offers you, which is a large anguage model they've already trained. You're just a user of that language model and building an application on top of it. Think of it as the app store. You're building apps on an iOS, but iOS is the operating system. Chat Gipt is giving you a platform.
You're building an app on top of it. And so that's the kind of war that I foresee is Google having its own large Anglin model Meta and this is like the operating system of equivalent Android iOS and you know.
So on all right, I just my own survey right now, like the group chat for my four children, I asking them how they use chat GPT, so I like know what to what I hear Okay, No.
Well it's it's a very important question, Paul. And I guess I wonder too what they're using it for, because you're comparing it to search, but I don't use it. I still google things that I just want to search. And then there are other things like writing emails that I use chat GPT for.
So what instruction do you give write an email?
Teach?
It gives me so specific, which is what I really like about it. I can say, write an email to my boss that is professional but also casual that says I'm just making this up. I'd like to request a week off to whatever for this thing, and it'll write it for you. And then you can say back, that was too long, cut it in half, and it'll do it in a second. And I just don't want to have to think about writing the email, so it does.
It for you.
Or you can say, make an itinerary for for a week in Switzerland and it sends you a whole thing. It can write a video script with suggestions, so that strings.
Up, Like I thought, schools write my turn paper on X, X, Y and Z, so the New York City schools and there's news out and I know you guys send it to me. But there's news out today that the New York City had kind of forbidden chat GPT in New York City schools.
They've just rescinded that.
Yeah, because I think the co pilot use case is very interesting. Can it help you learn a concept faster because you have this you know, assistant that is available where you can understand the concept because this thing is an assisting you in the R and D?
Is there a feeling that all right, we're I was gonna use a baseball analogy, but that may not work for you, but I'm gonna go there. We're not even this is using cricket very top yet, the very top of the first inning, right, we're on the on deckshert.
We haven't even started the game yet. That's how really we feel.
We're talking about foundational models here. The apps will be built on top of these foundational models. So, as I said, I think gofeed as an operating system equivalent. Right now, you have that base operating system. The apps will be developed as we go on.
All right, I'll go there.
I'll wait for your primer to come out from Bloomberg Intelligence, because that's how I learned most stuff I don't know, Man Deep Seeing, senior analyst technology for Bloomberg Intelligence, joining us here in a Bloomberg Interactive Brokers studio, making us even more confused, if that's possible.
Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller nineteen seventy three.
And on ball Sweeney I'm on Twitter at pt Sweeney.
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