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Through Department of Justice has dropped its investigation into JPL and the Federal Reserve regarding its building cost overrun.
Let's bring in Michael.
McKee, our chief International Economics and Policy correspondent, Mike, this is something that should smooth the path for Kevin Walsh, President Trump's nominee for the Federal Reserve chair to become FED chair, doesn't it.
It smooths the path.
But whether the path gets taken or not, we don't know yet, because we don't know whether the agreement to have the Inspector General continue a probe to the buildings, and we don't know whether that includes Powell, which Piro had included. Well, we don't know whether that's enough for Tom Tillis to say, okay, let's have a vote.
He has not commented.
And everybody's madly watching his Twitter feed and et cetera to see what he thinks that would be step one, and then step two is getting the nomination to a vote in committee and getting it out to the floor.
There isn't a lot of legislative days left, but they can make things happen if they want to. So it is odds are a little better now.
Yep.
Shall we say we're.
Talking in the studio to Elliott Stein. He's a litigation analyst for Bloomberg Intelligence, he's a lawyer. He said, if you were advising Chairman j Powell, he would say, you need to get an immunity your agreement. Yeah, I mean, that's well, that's a big move.
That's been my thought all along because Inspector General's reports and they were talking about also the Banking Committee maybe doing an investigational congressional investigations. Both of those can lead
to criminal referrals to the Justice Department. So the question is a obviously, they could find that Jay Powell had his hand in the cookie jar, which I very very much doubt, but there could be just some pretext in the IG's report that Janine Piro would seize on again once j once Kevin Warsh is in as chair, and then go after Powell because Trump wants revenge. So I think that it's not going to satisfy the FED chair unless he has some kind of immunity agreement.
Mike Dumb question, how does this change the FMC meeting? The deliberations next week, They begin on Tuesday, and they come out with their decision Wednesday two pm. You will be of course announcing it for us here on Bloomberg Television and Bloomberg Radio, and then J Powell takes the lectern at two thirty pm to hold his news conference.
I don't think it changes much at all.
It's not going to be a factor in the decision making in terms of interest rates, in terms of the there is no new economic outlook or dot plot at this meeting, so it was going to be pretty much a quiet meeting, and that leaves the vacuum to be filled by questions about and to J Powell, which I think is what we still get.
But it doesn't change the way.
The markets are going to react to this because it's not going to really involve interest rate policy. It'll start to as we move forward, once Kevin Warsh gets finally confirmed, then we'll maybe see some reaction to what people think he might do.
But in this press conference, next Wednesday, which you'll be attending in Washington.
Don't you think mister powellill have to have.
A definitive statement one way or the other, as opposed to kind of we'll see how it develops.
I'm not sure he has to. He's getting close to the time.
When he's not chaired anymore, and that would be in theory when you would make a resignation announcement.
That's mid May or end of May May fifteenth, OK. And so maybe he says something.
But again, as we were talking about the idea of a immunity grant, he may be waiting for something like that.
It's just not at all clear.
He also may want to stay on because he wants to see how things develop.
But that's not the worm, right.
That doesn't usually happen.
It's not the way it's been done in the past. There's only been one FED chair who stayed on as a governor, and that was in the late nineteen forties, early nineteen fifties, and so that's not likely to happen again. I would think that Jay Powell would end up leaving, but he could end up staying for a couple of months.
And Stewart Paul from Bloomerick Economics are saying, you know, his hands are kind of tied me Kevin Wah. She can't go out there and start just slashing short term rates because that's going to really stoke inflation and you'd see rates go up on the back end of the curve and all that. I mean, he's not much he can really do, Kenny.
No, And I think it's going to take a while for people really to internalize that because the markets are all hoping so much for rate cuts, but when you look at what's happening with the war, with the oil prices, with the economy in general, the fact that we've seen inflation rising, he can't come in the door and start
cutting rates. So it'll take a while before anybody's going to be able to point to the Fed and say, well, that was Kevin Warsh pushing them to do that, because they're not going to do that right away, and there won't be any kind of decision about other reforms immediately. But he could work on things like communications. He doesn't like the dot plot. Maybe they get rid of that. Those things might even come before any rate stay with us.
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You want to talk to tech, you talk to Dan I's globalhead of Technology Research at web Bush Securities. Dan, I'm guessing the conversations you're having with your clients over the last several weeks are a lot different than what they were kind of late last year as it relates to tech. How do you frame it out for us?
Look, Paul, I think right now it's really about okay, cap backs, but where's the monetization? Are you starting to see it? Is it starting to actually spread out beyond just big tech? And I think you're starting to see that obviously with Intel, Cisco and others look at it. And obviously it's been a huge debate right relatively anthropic
software goes trade. We saw what happened this week in terms of Service Now and others, So I think I would call it a huge debat, and that's why it all leads to next week really being like huge pieces to the puzzle. Of the tech trade.
What is the market sentiment like right now when it comes to CAPEX, Because for a while, if companies reported ended up saying that CAPEX would be more than they had forecast, it was seen as okay, and then it was seen as negative. How are investors feeling right now?
Yeah, it sort of. That's been a hot and cold situation right relative to the cap backs. I think now there's almost a consensus view where it's like, Okay, cap BAX is going to be reiterated by big tech. No big tech company is going to go down cappacs go into next week. If they did, stock would be down because that would ultimately be a negative in this arms race. I think the big question is going to be with the hyper scale or especifically Microsoft, Google, Amazon. Do you
see accelerations beats when it comes to cloud growth? That's important in terms of capacity. What it really means is the cap BAX is now starting to bear fruit. The miztions happening. You're seeing it on the software on the hyper scale outside and look, that's that's the big piece, that's really the de beat. Do you start to seeing monization? I think we start to see it next week and I think med is another one. We'll see it on the advertising side.
Dan, I know you initiated coverage of Oracle. Talk to us about that company. How you see it participating in this in this tech stack here going forward?
Yeah, and Paul I covered it for many years. And the reason I like re initiate on and here just because I believe the street is way miscalculating this name. I mean, look, I get the worries about the debt and what they're taking on given to open AI and what they're going for in terms of the six seven hundred billion that they're going after the fifty billion a debt. I think Oracle is going to be a tremendously bigger company the next two three, four years and is today.
I think investments are way discounting their ability to monetize what's going to be this backlog. And really, you know, more and more companies move to the AI revolution with the Oracle and that's a whole colt. I mean two twenty values price target, but this stock ultimately that could double as they monetize AI over the coming years and think way way over sold.
I mean, the thing with Oracle is that it needs to borrow so much money that it's got to tap the public markets and the private markets kind of everywhere in order to be able to fund this build out. And we've heard from Moody's warning that private credit funds with a lot of exposure to software and tech face a lot of refinancing risks because there's a bunch of
debt that matures starting in twenty twenty eight. How do you think about that in terms of what that means for these big tech companies needs to borrow.
Yeah, I think it's a great point. Obviously a huge debate. When you get things like Toma, Bravo Medallion, some other thing, you can paint them all with the same brush. Right when you look at Oracle, you're talking about a company that the amount of debt that don't take on is still pretty small relative to their cash flow generation and the overall what I believe structured the business. I think they'll be able to raise and they've already sort of
laid out to forty five to fifty billion. How they're going to do that now? Is it ideal? Because companies obviously free cast flow. You don't want to see software companies take on debt, But Scott. My view is to take on fifty billion of debt to go after seven eight hundred billion, that that, to me is a bet that I want to see them take.
Hey, Dan, let's switch gears to Tesla. They made some news just yesterday kind of talking about capex and they're boosting their CAPEX to twenty five billion dollars for AI and for their robot business. Put that in context for us, how do you think that? Is that a good move for this company?
I think it's exactly what they need to do. I mean, we've always talked about a lot. It's like the future is about autonomous robotics optimal. I mean, this is a company from a physical aid perspective. I viewed Nvidia and Tesla to best physical AI plays in the market. I want to see them do this step by step, build it, because that's really the next five ten years. That's what Tesla. Tesla is an AI company going forward. This is not an auto company.
Yeah, that's that's been made very clear. I mean, certainly Elon Musk has been pushing that narrative for a long time.
Now.
I'm curious, and this is a might be a really basic question, but how does the warrant iron and the uncertainty there affect these big tech companies as they report. I mean, do we expect any kind of mention of the uncertainty, the fog of war affecting their decision making their planning in any way.
I mean, like Service now hit it a bit writ in terms of the Middle East deals. Look, I think when you think in terms of a lot of the buildouts outside the US, some of the big data center, big AI buildouts are in UAE, Saudi. But I don't really think that that's something that's going to be a huge thing on the conference call. I think that's much more year and a half from now, two years from now. Now, I think the big question is supply helium, especially through
the street. We were just an easier for two weeks. I continue to think unless this stale me last past Memorial Day into June July. Like for now, I think it's pretty contained. But look, I think I think investors want to understand what the demand environment looks like, and these companies they're not slowing things down in any way right because of the geoput.
Stay with us.
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We often talked about the restaurant industry because we think it's a really good way to get a sense of how the consumer is faring out there. Because there's so many different strata within the or so many tiers within the restaurant industry, gives you a good view of the consumer. One of the key cost issues for the restaurant industry is labor. It's usually can I get enough labor at the right price. So we want to delve into that
a little bit. Chad Moutraye, chief economists for the National Restaurant Association, Chad talk to us about the labor component of the restaurant industry in this country. We've got labor participation pretty low levels, I think the lowest in the last four or five years. We've got immigration reform, which is choked off a source of labor here. How's that impacting the restaurant industry.
Well, the good news is that only twenty two percent of restaurants told US last year that they were understaff, so that was the lowest we've seen since the pandemic. Yet you still continue to see, you know, restaurants struggling with managers, chefs, really highly skilled workers. You've seen even stories about dishwashers being a challenge. I think the immigration story certainly is also very challenging for a lot of restaurants in terms of their ability to retain workers, to
get workers to show up right. Certainly, that affects sales as well. In general, I think it's easier to hire today than it was, say two or three years ago, but it's still a challenge. There's a lot of turnover in the sector, and the ability to fill those jobs can be pretty challenging.
And I imagine the ability to fill those jobs in certain markets is harder than in other markets as well. How does that change the landscape of the restaurant industry in this country?
Well, I think, you know, certainly, I think restaurants have had to look at ways that they can fill those jobs quicker.
Right.
So technology is certainly one of those enablers that really gets you to speed up that hiring process. The last thing you want if you're a restaurant. Keep in mind we're in the hospitalality business is to be understaffed, that can affect sales, that could affect overall employee morale. And so we've seen, through a lot of investments in technology, the ability to speed that up from weeks to days.
So I think we've seen a lot of restaurants certainly adopt that overall model, maybe doing some multi training of their staff so they can perform other roles. But as we said earlier, well, overall wage growth is up at least thirty five percent since the pandemic, and when I talk to operators, labor costs even more than food costs, are really one of the bigger challenges that they're facing right now.
Well, usually for a lot of people, including myself, the restaurant industry is kind of an entry level into the workforce. Is that how those trends changing? If at all, that's still very true, Paul. You know, the reality is half of all Americans got their first job in a restaurant, including me, and if you include everyone who's had any experience in a restaurant, that's two thirds of all Americans, right, And so we are often that training ground for people,
even if you don't stay in the restaurant sector. You're that training ground to learn some of those key skills of how you work with people, how you continue to
get things done and work with under pressure. And I think one of the challenges is that given where the participation rate is now, you're seeing a lot of young men, a lot of younger folks who are not getting some of those early skills before they go out of the workforce that they would have gotten in a restaurant sector, a restaurant setting had they taken some of those jobs in their team years.
Although certain policies might make the jobs more attractive now to people, including the no tax on tips right. So I'm wondering how that is showing up in hiring for restaurants. Is that something that has marked a sea change.
Well, when I talk to operators, many of them are saying that that is a huge selling point, the fact that you know the first twenty five thousand dollars of your tips are not taxed, right. You also have no tax on overtime, and both of those those kind of working in tandem, I think can help that overall recruitment
and retention story. Again, not everyone in the restaurant is getting tips, but you know, to the extent that folks are being those tips are being shared, I think it certainly can be a huge recruitment tool for getting some of those workers in the door.
So chat on the policy front, are there other policies that would be helpful to the restaurant industry here, particularly on the labor front.
Well, I think one of the things that we need to keep in mind is that overall restaurant the restaurant business is very challenging. We know that the typical profit margin for a restaurant is just two point eight percent. That's for full time for a full service restaurant. That's well below where it would have been before the pandemic.
We've seen those overall profits be continued to be squeezed, and I think one of the stats that came out in our State of the Industry report in February that really was the most telling was that forty two percent
of restaurants were not profitable last year. Right, So profitability is a real challenge, and I think it's incumbent, I think, really on policy makers to recognize just how difficult the math is for restaurants that try not to add additional burdens to them in terms of regulatory burdens, et cetera. And I think that's really I think one of the more eye opening numbers that I look at for a
limited service restaurant, the typical profit margin is four percent. Again, that would have been six percent before the pandemic, and so that profit squeeze really really hits home the fact that the math is just so challenging right now for restaurant operators, and yet we still have people getting into this business right so there's certainly I think a desire and a churn. I think that is helpful and vibrant for the sector, but it is challenging for many.
Operators that struggle to achieve profitability. How does that change who actually owns and operates restaurants? Do we then have more big companies owning restaurants and operating restaurants rather than individuals or mom and pops.
Well, I think you see the diversity there. I mean, the reality is, I mean, yes, we talk a lot about closures, but there's a lot of flks getting into this business too. And I think independent operators when you know those mom and pop restaurants down the street, I think there's certainly a desire to get out there to
cater to some of those new tastes. We are in the hospitality business, and I think making sure that that restaurants really are stressing some of those basics in terms of delivering value, delivering on that overall experience, I think there's certainly a lot of new opportunities to do that.
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