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Christina Quino sitting in for Scarlet for I'm Paul Sweeney live here on our Bloomberg Interactive Brokers Studio. I always love chatting with Kim Farrest, founder and Chief Bestment Officer, Bok Partner.
We love talking to.
Kim about markets, about technology, AI and maybe I want to run this one by Intel. The news on Intel shares fell after report said that Nvidia halted a test to use Intel's production process to make advanced chips. Kim, you mentioned in the notes that your firm is an investor in Intel. How do you view this news? Is a big news game changer? Don't worry about it kind of thing?
Oh?
I think you know, as a portfolio manager managing other people's mine, you always worry about everything, But on this I'm not terribly worried about it. It's a new process for Intel. They've been trying hard to compete against Taiwan Semi and I think this is a setback for sure, but maybe in video really wasn't going to ever use Intel's processes.
We have to think about that.
And it's good that they tried it against the absolute pinnacle of chips at this point, or at least the pinnacle of chip makers at this point. So I think that the CEO of Intel is someone who actually learns and changes, and I believe that this is probably a good thing ultimately, as they probably gain Intel probably gained a lot of knowledge about what's right and what's wrong with the process.
Yeah, caam, well, very interesting. That seems like really the AI trade at this point a lot of discussions around chips, right, and the diversification of where these companies are going to be getting their chips in Vida no longer perhaps the only player in the game. But yeah, what does that tell you about where we are in the AI trade cycle?
Is it a good thing that we are starting to see more producers stepping up and saying like, hey, we can make these chips too, if you want to take a look at our business.
I do.
Actually, I think I'm a big fan of capitalism, which should be no one not a surprise in anyway. And what the very best thing that capitalism does is create a competitive environment. And even last year at this time, well maybe especially last year at this time, because twenty twenty four was the year of Nvidia, I think everybody thought it was game over. There was no way for
any company to be able to compete with them. And yet here we are looking at a whole slew of not only new competition for the training kind of chips, but there's we're broadening out. We're understanding that AI may not just be asking chat GPT things, but there's other uses for it. And guess what we're going to need other chips. So vendors are lining up to try to figure out how to best serve this market. Again an advertisement for capitalism.
So Kim has the discussion around AI, to what extent has it evolved? If it has it all, it feels like now we've got to ask some different questions, like maybe the return on some investment, like maybe what's it really going to do for productivity? Asking some harder questions, how do you think where do you think we are in that evolution?
I think we're just beginning to scratch our head and it's disappointing to me. I came from software and the reason why I sit before you is because I worked at AI companies that weren't asking the question how much does my solution cost? And what problem am I solving and what's the cost of that problem?
Right?
So, how technology has to work. Sorry to tell people that it has to solve a problem less expensively than the problem itself. That's just it. And I don't think we're asking that the price of training these large language models is incredible, And I'm not sure that investors are really asking the questions that need to be asked, like who's going to pay for this? And what's the return and all of those kind of good things. Will this cause a train wreck? Maybe, but I think it again,
I'm such an optimist. I think it would be a good thing because then would narrow down on how we can use this technology to actually get a benefit from it, not just because it's cool, interesting, or whatever drives people to look at tech.
Yeah, well, game your question of who's going to pay for it? That was definitely the question that Marcus we're asking. A few weeks ago, if you recall when we did get a little bit of that AI bubble worry of permeating the markets. Where do you stand on that? Is that actually a good worry for markets to have at this stage? And who do you think is going to be the winners and losers coming out of that?
Sure?
I do.
I think it's a great question. I think it's the only question an investor, not a technologist, an investor should ask, is you know who benefits and where should I put my money? Yes, it is early days, but I'm looking at companies that are very much married to the large language model. Most of them are private, and you know they're talking in their own book over and over again, and I think that should serve as a warning to investors. So I think the bubble thing still is out there.
But ultimately I strongly believe that AI is productive when targeted correctly, when asking the right questions, and when delivering solutions. But I hate to tell investors this, especially on Christmas, because I am an optimist. It's going to take way longer than anybody thinks, way longer.
Way longer. The good things usually waiting for that. They say as well.
Kim Farres, thank you so much, we appreciate it. Kim far She's a founder and chief investment officer Bok Capital Partners. She's out there in Pittsburgh, one of my favorite towns.
It's a great town, Pittsburgh. Stay with us. More from Bloomberg Intelligence coming up after this.
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Hi, Christina Quino sitting in for Scarlett film Paul Sweeney Live here in our Bloomberg inenrective brokers studio, streaming live on YouTube. Well, a federal judge so the Trump administration can move ahead with a one hundred thousand dollars fee on new h one B visa application, providing setback for US technology companies. To get some more color there, were joined by Eric Larson. He is a US legal reporter for Bloomberg News, joining us live here in a Bloomberg
inactive broker studio. I mean there's like a handful of people in this buildings. Eric's one of them.
Eric, what's what?
Just give us the background of this one hundred thousand dollars each would be visa thing.
Sure, so the president put this fee in place, sort of surprised everyone with it. One of his many rules that he put in place, sort of slowing immigration, targeting immigration, saying that individuals who were using these particular visas were taking jobs from skilled American workers who could do those jobs but get paid more. Essentially, so they accuse these companies, these industries of basically profiting.
From importing cheaper labor.
And there are several lawsuits were filed and we've got our first ruling.
Yeah, Well, given the popularity of these visas, particularly in a tech sector, Eric recom for audience, kind of what's been the response from these companies involved and how do they envision moving forward with the labor supply.
Well, I mean, it remains to be seen what will actually happen with this one hundred thousand dollars.
This is one ruling.
There's a couple of other big lawsuits out there where there haven't been rulings yet. So notably, none of those lawsuits are filed by the big corporations who use these visas. Maybe perhaps they're waiting it out to see what happens with the lawsuits, but at any rate. There is another big lawsuit filed by a Democratic led states, led by California's attorney general. There's another big lawsuit filed by unions and a group of nurses, and we haven't gotten any
rulings on those yet. So theoretically we could get a ruling that goes the other way. This could be one of the many cases that goes up to the Supreme Court eventually.
What is the reality or what is the data show about the need for H one B VISA workers. Is there a lack of high tech workers coming out of the US, Is there in fact a need for these people?
Well, it depends who you ask. Each of these lawsuits gave a slightly different perspective. The Chamber of Commerce lawsuit, which is the one we just had the ruling on representing the ideas of businesses. The States are saying that this fee harms the states in the capacity of hospitals needing H one V VISA employees, teacher like universities, things like that. And they're saying that pretty much every part of American society somehow uses these visas.
So it depends on who you ask.
The government says you can find these skilled workers here in the US, you're just going to have to pay them more. But that is not at all how these plans see it. They say that there's just a huge shortage, especially when it comes to hospitals, nurses, and these tech companies say that this creates innovation and having more diverse views from backgrounds coming in from around the world.
That are people who are are.
Deeply you know, steeped in this in the tech sectors. It's impossible to really say, you know, both sides are pushing pretty hard here.
Do we have a sense of what's been going on in the ground in terms of companies and workers involved in in the process currently of trying to obtain an age one B. I imagine there's a lot of confusion and maybe delays in the process.
Now, yes, I would think so.
I've spoken immigration lawyers who say that this is a huge problem for them and their clients and expectations of people who thought they might be able to use this visa.
But for now, I mean, this ruling.
Makes it pretty clear that this might be the law of the land for a while. This was an Obama appointed judge who said that the president has this broad authority that Congress gave him. In the Immigration and Nationality Act gave the president this type of authority when the president believes that someone is or a group of people are a threat to the economy, that that's in the
Immigration and Nationality Act. So this Democratic appointed judge who's ruled against Trump on other things is saying he has this authority. And that's kind of not saying that every other judge will rule the same way in these other cases. But that is how these individuals are gonna have to look at it, these companies in terms of planning for the future and as well as workers.
Yeah, I don't see this just personally. I don't see this as a big issue for the big tech companies.
They can afford it. They can whine, they can afford it. But you mentioned healthcare, and I'm thinking I keep hearing and reading about nursing shortages and things like that, and I would think they try to fill some of the shortages with non US workers via the H one B visa situation. That could be a problem if you're a hospital and now you're saying it where I'm a you know, I got to pay more to get my nurses in from wherever I get them.
That would be a child problem.
I would think absolutely, And that was a highlight of the case filed by the nineteen or twenty Democratic attorneys general, most of them in the country said that, you know, this is a particular problem, and that's how they the states in one of the ways they said they have
standing to sue. You know that they have a right to sue, is saying that the threat to the healthcare industry in particular makes it a public issue that the states have responsibility to sue over essentially saying that they need to keep the flow of these skilled healthcare workers coming in.
Is that also for students as well? How do I get that student visas are different?
I guess yeah, that's a different different because that's.
Also been a challenge for universities all the uncertainty about immigration. A lot of their international applicants are down significant because those people are unsure about what the policy is going to be in the US, and that's hurting the universities who depend upon them to some degree.
Eric, thanks so much, appreciate it.
Eric Larson, us legal reporter for Bloomberg News, joining us in our Bloomberg Interactive Brokers Studio Extra Star today. Eric for coming in on Christmas Eve.
Stay with us. More from Bloomberg Intelligence coming up after this.
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Chicken with Smasha. She's a vice president Research and Insights at Censor Tower. Sema, thanks so much for joining us here. What are you seeing out there in I mean it's Christmas season here? What are you seeing out there in the marketplace?
I mean I would say, like we're talking about retail, I will say that, you know, our figures are slower than they were in the prior years in terms of monthly active users and in terms of traffic we're seeing and some of the mobile apps has definitely been a little bit slower. And we're also seeing a sort of
a skew to value. So if you think of like the team Moves of the world as have sort of seen a resurgence, but also life Polesale and other value players, that's what we're sort of seeing in their retail landscape. But I think from a broader step back if we just look across categories in the US, I would say that there's still this pressure on discretionary sort of expenditure. So based on how we look at the mobile app universe, if you look at like dating app, subscriber revenue and
interaction is down, same with streaming as a whole. So that's kind of what we're seeing at like a fifty thousand fut level.
I mean, net how is this season going to be in terms of the Christmas season?
And that just a holiday season.
I mean there's lots of reports out there that the consumers stretched and all that type of stuff.
Yeah, and our data sort of confirms that, both our mobile and our web data. And the other thing that we saw is when we looked at the advertising spend in prior years versus this year, we can already see that in this fourth quarter there's been a slow down in overall ad spend, which typically means that presumably the advertisers think that there'll be a pullback and spending. And we've sort of seen that slow down across the metrics that we follow and that we sort of used to
infer how people are spending. What our metric don't take into account that would be inflation and anything to do specifically with price. So I think when we get the retail sales numbers and other sort of comp numbers, we should be cognizant to see how much of that was price versus traffic, because from our end, the traffic part seems to definitely be weaker.
All right, seem I was throwing for a loop here because I know you in the context of talking about retail. But yes, so now, okay, so now you've brought your remit here and you can talk about I guess some of these.
Media deals out there.
I love to get your thoughts on kind of what's happening in Warner Brothers Discovery.
Yes, absolutely so. As everybody knows, there's two competing bids, Netflix versus Paramount Skydance, and from our perspective, the results of each merger, if they were passed, are very different, and what Warner Brothers brings to each group is very different. Right. Netflix is the leader by far, oh nearly fifty percent of all monthly active users globally are on Netflix. For Paramount, on the other hand, it's only four percent, with HBO
around ten percent. So if Netflix acquires Warner Brothers it becomes even larger and more likely that people will not be able to get caught up with them. For paramount, the addition of HBO is huge. It jumps them up to the same level of active user penetration as Disney plus an Amazon Prime. It gives them access to tent pole content, you know, like The Game of Thrones, White Lotus. It kind of puts them into the higher sphere of streamers in terms of content. For Netflix, it gives them
the opportunity to maybe jumpstart their subscriber growth. Right, it's been pretty stagnant to down because they're so large, but HBO is really the fastest growing international streamer that we follow, So this would be an opportunity for Netflix to pick up those users potentially, but also to leverage its content creation. You know, Bohemoth that they can make local language content
and apply that to HBO's content. So I think there's a lot of opportunity, but it just to really depends on who ends up getting the deal or not what it does for each player.
Yeah, we'll see that. It sounds like we're nowhere close to finding who end up getting the deal because you know, Warner Brothers leadership very clear they want to push their investors to go with Netflix here, but then Larry Ellison waiting into this battle in personally guaranteeing some of that bid from Paramount. So where do you think these firms stand in terms of who's closer to be able to finally clinch the deal at the end of the day.
Well, I think just generally because the Warner Brothers board is on board with Netflix, that definitely makes that seem like a more likely deal. However, and I think that if Paramount wants to get the deal, they have to continue to increase their bid. I know that they recently offered the same breakup fee as Netflix, but I think there might be some other fees that they would have to increase the value of that bid in order to
make it worth their while, you know so? And I think it also depends on the value of discovery, which I have heard valuations from one dollar to almost four dollars per share for that portion of the business for the linear TV. So I think it really depends on how people view that because the Netflix bid does not include that.
What do you think the regulators are going to say about this deal going forward?
Yeah?
So, I mean to be fair, Look, Netflix is so large. If they acquired Warner Brothers and they had HBO, they would be by far the largest. But in the grand scheme of life, like HBO is only ten percent of MAUS, Netflix is already almost fifty percent. So it does make it a little bit more difficult, I think, for the
average streamer to try to catch up to them. But I don't think it's completely uncompetitive for I mean, but I think that it'll be viewed potentially as uncompetitive just because if other streamers also start consolidating, there's or fewer options for consumers. And we're already seeing pricing issues for subscribe for subscriptions both ad supported and non ad supported, So I think that will be a concern, you know,
for regulatory purposes. For Netflix pre paramount, I don't really see an, uh, you know, a real regulatory issue given that its size is very small, and even with HBO, it would just be on par with Disney Plus and Amazon Prime, so it seems like it would have less of an impact from a regulatory perspective.
And we'll see that.
You make an interesting point about kind of how this could potentially change the streamer landscape, right and especially when it comes to consolidation. Where do you see that going. Which other streamers do you think might be prime for a similar deal like this?
Well, you already saw Disney Plus sort of buy out the rest of Hulu, So that is one form of consolidation, right, they're all own together. I'm not sure if the other streamers are are part of some of these larger companies, so they are less likely to be acquired. But I do think that if we're thinking from a competitive standpoint, if you really want to understand this, you have to realize that the streamers are not just competing with themselves.
They're basically competing with anything else that takes time. And so we view that as like short form video and social media. So if you broaden the landscape to include those, neither deal is really anti competitive, right because users have so many options on the ways to get content and the way that they view content. And I think so short form video and streaming, social storry, social media are very growing, and you know, competitors that the streamers need
to look for. So I so on the consolidation question, I don't think that's necessarily going to be a roll up of the industry. But and I think from the anti competitive spart portion. We should really look at the broader space of how consumers spend their time.
Yeah.
Well, speaking of the broader space, then what's all look for twenty twenty six? How do you think, Yeah, the media space is going to shape up. Are there kind of any underestimated risks or surprises that perhaps investors aren't necessarily paying attention to.
Yeah.
I think that one thing that we've noticed has been sort of an acceleration of what we called the fast the free ad supporter streamers. Think of the two B's of the world that have increased their live sports content, which is really great for grabbing subscribers.
They're free.
Everybody knows that they come with ads. I don't think there's any confusion as to the subscription that they have or what they're getting, And I think that probably resonates with a lot of the younger consumers like gen Z, where finances might be a little bit tighter and you really can't have all these subscriptions. So with these free ad supported players improving their content and their live sports, I think that's something to look for as we go into twenty twenty six.
They seem if Paramount doesn't get Warner Brothers. What do they do then, because boy, they're left kind of holding their back here.
Yeah.
I mean, like from all aspects of our data, they are very far one of the smallest. They only have four percent of advertising dollars in the US compared to the other streamers four percent of active users. I think that, you know, it's going to be very hard for them because people have so many subscriptions already it's hard to
add another one. So unless they really bump up their content and have you know, a show that's in the zeitgeist like Stranger Things or White Lotus, it's going to be very difficult for them to sort of move out of their positioning regardless of whether or not the Netflix deal goes through.
Sema, thanks so much for joining us. I appreciate chatting with you, Sima Shaw. She's vice president Research and Insights at Sensor Towers.
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YouTube Christina Kuino sitting in for Scarlett Foo. I'm Paul Sweeney live here in our Bloomberg Interactive Brokers studios. Let's stay, let's focus on commercial real estate these days. I'm going to call it better than stabilized. It feels like it's kind of back and for a lot of sectors and a lot of parts of the country here. Now we've got interest rates coming down, should be another support being
for our commercial real estate. But Liz Hard, she's the pro president of leasing for North America at Newmark based in San Francisco.
I have no idea where she is now. I'm not sure I want to know.
Liz characterized kind of you would right now, how's a commercial real estate market in this country?
Well, I think you nailed it. Twenty twenty five was really the pivot year. It was the year that we started to have positive absorption across the country halfway through the year, and we're heading into twenty twenty six on quite the optimistic note. Trophy performing exceptionally well in New York City where you guys are today, four point six percent availability at the top of the market, demand double that right now and with no supply expected until the early twenty thirties.
Yeah, well, you know, the Trophy A space in Manhattan especially very much thriving here, as you mentioned, Liz, do you think that means that rent will continue to stay elevated while even if overall they can see.
Is also still elevated.
Well, certainly in that part of the trophy market. We would expect it to be elevated in New York City and across the markets. But as you're kind of referencing, rents aren't going to be going up across every single sector at the Trophy definitely, and in the Class A market where we see that we're doing, you know, one third of the product inventory is doing half of the leasing. We'd expect rents to increase there, but it's not going
to happen across every single part of the category. In the lower end, we're still struggling.
How about retail here, how's that looking these days?
Retail's looking pretty strong again. It's a story of outperformance at the top of the market. But what's looking like it's going to be very interesting in the beginning of the year, particularly for those New Year's resolutions. Wellness whileness is really expected to be a standout in twenty twenty six.
Yeah, well, I'm definitely seeing a lot of what like yoga studios, pilate studios, climbing James popping up in the neighborhood.
So very much about on the industrial side there, we've got this reshoring near shuring, near shoring mandate. Is that make industrial a good place to be?
It's showing up in the data. That's what's showing up well. Is the new construction so certainly doing well. And then also intermodial cities, So think of areas like Dallas and Phoenix very close to Mexico. They're showing to be very strong performers and expected to do so in twenty six and beyond.
Yeah, what do you think is well moving to kind of like the less optimistic part of commercial real estate? Liza, do you think there are kind of sectors that will be challenged heading into next year?
Well, I think when you look at the vacancy that's been on the market for a long time, there's parts that are just not really moving, particularly in retail. So for space that's been on the market for greater than you know, twenty four forty eight months, it's time to reinvent and I think if your space has been on the market for you know, a couple of years, you really have to look at repositioning it and reconsidering it. You know, if it's not moving, it's probably for a reason.
Demand is moving when there is space that matches it.
So tell us about San Francisco. I know you're based in San Francisco. Give us kind of where we are in San Francisco. No city city was in great, great, great shape before the pandemic, and then maybe no major uscit got hurt more during the pandemic than San Francisco. But there's some real signs that it's been coming back. Give us a kind of an overview.
Oh.
Absolutely, I mean the demand is back at pre pandemic levels, mostly driven by the technology industry. The technology industry has been an outperformer across the country, but certainly led by the AI companies in San Francisco. You have Open Ai Andthropic being two standouts there, but many others as well who've leased well in excess of one hundred thousand square feet, you know, several in excess of five hundred thousand square feet,
leading that demand curve rents increasing. So we'd expect San francis going to be a strong performer than twenty six and twenty seven as well.
Yeah, well you mentioned a pre pandemic situation, Liz, and it's interesting because we'd still have about half of pre pandemic office leases rolling. So do you think twenty twenty six is going to be more about growth or are we kind of hitting this right size sort of reality now after we saw a few years of struggle in that space.
Well, at the end of twenty five through twenty seven is one about half of those pre pandemic leases are set to expire. So we're tracking over a billion and a half square a billion and a half square feet of leases, and what we're seeing in the data is that seventy two percent of those tenants are looking for the same or greater amount of space. So what that shows us is the contraction is mostly behind us, and it looks like we're headed into a stabilization and growth cycle.
So how about just kind of out in Suburbia, Like you drive around Suburbia, USA and any offs park, I don't see a lot of cars. I'm talk to us about that market because it just feels like that's got a lot of vacancy there give us a suburban kind of commercial.
Well, it's hard to say across every single market because it does depend on which suburban market that you're talking about. But certainly, you know the suburban markets outside of San Francisco, the ones outside of Dallas there are some pretty strong performers. So it depends on where that demand is and where that job growth is, and if it's proximate to an area that has it, then you know those those markets are doing well as well.
Yeah, what's your up and cooming city for commercial in twenty twenty six?
Liz, Well, I think the up and coming, even though it's already there, is still going to be San Francisco because that's set to be the outperformer in twenty six.
Is Dallas and Texas? Is that kind of peaked? Do you think?
I don't think it's peaked yet. I think Dallas and Houston still have quite a bit of way to go.
All right, Liz, thanks very much, appreciate it. Liz Hart, President of Leasing for North America New Mark.
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